PART 612—STANDARDS OF CONDUCT AND REFERRAL OF KNOWN OR SUSPECTED CRIMINAL VIOLATIONS Authority: Secs. 5.9, 5.17, 5.19, 5.31A of the Farm Credit Act of 1971, as amended, (Act) (12 U.S.C. 2243, 2252, 2254, 2267a); Sec. 514 of Pub. L. 102-552, 106 Stat. 4102. Source: 59 FR 24894, May 13, 1994, unless otherwise noted. Subpart A—Standards of Conduct Source: 86 FR 50975, Sept. 13, 2021, unless otherwise noted. § 612.2130 Definitions. For purposes of this subpart, the following terms and definitions apply excepting that words like document, record, certify, report, sign, and write generally should be interpreted to permit their electronic equivalents: Agent Code of Ethics Conflicts of interest Employee i.e., Entity Family e.g., Financial interest Financially obligated with Material, Mineral interest Officer Ordinary course of business, (1) A transaction that is usual and customary in the business in question on terms that are not preferential; or (2) A transaction with a person who is in the business of offering the goods or services that are the subject of the transaction on terms that are not preferential. Person Preferential Reportable business entity (1) Owns a material percentage of the equity; (2) Owns, controls, or has the power to vote a material percentage of any class of voting securities; or (3) Has the power to exercise a material influence over the management of policies of such entity from his or her status as a partner, director, officer, or majority shareholder in the entity. Resolved Standards of Conduct Official or “SOCO” Standards of Conduct Program or SOC program Supervised institution Supervising institution System institution institution § 612.2135 Standards of conduct—core principles. (a) Conduct. (1) Maintain high ethical standards, including high standards of care, honesty, integrity, and fairness. (2) Act in the best interest of the institution. (3) Preserve the reputation of the institution and the public's confidence in the Farm Credit System. (4) Exercise diligence and good business judgment in carrying out official duties and responsibilities. (5) Report to the Standards of Conduct Official conflicts of interest and circumstances or transactions that have the appearance of creating a conflict of interest involving yourself, your family, or your reportable business entity. (6) Work with the Standards of Conduct Official to identify conflicts and resolve reported conflicts of interest and appearances of conflicts of interest. (7) Avoid self-dealing and acceptance of gifts or favors that may be deemed as offered, or have the appearance of being offered, to influence official actions or decisions. (b) Responsibilities. (1) Comply with the standards of conduct and Code of Ethics policies and procedures maintained at his or her institution. (2) Comply with all applicable laws and regulations. (3) Timely report to the Standards of Conduct Official, or use the institution's anonymous reporting procedures, any known or suspected: (i) Illegal or unethical activity; or (ii) Violation of the institution's standards of conduct and Code of Ethics. (c) Fiduciary duties. § 612.2137 Elements of a Standards of Conduct Program. Each System institution board of directors is ultimately responsible for the implementation, oversight of, and compliance with, the Standards of Conduct Program. In fulfilling these responsibilities, each System institution board of directors must do the following: (a) Establish a SOC program. (b) Appoint a Standards of Conduct Official. (c) Adopt a written Code of Ethics. (d) Establish Standards of Conduct policies and procedures. (1) Requiring conflict of interest reporting from all directors and employees pursuant to § 612.2145. The frequency of conflicts of interest reporting and other disclosures must be addressed in SOC program policies and procedures using the institution's fiscal year calendar. At a minimum, each person must annually report to the SOCO known conflicts occurring in the current year. Pursuant to § 612.2145(c), the board must also require directors and officers to give the SOCO the disclosures required under § 620.6(a), (e), and (f) of this chapter, regardless of who else in the institution receives the disclosures. (2) Explaining what constitutes SOC program compliance, including setting criteria for documentation submitted with conflicts of interest reports and providing instructions to help directors and employees identify and report on interests or circumstances that could give rise to an actual or apparent conflict of interest. (i) The board must explain within the policies and procedures what transactions are likely to present real or potential conflicts, setting benchmarks and thresholds for both single and aggregate activities. The policies and procedures must also explain how transactions in the ordinary course of business are identified. (ii) The board must explain within the policies and procedures, setting benchmarks and thresholds, how materiality of a conflict is identified. The materiality guidelines must be used