PART 453—GENERAL STATEMENT CONCERNING THE BONDING REQUIREMENTS OF THE LABOR-MANAGEMENT REPORTING AND DISCLOSURE ACT OF 1959 Authority: Sec. 502, 73 Stat. 536; 79 Stat. 888 (29 U.S.C. 502); Secretary's Order No. 03-2012, 77 FR 69376, November 16, 2012. Source: 28 FR 14394, Dec. 27, 1963, unless otherwise noted. Introduction § 453.1 Scope and significance of this part. (a) Functions of the Department of Labor. 1 1 (b) Purpose and effect of interpretations. 2 2 Skidmore Swift & Co., (c) Earlier interpretations superseded. [28 FR 14394, Dec. 27, 1963, as amended at 50 FR 31309, Aug. 1, 1985; 78 FR 8026, Feb. 5, 2013] Criteria for Determining Who Must Be Bonded § 453.2 Provisions of the statute. (a) Section 502(a) requires that: Every officer, agent, shop steward, or other representative or employee of any labor organization (other than a labor organization whose property and annual financial receipts do not exceed $5,000 in value), or of a trust in which a labor organization is interested, who handles funds or other property thereof shall be bonded to provide protection against loss by reason of acts of fraud or dishonesty on his part directly or through connivance with others. (b) This section sets forth, in the above language and in its further provisions, the minimum requirements regarding the bonding of the specified personnel. There is no provision in the Act which precludes the bonding of such personnel in amounts exceeding those specified in section 502(a). Similarly, the Act contains no provision precluding the bonding of such personnel as are not required to be bonded by this section. Such excess coverage may be in any amount and in any form otherwise lawful and acceptable to the parties to such bonds. [28 FR 14394, Dec. 27, 1963, as amended at 30 FR 14925, Dec. 2, 1965] § 453.3 Labor organizations within the coverage of section 502(a). Any labor organization as defined in sections 3(i) and 3(j) of the Act 3 3 § 453.4 Trusts (in which a labor organization is interested) within the coverage of section 502(a). Section 3(l) of the Act defines a trust in which a labor organization is interested * * * a trust or other fund or organization (1) which was created or established by a labor organization, or one or more of the trustees or one or more members of the governing body of which is selected or appointed by a labor organization, and (2) a primary purpose of which is to provide benefits for the members of such labor organization or their beneficiaries. Both the language and the legislative history 4 4 § 453.5 Officers, agents, shop stewards, or other representatives or employees of a labor organization. With respect to labor organizations, the term “officer, agent, shop steward, or other representative” is defined in section 3(q) of the Act to include “elected officials and key administrative personnel, whether elected or appointed (such as business agents, heads of departments or major units, and organizers who exercise substantial independent authority)”. Other individuals employed by a labor organization, including salaried non-supervisory professional staff, stenographic, and service personnel are “employees” and must be bonded if they handle 5 5 § 453.6 Officers, agents, shop stewards or other representatives or employees of a trust in which a labor organization is interested. (a) Officers, agents, shop stewards or other representatives. 6 6 (b) Independent institutions not included. (c) Employees of a trust in which a labor organization is interested. [28 FR 14394, Dec. 27, 1963, as amended at 50 FR 31311, Aug. 1, 1985] § 453.7 “Funds or other property” of a labor organization or of a trust in which a labor organization is interested. The affirmative requirement for bonding the specified personnel is applicable only if they handle “funds or other property” of the labor organization or trust concerned. A consideration of the purpose of section 502 and a reading of the section as a whole, including provisions for fixing the amount of bonds, suffice to show that the term “funds or other property”, as used in this section of the Act, encompasses more than cash alone but that it does not embrace all of the property of a labor organization or of a trust in which a labor organization is interested. The term does not include property of a relatively permanent nature, such as land, buildings, furniture, fixtures and office and delivery equipment used in the operations of a labor organization or trust. It does, however, include items in the nature of quick assets, such as checks and other negotiable instruments, government obligations and marketable securities, as well as cash, and other property held, not for use, but for conversion into cash or for similar purposes making it substantially equivalent to funds. § 453.8 Personnel who “handle” funds or other property. (a) General considerations. 7 7 (b) Persons included generally. (c) Physical contact as criterion of “handling.” (d) “Handling” funds or other property without physical contact. (e) Disbursement of funds or other property. [28 FR 14394, Dec. 27, 1963, as amended at 30 FR 14925, Dec. 2, 1965] § 453.9 “Handling” of funds or other property by personnel functioning as a governing body. (a)(1) General considerations. (2) It is difficult to formulate any general rule for such cases. The mere fact that a board of trustees, executive board or similar governing body has general supervision of the affairs of a trust or labor organization, including investment policy and the establishment of fiscal controls, would not necessarily mean that the members of this body “handle” the funds or other property of the organization. On the other hand, the facts may indicate that the board or other body exercises such close, day-to-day supervision of those directly charged with the handling of funds or other property that it might be unreasonable to conclude that the members of such board were not, as a group, also participating in the handling of such funds and property. 