We followed up in a newsletter on the same topic last August and in that newsletter we analyzed the 1974 reports. We included a survey of portions of that year's list and also found a serious problem of noncompliance with this filing requirement. We found that individuals. who do file the report the first year still tend to fail to file in subsequent years.

Let me give you an example. Twenty-three transferees filed in 1974 naming Boeing as their employer. Five of these should have filed earlier but failed to do so. Twelve others who filed with Boeing in previous years did not file at all in 1974. In our survey of only a small portion of the 1974 list we found over 170 additional cases of failure to file the required report.

This charge was also printed widely in the newspapers at the time we released our newsletter and once again nobody from the Department of Defense made any attempt to ascertain the names of these individuals. Since I can hardly believe that no one at the Pentagon reads the newspapers, I think this can be interpreted only in one way: the Department of Defense does not want to know who isn't filing the reports because the Department of Defense does not want to be forced to take any action against these individuals.

Nor are the involved individuals worried. One former officer now working at Rockwell International told reporter Charles Rabb of Newsday that when he was told by the Air Force Judge Advocate's Office that his job would be interpreted as a violation of a noncriminal conflict-of-interest statute, he had some changes made in his job. description-not in his job, but in his job description-and convinced the Air Force that he "never really did those objectionable things." He said he deleted the part about direct contact from the job description.

From what I have read in the newspapers, this is the same attitude that you ran into, Senator Proxmire, when this committee looked at the DoD's investigation of guests at the Northrop hunting lodge in Easton, Md. The Department of Defense did not initiate any investigation until the Northrop invitation list was turned over to them and then they exonerated the individuals until you branded their investigation a whitewash. Not until then was any positive action taken. I have to confess that even now the penalties seem rather mild. I find it extremely interesting that in our August updating of Military Maneuvers Northrop distinguished itself as the company which had most markedly increased its officer hiring pace in 1974. It added 33 brand new transferees for fiscal 1974 alone.

Clearly, the same situation exists with regard to laws which seek to inhibit conflict of interest. I think there are glaring inadequacies in the present conflict-of-interest laws on the books. They are just not adequate to deal with all the problems that exist. But there are conflict-of-interest laws on the books just the same and they are not being enforced.

The law which has the greatest potential for enforcement, as I'm sure you know, Senator, is the criminal law which permanently bars retired officers from selling materials to their branch of service. Only one attempt has been made to enforce this law and that case was dismissed. Of course, the blame for lack of enforcement of this law

does not rest entirely at the DOD's door. The Justice Department seems to have been notably unaggressive in enforcing this law. But the DOD has clearly failed to adopt an aggressive policy of seeking out and reporting suspected violations of this law. The DOD has also attempted to markedly weaken this law, which is one of the few strong laws on the books in this area. An investigation into the possible conflict-of-interest situations cited by CEP has recently been concluded by the General Accounting Office [GAO]. Although GAO is responsible for determining in which cases pensions might be denied to retired officers, it hasn't done these investigations itself but has relied upon the Department of Defense to investigate the cases. Not surprisingly, DOD found that in none of the cases questioned by CEP had any official violated the civil law against selling materials

to the DOD.

The major conflict-of-interest problem, however, is not the lack of enforcement of current conflict-of-interest laws. Rather, it is the failure of Congress and Federal agencies to understand the concept of what constitutes a conflict of interest. Most people assume that a conflict of interest exists when a person takes some specific action that is harmful to the Government's interest. That really isn't the case. Legally a conflict of interest is a situation. It's not an action. It exists when a person is placed in a situation of temptation where he must balance the Government's interest against his personal financial interest. Clearly, the best way to control conflicts of interest would be to remove the temptation rather than to try to discover and punish the offenders after the action has been taken. CEP found a very high percentage of retirees who could be considered to have had a conflict of interest. This conflict did not involve their current job with their defense industry employer, but rather involved the potential for conflict arising from their relationships with their current employer while they had been serving on active duty. What I am speaking of here is the case of an active military officer or civilian DOD employee who, after retiring from the military, accepts a job with a company over which he had exercised some sort of control or authority while in the military. In its report on conflicts of interest, CEP found that over one-quarter of all transferees could be considered to have this sort of conflict of interest. This is the type of conflict that the government has so far failed to guard against.

Thank you, Representative Patman and Senator Proxmire. I will be pleased to answer any questions you may have. I'm grateful for this opportunity to present my views here.

