*Pages 1--40 from _* STATEMENT OF COMMISSIONER ROBERT M. McDOWELL December 18, 2006 RE: Application for Transfer of Control Filed by AT& T Inc. and BellSouth Corporation, Memorandum Opinion and Order, WC Docket No. 06- 74 Good afternoon. Thank you for coming. Over the past few days, I have devoted a tremendous amount of time and energy deliberating my decision regarding my potential participation in the consideration of the AT& T/ BellSouth merger. I have also tried hard to encourage some of my colleagues on the Commission to negotiate in good faith – sadly, to no avail. This state of affairs is personally disappointing to me. It appears that the lingering question of my involvement is being used as yet another excuse for delay and inaction. So, to remove that excuse from the equation, I am announcing my decision this evening. Given the vast speculation surrounding this issue, and in the spirit of transparency, I think it is important for me to publicly explain the reasons for my decision. By way of background, on February 6, 2006, I was nominated by President Bush to serve as a commissioner on the Federal Communications Commission. At that time, I was employed as senior vice president and assistant general counsel of COMPTEL, a trade association representing telecommunications entrepreneurs, with many competing against AT& T and BellSouth. As of that date, I no longer participated in the formulation of COMPTEL policy, nor was I serving any longer as a policy advocate for COMPTEL. Then, on March 5, 2006, AT& T announced its intention to merge with BellSouth. 1 The next day, COMPTEL announced its opposition to the merger. 2 Meanwhile, as part of the Senate confirmation process, the FCC’s Office of General Counsel (OGC) reviewed my interests in order to ensure compliance with federal conflict of interest statutes 3 and regulations. 4 Upon completion of its review, OGC prepared on my behalf an Ethics Agreement, which states, “upon confirmation, Mr. McDowell will resign his position with COMPTEL and will for one year following his resignation disqualify himself from participating in 1 See AT& T, BellSouth To Merge, Press Release (rel. Mar. 5, 2006) (located at http:// att. sbc. com/ gen/ press-room? pid= 5097& cdvn= news& newsarticleid= 22140). 2 See COMPTEL Blasts Proposed AT& T, BellSouth Merger, Press Release (rel. Mar. 6, 2006). Additionally, COMPTEL has submitted about 38 filings in the instant docket. See WT Docket No. 06- 74. 3 See 18 U. S. C. § 208 (setting forth acts affecting a personal financial interest); 47 U. S. C. § 154 (providing that no member of the Commission shall have a financial interest in any company or other entity engaged in the manufacture or sale of telecommunications equipment, the business of communication by wire or radio, or in the use of the electromagnetic spectrum). 4 See 5 C. F. R. § 2635.501 et seq. (containing provisions intended to ensure that an employee takes appropriate steps to avoid an appearance of loss of impartiality in the performance of official duties). A copy of these regulations is attached at Exhibit A. 1 any particular matter involving specific parties in which COMPTEL is a party, or represents a party.” 5 The AT& T/ BellSouth merger would be just such a m atter. Appropriately, the conflict of interest I would bring to the FCC in deciding the fate of the proposed merger was the primary topic of my March 9 confirmation hearing. In fact, Senator George Allen questioned me on this matter. In my answer, I pledged that, as a commissioner, I would operate under nothing less than the highest of ethical standards. 6 Further, in referencing the FCC’s established system governing conflicts, I was aware of the need to consult with the FCC’s General Counsel, other authorities such as the Office of Government Ethics (OGE), the U. S. Code, the Code of Federal Regulations (CFR), my Ethics Agreement (which was in place at the time of my testimony), and the Virginia Rules of Professi onal Conduct, as needed, when making ethical and policy determinations at the FCC. I was confirmed by the Senate on May 26, 2006. Pursuant to my Ethics Agreement, I resigned my position with COMPTEL on May 31, 2006. Since being sworn in by Chairman Martin on June 1, 2006, I have not participated in the Co mmission’s consideration of particular matters involving specific parties in which COMPTEL is a party 7 because my Ethics Agreement, as well as the Code of Federal Regulations, expressly state I should not. 8 In effect, from the beginning, I have had a “red light” prohibiting m e from participating in particular matters involving specific parties – in this case, a merger proceeding involving two parties, AT& T and BellSouth – where COMPTEL is a party. In light of this bar, I therefore have not participated in its substantive consideration. Against this backdrop, on December 1, 2006, citing my four colleagues’ “inability to reach consensus on this matter,” 9 Chairman Martin announced his decision to exercise his prerogative to direct the FCC’s General Counsel to “consider whether the Government’s interest would be served by” perm itting me to participate. 