39143

Rules and Regulations Federal Register Vol. 77, No. 127

Monday, July 2, 2012

This section of the FEDERAL REGISTER significant objective to be achieved Paperwork Reduction Act contains regulatory documents having general through the use of a qualified blind trust applicability and legal effect, most of which No additional clearance is needed is the lack of knowledge, or actual under the Paperwork Reduction Act (44 are keyed to and codified in the Code of ‘‘blindness,’’ by an executive branch Federal Regulations, which is published under U.S.C. chapter 35) for these final rule 50 titles pursuant to 44 U.S.C. 1510. employee with respect to the holdings amendments, because they would not in his trust. affect the qualified trusts information The Code of Federal Regulations is sold by The same goal may be achieved collection requirements in the the Superintendent of Documents. Prices of through the use of a diversified trust, if regulation that are currently approved new books are listed in the first FEDERAL under OMB paperwork control number REGISTER issue of each week. that trust holds securities from different issuers in different economic sectors, 3209–0007. and if the trust’s interest in any one Unfunded Mandates Reform Act OFFICE OF GOVERNMENT ETHICS issuer and sector is limited. Under these conditions, it is unlikely that official For purposes of the Unfunded 5 CFR Part 2634 actions taken by the executive branch Mandates Reform Act of 1995 (2 U.S.C. employee who holds a beneficial chapter 25, subchapter II), this final RIN 3209–AA00 interest in the trust would affect amendatory rule will not significantly or uniquely affect small governments and Executive Branch Qualified Trusts individual securities or sectors to such a degree that the overall value of the will not result in increased expenditures AGENCY: Office of Government Ethics trust’s portfolio would be materially by State, local, and tribal governments, (OGE). enhanced. Additionally, as with the in the aggregate, or by the private sector, of $100 million or more (as adjusted for ACTION: Final rule. blind trust, the employee is not told inflation) in any one year. what assets the independent SUMMARY: The Office of Government adds to the trust. Congressional Review Act Ethics is issuing a final rule to amend the executive branch regulation OGE has implemented the qualified The Office of Government Ethics has regarding qualified trusts. These final trusts provisions for the executive determined that this final rulemaking rule amendments make a few minor branch in subparts D and E of 5 CFR involves a nonmajor rule under the substantive changes, but primarily put part 2634. See 57 FR 11800–11830, at Congressional Review Act (5 U.S.C. the regulation in a more logical order, 11814–11821 (Apr. 7, 1992). chapter 8) and will submit a report thereon to the U.S. Senate, House of make it more readable, and eliminate II. Analysis of Comments and redundant provisions. Representatives and Government Amendments Accountability Office in accordance DATES: Effective Date: August 1, 2012. The proposed rule provided a 60-day with that at the same time this FOR FURTHER INFORMATION CONTACT: rulemaking document is sent to the Deborah J. Bortot, Associate Director for comment period. See 76 FR 60757– 60765, at 60757 (Sept. 30, 2011). OGE Office of the Federal Register for Nominee Financial Disclosure, Office of publication in the Federal Register. General Counsel and Legal Policy, received no comments on its proposed Office of Government Ethics; telephone: revisions to 5 CFR part 2634, subparts Executive Order 12866 202–482–9300; TYY: 800–877–8339; D and E. After consulting with the In promulgating this final rulemaking, FAX: 202–482–9237. Office of Personnel Management and the OGE has adhered to the regulatory Department of Justice in accordance SUPPLEMENTARY INFORMATION: philosophy and the applicable with section 402(b) of the Ethics in principles of regulation set forth in I. Background: History of the Executive Government Act, OGE is publishing this section 1 of Executive Order 12866, Branch Qualified Trusts Program final rule with no changes from the Regulatory Planning and Review. These The Ethics in Government Act proposed rule. final amendments have also been established standards for the creation, OGE is amending cross-references in reviewed by the Office of Management composition, and administration of two §§ 2634.310(b)(1), 2634.702(a)–(b), and and Budget under that Executive order. types of qualified trusts for executive 2634.907(i)(2)(i) and Appendices A and Moreover, in accordance with section branch officials: qualified blind trusts B to Part 2634. These technical cross- 6(a)(3)(B) of E.O. 12866, the preamble to and qualified diversified trusts. The reference amendments are included in this final rulemaking, which revises 5 purpose of these qualified trusts is to this final rulemaking. CFR part 2634, notes the legal basis and reduce the potential for conflicts of benefits of, as well as the need for, the interest by generally preventing an III. Matters of Regulatory Procedure final regulatory action. There should be employee from knowing the identity Regulatory Flexibility Act no appreciable increase in costs to OGE and nature of his financial interests. or the executive branch of the Federal With a qualified blind trust, the As Acting Director of OGE, I certify Government in administering this independent trustee will, over time, sell under the Regulatory Flexibility Act (5 amended regulation, since the revisions or dispose of some or all of the initial U.S.C. chapter 6) that this final rule will only make a few minor substantive assets placed in the trust. The executive not have a significant economic impact changes as well as reorganize and branch employee will be blind with on a substantial number of small entities improve OGE’s qualified trusts regard to the assets added by the because it primarily affects Federal regulatory provisions under the Ethics independent trustee. The most executive branch employees. Act. Finally, this final rulemaking is not

