Letter from Watchdog Groups to the Office of Government Ethics Regarding Financial Disclosure Process For the Executive Branch
February 11, 2005
Office of Government Ethics
att: Ira S. Kaye,
RE: Financial disclosure process for the executive branch [70 FR 2407]
The Office of Government Ethics (OGE) has requested public comments on various proposals intended to streamline personal financial disclosure requirements for presidential nominees, appointees and senior-level government employees. Most, but not all, of the proposals would revise the disclosure information contained form SF 278, the primary form of personal financial income and assets filed by senior-level employees and made available to the public. OGE’s study is part of a larger project to reevaluate the presidential appointment process.
In response to the request posted in 70 Federal Register 2407, Public Citizen, Common Cause, Center for Responsive Politics, Democracy 21, Citizens for Responsibility and Ethics in Washington (CREW), Center for Corporate Policy, Public Campaign, OMB Watch, the Campaign Legal Center and Judicial Watch offer the following comments.
The appointment process for executive branch officials has frequently been criticized as overly burdensome and confusing, possibly deterring some good people from accepting appointment to serve in the federal government. This is clearly a concern.
A series of surveys of presidential appointees by Paul Light and G. Calvin Mackenzie, as well as independent research by such congressional scholars as Norman Ornstein and Thomas Donilon, have substantiated numerous problems in the appointment process that have slowed down the pace of appointments and caused some consternation among nominees. From 1964 to 1984, for example, almost 90 percent of presidential appointments were confirmed in four months. From 1994 to 1999, only 45 percent were completed in four months. Furthermore, nominees have often expressed dissatisfaction with repetitive and duplicative questions.
A wide range of potential problems with the appointment process has been identified by various scholars. These include: excessive politicization of the process; lack of adequate guidance to nominees; an inability to confirm or reject presidential nominees in a timely fashion; the frequent use of lawsuits to embarrass and harass nominees; increasing media scrutiny on the sensational rather than the substantive issues; and burdensome and redundant personal financial disclosure requirements. It is the latter concern that is the focus of this study by OGE.
Without a doubt, the presidential appointment process has become encumbered by a variety of political and legal obstacles. There is considerable room for improvement, especially in the areas of reducing the number of political appointees, providing nominees with additional guidance through the process, and scaling back the number of positions that require full-field FBI investigations. The information-gathering process should also be standardized as much as practicable and streamlined to avoid unnecessary redundancy.
But to suggest that the nation’s ethics standards or personal financial disclosure requirements are undue – or even significant – impediments in the presidential appointment process misidentifies the core of the problem and how it should be remedied.
Requiring that nominees and senior-level government officials report their financial assets in excess of $2.5 million, disclose the sources and itinerary of travel paid for by special interest groups, and file the dates and amounts of stock transactions, for example, are not overly burdensome requirements upon governmental employees and, in most cases, do not significantly contribute to clogging the appointment process. Indeed, where such personal financial disclosure has in fact slowed the process, it usually is because the disclosure has been incomplete or untimely.
It is the slow “dribbling” of information to the public that delays the appointment process, generating consideration and re-consideration of nominees and a rumor windmill about incumbent appointees. If there is any fix that need be done in the area of personal financial disclosure, it is to take the disclosure system out of the antiquated and redundant system of paper filing and modernize it into a system of standardized electronic filing for nominees and governmental employees, and timely electronic disclosure to Congress, ethics agencies and the public.
Recommendations for Reform
Though OGE has not yet drafted specific recommendations for reforming financial disclosure for nominees and senior-level government employees, a number of proposals centering on ethics regulations have been put on the table for discussion, both from scholarly research and a 2001 report to Congress from the Office of Government Ethics.We – a coalition of civic and research organizations concerned about the regulation of ethics in the federal government – offer the following comments to the OGE on some of these proposals.
1. Collapsing the reporting threshold of assets for nominees and governmental employees provides little benefit in terms of streamlining the personal financial reporting requirements while significantly hampering public disclosure of information that could reveal potential conflicts of interest.
Proposals to collapse the reporting thresholds of personal financial assets range from a radical recommendation of capping reporting of wealth to any amount in excess of $100,000 to a recommendation originally offered in the House version of the Intelligence community reform bill (H.R. 10) of capping reporting of wealth to any amount in excess of $2.5 million.
