issue-1996-01-05•Federal Register proposed rules — 1996-01-05
Federal Register proposed rules — 1996-01-05
issue-1996-01-05Federal Register proposed rules — 1996-01-05Proposed Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 96-134 Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and Bonds
[Federal Register Volume 61, Number 4 (Friday, January 5, 1996)]
[Proposed Rules]
[Pages 402-406]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-134]
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DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 356
[Department of the Treasury Circular, Public Debt Series No. 1-93]
Sale and Issue of Marketable Book-Entry Treasury Bills, Notes,
and Bonds
AGENCY: Bureau of the Public Debt, Fiscal Service, Department of the
Treasury.
ACTION: Proposed rule.
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SUMMARY: The Department of the Treasury (``Department'') is proposing,
for comment, an amendment to 31 CFR Part 356 (Uniform Offering Circular
for the Sale and Issue of Marketable Book-Entry Treasury Bills, Notes,
and Bonds). The proposed amendment defines the term ``investment
adviser'' and contains a new section on bidding through investment
advisers. The amendment also makes certain clarifying changes.
DATES: Comments must be submitted on or before March 5, 1996. The
Department is particularly interested in receiving comments regarding
alternative methods for obtaining, in the least burdensome manner
possible, the information needed to ensure that no person or entity
receive a disproportionate share of the auction.
ADDRESSES: Comments should be sent to: Government Securities
Regulations Staff, Bureau of the Public Debt, Room 515, E Street
Building, Washington, D.C. 20239-0001. Comments received will be
available for public inspection and copying at the Treasury Department
Library, FOIA Collection, Room 5030, Main Treasury Building, 1500
Pennsylvania Avenue, N.W., Washington, D.C. 20220. Persons wishing to
visit the library should call (202) 622-0990 for an appointment.
FOR FURTHER INFORMATION CONTACT: Michael W. Sunner, Deputy Assistant
Commissioner, Office of Financing,
[[Page 403]]
Bureau of the Public Debt (202) 219-3350, or Margaret Marquette,
Attorney-Adviser, Office of the Chief Counsel, Bureau of the Public
Debt (202) 219-3320.
SUPPLEMENTARY INFORMATION: 31 CFR Part 356, also referred to as the
uniform offering circular, sets out the terms and conditions for the
sale and issuance by the Department of the Treasury to the public of
marketable book-entry Treasury bills, notes, and bonds. The uniform
offering circular was originally published on January 5, 1993 (58 FR
412), as a comprehensive statement of those terms and conditions.
Amendments to the circular were published on June 3, 1994 (59 FR
28773), and March 15, 1995 (60 FR 13906). In the time since the rule
was first published, several questions have arisen about the
application of the circular in situations where an investment adviser
formulates a bid or otherwise makes bidding decisions for a managed
account. As a result, the Department is proposing to define the term
``investment adviser'' and is setting out the specific terms and
conditions for bidding through investment advisers.
31 CFR Part 356 currently does not describe in detail rules
applying to investment advisers. The preamble to the January 5, 1993,
rule refers to investment advisers and ``others who bid on behalf of
their managed investment accounts or other clients,'' stating that an
investment adviser can bid for its clients in the name of the
investment adviser or in the names of the clients. The section on net
long position reporting requires that a special report be provided in
those cases where an investment adviser controls bids and positions
exceeding a specified amount.
The current rule, while allowing investment advisers to bid for
controlled accounts, does not specify how the various provisions of the
rule apply with respect to those accounts. In particular, it does not
address what is meant by the statement in the preamble to the January
5, 1993, rule that an investment adviser or a managed account is
considered the ``bidder for all purposes of [the] rule.'' It does not
make clear to what extent, if any, a managed account must take into
consideration the bids and position of the person or entity it would
otherwise be associated with under the bidder definitions contained in
Appendix A of the rule. It also does not make clear to what extent an
adviser that manages accounts must take into consideration the bids and
position of an entity that ``supervises'' the adviser.
The proposed rule adds, in Sec. 356.2, a definition for the term
``investment adviser.'' The new definition describes what is meant by
the term ``investment discretion.'' An entity exercising its authority
over an account to determine which auctions an account will bid in and
the quantity of securities to be bid for is an investment adviser for
purposes of the rule. The definition also clarifies that an adviser
employed or supervised by an entity is considered to be part of that
entity, i.e., as if the adviser was an affiliate of the entity under
the bidder definitions. For example, in the case where an individual
serves as an investment adviser to a mutual fund and is employed by a
partnership that advises other mutual funds, it is the partnership, not
the individual, that is considered the investment adviser for purposes
of the offering circular.
Section 356.15 sets out those terms that are unique to bids placed
through investment advisers. It provides that a controlled account is
considered to be separate from the person or entity that it would
otherwise be part of under the bidder definitions. A corporate
investment account managed by a third party that has investment
discretion would be a controlled account and, therefore, would not be
considered to be part of the corporation under the offering circular.
Section 356.15(a) incorporates a provision found in the preamble to
the January 5, 1993, rule that an investment adviser may bid for an
account either in the name of the investment adviser, in which case the
adviser is considered the bidder, or in the name of the account, in
which case the account is considered the bidder. This means that, for
purposes of bidding noncompetitively, an investment adviser that bids
for its controlled accounts in the name of the adviser is limited to
the maximum allowed bid and award amount for a noncompetitive bid for
that auction, e.g., $1 million total in a bill auction. An investment
adviser that bids noncompetitively for its controlled accounts in the
names of the accounts may bid for each account for the maximum allowed
noncompetitive amount, e.g., $1 million for each account in a bill
auction.
The proposed rule makes clear, in Sec. 356.15(b), that a controlled
account is subject to the same bidding restrictions as other bidders
regardless of whether a bid for the account is in the name of an
investment adviser or in the name of the account. Specifically, the
investment adviser may not bid for the account both competitively and
noncompetitively in the same auction. Also, the account is subject to
the noncompetitive bidding and award limitations contained in the rule.
As with the current rule, the proposed rule states that an
investment adviser must include in its net long position calculation
those bids and positions it controls in addition to bids and positions
it would otherwise have to include as a bidder. Unlike the current
rule, however, the proposed rule provides for the total reportable net
long position to be reported on the tender rather than in a special
report to a Federal Reserve Bank.
A significant change in the proposed rule from the current rule is
the amount of a net long position that an investment adviser may
exclude from its net long position calculation. The current rule allows
the adviser to exclude net long positions less than $500 million for
certain accounts that are not bid for in an auction. The rule as
revised would provide for a similar type of exclusion but decreases the
amount of the exclusion to $10 million. This change is being proposed
because the Department believes that a lower exclusionary amount is
necessary to give a more accurate picture of the amount of a security
controlled by an investment adviser.
In developing this proposal, the Department considered, as an
alternative, providing investment advisers an exclusion based on an
aggregate amount as opposed to separate position amounts in specific
accounts, e.g., allow an adviser to exclude the net long positions of
any accounts on whose behalf it is not bidding up to a given aggregate
amount. For example, if the aggregate net long position of all
controlled accounts on whose behalf the adviser was not placing
competitive bids was equal to or less than a designated amount (such as
$200 million), then that amount could be excluded from its net long
calculation. However, if the aggregate net long position for these
accounts exceeded such amount, then the amount in excess of the
designated amount would have to be included in the net long
calculation. This alternative was not selected because of a concern
that it would be more burdensome for advisers with large numbers of
accounts to determine the total balance of the net long positions of
all non-bidder accounts than to determine which accounts had net long
positions in excess of a specified threshold at the cutoff time for
reporting. Commenters are asked to address this presumption when they
consider the proposal.
The Department would welcome any comments on the exclusion
provisions
[[Page 404]]
outlined above. It would also welcome any alternative suggestions that
would allow the Department to obtain the information it needs to ensure
that no person or entity receive or control a disproportionate share of
the auction, and to obtain that information in the least burdensome
manner possible.
Section 356.15(d) provides that an investment adviser may submit
bids for its controlled accounts directly to a Federal Reserve Bank or
the Bureau of the Public Debt or may forward such bids to a depository
institution or dealer, regardless of whether those bids are in the name
of the adviser or in the names of the accounts. If a bid is submitted
directly, the investment adviser is considered the submitter and,
depending on whether the bid is in the name of the adviser or in the
name of one of its accounts, the adviser or the account, respectively,
is considered the bidder. If the adviser forwards a bid for one of its
controlled accounts to a depository institution or dealer, either the
adviser or the account is considered a customer of such depository
institution or dealer depending on whether the bid is in the name of
the adviser or in the name of the account. In such a case, the adviser
is not considered an intermediary as defined in Sec. 356.2 of the
offering circular.
