27922 Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules 

to the United States until APHIS and the 

NPPO of Ecuador conduct an 

investigation and appropriate remedial 

actions have been implemented. 

(3) Fallen avocado fruit must be 

removed from the production site at 

least once every 7 days, starting 2 

months before harvest and continuing 

through the end of the harvest, and 

fallen fruit may not be included in field 

containers of fruit to be packed for 

export. 

(4) At each non-Hass avocado 

production site, no other host of A. 

fraterculus, A. serpentina, A. striata, or 

C. capitata can be grown within 100 

meters of the edge of the place of 

production. 

(5) At each non-Hass avocado 

production site, the NPPO of Ecuador 

must conduct a fruit fly trapping 

program beginning at least 2 months 

before the beginning of harvest and 

continuing for the duration of the 

harvest period for the detection of A. 

fraterculus, A. serpentina, A. striata, 

and C. capitata in accordance with the 

operational workplan. 

(6) The NPPO of Ecuador must 

maintain records of fruit fly detections 

for each trap in a non-Hass avocado 

production site and update the records 

each time the traps are checked. The 

trapping records must be maintained for 

at least 1 year and provided for APHIS’ 

review, if requested. 

(7) If the number of flies per trap per 

day exceeds levels specified in the 

operational workplan for more than 2 

consecutive weeks, the place of 

production will be prohibited from 

exporting avocados to the continental 

United States until APHIS and the 

NPPO of Ecuador jointly agree that the 

risk has been mitigated. 

(8) All avocados must be placed in 

field cartons or containers that are 

marked to identify the production site 

from which the consignment of fruit 

originated. The fruit must either be 

moved to the packinghouse within 3 

hours of harvest or protected from fruit 

fly infestation until moved. 

(d)(1) Packinghouse requirements. 

Avocados must be packed for export to 

the continental United States in pestexclusionary packinghouses that are 

approved by and registered with the 

NPPO of Ecuador in accordance with 

the requirements of the operational 

workplan. 

(2) The avocados must be packed 

within 24 hours of harvest in a pestexclusionary packinghouse in 

accordance with the requirements of the 

operational workplan. The avocados 

must be safeguarded by an insect-proof 

mesh screen or plastic tarpaulin while 

in transit to the packinghouse and while 

awaiting packing. The avocados must be 

packed in insect-proof cartons or 

containers, or covered with insect-proof 

mesh or plastic tarpaulin, for transit into 

the continental United States. These 

safeguards must remain intact until 

arrival at the port of entry into the 

continental United States or the 

consignment will be denied entry into 

the continental United States. 

(3) All openings to the outside of the 

packinghouse must be covered by 

screening with openings of not more 

than 1.6 mm or by some other barrier 

that prevents pests from entering. The 

packinghouse must have double doors 

at the entrance to the facility and at the 

interior entrance to the area where the 

avocados are packed. 

(4) During the time the packinghouse 

is in use for exporting avocados to the 

continental United States, the 

packinghouse may only accept avocados 

from registered approved production 

sites and the fruit must be segregated 

from fruit intended for other markets. 

(5) The identity and origin of the fruit 

must be maintained from the 

packinghouse through export of 

consignments to the United States. 

(e) Treatment. If the non-Hass variety 

avocados are ineligible for export under 

the systems approach due to the place 

of production exceeding the trapping 

threshold for fruit flies as established in 

the operational workplan, they may still 

be exported, but only after undergoing 

an APHIS approved treatment in 

accordance with part 305 of this 

chapter. 

(f) Phytosanitary inspection. (1) 

Inspectors from the NPPO of Ecuador 

must inspect a biometric sample of the 

fruit from each avocado consignment 

jointly agreed upon by APHIS and the 

NPPO of Ecuador, following postharvest processing. The inspectors must 

visually inspect for quarantine pests 

listed in the operational workplan 

required by paragraph (a) of this section 

and must cut fruit if signs of quarantine 

pests that are internal feeders are 

observed. If quarantine pests are 

detected in this inspection, the 

consignment will be prohibited entry 

into the United States unless it is treated 

with an APHIS-approved quarantine 

treatment in accordance with part 305 of 

this chapter. 

(2) Fruit presented for inspection at a 

U.S. port of entry must be identified in 

the shipping documents accompanying 

each consignment of fruit that specify 

the place of production in which the 

fruit was produced and the 

packinghouse in which the fruit was 

processed. This identification must be 

maintained until the fruit is released for 

entry into the continental United States. 

(g) Phytosanitary certificate. Each 

consignment of avocado fruit must be 

accompanied by a phytosanitary 

certificate of inspection issued by the 

NPPO of Ecuador that states that the 

fruit in the consignment was produced 

in accordance with the requirements of 

§ 319.56–84. 

Done in Washington, DC, this 11th day of 

June 2018. 

Kevin Shea, 

Administrator, Animal and Plant Health 

Inspection Service. 

[FR Doc. 2018–12827 Filed 6–14–18; 8:45 am] 

BILLING CODE 3410–34–P 

FARM CREDIT ADMINISTRATION 

12 CFR Part 612 

RIN 3052–AC44 

Standards of Conduct and Referral of 

Known or Suspected Criminal 

Violations; Standards of Conduct 

AGENCY: Farm Credit Administration. 

ACTION: Proposed rule. 

SUMMARY: The Farm Credit 

Administration (FCA, we, or our) 

proposes to amend our regulations 

governing standards of conduct of 

directors and employees of Farm Credit 

System (FCS or System) institutions, 

excluding the Federal Agricultural 

Mortgage Corporation. The proposed 

rule would replace the original 

proposed rule, and would require every 

System institution to have or develop a 

Standards of Conduct Program based on 

core principles to put into effect ethical 

values as part of corporate culture. 

DATES: You may send comments on or 

before September 13, 2018. 

ADDRESSES: We offer a variety of 

methods for you to submit your 

comments. For accuracy and efficiency 

reasons, commenters are encouraged to 

submit comments by email or through 

FCA’s website. As facsimiles (fax) are 

difficult for us to process and achieve 

compliance with section 508 of the 

Rehabilitation Act, we are no longer 

accepting comments submitted by fax. 

Regardless of the method you use, 

please do not submit your comment 

multiple times via different methods. 

You may submit comments by any of 

the following methods: 

• Email: Send us an email at regcomm@fca.gov. 

• FCA Website: http://www.fca.gov. 

Select ‘‘Public Commenters,’’ then 

‘‘Public Comments’’ and follow the 

directions for ‘‘Submitting a Comment.’’ 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules 27923 

1The original proposed regulation was published 

in the Federal Register on February 20, 2014, (79 

FR 9649). The objective was to build on the existing 

standards of conduct rules by adding a few new 

provisions, clarifying or augmenting some current 

provisions, and providing additional flexibility for 

others. After receiving comments, FCA determined 

to use a different approach. 

2 ‘‘The Directors Role’’ booklet states that sound 

ethics and adherence to standards of conduct, 

among other things, are essential to effective 

oversight. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Barry F. Mardock, Deputy 

Director, Office of Regulatory Policy, 

Farm Credit Administration, 1501 Farm 

Credit Drive, McLean, Virginia 22102– 

5090. 

You may review copies of comments we 

receive at our office in McLean, 

Virginia, or from our website at http:// 

www.fca.gov. Once you are in the 

website, select ‘‘Public Commenters,’’ 

then ‘‘Public Comments’’ and follow the 

directions for ‘‘Reading Submitted 

Public Comments.’’ We will show your 

comments as submitted but, for 

technical reasons, we may omit items 

such as logos and special characters. 

Identifying information that you 

provide, such as phone numbers and 

addresses, will be publicly available. 

However, we will attempt to remove 

email addresses to help reduce internet 

spam. 

FOR FURTHER INFORMATION CONTACT: 

Jacqueline R. Melvin, Senior Policy 

Analyst, Office of Regulatory Policy, 

(703) 883–4498, TDD (703) 883–4056, 

Melvinj@fca.gov, or Mary Alice Donner, 

Senior Counsel, Office of General 

Counsel, (703) 883–4020, TDD (703) 

883–4056, Donnerm@fca.gov. 

SUPPLEMENTARY INFORMATION: 

I. Objectives 

The objectives of this proposed rule 

are to: 

• Establish principles for ethical conduct 

and recognize each System institution’s 

responsibility for promoting an ethical 

culture; 

• Provide each System institution 

flexibility to develop specific guidelines on 

acceptable practices suitable for its business; 

• Encourage each System institution to 

foster core ethical values and conduct as part 

of its corporate culture; 

• Require each System institution to 

develop strategies and a system of internal 

controls to promote institution and 

individual accountability in ethical conduct, 

including by establishing a Standards of 

Conduct Program and adopting a Code of 

Ethics; and 

• Remove prescriptive requirements that 

do not promote these objectives. 