Though we support efforts to streamline the disclosure process and make it user-friendly, the reporting categories themselves pose little burden on nominees and employees. Presidential nominees and appointees know how much their assets and income are worth, and reducing the number of categories in which they must report their value will not significantly streamline the reporting process.
While little would be saved in streamlining the reporting process, much would be lost in potential conflict of interest information reported to the ethics agency and the public, especially at the high end of the reporting categories. According to an analysis by the Center for Public Integrity, the average net worth of the top 100 members of the Bush Administration in 2002 was somewhere between $3.7 million and $12 million. Of these 100 appointees, 34 come from the business community, 27 from other branches of government, 19 from the non-profit sector, and 16 from lobbying firms. Many of these wealthy presidential appointees have come directly from the energy industry into federal government, including Commerce Secretary Donald Evans and Commerce Undersecretary Kathleen Cooper.
At least among senior-level presidential appointees, a $2.5 million cap on disclosure of assets does not even come close to revealing actual worth. And the potential for conflict of interest is very high. For example, Francis Blake, the current Deputy Secretary of Energy, was the senior vice president of corporate development at General Electric (GE). GE has a wide range of government contracts and frequently has regulatory issues pending before the Energy Department. Realizing the potential for conflicts, Blake has appropriately recused himself from matters affecting GE. But the public should not rely blindly upon the good-will of appointees. The public should be fortified with the knowledge of how much wealth nominees and senior-level governmental employees can attribute to their former employers in the business community. The greater the amount of wealth of a nominee or employee that can be attributed to a business sector, the higher the potential for conflict.
Even in an unpaid advisory capacity, a presidential appointee can sometimes let personal financial gains cloud official judgment. Richard Perle, for example, served as Chair of the Pentagon’s advisory Defense Policy Board and was a leading advocate of President Bush’s Iraq War plans. Perle was employed by Global Crossing, a telecommunications giant that has since filed for bankruptcy. Perle used his position to overcome Defense Department and FBI objections to selling Global Crossing to foreign buyers in Hong Kong and Singapore for national security reasons. He reportedly stood to gain $750,000 from the sale. The deal eventually collapsed after investigative reports by the New York Times.
Currently, personal financial disclosure forms require that presidential appointees reveal their total assets within 11 broad categories of values: $0 to $1,000; $1,001 to $15,000; $15,001 to $50,000; $50,001 to $100,000; $100,001 to $250,000; $250,001 to $500,000; $500,001 to $1 million; more than $1 million to $5 million; more than $5 million to $25 million; more than $25 million to $50 million; and more than $50 million.
It is the high end of these disclosure categories that is most important for the public to know and most likely to reflect actual wealth by senior-level nominees and employees. The potential for conflict of interest is far greater at the high end of the value categories than at the low end. If there is to be any collapsing of these categories, it should be exclusively at the low end of reportable assets and income.
2. Continue the requirement that actual amounts of non-investment income be reported in order to enforce statutory limits on outside income.
OGE is considering a proposal to eliminate reporting the actual amount of non-investment income and replacing it with a requirement to report only general categories of amount of non-investment income. This could undermine current limits on outside earned income by making it difficult to know if an individual’s sources of income fall within the legal limits for outside earned income. The general statutory provision addressing outside earned income limitations is found in section 501 of the Ethics in Government Act – a non-career officer or employee who is at or above a certain pay grade cannot have outside earned income in a calendar year that exceeds 15% of the annual rate of basic pay for level II of the Executive Schedule. The elimination of reporting the actual amount of income, and replacing it with reporting general categories of income, could make it difficult to determine whether outside income falls within the legal limits. The requirement that actual amounts of non-investment income be disclosed by appointees should remain intact.
3. Reporting of dates and amounts of transactions involving the purchase, sale or exchange of stocks, bonds, commodity futures and other securities provides useful information in assessing potential conflicts of interest, especially by senior-level executives who influence the awarding of lucrative government contracts, and the current requirement that dates and amounts of such transactions be disclosed should be retained.
The proposal to streamline reporting requirements by ending the requirement that dates of major stock transactions need be reported by senior-level officials, originally offered in the Intelligence bill (H.R. 10) by House conferees, would strike a serious blow to enforcement of potential conflicts of interest. Senior-level officials, especially in the defense sectors, are often privy to information about pending government contracts that directly affect publicly held businesses, particularly with regard to matters involving government procurement. Public disclosure of major stock transfers provides the greatest single safeguard against insider trading by government officials. The timing of such transfers can serve as a red flag for potential fraud, and disclosure of these transactions is therefore a first-line defense against corruption. The value in maintaining this first-line defense against potential corruption in transactions of stocks and bonds far outweighs any gain in streamlining reporting requirements.
