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Mr. SPANIOL. Yes, ma'am.

First of all, the reporting of assets ought to be in relation to some perceived need, in each branch of the Government, for reporting a public need to have that reporting made. Now, in view of the provisions of law disqualifying a judge automatically in cases in which he has any financial interest, that should suffice to take care of the situation with respect to a judge acting in a matter in which he may have some financial interest. If he fails that, questions arising out of the statute can go to the court of appeals, so that's all reviewable.

Now, let me say that, as you know, the Federal judges are carefully selected-all fine men and women-and if any of them wants to evade any financial reporting system or lie about it, why, it's very difficult for anyone to uncover that. It may come out in the future, but you just can't devise a system that is going to be airtight.

Concominant with the concept of a public need to have the assets disclosed is also a public need to have some privacy among the judges. The two concepts have to be weighed against one aonther. If the reporting of assets, for example, is going to be a factor in the consideration of good men and women coming on the Federal bench, and because of it they may not come on the Federal bench, why, that's not in the public interest.

The public interest, I suggest to you, has to be looked at from more than one angle; and if there is a need, a definite need, to report assets and liabilities, assets and liabilities ought to be reported.

I might just add this, that I've heard this subject discussed a great deal among judges. I'm sure you have, too. And some judges have also said that in these days of high cost of living-education costs—that they would be ashamed to file a report like this because they wouldn't want people to know how poor they are.

But there are different types of situations, and it seems to me that this matter has to be carefully weighed. It isn't clear cut.

Ms. JORDAN. Mr. Spanol, this committee will carefully weigh the matter. I just want to caution you, when you say we're going to balance these rights of privacy and when you say there is a need for the public to know and a need for there to be some privacy among judges. Let me ask if you can-or suggest that you—expand that need for privacy among judges and simply say that the right of every citizen to privacy and not to have that right violated by his own Government is sacrosanct. And we must be very careful as a committee that we do not intrude into that right, whether we're talking about someone who works on the docks, who is a longshoreman, or whether we're talking about a Federal judge.

I have no further questions, Mr. Chairman.
Mr. DANIELSON. Thank you, Ms. Jordan.
Mr. Kindness?
Mr. KINDNESS. No questions, Mr. Chairman.
Mr. DANIELSON. Mr. Mazzoli?
Mr. Mazzoli. I have no questions.
Mr. DANIELSON. Barbara did the whole thing.
Mr. KINDNESS. How do you follow an act like that?

Mr. DANIELSON. I have only a couple of questions that I feel can be easily answered.

At the present time the compulsion is just moral suasion ?

a

Mr. SPANIOL, Yes, sir.

Mr. DANIELSON. And, apparently, reaches all 10 or 12 whose morals are so 'high they resist compliance.

If we should pass a law it would at least, then, become a condition to the appointment of any yet-to-be-appointed judges, and I suppose that there would be a sanction of law behind it at that time.

You don't disagree with that?
Mr. SPANIOL. No, sir.

Mr. DANIELSON. OK, then, you mentioned a sanction that could be a crime.

How would you react to having some kind of statutory declaration if failure to file would constitute a violation of the good behavior clause in the Constitution? This might avoid the agony of impeachment then; they're just out. How would that strike you?

Mr. SPANIOL. It's an interesting idea, but

Mr. DANIELSON. Don't answer. I advise you not to answer. We'll think about it.

On the filing of the report which is open for inspection, let me ask this: Is it possible for the inspector to have a copy, facsimile copy? Most public records in the court you can get through a recorder or something like that—a xerox or comparable copy. Is that possible?

Mr. SPANIOL. Yes, sir.

Mr. DANIELSON. Thank you very much. You've answered all the right questions. You've answered all my questions, you've answered my colleague's questions; thank you very much.

Mr. SPANIOL. Thank you very much, Mr. Chairman.
Mr. DANIELSON. You are excused.

Again, I do wish to accommodate the witnesses while still accommodating our committee. I believe the witnesses from the SEC are the next ones with another obligation on their calendar, so would those gentlemen please come forward ?

TESTIMONY OF IRVING M. POLLACK, COMMISSIONER, SECURITIES

AND EXCHANGE COMMISSION, ACCOMPANIED BY HARVEY L.
PITT, GENERAL COUNSEL
Please identify yourselves for the record.

Mr. POLLACK. My name is Irving M. Pollack. I am a Commissioner of the Securities and Exchange Commission.

On my right is Harvey L. Pitt, who is our General Counsel.

Mr. Chairman and members of the committee, I express our appreciation for your hearing us this morning on such short notice. We have filed with the committee a letter commenting on the bills, and I will not repeat the contents of that letter in my opening remarks. I would like merely to emphasize some of the important points.