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economically significant under the 2634.408 Administration of a qualified Ethics. No other communications, even Executive order and will not interfere trust. about matters not connected to the trust, with State, local or tribal governments. 2634.409 Pre-existing trusts. are permitted between the independent 2634.410 Dissolution. trustee and the interested parties. Executive Order 12988 2634.411 Reporting on financial disclosure reports. § 2634.402 Definitions. As Acting Director of the Office of 2634.412 Sanctions and enforcement. Government Ethics, I have reviewed this 2634.413 Public access. As used in this subpart: final amendatory regulation in light of 2634.414 OMB control number. Director means the Director of the section 3 of Executive Order 12988, Office of Government Ethics. Subpart E—Revocation of Trust Certificates Employee means an officer or Civil Justice Reform, and certify that it and Trustee Approvals meets the applicable standards provided employee of the executive branch of the Sec. therein. United States. 2634.501 Purpose and scope. Independent trustee means a trustee List of Subjects in 5 CFR Part 2634 2634.502 Definitions. who meets the requirements of 2634.503 Determinations. Certificates of divestiture, Conflicts of § 2634.405 of this subpart and who is interest, Financial disclosure, Subpart D—Qualified Trusts approved by the Director under this Government employees, Penalties, subpart. Privacy, Reporting and recordkeeping § 2634.401 Overview. Interested party means an employee, requirements, Trusts and . (a) Purpose. The Ethics in the employee’s spouse, and any minor Government Act of 1978 created two or dependent child, in any case in Approved: June 25, 2012. types of qualified trusts, the qualified which the employee, spouse, or minor Don W. Fox, blind trust and the qualified diversified or dependent child has a beneficial Acting Director, Office of Government Ethics. trust, that may be used by employees to interest in the principal or income of a Accordingly, for the reasons set forth reduce real or apparent conflicts of trust proposed for certification under in the preamble, the Office of interest. The primary purpose of an this subpart or certified under this Government Ethics is amending part executive branch qualified trust is to subpart. 2634 of subchapter B of chapter XVI of confer on an independent trustee and Qualified blind trust means a trust in title 5 of the Code of Federal any other designated the sole which the employee, his spouse, or his Regulations, as follows: responsibility to administer the trust minor or dependent child has a and to manage trust assets without beneficial interest and which: PART 2634—EXECUTIVE BRANCH participation by, or the knowledge of, (1) Is certified pursuant to § 2634.407 FINANCIAL DISCLOSURE, QUALIFIED any interested party or any by the Director; TRUSTS, AND CERTIFICATES OF representative of an interested party. (2) Has a portfolio as specified in DIVESTITURE This responsibility includes the duty to § 2634.406(a); decide when and to what extent the (3) Follows the model trust document ■ 1. The authority citation for part 2634 original assets of the trust are to be sold prepared by the Office of Government continues to read as follows: or disposed of, and in what investments Ethics; and (4) Has an independent trustee as Authority: 5 U.S.C. App. (Ethics in the proceeds of sale are to be reinvested. Government Act of 1978); 26 U.S.C. 1043; Because the requirements set forth in defined in § 2634.405. Pub. L. 101–410, 104 Stat. 890, 28 U.S.C. the Ethics in Government Act and this Qualified diversified trust means a 2461 note (Federal Civil Penalties Inflation regulation assure true ‘‘blindness,’’ trust in which the employee, his spouse, Adjustment Act of 1990), as amended by Sec. employees who have a qualified trust or his minor or dependent child has a 31001, Pub. L. 104–134, 110 Stat. 1321 (Debt cannot be influenced in the performance beneficial interest and which: Collection Improvement Act of 1996); E.O. of their official duties by their financial (1) Is certified pursuant to § 2634.407 12674, 54 FR 15159, 3 CFR, 1989 Comp., p. interests in the trust assets. Their by the Director; 215, as modified by E.O. 12731, 55 FR 42547, (2) Has a portfolio as specified in official actions, under these 3 CFR, 1990 Comp., p. 306. § 2634.406(b); circumstances, should be free from (3) Follows the model trust document Subpart C—Contents of Public Reports collateral attack arising out of real or prepared by the Office of Government apparent conflicts of interest. § 2634.310 [Amended] Ethics; and (b) Scope. Two characteristics of the (4) Has an independent trustee as ■ 2. Section 2634.310(b)(1) is amended qualified trust assure that true defined in § 2634.405. by removing the cross-references to ‘‘blindness’’ exists: the independence of Qualified trust means a trust ‘‘§ 2634.403’’ and ‘‘§ 2634.404’’ in the the trustee and the restriction on described in the Ethics in Government first sentence and replacing both cross- communications between the Act of 1978 and this regulation and references with ‘‘§ 2634.402’’. independent trustee and the interested certified by the Director under this ■ 3. Subparts D and E are revised to read parties. In order to serve as a trustee for subpart. There are two types of qualified as follows: an executive branch qualified trust, an trusts, the qualified blind trust and the entity must meet the strict requirements qualified diversified trust. Subpart D—Qualified Trusts for independence set forth in the Ethics Sec. in Government Act and this regulation. § 2634.403 General description of trusts. 2634.401 Overview. Restrictions on communications also (a) Qualified blind trust. (1) The 2634.402 Definitions. reinforce the independence of the qualified blind trust is the most 2634.403 General description of trusts. trustee from the interested parties. universally adaptable qualified trust. An 2634.404 Summary of procedures for During both the establishment of the interested party may put most types of creation of a qualified trust. 2634.405 Standards for becoming an trust and the administration of the trust, assets (such as cash, stocks, bonds, independent trustee or other fiduciary. communications are limited to certain mutual funds or real estate) into a 2634.406 Initial portfolio. reports that are required by the Act and qualified blind trust. 2634.407 Certification of qualified trust by to written communications that are pre- (2) In the case of a qualified blind the Office of Government Ethics. screened by the Office of Government trust, 18 U.S.C. 208 and other Federal

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conflict of interest statutes and interested in setting up a qualified blind trustee is independent under the Act regulations apply to the assets that an or qualified diversified trust must and this regulation. interested party transfers to the trust contact the Office of Government Ethics (2) In addition, an interested party until such time as he or she is notified prior to beginning the process of may select an investment manager or by the independent trustee that such creating the trust. The Office of other fiduciary. Other proposed asset has been disposed of or has a value Government Ethics is the only entity selected by an interested of less than $1,000. Because the that has the authority to certify a party, such as an investment manager, employee knows what assets he or she qualified trust. Because an interested must meet the independence placed in the trust and there is no party must propose, for the approval of requirements. requirement that these assets be the Office of Government