If Martha Stewart went to prison for insider trading; what’s with this?

 

From Truthout.com

Link:  http://www.truthout.org/062809Y?n

 

Members of U.S. House Financial Services Committee Snapped Up or Dumped Bank Stocks as Bottom Fell Out of Market

Thursday 25 June 2009

by: Stephen Koff and Sabrina Eaton  |  Visit article original @ The Cleveland Plain Dealer
The day before the House passed the financial rescue package, Rep. Ginny Brown-Waite of Florida grabbed up Citigroup stock.

 

    Washington – As financial markets tumbled and the government worked to stave off panic by pumping billions of dollars into banks last fall, several members of Congress who oversee the banking industry were grabbing up or dumping bank stocks.

    Anticipating bargains or profits or just trying to unload before the bottom fell out, these members of the House Financial Services Committee or brokers on their behalf were buying and selling stocks including Bank of America and Citigroup – some of the very corporations their committee would later rap for greed, a Plain Dealer examination of congressional stock market transactions shows.

    Financial disclosure records show that some of these Financial Services Committee members, including Ohio Rep. Charlie Wilson, made bank stock trades on the same day the banks were getting a government bailout from a program Congress approved. The transactions may not have been illegal or against congressional rules, but securities attorneys and congressional watchdog groups say they raise flags about the appearance of conflicts of interest.

    ”I don’t think that any of these people should be owning these types of financial instruments,” said Brian Biggins, a Cleveland securities lawyer and former stock brokerage manager. “I’m not saying they shouldn’t be in the stock market. But if they’re on the banking committee and trading in these kinds of stocks, I don’t think that’s right.”

    For example, Rep. Ginny Brown-Waite, a Florida Republican, bought Citigroup stock valued between $1,001 and $15,000 on Oct. 2, the day before the House passed the financial rescue bill and President George W. Bush signed it into law, records show. She opposed the bill.

    Eleven days later, she bought $1,001 to $15,000 worth of Bank of America stock. It was on the same day that then-Treasury Secretary Henry Paulson told leading banks that he expected them to accept billions in bailout money to prevent a financial meltdown.

    Brown-Waite, who has since left the committee to join the tax-writing Ways and Means Committee, and her spokeswoman would not comment for this article. The precise value of her investments is not publicly known because financial disclosure reports provide only broad ranges, although some members include detailed brokerage reports.

    Wilson, a Democrat from the eastern Ohio town of Bridgeport, sold between $15,001 and $50,000 worth of Huntington Bancshares stock on Nov. 14, the same day Huntington got $1.4 billion in bailout money from the federal Troubled Asset Relief Program, or TARP, records show. Wilson’s transactions over the course of last autumn also included Bank of America and BB&T, both beneficiaries of the bank rescue program that Treasury implemented after congressional passage.

    Wilson’s spokeswoman said the congressman did not personally pick these trades because he leaves day-to-day investment decisions to a money manager who uses a proprietary model in selecting securities to buy or sell.

    ”To be clear, Mr. Wilson doesn’t know about the trades ahead of time or even as they’re being made,” said spokeswoman Hillary Wicai Viers.

    A spokesman for Rep. Carolyn McCarthy, a New York Democrat also on the Financial Services Committee, said she similarly leaves transactions solely to the discretion of account managers. McCarthy’s trades included a $2,275 purchase of bailout recipient J.P. Morgan Chase while Congress was still hammering out its rescue bill.

    Another member of the Financial Services Committee, Democratic Rep. Jackie Speier of California, said on a recent financial disclosure report that she bought up to $15,000 in Citigroup stock on Nov. 7. That was 10 days after the bank got a $25 billion bailout.

    Her office now says the report was filed in error, the transaction should have been listed as her husband’s – and she wishes he had not made it.

    ”When I brought it up with her, she said it was Barry’s purchase and she didn’t know about it but she would have disagreed with it at the time had she known about it,” Speier spokesman Mike Larsen said.

    Her husband wasn’t the only committee spouse trading on bank stocks.

    The stockbroker husband of West Virginia’s Shelley Moore Capito, a Republican, sold more than $100,000 in Citigroup stock in several transactions late last year. His brokerage firm was owned by Citigroup and his compensation included Citigroup stock. A Capito spokesman said the House Ethics Committee gave her verbal approval to join the committee despite her husband’s job.

    Another committee member, Illinois Republican Judith Biggert, whose husband sold Wells Fargo stock while Congress was helping to shape the rescue bill, said she does not discuss stock transactions with her spouse.

    ”I wouldn’t have the vaguest idea” why he sold at that time “because we don’t discuss our stocks,” said Biggert. “We have a financial group in Chicago, and they take care of all of that.”

    Some of these stock sales enabled committee members or their families to cut losses before the market continued its slide. Other trades proved to be particularly ill-timed. Citigroup stock, for example, closed at $22.50 per share the day Brown-Waite bought it. Now it’s hovering around $3.

    Many details about the massive financial bailout last fall were widely known outside Capitol Hill. Yet members of the Financial Services Committee were privy to closed-door discussions, staff briefings and political horse-trading decisions between political parties, Congress and the White House. Banks lobbied Congress and the administration heavily.

    Banks that received bailout money spent $77 million on lobbying and $37 million on federal campaign contributions last year, according to the Center for Responsive Politics. The center found that the banks spending the heaviest got the biggest rescue packages.

    There has been no direct evidence that this allowed members to engage in insider trading. But when lawmakers overseeing banks also buy and sell bank stocks, it can create “the appearance of a problem,” said Anthony J. Hartman, a Cleveland securities attorney.

    ”I do a lot of different types of litigation, and I just don’t think anybody ought to be putting themselves in a situation where as an elected official, I can be suspect of what they are doing,” Hartman said.

    The issue of appearances is complicated, said Melanie Sloan, executive director of Citizens for Responsibility in Ethics in Washington, because “we can’t say that because you’re a member of Congress you can’t buy or sell any stocks at all.”

    But she added, “I do think it’s more troubling on an oversight committee, particularly Financial Services.”

Contractors to be held more accountable for past performance

From Government Exec

Link to original:  http://www.govexec.com/dailyfed/0709/070109rb1.htm

 

 

Rule requires more reporting of contractors’ past performance

By Robert Brodsky rbrodsky@govexec.com July 1, 2009

 

Contracting officers now will be required to document the past performance of companies that win awards off the General Services Administration’s Multiple Award Schedule and for task or delivery orders placed against governmentwide acquisition contracts, according to a final rule published on Wednesday in the Federal Register.

The rule, which was stalled in the rule-making process for more than a year, specifies the mandatory use of the Past Performance Information Retrieval System, a shared governmentwide repository of data on contractors’ work.

“We think this will give us a lot more information on contractor past performance than we have [had] in the past,” said Al Matera, director of GSA’s Office of Acquisition Policy.

Agency procurement officials already are required to use PPIRS — which houses data from multiple government systems — to document a company’s performance on standard government contracts. But watchdogs and lawmakers have found PPIRS is used sporadically and is of limited value to other agencies.

The new rule mandates performance evaluations for all awards off the GSA Federal Supply Schedule above the simplified acquisition threshold of $100,000.

An April report by the Government Accountability Office that examined the PPIRS system found only a “minimal” number of performance reports for orders placed against the GSA schedules.

“Past performance information can decrease the government’s risk in contracting by rating, at a minimum, quality of work, timeliness, cost and business relations of contractors for projects above a specified threshold,” the final rule stated. “[Past performance information] incentivizes contractors to perform well in order to be rewarded with future contracts.”

The contracting industry, which has been critical of the scattershot use of PPIRS, reacted to the final rule with cautious optimism.

“So long as there continues to be a place where contractors can rebut what they believe to be a spurious evaluation, I think most contractors saw this one coming and will take it in stride,” said Larry Allen, president of the Coalition for Government Procurement, a contractor trade association.

The Federal Acquisition Regulation requires agencies to consider past performance as a factor in certain negotiated competitive procurements, along with price, management and capability. But agencies have broad discretion in determining the relative value of past performance data when awarding a new contract.

GSA has collected past performance information on schedule contractors for several years through their Industry Operation Analyst reviews, Allen said. But that data generally was available only to agency contracting officers that were considering a contract modification or renewal request, he said.

Performance evaluations also will be required for task or delivery orders awarded through GWACs or multiagency contracts. The rule recommends, but does not require, past performance reports for task or delivery orders under single agency contracts.

In addition, contracting officers will have to prepare past performance evaluations for construction contracts of more than $550,000 and architect-engineer services contracts of more than $30,000. All such contracts terminated for default must be documented in the database regardless of dollar value.

The evaluations must include documentation on the compliance of prime contractors in following their small business subcontracting plans. The rule leaves it up to the agencies to determine what other information should be included in the report.

“The content of the evaluations should be tailored to the size, content and complexity of the contractual requirements,” the rule stated.

The performance information will remain available to agency officials for three years — six years for construction and architect-engineer contracts — at which point the data will be archived.

The FAR requires agencies to prepare an evaluation of contractor performance for each contract that exceeds the simplified acquisition threshold once the work is completed. But GAO recently found that agencies rarely abide by that rule.

GAO reviewed PPIRS data for fiscal years 2006 and 2007 and found only a small percentage of contracts had a documented assessment. For example, the watchdog estimated that in fiscal 2007, there should have been about 23,000 performance assessments in the database; GAO found only 7,000, or 31 percent. Roughly 75 percent of all past performance reports in PPIRS are from the Defense Department, the report said.

Some speculated that despite the new requirements, agencies still may not have the time and staffing to complete the performance evaluations. CGP’s Allen suggested the private sector could more efficiently perform the data-entry work.

“Adding another agency reporting requirement on top of requirements that are already not being met forces the question of whether this new rule will actually make a lot of difference,” he said. “I wonder if the administration would consider outsourcing PPIRS inputs to contractors? If agencies aren’t doing it evenly, could contracting out, ironically, be the solution?”

Corruption Undermines Trust, Erodes Development

19 May 2009

Link:  http://www.america.gov/st/business-english/2009/May/20090424141654sjhtrop0.950741.html&distid=ucs

 

World Bank bars 351 companies and individuals from bank contracts

By Jacquelyn S. Porth
Staff Writer

Washington — Glance at any set of headlines and you will likely read about allegations of corrupt activities to the north, south, east or west. Donors of foreign aid, seeing the same headlines, increasingly try to catch those who siphon aid intended for the poor.