8 8 (b) Nature of responsibilities as affecting “handling.” [28 FR 14394, Dec. 27, 1963, as amended at 30 FR 14926, Dec. 2, 1965] Scope of the Bond § 453.10 The statutory provision. The statute requires that every covered person “shall be bonded to provide protection against loss by reason of acts of fraud or dishonesty on his part directly or through connivance with others.” [30 FR 14926, Dec. 2, 1965] § 453.11 The nature of the “duties” to which the bonding requirement relates. The bonding requirement in section 502(a) relates only to duties of the specified personnel in connection with their handling of funds or other property to which this section refers. It does not have reference to the special duties imposed upon representatives of labor organizations by virtue of the positions of trust which they occupy, which are dealt with in section 501(a), and for which civil remedies for breach of the duties are provided in section 501(b). The fact that the bonding requirement is limited to personnel who handle funds or other property indicates the correctness of these conclusions. They find further support in the differences between sections 501(a) and 502(a) of the Act which sufficiently indicate that the scope of the two sections is not coextensive. § 453.12 Meaning of fraud or dishonesty. The term “fraud or dishonesty” shall be deemed to encompass all those risks of loss that might arise through dishonest or fraudulent acts in handling of funds as delineated in §§ 453.8 and 453.9. As such, the bond must provide recovery for loss occasioned by such acts even though no personal gain accrues to the person committing the act and the act is not subject to punishment as a crime or misdemeanor, provided that within the law of the State in which the act is committed, a court would afford recovery under a bond providing protection against fraud or dishonesty. As usually applied under State laws, the term “fraud or dishonesty” encompasses such matters as larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication or any other fraudulent or dishonest acts resulting in financial loss. [30 FR 14926, Dec. 2, 1965] Amount of Bonds § 453.13 The statutory provision. Section 502(a) of the Act requires that the bond of each “person” handling “funds or other property” who must be bonded be fixed “at the beginning of the organization's fiscal year * * * in an amount not less than 10 percentum of the funds handled by him and his predecessor or predecessors, if any, during the preceding fiscal year, but in no case more than $500,000.” If there is no preceding fiscal year, the amount of each required bond is set at not less than $1,000 for local labor organizations and at not less than $10,000 for other labor organizations or for trusts in which a labor organization is interested. § 453.14 The meaning of “funds.” While the protection of bonds required under the Act must extend to any actual loss from the acts of fraud or dishonesty in the handling of “funds or other property” (§ 453.7), the amount of the bond depends upon the “funds” handled by the personnel bonded and their predecessors, if any. “Funds” as here used is not defined in the Act. As in the case of “funds or other property” discussed earlier in § 453.7, the term would not include property of a relatively permanent nature such as land, buildings, furniture, fixtures, or property similarly held for use in the operations of the labor organization or trust rather than as quick assets. In its normal meaning, however, “funds” would include, in addition to cash, items such as bills and notes, government obligations and marketable securities, and in a particular case might well include all the “funds or other property” handled during the year in the positions occupied by the particular personnel for whom the bonding is required. In any event, it is clear that bonds fixed in the amount of 10 percent or more of the total “funds or other property” handled by the occupants of such positions during the preceding fiscal year would be in amounts sufficient to meet the statutory requirement. Of course, in situations where a significant saving in bonding costs might result from computing separately the amounts of “funds” and of “other property” handled, criteria for distinguishing particular items to be included in the quoted terms would prove useful. While the criteria to be applied in a particular case would depend on all the relevant facts concerning the specific items handled, it may be assumed as a general principle that at least those items which may be handled in a manner similar to cash and which involve a like risk of loss should be included in computing the amount of “funds” handled. [30 FR 14926, Dec. 2, 1965] § 453.15 The meaning of funds handled “during the preceding fiscal year”. The funds handled by personnel required to be bonded and their predecessors during the course of a fiscal year would ordinarily include the total of whatever such funds were on hand at the beginning of the fiscal year plus any items received or added in the form of funds