```

[Federal Register Volume 78, Number 10 (Tuesday, January 15, 2013)]
[Notices]
[Pages 2939-2945]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00674]

========================================================================
Notices
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains documents other than rules 
or proposed rules that are applicable to the public. Notices of hearings 
and investigations, committee meetings, agency decisions and rulings, 
delegations of authority, filing of petitions and applications and agency 
statements of organization and functions are examples of documents 
appearing in this section.

========================================================================


Federal Register / Vol. 78, No. 10 / Tuesday, January 15, 2013 / 
Notices

[[Page 2939]]

ADMINISTRATIVE CONFERENCE OF THE UNITED STATES

Adoption of Recommendations

AGENCY: Administrative Conference of the United States.

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: The Administrative Conference of the United States adopted 
three recommendations at its Fifty-seventh Plenary Session. The 
appended recommendations address reforms to 28 U.S.C. 1500, third-party 
programs to assess regulatory compliance, and inflation adjustment for 
civil penalties.

FOR FURTHER INFORMATION CONTACT: For Recommendation 2012-6, Emily 
Bremer; for Recommendation 2012-7, David Pritzker; for Recommendation 
2012-8, Stephanie J. Tatham. For all three recommendations the address 
and phone number are: Administrative Conference of the United States, 
Suite 706 South, 1120 20th Street NW., Washington, DC 20036; Telephone 
202-480-2080.

SUPPLEMENTARY INFORMATION: The Administrative Conference Act, 5 U.S.C. 
591-596, established the Administrative Conference of the United 
States. The Conference studies the efficiency, adequacy, and fairness 
of the administrative procedures used by Federal agencies and makes 
recommendations for improvements to agencies, the President, Congress, 
and the Judicial Conference of the United States (5 U.S.C. 594(1)). For 
further information about the Conference and its activities, see http://www.acus.gov.
    At its Fifty-seventh Plenary Session, held December 6-7, 2012, the 
Assembly of the Conference adopted three recommendations. 
Recommendation 2012-6, ``Reform of 28 U.S.C. Section 1500,'' urges 
Congress to repeal Section 1500, which divests the U.S. Court of 
Federal Claims of jurisdiction when a plaintiff has claims against the 
government based on substantially the same operative facts pending in 
another court, and replace it with a provision that would create a 
presumption that in such circumstances, later-filed actions would be 
stayed. The Administrative Conference Member from the Department of 
Justice filed a separate statement noting the Department's disagreement 
with the recommendation, which is printed following the recommendation.
    Recommendation 2012-7 addresses issues that arise when agencies 
develop programs in which third parties assess whether regulated 
entities are in compliance with regulatory standards and other 
requirements. In some areas of regulation, Congress has directed 
agencies to develop a third-party program; in others, regulatory 
agencies have developed programs under existing statutory authority. 
The recommendation sets forth guidance for federal agencies that are 
establishing, or considering establishing, such programs.
    Recommendation 2012-8, ``Inflation Adjustment Act,'' addresses 
agency adjustments to civil monetary penalties under the Federal Civil 
Penalties Inflation Adjustment Act, codified as amended at 28 U.S.C. 
2461 note. The recommendation urges Congress to change the current 
statutory framework by which agencies periodically adjust their 
penalties to address three provisions that result in penalty 
adjustments that may not track the actual rate of inflation. It also 
advises agencies to adjust their penalties for inflation as required by 
the law.
    The Appendix (below) sets forth the full texts of these three 
recommendations. The Conference will transmit them to affected agencies 
and to appropriate committees of the United States Congress. The 
recommendations are not binding, so the relevant agencies, the 
Congress, and the courts will make decisions on their implementation.
    The Conference based these recommendations on research reports that 
it has posted at: http://www.acus.gov/events/57th-plenary-session/. A 
video of the Plenary Session is available at the same web address, and 
a transcript of the Plenary Session will be posted once it is 
available.

    Dated: January 10, 2013.
Paul R. Verkuil,
Chairman.

Appendix--Recommendations of the Administrative Conference of the 
United States

Administrative Conference Recommendation 2012-6

Reform of 28 U.S.C. 1500

Adopted December 6, 2012

    The Administrative Conference of the United States has long had 
an interest in ensuring appropriate judicial review of Government 
actions and in considering related questions regarding jurisdiction 
and forum. For example, the Conference's seminal Recommendation 69-1 
recommended amendment of the Administrative Procedure Act--
subsequently enacted by Congress--to waive sovereign immunity and 
thereby permit citizens ``to challenge in courts the legality of 
acts of governmental administrators.'' \1\ Recommendation 68-7 
encouraged Congress to revise the general ``federal question'' 
provision in Title 28 of the U.S. Code in order to eliminate the 
jurisdictional-amount requirement for district court actions seeking 
review of federal administrative actions.\2\ The Conference has also 
recommended ways to improve procedures in suits involving the 
federal government.\3\
---------------------------------------------------------------------------

    \1\ Administrative Conference of the United States, 
Recommendation 69-1, ``Statutory Reform of the Sovereign Immunity 
Doctrine,'' 1 ACUS 23 (1969).
    \2\ Administrative Conference of the United States, 
Recommendation 68-7, ``Elimination of Jurisdictional Amount 
Requirement in Judicial Review,'' 1 ACUS 22 (1968).
    \3\ E.g., Administrative Conference of the United States, 
Recommendation 80-5, Eliminating or Simplifying the ``Race to the 
Courthouse'' in Appeals From Agency Action, 45 FR 84954 (Dec. 24, 
1980); Administrative Conference of the United States, 
Recommendation 82-3, Federal Venue Provisions Applicable to Suits 
Against the United States, 47 FR 30706 (June 18, 1982).
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    Building upon the principles underlying such Recommendations, 
the Conference addresses another bar to judicial review which 
deprives some litigants of their rights--28 U.S.C. 1500 (Section 
1500). Section 1500 prohibits consideration by the United States 
Court of Federal Claims of otherwise cognizable claims while the 
plaintiff has litigation against the United States or an officer 
thereof ``pending in any other court'' and arising from 
substantially the same operative facts.\4\
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    \4\ Section 1500 of Title 28 of the United States Code reads in 
full:
    The United States Court of Federal Claims shall not have 
jurisdiction of any claim for or in respect to which the plaintiff 
or his assignee has pending in any other court any suit or process 
against the United States or any person who, at the time when the 
cause of action alleged in such suit or process arose, was, in 
respect thereto, acting or professing to act, directly or indirectly 
under the authority of the United States.
