October 2009

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

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Contracting

GAO Finds Opportunities to Improve DOD’s Oversight of Contractor Ethics Programs
A General Accountability Office (“GAO”) survey issued in September 2008 (GAO-09-591) finds defense contractors generally well prepared for recent Federal Acquisition Rules (“FAR”) requiring contractors to have well developed ethics programs. Until 2008, contractors’ ethics programs and practices were self-policed. In light of the significant funds spent on defense contracts, the FAR was amended twice starting in December 2007 to mandate and later amplify contractor ethics programs. Before the amendments to the FAR were finalized in December 2008, Congress required GAO to report on the ethics programs on major defense contractors. The report described the extent that contractors had ethics programs in place before the finalization of the rules and assesses the impact the new FAR rules will have on the Department of Defense (“DOD”) oversight of contractor ethics programs. As a result of a web-based survey of 57 major defense contractors, the GAO found that nearly all contractors reported having a code of business ethics and conduct. Also, nearly all contractors surveyed reported having an ethics or compliance awareness program, including elements such as requiring ethics training and periodically communicating ethics-related information to employees working on DOD contracts. (CCH Federal Ethics Report, October 2009, Vol. 16, Iss. 10)

Business Ethics

ECOA’s Third Annual Great Debate Focused on Global Financial Crisis
The Ethics and Compliance Officers Association (“ECOA”) held its annual Business Ethics and Compliance Conference on September 22-25, 2009, at the Hyatt Regency O’Hare near Chicago, Illinois. The conference’s “Third Annual Great Debate” focused on the timely issue of whether the recent global financial crisis was caused by bad business and regulatory decisions or a breakdown in integrity. Since 2007, over $20 trillion of market equity has evaporated, some of the largest U.S. corporations have declared bankruptcy, banks across the country have failed, and thousands of families have lost their homes and life savings. Gary Brown, chair of the Business Department of Baker, Donelson, Bearman, Caldwell & Berkowitz, and Patrick Gnazzo, Senior Vice President and General Manager, U.S. Public Sector Business, CA Inc., were the featured speakers. Attendees were able to weigh in on key questions using hand-held voting devises, and the topic was opened up to public discussion after the debate. (CCH Federal Ethics Report, October 2009, Vol. 16, Iss. 10)

Foreign Corrupt Practices Act Investigations Intensify
In a recent report entitled “Corruption Crackdown: How the FCPA is changing the way the world does business”, PriceWaterhouseCoopers (“PWC”) set forth an in-depth look at how the Foreign Corrupt Practices Act (“FCPA”) and the aggressive international push to fight corruption have changed the way business leaders and board members approach anticorruption compliance and corporate governance. The 42-page report highlighted enforcement trends around the world and what those trends mean for companies. Finally, the report laid out how companies can build strong anticorruption programs and navigate the gray areas of the FCPA. (CCH Federal Ethics Report, October 2009, Vol. 16, Iss. 10)

Drawing on Strengths to Build an Ethical Culture
An effective ethical culture produces certain beneficial results including high customer ratings, low employee turnover, better safety, low numbers of cheating and theft, greater creativity, low absenteeism, high productivity and high profitability, according to Barry Conchie, a principal of Gallup Consulting in Washington, DC. Conchie delivered the luncheon address at the 2009 Defense Industry Initiative Best Practices Forum held in Washington, DC on June 18-19, 2009. An effective ethical culture produces certain beneficial results including high customer ratings, low employee turnover, better safety, low numbers of cheating and theft, greater creativity, low absenteeism, high productivity and high profitability, according to Barry Conchie, a principal of Gallup Consulting in Washington, DC. Conchie delivered the luncheon address at the 2009 Defense Industry Initiative Best Practices Forum held in Washington, DC on June 18-19, 2009. Conchie discussed how leadership draws on strengths to build an ethical culture. He outlined and explained the elements of great managing. (CCH Federal Ethics Report, October 2009, Vol. 16, Iss. 10)

Cases

NAM Challenge to Lobbying Disclosure Denied
The National Association of Manufacturers' (NAM) challenge to the lobbyist disclosure rules of the Honest Leadership and Open Government Act of 2007 (“HLOGA”) was denied by the U.S. Court of Appeals for the District of Columbia. NAM is the largest industrial trade association in the U.S. and represents small and large manufacturers. The HLOGA changed the Lobbying Disclosure Act of 1995 by altering both the monetary and level-of-participation thresholds necessary to trigger disclosure. HLOGA required the disclosure of any organization that “actively participates” in the planning, supervision, or control of lobbying activities. NAM alleged that sections of HLOGA violated the First Amendment both facially and as applied to it and similar membership organizations, and that it would chill NAM members from participating in public policy initiatives for fear of the consequences of public disclosure. The district court concluded that HLOGA did not violate the First Amendment because it was narrowly tailored to serve compelling governmental interests, and it further found that the section was not unconstitutionally vague. (CCH Federal Ethics Report, October 2009, Vol. 16, Iss. 10)

