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DOD-INDUSTRY RELATIONS: CONFLICT OF INTEREST

AND STANDARDS OF CONDUCT

TUESDAY, FEBRUARY 3, 1976

U.S. CONGRESS,
JOINT COMMITTEE ON DEFENSE PRODUCTION,

Washington, D.C. The Joint Committee met at 10:10 a.m., pursuant to call, in room 1114, Dirksen Senate Office Building, Hon. William Proxmire presiding

Present: Chairman Wright Patman and Senator William Proxmire. Chairman PATMAN. The committee will please come to order.

Of course, this hearing will be conducted by Senator Proxmire as we had previously agreed. We are proud of the fact that he has assumed the responsibility. He was the very man in the U.S. Congress for this job and we are very proud of him.

Today begins the second of the hearings of the Joint Committee on Defense Production into Federal standards of conduct and conflict of interest regulations. The necessity for these hearings has been made abundantly clear in previous testimony.

On the one hand we heard yesterday that there are strict laws and standards governing the conduct of Federal employees.

On the other hand, we heard yesterday that there is widespread ignorance and neglect of these standards and laws, both in and out of government. It was disclosed, for example, that the Chairman of the Civil Service Commission--- who is charged with overseeing agency directives—is not even familiar with the basic Executive Order.

We were told that government contractors are unaware of the very important differences between lobbying and government relations. The testimony revealed that contractors did not prohibit their employees from discussing business in the course of entertaining Federal officials. It revealed that contractors did not even know that they were putting these Federal officials in a compromising position.

This says something both about how the issue has become clouded and about how lax the agencies have become in enforcing compliance with standards of conduct.

To avoid a conflict of interest, it may at times be necessary to make some sharp distinctions and fine judgments. Agencies should do everything possible to make it easier for their employees to understand these distinctions.

But the basic issue is a simple one. The issue is that the government cannot allow a "buddy system” to grow up that may influence costly decisions about defense or space programs, or any other program for that matter.

It is time we cleared up once and for all any doubt or confusion that may exist. In fact, it is long past time to straighten out these matters because the regulations have been on the books for a decade.

Today we will hear from witnesses about what their agencies or departments are doing to remedy the situation. I hope they will tell us that they have found a cure.

Last autumn I asked the committee vice chairman-Senator Proxmire-to look into these issues for the committee. More recently the Joint Committee voted to establish a subcommittee on investigations to continue this work and I appointed Senator Proxmire to chair it. I will again ask him to conduct these hearings today. He's doing a wonderful job and you may rely upon him to continue a wonderful job in these hearings.

Senator PROXMIRE. Thank you very much, Mr. Chairman.

Mr. Chairman, before we swear in the first witness I want to thank you very much for your remarks and your leadership and also say that the Joint Committee heard witnesses yesterday who addressed the government's longstanding and strict regulations in this area. We heard also from the presidents of aerospace firms, who gave an industry perspective on gratuities and entertainment.

We learned that the hospitality programs of government contractors are not mere charity. It was revealed that these programs are widespread, systematic, carefully planned and costly. We learned that their purpose is to develop good will and that this purpose is not so innocent as it sounds. We learned that developing good will means developing a network of obligations to a company-obligations which can be exploited to the company's benefit when it seeks government business.

The committee also learned that government contractors hire former military officers and officials with a view to improving corporate connections within the government.

It was disclosed that there is widespread confusion about whether entertainment activities and gratuities constitute lobbying or public relations or government relations or product promotion or all of these things. We learned that there is confusion about who can accept what from whom. It became obvious that this confusion can be exploited to hide the true nature of industry-government relations. We learned that this confusion may lead Federal employees to misunderstand the standards of conduct rules.

We were told that company representatives are placed in Washington to exchange information with contracting agencies. But we also learned that these representatives may be registered lobbyists and that their activities go well beyond technical discussions. We learned that information exchange apparently cannot be done over an office desk, over the telephone, or through the mails, but instead has to involve hunting expeditions, expense account lunches, and hospitality suites.