    28 U.S.C. 1500 (2012). See also United States v. Tohono O'odham 
Nation, 131 S. Ct. 1723, 1731 (2011) (``Two suits are for or in 
respect to the same claim, precluding jurisdiction in the [Court of 
Federal Claims], if they are based on substantially the same 
operative facts, regardless of the relief sought in each suit.'').

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[[Page 2940]]

    With its origins in the Reconstruction era, the statutory 
predecessor to Section 1500 arose against the backdrop of a 
proliferating number of suits, in multiple fora, by residents of the 
Confederacy who sought compensation from the United States for 
property (typically, cotton) seized during the Civil War.\5\ To curb 
this duplicative litigation, Congress enacted legislation divesting 
the Court of Claims (the trial court predecessor to the Court of 
Federal Claims) of jurisdiction when a plaintiff had a related 
action against the United States or an officer thereof pending in 
another court. This legislation was reenacted several times, most 
recently in 1948 as Section 1500 of the Judicial Code, and the 
provision's jurisdictional limitation has remained essentially 
unchanged.\6\ Though the ``cotton claimants'' are long gone, Section 
1500's restrictions on the jurisdiction of the Court of Federal 
Claims remain.
---------------------------------------------------------------------------

    \5\ See, e.g., Keene Corp. v. United States, 508 U.S. 200, 206 
(1993).
    \6\  Id.
---------------------------------------------------------------------------

    Application of Section 1500 in the context of modern-day federal 
court jurisdiction and complex litigation, however, causes serious 
problems for courts and litigants alike. Plaintiffs confront 
difficult questions of forum selection and timing when the same set 
of operative facts arguably gives rise to two or more claims against 
the United States--for which Congress has otherwise waived sovereign 
immunity--but the Court of Federal Claims has exclusive jurisdiction 
over one or more claims, and another federal court has exclusive 
jurisdiction over the other claims. Does a claim sound properly in 
contract (within the exclusive jurisdiction of the Court of Federal 
Claims) or in tort (within the exclusive jurisdiction of district 
courts)? Where the answer is not clear or could be both, the choice 
of any other court for an initial filing could result in dismissal 
of a claimant's subsequent suit in the Court of Federal Claims under 
Section 1500. When a plaintiff prosecutes a challenge to agency 
action in district court based on the Administrative Procedure Act 
(which may necessarily precede pursuit of any monetary relief for 
the same claim in the Court of Federal Claims) appellate proceedings 
on his or her Administrative Procedure Act litigation could well 
carry past the Court of Federal Claims' six-year statute of 
limitations. Thus, in conjunction with the statute of limitations, 
Section 1500 may foreclose full recovery for plaintiffs prosecuting 
meritorious claims in good faith.
    Section 1500 affects a wide variety of plaintiffs with many 
different kinds of claims. Federal employees, property owners, 
businesses, local governments, and Indian tribes may be affected. 
The statute may present intractable jurisdictional conundrums for 
sophisticated litigants and pro se plaintiffs alike. Examples of the 
diverse parties and claims affected include:
     A federal employee's claims under the Equal Pay Act 
were transferred to and dismissed by the Court of Federal Claims for 
lack of jurisdiction because the Title VII claims with which the 
action was filed in district court were considered ``pending'' under 
Section 1500, even though the district court already had entered 
summary judgment on all non-transferred claims.\7\
---------------------------------------------------------------------------

    \7\ Griffin v. United States, 590 F.3d 1291 (Fed. Cir. 2009).
---------------------------------------------------------------------------

     Characterizing the result as ``neither fair nor 
rational,'' the Court of Federal Claims dismissed a Fifth Amendment-
based takings claim filed pro se by property owners and that had 
been transferred from a district court tort action, despite finding 
that the uncertain legal distinction between tort and takings 
actions made plaintiffs' confusion about the appropriate forum 
``understandable.'' \8\
---------------------------------------------------------------------------

    \8\ Vaizburd v. United States, 46 Fed. Cl. 309, 311-12 (Fed. Cl. 
2000).
---------------------------------------------------------------------------

     A government contractor's bid protest action was 
rejected by the Court of Federal Claims as jurisdictionally lacking 
because the plaintiff had previously sued in district court under 
the Administrative Procedure Act--even though the district court had 
already dismissed on the ground that the plaintiff's exclusive 
remedy was in the Court of Federal Claims.\9\
---------------------------------------------------------------------------

    \9\ Vero Technical Support v. United States, 94 Fed. Cl. 784 
(Fed. Cl. 2010).
---------------------------------------------------------------------------

     A local government sued by the United States over 
taxation of certain federal office buildings counterclaimed for the 
taxes it believed it was owed. The counterclaims were transferred to 
the Court of Federal Claims--and dismissed under Section 1500.\10\
---------------------------------------------------------------------------

    \10\ United States v. County of Cook, 170 F.3d 1084, 1091-92 
(Fed. Cir. 1994).
---------------------------------------------------------------------------

     An Indian tribe suing in the Court of Federal Claims 
for breach of trust had its claims dismissed under Section 1500 
because it had filed a related action in the district court on the 
same day.\11\
---------------------------------------------------------------------------

    \11\ Passamaquoddy Tribe v. United States, 82 Fed. Cl. 256 (Fed. 
Cl. 2008). Notably, if the plaintiff tribe had filed its district 
court action one day later, it would have been permitted to proceed 
simultaneously in both the Court of Federal Claims and district 
court under Federal Circuit precedent. See Tecon Engineers, Inc. v. 
United States, 170 Ct. Cl. 389 (Ct. Cl. 1965).
---------------------------------------------------------------------------

    Because of the barrier it imposes on some plaintiffs pursuing 
cognizable claims against the United States, Section 1500 has been 
strongly criticized by litigants, courts, and legal scholars as 
overly harsh, anachronistic, unfair, and in need of reform.\12\
---------------------------------------------------------------------------

    \12\ Emily S. Bremer & Jonathan R. Siegel, The Need to Reform 28 
U.S.C. Sec.  1500 (2012) (report to the Administrative Conference of 
the U.S.) (collecting criticism of Section 1500), available at 
www.acus.gov.
---------------------------------------------------------------------------

    On the other hand, some of the aims attributed to Section 1500 
have modern relevance. In United States v. Tohono O'odham Nation, 
the Supreme Court held that Section 1500 applies to any claim filed 
in the Court of Federal Claims that shares substantially the same 
operative facts as a claim pending in another court.\13\ The 
decision thus reversed Federal Circuit precedent that allowed the 
Court of Federal Claims to retain jurisdiction over a claim under 
Section 1500 if a plaintiff sought different relief in the Court of 
Federal Claims than it sought in another forum. This had the effect 
of expanding the range of cases to which Section 1500 could be found 
to apply. The Supreme Court faulted the Federal Circuit for saying 
that it ``could not identify `any purpose that Sec.  1500 serves 
today.' '' \14\ The Court remarked that ``the statute's purpose is 
clear from its origins with the cotton claimants--the need to save 
the Government from burdens of redundant litigation--and that 
purpose is no less significant today.'' \15\
---------------------------------------------------------------------------

    \13\ Tohono, 131 S. Ct. at 1731.
