In This Issue: 1 SEC Revolving Door 2 Director’s Letter 3 Keith Rutter Honored with Public Interest Award 3 SEC Revolving Door (cont.) 4 Mixed Oxide Fuel Budget Slashed 4 Concerns About Presidential Signing Statement 5 State Dept. Still Without IG 5 Kabul Embassy Security Contractor Problems 6 POGO Contribution Policy

PROJECT ONGOVERNMENT OVERSIGHT

Exposing Corruption. Exploring Solutions. www.POGO.org

March 2013: Vol. 17, Issue 1

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POGO Examines Revolving Door at SEC

A revolving door—the movement of employees back and forth between a government agency and the industry it oversees—blurs the line between the Securities and Exchange Commission (SEC) and the world it regulates,

according to a POGO report issued in February. The SEC is responsible for regulating a vast swath of U.S. business, and has the power to affect investors, financial markets, and the economy. In many ways, the agency is a microcosm of the federal government at large, where widespread use of the revolving door expands the opportunities for private interests to sway public policy. Dangerous Liaisons: Revolving Door at SEC Creates Risk of Regulatory Capture, based on thousands of government records, found that SEC alumni routinely tried to help corporations influence agency rulemaking; defended companies suspected of wrongdoing; helped companies soften the blow of enforcement actions; won exemptions from federal law for their clients; and secured the agency’s blessing for companies to block shareholder proposals on issues such as executive pay. POGO found many examples where the line between the SEC and industry blurred. For example, several former SEC staffers were part of the successful lobbying effort in 2012 to block the tightening of regulations for money market funds, one of the top priorities of then-SEC Chairman Mary Schapiro and regulatory officials throughout the federal government. There was also the case of a former SEC official who helped companies such as JPMorgan, UnitedHealth Group, Yahoo!, and Alaska Air block shareholder proposals. When he was at the SEC, he was the deputy director in the division that reviewed these proposals. And, in another example, an enforcement branch chief left the SEC’s San Francisco office in May 2010 to become an in-house counsel at Wells Fargo & Co. Less than two weeks later, she filed six disclosure statements indicating she would be representing Wells Fargo in connection with pending SEC enforcement matters, including probes conducted by her former office. From 2001 through 2010, more than 400 SEC alumni filed nearly 2,000 disclosure statements indicating their intent to contact the SEC on behalf of an employer or client. Former staffers are required to file the disclosures within two years of leaving the SEC; more than 20 alumni filed their first statement within a week of leaving.

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Dear Friends,

The New Year is already bringing in new experiences for POGO. For example, Department of Interior Secretary Ken Salazar appointed me to serve on the U.S. Extractive Industries Transparency Initiative. This Federal Advisory Committee was created after President Obama announced his intention for the U.S. to meet international standards of openness regarding revenue collected from the energy sector. After the first meeting, it is clear that we at POGO will be busy working to both maximize revenues collected for the taxpayer and to set new standards for openness about the many extractive industries operating in the United States.

While we roll our sleeves up on that effort, we are also looking to ensure the newly passed whistleblower protection provisions are implemented in the most robust manner possible. New rules and processes are beginning to be enacted to help protect federal employees and contractors from retaliation for disclosing wrongdoing. POGO will be on the scene to ensure that the devils in the details are attended to.

Of course, much of our work remains familiar, such as exposing threats to good government from the revolving door between the Securities and Exchange Commission and Wall Street, the lack of a permanent State Department Inspector General for over 5 years, and President Obama’s dreadful signing statement that undermines support for disclosures to Congress, all of which you’ll read about in this issue.

You’ll also read about our continuing efforts to highlight places to cut wasteful spending, in this case the multi-billion dollar mixed oxide fuel facility that is now 300 percent over budget, a decade behind schedule, and lacks even a single party interested in buying its fuel.

Despite all this important policy work, if you only read one article in this issue, it should be the one about Keith Rutter receiving the Phyllis McCarthy Public Interest Award from our friends at Public Citizen. We are thrilled that this long-unsung hero, who has toiled behind the scenes at POGO for nearly a quarter of a century, has received this accolade.