II. Background 

Our standards of conduct regulations 

have not been significantly changed 

since their 1994 publication.1 Over the 

past few years, there have been 

increasing concerns with governance, 

oversight, management practices and 

standards of conduct in the financial 

services industry. The proposed rule 

would update FCA’s regulations in view 

of these concerns, and would address 

the ethical culture under which System 

institutions should operate.2

III. The Importance of Ethical Culture 

Public confidence in the integrity and 

ethical business practices of any 

financial institution is fundamental to 

its ongoing viability. Unethical or 

preferential business practices can 

damage a financial institution’s 

reputation and lead to earnings and 

credit risk. Congress granted the Farm 

Credit System certain attributes that 

result in Government-sponsored 

enterprise (GSE) status. This status 

confers on System institutions 

additional responsibility to strive for 

high ethical standards and business 

practices. 

IV. The Proposed Rule 

This rule would establish core 

principles for ethical conduct. It would 

set forth basic tenets of ethical business 

practices to compel each System 

institution to foster a culture of loyalty, 

honesty, integrity and accountability. 

The proposed rule would set forth 

principles by which a System 

institution must do business. The 

System institution would be responsible 

for establishing and enforcing policies 

that expand on these principles, and for 

clearly communicating expectations for 

acceptable behavior to directors and 

employees. FCA believes that the 

proposed rule would promote ethical 

conduct. At the same time, because it is 

less prescriptive than the current rule, it 

could reduce regulatory burden. 

A. Organization 

The proposed rule would change the 

organization of the current rule. It 

would consolidate, rename and assign 

new numbers to some sections and 

remove other sections altogether. The 

following bullets summarize the 

changes: 

• Proposed § 612.2136 would set forth the 

principles that serve as the foundation for the 

rule. It would substantively revise and 

rename current § 612.2135 ‘‘Director and 

employee responsibilities and conduct— 

generally’’. 

• Proposed § 612.2137 ‘‘Elements of a 

Standards of Conduct Program,’’ would 

consolidate current § 612.2160 ‘‘Institution 

responsibilities’’ and current § 612.2165 

‘‘Policies and procedures’’. 

• Proposed § 612.2138 ‘‘Conflicts of 

interest, reporting of financial interests’’ 

would consolidate current ‘‘Director 

reporting’’ and current § 612.2155 ‘‘Employee 

reporting’’. 

• Proposed § 612.2139 ‘‘Prohibited 

conduct’’ would consolidate current 

§ 612.2140 ‘‘Directors—prohibited conduct’’ 

and § 612.2150 ‘‘Employees—prohibited 

conduct’’. It would also include the 

prohibitions in current § 612.2157 ‘‘Joint 

employees’’ and current § 612.2270 

‘‘Purchase of System obligations’’. 

• Proposed § 612.2137 would require that 

institutions develop policies and procedures 

with respect to agents to avoid conflicts of 

interests and would replace current 

§ 612.2260 ‘‘Standards of conduct for 

agents’’. 

B. Definitions [Proposed § 612.2130] 

The proposed rule would define 

‘‘Code of Ethics,’’ ‘‘resolved’’ and 

‘‘Standards of Conduct Program’’. We 

would change the term ‘‘controlled 

entity and entity controlled by’’ to 

‘‘reportable business entity’’ and modify 

the definition of ‘‘employee’’. We would 

omit the definitions of ‘‘officer’’ and 

‘‘service corporation’’ as redundant with 

the definitions of ‘‘employee’’ and 

‘‘System institution’’, respectively. We 

would omit the definition of ‘‘relative’’ 

as redundant with the definition of 

‘‘family’’ in the current rule and 

‘‘immediate family’’ in § 620.1(e). We 

would make the definition of System 

institutions more concise. These and 

other changes and clarifications are 

discussed below. 

Agent. We would modify the 

definition of ‘‘agent’’ to clarify that an 

agent includes someone who currently 

represents a System institution as a 

fiduciary in contacts with third parties. 

The proposed rule adds the language 

‘‘as a fiduciary’’ to the definition of 

agent to explain that not all outside 

parties performing services for the 

System institution require the conflict of 

interest disclosure required of agents. 

For example, the contractor responsible 

for maintaining grounds would not be 

an agent. However, those with fiduciary 

responsibilities, such as lawyers, 

accountants, and those representing the 

System institution in contacts with third 

parties would be an agent. Each System 

institution should review the risks 

associated with its use of third parties 

and should expand or elaborate on the 

definition of agent, depending on the 

System institution’s need for conflict 

disclosures in those relationships. 

Special consideration should be given to 

cyber security issues in third party 

relationships and information 

technology specialists should be subject 


sradovich on DSK3GMQ082PROD with PROPOSALS
27924 Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules 

to especially heightened ethical controls 

and confidentiality requirements. 

Code of Ethics. The proposed rule 

would define ‘‘Code of Ethics’’ as a 

written statement of the principles and 

values the System institution follows to 

establish a culture of ethical conduct. 

The Code of Ethics directs 

professionalism and discourages 

misconduct so that the best interests of 

the institution and the System are 

advanced. 

Conflict of interest. This definition 

would explain that a conflict can arise 

whenever a secondary or non-workrelated interest might unduly influence 

or materially impact a director’s or 

employee’s work-related decisionmaking. 

Employee. The proposed rule would 

define ‘‘employee’’ to mean any 

individual, including an officer, who 

works for the System institution. Every 

individual who works for the System 

institution, including temporary 

employees and interns, would be part of 

the ethical corporate culture, regardless 

of length or term of employment. 

System institutions should also consider 

whether and when third-party 

contractors should be included in the 

definition of employee or agent. 

Entity. The proposed rule would add 

‘‘sole proprietorship’’ to the definition 

of ‘‘entity’’ in the current rule and make 

other non-substantive changes. 

Family. The proposed rule would 

include ‘‘significant others’’ in the 

definition of ‘‘family’’. The System 

institution could elaborate on this 

definition, and consider whether to 

include cousins or civil union partners. 

Material. The definition of ‘‘material’’ 

in the proposed rule is not substantively 

different from the definition in the 

current rule. Each System institution 

must set its own specific parameters for 

what would constitute a material 

financial interest or transaction. The 

dollar amount or value of material, in 

the context of a financial interest or 

transaction, should be determined by 

the System institution board. This 

should be based on the institution’s 

needs for tracking and supervising the 

potentially conflicting business and 

financial activities of its directors and 

employees. 

Ordinary course of business. We 

would clarify that an ordinary course of 

business transaction is one that is usual 

and customary ‘‘in the business in 

question’’, on terms that are not 

preferential. Each System institution 

must determine what activities and 

transactions are in the ordinary course 

of business. Generally, a person 

provides goods or services in the 

ordinary course of business if the 

transaction is usual or customary for the 

kind of business in which the seller or 

service provider is engaged or with the 

seller’s or service provider’s own usual 

or customary practices. So, for example, 

a borrower sells crop inputs (seed, 

fertilizer, etc.), and a System institution 

director or employee wishes to purchase 

the crop inputs. A transaction in the 

ordinary course of business would mean 

that the borrower sells the crop inputs 

at the price and terms common to others 

in the industry. It would mean that the 

director or employee is typical of an 

ordinary purchaser of crop inputs in the 

industry. Also, the terms of the 

arrangement should be consistent with 

the other transactions, if any, between 

this borrower/seller and director or 

employee/buyer. 

Another example involves services in 

the ordinary course of business, such as 

accounting, legal or medical. A System 

institution director may need a lawyer. 

The fact that the best lawyer is a 

borrower, does not preclude the director 

from engaging that lawyer for personal 

use, assuming no conflict, if the terms 

of the engagement are usual or 

customary practices in the legal field. 

The director must pay the lawyer at the 

going rate, the legal services must be of 

the kind the lawyer typically provides 

in the business, and the relationship 

cannot have any preferential terms or 

discounts. 

Preferential. The proposed rule would 

not change the definition of 

‘‘preferential’’ but would list it 

separately from the definition of 

‘‘ordinary course of business’’. 

Reportable business entity. The 

proposed rule would change the term 

‘‘controlled entity and entity controlled 

by’’ and replace it with ‘‘reportable 

business entity’’. The proposed rule 

would provide that a reportable 

business entity is an entity in which the 

reporting individual, directly or 

indirectly or acting through or in 

concert with one or more persons, owns 

a material percentage of the equity; 

owns, controls, or has the power to vote 

a material percentage of any class of 

voting securities; or has the power to 

exercise a material influence over 

management of policies of such entity. 

We would make this change to avoid 

confusion with the term ‘‘control’’ in the 

corporate context, and to allow the 

System institution discretion to 

determine how much interest represents 

a conflict. This determination may vary 

depending on whether the entity is 

private, public, profit, or not for profit. 

