This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

10205 

Vol. 76, No. 37 

Thursday, February 24, 2011 

DEPARTMENT OF HOMELAND 

SECURITY 

2 CFR Part 3001 

Federal Emergency Management 

Agency 

44 CFR Part 17 

[Docket No. DHS–2010–0028] 

RIN 1601–AA62 

Department of Homeland Security 

Implementation of OMB Guidance on 

Drug-Free Workplace Requirements 

AGENCY: Department of Homeland 

Security (DHS). 

ACTION: Final rule. 

SUMMARY: The Department of Homeland 

Security (DHS) is issuing a new 

regulation to adopt the Office of 

Management and Budget (OMB) 

guidance codified at 2 CFR part 182. 

This new part is the Department’s 

implementation of OMB’s guidance and 

is consistent with OMB’s initiative to 

streamline and consolidate all Federal 

regulations on drug-free workplace 

requirements for financial assistance 

into one title of the CFR. In doing so, the 

Department is also removing regulations 

implementing the Government-wide 

common rule on drug-free workplace 

requirements for financial assistance, 

currently located within Part 17 of Title 

44 of the Code of Federal Regulations 

(CFR). 

DATES: This final rule is effective on 

March 28, 2011 without further notice. 

Submit comments by March 28, 2011 on 

any unintended changes this action 

makes in DHS policies and procedures 

for drug-free workplaces. All comments 

or unintended changes will be 

considered and, if warranted, DHS will 

revise the rule. 

ADDRESSES: You may submit comments, 

identified by the docket number to this 

rulemaking, by any of the following 

methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: [TBA], Department of 

Homeland Security, 245 Murray Lane, 

SW., Bldg. 410–Room 3514–11, 

Washington, DC 20528–0001. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this rule, call Ms. 

Cara Whitehead, Office of the Chief 

Financial Officer, Financial Assistance 

Policy & Oversight, telephone 202–447– 

0338. 

SUPPLEMENTARY INFORMATION: 

Public Participation and Request for 

Comments 

These regulatory actions are solely an 

administrative simplification and are 

not intended to make any substantive 

change in policies or procedures. In 

soliciting comments on these actions, 

we therefore are not seeking to revisit 

substantive issues that were resolved 

during the development of the final 

common rule in 2003. We are inviting 

comments specifically on any 

unintended changes in substantive 

content that the new part in 2 CFR 

would make relative to the common rule 

at 44 CFR part 17. All comments 

received will be posted, without change, 

to http://www.regulations.gov and will 

include any personal information you 

have provided. 

A. Submitting Comments 

If you submit a comment, please 

include the docket number for this 

rulemaking (DHS–2010–0028), indicate 

the specific section of this document to 

which each comment applies, and give 

the reason for each comment. We 

recommend that you include your name 

and a mailing address, an e-mail 

address, or a phone number in the body 

of your document so that we can contact 

you if we have questions regarding your 

submission. You may submit your 

comments and material by electronic 

means or mail at the address under 

ADDRESSES; but please submit your 

comment and material by only one 

means. If you submit them by mail or 

delivery, submit them in an unbound 

format, no larger than 81⁄2 by 11 inches, 

suitable for copying and electronic 

filing. We will consider all comments 

and material received during the 

comment period. We may change this 

rule in view of them. 

B. Viewing Documents 

To view documents mentioned in this 

preamble as being available in the 

docket, go to http://www.regulations.gov 

at any time. Enter the docket number for 

this rulemaking (DHS–2010–0028) in 

the Search box, and click ‘‘Go>>.’’ 

Individuals without internet access can 

make alternate arrangement for viewing 

comments and documents related to this 

rulemaking by contacting DHS at the 

FOR FURTHER INFORMATION CONTACT

information above. 

