Testimony

Statement by
Edward M. Swindell
Associate General Counsel, Ethics Division
Office of the General Counsel
United States Department of Health and Human Services

on
Hearing: Avoiding Conflicts of Interest at the National Institutes of Health
before the
Committee on Appropriations
Subcommittee on Labor, Health and Human Services,
Education and Related Agencies

January 22, 2004

MR. CHAIRMAN, SENATOR HARKIN, AND MEMBERS OF THE SUBCOMMITTEE:

I am Ed Swindell, Associate General Counsel for Ethics at the Department of Health of Human Services (HHS). My principal role is to advise the Secretary and the General Counsel on ethics and political activity issues within the Office of the Secretary. Concurrently, I serve as the Designated Agency Ethics Official (DAEO) for the Department. In this capacity, I am the point of contact for liaison with the Office of Government Ethics (OGE) and exercise general superintendence over a decentralized Departmental ethics program through the appointment of Deputy Ethics Counselors (DECs) chosen by each operating division, such as the Food and Drug Administration (FDA), the Centers for Disease Control and Prevention (CDC), and the National Institutes of Health (NIH).

The DECs administer an ethics program within their respective components and are responsible for establishing a system for reviewing public and confidential financial disclosure forms, considering outside activity requests, providing ethics advice to individual employees, initiating ethics education and training programs, and ensuring that violations of the conflicts statutes or the conduct standards are reported to investigatory authorities and where appropriate, disciplinary action is taken. My office has similar responsibilities within the Office of the Secretary, and staff lawyers within the Ethics Division are available to provide guidance to the DECs. The DECs are senior officials within each component, and they have staff who assist them in carrying out the ethics functions, either as collateral duties or as members of an ethics program office. Within the NIH, a DEC in the Office of the Director coordinates the ethics program for that operating division. The NIH DEC also serves as the ethics official for senior NIH staff. In addition, DECs in each NIH Institute and Center administer the ethics program for their respective employees.

The committee has asked that I briefly recount the process and applicable law that govern the approval of outside activities. HHS employees are required by an agency supplemental regulation to seek prior approval for professional or consultative activities, teaching, speaking, or writing, and board service. They submit an HHS Form 520 that solicits detailed information about the proposed activity, and each operating division may specify various levels of review, which may start with the supervisor and end with the DEC.

Approval requires an assessment of whether the proposed outside activity violates any statute or regulation, including the OGE Standards of Ethical Conduct for Employees of the Executive Branch or the HHS supplemental ethics regulation. Included in the OGE Standards is the requirement that the proposed activity cannot create an actual or apparent conflict that would result in recusals that would materially impair an employee's ability to do his job.

In evaluating conflicts, the reviewer must address two provisions that form the core of federal ethics law. A criminal statute, 18 U.S.C. 208, deals with an "actual conflict" due to the employee's own or imputed financial interest in the resolution of a government matter. A regulatory provision in the OGE Standards, 5 C.F.R. 2635.502, principally addresses disqualifications called for when an "appearance of a conflict" arises from a "covered relationship."

Under section 208 of the criminal code, to avoid a conflict of interest that results, for example, from stock ownership or outside employment, a federal employee must not participate personally and substantially in a particular matter that, to his knowledge, directly and predictably affects his own financial interest or that of his outside employer. To prevent an "appearance of a conflict" that results from serving in a role short of employment, for example, as an advisor, consultant, or other type of independent contractor compensated with fees and expenses, a different rule applies. Under section 502 of the regulations, if a reasonable person with knowledge of the relevant facts would question the federal employee's impartiality, he must recuse, but only from "particular matters involving specific parties," such as grants, contracts, audits, lawsuits, clinical trials, or new drug applications, that involve the company to which he is proving consulting services as a party or representative of a party.

Both sections are disqualification provisions in that they do not prohibit the acquisition of an asset or relationship, rather they bar actual "participation" in a potentially conflicting matter, either personally or through the direct and active supervision of the participation of a subordinate. However, neither section is triggered by mere knowledge of, or official responsibility for, a particular matter. In short, if an employee can recuse appropriately and still be able to do his job, then an outside activity shall be approved, provided there are no other statutory or regulatory impediments.