The intent of this provision is to require 

directors and employees to identify and 

report any business interest that is 

significant enough to create a conflict of 

interest or the appearance of a conflict 

of interest when considered from the 

perspective of an ordinarily prudent and 

reasonable person. 

Resolved. We would define 

‘‘resolved’’ to mean an actual or 

apparent conflict of interest that has 

been addressed with an action such as 

recusal, divestiture, approval or 

exception, job reassignment, employee 

supervision, employment separation or 

other action, with the result that a 

reasonable person with knowledge of 

the relevant facts would conclude that 

the conflicting interest is unlikely to 

adversely affect the person’s 

performance of official duties in an 

objective and fair manner and in 

furtherance of the interests and statutory 

purposes of the Farm Credit System. 

Standards of Conduct Official. The 

proposed rule would modify the 

definition of Standards of Conduct 

Official (or Official). Because of the 

variety of institution sizes and 

resources, we do not require the 

Standards of Conduct Official to be a 

senior officer. However, the focus of this 

proposal is on accountability in ethical 

conduct; therefore, the Official must be 

an employee who is an officer 

appointed under § 612.2137(b), and 

must have the authority to report 

directly to the System institution board 

or designated board committee on 

standards of conduct matters. The 

Official should be an employee who is 

able to exert a positive influence in 

ethical matters on System institution 

directors and employees. The Official 

would be independent in his duties 

related to standards of conduct. It may 

be practical for some larger System 

institutions to appoint more than one 

Standards of Conduct Official. 

Standards of Conduct Program. The 

proposed rule would define ‘‘Standards 

of Conduct Program’’ to mean the 

policies and procedures, internal 

controls, and other actions a System 

institution must implement to put into 

practice the requirements of this rule. 

The Standards of Conduct Program is 

the totality of the policies and 

procedures, internal controls, audit, 

training, and other activities that 

promote ethical behavior. 

C. Standards of Conduct—Core 

Principles [Proposed § 612.2136] 

As mentioned in Section A, we would 

substantively revise and rename current 

§ 612.2135 ‘‘Director and employees 

responsibilities and conduct— 

generally’’ as proposed § 612.2136 

‘‘Standards of conduct—core 

principles.’’ Proposed § 612.2136 would 

establish principles that directors and 

employees must follow in performing 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules 27925 

official duties. We specifically request 

comment on the effectiveness of the 

proposed principles in reaching the 

objective of fostering a culture of ethical 

conduct. 

Paragraph (a) would establish core 

principles. Paragraph (b) would set forth 

certain basic minimum requirements to 

comply with the principles. 

Proposed § 612.2136(a)(1) would set 

forth the first principle: To maintain the 

highest ethical standards of the financial 

banking industry, including standards 

of care, honesty, integrity and fairness. 

This principle establishes that these 

standards, important in the financial 

banking industry, are critical to the 

conduct expected of a GSE. System 

institution directors and employees 

should consider ethical conduct beyond 

reproach a component of their job 

responsibilities. 

System institution directors and 

employees must avoid self-serving 

practices and hold performance of their 

duties to the institution above personal 

concerns. They must not use their 

position for personal advantage. 

Proposed § 612.2136(a)(2) would set 

forth the principle that institution 

directors and employees must act in the 

best interest of the institution. Proposed 

§ 612.2136(a)(3) would set forth the 

principle to preserve the reputation of 

the institution and the public’s 

confidence in the Farm Credit System. 

Proposed § 612.2136(a)(4) would set 

forth the principle to exercise diligence 

and good business judgment in carrying 

out duties and responsibilities. 

Proposed § 612.2136(a)(5) would state 

as a principle the responsibility to 

report, vet and make all reasonable 

efforts to resolve conflicts and the 

appearance of conflicts in business 

relationships and activities. As a 

corollary, proposed § 612.2136(a)(6) 

would set forth the principle that 

directors and employees must avoid 

self-dealing and acceptance of gifts or 

favors that may influence or have the 

appearance of influencing official 

actions or decisions. Proposed rules 

concerning acceptance of gifts are set 

forth in proposed § 612.2137(d)(6). 

Proposed § 612.2136(a)(7) would require 

directors and employees, if applicable, 

to fulfill fiduciary duties. 

Proposed § 612.2136(b)(1) would 

require institution directors and 

employees to comply with their System 

institution’s Standards of Conduct 

Program and Code of Ethics. Proposed 

§ 612.2136(b)(2) would require 

institution directors and employees to 

comply with all applicable laws and 

regulations when carrying out official 

duties. Applicable laws and regulations 

would include all FCA regulations and 

Federal laws. Proposed § 612.2136(b)(3) 

would require institution directors and 

employees to participate in annual 

standards of conduct training, and to 

acknowledge participation with a 

written certification. Section 

612.2136(b)(4) would require directors 

and employees to report, under 

§ 612.2137(e), known or suspected 

illegal or unethical activities, and 

known or suspected violations of the 

institution’s rules on standards of 

conduct and Code of Ethics. Reporting 

would be made to the Standards of 

Conduct Official or through the 

institution’s hotline or other method 

consistent with the institution’s 

procedures for anonymous reporting. 

D. Elements of a Standards of Conduct 

Program [Proposed § 612.2137] 

The proposed rule would consolidate 

current § 612.2160 ‘‘Institution 

responsibilities’’ with current 

§ 612.2165 ‘‘Policies and procedures,’’ 

in proposed § 612.2137 ‘‘Elements of a 

Standards of Conduct Program.’’ This 

section would require each System 

institution to establish a Standards of 

Conduct Program that incorporates the 

principles established in proposed 

§ 612.2136 and provide resources for its 

implementation. A System institution 

may continue to use its existing 

Standards of Conduct Program if it 

incorporates the core principles and 

satisfies the requirements of this 

proposed rule. 

The Standards of Conduct Program 

would set forth specific guidelines on 

acceptable and unacceptable business 

practices. Policies and procedures 

should include requirements and 

prohibitions as necessary to promote 

public confidence in the institution and 

the System, and further the objectives of 

the principles and this proposed rule. 

Each System institution should enhance 

these requirements with comprehensive 

rules as necessary to meet System 

institution goals. Each System 

institution would be required to allocate 

resources to administer the Standards of 

Conduct Program. This could include 

hiring personnel in addition to the 

Standards of Conduct Official, if 

necessary, to assist in responsibilities 

such as reviewing reports, providing 

training, and conducting investigations. 

It could include use of outside counsel, 

especially if the Standards of Conduct 

Official is not an attorney, and whatever 

additional resources are necessary to 

implement the Standards of Conduct 

Program and promote the ethical culture 

of the System institution. 

The System institution board is 

ultimately responsible for implementing 

the principles and for compliance and 

oversight of the Standards of Conduct 

Program. Proposed § 612.2137(a) would 

require each institution to establish a 

Standards of Conduct Program that sets 

forth the core principles in § 612.2136. 

Proposed § 612.2137(b) would require 

the board of directors to appoint a 

Standards of Conduct Official, defined 

as an employee, who would be 

responsible for carrying out the duties 

set forth in proposed § 612.2170. To 

carry out these responsibilities and 

promote the ethical culture required by 

the proposed rule, the Standards of 

Conduct Official should have a close 

relationship with the employees of the 

System institution and be in a position 

of authority and trust. Because the board 

of directors is ultimately responsible for 

compliance, the Standards of Conduct 

Official must have direct access to the 

board or designated board committee on 

standards of conduct matters. The 

Standards of Conduct Official would be 

required to meet periodically with the 

board or designated board committee as 

proposed in § 612.2170(g). 

Proposed § 612.2137(c) would require 

each System institution to adopt a 

written Code of Ethics that states the 

institution’s principles and values and 

guides directors and employees in 

ethical conduct. These principles and 

values must include standards for 

appropriate professional conduct at the 

workplace and in matters related to 

employment. The Code of Ethics would 

be a component of the Standards of 

Conduct Program. To demonstrate 

commitment to its values and to provide 

transparency and accountability in 

ethical conduct, the proposed rule 

requires each System institution to post 

its Code of Ethics on the System 

institution’s external (public) website. 

Proposed § 612.2137(d) would require 

each System institution to establish 

policies and procedures to put into 

operation the Standards of Conduct 

Program and to comply with the 

provisions of this proposed rule. 

Proposed § 612.2137(d)(1) would 

require each System institution to 

establish policies and procedures for 

reporting. At a minimum, these would 

include reporting requirements 

sufficient to identify any conflicts of 

interest, actual or apparent; any 

business transactions with directors, 

employees, borrowers and agents that 

are not in the ordinary course of 

business; any gifts; names of family 

members; and reportable business 

entities (or other related party as 

determined by the System institution). 