Table of Contents for Preamble 

I. Abbreviations 

II. Background and Purpose 

A. OMB Guidance for Drug-Free Workplace 

Requirements 

B. Regulatory History 

III. Discussion of the Rule 

A. Differences Between OMB Guidance 

and the Common Rule 

B. DHS Additions to the OMB Guidance 

IV. Regulatory Analyses 

A. Regulatory Planning and Review 

B. Small Entities 

C. Unfunded Mandates Act of 1995 

D. Collection of Information 

E. Federalism 

F. Environmental Analysis 

I. Abbreviations 

CFR Code of Federal Regulations 

DHS Department of Homeland Security 

FR Federal Register 

FEMA Federal Emergency Management 

Agency 

OMB Office of Management and Budget 

U.S.C. United States Code 

II. Background and Purpose 

A. OMB Guidance for Drug-Free 

Workplace Requirements 

The Drug-Free Workplace Act of 1988 

(Pub. L. 100–690, Title V, Subtitle D; 41 

U.S.C. 701, et seq.) was enacted as a part 

of omnibus drug legislation on 

November 18, 1988. Federal agencies 

issued an interim final common rule to 

implement the act as it applied to grants 

(54 FR 4946, January 31, 1989). The rule 

was a subpart of the Government-wide 

common rule on nonprocurement 

suspension and debarment. The 

agencies issued a final common rule 

after consideration of public comments 

(55 FR 21681, May 25, 1990). 

The agencies proposed an update to 

the drug-free workplace common rule in 

2002 (67 FR 3266, January 23, 2002) and 


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10206 Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Rules and Regulations 

finalized it in 2003 (68 FR 66534, 

November 26, 2003). The updated 

common rule was redrafted in plain 

language and adopted as a separate part, 

independent from the common rule on 

nonprocurement suspension and 

debarment. Based on an amendment to 

the drug-free workplace requirements in 

41 U.S.C. 702 (Pub. L. 105–85, div. A, 

title VIII, Sec. 809, Nov. 18, 1997, 111 

Stat. 1838), the update also allowed 

multiple enforcement options from 

which agencies could select, rather than 

requiring use of a certification in all 

cases. 

Like many other agencies, the Federal 

Emergency Management Agency 

(FEMA) adopted the common rule in 

1990 (55 FR 21702, May 25, 1990). 

FEMA participated in the 2002 proposal 

to revise the drug-free workplace 

common rule; as a result of FEMA’s 

transfer to the newly-established DHS in 

2003; however, neither FEMA nor DHS 

participated in the 2003 multi-agency 

finalization of that revision. Since its 

creation in 2003, DHS has been using 

the FEMA common rule to administer 

drug-free workplace requirements. 

When OMB established Title 2 of the 

CFR as the new central location for 

OMB guidance and agency 

implementing regulations concerning 

grants and agreements (69 FR 26276, 

May 11, 2004), OMB announced its 

intention to replace common rules with 

OMB guidance that agencies could 

adopt in brief regulations. OMB began 

that process by proposing (70 FR 51863, 

August 31, 2005) and finalizing (71 FR 

66431, November 15, 2006) 

Government-wide guidance on 

nonprocurement suspension and 

debarment in 2 CFR part 180. 

As the next step in that process, OMB 

proposed for comment (73 FR 55776, 

September 26, 2008) and finalized (74 

FR 28149, June 15, 2009) Governmentwide guidance with policies and 

procedures to implement drug-free 

workplace requirements for financial 

assistance. The guidance requires each 

agency to replace the common rule on 

drug-free workplace requirements, 

which the agency previously issued in 

its own CFR title, with a brief regulation 

in Title 2 of the CFR adopting the 

Government-wide policies and 

procedures. One advantage of this 

approach is that it reduces the total 

volume of drug-free workplace 

regulations. A second advantage is that 

it co-locates OMB’s guidance and all of 

the agencies’ implementing regulations 

in Title 2 of the CFR. 