Depending on which proposals for streamlining OGE is considering, the damage to governmental ethics could even be greater. OGE’s draft proposal in 2001 for streamlining personal financial reporting requirements, which was the subject of separate public testimony, goes far beyond the reforms envisioned by the Brookings Institution studies or even House-Senate conference proposals on the Intelligence bill.
Some of the proposals on the table for streamlining would so simplify the personal financial reporting requirements as to make it possible for government officials to conceal major transactions. OGE, in its 2001 report to Congress on streamlining financial reporting requirements, proposed that neither the date, amount nor occurrence of a major transaction need be reported. It is enough, concluded OGE, to report “the asset’s mere existence” under the general categories of income or assets. This “streamlining” would seriously undercut the ability of the ethics agency and the public to monitor when trading activity occurred and how much wealth was involved in the trade or trades. The dates, amounts and occurrences of major transactions must be clearly identified in public disclosure reports by all government employees.
4. Requests for, and receipt of, conflict of interest waivers for senior-level government employees seeking future employment while still in public service should be deposited with the Office of Government Ethics and be made readily accessible to Congress and the public.
One of the personal financial disclosure issues that had been addressed by OGE in its 2001 report is government employees seeking future employment. For officers and employees in the executive branch of federal government, federal law (18 U.S.C. 208) generally prohibits government staff from seeking future employment and working on official acts simultaneously, if the official actions may be of significant benefit to the potential employer. Waivers may be granted to this prohibition for a number of reasons, including that the employee’s self-interest is “not so substantial” as to affect the integrity of services provided by the employee or that the need for the employee’s services outweighs the potential for a conflict of interest.
The issuance of waivers had routinely been the prerogative of the head of the agency or division for which the employee worked. Following the Thomas Scully scandal discussed below, the Bush Administration issued a Memorandum on January 6, 2004, requiring that all such waivers be cleared by the White House General Counsel’s office.
In the executive branch where waivers for negotiating future employment are required, waivers have been routinely granted and rarely, if ever, denied. A freedom of information request by Public Citizen to the Department of Health and Human Services (HHS) found that from January 1, 2000, through November 17, 2004, at least 37 formal requests for waivers from the conflict of interest statutes were made in that department alone. All 37 requests were granted.
Among the granted waivers is one for Thomas Scully. On May 12, 2003, Scully, chief administrator for the Center for Medicare and Medicaid Services (CMS), secretly obtained an ethics waiver from HHS Secretary Tommy Thompson allowing him to ignore ethics laws barring him from negotiating employment with anyone financially affected by his official duties or authority. The waiver allowed Scully to represent the Bush Administration in negotiations with Congress over the Medicare prescription drug legislation while Scully simultaneously negotiated employment terms with three lobbying firms and two investment firms that had major stakes in the legislation.The law was enacted about eight months after the waiver had been granted, and shortly thereafter Scully signed on with both a lobbying firm and an investment company with large stakes in the new Medicare law.
In order to bring some accountability for what is known as the “revolving door” by government employees, and to help keep Congress and the public aware of potential conflicts of interest by these government employees when working on major legislation or regulations, OGE should serve as a central repository for all requests for waivers of conflicts of interest and make these records publicly available as they are received and approved or denied, without the need to submit a FOIA request.
5. The Brookings Institution recommendation that the General Services Administration develop and maintain an electronic reporting system for personal financial disclosure reports would do more to streamline the reporting requirements than all other proposals combined. We heartily endorse this concept. We further recommend that the non-confidential reports on the personal financial information of senior-level government employees also be made available to the public on-line.
Nominees, governmental employees, ethics agencies and even the public would benefit from upgrading the method of filing personal financial reports from the antiquated paper system to an electronic reporting system. The personal financial report forms would be more easily accessible to nominees and employees and electronic filing software can help guide filers through the process and flag mistakes and omissions. OGE and other ethics agencies would find the processing, storage and distribution of the information much more convenient and timely.
