[T]he Government must prove beyond a reasonable doubt that the defendant 1) was an officer or employee of the executive branch or of an independent agency, 2) participated personally and substantially in his official, governmental capacity in a matter, and 3) knew that he, his spouse, or another statutorily-listed person had a financial interest in that particular matter.
United States v. Nevers, 7 F.3d 59, 62 (5th Cir. 1993) (a case in which the defendant, while employed as a trade specialist for the International Trade Administration, attempted to persuade a client of that agency to sign an agreement with a company in which his wife had a financial interest).
A ready means of avoiding a violation is disqualification of the government employee (which simply means not participating in the particular matter, see 5 CFR § 2640.103(d)); or, where prospective employment is involved, postponement of any negotiation until the matter is completed. Waivers are also available in some circumstances, as are some categorical exemptions - both of which are discussed under the subcaption Waivers and Exemptions , below.
The statutory provision is elaborated in 5 CFR Parts 2635 and 2640. The first of these, titled Standards of Ethical Conduct for Employees of the Executive Branch, lays down rules of ethical conduct on several subjects quite distinct from that of section 208 (specifically, Gifts from Outside Sources, Gifts Between Employees, Misuse of Position, and Outside Activities), but it also specifically implements and in some respects adds administrative restrictions to the statutory ones in section 208, in three of its subparts, namely, Subpart D—Conflicting Financial Interests; Subpart E - Impartiality in Performing Official Duties; and Subpart F - Seeking Other Employment. The focus of the other regulation, 5 CFR Part 2640, is indicated by its title, Interpretation, Exemptions and Waiver Guidance Concerning 18 U.S.C. 208(Acts Affecting a Personal Financial Interest).
17 Op. Off. Legal Counsel No. 3 (1993) held that a government employee/inventor who assigns his rights in an invention to the United States and accepts the government’s payment of amounts tied to the resulting royalties, pursuant to the Federal Technology Transfer Act of 1986, 15 U.S.C. §§ 1501-34, could continue to work on the invention without violating either section 208 or section 209. However, he could not, consistently with section 208, take official action with respect to an agreement for development of the invention entered into between the United States (which had retained the domestic patent rights) and a company with which the employee/inventor (who had retained foreign patent rights) had a contract for foreign commercial exploitation of the patent.
Two circumstances in which section 208(a) problems may arise that are likely to be of particular concern to lawyers and law firms - and that are separately addressed below—are those where there are discussions about (or a subsisting arrangement for) future employment between a lawyer in government and a law firm with business before that lawyer’s agency, and those where the spouse of a government employee is a lawyer who has business (or whose firm has business) before the agency where the employee works. In the first instance, the crux is that if the law firm with which the lawyer in government is negotiating (or has an "arrangement") about employment is involved in a "particular matter" before the lawyer’s agency, then it has a "financial interest" in that matter which, under section 208, is a bar to the lawyer’s participation in the matter. In the second situation, the crux is that the government employee whose spouse who is involved in a particular matter before the employee’s agency has an imputed "financial interest" in that matter, which again bars the employee’s participation in the matter.
Particular matter
The term "particular matter," as used in section 208(a), is not separately
defined in the Act, but it appears at the end of a series of
examples—"judicial or other proceeding, application, request for a ruling
or other determination, contract, claim, controversy, charge, accusation [or]
arrest"—identical to those employed in the definition of "particular matter" in
section 207(i) of the Act (which applies only to section 207), except for not
including
the term "rulemaking." However, 5 CFR § 2640.103 (a)(1) states
that "particular matter" as used in section 208 "includes
only matters that involve deliberation, decision or action that
is focused upon the interests of specific
persons, or a discrete and identifiable class of persons" (emphasis
added), and adds:
The term may include matters which do not involve formal parties and may extend to legislation or policy making that is narrowly focused on the interests of a discrete and identifiable class of persons. It does not, however, cover consideration or adoption of broad policy options directed to the interests of a large and diverse group of persons.Id. Among the examples given to illustrate the foregoing are these two:
Example 3: A regulation published by the Department of Agriculture applicable only to companies that operate meat packing plants is a particular matter.
Example 4: A change by the Department of Labor in health and safety regulations applicable to all employers in the United States is not a particular matter. The change in the regulations is directed to the interests of a large and diverse group of persons.