B. Regulatory History 

Under 5 U.S.C. 553(a), agencies need 

not publish an NPRM in the Federal 

Register if the subject matter concerns 

grants, loans, benefits, or contracts. This 

rule concerns grants and cooperative 

agreements, and therefore does not 

require an NPRM. 

In addition, DHS finds that good 

cause exists for not publishing an 

NPRM, because publication would be 

unnecessary. As described in the 

‘‘Background’’ section of this preamble, 

the policies and procedures in this 

regulation have twice been proposed for 

comment—once by Federal agencies as 

a common rule in 2002, and a second 

time by OMB as guidance in 2008—and 

adopted each time after resolution of the 

comments received. In addition, this 

final rule is an administrative 

clarification that would make no 

substantive change to existing DHS 

policy for drug-free workplaces. For 

these reasons, under 5 U.S.C. 553(b)(B) 

we find that public notice and comment 

are unnecessary. 

III. Discussion of the Rule 

As the OMB guidance directs, DHS is 

taking two regulatory actions. First, we 

are removing the drug-free workplace 

common rule located at 44 CFR part 17. 

Second, to replace the common rule, we 

are issuing a brief regulation in 2 CFR 

part 3001 to adopt the Government-wide 

policies and procedures found in the 

OMB guidance. As directed by the OMB 

guidance, this rule adds to the adopted 

guidance certain additional information 

specific to DHS. 

A. Differences Between OMB Guidance 

and the Common Rule 

This DHS adoption of the OMB 

guidance, with additional information 

provided in 2 CFR part 3001, replaces 

the existing drug-free workplace 

common rule located at 44 CFR part 17. 

Adopting the OMB guidance in place of 

the common rule will not substantively 

change the drug-free workplace 

requirements placed on award 

recipients. 

The OMB guidance uses slightly 

different terminology and organization. 

For example, as compared to the 

common rule, OMB’s text replaces most 

instances of the terms ‘‘grant’’ and 

‘‘grantee’’ with the terms ‘‘award’’ and 

‘‘recipient,’’ respectively. The OMB 

guidance defines the new terms ‘‘award’’ 

and ‘‘grant’’ more narrowly to mean a 

type of award. The OMB guidance also 

defines ‘‘recipient’’ using language 

substantively similar to the common 

rule’s definition of ‘‘person’’; in the OMB 

guidance, ‘‘person’’ is no longer a 

defined term. The OMB guidance 

reorganizes the drug-free workplace 

requirements, separating and clearly 

labeling the requirements for recipients 

who are individuals, recipients other 

than individuals, and Federal agencies. 

Adopting these Government-wide terms 

and the new organizational structure 

will make DHS drug-free workplace 

requirements clearer and easier to use. 

The most notable change from the 

common rule is the removal of 

procedures by which a recipient 

‘‘certifies’’ to the agency that it will 

comply with drug-free workplace 

requirements. Recipients are still 

required to comply with drug-free 

workplace requirements, but the 

requirement appears in regulation and 

in the terms and conditions of the 

award, rather than in a separate 

certification. As a result of this change, 

the common rule’s provisions regarding 

certification will not appear in this rule. 

B. DHS Additions to the OMB Guidance 

The OMB guidance directs agencies to 

state whether the agency has a central 

point to which recipients may send the 

notification of a conviction, and 

indicate which agency official is 

authorized to determine whether 

recipients have violated drug-free 

workplace requirements. Accordingly, 

in adopting the OMB guidance we have 

added language at 2 CFR 3001.225 and 

3001.300 indicating that a recipient 

required to report a conviction for a 

criminal drug offense should notify the 

DHS Office of Inspector General and 

each DHS office from which the 

recipient currently has an award. 

Similarly, we have added language at 

§§ 3001.500 and 3001.505 indicating 

that the Secretary of Homeland Security 

or his or her official designee is 

authorized to determine that a recipient 

is in violation of the requirements of 2 

CFR part 182 as implemented by this 

rule. 