The provision allowing an adviser to submit or forward bids in the
names of its controlled accounts is an exception to the restriction
against anyone other than a depository institution or dealer submitting
or forwarding bids for others. It is not the Department's intent,
however, to authorize an investment adviser that does not also meet the
definition of a depository institution or dealer to submit or forward
bids for customers. A controlled account is not the same as a customer.
(See definition of ``customer'' in Sec. 356.2 which refers to directing
a depository institution or dealer to bid for a specified amount of
securities in a specific auction.) Accordingly, an investment adviser
that is not also a depository institution or dealer may submit or
forward bids only for its own account or for its controlled accounts.
Other Clarifying Changes
The Department is also taking this opportunity to make other
clarifying changes to the rule. Section 356.13 has been revised to make
clear the Department's requirement that, in those cases where a bidder
has more than one bid, its reportable net long position is to be
reported in connection with only one of those bids. This requirement is
to avoid any possible confusion or duplication in net long position
reporting.
Section 356.11 has been amended to provide for the use of unique
numbers assigned to bidders for identification purposes. Additionally,
Appendix A has been revised to provide that, for purposes of the rule,
a business trust is considered to be a corporation. Finally, a change
has been made in the example given in Sec. 356.21 to reflect that
Treasury bills may now be held in multiples of $1,000.
The proposed rule contained herein includes a new Sec. 356.15. It
also amends Secs. 356.2, 356.11, 356.13, 356.21, and 356.22 as well as
Appendix A to Part 356. Other sections have been renumbered as a result
of adding the new section Sec. 356.15.
Procedural Requirements
This proposed rule does not meet the criteria for a ``significant
regulatory action'' pursuant to Executive Order 12866.
Although this proposed rule is being issued in proposed form to
secure the benefit of public comment, the notice and public procedures
requirements of the Administrative Procedure Act are inapplicable,
pursuant to 5 U.S.C. 553(a)(2).
As no notice of proposed rulemaking is required, the provisions of
the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) do not apply.
The collection of information contained in this proposed rule, in
Sec. 356.15, have been submitted to the Office of Management and Budget
for review under Sec. 3507(d) of the Paperwork Reduction Act of 1995
(44 U.S.C. Chapter 35). Under the Act, an agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a valid OMB control number.
This information is being collected by the Department of the
Treasury in order to determine the amount of a Treasury security
controlled by an investment adviser bidding competitively in an auction
for that security. The information will be used for the purpose of
determining the award to be made as the result of a competitive bid for
a security.
Responses to the collection of information are required in order
for the potential respondent to purchase securities. Information
concerning securities holdings and transactions is considered
confidential under Treasury regulations (31 CFR Part 323) and the
Privacy Act. The information may be disclosed to a law enforcement
agency, courts and counsel for litigation purposes, and as otherwise
authorized by law.
Estimated total annual reporting burden: 250 hours.
Estimated average annual burden hours per respondent: 5 hours.
Estimated number of respondents: 50.
Estimated annual frequency of responses: On occasion.
The Department of the Treasury solicits comments on the following
concerning the proposed collection of information:
1. Whether the proposed collection of information is necessary for
the proper performance of the functions of the agency, including
whether the information shall have practical utility;
2. The accuracy of the estimate of the burden of the proposed
collection of information;
3. How to enhance the quality, utility, and clarity of the
information to be collected; and
4. How to minimize the burden of the collection of information on
those who are to respond, including through the use of automated
collection techniques or other forms of information technology.
Comments on the collection of information should be sent to the
Office of Information and Regulatory Affairs of the Office of
Management and Budget, Attention: Desk Officer for Department of the
Treasury/Bureau of the Public Debt, Washington, D.C. 20503, with copies
to the Government Securities Regulations Staff, Bureau of the Public
Debt, at the address previously specified.
List of Subjects in 31 CFR Part 356
Bonds, Federal Reserve System, Government securities, Securities.
Dated: December 27, 1995.
Gerald Murphy,
Fiscal Assistant Secretary.
For the reasons set forth in the preamble, 31 CFR Chapter II,
Subchapter B, Part 356, is proposed to be amended as follows:
PART 356--SALE AND ISSUE OF MARKETABLE BOOK-ENTRY TREASURY BILLS,
NOTES, AND BONDS (DEPARTMENT OF THE TREASURY CIRCULAR, PUBLIC DEBT
SERIES NO. 1-93)
1. The authority citation for Part 356 is revised to read as
follows:
Authority: 5 U.S.C. 301; 31 U.S.C. 3102, et seq.; 12 U.S.C. 391.
2. Section 356.2 is amended by adding in alphabetical order the
definition of ``investment adviser'' to read as follows:
[[Page 405]]
Sec. 356.2 Definitions.
* * * * *
Investment adviser means any person or entity that has investment
discretion for or otherwise exercises control over the bids or
positions of a person or entity not considered part of the investment
adviser under the bidder definitions in Appendix A. Investment
discretion includes determining what, how many, and when securities
shall be purchased or sold. A person or entity managing investments for
itself is not considered an investment adviser for such investments.
Where an investment adviser is employed or supervised by an entity, the
investment adviser is considered to be part of that entity.
* * * * *
3. Section 356.11(a)(1) is amended by revising the second sentence
to read as follows:
Sec. 356.11 Submission of bids.
(a) General.
(1) * * * Except as otherwise provided, tenders must be submitted
in an approved format, including the use of preassigned identification
numbers, where applicable. * * *
* * * * *
4. Section 356.13 is amended by removing paragraph (a)(2) and
redesignating paragraph (a)(1) as paragraph (a). The last two sentences
of paragraph (a) are revised to read as follows:
Sec. 356.13 Net long position.
(a) Reporting net long positions. * * * In cases where a bidder
that is required to report the amount of its net long position has more
than one bid, the bidder's total net long position should be reported
in connection with only one bid. A bidder that is a customer must
report its reportable net long position through only one depository
institution or dealer. (See Sec. 356.14(c).)
* * * * *
5. Sections 356.15 and 356.16 are redesignated as Secs. 356.16 and
356.17 respectively and new Sec. 356.15 is added to read as follows:
Sec. 356.15 Bidding through investment advisers.
(a) General. Where bids or positions of a person or entity are
controlled by an investment adviser, such bids or positions are
considered to be a controlled account, separate from the bids and
positions of any person or entity with which they would otherwise be
associated under the bidder definitions in Appendix A. The investment
adviser may bid for controlled accounts by including, in a bid in the
adviser's name, amounts that it is investing for the controlled
accounts. The investment adviser may also bid for controlled accounts
in the names of such accounts. Where bids are in an investment
adviser's name, the investment adviser is considered the bidder for
such bids and, where bids are in the name of a controlled account, the
named controlled account is considered the bidder, for all purposes of
this Part 356, except as specified in this Sec. 356.15.
(b) Noncompetitive and competitive bidding. Regardless of whether
the bid for a controlled account is in the name of the investment
adviser or in the name of the controlled account, such account may not
be bid for both noncompetitively and competitively in the same auction.
In addition, such account is subject to the noncompetitive bidding
restrictions and award limitations contained in Sec. 356.12(b) and
356.22(a).
(c) Reporting net long positions. In calculating the amount of its
bids and positions for purposes of the net long position reporting
requirement found in Sec. 356.13(a), the investment adviser must
include, in addition to what would otherwise be included for the
investment adviser as a bidder under the bidder definitions, all other
competitive bids and positions controlled by the investment adviser.
The investment adviser may exclude any net long position less than $10
million of any nonproprietary controlled account unless the adviser is
placing a competitive bid for that account either in the name of the
investment adviser or in the name of the account. However, if any net
long position less than $10 million of any nonproprietary account not
being bid for is excluded, then all net short positions less than $10
million of nonproprietary accounts not being bid for must also be
excluded. Regardless of whether the investment adviser bids in its own
name or in the name of its controlled accounts, if the net long
position is reportable, it must be reported as a total in connection
with only one bid.
(d) Submitting bids for controlled accounts. Notwithstanding the
definition of submitter found in Sec. 356.2, and the restriction
against submitting bids for others found in Sec. 356.14, an investment
adviser may submit bids, whether in the adviser's own name or in the
names of its controlled accounts, directly to a Federal Reserve Bank or
the Bureau of the Public Debt, in which case the investment adviser is
considered a submitter. In the alternative, the investment adviser may
forward such bids to a depository institution or dealer.
