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Website:   Date: 10/14/2004   Time:  6:48:13 PM

Help for DON Personnel
I need to file a financial disclosure.

Help for DON Personnel
I need to take my annual ethics training.

Importance of Ethical Conduct
A Message from the Designated Agency Ethics Official
The Honorable Alberto J. Mora
General Counsel of the Navy

All of us who serve must do so in the highest ethical manner to be eligible for the public’s trust. We owe the American people our best efforts to perform our day-to-day duties responsibly and ethically.

The public has the right to expect each of us to act on its behalf at all times. Public service is a public trust and we pledge our loyalty to the U.S. Constitution, laws and ethical principles above personal gain. That is why I urge you to pay extra attention to all the standards of ethical conduct that apply to naval personnel.

On his inauguration day, January 20, 2001, the President set the tone by issuing a memorandum to the heads of executive departments and agencies to ensure that all of our personnel know and faithfully observe the ethics laws and regulations. We embrace this direction wholeheartedly and, indeed, have gone one step further. As Secretary Gordon England has noted, one of his most important “Principles of Leadership” is to make ethical standards the most important guide to your decision-making. I hope you will take Secretary England’s leadership principle to heart and use it as you fulfill your duties.

If you have any questions, please feel free to consult your ethics counselors. They are there to help you.

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Recent News Items

  • Political Conventions: DOD has issued policy guidance with respect to attending political conventions. OSD Policy

  • Politics: More on Politics and the related rules regarding what Federal Employees may and may not do. Most of this you have seen before, but it doesn't hurt to see it again...

  • New Rule: New OGE regulation on issuance of Certificates Of Divestiture (Final Rule amendments).

  • For those who may have missed them, OSD SOCO's latest two news items....

    Please note the availability of the 2004 Computer Ethics Annual Training materials now available on the DOD SOCO web site. For many organizations, Fall is the training season for OGE 450 and SF 278 filers. It's not too early to get started. Good record keeping for annual training is an essential part of the ethics program. Now's a good time to ensure that your OGE 450 filer list is up-to-date and all filers on notice that they must complete the training by 31 Dec 04.

    SOCO Advisory 04-07 is now available on the SOCO web site in the "Ethics Resource Library" under "SOCO Advisories." Topics in this advisory include:

    • Status of 2004 Computer Ethics Training Produced by SOCO
    • Participation in Political Activities
    • Guidance Regarding DoD Participation in a Military Ball Sponsored by a Non-Federal Entity now Available on SOCO Web Site
    • Office of Government Ethics Issues Final Rule Regarding Revisions to the Certificate of Divestiture Regulation
    • Former Air Force Employee Sentenced for Conflict of Interest
    • DoD Employee Sentenced for False Travel Claims

    SOCO Advisory 04-06 is available in the "Ethics Resource Library" on the SOCO web site under "Soco Advisories". Topics include:

    • Read My Lips: Federal Personnel May Not Solicit (In Their Official Capacity).
    • Termination Public Filers Need To Include Agreement Or Arrangement With New Employer In Their Termination Public Financial Disclosure Report.
    • Reservists On Active Duty Do Not Violate Supplementation Statute (18 U.S.C. 209) If They Receive Compensation From Their Nonfederal Employer.
    • Merit Systems Protection Board Affirms Removal Of An Employee Based Solely On A Violation Of The Ethics Regulations.
    • Office Of Government Ethics Offers Classes In July.
    • Congress Demands Data On Outside Employment Of Federal Employees.

  • Revisions to Certificate of Divestiture Regulation: OGE has published in the July 28, 2004 issue of the Federal Register its final rule amendments to the executive branch certificates of divestiture (CD) regulation. See 69 FR 44893-44896 69 FR 44893-44896.

    This final rule, which is effective on August 27, 2004, is a plain language rewrite of the previous version of the CD rule. In addition, the rule revises certain procedures for issuing CD's, and revises the definition of "permitted property" (into which proceeds of the sale of divested property may be reinvested).

  • Advisory Committees: On July 19, 2004, the Office of Government Ethics (OGE) issued a six-page memo containing guidance on the ethics rules that apply to members of Federal Advisory Committees. See, memo on the OGE website.

  • Complex Assets: I'm attaching the point paper on analyzing complex assets on SF 278’s that was received at a recent meeting of the Inter-Agency Ethics Council.  The presentation was by the Deputy Counsel for OGE.  This is a good reminder that filers should list the type of the asset as well as the company.  Listing “Microsoft” or “J.P. Morgan” or “Merrill Lynch” may not be enough to tell what it is you are looking at.  Take Merrill Lynch, for example.  This could be a brokerage account (the contents of which need to be broken out), a mutual fund, a money account, or stocks/bonds in Merrill Lynch.  There are also more exotic types of investments to consider:

    • Phantom Stock, Restricted Stock and Exchange Funds are most likely to appear on the SF 278 of someone coming from the commercial sector. Phantom Stock and Restricted Stock are essentially employee incentive plans that are being increasingly used to replace options, which fell into disfavor following the Enron, WorldCom and other Wall Street scandals.

    • Exchange Funds need to be distinguished from Exchange Traded Funds.