[Prepared statement follows:]

STATEMENT OF ALICE TEPPER MARLIN, EXECUTIVE DIRECTOR, COUNCIL ON

ECONOMIC PRIORITIES

Senator Proxmire, I am pleased to appear today to present testimony before the Joint Committee on Defense Production. I am glad to see that this Committee is looking into the problem. I am here representing the Council on Economic Priorities, of which I am Executive Director. The Council is a hybrid organization, perched between the world of public interest advocacy groups and the more traditional Wall Street research firms. It was founded in 1969 to conduct research and produce studies on the effect that certain corporate practices have on the public. CEP believes that it is only through informed open discussions that members of the public can come to understand important social problems.

Several years so, the Council initiated a study of the interchange of personnel between defense contractors and the Department of Defense in the belief that such interchanges, if widespread, could have a serious effect on defense contracting decisions. This study was the first comprehensive effort I know of to examine the reports required by an amendment you had proposed in 1969.

When we started this project, we believed it would take only a few months to prepare our report. We understood that it had been your hope at the time you proposed this legislation that the Department of Defense would make some effort to evaluate these reports, and we quite frankly believed we would be able to use this DOD evaluation as the basis for our report.

We quickly found this would not be possible. The Department of Defense had never made any effort to evaluate these reports. Their annual report to the Congress consisted entirely of a summary of the numbers of individuals filing such reports. We also quickly discovered that even this simple number summary is quite misleading for a number of reasons.

First, it is filled with numerous errors of a simple clerical nature. Most important, however, the Council found that, despite the fact that failure to file a required report carries criminal penalties, hundreds of retired military officers who are required to file these reports fail to do so with impunity. The Department of Defense has never made any effort to review compliance with this reporting requirement, and has never prosecuted or taken administrative action against any person who has failed to file such a report. This was the first clear indication we found that the Department of Defense failed to enforce provisions related to conflicts of interest.

The DOD representatives to whom we spoke stated that it is impossible for them to police this requirement. They stated that they have no way to know which retired officer or former civilian employee has gone to work for a defense contractor, and that the best they can do is to try to remind people that this requirement exists.

This contention runs counter to the facts. Because of limited resources, the Council was unable to determine the precise number of people who should have filed a report and never did. But by simply comparing the names of individuals who filed at least once and should have filed at least one other time, CEP found over 1,500 apparent cases of failure to file a required report. I would like to point out that this contention was widely reported in the press at the time CEP released its report nearly a year ago. Since then, no representative of the Department of Defense has either disputed this figure or contracted CEP to ask for the names of the individuals so that they could determine the facts.

CEP produced a follow-up newsletter on the same topic last August, in which the reports filed for 1974 were analyzed. This newsletter included a survey of portions of that year's list, and also found a serious problem of non-compliance with this filing requirement. We found that individuals tend to file the report the first year they are required to, and tend to fail to file in subsequent years. For example, 23 transferees filed in 1974 naming Boeing as their employer. Five of these should have filed earlier. Twelve other transferees who filed with Boeing in previous years, however, failed to file at all in 1974. In its survey of only a portion of the 1974 list, CEP found over 170 additional cases of failure to file a required report.

This charge was also printed widely in newspapers at the time CEP released the newsletter, and again, nobody from the Department of Defense made any attempt to ascertain the names of these individuals. Unless you want to believe that nobody at the Pentagon reads the newspapers, I think this can only be interpreted in one way: the Department of Defense does not want to know who isn't filing reports, because the Department of Defense doesn't want to be forced to take action against these individuals.

Nor are the individuals worried. One former officer now working for Rockwell International told Charles Rabb of Newsday that "when he was told by the Air Force Judge Advocate's Office that [his] job would be interpreted as a violation of a noncriminal conflict-of-interest statute, he said he had some changes made in the job description and convinced the Air Force that he never really did those objectionable things.' He said he deleted the part about direct contact from the job description." From what I've read in the newspapers, this is the same attitude you ran into, Senator Proxmire, when this Committee looked at the DOD's investigation of guests at the Northrop hunting ledge in Easton, Md. The Department of Defense didn't initiate any investigation until the Northrop

69-394-76—————6

invitation list was turned over to them. Then they exonerated the individuals until you branded their investigation a whitewash. Not until then was any positive action taken, and I have to confess that even now the punishments seem to have been rather mild.

I find it extremely interesting that in our August update of Military Mancuvers Northrop distinguished itself as the company that had most markedly increased its retired officer hiring pace in 1974, adding 33 new transferees in FY 1974.

The same situation exists with regard to the laws which seek to inhibit conflict of interest. I think there are glaring inadequacies in the present conflict of interest laws. They are just not adequate to deal with all of the problems that exist. But there are conflict of interest laws on the books, and for some reason, they are not being enforced. The law which has the greatest potential for enforcement is the criminal law which permanently bars retired officers from selling materials to their branch of service. Only one attempt has been made to use this law and that case was dismissed. Of course, the blame for lack of enforcement of this law does not rest entirely at the DOD's door. The Justice Department seems to have been notably unaggressive in enforcing this law. But the DOD has clearly failed to adopt an aggressive policy of seeking out and reporting suspected violations of this law. The DOD has also attempted to markedly weaken this law, which is one of the few strong laws on the books in this area.