The World Bank recently debarred seven companies and one individual from bank aid after concluding they were engaged in collusive practices on a road project in the Philippines. The E.C. de Luna Construction Corporation and its owner were permanently barred from participating in World Bank projects.

President Obama raised the subject when announcing his new strategy for Pakistan and Afghanistan, saying the Afghan government has been undermined by corruption. Anti-corruption is a tenet of U.S. foreign policy because corrupt practices sabotage development efforts, erode confidence in democratic institutions and ease the way for transnational criminals and terrorists.

The international community cannot turn a blind eye to corruption, which has caused Afghans “to lose faith,” the president said March 27. “We will seek a new compact with the Afghan government that cracks down on corrupt behavior and sets clear benchmarks for international assistance so that it is used to provide for the needs of the Afghan people,” he said.

Corruption takes many forms, but bribery alone accounts for around $1 trillion annually, according to the World Bank. The bank points to corruption and fraud as significant impediments to economic and social development, weakening institutions and the rule of law.

Georg Kell, executive director of the United Nations Global Compact, said corrupt practices waste vast amounts of public resources. His organization, described as the world’s largest voluntary corporate-responsibility initiative, endorses principles of ethical business transactions, such as urging companies to fight all forms of corruption, including extortion and bribery.

The United States ratified the U.N. Convention Against Corruption in 2006. U.N. Secretary-General Ban Ki-moon said the treaty should become the global norm.

CORRUPTION UNDERMINES TRUST, PRODUCTIVITY

Corruption raises its ugly head in other forms than bribery: embezzlement, hiring family members for jobs and misappropriation of public goods are cited by experts. Those activities undermine trust in government, and once that is lost, “it is a devilishly difficult thing to get back,” in the words of World Bank President Robert Zoellick.

Speaking at the bank’s recent observance of “Integrity Day,” Zoellick said public trust is essential for a functioning private sector and to attract foreign investment.

He pointed to a 2008 Gallup Poll in which respondents from every part of the world cited corruption as having a negative effect on economic growth and efforts to alleviate poverty.

Zoellick said the bank is not in the business of embarrassing private or public officials or scoring points, but it is “deadly serious about protecting funds, building integrity and getting ahead of problems.”

The institution has to be a good steward of donor funds, he said, showing client governments that bank financing will not be diverted for personal use. The bank will “hold people accountable if they steal from the poor,” Zoellick said.

One of the World Bank’s managing directors, Ngozi Okonjo-Iweala, witnessed corruption in Nigeria. She said dishonest officials siphon off teachers’ salaries and even leave students without chalk.

Author Michael Johnston published the book Syndromes of Corruption in 2006. The Colgate University professor says rural roadblocks that “tax” farmers traveling to cities and police shakedowns at markets “help keep poor people poor.”

Jonathan Shapiro, acting director of the World Bank’s Department of Institutional Integrity, told America.gov “the desire to defraud is international.” People all over the world “will seek to exploit gaps in a system for their own gain,” he said.

That is why Shapiro said “vigilance is absolutely critical.” The bank investigates allegations of fraud, corruption, collusion, coercion and obstruction involving its financing or personnel.

If development money is bled off for unintended purposes, it is a serious matter for the bank, Shapiro said, especially now when “dollars, euros and shillings are scarce.”

Since 2001, the bank has processed around 3,000 allegations and debarred 351 companies and individuals from receiving bank contracts.

“People need to have a sense that allegations are … acted on,” Shapiro said. When a debarment occurs, the bank posts it on its Web site to demonstrate public accountability.

Shapiro likened bank anti-corruption efforts to a policeman pulling over someone exceeding the speed limit. “You don’t have to pull over every speeder,” he said, “because everybody slows down when they see someone pulled over to the side of the road.”

As part of its anti-corruption mission, Shapiro said the bank conducts on-site training for countries requesting help. The World Bank Institute also brings ministry officials to Washington for training.

“We are confronting fraud and corruption … head on,” Shapiro said. More allegations are coming in now, indicating that “our message is getting out,” he said.

For more information about U.S. policy, see Anticorruption Initiatives on the State Department Web site.

More information is available on the Web site of the U.N. Convention Against Corruption. The World Bank’s list of debarred companies and people is posted on the bank’s Web site.

Fighting Corruption Depends on Political Will, Institutions

 

Link:  http://www.america.gov/st/business-english/2009/May/20090422153755saikceinawz0.2242395.html&distid=ucs

 

19 May 2009

Political manipulation, indifferent populations can compromise efforts

By Andrzej Zwaniecki
Staff Writer

Washington — The road to economic hell is paved with … failed anti-corruption campaigns.

Newly elected leaders of countries saddled with a reputation for corruption often loudly declare a war on corruption and set up a commission to implement reforms. Yet many of those efforts fail because they lack crucial political and institutional elements, and public officials soon revert to the seven deadly sins of bribery, extortion, cronyism, nepotism, patronage, graft and embezzlement.

Anti-corruption reforms have a good chance of success only when they are moved by a top leader and persistent enough to overcome bureaucratic resistance and inertia, according to experts. They also have to involve civil society and be free from political manipulation.

But even well-meant efforts are unlikely to meet their goals if basic democratic institutions — from judiciary systems to a civil society — are not in place, said Christiaan Poortman of Transparency International, an anti-corruption group.

“Institutions must not only exist on paper, but also have an actual power to monitor and hold the government accountable,” he told America.gov.

Reforms based on those principles have worked in Singapore, Hong Kong, Botswana, Tanzania, Slovenia, Latvia and Peru, all of which have made progress in the fight against corruption.

For example, Peru created a special anti-corruption system to investigate and prosecute cases. Singapore’s leaders encouraged public officials’ integrity by setting personal examples and by building a well-paid civil service. And in Tanzania, an anti-corruption campaign was directly related to concerted efforts to improve the country’s economy, living standards and business environment.

But anti-corruption programs that are nothing more than slogans or that are missing key elements will fail.  Guido Bertucci of the Department of Economic and Social Affairs at the United Nations said an anti-corruption campaign is doomed to failure when the government launches it in reaction to a scandal or to external pressure from foreign donors.  He said some leaders use an anti-corruption campaign as a cover to hurt their political opponents.  Even governments truly committed to reforms see less success when they do not engage the private sector and civil society.

Nations with the highest risk of corruption are often desperately poor and plagued by civil wars or oppressive regimes, as confirmed by the low ranking of Somalia, Burma, Iraq, Haiti and Afghanistan in Transparency’s Corruption Perception Index. (Although experts caution against looking at the index as a reliable measure of corruption, they say it does provide a rough approximation of where countries stand in relation to each other.)

In addition, closed economies — isolated from the world market by trade and other barriers — are more likely to have higher levels of corruption than more open ones. In such countries, government revenues as well as foreign assistance can easily be transferred through back channels to bank accounts kept in offshore tax havens.

When corruption becomes ingrained in the culture or is seen as part of the daily struggle for survival, reforming governance becomes particularly difficult. For example, in some African countries, Richard Messick of the World Bank said, lower-level judges are paid so little that they resort to taking bribes to support their families. “When people get used to bribes, when they have financial obligations supported by bribes, it is very difficult to stop,” he told America.gov.

Globalization has made governance challenges even more difficult for young states as multinational companies interested in their natural resources often entered their markets with an intention to bribe, if necessary, their way to profitable contracts.

Therefore, Transparency’s Poortman said, it is only partly within developing countries’ power to break the cycle of corruption.

Member countries of the Organisation for Economic Co-operation and Development (OECD) reached a milestone 10 years ago when they adopted an anti-bribery convention that prohibits the bribing of foreign public officials.  However, only half of the OECD member countries, including the United States, enforce the prohibition, according to Transparency’s 2008 report. And companies based in emerging markets outside the OECD, such as China, India and Russia, are perceived to engage routinely in bribery when doing business abroad, according to Transparency’s 2008 Bribe Payers Index.

“We need far greater effort on the part of developed and emerging market countries to help developing nations overcome the obstacle of corruption,” Messick said.

More information about corruption and good governance can be found on the Web sites of Transparency International and the World Bank.

Remarks by Treasury Assist. Sec. for Terrorist Financing

February 27, 2008
HP-841

Link to Original:    http://www.treas.gov/press/releases/hp841.htm

Remarks by Treasury Assistant Secretary for Terrorist Financing
Patrick M. O’Brien
at the Washington Institute for Near East Policy

Washington – Good morning, ladies and gentlemen. Thank you for your time and the opportunity to speak today.

I also would like to thank the Washington Institute for hosting me. The Washington Institute and the Treasury Department have had a long and fruitful relationship. My colleagues and I continue to benefit significantly from your excellent analysis and research on a regular basis. In particular, I am pleased to be reunited with two outstanding former colleagues, Matthew Levitt and Michael Jacobson, two of my hosts today.

Last year, Treasury’s Deputy Secretary Robert Kimmitt spoke to you about a Treasury Transformed. Today, I would like to build on those remarks and provide further detail on Treasury’s Office of Terrorism and Financial Intelligence (TFI). I will explain TFI’s perspective and strategic approach for combating not only terrorist financing, but also other threats to our national security, including WMD proliferation, rogue nations, kleptocracy, drug trafficking, money laundering, and organized crime more generally. I would then like to spend some time on TFI’s efforts to combat terrorist financing and how those efforts advance the broader U.S. counterterrorism mission. Finally, I want to briefly update you on TFI’s efforts to address the particular threats that we face from Iran, with respect to proliferation and its role as a state sponsor of terrorism. These efforts illustrate TFI’s broad range of statutory authorities, its effective government and private sector relationships, and substantive expertise in developing a comprehensive strategy to disrupt the ongoing threat posed by Iran.

TFI – An Overview

When Deputy Secretary Kimmitt spoke to you last year, he described the birth of TFI and broadly explained how TFI has given the Treasury Department and the Executive branch new and enhanced capabilities to combat borderless, asymmetric threats.

In the broadest sense, TFI has a threefold mission to:

(1) safeguard the financial system from criminal and illicit activity;

(2) produce financial analysis and information through the Bank Secrecy Act (BSA) to assist law enforcement and counter-terrorism authorities; and

(3) take targeted economic and financial action against threats to our national security or foreign policy interests.

To advance this mission, TFI, led by Under Secretary Stuart Levey, relies upon several offices that fall under its authority – the Office of Intelligence and Analysis (OIA), the Office of Foreign Assets Control (OFAC), the Financial Crimes Enforcement Network (FinCEN), the Executive Office of Asset Forfeiture (TEOAF), and my office, the Office of Terrorism Finance and Financial Crimes (TFFC).

