U.S. Department of Housing and Urban Development Washington, D.C. 20410-3000 June 20, 1991 OFFICE OF THE ASSISTANT SECRETARY FOR ADMINISTRATION ETHICS LETTER 91-2 PROHIBITION OF ADVANCE DISCLOSURE OF FUNDING DECISIONS SECTION 103 OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT REFORM ACT OF 1989 PART I - INTRODUCTION A. PURPOSE. This Letter provides guidance on the regulation implementing Section 103 of the Department of Housing and Urban Development Reform Act of 1989, known as the HUD Reform Act. Section 103 is entitled "Prohibition of Advance Disclosure of Funding Decisions." The intent of Section 103 is to prohibit the unauthorized disclosure of information during the selection process to applicants, lobbyists, consultants, Members of Congress, Congressional staff, or others that would give, or would appear to give, one applicant an advantage over another applicant. It is not the intent of Section 103 to stifle communication between HUD employees or with applicants, but to strengthen HUD's controls over the release of information regarding Departmental funding decisions. Section 103 prohibits disclosure of certain information relating to program funding decisions to persons not authorized to have that information during the selection process for awarding assistance by the Department. There are certain permissible disclosures which are discussed below. The Department can impose civil money penalties on employees who knowingly violate the prohibitions of Section 103. The Department can also impose administrative sanctions against applicants who may benefit from the prohibited communications. B. BACKGROUND. 1. The Department of Housing and Urban Development Reform Act of 1989, Pub. L 101-235, was approved and became law on December 15, 1989. 2. The Final Rule implementing Section 103 was published in the Federal Register on May 13, 1991. See Attachment The effective date of the regulation was June 12, 1991. It amends title 24 of the Code of Federal Regulations by adding a new part 4. _________________________________________________________________________ AE: Distribution: W-1, W-2, W-3, W-3-1, W-4, R-1, R-2, R-3-1, R-3-3, R-6, R-6-2, R-7, R-8, R-9 _____________________________________________________________________ PART II - AN OVERVIEW OF THE SUBSTANTIVE REQUIREMENTS The following is a brief summary of the major requirements. The regulation should be consulted for more information on each point. A. SELECTION PROCESS. During the selection process, an employee shall not knowingly disclose, directly or indirectly, any covered selection information to any person other than an employee authorized to receive such information (except as provided in the Paragraph 4.105, Permissible Disclosures, of the regulation implementing Section 103; see paragraph II-F below for more information). According to the regulation, the "selection process": 1. Begins when the HUD official (or designee) responsible for awarding the assistance makes a written request (which includes the selection criteria) to the Office of General Counsel (OGC) to prepare (for publication in the Federal Register) a Notice of Fund Availability (NOFA), solicitation, or request for applications for assistance; 2. Includes the evaluation of applicants; and 3. Concludes with the announcement of the selection of recipients of assistance. B. HUD PROGRAMS COVERED. Section 103 applies to any grant, loan, subsidy, guarantee, or other financial assistance under a program administered by HUD that provides for the competitive distribution of assistance. The regulation contains a list of programs covered, but cautions that the list is not exclusive. There are two major exclusions: 1. HUD's mortgage insurance programs; and 2. Any contracts that are subject to the Federal Acquisition Regulation. C. HUD EMPLOYEES. The prohibition against disclosure applies to any HUD "employee," including persons retained on a contractual or consultative basis under an Office of Personnel and Training appointment. However, "employee" does not include an independent contractor who is working under the authority of a procurement contract. D. AUTHORIZED EMPLOYEES. An authorized employee is defined as one whose responsibilities in connection with the selection process require that the employee have the covered selection information to perform her or his official duties. In other words, it is a "need-to-know" Office of Ethics Page 2 Ethics Letter 91-2 _____________________________________________________________________ test. There is no list of authorized employees, either in general or for each specific selection process. Authorized employees may discuss covered selection information with other persons who are working on that particular competition or who have a need to know that information to perform their official duties. Authorized employees may not discuss covered selection information with people who are not working on the selection process or do not have an official need to know. E. COVERED SELECTION INFORMATION. Information which may not be disclosed during the selection process (i.e., "covered selection information") includes information that is: 1. Required by statute, regulation, or order to be confidential; 2. Contained in an application or request for HUD assistance; or 3. Used in arriving at the decision to award assistance, unless the information is generally available to the public. Examples of information that may not be disclosed include but are not limited to: o The relative standing of any applicant; o The amount of assistance requested by any applicant; o The identity of any applicant; o The number of applicants; o Any information contained in another applicant's application. F. PERMISSIBLE DISCLOSURES. 