b'Funding of Grants\nby the National Institutes of Health\nThe National Institutes o f Health may, consistent with 31 U.S.C. \xc2\xa7 1502(a), fund an entire\nresearch grant out of a single fiscal year\xe2\x80\x99s appropriations regardless of how long it takes to\ncomplete the work under the grant.\n\nFebruary 11, 1986\nM\n\nO p in io n\n\nem orandum\n\nD epa rtm en t\n\nof\n\nfor th e\n\nH ealth\n\nand\n\nG eneral C o un sel,\nH u m a n S e r v ic e s\n\nThis responds to the request of your Office for the Department of Justice\xe2\x80\x99s\nopinion whether the National Institutes of Health (NIH) may use the appropria\xc2\xad\ntion for one fiscal year to fund a grant when the work under the grant may take\ntwo or three fiscal years to complete, or whether NIH must fund each year\xe2\x80\x99s\nwork from a separate appropriation. You have asked this question because the\nComptroller General has concluded that:\nthe executive branch plan to fund some 646 NIH research grants\non a 3-year basis with fiscal year 1985 funds is unlawful,\nbecause in the absence of specific statutory authority, such\nactions violate 31 U.S.C. \xc2\xa7 1502(a).1\nFor the reasons stated below, we believe GAO\xe2\x80\x99s conclusion that NIH may not\nlawfully fund grants on a multi-year basis is incorrect. We believe, based on the\npertinent statutes as well as the principles articulated in prior Comptroller\nGeneral opinions, that NIH may, under the circumstances outlined below, use\nthe appropriation for one fiscal year to fund the entire cost of a grant made\nduring that fiscal year, regardless of how long it takes to complete work under\nthat grant.\nI. Statutory Language\nThe Comptroller General\xe2\x80\x99s conclusion is based on 31 U.S.C. \xc2\xa7 1502(a),\nwhich provides:\n1 Letter to Hon. Lowell W eicker, Jr., C hairm an, Subcom m ittee on Labor, Health and H um an Services, and\nEducation o f the Senate Com m ittee on A ppropriations from M ilton J. Socolar, Office o f the C om ptroller\nG eneral, G eneral A ccounting O ffice (GA O ) (M ar. 18, 1985) (GAO letter).\n\n19\n\n\x0cThe balance of an appropriation or fund limited for obligation to\na definite period is available only for payment of expenses\nproperly incurred during the period of availability or to com\xc2\xad\nplete contracts properly made within that period of availability\nand obligated consistent with \xc2\xa7 1501 of this title. However, the\nappropriation or fund is not available for expenditure for a\nperiod beyond the period otherwise authorized by law.\nThe plain language of this provision does not support GAO\xe2\x80\x99s conclusion that\nNIH may not use funds appropriated for one fiscal year to pay for work to be\ndone in subsequent years under a multi-year grant. Although 31 U.S.C. \xc2\xa7 1502(a)\nmakes no reference to grants, the statute does refer to \xe2\x80\x9ccontracts,\xe2\x80\x9d and NIH\nresearch grants are a form of contract, as GAO itself has previously recog\xc2\xad\nnized.2 Thus, under \xc2\xa7 1502(a), the balance of an appropriation \xe2\x80\x9climited for\nobligation to a definite period\xe2\x80\x9d \xe2\x80\x94 such as a particular fiscal year \xe2\x80\x94 may be\nused to \xe2\x80\x9ccomplete grants properly made\xe2\x80\x9d within that fiscal year and properly\nobligated consistent with 31 U.S.C. \xc2\xa7 1501.3 In other words, \xc2\xa7 1502(a) contains\ntwo requirements: first, that the grant be \xe2\x80\x9cproperly made\xe2\x80\x9d within the fiscal year\nbeing charged and, second, that the grant be \xe2\x80\x9cobligated\xe2\x80\x9d \xe2\x80\x94 i.e., recorded as an\nobligation \xe2\x80\x94 consistent with \xc2\xa7 1501.\nThe second of these requirements \xe2\x80\x94 that a grant be properly obligated\nconsistent with 31 U.S.C. \xc2\xa7 1501 \xe2\x80\x94 has no bearing on the general question of\nNIH funding of multi-year grants, but rather concerns the handling of particular\nobligations. Moreover, the papers we have reviewed contain no suggestion that\nthe particular NIH grants that gave rise to the NIH-GAO dispute were not\nobligated consistent with \xc2\xa7 1501. Absent facts to the contrary, we assume that\nissuance of each NIH grant is supported by appropriate documentary evidence\nand authorized by statute.\nWe also do not believe that GAO\xe2\x80\x99s position is supported by the first require\xc2\xad\nment, i.e., that each grant be \xe2\x80\x9cproperly made\xe2\x80\x9d within the fiscal year charged.\nThe plain meaning of this statutory language is that it must be proper for NIH to\nmake the grant within the fiscal year charged. Applying this interpretation, we\nsee no reason why NIH may not make a multi- year grant during the first year\nof the grant. Indeed, we do not understand GAO to argue that NIH may not\n2 See 50 C om p. G en. 4 7 0 ,4 7 2 (1970) (\xe2\x80\x9cth e acceptance o f a grant . . creates a valid contract"). See also 62\nC om p. G en. 701, 702 (1983).\n3 Section 1501 states in pertinent part:\n(a) An am ount shall be recorded a s an obligation o f the United States G overnm ent only when\nsupported by docum entary evidence o f \xe2\x80\x94\n\n*\n\n*\n\n*\n\n(5) a grant o r subsidy payable \xe2\x80\x94\n(A ) from appropriations made fo r paym ent of, o r contributions to, amounts required to be\np aid in specific am ounts fixed by law or under form ulas prescribed by law; [or]\n*\n\n*\n\n*\n\n(C) un d er plans approved consistent with and authorized by law . . . . There is no dispute that\nthe N IH grants at issue here were o bligated consistent with these requirem ents.\n\n20\n\n\x0cmake such grants at that time, but only that NIH must spread the cost over the\nlength of the grant. The plain meaning of the \xe2\x80\x9cproperly made\xe2\x80\x9d language,\nhowever, does not require such cost spreading.4\nII. The GAO\xe2\x80\x99s Traditional Analysis\nWe also believe that the conclusion expressed in the GAO letter does not\nfollow from its own prior opinions. Over the years, GAO has added a gloss to\n\xc2\xa7 1502, known as the bona fid e need rule. As stated in Principles o f Federal\nAppropriations Law (GAO 1982) (Principles ), GAO has taken the position that\n\xe2\x80\x9c[a] fiscal year appropriation may be obligated only to meet a legitimate, or\nbona fid e need arising in the fiscal year for which the appropriation was made.\xe2\x80\x9d\nId. at 4-9. This principle would appear to require that a multi-year grant meet a\nbona fid e need of the fiscal year whose appropriation is being charged.\nThe GAO letter states that the NIH grants were improperly made because the\nwork done under them in subsequent years will not meet a bona fid e need of\nfiscal year 1985. In arriving at this conclusion, GAO cites a series of cases\ninvolving funding for \xe2\x80\x9ccontinuous and recurring services [that] are needed on a\nyear-to-year basis,\xe2\x80\x9d such as repairs of typewriters and delivery of supplies. Id.\nat 6-7. However, as HHS points out:\nWithout exception, th[e] decisions [cited by GAO] deal with the\nprovision of materials and services of a routine and recurring\nnature that should appropriately be funded out of a current year\nappropriation. None of those decisions involved grants, and\nnone dealt with a discrete project designed to meet a current\nneed the accomplishment of which would take longer than a\nsingle fiscal year.\nId. at 6.\n\nWhile relying on this strained analogy between grants for scientific study\nand routine office expenses,5 the GAO letter makes no mention of its extensive\nbody of opinions concerning the application of the bona fide need rule to\ncontracts and grants that cannot be completed in one year. This body of\nopinions is summarized as follows in the GAO\xe2\x80\x99s Principles, supra, at 4-9,4\xe2\x80\x9410:\nBona fid e need questions [frequently] arise where a given trans\xc2\xad\n\naction covers more than one fiscal year. In the typical situation,\na contract is made (or attempted to be made) in one fiscal year,\nwith performance and payment to extend at least in part into the\n4 G A O \xe2\x80\x99s position finds no support in case law. M oreover, form er A ttorneys General, in interpreting the\npredecessor statutes to \xc2\xa7 1S02, sim ilarly reached the conclusion that balances o f appropriations may be used\n\xe2\x80\x9cto pay dues upon contracts properly made w ithin the form er [fiscal] year, even if the contracts be not\nperform ed till w ithin the latter o r current year.