As defined in proposed § 612.2130, 

ordinary course of business means a 

transaction that is usual and customary 

in the business in question, on terms 


sradovich on DSK3GMQ082PROD with PROPOSALS
27926 Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules 

3See 18 U.S.C. 215 and 18 U.S.C. 20. 

that are not preferential. We believe the 

System institution is in the best position 

to determine that which is an ordinary 

course of business transaction and that 

which is favorable or preferential in its 

region. Therefore, each System 

institution should develop policies and 

procedures to identify transactions that 

are preferential and not in the ordinary 

course of business and report the 

transactions pursuant to 

§ 612.2137(d)(1)(ii). 

Generally, ordinary course of business 

means business procedures and 

practices consistent with usual customs 

and practices in that line of business. Is 

the transaction of a type that other 

similar businesses and their customers 

would engage in as ordinary business? 

Is the transaction, and its terms, 

common in the specific industry? From 

an industry-wide perspective, is the 

transaction of the sort commonly 

undertaken? The practices of others in 

the industry would be helpful in making 

the determination. 

Another consideration is the parties’ 

own past relationship and past practice. 

Is the transaction ordinary in the 

context of the relationship already 

existing between the parties? A review 

of the parties’ prior conduct and 

practices would be helpful in making 

this determination. 

Certain special situations bear 

discussion. Transactions between a 

director/employee and that director’s/ 

employee’s loan officer should be 

specifically addressed, and the general 

nature of these transactions should 

always be reported because of the high 

potential for conflict, even if the 

transactions are in the ordinary course 

of business. System institution policies 

and procedures should require reporting 

for other ordinary course of business 

transactions that may have a high 

potential for conflict. 

Compliance with proposed 

§ 612.2137(d)(1) would require the 

System institution to develop a method 

to monitor related-party transactions 

and make sure that directors and 

employees do not transact business on 

preferential or favorable terms and do 

not take advantage of their employment 

or position with the Farm Credit System 

in their business affairs. The policies 

and procedures should include specific 

dollar amounts as appropriate, and 

other criteria for pre-event versus postevent reporting. Reporting should 

include, at a minimum, financial 

transactions (recurring or one-time), and 

other relationships or arrangements 

(monetary or non-monetary) between 

directors, employees, agents or 

borrower/stockholders. 

Proposed § 612.2137(d)(2) would 

require each System institution to 

establish policies and procedures to 

address how conflicts of interest would 

be resolved through an action such as 

recusal, divestiture, approval or 

exception, job reassignment, employee 

supervision, employment separation or 

other action. To resolve conflicts of 

interest, the director or employee 

should cooperate with the Standards of 

Conduct Official. Policies and 

procedures would include action taken 

in the event a conflict cannot be 

resolved. Compliance with proposed 

§ 612.2137 requires that the System 

institution establish a process to report, 

vet, and resolve conflicts of interest 

effectively. It would be read in tandem 

with proposed § 612.2138, which speaks 

directly to directors and employees and 

sets forth their reporting requirements. 

Agents, consultants and other third 

parties who represent the institution to 

the public, or upon whom the 

institution relies for professional 

services, must be bound by the same 

ethical responsibilities to the System 

institution and its borrower/ 

shareholders as directors and 

employees. Proposed § 612.2137(d)(3) 

would require each System institution 

to establish policies and procedures to 

make sure that agents file conflict of 

interest disclosures, and that agents, 

consultants and other third-party 

contractors avoid misconduct and 

conflicts of interests. These third parties 

must be notified that their engagement 

is conditioned upon their agreement to 

avoid misconduct and conflicts of 

interest. These policies and procedures 

should include a mechanism to report, 

vet and resolve any conflicts of interest 

between third parties representing the 

institution and the System institution 

itself or its directors and employees. 

The System institution should also 

consider having the agent or consultant 

acknowledge its Code of Ethics, 

depending on the relative importance of 

the agent or consultant services to the 

institution. Consideration should be 

given to the sensitivity of the services, 

for example third-party performers of 

internet technology or cyber security 

services should be subject to a high 

degree of scrutiny. Consideration also 

should be given to whether the third 

party is covered by a professional code 

or standard that prescribes ethical 

conduct. 

The rule provides specific authority to 

each System institution to monitor and 

enforce its standards of conduct rules 

and Code of Ethics. Violators should be 

subject to specific and appropriate 

action, as determined by the System 

institution. Proposed § 612.2137(d)(4) 

would require each System institution 

to establish policies and procedures for 

the enforcement of its Standards of 

Conduct Program. This would provide 

the mechanism by which the institution 

takes action against any person who 

violates the standards of conduct rules, 

Code of Ethics, or these regulations. 

This section places accountability for 

enforcing the ethical conduct outlined 

in this proposed rule and fundamental 

to the health and viability of the System 

institution directly with the System 

institution itself. 

Proposed § 612.2137(d)(5) would 

require each System institution to 

establish policies and procedures to 

apply and enforce the prohibitions set 

forth in proposed § 612.2139 and any 

other provision in this subpart A. 

Proposed § 612.2137(d)(6) would 

require policies and procedures to 

prohibit gifts. These should include a 

definition of gifts, and explanation of 

prohibited sources. Directors and 

employees are prohibited from 

accepting gifts or favors that could be 

viewed as offered to influence or give 

the appearance to influence decisionmaking or official action or to obtain 

information. A System institution may 

determine that certain gifts, for example 

those valued at $25.00 or less, are so 

low in value (de minimis) that they 

could not be perceived as influencing 

decision-making or official action. The 

System institution may allow its 

directors and employees to accept gifts 

of little or no value. However, it may do 

so only if it has policies and procedures 

in place that set forth controls that are 

consistent with the core principles 

established in this proposed rule and 

with the requirements of Federal laws 

including FCA regulations and the 

Federal Bank Bribery Act.3 These 

policies and procedures would set forth 

the maximum value of any individual 

gift that a director or employee may 

accept, and the maximum value of gifts 

in the aggregate per year that a director 

or employee may accept. The policies 

and procedures would include reporting 

requirements for gifts and rules for 

disposing of impermissible gifts. 

Proposed § 612.2137(e) would set 

forth minimum requirements for 

internal controls for all aspects of the 

System institution’s Standards of 

Conduct Program. 

Proposed § 612.2137(e)(1) would 

require the System institution to 

maintain all reports generated under 

subpart A of the Standards of Conduct 

regulations including those required by 

§ 612.2137(d)(1) and records on any 

ethics investigations and 


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determinations, for a minimum of 6 

years. Proposed § 612.2137(e)(2) would 

require internal controls to preserve the 

confidentiality of reports and other 

information maintained under the 

Standards of Conduct Program. 

Proposed § 612.2137(e)(3) would 

require each System institution to 

establish a process for anonymous 

reporting of suspected standards of 

conduct or Code of Ethics violations. A 

reporting hotline is most effective when 

both internal parties (directors and 

employees) and external parties (agents, 

borrowers, shareholders, applicants, and 

others) can report a complaint, 

misconduct, or tip for corrective action 

without fear of retribution such as 

termination of employment, suspension, 

or other similar action. 

Proposed § 612.2137(e)(4) requires 

periodic review of the Standards of 

Conduct Program for consistency with 

current practices at the System 

institution, financial banking industry 

best practices, and FCA regulations. 

Internal controls to prevent selfdealing and conflict situations should 

be monitored and evaluated with an 

effective audit program. Proposed 

§ 612.2137(e)(5) would require each 

System institution to arrange for 

periodic internal audits of the Standards 

of Conduct Program. The audit would 

identify weaknesses, review and 

measure the effectiveness of the 

Standards of Conduct Program, and 

prescribe necessary corrective actions. 

The audit would cover the entire 

System institution and include all 

activities conducted by the System 

institution including through an 

unincorporated business entity (UBE), 

such as those organized for the express 

purpose of investing in a Rural Business 

Investment Company pursuant to 

§ 611.1150(b). The audit would test for 

compliance and recommend corrective 

action as necessary, and the results 

should be reported directly to the 

institution’s board or designated board 

committee. The scope and depth of the 

audit would be determined by the needs 

of the institution. The System 

institution would document the audit 

process and results. 

Proposed § 612.2137(f) would require 

each System institution to establish and 

provide standards of conduct training at 

least annually. This section should be 

read in tandem with § 612.2170. The 

institution’s Standards of Conduct 

Program and ongoing training would 

encourage directors and employees to 

obtain counsel from the Standards of 

Conduct Official prior to engaging in 

transactions that could be perceived as 

preferential or not in the ordinary 

course of business. The Standards of 

Conduct Official could then provide 

advice to the director or employee on 

the permissibility of the transaction 

under the institution’s Standards of 

Conduct Program and these proposed 

rules, or prescribe actions that would be 

necessary before or following the 

transaction to resolve a conflict of 

interest or the appearance of a conflict 

of interest. Training must include 

updates, if any, to the Standards of 

Conduct Program and Code of Ethics, 

and discussion of the System 

institution’s procedures for the 

anonymous reporting of violations. It 

must include education on prohibited 

conduct, conflicts of interest and 

reporting requirements. Training on 

fiduciary responsibilities would be 

required, although the System 

institution may elect to have that service 

performed by outside counsel. 

