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Monday,

August 29, 2005

Part III

Department of LaborOffice of Labor-Management Standards

29 CFR Part 404

Labor Organization Officer and EmployeeReports; Proposed Rules

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51166 Federal Register / Vol. 70, No. 166/ Monday, August 29, 2005/ Proposed Rules

DEPARTMENT OF LABOR

Office of Labor-ManagementStandards

29 CFR Part 404

RIN 1215AB49

Labor Organization Officer and

Employee Reports

AGENCY: Office of Labor-ManagementStandards, Employment StandardsAdministration, Department of Labor.

ACTION: Notice of proposed rulemaking;request for comments.

SUMMARY: The Employment StandardsAdministration (ESA) of the Departmentof Labor (Department) is proposing torevise the Form LM30 and itsinstructions. The Form LM30implements section 202 of the Labor-Management Reporting and Disclosure

Act of 1959 (LMRDA or Act), 29 U.S.C.432, whose purpose is to require officersand employees of labor organizations topublicly disclose possible conflicts

between their personal financialinterests and their duty to the laborunion and its members. The proposedrule would clarify the Form LM30, andits instructions, by explaining key termsand providing examples of the financialmatters that must be reported, eliminateexemptions in the current Form LM30that permit filers to not report financialmatters that would otherwise berequired to be reported under the Act,and improve the usability of the reports

by union members and the public. TheDepartment invites general and specificcomment on any aspect of the rule; italso invites comment on specific points,as noted throughout the text of thispreamble.

DATES: Comments must be received onor before October 28, 2005.

ADDRESSES: You may submit comments,identified by RIN 1215AB49, by any ofthe following methods:

Federal eRulemaking Portal: http://www.regulations.gov.

E-mail: OLMSREG1215

[email protected]: (202) 6931340. To assureaccess to the FAX equipment, onlycomments of five or fewer pages will beaccepted via FAX transmittal, unlessarrangements are made prior to faxing,

by calling the number below andscheduling a time for FAX receipt by theOffice of Labor-Management Standards(OLMS).

Mail: Mailed comments should besent to Kay Oshel, Director of the Officeof Policy, Reports and Disclosure Officeof Labor-Management Standards, U.S.

Department of Labor, 200 ConstitutionAvenue NW., Room N5605,Washington, DC 20210. Because theDepartment continues to experiencedelays in U.S. mail delivery due to theongoing concerns involving toxiccontamination, you should take this intoconsideration when preparing to meetthe deadline for submitting comments.

OLMS recommends that you confirmreceipt of your comment by contacting(202) 6930123 (this is not a toll-freenumber). Individuals with hearingimpairments may call (800) 8778339(TTY/TDD).

Comments will be available for publicinspection during normal businesshours at the above address.

FOR FURTHER INFORMATION CONTACT: Forfurther information contact Kay H.Oshel, Director of the Office of Policy,Reports and Disclosure, at: Kay H.Oshel, U.S. Department of Labor,Employment Standards Administration,

Office of Labor-Management Standards,200 Constitution Avenue NW., Room N5605, Washington, DC 20210, olms-

[email protected], (202) 6931233 (this isnot a toll-free number), (800) 8778339(TTY/TDD).

SUPPLEMENTARY INFORMATION:

I. Background

The Form LM30 is used by officersand employees of labor organizationssubject to the Labor-ManagementReporting and Disclosure Act of 1959(LMRDA or Act). The Act requirespublic disclosure of certain financial

interests held, income received, andtransactions engaged in by labororganization officers and employees andtheir spouses and minor children.Subject to certain exclusions, theseinterests, incomes, and transactionsinclude: (1) Payments or benefits from,or interests in, an employer whoseemployees the filers union representsor is actively seeking to represent; (2)transactions involving interests in, orloans to or from, an employer whoseemployees the filers union representsor is actively seeking to represent; (3)interests in, income from, or

transactions with a business asubstantial part of which consists ofdealing with an employer whoseemployees the filers union representsor is actively seeking to represent; (4)interests in, income from, ortransactions with a business that dealswith the filers union or a trust in whichthe filers union is interested; (5)transactions or arrangements with anemployer whose employees the filersunion represents or is actively seekingto represent; and (6) payments from anemployer or labor relations consultant.

The Form LM30, which implementsin part the financial disclosureprovisions of Title II of the LMRDA, hasremained essentially unchanged in themore than 40 years since 1963, whenthe Labor Department first approved theform LM30. Over the past severalyears, the Department has engaged in aprocess to improve the administration of

the LMRDA, including the design andusefulness of the financial reportsrequired by the Act. In the course of thisprocess, a number of problems wereidentified with Form LM30. Thisproposed rule would address theseproblems by Clarifying the instructions by

explaining the key terms used in the Actand instructions, and by providingexamples of the financial matters thatmust be reported under each subsectionof the Act; Eliminating exemptions that permit

filers to not report financial matters thatwould otherwise be required to bereported under the Act, and whichpresent the potential of conflicts ofinterests for union officers andemployees; Improving disclosure by creating a

summary table on the front page of thereport, supported by schedules, fordisclosing (1) The filers interests,payments, loans, transactions orarrangements, (2) the other party tothese financial practices, and (3) thedealings, if any, between the party andthe filers labor organization or theemployer whose employees the filerslabor organization represents or actively

seeks to represent.The Department invites comment on

this proposed rule with respect to thebenefits of these changes, the ease ordifficulty with which labor organizationofficers and employees will be able tocomply with these changes, andwhether the changes will be meaningful,useful, and in accordance with thepurposes of the LMRDA, which are todisclose to union members and thepublic information about certainfinancial interests of union officials.Interested parties and the public areinvited to draw upon their experience

with similar conflict and disclosurestandards in other settings such asgovernment employment, accounting,corporate governance, legal and judicialpractice, medicine, and journalism. TheDepartment invites general and specificcomment on any aspect of the rule; italso invites comment on specific points,as noted throughout the text of thispreamble.

A. Financial Transparency

This proposed rule seeks to revise theForm LM30, the form used by labor

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51167Federal Register / Vol. 70, No. 166/ Monday, August 29, 2005/ Proposed Rules

organization officers and employees tofile the annual financial reports required

by section 202 of the LMRDA, 29 U.S.C.432. The rulemaking continues theDepartments efforts over the past fouryears to improve voluntary compliancewith, and enforcement of, the LMRDA.In response to requests from unionmembers, members of Congress, public

interest groups, and others, theDepartment: Launched a new disclosure web site

(http://www.union-reports.dol.gov),where individuals may view unionfinancial reports and conduct datasearches; Added reports filed by labor union

officers and employees, employers, andlabor relations consultants (Forms LM10, LM20, LM21, and LM30) to thedisclosure web site; Modernized the annual financial

disclosure report (Form LM2) filed bythe largest labor organizations (see 68FR 58374, Oct. 9, 2003); Raised the filing threshold for Form

LM2, thereby increasing the number oflabor organizations that may file asimplified version of the annualfinancial disclosure report; Enhanced compliance assistance

programs for filers; and Increased the investigative

resources of OLMS field offices tofacilitate enforcement of the Act.

The Secretary also created a newannual financial disclosure report (FormT1) for use by the largest labororganizations to report on the financialoperations of certain trusts in which

they are interested (see 68 FR 58374,Oct. 9, 2003), but the requirement thatunion file this information report wasvacated by the District of ColumbiaCircuit on appeal. See AmericanFederation of Labor and Congress ofIndus. Organizations v. Chao, 409 F. 3d377 (D.C. Cir. May 31, 2005), petition forrehearing and rehearing en banc filed

July 15, 2005. The goal of theseinitiatives, like this proposal, has beento achieve more detailed andtransparent reporting of the financialinformation that Congress, in enactingthe LMRDA, intended to be made public

for the benefit of union members andthe public. Such transparency allowsunion members to obtain informationneeded by them to monitor their unionsaffairs and to make informed choicesabout the leadership of their union andits direction. At the same time, thistransparency promotes the unions owninterests as democratic institutions andthe interests of the public and thegovernment. Financial transparency alsodeters fraud and self-dealing, andfacilitates the discovery of suchmisconduct when it does occur. In these

ways, the Departments reforms advancethe LMRDAs declared purpose thatlabor organizations, employers, andtheir officials adhere to the higheststandards of responsibility and ethicalconduct in administering the affairs oftheir organizations. LMRDA 2(a), 29U.S.C. 401(a).

B. The History of the LMRDAIn enacting the LMRDA in 1959, a

bipartisan Congress expressed theconclusion that in the labor andmanagement fields there have been anumber of instances of breach of trust,corruption, disregard of the rights ofindividual employees, and other failuresto observe high standards ofresponsibility and ethical conductwhich require further andsupplementary legislation that willafford necessary protection of the rightsand interests of employees and thepublic generally as they relate to theactivities of labor organizations,employers, labor relations consultants,and their officers and representatives.LMRDA 2(a), 29 U.S.C. 401(a).

