Source: http://govpulse.us/entries/2008/12/18/E8-30073/general-administrative-regulations-administrative-remedies-for-non-compliance
Timestamp: 2014-10-21 02:14:16
Document Index: 496188467

Matched Legal Cases: ['art 400', '§ 400', '§ 400', '§ 400', '§ 400', '§ 400', 'art 3017', '§ 400']

govpulse | General Administrative Regulations; Administrative Remedies for Non-Compliance
The Federal Crop Insurance Corporation (FCIC) finalizes the General Administrative Regulations; Administrative Remedies for Non-Compliance to add additional administrative remedies that are available as a result of the enactment of section 515(h) of the Federal Crop Insurance Act (Act) (7 U.S.C. 1515(h)), make such other changes as are necessary to implement the provisions of section 515(h) of the Act, and to clarify existing administrative remedies.
Section 400.451General
Section 400.452Definitions
B. Revisions to Specific Definitions
5. Requirement of FCIC
7. Willful and Intentional
Section 400.454Disqualification and Civil Fines
B. Section 400.454(a)
C. Section 400.454(b)
D. Section 400.454(c)
E. Section 400.454(d)
F. Section 400.454(e)
G. Section 400.454(f)
H. Section 400.454(g)
I. Section 400.454(h)
Section 400.457Program Fraud Civil Remedies Act
For further information, contact Cynthia Simpson, Director, Appeals, Litigation and Legal Liaison Staff, Risk Management Agency, United States Department of Agriculture, 1400 Independence Avenue, SW., Room 4619, Stop 0806, Washington, DC 20250, telephone (202)720-0642.
Paperwork Reduction Act of 1995 ↑
E-Government Act Compliance ↑
Executive Order 13132 ↑
Federal Assistance Program ↑
This rule finalizes changes made to 7 CFR part 400, subpart R, Administrative Remedies for Non-Compliance that was published by FCIC on May 18, 2007, as a notice of proposed rulemaking in the Federal Register at 72 FR 27981-27988. In the Administrative Remedies for Non-Compliance, FCIC proposed to include provisions in its regulation that were enacted with the passage of the Agricultural Rick Protection Act of 2000 (ARPA). Through the enactment of section 515(h) of the Act in ARPA, Congress significantly strengthened FCIC's ability to combat fraud, waste and abuse by establishing a strong system of administrative actions that are now applicable to all participants in the Federal crop insurance program.
Now, producers, agents, loss adjusters, insurance providers and their employees and contractors, and anyother persons who willfully and intentionally provide any false or inaccurate information to FCIC or to an approved insurance provider with respect to a policy or plan of insurance or willfully and intentionally failed to comply with a requirement of FCIC are subject to remedial administrative remedies. In addition to disqualification from participating in the Federal crop insurance program, producers will be disqualified from receiving benefits under other various United States Department of Agriculture programs. In addition, civil fines have been increased. Now a civil fine can be imposed for each violation and the civil fine is the greater of $10,000 or the amount of pecuniary gain obtained as a result of the false or inaccurate information provided or the noncompliance with a requirement of FCIC.
The public was afforded 30 days to submit written comments after the regulation was published in the Federal Register. A total of 128 comments were received from 17 commenters. The commenters were seven insurance services organizations, one grower association, four insurance providers, two law firms, one public citizen, one agent, and one government employee. The comments received and FCIC's responses are as follows:
Comment: One commenter stated that FCIC has taken significant actions since the implementation of the Act in 2000 to reduce fraud, waste and abuse of the crop insurance program. The commenter strongly supports FCIC's efforts to combat waste, abuse and fraud in FCIC programs and believes that those who knowingly and willfully abuse the program must be punished.
Response: FCIC will continue to take such actions as are necessary to improve program integrity.
Length of Comment Period ↑
Comment: Several commenters stated that the thirty-day comment period was inadequate. The commenters asked that the comment period be extended by sixty days because of the serious nature of the proposed rule and in order for other affected individuals to comment and to fully understand the legal exposure they could face under the proposed rule.
Response: FCIC usually gives 30 or 60 day comment period depending on the rule. Because this rule is implementing a law that has been in effect since June 2000, FCIC made the decision not to extend the comment period.
Section 400.451General ↑
Comment: A commenter stated that “waste” and “abuse” are neither offenses defined by statute or regulation and that FCIC never has defined in a regulation, contract, policy, or procedure, the conduct or actions that constitute “waste” and “abuse.” The commenter asked that FCIC define “waste” and “abuse.”
