This section of the FEDERAL REGISTER

contains regulatory documents having general

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are keyed to and codified in the Code of

Federal Regulations, which is published under

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Rules and Regulations Federal Register

5543

Vol. 70, No. 22

Thursday, February 3, 2005

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

5 CFR Parts 5501 and 5502 

RIN 3209–AA15 

Supplemental Standards of Ethical 

Conduct and Financial Disclosure 

Requirements for Employees of the 

Department of Health and Human 

Services

AGENCY: Department of Health and 

Human Services (HHS).

ACTION: Interim final rule with request 

for comments. 

SUMMARY: The Department of Health and 

Human Services, with the concurrence 

of the Office of Government Ethics 

(OGE), is amending the HHS regulation 

that supplements the OGE Standards of 

Ethical Conduct. This interim final rule 

specifies additional procedural and 

substantive requirements that are 

necessary to address ethical issues at the 

National Institutes of Health (NIH) and 

updates nomenclature, definitions, and 

procedures applicable to other 

components of the Department. The 

rule: Revises the definition of a 

significantly regulated organization for 

the Food and Drug Administration 

(FDA); Updates the organization titles of 

designated separate agencies; Amends 

the gift exception for native artwork and 

craft items received from Indian tribes 

or Alaska Native organizations; Aligns 

the FDA prohibited holdings limit with 

the de minimis holdings exemption in 

OGE regulations; Revises prior approval 

procedures for outside activities; and, 

subject to certain exceptions: Prohibits 

NIH employees from engaging in certain 

outside activities with supported 

research institutions, health care 

providers or insurers, health-related 

trade or professional associations, and 

biotechnology, pharmaceutical, medical 

device, and other companies 

substantially affected by the programs, 

policies, or operations of the NIH; Bars 

NIH employees who file a public or 

confidential financial disclosure report 

from holding financial interests in 

substantially affected organizations; 

Subjects NIH non-filer employees to a 

monetary cap on holdings in such 

organizations; Specifies for NIH 

employees prior approval procedures 

for and limitations on the receipt of 

certain awards from outside sources; 

and Imposes a one-year disqualification 

period during which NIH employees are 

precluded from official actions 

involving an award donor. In addition, 

the Department is adding a new 

supplemental part to expand financial 

disclosure reporting requirements for 

certain outside activities and to ensure 

that prohibited financial interests are 

identified.

DATES: This interim rule is effective 

February 3, 2005. Comments received 

by April 4, 2005, will be considered 

prior to issuance of a final rule.

ADDRESSES: Send comments in writing 

to the Office of the General Counsel, 

Ethics Division, Department of Health 

and Human Services, Room 700–E, 

Hubert H. Humphrey Building, 200 

Independence Avenue, SW, 

Washington, DC 20201, Attention: Linda 

L. Conte. Comments also may be sent 

electronically to the following e-mail 

address: ethics@hhs.gov. For e-mail 

messages, the subject line should 

include the following reference: 

‘‘Comments on Interim Final HHS 

Supplemental Ethics Rule.’’

FOR FURTHER INFORMATION CONTACT:

Edgar M. Swindell, Associate General 

Counsel, Office of the General Counsel, 

Ethics Division, Department of Health 

and Human Services, telephone (202) 

690–7258, fax (202) 205–9752.

SUPPLEMENTARY INFORMATION: 

I. Background 

The Standards of Ethical Conduct for 

Employees of the Executive Branch, 5 

CFR part 2635, establish uniform rules 

of ethical conduct applicable to all 

executive branch personnel. Pursuant to 

5 CFR 2635.105, an agency may, with 

the approval of the Office of 

Government Ethics, supplement those 

standards with additional rules that the 

agency determines are necessary and 

appropriate, in view of its programs and 

operations, to fulfill the purposes of part 

2635. On July 30, 1996, with the 

concurrence and co-signature of the 

OGE Director, HHS published at 61 FR 

39755 a final rule establishing 

supplemental standards of ethical 

conduct for its employees. This interim 

final rule amends that final rule codified 

at 5 CFR part 5501. 

In addition to several changes with 

respect to rules applicable to employees 

of the National Institutes of Health 

related to outside activities, financial 

holdings, and awards, this interim final 

rule makes several changes to the HHS 

Supplemental Standards of Ethical 

Conduct applicable to all Department 

employees. These changes are based on 

the experience that has been garnered 

by the Department in implementing the 

regulation since it was issued in 1996. 

The interim final rule establishes more 

specific requirements with respect to 

requests for approval of outside 

activities and imposes an annual 

reauthorization process. 

Although immediately effective, this 

is as an interim rule. HHS intends to 

evaluate certain provisions in the rule, 

particularly on outside activities and 

financial holdings, within the next year. 

During this time, HHS also will: (1) 

Complete a review of existing outside 

activities that is presently ongoing; (2) 

evaluate possible effects on hiring and 

retention that may result from the 

imposition of outside activity and 

financial holdings prohibitions; and (3) 

develop a comprehensive oversight 

system to address concerns raised about 

the NIH ethics program. 

In addition, the Executive Branch 

Financial Disclosure Regulation, 5 CFR 

part 2634, specifies uniform rules 

governing the public and confidential 

financial disclosure systems established 

under the Ethics in Government Act. 

Pursuant to 5 CFR 2634.103, an agency 

may, subject to the prior written 

approval of the Office of Government 

Ethics, issue supplemental financial 

disclosure regulations that are necessary 

to address special or unique 

circumstances. This interim final rule 

amends chapter XLV of title 5 by adding 

new part 5502 to provide for an annual 

reporting by all employees of financial 

and other information concerning 

outside activities and a supplemental 

disclosure by all FDA and NIH 

employees with respect to prohibited 

financial interests. 

Post-promulgation comments on this 

interim final rule are requested. Those 

comments and experience under the 

5544 Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 

interim rule will inform the 

development of a final permanent rule, 

in consultation with OGE.

II. Analysis of the Amendments 

A. Supplemental Standards of Ethical 

Conduct 

Section 5501.101 General 

The definition of a ‘‘significantly 

regulated organization’’ found at 

§ 5501.101(c)(2) is amended to make 

clear that for entities that do not have 

a record of sales of FDA-regulated 

products, and which have not yet 

commenced operations in a field 

regulated by FDA, an entity will 

nonetheless be deemed significantly 

regulated if its research, development, 

or other business activities are 

reasonably expected to result in the 

development of products that are 

regulated by FDA. 

Since the issuance of the HHS 

Supplement, the existing language of 

the regulation has suggested to some 

employees that until a company submits 

an investigational new drug application 

and begins conducting clinical trials, 

the company is not significantly 

regulated (assuming there is no record 

of prior sales of FDA-regulated 

products). Because FDA does not have 

a generalized authority to regulate the 

‘‘field’’ of scientific research, some 

employees have interpreted the existing 

regulation as permitting employment 

with a company that is thus far only 

conducting preliminary research, even 

when it is reasonable to conclude that 

the research is conducted with the aim 

of developing FDA-regulated products. 

Accordingly, this amendment ensures 

that newly-formed business entities that 

do not yet have products that are 

approved for sale, and which have not 

yet undertaken operations that bring 

them within FDA’s regulatory 

jurisdiction, will be understood to fall 

within the definition of significantly 

regulated if their research, development, 

or other business activities are 

reasonably expected to result in the 

development of products that are 

regulated by FDA. It also makes clear 

that where a company’s operations are 

regulated by FDA, to fall within the 

definition, the operations need not be 

entirely in areas regulated by FDA as 

long as they are primarily in such areas. 

Section 5501.102 Designation of HHS 

Components as Separate Agencies 

The changes to this section reflect the 

name change of two HHS agencies, the 

Agency for Healthcare Research and 

Quality, previously known as the 

Agency for Health Care Policy and 

Research, and the Centers for Medicare 

and Medicaid Services, previously 

known as the Health Care Financing 

Administration. The Office of Consumer 

Affairs was abolished in 1998 and is 

deleted from the list. In addition, the 

amendment specifies that the 

designation of separate agencies will 

apply in defining a prohibited source for 

purposes of the new awards rule in 

§ 5501.111 for NIH employees. 

Section 5501.103 Gifts From Federally 

Recognized Indian tribes or Alaska 

Native Villages or Regional or Village 

Corporations 

The change to this section clarifies 

that items representative of traditional 

native culture from federally recognized 

Indian tribes or Alaska Native villages, 

or regional or village corporations, fall 

within the previously established rule 

permitting HHS employees to accept 

gifts of native artwork and crafts, 

provided that the aggregate market value 

of individual gifts received from any 

one tribe or village does not exceed 

$200 per year and other criteria are 

satisfied. The amendment permits gifts 

that, while representative of traditional 

native culture, were not necessarily 

produced or manufactured by the donor 

entity. 

Section 5501.104 Prohibited Financial 

Interests Applicable to Employees of the 

Food and Drug Administration 

The section heading and text have 

been revised to delete redundant 

references to the ‘‘FDA Office of the 

Chief Counsel.’’ Section 5501.102(b)(1) 

already specifies that any section in part 

5501 that is made applicable to 

employees of an identified component 

that is designated as a separate agency 

is applicable, in addition to employees 

actually working within a component, 

to employees in a division or region of 

the Office of the General Counsel (OGC) 

that principally advises or represents 

that component. 

Section 5501.104(a) prohibits FDA 

employees from holding financial 

interests in significantly regulated 

organizations, subject to certain 

exceptions in § 5501.104(b). The change 

in paragraph (b)(1) broadens the scope 

of the exception, which previously 

covered only pension interests, such as 

those arising from participation in 

defined benefit or defined contribution 

plans. Experience since the issuance of 

the supplemental regulation indicates 

that many incoming employees hold 

financial interests which, like a pension 

interest, were acquired as a form of 

compensation from a significantly 

regulated organization, but which do 

not qualify as a pension. For example, 

a recent report by the National Academy 

of Sciences found that stock and stock 

options are common employee benefits 

in small, private technology firms in the 

fields of engineering and health care, 

and the report recommended against 

forced divestiture of such employee 

benefits for scientists entering public 

service, as such requirements may 

unreasonably hamper the recruitment of 

talented and experienced scientific 

personnel. National Academy of 

Sciences, Science and Technology in the 

National Interest: Ensuring the Best 

Presidential and Federal Advisory 

Committee Science and Technology 

Appointments 199–201 (2004). 

Therefore, the exception has been 

amended to include not only pensions 

but other employee benefits. 

This exception is not intended to 

permit retention of financial interests 

merely because the interest was 

purchased by an employee 

contemporaneously with employment 

in private industry through a broker, 

financial advisor, or other source not 

acting as part of the private employer’s 

compensation system. 

In addition, like all the exceptions in 

this section, the provision merely 

permits retention of a financial interest 

notwithstanding the prohibited 

financial holdings provision of this 

section. The recusal requirements of 18 

U.S.C. 208 apply to all financial 

interests, including those covered by the 

exceptions in this section. (References 

to § 208 within this regulation are 

descriptive and not intended to 

interpret or expand upon the text of the 

statute.) Moreover, all financial interests 

are subject to directed divestiture 

pursuant to 5 CFR 2635.403(b), when 

there has been a determination by the 

agency that holding the particular 

financial interest, or a class of financial 

interests, will require the employee’s 

disqualification from matters so central 

or critical to the performance of his 

official duties that the employee’s 

ability to perform the duties of his office 

would be materially impaired, or will 

adversely affect the efficient 

accomplishment of the agency’s mission 

because another employee cannot 

readily be assigned to perform the work 

from which the employee is recused by 

reason of the financial interest.

Section 5501.104(b)(2) contains an 

exception to the prohibited holdings 

rule for employees who are not required 

to file a public or confidential financial 

disclosure report. Non-filers have been 

permitted to have a financial interest 

not exceeding $5,000 in significantly 

regulated organizations. The 

amendment raises the amount of the 

allowable holding to $15,000. The 

change parallels the increase from 

Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 5545

$5,000 to $15,000 in the OGE regulatory 

exemption for matters involving parties, 

found at 5 CFR 2640.202(a), that 

occurred after the original issuance of 

the HHS supplemental provision. The 

OGE exemption allows an employee to 

participate in any particular matter 

involving specific parties in which the 

disqualifying financial interest does not 

exceed $15,000 in publicly traded 

securities or long-term Federal 

Government or municipal securities. 

Because the allowable holding amount 

in the HHS Supplement corresponded 

to the OGE de minimis amount, an 

increase in the latter justifies an 

increase in the allowable holding limit 

in the HHS Supplement. Further, the 

section will track any future change in 

the OGE de minimis amount. 

Although the dollar amounts are 

identical, the two provisions 

substantively are not coextensive. Not 

all financial interests that may be 

covered by the FDA exception will be 

covered by the OGE regulatory 

exemption. For example, the FDA 

exception permits a non-filer to hold a 

financial interest in a non-publicly 

traded company (assuming all the other 

criteria in the section are also satisfied), 

but the OGE regulatory exemption only 

applies when the corporate securities 

are publicly traded. Therefore, the 

financial interest may still be 

problematic under 18 U.S.C. 208 and 

require a recusal, a divestiture, or an 

individual waiver, even though 

§ 5501.104(b)(2) excepts the holding 

from the FDA automatic divestiture 

requirement. 

In applying the allowable holding 

amount, the existing section specifies 

that the asset value is to be measured 

‘‘at the time of acquisition.’’ The 

amendment to this section now defines 

that phrase. This change is intended to 

obviate the possibility of unintended 

situations which, depending on the 

interpretation of that phrase, could lead 

to treatment for some employees that is 

inconsistent with treatment of similarlysituated employees, and lead to results 

that are inconsistent with the intent of 

the provision. Specifically, there could 

be scenarios in which an employee who 

recently joined the agency, and who had 

acquired an asset in the distant past, 

could be permitted to retain an asset, 

now valued well over $15,000, because 

it had been valued under $15,000 ‘‘at 

the time of acquisition,’’ while other 

new employees who acquired an asset 

more recently, but at a level above 

$15,000, are required to divest a much 

lower valued financial interest in the 

same or other significantly regulated 

organizations. Such inconsistent results 

in the implementation of the regulation 

could undermine the very purpose of 

the provision (i.e., that only de minimis

holdings should be permitted) and 

undermine employee confidence that 

the regulation is being applied fairly 

and uniformly. Accordingly, this change 

is intended to make clear that for assets 

that were acquired prior to joining FDA, 

the ‘‘time of acquisition’’ will be 

deemed to be the date of the employee’s 

entrance on duty at the agency. The 

change will prevent unfair and 

unwarranted inconsistencies in how the 

prohibited holding regulation is applied 

and will prevent situations in which 

employees are treated disparately, as a 

consequence of investment decisions 

made prior to their entrance on duty. 

New § 5501.104(c) provides that, for 

purposes of determining the divestiture 

period specified in 5 CFR 2635.403(d), 

an employee is not considered to have 

been directed to divest a financial 

interest prohibited under paragraph (a) 

of this section until the due date for 

disclosure of such interests. For new 

entrant employees, this disclosure 

would be submitted on either a public 

or confidential financial disclosure 

report or the supplemental report 

required by new § 5502.106(c), 

depending upon their filing status. For 

incumbent employees, the due date of 

the report required by § 5502.106(c) 

would be determinative. This rule 

allows the agency to analyze an 

employee’s holdings and make a 

determination as to whether a particular 

financial interest is covered by the 

prohibition before the requirement to 

divest becomes applicable. The text 

codifies existing agency practice and 

parallels a similar provision in the 

Department of Housing and Urban 

Development supplemental ethics 

regulations at 5 CFR 7501.104(c) which 

prescribes a divestiture period of 90 

days from the date a prohibited 

financial interest is reported. 

Section 5501.106 Outside Employment 

and Other Outside Activities 

The paragraph heading and 

introductory text of paragraph (c)(3) 

have been revised to delete redundant 

references to the FDA ‘‘Office of the 

Chief Counsel.’’ Section 5501.102(b)(1) 

already specifies that any section in part 

5501 that is made applicable to 

employees of an identified component 

that is designated as a separate agency 

is applicable, in addition to employees 

actually working within a component, 

to employees in a division or region of 

the Office of the General Counsel that 

principally advises or represents that 

component. 

The amended paragraph (c)(4) 

provides that the attorneys in the Office 

of the Counsel to the Inspector General 

are subject to the same outside activities 

restrictions as those in the Office of the 

General Counsel.

The amended paragraph (d)(2)(i) adds 

employees of the NIH to the prior 

approval requirement, currently 

applicable to employees of the FDA, for 

any outside employment, whether or 

not for compensation, or any selfemployed business activity. 

The amended paragraph (d)(3) 

requires an employee’s supervisor to 

review the request for approval of an 

outside activity and provide a statement 

addressing the extent to which the 

employee’s duties are related to the 

proposed outside activity. This 

information shall then be forwarded to 

an agency designee to make a final 

determination with respect to the 

request. The amendment also specifies 

that the following information be 

included with the request: the 

employee’s step within a grade, 

appointment type, and financial 

disclosure filing status; a description of 

how the employee’s official duties will 

affect the interests of the outside 

employer; whether stock or other 

remuneration in cash or in-kind will be 

received in connection with the activity; 

the amount of compensation to be 

received in connection with the activity; 

the amount and date of compensation 

received, or due for services performed, 

within the prior six years; a syllabus, 

outline, summary, synopsis, draft, or 

similar description of content and 

subject matter if the activity involves 

teaching, speaking, or writing; and other 

information as determined by the 

designated agency ethics official, or the 

HHS component with the concurrence 

of the designated agency ethics official, 

to be necessary or appropriate to 

evaluate whether the request is 

prohibited by statute or regulation. 

Should other types of information be 

routinely required of all employees, 

general notice of such requirements will 

be disseminated through instructions or 

manual issuances and revisions to the 

forms that are utilized for these 

purposes. 

The amendment to paragraph (d)(4) 

clarifies that a request for approval of 

outside employment or other outside 

activity may not be granted unless there 

is an affirmative determination that the 

employment or other activity is not 

expected to involve conduct prohibited 

by statute or regulation. 

Existing paragraph (d)(5) has been 

renumbered as paragraph (d)(6). New 

paragraph (d)(5) specifies that approval 

of an outside activity is effective for one 

year only. Employees must renew their 

request for approval annually if they 

5546 Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 

desire to continue any long term outside 

activity. In addition, employees must 

submit a revised request for approval if 

they change positions within the agency 

or if a significant change occurs in the 

nature of the outside activity or in the 

scope of the employees’ duties. 

