the disclosure requirement each year as Federal salaries increased. In our view, it would be better to peg the disclosure to a specific GS level or pay level for the uniformed services so that the scope of the provision would remain constant over time.

We also believe that there are a number of deficiencies in H.R. 110 and H.R. 3249 with respect to the information that must be reported. For example, section 2(a)(2) and H.R. 3249 would only require the reporting official to disclose the identity of each asset held by him, his spouse, or his dependents which has a value in excess of $1,000; it would not require disclosure of the value of each such asset, either in specific figures or a category which covers a range of values. However, this same section would require the disclosure of the exact amount of each liability owned by him or by him and his spouse jointly (but not liabilities owed solely by the employee's spouse or dependents). Similarly, section 2(a) (3) and (4) of H.R. 3249 would require the employee to disclose only those security or commodity transactions engaged in by him or by him and his spouse jointly (but again not those engaged in by his spouse acting alone or his dependents) if the aggregate amount of transactions in the particular security or commodity totalled $1,000 during the year. Moreover, these subsections also expressly call for reporting by an employee with respect to commodity and security transactions "by any person acting on his behalf," such as the trustee of a trust established for the employee's benefit. The implication may be that subsections 2(a) (1) and (2), which do not contain a similar phrase, do not require the reporting of income received or assets held by a trustee or another person acting on the employee's behalf.

The reporting requirements in H.R. 110 contain similar defects. For example, subsections (a)(2), (3) and (4) of that bill would require the reporting of the value of each asset held and each transaction in securities, commodities, and real property engaged in "by the person or by the person and members of the person's immediate family" (emphasis added). These provisions apparently would not require the reporting of assets and transactions with which the employee is not personally involved, such as those of his spouse or dependents acting alone. And again some of the provisions appear to apply to financial interests arising from trust relationships while others do not.

In our view the uneven application of the disclosure requirement in H.R. 110 and H.R. 3249 is confusing and unwieldy. Furthermore, we see no reason why an employee should be permitted to avoid disclosure of substantial financial interests merely because they are in his spouse's or children's name, rather than his own.

Another serious defect in both bills is the absence of any express provision for the review of financial statements, either by the Comptroller General or by the particular agency in which the officer or employee is serving. While the availability of financial reports may be expected to deter many conflicts of interest, such availability is no substitute for a systematic review of the reports by persons with a thorough knowledge of applicable conflict of interest statutes and regulations as they affect the duties of the particular government official. S. 495, to some extent, and the President's proposals, to a greater extent, correct the defects we have identified in H.R. 110 and H.R. 3249-defects which are present in one degree or another in most of the bills now pending before the subcommittee. For example, under section 302(b)(5) of both S. 495 and the President's bill, disclosure would be required of each officer or employee of the United States who is compensated at a rate equal to or in excess of the minimum rate prescribed for employees holding the grade GS-16 (currently $36,338) and section 302(b) (6) of each establishes a minimum pay grade equivalent for the uniformed services-S. 495 designates pay grade 0-7 (current minimum salary: $40,554), and the President's draft bill designates pay grade 0-6 (current minimum salary: $33,938). See 122 Con. Rec. S. 11954 (Daily ed., July 20, 1976). This avoids the problems involved in writing a minimum salary level in the bill in terms of the actual compensation paid.

It is clear that S. 495 and the President's bill reach persons in positions where potential conflict of interest problems are the most serious, while at the same time preserving the privacy of lower echelon employees who have far less opportunity to influence government decisions to their own benefit. The President's proposal contains an additional protection for the privacy of career civil servants who have risen to the higher grades by exempting their financial reports

from public disclosure while assuring that reports are required to be filed and are subject to review and audit.1

Section 303 of S. 495 and the President's bill also provide a much more comprehensive and explicit list of requirements with respect to the contents of the financial reports than do H.R. 110 and H.R. 3249. In particular, I call your attention to the fact that subsection 303 (c) of S. 495 and the President's proposal each applies a uniform rule with respect to the reporting of income, assets, and transactions of the reporting individual's spouse and dependents. In our view, such a uniform rule is far preferable to the provisions of H.R. 110 and H.R. 3249, which require the reporting of a spouse's or dependent's financial interests in some cases but not in others.