The legislation was the directoutgrowth of a Congressionalinvestigation conducted by the SelectCommittee on Improper Activities in theLabor or Management Field, commonlyknown as the McClellan Committee,chaired by Senator John McClellan ofArkansas. In 1957, the committee begana highly publicized investigation ofunion racketeering and corruption; andits findings of financial abuse,mismanagement of union funds, and

unethical conduct provided much of theimpetus for enactment of the LMRDAsremedial provisions. See generallyBenjamin Aaron, The Labor-Management Reporting and DisclosureAct of 1959, 73 Harv. L. Rev. 851, 85155 (1960). During the investigation, thecommittee uncovered a host of improperfinancial arrangements between officialsof several international and local unionsand employers (and labor consultantsaligned with the employers) whoseemployees were represented by theunions in question or might beorganized by them. Similar

arrangements also were found to existbetween union officials and thecompanies that handled matters relatingto the administration of union benefitfunds. See generally Interim Report ofthe Select Committee on ImproperActivities in the Labor or ManagementField, S. Report No. 851417 (1957)(Interim Report of the McClellanCommittee). For examples of some ofthe improper arrangements directly orindirectly involving officials of theseunions, see pp. 4286, 12230, 15057,22255, 376420, 44150. See also

Robert F. Kennedy, The Enemy Within(1960) (discussing the committeesinvestigation).

The statute was designed to remedythese various ills through a set ofintegrated provisions aimed at uniongovernance and management. Theseinclude a bill of rights for unionmembers, which provides for equal

voting rights, freedom of speech andassembly, and other basic safeguards forunion democracy, see LMRDA 101105, 29 U.S.C. 411415; financialreporting and disclosure requirementsfor unions, union officers andemployees, employers, labor relationsconsultants, and surety companies, seeLMRDA 201206, 211, 29 U.S.C.431436, 441; detailed procedural,substantive, and reporting requirementsrelating to union trusteeships, seeLMRDA 301306, 29 U.S.C. 461466;detailed procedural requirements for theconduct of elections of union officers,

see LMRDA 401403, 29 U.S.C. 481483; safeguards for unions, includingbonding requirements, theestablishment of fiduciaryresponsibilities for union officials andother representatives, criminal penaltiesfor embezzlement from a union, loans

by a union to officers or employees,employment by a union of certainconvicted felons, and payments toemployees for prohibited purposes byan employer or labor relationsconsultant, see LMRDA 501505, 29U.S.C. 501505; and prohibitionsagainst extortionate picketing and

retaliation for exercising protectedrights, see LMRDA 601611, 29U.S.C. 521531.

The reporting requirement for officersand employees operates in tandem withthe Acts establishment of a fiduciaryduty for union officials andrepresentatives. 29 U.S.C. 501. Congressaddressed conflicts of interest in bothsection 202 and section 501(a) of theAct. 29 U.S.C. 432, 501(a). The latterprovides in part:

The officers, agents, shop stewards, andother representatives of a labor organizationoccupy positions of trust in relation to suchorganization and its members as a group. It

is, therefore, the duty of each such person,taking into account the special problems andfunctions of a labor organization, to hold itsmoney and property solely for the benefit ofthe organization and its members and tomanage, invest, and expend the same inaccordance with its constitution and bylawsand any resolutions of the governing bodiesadopted thereunder, to refrain from dealingwith such organization as an adverse party orin behalf of an adverse party in any matterconnected with his duties and from holdingor acquiring any pecuniary or personalinterest which conflicts with the interests ofsuch organization, and to account to the

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organization for any profit received by himin whatever capacity in connection withtransactions conducted by him or under hisdirection on behalf of the organization.

29 U.S.C. 501(a). Both provisionsaddress the potential and actual conflict

between a union representativespersonal interests and his or her duty tothe union and its members. See

Theodore Clark, Jr., The FiduciaryDuties of Union Officials under Section501 of the LMRDA, 52 Minn. L. Rev.437, 45860 (1962).

The need for the officer and employeedisclosure provisions was not seriouslydebated during the consideration of theLMRDA legislation. The McClellanCommittee hearings disclosed a historyof self-dealing by certain union officials,often at the expense of their unionsmembership. Then Senator John F.Kennedy was the chief sponsor of theSenate bill, S. 505, which served as thefoundation for the LMRDA. In

introducing the bill for the Senatesconsideration, Senator Kennedyaddressed concerns about theinvolvement of union officials inmatters that blurred their personalinterests and their unions interests,which would be remedied by thelegislation. Senator Kennedy used theexperience of the Teamsters union, asrevealed by the investigation of theMcClellan Committee, to underscore thepurposes to be achieved by the Act:

First. It will no longer be possible for thedues of Teamster members to be paid out tohoodlums posing as business agents, or beinvested in improper or risky racetrack orreal estate deals, or to be used by [theunions] officers to build their own personalfinancial empires without the knowledge ofthe members themselvesor withoutinvestigation by the press and publicauthorities.

Second. [A union official] would berequired to disclose all his business dealingswith insurance agents handling the unionswelfare funds, his private arrangements withemployers, his hidden partnerships in

business ventures foisted upon his members,and all other possible conflicts of interest.

* * * * * * *Sixth. [Union officials] will find future

collusion with employers vastly restricted

with no more loans from employer groups,no more attacks on rival unions throughmiddlemen * * *, and no more secrecyshrouding the use of union funds to bail outa collaborating employer.

105 Cong. Rec. S817 (daily ed. Jan. 20,1959), reprinted in 2 NLRB LegislativeHistory of the Labor-ManagementReporting and Disclosure Act of 1959(Leg. History), at 969. The improperdealings by the Teamster officials, towhich Senator Kennedy refers, aredetailed in the Interim Report of theMcClellan Committee, at, e.g., 48, 59

60, 6486, 22254, 44350. Thesedealings, like those identified byofficials of other unions in the InterimReport, included actions undertaken bynational officers, or others acting at their

behest, involving matters affecting notonly the national unions operation butalso matters of importance to local andintermediate bodies of their union. See

e.g., Interim Report, at 47, 4649, 51,55, 5960, 63, 69, 74, 81, 87, 12225,128, 130, 179, 18687, 224, 228, 23040,244, 250, 252, 28485, 295, 297, 300,44448, 26466, 268, 281. See also TheEnemy Within, at 97, 99, 10405, 106,22124.

The Senate Committee Reportprovided an overview of section 202 ofthe LMRDA:

[This section] requires a union officer oremployee to disclose any securities or otherinterest which he has in a business whoseemployees his labor union represents orseeks to represent in collective bargaining.

When a prominent union official has aninterest in the business with which the unionis bargaining, he sits on both sides of thetable. He is under temptation to negotiate asoft contract or to refrain from enforcingworking rules so as to increase the companysprofits. This is unfair to both union membersand competing businesses.

S. Rep. No. 187 (Senate Report)(1959), at 15, reprinted in 2 Leg. History,at 411. As explained in the SenateReport: The hearings before theMcClellan committee brought to light anumber of instances in which unionofficials gained personal profit from a

business which dealt with the very same

employer with whom they engaged incollective bargaining on behalf of theunion.Id. The committee endorsed theconcern expressed in the AFLCIOsethical practices code that the unionofficial may be given special favors orcontracts by the employer in return forless than a discharge of his obligationsas a trade-union leader.Id.

In explaining the purpose of thedisclosure rules for union officers andemployees, the Senate Report presentedthree reasons for relying upon themilder sanction of reporting anddisclosure [relative to establishing

criminal penalties] to eliminateimproper conflicts of interest, whichcan be summarized as follows: Disclosure discourages questionable

practices. The searchlight of publicityis a strong deterrent. Disclosure rulesshould be tried before more severemethods are employed. Disclosure aids union governance.

Reporting and publication will enableunions to better regulate their ownaffairs. The members may vote out ofoffice any individual whose personalfinancial interests conflict with his

duties to members, and reporting anddisclosure would facilitate legal action

by members against officers whoviolate their duty of loyalty to themembers. Disclosure creates a record. The

reports will furnish a sound factualbasis for further action in the event thatother legislation is required.

Senate Report, at 16, reprinted in 1Leg. History, at 412. The Report furtherstated:

The committee bill attacks the problem [ofconflicts of interest] by requiring unionofficers and employees to file reports withthe Secretary of Labor disclosing to unionmembers and the general public anyinvestments or transactions in which theirpersonal financial interests may conflict withtheir duties to the members. The bill requiresonly the disclosure of conflicts of interest asdefined therein. The other investments ofunion officials and their sources of incomeare not matters of public concern. No unionofficer or employee is obliged to file a report

unless he holds a questionable interest in orhas engaged in a questionable transaction.The bill is drawn broadly enough, however,to require disclosure of any personal gainwhich an officer or employee may besecuring at the expense of the unionmembers.

