POTENTIAL CONFLICT OF INTEREST/REVOLVING DOOR PROBLEMS AT THE DEPARTMENT OF DEFENSE WEDNESDAY, OCTOBER 8, 1985 HOUSE OF REPRESENTATIVES, COMMITTEE ON POST OFFICE AND CIVIL SERVICE, Washington, DC. The subcommittee met, pursuant to call, at 10 a.m., in room 311, Cannon House Office Building, Hon. Gerry Sikorski (chairman) presiding. Mr. SIKORSKI. The subcommittee will come to order. This is a hearing before the Subcommittee on Investigations, Committee on Post Office and Civil Service, the U.S. House of Representatives. Under rule X of the House, this subcommittee is responsible for The investigation, review, and study on a continuing basis of the application, administration, and execution of those laws or parts of laws, the subject matter of which is within the jurisdiction of the committee. This subcommittee, therefore, is charged with the responsibility to examine, among other things, the potential for conflicts of interest on the part of Government employees while they are employed by the Government and after they leave Government, as governed by title 5 of the United States Code. Today, we will be generally reviewing the Defense Department's code of ethics and its implementation of Executive Order 11222, which forms the underpinning of this country's ethics laws. The specific focus of this hearing will be on the recent activities of a former high-ranking Department of Defense procurement official, her trolling for employment with the defense industry while retaining her responsibilities over major procurement policies, the subsequent inaction and ineffective action of DOD officials responsible for deciding whether her actions were ethical, and finally the resulting implications for DOD's entire ethics program and needed legislative and regulatory changes in this area. Before we begin, I would like to commend both Chairman Ford of the full Committee on Post Office and Civil Service and Chairman Dingell of the Committee on Energy and Commerce. Chairman Dingell's Oversight and Investigations Subcommittee, of which I am a member, has for the past year and a half conducted an indepth investigation into Defense Department procurement practices as related to that committee's jurisdiction. (1) That investigation has uncovered widespread fraud and waste of staggering proportions. It is that same inquiry that first revealed the activities of Mary Ann Gilleece, former Deputy Under Secretary for Acquisition Management at DOD-as the Wall Street Journal put it, "the Pentagon's top procurement regulator." The Oversight Subcommittee found that taxpayer money was routinely being given to defense contractors who were buying everything from company-inscribed Gucci bags to trips to Pago Pago. In a much touted "get tough" speech, in the wake of the first hearing on General Dynamics earlier this year, Secretary Weinberger proposed that defense contractors certify that they are telling the truth when they bill the taxpayers-or suffer criminal penalties. On April 5, however, Ms. Gilleece wrote a so-called clarifying letter that significantly weakened, in two ways, the certification standard and reversed the orders of the Secretary of Defense. This occurred after Ms. Gilleece had initiated her efforts to secure new employment, less than a month before she first approached DOD officials about her plans to establish a consulting firm for defense contractors. Consequently, Chairman Ford requested this investigation into conflicts-of-interest and revolving door issues and the possible need for legislative and statutory reforms to correct these problems. We will begin this investigation by today examining the instance of the former Deputy Under Secretary, Mary Ann Gilleece's, efforts to establish a defense contractor consulting firm while still in the employ of the American taxpayers. As reported in the Washington Post, Ms. Gilleece targeted her business at the Defense Department's top weapons manufacturers, whose multibillion dollar a year business was directly influenced by Gilleece in her job as Deputy Under Secretary of Defense for Acquisition. The report of the DOD inspector general concluded that Ms. Gilleece, at the least, violated the Department's own standards of conduct, and that her business activities "placed her in conflict with the duties and responsibilities of her DOD position." Additionally, the IG requested a review by the Justice Department to determine whether there had been a criminal violation of the relevant conflict-of-interest law, section 208. While Ms. Gilleece is no longer in a position to influence Defense Department procurement and rulemaking affecting her potential clients in defense contracting, the potential damage she may have caused this country and its taxpayers is of serious concern to this subcommittee. Equally or more alarming, actually, is the Department's handling of the case and what it tells us about the adequacy of the Department's ethics program, one, to prevent apparent and actual conflicts-of-interests and revolving door problems, and two, to identify and deal aggressively with such cases when they do occur. A complete chronology of the events surrounding the Gilleece case follows my prepared remarks as does a linear graph of some of the salient events in the matter. They disclosed that this is a blatant case of conflict of interest; that Ms. Gilleece, herself an attorney, had every reason to know that her actions were wrong; and that DOD's ethics officer, the general counsel, and Ms. Gilleece's boss