Conflicts of Interest

    The Federal negotiators feel strongly that regulatory provisions 
concerning conflicts of interest are needed, especially for the 
protection of allottees. The Federal proposal would address two types 
of conflicts: Conflicts of the tribe or tribal organization itself (an 
``organizational conflict'') and conflicts of individual employees 
involved in trust resource management. The Secretary of the Interior 
owes a fiduciary duty to trust beneficiaries that cannot be compromised 
by contracting to rely on the recommendations and reports of persons 
with financial interests adverse to those of the trust beneficiary (the 
individual allotted Indian), whether the conflict be that of the tribe 
or that of an individual tribal employee.
    With respect to organizational conflicts that become known after 
contract negotiation, the proposal would require the tribe to disclose 
the conflict and negotiate a means of avoiding, mitigating, or 
neutralizing the conflict. The conflict would be one between the tribe 
and individual Indians, one between the tribe and the United States, or 
one between the tribe and others relying on the work to be performed 
under the contract. The only conflicts that would be regulated would be 
those arising from the tribe/tribal organization's interests associated 
with land, resources, trust property, or rights of use, that could 
impair the objectivity of the tribe/tribal organization in performing 
the contract. The proposal does not address organizational conflicts 
known to the Secretary at the time of contract approval. Those can and 
should be addressed in negotiation of the contract.
    With respect to contracts for trust resource management, the 
proposal would require the tribe/tribal organization to adopt and 
enforce standards of conduct to prohibit officers, employees or agents 
(including subcontractors) from participating in the review of trust 
transactions with those nontribal entities in which they have a 
financial interest, employment, or competitive relationship. The 
standards would also prohibit acceptance of gratuities.
    Contract provisions may be negotiated to take the place of the 
proposed regulation. The regulation is proposed to ensure that some 
provision will be made to avoid or mitigate conflicts, whether by rule 
or contract terms. Such provisions will permit the Secretary of the 
Interior to contract for work supportive of his trust management 
functions, and avoid the potential for breach of trust liability or the 
need to decline on grounds that ``adequate protection of trust 
resources is not assured.''
    The Federal proposal is as follows:

    A. What is an organizational conflict? An organizational 
conflict exists when your legal, financial, or resource use 
interests (arising from land, interests in land or resources, trust 
property, or rights of use) conflict with those of the United States 
or any person reliant on the work to be performed under the contract 
(including an Indian allottee). An organizational conflict only 
arises, however, when your interest is such that it may impair your 
objectivity in performing work under the contract.
    B. What must a tribe or tribal organization do if an 
organizational conflict arises under a contract? You must disclose 
the conflict to the Secretary and propose a means of avoiding, 
mitigating, or neutralizing the conflict, if the conflict had not 
been known to the Secretary when the contract was negotiated. You 
must proposed a means of avoiding, mitigating, or neutralizing the 
conflict (such as review of your work by a third party,) that is 
acceptable to the Secretary.
    C. What kinds of organizational conflicts must be addressed? You 
must address conflicts between the tribe and the United States, such 
as when the tribe has a contract for realty services and a 
contaminant survey must be undertaken in connection with its request 
that the United States take land into trust. A conflict would exist 
because it would be in the tribe's interest for the United States to 
take the land into trust, despite the presence of contaminants, 
because liability for cleanup would be transferred to the United 
States as holder of legal title.
    You must address conflicts between a tribe and individual trust 
beneficiaries. For 