E. Conflicts of Interest, Reporting of 

Financial Interests [New § 612.2138] 

It is incumbent upon each System 

institution to adopt the standards of 

conduct core principles, to make them 

part of the culture and lexicon of every 

director and employee. In addition, 

certain prescriptive rules directed to 

employees and directors are necessary 

to realize a baseline ethical standard. 

The baseline prescriptive requirements 

are set forth in proposed §§ 612.2138 

and 612.2139, and each System 

institution should expand upon these 

prescriptive requirements as 

appropriate. 

Section 612.2138 of the proposed rule 

would specifically address conflicts of 

interest and reporting of financial 

interests. This section would require 

directors and employees to take 

affirmative action to identify, report and 

resolve conflicts or potential conflicts of 

interest of which they are aware. It is 

intended to compel each director and 

employee to take ownership of and 

invest in ethical responsibilities. 

Proposed § 612.2138(a) would require 

each director and employee to identify, 

report and resolve conflicts and 

potential conflicts. Proposed 

§ 612.2138(b) would require that if a 

director or employee has a conflict of 

interest in a matter, transaction or 

activity that is subject to official action, 

or that is being considered by the board 

of directors, then that director or 

employee must disclose relevant nonprivileged information including the 

existence, nature, and extent of his or 

her interests; refrain from participating 

in the official action or board discussion 

on the matter, activity or transaction 

(§ 612.2138(b)(2)); and not vote on or 

influence the decision-making on the 

matter, transaction or activity 

(§ 612.2138(b)(3)). Working together 

with other provisions of the proposed 

rule, this section is intended to bolster 

loyalty to the System institution and to 

reinforce personal responsibility and 

accountability in avoiding conflicts and 

acting ethically. 

Proposed § 612.2138(c) would require 

a director or employee to report 

conflicts of interest to the Standards of 

Conduct Official at year-end and at such 

other times as may be required by the 

institution. At a minimum, this section 

would require reporting of information 

sufficient for a reasonable person to 

make a conflict of interest determination 

on any business matter to be considered 

by the System institution. Reporting 

consistent with part 620 is also 

required. 

Proposed § 612.2138(c)(1) would 

require directors and employees to 

report any interest that they may have 

in any business matter before the 

System institution. This would include 

any interest in a loan, or in an entity 

making a loan application, or any other 

direct or indirect interest in a matter 

that pertains to the business of the 

System institution. 

Proposed § 612.2138(c)(2) would 

require directors and employees to 

report the names of any family member 

who has transacted or is currently 

transacting business with the System 

institution. The System institution 

should determine how best to capture 

reporting of current transactions, and 

should consider whether to require a 

director or employee to report the name 

of a family member who has engaged in 

a transaction in the past. 

Proposed § 612.2138(c)(3) would 

require directors and employees to 

report all material financial interests 

with any director, employee, agent, 

borrower or business affiliate of the 

System institution, supervised 

institution or supervising institution. 

Proposed § 612.2138(c)(4) would 

require directors and employees to 

report any matter required to be 

disclosed by § 620.6 of this chapter, in 

accordance with System institution 

policies and procedures. 

Proposed § 612.2138(c)(5) would 

require directors and employees to 

report the names of reportable business 

entities. 

Proposed § 612.2138(c)(6) would 

require directors and employees to 

report the names of any person residing 

in the home if such person transacts 

business with the System institution, or 

any institution supervised by the 

System institution. 

All the reporting in this section would 

be based on information the reporting 


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individual knows or has reason to 

know. 

F. Prohibited Conduct [Proposed 

§ 612.2139] 

As stated in Section A, we would 

consolidate current § 612.2140 

‘‘Directors—prohibited conduct’’ with 

current § 612.2150 ‘‘Employees— 

prohibited conduct,’’ in proposed 

§ 612.2139 ‘‘Prohibited conduct.’’ We 

would also incorporate current 

§ 612.2157 ‘‘Joint employees’’ and 

current § 612.2270 ‘‘Purchase of System 

obligations’’ requirements in this 

section. Most of our revisions to the 

prohibited conduct rules are 

straightforward and provide 

clarification of an intended prohibition. 

For example, we would clarify that 

lending transactions with a party related 

to the System institution such as a 

director, employee or a borrower is 

permitted, but only if on terms that are 

not favorable or preferential. We would 

also add a new provision that would 

prohibit directors and employees from 

acting inconsistently with the core 

principles. 

Proposed § 612.2139(a) would set 

forth the general prohibitions and their 

related exceptions for directors and 

employees, and proposed § 612.2139(b) 

would set forth additional prohibitions 

specifically for employees with their 

related exceptions. 

Proposed § 612.2139(a)(1) would 

prohibit acting inconsistently with the 

core principles in proposed § 612.2136. 

Proposed § 612.2139(a)(2) restates the 

director and employee prohibitions on 

participation in matters affecting 

financial interests in current 

§§ 612.2140(a) and 612.4150(a), 

respectively. 

Proposed § 612.2139(a)(3) restates the 

director and employee prohibitions on 

use of information in current 

§§ 612.2140(b) and 612.4150(b), 

respectively. 

Proposed § 612.2139(a)(4) would 

prohibit directors and employees from 

soliciting, obtaining or accepting, 

directly or indirectly, any gift, fee or 

other compensation that could be 

viewed as offered to influence decisionmaking, or official action or to obtain 

information. The System institution 

may determine that a gift that has an 

insignificant value would not trigger 

this prohibition, and may develop rules 

under which directors and employees 

may accept de minimis gifts. However, 

these System institution rules must be 

consistent with Federal rules and 

regulations including FCA rules and the 

Federal Bank Bribery Act. De minimis 

gifts may be accepted only as set forth 

under the institution’s properly 

established policies and procedures (see 

§ 612.2137(d)(6)). 

Proposed § 612.2139(a)(5) would 

provide that, among other things, a 

director or employee may not 

knowingly purchase or otherwise 

acquire, directly or indirectly, unless 

through inheritance, any interest 

(including mineral interests) in any real 

or personal property that is currently 

owned, or within the 12 past months 

was owned, by the System institution, 

supervising institution or any 

supervised institution as a result of 

foreclosure, deed in lieu, or similar 

action. Like the current rule, the 

proposed rule would allow a director to 

purchase such property only through 

public auction or similar open, 

competitive bidding. By open 

competitive bidding, we mean bidding 

that is both competitive, allowing 

involvement of all interested parties, 

and open and unsealed. Open 

competitive bidding affords all 

interested parties an opportunity to 

counter-bid. The advantage to open 

bidding is that it discourages unethical 

behavior or favoritism. A public auction 

can be accomplished on-line only if 

there is an opportunity for all who may 

be interested in the auction to 

participate in the bidding process. A 

director may purchase acquired 

property through open competitive 

bidding only if the director did not 

participate in the decision to foreclose 

or dispose of the property, including 

setting the sale terms, and did not 

receive information that could provide 

an advantage over other potential 

bidders or purchasers of the property. 

The proposed acquired property 

prohibitions do not reflect a substantive 

change from the current rule. We made 

revisions because the scope of 

misunderstanding and misapplication of 

the original provision warranted further 

clarification of the current rule’s intent. 

The prohibition would apply to 

collateral acquired by a System 

institution, including collateral acquired 

directly or through use of an acquired 

property UBE. This provision of the rule 

does not change or alter any rights a 

borrower may have under title IV, part 

C of the Farm Credit Act of 1971, as 

amended, 12 U.S.C. 2199–2202, or FCA 

regulations promulgated thereunder. 

Proposed § 612.2139(a)(6) would 

provide that a director or employee 

must not directly or indirectly borrow 

from, lend to, or become financially 

obligated with or on behalf of a director, 

employee, or agent of the System 

institution, supervising institution, or 

supervised institution or a borrower or 

loan applicant of the System institution. 

This section prohibits a director or 

employee from entering into a lending 

or borrowing transaction with those 

who may have a financial relationship 

with the System institution. Lending 

and borrowing relationships include 

providing loan guarantees or stand-by 

letters of credit and similar forms of 

financial obligation. 

FCA recognizes that there are many 

situations in which a director or 

employee may enter into lending 

transactions or business relationships 

that involve other directors, employees, 

agents, borrowers, or loan applicants in 

the ordinary course of business. 

Financing in the ordinary course of 

business, as discussed earlier, is not a 

prohibited lending transaction. Each 

System institution should develop 

policies and procedures governing 

ordinary course of business transactions 

that include rules for reporting. 

