U.S. Department of Housing and Urban Development Washington, D.C. 20410-3000 February 20, 1992 Ethics Letter 92-3 OFFICE OF THE ASSISTANT SECRETARY FOR ADMINISTRATION Special Attention of: HUD CLIENTS Subject: HUD ALERT "Section 112 of the Department of Housing and Urban Development Reform Act of 1989," regarding the requirements governing the lobbying of HUD personnel. Purpose. This Letter provides information on Section 112 of the HUD Reform Act. That Act requires persons that make expenditures to influence a HUD officer or employee in the award of financial assistance or the taking of a management action by the Department to keep records and report to HUD on the expenditures. It also requires persons that are retained to influence a HUD officer or employee in the award of financial assistance or the taking of a management action by the Department to register with HUD, and report to HUD on their lobbying activities. Section 112 also places limitations on the fees that may be paid to consultants who are engaged to influence the award or allocation of the Department's financial assistance. The rule is designed to improve the Department's ability to ensure that the process by which the Department awards financial assistance and takes management actions is conducted in a manner that is fair and open, and free from improper influence. Executive Summary. The letter is presented in eight parts. Part I gives the reader background to Section 112. Part II examines the principal features of this new provision. Part III discusses Section 86.20 of the rule, "Persons Making Expenditures to Obtain Lobbying Services." Coverage, record keeping, reporting, counting expenditures, and contingent liability are topics reviewed. Part IV discusses Section 86.25 of the rule, "Persons Engaged to Provide Lobbying Services." Topics of discussion include coverage, registration, annual reporting, and updates for changes in registration. "Exemptions," which apply to both Section 86.20 and Section 86.25, are examined in Part V. These exemptions include compensation to regularly employed personnel, a minimum dollar requirement, exceptions for compliance with HUD requirements, and for litigation, and an exception for elected State and local government officials. Part VI reviews Section 86.35 of the rule, "Limitations on Consulting Fees. Applicability and exemptions are topics of discussion. Part VII examines penalties for non-compliance with Section 112: civil money penalties and notice of violations. The final section of this letter, Part VIII, discusses public inspection of registration and reporting documents under Section 112. ___________________________________________________________________________ AE: Distribution: W-3-1, Special Distribution _____________________________________________________________________ 2 Part I. History The Department of Housing and Urban Development Reform Act of 1989, Pub. L. 101-235, was approved by Congress on December 15, 1989. Section 112 added a new section 13 to the Department of Housing and Urban Development Act, 42 U.S.C. 3537b. Section 112 was published as a final rule in the Federal Register on May 17, 1991 and became effective on June 17, 1991. A copy of the final rule is attached to this Letter See Attachment 1 . The final rule stated that Sections 86.20 and 86.25 contained information collection requirements that would not become effective until the Office of Management and Budget (OMB) approved the requirements. On July 2, 1991, the Department published the OMB approval number for those sections and notified the public of the availability of the forms for compliance with Section 112 in the Federal Register See Attachment II . On July 12, 1991, the Department published a Notice in the Federal Register announcing that the Office of Ethics will receive all registration and reporting documents required to be filed under Section 112 See Attachment III . An Interpretive Rule was published in the Federal Register by the Department on November 12, 1991, concerning whether Section 112 excludes from its coverage all multi-year agreements, retainers, or other extended arrangements to provide lobbying services that were entered into before June 17, 1991, the effective date of the rule. The purpose of this interpretive rule was to give clear guidance on Section 112's applicability to these types of arrangements See Attachment IV . Part II. Features Section 112 deals with the two players who are typically involved in efforts to influence the Department with respect to the award of financial assistance or the taking of management actions: those who obtain the services of another for this purpose and those who provide the services. Section 112 contains two principal features. The first establishes the standards under which: o Persons that make expenditures to influence a HUD officer or employee in the award of financial assistance or the taking of a management action by the Department must keep records, and report to HUD, on the expenditures; and o Persons that are engaged to influence a HUD officer or employee in the award of financial assistance or the taking of a management action by the _____________________________________________________________________ 3 Department must register with HUD, and report to HUD on their lobbying activities. The second feature imposes limitations on the fees that may be paid to consultants who are engaged to influence the award or allocation of the Department's financial assistance. It should be noted that except for limitations on fees to consultants, Section 112 contains procedural requirements only. It neither expands nor limits the circumstances under which communications designed to influence the Department's decisions may be made. Part III. Section 86.20 of the Rule: Persons Making Expenditures to Obtain Lobbying Services Coverage. This section applies to each person: o That makes or enters into an agreement to make, an expenditure to a person; o That makes or enters into an agreement to make, an expenditure to a person on behalf of another person; or o On whose behalf an expenditure is made to a person, or an