Under our regulations issued pursuant to Executive Order 11222 and which are contained in Part 735 of Title 5 of the Code of Federal Regulations, the Commission requires that any Government employee who is classified at GS-13 or above and who has contracting or procurement responsibilities or is administering grants or subsidies or performing other activities of a decisional nature with an economic impact on the interests of any non-Federal enterprise, must file a statement of his or her employment and financial interests with his or her agency. Should an agency determine that some employees below the GS-13 classification should be required to file confidential statements, the agency must justify in writing to the Commission that this is an exception which is essential to protect the integrity of the Government and to avoid employee involvement in a possible conflict of interest situation. Chairman Hampton has reported to you that under section 401 of the Executive Order, our office reviews for the Chairman the confidential statements of agency heads and other designated Presidential appointees. We have at times suggested that some Presidential appointees divest themselves of financial interests which could cause a conflict of interest or give the appearance of such a conflict. While we cannot force a divestiture, our advice in this area is generally accepted. If necessary, we can report any problem to the White House for action. At times we must analyze blind trusts. Over the years, as we have gained more experience and a fuller evaluation of blind trusts, we have evolved a form which we recommend in situations where they are necessary. We require the settlor to instruct the trustee in the trust agreement to sell any shares in companies where the statutes or regulations of the official's agency prohibit their being held by the official and not to purchase any such securities in the future. The reporting of financial interests was the major program adopted in Executive Order 11222 and it has been a mainstay of the Commission's ethics program and responsibilities. In 1974, my predecessor became concerned that agencies were not giving the resources, energy and commitment that they should to the ethics program. Part of the reason was that the various agencies were not assigning any one official to take full responsibility for the agency's ethics program. Too frequently the program was being handled in a casual manner and on an ad hoc basis. We came to the conclusion that a better liaison should be set up between the Commission and the ethics counselors of other agencies. At the beginning of 1975 we arranged for the first meeting of ethics counselors of the Government. This November we held a two-day conference for ethics counselors. We intend to hold these seminars on an annual basis. These meetings, plus the ready availability of my office for quick response to agency requests and for the review of agency regulations, have, we believe, resulted in a heightened awareness throughout government of the ethics program. This role has been one which we have assumed under the Executive Order. It is in part an educational function, one designed to familiarize all employees with their responsibilities under the Executive Order. We believe that ethics counselors in the various agencies are now a distinct group who have defined responsibilities in their agencies under the ethics program. You have asked about our participation in the recent changes of the ethics regulations of the Department of Defense and the National Aeronautics and Space Administration. With respect to the Department of Defense, the Chairman has given you the general outline. Let me simply add that in dealing with the Defense Department it seemed to me that the large number of contracting agency officials invited to a contractor's lodge raised questions which the original investigation did not answer. I suggested further review. The agency thereafter modified its regulations and issued letters of admonishment to certain individuals. On December 29, 1975, the National Aeronautics and Space Administration sent us a proposed revision of its standards of conduct for NASA employees. The modification was sent to us for coordination and approval. The Commission's ethics counsel met with NASA officials concerning the proposals and made various suggestions. Thereafter on January 6, 1976, NASA sent us its proposed modifications as changed and on January 9 my office approved them for publication. The present regulations issued by the National Aeronautics and Space Administration and published on January 19, 1976 in the Federal Register are a substantial modification of past policy by that agency. The acceptance of gifts or entertainment from friends who deal with that agency has been eliminated and while it is recognized that in certain situations employees of NASA may participate in widely attended luncheons or dinners sponsored by professional associations, participation is permitted only when the host is an association and not a private company and only when approved by the NASA employee's supervisor as being a part of or related to his official duties. We are pleased that we were able to assist NASA in these modifications. At the present time as a result of our own studies, our experience to date and suggestions made at the last conference of ethics counselors, we are reviewing our Government-wide ethics regulations as well as the forms for reporting financial interests for the purpose of determining whether they need modification or revision. In conclusion let me note that the Commission has no authority to deal with those aspects of the ethics program arising out of 18 U.S.C. § 201 et seq. The Justice Department has exclusive jurisdiction under those statutes. Under the Executive Order we have a coordinating role and an active role in the financial statement program. Recently, we have expanded our role so as to be a central point of information and expertise. We have expanded our staff and are involved in a major educational effort. Mr. PATMAN. Mr. Chairman, I'd like to ask the witness a question I think that we should know