OIA

Allow me to begin with the Office of Intelligence and Analysis. As the 9/11 Commission and others have rightly noted, actionable and timely intelligence is required to combat terrorism and its financiers. Our intelligence office, led by Assistant Secretary Janice Gardner, was created to provide expert, all-source analysis on financial and other support networks for terrorist groups, proliferators, and other key national security threats. Matt Levitt and Mike Jacobson were instrumental in standing up this office and building its operational capacity to serve TFI and Treasury’s growing intelligence needs.

Treasury relies on analysis from OIA to identify and take targeted economic or financial action against those who threaten our national security and seek to abuse our financial system. OIA analysis is the backbone behind the designation of individuals or entities engaged in terrorist activity, financing or support pursuant to Executive Order 13224. OIA is not simply the end-user of raw data, but informs the intelligence community’s perspective on financial information, shaping the manner and type of information gathered. In combination with information and analysis from TFI partners, OIA’s all-source intelligence analysis also contributes to:

(1) designation of those who threaten our national security pursuant to executive orders on proliferation and other national security threats;

(2) issuance of advisories to financial institutions to protect against heightened risks to the financial system;

(3) targeted outreach to jurisdictions or financial institutions about particular threats or bad actors; and

(4) actions under Section 311 of the Patriot Act to designate a jurisdiction, financial institution, class of transactions, or type of account as a “primary money laundering concern.”

The Office of Intelligence and Analysis represents a Treasury asset that is unique among finance ministries around the world. In fact, one of the primary challenges we face in strengthening our global approach to combating terrorist financing and other threats lies in encouraging and assisting our allies to develop similar capabilities. Furthermore, the success of OIA serves as an example to our partners of the critical need for a designated competent authority, which has the capacity and willingness to utilize intelligence in support of targeted financial measures, based on clear national legal authority.

OFAC

OFAC is another unique asset that is critical in advancing our efforts to combat terrorist financing and other national security threats. Led by Director Adam Szubin, OFAC is the office responsible for implementing, administering, and enforcing Treasury’s wide range of economic sanctions programs in support of the US Government’s national security and foreign policy interests. With respect to terrorist financing, OFAC implements and administers Executive Order 13224, a principal authority by which the USG designates those individuals and entities engaged in or otherwise supporting terrorist activity. It has similar authorities for narcotics trafficking and proliferation.

While the immediate legal effect of these designations – freezing any assets the target has under U.S. jurisdiction and preventing U.S. persons from doing business with them – is relatively straightforward and largely understood, the actual impact of these targeted economic sanctions is less visible and often misunderstood. Broadly speaking, these sanctions are preventive in nature. In simplest terms, they prevent terrorists from obtaining the resources and support they require to conduct their operations and execute attacks. Targeted economic sanctions also serve the following purposes:

(1) deterring non-designated parties who might otherwise be willing to finance terrorist activity;

(2) exposing terrorist financing “money trails,” which may generate leads to previously unknown terrorist cells and financiers;

(3) dismantling terrorist financing networks by encouraging designated persons to disassociate themselves from terrorist activity and renounce their affiliation with terrorist groups;

(4) terminating terrorist cash flows by shutting down the pipelines used to move terrorist related funds or other assets;

(5) forcing terrorists to use more costly, less efficient and riskier means of financing their activities, which can make them more susceptible to detection and disruption; and

(6) fostering international co-operation and compliance with obligations under

UNSCR 1267 and its successor resolutions, and UNSCR 1373.

To accomplish these objectives, targeted economic sanctions must be operationally implemented and enforced. OFAC is unique in that it is the only office in the world that is significantly resourced and dedicated exclusively to advancing these interests through licensing, outreach, compliance, and enforcement. As with TFI’s intelligence office, encouraging our partners to set up administrative bodies similar to OFAC represents another crucial challenge that we face in effectively globalizing our campaign against illicit finance. Operational capability is an essential tool for the international community to identify, disrupt, and help dismantle illicit networks.

FinCEN

Led by Director Jim Freis, FINCEN is primarily responsible for administering and enforcing the Bank Secrecy Act (BSA). This is one of the primary authorities that we rely upon to promote transparency in the U.S. financial system. Systemic transparency is a necessary precondition for advancing the threefold mission of TFI. In short, financial transparency provides the visibility required to safeguard the financial system, identify and extract information useful to law enforcement and counter-terrorism authorities, and take targeted action against those threats that operate within the financial system.

FinCEN promotes transparency through the BSA by promulgating and enforcing regulations that generally require covered financial institutions to develop and implement customer identification, recordkeeping, reporting, and anti-money laundering (AML) programs. In addition, FinCEN conducts analysis of the information that it receives from financial institutions to assist law enforcement and counter-terrorism authorities in initiating or advancing financial investigations. Finally, FinCEN works with counterparts from over 100 countries through the Egmont Group to facilitate the cross-border exchange of financial information in support of financial investigations. FinCEN serves as a gateway to financial intelligence units (FIUs) in foreign jurisdictions to assist in these financial investigations.

Key challenges that we face in effectively globalizing our counter-terrorism campaign lies in better utilizing these FIU relationships to advance terrorist financing investigations and promoting multi-lateral implementation of financial measures against terrorist organizations and their support networks.

TEOAF

The Treasury Executive Office of Asset Forfeiture (TEOAF) serves as a mechanism for re-investing forfeited illicit proceeds by funding cooperative initiatives among federal, state, and local authorities. Funds administered by TEOAF can be used to test new ideas and approaches to combat illicit finance. It is important, particularly for developing jurisdictions, to adopt sound forfeiture authorities and management mechanisms that exploit the ill-gotten resources of money launderers and terrorist financers and invest in much needed personnel, training, and equipment for AML/CFT supervision and enforcement.

TFFC

Finally, let me say a word about my office, the Office of Terrorist Financing and Financial Crimes.  TFFC develops and implements policies, strategies, and initiatives to:

identify and address vulnerabilities in the U.S. and international financial system, and

take targeted economic and financial action against security threats and their support networks. We also provide direct support to TFI’s Under Secretary, Stuart Levey, and Treasury leadership on issues that implicate TFI’s interests – particularly with respect to the activities of the National Security Council. In fulfilling these responsibilities, TFFC works closely with all elements of TFI and the Treasury, as well as with the inter-agency community, the private sector, and government ministries from around the world. We do this both bilaterally and through multilateral organizations such as the G7, the IFIs, the FATF, and the various FATF-Style Regional Bodies (FSRBs).

As I turn now to a specific discussion of our efforts to combat terrorist financing, I want to emphasize at the outset that these efforts are truly interagency and we are not in this fight alone. I’ll focus on Treasury’s role, but as the discussion will hopefully make clear, effective efforts to attack terrorist support networks involve all elements of the interagency working together: intelligence, law enforcement, diplomatic, and military. We benefit in this endeavor from strong relationships with our interagency partners, specifically the National Security Council’s planning and coordination through its Counterterrorism Security Group and its Sub-group on Terrorist Financing, and the efforts of the National Counterterrorism Center (NCTC).

Defining Terrorist Financing

Context and Scope of Terrorist Financing

In order to combat terrorist financing, one must first understand what terrorist financing actually is in a broader context. Combating the financing of terrorism is part of the broader war on terrorism. As such, our counter-terrorist financing efforts must focus not only on the relatively narrow perspective of finance, but also on the wider landscape of terrorist support, including those structures and organizations that terrorists rely upon to execute their attacks and advance their agendas.

Such a broad view of terrorist financing and support is essential in understanding the importance of our work. We have all heard the arguments posed by those who question the effectiveness of counter-terrorist financing efforts. These critics point to the minimal costs and relative ease of procuring materials that are often used in terrorist attacks such as precursor chemicals or suicide belts. However, as many scholars in this room have pointed out, these arguments ignore the much larger and sustained expenses required to finance the terrorist life cycle – to include propaganda, radicalization, recruitment, and popular support gained through the delivery of welfare and social services and the development of organized media and political campaigns among vulnerable populations. They ignore the training, travel, and operational support that terrorists require to be successful. They ignore the costs of securing and protecting safe havens from which terrorists can plan and organize their operations. And perhaps most importantly, they ignore the massive devastation that terrorists could inflict if they were to have the financial and logistical means to acquire weapons of mass destruction.

Elements of Terrorist Financing

This understanding of the broader costs required to sustain and make operational the terrorist threat explains the USG’s focus on terrorist organizations and their support networks. It also informs our perspective in focusing on the elements of terrorist financing. These elements can be roughly divided between sources and conduits of terrorist financing or support.

Experience indicates that terrorist operatives, cells, and organizations rely on three general sources of financing and support: donors – particularly ideologically motivated individuals, but also funds raised by or through charities from witting or unwitting donors, criminal proceeds; and state sponsorship.

Experience also indicates that terrorist operatives, cells, and organizations – like many criminal organizations – exploit all three fundamental ways to move value as conduits of terrorist financing and support. These conduits include: the formal financial system, the physical movement of currency, and the physical movement of goods through the trade system. In exploiting these three fundamental ways of transferring value, terrorist organizations and their support networks may employ several different mechanisms, including wire transfers, cash couriers, charities, and informal value transfer systems (IVTS), which include alternative remittance systems such as hawala. Hawaladars, like operators of other informal value transfer systems, may conduct transactions and settlement activity through all three ways of moving value – the formal financial system, cash, or trade.

The challenge inherent in this broad recognition of how terrorist operatives, cells, and organizations raise and move funds and support is that it demonstrates the complex, dynamic, and global nature of terrorist financing. The various sources and conduits of funds also illustrate how interdependent our global financial system is, and the critical need to work with our foreign partners and the private sector, including in non-financial industries such as the charitable sector, and in traditionally unregulated sectors such as hawala and remittance systems. Terrorist financing is not static – it adapts and constantly seeks to exploit vulnerabilities in our financial and trade systems.

Nonetheless, this emphasis on the elements of various terrorist financing sources and conduits provides a useful framework for developing and applying TFI’s general strategic approach to combating this threat.

Combating Terrorist Financing

Consistent with our general strategic mission and perspective, TFI has adopted a comprehensive approach to combat the various sources and conduits of terrorist financing and support. This comprehensive approach includes:

(1) developing, implementing, and globalizing measures and initiatives to close systemic vulnerabilities;

(2) targeting – identifying critical nodes of terrorist support;

(3) developing, implementing, and globalizing targeted actions and initiatives against those nodes; and

(4) enhancing implementation through private sector outreach.