    • Exchange Traded Funds are a little like index mutual funds except that they can be traded as shares on the stock market and fluctuate in value like stock - as opposed to mutual funds which have only a close of business value. For example, a firm might sell a "spdr" (spider) which would be an exchange traded fund tracking the S&P 500. The asset listing on Schedule A would include the issuing firm and it's form: i.e. Merrill Lynch SPDR.

    • Exchange Funds are unrelated to Exchange Traded Funds. They are tax shelters. A corporate employee may receive a substantial amount of stock in the corporation through options, or the conclusion of a restricted or phantom share program. In order to diversify his or her stock holdings without triggering a taxable transaction on what is generally low basis stock, the individual may join with 50 to 499 other similarly situated individuals to created a diversified portfolio of stocks. There is usually a minimum amount (in the range of $1 million or more) that must be invested. The funds have fixed terms of several years (i.e., 7 or more), after which the portfolio is redistributed and the investor receives a diversified distribution. During the fixed term, the investor will be unable to divest because the fund is illiquid. The complete name of the fund must be listed as well as its value and income. It may or may not be an EIF, but it will not be a diversified fund. Each asset in the fund will be attributed to the filer for purposes of 18 U.S.C. 208. Since the filer cannot divest during the term, other options may need to be explored if there is a potential conflict.

    • 529 Plans are prepaid tuition or tuition savings plans. Most of us think of them as payment for services and not as assets. The attached paper lists the characteristics that require that they be listed as assets, and how they should be listed.

    • TIAA-CREF - Historically, OGE and most reviewers considered TIAA-CREF to be an automatic widely diversified, widely held EIF. Since 1998 it has been expanding both it’s customer base and it’s financial offerings. On Schedule A, filers will now have to list whether TIAA-CREF is a retirement plan or other financial instrument. In future years, the contents of the plan will have to be broken out.

  • Post-Government Employment Advice: As we approach the last half of the year, now is a good time to remind DON personnel of the need to seek post-government employment advice if they are contemplating leaving Federal service. Attached is a summary of Post-Government Employment Advice prepared by the Legal and Legislative Matters Office for the Vice Chief of Naval Operations. Many of you may have your own reminders – use whatever works, but I recommend that you put the word out periodically on this important subject. Generally, advice should be reduced to writing, or at a minimum, detailed notes retained memorializing your advice and recommendations given in person or over the phone.

  • Political Activities: On January 21, 2004, the Deputy Secretary of Defense issued an eight-page memo entitled "Civilian Employees' Participation in Political Activities." The last sentence of the memo reads: "Please distribute this memorandum to all civilian employees."  Click here for Public Affairs guidance on political campaign activities on/near DOD installations; this was shared earlier, but is included here for those who may have missed it. Finally, additional resources on this subject are available on the US Office of Special Counsel website (which is the lead office for addressing questions on Hatch Act related matters). When you bring up their homepage just click on the Political Activities (Hatch Act) button listed on the left side. Of particular interest are items addressing the use of email for political purposes.

More News Items

  • Senior Officers - New Rules: SASC Guidance Regarding Military Officers in Grades O-9 & O-10 that was distributed by DoD SOCO. In addition to covering the issues surrounding what holdings those officers must divest themselves of if they are to be confirmed, it also sets forth the policy prohibiting service on Boards of Directors (including personal capacity) for those officers on Boards of companies that do business with DOD or focus their business on military personnel. See also, List of the FY 03 top ten DoD Corporations and Navy top 50.

  • Compilation of Federal Ethics Laws: • Compilation of Federal Ethics Laws: On January 13, 2004, the Office of Government Ethics (OGE) issued a DAEO-gram. It states that OGE has prepared a “Compilation of Federal Ethics Laws” that can be ordered from the U.S. Government Printing Office. This might be a useful item for deployed JAGs who may not always have access to the Internet. See, DAEO-gram.

  • Gifts of Little Intrinsic Value: Attached for your information and use are two papers recently issued by DOD SOCO. discusses the gift provision at 5 C.F.R. 2635.203(b)(2), which excludes from the definition of a gift, “greeting cards and items with little intrinsic value, such as plaques, certificates, and trophies, which are intended solely for presentation.” The paper debunks the ethics myth that an otherwise utilitarian item, e.g., a crystal bowl or book, becomes an item of little intrinsic value simply because it has been engraved or otherwise personalized. The second, TravelContractorFacility.pdf, discusses the circumstances under which an employee may accept transportation services from a contractor while on official business at the contractor’s worksite.

  • First Class and Premium Air Travel Some of you have no doubt seen the articles in the Early Bird and other locations concerning the October 2003 report from the General Accounting Office (GAO) concerning improper use of 1st class and premium class air travel within DOD. A copy of the GAO Report is attached. It does not paint a pretty picture and several DON travelers are cited as examples of misuse. GAO found that breakdowns in internal controls and a weak control environment resulted in a significant amount of improper first and business class air travel and increased costs to the taxpayer. GAO found that during FY 01 and 02, DOD spent almost $124 million on about 68,000 premium class related tickets – primarily business class. I’m sure that we will hear much more about this in the near future as DOD and the Military Departments implement some or all of GAO’s recommendations for addressing the problem. Certainly, that will include training/reminding DOD personnel of the rules concerning commercial air travel, i.e., what circumstances must be present to authorize first and premium class air travel, who are the approval authorities for such travel, and what procedures are to be followed in requesting first and premium class air travel.


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