10 5 Letter from Patrick J. Carney , Alternate Designated Agency Ethics Official and Assistant General Counsel, FCC, to Marilyn L. Glynn, General Counsel, Office of Government Ethics (dated Feb. 9, 2006) (“ Ethics Agreement”) at 1. A copy of my Ethics Agreement is attached at Exhibit B. OGC sent a copy of my Ethics Agreement to the Chairman of the Senate Committee on Commerce, Science, and Transportation, Senator Ted Stevens, on February 14, 2006. See Letter from Samuel L. Feder, General Counsel and Designated Agency Ethics Official, FCC, to The Honorable Te d Stevens, Chairman, Senate Committee on Commerce, Science, and Transportation (dated Feb. 14, 2006) (“ Transmittal Letter”). A copy of the Transmittal Letter, which is substantively similar to the Ethics Agreement, is also attached at Exhibit B. 6 A copy of the transcript of this exchange is attached at Exhibit C. 7 See 47 CFR § 1.21( c). 8 See Ethics Agreement at 1 (“ upon confirmation Mr. McDowell will resign his position with COMPTEL and will for one year following his resignation disqualify himself from participating in any particular matter involving specific parties in which COMPTEL is a party, or represents a party” ); 5 C. F. R. § 2635.502( a) (“ where an employee … represents a p arty to [ a particular matter involving specific parties] , and where the employee determines that the circumstances would cause a reasonable person with knowledge of the relevant facts to question his impartiality in the matter, the employee should not participate in the matter”). 9 Letter from Kevin J. Martin, Chairman, FCC, to Cong ressional Leaders (dated Dec. 1, 2006). A copy of this letter is attached at Exhibit D. 10 See id. 2 2 Most recently, on December 8, Mr. Feder delivered to me a memorandum of law that sets forth his conclusion that the government’s interest in this matter outweighs the concern about the appearance of a conflict of interest. 11 Specifically, citing 5 C. F. R. § 2635.502( d), 12 the Authorizatio n Memo concludes, “you should not be barred from participating in this proceeding if you choose to do so[,]” 13 and notes that “[ b] alancin g these competing concerns here was difficult, and reasonable people looking at these facts could disagree about the appropriate result.” 14 I would like to go out of my way to thank Mr. Feder and his hard- working staff for their efforts in this endeavor. In all candor, however, I had expected a memorandum making a strong and clear case for my participation. Instead, the Authorization Memo is hesitant, does not acknowledge crucial facts and analyses, and concludes by framing this matter as an ethical coin- toss frozen in mid- air. The document does not provide me with confidence or comfort. Nor does the December 11, 2006, letter responding to the questions posed by Representatives Dingell and Markey. 15 I must emphasize that in no way should anyone interpret my observations as a criticism of Mr. Feder or his staff. As indicated in the Authorization Mem o, reasonable minds can differ on this matter. Nonetheless, while I expected the legal equivalent of body armor, I was handed Swiss cheese. First, the Authorization Mem o is silent on the issue of my Ethics Agreement, which, as noted earlier, was described with specificity and transmitted to the Senate by Mr. Feder on February 14, 2006. 16 In fact, the memo does not even mention the Ethics Agreement, which is separate and apart from other legal and ethical standards that may apply. The Ethics Agreement clearly states that I must disqualify myself “for one year … from participating in any particular matter, involving specific parties, in which COMPTEL is a party, or represents a party,” 17 and contains no exception to this mandate. Furthermore, the Ethics Agreement embodies representations that I made to the Senate. Senators relied on these representations when they confirmed me unanimously on May 26. Yet, the Authoriza tion Memo offers no discussion of, let alone just ification for, why or how the Ethics Agreement may be breached. 18 11 See Memorandum from Samuel L. Feder, General Counsel, FCC, to Commissioner Robert McDowell, regarding Authorization To Participate in the AT& T /BellSouth Merger Proceeding (dated Dec. 8, 2006) (“ Authorization Mem o”). A copy of the Authorizatio n Memo is attached at Exhibit E. 12 See Exhibit A. 13 Authorizatio n Memo at 1. 14 Id . 15 See Letter from Samuel L. Feder, General Counsel, FCC, to The Honorable John D. Dingell , Ranking Member, Committee on Energy and Commerce, U. S. H ouse of Representatives, and The Honorable Edward J. Markey , Ranking Member, Subcommittee on Telecommunications and the Internet, U. S. House of Representatives (dated Dec. 11, 2006) (“ Dec. 11, 2006 Letter”). 