80 FR 21654 - Application of Federal Law to LSC Recipients

LEGAL SERVICES CORPORATION

Federal Register Volume 80, Issue 75 (April 20, 2015)

This final rule updates the Legal Services Corporation (LSC or Corporation) regulation on the application of Federal law to LSC recipients. The FY 1996 appropriations act (incorporated in LSC's appropriations by reference annually thereafter) subjects LSC recipients and its employees and board members to Federal law relating to the proper use of Federal funds. This final rule provides recipients with notice of the applicable Federal laws each recipient and its employees and board members must agree to be subject to under this rule, the consequences of a violation of an applicable Federal law, and where LSC will maintain the list of applicable laws.

[Federal Register Volume 80, Number 75 (Monday, April 20, 2015)]
[Rules and Regulations]
[Pages 21654-21656]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-08974]


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LEGAL SERVICES CORPORATION

45 CFR Part 1640


Application of Federal Law to LSC Recipients

AGENCY: Legal Services Corporation

ACTION: Final rule.

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SUMMARY: This final rule updates the Legal Services Corporation (LSC or 
Corporation) regulation on the application of Federal law to LSC 
recipients. The FY 1996 appropriations act (incorporated in LSC's 
appropriations by reference annually thereafter) subjects LSC 
recipients and its employees and board members to Federal law relating 
to the proper use of Federal funds. This final rule provides recipients 
with notice of the applicable Federal laws each recipient and its 
employees and board members must agree to be subject to under this 
rule, the consequences of a violation of an applicable Federal law, and 
where LSC will maintain the list of applicable laws.

DATES: This final rule will be effective on May 20, 2015.

FOR FURTHER INFORMATION CONTACT: Stefanie K. Davis, Assistant General 
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 
20007; (202) 295-1563 (phone), (202) 337-6519 (fax), or [email protected].

SUPPLEMENTARY INFORMATION:

I. History of This Rulemaking

    Section 504(a)(19) of LSC's FY 1996 appropriations act required LSC 
recipients to enter into a contract that subjected them to ``all 
provisions of Federal law relating to the proper use of Federal 
funds.'' Sec. 504(a)(19), Public Law.= 104-134, title V; 110 Stat. 
1321. By its terms, a violation of Sec. 504(a)(19) renders any LSC 
grant or contract null and void. The provision has been incorporated by 
reference into each of LSC's annual appropriations act since. 
Accordingly, the preamble and text of this final rule continue to refer 
to the relevant section number of the FY 1996 appropriations act.
    The Corporation first issued 45 CFR part 1640 as an interim rule in 
1996 to implement Sec. 504(a)(19). 61 FR 45760, Aug. 29, 1996. The 
interim rule was put in place to provide immediate guidance to LSC 
recipients on legislation that was already in effect and carried 
significant penalties for noncompliance. Id. In the preamble to the 
interim rule, LSC announced that it was interpreting the statutory 
phrase ``all provisions of Federal law relating to the proper use of 
Federal funds'' to mean ``with respect to [a recipient's] LSC funds, 
all programs should be subject to Federal laws which address issues of 
waste, fraud and abuse of Federal funds.'' Id. LSC based its 
interpretation on legislative history that appeared to limit the 
applicable laws to those dealing with fraud, waste, and abuse of 
Federal funds.
    In particular, LSC relied on two congressional documents to support 
its interpretation. First, the Corporation cited to the House Report 
for H.R. 2076, which was a prior effort to enact a provision similar to 
section 504(a)(19). The relevant language in that report stated:

[S]ection 504(20) requires all programs receiving Federal funds to 
comply with Federal statutes and regulations governing waste, fraud, 
and abuse of Federal funds.