Mr. DANIELSON. Just a moment. I know you did file a letter because I received a copy Saturday. You refer about this six- or seven-page single-space letter?

Nr. POLLACK. Yes, sir. I assume that would be made a part of the record.

Mr. DANIELSON. Thank you.

Mr. POLLACK. Let me say that we vigorously support the purpose of this legislation, which is to improve the integrity and the ethics of

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Government employees and the confidence which the citizenry can have in its Government servants. There are, however, two parts of the legislation which concern us. The first one is the public nature of any financial statements which may be required to be filed with the office of Government Ethics that would be established in the Civil Service Commission. We strongly endorse the establishment of that office; we think it is long overdue, and we think it would be most beneficial.

Our concern with respect to the public nature of the financial statements which would be required to be filed with that office is based on the fact that this information could be misused. In addition, even though the legislation would provide that this information could not be used for unlawful or commercial purposes, we fear that mere publication of such information in the newspapers would destroy the ability to enforce that part of the statute.

We also believe that by requiring a nonpublic filing, you could require an even more searching financial statement than the bill presently contemplates. You could ask all of the sensitive questions, that you believe necessary to get a complete and comprehensive report from the affected employees on their financial status.

Accordingly, our suggestion is that that provision be tailored; if there are certain things the committee feels ought to be made public, there should be specified. But, we are concerned that to require all of the Governments' senior people to file a publicly available financial statement may result in an unnecessary and unwarranted invasion of their privacy at a time when the Government is becoming more and more concerned with the protection of privacy of all individuals. And, we believe that the Government servants may be prejudiced in this regard.

Our second concern with the legislation before you involves its present prohibitions on appearing before an agency. We strongly support the first two conflict of interest provisions of the bill; indeed our own conduct regulations are similar.

The provision that concerns us is the 1-year absolute prohibition, where people who have had nothing to do with a particular matter, cannot appear or practice before the agency on that matter. First, let me point out that the SEC, because of its all-encompassing regulatory and disclosure provisions, pretty much affects every public corporation in America. It is very difficult for anybody practice in the securities field not to have contact with the Commission for the purpose of obtaining information or influencing the Commission in the sense of attempting to get, for example, an interpretation of some comments on a registration statement, or to discuss a filing where questions have been raised.

We are terribly fearful that, if this bill should become law with its existing provisions, it may create a revolving door in that our career staff will decline to accept supergrade positions and instead will go out into private practice after they have served a number of years when normally they would be promoted into those grades.

We are also concerned with the unfairness of applying the bill to people who are already in the service—and many of our people have been in there for many years; indeed, I might interject that I came to the Commission from the staff and I am in my 31st year at the Com

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mission at this time; there were numerous predecessors of mine who served for long periods as well. We pride ourselves and our agency in having one of the most stable career services of any of the independent agencies.

But, with respect to the 1-year prohibition, our concern there is that it is too broad in its coverage, that perhaps it, too should be tailored to provide some sort of waiver

provision, either by the agency, subject to review by the Civil Service Commission or by the proposed Office of Government Ethics, on application of the particular agency. Such a provision would permit waivers in cases where there is no reason for the prohibition to apply and would not foreclose people from the opportunity of going out of an agency into private practice in a field, such as the securities area, where as I mentioned, it would be very difficult for people to do anything with their particular expertise without some contact with the agency. And we feel that with that type of a supervisory role, we can control the evil, or the appearance of evil, that people see-people leaving an agency and then practicing before it.

We understand that the Justice Department in their statement will clarify the intent of the legislation not to affect those people who have already left, and, in that connection, I wonder whether that is broad enough, or whether some concern need be had for those people who came into the Government, have served it for a long period of time, and then, in effect, would be barred for 1 year from practicing their particular professional specialty.

I do not know whether Mr. Pitt would like to add anything, but at this point I would be glad to answer any questions.

[Formal written comments of the Securities and Exchange Commission on the bills follow:]

STATEMENT OF Hon. HAROLD M. WILLIAMS

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DEAR MR. CHAIRMAN : The Securities and Exchange Commission has reviewed two bills pending before your Committee-H.R. 6932 and H.R. 6954, both dealing with government ethics--and submits the following comments on them. We support the thrust of the bills, which is to provide a meaningful framework within which to regulate the ethics of government employees. We are of the view, however, that two provisions of the bills, as presently drafted, will tend to undermine the otherwise salutary purposes of the legislation. Thus, we recommend that the bills be amended in accordance with the suggestions set forth below, which, we believe, are in keeping with the purposes of the bills.