\xe2\x80\x9d 13 Op. A tt\xe2\x80\x99y Gen. 288, 291 (1870). See also 18 Op. A tt\xe2\x80\x99y\nGen. 566, 5 6 9 (1 8 8 7 ).\n5The G A O letter itse lf recognizes the w eakness o f this analogy: \xe2\x80\x9c [W]e recognize that there are fundam ental\ndifferences betw een a contract for materials or services and a research grant.\xe2\x80\x9d\n\n21\n\n\x0cfollowing fiscal year. The issue is which fiscal year should be\ncharged with the obligation. In this context, the rule is that, in\norder to obligate a fiscal year appropriation for payments to be\nmade in a succeeding fiscal year, the contract imposing the\nobligation\'must have been made within the fiscal year sought to\nbe charged, and the contract must have been made to meet a\nbona fid e need of the fiscal year to be charged.\n*\n*\n*\nIt follows from the above statement of the rule that there are\nsituations in which performance or delivery can extend into a\nsubsequent fiscal year with payment to be charged to the prior\nfiscal year, as long as the need arose in the fiscal year to be\ncharged. This principle applies even though the funds are not to\nbe disbursed and the exact amount owed by the Government\ncannot be determined until the subsequent fiscal year.\nIn deciding whether a contract should be charged to the fiscal year in which it is\nmade, GAO has taken the following position:\nThe fact that a contract covers a part of two fiscal years does not\nnecessarily mean that payments thereunder are for splitting\nbetween the two fiscal years involved upon the basis of services\nactually performed during each fiscal year. In fact, the general\nrule is that the fiscal y e a r appropriation current at the time the\ncontract is m ade is chargeable with paym ents under the con\xc2\xad\ntract, although performance thereunder may extend into the\nensuing fis c a l year.\n\n23 Comp. Gen. 370,371 (1943) (emphasis added) (quoted in Principles, supra,\nat 4-13).\nGAO has issued many opinions reiterating this \xe2\x80\x9cgeneral rule.\xe2\x80\x9d See, e.g., 56\nComp. Gen. 351, 352 (1977); 50 Comp. Gen. 589, 591 (1971); 21 Comp. Gen.\n822, 823-24 (1951); 20 Comp. Gen. 436, 437 (1941); 16 Comp. Gen. 37, 38\n(1936). It has likewise made clear \xe2\x80\x9cthat the question of whether to charge the\nappropriation current on the date the contract is made, or to charge the funds\ncurrent at the time services are rendered, depends on whether the services are\n\xe2\x80\x98severable\xe2\x80\x99 or \xe2\x80\x98entire.\xe2\x80\x99\xe2\x80\x9d Principles, at 4-13. Thus, the \xe2\x80\x9cdetermining factor\xe2\x80\x9d for\nwhether a contract (or grant) for a multi-year project is \xe2\x80\x9cproperly made\xe2\x80\x9d is\nwhether the project \xe2\x80\x9crepresent[s] a single undertaking\xe2\x80\x9d and should therefore be\nviewed as a single project. Id. at 4\xe2\x80\x9414.6 If it is, a bona fid e need for the project\narises in the first fiscal year, and that is the appropriation that should be\ncharged.\nThe contract at issue in the 1943 opinion, quoted above, provides an example\nof a contract that was viewed by GAO as a single project. Under that contract,\n6 The G A O le tte r agrees that the fundamental issue is w hether the grants are single research projects or are\nseverable annual projects.\n\n22\n\n\x0cindividuals were to prepare the ground, plant rubber-bearing plants, and bring\nthem to harvest. GAO concluded that this contract:\ninvolved one undertaking, which although extending over a part\nof two fiscal years, nevertheless was determinable both as to the\nservices needed and the price to be paid therefor at the time the\ncontract was entered into. Such being the case, the fiscal year\nappropriation current at the time the contract was made was\nobligated for payments to be made thereunder.\n23 Comp. Gen. at 371. GAO therefore rejected a Department of Agriculture\nvoucher that would have divided the cost between the two fiscal years it took to\ncomplete the contract.\nGAO opinions treating a variety of other contracts as single projects are also\nillustrative. For example, when the Government contracted in 1938 to have\ncattle inspected and slaughtered if infected with tuberculosis, GAO concluded\nthat the 1938 appropriation should be charged for recompense paid to farmers\nfor diseased animals found and slaughtered in later years. 18 Comp. Gen. 363\n(1938). The need to test the animals arose in fiscal year 1938, and therefore any\nliability under the contract, regardless of when discovered, had to be charged to\nthe 1938 appropriation. Id. at 365.\nMore recently, in 1980, GAO insisted that a 1977 appropriation be charged\nfor the cost of printing a book for the Commission of Fine Arts even though the\nprinting took three years, from 1977 to 1979. 59 Comp. Gen. 386, 387-88\n(1980). GAO explicitly rejected the Commission\xe2\x80\x99s argument that the printing\ncosts should be charged against the 1977, 1978, and 1979 GAO appropriations\nin proportion to the amount of work done each year. GAO said:\n[T]he fact that performance under a contract extends over more\nthan one fiscal year does not mean that payments are to be split\namong the fiscal years on the basis of services actually per\xc2\xad\nformed. Rather, the general rule is that payments due under a\nGovernment contract are to be charged to the fiscal year appro\xc2\xad\npriation current at the time the legal obligation arose; that is, the\nfiscal year in which a bona fide need for the goods or services\narose and in which a valid contract or agreement was entered\ninto.\n59 Comp. Gen. at 387-88. See also 50 Comp. Gen. 589, 591-92 (1971)\n(lawyers hired for case must be GAO paid from the appropriation for the year\nin which they were hired, no matter how protracted the litigation); GAO\nOpinion B-141839-O.M. (May 2, 1960) (NIH contracts for cancer research\nwith Stanford University are \xe2\x80\x9can entire job\xe2\x80\x9d and must be paid out of appropria\xc2\xad\ntion for fiscal year in which contracts were signed, \xe2\x80\x9ceven though the period of\nperformance may extend beyond the fiscal year until the object thereof is\naccomplished.\xe2\x80\x9d); 31 Comp. Gen. 608, 610 (1952) (FY 1952 appropriation\nreimbursing states for civil defense expenditures charged although states did\n23\n\n\x0cnot buy equipment until subsequent years); 23 Comp. Gen. 82, 83 (1943) (FY\n1942 appropriation charged although printing of legal opinions not completed\nuntil FY 1943); 21 Comp. Gen. 574, 577 (1941) (FY 1940 appropriation\ncharged although telescopes not shipped until FY 1941); 20 Comp. Gen. 436\n(1941) (FY 1940 appropriation charged for cost of move although move not\ncompleted until FY 1941).\nThis general rule has also been applied by GAO to grants. For example,\nGAO concluded in 1940 that all expenses incident to a fellowship granted to\nSouth Americans for the study of public health in the United States could be\ncharged \xe2\x80\x9cto the fiscal-year appropriation current and available at the time the\nfellowship is awarded\xe2\x80\x9d even though the fellowship extended into the succeed\xc2\xad\ning fiscal year and some expenses, such as travel and maintenance, would not\nbe incurred until the next year. 20 Comp. Gen. 185, 189 (1940). See also GAO\nOpinion B-37609, 267 Manuscript Series 1039 (1943) (grants for cultural\nprograms with South America);7 GAO Opinion B-34477, 261 Manuscript\nSeries 1960 (1943) (grants to Chinese professors for study in the United\nStates);8 39 Comp. Gen. 317 (1959). In this last opinion, the National Science\nFoundation sought GAO\xe2\x80\x99s opinion on issues relating to the obligation of\ncertain appropriations. GAO stated:\nIt is explained in the letter that the major portion of funds\nappropriated to the National Science Foundation is obligated\nand expended in the form of grants to educational institutions\nfor the purpose of conducting basic scientific research activities.\nIt is stated \xe2\x80\x94 and correctly so \xe2\x80\x94 that such grants are adminis\xc2\xad\ntratively recorded as obligations at the time the funds are for\xc2\xad\nmally granted to the grantee by letter, and that there is no\ndeobligation of any unexpended portion of the grants as of June\n30 [the end of the fiscal year]. See 31 Comp. Gen. 608.\n7 The 1943 opinion statesBy decision o f A p n l 3, 1942, B -2 4 2 7 ,. . . it was held, in substance, that a grant o f funds . . .