16 See supra n. 5. 17 Ethics Agreement at 1; Transmittal Letter at 1. 18 With respect to the substance of the Authoriza tion Memo, I must distinguish two scenarios upon which OGC relied in reaching its conclusion. First, regarding former FCC Chairman Kennard, I note that the Personal Attack and Political Editorial Rule proceeding was a rulemaking of general applicability, not an adjudicator y proceeding (or particular matter involving specific parties), which is at issue today. See 5 CFR § 2635.502( a)( 2) (in applying this provision to rulemaking proceedings, it has been longstanding FCC policy 3 3 Second, I am concerned by the advice given to OGC by the Office of Government Ethics (OGE). OGE was chartered in 1989 by President George H. W. Bush to “esta blish fair and exacting standards of ethical conduct for all executive branch employees.” 19 As the unbiased and dispassionate ethics counsel to federal agencies, OGE ensures “that every citizen can have com plete confidence in the integrity of the Federal Government.” 20 In essence, OGE’s advice is the “gold standard” for the ethical conduct of federal em ployees and officials. The Authorization Mem o reports that OGE Director Robert I. Cusik described the question of my participation as a “very, very close call,” and adv ised that “were the decision up to him, he would decide against authorization.” 21 I find Mr. Cusik’s opinion significant and I afford it great weight in drawing my conclusion. Finally, last week, I sought advice from my personal ethics counsel at the Virginia State Bar. And, while the substance of that discussion is privileged and confidential, suffice it to say that I was not encouraged by their assessment. Throughout my brief tenure here at the FCC, I have tried to be as thoughtful, transparent and direct as possible in my decision making. With each decision I make, I endeavor to keep in mind why the FCC exists and what the mission of each commissioner should be; and that, of course, is to promote and protect the public interest. We must never lose sight of the fact that the ultimate shareholders in every endeavor we embark upon are the American people. In this vein, it is incumbent upon every public servant to do all that he or she can to earn the public’s trust in the integrity and impartiality of their government. In light of these factors, I find that I have no choice but to abide by the terms of my Ethics Agreement, heed the independent advice of OGE and my personal ethics counsel, and, ultimately to follow my own personal sense of ethics. 22 Accordingly, I disqualify myself from this matter. that an employee who was personally and substantially involved in a particular rulemaking before coming to the Commission would, absent an authorization, conf ront a lifetime bar from participating in that rulemaking proceeding). In addition, prior to his authorizati on to participate as FCC Chairman in September 2000, Chairman K ennard had previously participated in that rulemaking proceeding almost twenty years earlier. See Statement of FCC Chairman William E. Kennard C oncerning his Participation in the Personal Attack and Political Editorial Rule Proceeding, FCC News R elease (rel. Sept. 18, 2000). Second, regarding my vote in June 20 06 in support of the Universal Service Fund Contribution Methodology item, while it is true that COMPTEL is a party in that proceeding, here again, that proceeding is a rulemaking of general applicability rather than a particular matter involving specific parties. Moreover, like the instant merger proceeding, I had not personally participated in and was not involved in the Universal Service Fund Contribution Methodology proceeding while with COMPTEL. Thus, although OGC gave weight to these scenarios in reaching the conclusions set forth in the Authorization Mem o, the comparisons are imprecise. 19 Exec. Order No. 12674, Principles of Ethical Conduct for Government Officers and Employees (rel. Apr. 12, 1989). 20 Id . 21 Authorizatio n Memo at 7. 22 Further, I will not risk jeopardizing the l egal sustainability of the Commission’s decision in this matter should a party seek appeal. AT& T and BellSouth reportedly have “no objection” to m y participation. See Edie Herman, Mc Dowell Authorized to Vote on AT& T- BellSouth Merger , COMMUNICATIONS DAILY , Dec. 4 4 I have not reached my decision lightly. The American people expect their public servants to make tough decisions, and I have not hesitated from doing so in my brief tenure here at the Commission. The American people also demand that public servants operate under the highest of ethical standards. All too often, especially recently, they have been disappointed by those who hold public office. I hope that this is one instance where they are not disappointed. In the meantime, I am hopeful that in the holiday spirit of making sacrifices, my four colleagues -- and all the interested parties -- will come back to the negotiating table in good faith to offer meaningful concessions. Because I am an incurable optimist, I am confident that this merger can be resolved with the same speed and unanimity as the SBC/ AT& T and Verizon/ MCI m ergers of last year. Now, my four colleagues have exclusive and unambiguous ownership of this important merger. Having only four Comm issioners participate really should not be an impediment to progress. 