Systemic Measures and Initiatives

Systemically, in order to better protect against, identify, and intercept terrorist support networks, TFI focuses on enhancing the transparency of the financial system and those industries and financing mechanisms particularly vulnerable to those networks.

Domestically, TFI has generally strengthened and expanded the BSA through FinCEN’s implementation of Title III of the PATRIOT Act to promote greater transparency across the financial system since the terrorist attacks of 9/11. These efforts have included a host of regulations that strengthen pre-existing AML controls in banking and other financial sectors, as well as regulations that extend AML customer identification, recordkeeping, reporting, and AML programmatic requirements to new industries. This has improved our overall ability to identify not only terrorist-financing-related transactions, accounts, and actors, but also other illicit financing threats.

Internationally, through our leadership of the USG delegation at the FATF and the various FSRBs, TFI has assisted in substantially improving the global transparency of the financial system. These efforts have focused on setting standards – as evidenced by the adoption and development of the FATF Special Recommendations on Terrorist Financing – and creating accountability and capacity for implementing those standards through mutual evaluations, training, and technical assistance.

TFI has focused systemic efforts on the mechanisms and industries particularly vulnerable to terrorist financing – including cross-border wire transfers, charities, cash couriers, and trade-based systems.

For example:

Cross-border wire transfers – TFI has collaborated with industry to improve the transparency of cover payments and Automated Clearing House payments. We have also led international efforts through the FATF to develop an international standard requiring the inclusion of originator information on cross-border wire transfers.

Charities – TFFC has worked together with the IRS to promote greater transparency through stronger reporting requirements for those charities seeking tax-exempt recognition from the IRS. TFFC has also led TFI’s engagement with the charitable sector and developed Treasury’s Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities. More broadly, TFFC has led a USG and global approach through the FATF to combating terrorist exploitation of charities by developing an international standard, which includes strengthening oversight, enforcement, outreach, and international engagement. TFFC has also led USG and international efforts to publish ongoing threat information and typologies regarding this threat.

Cash couriers – TFFC has worked with Immigration and Customs Enforcement (ICE) to promote transparency and detect the use of cash couriers by leading a global approach requiring cross-border declaration or disclosure of currency and bearer negotiable instruments. This is illustrated by the adoption of a new international standard and associated guidance by the FATF.

Trade transparency – TFFC is also working with ICE to facilitate transparency across the global trade-based system by proposing a new international standard at the FATF. Moreover, TEOAF has funded the development of ICE’s innovative trade transparency unit, which is working to establish similar counterparts in other countries to exchange trade data for purposes of detecting trade-based money laundering.

Targeting

We are working constantly to focus Treasury’s substantial authorities and resources on selecting terrorist financing targets that can have the most impact. Several times a week, staff of TFI offices gathers with TFI leadership to discuss specific targets. OIA, using all-source intelligence, develops a picture of the target complemented by OFAC and FINCEN data and analysis. The group then reviews what courses of action available to Treasury – administrative, regulatory, formal, or informal – could disrupt or shut down the threat. Courses of action are then developed and coordinated through the Sub-CSG on Terrorist Financing and other mechanisms, as necessary.

Globalizing Targeted Actions and Initiatives

The U.S. is most effective in combating terrorist support networks when it can act multilaterally. On this front, OFAC and TFFC have led TFI’s efforts to globalize targeted sanctions against terrorist financing by providing substantive expertise to the State Department in the successful development of global terrorist financing sanctions regimes through UN Security Council Resolution 1267 and its successor resolutions, as well as UNSCR 1373. TFFC has facilitated global implementation of these sanctions regimes by leading the development of an international standard and associated guidance at the FATF.

Challenges remain, however, in facilitating global compliance with these sanctions obligations. To address this, TFI has led the development of workshops at the FATF and the Asia Pacific Group – the largest FSRB – as well as with the European Union. These efforts have led to a better understanding of the operational components of a sanctions regime at a national level in accordance with UNSCR 1373. TFFC and OFAC are also engaged with the State Department to strengthen the 1267 sanctions regime at the UN. Additional challenges include how to strike the appropriate balance between due process concerns regarding independent review of UN designations with the need to generate more robust targeting submissions from member states. Lastly, efforts are continuing to streamline the execution of designations by the Al Qaeda and Taliban Sanctions Committee.

Private Sector Outreach

The private sector is also a critical partner in the effective implementation of sanctions and thus outreach and dialogue with them is extremely important. Within TFI, OFAC conducts ongoing outreach across the U.S. financial system and vulnerable non-financial industries to facilitate sanctions implementation. FinCEN similarly engages in constant outreach to all financial industries covered under the BSA, through a variety of efforts, including through the Bank Secrecy Act Advisory Group (BSAAG). These ongoing efforts are essential to facilitating domestic implementation of the targeted and systemic authorities that TFI possesses.

Another example of our outreach efforts is Treasury and our USG partners’ engagement with the charitable sector and affected communities in the United States concerning terrorist organizations’ exploitation of charities. Almsgiving is an important expression of religious faith for Muslims throughout the world and charity is one of the pillars of Islam. It is also a core American value and integral part of American culture and society. It is a sad reality, but terrorist organizations continue to effectively exploit charity to finance their operations and to cultivate broader support from vulnerable populations. In response to this ongoing threat, TFI has worked with its interagency partners to develop a multi-pronged strategy to combat such exploitation, a key element of which is raising awareness of terrorist financing threats and risk mitigation practices in the charitable sector through comprehensive and sustained outreach.

Internationally, TFFC is working with a number of partners from the private sector, multilateral organizations, and bilateral counterparts to promote private sector implementation of sound AML/CFT controls in banking communities across the Middle East / North Africa (MENA) and Latin American (LA) regions. TFFC is advancing these efforts through the creation of Private Sector Dialogue (PSD) initiatives that bring representatives of U.S. banks together with private sector counterparts from key regions. The PSD allows us to raise awareness of money laundering and terrorist financing risks; to facilitate a better understanding of effective practices and programs to combat such risks; to strengthen implementation of effective AML/CFT controls; and to exchange information and improve understanding of business cultures and norms.

Iran

Given the Washington Institute’s extensive work on Iran, I also wanted to take this opportunity briefly remark on some of the major developments that have occurred since Deputy Secretary Kimmitt’s last visit. In May, the Deputy Secretary noted that the United States has employed a two-fold sanctions strategy utilizing domestic authorities and engaging in intense international outreach highlighting deceptive conduct by Iran and its state-owned banks.

To date, in addition to a variety of domestic U.S. actions, multilateral efforts have yielded critical success in the adoption of two Chapter VII UN Security Council Resolutions – Resolutions 1737 and 1747 – imposing significant sanctions on Iran. These resolutions target Iran’s nuclear and missile programs and, among other requirements, obligate states to freeze the assets of named entities and individuals associated with those programs. Perhaps most significantly on the finance side, the Security Council recognized the role that Iran’s state-owned banks have played in facilitating Iran’s proliferation activities in particular with the designation of Bank Sepah.

As the Deputy Secretary noted, domestic and international actions have been accompanied by Treasury’s unprecedented outreach to the international private sector, meeting with more than 40 banks around the world to share information and discuss the risks of doing business with Iran. 

Since May, there have been some significant developments both on the domestic and international fronts.

In October, FATF issued a public statement confirming the extraordinary systemic risks that Iran poses to the global financial system. FATF also issued guidance to assist countries in implementing the financial provisions of the UN resolutions on Iran. That guidance identified customers and transactions associated with Iran as representing a significant risk of involvement in proliferation finance. Consistent with the FATF statement, jurisdictions all over the world have begun issuing warnings to their financial institutions of such risks

Conclusion

Our financial enforcement efforts have come a long way from sanctions measures we have applied to threats in the past. As demonstrated by our recent experience in the context of Iran, we have learned that the most effective measures are carefully targeted at illicit conduct; are multilateral in scope; and
are combined with private sector and foreign government outreach.

These principals hold true with respect to all illicit financing threats be they terrorism, proliferation, narcotics, or other criminal conduct. While in the past our broad-based country sanctions have been criticized by some as an inappropriate extension of U.S. law, these new targeted efforts have the effect of engaging our allies. Sanctions have the most comprehensive impact when applied cooperatively and collectively. We are working hard internationally, with governments and the private sector, to build consensus and capacity to do just that.

Thank you.

Secretary Paulson on Targeted Financial Measures to Protect Our National Security

June 14, 2007
HP-457

Remarks by Treasury Secretary Paulson on
Targeted Financial Measures to Protect Our National Security

Good morning. Thank you, Hank, and thank you to the Council on Foreign Relations for hosting us. It is a pleasure to be with you.

New York is the heart of the world’s financial system and Treasury Secretaries often come here to talk about the role that system plays in our economic health. Today, I want to talk about something a little different – the financial system’s importance to our national security.

Throughout history, Treasury Secretaries have focused their efforts on promoting policies and actions to help ensure the safety and soundness of our financial system. Today, the Secretary must focus on the security of the financial system, as well as its safety and soundness.

Global financial flows are growing rapidly and greatly exceed the trade in goods and services. This is a positive trend; open finance and free trade enhance the economic security and prosperity of people in this country and around the world. But bad actors seek to abuse this global financial system to support their illicit purposes. The world of finance and the world of terror and weapons proliferation intersect through the same system that spreads prosperity at home and abroad.

National security is not only an integral part of my job; it is also a sobering one. Our enemies are determined, and there are significant threats that aren’t going away anytime soon. As part of the National Security Council, I work with the President and his Cabinet to address these threats. Treasury is now a key pillar of the President’s national security and foreign policy strategy.

An integrated world economy presents challenges and opportunities. The challenge and importance of protecting the integrity of our global financial network have never been greater. Our financial system also presents us with enormous opportunities because technology and integration have made it more difficult for anyone using the financial system to hide. This makes financial intelligence a particularly valuable tool to detect and disrupt bad actors. Recognizing this, Congress and the President have provided an expanded set of tools that allow innovative and more focused uses of financial intelligence. These targeted financial measures are proving to be quite effective, flying in the face of a widely-held historical view that dismisses sanctions as ineffective, harmful to innocents, or both.

