Ooops!!!
Guess you'll be calling for this Clintonista's head now too?
Double Standard for a Clinton Holdover
What about Rossotti’s stocks?
By John Berlau, a writer for Insight magazine
July 31, 2001 8:55 a.m.
Ever since they came to Washington, Bush-administration appointees from the corporate world have been scrutinized intensely by the media for potential conflicts of interests involving their stocks. After Treasury Secretary Paul O'Neill received a barrage of media criticism for deciding to keep his holdings in Alcoa Corp., where he had been chairman and CEO, O'Neill reversed himself and recently sold off his $100 million in Alcoa stock and options. All of the Bush administration's other top officials who were corporate executives — from Commerce Secretary Don Evans to Office of Management and Budget Director Mitch Daniels to Vice President Dick Cheney — have also divested their holdings in their former companies. And after coming under fire for meeting with officials of companies he held stock in, senior adviser Karl Rove sold his stocks in technology, pharmaceutical, and energy companies that could be affected by Bush's policies.
Yet a powerful holdover from the Clinton administration still holds millions of dollars in stock in a company that has lucrative contracts with the very agency he heads, and most of the press hasn't said a word. Charles O. Rossotti was appointed commissioner of the Internal Revenue Service by President Clinton in 1997. Rossotti's background in technology and business impressed both Democrats and Republicans, who saw him as a reformer who could straighten out an agency troubled by out-of-date technology and evidence of taxpayer abuse that had come to light in a recent Senate hearing. Rossotti had been chairman of American Management Systems, a firm he cofounded in 1970 after a stint as one of Robert McNamara's famed "whiz kids" at the Department of Defense's Office of Systems Analysis. AMS has one of the largest information technology consulting companies in the U.S., and has many clients in the federal government. Among them is the IRS, where it has provided the agency with an automated financial management system since the late 1980s.
According to his most recent financial-disclosure forms, Rossotti and his family hold between $8 million and $40 million in the company's stock. All the arguments against O'Neill's ownership of Alcoa — that it would raise appearance problems, that the agency deals with a broad range of issue that could affect a company that large — seem to apply to Rossotti's ownership of AMS. But there's also one crucial difference: Alcoa did no business with the Treasury Department. AMS, by contrast, has millions of dollars of contracts with the IRS.
For this reason, some of the prominent ethics watchdogs who criticized O'Neill before he sold Alcoa say Rossotti's ownership of AMS poses even more serious conflicts. "I think the same principles apply (to Rossotti), a little bit more directly here, in the sense that the IRS is doing business with AMS," says Larry Noble, executive director of the Center for Responsive Politics. Charles Lewis, executive director and founder of the Center for Public Integrity agrees: "This is much more specific (than O'Neill's situation), much more real, because this is a direct vendor with the agency, and he's not taken any of the various steps one would take to create an arms-length distance." And Common Cause senior vice president Meredith McGehee says, "When you have the commissioner of a very high-profile agency holding stock in a company that's doing business with that agency, obviously it raises concerns."
Another thing that should raise concern is that in December 2000, during the last days of the Clinton administration, Deputy Treasury Secretary Stuart Eizenstat gave Rossotti a waiver of federal ethics rules. The waiver says that Rossotti may directly participate in some decisions regarding the IRS's financial-management system even if "certain decisions would have a direct and predictable effect on your financial interest in AMS."
As veteran tax reporter George Guttman observed in the journal Tax Notes:
Decisions by the IRS or Rossotti on financial management issues — even if only general ones — could mean multimillion-dollar contracts for AMS. For example, deciding to make financial modernization a priority for the IRS…provides a potential business opportunity for AMS, even though Rossotti would not be involved in selecting the winning bidder.
Rossotti gets to hold onto his stock because of an unusual deal struck with the Clinton administration and the Senate Finance Committee. Rossotti agreed to sell his stock, in the words of then-Senate Finance Committee chairman William Roth, "if AMS decides to bid for more work from the IRS beyond the existing (financial management system) contract, or successor contracts of similar scope."
Yet this year alone, the IRS for will pay AMS more than $17 million for three new contracts. These don't count as part of Rossotti's agreement, the IRS says, because they are "add-ons" to the existing contract. Yet many are wondering why the IRS keep adding on products from Rossotti's old company instead of taking new bids.
Rossotti and those close to him have raised other questions about his ties to AMS. The IRS Restructuring and Reform Act of 1998, passed just after Rossotti took his post, gave the IRS commissioner the power to hire specialists from outside the agency at a salary equal to that of the vice president's (then $175,000 a year, now $186,300 a year). In 1998, top IRS positions were given to two state tax chiefs from Kansas and Utah, both of whom oversaw agencies that had given AMS multimillion dollar contracts to overhaul their state tax systems.
AMS has brazenly touted the IRS's hiring of one of the company's customers in its marketing to state officials. On its web site and in a sales brochure, AMS used favorable quotes about the Kansas tax project from John LaFaver and identified him as "former Kansas Secretary of Revenue and current Deputy Commissioner for Modernization, U.S. Internal Revenue Service." This type of advertising "implies…that there's some connection between the commissioner and the company," says Tom Morgan, a George Washington University law professor who specializes in legal ethics. Further ethical questions were raised when LaFaver recently left government to become a vice president at AMS.
And almost four years into his job, there are now serious questions about whether Rossotti has turned out to be the reformer he was touted as. Early in his tenure, Rossotti dismissed evidence that Clinton critics were being unfairly targeted for audits, saying, "I think we can safely lay to rest concerns that the resources of the IRS have been diverted for political purposes." Two months after he said that, Juanita Broaddrick, who had accused Clinton raping her, received an audit of her nursing home from the IRS. A few months later, Katherine Prudhomme, a voter who had grilled Al Gore about Broaddrick when he was campaigning in New Hampshire in 2000, was also subjected to an audit.
And Rossotti appears to have condoned possible retaliation against a whistleblower in the 1997 Senate hearings. Jennifer Long, who had testified about taxpayer abuses, recently applied for an accounting license in Texas.
An IRS compliance area director based in Tennessee who Long says never discussed her work with her, tried to derail Long's application by writing a letter to the Texas State Board of Public Accountancy early this year accusing Long of sloppy auditing practices. When asked about this by an Associated Press reporter, Rossotti said he was "very familiar" with the situation, and that all of the whistleblowers had been "treated fairly."
Tom Devine, legal director of the whistleblower-protection group the Government Accountability Project, says that Rossotti's comments present "the appearance of active leadership to sustain a blacklisting campaign" against Long and could have "a chilling effect for all other IRS whistle-blowers."
Under the 1998 IRS reforms, IRS commissioners were given five-year terms, and Rossotti's will be up in November 2002. But the law also clearly states that "the commissioner may be removed at the will of the president." The new five-year terms reflected the mood that the IRS should be nonpolitical, so the Bush team may be reluctant to remove Rossotti for pure policy reasons.
Yet ethics are a different matter.
Rossotti is serving at the pleasure of President Bush, and Bush has a duty to ensure that all his employees, whether or not he appointed them, do not present the appearance of conflict of interest. Bush should not feel bound by the special deal the Clinton administration and the Senate struck so Rossotti could hold onto his stock.
It's time for the administration and the media to end the double standard in ethics rules for Bush officials and this Clinton-administration holdover. |
