Posted by: Jack McCall & Jill McCook on Mar 1, 2021

Journal Issue Date: March/April 2021

Journal Name: Vol. 57 No. 2

Until news reports over the last four years provided a “ripped from today’s headlines” aspect to the topic,1 most American citizens were unaware that a robust and complex corpus of federal laws and regulations exist to prevent conflicts of interest from arising among federal executive branch employees. These were crafted in many cases as a direct congressional response to prior executive branch ethical shortcomings of the Nixon administration. Many persons who deal with federal employees — including lawyers in private practice — do not know that actions and requests that are taken for granted in the business world cannot be engaged in by federal employees — at least, not without negative consequences to themselves and their agencies. These can be matters seemingly as mundane as offering to pay for a federal employee’s lunch; offering an employee tickets to a sporting event; or asking to review a federal worker’s resume “just in case we have a job vacancy open up sometime.” This article is intended to survey the most common federal ethics rules and their application and will hopefully provide a useful and perhaps eye-opening explanation of the basics of these rules and how they may crop up in one’s dealings with federal employees.

The federal ethics regulatory regime is distinct from that applicable to lawyers via states’ legal ethics and professional responsibility requirements. Unlike the latter — governed under the Rules of Professional Conduct adopted by each state or the District of Columbia, as applicable to those attorneys licensed in that jurisdiction — federal ethics are essentially codified in the 18 U.S.C. §§ 200-series conflict-of-interest laws and the federal executive branch’s Standards of Ethical Conduct, which is under the aegis of the federal Office of Government Ethics. These are applicable to all Executive Branch employees, both lawyers and nonattorneys.

The 1970s saw the development and consolidation of a federal executive branch ethics regulatory regime. In the wake of Watergate and other notable governmental ethics-related crises, Congress passed the Ethics in Government Act of 1978.2 Besides serving as the statutory basis for the promulgation of agency-wide ethics regulations, this law was the genesis for the United States Office of Government Ethics (OGE). 3 Following the promulgation of OGE’s regulations, each federal agency was required to have an ethics staff and appoint a Designated Agency Ethics Official (DAEO) to oversee its ethics staff’s work. The work of each DAEO is further overseen by OGE, which has among its duties the role of conducting periodic reviews of agencies’ ethics programs.4

The cardinal principle for the federal executive branch ethics program is found at the beginning of OGE’s regulations that form the Standards of Ethical Conduct for Employees of the Executive Branch (the Standards). It is the first of 14 general principles that apply to every federal executive branch employee:

Public service is a public trust, requiring employees to place loyalty to the Constitution, the laws, and ethical principles above private gain.5

We now review the essential criminal conflict of interest laws and the Standards that form many of the typical ethics matters relevant to most federal employees and agencies’ DAEO staffs. Given the nuances and breadth of many of these laws and regulations, this is necessarily a basic overview. These categories include conflicts of interest; gift-related questions (both from outside sources and among federal employees); employment-related issues (i.e., “seeking employment” while still a federal employee and post-employment matters); use of federal resources; and political activity.

An Overarching Theme: Avoiding the Appearance of Impropriety

A common theme across the federal ethics rules is a clear expectation for federal employees to take suitable actions to avoid the appearance of impropriety. This is clearly embodied in 5 C.F.R. § 2635.502:

Where an employee knows that a particular matter involving specific parties is likely to have a direct and predictable effect on the financial interest of a member of his household, or knows that a person with whom he has a covered relationship is or represents a party to such matter, and where the employee determines that the circumstances would cause a reasonable person with knowledge of the relevant facts to question his impartiality in the matter, the employee should not participate in the matter unless he has informed [an agency designee; often, the DAEO] of the appearance problem and received authorization from the agency designee ….6

Hence, this requires analysis of the particular matter; what specific parties are involved; whether a “direct and predictable effect” will exist on the financial interest of a “covered relationship”; and whether — the most highly subjective element — a reasonable individual with knowledge of the relevant facts would question the employee’s impartiality. Under this “appearance” test, a “covered relationship” comprises any of (a) a person who has or seeks a business, contractual or other financial relationship; (b) a member of the employee’s household or a relative who has a close personal relationship; (c) a person from whom the employee’s spouse, parent or dependent child is serving or seeking to serve as an officer, director, trustee, general partner, contractor or employee; and (d) a person for whom the employee has, within the last year, served as an officer, director, trustee, general partner, agent, attorney, consultant or employee.7

In practical application: if a specific situation is not covered by a black-letter ethics rule but one is concerned that the impartiality of a federal employee could be questioned, under this standard, one must consider whether a reasonable member of the general public, apprised of all the facts, will perceive the conduct to be improper. As one can see, this is highly subjective. Sometimes called by DAEOs and ethics staff “the front page of The New York Times/Washington Post/(your paper’s name here) test,” it can often be prudent and not inappropriate for a federal employee, applying this test on his or her own, to decide that a possible course of action may be ethically inappropriate.8