during the year for any reason, such as dues, fees and assessments, trust receipts, or items received as a result of sales, investments, reinvestments, or otherwise. It would not, however, be necessary to count the same item twice in arriving at the total funds handled by personnel during a year. Once an item properly within the category of “funds” had been counted as handled by personnel during a year, there would be no need to count it again should it subsequently be handled by the same personnel during the same year in some other connection. § 453.16 Funds handled by more than one person. The amount of any required bond is determined by the total funds handled during a fiscal year by each “person” bonded, and any predecessors of such “person”. The term “person”, however, is defined in section 3(d) of the Act to include “one or more” of the various individuals or entities there listed, so that there may be numerous instances where the bond of a “person” may include several individuals. Wherever this is the case, the amount of the bond for that “person” would, of course, be based on the total funds handled by all who comprise the “person” included in the bond, without regard to the precise extent to which any particular individual might have handled such funds. This would be the situation, for example, in many cases of joint or group activity in the performance of a single function. It would also be true where various individuals performed the same type of function for an organization, even though they acted independently of one another. There would, however, be no objection to bonding each individual separately, and fixing the amount of his bond on the basis of the total funds which he individually handled during the year. § 453.17 Term of the bond. The amount of any required bond must in each instance be based on funds handled “during the preceding fiscal year,” and must be fixed “at the beginning” of an organization's fiscal year—that is, as soon after the date when such year begins as the necessary information from the preceding fiscal year can practicably be ascertained. This does not mean, however, that a new bond must be obtained each year. There is nothing in the Act which prohibits a bond for a term longer than one year, with whatever advantages such a bond might offer by way of a lower premium, but at the beginning of each fiscal year during its term the bond must be in at least the requisite amount. If it is below that level at that time for any reason, it would then be necessary either to modify the existing bond to increase it to the proper amount or to obtain a supplementary bond. In either event, the terms upon which this could best be done would be left to the parties directly concerned. Form of Bonds § 453.18 Bonds “individual or schedule in form”. (a) General consideration. 9 10 9 10 (b) Particular forms of bonds. (c) Additional bonding. § 453.19 The designation of the “insured” on bonds. Since section 502 is intended to protect the funds or other property of labor organizations and trusts in which labor organizations are interested, bonds under this section should allow for enforcement or recovery for the benefit of the labor organization or trust concerned by those ordinarily authorized to act for it in such matters. For example, in the case of a local labor organization, a bond would not be appropriate under section 502 if it protected only the interests of a national or international labor organization with which the local labor organization is affiliated or if it designated as the insured only some particular officer of the organization who does not legally represent it in similar formal instruments. Qualified Agents, Brokers, and Surety Companies for the Placing of Bonds § 453.20 Corporate sureties holding grants of authority from the Secretary of the Treasury. The provisions of section 502(a) require that any surety company with which a bond is placed pursuant to that section must be a corporate surety which holds a grant of authority from the Secretary of the Treasury under the Act of July 30, 1947 (6 U.S.C. 6-13), as an acceptable surety on Federal bonds. That Act provides, among other things, that in order for a surety company to be eligible for such grant of authority, it must be incorporated under the laws of the United States or of any State and the Secretary of the Treasury shall be satisfied of certain facts relating to its authority and capitalization. Such grants of authority are evidenced by Certificates of Authority which are issued by the Secretary of the Treasury and which expire on the June 30 following the date of their issuance. A list of the companies holding such Certificates of Authority is published annually in the Federal Register, Federal Register [28 FR 14394, Dec. 27, 1963, as amended at 50 FR 31311, Aug. 1, 1985] § 453.21 Interests held in agents, brokers, and surety companies. (a) Section 502(a) of the Act prohibits the placing of bonds required therein through any agent or broker or with any surety company in which any labor organization or any officer, agent, shop steward, or other representative of a labor organization has any direct or indirect interest. The purpose of this provision, as shown by its legislative history, is to insure against the existence of any “financial or other influential” interests which would affect the objectivity of the action of agents, brokers, or surety companies in bonding the personnel specified in the section. 