Response: Combating fraud, waste and abuse are the obligation of all Government agencies. The imposition of these sanctions is one means to combat fraud, waste and abuse. However, there are numerous other actions taken by FCIC to combat fraud, waste and abuse. However, in the context of this rule, fraud, waste and abuse are not grounds for the imposition of sanctions. Sanctions are imposed for violations of section 515(h) of the Act and other relevant statutory provisions. The terms fraud, waste and abuse are not used except in the context of a policy statement. Therefore, inclusion of separate definitions may confuse persons into believing that sanctions can be imposed for allegations of fraud, waste and abuse. This is supported by many of the following comments which suggest that fraud must be proven before a sanction under section 515(h) of the Act can be imposed. No change has been made.
Comment: A commenter stated that a person may abuse the crop insurance program without providing false information or violating FCIC procedures.
Response: The crop insurance program may still be abused by a person without providing false information or violating FCIC procedures. Abuse can occur in any number of ways and FCIC continuously reviews the program to tighten program requirements to prevent other types of abuse. However, this rule is intended to preclude the specific abuses associated with the providing of false or inaccurate information and failure to comply with a requirement of FCIC.
Comment: A commenter stated § 400.451(b) is overbroad as it expands the rule to persons outside of the crop insurance program. For example, an accountant knowingly falsifies an insured's Schedule F and an insurance provider overpays on an Adjusted Gross Revenue claim based on that Schedule F, the commenter asked whether the accountant is subject to the sanctions of § 400.454. The commenter asked that FCIC precisely identify the persons to be covered by subpart R.
Response: Section 515(h) of the Act specifically refers to a producer, agent, loss adjuster, insurance provider or “other person” that intentionally provides false or inaccurate information to FCIC or to an approved insurance provider with respect to a policy. In the example given, an accountant who knowingly provides false information on a Schedule F may be subject to sanction under § 400.454. However, unless the accountant is otherwise participating in the crop insurance program, disqualification would not be applicable. However, the accountant could be subject to civil fines. Section 515(h) of the Act was intended to sanction anyone who willfully and intentionally provides false or inaccurate information, not just direct participants. Therefore, its scope could encompass any person. For example, an elevator operator who provides false weight receipts or the seed dealer who falsifies a sales receipt would also be subject to sanctions under section 515(h) of the Act.
Comment: A commenter stated that by making the proposed rule applicable to “any other persons who may provide information to a program participant,” the FCIC was improperly expanding the scope of persons subject to administrative sanctions beyond what is authorized in the Act. In addition, the phrase, “any other persons who may provide information” was imprecise and, therefore, subject to ambiguous construction.
Response: As stated above, section 515(h) of the Act authorizes the scope of the sanction to apply to other than just producers, agents, loss adjusters or insurance providers. Congress expressly refers to “other persons.” Therefore, the scope of this rule is authorized and can apply to virtually anyone who may provide information that is false or inaccurate. Therefore, there is no ambiguity. However, as stated above, persons who may not be participating in the crop insurance program or other United States Department of Agriculture (USDA) programs would likely be subject to civil fines instead of disqualification.
Comment: A commenter is concerned that the proposed rule exposes too many innocent persons to the threat of civil fines and sanctions without focusing on the real wrong-doers. The rule proposes to cover a vast number of “participants in the federal crop insurance program” as well as any other persons who may provide information to a program participant. In addition, the definitions of affiliate, participant, person, and principal are broad and far reaching and may subject innocent persons to the threat of civil fines and sanctions. The commenter recommends thesedefinitions exclude those not actively involved in the submission, purchase or receipt of benefits of crop insurance policies.
Response: In order to be subject to the sanctions under section 515(h) of the Act, FCIC must be able to prove that the person willfully and intentionally provided false or inaccurate information or willfully and intentionally failed to comply with a requirement of FCIC. Therefore, it is not possible for the sanctions to be imposed on innocent persons. Further, the standards for the imputing of improper conduct are the same as that applied in debarments and ensures that only those persons responsible for the violation are sanctioned. As an additional check and balance, persons have the right to contest any sanction before it is imposed before an Administrative Law Judge. This will ensure that the burden of proof has been met.