The OMB guidance at 2 CFR 182.510 

discusses the consequences of a 

violation. We added 2 CFR 3001.510 to 

clarify that DHS will take one or more 

of the listed actions, and that any 

suspension or debarment of the 

recipient would occur under 2 CFR part 

3000 as well as 2 CFR part 180. 

IV. Regulatory Analyses 

A. Regulatory Planning and Review 

This final rule is not a significant 

regulatory action under section 3(f) of 

Executive Order 12866, Regulatory 

Planning and Review, and does not 

require an assessment of potential costs 

and benefits under section 6(a)(3) of that 

Order. The Office of Management and 

Budget has not reviewed it under that 

Order. This action will impose no 

additional costs. As explained in the 

Background and Purpose and 


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Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Rules and Regulations 10207 

Discussion of the Rule, this final rule is 

an administrative clarification that will 

make no substantive change to existing 

DHS policy for drug-free workplaces. 

This rule merely transfers existing 

FEMA regulations with some minor 

non-substantive changes. 

B. Small Entities 

Section 605 of the Regulatory 

Flexibility Act, 5 U.S.C. 605(b), as 

amended by the Small Business 

Regulatory Enforcement and Fairness 

Act of 1996, requires agencies to review 

rules to determine if they have ‘‘a 

significant economic impact on a 

substantial number of small entities.’’ A 

regulatory flexibility analysis is not 

required when a rule is exempt from 

notice and comment rulemaking 

provided for by 5 U.S.C. 553(b). DHS 

has determined that this rule is exempt 

from notice and comment rulemaking 

pursuant to 5 U.S.C. 553(a)(2) and 

(b)(B); therefore, a regulatory flexibility 

analysis is not required for this rule. 

C. Unfunded Mandates Act of 1995 

The Unfunded Mandates Act of 1995 

(Pub. L. 104–4) requires agencies to 

prepare several analytic statements 

before proposing any rule that may 

result in annual expenditures of $100 

million by State, local, Indian Tribal 

governments, or the private sector. 

Because this rule will not result in 

expenditures of this magnitude, a 

written statement is not required. 

D. Paperwork Reduction Act 

This rule will not impose additional 

reporting or recordkeeping requirements 

under the Paperwork Reduction Act of 

1995 (44 U.S.C. Chapter 35). Reporting 

and recordkeeping requirements in 2 

CFR part 3001 are those required by the 

OMB Guidance for Drug-Free Workplace 

Requirements and have already been 

cleared by OMB. 

E. Federalism 

This rule will not have substantial 

direct effects on the States, on the 

relationship between the Federal 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. Therefore, in 

accordance with Section 6 of Executive 

Order 13132, DHS has determined that 

this rule does not have sufficient 

federalism implications to warrant the 

preparation of a federalism summary 

impact statement. 

F. Environmental Analysis 

DHS has analyzed this rule under 

Department of Homeland Security 

Management Directive 023–01, which 

guides the Department in complying 

with the National Environmental Policy 

Act of 1969 (NEPA) (42 U.S.C. 4321– 

4370f), and has made a determination 

that this action is one of a category of 

actions that do not individually or 

cumulatively have a significant effect on 

the human environment. This rule is 

categorically excluded under 

Categorical Exclusion A3, Table 1 of 

Appendix A, of the Directive. 

List of Subjects 

2 CFR Part 3001 

Administrative practice and 

procedure, Drug abuse, Grant programs, 

Reporting and recordkeeping 

requirements. 

44 CFR Part 17 

Administrative practice and 

procedure, Drug abuse, Grant programs, 

Loan programs, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, under the authority of 5 

U.S.C. 301 and 41 U.S.C. 701 et seq., the 

Department of Homeland Security 

amends the Code of Federal 

Regulations, Title 2, Subtitle B, chapter 

XXX, and Title 44, chapter I, part 17, as 

follows: 

TITLE 2—GRANTS AND 

AGREEMENTS 

■ 1. Add part 3001 in Subtitle B, 

Chapter XXX, to read as follows: 

PART 3001—REQUIREMENTS FOR 

DRUG-FREE WORKPLACE 

(FINANCIAL ASSISTANCE) 

Sec. 

