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STONE & WEBSTER ENOINEERING CORPORATION

248 SUMMEN STREET. SOLTOM. MASSACHUSRTTI

AODRIII ALL GORREONONOONER TO P.O. 10X BI, JOSTON. MA OL101

W.V.TOLEX 1.000 101NON

14.0.71 NO. YONN ENIM bil...

CONSTRUCTION

NOVOTON
POATLANT. ONTOON

MNO, VA
WAOMINGTON. .

GIANINATION
SONOVITIN
INOINTINO

Fabruary 12, 1986

Mr. Willlam F. W11115, General Manager
Tonnisvu. Valley Authority
400 Wase Summit Hill Drivo
Knoxville, TN 37902

Dear Mr. Willi.

Thi, to to confirm the nature of my financial Interest in stone b Webster in conection with the services that I will be providing to TVA a. Director of Nuclear Quality Asqurance pursuant to the TVA/SWEC Loan Agrotment.

I in an officer and director of Stono & Webster Engineering Corporacion and shareholder and banalleinl omor of 1.6 than one-tonch ot 1% of the common stock in the parent company, Stono & Webster, Inc. It is my understanding that Stone & Webicer Engineering will be paid by TVA for the services that I rendor to TVA under the TVA/SWEC Loan Agreement, and my salary will be paid by Stono & Webster Engineoring. It 16 1160 my ' understanding that I will not receive any other personal benefit in connection with any work or services provided to TVA by Stone & Wabsor oxcape to the extent that all shareholders of Stone & Woboter, Inc. and Stone h Webster Engineering as a whole can be doomad to benefit from such work or servicus,

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Mr. SIKORSKI. Then, as I understand it, you wrote another memo. What happened next in the chronology?

Mr. SANGER. After I wrote the February 13 memo, things got increasingly difficult. But I kept talking with the Board and general manager about the issue, and we prepared a formal opinion on our authority to enter into the contract, the one I referred to earlier. Then on May 5 we prepared a more comprehensive formal opinion on the conflicts-of-interest issue.

Mr. SIKORSKI. Mr. Sanger, before you go any further, I was paging through this and noticed an article in the Knoxville Journal. Evidently there was a meeting in which Members of Congress, or a Member of Congress, had asked you whether there was any problem at all with these contracts, and you gave an absolute answer. You said there was no problem, there was nothing to worry about.

Mr. SANGER. There was a meeting at the Sequoyah Nuclear Plant and it was attended by Congressman Cooper and Congresswoman Lloyd, I think Commissioner Asselstine from the NRČ was there, and the two TVA Board members. I was asked about our authority to contract for services of that type.

Now remember, Mr. Chairman, this was after our February 13 memo.

Mr. SIKORSKI. Right.

Mr. SANGER. I advised and I said clearly that we had the authority to enter into such contracts. I had two Board members sitting there, Congressman, one of whom is a lawyer. I had serious problems about voluntarily raising to those people that I had raised other questions about conflicts. I answered the question I thought I was asked. I did not think I was asked about the conflicts. Had I been asked I don't think I could have answered it.

Mr. SIKORSKI. You felt you were asked about the legality of the contractual arrangement?

Mr. SANGER. As opposed to the administration--
Mr. SIKORSKI.

As opposed to the conflicts-of-interest question?
Mr. SANGER. That is correct.

Mr. SIKORSKI. Now, you felt constrained by the attorney-client privilege from suggesting another question which would have elicited the conflict of interest concerns that you raised back at the beginning and more recently in the February 13th memo—

Mr. SANGER. Quite true.

Mr. SIKORSKI (continuing.) Your discussion with the IG was in late March. You felt further contrained, even if you had been asked that question, by the attorney-client privilege from saying you couldn't answer that question?

Mr. SANGER. That is right. After all, the TVA Board was sitting there and one Board member is a lawyer. The privilege is the Board's, not my privilege. I can't waive it. If the Board thought a greater answer was needed, it had the memo.

Mr. SIKORSKI. So you wrote another memo, on May 5th, the two of you?

Mr. MASON. Yes.

Mr. SIKORSKI. Mr. Mason, did you also work on the February 13th memo?

Mr. Mason. It happens that the February 13 memo was a memo that was sent to the people you designated and from both Mr. Sanger and I.

Mr. SIKORSKI. And the May 5 memo raised the same concerns again?

Mr. SANGER. In more detail. A more extensive, a better discussion of it.

Mr. SIKORSKI. OK. And that was both your work product?
Mr. SANGER. Yes, sir.
Mr. MASON. Yes.

Mr. SIKORSKI. Then you sent a copy of those two memos to the Office of Government Ethics?

Mr. SANGER. That is correct.
Mr. SIKORSKI. Pursuant to statute?
Mr. SANGER. Regulation. It is 5 CFR-
Mr. MASON. 738.