Senate Report, at 1415, reprinted in1 Leg. History, at 41011. The HouseCommittee Report (House Report),H.R. Rep. No. 741 (1959), at 11,reprinted in 1 Leg. History, at 769,conveyed the same message. Both theSenate and House Reports recognizethat a reportable interest is notnecessarily an illegal practice. As the

House Report stated:In some instances matters to be reported

are not illegal and may not be improper butmay serve to disclose conflicts of interest.Even in such instances, disclosure willenable the persons whose rights are affected,the public, and the Government, to determinewhether the arrangements or activities arejustifiable, ethical, and legal.

House Report, at 4, reprinted in 1 Leg.History, at 762. See Senate Report, at 38,reprinted in 1 Leg. History, at 434 (Byrequiring reports * * *, the committeeis not to be construed as necessarilycondemning the matters to be reported

if they are not specifically declared to beimproper or made illegal under otherprovisions of the bill or other laws.).Reports are required as to matterswhich should be public knowledge sothat their propriety can be explored inthe light of known facts andconditions.Id. As stated by SenatorBarry Goldwater after the Act had beenpassed:

Briefly, what must be reported are holdingsof interest in or the receipt of economic

benefits from employers who deal or mightdeal with such union officials union, or



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holdings in or benefits from enterpriseswhich do business with such union officialsunion.

105 Cong. Rec. A8512 (daily ed. Oct.2, 1959), reprinted in 2 Leg. History, at1846.

Conflict of interest standards,including disclosure obligations of

individuals and entities occupyingpositions of trust, are well grounded inU.S. law. As stated in the House Report,repeating almost verbatim the samepoint in the Senate Report:

For centuries the law of fiduciaries hasforbidden any person in a position of trustsubject to such law to hold interests or enterinto transactions in which self-interest mayconflict with complete loyalty to those whomhe serves. Such a person may not deal withhimself, or acquire adverse interests, or makeany personal profit as a result of his position.The same principle has long been applied totrustees, to agents, and to bank directors. Itshould be equally applicable to union

officers and employees [quoting the AFLCIOs ethical practices code]: [A] basicethical principle in the conduct of unionaffairs is that no responsible trade unionofficial should have a personal financialinterest which conflicts with the fullperformance of his fiduciary duties as aworkers representative.

Senate Report, at 11, reprinted in 1Leg. History, at 769. See generallyRestatement (Second) of Trusts (1959) 170, 173; Restatement (Second) ofAgency (1958) 381, 38798.

Section 202 is an effort, in part, tomake effective the disclosure

requirements associated with thefiduciary standards applied to unionofficials in Title V of the LMRDA,which, in turn, reflect the requirementsof the extensive code voluntarilyadopted by the AFLCIO in 1957 andapplied to its affiliated unions andofficials. See Senate Report, at 1216,reprinted in 1 Leg. History, at 40812;House Report, at 912, reprinted in 1Leg. History, at 76770. See alsoArchibald Cox, Internal Affairs of LaborUnions under the Labor Reform Act of1959, 58 Mich. L. Rev. 819, 82429(1960). The following excerpts from this

code demonstrate the nexus between thevoluntary code and the disclosurerequirements of section 202.

[A] basic ethical principle in the conductof trade union affairs is that no responsibletrade union official should have a personalfinancial interest which conflicts with thefull performance of his fiduciary duties as aworkers representative.

* * * * *[U]nion officers and agents should not be

prohibited from investing their personalfunds in their own way in the American freeenterprise system so long as they are

scrupulously careful to avoid any actual orpotential conflict of interest.

* * * * *In a sense, a trade union official holds a

position comparable to that of a publicservant. Like a public servant, he has a highfiduciary duty not only to serve the membersof his union honestly and faithfully, but alsoto avoid personal economic interest whichmay conflict or appear to conflict with thefull performance of his responsibility to thosewhom he serves.

* * * * *There is nothing in the essential ethical

principles of the trade union movementwhich should prevent a trade union official,at any level, from investing personal funds inthe publicly traded securities of corporateenterprises unrelated to the industry or areain which the official has a particular tradeunion responsibility.

* * * * *The policies * * * apply to: (a) all officers

of the AFLCIO and all officers of nationaland international unions affiliated with theAFLCIO, (b) all elected or appointed staff

representatives and business agents of suchorganizations, and (c) all officers ofsubordinate bodies of such organizationswho have any degree of discretion orresponsibility in the negotiation of collective

bargaining agreements or theiradministration.

* * * * *[These principles] apply not only where

the investments are made by union officials,but also where third persons are used asblinds or covers to conceal the financialinterests of union officials.

Ethical Practices Code IV: Investmentsand business interests of union officials(AFLCIO Ethical Practices Code),

105 Cong. Rec.*16379 (daily ed. Sept. 3,1959), reprinted in 2 Leg. History, at1408.

The Department intends by theproposals set forth herein to betterachieve the purposes of the LMRDA, asdemonstrated by the legislative history.To that end, and by this reform, theDepartment will increase compliancewith the financial disclosurerequirements in the Act, clarify the formand instructions by use of examples anddefined terms, removecounterproductive exemptions to thefiling requirements, and organize theinformation in a more useful format.

C. Statutory Language

Section 202 provides in its entirety:

SEC. 202. (a) Every officer of a labororganization and every employee of a labororganization (other than an employeeperforming exclusively clerical or custodialservices) shall file with the Secretary a signedreport listing and describing for hispreceding fiscal year

(1) Any stock, bond, security, or otherinterest, legal or equitable, which he or hisspouse or minor child directly or indirectlyheld in, and any income or any other benefit

with monetary value (including reimbursedexpenses) which he or his spouse or minorchild derived directly or indirectly from, anemployer whose employees such labororganization represents or is actively seekingto represent, except payments and other

benefits received as a bona fide employee ofsuch employer;

(2) Any transaction in which he or hisspouse or minor child engaged, directly or

indirectly, involving any stock, bond,security, or loan to or from, or other legal orequitable interest in the business of anemployer whose employees such labororganization represents or is actively seekingto represent;

(3) Any stock, bond, security, or otherinterest, legal or equitable, which he or hisspouse or minor child directly or indirectlyheld in, and any income or any other benefitwith monetary value (including reimbursedexpenses) which he or his spouse or minorchild directly or indirectly derived from, any

business a substantial part of which consistsof buying from, selling or leasing to, orotherwise dealing with, the business of anemployer whose employees such labor

organization represents or is actively seekingto represent;

(4) Any stock, bond, security, or otherinterest, legal or equitable, which he or hisspouse or minor child directly or indirectlyheld in, and any income or any other benefitwith monetary value (including reimbursedexpenses) which he or his spouse or minorchild directly or indirectly derived from, a

business any part of which consists of buyingfrom, or selling or leasing directly orindirectly to, or otherwise dealing with suchlabor organization;

(5) Any direct or indirect businesstransaction or arrangement between him orhis spouse or minor child and any employerwhose employees his organization represents

or is actively seeking to represent, exceptwork performed and payments and benefitsreceived as a bona fide employee of suchemployer and except purchases and sales ofgoods or services in the regular course of

business at prices generally available to anyemployee of such employer; and

(6) Any payment of money or other thingof value (including reimbursed expenses)which he or his spouse or minor childreceived directly or indirectly from anyemployer or any person who acts as a laborrelations consultant to an employer, exceptpayments of the kinds referred to in section302(c) of the Labor Management RelationsAct, 1947, as amended.

(b) The provisions of paragraphs (1), (2),

(3), (4), and (5) of subsection (a) shall not beconstrued to require any such officer oremployee to report his bona fide investmentsin securities traded on a securities exchangeregistered as a national securities exchangeunder the Securities Exchange Act of 1934,in shares in an investment companyregistered under the Investment CompanyAct or in securities of a public utility holdingcompany registered under the Public UtilityHolding Company Act of 1935, or to reportany income derived therefrom.

(c) Nothing contained in this section shallbe construed to require any officer oremployee of a labor organization to file a



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report under subsection (a) unless he or hisspouse or minor child holds or has held aninterest, has received income or any other

benefit with monetary value or a loan, or hasengaged in a transaction described therein.