    \14\ Id. at 1729.
    \15\ Id. at 1730.
---------------------------------------------------------------------------

    In Tohono, the Supreme Court also observed that ``[i]f indeed 
the statute leads to incomplete relief'' or causes undue hardship 
for plaintiffs, citizens are ``free to direct their complaints to 
Congress.'' \16\ After careful consideration and consultation with 
affected parties over eighteen months, including the Department of 
Justice, the Conference accepts the Court's invitation to approach 
Congress. While Section 1500's purpose as articulated in Tohono has 
legitimate aspects, the Conference's research reveals that the 
statute is an undesirably blunt tool for reducing the duplicative 
burdens that may arise from simultaneous litigation. Federal courts 
have both the authority and the competence to use measures such as 
stays, transfers, and the doctrine of preclusion to prevent double 
recoveries and ease the burdens of simultaneous litigation on the 
Government without unfairly depriving plaintiffs of the opportunity 
to pursue all potentially meritorious claims against the United 
States.\17\ Replacing Section 1500 with a context-specific judicial 
management tool for simultaneous litigation in different fora would 
also better serve Congress's various waivers of sovereign immunity.
---------------------------------------------------------------------------

    \16\ Id. at 1731.
    \17\  E.g., 28 U.S.C. 1631; see also Court of Federal Claims 
Technical and Procedural Improvements Act, Hearing on S. 2521 Before 
the S. Comm. on the Judiciary, 102nd Cong. 59 (Apr. 29, 1992) 
(statement of Hon. Loren Smith, Chief Judge, U.S. Claims Court) 
(observing that repeal of Section 1500 would save ``wasteful 
litigation over non-merits issues'' and that the ``Court can stay 
duplicative litigation, if the matter is being addressed in another 
forum, or proceed with the case, if the matter appears to be stalled 
in the other forum'').
---------------------------------------------------------------------------

    Accordingly, the Administrative Conference recommends that 
Congress repeal Section 1500. The Conference further recommends that 
Congress replace Section 1500 with a provision that permits 
plaintiffs to bring congressionally authorized suits arising from 
the same set of operative facts in the Court of Federal Claims and 
other federal courts at the same time, but also contains a 
presumptive stay mechanism to mitigate any burden on the courts or 
parties from simultaneous litigation.\18\ As a general

[[Page 2941]]

rule, the later-filed action should be the subject of the 
presumptive stay. Nonetheless, the Administrative Conference 
recognizes that a stay presumption may not be appropriate in all 
situations. In the absence of other compelling considerations, the 
presumption of a stay should not apply where the parties agree that 
the later-filed action should proceed.
---------------------------------------------------------------------------

    \18\ This position comports with that of the Judicial Conference 
of the United States in 1995, which dropped its historical 
opposition to the repeal of Section 1500 so long as such repeal was 
``accompanied by a provision for stay or transfer of duplicative 
claims.'' Judicial Conference of the United States, Report of the 
Proceedings of the Judicial Conference of the United States 83 
(Sept. 19, 1995).
---------------------------------------------------------------------------

    In various situations, the interests of justice may override the 
presumption favoring a stay in the later-filed action. Such a 
situation might exist, for example, where a decision in the first-
filed action is dependent on the outcome of a later-filed action, or 
where the later-filed action requires factual discovery from 
witnesses who might not be available in the future. Alternatively, a 
plaintiff might have a strong interest in obtaining prompt 
resolution in the Court of Federal Claims of a claim for just 
compensation stemming from an agency decision, even though the 
ultimate validity of the decision remains at issue in an earlier-
filed district court action. These examples are not intended to be 
exhaustive.
    The Administrative Conference also recommends that repeal of the 
current Section 1500 apply to claims pending at the time the 
Recommendation is enacted.\19\ Elimination of Section 1500's 
jurisdictional bar for current litigants would directly serve their 
fairness interests, without substantially impairing the Government's 
reliance interests or disrupting the orderly progress of any pending 
litigation. A specific pronouncement by Congress on this important 
issue would also avoid unnecessary litigation over the application 
of the repeal legislation.
---------------------------------------------------------------------------

    \19\ Application of new procedural legislation to pending cases 
is not uncommon in the law. Landgraf v. USI Film Prods., 511 U.S. 
244, 274 (1994) (noting that the Court has ``regularly applied 
intervening statutes conferring or ousting jurisdiction, whether or 
not jurisdiction lay when the underlying conduct occurred or when 
the suit was filed.'')
---------------------------------------------------------------------------

Recommendation

    1. Congress should repeal 28 U.S.C. 1500 (2012).
    2. Congress should enact a new statute as follows:

28 U.S.C. Section 1500.

    Presumption of Stay. Whenever a civil action is pending in the 
United States Court of Federal Claims, or on appeal from the Court 
of Federal Claims, and the plaintiff or his assignee also has 
pending in any other court (as defined in section 610 of this title) 
any claim against the United States or an agency or officer thereof 
involving substantially the same operative facts, the court 
presiding over the later-filed action shall stay the action, in 
whole or in part, until the first action is no longer pending. If 
such actions or appeals were filed on the same day, regardless of 
the time of day, the United States Court of Federal Claims action 
shall be treated as having been filed first. This provision shall 
not apply if the parties otherwise agree or if the stay is not or 
ceases to be in the interest of justice.
    3. The public law that enacts the provision in paragraph two 
should contain the following additional provision:
    EFFECTIVE DATE--[The presumptive stay provision] shall apply to 
all claims pending on or after the date of its enactment, unless the 
later-filed action is pending in a court of appeals or the Supreme 
Court. No claim in a case pending on or after the date of enactment 
of this Act shall be subject to the jurisdictional bar previously 
imposed by former Section 1500 of Title 28, United States Code prior 
to the enactment of this Act.

Separate Statement of Government Member Elana Tyrangiel, Acting 
Assistant Attorney General, U.S. Department of Justice

    The preamble to the Administrative Conference of the United 
States (ACUS) Recommendation entitled ``Reform of 28 U.S.C. Section 
1500'' states: ``After careful consideration and consultation with 
affected parties over eighteen months, including the Department of 
Justice, the Conference accepts the Court's invitation to approach 
Congress [to recommend replacing the existing Section 1500 with a 
substitute provision formulated by ACUS].'' The Department of 
Justice writes separately to make clear that it did not support 
adoption of the recommendation, and that the Department believes 
ACUS's proposed statutory substitute has serious flaws.