The Commission has been a vigorous advocate for increased recognition of the crucial role played by public confidence in the integrity of public servants. It is axiomatic that effective government is dependent upon both the public's belief in and the actual reality of independent government officials. To this end, the Commission has long had a set of conduct rules, which have served to maintain high standards of integrity, impartiality and ethical conduct on the part of the Commission's members and employees. The Commission's Conduct Regulation, first adopted in 1953, and found at 17 CFR 200.735-1, et seq., is applicable to all employees and members of the Commission. In addition, the Commission has adopted Canons of Ethics, first approved in 1958, and found at 17 CFR 200.50, applicable to Commission members. These conduct rules are amended from time to time to reflect changing concepts of ethical standards. For your convenience, I enclose copies of them and of two recent amendments to our Conduct Regulation, one concerning the reimbursement of employee travel expenses and receipt of honoraria, and other establishing standards by which a former employee's disqualification from appearing or practicing before the Commission will be imputed to other members of the former employee's law firm.

As a general policy, these conduct rules are broadly construed and vigorously enforced. Violation of these rules can lead to disciplinary action and, in the

case of a former member or employee, to disqualification from appearing or practicing before the Commission. Under Rule 2(e) of the Commission's Rules of Practice, 17 CFR 201.2(e), the Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission (among other reasons) “to be lacking in character or integrity or to have engaged in unethical or improper professional conduuct." This professional disciplinary program is very active and is wellknown to the bar and the accounting profession. A copy of Rule 2(e) is enclosed.

We unreservedly support efforts to bolster public confidence by imposing reasonable ethical standards on government employees. In particular, we support Title II of the draft bills which would establish an Office of Government Ethics within the Civil Service Commission to administer the provisions of the bills. Indeed, this is overdue. While we have no specific comments on those provisions relating to the authority, functions, administration and funding of that Office, we strongly favor the creation of a centralized place within the government where ethical considerations are of paramount importance. Although the current system of assigning responsibility for ethical questions to each individual agency, subject to the general oversight of the Civil Service Commission, has generally worked well in recent years, we believe that a substantially strengthened program to oversee the agencies' efforts can only be beneficial.

We also support the principle of increased financial disclosure by senior government officials. We are concerned, however, with the provision in the draft bills (Section 105) making the financial disclosure reports publicly available. While the requirement that all information in the reports be made public has a certain prophylactic appeal, it seems inconsistent with the public policy of the Congress embodied in the Privacy Act of 1974 (Public Law 93–579), which not only imposes strict limitations on the disclosure of personal information about individuals, including government employees, but provides criminal penalties for violations of the Act. Although the proposed bills provide that the financial reports cannot be used for unlawful or commercial purposes, such a prohibition would, we fear, be virtually unenforceable, particularly if the contents of the reports were published in the press. The consequence would be that government employees would be subject to harassment by credit agencies and other commercial interests, and, even worse, could be the target of various kinds of criminal activity by unscrupulous persons. If the required reports are filed with the proposed Office of Government Ethics and adequately reviewed and monitored by that Office, public confidence should be maintained and even improved as the bills seek to do, and it should not be necessary to make the reported information publicly available. On this basis, we see no compelling reason to distinguish the rights of privacy of government ein: loyees from those of other citizens.

We support the strengthening of 18 U.S.C. 207(a) and (b), in Part III of the bill, dealing with post-employment restrictions on former officers and employees of the government in connection with particular matters in which they had personally participated or which were pending under their official responsibility.

We object, however, to the proposed addition of a new subsection (c) to the existing provisions of 18 U.S.C. 207, which would prohibit senior staff members from having any connection with the agency for one year from the termination of their employment, even as to entirely new matters. Although we concur with the apparent objective of this section—to insulate government agencies from improper outside influence-we believe the "cure” proposed by proposed subsection (c) may well exacerbate rather than alleviate the problem. Accordingly, we suggest modifications to the bills, which in our view, would achieve the objective of the amendment.

The primary cause for our concern arises from the unique nature of this agency and its responsibilities. In view of the far-reaching regulatory power over the business and financial community possessed by the Commission, it would be very difficult to obtain employment anywhere in the private sector which would not involve coming into contact with the agency at some point. The proposed subsection would, as a practical matter, preclude former Commission members and employees from pursuing their careers for a period of one year. By contrast, the impact at other government agencies or departments, which deal only with a narrow segment of private industry, or only with the public-at-large would be relatively slight. Consequently, we believe that, at the minimum, some flexibility should be built into the system to accommodate the legitimate needs of particular agencies. This can be accomplished through the formulation of general standards, with the agencies given the responsibility for implementing specific rules within those guidelines. The proposed Office of Government Ethics could be assigned the

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