29 U.S.C. 432.

D. Increases in Sophistication andComplexity of Financial Practices

The Form LM30 has remainedessentially unchanged since 1963, whenthe Department first approved the FormLM30. See 28 FR 14384 (Dec. 27,1963). During this time the operations ofunions have changed and financialmatters affecting institutions andindividuals have become moresophisticated. While the same statutorydisclosure standard applies now as itdid when the Act took effect, thefinancial activities of individuals andorganizations have increasedexponentially in scope, complexity andinterdependence over the past fourdecades.

For example, many unions managebenefit plans for their members,maintain close business relationshipswith financial service providers such asinsurance companies and investmentfirms, operate revenue-producingsubsidiaries, and participate infoundations and charitable activities.The complexity of union financialpractices, including businessrelationships with outside firms andvendors, increases the likelihood thatunion officers and employees may haveinterests in, or receive income from,these businesses. As more labor

organizations conduct their financialactivities through sophisticated trusts,increased numbers of businesses havecommercial relationships with suchtrusts, creating financial opportunitiesfor union officers and employees whomay operate, receive income from, orhold an interest in such businesses. Inaddition, employers also have fosteredmulti-faceted business interests,creating further opportunities forfinancial relationships betweenemployers and union officers andemployees. In this context, disclosure iscritical to promoting good union

governance, fostering ethical behavior,and deterring and detecting self-dealing.Moreover, present-day concerns about

the intersection of personal interest andprofessional responsibilities are nolonger associated only with traditionaltrustees, but are matters of centralimportance to the securities industry,corporate governance, and, among otherprofessional groups, lawyers,physicians, accountants, researchers,journalists, and government employees.

The Department believes that thepurposes of the Act could be better

accomplished by promoting increasedcompliance with the financialdisclosure requirements in the Act,clarifying the form and instructions byuse of examples and defined terms,removing counterproductiveexemptions to the filing requirements,and organizing the information in amore useful format. By improving the

form and promoting compliance withreporting requirements, union memberswill obtain a more accurate picture ofthe personal financial interests of theirunions officers and employees, as thoseinterests may bear upon their actions on

behalf of the union and its members.Publicly available informationconcerning potential conflicts of unionofficials allows union members to betterunderstand any financial incentives ordisincentives faced by their unionsofficers and employees, and to makeinformed choices about the leadershipof their union and its management of

the union. Additional disclosurepromotes the unions own interests asdemocratic institutions responsive tothe concerns of union members, anddeters, as well as facilitates thediscovery of, fraud and self-dealing.

E. The Current Form LM30

The Department initiated itsenforcement of the section 202 reportingrequirements within months of theenactment of the LMRDA in 1959, anda regulation making the Form LM30effective was published in 1963. See 28FR 14384 (Dec. 27, 1963).

The current Form LM30 consists of

four sections: a section for identifyingdata about the filer, and Parts A throughC. (The current form and instructionsare available at www.olms.dol.gov.) PartA of the form seeks transactions thatwould be reportable under sections202(a)(1), (a)(2), and (a)(5). See 29 U.S.C.432(a)(1), (2), (5). Part A thus generallyrequires reporting of holdings in,transactions and arrangements with, andincome and loans from the employerwhose employees the filers labororganization represents or actively seeksto represent. Part B attempts toimplement sections 202(a)(3), and (a)(4).

See 29 U.S.C. 432(a)(3), (4). Part B thusgenerally captures holdings in andincome from businesses that deal eitherwith the labor organization, a trust inwhich the labor organization isinterested, or the employer whoseemployees the filers labor organizationrepresents or actively seeks to represent.Part C attempts to implement section202(a)(6). See 29 U.S.C. 432(a)(6). Part Cthus generally requires reporting ofpayments of money or other things ofvalue from employers and laborrelations consultants.

Specifically, the first section gathersbasic information about the filer,including the name of the organizationin which the filer is an officer oremployee, the filers position with theorganization, and the fiscal year covered

by the report.In the General Instructions filers are

informed: You do not have to report

any sporadic or occasional gifts,gratuities, or loans of insubstantialvalue, given under circumstances orterms unrelated to the recipients statusin a labor organization, or anythingexcluded in the specific instructions inParts A, B, or C below.

Part A instructs the filer: Complete[this part] if you (1) held an interest in,(2) engaged in transactions (includingloans) with, or (3) derived income orother economic benefit of monetaryvalue from, an employer whoseemployees your organization representsor is actively seeking to represent.Complete a separate Part A for eachsuch employer and for each suchinterest, transaction, or item of incomeor other economic benefit connectedwith that employer. For each suchinterest, transaction, or income, the fileris requested to disclose its nature, value,and date of receipt. With regard to thenature of a discloseable transaction, theinstructions provide as examples:Continuing use of automobile forpersonal purposes, gift of refrigerator,payment for services. Additionalexamples provided include: Loan ofmoney from employer, rental of loft

building, located at X street, Y city, Z

State, to employer. The instructionsprovide additional information forreporting interests in, and transactionsinvolving, stocks, bonds, securities,options and similar interests.

After identifying the matters that haveto be reported, the instructions advisethe potential filer that he or she shouldnot report holdings of, transactions in,or income from bona fide investments inregistered securities; holdings of,transactions in, or income from othersecurities if they are ofinsubstantialvalue or amount (defined as holdingsor transactions of $1,000 or less and

income of $100 or less in any onesecurity) and occur under termsunrelated to the filers status in the labororganization; transactions involvingpurchases and sales of goods andservices in the regular course of

business at prices generally available toany employee of the employer; andpayments and benefits received as a

bona fide employee of the employer forpast or present services, includingwages, payments or benefits receivedunder a bona fide health, welfare,pension, vacation, training or other

http://www.olms.dol.gov/http://www.olms.dol.gov/


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benefit plan; and payments for periodsin which such employee engaged inactivities other than productive work, ifthe payments for such period of timeare: (a) Required by law or a bona fidecollective bargaining agreement, or (b)made pursuant to a custom or practiceunder such a collective bargainingagreement, or (c) made pursuant to a

policy, custom, or practice with respectto employment in the establishmentwhich the employer has adoptedwithout regard to any holding by suchemployee of a position with a labororganization.

Part B instructs the filer to report aninterest in or * * * income or othereconomic benefit with monetary value,including reimbursed expenses, from a

business (1) a substantial part of whichconsists of buying from, selling orleasing to, or otherwise dealing with the

business of an employer whoseemployees your labor organization

represents or is actively seeking torepresent, or (2) any part of whichconsists of buying from or selling orleasing directly or indirectly to, orotherwise dealing with your labororganization or a trust in which yourlabor organization is interested. Filersare instructed that they are not requiredto report any of the interests or incomeidentified in two exceptions to Part A(holdings in, transactions in, andincome from bona fide investments inregistered securities and insubstantialholdings in, transactions in, and incomefrom other securities). The filer mustidentify the name and address of the

business involved, describe the type oforganization the business deals with(employer, labor organization, trust),enter the nature of the dealings betweenthe two parties and the value of thesedealings, enter the interest held orincome received by the filer, and thedollar amount of such income orinterest.

In Part C, the filer is advised toComplete Part C if you received fromany employer (other than an employercovered under Parts A and B above), orfrom any labor relations consultant to anemployer, any payment of money or

other thing of value. The instructionsidentify the following as items that arenot required to be reported: (1)Payments of the kind referred to insection 302(c) of the Labor ManagementRelations Act (LMRA); (2) bona fideloans, interest or dividends from banks,other bona fide credit institutions, andinsurance companies; and (3) interest on

bonds or dividends on stock, providedsuch interest or dividends are received,and such bonds or stock have beenacquired, under circumstances andterms unrelated to the recipients status

in a labor organization and the issuer ofsuch securities is not an enterprise incompetition with the employer whoseemployees the filers labor organizationrepresents or actively seeks to represent.The instructions then advise thatnotwithstanding the exceptions, the filermust report any payments (1) not toorganize employees; (2) to influence

employees in any way with respect totheir rights to organize; (3) to take anyaction with respect to the status ofemployees or others as members of alabor organization; and (4) to take anyaction with respect to bargaining ordealing with employers whoseemployees [the filers] organizationrepresents or seeks to represent. Foreach interest or transaction to bereported under Part C, filers mustidentify the name of the employer orlabor relations consultant and the natureand amount of the payment.