The proposed rule requires every 

System institution to develop policies 

and procedures for directors and 

employees to identify, vet, and resolve 

any lending transactions with 

prohibited sources that are on 

preferential terms. Evidence of a 

director or employee engaging in a 

preferential business arrangement with 

a borrower or other party related to the 

System institution would be a safety 

and soundness concern and might be 

evidence of non-compliance. 

Proposed § 612.2139(a)(7) restates the 

prohibitions in current § 612.2270 on 

purchasing System obligations; and 

§ 612.2165(b)(14) on purchasing or 

retiring preferred stock in advance of 

the release of material non-public 

information. 

Proposed § 612.2139(b)(1) restates the 

prohibition in current § 612.2150(d) on 

serving as an officer or director of an 

entity other than a System institution, 

except that the proposed revisions 

would not include the exception in 

current § 612.2150(d) that allows an 

employee of a Farm Credit Bank or 

association to serve as a director of a 

cooperative that borrows from a bank for 

cooperatives. This exception has been 

dropped because of the conflicts that 

would arise as a result of merger 

activity. Proposed § 612.2139(b)(2) and 

(b)(3) restate the prohibitions in current 

§ 612.2150(j) on acting as a real estate 

agent or broker; and current 

§ 612.2150(k) on acting as an agent or 

broker; respectively. Proposed 

§ 612.2139(b)(4) restates the prohibition 

in current § 612.2157 on joint 

employees, but allows an employee of a 

bank to serve as an officer of a 

supervised association in its district in 

an extraordinary situation if: Both 

boards authorize the service, the duties 

and compensation at each institution 


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are set forth in writing, and reasonable 

notice prior to the assumption of duties 

is provided to FCA. 

G. Standards of Conduct Official 

[Proposed § 612.2170] 

The proposed rule would enhance the 

role of the Standards of Conduct 

Official. The System institution board of 

directors is responsible for creating and 

fostering the institution culture, and for 

development of the Standards of 

Conduct Program. The institution board 

is also responsible for compliance with 

the Standards of Conduct Program. 

Proposed § 612.2170(a) would require 

that the Standards of Conduct Official 

must implement the Standards of 

Conduct Program. The Standards of 

Conduct Official is the authority to 

whom directors, employees, agents and 

consultants turn for advice on conflict 

of interest situations. Proposed 

§ 612.2170(b) would require the 

Standards Conduct Official to provide 

guidance and information to directors 

and employees on conflicts of interest. 

Proposed § 612.2170(c) should be read 

in tandem with proposed § 612.2137(f) 

and would require the Standards of 

Conduct Official to provide annual and 

new director and employee training. 

The training would review the 

institution’s standards of conduct rules 

and the Code of Ethics and discuss any 

updates; review and discuss the 

anonymous reporting hotline or other 

reporting procedure; prohibited 

conduct; directors’ and employees’ 

fiduciary duties (this training could be 

separate from the training of employees 

who do not have fiduciary duties); the 

importance of identifying conflicts of 

interests and reporting of financial 

interests; and annual and ongoing 

reporting requirements. 

The proposed rule would require the 

Standards of Conduct Official to report 

periodically to the board of directors or 

designated board committee on the 

Standards of Conduct Program and Code 

of Ethics matters. Proposed 

§ 612.2170(d) would require the 

Standards of Conduct Official to help 

directors and employees identify 

conflicts of interest and report financial 

interests, in accordance with proposed 

§ 612.2138. The Official would make 

written determinations on conflicts of 

interest and determine how to resolve 

them including by recusal, divestiture, 

approval or exception, job reassignment, 

employee supervision, employment 

separation, or other action consistent 

with the institution’s Standards of 

Conduct Program as provided in 

proposed § 612.2170(e). Proposed 

§ 612.2170(f) would require the 

Standards of Conduct Official to 

document all resolved and unresolved 

material or significant conflicts of 

interest. The Standards of Conduct 

Official would be required to maintain 

documentation that explains how 

conflicts are handled. 

Proposed § 612.2170(g) would require 

the Standards of Conduct Official to 

report to the institution’s board of 

directors or designated board committee 

any instance of non-compliance with 

the System institution’s standards of 

conduct rules or Code of Ethics. It 

would also require periodic reporting on 

the administration of the Standards of 

Conduct Program. These reports would 

include a review of the Standards of 

Conduct Program required under 

proposed § 612.2137. 

V. Regulatory Flexibility Act 

Pursuant to section 605(b) of the 

Regulatory Flexibility Act (5 U.S.C. 601 

et seq.), FCA hereby certifies that the 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities. 

Each of the banks in the System, 

considered together with its affiliated 

associations, has assets and annual 

income in excess of the amounts that 

would qualify them as small entities. 

Therefore, System institutions are not 

‘‘small entities’’ as defined in the 

Regulatory Flexibility Act. 

List of Subjects in 12 CFR Part 612 

Agriculture, Banks, banking, Conflict 

of interests, Crime, Investigations, Rural 

areas. 

For the reasons stated in the 

preamble, part 612 of chapter VI, title 12 

of the Code of Federal Regulations is 

proposed to be amended as follows: 

PART 612—STANDARDS OF 

CONDUCT AND REFERRAL OF 

KNOWN OR SUSPECTED CRIMINAL 

VIOLATIONS 

■ 1. The authority citation for part 612 

continues to read as follows: 

Authority: Secs. 5.9, 5.17, 5.19 of the Farm 

Credit Act (12 U.S.C. 2243, 2252, 2254). 

■ 2. Subpart A, consisting of 

§§ 661.2130 through 612.2270, is 

revised to read as follows: 

Subpart A—Standards of Conduct 

Sec. 

612.2130 Definitions. 

612.2135 [Reserved] 

612.2136 Standards of conduct—core 

principles. 

612.2137 Elements of a Standards of 

Conduct Program. 

612.2138 Conflicts of interest, reporting of 

financial interests. 

612.2139 Prohibited conduct. 

612.2140–612.2165 [Reserved] 

612.2170 Standards of Conduct Official. 

612.2260–612.2270 [Reserved] 

Subpart A—Standards of Conduct 

§ 612.2130 Definitions. 

For purposes of this section, the 

following terms are defined: 

Agent means any person, other than a 

director or employee, who currently 

represents a System institution as a 

fiduciary in contacts with third parties 

or who currently provides professional 

services to a System institution, such as 

legal, accounting, appraisal, cybersecurity, internet technology and other 

similar services. 

Code of Ethics means a written 

statement of the principles and values 

the System institution follows to 

establish a culture of ethical conduct for 

directors and employees. 

Conflicts of interest means a set of 

circumstances that creates a risk that 

actions or judgments regarding a 

primary interest will be unduly 

influenced by a secondary interest. A 

conflict of interest (or the appearance of 

a conflict of interest) may exist when a 

person has a financial interest in a 

transaction, relationship, or activity that 

could materially impact that person’s 

ability to perform official duties and 

responsibilities in a totally impartial 

manner and in the best interest of the 

institution, when viewed from the 

perspective of a reasonable person with 

knowledge of the relevant facts. 

Employee means any individual, 

including an officer, working part-time, 

full-time, or on a temporary basis for the 

System institution. 

Entity means a corporation, company, 

association, firm, joint venture, 

partnership, sole proprietorship, trust or 

other organization whether or not 

incorporated. 

Family means spouse or significant 

other and anyone having the following 

relationship to either: Parent, spouse, 

son, daughter, sibling, stepparent, 

stepson, stepdaughter, stepbrother, 

stepsister, half-brother, half-sister, 

uncle, aunt, nephew, niece, 

grandparent, grandson, granddaughter, 

and the spouses of the foregoing. 

Financial interest means an interest in 

an activity, transaction, property, or 

relationship with a person that involves 

receiving or providing something of 

monetary value or other present or 

deferred compensation. 

Financially obligated with means 

having a legally enforceable joint 

obligation with, being financially 

obligated on behalf of (contingently or 

otherwise), having an enforceable legal 

obligation secured by property owned 

by another person, or owning property 


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that secures an enforceable legal 

obligation of another. 

Material, when applied to a financial 

interest or transaction (including a 

series of transactions viewed in the 

aggregate), means that the interest or 

transaction is of sufficient magnitude 

that a reasonable person with 

knowledge of the relevant facts would 

question the ability of the person who 

has the interest or is party to such 

transaction(s) to perform the person’s 

official duties objectively and 

impartially and in the best interest of 

the institution and its statutory purpose. 

Mineral interest means any interest in 

minerals, oil or gas, including but not 

limited to, any right derived directly or 

indirectly from a mineral, oil, or gas 

lease, deed or royalty conveyance. 

Ordinary course of business, when 

applied to a transaction, means: 

(1) A transaction that is usual and 

customary in the business in question 

on terms that are not preferential; or 

(2) A transaction with a person who 

is in the business of offering the goods 

or services that are the subject of the 

transaction on terms that are not 

preferential. 