There are certainly times when that conventional wisdom is true, particularly with broad, country-wide sanctions that are perceived as political statements. It can be difficult to persuade other governments and private businesses to join such sanctions. Even when other governments agree with us politically, they generally tend to be unwilling to force their nation’s businesses to forego opportunities that remain open to others. When the private sector views such broad sanctions as unwelcome political barriers to trade, companies are unmotivated to do more than what is minimally necessary to comply. Indeed, history is replete with examples of participants in the global economy working to evade such sanctions while their government turns a blind eye.

The dynamic is different when we instead impose financial measures specifically targeted against those individuals or entities engaging in illicit conduct. When we use reliable financial intelligence to build conduct-based cases, it is much easier to achieve a multilateral alignment of interests. It is difficult for another nation, even one which is not a close political ally, to disagree with targeted measures to isolate actors who are demonstrably engaged in conduct that threatens human rights or global security. And multilateral support is critical to the success of financial measures in today’s world.

When we use targeted financial measures aimed at explicit wrongdoing, the private sector around the world tends to support these measures thereby amplifying their effectiveness. Rather than grudgingly complying with, or even trying to evade our sanctions, we have seen the banking industry in particular voluntarily go above and beyond their legal requirements because they do not want to do business with terrorist supporters, money launderers or proliferators. This is a product of good corporate citizenship and a desire to protect their institution’s reputation.

Once some in the private sector decide to cut off those we have targeted, it becomes an even greater reputational risk for others not to follow, and so they often do. Such voluntary implementation by the private sector in turn makes it even more palatable for governments to impose similar measures, thus creating a mutually-reinforcing cycle of public and private action. In the end, if we do our jobs well, especially by sharing critical information with the key governmental and private sector parties around the world, there is the potential for us to create a multilateral coalition to apply significant pressure on those who threaten our security.

Because we are learning to apply our tools in this way, our financial actions have produced demonstrable impacts on threats ranging from terrorist groups to narcotics cartels, and on dangerous regimes in North Korea and Iran. This new strategy uses conduct-based, intelligence-grounded, targeted financial measures to harness the power of the private sector and form the basis of multilateral coalitions, adding an innovative financial dimension to our national security effort.

Treasury can effectively use these tools largely because the U.S. is the key hub of the global financial system; we are the banker to the world. We understand that maintaining this standing, which makes our strategy possible, requires focused and fact-based action, so that the private sector and other governments are most likely to amplify our measures.

Financial Intelligence

The starting point for Treasury’s approach to targeted financial measures is information. To identify and act against threats, we need specific, current, and reliable intelligence. And the global financial system is a rich source of the information we need.

Illicit actors who otherwise try to avoid detection often use the formal financial system because there is no good alternative and, in many cases, no alternative at all. Proliferation networks need import and export financing to buy materials and equipment. Rogue nations depend on the financial system for everything from holding reserves to currency transactions. Terrorist networks use the system to raise and move funds when more opaque alternatives are too cumbersome or risky.

These transactions typically leave a trail of detailed information which we can follow to identify key actors and their networks. Opening an account or initiating a funds transfer requires a name, an address, a phone number; identification information that does not lie. Unlike a phone call or conversation that essentially disappears if it’s not captured at the moment it occurs, the financial system produces records that tend to survive.

In 2004, Treasury became the first finance ministry in the world to develop in-house intelligence and analytic expertise to use this information. We now work with the broader intelligence community, requesting the data necessary to understand the financial networks that threaten our national security. Treasury then evaluates this information with an eye towards potential action – be it a designation, an advisory to the private sector, or a conversation to alert other finance ministers to a particular threat or bad actor.

It is also critical that the government handle and use the information it gathers appropriately. As Treasury implements these efforts to help protect national security, we simultaneously take rigorous steps to protect privacy and preserve civil liberties. We seek to discover those who are abusing the system, keeping in place sufficient controls and safeguards to protect those who are not.

Innovative Use of Financial Authorities

When considering how best to approach a threat, Treasury draws on an array of powerful authorities. Some are very old, such as the Trading with the Enemy Act, originally passed in 1917. Some are much newer, such as the authority to cut off access to the U.S. financial system for an entity that is “of primary money laundering concern” under Section 311 of the PATRIOT Act.

The innovative use of these authorities against national security threats is fairly recent. We have drawn on lessons learned from earlier programs aimed at Colombian drug cartels. Over the last ten years, as these cartels, their associates and financial holdings have appeared on a Treasury list designating them as narcotic traffickers, U.S. banks have frozen their accounts and assets. Colombian and other countries’ banks have then followed suit, refusing to hold or move their money. When given good information, honest bankers won’t do business with these criminals. Treasury has designated over 1,400 individuals and companies, and caused the disruption or seizure of more than $1 billion in proceeds related to these cartels. The cartels refer to being placed on the Treasury list as “muerte civil” or civil death.

Since September 11th, Treasury has been applying these lessons in a more focused effort against global terrorist threats, beginning with a September 23, 2001 Executive Order that authorized the identification and designation of terrorists and their facilitators worldwide. We have based our actions on clear evidence and encouraged the private sector and other nations to follow suit. Under a U.N. resolution, worldwide, targeted sanctions are now in place against members and supporters of al Qaida and the Taliban. The European Union and other nations have joined the United States in designating the terrorist group Hamas, and the United Nations has designated individuals responsible for the genocide in Darfur.

The targeted financial measures used against terrorists and their supporters are likely to be as effective in combating proliferation networks. While terrorist organizations may attempt to shift their financial dealings to informal networks or cash couriers, proliferators tend to depend upon access to the formal financial system, where our controls and visibility are greatest. Those seeking to procure items for a nuclear program, for example, often seek to disguise their efforts by making the transaction appear to be for a legitimate commercial purpose. Those who participate in a proliferation transaction because of profit, rather than ideology, are susceptible to being deterred from such transactions if we can credibly threaten to publicly expose and isolate them. Recognizing this fact, in 2005, President Bush took a visionary first step—issuing a new Executive Order authorizing Treasury to target proliferators and their support networks, just as we do terrorists.

The consequences of these targeted measures can be seen on a number of levels, some obvious and some less so. Most directly, when the U.S. designates a terrorist supporter or a weapons proliferator, U.S. entities and persons, wherever located, must freeze the target’s assets and stop doing business with them. Given the U.S. financial system’s prominence, this can have a severe impact. All major U.S. and foreign banks have offices dedicated to protecting their institutions from infiltration by illicit money. Our designations let these officials know who they need to protect against.

These measures have also led to a base of international, private sector support. Reputable banks around the world don’t want to hold accounts for terrorists and proliferators any more than U.S. banks do. My strong view, based on personal experience, is that the major financial institutions, and the individuals who run them, care deeply about the integrity of the financial system and the reputations of the institutions they run. They genuinely want to be good corporate citizens and want nothing to do with illegal behavior. Additionally, a lack of vigilance on their part is not worth the risk of a regulatory action.

These institutions, which are, in a sense, the true gatekeepers of the financial system, have also become more effective in detecting and combating illicit money flows. As a result, they have made us all safer, and they have become sounder and stronger. We strive to make information-sharing a truly two-way street by expanding and improving the information we provide, to help them make better-informed decisions about their customers.

The information the financial sector shares with the government is critically important to our efforts, and they do so under obligations that they sometimes perceive as unduly burdensome. We will continue to work to ensure that the security benefits justify the regulatory obligations, and will make adjustments as warranted. If we communicate well with the private sector, I believe that we can make our regulations more efficient and simultaneously be more effective in protecting our national security.

Targeted Financial Measures in Action

The impacts of these new financial measures are evident around the world. I would like to highlight a few notable examples.

Terrorism

Treasury continues an intensive effort to track and disrupt terrorist financing that has been effective on several levels. This effort has involved government-wide cooperation, applying law enforcement, military, intelligence, and financial tools depending on the target and the situation. While individual terrorist attacks may be inexpensive to carry out, global terrorist groups need large sums of money to pay operatives, to recruit and train members, to acquire false documents and travel. By exploiting the financial intelligence generated by that activity and combining it with other available information, we have made progress in mapping these terrorist networks. In many ways, that has been the Treasury Department’s most important, but least visible, contribution to the fight against terrorist groups.

Our actions have had additional disruptive effects. We have frozen assets and closed off conduits, such as terrorist-supporting charities in the United States. Some international entities have shut down simply by virtue of being publicly designated and exposed. When we restrict the flow of funds to terrorists groups or disable a link in their financing chain, they then have to shift their focus from planning attacks to concern about their financial viability. These designations may also have a deterrent effect on the financiers who want to keep one foot in the legitimate business world while supporting murder and violence on the side.

When the target provides support to al Qaida or the Taliban, we have perhaps the best example of a multilateral program of targeted financial measures: a U.N. Security Council list that requires all member states to freeze the assets of designated actors. Even when we don’t have that multilateral regime, such as in the case of financial supporters of Hizballah or the Palestinian Islamic Jihad, we have found that our designations make an impact beyond their formal, legal reach, as many banks around the world, who are not obliged to do so, screen their customers and transactions against our list of designated terrorist supporters.

North Korea

In North Korea, we have used targeted financial measures to help protect the U.S. financial system from the DPRK’s illicit financial conduct. We used our authorities to designate several North Korean entities involved in its weapons programs. Because it served as a primary conduit for North Korean illicit actors to access the international financial system, we have also cut off Macau-based Banco Delta Asia’s access to the U.S. financial system.

The real impact, however, has come from the information made public in conjunction with these actions. Worldwide, private financial institutions decided to terminate their business relationships with the designated entities as well as others suspected of engaging in similar conduct. The result is North Korea’s virtual isolation from the global financial system. The effect on North Korea has been significant, because even the most reclusive regime depends on access to the international financial system

It is clear to everyone in the world today that the U.S. government takes very seriously its responsibility to preserve the security of the financial system and protect it against abuses of WMD proliferation, money laundering and other illegal activities. We have potent tools that can change behavior. In this case, our financial measures are part of a wider campaign to change North Korean behavior, including the State Department-led effort to bring about a de-nuclearized Korean Peninsula.

Iran

We are currently in the midst of an effort to apply these same lessons to the very real threat posed by Iran. It is well known that Iran is pursuing nuclear weapons in violation of international agreements and channeling hundreds of millions of dollars to terrorist groups. Still, when I was first briefed on the details, I was surprised to learn the extent to which Iran was exploiting global financial ties to pursue and finance its dangerous behavior, and the extent to which reputable financial institutions were being drawn into these schemes. Financial institutions that would exercise extreme caution to avoid even small-time crooks were unknowingly handling the money of Iran’s proliferation front companies. I knew that the people who run these financial institutions would be shocked and disturbed, to say the least, if they were aware of the facts.