The LMRA section 302(c) exclusions

are not explained in the instructions.Instead, the instructions provide a full-page quotation of that section. As ageneral rule, the section 302(c)exclusions make the followingpayments non-reportable: (1) Anymoney or other thing of value payable

by an employer to (a) an employeewhose established duties include actingopenly for the employer in matters oflabor relations or personneladministration, or (b) any officer oremployee of a labor organization whoalso is an employee or former employeeof such employer, as compensation for,

or by reason of, his service as anemployee of such employer; (2) moneyor other thing of value payable insatisfaction of a judgment, arbitralaward, settlement or release of anyclaim in the absence of fraud or duress;(3) with respect to the sale or purchaseof an article or commodity at theprevailing market price in the regularcourse of business; (4) with respect todeductions from wages in payment ofdues in a labor organization by writtenassignment; (5) with respect to money orother thing of value paid to a trust fundestablished by the representative of an

employers employees for the solebenefit of these employees, theirfamilies and dependents to pay formedical care, pensions, compensationfor occupational injury, unemployment

benefits, life insurance, disabilityinsurance or accident insurance; (6)with respect to money or other thing ofvalue paid by any employer to a trustfund established by the representative ofthe employers employees for thepurpose of pooled vacation, holiday,severance or similar benefits, orapprenticeship or training programs; (7)

with respect to money or other thing ofvalue paid by any employer to anindividual or pooled trust fund for thepurpose of (a) educational scholarshipsfor the benefit of employees, families,and dependents, (b) child care centers,or (c) employee housing; (8) withrespect to money or other thing of valuepaid by any employer to a trust for

defraying the costs of legal services; or(9) with respect to money or other thingof value paid by any employer to a labormanagement committee.

F. Number of Current Form LM30sFiled

Prior to initiating this rulemaking, theDepartment sought to determine thenumber of Form LM30s filed, and thenumber of union officers andemployees. The following tablerepresents all reports filed in fiscal years2001 through 2004:

Fiscal year

Number

of reportsfiled

2001 ..... .. ... .. ... .. ... ... .. ... .. ... .. ... ... .. ... 592002 ..... .. ... .. ... .. ... ... .. ... .. ... .. ... ... .. ... 492003 ..... .. ... .. ... .. ... ... .. ... .. ... .. ... ... .. ... 412004 ..... .. ... .. ... .. ... ... .. ... .. ... .. ... ... .. ... 95

Total ... ... .. ... .. ... .. ... ... .. ... .. ... .. ... 244

Next, the Department attempted toidentify the universe of people who arepotentially subject to the reportingrequirements by calculating the numberof union officers and employees. Theonly source reasonably available to the

Department was reports filed on FormsLM2, LM3 and LM4. These reportsare filed by labor organizations todisclose their financial conditions andoperations, as well as limitedinformation concerning officers andemployees. The following table setsforth the Form LM30 data gleaned fromthe FY 2002 LM reports:

Source of data

Number ofofficers oremployeesreported

LM2 Officers ....................... 66,749LM2 Employees .................. 47,371

LM3 Officers ....................... 86,808LM4 Officers ....................... 3,706

Total ............................... 204,634

Using these 2002 figures and theannual average of approximately 61Form LM30 filings for this 4-yearperiod, the Department computed afiling rate for Form LM30 of 0.03%(61/204,634 100 = 0.03%). The FormLM2, used by the largest labororganizations, requires the filer to list allthe unions officers and the employees



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who received more than $10,000 insalary, allowances, and other direct andindirect disbursements from the union.Form LM3, used by unions with under$200,000 in annual receipts (raised to$250,000 for fiscal years beginning July1, 2004 and thereafter), requires the filerto list all the unions officers, but reportemployees who received more than

$10,000 in salary, allowances, and otherdirect and indirect disbursements fromthe union only in the additionalinformation item on the form. Thisinformation is not available in theOLMS disclosure database. Form LM4filers (unions with annual receipts ofless than $10,000) do not report eitherofficers or employees. Form LM4 issigned by two officers of the union.Although an estimate, the 0.03percentage can be used to gauge thefiling rate in the absence of more precisefigures.

Recently, OLMS evaluated a small

number of union employees todetermine how many may have beenrequired to file Form LM30, but failedto do so. Employees of unions withtitles identifying them as legalprofessionals, mostly lawyers,legislative affairs specialists, andlobbyists, were culled from informationderived from Form LM2 reports filedin FY 2002. Legal professionals wereselected because it is possible, usingInternet-based data, to investigate links

between these employees or theirspouses and firms that do business withthe union, thereby indicating a

potentially reportable interest undersection 202(a)(4). None of the 438employees had filed Form LM30.These 438 individuals full names wereused in Internet searches forinformation indicating that they hadoutside legal employment. The use ofthe surname, coupled with otherInternet-based biographical data, on oneor two occasions revealed that anofficials spouse had such outside legalemployment. Then, an Internet search ofthe name of the outside employer wasconducted to determine whether theemployer listed the union officials

union as a client, or otherwise indicatedthat it provided services to the unionofficials union. OLMS contacted eightindividuals who, based on the Internetresearch, appeared to have received, orwhose spouse appeared to havereceived, payments from an employerthat dealt with the individuals union.Through these contacts, OLMS soughtadditional information from them todetermine whether the individualsshould have filed the Form LM30

based on a reportable interest undersection 202(a)(4). Of these eight, six

completed and filed a Form LM30following the OLMS contact. Three ofthe six reports had to be returned to thefilers for revisions or additionalinformation. Review of the finalamended reports confirmed that thesesix individuals had disclosed reportableinterests. When asked, some filers didnot give a reason for failing to earlier file

the reports. Others said they had beenunaware of the reporting requirements.Of the remaining two individuals, onehad severed his relationship with theemployer before becoming a unionemployee. In the final case, it wasdetermined that the individual did notreceive any benefits other than from thetwo unions that employed him. Thefiling rate for this group was 1.37%(6/438 100 = 1.37%). This filing rateis probably understated for the 438employees because OLMS was able toresearch only potential section 202(a)(4)reporting situations. Others in the group

may well have owed reports based onpayments from, transactions with, orholdings in, employers or businessesthat deal with an employer whoseemployees the labor organizationrepresents or is actively seeking torepresent.

Available data does not allow theDepartment to precisely measure thecurrent filing rate of union officers andemployees or predict what that ratewould be if all individuals withreportable interests or transactions filedForm LM30. The individuals covered

by the informal inquiry discussed above

may or may not be indicative of atypical union employee. Legalprofessionals may be more likely or lesslikely to engage in financial activitiescovered by the Form LM30 than unionemployees in other professions. Further,the circumstances of these professionalsmay be different from those of unionofficers. As earlier mentioned, thenumber of estimated union officers andemployees is necessarily understated, inthat mid-size unions report in a readilyavailable manner only officers, notemployees, on their Form LM3, smallunions list only two signatory officers

on their Form LM4, and employeeswho receive $10,000 or less in a year arenot reported on any of these forms.Certainly, the Department recognizesthat not all union officers or employeeshave reportable interests or transactions.Nevertheless, it is clear that theidentified employees had not filed FormLM30 until they were contacted byOLMS, and half of them did notcomplete the report correctly on theirfirst attempt. If union legal professionalshad to be informed of their obligation tofile the reports and failed to correctly

complete the report, it is reasonable toconclude, in the Departments view, thatother employees are similarly unawareof their obligation to file and similarlyconfused by the form. The Departmentwill continue to research the extent towhich current Form LM30 submissionsare deficient, and requests comment onfurther data on this question.

On many other occasions, OLMS hasdiscovered during an audit orinvestigation that a union officer oremployee was engaged in a reportablesituation but had not filed the requiredForm LM30 until OLMS becameinvolved. For example: A local president owned 50% of a

business that resurfaced the union sparking lot. Over two years, the businessreceived $9,000 from the union. Seesection 202(a)(4), 29 U.S.C. 432(a)(4). A union designated certain

attorneys to represent injured members.Some of these attorneys, who were

employers, furnished cash or items ofvalue such as trips and golf clubs tounion officials. See section 202(a)(6), 29U.S.C. 432(a)(6). A union hired the accounting firm

of an employees spouse. The firmreceived over $29,000 from the unionover two years. See section 202(a)(4), 29U.S.C. 432(a)(4). An officer of a union, whose

members worked at a theater, formed abusiness with two partners. He put hisshare of the business in his wifes namealthough he actually managed the

business which employed members ofhis local to work for the theater. He and

his wife received almost $75,000 inprofits, expense reimbursements, andsalary from the business. See section202(a)(1), 29 U.S.C. 432(a)(1). A union president owned the

building in which the union rentedoffice space. See section 202(a)(4), 29U.S.C. 432(a)(4). A union officers spouse owned a

janitorial business that provided dailyjanitorial services to the union at $800per month. See section 202(a)(4), 29U.S.C. 432(a)(4). A union employees spouse owned

an advertising company which printed

materials for the union and its funds. Inone year, the company received over$245,000 from the union and the funds.See section 202(a)(4), 29 U.S.C.432(a)(4). Four local officers formed a

company that provided payroll servicesto the local as well as to theatricalcompanies that employed members ofthe local. Two other officers of the localreceived over $20,000 as employees ofthe company. See section 202(a)(4), 29U.S.C. 432(a)(4) (due to servicesprovided to the local union); section