3001.10 What does this part do? 

3001.20 Does this part apply to me? 

3001.30 What policies and procedures must 

I follow? 

Subpart A—Purpose and Coverage 

[Reserved] 

Subpart B—Requirements for Recipients 

Other Than Individuals 

3001.225 Who in DHS does a recipient 

other than an individual notify about a 

criminal drug conviction? 

Subpart C—Requirements for Recipients 

Who Are Individuals 

3001.300 Who in DHS does a recipient who 

is an individual notify about a criminal 

drug conviction? 

Subpart D—Responsibilities of Agency 

Awarding Officials 

3001.400 What method do I use as an 

agency awarding official to obtain a 

recipient’s agreement to comply with the 

OMB guidance? 

Subpart E—Violations of This Part and 

Consequences 

3001.500 Who in DHS determines that a 

recipient other than an individual 

violated the requirements of this part? 

3001.505 Who in DHS determines that a 

recipient who is an individual violated 

the requirements of this part? 

3001.510 What actions will the Federal 

Government take against a recipient 

determined to have violated this part? 

Subpart F—Definitions 

3001.605 Award. 

3001.661 Reimbursable Agreement. 

Authority: 5 U.S.C. 301; 41 U.S.C. 701– 

707; OMB Guidance for Drug-Free Workplace 

Requirements, codified at 2 CFR part 182. 

§ 3001.10 What does this part do? 

This part requires that the award and 

administration of Department of 

Homeland Security (DHS) grants and 

cooperative agreements comply with 

Office of Management and Budget 

(OMB) guidance implementing the 

portion of the Drug-Free Workplace Act 

of 1988 (41 U.S.C. 701–707, as 

amended, hereafter referred to as ‘‘the 

Act’’) that applies to grants. It thereby— 

(a) Gives regulatory effect to the OMB 

guidance, as supplemented by this part 

(Subparts A through F of 2 CFR part 

182) for DHS’s grants and cooperative 

agreements; and 

(b) Establishes DHS policies and 

procedures, as supplemented by this 

part, for compliance with the Act that 

are the same as those of other Federal 

agencies, in conformance with the 

requirement in 41 U.S.C. 705 for 

Government-wide implementing 

regulations. 

§ 3001.20 Does this part apply to me? 

This part and, through this part, 

pertinent portions of the OMB guidance 

in Subparts A through F of 2 CFR part 

182 (see table at 2 CFR 182.115(b)) 

apply to you if you are a— 

(a) Recipient of a DHS grant or 

cooperative agreement; or 

(b) DHS awarding official. 

§ 3001.30 What policies and procedures 

must I follow? 

(a) General. You must follow the 

policies and procedures specified in 

applicable sections of the OMB 

guidance in Subparts A through F of 2 

CFR part 182, as implemented by this 

part. 

(b) Specific sections of OMB guidance 

that this part supplements. This part 

supplements the OMB guidance in 2 

CFR part 182 as shown in the following 

table. For each of those sections, you 

must follow the policies and procedures 

in the OMB guidance, as supplemented 

by this part. 


jlentini on DSKJ8SOYB1PROD with RULES
10208 Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Rules and Regulations 

Section of OMB 

guidance 

Section in this part 

where supplemented What the supplementation clarifies 

2 CFR 182.225(a) ...... § 3001.225 ................. Who in DHS a recipient other than an individual must notify if an employee is convicted for a 

violation of a criminal drug statute in the workplace. 

2 CFR 182.300(b) ...... § 3001.300 ................. Who in DHS a recipient who is an individual must notify if he or she is convicted of a criminal 

drug offense resulting from a violation occurring during the conduct of any award activity. 