Ethics, an (d) Approval of the independent diversified, the possibility still exists entity to serve as the independent trustee. If the Director determines that that the employee could be influenced trustee, the Office of Government Ethics the proposed trustee meets the in the performance of official duties by will explain the requirements that an requirements of independence, the those interests. entity must meet in order to qualify as Director will approve, in writing, that (b) Qualified diversified trust. (1) An an independent trustee. Such entity as the trustee for the qualified interested party may put only readily information is essential in order for the trust. marketable securities into a qualified employee to interview entities for the (e) Confidentiality agreement. If any diversified trust. In addition, the position of independent trustee. The person other than the independent portfolio must meet the diversification Office of Government Ethics will also trustee or designated fiduciary has requirements of § 2634.406(b)(2). explain the restrictions on the access to information that must not be (2) In the case of a qualified communications between the interested shared with an interested party or that diversified trust, the conflict of interest parties and the proposed trustee. party’s representative, that person must do not apply to the assets that an (b) Selecting an independent trustee. file a Confidentiality Agreement with interested party transfers to the trust. After consulting with the Office of the Office of Government Ethics. Because the assets that an interested Government Ethics, the interested party Persons filing a Confidentiality party puts into this trust must meet the may interview entities who meet the Agreement must certify that they will diversification requirements set forth in requirements of § 2634.405(a) in order to not make prohibited contacts with an this regulation, the diversification find one to serve as an independent interested party or that party’s achieves ‘‘blindness’’ with regard to the trustee. At an interview, the interested representative. initial assets. party may ask general questions about (f) Drafting the . The (3) Special notice for Presidential the institution, such as how long it has representative of the interested party appointees—(i) In general. In any case been in business, its policies and will use the model documents provided in which the establishment of a philosophy in managing assets, the by the Office of Government Ethics to qualified diversified trust is types of clients it serves, its prior draft the trust instrument. There are two contemplated with respect to an performance record, and the annexes to the model trust document: individual whose nomination is being qualifications of the personnel who An annex describing any current, considered by a Senate committee, that would be handling the trust. Because permissible banking or client individual shall inform the committee the purpose of a qualified trust is to give relationships between any interested of the intention to establish a qualified an independent trustee the sole parties and the independent trustee or diversified trust at the time of filing a responsibility to manage the trust assets other fiduciaries and an annex listing financial disclosure report with the without the interested party having any the initial assets that the interested committee. There is a section on the knowledge of the identity of the assets party transfers to the trust. Any public financial disclosure form, the in the trust, the interested party may deviations from the model trust OGE Form 278, for the individual to communicate his or her general documents must be approved by the indicate whether he or she intends to financial interests and needs to any Director. create a qualified diversified trust. institution which he or she interviews. (g) Certification of the trust. The (ii) Applicability. Paragraph (b)(3)(i) of For example, the interested party may representative then presents the this section is not applicable to communicate a preference for unexecuted trust instrument to the members of the uniformed services or maximizing income or long-term capital Office of Government Ethics for review. Foreign Service officers. The special gain or for balancing safety of capital If the Director finds that the instrument notice requirement of this section shall with growth. The interested party may conforms to one of the model not preclude an individual from seeking not give more specific instructions to documents, the Director will certify the the certification of a qualified blind the proposed trustee, such as instructing qualified trust. After certification, the trust or qualified diversified trust after it to maintain a specific allocation employee and the independent trustee the Senate has given its advice and between stocks and bonds, or choosing will sign the trust instrument. They will consent to a nomination. stocks in a particular industry. submit a copy of the executed (c) Conflict of interest laws. In the (c) The proposed independent trustee. instrument to the Office of Government case of each type of trust, the conflict of (1) The entity selected by an interested Ethics within 30 days of execution. The interest laws do not apply to the assets party as a possible trustee must contact employee will then transfer the assets to that the independent trustee or any the Office of Government Ethics to the trust. receive guidance on the qualified trust other designated fiduciary adds to the Note to Paragraph (g): Existing qualified trust. program. The Office of Government Ethics will ask the proposed trustee to trusts approved under any State law or by the § 2634.404 Summary of procedures for submit a letter describing its past and legislative or judicial branches of the Federal creation of a qualified trust. Government of the United States will not be current contacts, including banking and recertified by the Director. Individuals with (a) Consultation with the Office of client relationships, with the employee, existing qualified trusts who are required to Government Ethics. Any employee, spouse, and minor or dependent file a financial disclosure report upon spouse, or minor or dependent child (or children. The extent of these contacts entering the executive branch, becoming a that party’s representative) who is will determine whether the proposed nominee for a position appointed by the