Criminal Conflict of Interest Statute and Financial Disclosures

Not only should federal employees be concerned with avoiding the appearance of impropriety; they must be mindful of actual conflicts as well, and the potential criminal implications of such conflicts. Federal criminal law prohibits employees “from participating personally and substantially in an official capacity in any particular matter in which, to his knowledge, he or any other person specified in the statute has a financial interest, if the particular matter will have a direct and predictable effect on that interest.”9 This law “is intended to prevent an employee from allowing personal interests to affect his official actions, and to protect governmental processes from actual or apparent conflicts of interests.”10

Particular matters are those involving “deliberation, decision, or action that is focused upon the interests of specific persons, or a discrete and identifiable class of persons.”11 To participate “personally” means to “participate directly”12 and to participate “substantially” means to be involved in a way that is “significant to the matter.”13 Substantial participation requires more than official knowledge or responsibility; substantiality is based on “the effort devoted to the matter” and “the importance of the effort.”14 Thus, any decision, approval or disapproval, recommendation, investigation, rendering of advice, or supervision of subordinate work is “personal and substantial participation.”

For purposes of this criminal statute, “financial interest” “means the potential for gain or loss to the employee, or other person specified in section 208 [e.g., spouse, minor child, general partner, organization where the employee is an employee or officer, or an organization with whom the employee is negotiating employment], as a result of governmental action on the particular matter.”15 Importantly, it is any potential for gain or loss, regardless of how small or seemingly inconsequential.16 It includes stocks, bonds, mutual funds, real estate, a salary, indebtedness, or even a job offer.17 An action has a “direct and predictable” effect on these financial interests if “there is a close causal link between any decision or action to be taken in the matter and any expected effect of the matter on the financial interest” and it is “real, as opposed to a speculative, possibility.”18

OGE’s interpretive regulations provide detailed guidance and examples in 5 C.F.R. Part 2640, and federal employees analyzing potential conflicts of interest are encouraged to review them as they determine whether there is a conflict of interest that would require their recusal.

Finally, on this topic, we would be remiss if we did not mention that certain federal employees are required to file financial disclosure forms, which are intended to better identify and prevent risks of actual financial conflicts of interest.19 Likewise, many agencies require employees who engage in outside activities to obtain agency approval in advance, in order to prevent conflicts from occurring.20

Other Criminal Ethics Statutes

Before turning to other essential topics for those who interact with federal employees to be aware of, it is worth mentioning several other criminal ethics laws. First are 18 U.S.C. §§ 203 and 205, which restrict a federal employee’s representation of others before federal agencies or courts in connection with a matter in which the United States has a direct and substantial interest, regardless of whether compensation is involved. Second is 18 U.S.C. § 209. It restricts a federal employee’s receipt of compensation for his services as a federal employee from anyone other than the United States government. These statutes frequently come into play when federal employees are engaged in outside activities, such as serving on a charitable organization’s board of directors or engaging in pro bono legal work.

We next turn to another area that is frequently rife for ethical conflicts: that of gifts from prohibited sources.

Gifts from Outside Sources

Gifts from outside sources have long been a problematic area for ethics investigations and inquiries. In assessing such gifts, the essential practical approach to be used by both federal employees and their agency ethics staffs follows a four-prong methodology:

  • Is the item actually a gift?
  • Even if the item is otherwise permissible to accept: should a federal employee accept it?
  • If the item is a gift, is it from a prohibited source, or is it given because of one’s official position, and thus prohibited?
  • If it is otherwise prohibited: does an exception apply?

Before an employee or agency ethics advisor looks to find a potentially applicable exception to the gift rules, the Standards require that person to apply the “appearance” test and first ask whether acceptance of such a gift would appear improper to a reasonable member of the public. Under the gift rules, “employees should consider declining otherwise permissible gifts if they believe that a reasonable person with knowledge of the relevant facts would question the employee’s integrity or impartiality as a result of accepting the gift.”21 Among the factors to be assessed, employees must consider whether the gift has a high market value; its timing creates an appearance that the donor is seeking to influence an official action; the gift was provided by a person who has interests “that may be substantially affected by the performance or nonperformance of the employee’s official duties”; and its acceptance would provide the gift-giver with “significantly disproportionate” access.22 Hence, it may be prudent to decline a gift, even if an exception to the “no-gifts” rules otherwise exists.