when evaluating conflicts of interest reports filed by employees and directors. An exception for those matters affecting all shareholders or borrowers may be used in making the determination of materiality. (3) Addressing the process by which real and apparent conflicts will be resolved. The procedures must also explain action(s) to be taken when a conflict cannot be resolved to the satisfaction of the institution. The procedures must explain the role and authorities of the SOCO in resolving conflicts. (4) Addressing the conduct of third-party relationships. The board of directors at each institution must adopt conflict-of-interest policies for third-party relationships and develop safeguards for use in contractual obligations that require third-party service providers to perform services on behalf of the institution in an ethical manner. At a minimum, the policies for third-party relationships must set forth expectations for disclosing known conflicts of interest to the institution. The policies must also implement the requirements of § 612.2180 for agents of the institution. (5) Setting criteria for accepting gifts that are not otherwise prohibited by this subpart. The criteria must explain the scope of application and may make appropriate exceptions for non-business events where the gift is not viewed by the institution as attempting to influence official institution business. The gift criteria must include de minimis dollar thresholds for all permissible gifts, regardless of the gift giving reason. The thresholds must apply both per gift and in the aggregate per recipient, per year. The institution must also establish disclosure requirements for gifts received as well as procedures for disposing of impermissible gifts. (6) Identifying the appropriate actions that may be taken against any director or employee who violates the standards of conduct policies and procedures, Code of Ethics, or regulations under this subpart. The board must also identify who is authorized to take which action and when. The board must address how the SOCO exercises his or her authority under § 612.2170 to investigate certain conduct issues. (7) Providing for anonymous reporting by individuals of known or suspected violations of the institution's Standards of Conduct Program and Code of Ethics, through a hotline or other venue. (e) Monitor the SOC program through internal controls. (1) Protect against unauthorized disclosure of confidential information maintained by the institution. (2) Conduct scheduled periodic reviews of the Standards of Conduct Program that determine the continued adequacy of the program. Each review must look for consistency with institution practices, financial services industry best practices, and Farm Credit Administration (FCA) regulations in this chapter, identifying any required updates. (3) Perform internal audits of the Standards of Conduct Program. The board of directors, with the assistances of the SOCO and appropriate officers of the institution, must determine the scope and depth of the audit. The board is responsible for identifying who will conduct the internal audit. The audit findings must be given directly to the institution's board or designated board committee. The audit itself must be designed to: (i) Review the effectiveness of advancing the core principles; (ii) Identify weaknesses; (iii) Recommend and report necessary corrective actions; and (iv) Cover the entire Standards of Conduct Program across the institution, including all activities conducted through a System institution unincorporated business entity (UBE) formed under § 611.1150(b) of this chapter, including UBEs organized for the express purpose of investing in a Rural Business Investment Company. (f) Train institution personnel. (1) Newly elected or appointed directors must receive Standards of Conduct training within 60 calendar days of the director assuming his or her position. (2) New employees must receive Standards of Conduct training within 10 business days of beginning work. (3) Periodic training for all directors and employees must occur at least annually but may be more frequent. § 612.2140 [Reserved] § 612.2145 Disclosing and reporting conflicts of interest. (a) Responsibilities. (1) If you have a conflict of interest in a matter, transaction, or activity subject to official action by the institution or before the board of directors then you must disclose it and refrain from participating in official action or board discussion of the matter, transaction, or activity. You must also avoid voting on or influencing any decision directed at the matter, transaction, or activity. (2) You must report, either to the SOCO or by using the institution's anonymous reporting procedures, any known or suspected activity by a person affiliated with the institution that you suspect is illegal, unethical, or a violation of the institution's standards of conduct and Code of Ethics. (b) Reporting conflicts of interest. (1) Any interest you have in any business matter, including any loan or loan application, to