1. There are situations in which disclosures to employees who are not involved in the selection process are allowable. For example, the disclosure of covered selection information to clerical staff (who might not be considered officially involved in the selection process) to accomplish clerical work would not subject the disclosing employee to enforcement of this rule. However, a supervisor assigning such work should alert the clerical employee to the confidential nature of the material. 2. An authorized employee may contact an applicant to discuss the applicant's: o Failure to qualify (after a preliminary review for eligibility and completeness) and the reasons for the failure to qualify; o Failure to be technically acceptable after a full review; and Office Of Ethics Page 3 Ethics Letter 91-2 _____________________________________________________________________ o Application to obtain clarification. 3. During the selection process, an authorized employee is permitted to disclose to any person information which includes (but is not limited to) the following: o The requirements of a HUD program or programs, including unpublished policy statements, provided such statements are disclosed on a uniform basis to any applicant; o The dates by which particular decisions in the selection process will be made; o Any information which has been published in the Federal Register or otherwise made public; o Legal activities, including litigation, if the disclosure is made to an attorney who is representing or is otherwise responsible to the Department in connection with such activities. Note: Unless you have reason to believe otherwise, a properly explained request by a HUD attorney should be honored; o Procedures that are required to be performed to process an application, e.g., environmental or budgeting reviews; and o Information needed for an audit, inquiry, or investigation by the HUD Office of Inspector General; 4. Since it is the Department's policy to address conferences and meetings of potential applicants as part of HUD's mission to inform the public of new programs, disclosures regarding program requirements that might not have been made public because they are recently formulated sometimes will be made. These types of disclosures, made at such conferences, will be deemed public statements and will be available to the general public. HUD officials who make such statements must, of course, have prior approval to do so. G. EMPLOYEE PENALTIES. For HUD employees who "knowingly and materially" violate Section 103, there are civil money penalties of up to $10,000. To constitute a violation, the prohibited disclosure must have been made to a person not authorized to have the information. Thus, the unauthorized person may be someone within or outside the Department. Except for the exceptions outlined above in Section F, Permissible Disclosures, no one (including Members of Congress, Congressional staff, lobbyists, consultants, developers, etcetera) may be provided prohibited information during the selection process. H. APPLICANT SANCTIONS. The Department can take administrative sanctions against applicants who receive prohibited information. If HUD has information which provides a reasonable Office of Ethics Page 4 Ethics Letter 91-2 _____________________________________________________________________ basis to believe that an applicant has received prohibited information, the Department may: 1. In the case of a selection that has not been made, determine whether to terminate the selection process or take other appropriate action; and 2. In the case of a selection that has been made (if the selected applicant was the recipient of prohibited information): o Void or rescind the selection, subject to review and determination, after an opportunity for a hearing; o Impose sanctions upon the selected applicant, subject to review and determination, after opportunity for a hearing (e.g., the Secretary may seek to debar an applicant after an opportunity for a hearing before an administrative law judge); o Permit the selected applicant to continue to participate in the program; or o Take any other appropriate actions. The rule provides no linkage between a sanction against an applicant and a referral for consideration of a civil money penalty against an employee. An action to sanction an applicant is independent of a decision to seek a civil money penalty against an employee. However, action against an employee who violates the prohibition on disclosure may be a predicate for action to sanction an applicant. PART III - PROCEDURAL REQUIREMENTS This part describes the responsibilities of Departmental officers to implement the regulation. A. THE SECRETARY. If the Department has a reasonable basis to believe that a violation