H. Rep. No. 104-196, 104th Cong., 1st Sess. 116 (July 1995) (emphasis 
added). Second, LSC cited section 5 of H.R. 1806, the Legal Services 
Reform Act of 1995, which was an unsuccessful attempt to revise the LSC 
Act. As an extension of his remarks introducing H.R. 1806, Rep. 
McCollum submitted a partial summary of the bill, including a 
discussion of section 5 entitled ``Application of waste, fraud, and 
abuse laws.'' 141 Cong. Rec. E1220-21 (daily ed. June 9, 1995). Section 
5 itself was titled ``Protection Against Theft and Fraud,'' and 
expressly included provisions of Title 18 of the U.S. Code pertaining 
to criminal offenses involving the misuse of Federal funds, as well as 
provisions of the False Claims Act. H.R. 1806, 104th Cong., Sec.  5 
(1995).
    LSC adopted the list of statutes in section 5, with one exception. 
Through negotiation with LSC's Office of Inspector General (OIG), LSC 
determined that two other criminal statutes should be included in the 
list. 61 FR 45760, Aug. 29, 1996. These statutes prohibit bribery of 
public officials and witnesses and conspiracy to defraud the United 
States. Id. at 45761.
    Minor changes to the interim rule, not affecting this list, were 
made before the

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final rule was published in 1997. 62 FR 19424-19427, Apr. 21, 1997. LSC 
has not revised Part 1640 since the publication of the final rule.
    Since the final rule was published, Congress has amended or passed 
other Federal laws relating to the proper use of Federal funds. In 
2014, OIG raised concerns that the Sec.  1640.2(a)(1) list of 
applicable Federal laws is now under-inclusive. As an example, OIG 
noted the omission of 18 U.S.C. 666, which prohibits theft or bribery 
concerning programs receiving Federal funds and has been the basis for 
OIG's referrals to the Department of Justice for prosecution. 
Subsequently, LSC staff researched other Federal laws applicable to 
fraud, waste, and abuse of Federal funds. The search revealed at least 
two other Federal laws relating to the proper use of Federal funds 
currently missing from the Sec.  1640.2(a)(1) list: 18 U.S.C. 285--
Taking or using papers relating to claims, and 18 U.S.C. 1031--Major 
fraud against the United States.
    As required by the LSC Rulemaking Protocol, LSC staff prepared an 
explanatory rulemaking options paper, accompanied by a proposed rule 
amending Part 1640. On January 22, 2015, the Operations and Regulations 
Committee (Committee) voted to authorize LSC to initiate rulemaking and 
to recommend that the LSC Board of Directors (Board) approve publishing 
the proposed rule. On January 24, 2015, the Board approved the proposed 
rule for publication in the Federal Register for notice and comment. 
LSC published the notice of the proposed rulemaking (the NPRM) in the 
Federal Register on February 3, 2015. 80 FR 5016, Feb. 3, 2015. The 
comment period remained open for thirty days and closed on March 5, 
2015.
    On April 12, 2015, the Committee considered the draft final rule 
for publication and voted to recommend its publication to the Board, 
subject to one amendment. The Committee voted to amend the language in 
Sec.  1640.2(a) to explicitly state that the Board would vote at a 
public meeting on any proposed changes to the list of Federal laws 
relating to the proper use of Federal funds. The Committee made this 
amendment in response to a comment made during the meeting by the 
National Legal Aid and Defender Association (NLADA) expressing its 
position that proposed changes to the list should be subject to public 
comment prior to adoption by the Board. On April 14, 2015, the Board 
voted to adopt and publish the final rule as amended.
    Material regarding this rulemaking is available in the open 
rulemaking section of LSC's Web site at http://www.lsc.gov/about/regulations-rules/open-rulemaking. After the effective date of the 
rule, those materials will appear in the closed rulemaking section at 
http://www.lsc.gov/about/regulations-rules/closed-rulemaking.

II. Section-by-Section Discussion of Comments and Regulatory Provisions

    LSC received two comments during the public comment period. One 
comment was submitted by an LSC-funded recipient, Colorado Legal 
Services (CLS). The other comment was submitted by the non-LSC-funded 
non-profit NLADA through its Civil Policy Group and its Regulations and 
Policy Committee. Both commenters were generally supportive of the 
changes LSC proposed to Part 1640.