Comment: Several commenters stated that the proposed rule made the rule retroactive in effect. In the preamble, FCIC states, “the provisions of this rule will not have a retroactive effect.” However, the proposed rule at § 400.451(d) states that the “failure to comply with a requirement” is applicable as of the date the proposed rule become effective. But, the rule with respect to a false or inaccurate statement is applicable to any act or omission occurring after June 20, 2000. The rule and FCIC's explanation of it are inconsistent as to its retroactivity. Because Congress did not grant FCIC the authority to promulgate retroactive rules, they can only be applied prospectively. To impose penalties for past conduct is improper and unlawful. Because it is unclear as to its retroactivity, the rule violates Executive Order 12988. The proposed rule should be changed so that the regulation clearly has no retroactive effect. The commenters asked that the rule become effective on the date rule becomes final.
Response: FCIC has clarified when the provisions of this rule become effective. There is confusion because section 515(h) of the Act, which contains the sanction provisions applicable to false or inaccurate information that are the subject of this rule, have been in effect since June 2000. Further, since that date, those statutory provisions have been used to impose sanctions against persons that have provided false or inaccurate information after June 2000 because the statutory provisions were not in conflict with the regulation sanction provisions that existed during that time. Therefore, false or inaccurate information provided between June 20, 2000, and the date this rule becomes effective will continue to be processed under section 515(h) of the Act and the regulations in effect prior to the date this rule becomes effective. For false or inaccurate information provided after the date this rule is effective will be processed under this rule.
Section 400.452Definitions ↑
A. In General ↑
Comment: A commenter stated that the proposed rule expanded the definition of “person” and added 17 more definitions which apply only to this subpart. FCIC does not describe the sources of many of the definitions.
Response: FCIC expanded § 400.452 to include terms used in the proposed rule. Most of the definitions will refer to terms and definitions contained in other regulations, such as the Common Crop Insurance Policy Basic Provisions to ensure consistency. With respect to the other definitions, FCIC has defined the terms in such a manner as to achieve the purpose of this rule. The rulemaking procedures do not require that administrative agencies document the source of all of its information.
Comment: Several commenters make statements regarding removing (1) vague and ambiguous language, and (2) defining terms FCIC normally or routinely uses but has failed to define, such as “benefit,” “fraud,” “waste and abuse,” “wrongdoing,” and “knows or has reason to know.” A commenter stated that the word “benefit” is used in the regulation but not defined. The proposed rule suggests benefit is not limited to monetary gains. The commenters also stated that if FCIC intends to impose sanctions for persons engaged in “waste and abuse,” the terms must be adequately defined to provide notice of the prohibited conduct. One commenter also stated that FCIC should add the definition of “knows or has reason to know” contained in 7 CFR 1.302(o) to the proposed rule and make conforming changes to the balance of the proposed rule consistent with the text of this added definition.
Response: FCIC has revised the rule to add definitions of “benefit,” and “knows or has reason to know.” “Benefit” is defined as any advantage, preference, privilege or favorable consideration a person receives from another person in exchange for certain acts or considerations. A benefit may be monetary or non-monetary. The definition of “knows or should have known” will be the same as that contained in 7 CFR 1.302(o). Further, this rule does not sanction persons for “fraud, waste or abuse.” This rule imposes sanctions for violations of section 515(h) of the Act and other statutory provisions. To the extent that such statutory provision includes some elements of fraud, waste and abuse, the prohibited conduct will be specified therein.
B. Revisions to Specific Definitions ↑
1. Affiliate ↑
Comment: A commenter stated that FCIC's definition of “affiliate” is inconsistent with the Standard Reinsurance Agreement's (SRA) definition of “affiliate.” The commenter stated that the definition should be amended to mirror the SRA's focus on the control of management of the book of business.
Response: While the narrower definition is appropriate for the SRA, such a narrow definition is not appropriate for this rule, which is intended to determine who a person is for the purposes of this rule. Under the definition of “person” affiliates are also considered as part of the person if the requirements are met. The main reason for defining the term “affiliate” in this rule is to put everyone on notice that the term may be used differently in this rule than it is in other rules or agreements. No change has been made.
Comment: A commenter stated that the definition of “affiliate” is broad and ambiguous because it uses the term “same or similar management” when describing a presumably affiliated business entity. The commenter suggested that the ambiguity can be cured by using either the accepted definition under federal banking and securities law or alternatively by substituting the term “identical or substantially identical management” for “same or similar management.”
Response: The definition was obtained from the definition of “affiliate” in USDA's suspension and debarment regulations published at 7 CFR part 3017. Since a disqualification has a similar effect to a debarment, it was determined that the treatment of affiliates and the definition should be the same for both remedial sanctions. No change has been made.