Person means individual or entity. 

Preferential means that the 

transaction is not on the same terms as 

those prevailing at the same time for 

comparable transactions for other 

persons who are not directors, 

employees or agents of a System 

institution. 

Reportable business entity means an 

entity in which the reporting individual, 

directly or indirectly, or acting through 

or in concert with one or more persons: 

(1) Owns a material percentage of the 

equity; 

(2) Owns, controls, or has the power 

to vote a material percentage of any 

class of voting securities; or 

(3) Has the power to exercise a 

material influence over the management 

of policies of such entity. 

Resolved means an actual or apparent 

conflict of interest that has been 

addressed with an action such as 

recusal, divestiture, approval or 

exception, job reassignment, employee 

supervision, employment separation or 

other action, with the result that a 

reasonable person with knowledge of 

the relevant facts would conclude that 

the conflicting interest is unlikely to 

adversely affect the person’s 

performance of official duties in an 

objective and impartial manner and in 

furtherance of the interests and statutory 

purposes of the Farm Credit System. 

Standards of Conduct Official means 

a System institution employee who is 

appointed as an officer under 

§ 612.2137(b), and who reports directly 

to the board of directors or designated 

board committee on Standards of 

Conduct and Code of Ethics matters. 

Standards of Conduct Program means 

the policies and procedures, internal 

controls and other actions a System 

institution must implement to put into 

practice the requirements of this rule 

and the System institution’s Code of 

Ethics. 

Supervised institution is a term that 

only applies within the context of a 

System bank or employee of a System 

bank and refers to each association 

supervised by that System bank. 

Supervising institution is a term that 

only applies within the context of an 

association or employee of an 

association and refers to the System 

bank that supervises that association. 

System institution and institution 

means any Farm Credit System bank, 

association, or service corporation 

chartered under section 4.25 of the Act, 

and the Federal Farm Credit Banks 

Funding Corporation. It does not 

include the Federal Agricultural 

Mortgage Corporation. 

§ 612.2135 [Reserved] 

§ 612.2136 Standards of conduct—core 

principles. 

(a) If you are a System institution 

director or employee, you must: 

(1) Maintain the highest ethical 

standards of the financial banking 

industry, including standards of care, 

honesty, integrity, and fairness. 

(2) Act in the best interest of the 

institution. 

(3) Preserve the reputation of the 

institution and the public’s confidence 

in the Farm Credit System. 

(4) Exercise diligence and good 

business judgment in carrying out 

official duties and responsibilities. 

(5) Report, vet, and work with the 

Standards of Conduct Official to resolve 

conflicts of interest and the appearance 

of conflicts of interest in System 

business relationships and activities. 

(6) Avoid self-dealing and acceptance 

of gifts or favors that may be deemed as 

offered, or have the appearance of being 

offered, to influence official actions or 

decisions. 

(7) Fulfill your fiduciary duties, as 

applicable. 

(b) To comply with core principles, 

all System institution directors and 

employees must: 

(1) Comply with the institution’s 

standards of conduct and Code of 

Ethics. 

(2) Comply with all applicable laws 

and regulations. 

(3) Certify, in writing, participation in 

the institution’s annual standards of 

conduct training. 

(4) Timely report to the Standards of 

Conduct Official or through the 

institution’s reporting procedures under 

§ 612.2137(e)(3) known or suspected: 

(i) Illegal or unethical activities; and 

(ii) Violations of the institution’s 

standards of conduct and Code of 

Ethics. 

§ 612.2137 Elements of a Standards of 

Conduct Program. 

The System institution board is 

ultimately responsible for the 

implementation and oversight of, and 

compliance with, the Standards of 

Conduct Program. Each System 

institution board of directors must: 

(a) Establish a Standards of Conduct 

Program that sets forth the core 

principles in § 612.2136 and provide 

adequate resources for its 

implementation. 

(b) Appoint a Standards of Conduct 

Official. Provide the Standards of 

Conduct Official: 

(1) Authority to carry out 

responsibilities set forth in this subpart 

A; and 

(2) Direct access to the System 

institution board of directors or 

designated board committee on 

standards of conduct matters. 

(c) Adopt a written Code of Ethics that 

establishes the System institution’s 

values and expectations for the ethical 

conduct of directors and employees. 

Include standards for appropriate 

professional conduct at the workplace 

and in matters related to employment. 

Post the Code of Ethics on the 

institution’s external website with 

access for the public. 

(d) Establish policies and procedures 

to: 

(1) Institute requirements for directors 

and employees to comply with the 

Standards of Conduct Program, 

including at a minimum, annual and 

interim reporting of: 

(i) Actual or apparent conflicts of 

interest; 

(ii) Transactions not in the ordinary 

course of business; 

(iii) Names of family members; 

(iv) Reportable business entities; and 

(v) Gifts under paragraph (d)(6) of this 

section. 

(2) Address how conflicts will be 

resolved, and provide action(s) to be 

taken when a conflict cannot be 

resolved to the satisfaction of the 

System institution; 

(3) Address third-party relationships. 

Include policies and procedures to: 

(i) Require agents to disclose conflicts 

of interest and act in a manner 

consistent with the ethical standards of 

the System institution; and 

(ii) Notify agents, consultants and 

other third parties who represent the 


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Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules 27931 

institution, or who provide expert or 

professional services to the System 

institution that their engagement is 

conditioned upon their agreement to 

avoid misconduct and conflicts of 

interest; 

(4) Enforce and monitor the System 

institution’s Standards of Conduct 

Program. Take appropriate action 

against any director or employee who 

violates the standards of conduct rules, 

Code of Ethics or the regulations under 

this subpart A; 

(5) Apply and enforce the prohibited 

conduct rules set forth in § 612.2139 

and any other Farm Credit 

Administration rules in this subpart A; 

and 

(6) Set forth rules prohibiting gifts. If 

the System institution allows directors 

and employees to accept de minimis 

gifts, establish a de minimis threshold 

dollar amount per gift and an aggregate 

amount per year consistent with 

applicable laws. Establish rules for 

disposing of impermissible gifts. 

(e) Provide for Standards of Conduct 

Program internal controls to include at 

a minimum, a process to: 

(1) Maintain conflicts of interest and 

other reports required under this 

subpart A, including paragraph (d)(1) of 

this section, along with any 

investigations, determinations and 

supporting documentation, for a 

minimum of 6 years. 

(2) Protect against unauthorized 

disclosure of confidential information 

maintained by the institution, pursuant 

to this subpart A. 

(3) Report anonymously known or 

suspected violations of the institution’s 

Standards of Conduct Program and Code 

of Ethics, through a hotline or other 

reporting procedure. 

(4) Periodically review the Standards 

of Conduct Program to ensure continued 

adequacy and consistency with changes 

in institution practices, financial 

banking industry best practices and 

Farm Credit Administration regulations. 

(5) Perform internal audits of the 

Standards of Conduct Program to: 

(i) Review the effectiveness of 

advancing the core principles, 

(ii) Identify weaknesses; 

(iii) Recommend and report necessary 

corrective actions directly to the 

institution’s board or designated board 

committee; and 

(iv) Cover the entire Standards of 

Conduct Program across the System 

institution and include all activities 

conducted through a System institution 

unincorporated business entity (UBE), 

including UBEs organized for the 

express purpose of investing in a Rural 

Business Investment Company pursuant 

to § 611.1150(b) of this chapter. The 

System institution must determine and 

document the scope and depth of the 

audit. 

(f) Establish periodic standards of 

conduct training required under 

§ 612.2170(c) at least annually. 

§ 612.2138 Conflicts of interest, reporting 

of financial interests. 

(a) If you are a director or employee 

of a System institution you must, to the 

best of your knowledge and belief: 

(1) Identify conflicts of interest and 

potential conflicts of interest; 

(2) Report conflicts of interest and 

potential conflicts of interest in any 

matters, transactions or activities 

pending at the System institution to the 

Standards of Conduct Official; and 

(3) Cooperate with and provide 

information requested by the Standards 

of Conduct Official to resolve conflicts 

of interest and potential conflicts of 

interest. 

(b) If you are a director or employee 

of a System institution and you have a 

conflict of interest in a matter, 

transaction or activity subject to official 

action, or before the board of directors 

then you must, to the best of your 

knowledge: 

(1) Disclose relevant information 

including: 

(i) The existence, nature, and extent of 

your interest; and 

(ii) The facts known to you as to the 

matter, transaction or activity under 

consideration; 

(2) Refrain from participating in the 

official action or board discussion of the 

matter, transaction or activity; and 

(3) Not vote on, or influence the vote 

on, the matter, transaction or activity. 