23 There have been many stretches of time in recent history when only four Commissioners sat on the FCC. In fact, since 1990, the Commission has had fewer than five Commissioners for a combined period of over five years. During these periods, contentious and difficult mergers were successfully considered. And, the two Bell mergers reviewed just last year were approved unanimously by a four- member Commission. This transaction should be no different. I urge all of them to resolve their differences as soon as possible. Sadly, I fear that my recusal from this matter has been used as a pawn by some to forgo meaningful and sincere negotiations. Now that I am removing that chess piece from the board, I hope that the twin pillars of sound negotiations are restored: good faith and sacrifice. The shareholders, employees and customers of the affected companies deserve speedy resolution of this matter. More importantly, so do the American people. Finally, I thank you again for coming today. And, I thank my staff for their incredibly hard work, long hours and support throughout this difficult episode. I wish each of you the happiest of holidays. 11, 2006, at 2. I am unaware, however, as to whether other parties to the proceeding have taken similar positions. 23 See, e. g., Dec. 11, 2006 Letter at Tab D, which includes a number of major transactions handled on delegated authority rather than by the full Commission. 5 5 Exhibit A 5 C. F. R. § 2635.501 et seq. 6 558 5 CFR Ch. XVI (1– 1– 06 Edition) § 2635.501 (e) Eligibility for special tax treatment. An employee required to sell or other-wise divest a financial interest may be eligible to defer the tax consequences of divestiture under subpart J of part 2634 of this chapter. [57 FR 35042, Aug. 7, 1992, as amended at 59 FR 4780, Feb. 2, 1994; 60 FR 6391, Feb. 2, 1995; 60 FR 66858, Dec. 27, 1995; 61 FR 40951, Aug. 7, 1996; 62 FR 48748, Sept. 17, 1996] Subpart E— Impartiality in Performing Official Duties § 2635.501 Overview. (a) This subpart contains two provi-sions intended to ensure that an em-ployee takes appropriate steps to avoid an appearance of loss of impartiality in the performance of his official duties. Under §2635.502, unless he receives prior authorization, an employee should not participate in a particular matter involving specific parties which he knows is likely to affect the finan-cial interests of a member of his house-hold, or in which he knows a person with whom he has a covered relation-ship is or represents a party, if he de-termines that a reasonable person with knowledge of the relevant facts would question his impartiality in the mat-ter. An employee who is concerned that other circumstances would raise a question regarding his impartiality should use the process described in § 2635.502 to determine whether he should or should not participate in a particular matter. (b) Under § 2635.503, an employee who has received an extraordinary sever-ance or other payment from a former employer prior to entering Government service is subject, in the absence of a waiver, to a two- year period of dis-qualification from participation in par-ticular matters in which that former employer is or represents a party. NOTE: Questions regarding impartiality necessarily arise when an employee’s official duties impact upon the employee’s own fi-nancial interests or those of certain other persons, such as the employee’s spouse or minor child. An employee is prohibited by criminal statute, 18 U. S. C. 208( a), from par-ticipating personally and substantially in an official capacity in any particular matter in which, to his knowledge, he, his spouse, gen-eral partner or minor child has a financial interest, if the particular matter will have a direct and predictable effect on that interest. The statutory prohibition also extends to an employee’s participation in a particular matter in which, to his knowledge, an orga-nization in which the employee is serving as officer, director, trustee, general partner or employee, or with whom he is negotiating or has an arrangement concerning prospective employment has a financial interest. Where the employee’s participation in a particular matter would affect any one of these finan-cial interests, the standards set forth in sub-parts D