Today the committee wants to learn about measures that have been taken or will be taken to improve conflict of interest and standards of conduct regulations, to dispel the confusion that has led to widespread relaxation and abuse.

The committee's primary focus is on remedial measures to prevent repetition of this abuse. The committee is not interested in scape

goating individuals. It is not our purpose to embarrass officials for one or two lapses in judgment.

But one factor that will have a lot of weight in future decisions by Federal officials facing temptation will be the knowledge that misconduct involves severe punishment. It is not adequate to forgive regular offenders and promise to be more watchful in the future.

The Executive Order on standards of conduct has been on the books for more than 10 years. That is time enough for people to have learned of its existence and intent.

If government agencies fail to act strongly now to show that they are serious about enforcement, Federal employees confronted with temptations in the future will decide that the agencies don't really care about abuse. The Executive Order will continue to be a dead letter. The question of penalties is therefore an important one.

The Joint Committee is also intent on examining the nature of the continuing investigations being conducted by these agencies into the acceptance of corporate hospitality by Federal employees.

We will hear first today from Ms. Alice Tepper Marlin, Executive Director of the Council on Economic Priorities, which has been studying compliance with conflict of interest statutes. Later we will hear from Dr. George Low of the National Aeronautics and Space Administration on that agency's standards of conduct program. Our final witness will be Hon. William Clements, Jr., Deputy Secretary of Defense and he will testify on these same questions.

Ms. Marlin, will you please stand and raise your right hand? Do you swear to tell the truth, the whole truth and nothing but the truth, so help you God?

Ms. MARLIN. I do.

Senator PROXMIRE. Now, Ms. Marlin, your statement will be printed in full in the record. If you would like to abbreviate it in any way that's perfectly proper. We have some questions for you. We are grateful to you for appearing. It's unusual that organizations take this kind of effort and do the kind of work that certainly assists this committee and assists the Congress in getting a perspective and an understanding on a problem of this kind. So I think you're serving a fine public purpose by coming before us.

STATEMENT OF ALICE TEPPER MARLIN, EXECUTIVE DIRECTOR,

COUNCIL ON ECONOMIC PRIORITIES

Ms. MARLIN. Thank you very much, Senator. It's, I believe, equally unusual for public interest groups such as ours to be scheduled so early in the hearings and we are particularly grateful for this opportunity to present our findings. Senator PROXMIRE. Go right ahead.

Ms. MARLIN. Senator Proxmire, I am pleased to appear today to present testimony before the Joint Committee on Defense Production and I am glad to see that the committee is looking into this problem.

I represent the Council on Economic Priorities, of which I am Executive Director. The Council is a sort of hybrid, 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 public effect that certain corporate practices have. CEP believes that it is only through informed public discussion that members of the public can come to understand important social problems.

Several years ago, 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 that I know of to examine the reports required by an amendment you proposed in 1969.

When we started this project, we believed, in good faith, that 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 that we would be able to use this DOD evaluation as the basis for our report.

We quickly found that 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 merely 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. More important, however, the council found that, despite the fact that failure to file a required report carries criminal penalties, many people required to file these reports fail to do so with impunity. We have no way of estimating how many should be filing who never have filed even their first report. The Department of Defense has never made any effort to review compliance with this reporting requirement. It has never prosecuted or taken administrative action against any person who has failed to file such a report. This is the first clear indication the Council found that the Department of Defense failed to enforce provisions relating to conflicts of interest.

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

This contention clearly runs counter to the facts. Because of limited resources, the council was unable to determine the number of people who should have filed a report and never filed even their first report, but by simply comparing the names of those who filed at least once and should have filed at least one more time, CEP found over 1,500 apparent cases of failure to file a required report. I would like to point out that in addition to our disseminating these findings to our own subscribers, our contentions in this area were widely reported in the press. That was merely a year ago. Since then, not one representative of the Department of Defense has either disputed this figure or contacted the Council to ask for the names of the individuals so that they could determine the facts on their own. The Department of Defense has access to still more comprehensive means not available to the Council for pursuing this matter.

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