Paragraph (e) incorporates a waiver 

provision to be used where, under the 

particular circumstances, application of 

the prohibited outside activity rules for 

FDA, OGC, or NIH employees is not 

necessary to ensure confidence in the 

impartiality and objectivity with which 

agency programs are administered. The 

waiver must not be inconsistent with 

part 2635 of this title or otherwise 

prohibited by law. This standard 

parallels the waiver provision at 5 CFR 

3101.108(g) in the Department of the 

Treasury supplemental ethics regulation 

that imposes outside activity 

prohibitions applicable to employees of 

the Office of the Comptroller of the 

Currency. This provision could be 

applied to provide some relief, for 

example, where the prohibition unduly 

causes personal or family hardship or, 

prohibits an employee from completing 

a professional obligation entered into 

prior to Government service, or restricts 

the Department from securing necessary 

and uniquely specialized services.

Section 5501.109 Prohibited Outside 

Activities Applicable to Employees of 

the National Institutes of Health 

Prior to the publication of this interim 

final rule, the criteria for approving or 

disapproving requests for approval of 

outside activities of NIH employees 

were set forth in the OGE regulation at 

5 CFR part 2635, subpart H, and the 

Supplemental Standards of Ethical 

Conduct for Employees of HHS at 5 CFR 

5501.106. Both the OGE rules and the 

HHS provisions in § 5501.106 remain in 

effect for all NIH employees. This 

interim final rule imposes additional, 

more stringent requirements, similar to 

those in 5 CFR 5501.106(c)(3) for 

employees of the FDA. 

Outside activities with entities 

substantially affected by NIH programs, 

policies, or operations must be further 

restricted in order to avoid the potential 

for real or apparent conflicts of interest 

that may threaten the integrity of the 

critically important research conducted 

and sponsored by the NIH. This 

assessment is informed by 

recommendations of the Advisory 

Committee to the NIH Director that were 

presented in the June 22, 2004, Report 

of the NIH Blue Ribbon Panel on 

Conflict of Interest Policies (Blue 

Ribbon Panel Report), available at http:/

/www.nih.gov/about/

ethics_COI_panelreport.htm, but is 

predicated upon a consideration of 

various outside activities of NIH 

employees that have been subject to 

inquiry and the desire to advance sound 

public policy. Many of the panel 

recommendations and related issues 

were highlighted and discussed at 

Congressional hearings on outside 

consulting arrangements by NIH 

employees. Panel recommendations to 

liberalize certain current restrictions 

were not adopted in this rule. 

Additional restrictions are necessary 

because NIH operations increasingly 

require significant interaction with 

pharmaceutical, biotechnological, 

biostatistical, and medical device 

companies (referred to within the 

regulation as ‘‘substantially affected 

organizations’’) and utilization of their 

products; the size and scope of NIH 

funding of biomedical and behavioral 

research, research training, and related 

activities have grown substantially; and 

NIH research findings are broad in range 

and influence within the health care 

sector. Moreover, in light of recent 

Congressional oversight and media 

reports, HHS has determined that the 

existing rules governing outside 

activities have not prevented reasonable 

public questioning of the integrity of 

NIH employees and the impartiality and 

objectivity with which agency programs 

are administered. 

Through its approximately 17,500 

full-time equivalent employees, NIH 

conducts biomedical and behavioral 

research, research training and related 

activities in its intramural program, and 

its extramural program funds those 

activities at universities, medical 

centers, research institutes and other 

nonprofit and for-profit organizations 

through grants, cooperative agreements, 

and contracts. Both the intramural and 

extramural programs interact with 

academic research institutions and 

substantially affected organizations in 

many ways, both formal (e.g., funding 

agreements, research agreements, 

intellectual property licenses, and 

research and development contracts) 

and informal (e.g., exchange of research 

materials and other research 

collaborations, public and private 

scientific discussions, and joint 

sponsorship of projects). The official 

actions of many NIH employees can 

affect the financial interests of a broad 

range of businesses and organizations, 

including health care providers and 

health insurers, often in subtle ways. 

Informed by recent experience, it is 

appropriate to limit broadly employees’

outside activities with those entities to 

avoid any appearance that official 

actions may be potentially influenced 

by private financial interests or loyalty 

to an outside employer. 

The current HHS supplemental 

regulation on outside employment and 

other outside activities, 5 CFR 5501.106, 

prohibits employees of the NIH and 

other employees of HHS from providing 

certain services, for compensation, in 

the preparation of grant applications, 

contract proposals or other documents 

to be submitted to HHS, and from 

compensated outside employment with 

respect to a particular activity funded by 

an HHS grant, contract, cooperative 

agreement, or other funding mechanism 

authorized by statute, or conducted 

under a cooperative research and 

development agreement (CRADA). 

Under § 5501.109(c)(1) of this interim 

final rule, subject to certain exceptions, 

all NIH employees are also prohibited 

from engaging in employment (which 

includes serving as an officer, director, 

or other fiduciary board member, 

serving on a scientific advisory board or 

committee, and consulting or providing 

professional services) and compensated 

teaching, speaking, writing, or editing 

with a substantially affected 

organization; a hospital, clinic, health 

maintenance organization, or other 

health care provider (defined 

comprehensively to include the types of 

entities that are eligible to receive 

payments under the Medicare program 

for the provision of health care items or 

services); a health insurer; a health, 

science, or health research-related trade, 

professional, consumer, or advocacy 

association; or a supported research 

institution. 

A ‘‘substantially affected 

organization’’ is defined in paragraph 

(b)(8) to include those entities, 

irrespective of corporate form, that are 

engaged in the research, development, 

or manufacture of biotechnological, 

biostatistical, pharmaceutical, or 

medical devices, equipment, 

preparations, treatments, or products. 

The term includes those organizations a 

majority of whose members are engaged 

in such activities. 

Section 5501.109(b)(8)(iii) also 

permits the designated agency ethics 

official or, in consultation with the 

designated agency ethics official, the 

NIH Director or the NIH Director’s 

designee to determine that other entities 

shall be classified as substantially 

affected organizations. These 

determinations will be based upon 

whether such entities are engaged in 

activities that are substantially affected 

by the programs, policies, or operations 

of the NIH and whether, in view of the 

ongoing research conducted or 

sponsored by the NIH, interests in these 

organizations are likely to pose ethics 

Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 5547

concerns for NIH employees similar to 

those presented by the entities 

specifically listed in paragraph (b)(8)(i). 

This authority might be used, for 

example, to cover a food, beverage, or 

tobacco manufacturer, if its products 

became a pervasive subject of NIH 

research activities into the health 

benefits or detriment associated with 

the product or its ingredients, and the 

research activities required a substantial 

coordinated effort across institutes and 

centers, such that it would be necessary 

or appropriate to apply a prophylactic 

rule applicable to all NIH employees. 

Lists of organizations designated as 

substantially affected organizations 

under paragraph (b)(8)(iii) will be 

maintained by the designated agency 

ethics official and the NIH deputy ethics 

counselor and disseminated to 

employees through appropriate means, 

including website posting. 

A ‘‘supported research institution’’ is 

defined in paragraph (b)(9) as an 

educational institution or a non-profit 

independent research institute that 

within the last year or currently has 

applied for, proposed, or received an 

NIH grant, cooperative agreement, 

research and development contract, or 

CRADA.

Employees are also prohibited under 

paragraph (c)(1) from engaging in any 

self-employed business activity that 

involves the sale or promotion of 

products or services of a substantially 

affected organization or a health care 

provider or insurer. This section excepts 

the ownership of a patent or related 

commercialization activities conducted 

pursuant to Executive Order 10096, the 

Federal Technology Transfer Act of 

1986 (FTTA), 15 U.S.C. 3710d, or 

implementing regulations at 37 CFR 

404, as amended. Those activities will 

continue to be reviewed and approved 

on a case-by-case basis in accordance 

with existing conflict of interest and 

other applicable rules and policies. For 

example, under the FTTA the NIH 

might allow an employee inventor to 

obtain, or retain, title to an NIH 

invention, because the NIH has 

determined that it does not wish to file 

for a patent or otherwise commercialize 

the invention. The activities of owning 

that invention in a personal capacity, 

seeking and owning patent protection 

on that invention in a personal capacity, 

and engaging in commercialization 

activities related to that invention have 

been encouraged under the FTTA, and 

are not automatically prohibited by this 

regulation. Instead, these activities will 

continue to be scrutinized in accordance 

with the facts of each situation to 

determine whether they present a 

conflict or potential conflict and the 

situation should be managed to best 

serve the public interest. 

These prohibited outside activities 

rules are applicable to all NIH 

employees, but are focused on those 

types of activities and external entities 

that may pose the most significant risk 

of potential conflicts. In addition, the 

need for prophylactic rules barring 

certain types of outside activities 

derives from the considerable 

complexity of the current regulatory 

scheme, the intractable difficulties 

encountered at NIH in differentiating 

scientific work performed as an official 

duty from that proposed as an outside 

activity, and the significant 

administrative burden inherent in caseby-case determinations. 

The outside activity prior approval 

process is complicated. The following 

discourse describes the analysis 

required for each potential outside 

activity: Approval requires an 

assessment of whether the proposed 

outside activity violates any statute or 

regulation, including the OGE Standards 

of Ethical Conduct for Employees of the 

Executive Branch or the HHS 

Supplemental Ethics Regulation. 

Included in the OGE Standards is the 

requirement that the proposed outside 

activity cannot create an actual or 

apparent conflict that would result in 

recusals that would materially impair an 

employee’s ability to do his job. 

In evaluating outside activities for 

conflicts, the reviewer initially 

addresses two provisions that form the 

core of Federal ethics law. A criminal 

statute, 18 U.S.C. 208, deals with an 

‘‘actual conflict’’ due to the employee’s 

own or imputed financial interest in the 

resolution of a government matter. A 

regulatory provision in the OGE 

Standards, 5 CFR 2635.502, principally 

addresses disqualifications called for 

when an ‘‘appearance of a conflict’’

arises from a ‘‘covered relationship.’’

Under section 208 of the criminal 

code, to avoid a conflict of interest that 

results from outside employment, 

among other types of financial interests, 

a Federal employee must not participate 

personally and substantially in a 

particular matter that, to his knowledge, 

directly and predictably affects his own 

financial interest in the employment 

opportunity or the financial interests of 

his outside employer. To prevent an 

‘‘appearance of a conflict’’ that results 

from serving in a role short of 

employment, for example, as an advisor, 

consultant, or other type of independent 

contractor compensated with fees and 

expenses, a different rule applies. Under 

section 502 of the regulations, if a 

reasonable person with knowledge of 

the relevant facts would question the 

Federal employee’s impartiality, the 

employee must recuse, but only from 

‘‘particular matters involving specific 

parties,’’ such as grants, contracts, 

applications, clinical trials, audits, 

investigations, or lawsuits that involve, 

as a party or representative of a party, 

the company to which the employee is 

providing consulting services. 

Both sections are disqualification 

provisions in that they do not prohibit 

the acquisition of an employment or 

consulting relationship, rather they bar 

actual ‘‘participation’’ in a potentially 

conflicting matter, either personally or 

through the direct and active 

supervision of the participation of a 

subordinate. However, neither section is 

triggered by mere knowledge of, or 

official responsibility for, a particular 

matter. In short, if an employee can 

recuse appropriately and still be able to 

perform the duties of his position, then 

an outside activity may be approved, 

provided there are no other statutory or 

regulatory impediments. 

A number of statutes and regulations 

preclude certain outside activities. For 

example, if an employee seeks approval 

to be a lobbyist before the Federal 

Government, the anti-representation 

statutes, 18 U.S.C. 203 and 205, would 

be implicated. If the activity is clearly 

one that should be done as an official 

duty, such as an official speech on 

agency programs, then approval would 

be denied, under 18 U.S.C. 209, as an 

improper salary supplementation. 

If the circumstances would create an 

appearance of violating ethical 

standards, for example where the 

employee appears to have used his 

official position to obtain an outside 

compensated business opportunity or 

his actions reasonably create the 

impression of using his public office for 

the private gain of the outside company, 

then under the principles in the OGE 

Standards, 5 CFR 2635.101(b), and the 

rules governing misuse of position, 5 

CFR 2635.702, the outside activity may 

be denied. An arrangement for 

compensation that far exceeds a market 

rate or that involves first class or foreign 

travel or extravagant accommodations, 

for example, may create the appearance 

that the offer was made or the 

remuneration was enhanced due to the 

employee’s official position. Another 

situation cited in the OGE Standards in 

example 2 following 5 CFR 2635.802 

would be where an employee was 

recently instrumental in formulating 

industry standards and will again be so 

involved. If an affected company offers 

a consulting contract to the employee to 

render advice to the company about 

how it can restructure its operations to 

comply with the very industry 

5548 Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 

standards that the employee has just 

drafted, the consulting arrangement 

should not be approved even though the 

employee lacks any current assignments 

affecting the industry, and even though 

the outside consulting can be finished 

before he again works on such matters. 

Another regulation, 5 CFR 2635.807 

precludes compensation, subject to 

certain exceptions, if an employee 

wants to teach a course, deliver a 

speech, or write a book that relates to 

his official duties. (Consulting, 

technically, is not covered by this 

section, but the analysis in section 807 

does provide guidance in evaluating 

many outside activities.) The 

‘‘relatedness’’ test evaluates, among 

other factors, the subject matter of the 

activity. For career employees, 

compensation is precluded if the 

teaching, speaking, or writing deals in 

significant part with any current 

assignment (or one completed within 

the last year) or any ongoing policy, 

program, or operation of the agency. 

However, in a note following the 

provision, OGE observes that a career 

employee may receive compensation for 

‘‘teaching, speaking, or writing on a 

subject within the employee’s discipline 

or inherent area of expertise based on 

his educational background or 

experience even though the [activity] 

deals generally with a subject within the 

agency’s areas of responsibility.’’ But 

this textual note does not lessen the 

applicability of other requirements of 

section 807, notably that the invitation 

to engage in the activity must not have 

been extended to the employee 

primarily because of his official position 

or tendered, directly or indirectly, by a 

person or entity that has interests that 

may be affected substantially by the 

performance or nonperformance of the 

employee’s official duties. The 

circumstances of the invitation and the 

identity of the inviter are as important 

as the subject matter of the activity.

Determining whether an invitation 

was prompted by official position 

requires an inquiry into whether the 

invitation to participate in the outside 

activity would not have been 

forthcoming had the employee not held 

the status, authority, or duties 

associated with the employee’s Federal 

position. Resolving whether the inviter 

has interests that may be affected 

substantially by the performance or 

nonperformance of the employee’s 

official duties depends upon whether it 

is reasonable to assume that the invitee 

may become involved in a matter 

substantially affecting the inviter, or 

whether the chance of such intervention 

is simply a remote and speculative 

possibility. These judgments are at 

times difficult and capable of reasonable 

debate. 

Ascertaining whether the subject 

matter of the proposed activity deals 

significantly with a current or recent 

assignment often may be particularly 

difficult given the technical scientific 

nature of the research conducted or 

funded by the NIH. For example, only 

a trained expert could discern whether 

a scientist engaged in basic research on 

the molecular basis for the development 

of skin cancer could be approved to 

lecture for compensation on the etiology 

of acute lymphocytic leukemia. The 

analysis would focus on whether the 

presenter, in discussing the latter 

subject, would draw substantially on the 

knowledge gleaned from the former. 

Parsing through biomedical jargon to 

exclude the possibility of a significant 

overlap is not a task to which the 

current NIH ethics program is wellsuited. 

This analytical framework is 

comprised of requirements that apply 

across the executive branch. While the 

framework may be capable of being 

applied readily at other agencies, 

historically NIH has confronted unique 

challenges in implementing these 

executive branch-wide requirements. In 

its recent review of the NIH ethics 

program, OGE noted that, in examining 

outside activity requests, its reviewers 

generally were not in a position to 

identify potential conflict of interest 

situations because a lack of scientific 

expertise prevented them from 

determining how the employees’ official 

duties may have related to their outside 

consulting activities. The Office of 

Government Ethics observed that a caseby-case approach utilizing the executive 

branch-wide standards has not been 

adequate to protect the reputation of the 

NIH and its employees. It strongly 

recommended that the Department 

develop supplemental regulations to 

address the kinds of consulting 

activities that have raised integrity 

concerns at the NIH. 

This rule in fact expands upon that 

recommendation by addressing other 

activities that may pose similar 

concerns. Compensated teaching, 

speaking, and writing activities when 

performed by an NIH scientist for a 

substantially affected organization or a 

supported research institution can be no 

less troubling to the public than 

employment or consulting with these 

entities. Where biomedical research and 

publication activities are involved, any 

financial connection to affected 

industries may be perceived adversely. 

The British charitable trust, Sense 

About Science, in a recent working 

paper on scientific peer review observed 

this phenomenon in the context of 

sponsored research, stating that often 

‘‘critical commentators simply 

emphasi[z]e the source of research 

funding in order to imply that the 

researcher’s findings may be unreliable 

in some unspecified way.’’ Sense About 

Science, Peer Review and the 

Acceptance of New Scientific Ideas

(2004), p. 18, available at 

www.senseaboutscience.org.uk/.

For the NIH, section 807 does not 

adequately address this problem. Steps 

have been taken to incorporate review 

by a panel of technical advisors into the 

outside activity approval process in 

order to verify that the subject matter of 

a proposed activity is not related to 

official duties within the meaning of 

section 807. Efforts to augment training 

and guidance on the section have been 

initiated, and additional staff resources 

have been committed to its 

implementation. However, neither the 

addition of scientific expertise, nor 

training, nor improved administration 

can avoid the result that section 807 at 

times permits activities that members of 

the public might intuitively suppose are 

prohibited. For example, under current 

law, an NIH intramural researcher who 

proposes to deliver a paid lecture on 

general scientific topics within her 

inherent area of expertise for a drug 

company or a grantee university 

potentially may be allowed to do so if 

the various tests under section 807 and 

other applicable provisions are satisfied. 

Explanations—such as the lecture 

would not focus on any current or 

recent research; or the drug company 

did not have a product affected by her 

research; or although the university 

received a grant from her institute, she 

was not responsible for extramural 

funding decisions—may be perceived as 

legal technicalities. 