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202(a)(3), 29 U.S.C. 432(a)(3) (due toservices provided to the theatricalcompany employers). The spouse of a union officer

owned a company that providedcleaning and maintenance services tothe union and its trust. In one year, thecompany received over $94,000 fromthe union and the trust. See section

202(a)(4), 29 U.S.C. 432(a)(4) During a campaign for a state

government office, a business agentreceived contributions from employerswho were covered by the unionscollective bargaining agreement. Seesection 202(a)(1), 29 U.S.C. 432(a)(1) A union officer was part-owner,

along with his wife and daughter, of acopier supply company. He was theofficer of several unions, including onewhich employed his daughter as a

benefit representative and union trustee.All of the unions purchased officeequipment and services from thefamilys company. See section 202(a)(4),29 U.S.C. 432(a)(4) A union employee owned a heating

and air conditioning business thatperformed HVAC work for the union.See section 202(a)(4), 29 U.S.C. 432(a)(4)

In these instances, compliance withthe Form LM30 requirements wouldhave provided union members withvaluable information concerning thefinances of their unions employees andofficers. This would have assisted unionmembers in evaluating the efficacy ofthe work performed by union employeesand the leadership provided by unionofficers. The information would have

alerted them to potential conflicts ofinterests, and guided them as to whichactions or decisions of their officers andemployees might require greaterscrutiny, to determine whether theconflicts have affected the unionofficials service to the union. Armedwith this information, union memberscould express their concerns atmembership meetings, see 29 U.S.C.411(a), cast a more informed vote at thenext internal union election, see 29U.S.C. 481483, employ unionprocedures for removal of officers guiltyof serious misconduct, see 29 U.S.C.

481(h), or exercise their right to obtainjudicial relief for violations of thefiduciary responsibilities of unionofficials, see 29 U.S.C. 501(b).

In other instances, compliance withForm LM30 requirements would haverevealed criminal conduct. For example,the president of a national union hadthe sole authority to appoint or removeattorneys from a list ofDesignatedLegal Counsel. These attorneysrepresented injured union memberswho sought compensation from therailroad for on-the-job injuries. Rather

than selecting attorneys on the basis oftheir skills, the president awarded thedesignation to attorneys who paid theunion president with cash or otherthings of value. In another instance,contractors were hired to make repairsand improvements to the offices of alocal union. The contractors alsoperformed work on the officers homes.

However, all the expenses of the work,including about $1.2 million for workon the officers homes, was charged toand paid by the union. A third exampleinvolves a contractor, an investmentfirm that managed pension andinvestment accounts for unions. Thiscompany collapsed in September 2000,costing its clients about $355 million.The companys former chairman wasindicted on counts of fraud, moneylaundering, witness tampering andmaking illegal payments to union

benefit plan trustees. As part of itsscheme to buy the influence of pension

fund trustees, who were union officers,the investment firm hired relatives ofpension trustees as well as providedplan trustees with gifts including rifles,season tickets to sporting events, andfishing and hunting trips to variouslocations in the western U.S., Canada,Africa, Argentina and Mexico.

OLMS expects that by clarifying theform and instructions, adding examplesto the instructions, eliminatingadministrative exemptions, andproviding extensive complianceassistance, the filing rate will increase.During the course of a meeting heldunder E.O. 12866, a stakeholder asserted

that the Department receives few FormLM30 reports because union officersand employees engage in few coveredtransactions. The Department invitescomments concerning the number ofunion officers and employees, and thenumber of union officers and employeeswho have not filed a Form LM30 butwho have engaged in a transaction, orheld an interest that required them to doso.

The Department seeks comments onwhether to promulgate a regulation thatrequires labor organizations to notifytheir officers and employees of the

annual reporting obligations under theLMRDA. No notification obligationcurrently exists under the Departmentsregulations, and the regulation proposedherein does not contain such aprovision. Notification by labororganizations would, nevertheless, helpensure that officers and employees areaware of their reporting obligationsunder the LMRDA. An increase inawareness by union officers andemployees could increase the number ofreports filed each year, enabling unionmembers and the public to learn more

about financial transactions in whichthe unions officers and employees areinvolved and, as needed, further inquireinto the circumstances of these dealingsto ensure that the interests of themembers and the public are properly

being served.Under one option, each labor

organization would be required to

inform its officers and employees,excluding those employed solely inclerical or custodial positions, of theirobligation to annually file a Form LM30 if they, their spouse, or minorchildren, hold any interests, receive anypayments, or engage in any transactionsor arrangements covered by section 202of the Act. See 29 U.S.C. 432.Notification would have to be in writingand inform officers and employees that,subject to certain exemptions, they mustfile a report with the Department if theyhave interests in, receive payments orincome from, or engage in transactions

or arrangements with (1) an employerwhose employees the labor organizationrepresents or actively seeks to represent,(2) a business that deals with the labororganization, or a trust in which thelabor organization is interested, (3) a

business a substantial part of whichconsists of dealing with the business ofan employer whose employees the labororganization represents or is activelyseeking to represent, (4) any employer,or (5) a labor relations consultant to anemployer. The union would inform itsofficers and employees that if they haveany questions concerning whichfinancial matters are reportable and

whether they are required to file areport, they should consult the FormLM30 and its instructions, and theunion would provide the web siteaddress where the form and instructionsmay be found. Notification would beprovided by the union to an officerwithin 30 days of installation into officeand to an employee within 30 days ofthe date of hire. Initial notificationwould be provided to officers andemployees within 60 days of theeffective date of the regulation, andthereafter to each on an annual basis. Alabor organization could meet this

requirement by providing employeesand officers with a copy of the FormLM30 and its instructions. E-mailnotification might be considered anacceptable means of informing officersand employees.

An alternative to providing a separatenotice to each officer and employeewould be to provide a general notice ina union publication that is addressed toevery officer and employee.

The Federal government informsemployees at the time of their hire andreminds them on a regular basis



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thereafter about their various ethicalresponsibilities, including conflict ofinterest rules and disclosurerequirements. See E.O. 12674 (Apr. 12,1989), as modified by E.O. 12731 (Oct.17, 1990). The Department seekscomments on whether a similarapproach is taken by other organizationsand professions. The public is asked to

comment on other ways in whichemployers and professional associationseducate their employees and associationmembers about their obligation todisclose possible conflicts between theirpersonal interests and the interests oftheir employer or clients.

The Department invites comments asto the need for and efficacy of aregulation that requires labororganizations to notify their officers andemployees of the annual reportingobligations under the LMRDA. In thisconnection, it would be helpful to learnwhat steps are now being taken by labor

organizations to inform their officersand employees about conflict-of-interestsituations, including disclosure andreporting requirements to the union andits members. Is such informationtypically provided by an internationalor national union to all its affiliates? Isit typically contained in a national orinternational constitution or some otherdocument, such as a handbook forofficers and employees, or trainingmaterials? Do local and intermediateunions include such information intheir constitutions or bylawsor inother documents? What information isprovided to union officials by trusts in

which a union has an interest? Underwhat circumstances and how often haveallegations of officer or employeeconflicts of interests led to internal orjudicial proceedings?

During the course of a meeting heldunder E.O. 12866, a stakeholderquestioned the Departments authorityto require labor organizations to notifytheir officers and employees of theirdisclosure obligations. The public isinvited to comment on this issue.

G. Deficiencies in the Reports FiledUsing the Current Form LM30

OLMS examined each of the 244 FormLM30 reports filed during fiscal years2001, 2002, 2003, and 2004 anddetermined that a majority of filers didnot complete the form correctly. Forexample, although Part A is separateand distinct from Parts B and C, 100filers erroneously filled out Part A inaddition to the appropriate andintended disclosure of an interest,transaction, income, or arrangement inPart B or C. A total of 136 filers whocompleted Part B failed to indicatewhether the business they had an

interest in, transaction with, or incomefrom dealt with a labor organization,trust, or employer. A total of 117 of thefilers who completed Part B provided noinformation or incomplete andinsufficient information about thenature and approximate value of thedealings between the business and theemployer, labor organization or trust.

Further, 59 of the filers provided noinformation or inadequate informationabout the nature of the interest theyheld in, or the income they receivedfrom, the business.

In addition to the deficienciesdescribed above, numerous other errorsoccurred that resulted in inadequate andincomplete disclosure. For example,most filers failed to answer one or morerequired questions. In three instances,children of an officer or employee filedForm LM30 rather than the officer oremployee. Six filers did not specifytheir position within the union, four

filers failed to report the fiscal year thatwas covered by the report, two filers didnot sign the form, and one form wassigned by the union officials spouse. InPart A, 22 filers provided noinformation or inadequate informationabout the nature and amount of theinterest in, transaction with, or incomefrom an employer whose employeestheir union represented or was activelyseeking to represent.