\nconstituted a legal obligation o f th e am ount granted, even though the final obligation and\nexpenditure for definite projects in th e various American republics w as [sic] to be accom plished\nby the said corporation in the follow ing fiscal y e a r .. . In the said decision, it was stated:\n\xe2\x80\x9cH aving in view the authority given by the C ongress to the Coordinator to make\ngrants . . . the conclusion appears ju stified that funds so granted . . . were not intended to\nrem ain subject to the fiscal y ear lim itation o f the appropriations from which the funds\nwere derived, and that, insofar as concerns the C oordinator o f Inter-A m encan A ffairs,\nsuch funds are legally obligated w hen form ally granted to an authorized grantee. . . . Cf.\n21 C om p. Gen. 498 \xe2\x80\x9d\n\n*\n\n*\n\n*\n\n[YJour above-quoted letter appears to be so sim ilar . . as to warrant a sim ilar conclusion \xe2\x80\x94 that\nis, that funds form ally granted or form ally agreed to be furnished to an institution or facility . . .\nare legally obligated at the time o f th e said grant or agreem ent to grant and properly may be made\n\navailable and expended thereafter by the grantee institution or facility without regard to the\nfisca l year limitation o f the appropriations from which the funds were derived.\n267 M anuscript Series at 1041, 1042 (citations om itted; em phasis added).\n8 \xe2\x80\x9cIt should seem obvious that all expenses connected with the second phase of the program \xe2\x80\x94 the bringing\no f C hinese professors to this country \xe2\x80\x94 a re chargeable to the funds in question [i.e., to funds from the fiscal\nyear in w hich the grant w as ma d e ] . . . 2 6 1 M anuscript S eries at 1963\n\n24\n\n\x0c39 Comp. Gen. at 318 (1959) (emphasis added). See also 48 Comp. Gen. 186,\n190 (1968) (FY 1968 appropriation \xe2\x80\x9cwould be the only appropriation legally\navailable to pay amounts due the grantee as a result of any required upward\nadjustment\xe2\x80\x9d in later years); 20 Comp. Gen. 370, 373 (1941) (grants may be\nused to pay for courses extending over two fiscal years). GAO has embodied\nthis rule for grants in Principles, supra:\nIn order to properly obligate an appropriation for an assistance\nprogram, some action creating a definite liability against the\nappropriation must occur during the period of the obligational\navailability of the appropriation. In the case of grants, the obli\xc2\xad\ngating action will usually be the execution of a grant agreement.\n*\n*\n*\nOnce the appropriation has been properly obligated, perfor\xc2\xad\nmance and the actual disbursement of funds may carry over\nbeyond the period of obligational availability.\nId. at 13-16, 13-17 (citations omitted).\nIn sum, GAO\xe2\x80\x99s opinions and Principles hold that \xc2\xa7 1502 permits contracts\n\nand grants to be charged against the appropriation for a single fiscal year even\nthough payments may extend over more than one year. They also hold that a\ngrant may meet the bona fid e need of an agency for a single fiscal year, even\nthough work under the grant extends over more than one year. Our review of\n\xc2\xa7 1502 and of GAO\xe2\x80\x99s opinions thus leads us to conclude that GAO\xe2\x80\x99s recent\ndetermination that NIH may not fund multi-year grants from a single appro\xc2\xad\npriation is incorrect.\nYou have also asked whether a certifying officer who does not follow the\nComptroller General\xe2\x80\x99s opinion would be liable under 31 U.S.C. \xc2\xa7 3528(a)(4).9\nWe believe that he would not be liable as, in our view, 31 U.S.C. \xc2\xa7 1502\npermits NIH lawfully to charge the entire cost of a grant against the appropria\xc2\xad\ntion for the fiscal year in which the grant was made. Because payment of the\ngrant is not illegal, the provisions of \xc2\xa7 3528(a)(4) are not applicable, and we\nwould so inform GAO if they referred the matter to this Department.\nFinally, you have asked whether charging the grant to the appropriation for\none fiscal year would violate.the Anti-Deficiency Act, 31 U.S.C. \xc2\xa7 1341.10 As\n9 That section provides.\n(a) A certifying official certifying a voucher is responsible for\n\n*\n\n*\n\n*\n\n(4) repaying a paym ent\n(A ) illegal, improper, or incorrect because o f an inaccurate or m isleading certificate;\n(B) prohibited by law , or\n(C) that does not represent a legal obligation under the appropriation or fund involved\n1031 U.S.C. \xc2\xa7 1341 provides in relevant part:\n(a) (1) An officer or em ployee o f the U nited Slates G overnm ent or of the District o f Columbia\ngovernm ent may not \xe2\x80\x94\n(A) make o r authorize an expenditure o r obligation exceeding an amount available in an\nappropriation o r fund for the expenditure o r obligation; or\n(B) involve either governm ent in a contract o r obligation for the paym ent of money before an\nappropriation is made unless authorized by law.\n\n25\n\n\x0cwe have concluded that charging the grant to the appropriation for a single\nfiscal year is lawful, we do not believe a grant official following our opinion\nwould violate this section.\nConclusion\nFor the reasons stated above, we believe that NIH may charge the appropria\xc2\xad\ntion for a single fiscal year with the entire cost of a single grant.\nC harles\n\nJ.\n\nCooper\n\nAssistant Attorney General\nOffice o f Legal Counsel\n\n26\n\n\x0c'


b'The President\xe2\x80\x99s Authority to Make a Recess\nAppointment to the National Labor Relations Board\nThe President may make a recess appointment to the National Labor Relations Board of a person\nwhose term as a Senate-confirmed member expired during the current recess of the Senate.\n\nAugust 31, 2001\n\nMEMORANDUM OPINION FOR THE COUNSEL TO THE PRESIDENT\nYou have asked whether the President may make a recess appointment to the\nNational Labor Relations Board (\xe2\x80\x9cNLRB\xe2\x80\x9d or \xe2\x80\x9cBoard\xe2\x80\x9d) of a person whose term as\na Senate-confirmed member expired during the current recess of the Senate. We\nbelieve that the President may make this recess appointment.\nMembers of the NLRB are appointed to five-year terms by the President, with\nthe Senate\xe2\x80\x99s advice and consent. 29 U.S.C. \xc2\xa7 153(a) (2000). As we understand the\nfacts, the member in question had been serving under such an appointment for a\nterm that ended August 27, 2001.\nThe Constitution provides that \xe2\x80\x9c[t]he President shall have Power to fill up all\nVacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session.\xe2\x80\x9d U.S. Const. art. II, \xc2\xa7 2,\ncl. 3. Here, the member\xe2\x80\x99s term has expired, and the office he previously occupied\nis vacant. And because there is no bar on reappointment and indeed the statute\ndeclares that \xe2\x80\x9c[e]ach member of the Board . . . shall be eligible for reappointment,\xe2\x80\x9d\n29 U.S.C. \xc2\xa7 154(a), no question about eligibility to serve is raised by the recess\nappointment of someone who has been appointed before.\nThe Senate, moreover, is in \xe2\x80\x9crecess.\xe2\x80\x9d It adjourned August 3, 2001, and will\nreturn September 4, 2001. 147 Cong. Rec. 16,196 (2001). \xe2\x80\x9cThe longstanding view\nof the Attorneys General has been that the term \xe2\x80\x98recess\xe2\x80\x99 includes intrasession\nrecesses if they are of substantial length.\xe2\x80\x9d Recess Appointments During an\nIntrasession Recess, 16 Op. O.L.C. 15 (1992) (\xe2\x80\x9cIntrasession Recess Appointments\xe2\x80\x9d). The seminal 1921 opinion by Attorney General Daugherty affirmed the\nPresident\xe2\x80\x99s power to make a recess appointment in an intrasession recess of\ntwenty-eight days. Executive Power\xe2\x80\x94Recess Appointments, 33 Op. Att\xe2\x80\x99y Gen. 20,\n24 (1921). Since then, Presidents have acted on the conclusion that even much\nshorter intrasession recesses were sufficiently substantial to allow recess appointments. See, e.g., Intrasession Recess Appointments, 16 Op. O.L.C. at 16 (discussing appointments during recesses of fifteen and eighteen days). Although there is\nscant judicial authority on the President\xe2\x80\x99s power to make recess appointments\nduring intrasession recesses, see Gould v. United States, 19 Ct. Cl. 593, 595 (1884)\n(accepting such an appointment), the Executive Branch precedents establish that\nthe current recess of thirty-two days could amply support a recess appointment.\n\n182\n\n227-329 VOL_25_PROOF.pdf 192\n\n10/22/12 11:10 AM\n\n\x0cPresident\xe2\x80\x99s Authority to Make Recess Appointment to NLRB\n\nFinally, the Pay Act, 5 U.S.C. \xc2\xa7 5503 (2000), by which Congress has sought to\nbar the pay of recess appointees in some circumstances, would not apply here.\nBecause the statute applies only \xe2\x80\x9cif the vacancy existed while the Senate was in\nsession,\xe2\x80\x9d id. \xc2\xa7 5503(a), it does not reach a vacancy that first arises during a recess\nand is filled before the Senate returns. See Memorandum for the Attorney General,\nfrom John O. McGinnis, Deputy Assistant Attorney General, Office of Legal\nCounsel, Re: Recess Appointments at 7-8 (July 7, 1988); Memorandum for the\nAttorney General, from Ralph E. Erickson, Acting Assistant Attorney General,\nOffice of Legal Counsel, Re: Recess Appointments at 3 (Dec. 21, 1971).\nDANIEL L. KOFFSKY\nActing Assistant Attorney General\nOffice of Legal Counsel\n\n183\n\n227-329 VOL_25_PROOF.pdf 193\n\n10/22/12 11:10 AM\n\n\x0c'


