General Guidance About SAO Reporting and Divestiture Requirements

The NIH's ethics program is administered to help ensure that decisions made by NIH employees are not, nor appear to be, tainted by any question of conflict of interest. The "ethics" laws and regulations were established to promote and strengthen the public's confidence in the integrity of the Federal Government.

On August 31, 2005, the Department of Health and Human Services (HHS) published the revised HHS Supplemental Standards of Ethical Conduct (5 CFR 5501) and the new Supplemental Financial Disclosure Requirements (5 CFR 5502). Together, these regulations prohibit or limit senior NIH employees financial interests in certain outside organizations, called a "substantially affected organization" (SAO), and require certain categories of employees to report their holdings in SAOs. Under the law, the financial interests of your spouse and minor children are considered to be your financial interests, so the prohibition also applies to them.

Definition of Substantially Affected Organization: A 'substantially affected organization' is defined as:

1. a biotechnology or pharmaceutical company; a medical device manufacturer; or a corporation, partnership, or other enterprise or entity significantly involved, directly or through subsidiaries, in the research, development, or manufacture of biotechnological, biostatistical, pharmaceutical, or medical devices, equipment, preparations, treatments, or products;
2. any organization, a majority of whose members are these types of entities; and
3. any other organization determined by the agency to be substantially affected by the programs, policies, or operations of the NIH.

Consult your IC's DEC or Ethics Coordinator for assistance in identifying companies in the biotechnology, biostatistics, pharmaceutical, medical device, and related industries and any other organizations that are substantially affected (5 CFR 5501.109(b)(10). A list of Substantially Affected Organizations is available on the NIH Ethics Program web site. It is updated approximately monthly. In addition, a list of health care sector mutual funds is also available.  Neither list is intended to be totally inclusive.  Absence of a company from the list does not automatically indicate that it is not an SAO or a health sector fund.

Reporting Requirements: The regulation has multiple reporting requirements for NIH employees who file either the Public (SF278) or Confidential (OGE450) Financial Disclosure Report, and Clinical Investigators who do not file a financial disclosure report.

• Initial Report Following Publication of the Regulation:  The covered employees listed above must submit the HHS-717-1 Confidential Report of Financial Interests in Substantially Affected Organizations for NIH Employees, as directed by their IC's Ethics Office. 
   
• New Employees: A Clinical Researcher new to NIH who is not required to complete either a Public or Confidential Financial Disclosure Report must submit the HHS 717-1 Report of Financial Interests in Substantially Affected Organizations for Employees of the NIH within 30 days of reporting on duty. New employees required to submit either the Public (SF 278) or Confidential Financial Disclosure Report (OGE 450) will include all of their holdings on that report.  
  
  Note: An employee reassigned or transferred from the Food and Drug Administration (which also has this reporting requirement) does not need to submit the HHS 717-1. The employee will request that the FDA Ethics Office forward his/her file to the IC's Ethics Office.   
   
• Incumbent Employees: A current covered employee who acquires any prohibited financial interest must report that interest within 30 days after acquiring the prohibited interest, e.g., via gift, inheritance, or marriage, etc. The form HHS 717-1 Confidential Report of Financial Interests in Substantially Affected Organizations for Employees of the NIH, is used for this report.

Additional Prohibition on SAO Ownership: The prohibition applies to senior NIH employees, defined as follows, including their spouses and minor children:

• NIH Director and Deputy Director
• NIH Office of the Director senior staff who report directly to the NIH Director
• Institute/Center (IC) Directors, Deputy Directors, Scientific Directors, Clinical Directors, Extramural Program Officials who report directly to the IC Director
• Any other employee designated as 'senior' based on level of decision-making authority.

Senior NIH employees may hold up to $15,000 (or the de minimis value in 5 CFR 2640 for other types of financial interests, which ever is greater) in stock (or other financial interest, e.g., sector funds) in an SAO if:

• the holding is an equity interest (e.g., stock) constitutes less than 1% of the total outstanding equity of the organization; AND
• the total holdings in substantially affected organizations (SAO) and sector funds account for less than 50% of the total value of the combined investments portfolios of the employee, the spouse, and the minor children.

Note:  The de minimis applies to publicly available securities, not to privately held securities.  Although senior employees may not be required to divest a particular interest, the final determination about whether they can retain the interest may depend upon the outcome of the conflicts analysis.

Exceptions: There are some exceptions which may permit you, and your spouse and minor children, to keep a financial interest in a substantially affected organization. If any of the following four exceptions apply, that financial interest may be retained.

1. An employee, spouse, and minor child may have a financial interest, such as a pension or other employee benefit, arising from employment with a substantially affected organization. For example, you may retain the interest in a pension plan from a previous employer, even if that previous employer is an SAO, or your spouse may work for an SAO. 
    
2. An employee, spouse, and minor child may have a financial interest in an SAO that is held through an interest in a publicly available or widely held, diversified fund (e.g., mutual fund or pension fund), as long as the employee exercises no control over the investments of the fund. This exception excludes sector funds which concentrate their investments in substantially affected organizations. These sector funds are prohibited and must be reported. 
    
3. In exceptional circumstances, it may be permissible for an employee, spouse, or minor child to retain an interest in an SAO despite the prohibition above. Such permission may be granted by the NIH Director or designee, with concurrence from the HHS Designated Agency Ethics Official, only when a determination is made that the prohibition does not need to be enforced in order to protect the integrity or objectivity with which HHS programs are administered or to avoid a violation of applicable law or regulation. Consult with your Institute or Center's Ethics Office if you think you have exceptional circumstances which may apply to you and/or your family's holdings. 
    
4. An employee may have a financial interest in a substantially affected organization in connection with the development and commercialization of invention rights obtained by the employee from the Federal Government under the Federal Technology Transfer Act and implementing regulations.

Forms: Forms are available electronically on the NIH Ethics Program web site. Some may be completed on-line and printed. If you have Acrobat Reader version 6 or higher, you may be able to save the completed form to your computer. See links above for the forms page. Ask your Ethics Office for assistance as needed.

SAO Links:

• Introduction
• Sector Funds
• List of Substantially Affected Organizations (SAOs)
• List of Other SAOs (not on D&B List)
• List of Non-SAOs
• North American Industrial Classification System (NAICS) Codes

For additional information, contact your IC's Deputy Ethics Counselor or Ethics Coordinator