(e) Certifications. By bidding for a controlled account, an
investment adviser is deemed to have certified that it is in compliance
with this Part and the offering announcement governing the sale and
issue of the security. Further, the investment adviser is deemed to
have certified that the information provided on the tender or provided
to a submitter or intermediary with regard to bids for controlled
accounts is accurate and complete.
(f) Proration of awards. In auctions where bids at the highest
accepted yield or discount rate are prorated under Sec. 356.20(a)(2) of
this Part, investment advisers that submit bids for controlled accounts
in the names of such accounts are responsible for prorating awards for
their controlled accounts at the same percentage as that announced by
the Department. The same prorating rules apply to controlled accounts
as apply to submitters. See Sec. 356.21 of this Part.
6. Section 356.21 is amended by revising paragraph (a) to read as
follows:
Sec. 356.21 Proration of awards.
(a) Awards to submitters. In auctions where bids at the highest
accepted yield or discount rate are prorated under Sec. 356.20(a)(2) of
this Part, the Federal Reserve Banks are responsible for prorating
awards for submitters at the percentage announced by the Department.
For example, if 80% is the announced percentage at the highest yield or
discount rate, then each bid at that rate or yield shall be awarded 80%
of the amount bid. Hence, a bid for $100,000 at the highest accepted
yield or discount rate would be awarded $80,000. In all cases, awards
will be for, at least, the minimum to hold, and awards must be in an
appropriate multiple to hold. Awards at the highest accepted yield or
rate are adjusted upwards, if necessary, to an appropriate multiple to
hold. For example, Treasury bills may be issued with a minimum to hold
of $10,000 and multiples of $1,000. Where an $18,000 bid is accepted at
the high discount rate, and the percent awarded at the high discount
rate was 88%, the award to that bidder would be $16,000, representing
an upward adjustment from $15,840 ($18,000 x .88) to an appropriate
multiple to hold. If tenders at the highest accepted rate were prorated
at, for example, a rate of 4%, the award for a $100,000 bid would be
$10,000, instead of $4,000, in order to meet the minimum to hold for a
bill issue.
* * * * *
7. Section 356.22(b) is amended by revising the last sentence to
read as follows:
[[Page 406]]
Sec. 356.22 Limitation on auction awards.
* * * * *
(b) Awards to competitive bidders. * * * When the bids and net long
positions of more than one person or entity must be combined as
required by Sec. 356.15(c), such combined amount will be used for the
purpose of this award limitation.
8. Appendix A to Part 356 is amended by adding to section (a) a new
paragraph between the second and third paragraphs of the introductory
text to read as follows:
Appendix A to Part 356
* * * * *
(a) Corporation--
* * * * *
For the purpose of this Part, a business trust, such as a
Massachusetts business trust or a Delaware business trust, is
considered to be a corporation.
* * * * *
[FR Doc. 96-134 Filed 1-4-96; 8:45 am]
BILLING CODE 4810-35-P
Complete official Federal Register PDF
FR Doc. 96-116 Suitability, National Security Positions, and Personnel Investigations
[Federal Register Volume 61, Number 4 (Friday, January 5, 1996)]
[Proposed Rules]
[Pages 394-402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-116]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 61, No. 4 / Friday, January 5, 1996 /
Proposed Rules
[[Page 394]]
OFFICE OF PERSONNEL MANAGEMENT
5 CFR Parts 731, 732, and 736
RIN 3206-AB92
Suitability, National Security Positions, and Personnel
Investigations
AGENCY: Office of Personnel Management.
ACTION: Proposed rule.
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SUMMARY: The Office of Personnel Management (OPM) is proposing changes
to rules on personnel suitability, national security positions, and
personnel investigations which OPM previously issued as an interim rule
with a request for comments. OPM has received and considered public
comments and is now publishing for comment proposed changes. The
proposed rule incorporates many of the suggestions received, makes
additional changes based on the recent abolishment of the Federal
Personnel Manual (FPM), and continues the distinctions in the interim
rule between national security investigations and investigations to
determine suitability for non-sensitive positions. OPM will issue a
final rule after review of the comments received on this proposed rule.
DATES: Comments must be submitted on or before February 20, 1996.
ADDRESSES: Send written comments to John J. Lafferty, Deputy Associate
Director for Investigations, Office of Personnel Management, Post
Office Box 886, Washington, DC, 20044-0886.
FOR FURTHER INFORMATION CONTACT:
John J. Lafferty, (202) 376-3800.
SUPPLEMENTARY INFORMATION: OPM promulgated the current suitability and
personnel security regulations as an interim rule with a request for
comments in the Federal Register (56 FR 18650-18656, April 23, 1991).
Comments were received from 16 sources, including individuals, Federal
agencies, Federal employee unions, and public interest organizations.
The following summarizes the principal comments, suggestions and
proposed actions to be taken, as well as information added because of
the abolishment of the FPM.
Part 731
Section 731.102 Implementation
Because of the abolishment of the FPM, a new section has been added
to the regulations outlining OPM's and agencies' responsibilities under
the Computer Security Act of 1987 and OMB Circular A-130.
Section 731.103 Delegation to Agencies
The interim regulations provided that OPM could, in its discretion,
delegate to agencies authority for adjudicating suitability. In
accordance with recommendations of the National Performance Review
(NPR), the proposed regulations delegate to agencies all suitability
adjudication authority, except in cases of material intentional false
statement or deception or fraud in examination or appointment.
Several commenters on the interim regulations were concerned that
the provision for delegation to agencies of suitability determination
authority did not extend all of the same procedural protections that
are applicable in OPM-adjudicated cases.
OPM has revised the regulations to make clear that all procedural
rights applicable in OPM-adjudicated cases pertain to agency
adjudications. This should alleviate concerns expressed regarding
``administrative due process'' for cases involving delegated
suitability determination authority.
Section 731.201 Standard
Section 731.201 has been revised to clarify that removal is not the
only option that may be pursued for an employee found unsuitable. The
Director of OPM has authority under Civil Service Rule 5.3(a)(a) to
instruct agencies ``to separate or take other action'' against an
employee found unsuitable (emphasis supplied), and agencies will have
the same authority under delegated suitability adjudication authority.
Section 731.202 Criteria
OPM received favorable comments on the substitution of a more
clearly job-related criterion for ``alcohol abuse,'' in lieu of the
prior standard of ``habitual use of intoxicating beverages to excess.''
However, a number of negative comments were received regarding certain
other criteria. One commenter thought that ``refusal to furnish
testimony as required by Sec. 5.4 of this chapter'' was too broad and
should be qualified by language making clear that the provision was not
intended to require testimony protected by the U.S. Constitution or the
Whistleblower Protection Act or the Inspector General Act. No change is
proposed in response to this comment. OPM believes it is self-evident
that none of OPM's regulations should or would be interpreted or
applied in any manner that would violate the Constitution or specific
statutory mandates.
Another commenter, while opining that ``knowing and willful
engagement in acts or activities designed to overthrow the U.S.
Government by force'' was ``more stringent'' than ``current criteria,''
nevertheless urged elimination of this criterion altogether on First
Amendment grounds. OPM does not consider it necessary to adopt this
suggestion because OPM does not believe that the criterion authorizes
constitutionally forbidden questions concerning ``political
associations'' or ``broad inquiries into loyalty.'' The phrase ``acts
or activities designed to overthrow the U.S. Government by force''
properly focuses on illegal acts, and prevents inquiry into an
applicant's or employee's political beliefs or associations. Mere
advocacy of the use of violence as an avenue of political reform is not
penalized under the standard.
Other comments were received concerning the proposed illegal drug
use criterion. One commenter thought that ``substantial''
rehabilitation was too vague, and that ``complete'' rehabilitation
should be required; one commenter thought that both ``use'' and
``substantial'' were too vague, calling for purely subjective
judgments, and that the entire standard was defective because not job-
related; another commenter asked how the illegal drug use criterion
could be reconciled with the Drug Abuse Office and Treatment Act. OPM
does not believe that the illegal drug use criterion would be
interpreted or applied in a manner that would contravene the Drug Abuse
Office and Treatment Act, and suggests
[[Page 395]]
that ``substantial'' rehabilitation is a suitable standard, to be
assessed in light of the evidence in a particular case.
OPM has proposed two additions to the ``specific factors'' in
subsection (b): Misconduct or negligence in prior employment has been
broadened to include current employment as well as prior employment,
and the intentional false statement factor has been changed to read
``material intentional false statement.'' The latter change accords
with longstanding OPM practice (as reflected in the former FPM) that a
falsification must be ``material'' in order to justify debarment,
removal, or other appropriate action.