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President and subject to confirmation by the controlled or influenced in the (3) The person is instructed by the Senate, or becoming a candidate for President administration of the trust by any independent trustee or other designated or Vice President must file a complete interested party; fiduciary not to disclose publicly or to financial disclosure form that includes a full (ii) Is not and has not been employed any interested party information which disclosure of items in the trust. After filing by any interested party, not served as a a complete form, the individual may might specifically identify current trust establish a qualified trust under the policies director, officer, or employee of any assets or those assets which have been and provisions of this rule. organization affiliated with any sold or disposed of from trust holdings, interested party, and is not and has not other than information relating to the § 2634.405 Standards for becoming an been a partner of, or involved in any sale or disposition of original trust independent trustee or other fiduciary. joint venture or other investment with, assets in the case of the blind trust; and (a) Eligible entities. An interested any interested party; and (4) The person is instructed by the party must select an entity that meets (iii) Is not a relative of any interested independent trustee or other designated the requirements of this regulation to party. fiduciary to have no direct (d) Required documents. In order to serve as an independent trustee or other communication with respect to the trust make this determination, the proposed fiduciary. The type of entity that is with any interested party or any trustee must submit the following allowed to serve as an independent representative of an interested party, documentation to the Director: trustee is a financial institution, not and to make all indirect (1) A letter describing its past and more than 10 percent of which is owned communications with respect to the current contacts, including banking and or controlled by a single individual, trust only through the independent client relationships, with the employee, which is: trustee, pursuant to § 2634.408(a). spouse, or minor or dependent child; (1) A bank, as defined in 12 U.S.C. and § 2634.406 Initial portfolio. 1841(c); or (2) An investment adviser, as defined (2) The Certificate of Independence, (a) Qualified blind trust. (1) None of in 15 U.S.C. 80b–2(a)(11). which must be executed in the form the assets initially placed in the prescribed in appendix A to this part. portfolio of the blind trust shall include Note to Paragraph (a): By the terms of (e) Determination. If the Director paragraph (3)(A)(i) of section 102(f) of the assets the holding of which by any determines that the current interested party would be prohibited by Act, an individual who is an attorney, a relationships, if any, between the certified public accountant, a broker, or an the Act, by the implementing investment advisor is also eligible to serve as interested party and the independent regulations, or by any other applicable an independent trustee. However, experience trustee do not violate the independence Federal law, Executive order, or of the Office of Government Ethics over the requirements, these relationships will regulation. years dictates the necessity of limiting be disclosed in an annex to the trust (2) Except as described in paragraph service as a trustee or other fiduciary to the instrument. No additional relationships (a)(1) of this section, an interested party financial institutions referred to in this with the independent trustee may be may put most types of assets (such as paragraph, to maintain effective established unless they are approved by administration of trust arrangements and cash, stocks, bonds, mutual funds or the Director. real estate) into a qualified blind trust. preserve confidence in the Federal qualified (f) Approval of the trustee. If the (b) Qualified diversified trust. (1) The trust program. Accordingly, under its Director determines that the proposed authority pursuant to paragraph (3)(D) of initial portfolio may not contain trustee meets applicable requirements, section 102(f) of the Act, the Office of securities of entities having substantial the Office of Government Ethics will Government Ethics will not approve activities in the employee’s primary area send the interested parties and their proposed trustees or other fiduciaries who of Federal responsibility. If requested by representatives a letter indicating its are not financial institutions, except in the Director, the designated agency unusual cases where compelling necessity is approval of a proposed trustee. ethics official for the employee’s agency demonstrated to the Director, in his or her (g) Revocation. The Director may sole discretion. revoke the approval of a trustee or any shall certify whether the proposed portfolio meets this standard. (b) Orientation. After the interested other designated fiduciary pursuant to the rules of subpart E of this part. (2) The initial assets of a diversified party selects a proposed trustee, that trust shall comprise a widely diversified proposed trustee should contact the (h) Adding fiduciaries. An independent trustee may employ or portfolio of readily marketable Office of Government Ethics for an securities. orientation about the qualified trust consult other entities, such as (i) A portfolio will be widely program. investment counsel, investment diversified if: (c) Independence requirements. The advisers, accountants, and tax preparers, Director shall determine that a proposed to assist in any capacity to administer (A) The value of the securities trustee is independent if: the trust or to manage and control the concentrated in any particular or (1) The entity is independent of and trust assets, if all of the following limited economic or geographic sector is unassociated with any interested party conditions are met: no more than twenty percent of the so that it cannot be controlled or (1) When any interested party or any total; and influenced in the administration of the representative of an interested party (B) The value of the securities of any trust by any interested party; learns about such employment or single entity (other than the United (2) The entity is not and has not been consultation, the person must sign the States Government) is no more than five affiliated with any interested party, and trust instrument as a party, subject to percent of the total. is not a partner of, or involved in any the prior approval of the Director; (ii) A security will be readily joint venture or other investment or (2) Under all the facts and marketable if: business with, any interested party; and circumstances, the person is determined (A) Daily price quotations for the (3) Any director, officer, or employee pursuant to the requirements for eligible security appear regularly in newspapers of such entity: entities under paragraphs (a) through (f) of general circulation; and (i) Is independent of and unassociated of this section to be independent of an (B) The trust holds the security in a with any interested party so that such interested party with respect to the trust quantity that does not unduly impair director, officer, or employee cannot be arrangement; liquidity.

