July 2009

From the editors of Wolters Kluwer Law & Business, this update describes important developments from CCH ethics and government publications.

If you have any comments or suggestions concerning the information provided or the format used, we'd like to hear from you. Please send your comments to pamela.maloney@wolterskluwer

Contracting

DII Panel Discusses Effect of the FAR Mandatory Disclosure Rule
The passage of the FAR mandatory disclosure rule on November 12, 2008 was the most major event in the history of the Defense Industry Initiative (“DII”), according to Dick Bednar, the Coordinator of DII for the past 10 years. [FER covered the final rule in the December 2008 issue, Vol. 15, Iss. 12]. Bednar moderated a panel of government officials and the head of an American Bar Association (“ABA”) task force who addressed the ramifications of the rule at the DII 2009 annual Best Practices Forum held in Washington, DC on June 18-19, 2009. Bednar noted that prior to the rule’s promulgation, the FAR included no legal requirement for contractor internal control systems. He characterized the rule as having the effect of a pendulum in moving contractor programs from values-based programs to compliance-based programs. (Federal Ethics Report, July 2009, Vol. 16, Iss. 7)

Business Ethics

GAO Discusses DOJ’s Use of Deferred Prosecution and Non-Prosecution Agreements
The General Accountability Office (“GAO’) noted that in an effort to appropriately punish and deter corporate crime, the Department of Justice (“DOJ”) has increased the numbers of deferred prosecution and non prosecution agreements (“DPAs and NPAs”). In exchange for deferring prosecution, prosecutors may require a company to reform and also may require companies to hire an independent monitor to oversee compliance. The GAO study (GAO-09-636T) was prepared as testimony to the House Subcommittee on Commercial and Administrative Law, Committee on the Judiciary on June 25, 2009. The study provides preliminary observations on the following: (1) factors DOJ considers when deciding whether to enter into a DPA or NPA and setting the terms of the agreements; (2) methods DOJ uses to oversee companies’ compliance; (3) processes by which monitors are selected, and (4) companies’ perspectives regarding the costs and roles of the monitor. (Federal Ethics Report, July 2009, Vol. 16, Iss. 7)

Compliance Challenges in the Face of Enforcement Increases and Economic Decline
A simple but sobering reality exists today for a compliance officer who is trapped in the middle of the government in aggressive enforcement mode and the corporation which is trying to cut costs, according to Paul McNulty, a former high ranking Department of Justice (“DOJ”) Official who is now a Partner at Baker & Mackenzie. McNulty gave a luncheon keynote address at the Compliance Week annual conferences held in Washington, DC on June 3-4, 2009. McNulty noted that he has looked at compliance from both perspectives, from his services as Deputy Attorney General and his current work defending corporations. He spoke about how a company can survive in this economic downturn with constant pressure to cut corners, and with pressure to get into emerging markets, an area with many pitfalls. McNulty acknowledged that the enforcement environment has grown rapidly, with more efforts at both the Federal and state level to punish economic crimes. (Federal Ethics Report, July 2009, Vol. 16, Iss. 7)

Office of Government Ethics

OGE Director Discusses the Ethical Failure that Led to the Financial Debacle
The nation has been overwhelmed with news of financial recession, huge public debt, and widespread social problems resulting from unemployment and housing foreclosures, said Robert I. Cusick, the Director of the Office of Government Ethics (“OGE”), in a recent speech he gave in Melbourne, Florida. He noted that we have been living under a foreboding cloud of numbers and a prevailing sense that no one knows what to do to fix the situation. Cusick observed that before we saw the bank failures and the drastic expansion of the national debt, another failure occurred that could not be measured in numbers. He said that corporate America experienced an ethical failure of enormous proportions. (Federal Ethics Report, July 2009, Vol. 16, Iss. 7)

Cases

Federal Circuit Upholds Firing of Federal Employees for Unethical Behavior
During the past year, the United States Court of Appeals for the Federal Circuit has upheld a number of Merit Systems Protection Board (“MSPB”) rulings that have approved the penalty of removal for federal employees who engaged in unethical behavior. Although the Federal Circuit rulings are non-precedential, the fact patterns in the cases are interesting for anyone conducting ethics training for federal employees. (Federal Ethics Report, July 2009, Vol. 16, Iss. 7)

Investigations

DOD Official and Associate Sentenced for Conflict of Interest and Conspiracy
A former official of the Department of Defense (“DOD”), James E. Wright, and Wright’s friend, John D. Villanueva, were sentenced in the U.S. District Court for the Eastern District of Virginia for violating the conflict of interest statute, 18 U.S.C. §208, and engaging in a conspiracy to commit a conflict of interest. Villanueva was convicted by a jury on the conspiracy and conflict of interest charges on October 10, 2008. Wright had pleaded guilty on the second day of the trial to the same charges. On January 30, 2009, U.S. District Judge Liam O’Grady sentenced Wright and Villanueva to six months in prison followed by two years probation. United States v. Wright and Villanueva, Cr. No. 08-R244 (E.D. Va. 2008). (Federal Ethics Report, July 2009, Vol. 16, Iss. 7)