b'December 18, 1978\n\n78-67 MEMORANDUM OPINION FOR THE SPECIAL\nASSISTANT TO THE ATTORNEY GENERAL\nImmigration and Nationality Act (8 U.S.C.\n\xc2\xa7 1182(d)(5))\xe2\x80\x94Cuban Parole Program\nThis responds to your request that we address the following questions:\n1. Can a parole visa be revoked once the parolee has entered the\nUnited States? If so, under what conditions?1\n2. Does the law allow any Cuban who holds dual U.S.-Cuban\ncitizenship to immigrate to the United States with his or her\nentire family?\nI. Parole Revocation\nParole of aliens into the United States is governed by \xc2\xa7 212(d)(5) of the\nImmigration and Nationality Act (the Act), 8 U.S.C. \xc2\xa7 1182(d)(5). That\nprovision reads as follows:\nThe Attorney General may in his discretion parole into the United\nStates temporarily under such conditions as he may prescribe for\nemergent reasons or for reasons deemed strictly in the public interest\nany alien applying for admission to the United States, but such parole\nof such alien shall not be regarded as an admission of the alien and\nwhen the purposes of such parole shall, in the opinion of the Attorney\nGeneral, have been served the alien shall forthwith return or be re\xc2\xad\nturned to the custody from which he was paroled and thereafter his\ncase shall continue to be dealt with in the same manner as that of any\nother applicant for admission to the United States.\nThus, when the Attorney General determines that the purposes of parole have\nbeen served, parole is revoked and the parolee faces exclusion proceedings as\ndescribed in \xc2\xa7\xc2\xa7 235 and 236 of the Act, 8 U.S.C. \xc2\xa7\xc2\xa7 1225, 1226, as would any\nalien initially applying for admission into the United States. Section 212.5(b) of\n\'An alien who is paroled into the United States does not receive a visa. A visa is a document\nissued by a consular officer to immigrants and nonimmigrants coming to the United States.\nMoreover, a parolee does not \xe2\x80\x98\xe2\x80\x98enter" the United States in a legal sense. See 8 U.S.C.\n\xc2\xa7 1182(d)(5).\n\n299\n\n\x0cTitle 8 of the Code of Federal Regulations provides that parole shall be\nterminated and pre-parole status restored upon an alien\xe2\x80\x99s receiving written notice\nof the following: expiration of his parole period; that the purpose for which the\nparole was authorized has been accomplished; or when the District Director of\nthe Immigration and Naturalization Service (INS) in charge of the area where\nthe alien is located determines that neither emergency reasons nor public\ninterest warrants his continued presence in the United States. In parole\nrevocation proceedings, parolees are not entitled to the full panoply of\nprocedural rights accorded aliens in deportation proceedings.2 See, Leng May\nMa v. Barber, 357 U.S. 185 (1958); Rogers v. Quart, 357 U.S. 193 (1958); Siu\nFung Luk v. Rosenberg, 409 F. (2d) 555 (9th Cir. 1969), cert, dismissed, 396\nU.S. 801 (1969). Moreover, as stated above, the discretion to terminate parole\nresides in the Attorney General or his delegates and none of the statutory\ngrounds for deportation under \xc2\xa7 241 of the Act, 8 U.S.C. \xc2\xa7 1251, need be\nalleged.\nHowever, in one case, United States v. Murjf, 260 F. (2d) 610 (2d Cir.\n1958), the court held that the parole of certain refugees may be revoked only if\nthey are accorded the same rights as those given aliens in deportation cases.\nThe court after acknowledging that parolees may, in the normal case, have their\nparole summarily revoked, held that under the particular facts involved\nadditional procedural protections were required before parole could be revoked.\nIt noted that the circumstances under which the Hungarian refugees there\ninvolved were paroled into the United States made the case sui generis. In\nconcluding that the refugees were \xe2\x80\x9c invited\xe2\x80\x9d to this country, the court stressed\nthat the President had directed the Attorney General to exercise his \xc2\xa7 212(d)(5)\nparole power to admit a certain number of Hungarian refugees in excess of the\nvisas authorized under the Refugee Relief Act. Id., at 613. It also stressed the\nfact that Congress had passed legislation endorsing the President\xe2\x80\x99s action.\nThe M urff case seems to stand alone; other courts have consistently\ndistinguished Murjf. See, Ahrens v. Rojas, 292 F. (2d) 406 (5th Cir. 1961)\n(case involving Cuban refugees); Siu Fung Luk v. Rosenberg, 409 F. (2d) 555\n(9th Cir. 1969), cert, dismissed, 396 U.S. 801 (1969). But see the dictum of the\nBoard of Immigration Appeals in Matter o f O, Interim Decision 2614 (1977),\nsuggesting that M urff might have some applicability to parole revocations of\ncertain aliens paroled into the United States as part of the Vietnam evacuation.\nHowever, it would seem that even if the M urff rationale were invoked, a court\nwould not necessarily require the full range of procedural protections required\nin deportation proceedings. See the comments of the Board of Immigration\nAppeals in Matter o f O, supra.\nOnce parole is revoked, the alien becomes subject to an exclusion proceed\xc2\xad\ning, in which he may seek asylum in the United States as a political refugee.\nPreviously the law was unsettled. See, Sannon v. United States, 421 F. Supp.\n1270 (S. D. Fla. 1977) (asylum claims must be heard in exclusion proceed\xc2\xad\n2The procedural rights due aliens subject to deportation proceedings are set forth in \xc2\xa7 242 of the\nAct, 8 U.S.C. \xc2\xa7 125;.\n\n300\n\n\x0cings), and Pierre v. United Stales, 547 F. (2d) 1281 (5th Cir. 1977) (asylum\nclaims are not required to be considered in exclusion proceedings).3 However,\nthe issue has been mooted since the Solicitor General represented to the\nSupreme Court that the Government would grant a hearing on asylum\napplications in exclusion proceedings. See Memorandum Suggesting Mootness,\nin Pierre v. United States, O. T. 1977, No. 77-53. The Court granted\ncertiorari, vacated the judgment, and remanded the case to the Court of Appeals\nto determine the mootness question. Pierre v. United States, 434 U.S. 962\n(1977). In the meantime, INS has proposed a regulation to grant hearings on\nasylum claims in exclusion proceedings. 43 F.R. 48629. Thus, asylum claims\nmust now be heard in an exclusion proceeding.\nII. Dual United States and Cuban Citizenship\nA U.S. citizen possessing dual citizenship may leave and reenter the United\nStates without regard to any restrictions applicable to aliens. Cuban residents\nrelated to U.S. citizens and who are themselves U.S. citizens at birth by virtue\nof section 301(a) of the Act, 8 U.S.C. \xc2\xa7 1401(a), may also enter the United\nStates without regard to such restrictions.\nAlien \xe2\x80\x9c immediate relatives\xe2\x80\x9d of U.S. citizens may be admitted to this country\nwithout regard to quota limitations pursuant to \xc2\xa7 201(a) of the Act, 8 U.S.C.\n\xc2\xa7 1151(a). That term includes a U.S. citizen\xe2\x80\x99s children, spouse, and where the\nU.S. citizen is at least 21 years old, his parents. \xc2\xa7 201(b), 8 U.S.C. \xc2\xa7 1151(b).\nAlso, it is permissible first to parole these persons into the United States and\npermit them thereafter to seek adjustment of their status to that of persons\nadmitted for permanent residence. \xc2\xa7 245, 8 U.S.C. \xc2\xa7 1255. Other members of\nthe U.S. citizen\xe2\x80\x99s family may be paroled into the United States although they\nmay not enjoy the status of immediate relatives of a U.S. citizen.