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(iii) The interested party or the party’s representatives. The interested party initially placed in the trust by an representative shall provide the Director and the independent trustee may then interested party, and which in the with a detailed list of the securities execute the trust instrument. determination of the employee creates a proposed for inclusion in the portfolio, (4) Within thirty days after the trust real or apparent conflict due to duties specifying their fair market value and is certified under this section by the the employee subsequently assumed demonstrating that these securities meet Director, the interested party or that (but nothing herein requires such the requirements of this paragraph. The party’s representative must file with the instructions); or Director will determine whether the Director a copy of the executed trust (ii) In the case of the diversified trust, initial assets of the trust proposed for instrument and all annexed schedules the proposed communication is certification comprise a widely (other than those provisions which approved in advance by the Director diversified portfolio of readily relate to the of and it relates to: marketable securities. the trust assets), including a list of the (A) A distribution of cash or other (iv) The independent trustee shall not assets which were transferred to the unspecified assets of the trust; acquire additional securities in excess of trust, categorized as to value of each (B) The general financial interest and the diversification standards. asset in accordance with § 2634.301(d). needs of the interested party including, (c) Hybrid qualified trust. A qualified (5) Once a trust is classified as a but not limited to, a preference for trust may contain both a blind portfolio qualified blind or qualified diversified maximizing income or long-term capital of assets and a diversified portfolio of trust in the manner discussed in this gain; or assets. The Office of Government Ethics section, § 2634.310(b) applies less (C) Information, documents, and refers to this arrangement as a hybrid inclusive financial disclosure funds concerning income tax obligations qualified trust. requirements to the trust assets. arising from sources other than the (c) Certification standard. A trust will property held in trust that are required § 2634.407 Certification of qualified trust be certified for purposes of this subpart by the independent trustee to enable by the Office of Government Ethics. only if: him to file, on behalf of an interested (a) General. After the Director (1) It is established to the Director’s party, the personal income tax returns approves the independent trustee, the satisfaction that the requirements of and similar tax documents which may employee or a representative will section 102(f) of the Act and this contain information relating to the trust. prepare the trust instrument for review subpart have been met; and (2) The person initiating a by the Director. The representative of (2) The Director determines that communication approved under the interested party will use the model approval of the trust arrangement as a paragraphs (a)(1)(i) or (a)(1)(ii) of this documents provided by the Office of qualified trust is appropriate to assure section shall file a copy of the Government Ethics to draft the trust compliance with applicable laws and communication with the Director within instrument. Any deviations from the regulations. five days of the date of its transmission. model trust documents must be (d) Revocation. The Director may Note to Paragraph (a): By the terms of approved by the Director. No trust will revoke certification of a trust pursuant be considered qualified for purposes of paragraph (3)(C)(vi) of section 102(f) of the to the rules of subpart E of this part. Act, communications which solely consist of the Act until the Office of Government requests for distributions of cash or other Ethics certifies the trust prior to § 2634.408 Administration of a qualified trust. unspecified assets of the trust are not execution. required to be in writing. Further, there is no (b) Certification procedures. (1) After (a) General rules on communications statutory mechanism for pre-screening of the Director has approved the trustee, between the independent fiduciaries proposed communications. However, the interested party or the party’s and the interested parties. (1) There experience of the Office of Government representative must submit the shall be no direct or indirect Ethics over the years dictates the necessity of following documents to the Office of communications with respect to the prohibiting any oral communications Government Ethics for review: qualified trust between an interested between the trustee and an interested party (i) A copy of the proposed, party or the party’s representative and with respect to the trust and pre-screening all proposed written communications, to unexecuted trust instrument; the independent trustee or any other prevent inadvertent prohibited (ii) A list of the assets which the designated fiduciary with respect to the communications and preserve confidence in employee, spouse, or minor or trust unless: the Federal qualified trust program. dependent child proposes to place in (i) In the case of the blind trust, the Accordingly, under its authority pursuant to the trust; and proposed communication is approved in paragraph (3)(D) of section 102(f) of the Act, (iii) In the case of a pre-existing trust advance by the Director and it relates to: the Office of Government Ethics will not as described in § 2634.409 of this (A) A distribution of cash or other approve proposed trust instruments that do subpart which the employee asks the unspecified assets of the trust; not contain language conforming to this Office of Government Ethics to certify, (B) The general financial interest and policy, except in unusual cases where a copy of the pre-existing trust needs of the interested party including, compelling necessity is demonstrated to the Director, in his or her sole discretion. instrument and a list of that trust’s but not limited to, a preference for assets categorized as to value in maximizing income or long-term capital (b) Required reports from the accordance with § 2634.301(d). gain; independent trustee to the interested (2) In order to assure timely trust (C) Notification to the independent parties—(1) Quarterly reports. The certification, the interested parties and trustee by the employee that the independent trustee shall, without their representatives shall be employee is prohibited by a identifying specifically an asset or responsible for the expeditious subsequently applicable statute, holding, report quarterly to the submission to the Office of Government Executive order, or regulation from interested parties and their Ethics of all required documents and holding an asset, and to direction to the representatives the aggregate market responses to requests for information. independent trustee that the trust shall value of the assets representing the (3) The Director will indicate that he not hold that asset; or interested party’s interest in the trust. or she has certified the trust in a letter (D) Instructions to the independent The independent trustee must follow to the interested parties or their trustee to sell all of an asset which was the model document for this report and