However, there is an important difference between subsection 303 (c) of the President's draft proposal and the same subsection of S. 495. The latter subsection 303 (c) was amended on the floor of the Senate to require the reporting of only those financial interests of the reporting individual, his spouse or dependents which are "within his control." A proviso added to the subsection emphasizes that an employee need not report items which are the sole property of the spouse or dependent and which were not derived from the resources of the reporting individual. The purpose of these provisions was to protect the privacy of the spouse and children. 122 Cong. Rec. S. 12107-08. While we recognize the force of the privacy argument, it is our opinion that this limitation could cripple the effectiveness of financial disclosure. Under both S. 495 and the President's proposal, financial reports (or copies of them) would have to be filed with the head of an Executive Branch employee's agency, the Clerk of the House, the Secretary of the Senate, the Director of the Administrative Office of United States Courts, or the Chairman of the Civil Service Commission as the case may be. The purpose of this provision, as expressed in subsection 306 (e) (1) of both bills, is to permit the officials receiving the financial statements to review them in the light of existing conflict of interest laws and regulations. A number of existing laws and regulations expressly attribute the financial interests of a Federal employee's spouse and children to the employee for conflict of interest purposes, whether or not the interests are solely those of the spouse or child and regardless of whether the employee has any right of control over the assets.

For example, 18 U.S.C. § 208 (a) provides, under penalty of criminal sanctions, that an officer or employee of the Executive Branch or an independent agency of the United States may not participate personally and substantially in any matter in which, to his knowledge, he, his spouse, or minor child has a financial interest. Even with respect to the employee's own assets, the prohibition applies even where the employee has no right to control the assets giving rise to a financial interest, such as when the assets are held in trust for his benefit. A blind trust is thought to remove a financial interest from the reach of 18 U.S.C. § 208(a) not because the employee has no right to control the assets held in trust, but because use of the blind trust serves to insulate the employee from knowledge of his financial interests, thereby eliminating an essential element of an offense under the statute. See, R. Perkins, The New Federal Conflict of Interest Law, 76 Harv. L. Rev. 1113, 1134 (1963). Finanical interests not subject to the Federal officer's or employee's own control must also be reported under section 403 (a) of the Executive Order 11222 and the Civil Service Commission's implementing regulations, 5 CFR 735.407, which require the filing of confidential financial statements by Presidential appointees and certain Federal employees classified at GS-13 or above. Thus, the exemption from the reporting

1 Both S. 495 and the President's bill exempt from the public disclosure provisions, but not the reporting requirements, those persons in the intelligence community serving in an undercover capacity. The purpose of this is to protect intelligence sources and methods by preventing the public identifications of those whose government employment must itself remain secret. The present language is inadequate, however, to assure the full protection of sources and methods required by 50 U.S.C. 403g and Executive Order 11905. Accord ingly, attached to this statement is a proposed amendment to accomplish this purpose, together with an explanatory statement.

2 We do have two minor suggestions, however. First, under subsection 303 (a)(1), we see no reason why the person filing a report should not be required to identify the amount and source of each item of income and reimbursement where the aggregate received from any one source exceeds $100, just as he must do with respect to gifts. Also, while the Senate Report makes clear the reporting requirement in section 303 (a) (5) for transactions in securities and commodities is triggered when the aggregate of transactions in the given security or transaction in a given year exceeds $1,000, see S. Rep. 94-823, 94th Cong.. 2d Sess. 79 (1976), we recommend that this be made explicit in the bill.

3 The proposed legislation is not intended to alter substantive conflict of interest laws and regulations, see e.g., S. Rep. 94-823, 94th Cong., 2d Sess. 86 (1976)-a point which we suggest should be expressed in the language of any disclosure legislation that is passed.

provisions in S. 495, as passed by the Senate, for financial interests not subject to the reporting individual's control, would permit to go unreported interests which can clearly give rise to a conflict of interest under existing criminal statute, Executive order, and regulations. Obviously, such a loophole would seriously undermine the reporting scheme.

The Senate amendment appears to have been specifically motivated by a desire to preserve the privacy of the spouses and minor children of Members of Congress. It is true that neither the criminal statute and Executive order just discussed nor House and Senate rules establish substantive conflict of interest standards with respect to the financial interests of the spouses and children of a Member or employee of the Congress. 122 Cong. Rec. S. 12108-09. But we see no reason why disclosure of the interests of the spouses and children of all reporting individuals should be excused on this ground. The President's proposal makes no such exemption, and I urge the Subcommittee to follow the same course.