Request to Withdraw Guilty Plea to Bribery Charges Denied
A United States Army Chief Warrant Officer was unable to withdraw his guilty plea to charges of bribery and smuggling bulk cash into the United States, the U.S. Court of Appeals for the Seventh Circuit held, affirming a federal district court ruling. During the period the officer was stationed in Kuwait, he accepted a bag containing $50,000 from a local contractor seeking the officer’s help in obtaining a contract to supply flatware and paper products to the U.S. Army in Iraq. The court of appeals concluded that the district court did not abuse its discretion by denying the motion, finding that the factual basis for the bribery plea established that the officer committed bribery, the officer received effective assistance of counsel, and any ineffective assistance did not prejudice him. (U.S. v. Peleti, 7th Cir., CCH Ethics in Government Reporter ¶8102)

Executive Branch

White House Announces Bar of Lobbyists from Agency Boards and Commissions
The White House Counsel, Norm Eisen, announced on September 23, 2009 on the White House blog that the administration had informed executive agencies and departments that it is the President’s aspiration that federally registered lobbyists should not be appointed to agency advisory boards and commissions. Members of these boards and commissions, who are appointed by the agencies and not the President, advise the federal government on a variety of policy areas. According to the announcement, this is the second step in the White House’s efforts to reduce the influence of special interests in the government. Eisen said, “Keeping these advisory boards free of individuals who currently are registered federal lobbyists represents a dramatic change in the way business is done in Washington.” (CCH Federal Ethics Report, October 2009, Vol. 16, Iss. 10)

Post-Government Employment Opinions Released by DOJ OLC
The Department of Justice Office of Legal Counsel has recently released two opinions relating to the application of post-government employment restrictions. The first, dated June 20, 2001, states that 18 U.S.C. §207 would not prohibit a former government official from representing a former President or former Vice President in connection with his role under the Presidential Records Act. The second, dated August 13, 2008, offers guidance as to the applicability of 18 U.S.C. §207(f) to public relations activities undertaken by a former government employee for a foreign corporation controlled by a foreign government. (CCH Ethics in Government Reporter ¶496 and ¶497)

Congress

Ethics Training Certification Guidance Issued for New Senate Personnel
A memorandum setting forth a summary of the process for certifying each Senate office’s compliance with new personnel training for the period of January 1 through June 30, 2009 has been issued by the U.S. Senate Select Committee on Ethics. Under the Honest Leadership and Open Government Act of 2007, the Select Committee is required to conduct ongoing ethics training and awareness programs for Members of the Senate and Senate staff. The memo includes instruction that all new Senate employees within 60 days of beginning Senate service must attend the Mandatory Senate Code of Official Conduct training session or view the training video and must provide a signed certification completion form for verification. (CCH Ethics in Government Reporter ¶498)

Investigations

VA Employee Sentenced for Conflict of Interest, Honest Services Fraud
A former employee of the Department of Veterans Affairs (“VA”), Bridgette L. Davidson, was sentenced in the U.S. District Court for the Northern District of Georgia for her participation in a scheme to defraud the United States of her honest services and for engaging in a conflict of interest with regard to her duties to find suitable housing and daily care for mentally ill and disabled military veterans. A former employee of the Department of Veterans Affairs (“VA”), Bridgette L. Davidson, was sentenced in the U.S. District Court for the Northern District of Georgia for her participation in a scheme to defraud the United States of her honest services and for engaging in a conflict of interest with regard to her duties to find suitable housing and daily care for mentally ill and disabled military veterans. A six-count indictment issued on November 14, 2006, charged Davidson with four counts of honest services mail fraud, 18 U.S.C. §1346, one count of violating the conflict of interest statute, 18 U.S.C. §208(a), and one count of making a false statement in violation of 18 U.S.C. §1001. A jury found Davidson guilty of all of the charges on March 13, 2009. On June 29, 2009, the judge sentenced Davidson to three years in prison, followed by three years of probation. In addition, the judge ordered Davidson to pay a $5,000 fine. United States v. Davidson, et al, Cr. No. 06-468 (N.D. Ga. 2009). (CCH Federal Ethics Report, October 2009, Vol. 16, Iss. 10)