Section 5501.109(c)(1)(ii) addresses 

this inherent perception problem and 

solves the difficulty of evaluating 

scientific content under the 

‘‘relatedness’’ test by targeting the 

prohibition to those sources of 

compensation for teaching, speaking, 

and writing activities that are most 

directly connected to these identified 

problems, i.e., substantially affected 

organizations, supported research 

institutions, health care providers or 

insurers, or related trade, professional, 

or similar associations. These sources of 

compensation by definition have 

interests that are affected by NIH 

programs, policies, and operations and 

may be perceived as exerting influence 

on an employee’s governmental actions 

whenever a financial relationship exists. 

Recent press accounts alleging NIH 

employee participation as compensated 

Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 5549

industry spokespersons or as authors of 

articles or other presentations that 

purport to endorse the benefits of 

specific products highlight this concern. 

Moreover, these entities, whether in 

industry or academia, are among those 

most likely to ask an NIH employee to 

speak or write on technical subjects 

related to their official duties, thus 

presenting the analytical quandary 

previously described when applying the 

‘‘subject matter’’ part of the 

‘‘relatedness’’ test in section 807. 

Although stringent limitations on 

outside activities have been imposed, 

the Department is especially mindful of 

the need for substantive interaction 

within the scientific community. As the 

National Academy of Sciences has 

stated:

[S]cience is inherently a social enterprise—

in sharp contrast to a popular stereotype of 

science as a lonely, isolated search for the 

truth. With few exceptions, scientific 

research cannot be done without drawing on 

the work of others or collaborating with 

others. ... The object of research is to extend 

human knowledge of the physical, biological, 

or social world beyond what is already 

known. But an individual’s knowledge 

properly enters the domain of science only 

after it is presented to others in such a 

fashion that they can independently judge its 

validity. This process occurs in many 

different ways. Researchers talk to their 

colleagues and supervisors in laboratories, in 

hallways, and over the telephone. They trade 

data and speculations over computer 

networks. They give presentations at 

seminars and conferences. They write up 

their results and send them to scientific 

journals, which in turn send the papers to be 

scrutinized by reviewers. After a paper is 

published or a finding is presented, it is 

judged by other scientists in the context of 

what they already know from other sources. 

Throughout this continuum of discussion 

and deliberation the ideas of individuals are 

collectively judged, sorted, and selectively 

incorporated into the consensual but ever 

evolving scientific world view. In the 

process, individual knowledge is gradually 

converted into generally accepted 

knowledge. * * * The social mechanisms of 

science do more than validate what comes to 

be known as scientific knowledge. They also 

help generate and sustain the body of 

experimental techniques, social conventions, 

and other ‘‘methods’’ that scientists use in 

doing and reporting research. * * * Because 

they reflect socially accepted standards in 

science, their application is a key element of 

responsible scientific practice.

National Academy of Sciences, On 

Being a Scientist. (Washington, D.C.: 

National Academy Press, 1994). 

Therefore, it is important to observe that 

the impact of the regulatory ban on 

outside activities is mitigated in several 

significant respects, through a transition 

period, a waiver provision, textual 

exceptions, and future actions that the 

Department has committed to 

undertake. 

First, the prohibition provides for a 

grace period to allow employees 

responsibly to conclude outstanding 

obligations. Employees may continue to 

engage in outside activities that would 

otherwise be prohibited for a period not 

to exceed 30 days from the effective date 

of the rule, and extensions of time for 

a maximum of 90 days from the 

effective date may be granted for good 

cause. 

Second, a process exists under 

§ 5501.106(e) for the designated agency 

ethics official to waive the application 

of the across-the-board rule in 

appropriate circumstances. 

Third, as to the teaching, speaking, 

writing, and editing restrictions, it 

should be stressed that the ban reaches 

only compensated activities; travel 

reimbursement will be permitted. 

Fourth, the NIH has determined that 

current policies and practices governing 

permissible official duty activities 

involving speaking or lecturing should 

be revised. Consequently, the NIH has 

decided to develop means to ensure that 

NIH scientists’ knowledge continues to 

be conveyed to the scientific community 

at large. The NIH will act 

administratively to accommodate, as 

official duty activities, those speaking 

opportunities that might previously 

have been considered less directly 

connected to agency mission. The NIH 

will consider expanding the availability 

of scientists to appear before relevant 

audiences and organizations at 

government expense, when appropriate, 

or through agency acceptance of travel 

reimbursement from non-Federal 

sources under 31 U.S.C. 1353, where 

permitted. 

Fifth, the regulations contain 

exceptions designed to facilitate 

professional obligations and certain 

academic endeavors. These exceptions 

partially lift the absolute bar on outside 

activities with supported research 

institutions and other organizations 

(except substantially affected 

organizations) described in 

§ 5501.109(c)(1), but they do not 

affirmatively permit an activity that 

would otherwise violate Federal law or 

regulations, including 5 CFR parts 2635, 

2636, and 5501. Specifically, exceptions 

are provided that will allow 

participation in pursuits that are critical 

to maintaining technical proficiency, 

professional licenses, and academic 

credentials and disseminating scientific 

information, such as teaching involving 

multiple presentations at academic 

institutions, providing individual 

patient care, moderating or presenting at 

continuing professional education 

programs, and writing or editing 

scientific articles, textbooks, and 

treatises that are subjected to scientific 

peer review or a substantially equivalent 

editorial review process. The rule also 

contains exceptions for employment 

with, providing professional or 

consultative services to, or teaching, 

speaking, writing, or editing for, a 

political, religious, social, fraternal, or 

recreational organization. The rule also 

recognizes that individuals may be 

employed in non-problematic roles with 

outside entities such as providing 

clerical assistance, janitorial services, or 

unskilled labor. 

The exception for moderating or 

speaking at continuing professional 

education programs extends not only to 

sessions conducted for members of 

professions that impose licensure and 

program accreditation requirements, but 

includes events at which scientists, 

such as chemists or microbiologists, 

gather to share new insights and 

findings in their respective fields, 

provided that the educational events are 

substantially equivalent to those 

frequented by their professionally 

licensed colleagues. 

The licensing and program 

accreditation infrastructure established 

by certain learned professions generally 

has not been adopted by doctorates in 

scientific research. Most professional 

groups have promulgated standards for 

their educational programs that are 

designed to avoid conflicts, commercial 

promotion, and control by industry 

sponsors. See, for example, American 

College of Surgeons Guidelines for 

Collaboration of Industry and Surgical 

Organizations in Support of Research 

and Continuing Education, available at 

www.facs.org/fellows_info/statements/

st-36.html; American Society of 

Consultant Pharmacists Guidelines for 

Industry Support of ASCP Educational 

Activities, available at www.ascp.com/

public/pr/guidelines/indsupp.shtml;

and the discussion generally in the Food 

and Drug Administration publication 

entitled ‘‘Final Guidance on IndustrySupported Scientific and Educational 

Activities; Notice’’ at 62 FR 64074, Dec. 

3, 1997. These groups police 

educational activities at which NIH 

employees may be asked to speak 

through strict policies limiting industry 

support to unrestricted educational 

grants. To provide a similar assurance in 

all contexts, including at gatherings 

convened by scientists and researchers 

from various academic disciplines, the 

regulations explicitly negate the 

exception if a substantially affected 

organization plays a role other than that 

of a donor of an unrestricted 

educational grant. 

5550 Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 

In addition, in order to ensure that the 

exception is limited to continuing 

professional education or similar 

programs, as intended, and not 

interpreted to encompass every 

speaking occasion that has some 

educational content or instructional 

benefit, the regulation confines the 

exception to accredited programs or, in 

the case of a profession or academic 

discipline whose members are not 

subject to licensure and which does not 

have program accreditation 

requirements, an education program 

determined by the designated agency 

ethics official or his designee or, in 

consultation with the designated agency 

ethics official or his designee, the NIH 

Director or the NIH Director’s designee 

to be substantially equivalent to an 

accredited continuing professional 

education program.

In determining substantial 

equivalency for these purposes, a 

number of factors may be considered. 

Among them would be whether the 

education program is sponsored by a 

regional, national, or international 

organization that serves the interests of 

scientists or researchers in a specific 

discipline (e.g., neuroscientists or 

experimental biologists). Another 

attribute would be whether, as part of its 

mission, the program sponsor has a 

stated goal of ensuring that audience 

members remain current with respect to 

the latest scientific developments in 

their field of interest. Also important is 

the extent to which the sponsor 

regularly holds meetings that attract 

presenters and panel participants who 

are renowned for their expertise in the 

topics covered. Similarly critical is 

whether the education program is 

characterized by sufficient academic 

rigor and known within the scientific 

community as a venue that enables 

scientists to disseminate and exchange 

the latest information, particularly, 

among different sub-disciplines (e.g., 

inorganic chemistry as opposed to 

organic chemistry). An education 

program conducted by a well 

established sponsor that has a 

longstanding reputation for presenting 

refereed papers and other scientific 

discourse of high caliber and which 

attracts, from around the globe, 

attendees of diverse viewpoints within 

the relevant discipline would be the 

paradigm. 

The regulation includes an exception 

for writing activities subjected to 

scientific peer review or substantially 

equivalent editorial processes. Scientific 

peer review is commonly understood in 

principle, with the primary purposes 

being to ‘‘evaluate scientific and 

technical merit,’’ ‘‘screen for obvious 

errors in methodology and reasoning,’’

and ‘‘ensure that the research is novel 

and ‘‘important’’’ within the relevant 

discipline. Effie J. Chan, Note, The 

‘‘Brave New World’’ of Daubert: True 

Peer Review, Editorial Peer Review, and 

Scientific Validity, 70 N.Y.U. L. Rev.

100, 119 n.121 (1995). The concept of 

scientific peer review also generally 

involves the application of standards 

governing scientific misconduct and 

research integrity. E.g., International 

Committee of Medical Journal Editors, 

Uniform Requirements for Manuscripts 

Submitted to Biomedical Journals: 

Writing and Editing for Biomedical 

Publication (2004), available at http://

www.icmje.org. HHS recognizes that 

actual editorial processes may vary in 

practice, for example, in terms of 

number of levels of review and the 

extent to which the publisher or journal 

relies on outside reviewers. Therefore, 

the exception is intended to cover 

writings subjected to any scientific peer 

review or substantially equivalent 

processes that are designed to ensure 

that the material disseminated is 

scientifically accurate, has technical 

merit, demonstrates originality, evinces 

an important contribution to the body of 

knowledge, and adheres to research and 

scientific conduct standards generally 

accepted within the relevant discipline. 

Section 5501.110 Prohibited Financial 

Interests Applicable to Employees of the 

National Institutes of Health 

New § 5501.110 creates, for 

employees of the NIH who file either a 

public or confidential financial 

disclosure report, a prohibited financial 

holdings regulation that bars owning a 

financial interest, such as stock, in 

substantially affected organizations. In 

accordance with 5 CFR 2635.403(a), the 

Department has determined that the 

acquisition or holding of these financial 

interests would cause a reasonable 

person to question the impartiality or 

objectivity with which NIH programs 

are administered.

Public and confidential filers by 

definition are senior officials or other 

employees whose duties involve the 

exercise of significant discretion in 

certain critical areas of agency 

operations. Section 5501.110 is similar 

to an existing financial holdings 

restriction applied to FDA employees 

that dates back to 1972. The current 

version of the restriction applicable to 

FDA employees was part of the HHS 

Supplemental Ethics Regulation as it 

was first issued in 1996, and is found at 

§ 5501.104. Since the enactment of the 

HHS Supplement, the work of the NIH 

has been determined to pose similar 

unique challenges for the agency ethics 

program. NIH employees, like FDA 

employees, participate in particular 

matters that substantially affect 

significant sectors of the United States 

economy, in particular, the 

pharmaceutical, medical device, and 

biotechnology industries. Even the food 

and beverage sector that is more 

associated with the FDA has begun to 

come within the NIH sphere through 

research on obesity and other dietrelated conditions. Many NIH 

employees have access to confidential 

commercial information and trade 

secrets, the misuse of which can have 

serious financial consequences. 

Unethical conduct in this context, 

including misuse of information, could 

have serious public health 

consequences. In sum, the NIH has a 

compelling need to monitor, and impose 

reasonable prophylactic restrictions on, 

the financial ties between NIH 

employees and the vast number of 

entities that are substantially affected by 

NIH programs. 

Therefore, § 5501.110 creates a 

prohibited financial holdings rule that 

serves the above-described interests and 

relieves the NIH of the significant 

administrative burden of resolving 

many conflict of interest problems on a 

case-by-case basis. However, § 5501.110 

is narrowly tailored in three important 

respects. First, § 5501.110 distinguishes 

between interests in organizations that 

are substantially affected by NIH 

programs, policies, or operations, i.e., 

those organizations principally involved 

in the pharmaceutical and 

biotechnology industries, and those 

interests that are not in such 

organizations. Second, § 5501.110 

imposes the strictest limitations on 

employees whose duties carry the 

greatest potential for conflict of interest, 

i.e., those employees who are required 

to file either a public financial 

disclosure statement or a confidential 

financial disclosure statement, pursuant 

to 5 CFR part 2634. Third, § 5501.110 

incorporates a mechanism to exclude 

certain confidential filers or classes of 

confidential filers from the prohibited 

holdings requirement if the across-theboard prohibition is deemed 

unnecessary to ensure public 

confidence in the integrity of agency 

operations and their positions do not 

fall in certain enumerated categories nor 

entail responsibilities that are likely to 

pose conflicts related to financial 

holdings. 

While the new rule prohibits public 

and confidential filers at the NIH from 

holding or acquiring any interest in a 

substantially affected organization, all 

other NIH employees (as well as those 

confidential filers excluded from 

Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 5551

coverage by the rule) will be subject to 

a $15,000 limit on the holding or 

acquisition of such interests and certain 

other restrictions. Currently, in order to 

avoid a conflict of interest, these 

employees must monitor their work 

activities and know the identity and 

value of their holdings at any given 

moment. A regulatory exemption at 5 

CFR 2640.202 allows employees to work 

on specific party matters, such as 

contracts, grants, investigations, or 

clinical trials, as long as the value of the 

affected stocks does not exceed $15,000, 

and on a general matter, such as 

rulemaking or policy determination, if 

the value of any one affected holding 

does not exceed $25,000, subject to a 

$50,000 cap when cumulating all 

affected interests. However, if the asset 

value exceeds these thresholds, 

employees must recuse from official 

participation in particular matters that 

would have a direct and predictable 

effect on the financial interests of the 

companies in which they are invested. 

These monitoring and recusal 

responsibilities are exacerbated by the 

increasing number of mergers, 

acquisitions, joint ventures, 

partnerships, intellectual property 

licensing agreements, and even name 

changes, particularly within the 

biotechnology and pharmaceutical 

industries that, on any given day, may 

make it difficult to know whether one 

has a conflict to avoid. By imposing a 

$15,000 cap on such holdings, the 

employee, the NIH, and the public can 

be better assured that the participation 

by NIH employees in their respective 

work assignments, whether specific or 

general in scope, does not pose a 

conflict created by stock holdings. The 

$15,000 cap will adjust automatically to 

any change in the de minimis

exemption limit for matters involving 

parties at 5 CFR 2640.202(a). 

Although the dollar amounts in the 

two provisions are linked, substantively 

they differ in an important respect. Not 

all financial interests valued at $15,000 

or less will be covered by the OGE 

regulatory exemption. For example, 

although the NIH exception permits a 

non-filer to hold a financial interest in 

a non-publicly traded company 

(assuming all the other criteria in the 

section are also satisfied), the OGE 

regulatory exemption only applies to 

securities in publicly traded companies 

or long-term Federal Government or 

municipal securities. Accordingly, NIH 

employees are reminded that even 

though § 5501.110 may allow retention 

of certain assets that would otherwise be 

prohibited, the financial interest may 

nevertheless be problematic under 18 

U.S.C. 208. Absent a regulatory 

exemption that specifically addresses 

the financial interest, a recusal, a 

divestiture, or an individual waiver may 

be required.

The prohibitions relating to financial 

interests will apply to the spouses and 

minor children of NIH employees. 

Inasmuch as the financial interests of 

these relatives are imputed to 

employees and pose identical conflicts 

concerns, the Department has made the 

determination, pursuant to 5 CFR 

2635.403(a), that there is a direct and 

appropriate nexus between this 

prohibition as applied to spouses and 

minor children and the efficiency of the 

service. It should be noted, however, 

that § 5501.110 is not intended to 

prohibit employment by spouses and 

minor children in the affected industry 

sectors, although any actual or apparent 

conflicts of interests created as to NIH 

employees by such employment must be 

resolved under other applicable 

provisions of 5 CFR part 2635. 

Section 5501.110(e)(1) permits the 

holding of financial interests acquired 

through employment with a 

substantially affected organization. This 

exception is intended to parallel the 

FDA provision at amended 

§ 5501.104(b)(1) that excepts pensions 

or other employee benefits derived from 

employment with a significantly 

regulated organization. This exception 

is necessary to facilitate recruitment of 

qualified scientific and professional 

personnel, many of whom may have 

begun their careers in industry. Because 

NIH employees, as opposed to spouses 

and minor children of employees, are 

generally prohibited under § 5501.109 

from engaging in current employment 

with a substantially affected 

organization, the provision will 

primarily apply to financial interests 

acquired through employment prior to 

joining the agency. However, it may 

apply in the limited number of 

instances in which NIH employees are 

permitted to have a concurrent 

employment relationship with a 

substantially affected organization, such 

as a clerical position excepted by 

§ 5501.109(c)(3)(iii), that may provide a 

pension or other employee benefits. 

Section 5501.110(e)(2) excepts 

financial interests in substantially 

affected organizations that result from 

holding an interest in certain publicly 

traded or publicly available investment 

funds or a widely held pension or 

similar fund. To qualify for this 

exception, the fund must not be selfdirected and must not have an express 

policy or practice of concentrating its 

investments in substantially affected 

organizations. For example, a widely 

diversified mutual fund generally would 

be a permissible holding, even though 

the fund holds some stocks of 

substantially affected organizations 

whereas a sector fund that focuses on 

the pharmaceutical industry would not. 

Furthermore, § 5501.110(e)(3) 

provides NIH employees with the 

opportunity to request an individual 

exception for certain financial interests. 