Mr. SIKORSKI. 5 CFR 738, which requires Designated Agency Ethics Officials to supply copies of,

Mr. SANGER. Any memo written that mentions Title 18, sections 202 through 209, if I remember correctly.

Mr. SIKORSKI. And this includes 208, conflicts of interest?
Mr. SANGER. That is correct.

Mr. SIKORSKI. Have you provided this committee with copies of that material?

Mr. SANGER. I have not. I have not provided that to anyone.

Mr. SIKORSKI. We would request at this point, then, that you provide us with those two memos.

Mr. SANGER. You asked me about the February 13 and May 5? Mr. SIKORSKI. Yes.

Mr. SANGER. If the chairman please, I would respectfully decline to do that. The Board has consistently, the TVA Board has consistently refused to disclose those memos in response to FOIA and other requests. I certainly-I don't want to say this, obviously, disrespectful. I certainly have no objection about the memos, but I think that is up to the TVA Board and so I would respectfully decline to disclose them myself.

Mr. SIKORSKI. Well, the Chair has fully reviewed and considered this kind of objection, and understands the reasons for the objection being raised. I have consulted with the Counsel for the U.S. House of Representatives, and under the advice of counsel am overruling that objection. And you are therefore directed to submit the material to the subcommittee pursuant to 2 U.S.C. Section 192.

[The material follows:]

ADMINISTRATIVELY CONFIDENTIAL

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C. H. Dean, Jr., Chairman, Board of Directors, E12 A7 C-K

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Herbert S. Sanger, Jr., General Counsel, Ell B33 C-K
MAY

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CONTRACT BETWEEN TVA, STONE & WEBSTER ENGINEERING
CORPORATION, AND STEMAR CORPORATION

In your memorandum of April 1, 1986, you asked that we
furnish you with opinions on two aspects of the subject
contractual arrangements: (1) TVA's authority to enter
into such contractual arrangements in light of questions
raised by Representative Schroeder and others; and (2) the
desirability, which I have previously mentioned orally in
discussions with you and Mr. Willis, of taking the fullest
precautions, with regard to implementation of the arrange-
ments as they may involve the services of particular
individuals, to avoid any possible violation or appearance
of violation of the conflict-of-interest statute. On
April 15, 1986, I sent the Board a memorandum on the first
of these points. This memorandum addresses the second.
The same issue was covered in William E. Mason's and my
February 13, 1986 memorandum to files, a copy of which you
received.

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The existing statute on conflicts of interest relate to a
problem which is as old as the Nation. The problem has
arisen in many forms. In such notorious instances as
those pertaining to the activities of the Second Bank of
the United States in the 1820s and the 1830s, the Credit
Mobilier scandal of the 1870s, and the Teapot Dome scandal
of the 1920s which resulted in the imprisonment of a
former Secretary of the Interior (and may have contributed
to the premature death of an American President), it has
involved charges of outright corruption of public
officials by private interests. At perhaps the other
extreme, in the well-known case of United States v.
Mississippi Valley Generating Co., 364 U.S. 520 (1961),
which is discussed later in this memorandum, it has
involved impropriety or appearance of impropriety in an
individual's performance of temporary service as an
adviser to a Federal agency after it developed that a
private company with which he was associated might benefit
if the matter on which he was advising the agency were
resolved in a particular way, resulting in invalidation of

2

C. H. Dean, Jr.

CONTRACT BETWEEN TVA, STONE & WEBSTER ENGINEERING
CORPORATION, AND STEMAR CORPORATION

a contract between the Government and other private companies which was entered into in conformity with the individual's advice.

The forums in which conflict-of-interest problems have been aired or resolved have also been diverse. They have included criminal prosecutions, civil suits, senatorial confirmation hearings, congressional investigations, investigations within the executive branch, and inquiries and publicity by the media. Of course, such forums have not been mutually exclusive. With regard to Teapot Dome, for example:

On Feb. 8, 1924, a joint resolution passed
by congress stated that it appeared from the
evidence (gathered by a congressional
committee) that the leases and contracts
negotiated by (Secretary of the Interior)
Fall with Sinclair and Doheny were executed
under circumstances indicating fraud and
corruption, without authority on the part ot
the officers purporting to act for the
United States and in defiance of the settled
policy to maintain in the ground a great
reserve supply of oil adequate to the needs
of the navy. It declared the contracts and
leases to be against the public interest and
directed the president to institute suits to
cancel them and to prosecute any civil or
criminal actions that might be warranted.

Cancellation of the leases and contracts was
later confirmed in separate cases by the
U.S. supreme court. The court ruled that
the releases and agreements were made
fraudulently and that the executive order of
May 31, 1921, transferring the administra-
tion of the reserves to the secretary of the
interior was illegal. In criminal actions
Doheny and Sinclair were acquitted of
charges of bribery and criminal conspiracy,
but Fall was convicted of accepting a bribe
in connection with the Elk Hills lease and
served a prison term (16 Encyclopedia
Britannica 904 (1973)).

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