\nJohn M . H arm on\n\nAssistant Attorney General\nOffice o f Legal Counsel\n3The issue in these cases centered on the interpretation of the United Nations Convention and\nProtocol Relating to the Status of Refugees, 19 U .S.T. 6223, TIAS 6557, to which the United\nStates became a signatory on November 1, 1968.\nArticle I of that document incorporates by reference the 19 5 1 Geneva Convention Relating to the\nStatus of Refugees. Article 1, as modified by the Protocol, defines a refugee as one who\xe2\x80\x94\n. . . owing to well-founded fear of being prosecuted for reasons of race, religion,\nnationality, membership of a particular social group or political opinion, is outside the\ncountry of his nationality and is unable or, owing to such fear, is unwilling to avail himself\nof the protection of that country, or who. not having a nationality and being outside the\ncountry of his former habitual residence, is unable or, owing to such fear, is unwilling to\nreturn to it.\nArticle 33 of the Protocol provides in pertinent part that \'\'[n]o Contracting State shall expel or\nreturn ("refouler") a refugee in any manner whatsoever to the frontiers of territories where his life\nor freedom would be threatened on account of his race, religion, nationality, membership of a\nparticular social group or political opinion.\xe2\x80\x9d\n\n301\n\n\x0c'


b'December 28, 1979\n\n79-91\n\nMEMORANDUM OPINION FOR THE\nGENERAL COUNSEL, CENTRAL\nINTELLIGENCE AGENCY\nPolygraph Tests\xe2\x80\x94Central Intelligence Agency\xe2\x80\x94\nIndustrial Polygraph Program\xe2\x80\x94\nConstitution\xe2\x80\x94Supremacy Clause (Article VI,\nClause 2)\n\nA member o f your staff has asked us for additional assistance with\nrespect to the Central Intelligence Agency\xe2\x80\x99s (CIA \xe2\x80\x99s) Industrial Polygraph\nProgram. Implementation o f this program in Massachusetts has been\ndelayed because o f potential conflict with a Massachusetts statute penaliz\xc2\xad\ning an employer who requires employees to take polygraph tests. Mass.\nGen. Laws, ch. 149, \xc2\xa7 1913. In response to an earlier request, we presented\no u r view, in a m em orandum dated December 18, 1978, that a State law\nprohibiting the adm inistration o f polygraph tests to employees may not\nlegitimately be applied to either the CIA o r its contractors in a m anner that\nprecludes necessary security precautions. We reasoned that the Supremacy\nClause would not allow a State law to disrupt Federal programs, even if\nthe State law is applied only to a contractor and not to the Federal Govern\xc2\xad\nment itself. We cautioned, however, that the validity o f application o f\nState law to Federal contractors is generally dependent on the facts and\ncircumstances o f a particular setting and that prelitigation predictions o f\nsuccess must be cautious.\nBy letter dated December 20, 1978, we expanded on these views. We\nrepeated that the adm inistration o f polygraph tests to contractor\nemployees who have access to, or are being considered for access to, sen\xc2\xad\nsitive com partm ented inform ation would meet the requirements of\n\xc2\xa7 1-811 o f Executive O rder No. 12036, because, in the considered judg\xc2\xad\nment o f CIA officials, the tests are necessary to maintain appropriate\nstandards o f security. We did not suggest that administration o f polygraph\ntests on a broader basis would be prohibited, but emphasized that the\n504\n\n\x0climiting language o f \xc2\xa7 1\xe2\x80\x94811 and the potential conflict with State law re\xc2\xad\nquired that any such program not sweep more broadly than is deemed nec\xc2\xad\nessary by knowledgeable personnel in your agency.\nWe are now informed that the CIA wishes to proceed with the program\nin Massachusetts. At our request, your staff has provided further explana\xc2\xad\ntion o f the CIA \xe2\x80\x99s need for the Industrial Polygraph Program . The ex\xc2\xad\nplanation can be summarized as follows:\nAfter the discovery o f leaks o f classified docum ents to foreign govern\xc2\xad\nments by a contractor\xe2\x80\x99s employee, the CIA Office o f Security examined\nsecurity standards governing access to sensitive com partm ented inform a\xc2\xad\ntion and determined that the standards were insufficient to protect such in\xc2\xad\nformation. Although a contractor\xe2\x80\x99s personnel often have access to infor\xc2\xad\nmation not revealed even to CIA staff officers, the industry personnel are\nnot subjected to the rigorous investigation required for staff positions.\nThe Office o f Security concluded that the personal history statem ent,\nbackground investigation, and personal interview were insufficient to\nidentify at least three types o f persons: (1) persons with vulnerabilities\nmaking them particularly susceptible to recruitment by hostile powers,\n(2) persons who have already been recruited by such powers but whose\npersonal history statements are otherwise correct, and (3) persons who\nhave developed false identities. Based on substantial experience with\npolygraphs, the Office o f Security determined that the polygraph device\nwould be an invaluable tool for improving security determinations. A fter\nsuccessful completion o f a pilot program, the Director o f Central In\xc2\xad\ntelligence ordered institution o f the Industrial Polygraph Program.\nThe polygraph is not used as a substitute for less intrusive investigative\nmeasures. Instead, we have been informed that it is intended to enhance,\nupgrade, and extend those measures, and is, for these reasons, deemed a\nnecessary adjunct. We have also been told that the examination is n ar\xc2\xad\nrowed to the extent necessary to protect SCI inform ation. To ensure that\nthe tests will not be applied to employees indiscriminately, the CIA has\nidentified the categories o f persons who will be required to undergo a poly\xc2\xad\ngraph test.\nAs we set forth in our previous letters to you, courts reviewing State\nregulation o f Federal contractors appear to apply the same standard as is\napplied to regulation o f the Federal Government itself, that is, whether the\nState statute would defeat a legitimate Federal purpose or frustrate a\nFederal policy or function. See, United States v. Georgia Public Service\nCom m \xe2\x80\x99n, 371 U.S. 285, 292-93 (1963); Leslie Miller, Inc. v. Arkansas,\n352 U.S. 186, 190(1956); Railway Mail Assoc, v. Corsi, 325 U.S. 88, 93-96\n(1945). The determinative question is whether the State\xe2\x80\x99s regulation o f the\ncontractor conflicts with Federal legislation or with iany legitimate discern\xc2\xad\nible Federal policy. See, Penn Dairies, Inc. v. Milk Control Control\nCom m \xe2\x80\x99n, 318 U.S. 257,271 (1943).\n505\n\n\x0cProtection o f sensitive intelligence inform ation is required by statute\nand executive order, and clearly is a legitimate Federal function. See 50\nU .S.C . \xc2\xa7\xc2\xa7 403(d)(3), 403g; Executive O rder No. 12065, 43 F.R. 28949\n(1978). It appears to us that the CIA reasonably has determined that im\xc2\xad\nplementation o f the Industrial Polygraph Program is necessary to protect\nadequately SCI inform ation. If adm inistration o f the test to each included\ncategory o f employees is reviewed carefully by CIA officials and deter\xc2\xad\nmined necessary to protect sensitive inform ation, it is our view that the\nState o f Massachusetts may not interfere by enforcing its law against the\nAgency\xe2\x80\x99s contractors.\nLa r r y A . H a m m o n d\n\nD eputy Assistant A ttorney General\nOffice o f Legal Counsel\n\n506\n\n\x0c'