Where the employee can demonstrate 

exceptional circumstances, the NIH may 

allow an individual to hold a financial 

interest in a substantially affected 

organization, provided that the 

application of the financial interest 

prohibition is not necessary to ensure 

public confidence in the impartiality or 

objectivity with which NIH programs 

are administered or to avoid a violation 

of 5 CFR part 2635. 

Pursuant to 5 CFR 2635.403(d), an 

employee shall be given a reasonable 

period of time, considering the nature of 

the employee’s particular duties and the 

nature and marketability of the interest, 

to divest a financial interest prohibited 

by paragraphs (c) and (d) of this section. 

Except in cases of unusual hardship, as 

determined by the NIH deputy ethics 

counselor in consultation with the 

designated agency ethics official or his 

designee, a reasonable period shall not 

exceed 90 days from the date divestiture 

is first required. For those current 

employees who will be affected 

immediately by the promulgation of this 

rule, it is anticipated that individual 

requests for divestiture periods of up to 

180 days will be granted upon an 

adequate showing of good cause, such 

as difficulties in disposing of nonpublicly traded assets or a significant 

adverse financial impact on the 

employee, the company, or the 

securities market. During any period in 

which the employee continues to hold 

the prohibited financial interest, the 

employee remains subject to the 

restrictions imposed by subpart D of 5 

CFR part 2635. 

As specified in 5 CFR 2635.403(e), an 

employee who is required to sell or 

otherwise divest a financial interest and 

thereby incurs a capital gain may be 

eligible to defer the tax consequences of 

divestiture under subpart J of 5 CFR part 

2634. This special tax treatment is 

unavailable if the employee fails to 

comply with the requisite procedures 

and disposes of the financial interest 

prior to receiving a certificate of 

divestiture from the Director of the 

Office of Government Ethics. 

Section 5501.110(g), for the reasons 

discussed previously in connection with 

the FDA provision at § 5501.104(c), 

specifies that the requirement to divest 

a financial interest prohibited by 

5552 Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 

paragraphs (c) and (d) of this section is 

not triggered until the due date for 

reporting prohibited financial interests 

under the applicable financial 

disclosure rules in parts 2634 and 5502 

of this title. 

Section 5501.111 Awards Tendered to 

Employees of the National Institutes of 

Health 

Section 5501.111 prohibits senior NIH 

employees and other employees with 

official responsibility for matters 

affecting donor organizations from 

accepting certain awards from outside 

sources. For these purposes, the term 

‘‘senior employee’’ includes, among 

others, the NIH Director and Deputy 

Director and the Director, Deputy 

Director, Scientific Director, and 

Clinical Director of each Institute and 

Center within NIH. Other employees of 

equivalent levels of responsibility will 

be subject to the award prohibition if 

their positions are comparable in terms 

of authority or influence over agency 

programs and operations, and they 

receive written notification of their 

designation as a ‘‘senior employee’’ by 

the designated agency ethics official or 

the NIH Director. (A list of ‘‘senior 

employees’’ so designated will be 

maintained by the designated agency 

ethics official and the NIH and 

disseminated through program 

instructions or manual issuances.) 

Further, any award permitted under 5 

CFR 2635.204(d) that is not prohibited 

by this section cannot be accepted 

without prior written approval. 

Section 5501.111 will have no impact 

on any employee’s ability to receive an 

award that consists only of a plaque or 

certificate or other item with little 

intrinsic value that is intended solely 

for presentation purposes. Such items 

are not deemed to constitute a gift for 

purposes of the Standards of Ethical 

Conduct, 5 CFR part 2635. Likewise, an 

employee would be permitted to accept 

free attendance and food and other 

refreshments at an event in which the 

employee is presented a plaque or 

certificate or other item with little 

intrinsic value under circumstances 

permitted by 5 CFR 2635.204, such as a 

speaking engagement or widely 

attended gathering. Moreover, under 

certain circumstances, an employee may 

be permitted by the agency to travel at 

the award donor’s expense to an event 

at which the employee is to be honored. 

If travel reimbursement is accepted from 

a non-Federal source by the employee’s 

agency, under the authority of 31 U.S.C. 

1353 and 41 CFR chapter 304, in 

conjunction with the employee’s receipt 

of an award in recognition of 

meritorious public service that is related 

to the employee’s official duties, the 

reimbursement of such expenses to the 

agency is not a personal gift to the 

employee and hence not an award or 

incident of an award for purposes of 5 

CFR 2635.204 or this section.

Specifically, § 5501.111(b) mandates 

that a senior employee will not be 

permitted to accept a gift with an 

aggregate market value of more than 

$200, or that is cash or an investment 

interest, that is an award or incident to 

an award given because of the 

employee’s official position or from a 

prohibited source. Moreover, it provides 

that an employee, other than a senior 

employee, cannot accept such a gift 

from a person, organization, or other 

donor that: Is seeking official action 

from the employee, any subordinate of 

the employee, or any agency component 

or subcomponent under the employee’s 

official responsibility; does business or 

seeks to do business with any agency 

component or subcomponent under the 

employee’s official responsibility; 

conducts activities substantially affected 

by any agency component or 

subcomponent under the employee’s 

official responsibility; or is an 

organization a majority of whose 

members fall into one of the above 

categories. In other words, an NIH 

employee may not accept a cash award 

or one valued at more than $200 that is 

tendered by a donor that has matters 

pending under the employee’s official 

responsibility, either individually or 

before subordinates in the employee’s 

chain of command, irrespective of 

whether the matter would ever reach the 

employee for advice or decision. Thus, 

as a practical matter, the rule would not 

affect the ability of a non-supervisory 

employee to accept gifts under 5 CFR 

2635.204(d), except for the requirement 

of prior approval. In addition, a 

supervisor who is not a senior employee 

would be permitted to accept gifts 

allowed under 5 CFR 2635.204(d) that 

are either given to the supervisor 

because of official position or from a 

prohibited source of the NIH that has no 

matters under the supervisor’s official 

responsibility. 

Section 5501.111(b) departs from 

executive branch uniformity with 

respect to the treatment of awards. It 

imposes a stricter gift standard by 

partially limiting the applicability of an 

exception to the gift restrictions in 

subpart B of part 2635 of this title. In the 

preamble to the final rule that 

established the Standards of Ethical 

Conduct for Employees of the Executive 

Branch, OGE expressed concern about 

using the supplemental ethics 

regulation process as a means for one 

agency, for example, to bar all its 

employees, without regard to the nature 

of their duties, from accepting anything 

from a regulated entity. Permitting 

agencies to change the basic rules would 

‘‘portend * * * an ethics program 

destined to fall short of meeting the 

President’s goal of a uniform set of 

standards of conduct for all executive 

branch employees.’’ 57 FR 35012, Aug. 

7, 1992. Specifically, OGE stated as 

follows:

Section 2635.105 [of title 5] permits 

supplemental regulations ‘‘which the agency 

determines are necessary and appropriate, in 

view of its programs and operations, to fulfill 

the purposes of this part’’ and that are ‘‘(1) 

in the form of a supplement * * * and (2) 

in addition to the substantive provisions of 

this part.’’ The requirement that they be ‘‘in 

addition’’ means that the basic provisions 

will apply and that a supplemental 

regulation can add something more, such as 

an additional gift exception, but cannot be 

used to negate or revoke the provisions of 

this part. The uniformity required by the 

Executive order cannot be achieved if 

agencies can pick and choose which 

provisions they adopt or override.

57 FR 35010, Aug. 7, 1992.

As a result of the high profile research 

activities conducted and supported by 

the NIH and the significant 

contributions by NIH scientists and 

administrators in their respective fields, 

these employees are considered for 

awards by philanthropic foundations, 

professional associations, industry, 

academia and others with some 

frequency. The Blue Ribbon Panel, in 

particular, observed an increasing 

number of awards established by 

universities that have received grants 

from family funds for this purpose, 

stating:

The growth in the number of these awards 

has been attributed to many factors, 

including the wish to honor worthy scientists 

in new and emerging fields and the goal of 

individuals and charitable organizations to 

boost their scientific credentials by 

identifying themselves with and rewarding 

first-class scientists. Scientists who receive 

these awards are frequently required to 

prepare a lecture as an ‘‘acceptance speech.’’

The cash prizes for these awards can range 

from a few hundred to thousands of dollars.

Blue Ribbon Panel Report, p. 51.

Reviewing these awards on a case-bycase basis presents a number of 

difficulties. Individual award 

determinations currently require the 

agency to evaluate the extent to which 

the award donor has interests that may 

be substantially affected by the 

performance or nonperformance of the 

honoree’s official duties. The Acting 

Director of OGE in a statement on May 

18, 2004, before the House Committee 

on Energy and Commerce Subcommittee 

on Oversight and Investigations (OGE 

Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 5553

Statement) established a list of factors 

for agency officials to consider when 

providing advice on acceptance of 

awards, including factors related to 

whether an office head is likely to 

become involved in matters 

substantially affecting the interests of 

the particular source, and whether the 

primary purpose of a payment is to 

honor the employee for meritorious 

public service or achievement, or to 

compensate the employee for services as 

a speaker. See Statement of Marilyn L. 

Glynn, Acting Director, OGE, on NIH 

Ethics Concerns: Consulting 

Arrangements and Outside Awards 

Before the Committee on Energy and 

Commerce Subcommittee on Oversight 

and Investigations, United States House 

of Representatives on May 18, 2004, 

available on the OGE Web site as an 

attachment to DAEOGram DO–04–011 

at http://www.usoge.gov/pages/

daeograms/dgr_files/2004/

do04011.html. The reviewer must 

inquire whether it is reasonable to 

assume that the honoree may become 

involved in a matter substantially 

affecting the interests of the donor, or 

whether the chance of such intervention 

is simply a remote and speculative 

possibility. Moreover, as recognized in 

the OGE Statement on awards:

[I]t may not always be immediately 

apparent to employees and agency officials 

whether a particular offer from an outside 

source should be viewed as a gift subject to 

the awards exception or as compensation for 

a speaking activity. This is especially true 

where an employee is offered something of 

value in connection with a ‘‘lectureship’’ or 

‘‘lecture award’’ sponsored by an outside 

organization. In some instances, it may not be 

clear whether the real intent of the payment 

is to honor the employee for meritorious 

public service or achievement, or to 

compensate the employee for providing a 

speech on a subject of interest to the sponsor 

or the intended audience.

OGE Statement, p. 7.

Although OGE has provided a number 

of evaluative factors to consider in 

making these determinations, a brightline rule relieves the NIH of the 

significant administrative burden of 

resolving these issues on a case-by-case 

basis and avoids the potential for 

adverse public perception that may arise 

when civil servants receive payments 

from outside sources. The Government 

generally has a legitimate interest in 

avoiding even the perception that its 

decisions are influenced by outside 

interests. As indicated by recent 

experience, this interest is particularly 

acute in an agency that is the ‘‘principal 

steward’’ of the national investment in 

biomedical research. 

The Department is also mindful of the 

need to attract and retain preeminent 

scientists and administrators. As stated 

by the Blue Ribbon Panel:

Recognition is a critical incentive for 

motivating scientists. Awards resulting from 

the critical evaluation and assessment of an 

individual’s or group’s work or career by 

peers, including distinguished scientists, 

hold considerable value to the recipients. 

Awards not only raise the visibility of the 

scientist, but also enhance the reputation of 

his or her institution and research area.

Blue Ribbon Panel Report, p. 51. It is 

important, therefore, to note that the 

rule bars only the receipt of a gift with 

an aggregate market value of more than 

$200, or that is cash or an investment 

interest, tendered as an award or 

incident to an award. The intangible 

honor that inheres in the recognition as 

an award recipient, where 

unaccompanied by gifts having a market 

value or involving cash or cash 

equivalents, remains an achievable goal 

unaffected by the prohibition in 

§ 5501.111(b). 

Moreover, under § 5501.111(c), the 

NIH Director (or the Secretary, with 

respect to awards offered to the NIH 

Director), with the approval of the 

designated agency ethics official, may 

grant a written exception to the 

prohibition in § 5501.111(b) to permit 

an employee to accept an award if: (1) 

The NIH Director determines that 

acceptance of the gift will further an 

agency interest because it confers an 

exceptionally high honor in the fields of 

medicine or scientific research, for 

example, the Nobel Prize in Physiology 

or Medicine or the Lasker Medical 

Research Award; (2) absent the 

prohibition, the employee would have 

been permitted to accept the gift under 

5 CFR part 2635; and (3) the designated 

agency ethics official determines that 

the application of the prohibition is not 

necessary to ensure public confidence 

in the impartiality or objectivity of NIH 

programs or to avoid a violation of 5 

CFR part 2635.

The rule also specifies that no NIH 

employee shall accept an award under 

5 CFR 2635.204(d) or § 5501.111 unless 

prior written approval has been granted. 

The approval must be in accordance 

with procedures specified by the 

designated agency ethics official, or 

with the concurrence of the designated 

agency ethics official, the NIH Director 

or the NIH Director’s designee. These 

procedures are not specified in the 

regulation because the requirements for 

issuing supplemental standards of 

conduct do not apply to internal agency 

procedures for documenting or 

processing any determination, approval, 

or other action required by 

supplemental regulations. 5 CFR 

2635.105(c)(2)(ii). Nevertheless, HHS 

anticipates that such procedures will 

prescribe a number of steps of review 

and may take the following form. 

First, the award would be prescreened and evaluated by an 

independent advisory committee, which 

would advise on whether the award 

constitutes a bona fide award given for 

meritorious public service or 

achievement as part of an established 

program of recognition under the 

criteria specified in the Standards of 

Ethical Conduct, 5 CFR 2635.204(d)(1)(i) 

and (ii). In advising whether an award 

is bona fide for these purposes, the 

advisory committee would evaluate 

whether, under all the circumstances, 

an award program is constituted by the 

donor primarily to provide gratuitous 

honorific recognition of achievement or 

whether it is primarily compensatory in 

nature, for example, to obtain a speaker 

for a lecture, a teacher for a seminar, or 

a presenter or panelist for a symposium. 

Second, if the independent advisory 

committee advises that the award is part 

of a bona fide program of recognition for 

meritorious public service or 

achievement, the receipt of the award by 

an individual employee would be 

submitted for internal peer review by 

the NIH Ethics Advisory Committee 

(NEAC) (or other successor body 

designated by the NIH Director) for its 

recommendation to the NIH deputy 

ethics counselor. To be accepted, the 

award would have to receive an 

affirmative recommendation by the 

NEAC. In the case of an award offered 

to the NIH Director, the Director of the 

National Cancer Institute, or other 

political appointee, the 

recommendation of the NEAC would be 

forwarded to the designated agency 

ethics official. 

Third, if the independent advisory 

committee advises that the award is part 

of a bona fide program of recognition for 

meritorious public service or 

achievement and the receipt of the 

award by an individual employee has 

been recommended by the NEAC, the 

NIH deputy ethics counselor (or the 

designated agency ethics official in the 

case of an award to the NIH Director, the 

Director of the National Cancer Institute, 

or other political appointee) would 

review the recommendations and could 

approve the receipt of the award, if it is 

determined that acceptance of the award 

is not prohibited by statute or Federal 

regulation, including 5 CFR part 2635 

and this part. The approving official 

could determine that even where an 

award meets the above-described 

criteria, it is in the agency’s interest to 

impose conditions on the employee’s 

5554 Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 

acceptance of the award to ensure 

public confidence in the impartiality or 

objectivity of agency programs. Such 

conditions could include limiting the 

type, character, or amount of the award 

or incidents of the award and imposing 

a period of disqualification greater than 

the 12-month period described at 

§ 5501.112. 

Section 5501.111(d) provides that if 

an employee accepts an award without 

prior approval as required by this 

section, the employee may be required, 

in addition to any penalty provided by 

law and applicable regulations, to forfeit 

the award by returning it to the donor. 

If an employee accepts a prohibited 

award, the employee shall be required, 

in addition to any penalty provided by 

law and applicable regulations, to: reject 

the award and instruct the donor to 

strike the honoree’s name from any list 

of award recipients; remove the 

recognition from the employee’s re ́sume ́

or curriculum vitae; return any tangible 

indicia of the recognition to the donor; 

and forfeit the award by returning it to 

the donor. 

Section 5501.112 One-Year 

Disqualification of Employees of the 

National Institutes of Health From 

Certain Matters Involving an Award 

Donor 

Section 5501.112 bars any employee 

who has, within the last year, accepted 

an award permitted under 5 CFR 

2635.204(d) or § 5501.111 from 

participating in any particular matter 

involving specific parties in which the 

donor is or represents a party unless 

authorized to do so under 5 CFR 

2635.502(d). This provision is necessary 

to protect the public’s confidence in the 

agency’s programs by ensuring that 

agency employees do not participate 

officially in specific party matters 

involving any person or entity that has 

in the recent past given an award to the 

employee.

B. Supplemental Financial Disclosure 

Regulations 

New part 5502 reinstates an annual 

reporting requirement for employees 

with approved outside activities. Its 

primary purpose is to allow agency 

management to review an array of 

approved activities to ensure that 

employees have complied with 

applicable laws and regulations, and to 

ensure that an approved activity 

continues to meet the standard for 

approval. For example, where an 

employee’s official duties have changed 

since an activity was originally 

approved, or where a company with 

which an employee has an outside 

activity has merged with, or been 

acquired by, another company that can 

be affected by the employee’s official 

duties, the agency would need to 

reevaluate a previously approved 

activity. The annual reporting 

requirement is intended to facilitate that 

review and ensure that changed 

circumstances do not render a 

previously approved activity improper. 

Prior to 1996, the Department, 

pursuant to 45 CFR 73.735–709, 

required employees to submit a report of 

outside activities on an HHS Form 521 

by September 10 of each year with 

respect to the previous 12 months 

ending August 31. The HHS Standards 

of Conduct Regulations at 45 CFR part 

73 were largely superseded by the OGE 

executive branch-wide rules on 

financial disclosure, 5 CFR part 2634, 

and employee conduct, 5 CFR part 2635. 

The OGE regulations permitted agencies 

to promulgate regulations that would 

supplement each part, pursuant to 5 

CFR 2634.103 and 2635.105. However, 

at the time the HHS Supplemental 

Ethics Regulation was issued, the 

Department did not draft a 

supplemental provision to carry forward 

the annual outside activity reporting 

requirement. The submission of one 

outside activity request form, HHS Form 

520, was considered sufficient to screen 

for conflicts and to educate the 

employee about potential ethical 

concerns. To meet paperwork reduction 

goals, the annual filing of an outside 

activity report was discontinued. 