2 CFR 182.400 .......... § 3001.400 ................. What method do I use as an agency awarding official to obtain a recipient’s agreement to comply with the OMB guidance. 

2 CFR 182.500 .......... § 3001.500 ................. Who in DHS is authorized to determine that a recipient other than an individual is in violation of 

the requirements of 2 CFR part 182, as implemented by this part. 

2 CFR 182.505 .......... § 3001.505 ................. Who in DHS is authorized to determine that a recipient who is an individual is in violation of the 

requirements of 2 CFR part 182, as implemented by this part. 

2 CFR 182.510 .......... § 3001.510 ................. What actions the Federal Government will take against a recipient determined to have violated 

2 CFR part 182, as implemented by this part. 

2 CFR 182.605 .......... § 3001.605 ................. What types of assistance are included in the definition of ‘‘award.’’ 

None ........................... § 3001.661 ................. What types of assistance are included in the definition of ‘‘reimbursable agreement.’’ 

(c) Sections of the OMB guidance that 

this part does not supplement. For any 

section of OMB guidance in Subparts A 

through F of 2 CFR part 182 that is not 

listed in paragraph (b) of this section, 

DHS policies and procedures are the 

same as those in the OMB guidance. 

Subpart A—Purpose and Coverage 

[Reserved] 

Subpart B—Requirements for 

Recipients Other Than Individuals 

§ 3001.225 Who in DHS does a recipient 

other than an individual notify about a 

criminal drug conviction? 

A recipient other than an individual 

that is required under 2 CFR 182.225(a) 

to notify Federal agencies about an 

employee’s conviction for a criminal 

drug offense must notify the DHS Office 

of Inspector General and each DHS 

office from which the recipient 

currently has an award. 

Subpart C—Requirements for 

Recipients Who Are Individuals 

§ 3001.300 Who in DHS does a recipient 

who is an individual notify about a criminal 

drug conviction? 

A recipient who is an individual and 

is required under 2 CFR 182.300(b) to 

notify Federal agencies about a 

conviction for a criminal drug offense 

must notify the DHS Office of Inspector 

General and each DHS office from 

which the recipient currently has an 

award. 

Subpart D—Responsibilities of Agency 

Awarding Officials 

§ 3001.400 What method do I use as an 

agency awarding official to obtain a 

recipient’s agreement to comply with the 

OMB guidance? 

To obtain a recipient’s agreement to 

comply with applicable requirements in 

the OMB guidance at 2 CFR part 182, 

you must include the following term or 

condition in the award: 

Drug-free workplace. You as the 

recipient must comply with drug-free 

workplace requirements in Subpart B 

(or Subpart C, if the recipient is an 

individual) of 2 CFR part 3001, which 

adopts the Government-wide 

implementation (2 CFR part 182) of sec. 

5152–5158 of the Drug-Free Workplace 

Act of 1988 (Pub. L. 100–690, Title V, 

Subtitle D; 41 U.S.C. 701–707). 

Subpart E—Violations of This Part and 

Consequences 

§ 3001.500 Who in DHS determines that a 

recipient other than an individual violated 

the requirements of this part? 

The Secretary of Homeland Security, 

or his or her official designee, will make 

the determination that a recipient other 

than an individual violated the 

requirements of this part. 

§ 3001.505 Who in DHS determines that a 

recipient who is an individual violated the 

requirements of this part? 

The Secretary of Homeland Security, 

or his or her official designee, will make 

the determination that a recipient who 

is an individual violated the 

requirements of this part. 

§ 3001.510 What actions will the Federal 

Government take against a recipient 

determined to have violated this part? 

If a recipient is determined to have 

violated 2 CFR part 182, as 

implemented by this part, the agency 

will take one or more of the following 

actions— 

(a) Suspension of payments under the 

award; 

(b) Suspension or termination of the 

award; and 

(c) Suspension or debarment of the 

recipient under 2 CFR part 180 and 2 

CFR part 3000, for a period not to 

exceed five years. 