agreement to make an expenditure to a person is entered into; if the expenditure is intended to influence, or should reasonably be expected to have the effect of influencing, a decision of the Department with respect to the award of any financial assistance or the taking of any management action, through direct communication with any officer or employee of the Department. Section 86.20 only applies to expenditures that are made to another person: a person who makes covered expenditures on his/her own behalf, without retaining another person, is not subject to this section. The person who makes, or who enters into an agreement to make, an expenditure to a person on behalf of another person is subject to the requirements of this part only if he/she has an interest, financial or otherwise, in the lobbying activity. Record keeping. Except as provided by exemptions to Section 86.20 of the rule, each person subject to the coverage must keep detailed records of all agreements and all expenditures See Section 86.20 (b) of the final rule . Reporting. Except as provided by exemptions to Section 86.20 of the rule, each person subject to the coverage must file with the Office of Ethics (OE) at HUD, between the first and 10th day of January of each year, a report Form HUD-2883, see Attachment II specifying all information required to be retained under record keeping with respect to the preceding calendar year. _____________________________________________________________________ 4 A Form HUD-2883 is considered properly filed when it is deposited in a post office within the prescribed time, and is sent by certified or registered mail, postage prepaid and return receipt requested, to OE. If OE does not receive a properly filed report, the person must promptly file a duplicate report upon notification by OE that the original report has not been received. Part IV: Section 86.25 of the Rule: Persons Engaged to Provide Lobbying Services. Coverage. This section applies to each person that is retained by a person to influence a decision of the Department with respect to the award of any financial assistance or the taking of any management action through direct communication with any officer or employee of the Department. It does not apply to a person that attempts to influence the Department on his/her own behalf, without being retained by another person. Registration. Except as provided by exemptions to Section 86.25 of the rule, each person subject to coverage above must register with the Office of Ethics (OE). The registration must be received by OE not later than 14 days after the date on which the person is retained. The registration must be in writing on Form HUD-2881-A see Attachment II required from individuals or Form HUD-2881-B see Attachment II required from entities. Annual reporting. Except as provided by exemptions to Section 86.25 in this rule, each person subject to registration above must, between the first and 10th day of January of each year, file with OE a detailed report, Form HUD-2882-B see Attachment II , of all money or other things of value received, and of all money or other things of value expended, by the registrant during the preceding year in carrying out activities pursuant to an agreement subject to the coverage of Section 86.25. Updates for changes in registration. Each person that makes a change to the information in a registration form previously submitted must comply with all applicable registration requirements within 14 days of any change. Part V: Exemptions Which Cover Both Section 86.20 and Section 86.25 Compensation to regularly employed personnel. The reporting requirements under Section 86.20 and Section 86.25 do not apply to the payment of reasonable compensation to a regularly employed officer or employee of the person that requests or receives financial assistance, or that is involved in any management action. Any person asserting this exception must demonstrate, upon OE's request and to OE's satisfaction, that it qualifies for the exception, including that it paid reasonable compensation to a regularly employed officer or employee See Section 86.15 of the final rule for definitions of reasonable compensation and regularly employed . An employee who lobbies on behalf of his/her employer, must comply with the registration requirements and the employer must keep records of the expenditure for two years. _____________________________________________________________________ 5 Minimum dollar requirement. The reporting requirements of Section 86.20 do not apply if the sum of the amounts involved in all agreements to make an expenditure entered into, and of all expenditures made, by or on behalf of a person is less than $10,000. o In the case of an agreement to make an expenditure, the full amount of the agreement must be taken into account in filing an annual report or in determining the dollar threshold, even if not all the expenditures pursuant to the agreement are made in the reporting year. Subsequent expenditures pursuant to the agreement must be taken into account for those purposes only to the extent that the expenditures exceed the consideration specified in the agreement see Section 86.20 (g) (1) of the final rule ; and o The amount of any contingent liability assumed by a person equals the expenditure that the person would have had to make, if the contingency had been realized. For example, if a person agrees to pay $20,000 for lobbying if the project is completed, $20,000 must be reported whether the project is completed or not. The Section 86.25 reporting requirements do not apply if the sum of all the money or things of value received by a person for lobbying activities during the year covered by the report is less than $10,000. Exception for compliance with HUD requirements. The record keeping and reporting requirements of Section 86.20 do not apply to any part of an agreement that is wholly and expressly limited to making an expenditure to comply with conditions, requirements, or procedures imposed by the Department in connection with any financial assistance or management action. Also, they do not apply to any