Id. See also 5 CFR § 2635.402(b)(3) (providing a substantively identical definition). As described below, under the subcaption Waivers and Exemptions, the regulations addressing exemptions under section 208(b), in 5 CFR Part 2640, invoke a similar distinction (one not found in the statutory text), between a "particular matter involving specific parties" and a "particular matter of general applicability."
Similarly, the Office of Legal Counsel of the Department of Justice has interpreted section 208(a) to apply to "rule-making proceedings or advisory committee deliberations of general applicability where the outcome may have a ’direct and predictable effect’ on a firm with which the Government employee is affiliated, even though all other firms similarly situated will be affected in a like manner." 2 Op. Off. Legal Counsel 151, 155 (1978). See also OGE Informal Advisory Opinion 97 x 2 (March 5, 1997)(observing that a rulemaking affecting all the members of a particular industry can have a direct and predictable effect on the financial interests of the industry’s trade association, and so present a bar, for one involved in that rulemaking, to negotiating for post-government employment with the trade association). Thus, the term "particular matter" as used in section 208 is interpreted by authoritative sources to have essentially the same meaning as the identical term as used in section 207, despite the presence in the latter statutory provision, and the absence from the former, of the word "rulemaking."
The phrase "personal and substantial participation" is not defined in the statute but again is explained in the pertinent regulation, 5 CFR § 2640.103(a)(2). That regulation states that "[t]o participate ’personally’ means to participate directly. It includes the direct and active supervision of the participation of a subordinate in the matter." Id. And "substantial" participation means that the employee’s involvement is of significance to the matter, even though the participation was not determinative of the outcome of a particular matter. Id. In determining whether an employee was "participating" in a particular matter, the courts have generally adopted a broad, common-sense approach. Thus, in interpreting the catch-all provision of the clause in section 208(a) detailing the types of participation covered ("decision, approval, disapproval, recommendation, the rendering of advice, investigation, or otherwise"), the Seventh Circuit held that "or otherwise" should be construed "in a realistic and relatively inclusive fashion." United States v. Irons, 640 F.2d 872, 876 (7th Cir. 1981). The court held that the intention behind section 208 was "to proscribe rather broadly employee participation in business transactions involving conflicts of interest and to reach activities at various stages of these transactions, including those activities specifically enumerated." Id. Thus, the court held that the acts of "causing delivery to be made of equipment" and "receiving payment of monies for such equipment" were covered under section 208 since they were acts that executed or completed a contract or matter. Id. at 874. See also OGE Informal Advisory Opinion 92 x 25 (December 10, 1992)("[T]he concept of participation is not limited to formal actions or final events but may apply to preliminary activities or matters in a formative stage").
Financial Interest
The term "financial interest" is also liberally construed. A party has a
financial interest "where there is a real possibility of gain or loss as a
result of developments in or resolution of a matter." United States v. Gorman,
807 F.2d 1299, 1303 (6th Cir. 1986), cert. denied, 484 U.S. 815 (1987).
There is no de minimis exception to the "financial interest" requirement.
See OGE
Informal Advisory Opinion 87 x 6 (April 1, 1987). "All that is required
is that there be a real, as opposed to a speculative, possibility of benefit
or
detriment." Gorman, 807 F.2d at 1303. See generally, Annotation,
What Constitutes Acts Affecting Personal Financial Interests Within the Meaning
of
18 U.S.C. § 208(a), Penalizing Participation by Government Employees in
Matters in Which They Have a Personal Financial Interest, 59 A.L.R. Fed.
872
(1982).
However, the two regulations interpreting section 208 apply something of a limiting construction to the term "financial interest," at least in the contexts there addressed - namely, disqualification and waiver. Both regulations effectively require that the financial interest be one on which the "matter" in question will have a "direct and predictable effect" - a phrase that does not appear in the statutory text (though it is based on a longstanding interpretation of the statute: see 2 Op. Off. Legal Counsel 151, 155 (1978)). Thus, 5 CFR § 2635.402(b)(1) provides:
- A particular matter will have a direct effect on a financial interest 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. An effect may be direct even though it does not occur immediately. A particular matter will not have a direct effect on a financial interest, however, if the chain of causation is attenuated or is contingent upon the occurrence of events that are speculative or that are independent of, and unrelated to, the matter . . ..