all should have advised her that her actions violated DOD's standards of conduct and quite possibly the law. Instead, we have the DOD spokesman, late in the game, saying that she complied with all Government regulations and that DOD "found nothing improper in what she did or illegal." It leaves unanswered the important question: If the Department of Defense can't prevent, recognize, or catch a case such as this, will they catch anything? What we find here and in other cases we are investigating is not good public administration, not good law enforcement, and not good national security. And it is not ethical. It could very well cost American taxpayers billions of dollars by institutionalizing a system that encourages abuse, fraud, and waste. Well, the dangers of conflicts of interest and all they bring are not new. Even before the Sermon on the Mount warned us against serving two masters, Plat had forbidden his philosopher kings to hold any personal economic interests whatsoever. It is good we are reminded of those dangers here. [The following material was ordered placed in the record with Mr. Sikorski's opening statement:] CHRONOLOGY In April, 1983, Ms. Gilleece becomes the Deputy Under Secretary for Acquisition Management. She is charged with providing guidance and policy regarding contract terms and conditions, pricing and contract financing, administration of contracts, and business strategy relating to major weapons systems. Her office is also the focal point for management of standards and specifications. In January, 1985, DOD announces a reorganization that would phase out Ms. Gilleece's job and she begins searching for public and private sector employment. She then begins to develop a consulting firm for defense contractors. Reports of waste and fraud in DOD's procurement practices causes Secretary Weinberger to establish a certification requirement for defense contractor billing, which Ms. Gilleece subsequently weakens significantly on April 5. On April 30, Ms. Gilleece informs DOD's ethics counselor of her plans to establish a consulting firm "specializing in procurement issues." - On May 21, Ms. Gilleece writes to 14 defense contractors, including Magnavox Electronic Systems Co. She tells Magnavox that she is "now fully committed to a consulting business. I f you believe we are essentially ready to go, I would welcome Magnavox as our first client," at $30,000 a year beginning on September 1. In the "proposed agreement" in the packets to the defense contractors, Ms. Gilleece states that her firm will "assist clients to compete for government business with confidence and success. PSC provides a thorough understanding of the internal forces motivating government customers, particularly the Department of Defense, and helps its clients accentuate their strengths in doing business with those customers." She further offers her assistance "to respond quickly to changes in federal procurement," and to provide "timely information on imminent policy changes being considered by the Federal, government." The firm would also "interpret procurement regulations" and analyze "profit policy, certification requirements and audit trends." On June 5, Ms. Gilleece meets with Dr. Wade, her superior, and he recommends that she disqualify herself from work involving the contractors she had contacted. Dr. Wade did not review Ms. Gilleece's letters and her proposed agreement. - On June 7, Ms. Gilleece writes a memo criticizing proposed work measurement standards. These standards are to ensure that taxpayers pay for the time it "should take" to make defenserelated products and what it "should cost" to buy them. - On June 14, Ms. Gilleece signs a disqualification form. This disqualification did not cover her policy making responsibilities that affect all defense contractors, their DOD contracts and how they get paid. A June 25, Wall Street Journal article features Ms. Gilleece. It states that she is a "staunch defender of the defense industry," and that she believes the system is "99 and 44/100 percent pure." It went on to report that one Republican Senator accused Ms. Gilleece of, "loving the almost incestuous relationship between industry and the Pentagon." On June 25, and June 26 or 27, Ms. Gilleece meets with Dr. Wade, Mr. Ream and DOD's General Counsel Chapman Cox. Dr. Wade suggests removing Ms. Gilleece from her job and making her a Special Assistant. Instead, she states that she will terminate her plans to start a consulting firm for defense contractors. - On July 3, General Counsel Cox requests an IG investigation. On July 10, Ms. Gilleece participates in a meeting concerning the Federal Acquisition Regulation, which serves as the basis for all government contracting policy and practices, to discuss certification and field audits. On July 24, Ms. Gilleece testifies before a Senate subcommittee opposing work measurement standards. - Also on July 24, Ms. Gilleece writes a memo to Dr. Wade. advising him she had notified the defense firms she had contacted about the termination of her plans. - On August 16, the IG completes its investigation, concluding that Ms. Gilleece had violated DOD's standards of conduct and referring the case to the Department of Justice. The IG found that "The actions taken by Ms. Gilleece, and the ensuing publicity, have so compromised her ability to perform her rule making and policy setting role that she can no longer serve the Department in such a position." On August 19, Ms. Gilleece resigns from DOD. |