b'January 19, 1978\n\n78-2\n\nMEMORANDUM OPINION FOR THE\nASSISTANT ATTORNEY GENERAL, CRIMINAL\nDIVISION\nRebates in Violation of Shipping Act\xe2\x80\x94 Applicability\nof Conspiracy Statute (18 U.S.C. \xc2\xa7 371)\n\nThis responds to your inquiry concerning a group o f cases involving ocean\nfreight rebating. The question is whether the 1972 amendment to \xc2\xa7 16 of the\nShipping Act of 1916 precludes conspiracy prosecutions under 18 U .S.C . \xc2\xa7 371\nin these cases. The Fraud Section of the Criminal Division has taken the\nposition that the cases may be prosecuted under the conspiracy statute; the\nGovernment Regulations and Labor Sections disagree.\nOur conclusions may be summarized as follows:\nAs a general matter, a statutory prohibition the violation of which\nis subject only to a civil penalty may be an \xe2\x80\x9c offense against the\nUnited States\xe2\x80\x9d for purposes of the conspiracy statute. The 1972\namendment to \xc2\xa7 16 does not rule out the possibility o f prosecuting a\ncorporate shipper and a corporate carrier for conspiring to violate\nparagraph Second of \xc2\xa7 16. Congress\xe2\x80\x99 action, as well as principles\nanalogous to those underlying the Wharton rule, indicate, however,\nthat any such prosecution must be based upon more than a minimal or\nordinary violation o f the provisions of the Shipping Act. That is, the\nprosecution must be able to show, that because of its nature or extent,\nthe conduct contemplated by the conspiracy agreement involved\nharm to society beyond that ordinarily presented by the substantive\noffense itself. Similarly, depending upon the particular circumstances,\ncases of the present type may constitute a conspiracy to defraud the\nFederal M aritime Commission.\nWe are, however, not familiar enough with the facts of the present cases to\nmake specific recommendations.\n\nBackground\n1.\nSection 16 of the Shipping Act of 1916, as amended, 46 U .S.C . \xc2\xa7 815\n(1975 Supp.), reads as follows:\n5\n\n\x0cIt shall be unlawful for any shipper, consignor, consignee, for\xc2\xad\nwarder, broker, or other person, or any officer, agent, or employee\nthereof, knowingly and willfully, directly or indirectly, by means of\nfalse billing, false classification, false weighing, false report of\nweight, or by any other unjust or unfair device or means to obtain or\nattempt to obtain transportation by water for property at less than the\nrates or charges which would otherwise be applicable.\nIt shall be unlawful fo r any common carrier by wafer, or other\nperson subject to this chapter, either alone or in conjunction with any\nother person, directly or indirectly \xe2\x80\x94\nFirst. To make or give any undue or unreasonable preference or\nadvantage to any particular person, locality, or description o f traffic\nin any respect whatsoever, or to subject any particular person,\nlocality, or description of traffic to any undue or unreasonable\nprejudice or disadvantage in any respect whatsoever . . . .\nSecond. To allow any person to obtain transportation fo r property\nat less than the regular rates or charges then established and\nenforced on the line o f such carrier by means o f fa lse billing, false\nclassification, fa lse weighing, fa lse report o f weight, or by any other\nunjust or unfair device or means.\nThird. To induce, persuade, or otherwise influence any marine\ninsurance company or underw riter, or agent thereof, not to give a\ncompeting carrier by water as favorable a rate of insurance on vessel\nor cargo, as is granted to such carrier or other person subject to this\nchapter.\nWhoever violates any provision o f this section other than paragraphs\nFirst and Third h ereo f shall be subject to a civil penalty of not more\nthan $5,000 for each such violation.\nW hoever violates paragraphs First and Third hereof shall be guilty\nof a misdem eanor punishable by a fine of not more than $5,000 for\neach offense. [Emphasis added.]\nThe principal provision discussed herein is paragraph Second.\n2. Investigations of ocean freight rebate practices are being conducted by the\nU.S. Attorneys (regarding several carriers, including United States Lines and\nSealand Services, Inc. and Seatrain Lines, Inc.). As a result o f one of these\ninvestigations, Sealand has made extensive disclosures to the Federal Maritime\nCommission concerning rebates amounting to some $19 million and has agreed\nto pay a civil penalty of almost $5 million. The U .S. Attorney in Newark has\nforwarded to some 53 other U.S. Attorneys cases involving more than 300\nshippers that received the rebates.\nYour memorandum indicates that:\nThe investigations have disclosed that employees of the carriers\nwould obtain freight business by agreeing with employees or officers\nof the shippers to pay freight rate rebates. Books and records of the\ncarriers were falsified by identifying rebate payments as, inter alia,\n6\n\n\x0c\xe2\x80\x9c promotional expenses.\xe2\x80\x9d Rebate payments were made by laundering\nthe funds through both domestic and overseas subsidiaries of the\ncarriers, obviously with the assistance and knowledge of employees\nof the subsidiaries.\n\nDiscussion\n1. This inquiry relates to the possibility o f prosecution under the general\nconspiracy statute. That statute, 18 U .S.C . \xc2\xa7 371, provides as follows:\nIf two or more persons conspire either to commit any offense\nagainst the United States, or to defraud the United States, or any\nagency thereof in any manner or for any purpose, and one or more of\nsuch persons do any act to effect the object o f the conspiracy, each\nshall be fined not more than $10,000 or imprisoned not more than\nfive years, or both.\nIf, however, the offense, the commission of which is the object of\nthe conspiracy, is a misdemeanor only, the punishment for such\nconspiracy shall not exceed the maximum punishment provided for\nsuch misdemeanor.\nIt is established that, for purposes o f 18 U .S.C . \xc2\xa7 371, the term \xe2\x80\x9c offense\nagainst the United States\xe2\x80\x9d , is not limited to crim es.1 It also encompasses\nconduct prohibited by a Federal statute and \xe2\x80\x9c made punishable only by a civil\nsuit for a statutory penalty.\xe2\x80\x9d Hunsaker v. United States, infra, at 112. Thus, it\nmay follow that violation of paragraph Second of \xc2\xa7 16 as amended, which is\npunishable by civil penalty, is an \xe2\x80\x9c offense\xe2\x80\x9d within the meaning o f 18 U .S.C .\n\xc2\xa7 371.2 The first issue is whether that result is foreclosed, because of the 1972\namendment to \xc2\xa7 16.\n2. Section 16 o f the Shipping Act prohibits several types of practices by\nshippers, common carriers by water, and others. Before the 1972 amendment\nof \xc2\xa7 16, violation o f any o f those prohibitions was a misdemeanor punishable\nby a fine of not more than $5,000.3 The principal effect of the 1972 legislation\nis to provide, with respect to paragraph Second and all other provisions except\nparagraphs First and Third, that a violation thereof is no longer a crime, but is\nsubject to a civil penalty.4\nThe legislative history of the 1972 amendment is brief and contains no\n\n1See U nited States v. H utto, 256 U .S. 524, 529 (1921) (offense o f Federal official\xe2\x80\x99s having\nfinancial interest in Indian trade); H unsaker v. United Slates, 279 F. (2d) 111, 112 (9th Cir. I960),\ncert, denied, 464 U.S. 819 (1960) (Gold Reserve Act); United Stales v. W eisner, 216 F. (2d) 739,\n742 (2d Cir. 1954) (Gold Reserve Act). In W eisner, the court rejected the argum ent that 18 U .S .C .\n\xc2\xa7 1, which deals with the classification o f criminal offenses, governed the m eaning of " o ffe n se \xe2\x80\x9d\nfor purposes o f 18 U .S .C . \xc2\xa7 371.\n2It should be noted that \xc2\xa7 16, as am ended, refers to a civil penalty for each "v io latio n \xe2\x80\x9d of\nparagraph Second. In contrast, with regard to paragraph First and Third, the statute refers to a fine\nfor each " o ffe n se .\xe2\x80\x9d There is no reason, how ever, to treat this difference in term inology as decisive\nregarding the applicability o f 18 U .S .C . I 371.\n3See 46 U .S .C . \xc2\xa7 815 (1970).\n\xe2\x80\x98See Pub. L. No. 92-416 (1972), \xc2\xa7 1(b).\n\n7\n\n\x0cmention of the possibility o f prosecutions under the conspiracy statute. Thus,\nan effort must be made to infer Congress\xe2\x80\x99 intent.\nThe bill which was ultimately enacted differed in certain respects from the\nversion introduced and initially passed by the House of Representatives. As\nenacted, the law provides that the civil penalties for violation of the Shipping\nAct \xe2\x80\x9c may be compromised by the Federal Maritime Commission, or may be\nrecovered by the United States in a civil action.\xe2\x80\x9d 5 The original House bill\ncontained the change from criminal to civil sanctions, but under that bill 6 the\nFederal Maritime Commission would have been empowered to assess the civil\npenalties, subject to review of its action in the courts of appeals.