Proposed Sec.  1640.1--Purpose

    LSC proposed revising this section to reflect the changes to Part 
1640, specifically removing the language stating that the applicable 
Federal laws were identified in Part 1640. LSC received no comments on 
this proposal.

Proposed Sec.  1640.2--Applicable Federal Laws

    LSC proposed deleting the existing Sec.  1640.2(a)(1) list of 
applicable Federal laws. The contracts between the Corporation and its 
recipients, currently referred to as the LSC Grant Assurances, will be 
modified to provide recipients with a weblink to the updated list. LSC 
proposed a new Sec.  1640.2(a), which states that the Corporation will 
maintain a public list of applicable Federal law on the Corporation's 
Web site. LSC stated in the preamble of the NPRM that the list would be 
exhaustive but did not specifically use that term in the proposed rule 
text.
    Comment 1: NLADA and CLS both expressed concern that LSC's decision 
to move the list of applicable Federal laws from the rule to LSC's Web 
site would decrease stakeholders' ability to comment on proposed 
changes to the list. NLADA noted that this was the second proposal by 
LSC in the past year to remove a section of a regulation from the usual 
rulemaking process. NLADA stated: ``While we understand and support 
LSC's desire in this instance to avoid an unnecessary, time-consuming 
regulatory process, we want to confirm NLADA's very strong support'' 
for LSC's commitment, expressed in the 2002 rulemaking protocol, to 
``conduct its rulemaking activities in a spirit of cooperative dialog 
with [] recipients and other interested parties.'' CLS similarly 
asserted that ``[a]s LSC is a program uniquely committed to protecting 
due process rights and protections, it should adhere to them strictly 
itself and provide an opportunity for comment before the list of 
Federal laws relating to the proper use of Federal funds by LSC 
recipients is modified or changed.''
    Response: LSC views updating the list of applicable Federal laws to 
be an administrative task that does not affect the underlying substance 
of the rule. Updating the list does not materially change the Part 1640 
requirement that recipients, and its employees and board members, 
comply with Federal laws relating to the proper use of Federal funds.
    Although the regulation does not require notice and an opportunity 
for comment before submitting modifications of the list to the Board 
for approval, LSC remains committed to providing recipients with notice 
of any proposed modifications before a Board meeting. Recipients will 
have an opportunity to comment on the proposed modifications prior to 
and at the meeting where the modifications will be discussed.
    Comment 2: CLS and NLADA supported LSC's decision to make the list 
of applicable Federal laws exhaustive. In its comment, NLADA 
recommended that LSC include language in the text of the rule stating 
that the list is exhaustive.
    Response: LSC will adopt NLADA's recommendation. LSC will revise 
the first sentence of Sec.  1640.2(a) to read: ``LSC will maintain an 
exhaustive list of applicable Federal laws relating to the proper use 
of Federal funds on its Web site and provide recipients with a link to 
the list in the contractual agreement.''
    LSC proposed renumbering Sec.  1640.2(a)(2) as Sec.  1640.2(b) and 
revising the language for clarity and readability. No substantive 
changes were made to this subsection. LSC received no comments on this 
proposal. LSC proposed redesignating existing Sec.  1640.2(b)(1) and 
(2) as Sec.  1640.4(a) and (c) respectively.

Proposed Sec.  1640.3--Contractual Agreement

    LSC proposed revising existing Sec.  1640.3 for clarity and 
readability. No substantive changes were made to this subsection. LSC 
received no comments on this proposal.

Proposed Sec.  1640.4--Violation of Agreement

    LSC proposed redesignating existing Sec.  1640.2(b)(1) and (2) as 
Sec.  1640.4(a) and (c) respectively. The proposed move groups each 
definition in existing Sec.  1640.2(b) with each definition's 
consequence for violating the agreement

[[Page 21656]]

in existing Sec.  1640.4. No substantive changes were made, but the 
text has been revised for clarity and readability throughout the 
section. LSC received no comments on this proposal.