So, to combat the Iranian threat, we embarked on a strategy that combines the use of intelligence-based targeted financial measures with a concentrated outreach strategy to inform financial leaders, in governments and, especially in the private sector, of what was happening. Treasury put together a briefing describing the range of Iran’s deceptive financial conduct. We explained how Iran uses front companies and other mechanisms that make it difficult, if not impossible, for businesses dealing with Iran to “know their customer” or counterparty. We also explained how the Iranian regime uses its state-owned banks to pursue its missile procurement and nuclear programs, as well as fund terrorism. Repeatedly, state-owned Iranian banks, including the Central Bank of Iran, ask other financial institutions to remove their names from global transactions. This practice aims to evade risk-management controls and threatens to involve responsible financial institutions in transactions they would never knowingly handle.

At around the same time, in September 2006, Treasury cut Iran’s state-owned Bank Saderat off from any direct or indirect access to the U.S. financial system, and publicly disclosed some of the information underlying that decision, including that the Central Bank of Iran was sending money through Bank Saderat to Hizballah. We also disclosed evidence that Bank Saderat was providing financial services to other terrorist groups such as the Palestinian Islamic Jihad and Hamas. Almost immediately, financial institutions around the world began to adjust their business with all Iranian state-owned banks and with Bank Saderat, specifically. The private sector, when presented with our solid evidence, is able to act much more quickly than governments who often lack the necessary authority or the political will to take action on their own.

As part of our outreach, we shared extensive information with some of our allies about another Iranian state-owned bank, Bank Sepah, which was providing financial services to Iranian missile firms and trying to disguise its activities. It was our hope that another nation would take the lead in pursuing an action against Bank Sepah, especially when we learned that one of our allies had independently corroborated the information we had shared. Due to a lack of legal authorities and political will, that did not happen. So, in January of this year, we unilaterally designated Bank Sepah as a facilitator of Iranian proliferation.

Other nations often seem to lack the political will to take unilateral actions, and our goal has always been multilateral action. To that end, our outreach eventually proved to be successful when our allies joined us in persuading the United Nations Security Council to blacklist Bank Sepah in its most recent resolution against Iran. Now the entire world must freeze Bank Sepah’s assets, and isolate it from the global financial system.

As a result of our outreach and targeted measures, financial institutions around the world are more sensitive than ever about the very substantial risks posed by doing business with Iran. Most of the world’s top financial institutions have now dramatically reduced their Iranian business or stopped it altogether. For the most part, they are not legally required to take these steps but have decided, as a matter of prudence and integrity that they do not want to be the bankers for such a regime. To those banks that have decided to stop dollar-based business, but continue to transact Iran’s business in other currencies, I would say that the risk of transacting Iran’s business is present in every currency. The engagement of Iran’s state-controlled banks and its Central Bank in advancing the regime’s policies should be cause for great concern to financial institutions around the world.

Due to our State Department’s outstanding work, the UN has passed two unanimous Security Council resolutions sanctioning Iran, and is working on a third. As we approach this next resolution, we are increasingly focused on the role of Iran’s Revolutionary Guard Corps (IRGC). The IRGC, a paramilitary arm of the regime, has been directly involved in the planning and support of terrorist acts, as well as funding and training other terrorist groups to pursue the military objectives of the regime. Based on its role in proliferation activities, the UN has targeted IRGC companies and officials in recent resolutions. The IRGC is so deeply entrenched in Iran’s economy and commercial enterprises, it is increasingly likely that if you are doing business with Iran, you are somehow doing business with the IRGC.

In a country where the regime uses its state-owned banks, military entities, and state-run industries to fund, facilitate, and conceal its WMD and missile programs, the eyes of the world will inevitably turn to the decision maker, the regime itself, and demand that it be held accountable. By approaching the Iran issue the way we have, focusing intensely on specific illicit conduct and making the private sector a partner in the effort, we are in a better position to discuss broader measures with our allies. While the financial isolation of the entire regime may impose costs on our partners and on us, it would be far less costly than a nuclear-armed Iran.

The Way Forward

As these examples show, the innovative use of targeted financial measures has advanced our national security, but there are gaps in this effort that must be filled.

One of the greatest challenges of this century will be to keep the most dangerous weapons out of the hands of dangerous people. As I travel and meet with my colleagues in finance ministries around the world, everyone acknowledges that we must find effective ways to deal with these threats, short of military measures. Yet other nations are not moving quickly enough to accomplish this goal.

Specifically, nations must implement the laws necessary to give their finance ministries the authority to access and use intelligence, and they must move to integrate financial and security functions. This will enable further cooperation and multilateral action, which is in the world’s best interest. And, these authorities must be available for use against terrorist financing, money laundering and the dangerous, emerging practice of proliferation financing.

Although there has not been a terrorist attack on American soil since 9/11, terrorists have struck London, Madrid, Jakarta, Mumbai, Amman, Bali, and Istanbul. Several of our key allies who support the global effort against terrorism have yet to take such basic steps as adequately criminalizing money laundering and terrorist financing. An even greater number of countries have failed to develop the national authorities and capabilities necessary to apply targeted financial measures to any terrorist group other than Al Qaida and the Taliban. We have a shared responsibility for our mutual security, and our allies, who confront risks at least as great as those confronting the United States, must find the political will to enact the authorities they need to join in effective multilateral action. These authorities may not deal a knock-out-punch, but they can and will produce results and change behavior.

My finance ministry counterparts and I have the same responsibility: to broaden our role beyond economic stewardship and become valuable contributors to help ensure our countries’ and our citizens’ security. In performing these dual roles we seek essentially the same end: preserving the global financial system’s integrity, which will enhance economic security and prosperity for people around the world.

Government Contracting Changes

 

Link:  http://www.mondaq.com/article.asp?articleid=81882&login=true&newsub=1

 

 

United States: Government Contracts Alert – Spring 2009

25 June 2009
Article by James McCullough, Joel R. Feildelman, William H. Taft, Steven A. Alerding, Michael J. Anstett, Joseph J. LoBue and William S. Speros

RECENT DEVELOPMENTS

False Claims Act Amendments: On May 20, 2009, the Fraud Enforcement and Recovery Act of 2009 was signed into law, marking only the second time in the history of the civil False Claims Act (FCA) that all-embracing amendments have been made to this 1863 law. The new amendments will adversely affect contractors (and any other person, company, or entity that pays money to the Government or receives Federal funds) by making it far easier to conduct FCA investigations and win FCA recoveries. For a detailed discussion of these significant changes to the FCA, please see Fried Frank FraudMail Alert No. 09-05-21.

 

 

American Recovery And Reinvestment Act Of 2009: Interim rules have been issued implementing procurement-related provisions of the American Recovery and Reinvestment Act of 2009 (Recovery Act), which was signed into law on February 17, 2009. 74 Fed. Reg. 14622-52 (Mar. 31, 2009). One of the interim rules prohibits the use of funds provided by the Recovery Act for any project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and other manufactured goods used as construction material in the project are produced or manufactured in the United States, subject to certain exceptions. Another interim rule requires contractors that receive awards funded in whole or in part by the Recovery Act to report quarterly on the use of such funds. These reporting requirements apply to nearly all Recovery Act-funded contracts, including commercial item contracts, commercially available off-the-shelf (COTS) item contracts, and contracting actions below the simplified acquisition threshold. Other interim rules provide for whistleblower protections and access by Government auditors to contractor records and personnel under contracts involving Recovery Act funds. The interim rules went into effect on March 31, 2009. See also 74 Fed. Reg. 18449 (Apr. 23, 2009) (establishing Government-wide guidance and standard award terms for agencies to include in grants, cooperative agreements, and loans funded under the Recovery Act). In addition, on April 3, 2009 the Office of Management and Budget (OMB) issued updated Government-wide guidance for implementing the Recovery Act, including guidance regarding the award and administration of contracts and grants. This guidance can be found at http://www.recovery.gov/?q=node/317. Other OMB guidance relating to the Recovery Act, including guidance regarding requirements with respect to grants and cooperative agreements, also may be found at http://www.whitehouse.gov/omb/memoranda_default/. (For a discussion of how these interim rules may provide the basis for significant future False Claims Act liability, see the Practitioner’s Comment at the end of the article.)

 

 

Organizational Conflicts Of Interest: On May 22, 2009, the Weapon Systems Acquisition Reform Act of 2009 was signed into law. Among other provisions, the Act requires the Secretary of Defense to revise the Defense Federal Acquisition Regulation Supplement (DFARS) to provide uniform guidance and “tighten existing requirements” for organizational conflicts of interest (OCIs) by contractors in major defense acquisition programs. At a minimum, these revised regulations are required to address OCIs that could arise as a result of: (1) lead system integrator contracts on major defense acquisition programs and contracts that follow lead system integrator contracts on such programs, particularly contracts for production; (2) the ownership of business units performing systems engineering and technical assistance functions, professional services, or management support services in relation to major defense acquisition programs by contractors who simultaneously own business units competing to perform as either the prime contractor or the supplier of a major subsystem or component for such programs; (3) the award of major subsystem contracts by a prime contractor for a major defense acquisition program to business units or other affiliates of the same parent corporate entity, and particularly the award of subcontracts for software integration or the development of a proprietary software system architecture; or (4) the performance by, or assistance of, contractors in technical evaluations on major defense acquisition programs. The revised regulations also must require that a contract for the performance of systems engineering and technical assistance functions for a major defense acquisition program contains a provision prohibiting the contractor or any affiliate from participating as a prime contractor or a major subcontractor in the development or construction of a weapon system under the program. The Secretary of Defense is required to make these DFARS revisions within 270 days of May 22, 2009.