of Section 103 has occurred, the Secretary plays the determining role in imposing administrative sanctions and remedies against applicants. In determining whether a sanction is appropriate and, if so, which sanction or sanctions should be sought, the Secretary shall give consideration, among other things, to the applicant's conduct with respect to the violation, the history of prior violations in any HUD program, the benefits received or expected, potential injury to the Department, deterrence of future violations, and the extent of any complicity in the violation. NOTE: The Secretary may impose a sanction against an applicant whether or not the Office of Ethics refers a case to the Departmental Civil Penalties Panel (DCPP) or the DCPP proposes a civil money penalty against an employee - see below for more information. Office of Ethics Page 5 Ethics Letter 91-2 _____________________________________________________________________ B. PRINCIPAL STAFF. Principal Staff (PS) have the following responsibilities: 1. Establish Liaison. Each PS shall designate a senior level official as liaison to the Office of Ethics. The name, title, office, and telephone number of such designee shall be submitted to the Office of Ethics. 2. Notify the Office of Ethics of the beginning of the selection process. When sending a written request to the Office of General Counsel to prepare a NOFA, solicitation, or request for applications for assistance for publication in the Federal Register, each PS (or designee) will simultaneously send a copy of the request to the Office of Ethics. 3. Notify employees at the beginning of the selection process. When a PS asks OGC to prepare a NOFA, solicitation, or request for applications, the PS will also notify in writing all employees who reasonably would be expected to be subject to the prohibitions of Section 103 with respect to that particular competition. The PS must make it clear to employees that, for each selection process, there is no list of authorized employees. Instead, employees are considered authorized if they meet the definition in the regulation (see paragraph II-D). The notice will alert affected employees that the selection process has begun and that they must observe the advice in the notice. However, the notice is a reminder only, and an employee may not use the lack of receipt of the notice as a defense in a civil penalty action against the employee. The PS must submit documentation to the Office of Ethics showing that employees have been notified. 4. Take appropriate action when the Office of Ethics refers a case to a PS for administrative action against an employee or sanctions against an applicant. In the case of a proposed sanction against an applicant, the PS will review the facts and either: o Forward it to the Secretary with a recommended sanction and the reasons for that recommendation; or o Refer it back to the Office of Ethics with the reasons for not recommending sanctions. C. THE OFFICE OF ETHICS. 1. The Office of Ethics will publicize the requirements of this rule within the Department and conduct training for those employees who are likely to be directly affected by it. Office of Ethics Page 6 Ethics Letter 91-2 _____________________________________________________________________ 2. After receiving a copy of the PS's request to OGC to prepare a NOFA, solicitation, or request for applications, the Office of Ethics will establish a suspense file and will follow up with the PS, if necessary, to assure that the PS has notified in writing all employees who reasonably would be expected to be subject to the prohibitions of Section 103 with respect to the particular competition. 3. The Office of Ethics (in addition to the Office of Inspector General) will receive allegations of violations and refer them to the Office of Inspector General. 4. The Office of Ethics shall review each Office of Inspector General (OIG) report and, if necessary, ask the OIG for more information. Otherwise, OE shall determine whether there is sufficient information providing a reasonable basis to believe a violation of Section 103 has occurred. If there is not a reasonable basis, the Office of Ethics will close the matter and send a copy of its determination to the Office of Inspector General. If there is sufficient information to provide a reasonable basis to believe that a violation has occurred, the Office of Ethics shall: o Send its determination to the Office of Inspector General; and o Refer the matter to the Departmental Civil Penalties Panel (DCPP) to consider the case for a civil money penalty. The DCPP may consider whether to impose a civil money penalty in a particular matter only upon referral from the Office of Ethics. Before referring the matter to the DCPP, the Office of Ethics must have found that the violation was "knowing and material." The term "knowing" will be satisfied if the employee has actual knowledge of the violation, or if the employee either acts with deliberate ignorance of, or with reckless disregard for, a prohibited disclosure. "Material" means important. The guidelines which the Office of Ethics must consider in determining whether a violation is "material" are: a. The content of the disclosure and its significance to the person