This report discusses the federal regulation of potential "conflicts of interest" which may arise as a result of the personal financial holdings, assets, securities, property, and financial transactions in assets and securities of an official in the executive branch of the federal government. Conflicts of Interest, Generally

		Principles Underlying Conflict of Interest Regulation

The underlying principle of the financial conflict of interest laws adopted by Congress, and of the regulations promulgated in the executive branch, embodies the axiom "that a public servant owes undivided loyalty to the Government," and that decisions, advice, and recommendations made by or given to the government by its officers be made in the public interest and not be tainted, even unintentionally, with influence from personal financial interests. When used specifically in reference to federal laws and rules regulating official conduct, however, it generally relates to a potential conflict between a federal employee's official governmental duties and responsibilities on the one hand, and the personal financial or economic interests of the employee on the other. Officers and employees of the federal government may naturally have many outside, private, and personal "interests." Disqualification

The principal statutory method of dealing with potential conflicts of interest of an executive branch officer or employee is to require, under 18 U.S.C. § 208, the disqualification (or "recusal") of the officer or employee from participating in any official governmental matter in which that official (or those persons or entities close enough to the official that their interests may be "imputed" to the official) has any "financial interest." Although there is no de minimis exception expressly stated in the statute, the law does provide that regulations may exempt certain categories of investments and interests which are deemed too remote or inconsequential to affect the performance of an official's governmental duties. The current Office of Government Ethics regulations exempt several such interests, including all interests in "diversified" mutual funds; interests in sector funds which include some companies affected by a governmental matter but where those companies are outside of the primary sector in which that fund specializes; and other sector funds specializing in the particular sector but where one's interest in the fund is no more than $50,000; securities, stocks, and bonds in a publicly traded company which is a party to and directly affected by a governmental matter if one's ownership value is no more than $15,000; securities, stocks, and bonds in such a company which is not a specific party to a matter but is in a class affected by the governmental matter, if the employee's ownership interest is no more than $25,000 (if securities in more than one such company are owned, then the aggregate value cannot exceed $50,000 to be exempt from the statute). Finally, advisory committee members who are "special Government employees" may receive individual waivers for conflicting interests even though such interests are not "insubstantial" (as under a 208(b)(1) waiver), if, after a review of the financial disclosure report of the advisory committee member by the official who appoints that advisory committee member, the appointing official determines that the "potential" conflicts of interest raised by the financial interests of the individual, or by those imputed to him, are "outweigh[ed]" by the "need for the individual's services.... " This waiver may apply to even substantial economic or financial interests of the employee/advisor. The report is reviewed within the agency (and by the Director of the Office of Government Ethics when appropriate for high level officials and nominees) to flag potential conflict of interest issues or problems, and to resolve any such conflicts. Confidential Disclosures

In addition to the legislative and regulatory scheme for public financial disclosure for certain federal officials, there is in place a requirement for confidential disclosure reports to be filed with an employee's agency by some lower level federal officers and employees. However, there are a few instances in which divestiture of an asset or assets may be required. In reviewing or examining the financial interests and potential conflicts of interest of an executive branch official, the agency-specific regulations or statutory provisions—specifically applicable only to officers and employees of that particular agency, commission, or bureau—which limit or prohibit the acquisition or ownership of a particular category or type of financial asset or financial interest, need to be considered and consulted. Divestiture Required Upon Ethics Review

The divestiture of particular assets, properties, or holdings may be required of an individual as a conflict of interest resolution or avoidance mechanism by administrative provisions and review in the executive branch, as well as required by a Senate committee or the Senate as a whole as a condition of favorable action on a presidential nominee requiring Senate confirmation.
Congressional offices reviewing or conducting oversight concerning the operations of executive agencies and departments, reviewing executive branch nominees for high-level appointments, or responding to constituent inquiries or petitions, may often be confronted with issues and questions of possible "conflicts of interest" of agency officials or nominees. This report summarizes and analyzes the issues of conflicts of interest that are addressed in federal law and regulation regarding officers and employees in the executive branch of the federal government.
Federal conflict of interest laws and regulations deal for the most part with the potential conflict between the official duties and responsibilities of a public officer on the one hand, and the outside, personal economic or financial interests of that individual (including the financial interests of that individual's spouse and minor children) on the other. When a particular governmental matter may have a real and predictable impact on an officer's or employee's personal financial interests or assets, that officer's or employee's work on such a matter for the government would raise conflict of interest issues. The concern in such cases is that the judgment of the officer or employee could be influenced and affected, even subtly or unconsciously, by his or her own personal financial stake in the matter, as opposed to decisions, advice, and official actions of public officers being based solely on the overall, general public interest.
Although federal officials may have many and varied outside, personal "interests," federal conflict of interest law and regulation focuses specifically on regulating outside, personal financial interests of the officer. The regulatory scheme for conflicts of interest in the executive branch of the federal government may generally be summarized in three broad categories: disqualification, disclosure, and divestiture.
The principal conflict of interest statute under federal law is a criminal provision which requires federal executive branch officials to disqualify or "recuse" themselves from working personally and substantially on any particular matter before the government in which that official (or those close enough to the official that their interests may be imputed to the official) has any "financial interest." 18 U.S.C. § 208. There are certain financial interests which are considered either de minimis, or too remote or inconsequential to affect the duties expected of employees, and such interests are exempted from the prohibition by regulations of the Office of Government Ethics. Most high-ranking federal officials must file public annual financial disclosure reports, as well as periodic disclosure reports on certain financial transactions, which detail financial holdings, assets, property, and financial transactions of the official, the official's spouse, and dependent children. Additionally, there may be confidential financial disclosure reports required from certain rank-and-file employees who do not file publicly. All of these disclosure reports are reviewed by agency ethics personnel, and are intended to facilitate conflict of interest regulation by identifying assets, property, and ownerships with a conflict potential, and to resolve any such conflicts of interest. Although there is no overall, general divestiture requirement in federal law, the divestiture of assets may be one method of conflict of interest resolution or avoidance that could be required by agency ethics personnel for assets with conflict of interest potential. Additionally, there are particular statutes and regulations applicable to certain officers and agencies which may prohibit the ownership of a range or category of particular assets. These provisions, in addition to prohibiting the acquisition of such assets, may also require the divestiture of such assets already held by incumbent officers or nominees to certain positions.