[Federal Register: August 31, 2004 (Volume 69, Number 168)]
[Rules and Regulations]
[Page 52993-52995]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31au04-2]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 143

RIN 3038-AC13


Adjustment of Civil Monetary Penalties for Inflation

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (Commission) is
amending its rule which governs the maximum amount of civil monetary
penalties, to adjust for inflation. This rule sets forth the maximum,
inflation-adjusted dollar amount for civil monetary penalties (CMPs)
assessable for violations of the Commodity Exchange Act (Act) and
Commission rules and orders thereunder. The rule, as amended,
implements the Federal Civil Penalties Inflation Adjustment Act of
1990, as amended by the Debt Collection Improvement Act of 1996.

EFFECTIVE DATE: October 23, 2004.

FOR FURTHER INFORMATION CONTACT: Daniel A. Nathan, Chief, Office of
Cooperative Enforcement, Division of Enforcement, at (202) 418-5314 or 
dnathan@cftc.gov; Terry S. Arbit, Associate General Counsel, at (202)

418-5357 or tarbit@cftc.gov; Commodity Futures Trading Commission, 1155
21st Street, NW., Washington, DC 20581. This document also is available
at  href="http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov" shape="rect">http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov.


SUPPLEMENTARY INFORMATION:

I. Background

    The Federal Civil Penalties Inflation Adjustment Act of 1990
(FCPIAA), as amended by the Debt Collection Improvement Act of 1996
(DCIA),\1\ requires the head of each Federal agency to adjust by
regulation, at least once every four years, the maximum amount of CMPs
provided by law within the jurisdiction of that agency by the cost-of-
living adjustment defined in the FCPIAA, as amended.\2\ Because the
purposes of the inflation adjustments include maintaining the deterrent
effect of CMPs and promoting compliance with the law, the Commission
monitors the impact of inflation on its CMP maximums and adjusts them
as needed to implement the requirements and purposes of the FCPIAA.\3\
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    \1\ The FCPIAA, Pub. L. 101-410 (1990), and the relevant
amendments to the FCPIAA contained in the DCIA, Pub. L. 104-134
(1996), are codified at 28 U.S.C. 2461 note.
    \2\ The DCIA also requires that the range of minimum and maximum
CMPs be adjusted, if applicable. This is not applicable to the
Commission because, for the relevant CMPs within the Commission's
jurisdiction, the Act provides only for maximum amounts that can be
assessed for each violation of the Act or the rules and orders
thereunder; the Act does not set forth any minimum penalties.
Therefore, the remainder of this release will refer only to CMP
maximums.
    \3\ Specifically, the FCPIAA states:
    The purpose of [the FCPIAA] is to establish a mechanism that
shall--
    (1) Allow for regular adjustment for inflation of civil monetary
penalties;
    (2) Maintain the deterrent effect of civil monetary penalties
and promote compliance with the law; and
    (3) Improve the collection by the Federal Government of civil
monetary penalties.
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II. Relevant Commission CMPs

    The inflation adjustment requirement applies to:
    [A]ny penalty, fine or other sanction that--

(A) Is for a specific monetary amount as provided by Federal law; or
(ii) Has a maximum amount provided for by Federal law; and
(B) Is assessed or enforced by an agency pursuant to Federal law;
and
(C) Is assessed or enforced pursuant to an administrative proceeding
or a civil action in the Federal courts[.]

28 U.S.C. 2661 note. The Act provides for CMPs that meet the above
definition, and are therefore subject to the inflation adjustment, in
three instances: Sections 6(c), 6b, and 6c of the Act.\4\
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    \4\ 7 U.S.C. 9, 13a and 13a-1.
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    Penalties may be assessed in a Commission administrative proceeding
pursuant to Section 6(c) of the Act, 7 U.S.C. 9, against ``any person''
found by the Commission to have:

(1) Engaged in the manipulation of the price of any commodity, in
interstate commerce, or for future delivery;
(2) Willfully made a false or misleading statement or omitted a
material fact in an application or report filed with the Commission;
or
(3) Violated any provision of the Act or the Commission's rules,
regulations or orders thereunder.