However, we do believe that special treatment is warranted with respect to assets placed in blind trust by a Member, officer or employee. Without some provision to avoid the identification of specific assets in a blind trust, the purpose of the trust would be defeated since the individual would be required to ascertain the identity of specific assets in the trust at the time of reporting, thereby removing the very insulation from knowledge that the creation of the trust was designed to achieve. Section 303(a)(3) of the President's bill attempts to meet the problem by requiring an individual to report only those assets "known to him." It would be preferable, however, to be even more explicit with respect to blind trusts. Several alternatives are available.

The reporting individual could be required to disclose the existence of the blind trust and the identity and category of amount of the assets he first placed in the trust. Assets held in the trust at any later point in time would not have to be disclosed. Alternatively, the trustee could be required to report pertinent information directly to the Comptroller General and other officials. To preserve the integrity of the blind trust, this information could be deleted from any copy of the financial report made available to the public. We would be glad to confer with the Subcommittee staff in arriving at specific language to accomplish this objective.

A significant difference between the President's proposal and S. 495 is the establishment of reporting channels. The President's proposal, in recognition of the independence of the three Branches of Government, requires that officers and employees of each Branch file their respective reports within that Branch; S. 495, on the other hand, provides that all reports be submitted to the Comptroller General with copies to be filed in each Branch. As long as the centralized auditing capability discussed below is available, we feel strongly that the coequal status of the three Branches of Government should be honored by the division of reporting responsibilities among the Branches.

Both S. 495 and the President's proposal provide for random audits by the Comptroller General of 5% of financial reports and authorize the Comptroller General to issue subpoenas for the production of books, papers, and other documents in connection with the audits. See subsection 306 (f). These provisions add an extra measure of scrutiny to supplement the review of each financial statement by officials of the particular Branch, department, or agency involved. We also support the provision in subsection 306(f) (5) of the President's proposal, not contained in S. 495, specifically requiring the Comptroller General to report any findings of potential conflicts of interest resulting from his audits to the agency and individual involved. This subsection also provides that if the conflict of interest matter is not resolved to the Comptroller General's satisfaction within 90 days of the date of his report, he shall make public his findings and all comments or actions taken with respect to his finding. If the Subcommittee adopts this proposal, we recommend that language be added to make clear that the Comptroller General would not be authorized to issue such a public report under circumstances which could prejudice the employee's rights in pending criminal, civil or agency disciplinary proceedings.

If modified along the lines I have suggested, the Department of Justice supports the enactment of provisions comparable to S. 495 and, for the reasons discussed, prefers such provisions to those contained in H.R. 110, H.R. 3249 and related bills pending before the Subcommittee.

We recognize that enactment of these disclosure provisions alone may not be adequate to assure the public that government decisions are not unduly influenced. During the last two years we have been working with the Congress to

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develop effective and enforceable legislation to require disclosure by those who seek to influence the legislative process either by direct contact with the Congress or by bringing pressure to bear on the Executive Branch with respect to legislative matters. In considering these public disclosure bills we urge the Subcommittee to give equal attention to the Public Disclosure of Lobbying Act which addresses the "other side of the coin."

Thank you again for the opportunity to testify. I will be happy to answer any questions the Subcommittee may have on these bills.

APPENDIX

Proposed amendment to Section 304 (a)(3) of the President's proposal on financial disclosure by government officers and employees:

Section 304 (a) (3) is amended by inserting after the words "an undercover agent of the Federal Government," the following:

"or otherwise jeopardize the intelligence activities of such agencies or contravene existing law with respect to the disclosure of information contained in such reports."

and by inserting after the word "individual" wherever it occurs, the phrase "or category of individuals".