Best,

Danielle BrianExecutive Director

Letter from the Executive Director

StaffDanielle Brian, Executive DirectorScott Amey, General CounselAngela Canterbury, Director of Public PolicyPaul Chassy, Ph.D., J.D., InvestigatorJohn Crewdson, Senior InvestigatorLydia Dennett, Research AssociateDanni Downing, Editor & COTS DirectorAbby Evans, Donor Relations ManagerNed Feder, M.D., Staff ScientistAndre Francisco, Online ProducerBen Freeman, InvestigatorNeil Gordon, InvestigatorDavid Hilzenrath, Editor-in-ChiefJulie Koh, Finance ManagerJohanna Mingos, Data SpecialistJoe Newman, Director of CommunicationsChris Pabon, Director of DevelopmentKeith Rutter, Chief Operations Officer & CFOPam Rutter, Web ManagerMichael Smallberg, InvestigatorMia Steinle, InvestigatorPeter Stockton, Senior InvestigatorWinslow Wheeler, Director of the CDI Straus Military Reform Project Adam Zagorin, Journalist-in-ResidenceSuzie Dershowitz, Public Policy FellowMeryl Grenadier, InternLili Shirley, Intern

Board of DirectorsDavid Hunter, ChairLisa Baumgartner Bonds, Vice ChairDina Rasor, Treasurer

Ryan AlexanderHenry BantaDavid BurnhamMichael CavalloStacy Donohue (Observer)Charles HamelJanine JaquetMorton MintzNithi VivatratAnne Zill

2 ■ Vol. 17, Issue 1

Vol. 17, Issue 1 ■ 3

SEC Revolving Door

POGO’s Keith Rutter Awarded the Phyllis McCarthy Public Interest Award

POGO’s Chief Operating Officer Keith Rutter was recognized recently for his years of working behind the scenes on issues that have saved

billions of taxpayer dollars, made the public safer and healthier, and made the federal government more accountable to its citizens. The consumer advocacy organization Public Citizen awarded its 10th annual Phyllis McCarthy Public Interest Award to Keith during a December ceremony. While others at POGO have sometimes received the accolades, much of the organization’s accomplishments wouldn’t have been possible without Keith’s work. Keith started his career at POGO in 1989 when the organization was known as the Project on Military Procurement. He literally kept it from folding in the early 1990s when he was the only remaining employee, rallying board members to help save the organization. The Public Citizen award, which honors the late managing editor of the organization’s Health Research Group, recognizes individuals who have “worked behind the scenes for a public interest group, performing critical functions as did McCarthy, but who have not received public credit commensurate with their contributions.” “I really believe the world is a better place because of the good work that groups such as POGO and Public Citizen do, and I truly believe it’s critical that we keep this work alive by encouraging young people to enter the field of nonprofit advocacy,” Keith said. POGO Executive Director Danielle Brian said she’s thrilled that Keith found himself in the spotlight for a change.“Keith is the heart and soul of POGO, but his central role and years of devotion to the organization (as well as his love of bad jokes) have always been behind the scenes,” Danielle said. “The Phyllis McCarthy Award allows us all to publicly thank him for all he has done and accomplished.” ■

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POGO obtained the disclosure statements through the Freedom of Information Act and has made them available online in a searchable database. “We decide issues on their merits regardless of anyone’s background or experience,” an SEC spokesperson told POGO. But some experts have argued that the revolving door strengthens the social and cultural ties between current and former regulatory officials, and can create opportunities for private interests to exert undue influence on the government. One professor told POGO that the problem lies in the “excessive identification of the regulators with the companies they’re regulating,” “It’s hard to show on a case-by-case basis that the revolving door is a direct cause of weak SEC action,” POGO wrote, but “the revolving door may help shape the culture and ethos of employees throughout the SEC—and the institution’s prevailing way of doing business.” POGO’s report was the subject of a New York American Bar Association panel discussion and received national media attention. “Imagine,” said Bill Moyers, highlighting the report on his show, “hundreds with an intimate knowledge of how the place works advocating for their clients with friends at the SEC—colleagues who themselves may be looking for a big payoff when they, too, leave government.” The report also garnered attention on Capitol Hill. “The revolving door is moving faster than ever,” said Senator Charles Grassley (R-IA). “This report documents exactly why it remains an ongoing concern.” The debate over the revolving door continues as Congress considers the nomination of Mary Jo White, a former U.S. Attorney who spent the last decade at a white-collar defense firm, to serve as the SEC’s next chairman. White has gone to bat for firms such as JPMorgan during SEC enforcement probes. She also represented companies such as Northrop Grumman that wanted to water down the SEC’s whistleblower program. POGO offered several recommendations for mitigating the adverse effects of the revolving door, such as extending the cooling off periods for employees who enter and leave government, and giving the public more information about the revolving door at the SEC and other federal agencies.” ■