\nThe purpose o f the House bill was to strengthen the ability of the\nCommission to carry out its regulatory functions under the Shipping Act, in\npart by amending the penalty provisions in the \xe2\x80\x9c areas that give the Commission\nmost o f its enforcement problems in day-to-day operations.\xe2\x80\x9d 7 The House report\nstated that the then-existing situation (i.e ., investigation of matters by the\nCommission and referral to the Department of Justice for prosecution) was\nunsatisfactory because it involved delay and also overlapping of effort on the\npart of the Commission and the D epartm ent.8 Another disadvantage cited in the\nHouse report was that frequently (because o f the time elapsed between the\noccurrence o f the infraction and the criminal trial) the sentence imposed by the\ncourts was too light and was insufficient to defer future violations.9\nAlthough the House report stressed that the amendments would mean m ore.\neffective regulation by the Comm ission, it also said that the proposed procedure\n(assessment o f penalties by the Com m ission, with review in the courts of\nappeals) \xe2\x80\x9c would, in most instances, reduce the total litigation expenses to both\nthe Government and private parties [and] relieve the overburdened Federal\ncourts . . . . \xe2\x80\x9d 10\nThe Senate, however, amended the bill so as to restrict the authority of the\nCommission to seeking to compromise a civil penalty. Thus, under the Senate\nbill (which was enacted), absent such a compromise, the Commission may\nrefer the matter to the Department of Justice for the bringing of a civil action to\nrecover a penalty.\nEvidently, the basis for the Senate amendment to the House bill was industry\nopposition to granting the Commission authority to assess civil penalties.11 The\nSenate report referred to \xe2\x80\x9c contentions\xe2\x80\x9d that such a procedure would be\ncontrary to due process, because the \xe2\x80\x9c nature of the administrative agency\nprocess necessarily makes the agency . . . ill-suited for the imposition of\npunitive sanctions.\xe2\x80\x9d 12\nsId., \xc2\xa7 3;\n\n46 U .S .C . 814 note (1975 Supp.).\n6See 117 Cong. Rec. 32415 (1971).\n7H. Rept. No. 92-478, 92d C o n g ., 1st sess. (1971), p. 1.\nald., p. 2.\nVd\xe2\x80\x9e p. 3.\n\'\xc2\xb0ld., p. 4.\n11See S. Rept. No. 92-1014, 92d C ong., 2d sess. (1972), p. 3.\nnld., p. 2.\n\n8\n\n\x0cIn explaining the shift from criminal sanctions to civil, the Senate report\nnoted, as did the House report, the unsatisfactory, time-consuming nature of\nthe then-existing means of enforcem ent.13 Furthermore, the Senate report\nstated:\nTo change the penalties for violations of these provisions from\ncriminal to civil should make the documentation of violations\nsimpler, thereby expediting final consideration by the Commission,\nor the Department of Justice and the courts. Since proving a violation\nwould be easier, the threat of imposition of the prescribed penalty\nshould act as a more effective deterrent to further violations.\nContinuing, the Senate report stated14 that enactment o f the bill\n. . . should provide the Federal Maritime Commission with needed\nadditional authority to more effectively discharge its statutory \xe2\x80\xa2\nresponsibilities, encourage compromised settlements for violations of\nthe shipping statutes, and help to avoid needless litigation in our\nover-crowed [sic] Federal courts.\nThe legislative history indicates that C ongress\xe2\x80\x99 main purpose in substituting\ncivil sanctions was to enhance enforcement by the Commission. The possibility\nof bringing conspiracy prosecutions seems consistent with the main purpose of\nthe 1972 amendments. Such prosecutions need not interfere with enforcement\nby the Commission and, indeed, could be a useful supplement. Still, consideration\nmust be given to other objectives mentioned in the congressional reports.\nThesHouse report and, to a lesser extent, the Senate report expressed concern\nregarding duplication of effort by the Commission and the Department. This\nproblem could be exacerbated if, for example, there should be a conspiracy\nprosecution in regard to a matter that had already been the subject of a\nCommission investigation and a civil action for recovery o f a penalty.\nBoth of the reports indicated a desire to avoid increasing the backlog of cases\nin the Federal courts. This may be some evidence that, except for the means\nprovided in \xc2\xa7 16, Congress did not contemplate Federal enforcement in this\narea.\nAs the Fifth Circuit has pointed o u t,15 the 1972 amendments were clearly\nnot based upon a belief that criminal punishment was too severe. Both\ncommittee reports stressed the need for a more effective deterrent. Nonetheless,\nCongress was also concerned with fairness to the regulated firms and, in\nparticular, with reducing their litigation expense (as well as that of the\nGovernment). This is another aspect o f congressional intent that casts doubt on\nthe availability o f conspiracy prosecutions.\nFinally, it must be noted that Congress could have provided for both civil and\n\nl3S. R ept., p. 2.\n14I d p. 3.\n15United States v. B lue Sea Line. 553 F. (2d) 445, 450 (5th Cir. 1977) (upholding the dismissal\no f indictm ents charging pre-1972 rebates in violation of 8 16. paragraph Second).\n\n9\n\n\x0ccriminal sanctions for violation of the provisions in question, but did not do\ns o .16\nThe basic conclusion we draw from the legislative history is that there is no\nabsolute conflict between Congress\xe2\x80\x99 intent in amending \xc2\xa7 16 and the bringing\no f conspiracy prosecutions in this area. On the other hand, the concerns\nexpressed by the congressional committees with regard to avoiding overlap\nbetween the Commission and the Department, fairness to regulated entities,\nand reducing the burden on the courts are entitled to some weight. Those\nconcerns suggest that if there are to be conspiracy prosecutions related to\nviolations o f \xc2\xa7 16 great care must be used in selecting the cases. For reasons\ndiscussed below, the same conclusions are suggested by principles analogous to\nthose underlying the W harton rule.\n.3. The nature o f the W harton rule was thoroughly considered by the\nSupreme Court in lannelli v. United States, 420 U .S. 770 (1975).17 The Court\ndescribed the rule by quoting from its original source, W harton\xe2\x80\x99s treatise on\ncriminal law :18\nWhen to the idea of an offense \\e.g ., dueling] plurality of agents is\nlogically necessary, conspiracy, which assumes the voluntary accession\nof a person to a crime of such a character that it is aggravated by a\nplurality o f agents, cannot be maintained . . . .\nHad the present issues arisen before the 1972 amendment of \xc2\xa7 16\xe2\x80\x94 that is,\nwhen criminal sanctions were prescribed for conduct such as rebating\xe2\x80\x94 it\nwould have been necessary to determine the applicability of the Wharton rule.\nIn our opinion, however, because the substantive violations are no longer\ncrim es, the W harton rule as such does not app ly.19\nNonetheless, since the substantive violations are \xe2\x80\x9c offenses\xe2\x80\x9d for the purpose\nof 18 U .S.C . \xc2\xa7 371, it should be proper to consider principles similar to those\nunderlying the W harton rule. In lannelli, the Court stated, 420 U .S ., at 782,\nthat the W harton rule does not rest on principles o f double jeopardy,20 but is\nmerely a \xe2\x80\x9c judicial presum ption, to be applied in the absence of legislative\nintent to the contrary.\xe2\x80\x9d The rule was explained as follows (420 U .S. at\n785-86, footnotes omitted):\nl6For exam ple, w illful violations m ight have been made subject to criminal sanctions.\nThe D epartm ent o f Justice sent a report on the House bill to both the House and the Senate\ncom m ittees. See H. R ept., p. 10; S. R ept., p. 6. The Departm ent stated that it had no objection to\nenactm ent o f the bill. Its report did not suggest the need to retain criminal sanctions and did not\nm ention the possibility o f prosecutions under 18 U .S .C . \xc2\xa7 371.\nl7In la n nelli, the C ourt, in a five-to-four decision, sustained convictions for violation o f 18\nU .S .C . \xc2\xa7 1955, prohibiting large-scale gam bling activities, and for conspiring to com m it that\noffense.\nI8420 U .S . at 773. quoting 2 F. W harton, C rim inal L aw \xc2\xa7 1604 (12th e d ., 1932) p. 1862.