to whom the disclosure was made; b. The time during the selection process when the disclosure was made; c. The person to whom the disclosure was made; d. The dollar amount of assistance requested by the person to whom the disclosure was made; e. The dollar amount of assistance available for a given competition or Office of Ethics Page 7 Ethics Letter 91-2 _____________________________________________________________________ f. The benefit, if any, received or expected by the employee, the employee's relatives or friends, or any other person with whom the employee is affiliated; g. The potential injury to the Department; for example, the opportunity for litigation or administrative contest against the Department or the likelihood of the violation bringing the Department into disrepute. 5. The Office of Ethics may, in addition to referring the matter to the DCPP, refer the matter to an appropriate PS for consideration of any other appropriate sanction. 6. The Office of Ethics will send a copy of the final decision regarding any action taken to the Office of Inspector General. D. THE OFFICE OF INSPECTOR GENERAL 1. The Office of Inspector General (OIG) will, in addition to the Office of Ethics, receive allegations of violations of Section 103. 2. The OIG shall notify the Office of Ethics in writing when the OIG receives information concerning an alleged violation or when it begins an inquiry or investigation of an alleged violation. 3. The OIG will review each alleged violation and conduct an inquiry or investigation as appropriate. If, after a review, the Office of Inspector General determines that further investigation is not warranted, it shall notify the Office of Ethics of that determination. If the Office of Inspector General determines that additional investigation is warranted, it will conduct the investigation and, upon completion, issue a report to the Office of Ethics as to each alleged violation. E. THE OFFICE OF GENERAL COUNSEL 1. The Regulations Division will notify the Office of Ethics of each request for a NOFA. 2. Program Counsels will provide guidance and legal counsel to program offices on the regulation. 3. Regional and Field Office Counsels will provide guidance and legal counsel to Regional and Field Offices on the regulation. F. THE DEPARTMENTAL CIVIL PENALTIES PANEL (DCPP). After receiving a referral from the Office of Ethics, the DCPP, with assistance from OGC, will: Office Of Ethics Page 8 Ethics Letter 91-2 _____________________________________________________________________ 1. Prepare a complaint for a civil money penalty to be filed with the Office of Administrative Law Judges, or 2. Decline to seek a civil money penalty and return the case to the Office of Ethics. A copy of any action taken will be sent to the Office of Ethics. NOTE: The Secretary may impose a sanction against an applicant whether or not the Office of Ethics refers a case to the DCPP or the DCPP proposes a civil money penalty against an employee. G. THE OFFICE OF THE ADMINISTRATIVE LAW JUDGES. The filing of a complaint by the DCPP with the Office of Administrative Law Judges (OALJ) triggers the hearing rights of the employee charged with the violation. The DCPP must send a copy of the complaint to the employee no later than when it is filed with the OALJ. Although a proposal for a penalty and the amount of the penalty may be made by the Office of Ethics or the DCPP or both, the penalty may not be imposed by law until the employee has had an opportunity for a hearing. The amount of any penalty may not exceed $10,000 for each violation. A civil money penalty may be sought in addition to any other available civil remedy or any available criminal penalty and may be imposed whether or not the Department imposes other administrative sanctions. H. THE REGIONAL DIRECTORS OF ADMINISTRATION (DOAs). The DOAs are responsible for directing field employees as to where they can get advice and guidance on Section 103. In addition, the DOAs will coordinate the Section 103 training (developed by the Office of Ethics) of Field employees. I. THE OFFICE OF PERSONNEL AND TRAINING. The Office of Personnel and Training is responsible for providing advice and assistance, as requested, to the Secretary, Principal Staff, or other authorized officials who are contemplating taking corrective action. J. INDIVIDUALS. Individuals should report violations of Section 103 to: 1. The Office of Ethics: 708-3815, FTS 458-3815; 2. The Regional Inspector General for Investigation; or 3. The HUD Hotline: FTS 458-4200, toll free 1-800-347-3735. Regulations prohibit the disclosure of the identity of any employee who reports a Office of Ethics Page 9 Ethics Letter 91-2 _____________________________________________________________________ violation without the consent of that employee or unless it is determined by the Office of Inspector General that the disclosure is unavoidable during the course of the investigation. Any questions about this Letter should be addressed to the Director, Office of Ethics, Room 2158, telephone 708-3815 (FTS 458-3815)(TDD 708-1112). Attachment: May 13, 1991 Federal Register Final Rule: 24 CFR Part 4, Prohibition of Advance Disclosure of Funding Decisions Office of Ethics Page 10 Ethics Letter 91-2