Section 731.203 Due Process
OPM has set forth a new and separate provision governing ``due
process'' protections applicable in suitability cases, as distinguished
from due process provisions applicable in national security cases under
Sec. 732.301. Based on objections received from many commenters
regarding the use of confidential information in suitability
adjudications, and consistent with judicial precedent, OPM proposes to
ensure that information furnished by confidential sources may not be
used by agencies in adjudicating suitability.
Section 731.302 Designation of Public Trust Positions and
Investigative Requirements [This Section Was Entitled ``Risk
Designation and Investigative Requirements'' in the Interim
Regulations]
OPM received a number of comments questioning the lack of
specificity in paragraphs (a) and (b) of Sec. 731.302. Commenters were
concerned about the lack of guidance to agencies, especially with
respect to assessing ``risk levels'' of positions covered under
Sec. 731.302. OPM has deleted all references to ``risk levels'' in the
proposed regulation, and has set forth specific criteria for
determining public trust positions. In addition, the regulation makes
clear that agency heads, not OPM, are responsible for the designation
of public trust positions within their agencies.
A number of commenters opposed the reinvestigation requirement for
public trust positions set forth in Sec. 731.302(c), pointing out that
there is no clear statutory foundation for imposing a reinvestigation
requirement for current employees occupying positions not affecting
national security; rather, the authorities empowering OPM to conduct
suitability investigations speak solely in terms of ``applicants.''
Because of the lack of statutory or other authority for reinvestigating
the character and fitness of current employees who do not occupy
positions affecting national security, OPM proposes to delete from the
final regulations the reinvestigation requirement for public trust
positions. Agencies wishing to conduct reinvestigations may explore
their enabling legislation to determine whether they have the authority
to conduct reinvestigations on their own initiative.
Section 731.303 Actions by OPM and Other Agencies
OPM received a number of comments concerning Sec. 731.303(c), which
provides that suitability disqualification actions are not considered
actions under part 752 or Secs. 315.804-806 of part 315. The primary
concern seemed to be that by withdrawing suitability-based removal
actions from the statutory protections associated with other adverse
actions, employees would be denied the protection of collective
bargaining agreements and attendant grievance and arbitration
procedures.
OPM does not consider it appropriate to amend the regulation in
question along the lines suggested for two reasons. First, the
questioned provision is not new (except to the extent that removals of
probationary employees are included). Suitability-based removals have
always been exempted from agency-initiated removal procedures; see 5
CFR Sec. 731.302(c) (1991). Second, suitability actions are taken under
authority delegated to OPM by the President. These actions are taken by
OPM in the exercise of its government wide function of safeguarding the
appointment process to positions in the competitive service. They are
not chapter 75 adverse actions at all. Accordingly, chapter 75 of title
5 does not apply to suitability actions. Such actions also are not
subject to the negotiated grievance procedure, which is limited to
disputes between agencies in their capacity as employers and employees
in recognized bargaining units.
Section 731.304 Debarment
One commenter thought that the provision giving OPM discretion to
debar a person found unsuitable from reapplying for a competitive
service position for up to 3 years was unclear in failing to clarify
whether a new determination of suitability after expiration of a
debarment period would trigger the same procedural protections as are
afforded upon an initial suitability determination. Another commenter
felt that debarment for 3 years was too long, and that debarment for up
to 1 year would be a more reasonable standard.
OPM applies the same procedural protections upon subsequent
redeterminations of suitability as it applies in initial
determinations. In order to make this clear, a clarifying phrase to
this effect has been added to Sec. 731.304(b). OPM does not believe it
is necessary to change the permissible debarment period, since OPM
exercises discretion in each case, giving due weight to the
``additional factors'' set forth in Sec. 731.202(c).
Subpart D--Suitability Actions
Two commenters recommended extending due process protections under
part 731 to excepted service employees, since recent amendments to 5
U.S.C. Sec. 7511 grant appeal rights in adverse action cases to most
employees in the excepted service. This suggestion cannot be adopted
since OPM does not have authority to extend part 731 requirements to
the excepted service.
Commenters also suggested that Sec. 731.403 be amended to limit an
agency's discretion to set the time and place of an employee's oral
answer, to require agencies to provide employees paid time to prepare
an answer, and to require that agencies answering an OPM proposed
action notice also provide it to the employee. OPM does not believe it
is appropriate to limit the discretion to set the time and place of
oral responses, in light of the NPR's recommendation that agencies by
given more latitude in suitability determinations. Similarly, it should
be up to each agency to determine whether it wishes to excuse an
individual or class of individuals for brief periods of time for the
purpose of preparing answers and appeals in suitability actions.
OPM has, however, assumed an additional obligation in
Sec. 731.402(b): Copies of notices of proposed actions must now be sent
both to respondents' residences and to their duty stations, in order to
ensure actual receipt of such notices by respondents.
Section 731.501 Appeal to the Merit Systems Protection Board
OPM published a final rule revoking the section establishing the
OPM Review Panel, concluding, as several commenters predicted, that the
OPM Review Panel did not serve a useful independent review function (60
FR 13613) March 14, 1995.
Under OPM's interim rule that established the Review Panel,
appellants were retained in a pay status while their appeals were
pending with the Panel, but if the Panel affirmed OPM's decisions, the
appellants' agencies were directed to remove the appellants within 5
days of receipt of
[[Page 396]]
the Panel's decision by the agency. With the elimination of the Panel,
the appellants' employing agencies not have the option of retaining
appellants in a pay status pending adjudication of their appeals to the
MSPB.
Part 732
Section 732.102 Definition and Applicability
Several commenters suggested that the definition of national
security positions be changed by broadening ``activities of the
Government'' to include ``the conduct of foreign relations.'' It was
also suggested that the degree of involvement in national security
activities necessary to support a national security designation be
spelled out, and that the meaning of ``regular'' access to classified
information be clarified.
OPM proposes to broaden the definition of national security
positions to include ``positions primarily concerned with sensitive
diplomatic relations with other countries,'' believing that ``conduct
of foreign relations'' is too broad a phrase and might, for example,
invite national security position designations for positions beyond
those involved in trade negotiations, such as those involving only
trade promotion.
OPM has not adopted the suggestion that the degree of involvement
in national security activities necessary to support a national
security position designation be spelled out, since OPM believes that
agencies are in the best position to judge whether particular positions
might have an adverse effect on national security within the meaning of
E.O. 10450.
OPM proposes to retain the word ``regular'' in connection with
access to classified national security information, so that it is clear
that irregular, infrequent, or occasional access to such information
does not justify a national security position designation.
Section 732.201 Sensitivity Level Designations and Investigative
Requirements
This section incorporates definitions of sensitivity levels and
related guidance from the abolished FPM.
Section 732.202 Waivers and Exceptions to Investigative Requirements
One commenter suggested that positions covered by
Sec. 732.202(b)(1) be identified as ``non-sensitive'' and that this
section be moved to part 731. This suggestion misconstrues the meaning
and purpose of Sec. 732.202(b)(1). The positions described in that
section are related to national security, and are thus ``sensitive''
positions; but, because of their temporary or seasonal nature, agencies
are permitted under E.O. 10450 to request that OPM exempt them from the
investigative requirements of that order. (Paragraph (b) of
Sec. 732.202 has been revised to clarify that the specified positions
may be exempted from the investigative requirements of E.O. 10450 only
upon request of the head of the agency concerned.)
OPM also proposes to remove Sec. 732.202(b)(2) from the final
regulations, since there is no authority in E.O. 10450 for this
provision as it appeared in the interim regulations.
Section 732.203 Periodic Reinvestigations
One commenter suggested that periodic investigations in national
security cases are unnecessary, on the ground that competent managers
should make it their business to garner the same information through
personal inquiries and observations. However, OPM proposes to retain
the requirement for periodic reinvestigations in national security
cases, since reinvestigations appear to be authorized under E.O. 10450,
have been standard practice at least since 1965 pursuant to
Presidential directive, and are contemplated by National Security
Directive 63 (October 21, 1991) and E.O. 12968.
Subpart C--Due Process and Reporting
Section 732.301 Due Process
OPM received a number of comments suggesting that procedural
protections be strengthened for persons seeking security clearances, as
well as a suggestion that the standards for granting or continuing
security clearances be made uniform for Federal Government employees
and for Federal Government contractors. With respect to the
recommendation that OPM establish uniform governmentwide procedures for
the granting, denial or revocation of security clearances, general
authority in this area does not belong to OPM but is vested in
individual agencies under E.O. 10450 and E.O. 12958.