In addition, a number of statutes and regulations do preclude certain outside activities. For example, if an employee sought approval to be a lobbyist, the anti-representation statutes, 18 U.S.C. 203 and 205, would be implicated. If the activity were clearly one that should be done as an official duty, then approval would be denied, under 18 U.S.C. 209, as an improper salary supplementation. If the circumstances would create an appearance that the employee has used his official position to obtain an outside compensated business opportunity or would create the further appearance of using his public office for the private gain of the outside company, then under the principles in the OGE Standards, 5 C.F.R. 2635.101(b), and the rules governing misuse of position, 5 C.F.R. 2635.702, the outside activity may be denied. An example would be where an employee was recently instrumental in formulating industry standards and would again be so involved. If an affected company offers a consulting contract to the employee to render advice to the company about how it can restructure its operations to comply with the very industry standards that the employee has just drafted, the consulting arrangement should not be approved even though the employee lacks any current assignments affecting the industry, and even though the outside consulting can be finished before he again works on such matters.

Another regulation, 5 C.F.R. 2635.807, precludes compensation, subject to certain exceptions, if an employee wants to teach a course, deliver a speech, or write a book that relates to his official duties. (Consulting, technically, is not covered by this section, but the analysis does provide guidance in evaluating many outside activities.) The "relatedness" test evaluates, among other factors, the subject matter of the activity. For career employees, compensation is precluded if the teaching, speaking, or writing deals in significant part with any current assignment (or one completed within the last year) or any ongoing policy, program, or operation of the agency. However, the provision has an important exception. A career employee may receive compensation for "teaching, speaking, or writing on a subject within the employee's discipline or inherent area of expertise based on his educational background or experience even though the [activity] deals generally with a subject within the agency's areas of responsibility."

As noted earlier, outside activities must also comply with applicable provisions governing the avoidance of actions creating an appearance of violating the ethical standards, including the prohibition against use of official position for an employee's private gain or for the private gain of any person with whom the employee has employment or business relations or is otherwise affiliated in a nongovernmental capacity.

As can readily be seen, supervisors, ethics program officers, and the DECs, in particular, have difficult assessments to make when reviewing outside activity requests. Even when the activities are approved, individual employees remain personally responsible for abiding by their recusal obligations and avoiding violations of any other applicable provisions. These responsibilities are exacerbated by mergers, acquisitions, joint ventures, partnerships, and even name changes, within industry that, on any given day, may make it difficult to know whether one has a conflict to avoid.

One HHS component, the Food and Drug Administration (FDA), has dealt with these difficult issues by regulation for over two decades. When the OGE Standards became effective in 1993, FDA had prohibited holdings and outside activity regulations that were "grandfathered" for a certain period. The OGE Standards allow agencies to promulgate, with OGE concurrence, supplemental ethics regulations deemed "necessary and appropriate" to address issues unique to an agency's programs and operations. FDA requested that the Department seek to preserve FDA's pre-existing rules. Accordingly, the HHS supplemental ethics regulation issued in 1996 prohibits FDA employees from holding financial interests in significantly regulated companies, subject to limited exceptions for lower level employees. In addition, FDA employees whose positions require them to file public or confidential financial disclosure forms are barred, subject to certain exceptions, from engaging in employment or consulting with a significantly regulated company or "any self-employed business activity for which the sale or promotion of FDA-regulated products is expected to constitute ten percent or more of annual gross sales or revenues."

FDA, of course, is a regulatory agency that, according to some estimates, directly affects 25% of the American economy. FDA's supplemental prohibitions may or may not provide the best model for non-regulatory agencies. NIH clearly interacts with universities and medical research organizations, as well as the health, biotechnology, and pharmaceutical industries, but primarily through intramural research and clinical trials and extramural funding of similar pursuits. Individual assessment of an employee's proposed outside activity under the extant, albeit recondite, standards may remain the appropriate course. NIH Director Elias Zerhouni will be forming a Blue Ribbon Panel to consider these policy options. My office is committed to providing legal assistance to that body and to NIH as it deals with these difficult issues. If supplemental regulations prove the best option, we will work with NIH in drafting regulations for Departmental approval and submission to OGE. Our collective goal is to ensure public confidence in agency programs and operations through whatever means will best accomplish that objective.

Thank you for the opportunity to speak with you today. I would be pleased to answer any questions that you may have.

Last Revised: January 22, 2004