in the beginning. This question is to you, Mr. Hampton. Are you satisfied that Executive Order 11222 is sufficient to control conflict of interest in the Federal Government? Has President Ford discussed with you the possibility of strengthening conflict of interest regulations? Mr. HAMPTON. Well, the President has not discussed with me the question of conflict of interest regulations. The Counselor's Office in the White House has discussed with my general counsel certain revisions. I don't know what the nature of those are. He could better respond to that. The adequacy of the present regulations I think depends-we have no enforcement authority. We have no investigative authority. The onus is on the agency head to investigate and to discipline or take whatever remedial action is necessary within his own agency. I think that basically is where this responsibility belongs. Now I think the program could be strengthened in one sense, that if we had specific authority to review those findings for adequacy, I would think that would rather than having a cajoling role, give us more of an oversight role and might strengthen enforcement. At least it brings a third party into the situation that is not now provided in the present regulations. But my experience with enforcement in other areas is that in order to really achieve results it has to be brought home to those people in the agencies that make the decisions affecting people what their real responsibility is. Mr. PATMAN. Has there been any discussion between you and the White House representatives about conflict of interest, conflicts of interest of defense contractors? Mr. HAMPTON. No, sir. Mr. PATMAN. None at all? No suggestions have been made either way? Mr. HAMPTON. No sir. I think that our general counsel has had some conversations. I don't know what the gist of them were. Mr. GOODMAN. I have had some general conversations with people in the Counsel's Office at the White House concerning conflicts of interest in general. We haven't pinpointed it as to a specific area such as defense contractors and so on, and in regard to the action that we took in regard to the Department of Defense we did have a conversation with the White House before taking those actions. Mr. PATMAN. No discussion of "buddy-buddy" arrangements between contractors and representatives of Government? Mr. GOODMAN. No. We discussed ethics in general and conflicts of interest in general, but not specific areas. Mr. PATMAN. Well, Mr. Chairman, since you have been designated as chairman of this investigation please proceed from here. I expect to back you up. I will be sitting in on the committee sessions when possible. I know this is an important thing, very important at this time. I wish you good luck. Senator PROXMIRE. Well, thank you, Mr. Chairman. Mr. Hampton, it seems apparent from your testimony, but the first thing I'd like to clearly establish is the fact that these regulations were promulgated in an official manner. They have been continuously in effect for the past 101⁄2 years and there's never been any official communication which would indicate that these regulations have any less than their stated effect. Is that correct? Mr. HAMPTON. That's correct, to the best of my knowledge. Senator PROXMIRE. Now I realize that as you say you don't have any investigative authority or enforcement authority, but does the Civil Service Commission conduct any ongoing review of agency implementation of these regulations in any way? Mr. HAMPTON. I'd like to have the general counsel answer that. Mr. GOODMAN. Our review generally deals with the area of financial statements. For a long period of time we did not exercise any sort of continuing oversight role in that regard. Within the last year we have, in fact, begun to exercise an oversight role in regard to financial statements. We have visited various Federal agencies to look into their program regarding the filing of financial statements to ensure that in fact they are following the regulations and the Executive Order insofar as regarding the financial statements are concerned. In regard to regulations themselves, we get involved on a regular basis with regulations as agencies change their regulations, they modify their regulations, as new agencies come into being and have to promulgate regulations. So we have a kind of continuing role there. We are attempting to become more involved through the medium of the meetings with ethics counselors who have the primary responsibility so that in these gatherings we can make suggestions for changes. We can hear their suggestions for changes in agency regulations as a general matter and attempt to deal with them on an across-the-board basis. Senator PROXMIRE. But in general it's a self-policing mechanism where you put out a regulation but trust the agencies to enforce the regulation? Mr. GOODMAN. That is correct. Generally self-policing. Senator PROXMIRE. How did the inadequacy of the Department of Defense regulations escape attention for 10 years? Doesn't this indicate a lack of attention to this area? Mr. GOODMAN. I think we have to distinguish between an inade quacy of the regulations and perhaps an inadequacy as to how the regulations were carried out. For example, I think if you look at the letter that we sent to the Department of Defense, we pointed out in that letter that there was a potential conflict between their regulations and our overall governmentwide regulations. It's a matter in which their regulations Senator PROXMIRE. When did you point that out? Mr. GOODMAN. I believe toward the end of the letter we said to them that Senator PROXMIRE. But I mean, what was the date of the letter? Mr. GOODMAN. 