 

 

Employment Eligibility Verification: The applicability date of a new rule, which requires certain contractors and subcontractors to use the US Citizenship and Immigration Services’ E-Verify System as the means of verifying that certain employees are eligible to work in the United States, has been delayed to September 8, 2009. 74 Fed. Reg. 26981 (Jun. 5, 2009); 74 Fed. Reg. 17793 (Apr. 17, 2009); 74 Fed. Reg. 5621 (Jan. 30, 2009); 73 Fed. Reg. 67651 (Nov. 14, 2008). The rule contains a new Federal Acquisition Regulation (FAR) clause (52.222-54) that requires contractors and subcontractors to enroll in the E-Verify program within 30 days of contract award and to begin to use E-Verify within 90 days of enrollment. The requirements apply to all prime contracts except those that (1) are under the simplified acquisition threshold (generally $100,000), (2) are only for work that will be performed outside the United States, (3) have a performance period of less than 120 days, or (4) are only for COTS items, certain other “would be” COTS items, or certain COTS-associated commercial services. Prime contractors are required to flow these requirements down to subcontracts that exceed $3,000, include work performed in the United States, and are for commercial or noncommercial services (except for certain COTS-related commercial services) or construction. The rule should be consulted for further details concerning the application of these requirements to particular categories of employees.

 

 

Post-Government Employment Restrictions: The Department of Defense (DOD) issued an interim rule amending the DFARS to address recently enacted statutory requirements for certain DOD officials to obtain a post-Government employment ethics opinion before accepting a position from a DOD contractor within two years after leaving DOD service. 74 Fed. Reg. 2408 (Jan. 15, 2009). The interim rule, which implements Section 847 of the National Defense Authorization Act for Fiscal Year 2008, applies to certain DOD officials who have held a key acquisition position or who have participated personally and substantially in a DOD acquisition exceeding $10 million. In addition, DOD contractors are prohibited from knowingly providing compensation to any such former official within two years after the official leaves DOD service without first determining that the former official has sought and received (or has not received 30 days after seeking) a written opinion from the appropriate DOD ethics official regarding the applicability of post-Government employment restrictions to the activities that the former official is expected to undertake on behalf of the contractor. Failure by a contractor to comply with this prohibition may subject it to contract rescission, suspension, or debarment. The interim rule went into effect on January 15, 2009.

 

 

Freedom Of Information Act: The US Attorney General issued a memorandum on March 19, 2009 revising Department of Justice (DOJ) policy regarding Freedom of Information Act (FOIA) requests. The memorandum states that agencies “should not withhold information simply because it may do so legally.” The Attorney General instead strongly encourages agencies to make “discretionary” disclosures of information: “An agency should not withhold records merely because it can demonstrate, as a technical matter, that the records fall within the scope of a FOIA exemption.” The memorandum rescinds an October 2001 Attorney General memorandum which stated that the DOJ would defend decisions to withhold records requested under FOIA unless the decisions “lack a sound legal basis or present an unwarranted risk of adverse impact on the ability of other agencies to protect other important records.” The DOJ will now defend the denial of a FOIA request only if (1) the agency reasonably foresees that disclosure would harm an interest protected by one of the statutory exemptions or (2) disclosure is prohibited by law. The Attorney General’s Memorandum may be found at http://www.usdoj.gov/ag/foia-memo-march2009.pdf. The Government’s looser standard for releasing information under FOIA may force more contractors to turn to the courts to protect confidential information from being released to their competitors and other third parties. In that regard, a US district court recently held that a multiple award contractor’s e-mails to the Government regarding the eligibility of another contractor to receive work were exempt from disclosure under FOIA because they contained confidential commercial information. Tybrin Corp. v. US Dept. of Air Force, No. 3:08-cv-002 (S.D. Ohio Feb. 19, 2009). (For a detailed discussion of emerging FOIA policies, see “FEATURE COMMENT: The Obama Administration’s Emerging Policies on Freedom of Information, Transparency and Open Government – New Benefits and Costs for Government Contractors?”)

 

 

RECENT DECISIONS

Solicitation Defects: The US Government Accountability Office (GAO) sustained a pre-award bid protest because the solicitation, which contemplated the award of two Defense Logistics Agency (DLA) contracts for food distribution services in Kuwait, Iraq, and Jordan, did not adequately describe the basis for award. PWC Logistics Services Co., B-400660, Jan. 6, 2009. The solicitation divided the requirement into two zones – one with an estimated value of $7.85 billion and the other with an estimated value of $1.58 billion – and stated that the DLA intended to award each zone to a different contractor. Although the solicitation identified the evaluation factors that the DLA would consider in determining the most advantageous proposal for award of each zone, the solicitation was silent as to the basis for determining which zone an offeror would be awarded if its proposal was found to be the most advantageous for both zones. The GAO concluded that this was inconsistent with the Competition in Contracting Act requirement that agencies identify the bases upon which offerors’ proposals will be evaluated. The GAO further noted that this omission was particularly significant here where the estimated value of one zone was nearly five times greater than the value of the other zone.

 

 

Unduly Restrictive Requirements: The GAO sustained a bid protest challenging the terms of a US Army solicitation for telecommunications equipment because the Army failed to establish that a requirement for equipment certification at the time of proposal submission was necessary to meet the agency’s needs. SMARTnet, Inc., B-400651.2, Jan. 27, 2009, 2009 CPD ¶ 34. The Army required the equipment to be certified by the Joint Interoperability Test Command (JITC), a part of the Defense Information Systems Agency that provides testing and certification of information technology systems and equipment. The protester argued that requiring this certification at the time of proposal submission was unduly restrictive of competition because the JITC certification process is time-consuming and is only performed at two sites in the United States. As a result, the requirement would essentially restrict the procurement to firms that already had the certification at the time the solicitation was issued. The GAO concluded that the Army’s legitimate need for equipment to be JITC-certified at the time of equipment installation did not justify a requirement for certification at the time of proposal submission. “An agency’s otherwise legitimate requirements regarding an offeror’s demonstrated ability to meet contract requirements may not be required prior to when such qualifications become relevant.”

 

 

Procurement Integrity: The GAO refused to review a bid protester’s allegation that the awardee of a NASA contract for space communications network services gained an unfair competitive advantage through its retention of a former NASA official as a consultant for the procurement because the protester failed to timely report this alleged procurement integrity violation to NASA. Honeywell Technology Solutions, Inc., B-400771 et al., Jan. 27, 2009, 2009 CPD ¶ 49. In accordance with statutory procurement integrity provisions and the GAO’s bid protest regulations, the GAO cannot consider a protester’s allegation of a procurement integrity violation unless the protester reported the alleged violation to the contracting agency within 14 days after first becoming aware of the information or facts giving rise to the alleged violation. Here, approximately 10 months before award (and a month before the solicitation was issued) a vice president of the protester learned at a NASA holiday party that a former NASA official, who had been involved in overseeing the developmental and operational elements of the procurement’s statement of work, was assisting another offeror (the eventual awardee) with its proposal. The protester, however, failed to report this potential procurement integrity violation to NASA within 14 days after the holiday party and, instead, first raised the alleged violation nearly a year later in a post-award GAO protest. The GAO therefore dismissed the allegation as untimely.

 

 

Trade Agreements Act: The GAO sustained a bid protest challenging the award of a General Services Administration (GSA) contract for mini-utility vehicles because the GSA failed to follow required evaluation procedures for procurements covered by the Trade Agreements Act (TAA). Tiger Truck, LLC, B-400685, Jan. 14, 2009, 2009 CPD ¶ 19. When the TAA applies to a procurement, the Government must acquire only US-made or designated country end products, unless offers of such “TAA-compliant” products either are not received or are insufficient to fulfil requirements. The GSA received quotations from three offerors, but only one offeror – the protester – certified that its vehicles were TAA-compliant. The GSA, however, concluded that it could not award the contract to the protester because its quoted prices were “exorbitantly unreasonable.” The GSA therefore awarded the contract to another offeror, even though it did not offer TAA-compliant vehicles. The GAO concluded that this evaluation process was flawed. To begin with, while the protester certified that its vehicles were manufactured in the United States, the GSA determined only that the vehicles – which contained several parts purchased from outside the United States – “may” be TAA-compliant. The GAO stated that the GSA should first have determined whether the protester’s vehicles were TAA-compliant in order to ascertain whether any TAA-compliant products were available. If the GSA had determined that the protester’s vehicles were TAA-compliant, the GAO stated that the other two offerors’ quotations for non-TAA-compliant vehicles should have been eliminated from consideration and the GSA should have evaluated only the protester’s quotation. If, however, the GSA had determined that the protester’s vehicles were not TAA-compliant, the head of the contracting activity would have been required to issue a non-availability determination before the GSA could have selected a quotation for non-TAA-compliant vehicles for award. Instead, the GSA improperly failed to determine whether the protester’s vehicles complied with the TAA and, in addition, made award based on a quotation for non-TAA-compliant vehicles without first obtaining a non-availability determination from the head of the contracting activity. In addition, in response to the GSA’s assertion that the protester was not prejudiced by these errors because it was ineligible for award due to its unreasonable prices, the GAO concluded that the GSA failed to conduct meaningful discussions with the protester regarding its quoted prices. Although the GSA clearly viewed the protester’s prices as a deficiency, and the sole basis for rejecting the quotation, the agency during discussions never raised its concern that the quoted prices were unreasonable. The GAO stated that, had the GSA conducted meaningful discussions, the protester would have had the opportunity to reduce its prices or explain why they were fair and reasonable, which could have resolved the GSA’s pricing concerns and resulted in an award to the protester.

 

 

Competitive Range Determinations: The GAO sustained a bid protest regarding a Department of Health and Human Services (HHS) procurement for custodial services because the HHS excluded the protester’s proposal from the competitive range without considering its proposed price. Arc- Tech, Inc., B-400325.3, Feb. 19, 2009, 2009 CPD ¶ 53. An agency may properly exclude a technically unacceptable proposal from the competitive range regardless of its price; however, an agency may not, as here, exclude a technically acceptable proposal from the competitive range without taking into account the relative cost of that proposal to the Government. (In another recent decision involving an agency’s failure to properly consider price, the GAO sustained a protest regarding the issuance of a US Marine Corps task order for information technology services because the record did not establish that the Marine Corps meaningfully considered the protester’s lower price in the agency’s cost/technical tradeoff analysis. ACCESS Systems, Inc., B- 400623.3, Mar. 4, 2009, 2009 CPD ¶ 56. Although the Marine Corps qualitatively evaluated the offerors’ technical quotations and identified differing strengths, the agency was unable, even after a hearing, to explain what evaluated strengths justified paying the price premium associated with the awardee’s quotation. Instead, the Marine Corps repeatedly argued that the protester’s lower evaluated price did not reflect a price advantage.)