be considered by the System institution, or supervised or supervising institution in the current year; (2) All material financial interests, including those arising in the ordinary course of business, you have with any director, employee, agent, or borrower of your System institution, or a supervised or supervising institution; (3) The name(s) of your reportable business entities that you know or have reason to know in the current year transacted business with: (i) Your System institution; (ii) Any supervised or supervising institution; or (iii) A borrower that transacts business with your System institution, or any supervised or supervising institution. (4) The name(s) of your family members you know or have reason to know transacted business with your System institution or any supervised or supervising institution in the current year. (5) Reportable gifts received or disposed of under the institution's SOC program policies and procedures. (c) Other required disclosures for directors and officers. § 612.2150 Prohibited conduct. (a) General. (1) Use your position for personal gain or advantage. (2) Divulge confidential information. (3) Accept prohibited gifts. (4) Purchase property owned by the institution. (i) You acquire the property by inheritance. (ii) You are exercising your rights of first refusal under section 4.36 of the Act. (iii) If you are a director of the institution, you may purchase property from a System institution when the property is sold through public auction or similar open, competitive bidding process. The exception in this paragraph (a)(4)(iii) only applies if you did not participate in the decision to foreclose upon the property nor did you participate in deciding how the institution would dispose of the property. Participating in these decisions includes setting the sale terms or receiving information as a result of your position with the institution that could give you an advantage over other potential bidders or purchasers of the property. (5) Enter into transactions with prohibited sources. (i) Transactions with family members. (ii) Transactions that occur in the ordinary course of business as determined and documented by the written policies and procedures of your institution. (iii) Transactions undertaken in an official capacity and in connection with the institution's discounting, lending, or participation relationships with other financing institutions (OFIs) and other lenders. (6) Purchase System obligations. (i) Do not purchase or retire any stock in advance of the release of material, non-public, information concerning the institution to other stockholders. (ii) If you are a director or employee of the Funding Corporation, do not purchase or otherwise acquire, directly or indirectly, except by inheritance, any obligation or equity of a System institution, including any joint, consolidated or System-wide obligations, unless it is a common cooperative equity as defined in § 628.2 of this chapter. (b) Employees only. (1) Serve as a director or employee of certain entities. (i) You may serve as a director or employee of an employee credit union. (ii) You may serve as a director of a cooperative that borrows from the System under the Act's Title III authorities if you are not employed at an institution with Title III lending authority and your employing institution approves your service on the cooperative's board. (2) Act as a real estate agent or broker. (3) Act as an insurance agent or broker. (4) Serve as a joint employee. (i) You may be both a non-officer employee at a Farm Credit bank and a supervised association if the employment expenses are appropriately reflected in each institution's financial statements. (ii) If you are currently employed with a Farm Credit bank as other than an officer, in extraordinary circumstances, FCA may approve your serving as an officer of a supervised association. This requires the boards at both institutions to agree to the joint service and for the duties and compensation at each institution to be delineated in the board approval documents. The board documents, along with the request, must be sent at least 10 business days before the effective date to the Director of Regulatory Policy, Farm Credit Administration. §§ 612.2155-612.2165 [Reserved] § 612.2170 Standards of Conduct Official. (a) Authority. (1) Direct access to the board (or designated board committee) for the purpose of discussing and reporting on matters related to the institution's Standards of Conduct Program and Code of Ethics; (2) Authority to carry out the responsibilities set forth in this section; (3) Accessibility to all directors, employees, and agents of the institution; (4) Legal authority to receive confidential SOC program communications from all directors, employees, and agents of the institution; and (5) Resources adequate for implementing a successful Standards of Conduct Program. (b) Program administration. (1) Providing guidance and information to directors and employees on conflicts of interest, including aiding in the