List of Subjects in 45 CFR part 1640

    Fraud; Grant programs--law; Legal services.

    For the reasons stated in the preamble, the Legal Services 
Corporation revises 45 CFR part 1640 to read as follows:

PART 1640--APPLICATION OF FEDERAL LAW TO LSC RECIPIENTS

Sec.
1640.1 Purpose.
1640.2 Applicable Federal laws.
1640.3 Contractual agreement.
1640.4 Violation of agreement.

    Authority:  42 U.S.C. 2996e(g).


Sec.  1640.1  Purpose.

    The purpose of this part is to ensure that recipients use their LSC 
funds in accordance with Federal law related to the proper use of 
Federal funds. This part also provides notice to recipients of the 
consequences of a violation of such Federal laws by a recipient, its 
employees or board members.


Sec.  1640.2  Applicable federal laws.

    (a) LSC will maintain an exhaustive list of applicable Federal laws 
relating to the proper use of Federal funds on its Web site and provide 
recipients with a link to the list in the contractual agreement. The 
list may be modified with the approval of the Corporation's Board of 
Directors at a public meeting. LSC will provide recipients with notice 
when the list is modified.
    (b) For the purposes of this part and the laws referenced in 
paragraph (a) of this section, LSC is considered a Federal agency and a 
recipient's LSC funds are considered Federal funds provided by grant or 
contract.


Sec.  1640.3  Contractual agreement.

    As a condition of receiving LSC funds, a recipient must enter into 
a written agreement with the Corporation that, with respect to its LSC 
funds, will subject the recipient to the applicable Federal laws 
relating to the proper use of Federal funds. The agreement must include 
a statement that all of the recipient's employees and board members 
have been informed of such Federal law and of the consequences of a 
violation of such law, both to the recipient and to themselves as 
individuals.


Sec.  1640.4  Violation of agreement.

    (a) LSC will determine that a recipient has violated the agreement 
described in Sec.  1640.3 when the recipient has been convicted of, or 
judgment has been entered against the recipient for, a violation of an 
applicable Federal law relating to the proper use of Federal funds with 
respect to its LSC grant or contract, by the court having jurisdiction 
of the matter, and any appeals of the conviction or judgment have been 
exhausted or the time for appeal has expired.
    (b) A violation of the agreement by a recipient based on recipient 
conduct will result in the Corporation terminating the recipient's LSC 
grant or contract without need for a termination hearing. While an 
appeal of a conviction or judgment is pending, the Corporation may take 
any necessary steps to safeguard its funds.
    (c) LSC will determine that the recipient has violated the 
agreement described in Sec.  1640.3 when an employee or board member of 
the recipient has been convicted of, or judgment has been entered 
against the employee or board member for, a violation of an applicable 
Federal law relating to the proper use of Federal funds with respect to 
the recipient's grant or contract with LSC, by the court having 
jurisdiction of the matter, and any appeals of the conviction or 
judgment have been exhausted or the time for appeal has expired, and 
the Corporation finds that the recipient has knowingly or through gross 
negligence allowed the employee or board member to engage in such 
activities.
    (d) A violation of the agreement by the recipient based on employee 
or board member conduct will result in the Corporation terminating the 
recipient's LSC grant or contract. Prior to termination, the 
Corporation will provide notice and an opportunity to be heard for the 
sole purpose of determining whether the recipient knowingly or through 
gross negligence allowed the employee or board member to engage in the 
activities leading to the conviction or judgment. While an appeal of a 
conviction or judgment or a hearing is pending, the Corporation may 
take any necessary steps to safeguard its funds.

    Dated: April 15, 2015.
Stefanie K. Davis,
Assistant General Counsel.
[FR Doc. 2015-08974 Filed 4-17-15; 8:45 am]
 BILLING CODE 7050-01-P