Administrative Conference Recommendation 2012-7

Agency Use of Third-Party Programs To Assess Regulatory Compliance

Adopted December 6, 2012

    Federal agencies in diverse areas have developed third-party 
programs to assess whether regulated entities are in compliance with 
regulatory standards and other requirements. Through these programs, 
third parties assess the safety of imported food, children's 
products, medical devices, cell phones and other telecommunications 
equipment, and electrical equipment used in workplaces. Third 
parties also ensure that products labeled as organic, energy-
efficient, and water-efficient meet applicable federal standards. In 
these regulatory third-party programs, regulated entities generally 
contract with and pay third parties to carry out product testing, 
facility inspections, and other regulatory compliance assessment 
activities in the place of regulatory agencies. Regulatory agencies 
then adopt new roles in coordinating and overseeing these third-
parties.\1\
---------------------------------------------------------------------------

    \1\ Agencies may use third parties in connection with 
regulatory, procurement, and federal assistance programs. This 
recommendation addresses use of third parties in regulatory 
programs.
---------------------------------------------------------------------------

    In some areas of regulation, Congress has directed federal 
agencies to develop a third-party program; in others, regulatory 
agencies have developed programs under existing statutory authority. 
A third-party program is just one of many regulatory approaches that 
Congress and agencies may adopt.\2\ Regulatory objectives may, for 
example, be adequately met by requiring regulated entities to self-
assess and report their compliance (sometimes referred to as 
``first-party certification''). Also, statutory restrictions on 
information disclosure or other legal restrictions may preclude an 
agency from using third parties to conduct inspections and other 
compliance assessment activities. Some compliance assessment 
activities may be inherently governmental, and thus require 
performance by government personnel.\3\
---------------------------------------------------------------------------

    \2\ The Administrative Conference has addressed various 
approaches in prior recommendations. See, e.g., Recommendation 94-1, 
The Use of Audited Self-Regulation as a Regulatory Technique, 59 FR 
44,701 (Aug. 30, 1994); Recommendation 89-1, Peer Review and 
Sanctions in the Medicare Program, 54 FR 28,965 (Jul. 10, 1989); 
Recommendation 78-4, Federal Agency Interaction with Private 
Standard-Setting Organizations, 44 FR 1357 (Jan. 5, 1979).
    \3\ Office of Mgmt. & Budget, OMB Circular No. A-76 (Revised May 
29, 2003).
---------------------------------------------------------------------------

    Several broad reasons support the growing use of third-party 
programs in federal regulation. In many areas, federal regulatory 
agencies are faced with assuring the compliance of an increasing 
number of entities and products without a corresponding growth in 
agency resources. Third-party programs may leverage private 
resources and expertise in ways that make regulation more effective 
and less costly. In comparison with other regulatory approaches, 
third-party programs may also enable more frequent compliance 
assessment and more complete and reliable compliance data. Because 
agencies can authorize third parties located in other countries to 
undertake assessment activities, third-party programs may be 
particularly effective when regulated products or processes are 
international in scope.
    Regulatory third-party programs raise a host of important 
questions. Because third-party programs represent a partial 
privatization of the public function of implementing and enforcing 
regulatory law, they are a form of ``public-private governance,'' in 
which private actors play roles that are traditionally viewed as 
governmental in nature.\4\ While third-party programs may increase 
regulatory compliance or otherwise improve the performance of 
regulated entities and products, these programs also pose risks.\5\ 
If they are not well-conceived and well-operated, they may both 
undermine the achievement of regulatory goals and impose unnecessary 
costs on agencies and regulated entities.
---------------------------------------------------------------------------

    \4\ See William J. Novak, Public-Private Governance: A 
Historical Introduction, in Government by Contract: Outsourcing and 
American Democracy (Freeman and Minow, eds., Harvard University 
Press, 2009); Martha Minow, Public and Private Partnerships: 
Accounting for the New Religion, 116 Harv. L. Rev. 1229, 1230 (2002-
2003); Jody Freeman, Extending Public Law Norms through 
Privatization, 116 Harv. L. Rev. 1285, 1286-87 (2002-2003); Jody 
Freeman, Private Parties, Public Functions and the New 
Administrative Law, in Recrafting the Rule of Law: The Limits of 
Legal Order 331 (David Dyzenhaus ed., Hart, 1999).
    \5\ See Lesley K. McAllister, Regulation by Third-Party 
Verification, 53 B.C. L. Rev. 1 (2012).
---------------------------------------------------------------------------

    Frequently, regulatory third-party programs use the practices 
and terminology

[[Page 2942]]

of a conformity assessment framework that has been developed by 
international private-sector standards organizations. ``Conformity 
assessment'' is defined in international standards as the 
``demonstration that specified requirements relating to a product, 
process, system, person, or body are fulfilled.'' \6\ International 
standards also set forth how the organizations that conduct 
conformity assessment--``conformity assessment bodies,'' which are 
usually private organizations--should operate. International 
standards have been developed for various types of conformity 
assessment bodies, including testing bodies, certification bodies, 
and inspection bodies.
---------------------------------------------------------------------------

    \6\ American National Standards Institute (ANSI), National 
Conformity Assessment Principles for the United States, 3, available 
at http://publicaa.ansi.org/sites/apdl/Documents/News%20and%20Publications/Brochures/NCAP%20second%20edition.pdf.
---------------------------------------------------------------------------

    Recognizing the assessment of regulatory compliance as a form of 
conformity assessment, many federal agencies that have established 
third-party programs have relied on conformity assessment standards 
and bodies. Agencies may require, for example, that third parties 
that certify conformity with regulatory requirements operate in 
accordance with the international standards for certification 
bodies. Federal agencies may also require that the third parties be 
accredited by accreditation bodies that operate in accordance with 
international accreditation standards. Accreditation bodies are 
established in many countries, and they may be either private or 
governmental.
    Agencies that establish third-party programs generally cannot or 
do not delegate their regulatory authority to conformity assessment 
bodies. Rather, agencies authorize conformity assessment bodies to 
perform certain technical tasks to assess conformity, and regulatory 
agencies rely on these assessments in their own enforcement of 
regulatory requirements. The goal is to leverage private expertise 
and resources to serve regulatory objectives. Because the regulatory 
agency must remain ultimately responsible for achieving regulatory 
objectives, it is vital to provide public oversight of third-party 
assessment activities.