identification of reportable conflicts of interest and reportable financial interests in accordance with this subpart; (2) Receiving reports required under this subpart from directors, employees, and agents; (3) Receiving from directors and officers the disclosures required under § 620.6(a), (e), and (f) of this chapter for treatment as a supplement to an individual's conflicts of interest report; (4) Reviewing and acting upon all SOC program reports and disclosures, including documenting resolved and unresolved conflicts of interest that are material, and making written determinations on how conflicts of interest will be resolved; (5) Maintaining all SOC program records for the required period of time, including documentation that explains how conflicts are being handled; (6) Conducting investigations as either authorized under this subpart or by the institution's SOC program policies and procedures; (7) Reporting promptly to the institution's board of directors (or designated board committee) those SOC program or Code of Ethics matters required by the institution's SOC program policies and procedures or FCA regulations in this chapter; and (8) Reporting to the institution's board of directors those activities investigated pursuant to paragraph (d) of this section. (c) Training duties. (d) Investigative duties. (1) At a minimum, the Standards of Conduct Official must investigate, or cause to be investigated, all cases involving: (i) Possible violations of criminal statutes; (ii) Possible violations of director or employee prohibited conduct regulations in § 612.2150, and the applicable institution policies and procedures; (iii) Complaints of misconduct received against directors and employees of the institution; (iv) Possible violations of other provisions of this part; and (v) Suspected activities of a sensitive nature which could affect continued public confidence in the Farm Credit System. (2) The SOCO serves as the reporting official for all cases investigated under subpart B of this part (criminal referrals). In this capacity, the SOCO must report to both the institution's board and the Farm Credit Administration's Office of General Counsel all cases where: (i) A preliminary investigation indicates that a Federal criminal statute may have been violated; (ii) An investigation results in the removal of a director or discharge of an employee; or (iii) A violation may have an adverse impact on continued public confidence in the System or any of its institutions. § 612.2180 Standards of conduct for agents. (a) Agents. (b) Institutions. (c) Control. (1) The employment of agents who are related to directors or employees of the institutions; (2) The solicitation and acceptance of gifts, contributions, or special considerations by agents; and (3) The use of System and borrower information obtained in the course of the agent's work with the institution. (d) Enforcement. (1) A director, officer, employee, shareholder, or agent of a System institution; (2) An independent contractor (including an attorney, appraiser, or accountant) who knowingly or recklessly participates in: (i) A violation of law (including regulations) that is associated with the operations and activities of one or more System institutions; (ii) A breach of fiduciary duty; or (iii) An unsafe practice that causes or is likely to cause more than a minimum financial loss to, or a significant adverse effect on, a System institution; or (3) Any other person, as determined by the Farm Credit Administration (by regulation or on a case-by-case basis) who participates in the conduct of the affairs of a System institution. §§ 612.2260-612.2270 [Reserved] Subpart B—Referral of Known or Suspected Criminal Violations Source: 62 FR 24566, May 6, 1997, unless otherwise noted. Redesignated at 69 FR 10907, Mar. 9, 2004. § 612.2300 Purpose and scope. (a) This part applies to all institutions of the Farm Credit System as defined in section 1.2(a) of the Farm Credit Act of 1971, as amended, (Act) (12 U.S.C. 2002(a)) including, but not limited to, associations, banks, service corporations chartered under section 4.25 of the Act, the Federal Farm Credit Banks Funding Corporation, the Farm Credit Leasing Services Corporation, and the Federal Agricultural Mortgage Corporation (hereinafter, institutions). The purposes of this part are to ensure public confidence in the Farm Credit System, to ensure the reporting of known or suspected criminal activity, to reduce potential losses to institutions, and to ensure the safety and soundness of institutions. This part requires that institutions use the Farm Credit Administration Criminal Referral Form (hereinafter FCA Referral Form) to notify the appropriate Federal authorities when any known or suspected Federal criminal violations of the type described in § 612.2301 are discovered by institutions. (b) The specific referral requirements of this part apply to known or suspected criminal violations of the United States Code involving the assets, operations, or affairs of an institution. This part prescribes