In the preamble discussion of the 

outside activity prior approval 

requirement in 5 CFR 5501.106(d), the 

Department stated as follows:

The Department will continue to employ 

HHS Form 520 as both a prior approval 

request form and a record of the disposition 

by the approval official. * * * No provision 

is made in these regulations, however, for an 

annual reporting of outside activities 

submitted on HHS Form 521, as previously 

required by 45 CFR 73.735–709. That section 

elicited an annual written verification 

whether the work or activity described in the 

original request was actually performed and 

required the employee to specify the amount 

of time spent and whether the activity would 

continue unchanged. Because the HHS Form 

520 contains a blank for specifying duration 

and any substantive change in the scope of 

the approved activity would constitute a new 

activity requiring submission of another HHS 

Form 520, the annual report appears to be 

unnecessarily duplicative. Moreover, the 

information requested would, in any event, 

form the basis of a responsible dialogue 

between employees and supervisors 

concerning workload allocation and the 

avoidance of conflicts. The minimal benefit 

to be derived from an annual report does not 

outweigh the considerable burden involved 

in collecting, tracking, and reviewing the 

forms. Accordingly, the requirement for filing 

an annual HHS Form 521 expires upon the 

effective date of this rule.

61 FR 39762 (July 30, 1996). 

Developments, both technological and 

otherwise, since that time now tip the 

scale of burdens and benefits 

differently. Although the burden on 

both the agency and its employees 

remains significant, advances in 

computer software have reduced this 

concern considerably. Electronically 

fillable forms and document tracking 

programs facilitate the process to a 

degree not previously attainable. Given 

the nature of any cumulative list, it 

remains true that the HHS Form 521 

annual report of outside activities may 

duplicate in certain respects the 

information collected in an employee’s 

original request for prior approval on an 

HHS Form 520 or listed on a public (SF 

278) or confidential (OGE Form 450) 

financial disclosure report. Moreover, 

because approval of an outside activity 

will be effective for only one year under 

new § 5501.106(d)(5), employees will be 

required to renew long term activities 

on an annual basis. Nevertheless, 

despite the potential for overlap in some 

cases, a number of compelling reasons 

support the decision to reinstate the 

HHS Form 521. 

First, not all employees who perform 

approved outside activities are public or 

confidential report filers. For these nonfilers, the annual report may provide the 

agency the only opportunity to verify 

whether and on what terms the 

employee actually undertook the 

activity for which approval was 

requested. 

Second, after the HHS 521 was 

discontinued, the system relied on each 

employee to file a new approval request 

whenever a substantive change occurred 

in the employee’s duties or the scope of 

the approved activity. This expectation 

may have been unrealistic, especially in 

light of recent allegations that a number 

of NIH employees may have failed to 

submit even initial approval forms for 

their outside consulting activities. 

Accordingly, enforcement of the ethics 

requirements would be improved 

considerably by placing an annual focus 

on outside activities where each 

employee would be individually 

notified of the outside activity rules, 

provided blank forms (or directed to an 

electronic version), and required to 

submit the necessary information by a 

date certain, and each supervisor would 

be engaged actively in the effort.

Third, in a rapidly changing economy, 

every opportunity to assist employees in 

screening for potential conflicts is 

valuable. Employees may have 

undertaken activities that were 

Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 5555

approved based on information that 

subsequently changed in a material way 

and which may call into question the 

continuing appropriateness of the 

activity. For example, due to mergers, 

acquisitions, and changed business 

plans, companies not previously 

engaged in certain activities related to 

an employee’s official duties may 

become engaged in such activities. 

Likewise, an employee’s official duties 

change over time, potentially creating a 

conflict with an outside activity that did 

not previously exist at the time of the 

initial request. 

Fourth, the information requested on, 

as well as the statistical data derived 

from, the annual report will assist the 

Department in meeting its obligation to 

evaluate periodically the adequacy and 

effectiveness of the agency’s conduct 

regulations, financial disclosure 

systems, and enforcement efforts and to 

take prompt corrective action to remedy 

actual or potential conflict of interest 

situations. See 5 CFR 2638.203(b)(10) 

and (11). 

Section 5502.101 General 

Section 5502.101 explains that the 

regulations in part 5502 apply to all 

employees of the Department of Health 

and Human Services and supplement 

the Executive Branch Financial 

Disclosure Regulations contained in 5 

CFR part 2634. Although the annual 

report of outside activities required by 

§ 5502.102 excludes special Government 

employees from its coverage, the part as 

a whole is intended to apply to all 

employees, unless otherwise noted. The 

section is drafted in this manner to 

accommodate any subsequent 

supplemental financial disclosure 

requirements that may be promulgated. 

In addition, any regulation in part 

5502 that is made applicable to 

employees of an HHS component 

designated as a separate agency under 

§ 5501.102(a) applies to employees in a 

division or region of the Office of the 

General Counsel that principally advises 

or represents that component. 

Section 5502.102 Annual 

Supplemental Report of Outside 

Employment or Activities 

Section 5502.102 requires that 

employees, other than special 

Government employees, must file an 

annual report on or before February 28 

of each year with respect to all outside 

activities that were approved during the 

prior calendar year (including activities 

originally undertaken in prior years and 

reapproved in the preceding calendar 

year). The report also solicits 

information of employees who have 

actually performed an outside activity 

for which prior approval is required 

under part 5501, regardless of whether 

the employees actually obtained such 

approval. 

Section 5502.103 Content of 

Supplemental Reports 

Section 5502.103 specifies that, in 

addition to basic identifying 

information, the annual report must 

include: a list of all outside activities for 

which prior approval is required under 

part 5501 that were approved pursuant 

to 5 CFR 5501.106(d) or undertaken 

within the reporting period; a statement 

as to whether the anticipated work 

described in a previously approved 

activity request was actually performed 

for the person or organization named in 

the request; for each outside activity 

actually performed, the beginning date 

of the relationship, the date(s) personal 

services were provided, the total 

number of hours spent and leave used 

on the activity, and the ending date of 

the activity; for ongoing activities, a 

statement as to how long the activity is 

anticipated to continue; the type and 

amount of income and/or 

reimbursements actually received 

during the reporting period and the date 

paid, or which were not received during 

the reporting period and remain due; a 

statement as to whether any changes 

occurred or are anticipated with respect 

to information supplied in the original 

outside activity request; a description of 

any change in the nature, scope or 

subject matter of any approved activity; 

and a description of any change in the 

employee’s job, duties, or 

responsibilities that occurred after the 

outside activity was approved. 

5502.104 Confidentiality of Reports 

Pursuant to § 107(a)(2) of the Ethics in 

Government Act, the reports filed 

pursuant to this part are confidential 

and any information required to be 

provided shall not be disclosed to the 

public. The OGE implementing 

regulations at 5 CFR 2634.901 specify 

that this requirement applies to 

supplemental financial information 

requested of individuals who file public 

financial disclosure reports, as well as 

the information supplied by 

confidential filers and non-filers. 

Section 2634.901(d) further states that 

the statute leaves no discretion on this 

issue with the agencies. These reports 

are covered under the OGE/GOVT–2 

Government-wide executive branch 

Privacy Act system of records, as well 

as any applicable agency records 

system.

5502.105 Agency Procedures 

Implementing procedures for the 

submission and review of any report 

filed under this part may be prescribed 

by the designated agency ethics official 

or, with the concurrence of the 

designated agency ethics official, any 

HHS component. These procedures may 

provide for an extension or several 

extensions of the due date for any report 

filed under this part, for good cause 

shown, totaling not more than 90 days. 

5502.106 Supplemental Disclosure of 

Prohibited Financial Interests 

Applicable to Employees of the Food 

and Drug Administration and the 

National Institutes of Health 

Section 5502.106 requires FDA and 

NIH employees to report prohibited 

financial interests, including those 

interests that are covered by an 

applicable exception, within 30 days of 

joining the agency, being reassigned 

from another part of HHS, or acquiring 

such interests, for example, through 

marriage, gift, or inheritance. New 

entrant public and confidential filers 

who report such interests on their initial 

SF 278 or OGE 450 financial disclosure 

forms are not required to submit an 

additional report under this section. 

Incumbent public and confidential filers 

and non-filers are subject to the 30-day 

reporting requirement whenever a 

triggering event occurs. Current NIH 

employees newly subject to this 

requirement initially will have 60 days 

from the effective date of the rule to file. 

This section is intended to implement 

the prohibited financial interest 

provisions applicable to FDA and NIH 

employees in 5 CFR 5501.104(a), 

5501.110(c), and 5501.110(d), by 

requiring immediate disclosure of these 

holdings. Absent such reports, 

prohibited financial interests 

involuntarily acquired by incumbent 

public and confidential filers or held by 

filers transferred from other components 

may not be identified until they are 

disclosed in the annual reporting cycles, 

after several months or a year or more 

has passed. The prohibited financial 

interests of non-filers would escape 

detection altogether, thus making the 

$15,000 cap on such holdings largely 

unenforceable. Prior to the issuance of 

the HHS Supplemental Ethics 

Regulation in 1996, the FDA required 

non-filers to certify that no prohibited 

financial interests above the de minimis

amount were held. Since that time, nonfilers sometimes have been in violation 

of the prohibited holdings regulation 

because they are not subject to a specific 

reporting requirement. 

5556 Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 

At the same time, the agency 

recognizes that employees, especially in 

the case of new entrant employees, need 

a 30-day period in which to investigate 

their financial holdings and determine 

which of their interests are prohibited 

by the agency. The need for such a 30-

day period is implicit in the regulations 

at 5 CFR 2634.201 and 2634.903, which 

provide new entrant public or 

confidential filers 30 days in which to 

submit their financial disclosure 

reports. 

III. Matters of Regulatory Procedure 

Administrative Procedure Act 

These amendments prescribe rules of 

agency management or personnel that 

are exempt under 5 U.S.C. 553(a)(2) 

from the requirement for notice and 

comment rulemaking. These 

amendments also prescribe rules of 

agency practice and procedure 

governing employee conduct that are 

exempt under 5 U.S.C. 553(b) from the 

requirement of public notice and 

comment prior to promulgation of a 

final rule. In addition, with respect to 

NIH employees newly subject to 

restrictions on outside activities, 

financial holdings, and awards, the 

persons subject thereto have been 

provided actual notice of the substance 

of the rule or a description of the 

subjects and issues involved. The steps 

taken that apprise these employees are 

recounted below. 

The need for supplemental 

regulations to address NIH ethics issues 

was discussed in public hearings before 

the United States Senate, Committee on 

Appropriations, Subcommittee on 

Labor, Health and Human Services, 

Education and Related Agencies on 

January 22, 2004. The NIH Director 

convened a Blue Ribbon Panel (BRP) in 

March 2004 and charged the panel to 

review the existing laws, regulations, 

policies, and procedures under which 

the NIH currently operates regarding: (1) 

Real and apparent financial conflicts of 

interest of NIH staff where 

compensation or financial benefit from 

outside sources is received, including 

consulting arrangements and outside 

awards; and (2) requirements and 

policies for the reporting of NIH staff’s 

financial interests, including which 

interests are subject to public 

disclosure, and what portion of NIH 

staff file public disclosures. The BRP 

was directed to make recommendations 

for improving existing laws, regulations, 

policies, and procedures, as appropriate, 

to the Advisory Committee to the 

Director, NIH, for deliberation and final 

recommendations to the NIH Director. 

NIH employees were invited to give 

testimony to the panel, and on March 

12, 13 and April 1, 5, 2004, the BRP 

received such oral and written 

testimony. Also, an electronic forum 

was establish in March 2004 to collect 

input from intramural scientists for the 

BRP’s consideration. In the end, over 

300 NIH employees gave comments to 

the BRP from March to April, 2004.

The BRP presented its findings to the 

Advisory Committee to the Director at 

an open meeting on May 6, 2004. In 

addition, the BRP Co-Chairs presented 

the panel’s findings to the United States 

House of Representatives, Committee on 

Energy and Commerce, Subcommittee 

on Oversight and Investigations, on May 

12, 2004. 

At the June 22, 2004, hearing of the 

Oversight and Investigations 

Subcommittee, the NIH Director 

announced his intention to seek 

supplemental ethics regulations in three 

areas: outside activities, prohibited 

financial holdings, and awards. These 

proposals were developed after 

intensive internal reviews of NIH’s 

ethics rules and procedures, and based, 

in part, on recommendations from the 

BRP. Immediately following the hearing, 

on June 23, 2004, the NIH produced 

talking points summarizing the NIH 

Director’s testimony which were 

circulated to the Directors of the 27 

institutes and centers (ICs) that 

comprise the NIH and to the IC Deputy 

Ethics Counselors. The talking points 

equipped NIH leadership to answer 

inquiries from NIH employees regarding 

the proposed changes. 

The ICs also took action to educate 

their employees about the proposed 

changes. On July 20, 2004, the National 

Cancer Institute, the largest IC, held an 

all-hands meeting where the Director of 

the NIH Ethics Office (NEO) presented 

the proposed changes and answered 

employees’ questions. On July 28, 2004, 

the Clinical Center held a briefing for its 

management on the proposed changes 

where the NEO Director again led the 

discussion and answered questions. 

Starting in early September 2004, the 

NIH Ethics Advisory Committee, the 

group established by the NIH Director in 

January 2004 to provide peer review of 

outside activity and award approval 

requests from certain NIH employees, 

began notifying employees that the 

proposed changes may affect their 

recently approved outside activities. 

The NEAC notification stated:

As you know, the NIH is making changes 

in its ethics program. Some changes, such as 

the creation of the NIH Ethics Advisory 

Committee (NEAC), have already been made. 

Other changes have been proposed. 

In this interim period, the current rules 

still apply, and requests to conduct outside 

activities are being approved based on these 

rules. You should note that after the new 

rules are adopted and take effect, certain 

types of outside activities, which may 

currently be approved, may be limited, if not 

prohibited altogether. For example, in 

contrast to the current rules, the NIH is 

considering prohibiting consulting 

arrangements with grantees for all 

employees, and not permitting such 

arrangements with pharmaceuticals and 

biotechnology companies. Membership on 

corporate boards and scientific advisory 

boards may also be banned. Furthermore, 

compensation in the form of stock or stock 

options may well be prohibited. 

We are giving you this information for 

planning purposes only. If you receive 

permission to engage in an outside activity 

and to receive the corresponding 

compensation from that activity, you may, of 

course, proceed with that activity. However, 

be aware that the rules [with respect] to that 

activity may change in the near future and 

that you will be required to change or adapt 

your activity to those new rules. Please be 

assured we will do everything we can to keep 

you apprised of changes to policies and 

procedures as they occur during this interim 

period.

On September 24, 2004, the NIH 

Deputy Director sent an all-employee 

memorandum via e-mail to notify NIH 

employees of the agency’s plan to seek 

in effect a one-year moratorium on 

consulting with pharmaceutical and 

biotechnology companies. The 

memorandum explained that this step 

was being taken to give the NIH ‘‘time 

to complete [its] review of specific 

cases, develop effective information 

systems to track outside activities, and 

develop more effective ethics training 

programs for staff before a final policy 

is put in place.’’

On November 29, 2004, the NIH 

Director held a town hall meeting for 

over 180 intramural scientists. At the 

meeting, the NIH Deputy Director gave 

an overview of the various steps that the 

NIH has taken to revise its ethics 

program, including a discussion of the 

proposed regulatory changes. 

In addition to the above described 

steps taken by management to keep NIH 

employees apprised of the proposed 

changes to the ethics program, the NIH 

in March 2004 created a conflict of 

interest section on its homepage. 

Employees were notified that up-to-date 

information on the proposed changes to 

the ethics program would be posted 

periodically on the Web site. Among 

other informative documents, the NIH 

posted the BRP’s report, the NIH 

Director’s June 22 Subcommittee 

testimony, and the September 24 

notification. Furthermore, the proposed 

changes received extensive and 

Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 5557

continuous coverage in various daily 

newspapers and scientific trade and 

professional magazines and journals. 

To the extent that these internal 

agency regulations governing employee 

conduct have an extra-agency impact, 

the Department of Health and Human 

Services, pursuant to 5 U.S.C. 553(b)(B), 

for good cause, finds that providing 

notice and utilizing public comment 

procedures prior to promulgation of this 

interim rule are unnecessary and 

contrary to the public interest. The 

issues involved in this rulemaking 

primarily affect Federal employees. 

Those external entities that may have an 

indirect interest in hiring Federal 

employees, having them own stock, or 

giving them monetary awards are 

affected marginally. The primary effect 

of the prohibitions contained in these 

regulations is to establish prophylactic 

rules that preclude certain outside 

activities, financial holdings, and gifts 

on a uniform basis where many would 

have been prohibited as well under a 

case-by-case determination process.

As noted previously, the ethics issues 

that have engendered these regulations 

have been described extensively in 

many fora. The deliberative process in 

developing this interim rule has already 

been informed by input from 

employees, agency management, and 

members of the public in hearings 

before the NIH Blue Ribbon Panel on 

Conflict of Interest Policies and in 

testimony before the Senate Committee 

on Appropriations, Subcommittee on 

Labor, Health and Human Services, 

Education and Related Agencies, and 

the House Committee on Energy and 

Commerce, Subcommittee on Oversight 

and Investigations. The public through 

press accounts and the employees 

through agency notice have been well 

aware that Federal regulation on these 

matters was impending, and an 

opportunity for their involvement has 

occurred. NIH employees for nearly a 

year have faced considerable 

uncertainty and may have deferred 

commitments pending the issuance of 

an anticipated rule. Addressing at this 

time the ethics issues at the National 

Institutes of Health is of paramount 

importance to ensure public confidence 

in the scientific and health research 

conducted and funded by that agency 

and to resolve immediately the 

uncertainty surrounding employee 

decisions in these matters. In sum, 

employing the notice and comment 

procedures is unnecessary and contrary 

to the public interest, in part, because 

equivalent actions have already been 

taken to inform and involve interested 

parties and further process would not 

contribute substantially to the 

development of the regulation when 

balanced against the harm that may 

result from further delay and 

uncertainty. 

Pursuant to 5 U.S.C. 553(d)(3), the 

Department of Health and Human 

Services also has determined, for the 

reasons discussed, that good cause 

exists for dispensing with the 

requirement of a 30-day delayed 

effective date. Those NIH employees 

who will be required to terminate their 

existing outside activities or divest 

currently held financial interests are 

provided transitional periods within 

which to comply. Because the interim 

revisions predominately affect the NIH 

ethics program and are critically 

necessary to preserve the integrity of 

NIH programs and operations, a delay in 

the effective date would be contrary to 

the public interest. 