    A key resource for agencies considering a regulatory third-party 
program is the National Institute of Standards and Technology 
(NIST), which has the responsibility under the National Technology 
Transfer and Advancement Act of 1995 to coordinate government 
conformity assessment activities with similar activities of private-
sector entities, with the goal of avoiding unnecessary duplication 
and complexity. Following Office of Management and Budget (OMB) 
Circular A-119, NIST published guidance in 2000 for federal agencies 
on conformity assessment activities.\7\ NIST: (1) provides advice, 
solutions, and program support for development of technical 
standards and conformity assessment programs to support agency 
missions; and (2) develops and conducts customized standards-related 
workshops and educational events for government.
---------------------------------------------------------------------------

    \7\ OMB Circular A-119 Revised Sec. Sec.  8, 13(e) (Feb. 10, 
1998); NIST, Guidance on Federal Conformity Assessment Activities, 
65 FR 48,894 (Aug. 10, 2000).
---------------------------------------------------------------------------

    Recognizing the growing use of third parties and the issues it 
raises, the Administrative Conference makes this recommendation to 
assist federal agencies in determining whether and how to establish 
third-party programs to assess regulatory compliance. The 
recommendation first suggests that, when considering a third-party 
program, agencies should consult relevant governmental and 
nongovernmental resources. Next, agencies should compare the 
advantages and disadvantages of a third-party approach to a more 
traditional approach of direct governmental compliance assessment. 
Also, if an agency is considering a program in which regulated 
entities could choose whether to contract with a third party for 
regulatory compliance assessment, it should first determine that 
regulated entities will have sufficient incentives to choose to 
contract with a third party.
    The recommendation then sets forth considerations for agencies 
after they have decided to establish a third-party program. An 
agency should design conformity assessment programs to be 
proportional to the risks associated with regulatory noncompliance. 
When regulatory noncompliance implies serious risk to public health, 
safety, or other important values, third-party program rules should 
guarantee a high degree of rigor and independence. When possible, 
the agency should incorporate existing conformity assessment 
standards, which may avoid unnecessary duplication and create 
efficiencies for both agencies and regulated entities. The agency 
should also ensure appropriate government and public access to 
information about program operation. Finally, the agency should 
undertake appropriate oversight activities to ensure that the third-
party program fulfills its regulatory purpose.

Recommendation

A. Considerations for a Federal Agency When Deciding Whether To 
Develop a Third-Party Program To Assess Regulatory Compliance

    1. Resources. When considering whether to develop a third-party 
program to assess regulatory compliance, the agency should consult 
governmental and non-governmental resources relating to third-party 
conformity assessment, as appropriate. These include, but are not 
limited to, the National Institute of Standards and Technology 
(NIST); private conformity assessment standards, particularly the 
standards of the International Organization for Standardization 
(ISO); and conformity assessment bodies, for practical input on 
feasibility and the impacts on the regulated entities.
    2. Compare Regulatory Approaches. The agency should compare a 
third-party approach with direct governmental assessment of 
compliance. In choosing between them, the agency should evaluate the 
advantages and disadvantages of these approaches, with consideration 
of:
    (a) whether third-party conformity assessment is likely to be 
effective in practice and as a technical matter for the applicable 
regulatory standards and context;
    (b) the costs and potential delay that may result from 
developing and establishing a third-party program;
    (c) the capacity of the agency to perform effective oversight 
and its related costs;
    (d) the potential for the agency to achieve efficiencies through 
reducing its direct compliance assessment costs and resource needs;
    (e) the costs to regulated entities of paying third parties to 
perform conformity assessment activities, which are likely to be of 
particular concern to small businesses;
    (f) the potential for development of a well-functioning market 
in third-party conformity assessment services; and
    (g) the benefits that may accrue to regulated entities by, for 
example, receiving regulatory approval to market their products more 
quickly or simultaneously satisfying the regulatory requirements of 
other agencies to which they are subject, including state agencies 
or agencies in other countries. (See Administrative Conference of 
the United States, Recommendation 2011-6, International Regulatory 
Cooperation, 77 FR 2257, 2259 (Jan. 17, 2012); Exec. Order 13,609 
(May 1, 2012); Exec. Order 13,563 (Jan. 18, 2011)).
    3. Evaluate Incentives. If an agency is contemplating a third-
party program in which regulated entities would have the choice of 
either contracting with third parties or being assessed directly by 
the agency, the agency should evaluate whether sufficient incentives 
exist or can be created to attract the participation of regulated 
entities in the third-party program. Incentives for regulated 
entities to utilize third parties may include:
    (a) exemption from a governmental fee that would otherwise be 
applicable; or
    (b) the ability to satisfy the regulatory requirements of 
multiple jurisdictions through a single third-party conformity 
assessment engagement.

B. Considerations for a Federal Agency When Establishing a Third-
Party Program to Assess Regulatory Compliance

    4. Proportionality to the Risk. An agency that has decided to 
establish a third-party program to assess regulatory compliance, or 
is directed by statute or other provision of law to do so, should 
design its conformity assessment program to be proportional to the 
risks associated with regulatory noncompliance. When the risks are 
high, a conformity assessment program should be characterized by 
high degrees of rigor and independence. When the risks associated 
with noncompliance are lower, the regulatory objective may be 
achievable with less rigor and independence. Types of rules that may 
be established by the agency to help ensure rigor and independence 
include:
    (a) accreditation rules that set high standards of competence 
for the accreditation of third parties;
    (b) selection rules that pertain to how regulated entities 
select third parties, requiring, for example, that third parties 
disclose conflicts of interests or that regulated entities contract 
with a different third party after a specified number of 
assessments;

[[Page 2943]]

    (c) performance rules that require third parties to perform a 
rigorous set of assessment activities; and
    (d) reporting rules that require third parties to provide 
sufficient information to the agency and the public about the 
process and outcomes of assessment activities.
    5. Use of Existing Conformity Assessment Standards. The agency 
should consider relying on existing conformity assessment standards, 
particularly international standards that set forth requirements for 
conformity assessment and accreditation bodies. Incorporating 
existing standards may reduce costs for the agency and for the 
regulated entities. To evaluate the suitability of using existing 
standards, the agency should take into account the following 
considerations:
    (a) When an agency incorporates existing conformity assessment 
standards into its program requirements, important concerns may 
arise about the public availability of those standards due to the 
costs of obtaining copyrighted materials. When an agency considers 
incorporating copyrighted material by reference, the agency should 
be cognizant of issues relating to incorporation by reference. (See 
Administrative Conference of the United States, Recommendation 2011-
5, Incorporation by Reference, 77 FR 2257 (Jan. 17, 2012));
    (b) An agency that anticipates the use of conformity assessment 
bodies in other countries may particularly benefit by recognizing 
accreditation bodies that operate in accordance with international 
standards rather than the agency itself accrediting conformity 
assessment bodies;
    (c) When an agency incorporates existing standards into its 
requirements for third parties, it can supplement those standards 
with program-specific rules. An agency may require, for example, 
that in addition to being accredited to an international standard, a 
conformity assessment body must satisfy accreditation rules specific 
to the third-party program; and
    (d) Agencies should also be aware that existing conformity 
assessment standards may include confidentiality provisions that 
apply to information collected during the assessment. Agencies 
should consider when disclosure to agencies and/or the public is 
necessary and when confidentiality may be justified. Program-
specific reporting rules, as discussed in section 6 below, may be 
necessary to enable appropriate governmental or public access to 
such information.