Part 736
Part 736 has been revised to make clear that its requirements apply
only to suitability and national security investigations conducted
under parts 731 and 732 and to national security investigations of
individuals seeking or holding employment with Federal contractors. In
addition, OPM proposes to make the following changes in personnel
investigation requirements:
Section 736.104 Timing of Investigations
Except for Special-Sensitive national security position, OPM has
added a requirement that investigations for all positions subject to
investigation be initiated within 14 days of placement in the position.
This section implements the NPR's recommendation that background
investigations be conducted promptly.
Section 736.201 Protecting the Identity of a Source
Several commenters urged OPM to eliminate the use of confidential
sources of information or, in the alternative, to impose tighter
controls on the granting of pledges of confidentiality.
OPM does not believe it is appropriate to eliminate the use of
confidential sources altogether, since Congress specifically provided
for the granting of confidentiality in appropriate circumstances in the
Privacy Act of 1974. However, in Sec. 731.203, OPM has proposed that
information furnished by confidential sources may not be used by
agencies in adjudicating suitability in non-national security cases,
and in Sec. 736.201, OPM has added a new provision that pledges of
confidentiality under either part 731 or part 732 may be granted ``only
in the most compelling circumstances and only upon specific request by
the source.'' The latter requirement conforms to OMB's Privacy Act
guidelines (40 FR 28949, 28974 (1975)).
Section 736.203 Use of the Polygraph
Chapter 736 of the former FPM contained limitations upon using
polygraphs in personnel investigations, based upon a July 29, 1966,
interagency committee report approved by former President Lyndon B.
Johnson. The restrictions previously contained in the FPM are carried
over in their entirety in Sec. 736.203.
Subpart C--Maintenance of Information
This section incorporates OPM requirements for the maintenance and
handling of OPM investigative files formerly contained in the FPM.
E.O. 12866, Regulatory Review
This rule has been reviewed by the Office of Management and Budget
in accordance with E.O. 12866.
Regulatory Flexibility Act
I certify that these regulations will not have a significant
economic impact on a substantial number of small entities because they
relate to internal personnel matters within the Federal Government.
[[Page 397]]
List of Subjects in 5 CFR Parts 731, 732, and 736
Administrative practice and procedure, Government employees,
National defense, Freedom of information, Investigations, Privacy.
U.S. Office of Personnel Management.
James B. King,
Director.
Accordingly, OPM proposes to amend 5 CFR parts 731, 732, and 736 as
follows:
1. Part 731 is revised to read as follows:
PART 731--SUITABILITY
Subpart A--Scope
Sec.
731.101 Purpose.
731.102 Implementation.
731.103 Delegation to agencies.
Subpart B--Suitability Determinations
731.201 Standard.
731.202 Criteria.
731.203 Due process.
Subpart C--Suitability Rating Actions
731.301 Jurisdiction.
731.302 Designation of public trust positions and investigative
requirements.
731.303 Actions by OPM and other agencies.
731.304 Debarment.
Subpart D--Suitability Actions
731.401 Scope.
731.402 Notice of proposed action.
731.403 Answer.
731.404 Decision.
Subpart E--Appeal to the Merit Systems Protection Board
731.501 Appeal to the Merit Systems Protection Board.
Subpart F Savings Provision
731.601 Savings provision.
Authority: 5 U.S.C. 1302, 3301, 3302, 7301, 7701; E.O. 10577, 3
CFR 1954-1958 Comp., p. 218; E.O. 12731, 3 CFR, 1990 Comp., p. 306.
Subpart A--Scope
Sec. 731.101 Purpose.
The purpose of this part is to establish criteria and procedures
for making determinations of suitability for employment in positions in
the competitive service and for career appointments in the Senior
Executive Service (hereinafter in this part, ``competitive service'')
pursuant to 5 U.S.C. 3301 and E.O. 10577 (3 CFR, 1954-1958 Comp., p.
218). Section 3301 of title 5, United States Code, directs
consideration of ``age, health, character, knowledge, and ability for
the employment sought.'' E.O. 10577 directs OPM to examine
``suitability'' for competitive Federal employment. This part concerns
only determinations of ``suitability'' based on an individual's
character or conduct that may impact the efficiency of the service by
jeopardizing an agency's accomplishment of its duties or
responsibilities, or by interfering with or preventing effective
service in the position applied for or employed in, and determinations
that there is a statutory or regulatory bar to employment.
Determinations made under this part are distinct from determinations of
eligibility for assignment to, or retention in, sensitive national
security positions made under E.O. 10450 (3 CFR, 1949-1953 Comp., p.
936) or similar authorities.
Sec. 731.102 Implementation.
(a) An investigation conducted for the purpose of determining
suitability under this part may not be used for any other purpose
except as provided in a Privacy Act system of records notice published
by the agency conducting the investigation.
(b) Under OMB Circular No. A-130 (effective January 22, 1992), the
Director, OPM, is to maintain personnel security policies for Federal
personnel associated with the design, programming, operation,
maintenance, or use of Federal automated information systems. Agencies
are instructed to establish and manage personnel security policies and
procedures to assure an adequate level of security for Federal
automated information systems. In accordance with OMB Circular A-130,
agency policies and procedures for the security of Federal automated
information systems must conform to OPM guidance. The Computer Security
Act of 1987 (Public Law 100-235) provides additional requirements for
Federal automated information systems.
(c) Policies, procedures, criteria, and guidance for the
implementation of this part shall be set forth in issuances of the OPM.
Agencies exercising authority under this part by delegation from OPM
shall conform to such policies, procedures, criteria, and guidance.
Sec. 731.103 Delegation to agencies.
(a) OPM delegates to the heads of agencies authority for
adjudicating suitability in all cases involving applicants for and
appointees to competitive service positions in the agency, except that
OPM retains jurisdiction in competitive service cases involving
evidence of material, intentional false statement or deception or fraud
in examination or appointment. Agencies must refer these cases to OPM
for adjudication, or contact OPM for prior approval if an agency wants
to take action under its own authority (5 CFR part 315 or 5 CFR part
752).
(b) Agencies exercising authority under this part by delegation
from OPM must show by policies and records that reasonable methods are
used to ensure adherence to regulations, standards, and quality control
procedures established by OPM.
(c) Paragraphs (a) and (b) of this section notwithstanding, OPM may
exercise its jurisdiction under this part in any case when deemed
necessary.
(d) Any applicant or appointee who is found unsuitable by any
agency having delegated authority from OPM under this part for any
reason named in Sec. 731.202 may appeal to the Merit Systems Protection
Board under the Board's regulations.
Subpart B--Suitability Determinations
Sec. 731.201 Standard.
Subject to subpart C of this part, an applicant, appointee, or
employee may be denied Federal employment, removed from a position, or
be subjected to other appropriate action, only when the action will
promote the efficiency of the service.
Sec. 731.202 Criteria.
(a) General. In determining whether its action will promote the
efficiency of the service, OPM or an agency to which OPM has delegated
authority under Sec. 731.103 of this chapter, shall make its
determination on the basis of:
(1) Whether the conduct of the individual may reasonably be
expected to interfere with, or prevent, efficient service in the
position applied for or employed in; or
(2) Whether the conduct of the individual may reasonably be
expected to interfere with, or prevent, effective accomplishment by the
employing agency of its duties or responsibilities; or
(3) Whether a statutory or regulatory bar prevents the lawful
employment of the individual in the position in question. Each agency
is responsible for determining whether a statutory or regulatory bar
prevents employment with that agency.
(b) Specific factors. When making a determination under paragraph
(a) of this section, any of the following reasons may be considered a
basis for finding an individual unsuitable:
(1) Misconduct or negligence in current or prior employment which
would have a bearing on efficient service in the position in question,
or would interfere with or prevent effective accomplishment by the
employing agency of its duties and responsibilities;
[[Page 398]]
(2) Criminal or dishonest conduct related to the duties to be
assigned to the applicant or appointee, or to that person's service in
the position or the service of other employees;
(3) Material, intentional false statement or deception or fraud in
examination or appointment;
(4) Refusal to furnish testimony as required by Sec. 5.4 of this
chapter;
(5) Alcohol abuse of a nature and duration which suggests that the
applicant or appointee would be prevented from performing the duties of
the position in question, or would constitute a direct threat to the
property or safety of others;
(6) Illegal use of narcotics, drugs, or other controlled
substances, without evidence of substantial rehabilitation;
(7) Knowing and willful engagement in acts or activities designed
to overthrow the U.S. Government by force;
(8) Any statutory or regulatory bar which prevents the lawful
employment of the person involved in the position in question.