The public interest is instead served 

by making additional restrictions on the 

outside activities, financial holdings, 

and awards of NIH employees effective 

immediately upon publication (with the 

exception of transitional grace periods). 

The integrity of NIH programs has been 

potentially called into question by 

public examples of employees’ outside 

activities and other financial ties to 

industry and grantee institutions. The 

Department and NIH are committed to 

correcting these problems through more 

careful oversight and restrictions that 

will lessen the potential that real or 

apparent conflicts may arise from 

unanticipated or undetected 

relationships with external 

organizations. Given that commitment, 

and the importance of implementing the 

restrictions as promptly as possible, the 

best interests of the NIH, the employees, 

and the public will be served by the 

immediate effectiveness of this rule. 

Those provisions that apply to 

allowable holdings of FDA employees or 

gifts received from Indian tribes or 

Alaska Native villages recognize 

exemptions or relieve restrictions under 

current law and thus are effective upon 

publication pursuant to 5 U.S.C. 

553(d)(1). As to other provisions that 

clarify or update the existing 

supplemental regulation with respect to 

nomenclature, agency organization, or 

procedure, or that document 

longstanding or other authoritative 

interpretations, no useful purpose 

would be served by delaying the 

effective date for those changes. 

Interested persons may submit written 

comments on this interim final rule. The 

Department of Health and Human 

Services will review all comments that 

are received on or before April 4, 2005, 

and consider any modifications to this 

interim rule that appear warranted 

before adopting a permanent final rule 

on this matter. 

Regulatory Flexibility Act 

The Department of Health and Human 

Services has determined under the 

Regulatory Flexibility Act, 5 U.S.C. 

chapter 6, that this rule will not have a 

significant economic impact on a 

substantial number of small entities 

because the rule prescribes personnel 

provisions that primarily affect HHS 

employees. 

Paperwork Reduction Act 

The Paperwork Reduction Act, 44 

U.S.C. chapter 35, does not apply to 

these final rule amendments because 

they do not contain information 

collection requirements that are subject 

to approval by the Office of 

Management and Budget. 

Congressional Review Act 

The Department of Health and Human 

Services has determined that this 

rulemaking is not a rule as defined in 5 

U.S.C. 804, and, thus, does not require 

review by Congress. This rulemaking is 

related to HHS personnel.

Executive Orders 12866 and 12988 

Because this rule relates to HHS 

personnel, it is exempt from the 

provisions of Executive Orders 12866 

and 12988.

List of Subjects 

5 CFR Part 5501 

Conflict of interests, Ethics, Executive 

branch standards of conduct, Financial 

interests, Government employees, 

Outside activities. 

5 CFR Part 5502 

Conflict of interests, Ethics, 

Government employees, Outside 

activities, Reporting and record keeping 

requirements.

Dated: January 25, 2005. 

Edgar M. Swindell, 

Designated Agency Ethics Official, 

Department of Health and Human Services.

Dated: January 26, 2005. 

Wade F. Horn, 

Acting Secretary, Department of Health and 

Human Services.

Approved: January 26, 2005. 

Marilyn L. Glynn, 

Acting Director, Office of Government Ethics.

■ For the reasons discussed in the 

preamble, the Department of Health and 

Human Services, with the concurrence 

of the Office of Government Ethics, 

amends chapter XLV of title 5 of the 

Code of Federal Regulations as follows:

5558 Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 

TITLE 5—[AMENDED]

CHAPTER XLV—DEPARTMENT OF HEALTH 

AND HUMAN SERVICES

PART 5501–SUPPLEMENTAL 

STANDARDS OF ETHICAL CONDUCT 

FOR EMPLOYEES OF THE 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES

■ 1. The authority citation for part 5501 

continues to read as follows:

Authority: 5 U.S.C. 301, 7301, 7353; 5 

U.S.C. App. (Ethics in Government Act of 

1978); 25 U.S.C. 450i(f); 42 U.S.C. 216; E.O. 

12674, 54 FR 15159, 3 CFR, 1989 Comp., p. 

215, as modified by E.O. 12731, 55 FR 42547, 

3 CFR, 1990 Comp., p. 306; 5 CFR 2635.105, 

2635.203, 2635.403, 2635.802, 2635.803.

■ 2. Amend § 5501.101 by revising 

paragraph (c)(2) to read as follows:

§ 5501.101 General.

* * * * *

(c) * * * 

(2) Significantly regulated 

organization means an organization for 

which the sales of products regulated by 

the Food and Drug Administration 

(FDA) constitute ten percent or more of 

annual gross sales in the organization’s 

previous fiscal year; where an 

organization does not have a record of 

sales of FDA-regulated products, it will 

be deemed to be significantly regulated 

if its operations are predominately in 

fields regulated by FDA, or if its 

research, development, or other 

business activities are reasonably 

expected to result in the development of 

products that are regulated by FDA.

■ 3. Amend § 5501.103 as follows:

■ A. Revise the first sentence of 

paragraph (a) introductory text to read as 

set forth below:

■ B. Revise paragraph (a)(3) to read as set 

forth below;

■ C. Remove paragraph (a)(7) and 

redesignate paragraph (a)(6) and (a)(7);

■ D. Add new paragraph (a)(6) to read as 

set forth below;

■ E. Remove paragraph (a)(11) and 

redesignate paragraphs (a)(12) and 

(a)(13) as paragraphs (a)(11) and (a)(12);

■ F. In paragraph (b)(2), remove the word 

‘‘13’’ and add in its place the word ‘‘12’’;

■ G. Add new paragraph (c)(1)(iii) to 

read as set forth below. 

The additions and revisions read as 

follows:

§ 5501.102 Designation of HHS 

components as separate agencies. 

(a) Separate agency components of 

HHS. Pursuant to 5 CFR 2635.203(a), 

each of the twelve components of HHS 

listed below is designated as an agency 

separate from each of the other eleven 

listed components and, for employees of 

that component, as an agency distinct 

from the remainder of HHS. * * *

* * * * *

(3) Agency for Healthcare Research 

and Quality;

* * * * *

(6) Centers for Medicare and Medicaid 

Services;

* * * * *

(c) * * *

(1) * * *

(iii) The regulations at § 5501.111 

governing the receipt of awards by 

employees of the National Institutes of 

Health; and

* * * * *

■ 4. Amend § 5501.103 by revising 

paragraph (a) to read as follows:

§ 5501.103 Gifts from federally recognized 

Indian tribes or Alaska Native villages or 

regional or village corporations. 

(a) Tribal or Alaska Native gifts. In 

addition to the gifts which come within 

the exceptions set forth in 5 CFR 

2635.204, and subject to all provisions 

of 5 CFR 2635.201 through 2635.205, an 

employee may accept unsolicited gifts 

of native artwork, crafts, or other items 

representative of traditional native 

culture from federally recognized Indian 

tribes or Alaska Native villages or 

regional or village corporations, 

provided that the aggregate market value 

of individual gifts received from any 

one tribe or village under the authority 

of this paragraph shall not exceed $200 

in a calendar year.

* * * * *

■ 5. Amend § 5501.104 by revising the 

section heading, paragraphs (a), (b)(1), 

and (b)(2)(i), and designating the note 

following paragraph (b)(4) as note to 

paragraph (b) and revising it and adding 

new paragraph (c) to read as follows:

§ 5501.104 Prohibited financial interests 

applicable to employees of the Food and 

Drug Administration. 

(a) General prohibition. Except as 

permitted by paragraph (b) of this 

section, no employee or spouse or minor 

child of an employee, other than a 

special Government employee or the 

spouse or minor child of a special 

Government employee, of the Food and 

Drug Administration shall have a 

financial interest in a significantly 

regulated organization. 

(b) * * * 

(1) An employee or spouse or minor 

child of an employee may have a 

financial interest, such as a pension or 

other employee benefit, arising from 

employment with a significantly 

regulated organization.

Note to paragraph (b)(1): FDA employees 

who file public or confidential financial 

disclosure reports pursuant to 5 CFR part 

2634, as opposed to spouses and minor 

children of such employees, are generally 

prohibited under § 5501.106(c)(3) from 

engaging in current employment with a 

significantly regulated organization.

(2) * * * 

(i) The total cost or value, measured 

at the time of acquisition, of the 

combined interests of the employee and 

the employee’s spouse and minor 

children in the regulated organization is 

equal to or less than the de minimis

exemption limit for matters involving 

parties established by 5 CFR 2640.202(a) 

or $15,000, whichever is greater (the 

phrase ‘‘time of acquisition’’ shall mean 

the date on which the employee actually 

acquired the financial interest—or on 

which the financial interest became 

imputed to the employee under 18 

U.S.C. 208—whether by purchase, gift, 

bequest, marriage, or otherwise, except 

that with respect to a financial interest 

that was acquired prior to the 

employee’s entrance on duty as an 

employee of the Food and Drug 

Administration, the ‘‘time of 

acquisition’’ shall be deemed to be the 

date on which the employee entered on 

duty);

* * * * *

Note to paragraph (b): With respect to any 

excepted financial interest, employees are 

reminded of their obligations under 5 CFR 

part 2635, and specifically their obligation 

under subpart D of part 5501 to disqualify 

themselves from participating in any 

particular matter in which they, their spouses 

or minor children have a financial interest 

arising from publicly traded securities that 

exceeds the de minimis thresholds specified 

in the regulatory exemption at 5 CFR 

2640.202 or from non-publicly traded 

securities that are not covered by the 

regulatory exemption. Furthermore, the 

agency may prohibit or restrict an individual 

employee from acquiring or holding any 

financial interest or a class of financial 

interests based on the agency’s determination 

that the interest creates a substantial conflict 

with the employee’s duties, within the 

meaning of 5 CFR 2635.403.

(c) Reporting and divestiture. For 

purposes of determining the divestiture 

period specified in 5 CFR 2635.403(d), 

as applied to financial interests 

prohibited under paragraph (a) of this 

section, the ‘‘date divestiture is first 

directed’’ means the date on which the 

new entrant public or confidential 

financial disclosure report required by 

part 2634 of this title or any report 

required by § 5502.106(c) of this chapter 

is due.

■ 6. Amend § 5501.106 as follows:

■ A. Revise paragraph (c)(3) heading and 

introductory text, paragraphs (c)(4)(i) 

introductory text and (d)(1) introductory 

text, and paragraphs (d)(2) heading, 

Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 5559

(d)(2)(i), (d)(2)(iii), (d)(3), and (d)(4) to 

read as set forth below:

■ B. In the first sentence of the note 

following paragraph (d)(4), remove the 

duplicate second occurence of the words 

‘‘granting of’’;

■ C. Redesignate paragraph (d)(5) as 

paragraph (d)(6) and add new paragraph 

(d)(5) to read as set forth below: and

■ D. Add new paragraph (e) to read as set 

forth below: 

The revisions and additions read as 

follows:

§ 5501.106 Outside employment and other 

outside activities.

* * * * *

(c) * * * 

(3) Prohibited outside activities 

applicable to employees of the Food and 

Drug Administration. An employee of 

the Food and Drug Administration who 

is required to file a public or 

confidential financial disclosure report 

pursuant to 5 CFR part 2634 shall not: 

* * * 

(4) * * * 

(i) An employee who serves as an 

attorney in or under the supervision of 

the Office of the General Counsel or the 

Office of Counsel to the Inspector 

General shall not engage in any outside 

practice of law that might require the 

attorney to: * * *

* * * * *

(d) Prior approval for outside 

employment and other outside 

activities—(1) General approval 

requirement. Except to the extent that an 

employment or other activity has been 

exempted under paragraph (d)(6) of this 

section, an employee shall obtain 

written approval prior to engaging, with 

or without compensation, in the 

following outside employment or 

activities: * * * 

(2) Additional approval requirement 

for employees of the Food and Drug 

Administration and the National 

Institutes of Health. 

(i) In addition to the general approval 

requirements set forth in paragraph 

(d)(1) of this section, an employee of the 

Food and Drug Administration or the 

National Institutes of Health shall obtain 

written approval prior to engaging in 

any outside employment, as defined in 

5 CFR 2635.603(a), whether or not for 

compensation, or any self-employed 

business activity.

* * * * *

(iii) The requirement of paragraph 

(d)(2)(i) of this section shall not apply 

to the extent that an employment 

activity has been exempted, pursuant to 

paragraph (d)(6) of this section. 

(3) Submission of requests for 

approval. (i) An employee seeking to 

engage in any of the activities for which 

advance approval is required shall make 

a written request for approval a 

reasonable time before beginning the 

activity. This request shall be directed 

to the employee’s supervisor. The 

supervisor shall submit the request and 

a statement addressing the extent to 

which the employee’s duties are related 

to the proposed outside activity to an 

agency designee, who shall make a final 

determination with respect to the 

request. 

(ii) All requests for prior approval 

shall include the following information: 

(A) The employee’s name, contact 

information, organizational location, 

occupational title, grade, step, salary, 

appointment type, and financial 

disclosure filing status; 

(B) The nature of the proposed 

outside employment or other outside 

activity, including a full description of 

the specific duties or services to be 

performed; 

(C) A description of the employee’s 

official duties that relate to the proposed 

activity; 

(D) A description of how the 

employee’s official duties will affect the 

interests of the person for whom the 

proposed activity will be performed; 

(E) The name and address of the 

person or organization for whom or with 

which the work or activity will be done, 

including the location where the 

services will be performed; 

(F) The estimated total time that will 

be devoted to the activity. If the 

proposed outside activity is to be 

performed on a continuing basis, a 

statement of the estimated number of 

hours per year; for other employment, a 

statement of the anticipated beginning 

and ending date; 

(G) A statement as to whether the 

work can be performed entirely outside 

of the employee’s regular duty hours 

and, if not, the estimated number of 

hours and type of leave that will be 

required; 

(H) The method or basis of any 

compensation to be received (e.g., fee, 

per diem, honorarium, advance, 

royalties, stock, stock options, travel 

and expenses, or other form of 

remuneration tendered in cash or inkind in connection with the proposed 

activity) from the person or organization 

for whom or with which the work or 

activity will be done; 

(I) The amount of any compensation 

to be received from the person or 

organization for whom or with which 

the work or activity will be done; 

(J) The amount and date of any 

compensation received, or due for 

services performed, within the six-year 

period immediately preceding the 

submission of the request for approval 

from the person or organization for 

whom or with which the work or 

activity will be done (including any 

amount received or due from an agent, 

affiliate, parent, subsidiary, or 

predecessor of the proposed payor); 

(K) A statement as to whether the 

compensation is derived from an HHS 

grant, contract, cooperative agreement, 

or other source of HHS funding or 

attributed to services related to an 

activity funded by HHS, regardless of 

the specific source of the compensation; 

(L) For activities involving the 

provision of consultative or professional 

services, a statement indicating whether 

the client, employer, or other person on 

whose behalf the services are performed 

is receiving, or intends to seek, an HHS 

grant, contract, cooperative agreement, 

or other funding relationship; 

(M) For activities involving teaching, 

speaking, or writing, a syllabus, outline, 

summary, synopsis, draft or similar 

description of the content and subject 

matter involved in the course, speech, 

or written product (including, if 

available, a copy of the text of any 

speech) and the proposed text of any 

disclaimer required by 5 CFR 

2635.807(b)(2) or by the instructions or 

manual issuances authorized under 

paragraph (d)(6) of this section; and 

(N) Such other relevant information 

that the designated agency ethics official 

or, with the concurrence of the 

designated agency ethics official, each 

of the separate agency components of 

HHS listed in § 5501.102(a) determines 

is necessary or appropriate in order to 

evaluate whether a proposed activity is 

likely to involve conduct prohibited by 

statute or Federal regulations, including 

5 CFR part 2635 and this part. 

(4) Standard for approval. Approval 

shall be granted only upon a 

determination that the outside 

employment or other outside activity is 

not expected to involve conduct 

prohibited by statute or Federal 

regulation, including 5 CFR part 2635 

and this part. * * *

* * * * *

(5) Duration of approval. Approval 

shall be effective for a period not to 

exceed one year from the date of 

approval. Upon a significant change in 

the nature of the outside activity or in 

the employee’s official position or 

duties, the employee shall submit a 

revised request for approval using the 

procedure in paragraph (d)(3) of this 

section. If the outside activity is 

anticipated to exceed one year from the 

date of the most recent approval, the 

employee shall renew the request for 

approval no later than thirty days prior 

to the expiration of the period 

authorized.

5560 Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 

(e) Waivers. The designated agency 

ethics official may grant a written 

waiver from any prohibited outside 

activity provision in this section or in 

§ 5501.109 based on a determination 

that the waiver is not inconsistent with 

part 2635 of this title or otherwise 

prohibited by law and that, under the 

particular circumstances, application of 

the prohibition is not necessary to avoid 

the appearance of misuse of position or 

loss of impartiality or otherwise to 

ensure confidence in the impartiality 

and objectivity with which agency 

programs are administered. A waiver 

under this paragraph may impose 

appropriate conditions, such as 

requiring execution of a written 

disqualification.

■ 7. Add new § 5501.109 to read as 

follows:

§ 5501.109 Prohibited outside activities 

applicable to employees of the National 

Institutes of Health. 

(a) Applicability. This section does 

not apply to special Government 

employees. 

(b) Definitions. For purposes of this 

section: 

(1) Compensation has the meaning set 

forth in 5 CFR 2635.807(a)(2)(iii). 

(2) Continuing professional education

means a course, a program, a series of 

courses or programs, or other 

educational activity provided to 

members of a profession, as defined in 

5 CFR 2636.305(b)(1), or academic 

discipline and designed principally to 

maintain or advance the skills and 

competence of practitioners in a field of 

specialized knowledge and to expand an 

appreciation and understanding of the 

professional responsibilities, fiduciary 

obligations, or ethical aspirations 

incumbent upon members of the group. 

For those members of a profession or 

academic discipline that does not 

subject its members to licensure or 

continuing education requirements, the 

term continuing professional education 

includes those educational activities 

that exemplify a purpose and content 

similar to those offered to or required of 

members of a licensed profession. 