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shall file a copy of the report, within (i) For beneficiaries of qualified blind qualified trust shall not knowingly and five days of the date of its transmission, trusts, the independent trustee sends a willfully, or negligently: with the Director. modified K–1 summarizing trust income (i) Disclose any information to an (2) Annual report. In the case of a in appropriate categories to enable the interested party or that party’s qualified blind trust, the independent beneficiaries to file individual tax representative with respect to the trust trustee shall, without identifying returns. The independent trustee is that may not be disclosed under title I specifically an asset or holding, report prohibited from providing the interested of the Act, the implementing regulations annually to the interested parties and parties or their representatives with the or the trust instrument; their representatives the aggregate identity of the assets. (ii) Acquire any holding: amount of the trust’s income (ii) For beneficiaries of qualified (A) Directly from an interested party attributable to the interested party’s diversified trusts, the Act requires the or that party’s representative without beneficial interest in the trust, independent trustee to file the the prior written approval of the categorized in accordance with individual tax returns on behalf of the Director; or § 2634.302(b) to enable the employee to trust beneficiaries. The interested (B) The ownership of which is complete the public financial disclosure parties shall give the independent prohibited by, or not in accordance form. In the case of a qualified trustee a power of attorney to prepare with, title I of the Act, the implementing diversified trust, the independent and file, on their behalf, the personal regulations, the trust instrument, or trustee shall, without identifying income tax returns and similar tax with other applicable statutes and specifically an asset or holding, report documents which may contain regulations; annually to the interested parties and information relating to the trust. (iii) Solicit advice from any interested their representatives the aggregate Appropriate Internal Revenue Service party or any representative of that party amount actually distributed from the power of attorney forms shall be used with respect to such trust, which trust to the interested party or applied for this purpose. The beneficiaries must solicitation is prohibited by title I of the for the party’s benefit. Additionally, in transmit to the trustee materials Act, the implementing regulations, or the case of the blind trust, the concerning taxable transactions and the trust instrument; or independent trustee shall report on occurrences outside of the trust, (iv) Fail to file any document required Schedule K–1 the net income or loss of pursuant to the requirements in each by the implementing regulations or the the trust and any other information trust instrument which detail this trust instrument. necessary to enable the interested party procedure. This communication must be (2) The independent trustee and any to complete an individual tax return. approved in advance by the Director in other designated fiduciary, in the The independent trustee must follow accordance with paragraph (a) of this exercise of their authority and the model document for each report and section. discretion to manage and control the shall file a copy of the report, within (iii) Some qualified trust beneficiaries assets of the trust, shall not consult or five days of the date of its transmission, may pay estimated income taxes. notify any interested party or that with the Director. (A) In order to pay the proper amount party’s representative. (3) Report of sale of asset. In the case of estimated taxes each quarter, the (3) The independent trustee shall not of the qualified blind trust, the beneficiaries of a qualified blind trust acquire by purchase, grant, gift, exercise independent trustee shall promptly will need to receive information about of option, or otherwise, without the notify the employee and the Director the amount of income, if any, generated prior written approval of the Director, when any particular asset transferred to by the trust each quarter. To assist the securities, cash, or other property from the trust by an interested party has been beneficiaries, the independent trustee is any interested party or any completely disposed of or when the permitted to send, on a quarterly basis, representative of an interested party. value of that asset is reduced to less information about the amount of income (4) Certificate of Compliance. An than $1,000. The independent trustee generated by the trust in that quarter. independent trustee and any other shall file a copy of the report, within This communication must be approved designated fiduciary shall file, with the five days of the date of its transmission, in advance by the Director in Director by May 15th following any with the Director. accordance with paragraph (a) of this calendar year during which the trust (c) Communications regarding trust section. was in existence, a properly executed and taxes. The Act (B) In order to pay the proper amount Certificate of Compliance in the form establishes special tax filing procedures of estimated taxes each quarter, the prescribed in appendix B to this part. In to be used by the independent trustee independent trustee of a qualified addition, the independent trustee and and the trust beneficiaries in order to diversified trust will need to receive such fiduciary shall maintain and make maintain the substantive separation information about the amount of available for inspection by the Office of between trust beneficiaries and trust income, if any, earned by the Government Ethics, as it may from time administrators. beneficiaries on assets that are not in the to time direct, the trust’s books of (1) Trust taxes. Because a trust is a trust. To assist the independent trustee, account and other records and copies of separate entity distinct from its the beneficiaries are permitted to send, the trust’s tax returns for each taxable beneficiaries, an independent trustee on a quarterly basis, information about year of the trust. must file an annual fiduciary tax return the amount of income they earned in (e) Responsibilities of the interested for the trust (IRS Form 1041). The that quarter on assets that are outside of parties and their representatives. (1) independent trustee is prohibited from the trust. This communication must be Interested parties to a qualified trust and providing the interested parties and approved in advance by the Director in their representatives shall not their representatives with a copy of the accordance with paragraph (a) of this knowingly and willfully, or negligently: trust tax return. section. (i) Solicit or receive any information (2) Beneficiary taxes. The trust (d) Responsibilities of the about the trust that may not be disclosed beneficiaries must report income independent trustee and other under title I of the Act, the received from the trust on their fiduciaries. (1) Any independent trustee implementing regulations or the trust individual tax returns. or any other designated fiduciary of a instrument; or