An investigation into the possible conflict of interest situations cited by CEP has recently been concluded by the GAO. Although the GAO is responsible for determining in which cases pensions might be denied to retired officers, it has relied upon the Department of Defense to investigate cases. Not surprisingly, the DOD found that in none of the cases questioned by CEP had any official violated the civil law against selling materials to the DOD.

The major conflict of interest problem, however, is not the lack of enforcement of current conflict of interest laws. Rather, it is the failure of Congress and federal agencies to understand the concept of what constitutes a conflict of interest. Most people assume that a conflict of interest exists when a person takes some specific action that is harmful to the government's interest. But that is not the case. Legally, a conflict of interest is a situation, and not an action. A conflict exists whenever a person is placed in a situation of temptation where he must trade off the government's interest against his personal financial interest. Obviously, the best way to control conflicts of interest would be to remove this temptation rather than to try to discover and punish the offenders after the action has been taken. CEP found a very high percentage of retirees who could be considered to have had a conflict of interest. This conflict did not involve their current job with their defense industry employer, but rather involved the potential for conflict arising from their relationships with their current employer while they had been serving on active duty. What I am speaking of here is the case of an active duty military officer or civilian DOD employee who, after retiring from the military, accepts a job with a company over which he had exercised some sort of control or authority while in the military. In its report on conflicts of interest, CEP found that over one-quarter of all transferees could be considered to have this sort of conflict of interest. This is the type of conflict that the government has so far failed to guard against. Thank you. I will be pleased to answer any questions you have.

Mr. PATMAN. You say that limited resources prevented the Council from determining how many people should have reported defense related employment. Are you satisfied that your estimate of 1,500 probable failures to report is reliable?

Ms. MARLIN. We are quite confident that that is a reliable figure. Our problem is that it's a minimal figure. We have only been able to ascertain those people who filed one report and failed to file subsequent reports.

Mr. PATMAN. How did you arrive at this estimate? Did you ask the Defense Department to comment on the estimate?

Ms. MARLIN. The Council on Economic Priorities did not ask for any direct response from the Defense Department. We arrived at the figure by looking at how many people had filed the report once and, as far as we could ascertain, had no reason for not needing to file it in the second and third years. They are required to report for 3 years. Mr. PATMAN. Could you provide the records of nonfilers to this committee or the Department of Defense?

Ms. MARLIN. We would be delighted to do that. We have those names. It would take us a number of weeks to get them into an order that would be convenient for this committee or for the Department of Defense to use but we would be delighted to provide them. Mr. PATMAN. That's all for me at this time.

Senator PROXMIRE. You say in the course of your very, very helpful remarks and I think this is most useful testimony, as you say it's rare that we get people to come in and testify in this way in the public interest and on an informed basis, so we are grateful for it.

Now you say that the law is inadequate. Then you also say the investigations are reluctant if we ever get them, and that, third, the enforcement of the law is almost nonexistent.

Can you tell us in what way the law can be strengthened? I realize if you don't get investigations under the law and enforcement it's not very helpful in any event, but I'm a little puzzled because at times you refer to this as a strong law and then at other times you indicate it's not adequate. How would you change the law?

Ms. MARLIN. Are you referring to criminal selling act or to the filing requirements?

Senator PROXMIRE. I'm referring to both.

Ms. MARLIN. I do have a number of suggestions as to how the filing requirements could be strengthened. Maybe I could go over those first.

I did refer to those as strong. They have whatever effect disclosure has, which is certainly some. It enabled us to do all of our work. I find it good legislation, but I have four areas where I think it may be strengthened. They may not be major ones, but I'd like to propose them.

One is that anyone who works indirectly for a contractor with the Department of Defense as an attorney or consultant is not now required to file such a report. I would like to have retired Defense Department officers be required to file reports if they act as an attorney or a consultant to a contractor.

The second problem is industry association employees. While one could not claim that an employee of an industry association has a particular company's interest at heart, certainly they have an industry's interest at heart. A job in an industry association is a perfectly fine function of the "buddy system," which may provide a very nice reward for an officer when he retires. I believe industry association employees should be required to file as well.

A third is when an officer retires and goes to work for a major defense contractor but in a subsidiary that does not itself produce defense goods. He's not required to file. Now that's a provision I am unable to understand because it seems to me that, as a reward system,