- A particular matter will have a predictable effect if there is a real, as opposed to a speculative possibility that the matter will affect the financial interest. It is not necessary, however, that the magnitude of the gain or loss be known, and the dollar amount . . . is immaterial.
An identical definition of the phrase "direct and predictable effect" is to be found in 5 CFR § 2640.103(a)(3).
To violate section 208(a), a government employee
must have knowledge of
the pertinent financial interest in the particular matter in which he or she is
participating. Gorman, 807 F.2d at 1304. Section 208(a) is, however, a
strict liability statute: establishing a violation does not require proof of
scienter or an intent to violate it. United States v. Hedges, 912 F.2d 1397,
1400 (11th Cir. 1990). "Actual corruption or actual loss suffered by
the government are not elements of the crime," id. at 1402; see also Gorman,
807 F.2d at 1304 ("Section 208 sets forth an objective standard of
conduct which is directed not only at dishonor, but also at conduct which
tempts dishonor").
It bears note that among the persons and entities that section 208(a) refers to
as potentially having a financial interest in a particular matter that would be
imputed to a government employee, is an organization in which the
employee is "an officer, director, trustee, general partner or employee." This
clearly encompasses nonprofit organizations, and the financial interest of
such
organizations is attributed to the government employee regardless
of whether there is compensation for the services rendered by the employee
to the
organization. See 5 CFR § 2635.403(c)(2).
In In re Segal, 145 F. 3d 1348 (DC Cir. 1998)(per curiam), involving an application for reimbursement of attorney fees incurred by the target of an independent counsel investigation that did not result in indictment, the target had been chief executive officer of the Corporation for National and Community Service, which was established to manage the federal government’s community service programs. He had established, and served as a director and officer of, a private, nongovernmental charitable organization that sought private donations to support the work of the governmental corporation, and, in his capacity as CEO of the governmental corporation, had engaged in fund raising for the benefit of the nongovernmental organization. Since that organization’s financial interests were attributed to him, this was found to be a misdemeanor violation of section 208, but the independent counsel did not prosecute, finding that the target did not possess knowledge of the financial interest - which, according to the decision, is "not necessary for a technical violation of the law, but . . . is required by Department of Justice guidelines before charges are brought." Id. at 1350.
OGE Informal Advisory Opinion 97 x 5 (March 25, 1997) observed that while there is no prohibition on spouses working in the same agency, one spouse could not hire the other or even recommend the other spouse for promotion without running afoul of section 208 (as well as the "anti-nepotism" statute, 5 USC § 3110).
Waivers and Exemptions
Ameliorating the broad reach of the prohibitions
imposed by section 208(a), subsection (b) provides for a number of exceptions,
both by individual waiver
and by categorical exemption. Specifically,
Subsection (b)(1) provides for individual waivers in circumstances where the official responsible for the appointment of the government employee or officer, after full disclosure, makes a written determination that the pertinent "interest is not so substantial as to be deemed likely to affect the integrity of the services which the government may expect from such officer or employee." The general requirements for issuance of such waivers are set out in 5 CFR § 2640.301(a) , and § 2640.301(b) offers a list of factors that may be considered in determining whether a "disqualifying financial interest is sufficiently substantial to be deemed likely to affect the integrity of the employee’s services to the Government."
Subsection (b)(2) of section 208 provides that OGE, by general rule or regulation, "applicable to all or a portion of all officers and employees covered by this section," may exempt a particular kind of financial interest as "being too remote or too inconsequential to affect the integrity of the services of the Government officers or employees." Pursuant to this provision, OGE has, in Subpart B of 5 CFR 2640, issued regulations exempting certain mutual funds, unit investment trusts and employee benefits (§ 2640.201); certain interests in securities (§ 2640.202); and several miscellaneous circumstances (§ 2640.203).
Subsection (b)(3) provides for individual waivers in the case of a "special Government employee" serving on (or being considered for appointment to) an advisory committee within the meaning of the Federal Advisory Committee Act, where the appointing officer certifies in writing that the need for the individual’s services outweighs the potential for a conflict of interest. This provision is implemented by 5 CFR § 2640.302.