Dr. Sidney Wolfe, director of Public Citizen’s Health Research Group, Keith Rutter, and Paul McCarthy, Phyllis McCarthy’s brother.

Continued from page 1

Vol. 17, Issue 1 ■ 4

MOX Fuel Facility Budget Slashed

The Mixed Oxide Fuel (MOX) program at the Savannah River Site in South Carolina was originally planned in 2004 as a facility to convert weapons-

grade plutonium into mixed oxide fuel for use in commercial nuclear reactors. But as construction of the building finally draws near an end, the program is 300 percent over budget and a decade behind schedule, requires years of testing, and lacks even a single customer. In 2004, the estimated cost of the facility was $1.6 billion and it was expected to be operational in three years. The estimated cost of the MOX facility jumped to $4.8 billion with a completion date of 2017, and operating costs have risen to $499 million per year. And a recent Government Accountability Office report revealed that the NNSA’s final price tag for the facility is $6.8 billion. All of this for a facility that doesn’t have a single customer lined up. In 2008, Shaw AREVA MOX Services—the project contractor—lost its contract to provide fuel for Duke Energy. Since then the Department of Energy has been looking to the Tennessee Valley Authority (TVA), a nuclear power company, as a potential customer. Yet years of testing by the government and potential customers, as well as an investigation into the safety and performance of MOX fuel in the Fukushima Daiichi reactors, will be required before TVA or any other nuclear power company will consider using the fuel. The Administration is finally beginning to listen to this mountain of evidence against MOX. A plan brokered by Deputy Secretary of Energy Daniel Poneman would cut funding to the MOX facility by 75 percent. But this plan would still supply over a billion dollars over the next five years to finish construction of the building, and to provide funds to explore alternatives for the ongoing problem of plutonium disposition. We hope this funding won’t be used to keep the MOX program on life support. ■

Lawmakers Sound Alarm on Obama’s NDAA Signing Statement

House and Senate whistleblower champions have expressed grave concerns with the President’s recent National Defense Authorization

Act (NDAA) signing statement, which objected to whistleblower disclosures to Congress. On January 17, Senators Claire McCaskill (D-MO) and Charles Grassley (R-IA) and House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA) and Ranking Member Elijah Cummings (D-MD) sent a strongly worded letter to President Obama defending their congressional responsibility to oversee the executive branch and speaking on behalf of would-be whistleblowers. “The Legislative Branch has the Constitutionally-mandated authority and responsibility to oversee the Executive Branch, and federal employees and government contractors have the right and obligation to bring information to Congress in a lawful manner. We encourage you to enforce the law as written. In doing so, your administration will show its dedication to transparency and accountability at all levels of the federal government,” they wrote. We couldn’t agree more. When the President’s signing statement accompanying the NDAA specifically singled out whistleblower communications to Congress, it raised red flags. The President stated, “…I will interpret those sections consistent with my authority to direct the heads of executive departments to supervise, control, and correct employees’ communications with the Congress in cases where such communications would be unlawful or would reveal information that is properly privileged or otherwise confidential.” What makes this signing statement particularly alarming is that it isn’t even about controlling classified information. The new law does not protect classified disclosures; in fact, it explicitly excludes them. President Obama seeks to withhold information ambiguously referred to as “otherwise confidential.” This expansive claim over undefined, unclassified information jeopardizes whistleblowers and the balance of powers between Congress and the presidency. POGO’s Director of Public Policy Angela Canterbury was quoted in the lawmakers’ letter and The Washington Post, saying “It may not have been his intent, but with this signing statement, the President appears to be thumbing his nose at Congress, whistleblowers, and taxpayers.” ■

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The customer-less MOX facility is billions of dollars over budget and ten years behind schedule.