(c) If you are a director or employee, 

at least annually and at such other times 

as may be required by your institution 

policies and procedures, you must 

report to the Standards of Conduct 

Official, in sufficient detail for a 

reasonable person to make a conflict of 

interest determination, the following 

information to the best of your 

knowledge or belief: 

(1) Any interest you have in any 

business matter to be considered by the 

System institution; 

(2) The names of your family 

members who have transacted or are 

currently transacting, business with the 

System institution; 

(3) All material financial interests 

with any director, employee, agent, 

borrower or business affiliate of your 

System institution, or supervised or 

supervising institution; 

(4) Any matter you are required to 

disclose under § 620.6(f) of this chapter; 

(5) The names of entities that are 

reportable business entities to you; and 

(6) The name of any person residing 

in your home if, you know or have 

reason to know, such person transacts 

business with your System institution, 

or any institution supervised by the 

System institution. 

§ 612.2139 Prohibited conduct. 

(a) If you are a System institution 

director or employee you must not: 

(1) Act inconsistently with the core 

principles. You must follow the core 

principles set forth in § 612.2136. 

(2) Use your position for personal gain 

or advantage. Do not participate in 

deliberations on, or the determination 

of, any matter affecting your financial 

interest. Matters affecting your financial 

interest include financial interests of a 

family member, a person residing in 

your home, or a reportable business 

entity. You may participate in matters of 

general applicability affecting 

shareholders/borrowers of a particular 

class in a nondiscriminatory way. 

(3) Divulge confidential information. 

Do not make use of any fact, information 

or document not generally available to 

the public that you acquired by virtue 

of your position. You may use 

confidential information in the 

performance of your official duties. 

(4) Accept gifts. Do not solicit, obtain, 

or accept, directly or indirectly, any gift, 

fee or other compensation that could be 

viewed as offered to influence your 

decision-making, or official action, or to 

obtain information. 

(5) Purchase property owned by the 

institution. Do not knowingly purchase 

or otherwise acquire, directly or 

indirectly except through inheritance, 

any interest (including mineral 

interests) in any real or personal 

property that currently is owned, or 

within the past 12 months was owned, 

by your employing or supervising 

institution, or any supervised institution 

as a result of foreclosure, deed in lieu, 

or similar action. Exceptions: As a 

director, in addition to the inheritance 

exception, you may purchase such 

property if you: 

(i) Purchase the property through 

public auction or similar open, 

competitive bidding process; 

(ii) Did not participate in the decision 

to foreclose or dispose of the property, 

including setting the sale terms; and 

(iii) Have not received information as 

a result of your position that could give 

you an advantage over other potential 

bidders or purchasers of the property. 

(6) Enter into loan transactions with 

prohibited sources. Do not directly or 

indirectly borrow from, lend to, or 

become financially obligated with or on 

behalf of a director, employee, or agent 

of your employing or supervising 


sradovich on DSK3GMQ082PROD with PROPOSALS
27932 Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules 

institution, supervised institution, or a 

borrower or loan applicant of the 

employing institution. Exceptions: You 

may enter into transactions with family 

members and transactions in the 

ordinary course of business as 

determined and documented by the 

written policies and procedures of your 

institution. 

(7) Purchase System obligations. 

(i) Do not purchase any obligation of 

a System institution, including any 

joint, consolidated or System-wide 

obligation, unless such obligation is part 

of an offering available to the public; 

and purchased through a dealer or 

dealer bank affiliated with a member of 

the selling group designated by the 

Federal Farm Credit Banks Funding 

Corporation or purchased in the 

secondary market. 

(ii) Do not purchase or retire any stock 

in advance of the release of material 

non-public information concerning the 

institution to other stockholders; 

(iii) If you are a director or employee 

of the Federal Farm Credit Banks 

Funding Corporation, do not purchase 

or otherwise acquire, directly or 

indirectly, except by inheritance, any 

obligation or equity of a System 

institution, including any joint, 

consolidated or System-wide 

obligations, unless it is a common 

cooperative equity as defined in § 628.2 

of this chapter. 

(b) In addition to the prohibitions 

under paragraph (a) of this section, if 

you are a System institution employee 

you must not: 

(1) Serve as a director or employee of 

certain entities. Do not serve as a 

director or employee of an entity that 

transacts business with your institution, 

another System institution in the 

district, or of any commercial bank, 

savings and loan or other non-System 

financial institution. For the purpose of 

this paragraph, ‘‘transacts business’’ 

does not include System institution 

loans to a reportable business entity; 

service on the board of directors of the 

Federal Agricultural Mortgage 

Corporation; or transactions with nonprofit entities; or entities in which the 

System institution has an ownership 

interest. Exceptions: You may serve as a 

director or employee of an employee 

credit union, and you may serve as an 

employee of another System institution 

as permitted under paragraph (b)(4) of 

this section. 

(2) Act as a real estate agent or broker. 

Do not act as a real estate agent or 

broker, unless you are buying or selling 

real estate for your own use or for a 

family member or a person living in 

your home. 

(3) Act as an insurance agent or 

broker. Do not act as an insurance agent 

or broker for the sale and placement of 

insurance, unless authorized by section 

4.29 of the Act. 

(4) Serve as a joint employee. 

(i) If you are currently employed as an 

officer with a System bank, you cannot 

serve as an employee of a supervised 

association. 

(ii) If you are currently employed with 

a bank, but not as an officer, you may 

be an officer of a supervised association 

only if: 

(A) Both boards authorize such 

service in an extraordinary situation; 

(B) The duties and compensation at 

each institution is delineated in the 

board’s approval; and 

(C) Reasonable prior notice is 

provided to the Farm Credit 

Administration. 

(iii) You may be both a non-officer 

employee at a System bank and a 

supervised association, if employee 

expenses are appropriately reflected in 

each institution’s financial statements. 

§§ 612.2140–612.2165 [Reserved] 

§ 612.2170 Standards of Conduct Official. 

The Standards of Conduct Official 

must: 

(a) Implement and enforce the 

institution’s Standards of Conduct 

Program. 

(b) Provide guidance and information 

to directors and employees on conflicts 

of interest. 

(c) Administer periodic, but at a 

minimum, annual standards of conduct 

training to directors and employees that 

includes: 

(1) Procedures for the review of and 

recommendation for any revisions to the 

institution’s standards of conduct rules 

and Code of Ethics; 

(2) Procedures for reporting 

anonymously known or suspected 

violations of standards of conduct, Code 

of Ethics and unethical conduct; 

(3) Rules for prohibited conduct; 

(4) Fiduciary duties; 

(5) Conflicts of interest and apparent 

conflicts of interest; 

(6) Reporting requirements; and 

(7) New director training within 60 

calendar days before the beginning of 

the director’s election or term; and new 

employee training within 5 business 

days of the beginning of employment. 

(d) Help all directors and employees 

identify conflicts of interest and report 

financial interests in accordance with 

§ 612.2138. 

(e) Make written determinations on 

how conflicts of interest will be 

resolved consistent with your 

institution’s Standards of Conduct 

Program. 

(f) Document resolved and unresolved 

conflicts of interest that are material or 

significant. Maintain documentation 

that explains how conflicts are being 

handled. 

(g) Report to your institution’s board 

of directors or designated board 

committee: 

(1) Instances of standards of conduct 

or Code of Ethics non-compliance, 

promptly upon completion of any 

investigation or determination; and 

(2) Administration of the Standards of 

Conduct Program, periodically as 

determined by the written policies and 

procedures of your institution. 

§§ 612.2260–612.2270 [Reserved] 

Dated: June 12, 2018. 

Dale L. Aultman, 

Secretary, Farm Credit Administration Board. 

[FR Doc. 2018–12874 Filed 6–14–18; 8:45 am] 

BILLING CODE 6705–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 110 

[Docket Number USCG–2018–0388] 

Anchorage Ground; Sabine Pass, TX 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of inquiry; request for 

comments. 

SUMMARY: We are requesting your 

comments on a request we received 

from Sabine Pass LNG, L.P. for the 

disestablishment of the Sabine Pass 

Channel Anchorage Ground in Sabine, 

TX. The request indicates that deep 

draft ships do not use the anchorage and 

that disestablishment of the anchorage 

would not pose a concern for ship 

traffic. We seek your comments on 

whether we should consider a proposed 

rulemaking disestablishing the Sabine 

Pass Anchorage Ground based on this 

request or if other actions, such as 

reducing the size of the anchorage, 

should be considered. 

DATES: Your comments and related 

material must reach the Coast Guard on 

or before July 16, 2018. 

ADDRESSES: You may submit comments 

identified by docket number USCG– 

2018–0388 using the Federal portal at 

http://www.regulations.gov. See the 

‘‘Public Participation and Request for 

Comments’’ portion of the 

SUPPLEMENTARY INFORMATION section for 

further instructions on submitting 

comments. 


sradovich on DSK3GMQ082PROD with PROPOSALS