    6. Access to Information. The agency should ensure that both the 
government and the public will have appropriate access to 
information about program operations. An agency's development of 
third-party program rules and guidance should include notice and an 
opportunity for public participation. Also, the agency should 
provide information to the public about the roles and identities of 
the third parties associated with a regulatory program. Finally, the 
agency should establish reporting rules that require third parties 
to provide information to the agency based on the following 
considerations:
    (a) The reporting rules should facilitate transparency. 
Information about the compliance of regulated entities should be 
available from the agency to the public, comparable to what would be 
available in the absence of a third-party program. Agencies may also 
be able to provide additional compliance information to the public 
that was not available before the third-party program;
    (b) The reporting rules should facilitate appropriate agency 
oversight. For example, conformity assessment bodies can be required 
to report to the agency potential conflicts of interest before 
performing a conformity assessment, or provide the dates of their 
assessment activities so that the agency can conduct site visits;
    (c) In certain circumstances, the agency might have reporting 
rules that require conformity assessment bodies to send assessment 
results directly to the agency; and
    (d) The agency might require conformity assessment bodies and/or 
regulated entities to report electronically, which may facilitate 
the provision of information to the public.
    7. Agency Oversight. The agency has a duty to exercise oversight 
to ensure that the third-party program is fulfilling its regulatory 
purpose. An agency should generally set forth how it intends to 
conduct such oversight. For example, it may annually audit a certain 
number of accreditations or conformity assessments, or carry out a 
market surveillance program to test regulated products off-the-
shelf. In exercising oversight, the agency should also take into 
account the following considerations:
    (a) Beyond conducting direct oversight, an agency can require 
third parties to conduct additional assessment activities that 
provide further information to the agency about program operation. 
For example, an agency may require accreditation bodies annually to 
audit a certain number of conformity assessments, or it may require 
conformity assessment bodies to conduct particular types of 
surveillance on products they assess;
    (b) The agency should establish procedures for receiving and 
responding to public complaints regarding potential noncompliance or 
other aspects of program operation. The agency could, for example, 
require a third party that has assessed the conformity of a 
regulated product or entity to investigate a complaint of 
noncompliance. In any event, the agency should ensure that 
complaints are resolved in an appropriate and timely manner; and
    (c) The agency should make clear the possible adverse actions 
that it may take against third parties that do not comply with 
program rules. A key adverse action is removing third parties from 
the program. Third parties may be removed temporarily through a 
suspension of accreditation, or permanently through a withdrawal of 
accreditation.

Administrative Conference Recommendation 2012-8

Inflation Adjustment Act

Adopted December 7, 2012

    Civil monetary penalties are used by the Congress and federal 
agencies to enforce and promote compliance with federal laws and 
regulations by deterring violations. These laws and regulations 
serve vital public purposes such as ensuring workplace or 
transportation safety, preserving the environment, and protecting 
consumers from dangerous products. As the then Deputy Director of 
the Office of Management and Budget testified to Congress regarding 
an earlier version of the Federal Civil Penalties Inflation 
Adjustment Act of 1990 (``the Act'' or ``the Inflation Adjustment 
Act''), civil monetary penalties ``do more than recover funds and 
sanction wrongdoers. They often serve as an effective alternative to 
court prosecutions and provide added deterrence to would be 
wrongdoers intending to defraud or abuse government programs.'' \1\
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    \1\ Federal Civil Penalties Inflation Adjustment Act of 1987: 
Hearing on S.1014 Before the Subcomm. on Oversight of Gov't Mgmt. of 
the S. Comm. on Gov't Affairs, 101st Cong. 41 (1988) (statement of 
Joseph Wright Jr., Deputy Director of the Office of Management and 
Budget) [hereinafter 1988 Senate Hearing].
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    This Recommendation and the supporting Report build upon 
important earlier Administrative Conference works on agency 
authority to adjust and impose civil monetary penalties or on 
inflation adjustment. For example, in Recommendation 84-7, 
Administrative Settlement of Tort and Other Monetary Claims Against 
the Government, the Conference encouraged Congress to 
``systematically raise ceilings on all agency authority to settle 
claims where inflation has rendered obsolete the present levels.'' 
\2\ Recommendation 79-3, Agency Assessment and Mitigation of Civil 
Money Penalties, examined agency civil monetary penalty assessment 
and mitigation practices.\3\
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    \2\ ACUS, Recommendation 84-7, Administrative Settlement of Tort 
and Other Monetary Claims Against the Government, 49 FR 49840 (Dec. 
24, 1984).
    \3\ ACUS, Recommendation 79-3, Agency Assessment and Mitigation 
of Civil Money Penalties, 44 FR 38824 (July 3, 1979).
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    Congress enacted the Federal Civil Penalties Inflation 
Adjustment Act of 1990 in recognition that ``the power of Federal 
agencies to impose civil monetary penalties for violations of 
Federal law and regulations plays an important role in deterring 
violations and furthering the policy goals embodied in such laws and 
regulations.'' \4\ Congress sought to ``improve the collection by 
the Federal Government of civil monetary penalties'' given that 
``inflation has weakened the deterrent effect of such penalties'' 
and that the government did not ``maintain comprehensive, detailed 
accounting of the efforts of Federal agencies to assess and collect 
civil monetary penalties.'' \5\ The 1990 statute required the 
President to report annually to Congress on federal civil monetary 
penalties covered by the law, and to calculate a cost-of-living 
adjustment for those penalties.\6\ At the time,

[[Page 2944]]

agencies did not have legal authority to adjust civil monetary 
penalties directly. Any such modification had to be made by the 
passage of new legislation. Due to the slow pace of amendments of 
agency organic statutes in recent years, substantial periods of time 
could elapse between specific statutory adjustments of civil 
monetary penalty amounts, and the deterrent effect of the penalties 
could be diminished by the effects of inflation in the interim 
period. Accordingly, Congress considered adoption of a freestanding 
provision that would establish a procedure through which regulatory 
agencies could modify the amounts of the penalties they may assess 
without further legislative action.
