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The U.S. Office of Government Ethics (OGE) is adding a new subpart to the Standards of Ethical Conduct for Employees of the Executive Branch (Standards). The new subpart contains the standards for an employee's acceptance of payments for legal expenses through a legal expense fund and an employee's acceptance of pro bono legal services for a matter arising in connection with the employee's official position, the employee's prior position on a campaign of a candidate for President or Vice President, or the employee's prior position on a Presidential Transition Team. OGE is also making related amendments to the portions of the Standards that govern the solicitation and acceptance of gifts from outside sources and the portions of the Executive Branch Financial Disclosure regulation that govern confidential financial disclosure reports.
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The U.S. Office of Government Ethics (OGE) published a proposed rule in the Federal Register , 87 FR 23769 (Apr. 21, 2022), proposing to amend both 5 CFR part 2634, Executive Branch, Financial Disclosure, Qualified Trusts, and Certificates of Divesture, and 5 CFR part 2635, Standards of Ethical Conduct for Employees of the Executive Branch, to establish a framework to govern an executive branch employee's acceptance of both payments for legal expenses through a Legal Expense Fund (LEF) and pro bono legal services for matters arising in connection with the employee's past or current official position, the employee's prior position on a campaign of a candidate for President or Vice President, or the employee's prior position on a Presidential Transition Team.
The proposed rule provided a 60-day comment period, which ended on June 21, 2022. OGE received 6,916 timely and responsive comments, which were submitted by six organizations and 6,910 individuals. After carefully considering the comments and the input provided before and in response to the proposed rule's publication, and making appropriate modifications, OGE is publishing this final rule. The rationale for the rule can be found in the preamble to the proposed rule at: -2022-04-21/pdf/2022-08130.pdf.
This rule will be effective 180 days after publication to allow OGE to implement procedures, provide training, and publish guidance regarding this new ethics program. It will also allow agencies to consider staffing needs and their own internal procedures.
OGE received nearly 7,000 comments from both organizations and individuals. The comments are publically posted on OGE's website and can be found at this address: +docs+By+Cat/417908CAB842A8128525887E004D262C. Many of the commenters provided feedback on several different sections of the proposed rule. OGE has reviewed and considered each comment submitted; comments are discussed below in the context of the particular subparts or sections to which they pertain. OGE is not discussing comments that were either generally supportive of the regulation or generally critical of the regulation; however, OGE weighed both support and criticism when considering any possible changes in response to other comments. In addition, OGE does not specifically discuss comments that address issues outside the scope of the regulation.
OGE received 6,907 comments from individuals that all asked OGE to take the following actions: (1) make compliance with the regulation mandatory; (2) require employee beneficiaries to recuse from particular matters involving donors to their legal expense funds for five years; (3) remove a particular example; and (4) allow nonprofits to hire outside pro bono counsel. OGE addresses each of these comments below in the applicable section, and portions of the regulation were revised to address the concerns raised.
In the proposed rule, OGE specifically solicited comments on: (1) whether multi-beneficiary trusts should be permitted; (2) whether 501(c)(3) and 501(c)(4) organizations should be permitted to make donations to legal expense funds; and (3) whether 501(c)(3) and 501(c)(4) organizations may hire attorneys outside their organization to provide free or reduced cost legal services for employees. The weight of the comments supported single-beneficiary trusts and opposed allowing 501(c)(4) organizations to donate to legal expense funds or pay for outside legal representation. Although commenters were more divided on the question of allowing 501(c)(3) organizations to donate to legal expense funds and to pay for outside legal representation, the weight of the comments favored allowing such organizations to do both. As discussed in more detail in the relevant sections below, the rule has been revised to permit 501(c)(3) organizations to donate to legal expense funds and pay for outside legal services.