Subpart F—Definitions 

§ 3001.605 Award. 

Award means an award of financial 

assistance by a Federal agency directly 

to a recipient. 

(a) The term award includes: 

(1) A Federal grant, cooperative 

agreement or reimbursable agreement, 

in the form of money or property in lieu 

of money. 

(2) A block grant or a grant in an 

entitlement program, whether or not the 

grant is exempted from coverage under 

2 CFR part 182 and specifies uniform 

administrative requirements. 

(b) The term ‘‘award’’ does not 

include: 

(1) Technical assistance that provides 

services instead of money. 

(2) Loans. 

(3) Loan guarantees. 

(4) Interest subsidies. 

(5) Insurance. 

(6) Direct appropriations. 

(7) Veterans’ benefits to individuals 

(i.e., any benefit to veterans, their 

families, or survivors by virtue of the 

service of a veteran in the Armed Forces 

of the United States). 

(8) Other Transactional Authority 

Award. 

§ 3001.661 Reimbursable Agreement. 

Reimbursable Agreement means an 

award in which the recipient is 

reimbursed for expenditures only, and 

is not eligible for advance payments. 

TITLE 44—EMERGENCY 

MANAGEMENT AND ASSISTANCE 

CHAPTER I 

PART 17—[REMOVED] 

■ 2. Remove part 17. 


jlentini on DSKJ8SOYB1PROD with RULES
Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Rules and Regulations 10209 

Dated: February 4, 2011. 

Lluana McCann, 

Director, Division of Financial Assistance 

Policy and Oversight, Office of the Chief 

Financial Officer, Department of Homeland 

Security. 

[FR Doc. 2011–3217 Filed 2–23–11; 8:45 am] 

BILLING CODE 9110–9B–P 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 704 

RIN 3133–AD80 

Corporate Credit Unions 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Final Interpretive Ruling and 

Policy Statement 11–02. 

SUMMARY: The NCUA Board is issuing a 

final Interpretive Ruling and Policy 

Statement (IRPS) setting forth the 

requirements and process for chartering 

corporate Federal credit unions. 

DATES: This IRPS is effective March 28, 

2011. 

FOR FURTHER INFORMATION CONTACT: Lisa 

Henderson, Staff Attorney, Office of 

General Counsel, at the address above or 

telephone: (703) 518–6540; or Dave 

Shetler, Deputy Director, Office of 

Corporate Credit Unions, at the address 

above or telephone: (703) 518–6640. 

SUPPLEMENTARY INFORMATION: 

A. Background 

NCUA recently finalized changes to 

its Corporate Credit Union Rule, 12 CFR 

part 704. 75 FR 64786 (October 20, 

2010). These changes, as well as 

NCUA’s other efforts to resolve the 

problems created by the legacy assets 

remaining in the corporate credit union 

(corporate) system, are likely to result in 

a fundamental restructuring of that 

system. As part of this restructuring, 

NCUA believes that some groups of 

natural person credit unions (NPCUs) 

may wish to form new corporates. 

Previous corporate chartering guidance 

had been withdrawn; accordingly, on 

September 24, 2010, the NCUA Board 

issued a proposed IRPS setting forth the 

requirements and process for chartering 

corporate Federal credit unions (FCUs). 

75 FR 60651 (October 1, 2010). 

The proposed IRPS set forth 

requirements for prospective new 

corporate FCUs and NCUA’s standards 

for evaluating applications. It also 

included detailed timelines for 

processing charter applications. 

The public comment period for the 

proposed IRPS closed on November 1, 

2010. NCUA received six comment 

letters on the proposed IRPS. The 

commenters generally supported the 

IRPS but asked for clarification 

regarding certain provisions and/or 

suggested minor changes. 