(c) Additional factors. In making a determination under paragraphs
(a) and (b) of this section, OPM and agencies shall consider the
following additional factors:
(1) The nature of the position for which the person is applying or
in which the person is employed,
(2) The nature and seriousness of the conduct,
(3) The circumstances surrounding the conduct,
(4) The recency of the conduct,
(5) The age of the person involved at the time of the conduct,
(6) Contributing societal conditions,
(7) The absence or presence of rehabilitation or efforts toward
rehabilitation.
Sec. 731.203 Due process.
When an agency makes an adjudicative decision under this part based
on an OPM investigation or upon an investigation conducted pursuant to
OPM-delegated authority, or when an agency, as a result of information
in an OPM investigation or an investigation conducted pursuant to OPM-
delegated authority, changes a tentative favorable placement decision
to an unfavorable decision, the agency must:
(a) Insure that the records used in making the decision are
accurate, relevant, timely, and complete to the extent reasonably
necessary to assure fairness to the individual in any determination;
(b) Insure that all applicable administrative due process
requirements provided by law, the regulations in this part, and OPM
policy guidance have been observed;
(c) Consider all available information in reaching its final
decision, except information furnished by a confidential source; and
(d) Keep any record of the agency action required by OPM as
published in its issuances.
Subpart C--Suitability Rating Actions
Sec. 731.301 Jurisdiction.
(a) Appointments subject to investigation. (1) In order to
establish an appointee's suitability for employment in the competitive
service, every appointment to a position in the competitive service is
subject to investigation by OPM or an agency conducting investigations
under delegated authority from OPM, except:
(i) Promotion;
(ii) Demotion;
(iii) Reassignment;
(iv) Conversion from career-conditional to career tenure;
(v) Appointment, or conversion to an appointment, made by an agency
of an employee of that agency who has been serving continuously with
that agency for at least 1 year in one or more positions under an
appointment subject to investigation; and
(vi) Transfer, provided the 1 year, subject-to-investigation period
applied to the previous appointment has expired.
(2) Appointments are subject to investigation to continue OPM's
jurisdiction to investigate the suitability of an applicant after
appointment and to authorize OPM or an agency acting under delegated
authority to require removal or take other appropriate action when it
finds the appointee is unsuitable for Federal employment. The subject-
to-investigation condition may not be construed as requiring an
employee to serve a new probationary or trial period or as extending
the probationary or trial period of an employee.
(b) Duration of condition. The subject-to-investigation condition
expires automatically at the end of 1 year after the effective date of
appointment, except in a case involving material, intentional false
statement or deception or fraud in examination or appointment, or
refusal to furnish testimony.
Sec. 731.302 Designation of public trust positions and investigative
requirements.
(a) Definition of public trust positions. Public trust positions
include positions involving policymaking, major program responsibility,
law enforcement duties, or other duties demanding the highest degree of
public trust; and positions involving access to or operation or control
of unclassified confidential or financial records, with a relatively
high risk for causing grave damage or realizing a significant personal
gain.
(b) Designation of public trust positions. Agency heads shall be
responsible for designating public trust positions within the agency in
accordance with the criteria set forth in paragraph (a) of this
section.
(c) Investigative requirements. Persons receiving an appointment
made subject to investigation shall undergo a background investigation,
the minimum scope and coverage of which shall be determined by OPM.
Sec. 731.303 Actions by OPM and other agencies.
(a) For a period of 1 year after the effective date of an
appointment subject to investigation under Sec. 731.301, an appointee
may be removed or other appropriate action may be taken when OPM or an
agency exercising delegated authority under this part finds that the
appointee is unsuitable for any of the reasons cited in Sec. 731.202.
(b) Thereafter, OPM may require that an employee be removed or
other appropriate action be taken on the basis of either material,
intentional false statement or deception or fraud in examination or
appointment; or refusal to furnish testimony; or statutory or
regulatory bar.
(c) An action to remove an appointee or employee under this part is
not an action under part 752, or Secs. 315.804 through 315.806 of this
chapter.
(d) When OPM instructs an agency to remove an appointee or employee
under this part it shall notify the agency and the appointee or
employee of its decision in writing.
(e) Before OPM, or any agency having delegated authority from OPM
under this part, shall take a final suitability action against an
applicant, eligible, appointee, or employee under this part, the person
against whom the action is proposed shall be given notice of the
proposed action (including the availability for review, upon request,
of the materials relied upon), an opportunity to answer, notice of the
final decision on the action, and notice of rights of appeals.
(f) Agencies are required to report to OPM all unfavorable
adjudicative actions taken under this part, including all actions based
on OPM reports of investigation.
Sec. 731.304 Debarment.
(a) When OPM finds a person unsuitable for any reason named in
[[Page 399]]
Sec. 731.202, OPM, in its discretion, may deny that person examination
for, and appointment to, a competitive service position for a period of
not more than 3 years from the date of determination of unsuitability.
(b) On expiration of a period of debarment, a person who has been
debarred may not be appointed to any position in the competitive
service until OPM has redetermined that person's suitability for
appointment, in accordance with the procedures of this part.
(c) Any authorities delegated to agencies by OPM under this part do
not apply to or include OPM's debarment authority under paragraphs (a)
and (b) of this section.
(d) Any adjudication by an agency acting under delegated authority
from OPM which indicates that debarment may be an appropriate action
may be referred to OPM for its consideration.
Subpart D--Suitability Actions
Sec. 731.401 Scope.
(a) Coverage. This subpart sets forth the procedures to be followed
when OPM or an agency having delegated authority from OPM, acting under
authority of this part, proposes to take or to instruct an agency to
take, a final suitability ineligibility action, including removal,
against an applicant, appointee or employee in the competitive service.
(b) Definition. In this subpart, days means calendar days.
Sec. 731.402 Notice of proposed action.
(a) OPM or the agency having delegated authority from OPM under
this part shall notify the applicant, appointee, or employee
(hereinafter, the ``respondent'') in writing of the proposed action and
of the charges against the respondent. The notice shall state the
reasons, specifically and in detail, for the proposed action. The
notice shall also state that the respondent has the right to answer
this notice in writing. If the respondent is an employee the notice
shall further state that the employee may also make an oral answer, as
specified in Sec. 731.403(a). The notice shall further inform the
respondent of the time limits for answer as well as the address to
which such answer should be made.
(b) OPM shall send a copy of this notice to the agency, if any,
that is involved. The notice shall be served upon the respondent by
being mailed to the respondent's last known residence, and duty station
if an employee, no less than 30 days prior to the effective date of the
proposed action. If the respondent is employed in the competitive
service on the date the notice is served, the respondent shall be
entitled to be retained in pay status during the notice period.
Sec. 731.403 Answer.
(a) Respondent's answer. A respondent may answer the charges in
writing and furnish documentation and/or affidavits in support of the
response. A respondent who is an employee may answer orally. The
respondent may be represented by a representative of the respondent's
choice, and such representative shall be designated in writing. To be
timely, a written answer shall be made no more than 30 days after the
date of the notice of proposed action. In the event that an employee
requests to make an oral answer, OPM or the agency having delegated
authority from OPM under this part shall determine the time and place
thereof, and shall consider any answer that the respondent makes in
reaching a decision.
(b) Agency's answer. In actions proposed by OPM under Sec. 5.3 of
this chapter, the agency may also answer the notice of proposed action.
The time limit for filing an answer is 30 days from the date of the
notice. OPM shall consider any answer that the agency makes in reaching
a decision.
Sec. 731.404 Decision.
The decision shall be in writing, dated, and inform the respondent
of the reasons for the decision. Removal of appointees or employees
will be effective 30 days following the date of the decision. The
respondent shall also be informed that an adverse decision can be
appealed in accordance with subpart E of this part. OPM shall notify
the respondent and the agency of the decision.
Subpart E--Appeal to the Merit Systems Protection Board
Sec. 731.501 Appeal to the Merit Systems Protection Board.
(a) Appeal to the Merit Systems Protection Board. An individual who
has been found unsuitable for employment may appeal the decision to the
Merit Systems Protection Board (the Board). An employee or appointee
who appeals a removal directed by OPM shall notify the employing of the
appeal at the time it is filed.