expenditure that is limited to complying with conditions, requirements, or procedures imposed by the Department in connection with any financial assistance or management action; but only if: o The conditions, requirements, or procedures are imposed, or are reasonably believed by the person to be imposed, by law, regulation, directive, or other written instruction (such as a Notice of Fund Availability, an application document, or a mortgagee letter); or o The conditions, requirements, or procedures are imposed by an officer or employee of the Department, other than as provided above. Similarly, the registration and reporting requirements of Section 86.25 do not apply to any agreement that is wholly and expressly limited to complying with conditions, requirements, or procedures imposed by the Department in connection with any financial assistance or management action. Also, they do not apply to the receipt of any money or other thing of value that is limited to complying with conditions, requirements, or procedures in connection with any financial assistance or management action; but only if: _____________________________________________________________________ 6 o The conditions, requirements, or procedures are imposed, or are reasonably believed by the person to be imposed, by law, regulation, directive, or other written instruction (such as a Notice of Fund Availability or application document or a mortgagee letter); or o The conditions, requirements, or procedures are imposed by an officer or employee of the Department, other than as provided above. Exception for litigation. The record keeping and reporting requirements of Section 86.20 do not apply to any agreement to make an expenditure, or any expenditure made, in connection with litigation to which the person is a party. The registration and reporting requirements of Section 86.25 do not apply to any agreement, or to the receipt or expenditure of money or any other thing of value in connection with litigation to which the person is a party. Exception for elected State and local government officials. The record keeping and reporting requirements of Section 86.20, as well as the registration and reporting requirements of Section 86.25 do not apply to: o Elected officials of a State or local government; o Political appointees who serve on the personal staffs of elected officials of a State or local government; and o Full-time, appointed officials of a State or local government who serve in policy-level positions. This exception applies only to the extent that the individual claiming it is engaged in the official business of the State or local government that the individual serves. Part VI: Section 86.50 of the Rule: Limitations on Consulting Fees Applicability. Section 13 contains limitations on the fees that may be paid to consultants engaged to influence the award or allocation of the Department's financial assistance. Except as provided by exemptions to the rule, no person who is engaged for pay or any other consideration to influence a decision of the Department with respect to the award or allocation of any financial assistance, through direct communication with any officer or employee of the Department, may seek or receive any fee or remuneration of any kind that: o Is based on the amount of the assistance or the number of units that may be provided by the Department; or o Is contingent in any way on an award of assistance by the Department, except where: _____________________________________________________________________ 7 Services are provided to a public or private nonprofit entity applying for the award or allocation of assistance; and All or part of the professional services related to a project are donated to the nonprofit entity in the event assistance for a project is not awarded See Section 86.50 (c)(1) tor definition of professional services . Exemption. Section 86.50 does not apply to any agreement that is wholly and expressly limited to complying with conditions, requirements, or procedures imposed by the Department in connection with any financial assistance. It also does not apply to the receipt of any money or other thing of value that is limited to complying with conditions, requirements, or procedures in connection with any financial assistance; but only if: o The conditions, requirements, or procedures are imposed, or are reasonably believed by the person to be imposed, by law, regulation, directive, or other written instruction (such as a Notice of Fund Availability or application document or a mortgagee letter); or o The conditions, requirements, or procedures are imposed by an officer or employee of the Department, other than as provided above. Part VII: Penalties for Non-Compliance with Section 112 Civil money penalties. Section 112 authorizes the imposition of civil money penalties on any person that knowingly fails to comply with the rule's reporting and registration requirements. The penalty is the greater of $10,000 or the total amount received by a person for any lobbying service to which the failure to report or register relates. This civil money penalty is in addition to other available civil remedies, administrative sanctions or criminal penalties which may be available See Section 86.35 of the final rule for more details . Notice of violations. Any suspected violation of Section 112 provisions should be brought to the attention of Arnold Haiman, Director, Office of Ethics, Department of Housing and Urban Development, 451 Seventh Street, S.W., Room 2158, Washington. D.C., 20410. Part VIII: Public Inspection of Registration and Reporting Documents Under Section 112 Requests for copies of forms. Each report on an agreement or an expenditure that is filed with the Office of Ethics constitutes part of the public records of the Department and is open to public inspection. Requests for copies of forms must be submitted in writing to the Director, Executive Secretariat, Headquarters, _____________________________________________________________________ 8 FOIA Officer, Department of Housing and Urban Development, 451 Seventh Street, S.W., Room 10139, Washington,D.C., 20410.