Federal Election Campaign Financing

Discussing Developments in Federal Campaign Finance Law
The Federal Election Commission has been three different entities since 1980, according to Laurence E. Gold, of Counsel to Lichtman, Trister & Ross, PLLC and the Associate General Counsel of the AFL-CIO. Ross spoke on a panel discussing the state of Federal Campaign Finance Law at a Forum on Corporate Compliance: Campaign Finance, Contracting, Lobbying, and Ethics Rules. The Forum was presented by BNA, McKenna Long & Aldredge LLP and the American League of Lobbyists on May 18, 2009, in Washington, DC.

Gold explained that the Commission, which is made up of three Democrats and three Republicans, was a functioning body from 1980 until the first half of 2008 when there were not enough Commissioners to constitute a quorum. As a result, it became a recess Commission until the summer of 2008 when the Commission again was fully staffed. He maintained that the new fully staffed Commission has not brought many violations. This newest Commission has struggled with the issue of “express advocacy.” They also are facing the question of whether 527 entities constitute political committees. Gold noted that in early 2007, the recess Commission put out a definition of what constitutes political committee status. Gold said that the FEC has been largely faithful as to what has and has not been political committee status. With regard to how the FEC currently operates, Gold said that the Commission has put out a series of very serious analyses. He noted that it would be helpful if the Commissioners who are Democrats address the issues in the analyses in the same detail as the Republicans.

The second panel member Sean Cairncross, the Chief Counsel and Deputy Executive Director for the National Republican Senatorial Committee, discussed bundling of campaign funds by a covered entity. He explained that a covered entity is a candidate, a party or a leadership PAC. Although the required covered period for reporting bundling is semi-annual, the standard is monthly. Cairncross explained that questions concerning the bundling campaign contributions include whether the contributions are forwarding or being credited. Forwarding refers to the process in which the person doing the bundling takes the checks or sends the money or credit card numbers of the contributors forward. Being credited for can encompass receiving a title for bundling, such as a Republican “Pioneer,” being invited to campaign events, appearing in a spread sheet or receiving a signed note from the candidate.

Bob Bauer, of Perkins Coie LLP and General Counsel to Obama for America, said that the current environment of the FEC is one in which decisions can have unintended consequences. He said that while he is he not totally convinced that the new fully staffed FEC is genuinely new, if you look in the “Statement of Reasons” you do find some things that are quite new. Bauer maintained that it is not fair to say that the Republicans always worked to weaken the Commission. He said that when the FEC was created as an independent agency, it usually was staffed by former elected officials. Although this clearly created some partisanship behind the scenes, the public view of the Commission was that it was an independent agency committed to enforcing the Campaign Finance law. (CCH Federal Election Campaign Financing Guide, No. 410, July 2009)

Party Financial Activity Summarized For 2008 Election Cycle
The Democratic and Republican parties raised nearly $1.6 billion and spent more than $1.5 billion between January 1, 2007, and December 31, 2008, according to a Federal Election Commission (FEC) compilation of information from reports submitted by federally registered party committees at the national, state and local levels.

Republican national, state and local party committees that report to the FEC raised $792.9 million during 2007-2008 in federally permissible funds, or “hard money.” Democratic party committees raised $763.3 million during the same period. Democratic party receipts for the 2008 election cycle represent a 58 percent increase over the 2006 cycle and a 10.8 percent increase over the 2004 presidential election cycle. Republican party receipts grew 32.4 percent from 2006, and 1.3 percent from 2004. The limits on contributions from individuals to national party committees are indexed for inflation. For the 2008 cycle, individuals could contribute as much as $28,500 to a national party committee, while political action committees (PACs) could contribute up to $15,000. No direct contributions from corporations or labor organizations are permitted.

Sources of receipts for national party committees are examined in more detail on the Commission website <www.fec.gov>. Also located on the website are tables which provide financial overviews for national and state/local committees of the two major parties. Transfers from national to state parties are listed by state. Direct party involvement in congressional campaigns is tallied for each candidate who received party support in the general election. (CCH Federal Election Campaign Financing Guide, Report No. 410, July 2009)

Consulting Group Seeks Opinion Regarding Status
The Black Rock Group (BRG) asked whether consulting services it intended to provide to multiple clients were permitted under the Federal Election Campaign Act of 1971. BRG intended to approach multiple individuals and suggest that each individual establish a limited liability company (LLC) pursuant to AO 2009-02 [CCH Federal Election Campaign Financing Guide ¶6573] for the sole purpose of sponsoring independent expenditures that expressly advocated the election or defeat of one or more federal candidates. Further, BRG also asked if it could serve as a vendor to multiple LLC's sponsoring independent expenditures concerning different federal candidates and elections without triggering committee status. (AOR 2009-13) (CCH Federal Election Campaign Financing Guide ¶4913)