Conflicting Financial Interests: Exemptions in 5 CFR 2640, Subpart B

The criminal conflict of interest statute permits the Office of Government Ethics to exempt certain financial interests from the application of the restriction on participation in matters that will affect a personal financial interest because they are too remote or too inconsequential to cause a conflict of interest. Subpart B of the regulation describes the current exemptions.

NOTE: This is a summary; always refer to the full regulation for analysis, decision-making, and examples.

5 CFR 2640.201 Exemptions for interests in mutual funds, unit investment trusts, and employee benefit plans

This section permits employees to participate in particular matters, including those with specific parties, even if a fund in which they have a financial interest includes interests in a specific party involved in the particular matter, within the limits identified.

• 5 CFR 2640.201(a) Diversified mutual funds: A diversified mutual fund is independently managed and does not have a policy of concentrating investments in a particular industry, business or geographic sector (e.g., business sector, state, or country other than the US). Interests in such funds do not pose a conflict. An employee with a financial interest in a diversified fund may participate in an official particular matter affecting a holding within the fund, regardless of the value of the employee's interest in the fund. Individual investors have no control over the fund or its assets.
   
• 5 CFR 2640.201(b) Sector mutual funds: A sector fund is a mutual fund which has a stated policy of concentrating investments (the underlying holdings) in a particular economic or geographic sector, e.g., Health care, IT, a specific country other than the US, or bonds of a single state. Sector funds may also contain investments in other areas of the economy, and are not limited to just the stated sector. So a health care sector fund may also contain some IT stocks, or vice versa.
   
  • 5 CFR 2640.201(b)(1): An employee with a financial interest in a sector fund may participate in a particular matter involving a holding in a sector fund IF that holding is in a sector other than the stated sector in which the fund concentrates. 
     
  • 5 CFR 2640.201(b)(2): An employee may participate in a particular matter affecting one or more holdings in a sector fund, when the matter pertains to the sector in which the fund's investments are concentrated PROVIDED the aggregate value of interests in all sector funds focusing on the same sector do not exceed $50,000 (aggregate self, spouse, and minor child).
• 5 CFR 2640.201(c) Employee benefit plans: An employee may participate in particular matters affecting the holdings of certain types of employee benefit plans, e.g., Thrift Savings Plan, pension plans established or maintained by a State government or political subdivision, or some diversified employee benefit plans, within the provisions stated in this section.

5 CFR 2640.202 Exemptions for interests in securities

This section permits employees to participate in particular matters, including those with specific parties, even if they have a financial interest in a specific party or a competitor, within the limits identified. Note that if a particular security held by your employee does not meet these criteria, the section cannot be applied. For example, these exemptions apply only to publicly traded stock.

• 5 CFR 2640.202(a) De minimis exemptions for matters involving parties. An employee may participate in any particular matter involving specific parties in which the disqualifying financial interest arises from ownership of securities issues by one or more entities affected by the matter, IF
   
  • the securities are publicly traded or are long-term Federal Government or municipal securities, AND
  • the aggregate market value of the holdings (employee, spouse, minor children) in the securities of all affected entities (parties) does not exceed $15,000.
• 5 CFR 2640.202(b) De minimis exemption for matters affecting nonparties. An employee may participate in any particular matter involving specific parties in which the disqualifying financial interest arises from ownership of securities issued by one or more entities that are not parties to the matter but that are affected by the matter, IF:
   
  • The securities are publicly traded, or are long-term Federal Government or municipal securities, AND
  • the aggregate market value (employee, spouse, minor children) in the securities of all affected parties [including securities exempted under 202(a)] does not exceed $25,000.
• 5 CFR 2640.202(c) De minimis exemption for matters of general applicability. An employee may participate in any particular matter of general applicability, such as rulemaking, in which the disqualifying financial interest arises from ownership of securities issued by one or more entities affected by the matter IF:
   
  • the securities are publicly traded, or are municipal securities, the aggregate market value (employee, spouse, minor children) of which does not exceed $25,000 in any one affected entity, and $50,000 total in all affected entities, OR
  • the securities are long-term Federal Government securities, and the aggregate market value does not exceed $50,000.
     
• 5 CFR 2640.202(d) Exemption for certain Federal Government securities. An employee may participate in any particular matter in which the disqualifying financial interest arises from ownership of short-term Federal Government securities or from US Savings bonds.
• 5 CFR 2640.202(e) Exemption for interests of tax-exempt organizations. If an employee serves as an unpaid officer, director, or trustee, or employee of a tax-exempt organization, the organization holds financial interests which may be affected by the employee's official duties, and the situation meets the three criteria listed in the regulation, the employee may participate in the particular matter even though it will affect the organizations investment interests.
• 5 CFR 2640.202(f) Exemptions for certain interests of general partners. If an employee has a general partner, or is a limited partner in a large partnership, and the situation meets one of the criteria, the employee may participate in the particular matter.

5 CFR 2640.203 Miscellaneous exemptions

• 5 CFR 2640.203(a) Hiring decisions: An employee may participate in a hiring decision even if he has an interest in the corporation which currently employs the applicant. See specific criteria.
• 5 CFR 2640.203(b) Employees on leave from institutions of higher education: An employee on leave of absence from an institution of higher education may participate in any particular matter of general applicability affecting the institution provided the matter meets the specific criteria in the regulation.
• 5 CFR 2640.203(c) Multi-campus institutions of higher education: An employee may participate in any particular matter affecting one campus of a state multi-campus institution of higher education, if the employee's disqualifying financial interest is employment in a position with no multi-campus responsibilities at a separate campus of the same institution. (Particularly relevant for SGEs.)
• 5 CFR 2640.203(d) Exemptions for financial interests arising from Federal Government employment or from Social Security or veterans' benefits: This section permits employees to participate in matters related to federal salary and benefits that will affect himself or others specified in section 208, within the limits specified.
• 5 CFR 2640.203(e) Commercial discount and incentive programs: This section applies when employees participate in particular matters affecting the sponsor of the program, within the limits specified.
• 5 CFR 2640.203(f) Mutual insurance companies: An employee may participate in any particular matter affecting a mutual insurance company if he holds a policy with that company, unless the matter would affect the company's ability to pay claims or the cash value.
• 5 CFR 2640.203(g) Exemption for employment interests of special Government employees serving on advisory committees: An SGE serving on an advisory committee (under FACA) may participate in any particular matter of general applicability where the disqualifying financial interest arises from his non-Federal employment or non-Federal prospective employment, provided that the matter will not have a special or distinct effect on the employee or employer other than as part of a class.
• 5 CFR 2640.203(i) Medical products: An SGE serving on an advisory committee (under FACA) may participate in committee matters regarding medical products used by his employer or himself for patient care.

For additional information or clarification, contact your IC's ethics officials (see links below).