Finally, subsection (b)(4) provides a blanket exemption for financial interests that would be affected by a particular matter where the interest results solely from specified birthrights related to status as a native American Indian or Alaskan native.
As has been mentioned, 5 CFR Part 2640, in addressing exemptions under section 208(b), makes a distinction, not found in the statutory text, between a "particular matter involving specific parties" and a "particular matter of general applicability." The first is defined by reference to the statutory phrase that precedes "particular matter" ("judicial or other proceeding, [etc.]"), and is asserted typically to involve "a specific proceeding affecting the legal rights of the parties or an isolatable transaction or related set of transactions between identified parties." § 2640.102(l). The second "means a particular matter that is focused on the interests of a discrete and identifiable class of persons, but does not involve specific parties." § 2640.102(m). An employee is required to disqualify him- or herself from either sort of "particular matter" where a tainting "financial interest" is in the picture, unless the disqualifying interest has been exempted or the employee has obtained an individual waiver under section 208(b). § 2640.103(d).
The different categories of "particular matter" have differential impact, however, in the determination of whether a particular financial interest qualifies for a categorical exemption under the regulations implementing section 208(b)(2), as "too remote or too inconsequential to affect the integrity of the services" of the government employee. See § 2640.201(c)(2)(exempting employee participation in a particular matter of general applicability affecting a state or local government where the disqualifying financial interest in the matter arises because of participation in a pension plan established by that government), and § 2640.202(a) & (b) (setting out different standards governing de minimis exemptions for matters involving specific parties and those of general applicability).
As has been noted, a violation of section 208(a) does not require a showing of scienter. Furthermore, a valid waiver may become void if the financial interests of the prospective employer or the official responsibilities of the employee change and such change was not considered by the grantor of the waiver. See OGE Informal Advisory Opinion 88 x 13 (September 12, 1988) (opining that Attorney General Meese’s section 208(b)(1) waivers obtained with regard to telecommunications matters were defective where Mr. Meese had not provided full disclosure regarding his telecommunication industry holdings).
Additional Regulatory Restrictions
The provisions of 5 CFR 2635 Subpart E,
titled Impartiality in Performing
Official Duties, extend the disqualification of government employees
from participating in certain matters beyond the reach of
section 208(a), to
include circumstances where there may be "an appearance of loss of impartiality
in the performance of . . . official duties." 5 CFR § 2635.501(a). Thus, §2635.502(a) requires
advance authorization from an employee’s agency before the employee
may participate in a particular matter involving a specific party or parties
when the employee either knows that the matter "is likely to have a direct and
predictable effect on the financial interest of a member of his household," or
else 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." A "covered relationship" is
defined by § 2635.502(b)(1) to mean a relationship with -
- A person with whom the employee "has or seeks a business, contractural or other contractual or other financial relationship that involves other than a routine consumer transaction" - a definition that excludes and extends well beyond "employment," the term used in section 208.
- A member of the employee’s household, or a relative with whom the employee has a "close personal relationship"—both of which go beyond the spouse and minor child referred to in section 208(a).
- A person "for whom the employee’s spouse, parent or dependent child is, to the employee’s knowledge, serving or seeking to serve as "officer, director . . . [or any of the positions forbidden to the employee by section 208(a)]."
- A person for whom the employee had acted as "officer, director . . . [etc.]" within the last year. Section 208(a), of course, applies only to concurrent, not past representations by the employee.
- An organization, other than a political party, in which the employee is an "active participant." Section 208(a), in contrast, is limited to organizations in which the government employee is an "officer, director, . . . [etc.]"
One further regulatory disqualification relating to financial interests is imposed by 5 CFR § 2635.503 , again subject to agency waiver: a two-year bar from participating in any particular matter in which a former employer is a party or represents a party, if the employee received an "extraordinary payment" from that employer prior to entering government service; the two years commencing to run with the date of receipt of the payment. "Extraordinary payment" is defined as any item worth $10,000 or more, paid (1) on the basis of a decision made after it was known to the former employer that the employee was being considered for or had accepted a government position, and (2) other than pursuant to an established compensation, partnership or benefits program.