2. Participant ↑
Comment: A commenter stated that the definition of “participant” was unduly broad in that it contained no materiality or other threshold test for determining the extent of benefit that makes a person a participant. As written, someone who does not have a substantial beneficial interest for purposes of the crop insurance policy could be subject to a sanction.
Response: Any person, regardless of his interest for purposes of the cropinsurance policy, who willfully and intentionally makes a false statement or fails to comply with a requirement of FCIC, may be subject to sanction. As stated above, such person may have no connection to the crop insurance program other than to provide certain information that is then provided to FCIC or the insurance provider. If such person willfully and intentionally provides false or inaccurate information, such person can be subject to the sanctions provided in this rule even if they derive no benefit from the crop insurance program. Materiality does not require monetary damages. The false information can be material if it adversely affects program integrity, including damage to the program's reputation. Since the gravity must be considered in determining whether to impose a sanction, FCIC has revised the provision to include a materiality requirement and added a definition of “material.”
Comment: A commenter suggested that a materiality test, percent interest or monetary level of benefit be used as a threshold for defining “participant.”
Response: As stated above, materiality does not require monetary damages or benefits. The false information can be material if it adversely affects program integrity, including damage to its reputation. Further, FCIC has revised the provisions to include a materiality requirement when the gravity of the violation is taken into consideration and defined the term “material.”
3. Preponderance of the Evidence ↑
Comment: A commenter stated that intentional, willful conduct and fraud are subject to special rules regarding proof in civil litigation. Fraud requires “clear and convincing proof to establish liability.” This is a higher standard than that required under the proposed rule by a preponderance of the evidence. Because fraud connotes intentional misconduct the party charging that conduct is required to prove it to a greater certainty. The commenter stated further that it is improper to reduce the burden of proof by the government when alleging fraud. No justification has been given that alters longstanding rules applicable to civil litigation. Furthermore, intentional and willful acts should be defined to make clear that the person knew the falsity of the statement when made and intended that FCIC act on the basis of the intentional and willful misstatements. Intent and willfulness also must be established by clear and convincing evidence.
Response: Section 515(h) of the Act does not require a showing of fraud. The standard is whether a person willfully and intentionally provided false or inaccurate information. The standard of proof was derived from USDA's suspension and debarment regulations because of the similarity of the effects of disqualification and debarment. Further, debarment must also show evidence of willfulness and knowingly, which is similar to the standards contained in section 515(h) of the Act. The causes for debarment need only be established by a preponderance of the evidence. In addition, this is not a civil litigation. This is an administrative action taken to protect the integrity of the program and misuse of taxpayer dollars. Further, this has been the standard of proof that has been applied since the application of these sanctions in 1993. Section 515(h) of the Act does not contain any requirement that the person who provides the false information intended for FCIC to rely on such information. FCIC does not have to prove fraud. FCIC only needs to prove that a person willfully and intentionally provided false or inaccurate information or failed to comply with a requirement of FCIC.
Comment: A commenter stated that the definition of “preponderance of the evidence” needs to be revised or clarified to clearly state that FCIC has the burden of proof to produce evidence to meet its preponderance of the evidence.
Response: FCIC has revised § 400.454(a) to clarify that FCIC bears the burden of proving that the person willfully and intentionally provided false or inaccurate information or failed to comply with a requirement of FCIC.
4. Principal ↑
Comment: A commenter stated that the definition of “principal” was broad, and includes persons whom the law does not recognize as a principal. In addition, while the concept of “control” is defined by case law, the concept of “critical influence” is not. Theoretically, a data processor has “critical influence” because the incorrect entry of data may have a significant impact on liability. The commenter asked whether FCIC contends that such persons are “principals” under the rule. The commenter also questioned who is a “key employee” and what are the indicia of a “key employee.” The commenter asked who will determine whether an employee is a “key employee”—the insurance provider or FCIC?
Response: The definition of principal has been broadened in this rule because insurance providers have routinely delegated many of their obligations and responsibilities to persons who would not normally have the ability to direct the activities of the business. The definition of “principal” is intended to encompass such persons who may not have the title, but who have functional influence or control over some activities of the insurance provider. This delegation is not unique to the insurance providers. Insureds may also delegate their obligations to other persons, such as farm managers. The use of the term “key employee” is intended to be a catch-all term for employees that have primary management or supervisory responsibilities or have the ability to direct activities or make decisions regarding the crop insurance program. FCIC would initially decide whether an employee is a key employee based upon the person's responsibilities in the entity when determining whether to file a complaint. However, it would be an Administrative Law Judge that will ultimately decide whether the employee is subject to sanction under this rule.