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(ii) Fail to file any document required this circumstance. The umbrella trust testamentary disposition of the trust by this subpart or the trust instrument. agreement will be certified as a qualified assets), and a list of the assets which (2) The interested parties and their trust if all of the requirements of this were transferred to the trust, categorized representatives shall not take any action subpart are fulfilled under conditions as to the value of each asset; to obtain, and shall take reasonable where required confidentiality with (2) The identity of each additional action to avoid receiving, information respect to the trust can be assured. asset (other than cash) transferred to a with respect to the holdings and the qualified trust by an interested party § 2634.410 Dissolution. sources of income of the trust, including during the life of the trust, categorized a copy of any trust tax return filed by Within thirty days of dissolution of a as to the value of each asset; the independent trustee, or any qualified trust, the interested party shall (3) The report of the dissolution of the information relating to that return, file a report of the dissolution with the trust and a list of the assets of the trust except for the reports and information Director and a list of assets of the trust at the time of the dissolution, specified in paragraphs (b) and (c) of at the time of the dissolution, categorized as to the value of each asset; this section. categorized as to value in accordance (4) In the case of a blind trust, the lists (3) In the case of any qualified trust, with § 2634.301(d). provided by the independent trustee of the interested party shall, within thirty § 2634.411 Reporting on financial assets placed in the trust by an days of transferring an asset, other than disclosure reports. interested party which have been sold; cash, to a previously established An employee who files a public or and qualified trust, file a report with the confidential financial disclosure report (5) The Certificates of Independence Director, which identifies each asset, shall report the trust on the financial and Compliance. categorized as to value in accordance disclosure report. (b) Documents exempt from public with § 2634.301(d). (a) Public financial disclosure report. disclosure requirements. The following (4) Any portfolio asset transferred to If the employee files a public financial documents are exempt from the public the trust by an interested party shall be disclosure report, the employee shall disclosure requirements of § 2634.603 free of any restriction with respect to its report the trust as an asset, including and also shall not be disclosed to any transfer or sale, except as fully the overall category of value of the trust. interested party: described in schedules attached to the Additionally, in the case of a qualified (1) Any document (and the trust instrument, and as approved by the blind trust, the employee shall disclose information contained therein) filed Director. the category of value of income earned under the requirements of § 2634.408(a) (5) During the term of the trust, the by the trust. In the case of a qualified and (c); and interested parties shall not pledge, diversified trust, the employee shall (2) Any document (and the mortgage, or otherwise encumber their report the category of value of income information contained therein) interests in the property held by the received from the trust by the employee, inspected under the requirements of trust. the employee’s spouse, or dependent § 2634.408(d)(4) (other than a Certificate (f) Amendment of the trust. The child, or applied for the benefit of any of Compliance). independent trustee and the interested of them. parties may amend the terms of a (b) Confidential financial disclosure § 2634.414 OMB control number. qualified trust only with the prior report. In the case of a confidential The various model trust documents written approval of the Director and financial disclosure report, the and Certificates of Independence and upon a showing of necessity and employee shall report the trust as an Compliance referenced in this subpart, appropriateness. asset. together with the underlying regulatory provisions (and appendices A, B and C § 2634.409 Pre-existing trusts. § 2634.412 Sanctions and enforcement. An interested party may place a pre- to this part for the Certificates), are all Section 2634.702 sets forth civil approved by the Office of Management existing irrevocable trust into a qualified sanctions, as provided by sections trust, which may then be certified by the and Budget under control number 3209– 102(f)(6)(C)(i) and (ii) of the Act and as 0007. Office of Government Ethics. This adjusted in accordance with the Federal arrangement should be considered in Civil Penalties Inflation Adjustment Subpart E—Revocation of Trust the case of a pre-existing trust whose Act, which apply to any interested Certificates and Trustee Approvals terms do not permit amendments that party, independent trustee, or other [Amended] are necessary to satisfy the rules of this trust fiduciary who violates his subpart. All of the relevant parties obligations under the Act, its § 2634.501 Purpose and scope. (including the employee, any other implementing regulations, or the trust (a) Purpose. This subpart establishes interested parties, the trustee of the pre- instrument. Subpart E of this part the procedures of the Office of existing trust, and all of the other parties delineates the procedure which must be Government Ethics for enforcement of and beneficiaries of the pre-existing followed with respect to the revocation the qualified blind trust, qualified trust) will be required pursuant to of trust certificates and trustee diversified trust, and independent section 102(f)(7) of the Act to enter into approvals. trustee provisions of title I of the Ethics an umbrella trust agreement. The in Government Act of 1978, as umbrella trust agreement will specify § 2634.413 Public access. amended, and the regulation issued that the pre-existing trust will be (a) Documents subject to public thereunder (subpart D of this part). administered in accordance with the disclosure requirements. The following (b) Scope. This subpart applies to all provisions of this subpart. A parent or qualified trust documents filed by a trustee approvals and trust certifications guardian may execute the umbrella trust public filer, nominee, or candidate are pursuant to §§ 2634.405 and 2634.407, agreement on behalf of a required subject to the public disclosure respectively. participant who is a minor child. The requirements of § 2634.603: Office of Government Ethics has (1) The executed trust instrument and § 2634.502 Definitions. prepared model umbrella trust any amendments (other than those For purposes of this subpart (unless agreements that the employee can use in provisions which relate to the otherwise indicated), the term ‘‘trust