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example, a tribe may hold a contract for real estate services, 
including appraisals. If the tribe seeks to buy or lease lands from 
an allottee, its performance of the appraisal of such allotted lands 
would present such a conflict. To fulfill its trust responsibility 
to the individual Indian landowner, the United States would expect 
the tribe to hire an independent appraiser to perform (or review) 
the appraisal.
    The tribe may have conflicting interests with other persons who 
rely on its performance under the contract. For example, a cadastral 
survey may determine the boundaries between tribal lands and those 
of individual Indians, State governments, or private landowners. In 
that case, the survey should be reviewed by an independent third 
party to assure its objectivity.
    D. When must the tribe or tribal organization regulate its 
employees or subcontractors to avoid a conflict of interest? You 
must maintain written standards of conduct to govern officers, 
employees, and agents (including subcontractors) engaged in 
functions related to the management of trust assets.
    E. What must the Standards of Conduct prohibit or mitigate? The 
Standards must prohibit an officer, employee, or agent (including a 
subcontractor) from participating in the review, analysis, or 
inspection of trust transactions with a party in which such persons 
have a financial interest or an employment relationship, or those in 
direct competition with such a party. It must also prohibit such 
officers, employees, or agents from accepting any gratuity, favor, 
or anything of more than nominal value, from a party (other than the 
tribe) with an interest in the trust transactions under review. Such 
standards must also provide for sanctions or remedies of the 
violation of the standards.
    F. What types of conflicts involving tribal employees or 
contractors would have to be regulated by the tribe? The tribe would 
need a tribally-adopted mechanism to ensure that no officer or 
employee reviews a trust transaction in which that person has a 
personal, financial, or employment interest that conflicts with that 
of the trust beneficiary, the tribe or allottee. For example, a 
tribal employee who works part-time for an oil company should not be 
assigned to inspect an oil and gas lease held by that oil company to 
assure absolute loyalty to the Indian beneficiary. For similar 
reasons, such an employee should not inspect the leases held by the 
oil company's competitors.
    Similarly, a tribe which intends to subcontract the performance 
of trust-related functions should avoid awarding a contract for oil 
and gas royalty audits to an accounting firm that also derives 
revenue from the oil and gas companies being audited.
    G. May a tribe elect to negotiate the contract provisions on 
conflict of interest to take the place of this regulation? Yes. A 
tribe and the Secretary may agree to contract provisions that 
address the conflict of interest issues specific to the program and 
activities contracted. Agreed-upon contract provisions shall be 
followed, rather than this regulation.

    The tribal representatives of the negotiated rulemaking committee 
oppose the regulatory provisions presented by the Federal officials in 
the area of ``conflict of interest,'' except those contained in 
Sec. 900.48(6) (Procurement Management).
    Throughout the meetings two other forms of ``conflict of interest'' 
regulations have been proposed: organizational conflicts of interest 
and personal conflicts of interest. The tribal position on each of 
these proposals is discussed below.

Organizational Conflicts of Interest

    Tribal members are of the view that, while this issue has been 
discussed throughout the meetings, a clear and concise federal proposal 
has not been set forth.
    The tribal representatives believe the effect of the Federal 
proposal is to shift Secretarial trust responsibilities to tribes 
through regulation without financial support for the undertaking. 
Further, for the nearly 20 years that self-determination contracting 
has occurred under the Act, no similar regulation has been needed.
    Another concern of tribal representatives is that the Interior 
Department has no such provisions controlling its own activities and 
that examples of similar conflicts frequently occur within Federal 
operation of programs.
    For these reasons, tribal representatives strongly believe that no 
regulation is necessary in this area of so-called organizational 
conflicts of interest.

Personal Conflicts of Interest

    In this area, the Federal representatives seek to require that 
tribes and tribal organizations adopt internal procedures as a 
regulatory scheme to address conflicts of interest by their employees, 
agents, and officials when conducting transactions related to trust 
resources.
    Tribal representatives are highly offended by the nature of the 
Federal proposal to dictate internal tribal operations through these 
regulations. Further, the Federal officials appear to presume that the 
procedures curently employed by tribes and tribal organizations are 
insufficient.
    To the extent some form of regulation is needed in the area of 
personal conflicts of interest involving trust resource transactions, a 
revised version of Sec. 900.48(b) might be explored and commented upon. 
Alternatively, tribal representatives propose that these conflicts of 
interest be subject to negotiation of the parties in each contract.