Several ethics provisions concern conflicting financial interests and the requirement that employees act impartially. In particular, a criminal conflict of interest statute, 18 U.S.C. § 208, requires an employee to be disqualified (“recused”) from a “particular matter” if it would have a direct and predictable effect on the employee’s own financial interests or on certain financial interests that are treated as the employee’s own, such as those of the employee’s spouse or a prospective employer.
There are a number of ways to deal with a financial conflict of interest under 18 U.S.C. § 208:
- An exemption may apply. OGE has exempted financial interests which are too remote or too inconsequential to affect the integrity of an employee’s service to the Government. For example, an exemption permits an employee to participate in a matter even though it would affect the financial interests of a company in which the employee owns a small amount of stock. An employee does not have to be authorized to use an exemption – the employee can simply rely on it if it applies. The exemptions are published in Subpart B of 5 C.F.R. part 2640. (Note: A special Government employee who is serving on an advisory committee may rely on special exemptions.)
- The employee may be recused from the matter. If an exemption does not remedy a potential conflict of interest, the agency may decide that it can permit the employee to be recused from the matter. Recusal is often the appropriate remedy, unless the financial interest is determined to pose a “substantial conflict” because the work cannot be readily reassigned or because it is central or critical to the performance of the employee’s Government duties.
- The employee may divest the conflicting property. If an employee’s financial interest poses a “substantial conflict,” an employee may be directed to divest (sell) the stock or other conflicting property. Section 1043 of the Internal Revenue Code and Subpart J of 5 C.F.R. part 2634 may permit a person to defer capital gains taxes on property that must be sold to comply with conflict of interest requirements. To defer the gains, the person must obtain a certificate of divestiture from OGE before selling the property and must reinvest the proceeds into permitted property.
- An authorized official may grant an individual waiver to the employee. In general, an agency will consider granting a waiver only if an exemption does not remedy the conflict of interest and neither recusal nor divestiture are reasonable options. For example, recusal may not be a reasonable option if the work cannot be readily assigned to another employee, and divestiture may not be a reasonable option if the conflicting property is in a trust or limited partnership. OGE has published guidance concerning waivers in Subpart C of 5 C.F.R. part 2640. (Note: If the employee is a special Government employee who is seriving on an advisory committee, the agency can use special waiver provisions.)
- The employee may establish a qualified trust. Qualified trusts are rare. A trust must be certified by OGE and meet other requirements set forth in Subpart J of 5 C.F.R. part 2634, including the requirement that the employee turn over management of the trust assets to a trustee who is approved by OGE. There are two types of qualified trusts:
- Qualified Blind Trust. An employee may place any type of asset in a blind trust portfolio. These initial assets continue to pose a conflict of interest until they have been sold or reduced to a value of less than $1,000. Any new assets purchased by the independent trustee may not be disclosed to the employee and therefore will not present a conflict of interest.
- Qualified Diversified Trust. An employee can place only readily marketable securities in the trust portfolio and the portfolio must meet certain diversification standards. The initial assets of a diversified trust are not considered to pose a conflict of interest because the portfolio is so diversified that an official action taken by the employee would not have a direct and predictable effect on the value of the portfolio.
The information on this page is not a substitute for individual advice. Agency ethics officials should be consulted about specific situations.