The Standards caution that federal employees may never accept a gift that is solicited or coerced — particularly from a prohibited source — or given because of the employee’s official position. A gift given to influence a federal employee’s official act may violate the illegal gratuities statute, 18 U.S.C. § 201(c)(1)B), and under certain facts, may be a violation of the federal anti-bribery statute, 18 U.S.C. § 201(b).23 What constitutes a prohibited source is also a critical element in the gift rules: this means any person who (1) seeks official action by the employee’s agency; (2) does business or seeks to do business with the employee’s agency; (3) conducts activities regulated by the employee’s agency; (4) has interests that may be substantially affected by the performance or nonperformance of the employee’s official duties; or (5) is an organization, a majority of whose members are described in the foregoing four items.24

The Standards define a “gift” as anything of monetary value. This includes any gratuity; favor; discount; entertainment; hospitality; loan; forbearance; training (e.g., CLEs); transportation; travel; meals; or lodging. However, by definition, certain items are not deemed to be gifts. These definitional “non-gifts” include modest items of food and refreshment (e.g., coffee, soft drinks and donuts; note, alcohol is not considered to be among these “modest items of food”); items with little extrinsic value (e.g., greeting cards, certificates, trophies or plaques); loans from banks and other financial institutions on terms generally available to the public; favorable rates/commercial discounts if they are available to all federal government employees; rewards and prizes given to competitors in contests or events open to the public; pension and other benefits resulting from continued participation in an employee welfare and benefits plan maintained by a current or former employer; and anything paid for by the federal government or secured by the government under government contract.25

Besides the definitional “thou-art-not-gifts” just summarized, the Standards provide specific exceptions to the general no-gifts-from-prohibited-sources rule. These include the most commonly used gift exception, the so-called “20/50 Rule.” This permits acceptance of unsolicited gifts with an aggregate market value of $20 or less on any one occasion, not to exceed $50 in a given year. This does not apply to cash gifts — cash gifts being a stringent “no-no” under the gift rules — or gifts of investment interests, such as stock or bonds. The rule provides cautions as to how to aggregate gifts (and how not to do so) to ensure compliance with the 20/50 Rule.26

Specific exceptions exist for gifts based on personal relationships given by an individual “under circumstances which make it clear that the gift is motivated by a family relationship or personal friendship rather than the position of the employee”; certain discounts and similar benefits; awards, honorary degrees and established programs of recognition; and attendance at certain widely attended gatherings, or “WAGs” and events where attendance at all or an appropriate part of an event must be in the interest of the attending employee’s agency because it will further agency programs and operations. A gathering meets the WAG definition of “widely attended” if a large number of people with mutual interests are expected to attend, and if the event is open to members from throughout a given industry or profession.27

Gifts Between Federal Employees

Not only are gifts from outside sources a regulated area, but other rules also apply to gifts between federal employees. These rules generally prohibit gifts being made to federal employees’ official superiors and to their supervisors, as well as those from employees receiving less pay, with some exceptions. One notable exception exists for gifts provided at traditional gift-giving occasions. On such occasions, gifts along the following lines may be ethically made and accepted: items, other than cash, valued at $10 or less; items like food and refreshments that can be shared in the office; and personal hospitality provided at a residence, of a type and value customarily provided by an employee to one’s personal friends.

Subordinate employees can also provide gifts to superiors or employees making more pay when special infrequent occasions occur, such as a marriage, illness, the birth of a child, or an occasion that terminates the superior/subordinate relationship (think: retirement) — but not recurring events, like birthdays or holidays such as Christmas. In such cases, an employee may solicit purely voluntary contributions of nominal amounts from fellow employees, but not from one’s subordinates.28 

In the concluding part of this two-part series, to be published in the next issue of the Tennessee Bar Journal, we will review the nuances of post-employment rules binding federal employees and issues arising when federal employees seek a new job; the ethics of the appropriate use of government resources; and the essence of political speech and political activities for federal employees, centering on the Hatch Act.


JACK H. (“NICK”) McCALL JR. was a senior attorney and deputy designated agency ethics official with Tennessee Valley Authority in Knoxville, where he worked from 2006 to 2021. He received his law degree with honors from the University of Tennessee. The author of various articles on legal, foreign policy and historical topics and several books, McCall served on the Board of Governors of the TBA from 2005 to 2011 and he is a member of the TBA Leadership Law Class of 2005. He formerly was with Hunton & Williams, and was general counsel and secretary of CTI Molecular Imaging Inc. He was a law clerk to the Hon. Gilbert S. Merritt of the U.S. Court of Appeals for the Sixth Circuit.