    Penalties may be assessed in a Commission administrative proceeding
pursuant to Section 6b of the Act, 7 U.S.C. 13a, against: (1) Any
registered entity \5\ that the Commission finds is not enforcing or has
not enforced its rules, or (2) any registered entity, or any director,
officer, agent, or employee of any registered entity, that is violating
or has violated any of the provisions of the Act or the Commission's
rules, regulations or orders thereunder.
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    \5\ The Commodity Futures Modernization Act of 2000, Appendix E
of the Consolidated Appropriations Act of 2000, Pub. L. 106-554, 114
Stat. 2763 (2000) (CFMA), substituted the term ``registered entity''
for the term ``contract market'' throughout the Act, including in
Section 6b. The CFMA also added a definition of the term
``registered entity'' in section 1a(29) of the Act, 7 U.S.C. 1a(29)
of the Act, 7 U.S.C. 1a(29), which includes designated contract
markets, registered derivatives transaction execution facilities,
and registered derivatives clearing organizations. The amended Rule
143.8 includes a technical correction substituting the term
``registered entity'' for the term ``contract market'' to conform to
this change in the Act.
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    Penalties may be assessed pursuant to Section 6c of the Act, 7
U.S.C. 13a-1, against ``any person'' found by ``the proper district
court of the United States'' to have committed any violation of any
provision of the Act or any rule, regulation or order thereunder.

III. Relevant Cost-of-Living Adjustment

    The formula for determining the cost-of-living adjustment, first
defined by the FCPIAA, and amended by the DCIA, consists of a four-step
process.

[[Page 52994]]

    The first step entails determining the inflation adjustment factor.
This is done by calculating the percentage increase by which the
Consumer Price Index for the month of June of the calendar year
preceding the adjustment exceeds the Consumer Price Index for the month
of June of the calendar year in which the amount of such civil monetary
penalty was last set or adjusted pursuant to law.\6\ Accordingly, the
inflation adjustment factor for the present adjustment equals the
Consumer Price Index for all-urban consumers published by the
Department of Labor for June 2003 (i.e., June of the year preceding
this year), divided by that index for June 2000.\7\
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    \6\ The Consumer Price Index means the Consumer Price Index for
all urban consumers (CPI-U) published by the Department of Labor.
Interested parties may find the relevant Consumer Price Index over
the Internet. To access this information, go to the Consumer Price
Index Home Page at:  href="http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.bls.gov/data/" shape="rect">http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.bls.gov/data/. Under the Prices and

Living Conditions Section, select Most Requested Statistics for CPI-
All Urban Consumers (Current Series). Then check the box for CPI for
U.S. All Items, 1967=100--CUUR0000AA0, and click the Retrieve Data
button.
    \7\ The Consumer Price Index for all-urban consumers published
by the Department of Labor for June 2003 was 550.4, and for June
2000 was 516.5. Therefore, the relevant inflation adjustment factor
equals 550.4 divided by 516.5 The result is a 6.56 percent increase
in the CPI between June 2000 and June 2003. Accordingly, our
inflation adjustment factor is 6.56 percent, or 0.0656 for
computational purposes.
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    Once the inflation adjustment factor is determined, it is then
multiplied by the current maximum CMP set forth in Rule 143.8 to
calculate the raw inflation increase.\8\ This raw inflation increase is
then rounded according to the guidelines set forth by the FCPIAA.\9\
Finally, once the inflation increase has been rounded pursuant to the
FCPIAA, it is added to the current CMP maximum to obtain the new CMP
maximum penalty.\10\ As a result, the maximum, inflation-adjusted CMP
for each violation of the Act or Commission rules or orders thereunder
assessed against any person pursuant to Sections 6(c) and 6c of the Act
will be $130,000 or triple the monetary gain to such person for each
violation, and $625,000 for each such violation when assessed pursuant
to Section 6b of the Act.
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    \8\ The current CMP maximum listed in Rule 143.8, as amended in
2000, for purposes of Sections 6(c) and 6c of the Act is $120,000.
The current CMP maximum for purposes of Section 6b of the Act is
$575,000.
    Accordingly, the calculations for the raw inflation increase are
the following:
    Sections 6(c) and 6c: (0.0656 x $120,000) = $7,872
    Section 6b: (0.0656 x $575,000) = $37,720
    \9\ The FCPIAA, as amended by the DCIA, provides in relevant
part that any increase ``shall be rounded to the nearest--
    (5) multiple of $10,000 in the case of penalties greater than
$100,000 but less than or equal to $200,000; and
    (6) multiple of $25,000 in the case of penalties greater than
$200,000.''
    Accordingly, the raw inflation increase for purposes of Sections
6(c) and 6c of the Act ($7,872) is rounded to $10,000, while the raw
inflation increase for purposes of Section 6b ($37,720) is rounded
to $50,000.
    \10\ For purposes of Sections 6(c) and 6c of the Act, the
rounded inflation increase ($10,000) is added to the current CMP
maximum ($120,000), totaling $130,000. For purposes of Section 6b of
the Act, the rounded inflation increase ($50,000) is added to the
current CMP maximum ($575,000), totaling $625,000.
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    The FCPIAA provides that ``any increase under [FCPIAA] in a civil
monetary penalty shall apply only to violations which occur after the
date the increase takes effect.'' \11\ Thus, the new CMP maximum may be
applied only to violations of the Act that occur after the effective
date of this amendment, October 23, 2004.
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    \11\ See also Landgraf v. USI Film Products, 511 U.S. 244 (1994)
(holding that there is a presumption against retroactivity in
changes to damage remedies or civil penalties in the absence of
clear statutory language to the contrary).
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IV. Related Matters