It should be noted that unlike sections 203 and 209 (discussed under 1.11:680 above and 1.11:699 below, respectively), the prohibitions of section 208 do not apply to third parties, but only to the government employees who have the actual or imputed "financial interest." Thus, a law firm cannot be criminally charged under section 208 for recruiting a government lawyer for a position in the firm, even if the firm is directly involved in a matter before the government lawyer, but the lawyer in such circumstances is at jeopardy; and similarly, it is the government employee and not the employee’s spouse or the spouse’s law firm that is at risk where the lawyer or firm represent a client in a matter in which the employee participates.
Applicability to Law Firm Recruitment
It bears note, with respect to the restriction
on negotiating for post-government employment, that there is a parallel provision
in Model Rule
1.11, though that provision is not included in the DC version of Rule
1.11. Thus, MR 1.11(c)(2) prohibits a lawyer serving as a public officer or
employee (other than as a law clerk) from negotiating for private employment
with any
person who is involved as a party or lawyer for a party in a matter
in which the government lawyer is participating personally and substantially.
A violation of section 208 in this context requires that (1) the defendant, who was at the time in question a government employee, negotiated or reached an arrangement concerning employment with a third party; (2) the third party had a financial interest in a matter in which the defendant participated personally and substantially; and (3) the defendant knew of the third party’s interest. See Gorman, 807 F.2d at 1303. Clearly within the prohibition is the situation where a lawyer who entered the government from a law firm has a commitment to return to the firm after government service. 3 Op. Off. Legal Counsel 278 (1979)(section 208 does not preclude a lawyer’s returning to a former firm pursuant to a pre-departure agreement, but the lawyer must observe that provision’s restrictions while in government); see also OGE Informal Advisory Opinion 93 x 20 (August 27, 1993) (holding that the fact that there is a binding contractual agreement - in this instance evidently a labor agreement not subject to renegotiation - is immaterial). Less clearcut, and more hazardous, are circumstances where there is not such a subsisting arrangement, but only the prospect of one.
The regulations define "negotiations" broadly, as meaning
[D]iscussion or communication with another person, or such person’s agent or intermediary, mutually conducted with a view toward reaching an agreement regarding possible employment with that person. The term is not limited to discussions of specific terms and conditions of employment in a specific position.5 CFR § 2635.603(b)(1)(i). Although 5 CFR Part 2635 in other respects goes beyond the statutory provision and simply establishes regulatory standards of conduct for executive branch employees, in the present instance it appears to offer a valid interpretation of the statutory term as well. Courts have uniformly held that the terms "negotiate" and "arrangement" are to be broadly construed and given their common, everyday meaning. See United States v. Schaltenbrand, 930 F.2d 1554, 1558 (11th Cir. 1991); Hedges, 912 F.2d at 1403; Gorman, 807 F.2d at 1303; United States v. Conlon, 628 F.2d 150, 154-55 (DC Cir. 1980). Thus, in Schaltenbrand, the court rejected the defendant’s argument that a "negotiation" does not begin until a formal offer of employment has been made. While agreeing that "[p]reliminary or exploratory talks do not constitute negotiation," 930 F.2d at 1558 (quoting Hedges, 912 F.2d at 1403 n.2), the court held that where there is evidence of "active interest on both sides" concerning a "specific position," this requirement for a section 208(a) offense is met. As the court noted, "[t]he whole purpose of `negotiation´ is for each side to present its position to the other party, in the hopes that it can attract the other party to eventually submit to a binding agreement." Id. at 1559. The court held, therefore, that where the defendant had applied for a position with the potential employer, the potential employer had invited him to its offices, the two sides had discussed the qualifications needed for the specific position in detail, and the defendant had agreed to take action to remedy his failure to meet certain of these qualifications, there was "negotiation" under section 208. Id. See also Hedges, 912 F.2d at 1403 ("That all of the terms of the agreement were not settled at that time, does not foreclose the fact that negotiations for employment were discussed.").