30th of October, 1975. This was after the matter came to our attention concerning this investigation. It was after we had received the letter, I believe, from you as well, dealing with this specific problem. Senator PROXMIRE. Without objection, that letter will be printed in full in the record. [Letters follow:] ΜΑΥ 14, 1975. Mr. LEONARD NIEDERLEHNER, Deputy General Counsel, Department of Defense, The Pentagon, Washington, D.C. DEAR MR. NIEDERLEHNER: In accordance with our telephone conversation of today, I enclose a copy of an article which appeared in the Washington Star of May 11, 1975. It reports that Northrop Corporation furnished free use of a hunting lodge to Defense personnel on 144 occasions between 1971 and 1973. I understand from you that your Department is instituting an investigation into these allegations and that in due course, you will send me a copy of your report. You will be interested to know that in connection with this matter we have had a telephone call from a staffer on the House Committee on Post Office and Civil Service. The Committee would like us to furnish a list of the civilian civil service employees who availed themselves of the hunting lodge, together with their status as Schedule C, Non-career assignment or competitive employees. In the course of your investigation, I would appreciate your obtaining this information for us. Sincerely yours, ANTHONY L. MONDELLO, GENERAL COUNSEL OF THE Hon. CARL S. GOODMAN, DEPARTMENT OF DEFENSE, WASHINGTON, D.C., October 9, 1975. General Counsel, Civil Service Commission, Washington, D.C. DEAR MR. GOODMAN: This forwards to you the results of our inquiry as to which Department of Defense individuals whose names appeared on the Eastern Shore hunting lodge invitation list received from the Northrop Corporation actually accepted an invitation and the relevant circumstance of their participation. Except in those instances where the individual, as noted in the enclosed list, reimbursed his host or as in one case obtained approval from his superiors for a legislative liaison activity, such conduct is contrary to the spirit and intent of section VI.A., DoD Directive 5500.7, "Standards of Conduct," (copy attached), although not necessarily in technical violation of that Directive in view of Section VI.B.6. In general, the individuals concerned claimed that the invitations were extended by Northrop employees with whom they had a personal friendship and that they accepted the invitation on a social basis. Those sections read in pertinent part as follows: 69-394-762 "A. * DoD personnel will not solicit or accept any gift, gratuity, favor, entertainment, loan, or any other thing of monetary value either directly or indirectly from any person, firm, corporation, or other entity which: "1. Is engaged or is endeavoring to engage in procurement activities or business or financial transactions of any sort with any agency of the DoD; "Acceptance of gifts, gratuities, favors, entertainment, etc., no matter how innocently tendered and received, from those who have or seek business with the Department of Defense may be a source of embarrassment to the department and the personnel involved, may affect the objective judgment of the recipient and impair public confidence in the integrity of the business relations between the department and industry." Section VI.B.6. exempts from the restrictions of paragraph A the following: "Customary exchange of social amenities between personal friends and relatives when motivated by such relationship and extended on a personal basis." The attached information on the individuals concerned is divided into five groups by DoD component affiliation. The position cited after each name relates to the position of the individual at the time of the invitations. The corrective action taken is outlined after each Department of Defense component listing. The Secretary of Defense has strongly reemphasized that Department of Defense personnel must comply fully with provisions of DoD Directive 5500.7, "Standards of Conduct." Sincerely yours, Mr. LEONARD NIEDERLEHNER, L. NIEDERLEHNER, U.S. CIVIL SERVICE COMMISSION, Acting General Counsel, Department of Defense, Washington, D.C. DEAR MR. NIEDERLEHNER: We have reviewed your letter of October 9, 1975, in which you set forth the results of the Department of Defense's inquiry into the acceptance of invitations by named military officers and civilian officials to the Eastern Shore hunting lodge maintained by the Northrop Corporation. It appears from the attachments to your letter that most of the cases were concluded with a caution to the persons involved that they should be more careful in the future in their relationships with actual or prospective Government contractors. It was determined that insofar as the present situation was concerned the individuals were technically excused by reason of the exemption to the acceptance of gifts contained in the Department's ethics regulations for "customary exchange of social amenities between personal friends and relatives when motivated by such relationship and extended on a personal basis" (section VI.B.6). We do not lightly interfere with the findings of another agency on ethical judgments concerning its employees. In the present situation, however, we find ourselves in disagreement with the Department's handling of the matter for at least two reasons: 1. The exemption which you have applied might be understandable in an isolated case but where as here we have numerous high ranking military officers and civilian officials, engaged in procurement for the most part, treated to the privileges of the Eastern Shore hunting lodge maintained by the Northrop Corporation, a contractor with your Department, it seems most illogical that each of the invitations was predicated on pure friendship. Executive Order 11222 specifically provides that no Government employee shall accept directly or indirectly any gift, favor, entertainment or other thing of monetary value from any corporation which has contractual or other business or financial relationships with his agency (section 201(a)(1)). The Civil Service Commission's ethics regulations which spell out the Executive Order authorize gifts only where there are "obvious family or personal relationships *** when the circumstances make it clear that it is those relationships rather than the business of the persons concerned which are the motivating factors." 5 C.F.R. 735.202(b) (1). It is clear from the Executive Order and the Commission's implementing regulations that gifts from persons dealing with the Government are proscribed except in rare instances. The |