The Department believes that theerrors discussed above can be reduced

by clarifying the form and instructions,adding examples to the instructions,and providing extensive compliance

assistance. This rulemaking, further, ispart of an overall initiative that includesgreater scrutiny of Form LM30 reports,and union financial records, as well asincreased enforcement. The Department

believes that these efforts will furtherreduce the error rate. The Form LM30will be more useful to union membersand the public when the reports that arefiled are responsive to the questionsasked, and can thus be meaningfullycompared with the reports of otherunion officials. This will permit unionmembers to understand the nature of thefinancial matter being reported, and its

significance. This will allow unionmembers to make informed decisions asto the leadership and management oftheir union. During the course of ameeting held under E.O. 12866, astakeholder asserted that errors in filedreports could be reduced solely byincreased compliance assistance by theDepartment. We will continue toresearch the extent to which currentForm LM30 submissions are deficient,and request comments on further datathat may help the Department explorethis question. The Department invites

comments concerning all methods thatwould reduce the number of errorsmade in completing Form LM30.

H. Significant Proposed Changes to theForm LM30, and Request forComments Concerning FilingExemptions Created by the Department

1. Definitions, Examples and

Administrative ExemptionsDefinitions: The proposal defines key

terms. The current instructions do notexplain terms that are essential to theforms completion. The revisedinstructions define: actively seeks torepresent, arrangement, benefit withmonetary value, bona fide employee,

bona fide investment, dealing, directlyor indirectly, filer/reporting person/you,income, labor organization, labororganization employee, labororganization officer, legal or equitableinterest, minor child, payer, publiclytraded securities, substantial part, and

trust in which a labor organization isinterested.

In defining the term labororganization, the instructions clarifythat an officer or employee of a localunion must file reports when he or sheengages in transactions with a businessthat deals with his or her affiliatednational labor organization, or engagesin transactions with an employer whoseemployees the national labororganization is actively seeking torepresent. Similarly, an officer oremployee of a national union must filereports when he or she engages in

transactions with a business that dealswith an affiliated subordinate labororganization, or engages in transactionswith an employer whose employees asubordinate labor organization isactively seeking to represent. By thesame token, when determining whethera report must be filed due to paymentsfrom, or interests held in, a businessthat deals with a trust in which a labororganization is interested, the termlabor organization will retain thisexpanded meaning. Thus, for example,an officer of a local union must filereports when he or she engages in

transactions with a business that dealswith a trust in which his or heraffiliated national labor organization isinterested.

Similarly, in defining bona fideemployee, the revised Form LM30would require the reporting of paymentsreceived by union officers from anemployer for work performed for theunion. A typical example involves a nodocking arrangement where anemployer allows a union steward orunion officer to resolve grievances, oftenon an as-needed basis, without a loss



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of pay. In other instances, a unionofficial is paid by an employer whileworking full time on union business.

A full discussion of the newdefinitions is provided below in thediscussion of the instructions.

Examples: The proposal providesexamples to help filers determine whatmust be reported under each subsection

of section 202. These examples willprovide illustrations of reportable andnon-reportable interests, payments,income, transactions, and arrangements.A full discussion of the examples isprovided below in the discussion of theinstructions.

Administrative Exemptions andSpecial Reports: The proposedinstructions also eliminate someexemptions in the current form. Theseexemptions permit filers to omit certainfinancial matters from disclosure thatwould otherwise be reportable ifengaged in by the filer or the filersspouse or minor child. Theseexemptions are discussed below, alongwith other exemptions that theDepartment does not propose to remove.Comments are invited on both theexemptions that the Departmentproposes to remove and the exemptionsthat are not proposed to be removed.

Under the existing instructions, filersare notified: You do not have to reportany sporadic or occasional gifts,gratuities, or loans of insubstantialvalue, given under circumstances orterms unrelated to the recipients statusin a labor organization. The LMRDAInterpretative Manual (LMRDA

Manual), revised in March 2005, statesthat anything with a value of $25 orless will be considered de minimis andtherefore not reportable if it is givenunder circumstances unrelated to therecipients status in a labororganization. LMRDA Manual, 241.700.

The Department seeks commentsregarding whether this exemptionshould be retained or removed. Thisexemption applies by its terms to allreports due under section 202. It doesnot provide guidance as to when a gift,gratuity, or loan is unrelated to the

recipients status in the labororganization. The statute calls fordisclosure ofany stock, bond or otherinterest, any income, any loan, andany payment or other thing of value.See 29 U.S.C. 432(a)(1)(6). Thislanguage could indicate that Congressdid not intend to exempt certain gifts,gratuities, or loans based on their dollarvalue. Further, Congress imposed asubstantiality test in section 202(a)(3)(any business a substantial part ofwhich consists of * * * dealing withthe business of an employer), but did

not do so, at least expressly, indescribing the holdings, transactions,and income that is reportable undersection 202. See 29 U.S.C. 432(a).

At the same time, exceptions based oninsubstantiality are commonly read intostatutes that do not expressly containthem. See Wisconsin Dept. of Revenuev. William Wrigley, Jr., Co., 505 U.S.214, 231 (1992) (the venerable maximde minimis non curat lex(the law caresnot for trifles) is part of the established

background of legal principles againstwhich all enactments are adopted, andwhich all enactments (absent contraryindication) are deemed to accept.).Furthermore, other reporting anddisclosure systems do not requirereports of small value items. For thepurposes of comparison, one may lookto the treatment of gifts in the financialdisclosure reports for certain FederalGovernment employees. Employeeswith general schedule positions of grade

15 and below whose duties may involvepotential conflicts of interest must fileOffice of Government Ethics (OGE)Confidential Financial DisclosureReport 450 (OGE Form 450). The formhas a range of standards for reportingdifferent interests and transactions. Giftstotaling $285 or less from any onesource need not be reported, and giftsvalued at $114 or less need not beincluded in determining whether the$285 threshold has been exceeded.Federal employees in positions aboveGS15 and in certain other positions ofconfidential or policymaking character

must file a Public Financial DisclosureReport (SF 278). This form treats gifts ina manner similar to the OGE Form 450.Gifts totaling $260 or less from any onesource need not be reported, and giftsvalued at $104 or less need not beincluded in determining whether the$260 threshold has been exceeded.Similar to the current Form LM30srequirement that a de minimis gift bereported if the gift is related to the filersstatus in the union, under thegovernments disclosure regime, gifts toa filers spouse or dependent child must

be disclosed to the extent the gift was

not given to him or her totallyindependent of the relationship to you.See SF 278, p. 12; OGE 450, p5. Unlikethe Form LM30, governmentemployees must report gifts from anysource, unless a specific exemptionapplies, while union officers andemployees must report gifts receivedonly from certain businesses andemployers. See SF 278, p. 1213; OGE450, p5. In one significant regard,government filers are permitted toexclude from their reports gifts ofhospitality (food, lodging and

entertainment) on the donors personalor family premises. See SF 278, p. 1213; OGE 450, p5.

Under the OGE Form 450, loans of$10,000 or less are not reportable, andthere are four exceptions for loansexceeding the threshold, includingmortgages on personal residences, andloans for personal automobiles,household furnishings, or appliances,where the loan does not exceed thepurchase price. The loan reportingrequirements of the SF 278 are verysimilar. A copy of both of these formsand instructions are available at theOGE Web site at: http://www.usoge.gov.

The Department seeks comment onwhether the term insubstantial leftwithout further explanation in theinstructions could be applied to shieldfrom disclosure some financialtransactions that would be of interest tounion members. The Department couldaugment the existing instructions to

define insubstantial value so thatfilers are able to distinguish betweenreportable and non-reportable gifts,gratuities, or loans based on a clearlyarticulated standard, like that in theInterpretative Manual or those in theFederal employee disclosure forms. TheDepartment seeks comment on whetherthe $25 threshold set out in the LMRDAInterpretative Manual is an appropriateone, whether the burden to report smallinterests and transactions is reasonable,and whether it would be preferable torequire reporting of all transactions andallow union members to assess whether

a particular holding or transaction issubstantial enough to possibly present aconflict between private interest andunion responsibilities. During thecourse of a meeting held under E.O.12866, some stakeholders stated that theexemption for insubstantial transactionsin the existing instructions should beclarified, and that the threshold fordisclosure be increased. The public isinvited to comment on all aspects of thisissue.