B. Comments 

General Comments 

One commenter observed that the 

Board has suggested the possibility of 

permitting special purpose corporates 

and asked whether the IRPS would 

apply to an entity organized as a special 

purpose corporate. The Board notes that 

any entity chartered as a ‘‘corporate 

credit union’’ would be subject to the 

IRPS. 

Specific Comments 

Section II—Subscribers 

This section of the proposed IRPS 

provided that seven or more natural 

person representatives of natural person 

credit unions (NPCUs)—‘‘the 

subscribers’’—may charter a corporate 

FCU. 

Two commenters stated that it was 

not clear whether each natural person 

subscriber must represent a different 

NPCU. They recommended a 

clarification requiring at least seven 

subscribers from at least seven different 

NPCUs but that there be some latitude, 

on a case-by-case basis, for the 

subscribers to represent fewer NPCUs. 

The Board believes it is important that, 

without exception, each natural person 

subscriber represent a different NPCU, 

and has clarified the final IRPS 

accordingly. This requirement furthers 

the goal of developing broad 

membership support for any potential 

new charter and is consistent with the 

requirement in § 704.14(a)(4) of the 

NCUA Regulations that no individual 

may serve on the board if any corporate 

member would have more than one 

representative on the board. 12 CFR 

704.14(a)(4). 

Section III—Economic Advisability; 

Subsection B—Proposed Management’s 

Character and Fitness 

This subsection of the proposal 

provided that NCUA would conduct 

background and credit investigations on 

prospective officials and employees to 

establish each applicant’s character and 

ability to effectively handle financial 

matters. The proposal listed some 

factors that could lead to disapproval of 

a prospective official or employee, 

including criminal convictions, 

indictments, acts of fraud and 

dishonesty, serious or unresolved past 

due credit obligations, and 

bankruptcies. This subsection also 

noted that NCUA needs assurance that 

the management team would have the 

requisite skills—including leadership— 

to make the proposed corporate a 

success. 

One commenter suggested that 

instead of providing factors NCUA may 

consider, the IRPS should state that 

these factors are the only ones NCUA 

will consider. The commenter further 

stated that an indictment alone should 

not be a factor, as an individual might 

not be convicted. The Board declines to 

change the list of factors or to make 

them exclusive. To help ensure that 

corporate officials and employees have 

the highest integrity, NCUA needs to 

have the flexibility to consider any and 

all matters that may bear on an 

applicant’s character, including 

indictments and other factors that might 

not be listed. No one factor is 

necessarily dispositive, however, and 

depending on the circumstances, the 

fact that an applicant has been indicted 

might not lead to his or her disapproval. 

One commenter stated that 

‘‘leadership’’ should not be included as 

a factor, as the IRPS does not provide 

the criteria NCUA would use to assess 

leadership quality. The commenter 

pointed to § 701.14 of the NCUA 

Regulations, governing change in 

officials of newly-chartered or troubled 

condition credit unions. Paragraph (e) of 

that section allows NCUA to disapprove 

an individual’s service based on his or 

her ‘‘competence, experience, character, 

or integrity.’’ The commenter suggested 

that these criteria should be the focus of 

NCUA’s evaluation of prospective 

corporate officials. The Board disagrees. 

As noted above, the IRPS already 

provides for NCUA consideration of a 

prospective official or employee’s 

character and ability to handle financial 

matters. Leadership is an additional 

quality that includes the demonstrated 

ability to establish an organizational 

vision, prioritize activities, and lead the 

organization to successfully accomplish 

its goals. 

Section III, Subsection C—Member 

Support 

This subsection required that 

subscribers demonstrate a sufficient 

customer base for the proposed 

corporate in the form of membership 

applications, capital and share 

commitments, and commitments to use 

the corporate’s services. Specifically, it 

stated that the capital plan must show 

how the corporate would keep its total 

capital at 4 percent or more of its 

moving daily average net assets 

(MDANA) at all times beginning when 

NCUA issues the charter. 

Several commenters questioned how 

this could be calculated on the day the 


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