(3) Educational activity provider

means a supported research institution, 

a health care provider or insurer, or a 

related trade, professional, or similar 

association that offers accredited 

continuing professional education (or, 

in the case of a profession or academic 

discipline whose members are not 

subject to licensure and which does not 

have program accreditation 

requirements, an education program 

determined by the designated agency 

ethics official or his designee or, in 

consultation with the designated agency 

ethics official or his designee, the NIH 

Director or the NIH Director’s designee 

to be substantially equivalent to an 

accredited continuing professional 

education program), but does not 

include a substantially affected 

organization. 

(4) Employment has the meaning 

specified in 5 CFR 2635.603(a). 

(5) Health care provider or insurer

means a hospital, clinic, skilled nursing 

facility, rehabilitation facility, durable 

medical equipment supplier, home 

health agency, hospice program, health 

maintenance organization, managed 

care organization, or other provider of 

health care items and services as 

defined in sections 1877(h)(6) or 

1903(w)(7) of the Social Security Act (42 

U.S.C. 1395(h)(6) or 1396(w)(7)) and any 

entity organized and licensed as a riskbearing entity eligible to offer health 

insurance or health benefits coverage. 

(6) Related trade, professional, or 

similar association means a trade, 

professional, consumer, advocacy, or 

other organization, association, society, 

or similar group that is significantly 

involved in advancing the interests of 

persons or entities engaged in activities 

related to or affected by the health, 

scientific, or health care research 

conducted or funded by the NIH. 

(7) Scientific peer review is the 

evaluation of scientific research findings 

for competence, significance, and 

originality by qualified experts who 

research and submit work for 

publication in the same field and which 

provides systematized accountability for 

adherence to ethical guidelines 

commonly accepted within the relevant 

research community for disseminating 

scientific information. 

(8) Substantially affected organization

means: 

(i) A biotechnology or pharmaceutical 

company; a medical device 

manufacturer; or a corporation, 

partnership, or other enterprise or entity 

significantly involved, directly or 

through subsidiaries, in the research, 

development, or manufacture of 

biotechnological, biostatistical, 

pharmaceutical, or medical devices, 

equipment, preparations, treatments, or 

products; 

(ii) Any organization a majority of 

whose members are described in 

paragraph (b)(8)(i) of this section; and 

(iii) Any other organization 

determined by the designated agency 

ethics official or, in consultation with 

the designated agency ethics official, by 

the NIH Director or the NIH Director’s 

designee that is substantially affected by 

the programs, policies, or operations of 

the NIH. 

(9) Supported research institution

means any educational institution or 

non-profit independent research 

institute that: 

(i) Is, or within the last year has been, 

an applicant for or recipient of an NIH 

grant, cooperative agreement, or 

research and development contract; 

(ii) Is, or within the last year has been, 

a proposer of or party to a cooperative 

research and development agreement 

(CRADA) with the NIH; or 

(iii) Any organization a majority of 

whose members are described in 

paragraphs (b)(9)(i) or (ii) of this section. 

(10) Unrestricted educational grant

means funds received by or available to 

an educational activity provider from 

another source that are granted without 

stipulated conditions for their use other 

than the limitation that the funds shall 

be used to advance an educational 

program of the grant recipient. For 

purposes of this section, an educational 

grant shall not be considered 

unrestricted if the funding source for a 

continuing professional education 

program directly or indirectly: 

(i) Selects or recommends the 

moderators, speakers, or presenters at 

the sponsored event; 

(ii) Independently provides additional 

funding to the moderators, speakers, or 

presenters in connection with the 

educational activity; 

(iii) Determines or recommends the 

audience composition; 

(iv) Specifies or recommends the 

topics to be addressed, or

(v) Controls or recommends the 

planning, content, or implementation of 

the program in a manner inconsistent 

with guidelines established by a 

relevant professional association or 

accrediting organization that are 

designed to ensure that such activities 

are accurate, balanced, educational, free 

from commercial bias, nonpromotional, 

and independent of the influence of the 

funding source. 

(11) Unrestricted financial 

contribution means funds received by or 

available to a publisher, academic press, 

editorial board, or other entity affiliated 

with or operated by a supported 

research institution, a health care 

provider or insurer, or a related trade, 

professional, or similar association from 

another source that are provided 

without stipulated conditions for their 

use other than the limitation that the 

funds shall be used to advance peerreviewed writing or editing by the funds 

recipient. For purposes of this section, 

a financial contribution shall not be 

considered unrestricted if the funding 

source for peer-reviewed writing or 

editing directly or indirectly: 

Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 5561

(i) Selects or recommends the author, 

reviewer, referee, or editor; 

(ii) Independently provides additional 

funding to the author, reviewer, referee, 

or editor in connection with the writing 

or editing activity; 

(iii) Determines or recommends the 

targeted audience of the writing or 

editing activity; 

(iv) Specifies or recommends the 

topics to be addressed, or 

(v) Controls or recommends the 

planning, content, or distribution of the 

written or edited product in a manner 

inconsistent with ethical guidelines 

commonly accepted within the relevant 

research community for disseminating 

scientific information which are 

designed to ensure that such writing or 

editing is accurate, unbiased, 

nonpromotional, transparent with 

respect to disclosure of potential 

conflicts, and independent of the 

influence of the funding source. 

(c) Prohibitions—(1) Prohibited 

outside activities with substantially 

affected organizations, supported 

research institutions, health care 

providers or insurers, and related trade, 

professional, or similar associations.

Except as permitted by paragraph (c)(3) 

of this section, an employee of the NIH 

shall not: 

(i) Engage in employment with a 

substantially affected organization, a 

supported research institution, a health 

care provider or insurer, or a related 

trade, professional, or similar 

association; 

(ii) Teach, speak, write, or edit for 

compensation for any substantially 

affected organization, supported 

research institution, health care 

provider or insurer, or related trade, 

professional, or similar association; or 

(iii) Engage in any self-employed 

business activity that involves the sale 

or promotion of products or services of 

a substantially affected organization or a 

health care provider or insurer, except 

for the purpose of commercializing 

invention rights obtained by the 

employee pursuant to Executive Order 

10096, 15 U.S.C. 3710d, or 

implementing regulations. 

(2) General exception. Nothing in 

paragraph (c)(1) of this section prevents 

an employee from engaging in 

employment with, or teaching, 

speaking, writing, or editing for, a 

political, religious, social, fraternal, or 

recreational organization. 

(3) Specific exceptions. 

Notwithstanding the prohibitions in 

paragraph (c)(1) of this section:

(i) Teaching. An employee may 

engage in and accept compensation for 

teaching a course requiring multiple 

presentations as permitted under 5 CFR 

2635.807(a)(3). 

(ii) Clinical, medical, or health-related 

professional practice. An employee may 

engage in and accept compensation for 

the outside practice of medicine, 

dentistry, pharmacy, nursing, or similar 

health-related professional practice that 

involves the personal provision of care, 

treatment, or other health-related 

professional services to or in connection 

with individual patients, provided that: 

(A) The provision of health-related 

professional services to such 

individuals is not part of any ongoing 

research project conducted or funded by 

the NIH; 

(B) The employee does not establish 

a private practice relationship with a 

current or recently discharged NIH 

patient or subject of an NIH-conducted 

or NIH-funded clinical trial or protocol; 

(C) The employee does not personally 

refer private practice patients to the 

NIH; and 

(D) The professional practice does not 

involve substantial unrelated nonprofessional duties, such as personnel 

management, contracting and 

purchasing responsibilities (other than 

‘‘out-of-stock’’ requisitioning), and does 

not involve employment by a medical 

product manufacturer in the conduct of 

biomedical research. 

(iii) Clerical or similar services. An 

employee may engage in and accept 

compensation for employment that is 

limited to clerical or similar services 

described in § 5501.106(c)(3)(ii)(B). 

(iv) Continuing professional 

education. An employee may engage in 

and accept compensation for a teaching, 

speaking, writing, or editing activity 

that is unrelated to the employee’s 

official duties within the meaning of 5 

CFR 2635.807 if the activity is 

performed as part of a continuing 

professional education program 

conducted by an educational activity 

provider. If a substantially affected 

organization provides financial support 

for a continuing professional education 

program conducted by an educational 

activity provider, this exception is 

inapplicable unless the substantially 

affected organization is involved only as 

the funding source for an unrestricted 

educational grant. 

(v) Authorship of writings subjected to 

scientific peer review or a substantially 

equivalent editorial review process. An 

employee may engage in and accept 

compensation for a writing or editing 

activity that is unrelated to the 

employee’s official duties within the 

meaning of 5 CFR 2635.807 if the 

resulting article, chapter, essay, report, 

text, or other writing is submitted to a 

publisher, academic press, editorial 

board, or other entity affiliated with or 

operated by a supported research 

institution, a health care provider or 

insurer, or a related trade, professional, 

or similar association for publication in 

a scientific journal, textbook, or similar 

publication that subjects manuscripts to 

scientific peer review or a substantially 

equivalent editorial review process. If a 

substantially affected organization funds 

the publishing activities of a supported 

research institution, a health care 

provider or insurer, or a related trade, 

professional, or similar association, this 

exception is inapplicable unless the 

substantially affected organization is 

involved only as an unrestricted 

financial contributor and exercises no 

editorial control. 

(4) Transitional grace period. 

Provided that the activity is not 

otherwise prohibited by statute or 

Federal regulation, including 5 CFR part 

2635 and this part, and the employee 

has obtained prior written approval for 

the outside activity in accordance with 

the procedures in § 5501.106(d), an 

employee may continue to engage in 

outside activities that would otherwise 

be prohibited by paragraph (c)(1) of this 

section for a period not to exceed 30 

days from the effective date of this rule. 

An employee may request additional 

time up to a maximum of 90 days from 

the effective date of this rule if: 

(i) The outside activity had been 

reviewed by the NIH Ethics Advisory 

Committee (NEAC) and subsequently 

approved by the NIH deputy ethics 

counselor (DEC) (or, for those activities 

not within the jurisdiction of the NEAC, 

if the outside activity had been 

reviewed by the employee’s supervisor 

and subsequently approved by the DEC 

for the employee’s institute or center) 

during the period between January 1, 

2004, and February 3, 2005, the effective 

date of this rule; 

(ii) The employee submits a written 

request within 30 days of the effective 

date of this rule seeking authorization to 

continue the outside activity for such 

additional time as the employee 

requests (not to exceed the maximum 

90-day grace period authorized by this 

section); 

(iii) The employee demonstrates that 

additional time is necessary to allow the 

employee to conclude responsibly his 

outstanding obligations; 

(iv) The NEAC (or, for those activities 

not within the jurisdiction of the NEAC, 

the employee’s supervisor) finds that 

good cause exists for permitting an 

extended grace period beyond the initial 

30 days authorized by this section and 

recommends to the NIH DEC (or the 

DEC for the employee’s institute or 

center) that an extension be granted; and

5562 Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 

(v) The NIH DEC, after consultation 

with the designated agency ethics 

official or his designee (or, for those 

activities not within the jurisdiction of 

the NEAC, the DEC for the employee’s 

institute or center, after consultation 

with the NIH DEC or his designee), 

determines the length of the extension 

and grants the employee additional time 

to comply with the outside activity 

prohibitions in paragraph (c)(1) of this 

section. 

(5) An employee who meets the 

criteria of paragraphs (c)(4)(i) and (ii) of 

this section may continue to engage in 

the outside activity pending the final 

resolution of the request, but in no event 

shall such activity continue beyond the 

90-day grace period. If the extension 

request is denied, the employee shall 

cease the activity no later than five days 

after the employee receives notice of the 

denial.

■ 8. Add new § 5501.110 to read as 

follows:

§ 5501.110 Prohibited financial interests 

applicable to employees of the National 

Institutes of Health. 

(a) Applicability. This section does 

not apply to special Government 

employees or the spouse or minor 

children of a special Government 

employee. 

(b) Definitions. For purposes of this 

section: 

(1) Confidential filer means an 

employee of the National Institutes of 

Health who meets the criteria in 5 CFR 

2634.904 and who has not been 

excluded from the requirement of filing 

a confidential financial disclosure 

report under the procedures in 5 CFR 

2634.905. 

(2) Public filer means an employee of 

the National Institutes of Health who 

meets the criteria in 5 CFR 2634.202 and 

who has not been excluded from the 

requirement of filing a public financial 

disclosure report under the procedures 

in 5 CFR 2634.203. 

(3) Substantially affected organization

has the meaning set forth in 

§ 5501.109(b)(8). 

(4) Time of acquisition means the date 

on which the employee actually 

acquired the financial interest or on 

which the financial interest became 

imputed to the employee under 18 

U.S.C. 208, whether by purchase, gift, 

bequest, marriage, or otherwise, except 

that with respect to a financial interest 

that was acquired prior to the 

employee’s entrance on duty as an 

employee of the National Institutes of 

Health, the ‘‘time of acquisition’’ shall 

be deemed to be the date on which the 

employee entered on duty. For assets 

held as of the effective date of this 

section by employees on duty at the 

National Institutes of Health at such 

time, the ‘‘time of acquisition’’ will be 

deemed to be the effective date of this 

section. 

(c) Prohibition applicable to public 

and confidential filers. Except as 

permitted by paragraph (e) of this 

section, an employee of the National 

Institutes of Health who is required to 

file a public or confidential financial 

disclosure report pursuant to 5 CFR part 

2634 and the spouse or minor child of 

such public or confidential filer shall 

not have a financial interest in a 

substantially affected organization. 

(d) Prohibition applicable to non-filers 

and excluded positions. Except as 

permitted by paragraph (e) of this 

section, an employee who is not 

required to file a public or confidential 

financial disclosure report pursuant to 

part 2634 of this title, or who is 

employed in a confidential filing 

position excluded from the prohibited 

holdings requirement pursuant to 

paragraph (f) of this section, or the 

spouse or minor child of such 

employee, shall not have a financial 

interest in a substantially affected 

organization unless: 

(i) The total cost or value, measured 

at the time of acquisition, of the 

combined interests of the employee and 

the employee’s spouse and minor 

children in the affected organization is 

equal to or less than the de minimis

exemption limit for matters involving 

parties established by 5 CFR 2640.202(a) 

or $15,000, whichever is greater; 

(ii) The holding, if it represents an 

equity interest, constitutes less than 1 

percent of the total outstanding equity 

of the organization; and 

(iii) The total holdings in 

substantially affected organizations 

account for less than 50 percent of the 

total value of the combined investment 

portfolios of the employee and the 

employee’s spouse and minor children. 

(e) Exceptions for certain financial 

interests. Notwithstanding the 

prohibitions in paragraphs (c) and (d) of 

this section: 

(1) An employee or spouse or minor 

child of an employee may have a 

financial interest, such as a pension or 

other employee benefit, arising from 

employment with a substantially 

affected organization.

Note to paragraph (e)(1): NIH employees, 

as opposed to spouses and minor children of 

employees, are generally prohibited under 

§ 5501.109 from engaging in current 

employment with a substantially affected 

organization.

(2) An employee or spouse or minor 

child of an employee may have an 

interest in a substantially affected 

organization that constitutes any 

interest in a publicly traded or publicly 

available investment fund (e.g., a 

mutual fund), or a widely held pension 

or similar fund, which, in the literature 

it distributes to prospective and current 

investors or participants, does not 

indicate the objective or practice of 

concentrating its investments in 

substantially affected organizations, if 

the employee neither exercises control 

nor has the ability to exercise control 

over the financial interests held in the 

fund.

(3) In cases involving exceptional 

circumstances, the NIH Director or the 

NIH Director’s designee, with the 

approval of the designated agency ethics 

official or his designee, may grant a 

written exception to permit an 

employee, or the spouse or minor child 

of an employee, to hold a financial 

interest in a substantially affected 

organization based upon a 

determination that the application of the 

prohibitions in paragraphs (c) or (d) of 

this section is not necessary to ensure 

public confidence in the impartiality or 

objectivity with which HHS programs 

are administered or to avoid a violation 

of part 2635 of this title. 

(4) An employee may have a financial 

interest in connection with the 

development and commercialization of 

invention rights obtained by the 

employee pursuant to Executive Order 

10096, 15 U.S.C. 3710d, or 

implementing regulations.

Note to paragraph (e): With respect to any 

excepted financial interest, employees are 

reminded of their obligations under 5 CFR 

part 2635, and specifically their obligation 

under subpart D to disqualify themselves 

from participating in any particular matter in 

which they, their spouses or minor children 

have a financial interest arising from publicly 

traded securities that exceeds the de minimis

thresholds specified in the regulatory 

exemption at 5 CFR 2640.202 or from nonpublicly traded securities that are not 

covered by the regulatory exemption. 

Furthermore, the agency may prohibit or 

restrict an individual employee from 

acquiring or holding any financial interest or 

a class of financial interests based on the 

agency’s determination that the interest 

creates a substantial conflict with the 

employee’s duties, within the meaning of 5 

CFR 2635.403.

(f) Exclusion of certain confidential 

filing positions from prohibited holdings 

requirement. Any individual or class of 

individuals described in paragraph 

(b)(1) of this section may be excluded 

from the prohibited holdings 

requirement of paragraph (c) of this 

section when the designated agency 

ethics official, in consultation with the 

Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 5563

NIH Director or the NIH Director’s 

designee, determines that: 

(1) The duties of the position make 

remote the possibility that a financial 

interest in a substantially affected 

organization would constitute a 

disqualifying financial interest under 18 

U.S.C. 208; 

(2) The application of the prohibition 

in paragraph (c) of this section is not 

necessary to ensure public confidence 

in the impartiality or objectivity with 

which HHS programs are administered 

or to avoid a violation of part 2635 of 

this title; and 

(3) The individual or class of 

individuals does not occupy any 

position described below: 

(i) Any position in the Office of the 

Director that exercises broad, agencywide influence or authority over NIH 

policies, programs, or operations; 

(ii) Any position in the Office of the 

Director or in an NIH institute or center 

(IC) that is specifically responsible for 

negotiating agreements between NIH 

and any substantially affected 

organization; 

(iii) Any position involved in 

extramural funding decisions for 

biomedical or behavioral research 

grants, contracts, or cooperative 

agreements; 

(iv) Any position the duties and 

responsibilities of which permit the 

employee to exert broad influence over 

the direction of intramural science; or 

(v) Any position in which the 

employee is engaged in research that 

involves a product or service of a 

substantially affected organization or 

that is likely to have a direct and 

predictable effect on the financial 

interests of a substantially affected 

organization. 