Vol. 17, Issue 1 ■ 5

Danger Zone: The U.S. Embassy in Kabul

In the midst of ongoing inquiries into the Benghazi, Libya, tragedy, POGO released its own investigation in Foreign Policy, “A ‘Mutiny’ in Kabul,”

highlighting security problems at the U.S. embassy there, arguably the most at-risk American diplomatic facility in the world. The focus: the Department of State’s oversight of Aegis Defense Services, the U.S. subsidiary of a private UK firm which guards the facility under a $497 million contract. “If we ever got seriously hit [by terrorists], there is no doubt in my mind the guard force here would not be able to handle it, and mass casualties and mayhem would ensue,” one guard currently serving at the embassy told POGO in an interview. Roughly a dozen guards told POGO that security problems there include an understaffed and over-extended protective force, work days that often lasted 14 hours or more, unpaid work, high job turnover, a lack of equipment such as night vision goggles, and not being given time or facilities to calibrate their weapons so they can fire accurately in the event of an attack. The guards said more than 40 of them had signed a petition expressing a “vote of no confidence” in three of the guard force leaders, accusing the leaders of “tactical incompetence” and “a dangerous lack of understanding of the operational environment.” A number of those responsible for the petition were fired. In an apparent reference to the petition, the State Department issued a memo in July 2012 referring to a “munity” which had put the “embassy at risk.” POGO’s investigation follows its September 2009 letter to then-Secretary of State Hillary Clinton, which revealed that the State Department and employees of ArmorGroup, North America (AGNA), the company that held the security contract at the time, were responsible for similar security lapses. We are now working with congressional offices that are considering limiting the State Department’s reliance on private security contractors to guard embassies in combat zones. ■

State Department Still Without a Permanent Inspector General

How long has it been since the State Department has had a permanent in-house watchdog to investigate fraud, waste, and abuse?

Well, the last time there was a permanent Inspector General at the Department of State, Muammar Gaddafi and Hosni Mubarak were entrenched as “dictators for life,” Condoleezza Rice was Secretary of State, and the junior Senator from Illinois was still a long shot for the Democratic presidential nomination. It has been more than five years (and counting), the longest vacancy of any of the 73 Inspector General positions across the federal government. Now, several Members of Congress have joined POGO’s call for a permanent State Department IG, including the chairs and ranking members of the House Committee on Oversight and Government Reform and the House Committee on Foreign Affairs, every member of the Senate Homeland Security and Governmental Affairs Committee, and Senator Jeanne Shaheen (D-NH). A letter from the House Committee on Oversight and Government Reform quotes POGO testimony before the Committee last year to explain why this ongoing vacancy matters:

Permanent IGs are in a better position to be viewed as credible than are Acting IGs for a number of reasons. One is that permanent IGs are selected for the position on the basis of their qualifications to lead an IG office, whereas a temporary IG may be a good auditor or investigator, but may not be as qualified for a leadership role. That is especially true for the IGs that require a nomination by the President with confirmation by the Senate—they go through a rigorous vetting process, which helps establish that both Congress and the President believe they are qualified for the position.

Thousands of POGO supporters have also signed letters to President Obama and Secretary of State John Kerry asking them to make the appointment of a permanent IG among their top priorities. Visit http://www.pogo.org/do-something/ to join the campaign. Five years without a permanent IG is long enough. ■

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Insurgents attacked the International Security Assistance Force Afghanistan headquarters and the U.S. Embassy in Kabul with small-arms fire from outside the secure zone surrounding these compounds.

Mission StatementThe Project On Government Oversight is a nonpartisan independent watchdog that champions good government reforms. POGO’s investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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