Interior Department employees taking money and gifts, rigging bids, and literally being in bed with the oil industry go unpunished. A Food and Drug Administration (FDA) official screening for conflicts of interest allows an academic, who has been paid by the manufacturer of a drug known to cause unnecessary deaths, to sit on a federal advisory panel and advise that the drug stay on the market. The Army fails to pursue refunds from a major defense contractor whom the Pentagon Inspector General says overcharged the Army by millions. The Securities and Exchange Commission (SEC) fails to discipline its own employees for inappropriately shutting down enforcement cases after being contacted by former colleagues who work for the companies being investigated.
In these examples, the private sector is benefitting, perhaps inappropriately. But can you blame them? While it’s no excuse for wrongdoing, let’s be honest: The business of business is to make money, but it’s the government’s business to protect the public’s interests.
In the four cases mentioned, the government’s failure to act contributes to a culture of impunity.
At the Interior Department, the Office of Inspector General (OIG) found numerous ethical lapses among as much as one third of the employees in the now defunct Minerals Management Service (MMS)’s Royalty-in-Kind (RIK) program. Several MMS employees “socialized with, and received a wide array of gifts and gratuities from, oil and gas companies with whom [the program] was conducting official business,” according to a memo sent from the Interior IG to the head of the Department. For instance, Gregory W. Smith, the former director of the MMS office in Lakewood, CO, was paid “over $30,000 for his work in marketing Geomatrix [Consultants, Inc.] to various oil and gas companies, most of whom, because of their business relationships with RIK, were considered prohibited sources,” according to an OIG investigative report. Another Senior Executive, Lucy Dennett had “manipulated the contracting process from the start” by setting up sweetheart government contracts for friends leaving the government—such an egregious abuse the IG called it “a culture of ethical failure.” The OIG referred evidence against Smith and Dennett to the Justice Department, which declined to prosecute.
Then there’s the FDA, which allowed a Stanford professor to sit on an FDA advisory committee in December 2010 on the safety of drugs like Bayer’s Yaz and Yasmin oral contraceptives, despite that professor’s very recent history (as of November 2010) of paid advisory work for Bayer to advise the company on Yaz and Yasmin. Paula Hillard, the Stanford professor, said she disclosed all relevant information to the FDA, but that the FDA did not determine she had a conflict of interest. Hillard voted in favor of Bayer’s drug when it came down to a vote by the FDA committee. The vote was close—15 to 11—with Hillard and three other committee members with industry ties voting in favor of the drugs.
Over at the Army, Boeing was charging the Army absurdly high prices on helicopter spare parts. The Pentagon’s OIG recommended the Army seek up to $13 million in refunds from Boeing. For instance, one of the OIG’s recommendations was that the Army should request a $6 million refund from Boeing for charging the Army for higher subcontractor prices even though Boeing negotiated lower prices for itself from those subcontractors. In response, the Army told the OIG that “there is no justification to request a refund.” Defense News reported that instead of worrying about the enormous markup on spare parts, Army officials “prefer to focus” on the fact that Boeing had been repairing equipment at a faster rate. The OIG found that the improvements to these repair turnaround times had been exaggerated by as much as 20 percent.
Last, but not least, the SEC’s OIG reviewed an investigation conducted by the Commission’s Miami Regional Office into Bear Stearns and a related entity, W. Holding Company, Inc. The case involved allegedly false and misleading securities forms and fraud committed by senior Bear Stearns executives. The OIG found that a former SEC Enforcement attorney, with whom the Regional Director of the Miami office, David Nelson, had an ongoing personal relationship, represented Bear Stearns in settlement discussions with the Commission. Nelson abruptly closed the case just as the Commission staff was making final settlement arrangements. He then contacted the former Enforcement attorney who represented Bear Stearns and told him, “Christmas is coming early this year” and that Bear Stearns “can keep their money.” The OIG concluded that Nelson “failed to administer his statutory obligations and responsibilities to vigorously enforce compliance with securities laws in connection with the W. Holding/Bear Stearns investigation,” and recommended that he be subject to disciplinary and/or performance-based action. However, the SEC decided not to discipline Nelson.
In these cases, industry might be doing something that is questionable and/or fleeces the taxpayer, but it’s the government’s failure to maintain its own integrity and robustly protect its own interests that enabled the wrongdoing. Holding those people accountable whose job it is to protect the public good is the only way to change this culture of impunity.
Nick Schwellenbach is POGO's Director of Investigations and Danielle Brian is POGO's Executive Director
Image via Flickr user ItzaFineDay.