 

 

Methods Of Delivery Order Placement: The Armed Services Board of Contract Appeals (ASBCA) held that a contractor was entitled to an equitable adjustment because the US Navy used a contractually unauthorized method for placing delivery orders under an indefinite delivery, indefinite quantity contract to supply digital modular radios. General Dynamics C4 Systems, Inc., ASBCA No. 54988, May 8, 2009. The Navy issued the delivery orders in question by e-mail. The contract, however, did not authorize such a method of delivery order placement. While the contract’s Ordering clause provided that orders could be issued by electronic commerce methods “only if authorized in the Schedule,” the contract’s Schedule did not authorize issuance of orders by e-mail. Likening the placement of orders to the exercise of options, the ASBCA determined that, for an order to be effective, the Government must exercise it in strict compliance with the contract’s terms and, when the Government does not do so but requires the contractor to perform, the contractor has the right to recover the costs it incurred in performing the work, plus a reasonable profit. In that regard, it should be noted that the contractor alleged that the e-mailed delivery orders contained “unconscionable prices” in light of then-extent circumstances, and it sought the difference between the prices paid and its actual performance costs, plus profit.

 

 

Limitation Of Funds: The US Civilian Board of Contract Appeals (CBCA) held that, notwithstanding an Incremental Funding/Limitation of Liability clause in a GSA contract for information technology systems support services, the agency was required to reimburse the contractor for invoiced services exceeding the total authorized funding under the contract. DSS Services, Inc. v. General Services Administration, CBCA No. 1093, Apr. 16, 2009. Although the contract was primarily for services, the GSA modified the contract to require the contractor also to provide equipment. Significantly, however, this modification did not add a contract line item (CLIN) against which to charge the equipment costs; the GSA instead simply increased funding at various times in response to requests for equipment. The contractor ultimately submitted invoices totaling $2.65 million for services rendered under the contract’s four CLINs, which was less than $2.96 million in total funding authorized under the contract, as amended. When equipment costs were added, however, the total costs invoiced under the contract exceeded the total authorized funding. As a result, the GSA refused to pay $691,048 of the invoiced services, the amount in excess of the funding ceiling. The GSA asserted that, pursuant to the contract’s Incremental Funding/Limitation of Liability clause, the contractor should have stopped work once the total amount payable by the GSA under contract, including for both services and equipment, reached the total authorized funding. However, the CBCA determined that, had the GSA not used contract funds to pay for equipment that had not been allocated to a specific CLIN, the total funding under the contract would have been sufficient to cover all of the invoices for services rendered under the CLINs. “The fact that the Government failed to properly charge equipment against a CLIN cannot be the basis for refusing to pay [the contractor] for services properly rendered under the contract.” The CBCA therefore held that the contractor was entitled to payment of the $691,048 in invoiced services which the GSA refused to pay, plus interest.

 

 

Allowability Of Defense And Settlement Costs: The US Court of Appeals for the Federal Circuit (Federal Circuit) reversed a decision of the ASBCA because the ASBCA erroneously held that a military housing contractor’s costs associated with defending and settling a sexual harassment lawsuit were allowable under the contract regardless of the lawsuit’s merits. Geren v. Tecom, Inc., No. 2008-1171 (Fed. Cir. May 19, 2009). During the performance of a cost reimbursement contract for military housing maintenance, a former employee sued the contractor under Title VII of the Civil Rights Act of 1964, alleging sexual harassment and firing in retaliation for filing a sexual harassment charge while the employee was working under the contract. The contractor subsequently settled the case without admitting any wrongdoing, and then sought to (1) include its related legal fees as an indirect cost charged to its G&A expense pool and (2) bill the settlement costs as a direct cost of the contract. The Federal Circuit first held that the costs associated with an adverse judgment in the sexual harassment case would not have been allowable because the alleged harassment clearly would have violated the contract, which included a FAR clause prohibiting discrimination on the basis of sex. The Federal Circuit therefore further held that, under its decision in Boeing North American, Inc. v. Roche, 298 F.3d 1274 (Fed. Cir. 2002), the contractor’s defense and settlement costs were allowable only if the contractor could show that the plaintiff in the Title VII suit had “very little likelihood of success on the merits.” Because the ASBCA refused to apply this standard to the contractor’s defense and settlement costs, the Federal Circuit reversed the ASBCA’s decision and remanded the case to the Board for further proceedings.

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Boeing Sea Launch Chapter 11 Woes

Sea Launch Co. files for Chapter 11 reorganization

Wednesday, June 24, 2009

(06-24) 12:25 PDT Long Beach, Calif. (AP) –

Sea Launch Co., a satellite launch services provider owned by Boeing and international partners, has filed for bankruptcy protection.

In its Chapter 11 filing, the Long Beach-based company listed assets of between $100 million and $500 million against liabilities of between $500 million and $1 billion.

Sea Launch said in a statement this week that it intends to maintain all normal business operations and, subject to court approval, will initially use its cash balance to meet operational requirements during reorganization.

Boeing owns 40 percent of Sea Launch. Its partners are RSC Energia of Moscow, SDO Yuzhnoye/PO Yuzhmash of Ukraine and Aker ASA Group of Norway.

Formed in 1995, the company launches satellites from a seagoing platform that sails from the Port of Long Beach to the equator, where its rockets can lift heavier payloads than would be possible from other locations on Earth’s surface.

The platform is evacuated for launches, which are conducted by controllers aboard an accompanying command ship.

The company also offers land launches from Kazakhstan for medium-weight satellites.

Kjell Karlsen, president and general manager, sought to reassure customers, employees, suppliers and partners.

“Chapter 11 reorganization provides an opportunity for us to continue operations and focus on building our future plans,” he said in the company statement.

The company currently has a backlog of 10 launches, spokeswoman Paula Korn said Wednesday. Eight will be conducted at sea and two will be land launches.

Most of the company’s launches have been successful since the first in 1999. One of its major failures was a 2007 explosion just seconds after ignition that blew a 300-ton gas deflector off the self-propelled Odyssey launch platform.

The company’s most recent launch was conducted this week at the Baikonur space center in Kazakhstan.

http://sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/06/24/financial/f090449D78.DTL

 

 

link:  http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/06/24/financial/f090449D78.DTL&type=health

 

 

Sea Launch Bankruptcy Gives Advantage to European Rivals – Wall Street Journal

Posted by admin

June 24, 2009

Sea Launch Bankruptcy Gives Advantage to European Rivals Wall Street Journal By ANDY PASZTOR The federal bankruptcy court filing earlier this week by Sea Launch Co., the last remaining US-based commercial satellite launch provider, could hand its European and Russian rivals new opportunities to gain control over the industry. Sea Launch Co. files for Chapter 11 reorganization The Associated Press Boeing’s satellite launch subsidiary files for Chapter 11 Seattle Post Intelligencer Reuters  - Los Angeles Times  - Seattle Times  - Motley Fool all 87 news articles

Link:  http://livetrade.com/?p=115076

We must stand up for ourselves and others!

 

One of the group members on Yahoo Group, Whistleblower 411, made a comment,  (Now you’re forever on the Public Enemy #1 List), following another member’s question to the Aaron’s about their frustrating and devastating experiences with both their employer, all of the Texas branches of state and federal law enforcement (oversight agencies included).

 

When a person makes the decision to stand up to what is wrong, for instance refuse to be co-opted or coerced into committing fraud by an employer, or trying to stop waste and abuse or threats to the public, either directly or by refusing to tacitly allow it to occur, that person is not going to be popular with the employer, or at least those bad actors within the company or agency.  At the point you choose to not go down that corrupt path, you are going to take some heat, I would estimate in nearly all cases. 

 

So, think about it.  By speaking out further, what are you risking? 

 

-That your former employer might be mean to you? 

-That your former employer might take retribution on you, undermine you on the job?

-Isolate you and try to frighten other employees into running the other way when they see you coming?

-Set you up to fail in your job?

-Sabotage your computer or software so you quickly are unable to meet timelines or do your work?

-Try to maneuver you into the position you’ve compromised yourself so they can blackmail you?

-Take away your security clearance, or try to with some trumped up accusation?

-Try to negatively affect your personal business matters to threaten your maintaining a security clearance or reputation?

-Deny travel funds so you cannot leave the office to do your job assignments?

-Overload you so dramatically that you are unable to keep up with statistics monitored by upper managers who live at their computers being bean counters?

-Overload you so dramatically in excess workload that you don’t have enough time to complete all reports in a “timely fashion” even if you work hours, unreported at home to try to catch up?

-Create discord and chaos in your family life including destroy your marriage, financially ruin you?

-Threaten you in a host of other ways, whatever crack they can find or create in the fabric of your life including physical threats to your safety?

 

All of these things have happened in the past to real people who’ve tried to address fraud, waste, abuse, and frankly criminal behavior on the job.  In fact, these things are happening to other employees right now, and until we get this mess cleaned up will continue to happen to employees, both industry and government, in the future.

 

Once you do the right thing and stand up to the unethical wrongdoers, even in a small matter, you are going to be a target for some or all of these atrocities anyway.  So, really, putting fear and panic aside and thinking rationally, what do you have to lose?

 

We all have areas of influence.  We must stand up for ourselves and for others. 

 

We must all continue to assertively but professionally stand up to the criminal element in both industry and government and demand accountability and change.  We must all continue in any way we can to demand our government confront corruption within itself as well as within industry. Our government has the authority to demand integrity and compliance to the law if federal employees would have the will individually and collectively to do so.  If the Executive and Legislative branch also had the will to do what is right, they too could hold the line.  And if the Judicial branch corruption and failings were addressed and resolved by the Executive and Legislative branches, we might finally get somewhere with oversight and prosecutions.

 

It seems to me that some sort of clearinghouse of lawyers willing and able to take on whistleblower cases is needed for one thing.  Maybe Whistleblower 411 could start a working list of such legal professionals.  I can think of at least a dozen who need legal representation right now, who have been hard pressed to find someone who is able and willing to do it.

 

I greatly admire the people who have the conviction and courage to stand up! In light of this, if any of you wish to place your stories or other information on one or more of my Whistleblower blogs, (see web page addresses below) and do not want to add your ideas via comments on blog posts, you may email me with your concerns and information. 

 

You also may contact me to ask for my mailing address for sending materials “snail mail,” if you do not wish to transmit them electronically.  I will send the mail address to you privately to your email address, rather than in this open forum.  You may have your story reported anonymously or credited to your name, as you wish.  I will do what I can to help you call attention to the problems you have discovered or experienced.

 

Carry on persistently,

 

G. Florence Scott

http://gflorencescott.wordpress.com

 

http://whistleblowersupporter.typepad.com