The regulations also define "employment" broadly, to include
[A]ny form of non-Federal employment or business relationship involving the provision of personal services by the employee, whether to be undertaken at the same time as or subsequent to Federal employment. It includes but is not limited to personal services as an officer, director, employee, agent, attorney, consultant, contractor, general partner or trustee.5 CFR § 2635.603(a)
Once it has been established that the parties were negotiating for future employment, the government must show that the prospective employer had a "financial interest" in a "particular matter" in which the government employee was "participat[ing]" "personally and substantially." In order to establish such a financial interest on the part of the recruiting law firm, it must ordinarily be the case that the law firm is representing a client in a matter in which the recruited lawyer is participating; it is not enough that a client of the law firm is a party to the matter, if it is not represented by the law firm in that matter. Thus, in Air Line Pilots Ass’n, Int’l v. United States Dep’t of Transp., 899 F.2d 1230 (DC Cir. 1990) , the Court held that the then-Secretary of the Department of Transportation (DOT) had not violated section 208 in negotiating for employment at a law firm despite the fact that the firm represented a client that was before DOT in another matter, in which the law firm was not representing that client. The Court held that it was "sheer speculation" to argue that the Secretary’s employment negotiations could have been advanced by the outcome of the matter involving the firm’s interest and cited with approval the following bright-line rule:
[N]o participation by [the government employee] when a law firm that might employ him served as counsel in the case; but no bar to his [or her] participation when the firm did not so serve, though the matter involved a client represented in other matters by the firm.
Id. at 1232. In so ruling, the Court directly rejected the proposition that a government employee must be "disqualifi[ed] from any matter affecting a client of a prospective employer." Id. The Court noted that such a rule "would mean, effectively, that high government officials could not, before leaving their posts, negotiate with many, if any, of the District’s large law firms." Id.
Another regulation, 5 CFR § 2635.604(d), provides that an agency may allow an employee to take annual leave or leave without pay, or take other appropriate action while seeking employment, if the alternative would be disqualification of the employee from "matters so central or critical to the performance of his official duties that the employee’s ability to perform the duties of his position would be materially impaired." OGE Informal Advisory Opinion 95 x 7 (June 2, 1995) says that the agency may require such a leave of absence. A variant situation was addressed in OGE Informal Advisory Opinion 96 x 19 (October 18, 1996) , which asserted that a government employee may have a financial interest in the outcome of a matter if there is a concrete prospect of employment with an entity involved, and the opportunity depends on the outcome, even if there are no actual negotiations about the employment in question.
Applicability to Spouses Where One Is in Government and the Other Is
a Lawyer in the Private Sector
The possible application of section 208 in this
context arises when the lawyer spouse, or that spouse’s law firm, represents
a client in the particular
matter. As the regulation states,
An employee is prohibited by . . .. 18 U.S.C. § 208(a) from participating personally and substantially in an official capacity in any particular matter in which, to his knowledge, he or any person whose interests are imputed to him under this statute has a financial interest, if the particular matter will have a direct and predictable effect on that interest.5 CFR § 2635.402(a). The imputed interests include those of the employee’s spouse, § 2635.402(b)(2)(i). The employee need not actually share in the spouse’s financial interest in order for the prohibition to apply. As explained in OGE Informal Advisory Opinion 96 x 10 (April 25, 1996), section 208 "establishes the status of marriage, not shared control and ownership of assets, as the prerequisite for imputing a spouse’s financial interests to a Government employee [who] has knowledge of those interests." What is involved
is not a rebuttable presumption that the Government employee will benefit from his spouse’s financial interests . . .. The issue is whether the Government employee will be participating in matters that could directly and predictably affect his spouse’s financial interests.
Id. (Emphasis in original).
OGE Informal Advisory Opinion 95 x 1 (February 13, 1995) addressed circumstances where the husband of the head of a governmental agency was a partner in a law firm whose clients included major institutions some of which appeared before the agency. The husband had undertaken not to represent any clients before the agency during his wife’s tenure, and she had disqualified herself from any matters in which his firm represented clients before the agency. The Opinion concluded that these arrangements were sufficient (though it did not explicitly hold that the former was required) for compliance with the applicable prohibition, and that the agency head should consider whether administrative ethics rules dealing with impartiality would preclude her participation. It also held that "where the clients are not being represented by [the firm] in a particular [agency] matter, the matter usually would not have a direct and predictable effect on the law firm’s or [the spouse’s] financial interests." Id. (Brackets in original.) It did allow that there might be "unusual cases"—where, for example, agency action might literally put the law firm’s client out of business - that would have an adverse effect upon the law firm’s, and therefore the lawyer spouse’s interest. To the same effect, see Air Line Pilots Ass’n Int’l, supra.