or F of this part apply and only a statutory waiver or exemption, as described in §§ 2635.402( d) and 2635.605( a), will enable the employee to participate in that matter. The authorization procedures in § 2635.502( d) may not be used to authorize an employee’s par-ticipation in any such matter. Where the em-ployee complies with all terms of the waiver, the granting of a statutory waiver will be deemed to constitute a determination that the interest of the Government in the em-ployee’s participation outweighs the concern that a reasonable person may question the integrity of agency programs and operations. Similarly, where the employee meets all pre-requisites for the application of one of the exemptions set forth in subpart B of part 2640 of this chapter, that also constitutes a deter-mination that the interest of the Govern-ment in the employee’s participation out-weighs the concern that a reasonable person may question the integrity of agency pro-grams and operations. [57 FR 35042, Aug. 7, 1992, as amended at 62 FR 48748, Sept. 17, 1997] § 2635.502 Personal and business rela-tionships. (a) Consideration of appearances by the employee. Where an employee knows that a particular matter involving spe-cific parties is likely to have a direct and predictable effect on the financial interest of a member of his household, or knows that a person with whom he has a covered relationship is or rep-resents a party to such matter, and where the employee determines that the circumstances would cause a rea-sonable person with knowledge of the relevant facts to question his impar-tiality in the matter, the employee should not participate in the matter unless he has informed the agency des-ignee of the appearance problem and received authorization from the agency designee in accordance with paragraph (d) of this section. (1) In considering whether a relation-ship would cause a reasonable person VerDate Aug< 31> 2005 11: 15 Feb 27, 2006 Jkt 208010 PO 00000 Frm 00570 Fmt 8010 Sfmt 8010 Y:\ SGML\ 208010. XXX 208010 7 559 Office of Government Ethics § 2635.502 to question his impartiality, an em-ployee may seek the assistance of his supervisor, an agency ethics official or the agency designee. (2) An employee who is concerned that circumstances other than those specifically described in this section would raise a question regarding his impartiality should use the process de-scribed in this section to determine whether he should or should not par-ticipate in a particular matter. (b) Definitions. For purposes of this section: (1) An employee has a covered rela-tionship with: (i) A person, other than a prospective employer described in § 2635.603( c), with whom the employee has or seeks a business, contractual or other financial relationship that involves other than a routine consumer transaction; NOTE: An employee who is seeking employ-ment within the meaning of § 2635.603 shall comply with subpart F of this part rather than with this section. (ii) A person who is a member of the employee’s household, or who is a rel-ative with whom the employee has a close personal relationship; (iii) A person for whom the employ-ee’s spouse, parent or dependent child is, to the employee’s knowledge, serv-ing or seeking to serve as an officer, di-rector, trustee, general partner, agent, attorney, consultant, contractor or employee; (iv) Any person for whom the em-ployee has, within the last year, served as officer, director, trustee, general partner, agent, attorney, consultant, contractor or employee; or (v) An organization, other than a po-litical party described in 26 U. S. C. 527( e), in which the employee is an ac-tive participant. Participation is ac-tive if, for example, it involves service as an official of the organization or in a capacity similar to that of a com-mittee or subcommittee chairperson or spokesperson, or participation in di-recting the activities of the organiza-tion. In other cases, significant time devoted to promoting specific pro-grams of the organization, including coordination of fundraising efforts, is an indication of active participation. Payment of dues or the donation or so-licitation of financial support does not, in itself, constitute active participa-tion. NOTE: Nothing in this section shall be con-strued to suggest that an employee should not participate in a matter because of his po-litical, religious or moral views. (2) Direct and predictable effect has the meaning set forth in § 2635.402( b)( 1). (3) Particular matter involving specific parties has the meaning set forth in § 2637.102( a)( 7) of this chapter. Example 1: An employee of the General Services Administration has made an offer to purchase a restaurant owned by a local developer. The developer has submitted an offer in response to a GSA solicitation for lease of office space. Under the cir-cumstances, she would be correct in con-cluding that