A. Notice Requirement

    This amendment to Rule 143.8 will implement a statutory change
regarding agency procedure or practice within the meaning of 5 U.S.C.
553(b)(3)(A) and therefore does not require notice.\12\ The Commission
also believes that opportunity for public comment is unnecessary under
5 U.S.C. 553(b)(3)(B). This amendment does not effect any substantive
change in Commission rules, nor alter any obligation that a party has
under Commission rules, regulations or orders. No party must change its
manner of doing business, either with the public or the Commission, to
comply with the rule amendment. This change is undertaken pursuant to a
statutory requirement that all agencies make such adjustments and is
intended to prevent inflation from eroding the deterrent effect of
CMPs.
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    \12\ U.S.C. 553(b) generally requires notice of proposed
rulemaking to be published in the Federal Register. That provision
states, however, that ``[e]xcept when notice or hearing is required
by statute, [notice is not required]--
    (A) [for] interpretive rules, general statements of policy, or
rules of agency organization, procedure, or practice; or
    (B) when the agency for good cause finds (and incorporates the
finding and a brief statement of reasons therefor in the rules
issued) that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.''
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    While higher maximum CMPs may expose persons to potentially higher
financial liability, in nominal terms, for violations of the Act or
Commission rules or orders thereunder, the rule amendment does not
require that the maximum penalty be imposed on any party, nor does it
alter any substantive due process rights that a party has in an
administrative proceeding or a court of law that protect against
imposition of excessive penalties. Further, as previously noted, the
rule amendment applies only to violations of the Act or Commission
rules or orders that occur after the effective date of this amendment.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires that
agencies consider the impact of their rules on small businesses. The
amended rule will potentially affect those persons who are found by the
Commission or the Federal courts to have violated the Act or Commission
rules or orders. Some of these affected parties could be small
businesses. Nevertheless, the Acting Chairman, on behalf of the
Commission, certifies that this rule will not have a significant
economic impact on a substantial number of small entities.
    While the Commission recognizes that certain persons assessed a CMP
for violating Act or Commission rules or orders may be small
businesses, the rule does not mandate the imposition of the maximum CMP
set forth in the rule on any party. As is currently the case, the
imposition of the maximum CMP will occur only where the administrative
law judge, the Commission or a Federal court finds that the gravity of
the offense warrants a CMP in that amount.\13\
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    \13\ Section 6(e) of the Act, 7 U.S.C. 9a(1), directs the
Commission to ``consider the appropriateness of [a] penalty to the
gravity of the violation'' when assessing a CMP pursuant to Section
6(c) of the Act. In addition, the Commission's penalty guidelines
state that the Commission, when assessing any CMP, will consider the
gravity of the offense in question. In assessing the gravity of an
offense, the Community may consider such factors as whether the
violations resulted in harm to the victims, whether the violations
involved core provisions of the Act, and whether the violator acted
intentionally or willfully, as well as other factors. See CFTC
Policy Statement Relating to the Commission's Authority to Impose
Civil Money Penalties and Futures Self-Regulatory Organizations'
Authority to Impose Sanction; Penalty Guidelines, [1994-1996
Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 26,265 (CFTC Nov. 1994).
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    The rule should not increase in real terms the economic burden of
the maximum CMPs set forth in the Act. Instead, the rule implements a
statutory requirement that agencies adjust for inflation existing CMPs
so that the real economic value of such penalties, and therefore the
Congressionally-intended deterrent effect of such CMPs, is not reduced
over time by inflation. Nor does the rule impose any new, affirmative
duty on any party or change any