\nlvO ne indication that the rule applies only when the substantive offense is a crim e is the\ndiscussion in la n n elli o f the procedural effect o f the rule. The Court stated, 420 U .S. at 786,\nfootnote 18, that in cases covered by the rule dism issal of the conspiracy charge is not required. The\nCourt added, \xe2\x80\x9c W hen both charges are considered at a single trial, the real problem is the avoidance\no f dual punishm ent. T his problem is analogous to that presented by the threat o f conviction for a\ngreater and a lesser included offense, and should be treated in a sim ilar m anner.\xe2\x80\x9d\n20Bui see footnote 19, supra.\n\n10\n\n\x0cW harton\xe2\x80\x99s Rule applies only to offenses that require concerted\ncriminal activity, a plurality of criminal agents. In such cases, a\ncloser relationship exists between the conspiracy and the substantive\noffense because both require collective criminal activity. The substantive\noffense therefore presents some of the same threats that the law of\nconspiracy normally is thought to guard against, and it cannot\nautomatically be assumed that the Legislature intended the conspiracy\nand the substantive offense to remain as discrete crimes upon\nconsummation of the latter. Thus, absent legislative intent to the\ncontrary, the Rule supports a presumption that the two merge when\nthe substantive offense is proved. [Emphasis as in original.]\nHere, the question raised is whether violation of \xc2\xa7 16, paragraph Second,\nrequires concerted activity. If so, it could be argued, by analogy to the Wharton\nrule, that Congress did not intend any separate sanction for a two-party\nconspiracy to commit that offense.21\nUnder paragraph Second, it is \xe2\x80\x9c unlawful for any common carrier by\nw ater . . . alone or in conjunction with any other person, directly or\nindirectly . . . [to] allow any person to obtain transportation for property at less\nthan the regular rates . . . by means of false billing . . . [or] any other\nunjust . . . m eans.\xe2\x80\x9d If this provision is read literally, the minimum number\nrequired for violation is one\xe2\x80\x94 the carrier.22 (A shipper who knowingly and\nwillfully obtains or attempts to obtain below-standard rates by such false means\nviolates another provision, the initial paragraph of \xc2\xa7 16.) In our opinion,\nhowever, such analysis is not entirely satisfactory.\nLogically, it is possible that a carrier could provide transportation at less than\nthe regular rate without the shipper\xe2\x80\x99s realizing that any false or unfair means\nhad been used. Still, it seems reasonable to assume that often the violation\nwould involve concerted action, e .g ., an agreement that the carrier will pay a\nrebate to the shipper. If so, it may be asserted that the mere existence of some\nconcerted action is not a basis for going beyond the civil penalties prescribed by\nCongress; this supports our conclusion (derived from the legislative history)\nthat special care should be used in selecting cases to be prosecuted under 18\nU.S.C . \xc2\xa7 371.\n4. Our recommendation is that a distinction be drawn between what might\n\n2lThe W harton rule is subject to several exceptions. One is that a conspiracy prosecution is\nperm issible when the num ber o f conspirators exceeded the minim um num ber o f persons required\nfor com m ission o f the substantive offense. See. lannelli v. United States, supra, 420 U .S ., at 782,\nfootnote 15.\n22The phrase "alo n e or in conjunction with any other person" does not alter our conclusion\nregarding the m inimum .\nCf. M ay v. United States. 175 F. (2d) 994, 1003 (D .C . C ir., 1949), cert, denied, 338 U .S. 830\n( 1949) (conspiracy to com m it offense o f Congressm an\xe2\x80\x99s accepting paym ent for services regarding a\nclaim against the Governm ent); E x parte O \'L eary, 53 F. (2d) 956, 957 (7th C ir., 1931), cert,\ndenied, 283 U .S. 830 (1931) (conspiracy to com m it offense of Federal officer\xe2\x80\x99s receiving a bribe).\nThese cases applied an exception to the W harton rule; this exception perm its a conspiracy\nprosecution where the substantive offense (e .g .. accepting a bribe) is such that only one o f the\nparties could com m it it.\n\n11\n\n\x0cbe called \xe2\x80\x9c ordinary\xe2\x80\x9d violations of \xc2\xa7 16, paragraph Second, and aggravated\ncases. Such determinations depend o f course upon the particular facts.\nParticular care must be given to the bases for treating a conspiracy and a\ncompleted substantive offense as separate, that is, the \xe2\x80\x9c distinct kinds of threats\nto society that the law of conspiracy seeks to av ert.\xe2\x80\x9d 23\nFactors to be considered include the nature and extent of the conspiracy and\nthe num ber o f parties. For exam ple, whether the agreement relates to an\nisolated transaction or to a long-continuing series o f transactions.\nThere is no violation of paragraph Second unless false billing or some other\nunfair means is used. Thus, ordinarily, some concealment will be involved.\nW hen, however, the parties go to unusual lengths to conceal their conduct\n(e.g ., the use o f foreign subsidiaries24), there may be special risks to society.\nMoreover, where such a scheme is agreed upon, there may also be a sound\nbasis for charging a conspiracy to defraud the Federal Maritime Commission.25\nBecause Congress gave primary responsibility for enforcement to the\nCommission, consideration should be given to the action (or the position) taken\nby the Commission. For example, if the question of defrauding the Commission is\nraised, what is its view regarding the matter?\nIn terms of fairness, it may be more difficult to justify proceeding with a\nconspiracy charge if, with regard to the underlying conduct, a civil penalty has\nbeen paid.\nO ur approach may be illustrated by the following hypothetical cases:\na. In the first hypothetical situation, a carrier and a shipper agree, with\nrespect to a particular shipment or a series o f shipments, that the carrier will pay\na rebate to the shipper. It is understood that the rebate will be paid in cash and\nthat the carrier\xe2\x80\x99s books will not disclose the true nature of the payment. The\namounts involved are relatively small, and there is no history o f such practices\non the part of the parties involved.\nWe question whether a conspiracy prosecution would be appropriate in a\ncase o f this type. The parties could argue, with some force, that their conduct is\nat most an ordinary violation o f \xc2\xa7 16 and that Congress intended use of the\nsanction o f civil penalties and nothing more.\nb. In the second hypothetical situation, the Federal Maritime Commission\nobtains evidence that a carrier may be engaged in paying improper rebates. It\nwarns the carrier that such practices are illegal. Then, the carrier and the\nshipper enter into a secret agreement for the payment o f rebates. The agreement\nincludes use of an elaborate scheme for making the payments\xe2\x80\x94 that is, several\nstages of laundering are effected, in part, by foreign subsidiaries of the carrier.\n\n23la nnelli v. U nited States, supra, 420 U .S ., at 783 (footnote om itted).\n\xe2\x80\x9c Because o f our basic conclusion, it is not necessary to discuss the question w hether a carrier\ncan conspire with one (or m ore) o f its subsidiaries. S e e , P erm a L ife M ufflers, Inc. v. International\nP arts C orp., 392 U .S . 134 (1968) (treble-dam age action under Sherm an Act may be based on a\nconspiracy between corporate entities with com m on ow nership); Note, Developm ents in the\nLaw-C rim inal C onspiracy, 72 Harv. L. Rev. 920, 1000 (1959). See also Departm ent o f Justice,\n\xe2\x80\x9c Antitrust G uide for International O perations,\xe2\x80\x99\xe2\x80\x99 (January 26, 1977), p. 12.\n25See, H unsaker v. U nited States, supra, 279 F. (2d), at 114.\n\n12\n\n\x0cConcerted action of this type would seem to pose special risks of harm to\nsociety, e .g ., the risk that the laundering scheme will be used to effect\nviolations of other Federal laws. The action of the shipper and the carrier could\nproperly be regarded as a conspiracy (1) to violate \xc2\xa7 16, paragraph Second, and\n(2) to defraud the Commission.\nWe do not have detailed information regarding the present cases and,\naccordingly, are unable to make specific recommendations concerning them.\nWe hope that the above discussion will assist you in determining how to\nproceed.\nJohn M . H arm on\n\nAssistant Attorney General\nOffice o f Legal Counsel\n\n13\n\n\x0c'