 

JILL E. McCOOK is an attorney and manager of compliance, and deputy designated agency ethics official for the Tennessee Valley Authority in Knoxville. Previously, she was an associate with the law firms Baker, Donelson in Knoxville, and Greenberg Traurig in Albany, New York. She also served as a career law clerk to the Hon. Thomas A. Varlan of the Eastern District of Tennessee, and she is an adjunct professor at the University of Tennessee College of Law where she teaches Legal Process. McCook earned her law degree, cum laude, from Washington & Lee University School of Law. She is a graduate of the TBA Leadership Law program, Class of 2018

 

NOTES

1. See, e.g., Jacqueline Thomsen, “DOJ Files Federal Lawsuit Against Omarosa, Alleging She Violated Ethics Law,” The Hill (June 25, 2019) available at https://thehill.com/regulation/court-battles/450319-doj-files-federal-lawsuit-against-omarosa-alleging-she-violated (last visited Jan. 16, 2021); Coral Davenport, “Interior Dept. Opens Ethics Investigation of Its New Chief, David Bernhardt,” N.Y. Times (April 15, 2019)
available at https://www.nytimes.com/2019/04/15/climate/bernhardt-interior-department-ethics-investigation.html (last visited Jan. 16, 2021); Alan Rappeport, “US OGE Declines to Certify Mnuchin’s Financial Disclosure,” N.Y. Times (April 4, 2019) available at https://www.nytimes.com/2019/04/04/us/politics/steven-mnuchin-ethics-office.html (last visited Jan. 16, 2021); Brady Dennis & Juliet Eilperin, “Embattled EPA Chief Scott Pruitt Resigns,” Washington Post (July 5, 2018) available at https://www.washingtonpost.com/news/energy-environment/wp/2018/07/05/embattled-epa-chief-scott-pruitt-resigns/?utm_term=.e3857f99cab0 (last visited Jan.16, 2021); Joe Neel, “CDC Director Resigns Because of ‘Complex’ Financial Entanglements,” Nat’l Pub. Radio (Jan. 31, 2018) available at https://www.npr.org/sections/health-shots/2018/01/31/582099166/cdc-director-resigns-due-to-complex-financial-entanglements (last visited Jan. 16, 2021); Walter Shaub, “Kellyanne Conway Violated the Hatch Act. Will She Be Charged?,” Washington Post (Nov. 27, 2017) available at http://wapo.st/2hWA3Re?tid=ss_mail&utm_term=.8d50f6b5d8c3 (last visited Jan. 16, 2021)
2. Pub. L. 95–521, titles I–V, Oct. 26, 1978, 92 Stat. 1824–1867, as amended, codified at 5 U.S.C. app. § § 101 et seq. Subsequent legislation primarily intended to combat congressional insider trading, but also containing several executive branch ethics requirements, was the Stop Trading on Congressional Knowledge (STOCK) Act of 2012, Pub. L. 112–105, S. 2038, 126 Stat. 291, enacted on April 4, 2012.
3. See generally OGE’s website at www.oge.gov (last visited Jan. 16, 2021).
4. See 5 C.F.R. § 2600.101(a); 5 C.F.R. Part 2638.
5. 5 C.F.R. § 2635.101(a)
6. 5 C.F.R. § 2635.502(a).
7. Id. at § 2635.502(b)(1).
8. Note that some commentators have criticized the broad subjectiveness and relative “squishiness” of this test. See, e.g., Peter W. Morgan & Glenn H. Reynolds, The Appearance of Impropriety: How the Ethics Wars Have Undermined American Government, Business, and Society (New York: Free Press, 1997), at 3, 13, & 81-89.
9. See 18 U.S.C. § 208 & 5 C.F.R. § 2640.103 (OGE’s interpretative regulations as to 18 U.S.C. § 208).
10. 5 C.F.R. § 2640.101.
11. 5 C.F.R. § 2640.103(a)(1).
12. 5 C.F.R. §2640.103(a)(2).
13. Id.
14. Id.
15. 5 C.F.R. § 2640.104(b).
16. 5 C.F.R. § 2640.104(a)(3).
17. 5 C.F.R. § 2640.104(b).
18. 5 C.F.R. § 2640.104(a)(3).
19. See, e.g., OGE Form 450, available at https://www.oge.gov/Web/oge.nsf/Resources/OGE+Form+450 (last visited Jan. 16, 2021) (for confidential financial disclosure reports), and OGE Form 278e, available at https://www2.oge.gov/web/oge.nsf/Resources/OGE+Form+278e+(July+2020+Excel+version (last visited Jan. 16, 2021) (for public financial disclosure reports).
20 See, e.g., 5 C.F.R. § 7901.101 et seq. (supplemental standards for outside employment for Tennessee Valley Authority’s employees, for example).
21. 5 C.F.R. § 2635.201(b)(1).
22. Id. § 2635.201(b)(2).
23. Id. § 2635.203(d).
24. Id. § 2635.202.
25. Id. § 2635.203(b).
26. Id. § 2635.204(a).
27. Id. § 2635.204(b)-(g).
28. See 5 C.F.R. §§ 2635.301 et seq.

Any views and opinions expressed in this article are strictly those of the authors and do not necessarily represent the views of Tennessee Valley Authority or the United States government.