Part A of the current instructionsexempts from reporting

(ii) Holding of, transactions in, or income

from, securities [that are not traded on asecurities exchange registered as a nationalsecurities exchange under the SecuritiesExchange Act of 1934, in shares in aninvestment company registered under theInvestment Company Act of 1940, or insecurities of a public utility holding companyregistered under the Public Utility HoldingCompany Act of 1935], provided any suchholding, or transaction, or receipt of incomeis of insubstantial value or amount andoccurs under terms unrelated to your statusin a labor organization. For purposes of thisexclusion, holdings or transactions involving$1,000 or less and receipt of income of $100

http://www.usoge.gov/http://www.usoge.gov/


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or less in any one security shall beconsidered insubstantial;

(iii) Transactions involving purchases andsales of goods and services in the regularcourse of business at prices generallyavailable to any employee of the employer.

(iv) Payments and benefits received as abona fide employee of the employer for pastor present services, including wages,payments or benefits received under a bona

fide health, welfare, pension, vacation,training or other benefit plan; and paymentsfor periods in which such employee engagedin activities other than productive work, ifthe payments for such period of time are: (a)Required by law or a bona fide collective

bargaining agreement, or (b) made pursuantto a custom or practice under such acollective bargaining agreement, or (c) madepursuant to a policy, custom, or practice withrespect to employment in the establishmentwhich the employer has adopted withoutregard to any holding by such employee ofa position with a labor organization.

The Department does not propose toremove exemption (ii), but seekscomment on whether to remove orretain this exemption. This exception,which was created administratively,apparently was intended to discouragereporting ofinsubstantial mattersunrelated to the filers position in theunion. In like fashion, the LMRDAManual provides an example of theapplication of this exception and statesthat a $400 purchase of stock, tradedover the counter by an employee (andthus otherwise reportable) of a companythat supplies his union over $1 millionannually in goods and services need not

be reported where the market value ofthe stock is $1000 or less and the yearly

income from the stock is $100 or lessand the holdings and interest areunrelated to the individualsemployment by the union. LMRDAManual, 246.700 (but also noting thatthe Department may always require aspecial report that disclosed thepurchase).

As discussed above, exceptions basedon insubstantiality are commonlyapplied. Further, there is precedent fora similar use of reporting thresholds.Under the SF 278, stocks, bonds andsecurities from one source need not bereported if they total $1,000 or less in

value. Investment income of $200 orless need not be reported. Under theOGE Form 450, investments with avalue greater than $1,000 or whichproduce more than $200 in income arereportable.

On the other hand, the exemptiondeals with unregistered securities, orsecurities sold through an unregisteredexchange, which Congress consideredreportable. See 29 U.S.C. 432(b).Further, unlike the federal disclosureforms, section 202 of the Act requiresreporting only on financial matters that

were considered to be potential conflictsfor union officers and employees byCongress and identified in the statute.Likewise, section 202 does not requirereports of financial matters that do notpose this danger, no matter how largethe value of the holding or transaction.In this context, an exemption based oninsubstantiality or union status factors

could arguably result in nondisclosureof transactions that present conflicts ofinterests for union officials and wereidentified by Congress as reportable,denying union members relevantinformation to evaluate their officersand employees not only at the time ofunion elections but throughout theirtenure. The Department seeks commenton whether this exemption should beremoved or retained.

Exemption (iii) is a statutoryexemption for transactions involvingpurchases and sales of goods andservices in the regular course of

business at prices generally available toany employee of the employer. Thestatutory language applies by its termsto financial matters reportable undersection 202(a)(5), not to section202(a)(1) or 202(a)(2). Section 202(a)(5)requires union officers and employeesto report any business transaction orarrangement with an employer whoseemployees the union represents or isactively seeking to represent. It is forthis reporting obligation alone thatsection 202 applies the exception forpurchases and sales of goods andservices in the regular course of

business at prices generally available toany employee of such employer.Sections 202(a)(1) and (a)(2) require

union officers and employees to report(1) holdings in an employer whoseemployees the union represents or isactively seeking to represent, (2)transactions in such holdings, (3) loansto or from such employers, and (4)income or any other benefit withmonetary value (including reimbursedexpenses) received from such anemployer. Sections 202(a)(1) and (a)(2)do notinclude the regular-course-of-

business exception.

The instructions for Part A of thecurrent form combine the separatereporting obligations of sections202(a)(1), (a)(2), (a)(5) into a singlequery. In so doing, the instructions alsoapply the statutory exceptionsapplicable to each obligation to theother obligations. Thus, the current formapplies the regular-course-of-businessexception to sections 202(a)(1) and(a)(2)s requirement that union officersand employees report (1) holdings, (2)transactions in holdings, (3) loans, and(4) income or any other benefit with

monetary value (including reimbursedexpenses).

The Departments proposal adheres tothe statutory design and thus proposesto remove the exemption for reports dueunder section 202(a)(1) and 202(a)(2).The proposed form would thuseliminate the application of the regularcourse of business exception to reports,

due under sections 202(a)(1) and (a)(2),of (1) holdings in an employer whoseemployees the union represents or isactively seeking to represent, (2)transactions in such holdings, (3) loansto or from such employers, and (4)income or any other benefit withmonetary value (including reimbursedexpenses) received from such anemployer. Rather, the proposed formapplies the regular-course-of-businessexception only to reports, due undersection 202(a)(5), of any businesstransaction or arrangement with anemployer whose employees the union

represents or is actively seeking torepresent.Union members have an interest in

knowing of such holdings, transactionsin holdings, loans, and income so theycan evaluate whether each is significantenough, or of such a nature, toconstitute a conflict of interest. Thestatutory exemption for payments andother benefits received as a bona fideemployee of the employer is sufficientto exempt all the ordinary paymentsreceived as part of an employmentrelationship; the exemption in thecurrent form, the Department believes,may provide a means to exclude other

items that present conflicts of interestfor union officials. For example, a unionofficer who receives income from theemployer of union members for contractwork could, at least arguably, avoiddisclosing the payment by relying onthis regular-course-of-businessexemption. Also, it is conceivable thata union employee who purchasescertain types of ownership interestscould avoid disclosing the holding byrelying on this exemption. A unionofficial with an employer as a client hasa conflict between personal interestsand union loyalties, as does an official

with an ownership interest in theemployer. The change is consistent withthe plain language of the statute, whichapplies the regular-course-of-businessexception only to financial mattersreportable under section 202(a)(5), notto section 202(a)(1) or 202(a)(2). Theelimination of this exemption will resultin more detailed and transparentreporting of financial information thatunion members may find helpful indetermining whether their unionsofficers and employees are subject tofinancial pressures inconsistent with



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their responsibilities to the union andthe union members.

Similarly, the first part of exemption(iv) (up to the semicolon) (dealing withpayments and benefits received as a

bona fide employee of the employer) iscreated by statute. Under the statute, itapplies to reports due under sections202(a)(1) and 202(a)(5). Section

202(a)(1) requires union officers andemployees to report (1) holdings in anemployer whose employees the unionrepresents or is actively seeking torepresent, and (2) income or any other

benefit with monetary value (includingreimbursed expenses) from such anemployer. As discussed above, section202(a)(5) requires union officers andemployees to report any businesstransaction or arrangement with suchan employer. Sections 202(a)(1) and(a)(5) both contain an exception forpayments and other benefits receivedas a bona fide employee of such

employer.Section 202(a)(2) requires unionofficers and employees to report (1)transactions in holdings in an employerwhose employees the union representsor is actively seeking to represent, and(2) loans to or from such an employer.Section 202(a) does notinclude thebona fide employee exception.

By combining these separate reportingobligationssections 202(a)(1), (a)(2),(a)(5)into a single query, theinstructions for Part A of the currentform also apply the statutory exceptionsapplicable to each obligation to all threeobligations. Thus, the current form

applies the bona fide employeeexception to section 202(a)(2)srequirement that union officers andemployees to report (1) transactions inholdings, and (2) loans.

The proposed form applies the bonafide employee exception only toreports, due under sections 202(a)(1)and (a)(5), of (1) holdings in anemployer whose employees the unionrepresents or is actively seeking torepresent, (2) income or any other

benefit with monetary value (includingreimbursed expenses) from such anemployer, and (3) business transactions

or arrangements with such an employer.The proposed form would eliminatethe application of the bona fideemployee exception to reports, dueunder sections 202(a)(2), of (1)transactions in holdings in an employerwhose employees the union representsor is actively seeking to represent, and(2) loans to or from such an employer.

Union members have an interest inknowing all transactions of unionofficers and employees involvingtransactions in ownership interests in,and loans to or from, the employer, so

they can evaluate whether such mattersare significant enough, or of such anature, to constitute a conflict ofinterest. Under the current form, aunion officer could avoid reporting aloan received from the employer on theground that the loan was a benefitreceived as a bona fide employee,despite the union members legitimate

in

Department of Labor: 05-16907

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Transcript of Department of Labor: 05-16907