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    \4\ Public Law 101-410, 104 Stat. 890 (1990) (codified as 
amended at 28 U.S.C. 2461 note Sec.  2(a)).
    \5\ Id. Sec.  2(b). See also 1988 Senate Hearing, supra note 1, 
at 3 (statement of Senator Levin) (discussing the need to increase 
penalties to account for inflation and improve deterrence and noting 
that civil monetary penalties collected were over $400 million per 
year).
    \6\ Id. Sec. Sec.  4-5.
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    In 1996, Congress amended the Federal Civil Penalties Inflation 
Adjustment Act to authorize and require the agencies, with limited 
exceptions for four statutory programs, to adjust their civil 
monetary penalties for inflation.\7\ However, the implementation 
data demonstrate that under the mechanisms adopted by Congress, the 
adjustments regulatory agencies are authorized to make have not 
allowed the penalties to keep pace with the rate of inflation that 
has been experienced.\8\ The existing pattern of adjustments has 
several anomalous features that may not have been apparent to the 
members of Congress when they adopted the 1996 legislation. These 
results raise two questions: whether the current pattern of penalty 
adjustments carries out the purposes of the statute, and whether 
Congress should adopt a modified adjustment procedure under which 
future changes in penalties would more closely track the actual rate 
of inflation.
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    \7\ Public Law 104-134, 110 Stat. 1321 (1996) (excluding 
penalties under the Internal Revenue Code, the Occupational Safety 
and Health Act, the Social Security Act, and the Tariff Act).
    \8\ James Ming Chen, Inflation Based Adjustments in Federal 
Civil Monetary Penalties (2012) (report to the Administrative 
Conference of the U.S.), available at www.acus.gov [hereinafter Chen 
Report]; see also United States General Accounting Office (GAO), 
GAO-03-409, Civil Penalties: Agencies Unable to Fully Adjust 
Penalties for Inflation Under Current Law (2003).
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    Three statutory provisions account for why the adjustments lag 
behind the actual inflation rate. First, the Inflation Adjustment 
Act imposes a ten percent cap on initial penalty adjustments.\9\ 
That cap creates an ``inflation gap'' which reflects the sometimes 
considerable difference between penalties, as adjusted under the 
Act, and the levels that such penalties would reach if the first 
adjustment had been based on changes in the cost of living that had 
actually occurred. This gap, once established in the first capped 
adjustment, grows over time as subsequent adjustments are made and 
can never be closed under the current statutory scheme.\10\
---------------------------------------------------------------------------

    \9\ Public Law 104-134, Sec.  31001(s)(1), 110 Stat. 1321, 1373 
(1996).
    \10\ Chen Report, supra at III.A.
---------------------------------------------------------------------------

    Second, the Act directs federal agencies to use Consumer Price 
Index (``CPI'') data in ways that are out of sync with inflation. 
Because of the Act's definition of ``cost-of-living adjustment,'' 
agencies must use CPI data that are at least seven months old, and 
sometimes as much as 18 months old in their adjustments, depending 
on when the agency chooses to update its penalties.\11\ Adjustment 
of penalties using out-dated data creates a phenomenon known as 
``CPI lag.'' The legislative history of the Act suggests that the 
``CPI lag'' may have resulted from changes introduced during the 
iterative legislative drafting process, rather than by conscious 
design.\12\ As with the ``inflation gap'' issue, CPI-based 
adjustments prescribed by the Act result in chronic underadjustment 
of civil monetary penalties relative to actual inflation.\13\
---------------------------------------------------------------------------

    \11\ Inflation Adjustment Act, supra note 4, Sec.  5.
    \12\ See Chen Report, supra note 8, at II (providing an 
extensive discussion of the legislative history and the evolution of 
the Act's cost-of-living adjustment methodology).
    \13\ Id. at III.B.
---------------------------------------------------------------------------

    Third, the Act's elaborate rounding rules effectively prevent a 
second inflation adjustment for some penalties until inflation has 
increased by a total of at least 45 percent.\14\ In an apparent 
scrivener's error, the Act ties the rounding of civil monetary 
penalty increases to the amount of the underlying civil penalty, 
rather than the base amount of the increase.\15\ Over time, the 
rounding mechanism has the effect of deferring increases for certain 
penalties, only to unleash dramatic penalty increases after a long 
latency period (in some instances greater than the actual increase 
in inflation). For example, at an inflation rate of 2.5 percent, the 
rounding provisions, coupled with the 10 percent initial cap, could 
prevent an agency from adjusting its penalties for inflation for 15 
years or more.\16\ As with nonadjustment or under-adjustment, over-
adjustment may also alter the intended effect of civil monetary 
penalties.
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    \14\ Inflation Adjustment Act, supra note 4, Sec.  5(a); Chen 
Report, supra note 8, at III.C.
    \15\ Chen Report, supra note 8, at III.C.
    \16\ Id.
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    The Department of Homeland Security's 2011 adjustment of a host 
of penalties for violations of the Immigration and Nationality Act 
offers an excellent illustration of how the Inflation Adjustment Act 
works in action and why Congress should consider revisiting the 
operation of these procedures.\17\ These penalties relate to a 
number of serious legal violations, including: failure to depart the 
U.S. voluntarily, failure to comply with removal orders or to remove 
alien stowaways, failure to report an illegal landing or desertion 
of an alien crewmen or passenger, or failure to prevent the 
unauthorized landing of aliens.\18\ The following table, which is 
based on the Department's 2011 inflation adjustment, displays:
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    \17\ See Department of Homeland Security, Civil Monetary 
Penalties Inflation Adjustment, 76 FR 74625, 74,627-28 (Dec. 1, 
2011). It is important to note, however, that several penalties 
adjusted in 2011 had not previously been adjusted or had not been 
adjusted for many years. As a result, the distortions caused by the 
Inflation Adjustment Act may have been magnified.
    \18\ Id.
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     The current penalty amount;
     The raw amount by which each penalty would be increased 
if adjusted for actual inflation;
     The effect of the Inflation Adjustment Act's constraint 
on inflation adjustment through, for example, capping the penalty 
adjustment at a maximum of a ten percent increase;
     The amount of the penalty increase prescribed the Act; 
and
     The distortion created by the variance between the raw 
adjusted penalty and the adjustment prescribed by the Act.
    Although aggregate data are not available, the following example 
illustrates that the distortions created by the Act are 
considerable, particularly when considered in relation to the size 
of the unadjusted penalty.