(b) Appeal procedures. The procedures for filing an appeal with the
Board are found at part 1201 of title 5, Code of Federal Regulations.
(c) Pay status pending appeal. When an employee or appointee who
has been found unsuitable for employment by OPM files an appeal to the
Board, the employing agency may, at its option, retain the employee or
appointee in an active duty status for the period, in which event the
agency shall so notify the employee or appointee. If the agency elects
to proceed with a suspension or removal ordered by OPM, part 752 of
this chapter shall not apply.
Subpart F--Savings Provision
Sec. 731.601 Savings provision.
No provision of the regulations in this part shall be applied in
such a way as to affect any administrative proceeding pending on [THE
EFFECTIVE DATE OF THE FINAL RULE]. An administrative proceeding is
deemed to be pending from the date of the ``notice of proposed action''
described in Sec. 731.402.
2. Part 732 is revised to read as follows:
PART 732--NATIONAL SECURITY POSITIONS
Subpart A--Scope
Sec.
731.101 Purpose.
732.102 Definition and applicability.
Subpart B--Designation and Investigative Requirements
732.201 Sensitivity level designations and investigative
requirements.
732.202 Waivers and exceptions to investigative requirements.
732.203 Periodic reinvestigation requirements.
Subpart C--Due Process and Reporting
732.301 Due process.
732.302 Reporting to OPM.
Authority: 5 U.S.C. 3301, 3302, 7312; E.O. 10450, 3 CFR, 1949-
1953 Comp., p. 936.
Subpart A--Scope
Sec. 732.101 Purpose.
This part sets forth certain requirements and procedures which each
agency shall observe in investigations for national security positions
pursuant to Executive Order 10450--Security Requirements for Government
Employment (3 CFR 1949-1953 Comp., p. 936), as amended.
Sec. 732.102 Definition and applicability.
(a) For purposes of this part, the term national security position
includes:
(1) Those positions that involve activities of the Government that
are concerned with the protection of the nation from foreign aggression
or espionage, including development of defense plans or policies,
intelligence or counterintelligence activities, and related activities
concerned with the preservation of the military strength of the United
States;
[[Page 400]]
(2) Positions that are primarily concerned with sensitive
diplomatic relations with other countries; and
(3) Positions that require regular use of, or access to, classified
national security information.
(b) The requirements of this part apply to competitive service
positions and to Senior Executive Service positions filled by career
appointment within the Executive Branch. Nothing in this part prohibits
agencies from applying these provisions, in their discretion, to
excepted service positions within the Executive Branch.
Subpart B--Designation and Investigative Requirements
Sec. 732.201 Sensitivity level designations and investigative
requirements.
(a) For purposes of this part, the head of each agency shall
designate, or cause to be designated, any position within the
department or agency the occupant of which could bring about, by virtue
of the nature of the position, a material adverse effect on the
national security, as a sensitive position at one of three sensitivity
levels: Special-Sensitive, Critical-Sensitive, or Noncritical-
Sensitive.
(b) Definitions of sensitivity levels. For the purposes of this
part: (1) A Special-Sensitive position is a position which the head of
the agency determines to be in a level higher than Critical-Sensitive
because of special requirements under authority other than E.O. 10450.
(2) A Critical-Sensitive position is any position with potential
for exceptionally grave damage to the national security.
(3) A Noncritical-Sensitive position is any position with potential
for some damage to serious damage to the national security.
(c) National Security Directive 63. Standards for single scope
background investigations are established by National Security
Directive (NSD) 63, ``Single Scope Background Investigations,'' dated
October 21, 1991. These investigations are used as the minimum
investigative standard by all executive branch departments and agencies
for granting individuals access to Top Secret (TS) national security
information and Sensitive Compartmented Information (SCI).
(d) Director of Central Intelligence Directive 1/14. The standards
set for single scope background investigations established by NSD 63
are further defined for SCI access in DCID 1/14, ``Personnel Security
Standards and Procedures Governing Eligibility for Access to Sensitive
Compartmented Information (SCI),'' effective January 22, 1992, and as
subsequently amended.
(e) Investigative requirements for each sensitivity level are
provided in OPM issuances.
Sec. 732.202 Waivers and exceptions to investigative requirements.
(a) Waivers.--(1) General. A waiver of the preappointment
investigative requirement contained in section 3(b) of Executive Order
10450 for employment in a sensitive national security position may be
made only for a limited period and only under the following conditions:
(i) In case of emergency if the head of the department or agency
concerned finds that such action is necessary in the national interest;
and
(ii) When such finding is made a part of the records of the
department or agency.
(2) Specific waiver requirements. (i) The preappointment
investigative requirement may not be waived for appointment to
positions designated Special-Sensitive under this part.
(ii) For positions designated Critical-Sensitive under this part,
the records of the department or agency required by Sec. 732.202(a)(1),
shall show what decision was made on obtaining prewaiver checks, as
follows:
(A) The nature of the emergency precluded obtaining prewaiver
checks; or
(B) Checks were initiated but not all responses were received
within 5 days. The records shall also include a listing of all checks
made and favorably completed.
(iii) When waiver is authorized, the required investigation must be
initiated within 14 days of placement of the individual in the
position.
(b) Exceptions to investigative requirements. Pursuant to section
3(a) of E.O. 10450, the head of an agency may request that the
following positions be exempted from the investigative requirements of
E.O. 10450, providing that the employing agency conducts such checks as
it deems appropriate to insure that the employment or retention of
individuals in these positions is clearly consistent with the interests
of the national security:
(1) Positions that are intermittent, seasonal, per diem, or
temporary, not to exceed an aggregate of 180 days in either a single
continuous appointment or series of appointments; or
(2) Positions filled by aliens employed outside the United States.
Sec. 732.203 Periodic reinvestigation requirements.
The incumbent of each position designated Special-Sensitive or
Critical-Sensitive under this part shall be subject to periodic
reinvestigation of a scope prescribed by OPM 5 years after placement,
and at least once each succeeding 5 years. The employing agency will
use the results of such periodic reinvestigation to determine whether
the continued employment of the individual in a sensitive position is
clearly consistent with the interests of the national security.
Subpart C--Due Process and Reporting
Sec. 732.301 Due process.
When an agency makes an adjudicative decision under this part based
on an OPM investigation or upon an investigation conducted pursuant to
OPM-delegated authority, or when an agency, as a result of information
in an OPM investigation or an investigation conducted pursuant to OPM-
delegated authority, changes a tentative favorable placement or
clearance decision to an unfavorable decision, the agency must:
(a) Insure that the records used in making the decision are
accurate, relevant, timely, and complete to the extent reasonably
necessary to assure fairness to the individual in any determination;
(b) Insure that all applicable administrative due process
requirements provided by law, the regulations in this part, and OPM
policy guidance have been observed;
(c) Consider all available information in reaching its final
decision;
(d) Keep any record of the agency action required by OPM as
published in its issuances; and
(e) At a minimum, provide the individual concerned:
(1) Notice of the specific reason(s) for the decision;
(2) An opportunity to respond; and
(3) Notice of appeal rights, if any.
Sec. 732.302 Reporting to OPM.
(a) In accordance with section 9(a) of E.O. 10450, each agency
conducting an investigation under E.O. 10450 is required to notify OPM
when the investigation is initiated.
(b) In accordance with section 14(c) of E.O. 10450, agencies shall
report to OPM the action taken with respect to individuals investigated
pursuant to E.O. 10450 as soon as possible and in no event later than
90 days after receipt of the final report of investigation.
3. Part 736 is revised to read as follows:
[[Page 401]]
PART 736--PERSONNEL INVESTIGATIONS
Subpart A--General Provisions
Sec.
736.101 Purpose.
736.102 Scope.
736.103 Responsibilities of OPM and other Federal agencies.
736.104 Timing of investigations.
Subpart B--Collection of Information
736.201 Protecting the identity of a source.
736.202 Notice to investigative sources.
736.208 Use of the polygraph.
Subpart C--Maintenance of Information
736.301 Maintenance of investigative files.
736.302 Handling of OPM investigative files.
Authority: Pub. L. 93-579; (5 U.S.C. 552a).
Subpart A--General Provisions
Sec. 736.101 Purpose.
The purpose of this part is to specify certain requirements for
personnel investigations conducted by OPM, for investigations conducted
under delegated authority from OPM, and for use of OPM investigative
records.
Sec. 736.102 Scope.
(a) The requirements of this part apply to suitability and national
security investigations conducted under parts 731 and 732 of this
chapter and to national security investigations of individuals seeking
or holding employment with Federal Contractors.