procedures for referring those violations to the proper Federal authorities and the Farm Credit Administration. No specific procedural requirements apply to the referral of violations of State or local laws. (c) Nothing in this part should be construed as reducing in any way an institution's ability to report known or suspected criminal activities to the appropriate investigatory or prosecuting authorities, whether Federal, State, or local, even when the circumstances in which a report is required under § 612.2301 are not present. (d) It shall be the responsibility of each System institution to determine whether there appears to be a reasonable basis to conclude that a criminal violation has been committed and, if so, to report the matter to the proper law enforcement authorities for consideration of prosecution. (e) Each referral required by § 612.2301(a) shall be made on the FCA Referral Form in accordance with the FCA Referral Form instructions relating to its filing and distribution. [62 FR 24566, May 6, 1997. Redesignated and amended at 69 FR 10907, Mar. 9, 2004; 75 FR 35968, June 24, 2010.] § 612.2301 Referrals. (a) Each institution and its board of directors shall exercise due diligence to ensure the discovery, appropriate investigation, and reporting of criminal activity. Within 30 calendar days of determining that there is a known or suspected criminal violation of the United States Code involving or affecting its assets, operations, or affairs, the institution shall refer such criminal violation to the appropriate regional offices of the United States Attorney, and the Federal Bureau of Investigation or the United States Secret Service or both, using the FCA Referral Form. A copy of the completed FCA Referral Form, accompanied by any relevant documentation, shall be provided at the same time to the Farm Credit Administration's Office of General Counsel. In the event that a Farm Credit bank makes a loan through a Federal land bank association which services the loan, the Federal land bank association must inform the Farm Credit bank of any known or suspected violation involving that loan and the Farm Credit bank shall refer the violation to Federal law enforcement authorities under this section. A report is required in circumstances where there is: (1) Any known or suspected criminal activity (e.g., theft, embezzlement), mysterious disappearance, unexplained shortage, misapplication, or other defalcation of property and/or funds, regardless of amount, where an institution employee, officer, director, agent, or other person participating in the conduct of the affairs of such an institution is suspected; (2) Any known or suspected criminal activity involving an actual or potential loss of $5,000 or more, through false statements or other fraudulent means, where the institution has a substantial basis for identifying a possible suspect or group of suspects and the suspect(s) is not an institution employee, officer, director, agent, or other person participating in the conduct of the affairs of such an institution; (3) Any known or suspected criminal activity involving an actual or potential loss of $25,000 or more, through false statements or other fraudulent means, where the institution has no substantial basis for identifying a possible suspect or group of suspects; or (4) Any known or suspected criminal activity involving a financial transaction in which the institution was used as a conduit for such criminal activity (such as money laundering/structuring schemes). (b) In circumstances where there is a known or suspected violation of State or local criminal law, the institution shall notify the appropriate State or local law enforcement authorities. (c) In addition to the requirements of paragraph (a) of this section, the institution shall immediately notify by telephone the appropriate Federal law enforcement authorities and FCA offices specified on the FCA Referral Form upon determining that a known or suspected criminal violation of Federal law requiring urgent attention has occurred or is ongoing. Such cases include, but are not limited to, those where: (1) There is a likelihood that the suspect(s) will flee; (2) The magnitude or the continuation of the known or suspected criminal violation may imperil the institution's continued operation; or (3) Key institution personnel are involved. § 612.2302 Notification of board of directors and bonding company. (a) The institution's board of directors shall be promptly notified of any criminal referral by the institution, except that if the criminal referral involves a member of the board of directors, discretion may be exercised in notifying such member of the referral. (b) The institution involved shall promptly make all required notifications under any applicable surety bond or other contract for protection. § 612.2303 Institution responsibilities. Each institution shall establish effective policies and procedures designed to ensure compliance with this part, including, but not limited to, adequate internal controls.