[[Page 52995]]

existing requirements, and thus no party who is currently complying
with the Act and Commission regulations will incur any expense in order
to comply with the amended rule. Therefore, the Commission believes
that this final rule will not have a significant economic impact on a
substantial number of small entities.\14\
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    \14\ Any agency that regulates the activities of small entities
must establish a policy or program to reduce and, when appropriate,
to waive civil penalties for violations of statutory or regulatory
requirements by small entities. An agency is not required to reduce
or waive civil penalties, however, if: (1) An entity has been the
subject of multiple enforcement actions; (2) an entity's violations
involve willful or criminal conduct; or (3) the violations involve
serious health, safety or environmental threats. See Small Business
Regulatory Enforcement Fairness Act of 1996 (``SBREFA''), Pub. L.
104-121, Sec.  223, 110 Stat. 862 (March 29, 1996). The Commission
takes these provisions of SBREFA into account when it considers
whether to seek or impose a civil monetary penalty in a particular
case involving a small entity.
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C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3507(d), which
imposes certain requirements on Federal agencies, including the
Commission, connection with their conducting or sponsoring any
collection of information as defined by the PRA, does not apply to this
rule. The Commission believes this rule amendment does not contain
information collection requirements that require the approval of the
Office of Management and Budget.

List of Subjects in 17 CFR Part 143

    Civil monetary penalty, Claims.


0
In consideration of the foregoing and pursuant to authority contained
in Sections 6(c), 6b and 6c of the Act, 7 U.S.C. 9, 13a, and 13a-1(d),
and 28 U.S.C. 2461 note as amended by Pub. L. 104-134, the Commission
hereby amends part 143 of chapter I of title 17 of the Code of Federal
Regulations as follows:

PART 143--COLLECTION OF CLAIMS OWED THE UNITED STATES ARISING FROM
ACTIVITIES UNDER THE COMMISSION'S JURISDICTION

0
1. The authority of citation for part 143 reads as follows:

    Authority: 7 U.S.C. 9 and 15, 9a, 12a(5), 13a, 13a-1(d) and
13(a); 31 U.S.C. 3701-3719; 28 U.S.C. 2461 note.


0
2. Section 143.8 is amended by revising paragraph (a) to read as
follows:


Sec.  143.8  Inflation-adjusted civil monetary penalties.

    (a) Unless otherwise amended by an act of Congress, the inflation-
adjusted maximum civil monetary penalty for each violation of the
Commodity Exchange Act or the rules or orders promulgated thereunder
that may be assessed or enforced by the Commission under the Commodity
Exchange Act pursuant to an administrative proceeding or a civil action
in Federal court will be:
    (1) For each violation for which a civil monetary penalty is
assessed against any person (other than a registered entity) pursuant
to Section 6(c) of the Commodity Exchange Act, 7 U.S.C. 9:
    (i) For violations committed between November 27, 1996 and October
22, 2000, not more than the greater of $110,000 or triple the monetary
gain to such person for each such violation;
    (ii) For violations committed between October 23, 2000 and October
22, 2004, not more than the greater of $120,000 or triple the monetary
gain to such person for each such violation; and
    (iii) For violations committed on or after October 23, 2004, not
more than the greater of $130,000 or triple the monetary gain to such
person for each such violation;
    (2) For each violation for which a civil monetary penalty is
assessed against any registered entity or other person pursuant to
Section 6c of the Commodity Exchange Act, 7 U.S.C. 13a-1:
    (i) For violations committed between November 27, 1996 and October
22, 2000, not more than the greater of $110,000 or triple the monetary
gain to such person for each such violation;
    (ii) For violations committed between October 23, 2000 and October
22, 2004, not more than the greater of $120,000 or triple the monetary
gain to such person for each such violation; and
    (iii) For violations committed on or after October 23, 2004, not
more than the greater of $130,000 or triple the monetary gain to such
person for each such violation; and
    (3) For each violation for which a civil monetary penalty is
assessed against any registered entity or any director, officer, agent,
or employee of any registered entity pursuant to Section 6b of the
Commodity Exchange Act, 7 U.S.C. 13a:
    (i) For violations committed between November 27, 1996 and October
22, 2000, not more than $550,000 for each such violation;
    (ii) For violations committed between October 23, 2000 and October
22, 2004, not more than $575,000 for each such violation; and
    (iii) For violations committed on or after October 23, 2004, not
more than $625,000 for each such violation.
* * * * *

    Issued in Washington, DC on August 24, 2004, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 04-19754 Filed 8-30-04; 8:45 am]
BILLING CODE 6351-01-M