(b) For purposes of this part, Agency means any authority of the
Government of the United States, whether or not it is within or subject
to review by another agency, and includes any executive department,
military department, Government corporation, Government-controlled
corporation, or other establishment in the executive branch of the
Government, or any independent regulatory agency.
Sec. 736.103 Responsibilities of OPM and other Federal agencies.
(a) Unless provided otherwise by law, the investigation of persons
entering or employed in the competitive service, or by career
appointment in the Senior Executive Service, is the responsibility of
OPM.
(b) Requests for delegated investigating authority. Agencies may
request delegated authority from OPM to conduct or contract out
investigations of persons entering or employed in the competitive
service or by career appointment in the Senior Executive Service. Such
requests shall be made in writing by agency heads, or designees, and
must specify the reason(s) and justification for the request and must
include a complete cost analysis of all factors spelled out in OPM
guidance. Background investigations for these positions may not be
conducted or contracted out unless expressly authorized by OPM special
agreement.
(c) OPM Security Program Appraisals. Under E.O. 10450 (3 CFR, 1949-
1953 Comp., p. 936), OPM is required to conduct a continuing study of
each agency's personnel security program. The purpose of the appraisal
is to identify any deficiencies in security programs established under
E.O. 10450 which are inconsistent with the interests of, or directly or
indirectly weaken, the national security, and to identify tendencies in
such programs to deny to individual employees fair, impartial, and
equitable treatment or rights under the Constitution and laws of the
United States.
(d) OPM Suitability Program Appraisals. Under its statutory
authority to delegate personnel management functions to agencies (5
U.S.C. 1104), OPM conducts a continuing appraisal of agency compliance
with personnel suitability program requirements under 5 CFR part 731.
In addition, OPM conducts a continuing appraisal of the Computer/ADP
requirements set forth in OMB Circular A-130.
Sec. 736.104 Timing of investigations.
Investigations required for all positions subject to investigation
must be initiated within 14 days of placement in the position except
for positions designated Special-Sensitive under part 732 of this
chapter, for which the preappointment investigative requirement may not
be waived.
Subpart B--Collection of Information
Sec. 736.201 Protecting the identity of a source.
(a) The interviewing agent may grant a pledge to keep confidential
the identity of an information source only in the most compelling
circumstances and only upon specific request by the source. Although
the interviewing agent may not ordinarily suggest that the source
request confidentiality, the agent may offer a pledge of
confidentiality where the agent believes that the source would not
otherwise be willing to provide needed information.
(b) A pledge of confidentiality may not be assumed by the source.
(c) A pledge of confidentiality, if granted, extends only to the
identity of the source and to any information furnished by the source
that would reveal the identity of the source.
(d) When a source is granted a promise that the source's identity
will be kept confidential, the investigating agency and all other
agencies that receive information obtained under the promise are
required to take all reasonable precautions to protect the source's
identity. Each agency will prepare implementing instructions consistent
with this part.
Sec. 736.202 Notice to investigative sources.
(a) The investigating agent must notify sources:
(1) Of the purpose of the request for information,
(2) Of the uses that may be made of the information, and
(3) That all information provided, including the record source's
identity, may be disclosed to the subject of the investigation upon the
subject's request.
(b) Where information is requested by written inquiry, the form,
instructions, or correspondence used by an agency must include, in
addition to the requirements listed in paragraph (a) of this section:
(1) Space for the source to request a pledge that the source's
identity will not be disclosed to the subject of the investigation, and
(2) An offer to make special arrangements to obtain significant
information which the source feels unable to furnish without a promise
that the source's identity will be kept confidential.
Sec. 736.203 Use of the polygraph.
(a) An executive branch agency which has a highly sensitive
intelligence or counterintelligence mission directly affecting the
national security (e.g., a mission approaching the sensitivity of that
of the Central Intelligence Agency) may use the polygraph for
employment screening and personnel investigations of applicants and
appointees only after complying with the requirements in paragraphs (c)
and (d) of this section.
(b) All other executive branch departments and agencies are
prohibited from initiating a polygraph examination for employment
screening purposes for applicants or appointees to the competitive
service.
(c) If an agency desires to determine whether the agency mission
meets the criteria to be allowed to use the polygraph, the agency must
submit to the Director, OPM a statement of the nature of its mission
and a copy of its current or proposed regulations and directives
governing use of the polygraph (or a citation to them if there has been
no change since they were previously submitted and approved). The
Director shall then determine whether the agency has an intelligence or
counter-intelligence mission directly
[[Page 402]]
affecting the national security and whether the regulations and
directives meet current approval requirements.
(d) The agency shall prepare regulations and directives governing
use of the polygraph in employment screening and personnel
investigations which must be reviewed and approved by the Director,
OPM. These shall contain at a minimum:
(1) Specific purposes for which the polygraph may be used, and
details concerning the types of positions or organizational entities in
which it will be used, and the officials authorized to approve these
examinations;
(2) A provision that a person to be examined must be informed as
far in advance as possible of the intent to use the polygraph, and of
(i) Other devices or aids to the examination which may be used
simultaneously with the polygraph, such as voice recordings,
(ii) The effect of the polygraph examination, or his/her refusal to
take this examination, on eligibility for employment, and that refusal
to consent to a polygraph examination will not be made a part of the
personnel file, and
(iii) The characteristics and nature of the polygraph machine and
examination, including an explanation of the physical operation of the
machine, the procedures to be followed during the examination, and the
disposition of information developed;
(3) A provision that no polygraph examination will be given unless
the person to be examined has voluntarily consented in writing to be
examined after having been informed of the provisions in paragraph
(d)(2) of this section;
(4) A provision that questions to be asked during a polygraph
examination must have relevance to the subject of the particular
inquiry;
(5) Adequate standards for the selection and training of examiners,
keeping in mind the Government's objective of insuring protection for
the subject of an examination and the accuracy of polygraph results;
(6) A provision for adequate monitoring of polygraph operations to
prevent abuses or unwarranted invasions of privacy; and
(7) A provision for adequate safeguarding of files, charts, and
other relevant data developed through polygraph examinations to avoid
unwarranted invasions of privacy.
(e) Approval to use the polygraph for employment selection
screening for positions in the competitive service will be granted only
for a 12-month period, and is conditioned upon prior approval of the
agency's regulations and directives as provided in paragraph (d) of
this section. An agency given approval to use the polygraph for
competitive service positions will be required to recertify annually to
the Director, OPM, that the conditions which led to the original
certification still exist in the agency. Nothing contained in this
section shall be applicable to polygraph examinations for purposes
other than employment selection screening.
(f) The basic requirements of National Security Decision Directive
Number 84 (NSDD-84), subject to and as affected by any restrictions in
force, approved by former President Ronald W. Reagan on March 11, 1983,
include the use of the polygraph in certain instances. Agencies that
originate or handle classified national security information should
review the current requirements of NSDD-84.
Subpart C--Maintenance of Information
Sec. 736.301 Maintenance of Investigative Files.
(a) Investigative files are records subject to the Privacy Act and
the Freedom of Information Act and are maintained in accordance with
the provisions of those Acts.
(b) Investigative information, including investigative reports and
other materials, is highly personal and is properly restricted to
agency officials who have an official need for it in performance of
their duties. All investigative information shall be maintained in
confidence. Notices of systems of records published to fulfill Privacy
Act requirements must show full consideration for the highly personal
nature of this information.
(c) When not in use, personnel investigations must be stored in a
combination-locked cabinet or safe, or in an equally secure area.
Access to case files should be limited only to the Security Officer and
approved staff, who shall not have access to their own files.
Sec. 736.302 Handling of OPM Investigative Files.
(a) The agency security office must maintain a record of each
disclosure of OPM investigative material within the agency, including
at a minimum:
(1) The name and title of the person to whom disclosure was made;
(2) The type of background investigation conducted on the person to
whom the material was disclosed;
(3) The date(s) of disclosure; and
(4) The reason(s) for the disclosure.
(b) An agency may disseminate OPM investigative files, in whole or
in part, outside the agency only when the agency obtains prior OPM
approval. Agency security officers are responsible for controlling
files within their agencies.
(c) Privacy Act and Freedom of Information Act requests for OPM
investigative records are to be submitted to the Office of Personnel
Management, Federal Investigations Processing Center, FOI/P, P.O. Box
618, Boyers, Pennsylvania 16018-0618.
[FR Doc. 96-116 Filed 1-4-96; 8:45 am]
BILLING CODE 6325-01-M
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