11 11 (b) Since the statute provides that either a direct or indirect interest by a labor organization or by the specified persons may disqualify an agent, broker, or surety company from having a bond placed through or with it, the disqualification would be effective if a labor organization or any of the specified persons are in a position to influence or control the activities or operations of such brokers, agents, or surety companies, by virtue of interests held either directly by them or by relatives or third parties which they own or control. The question of whether the relationship between the labor organization or the specified persons on the one hand, and another party or parties holding an interest in a broker, agent, or surety company on the other hand, is so close as to put the former in a position to influence or control the activities or operations of such broker, agent, or surety company through the latter, presents a question of fact which must necessarily be determined in each case in the light of all the pertinent circumstances. (c) It is also to be noted that the statute does not appear to restrict the disqualification to cases in which a direct or indirect interest is held by a labor organization as a whole, or by a substantial number of officers, agents, shop stewards, or other representatives of a labor organization, but provides for the disqualification also in cases where any one officer, agent, shop steward, or other representative of a labor organization holds such an interest. [28 FR 14394, Dec. 27, 1963, as amended at 63 FR 33780, June 19, 1998] Miscellaneous Provisions § 453.22 Prohibition of certain activities by unbonded persons. (a) Section 502(a) provides that persons who are not covered by bonds as required by that section shall not be permitted to receive, handle, disburse, or otherwise exercise custody or control of the funds or other property of a labor organization or of a trust in which a labor organization is interested. This prohibits personnel who are required to be bonded, as explained in § 453.8 from performing any of these acts without being covered by the required bonds. In addition, this provision makes it unlawful for any person with power to do so to delegate or assign the duties of receiving, handling, disbursing, or otherwise exercising custody or control of such funds or property to any person who is not bonded in accordance with the provisions of section 502(a). (b) The legislative history of the Act indicates, however, that it was not the intent of Congress to make compliance with the bonding requirements of section 502(a) a condition on the right of banks or other financial institutions to serve as the depository of the funds of labor organizations or trusts. Similarly, it appears that the provisions of that section do not require the bonding of brokers or other independent contractors who have contracted with labor organizations or trusts for the performance of functions which are normally not carried out by such labor organizations' or trusts' own officials or employees, such as the buying of securities, the performance of other investment functions, or the transportation of funds by armored truck. 12 12 § 453.23 Persons becoming subject to bonding requirements during fiscal year. Considering the purpose of section 502, the language of the prohibition should be considered to apply to persons who because of election, employment or change in duties begin to handle funds or other property during the course of a particular fiscal year. Bonds should be secured for such persons, in an amount based on the funds handled by their predecessors during the preceding fiscal year, before they are permitted to engage in any of the fund-handling activities referred to in the prohibition, unless coverage with respect to such persons is already provided by bonds in force meeting the requirements of section 502(a). § 453.24 Payment of bonding costs. The Act does not prohibit payment of the cost of the bonds, required by section 502(a), by labor organizations or by trusts in which a labor organization is interested. The decision whether such costs are to be borne by the labor organization or trust or by the bonded person is left to the duly authorized discretion and agreement of the parties concerned in each case. § 453.25 Effective date of the bonding requirement. While the bonding provision in section 502(a) became effective on September 14, 1959, its requirement for obtaining bonds does not become applicable to a labor organization or a trust in which a labor organization is interested, or to the personnel of any such organization, until the subsequent date when such organization's next fiscal year begins. This is so because the Act requires each such bond to be fixed at the beginning of the organization's fiscal year in an amount based on funds handled in the preceding fiscal year, and it could not well have been intended that the obtaining of a bond would be necessary in advance of the time when it would be possible to meet this requirement. § 453.26 Powers of the Secretary of Labor to exempt. Section 502(a) of the Act provides that when in the opinion of the Secretary of Labor a labor organization has made other bonding arrangements which would provide the protection required at comparable cost or less, he may exempt such labor organization from placing a bond through a surety company holding a grant of authority from the Secretary of the Treasury under the Act of July 30, 1947 (6 U.S.C. 6-13), as acceptable surety on Federal bonds. [30 FR 14926, Dec. 2, 1965]