EXPLANATION

Many persons in the Government, especially intelligence personnel, have access to highly sensitive information which would be extremely valuable to a foreign intelligence service and for which foreign services have and would offer large sums of money. Attempts have been made by foreign intelligence services to recruit such employees. The disclosure of the financial status of such personnel would clearly assist the intelligence services of other countries in identifying employees for possible recruitment approach. This consideration applies to all personnel in national security-related areas whether or not they are undercover intelligence personnel. As concerns the CIA, Congress has recognized that the Agency's ability to accomplish its unique mission could be jeopardized by the public disclosure of names and certain other information concerning its employees. Accordingly, section 7 (now section 6) of the CIA Act of 1949 (50 U.S.C. 403g) states as follows:

In the interest of the security of the foreign intelligence activities of the United States and in order further to implement the proviso of section 403 (d)(3) of this title that the Director of Central Intelligence shall be responsible for protecting Intelligence sources and methods from unauthorized disclosure, the Agency shall be exempted from the provisions of law which require the publication or disclosure of the organization, functions, names, official titles, salaries, or numbers of personnel employed by the Agency *

The proposed amendment would permit the President to make exemptions of certain categories of employees performing intelligence activities to relieve him of the burden of making individual exemptions.

2. Proposed amendment to section 306 (a) (2) of the President's proposal on financial disclosure by government officers and employees:

Section 306 (a) (2) is amended by inserting after the words "in career positions," the phrase "or individuals exempted under Section 304 (a) (3).”

EXPLANATION

The protection afforded certain intelligence personnel by the exemption in section 304 (a) (3) permitting them to file reports with their agency head rather than the Civil Service Commission would be vitiated if the agency heads were required to make these reports public under section 306(a)(1). The proposed amendment is therefore necessary to effectuate the exemption in section 304 (a) (3).

Mr. SHATTUCK. Is the representative from the Civil Service Commission here?

FROM THE FLOOR. Mr. Goodman, who is going to testify, thought he would not be on until 2 o'clock, Mr. Chairman.

Mr. SHATTUCK. That's quite all right. Mr. Chairman, if we could proceed to the witness appearing on behalf of the Administrative Office of the United States Courts.

Mr. DANIELSON. We do have Mr. Carl Imlay, General Counsel of the Administrative Office of the United States Courts. Will you please come forward, the floor is yours.

TESTIMONY OF CARL H. IMLAY, ADMINISTRATIVE OFFICE, U.S. COURTS

Mr. IMLAY. Thank you, Mr. Chairman.

Mr. Chairman, I appear here today at the invitation of the committee to testify regarding the position of the Judicial Conference of the United States on H.R. 3249 and related bills.

The Judicial Conference of the United States at its session in September 1975, voted to recommend that judicial officers not be included within the purview of H.R. 110, or H.R. 3249. This recommendation is made on the basis that the judicial branch of the Government, under the authority of the Conference, has adopted a financial disclosure procedure requiring Federal judges as well as full-time bankruptcy judges and magistrates to file periodic reports on extrajudicial income earned, gifts and bequests, and positions held in various profit and nonprofitmaking organizations. This reporting system, which has been in operation since 1970, now requires filing such reports semiannually. A copy of the reporting form currently in use is attached to our statement for the information of the committee.

These reports are open for inspection by the public and have been since the system was put into effect in 1970. A copy is filed with the clerk of the court in each judicial district where it in effect becomes a publicly available document. In addition, a copy is filed with the chief judge of each Federal judicial circuit and another copy is filed with a special committee of the Judicial Conference of the United States which meets regularly to review the reports received.

In the 6 years the system has been in effect, it has undergone many modifications by the special Judicial Conference Committee charged with its administration. Not only are judges reporting-and publicly reporting any outside income received but they are already far more rigidly regulated by law in their financial transactions than the other two branches of Government. For example, under the Judicial Disqualification Act the ownership of even one share of stock by the judge, or by the judge's spouse, or by a minor child living in his household, in the matter of party in litigation will disqualify the judge from hearing the case. In addition, the Judicial Conference of the United States has adopted a Code of Judicial Conduct which strictly limits judges and full-time magistrates and bankruptcy judges from engaging in outside business.

Under the Code, for example, no judge can be an officer or director of any business. The Code prohibits a judge from engaging in fundraising in the every member canvas of his own church. There are many other proscriptions that apply to judges, such as no judge can engage in private law.

It is logical in this existing scheme that the judicial branch have its own reporting requirements and that such reports be directed not to the Comptroller General, but to its highest policymaking body, the Judicial Conference of the United States.

We believe that the Judicial Branch is considerably ahead of the other branches in respect to its practice. Furthermore, there have been