Executive Branch Official Indicted in Abramoff Scandal
Horace M. Cooper, a former Congressional staffer and former chief of staff in two federal agencies, was indicted on August 21, 2009, in the U.S. District Court for the District of Columbia on public corruption charges for his participation in the Abramoff lobbying scandal. A grand jury issued a five-count indictment charging Cooper with one count of conspiracy, 18 U.S.C. §371; one count of fraudulent concealment and two counts of false statements, 18 U.S.C. §1001; and one count of obstruction of justice, 18 U.S.C. §1512. According to the indictment, Cooper worked on the staff of an unnamed Member of the House of Representatives from 1994 until late 2001. Cooper next became the Chief of Staff at the executive branch agency, the Voice of America, where he served from late 2001 to December 2002. He then moved over to the Department of Labor (“DOL”), where he worked as Chief of Staff of the Employment Standards Administration until August 2005. (CCH Federal Ethics Report, October 2009, Vol. 16, Iss. 10)

Federal Election Campaign Financing

Supreme Court Considers Broad Overhaul of Campaign Finance
by Sarah Borchersen-Keto, CCH Washington Bureau
The U.S. Supreme Court, meeting in a special session September 9, considered the question of whether long-standing rules that prohibit corporations and unions from spending general treasury funds on campaign advertising should be overturned because they are overly broad and limit free speech. The case, Citizens United v. Federal Election Commission (Dkt. No. 08-205) was a re-arguing of a case heard in March. The court scheduled a special session for September in order to re-examine that case, plus two earlier campaign finance cases, McConnell v. Federal Election Commission, 540 U.S. 93 (2003) CCH Federal Campaign Financing Guide: Proposed Regulations, Explanations & Justifications, Court Decisions, New Developments 1999-2005 ¶14,010 and Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990), which restricted direct corporate campaign spending.

Citizens United v. Federal Election Commission, concerns a 2008 made-for cable movie critical of then presidential candidate Hillary Clinton. The FEC stated that the movie should be considered as electioneering communications and thus subject to campaign finance restrictions. The 2002 Bipartisan Campaign Reform Act (BCRA) prohibits companies and unions from using their general treasury funds on advertising that supports or opposes a candidate 30 days before a primary election and 60 days before a general election.

Solicitor General Elena Kagan told the court that for over 100 years and “Congress has made a judgment that corporations must be subject to special rules when they participate in elections and this court has never questioned that judgment.” Justice Anton Scalia responded, “we never questioned it, but we never approved it either.” Theodore Olson, representing Citizens United, argued that current campaign finance laws encompass every corporation in the U.S., including nonprofit corporations, limited liability corporations, subchapter S corporations, and every union. Arguing that the most fundamental right under the First Amendment is dialogue and communication about political candidates, Olson stated “we have wrapped up that freedom, smothered that freedom, with the most complicated set of regulations and bureaucratic controls.” (CCH Federal Election Campaign Financing Guide, September 28, 2009, Issue No. 413).

EMILY’s List Challenge to Non-Profit Spending Restriction Affirmed

The U.S. Court of Appeals for the District of Columbia Circuit upheld EMILY’s List’s challenge to Federal Election Commission regulations that restricted how non-profits could spend and raise money to advance their policy positions and candidates. EMILY’s List is a non-profit group that promotes abortion rights and supports pro-choice Democratic women candidates. The court found that the new regulations violated the First Amendment. EMILY's List, makes expenditures and contributions to candidates. Non-profit entities are entitled to make their expenditures—such as advertisements, get-out-the-vote efforts, and voter registration drives—out of soft-money or general treasury account that is not subject to source and amount limits. The district court accepted the reasoning from McConnell v. Federal Election Commission, 540 U.S. 93 (2003) [CCH Federal Campaign Financing Guide: Proposed Regulations, Explanations & Justifications, Court Decisions, New Developments 1999-2005 ¶14,010], applied it to non-profits, and found that non-profits were similarly situated to political parties for purposes of the First Amendment.

The court found that McConnell did not support regulation of non-profits. McConnell affirmed the Bipartisan Campaign Reform Act's (BCRA) limits on contributions to political parties because of the close ties between candidates and parties and the record of actual or apparent corruption. The Court expressly based its conclusion on the “close relationship between federal officeholders and the national parties, as well as the means by which parties had traded on that relationship.” There was no record evidence that non-profit entities had sold access to federal candidates and officeholders in exchange for large contributions. The Court found, in short, that the regulations did not pass muster under the Supreme Court’s First Amendment precedents. The regulations were not “closely drawn” to serve a cognizable anti-corruption interest. Further, EMILY’s List challenged that three of the five provisions exceeded the Commission’s statutory authority, with which the court agreed. The provisions required that covered non-profits use a hard money account to pay for 50 percent of their administrative expenses, for all or part of their public communications that merely “refer” to federal candidates, and treat as hard-money “contributions” all funds given in response to solicitations indicating that “any portion” of the funds received would be used to support or oppose the election of a federal candidate. (EMILY’s List v. Federal Election Commission, (DC Cir.), CCH Federal Election Campaign Financing Guide ¶14,031)