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restrictions’’ means the applicable instrument will receive prompt written replacing it with ‘‘(including 5 CFR provisions of title I of the Ethics in notification. The notice shall state the 2634.408(d)(1)(i))’’. Government Act of 1978, subpart D of basis for the revocation and shall inform ■ d. Subparagraph (C) of the this part, and the trust instrument. the parties of the consequence of the CERTIFICATE OF COMPLIANCE form revocation, which will be either of the is amended by removing ‘‘(including 5 § 2634.503 Determinations. following: CFR 2634.403(b)(12)(iii) for a qualified (a) Violations. If the Office of (i) The trust is no longer a qualified blind trust and 5 CFR Government Ethics learns that blind or qualified diversified trust for 2634.404(c)(12)(iii), for a qualified violations or apparent violations of the any purpose under Federal law; or diversified trust)’’ and replacing it with trust restrictions exist that may warrant (ii) The independent trustee may no ‘‘(including 5 CFR 2634.408(d)(1)(iii))’’. revocations of trust certification or longer serve the trust in any capacity ■ e. Subparagraph (D) of the trustee approval previously granted and must be replaced by a successor, CERTIFICATE OF COMPLIANCE form under § 2634.407 or § 2634.405, the who is subject to the prior written is amended by removing ‘‘(5 CFR Director may, pursuant to the procedure approval of the Director. 2634.408(b) and (c))’’ and replacing it specified in paragraph (b) of this with ‘‘(5 CFR 2634.408)’’. section, appoint an attorney on the staff Subpart G—Penalties [FR Doc. 2012–15998 Filed 6–29–12; 8:45 am] of the Office of Government Ethics to BILLING CODE 6345–03–P review the matter. After completing the § 2634.702 [Amended] review, the attorney will submit ■ 4. Section 2634.702 is amended as findings and recommendations to the follows: DEPARTMENT OF AGRICULTURE Director. ■ a. Paragraph (a) is amended by (b) Review procedure. (1) In the removing the cross-reference to Agricultural Marketing Service review of the matter, the attorney shall ‘‘§ 2634.407’’ in the first sentence and perform such examination and analysis replacing it with ‘‘§ 2634.408(d)(1) or 7 CFR Part 915 of violations or apparent violations as (e)(1)’’. the attorney deems reasonable. ■ [Doc. No. AMS–FV–11–0094; FV12–915–1 b. Paragraph (b) is amended by IR] (2) The attorney shall provide an removing the cross-reference to independent trustee and, if appropriate, ‘‘§ 2634.407’’ in the first sentence and the interested parties, with: Avocados Grown in South Florida; replacing it with ‘‘§ 2634.408(d)(1) or Decreased Assessment Rate (i) Notice that revocation of trust (e)(1)’’. certification or trustee approval is under AGENCY: Agricultural Marketing Service, consideration pursuant to the Subpart I—Confidential Financial USDA. procedures in this subpart; Disclosure Reports ACTION: Interim rule with request for (ii) A summary of the violation or comments. apparent violations that shall state the § 2634.907 [Amended] preliminary facts and circumstances of ■ 5. Section 2634.907(i)(2)(i) is SUMMARY: This rule decreases the the transactions or occurrences involved amended by removing the cross- assessment rate established for the with sufficient particularity to permit references to ‘‘§ 2634.403’’ and Avocado Administrative Committee the recipients to determine the nature of ‘‘§ 2634.404’’ and replacing both with (Committee) for the 2012–13 and the allegations; and ‘‘§ 2634.402’’. subsequent fiscal periods from $0.37 to (iii) Notice that the recipients may $0.25 per 55-pound bushel container of present and submit statements APPENDIX A TO PART 2634 Florida avocados handled. The on any matter in issue within ten [Amended] Committee locally administers the business days of the recipient’s actual ■ 6. The instruction following the marketing order which regulates the receipt of the notice and summary. Appendix A heading is amended by handling of avocados grown in South (c) Determination. (1) In making removing the cross-reference to Florida. Assessments upon Florida determinations with respect to the ‘‘§ 2634.406(b)’’ and replacing it with avocado handlers are used by the violations or apparent violations under ‘‘§ 2634.405(d)(2)’’. Committee to fund reasonable and this section, the Director shall consider necessary expenses of the program. The the findings and recommendations APPENDIX B TO PART 2634 fiscal period begins April 1 and ends submitted by the attorney, as well as [Amended] March 31. The assessment rate will any written statements submitted by the remain in effect indefinitely unless ■ 7. Appendix B is amended as follows: independent trustee or interested modified, suspended, or terminated. parties. ■ a. The instruction following the Appendix B heading is amended by DATES: Effective July 3, 2012. Comments (2) The Director may take one of the received by August 31, 2012, will be following actions upon finding a removing the cross-reference to ‘‘§ 2634.408(b)’’ and replacing it with considered prior to issuance of a final violation or violations of the trust rule. restrictions: ‘‘§ 2634.408(d)(4)’’. (i) Issue an order revoking trust ■ b. The first paragraph of the ADDRESSES: Interested persons are certification or trustee approval; CERTIFICATE OF COMPLIANCE form invited to submit written comments (ii) Resolve the matter through any is amended by removing the cross- concerning this rule. Comments must be other remedial action within the reference to ‘‘5 CFR 2634.406’’ and sent to the Docket Clerk, Marketing Director’s authority; replacing it with ‘‘5 CFR 2634.405’’. Order and Agreement Division, Fruit (iii) Order further examination and ■ c. Subparagraph (A) of the and Vegetable Program, AMS, USDA, analysis of the violation or apparent CERTIFICATE OF COMPLIANCE form 1400 Independence Avenue SW., STOP violation; or is amended by removing ‘‘(including 5 0237, Washington, DC 20250–0237; Fax: (iv) Decline to take further action. CFR 2634.403(b)(12)(i) for a qualified (202) 720–8938; or Internet: http:// (3) If the Director issues an order of blind trust, and 5 CFR 2634.404(c)(12)(i) www.regulations.gov. Comments should revocation, parties to the trust for a qualified diversified trust)’’ and reference the document number and the

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