a reasonable person would be likely to question her impartiality if she were to participate in evaluating that devel-oper’s or its competitor’s lease proposal. Example 2: An employee of the Department of Labor is providing technical assistance in drafting occupational safety and health leg-islation that will affect all employers of five or more persons. His wife is employed as an administrative assistant by a large corpora-tion that will incur additional costs if the proposed legislation is enacted. Because the legislation is not a particular matter involv-ing specific parties, the employee may con-tinue to work on the legislation and need not be concerned that his wife’s employment with an affected corporation would raise a question concerning his impartiality. Example 3: An employee of the Defense Lo-gistics Agency who has responsibilities for testing avionics being produced by an Air Force contractor has just learned that his sister- in- law has accepted employment as an engineer with the contractor’s parent cor-poration. Where the parent corporation is a conglomerate, the employee could reason-ably conclude that, under the circumstances, a reasonable person would not be likely to question his impartiality if he were to con-tinue to perform his test and evaluation re-sponsibilities. Example 4: An engineer has just resigned from her position as vice president of an electronics company in order to accept em-ployment with the Federal Aviation Admin-istration in a position involving procure-ment responsibilities. Although the em-ployee did not receive an extraordinary pay-ment in connection with her resignation and has severed all financial ties with the firm, under the circumstances she would be cor-rect in concluding that her former service as an officer of the company would be likely to cause a reasonable person to question her impartiality if she were to participate in the VerDate Aug< 31> 2005 11: 15 Feb 27, 2006 Jkt 208010 PO 00000 Frm 00571 Fmt 8010 Sfmt 8010 Y:\ SGML\ 208010. XXX 208010 8 560 5 CFR Ch. XVI (1– 1– 06 Edition) § 2635.502 administration of a DOT contract for which the firm is a first- tier subcontractor. Example 5: An employee of the Internal Revenue Service is a member of a private or-ganization whose purpose is to restore a Vic-torian- era railroad station and she chairs its annual fundraising drive. Under the cir-cumstances, the employee would be correct in concluding that her active membership in the organization would be likely to cause a reasonable person to question her impar-tiality if she were to participate in an IRS determination regarding the tax- exempt sta-tus of the organization. (c) Determination by agency designee. Where he has information concerning a potential appearance problem arising from the financial interest of a mem-ber of the employee’s household in a particular matter involving specific parties, or from the role in such matter of a person with whom the employee has a covered relationship, the agency designee may make an independent de-termination as to whether a reasonable person with knowledge of the relevant facts would be likely to question the employee’s impartiality in the matter. Ordinarily, the agency designee’s de-termination will be initiated by infor-mation provided by the employee pur-suant to paragraph (a) of this section. However, at any time, including after the employee has disqualified himself from participation in a matter pursu-ant to paragraph (e) of this section, the agency designee may make this deter-mination on his own initiative or when requested by the employee’s supervisor or any other person responsible for the employee’s assignment. (1) If the agency designee determines that the employee’s impartiality is likely to be questioned, he shall then determine, in accordance with para-graph (d) of this section, whether the employee should be authorized to par-ticipate in the matter. Where the agen-cy designee determines that the em-ployee’s participation should not be au-thorized, the employee will be disquali-fied from participation in the matter in accordance with paragraph (e) of this section. (2) If the agency designee determines that the employee’s impartiality is not likely to be questioned, he may advise the employee, including an employee who has reached a contrary conclusion under paragraph (a) of this section, that the employee’s participation in the matter would be proper. (d) Authorization by agency designee. Where an employee’s participation in a particular matter involving specific parties would not violate 18 U. S. C. 208( a), but would raise a question in the mind of a reasonable person about his impartiality, the agency designee may authorize the employee to participate in the matter based on a determina-tion, made in light of all relevant cir-cumstances, that the interest of the Government in the employee’s partici-pation