Several comments from individuals encouraged OGE to expand the regulation to cover employees of the legislative and judicial branches. Pursuant to 5 U.S.C. 13122(b)(1), OGE only is permitted to draft regulations that apply to executive branch employees. The Ethics in Government Act designated a supervising ethics office for each branch of government and, within the legislative branch, separate offices for the House and Senate. See 5 U.S.C. 13101(18). Each supervising ethics office is responsible for promulgating ethics rules that apply to the employees of that branch or congressional body.
Several individual commenters suggested that OGE ban all legal expense funds. OGE has determined that this approach would significantly limit access to legal services for all but the wealthiest executive branch employees. While OGE historically has provided guidance to help ensure that executive branch employees who may receive distributions from an LEF are in compliance with existing ethics laws and rules, OGE believes that the proposed regulation, which creates much more robust limitations on the acceptance of payments for legal expenses and imposes significant transparency requirements, is the preferred and appropriate course.
Several individual commenters suggested making contributions from legal expense funds taxable income. The Internal Revenue Service makes determinations about what income is taxable, and such a determination is outside of OGE's jurisdiction.
OGE received one comment from an organization in support of the existing penalties in the regulation, including the penalties for impermissible donations. Several comments from individuals requested stricter penalties, including imprisonment, for noncompliance with the regulation. OGE believes the remedies in the regulation strike the appropriate balance for noncompliance. Section 1007(h) requires the fund to return impermissible donations and requires the beneficiary to forfeit the ability to accept donations and make distributions if a quarterly report is late. In addition, OGE has reserved both the right to prohibit the fund from either accepting donations or making distributions and the right to terminate the trust if there is significant noncompliance. Finally, while violation of the substantive requirements of a regulation cannot be criminal, the criminal penalties for knowingly making a false statement to the government will apply to the documents and reports filed pursuant to this regulation.
Two organizations objected to the regulation's scope being restricted to those legal matters arising in connection with the employee's past or current official position, calling it a disparate burden on employment law litigation. Payments for legal services that arise out of an executive branch employee's federal employment or service on a campaign raise more significant appearance and misuse concerns than payments for purely personal legal services. Numerous stakeholders, from public interest organizations to U.S. Senators, have noted that legal expense funds previously established to defray the costs of legal expenses connected to government service have created heightened concern. Specifically, stakeholders have expressed concerns about the potential for donors to influence employees' official actions or witness statements, the difficulty of screening for prohibited donors, and the lack of transparency for legal expense donations to those in federal service. OGE has addressed this heightened appearance concern by specifically regulating payments for legal expenses arising out of an employee's past or current official position, limiting who may donate to employee legal expense funds, and requiring public disclosure of such donations.
Moreover, OGE is specifically directed by E.O. 12674 (as modified by E.O. 12731) to promulgate regulations addressing fundamental ethics principles such as prohibiting the use of public office for private gain and avoiding actions that create the appearance of a violation of a law or regulation. This directive supports regulating only legal expense payments connected to government service, as receipt of such payments for legal expenses could be viewed as using a public position for personal gain or creating the appearance of violating a law or regulation.
One organization commented that the regulation as drafted would not address the concerns about potential corruption raised by Senators in their letter to the Director (Letter from Senator Margaret Hassan et. al., Aug. 2, 2018, ). In that letter, the Senators specifically raised concerns about transparency and funds with multiple beneficiaries, which make screening donations difficult and could allow the trustee to prioritize certain employee beneficiaries.
When drafting the proposed regulation, OGE addressed the Senators' concerns about multiple beneficiaries by prohibiting executive branch employees from accepting payments for legal expenses from an LEF that has multiple beneficiaries. In addition, to promote transparency, the proposed regulation requires both that the trust document be made publicly available, and that all payments of $250 or more be reported quarterly and posted publicly on OGE's website. The proposed regulation also limits the amount a single donor can donate and prohibits donations from businesses and lobbyists. Finally, the proposed rule requires that any existing legal expense fund not structured as required by subpart J come into compliance within 90 calendar days of the rule going into effect, or use of the fund to pay legal expenses will violate the Standards of Conduct.
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