(g) Reporting and divestiture. For 

purposes of determining the divestiture 

period specified in 5 CFR 2635.403(d), 

as applied to financial interests 

prohibited under paragraphs (c) and (d) 

of this section, the ‘‘date divestiture is 

first directed’’ means the date on which 

the new entrant public or confidential 

financial disclosure report required by 

part 2634 of this title or any report 

required by § 5502.106(c) of this chapter 

is due.

■ 9. Add new § 5501.111 to read as 

follows:

§ 5501.111 Awards tendered to employees 

of the National Institutes of Health. 

(a) Applicability. This section does 

not apply to special Government 

employees. 

(b) Additional limitations on awards 

to employees of the National Institutes 

of Health. The following limitations 

shall apply to the acceptance by an 

employee of an award pursuant to 5 

CFR 2635.204(d): 

(1) Limitations applicable to senior 

employees.—(i) A senior employee shall 

not accept a gift with an aggregate 

market value of more than $200, or that 

is cash or an investment interest, that is 

an award or incident to an award given 

because of the employee’s official 

position or from a prohibited source.

(ii) For purposes of this section, senior 

employee means the Director and the 

Deputy Director of the National 

Institutes of Health; members of the 

senior staff within the Office of the 

Director who report directly to the NIH 

Director; the Director, the Deputy 

Director, Scientific Director, and 

Clinical Director of each Institute and 

Center within NIH; Extramural Program 

Officials who report directly to an 

Institute or Center Director; and any 

employee of equivalent levels of 

responsibility who is designated as a 

senior employee by the designated 

agency ethics official or the NIH 

Director, in consultation with the 

designated agency ethics official. 

(2) Limitations applicable to 

employees with official responsibility for 

matters affecting an award donor. An 

employee, other than a senior employee, 

shall not accept a gift with an aggregate 

market value of more than $200, or that 

is cash or an investment interest, that is 

an award or incident to an award from 

a person, organization, or other donor 

that: 

(i) Is seeking official action from the 

employee, any subordinate of the 

employee, or any agency component or 

subcomponent under the employee’s 

official responsibility; 

(ii) Does business or seeks to do 

business with any agency component or 

subcomponent under the employee’s 

official responsibility; 

(iii) Conducts activities substantially 

affected by the programs, policies, or 

operations of any agency component or 

subcomponent under the employee’s 

official responsibility; or 

(iv) Is an organization a majority of 

whose members are described in 

paragraphs (b)(2)(i) through (iii) of this 

section. 

(3) Prior approval of awards.—(i) No 

employee shall accept an award under 

5 CFR 2635.204(d) or this section unless 

the receipt thereof has been approved in 

writing in advance in accordance with 

procedures specified by the designated 

agency ethics official, or with the 

concurrence of the designated agency 

ethics official, the NIH Director or the 

NIH Director’s designee. 

(ii) Approval shall be granted only 

upon a determination that acceptance of 

the award is not prohibited by statute or 

Federal regulation, including 5 CFR part 

2635 and this part.

Note to paragraph (b): In some 

circumstances cash and other things of value 

provided in connection with the provision of 

personal services, including speaking or 

writing, may be compensation, not a gift. 

Other ethics rules governing outside 

activities may restrict receipt of such 

compensation. See, for example, 5 CFR 

2635.807.

(c) Exception. Notwithstanding the 

prohibition in paragraph (b) of this 

section, the NIH Director (or the 

Secretary, with respect to awards 

tendered to the NIH Director), with the 

approval of the designated agency ethics 

official, may grant a written exception to 

permit an employee to accept an award 

otherwise prohibited by this section 

under the following conditions: 

(1) There is a determination by the 

NIH Director (or the Secretary, with 

respect to awards tendered to the NIH 

Director) that acceptance of the gift will 

further an agency interest because it 

confers an exceptionally high honor in 

the fields of medicine or scientific 

research. The following criteria will be 

considered in making such a 

determination: 

(i) The identity of the awarding 

organization; 

(ii) The longevity of the awards 

program; 

(iii) The source of award funds; 

(iv) The size of the monetary 

component of the award recognition; 

(v) The identity and credentials of 

past award recipients; 

(vi) The degree of publicity attendant 

to receipt of the award; and 

(vii) The impact of the substantive 

contribution being recognized; 

(2) Absent the prohibition in 

paragraph (b) of this section, the gift 

would be permitted under part 2635 of 

this title; and 

(3) The designated agency ethics 

official shall have determined that the 

application of the prohibition in 

paragraph (b) of this section is not 

necessary to ensure public confidence 

in the impartiality or objectivity with 

which NIH programs are administered 

or to avoid a violation of part 2635 of 

this title. 

(d) Disposition of improperly 

accepted awards—(1) Failure to obtain 

prior approval. If an employee accepts 

an award for which approval is required 

under paragraph (b)(3) of this section 

without obtaining such approval, the 

employee may be required, in addition 

to any penalty provided by law and 

applicable regulations, to forfeit the 

award by returning it to the donor. 

(2) Receipt of prohibited award. If an 

employee accepts an award prohibited 

5564 Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 

by paragraph (b) of this section, the 

employee shall be required, in addition 

to any penalty provided by law and 

applicable regulations, to: 

(i) Reject the award and instruct the 

donor to strike the honoree’s name from 

any list of award recipients;

(ii) Remove the recognition from the 

employee’s re ́sume ́ or curriculum vitae; 

(iii) Return any tangible indicia of the 

recognition to the donor; and 

(iv) Forfeit the award by returning it 

to the donor.

■ 10. Add new § 5501.112 to read as 

follows:

§ 5501.112 One-year disqualification of 

employees of the National Institutes of 

Health from certain matters involving an 

award donor. 

An employee, other than a special 

Government employee, of the National 

Institutes of Health who has, within the 

last year, accepted an award permitted 

under 5 CFR 2635.204(d) or § 5501.111 

shall not participate in any particular 

matter involving specific parties in 

which the donor is or represents a party 

unless authorized to do so under 5 CFR 

2635.502(d).

PART 5502—SUPPLEMENTAL 

FINANCIAL DISCLOSURE 

REQUIREMENTS FOR EMPLOYEES OF 

THE DEPARTMENT OF HEALTH AND 

HUMAN SERVICES

■ 11. Add new part 5502 to read as 

follows:

PART 5502—SUPPLEMENTAL 

FINANCIAL DISCLOSURE 

REQUIREMENTS FOR EMPLOYEES OF 

THE DEPARTMENT OF HEALTH AND 

HUMAN SERVICES

Sec. 

5502.101 General. 

5502.102 Annual supplemental report of 

outside employment or activities. 

5502.103 Content of annual supplemental 

reports. 

5502.104 Confidentiality of reports. 

5502.105 Agency procedures. 

5502.106 Supplemental disclosure of 

prohibited financial interests applicable 

to employees of the Food and Drug 

Administration and the National 

Institutes of Health.

Authority: 5 U.S.C. 301, 7301; 5 U.S.C. 

App. (Ethics in Government Act of 1978); 

E.O. 12674, 54 FR 15159, 3 CFR, 1989 Comp., 

p. 215, as modified by E.O. 12731, 55 FR 

42547, 3 CFR, 1990 Comp., p. 306; 5 CFR 

2634.103.

§ 5502.101 General. 

The regulations in this part apply to 

employees of the Department of Health 

and Human Services and supplement 

the Executive Branch Financial 

Disclosure Regulations in 5 CFR part 

2634. Any regulation in this part made 

applicable only to the employees of an 

HHS component designated as a 

separate agency under § 5501.102(a) of 

this chapter shall apply to the 

employees of that component as defined 

in § 5501.102(b)(1) of this chapter.

§ 5502.102 Annual supplemental report of 

outside employment or activities. 

Any employee, other than a special 

Government employee, for whom an 

outside employment or activity has been 

approved, or who has participated in 

any outside employment or activity for 

which prior approval is required, under 

part 5501 of this chapter shall file on or 

before February 28 of each year a report 

concerning all such activities that were 

approved or undertaken in the previous 

calendar year. The annual report shall 

be filed with the employee’s supervisor 

who shall review the form, in 

consultation with an agency ethics 

official, and determine whether the 

employee has complied with applicable 

laws and regulations and whether 

approval of any ongoing outside activity 

should be cancelled because the activity 

does not meet the standard in 

§ 5501.106(d)(4) of this chapter.

§ 5502.103 Content of annual 

supplemental reports. 

The annual supplemental report of 

outside employment or activities 

required by § 5502.102 shall include the 

following information: 

(a) The employee’s name, contact 

information, organizational location, 

occupational title, grade, step, salary, 

appointment type, and financial 

disclosure filing status; 

(b) A list of all outside activities for 

which prior approval is required under 

part 5501 of this chapter that were 

approved pursuant to 5 CFR 5501.106(d) 

or undertaken within the reporting 

period. The report must identify the 

person or organization for whom or with 

which the employee was to perform the 

activity and the approval date;

(c) A statement as to whether the 

anticipated work described in a 

previously approved outside activity 

was actually performed for the person or 

organization named in the request for 

approval; 

(d) For each outside activity actually 

performed, the beginning date of the 

relationship with the outside entity, the 

date(s) personal services were provided, 

the total number of hours spent and 

leave used on the activity within the 

reporting period, and the ending date; 

(e) For each outside activity that 

remains ongoing at the time of filing the 

report, a statement as to how long the 

activity is anticipated to continue, the 

date on which prior approval expires, 

and whether a request for renewal of 

approval is anticipated; 

(f) For each outside activity actually 

performed, the type and amount of any 

income and/or reimbursements actually 

received during the reporting period 

and the date paid; 

(g) For each outside activity actually 

performed, the type and amount of any 

income and/or reimbursements earned 

during or attributable to the reporting 

period that were not in fact received 

during the reporting period and remain 

due; 

(h) A statement as to whether any 

change has occurred or is anticipated 

with respect to information supplied in 

the original outside activity approval 

request; 

(i) A description of any change in the 

nature, scope, or subject matter of any 

approved activity; and 

(j) A description of any change in jobs 

or in the duties and responsibilities of 

the employee’s position that occurred 

after the outside activity was approved.

§ 5502.104 Confidentiality of reports. 

Each report filed under this part is 

confidential and shall not be disclosed 

to the public, except as provided under 

§ 2634.604(b) of this title.

§ 5502.105 Agency procedures. 

The designated agency ethics official 

or, with the concurrence of the 

designated agency ethics official, each 

of the separate agency components of 

HHS listed in § 5501.102(a) of this 

chapter may prescribe procedures for 

the submission and review of each 

report filed under this part. These 

procedures may provide for filing 

extensions, for good cause shown, 

totaling not more than 90 days.

§ 5502.106 Supplemental disclosure of 

prohibited financial interests applicable to 

employees of the Food and Drug 

Administration and the National Institutes 

of Health. 

(a) Applicability. This section does 

not apply to special Government 

employees. 

(b) Definitions. For purposes of this 

section: 

(1) Confidential filer means an 

employee who meets the criteria in 5 

CFR 2634.904 and who has not been 

excluded from the requirement of filing 

a confidential financial disclosure 

report under the procedures in 5 CFR 

2634.905. 

(2) Prohibited financial interest means 

a financial interest prohibited by 

§ 5501.104(a) or §§ 5501.110(c) and (d) 

of this chapter for FDA or NIH 

employees respectively, including those 

financial interests that are excepted 

Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / Rules and Regulations 5565

1Before BCRA, the Commission’s regulations had 

addressed only contributions, not donations, by 

Minors. A contribution includes a gift, subscription, 

loan, advance, or deposit of money or anything of 

value by any person for the purpose of influencing 

any election for Federal office. See, e.g., 11 CFR 

100.52(a). A donation is a payment, gift, 

subscription, loan, advance, deposit or anything of 

value given to a person, other than a contribution. 

See, e.g., 11 CFR 300.2(e).

2The Commission received written comments 

from The National Youth Rights Association and 

from the Oakland County (Michigan) Democratic 

Party.

under §§ 5501.104(b) or 5501.110(e) or 

permitted under paragraphs (d)(i) 

through (d)(iii) of § 5501.110 of this 

chapter. 

(3) Public filer means an employee 

who meets the criteria in 5 CFR 

2634.202 and who has not been 

excluded from the requirement of filing 

a public financial disclosure report 

under the procedures in 5 CFR 

2634.203. 

(4) Remainder of HHS has the 

meaning set forth in § 5501.102(b)(2) of 

this chapter. 

(5) Separate agency component has 

the meaning set forth in § 5501.102(a) of 

this chapter. 

(c) Report of prohibited financial 

interests.—(1) New entrant employees.

A new entrant employee, other than a 

public filer or a confidential filer, shall 

report in writing within 30 days after 

entering on duty with the FDA or the 

NIH any prohibited financial interest 

held upon commencement of 

employment with the agency. 

(2) Reassigned employees. An 

employee of a separate agency 

component, other than the FDA or the 

NIH, or of the remainder of HHS who 

is reassigned to a position at the FDA or 

the NIH shall report in writing within 

30 days of entering on duty with the 

FDA or the NIH any prohibited financial 

interest held on the effective date of the 

reassignment to the agency. 

(3) Incumbent employees. An 

incumbent employee of the FDA or the 

NIH who acquires any prohibited 

financial interest shall report such 

interest in writing within 30 days after 

acquiring the financial interest. An 

employee on duty at the NIH who is 

subject to § 5501.110(c) of this chapter 

as of February 3, 2005, the effective date 

of this rule, shall report in writing 

within 60 days after the effective date 

any prohibited financial interest held on 

the effective date.

[FR Doc. 05–2029 Filed 2–1–05; 2:00 pm] 

BILLING CODE 4150–03–P

FEDERAL ELECTION COMMISSION

11 CFR Part 110 

[Notice 2005–4] 

Contributions and Donations by 

Minors

AGENCY: Federal Election Commission.

ACTION: Final rules and transmittal of 

rules to Congress. 

SUMMARY: The Federal Election 

Commission is amending its rules 

regarding contributions and donations 

by individuals aged 17 years or younger 

(‘‘Minors’’). These final rules conform to 

the decision of the United States 

Supreme Court in McConnell v. Federal 

Election Commission. In McConnell, the 

Supreme Court held unconstitutional 

section 318 of the Bipartisan Campaign 

Reform Act of 2002, which prohibited 

Minors from contributing to candidates 

and from contributing or donating to 

political party committees. Accordingly, 

this final rule amends the Commission’s 

regulations to reflect the Supreme 

Court’s decision by removing the 

regulatory prohibitions on contributions 

by Minors to candidates, and on 

contributions and donations by Minors 

to political party committees. 

Additional information appears in the 

SUPPLEMENTARY INFORMATION section.

DATES: Effective Date: The effective date 

for the revisions to 11 CFR part 110 is 

March 7, 2005.

FOR FURTHER INFORMATION CONTACT: Mr. 

Brad C. Deutsch, Assistant General 

Counsel, or Ms. Amy L. Rothstein, 

Attorney, 999 E Street NW., 

Washington, DC 20463, (202) 694–1650 

or (800) 424–9530.

SUPPLEMENTARY INFORMATION: Section 

318 of the Bipartisan Campaign Reform 

Act of 2002, Pub. L. 107–155, 116 Stat. 

81 (Mar. 27, 2002) (‘‘BCRA’’), amended 

the Federal Election Campaign Act of 

1971, as amended, 2 U.S.C. 431 et seq.

(the ‘‘Act’’), to prohibit individuals aged 

17 years or younger (‘‘Minors’’) from 

contributing to candidates, and from 

contributing or donating to political 

party committees.1 See 2 U.S.C. 

441k. The Commission promulgated 

regulations to implement the new 

statutory prohibitions in late 2002. See

Final Rules and Transmittal of 

Regulations to Congress, 67 FR 69928 

(Nov. 19, 2002). The 2002 rules 

amended the regulations governing 

contributions by Minors previously 

found at 11 CFR 110.1 and redesignated 

the regulations as 11 CFR 110.19. The 

2002 rules also made conforming 

amendments to 11 CFR 110.1, regarding 

contributions by persons other than 

multi-candidate political committees, 

and 11 CFR 110.5, regarding aggregate 

bi-annual contribution limits for 

individuals, to exclude from their scope 

contributions by Minors prohibited 

under new 11 CFR 110.19. See 11 CFR 

110.1(a) and 11 CFR 110.5(a) (2002).

The United States Supreme Court 

held BCRA section 318 to be 

unconstitutional in McConnell v. 

Federal Election Commission, 540 U.S. 

93 (2003) (‘‘McConnell’’). Accordingly, 

the Commission is amending its 

regulations at 11 CFR 110.19 to reflect 

the Supreme Court’s decision by 

removing the prohibitions on 

contributions by Minors to candidates, 

and on contributions and donations by 

Minors to political party committees. 

This rulemaking also makes conforming 

amendments to 11 CFR 110.1, regarding 

contributions by persons other than 

multi-candidate political committees, 

and 11 CFR 110.5, regarding aggregate 

bi-annual contribution limits for 

individuals, to reflect that these 

regulations apply to contributions made 

by Minors. 

The practical effect of these changes 

is to return the substance of the 

regulations to its pre-BCRA state, with 

a single exception. The Commission has 

amended the requirement that a Minor 

exclusively own or control the funds, 

goods, or services contributed. Further 

information appears in the Explanation 

and Justification, below. 

These final rules are based on 

proposed rules that the Commission 

published for comment in the Federal 

Register in April 2004. See Notice of 

Proposed Rulemaking, 69 FR 18841 

(Apr. 9, 2004) (‘‘NPRM’’). The comment 

period closed on May 10, 2004. The 

Commission received two comments in 

response to the NPRM.2

Under the Administrative Procedure 

Act, 5 U.S.C. 553(d), and the 

Congressional Review of Agency 

Rulemaking Act, 5 U.S.C. 801(a)(1), 

agencies must submit final rules to the 

Speaker of the House of Representatives 

and the President of the Senate, and 

publish them in the Federal Register at 

least 30 calendar days before they take 

effect. The final rules that follow were 

transmitted to Congress on January 28, 

2005. 

Explanation and Justification 

11 CFR 110.1—Contributions by Persons 

Other Than Multicandidate Political 

Committees (2 U.S.C. 441a(a)(1)) 

This rulemaking amends 11 CFR 

110.1(a) by deleting the reference to 11 

CFR 110.19. Section 110.1 concerns 

contributions to candidates and political 

party committees by persons other than 

multi-candidate political committees.