                                   Department of Homeland Security, Immigration and Nationality Act Civil Monetary Penalties Inflation Adjustment (2011) \19\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                   [A]                         [B]                   [C]                   [D]          [E]                  [F]                  [G]          [H]          [I]          [J]
INA Sec.   Statute                             Current  Year last....................   CPI factor          Raw  Rounder [Inflation.........      Rounded          Raw     Adjusted    Inflation
                                               penalty  adjusted.....................       (2011)     increase  Adjustment Act.............     increase     adjusted      penalty   Adjustment
                                                                                               (%)       (2011)  constraint]................   [Inflation     penalty*    [per IAA]          Act
                                                                                                        [B x D]                                Adjustment      [B + E]      [B + G]  distortion*
                                                                                                                                                      Act                                  [I-H]
                                                                                                                                                increase]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
INA Sec.   231(g); 8 U.S.C. 1221(g)......    $1,000.00  Enacted 2002.................        21.16      $211.60  10% statutory cap..........      $100.00    $1,211.60    $1,100.00     -$111.60
INA Sec.   234; 8 U.S.C. 1224............    $2,200.00  1999.........................        31.15      $685.30  $1,000.00 [rounder]........    $1,000.00    $2,885.30    $3,200.00     +$314.70
INA Sec.   243(c)(1)(A); 8 U.S.C.            $2,000.00  Enacted 1996.................        39.10      $782.00  10% statutory cap..........      $200.00    $2,782.00    $2,200.00     -$582.00
 1253(c)(1)(A).

[[Page 2945]]

 
INA Sec.   243(c) (1)B); 8 U.S.C. 1253(c)    $5,000.00  Enacted 1996.................        39.10    $1,955.00  10% statutory cap..........      $500.00    $6,955.00    $5,500.00   -$1,455.00
 (1)(B).
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* * * * *
    The issues with the Federal Civil Penalties Inflation Adjustment 
Act described above arise from its plain language, and federal 
regulatory agencies may not themselves adjust the penalty levels to 
track the inflation rate more closely. As the Government 
Accountability Office has found, some agencies have attempted to 
adjust civil monetary penalties in common-sense ways that better 
reflect the real economic impact of inflation.\20\ However, these 
good faith efforts objectively did not comply with the plain 
language of the Inflation Adjustment Act. They also subjected 
agencies to the risk of legal challenges to penalty adjustments.
---------------------------------------------------------------------------

    \19\ This table presents a subset of four penalties from the 
table of penalty adjustments contained in the 2011 Federal Register 
notice from the Department of Homeland Security, id., together with 
two additional columns ([H] and [J], denoted by a *) from the Chen 
Report, supra note 8, at IV.C.
    \20\ E.g., GAO, GAO-02-1084R, Compliance with the Inflation 
Adjustment Act (2002) (reporting that the Farm Credit Administration 
had rounded its penalty increase by the size of the increase rather 
than the penalty size); GAO, GAO-02-1085R, Department of Commerce: 
Compliance with the Inflation Adjustment Act (2002) (reporting that 
the Department of Commerce had rounded its penalty increase by the 
size of the increase rather than the penalty size).
---------------------------------------------------------------------------

    Review of Federal Register notices also shows that several 
agencies have failed to comply with the statutory requirement to 
review and, if necessary, adjust penalties at least once every four 
years.\21\ Regular penalty adjustments ensure the continued 
deterrent effect of civil monetary penalties. This is especially 
important where maximum penalties are imposed by agencies to punish 
the worst offenders. It is essential to enforcement policy that the 
penalties have their intended deterrent effect and are not simply 
viewed as a cost of doing business.
---------------------------------------------------------------------------

    \21\  E.g., Department of Agriculture, Department of Agriculture 
Civil Monetary Penalties Adjustment, 75 FR 17555 (Apr. 7, 2010) 
(remedying erroneous exclusion of some civil monetary penalties from 
earlier rounds of adjustments); Department of Transportation, Civil 
Penalties, 75 FR 5244 (Feb. 2, 2010) (reporting last inflation 
adjustment six years ago, rather than four years ago as the Act's 
quadrennial interval prescribes).
---------------------------------------------------------------------------

    The Administrative Conference therefore recommends that Congress 
reexamine the procedures set forth in the Inflation Adjustment Act 
and make such changes to the Act as are appropriate. The 
Recommendation also advises agencies to comply with the letter of 
the law, by applying the rounding adjustment based on the size of 
the penalty, rather than the size of the increase, and by making 
adjustments every four years. Agencies should be mindful of the 
financial or other adverse consequences of failing to adjust civil 
monetary penalties regularly, in compliance with the Inflation 
Adjustment Act, or of failing to comply with the adjustment 
provisions currently set forth in the Act.\22\
---------------------------------------------------------------------------

    \22\ See supra notes 20 and 21.
---------------------------------------------------------------------------

    The current Recommendation is intentionally circumscribed in 
scope. The underlying research commissioned by the Conference 
examined only the existing statutory process for inflation 
adjustments under the Inflation Adjustment Act. The Recommendation 
does not address other potential issues involving the current 
process, including: The appropriateness of the Act's existing 
exemption for civil monetary penalties under four statutes or 
whether additional agency programs should be exempt; the 
effectiveness of self-enforcement by federal agencies; obligations 
for reporting compliance; the lack of a central authority for 
administering the Act; alternative metrics for measuring inflation; 
or alternative forms of civil monetary penalties (e.g., percentages 
rather than fixed values). These important issues warrant thoughtful 
consideration and may lead to future Conference recommendations.

Recommendation

A. Recommendation to Congress

    1. Congress should change the current statutory framework by 
which agencies must make periodic inflation adjustments to civil 
monetary penalties set forth in the Federal Civil Penalties 
Inflation Adjustment Act, codified as amended at 28 U.S.C. 2461 note 
(2012), as appropriate in light of the distortions resulting from:
    (a) The ``inflation gap'' created by a ten percent cap on the 
initial penalty adjustment, which grows over time and can never be 
closed under the current statutory provision.
    (b) The ``CPI lag'' that results from the statute's definition 
of the term ``cost-of-living adjustment,'' which directs agencies to 
base their adjustments on CPI data that are at least seven months 
old and may be as much as 18 months old, and thus lag behind the 
actual inflation rate.
    (c) The rounding rules that tie rounding of increases to the 
size of the penalty, rather than the size of the increase, and that 
may result in significant periods of nonadjustment of civil monetary 
penalties followed by abrupt and substantial increases.

B. Recommendation to Agencies

    2. Federal agencies subject to the Inflation Adjustment Act 
should review and, if necessary, adjust their civil monetary 
penalties for inflation at least once every four years, as required 
by the Act. Agencies should review their implementation procedures 
and practices to ensure that inflation adjustments comply with the 
plain language of the Act, and particularly its rounding provisions.
[FR Doc. 2013-00674 Filed 1-14-13; 8:45 am]
BILLING CODE 6110-01-P
```