Perhaps the most important benefit to be gained from electronic reporting on the filer side of the equation would be to encourage the standardization of forms and reduce redundancy in the information-gathering process. With an electronic system of reporting, agencies could more easily share comparable information and cut out duplicative questions and queries. Where any such duplication persisted, filers could simply re-submit the same answers. Of any of the suggestions so far considered for streamlining the reporting requirements, electronic filing stands above all else – and uniquely without undermining the quality of disclosure information.
In fact, a system of electronic reporting of personal financial information could also help the public receive accurate and timely information if the non-confidential reports are placed on-line for public access. Much of the media frenzy over personal financial records of government officials that erupts from time to time occurs because of incomplete or untimely reporting. With a system of electronic filing and disclosure, personal financial records are likely to be more accurate and the same records will be viewed by the press and public, reducing the potential for hype.
Though electronic reporting of financial disclosure forms would be a significant change at the federal level, it is not a new idea. OGE has already begun a program of making electronically-fillable forms available for downloading from its Web site. Electronic filing through an interactive Web site is the next logical step. When it comes to electronic disclosure of these forms, 16 states throughout the nation now make the financial disclosure forms of state government officials available on the Internet or electronically.Such diverse states as Washington, Hawaii and Texas, for example, place their officials’ personal financial disclosure reports on the Internet, readily accessible to the public.
Personal financial disclosure requirements for federal officials are both a protection against corruption and the appearance of corruption in government and a means for senior-level employees and ethics agencies to make appropriate corrections before a problem arises. But the disclosure requirements do come at some cost to filers in terms of privacy and sometimes burdensome paperwork.
Research by the Brookings Institution and others has suggested that the presidential nominating process has become so inefficient as to intimidate some qualified people out of public service. This would indeed be unfortunate.
The presidential appointment process is in need of reforms to help reduce the burdens on nominees and employees and to facilitate the timeliness of appointments. However, the worst problems associated with the procedures for presidential appointments stem from the politicization of the process rather than personal financial disclosure requirements. Thus, most of the meaningful reforms of the appointment process are unrelated to personal financial disclosure requirements.
While there is room for improvement in the disclosure requirements – such as standardizing queries and forms through electronic reporting and making important financial information, such as conflict of interest waivers, readily available to Congress and the public – it is important that we do not let the objective of streamlining reporting requirements become synonymous with retreating from conflict of interest regulations.
It is also important to keep in mind that any modifications to SF 278 and other personal financial disclosure requirements will affect all senior-level government employees, not just presidential nominees and appointees. Reporting requirements for government employees should not be driven by concerns about the nominating process.
 G. Calvin Mackenzie, Starting Over: The Presidential Appointment Process in 1997 (Century Foundation, 1998); and Paul Light and G. Calvin Mackenzie, To Form a Government: A Bipartisan Plan to Improve the Presidential Appointment Process (Brookings Institution, 2001).
 Norman Ornstein and Thomas Donilon, “The Confirmation Clog,” Foreign Affairs (Nov.-Dec. 2000).
 National Academies Committee on Science, Engineering, and Public Policy, “Panel on Ensuring the Best Science and Technology Presidential Appointments,” Science and Technology in the National Interest (2000).
 Terry Sullivan, “Fabulous Formless Darkness,” Brookings Review (Spring 2001) at 22-27.
 Office of Government Ethics, Report on Improvements to the Financial Disclosure Process for Presidential Nominees, presented to the Committee on Governmental Affairs of the Senate and the Committee on Government Reform of the House of Representatives (April 2001).
 Center for Public Integrity, The Bush 100 (January 14, 2002).
 Delinda Hanley, “Richard Perle, the prince of darkness, resigns after accusations of profiteering,” The Washington Report on Middle Eastern Affairs (May 2003) at 30.
 Office of Governmental Ethics, Report on Improvements to the Financial Disclosure Process for Presidential Nominees, presented to the Committee on Governmental Affairs of the Senate and the Committee on Government Reform of the House of Representatives (April 2001) at 15.
 Because the requests and approval of conflict of interest waivers are not generally available to the public, it is difficult to determine whether HHS’s response to Public Citizen’s FOIA request for information on the waivers is complete.
 For more on the Thomas Scully scandal, see: http://www.citizen.org/congress/govt_reform/ethics/scully/
 Center for Public Integrity, Posted: State legislators’ 2004 Personal Disclosures (Jan. 24, 2005).