Comment: A commenter said that the definition of “principal” was broad and ambiguous. This problem is magnified by the use of “key employee” (an undefined term with no commonly accepted legal understanding) and “critical influence on or substantive control over the activities of the entity” (also undefined and not susceptible to common legal interpretations from other bodies of law). The commenter suggested that FCIC could cure the ambiguity to defining “principal” by citing position names commonly used in business and limiting the scope of the definition to only certain functions with the organization. The commenter suggested the following definition for “principal”: “A person who is an officer, director, owner or partner within an entity with primary management or supervisory responsibilities over the entity's Federal crop insurance activities.”
Response: FCIC is attempting to avoid being locked into titles because they do not fit all the business entities that can be involved directly or indirectly with the crop insurance program. This is why the term “key employee” has been added. This definition is trying to identify those persons who perform or exert some type of management or control or decision making over at least some activities related to the crop insurance program. Those are the persons who will be treated as principals. Given the practice of delegation that occurs in the insurance and farming industries, the definition would be too limiting to name the specific titles.
5. Requirement of FCIC ↑
Comment: Several commenters stated that the definition of “requirement of FCIC” is overly board, ambiguous, and vague. As written, the rule could include informal communications, such as e-mails, from RMA personnel writing without actual approval by supervisory or managerial personnel with the agency. The definition does not define the form in which the written communication must take. Thus, a requirement of FCIC could take the form of any writing, including an e-mail. The commenter asked what types of communications are included in “other written communications.”
Response: FCIC has revised the definition to specify that requirements will be contained in formal communications such as regulations, procedures, policy provisions, reinsurance agreements, memorandums, bulletins, handbooks, manuals, findings, directives or letters signed or issued by persons who have been provided the authority to issue such communications on behalf of FCIC. The definition is also revised to clarify that e-mails are not formal communications although they can be used to transmit formal communications.
Comment: Several commenters stated that the definition of “Requirement of FCIC” does not specify from whom within the FCIC the written communication may come. The written communication could come from any FCIC employee, regardless of status or level, to anyone associated with the insurance provider.
Response: As stated above, the provision as been revised to specify that written communications that will qualify as a “requirement of FCIC” will be originated by a FCIC employee that has been delegated the authority to issue such communications on behalf of FCIC. The current delegations are found at http://www.rma.usda.gov/news/managers/2000/PDF/mgr-00-016-1.pdf, http://www.rma.usda.gov/news/managers/2000/PDF/mgr-00-016-2.pdf, http://www.rma.usda.gov/news/managers/2000/PDF/mgr-00-016-3.pdf, and these delegations include documents that would qualify as “requirements of FCIC.” To the extent that other persons may also receive delegated authority, other bulletins containing such delegation will be issued.
Comment: A commenter stated that no “other written communication from FCIC” should qualify as a “Requirement of FCIC” unless FCIC has sent the communication to the insurance provider's designated recipients. The commenter pointed out that the SRA, in Appendix II, paragraph 6, requires each insurance provider to designate persons with authority to receive written communications from FCIC.
Response: To the extent that the “requirement of FCIC” is in the form of letters and other individual communications, such documents will be provided to the designated recipients of the insurance providers. However, documents such as regulations, procedures, bulletins, reinsurance agreements, etc. may also be considered requirements of FCIC under certain circumstances. Such documents will continue to be released in the customary manner.
Comment: A commenter suggested the phrase “other written communications from FCIC” be removed or at least restricted to require that the FCIC official sending the “other written communication” have express authority to send the communication and require that the communication be sent to the insurance provider's designee for the specifically stated type of communication.
Response: As stated above, FCIC has previously delegated persons to provide written communication on behalf of FCIC. FCIC will issue other bulletins if other persons will be delegated this authority. Further, as stated above, to the extent that such communication is a letter or other such individual communication, such communication will be sent to the insurance provider's designee. However, all other communications will be released in the customary manner.
Comment: One commenter questioned whether the Common Crop Insurance Policy falls within the definition of requirement of FCIC. The commenter asked if the Common Crop Insurance Policy is a requirement of FCIC only for agents, adjusters, and producers because the SRA's remedy applies only to insurance providers. This same conundrum exists for various handbooks and manuals.
Response: As stated in the rule, documents such as the Common Crop Insurance Policy are considered a requirement of FCIC unless su