outweighs the concern that a reasonable person may question the in-tegrity of the agency’s programs and operations. Factors which may be taken into consideration include: (1) The nature of the relationship in-volved; (2) The effect that resolution of the matter would have upon the financial interests of the person involved in the relationship; (3) The nature and importance of the employee’s role in the matter, includ-ing the extent to which the employee is called upon to exercise discretion in the matter; (4) The sensitivity of the matter; (5) The difficulty of reassigning the matter to another employee; and (6) Adjustments that may be made in the employee’s duties that would re-duce or eliminate the likelihood that a reasonable person would question the employee’s impartiality. Authorization by the agency designee shall be documented in writing at the agency designee’s discretion or when requested by the employee. An em-ployee who has been authorized to par-ticipate in a particular matter involv-ing specific parties may not thereafter disqualify himself from participation in the matter on the basis of an appear-ance problem involving the same cir-cumstances that have been considered by the agency designee. Example 1: The Deputy Director of Per-sonnel for the Department of the Treasury and an attorney with the Department’s Of-fice of General Counsel are general partners in a real estate partnership. The Deputy Di-rector advises his supervisor, the Director of Personnel, of the relationship upon being as-signed to a selection panel for a position for which his partner has applied. If selected, VerDate Aug< 31> 2005 11: 15 Feb 27, 2006 Jkt 208010 PO 00000 Frm 00572 Fmt 8010 Sfmt 8010 Y:\ SGML\ 208010. XXX 208010 9 561 Office of Government Ethics § 2635.503 the partner would receive a substantial in-crease in salary. The agency designee cannot authorize the Deputy Director to participate on the panel under the authority of this sec-tion since the Deputy Director is prohibited by criminal statute, 18 U. S. C. 208( a), from participating in a particular matter affect-ing the financial interest of a person who is his general partner. See § 2635.402. Example 2: A new employee of the Securi-ties and Exchange Commission is assigned to an investigation of insider trading by the brokerage house where she had recently been employed. Because of the sensitivity of the investigation, the agency designee may be unable to conclude that the Government’s interest in the employee’s participation in the investigation outweighs the concern that a reasonable person may question the integ-rity of the investigation, even though the employee has severed all financial ties with the company. Based on consideration of all relevant circumstances, the agency designee might determine, however, that it is in the interest of the Government for the employee to pass on a routine filing by the particular brokerage house. Example 3: An Internal Revenue Service employee involved in a long and complex tax audit is advised by her son that he has just accepted an entry- level management posi-tion with a corporation whose taxes are the subject of the audit. Because the audit is es-sentially complete and because the employee is the only one with an intimate knowledge of the case, the agency designee might deter-mine, after considering all relevant cir-cumstances, that it is in the Government’s interest for the employee to complete the audit, which is subject to additional levels of review. (e) Disqualification. Unless the em-ployee is authorized to participate in the matter under paragraph (d) of this section, an employee shall not partici-pate in a particular matter involving specific parties when he or the agency designee has concluded, in accordance with paragraph (a) or (c) of this sec-tion, that the financial interest of a member of the employee’s household, or the role of a person with whom he has a covered relationship, is likely to raise a question in the mind of a rea-sonable person about his impartiality. Disqualification is accomplished by not participating in the matter. (1) Notification. An employee who be-comes aware of the need to disqualify himself from participation in a par-ticular matter involving specific par-ties to which he has been assigned should notify the person responsible for his assignment. An employee who is re-sponsible for his own assignment should take whatever steps are nec-essary to ensure that he does not par-ticipate in the matter from which he is disqualified. Appropriate oral or writ-ten notification of the employee’s dis-qualification may be made to cowork-ers by the employee or a supervisor to ensure that the employee is not in-volved in a particular matter involving specific parties from which he is dis-qualified. (2) Documentation. An employee need not file a written disqualification statement unless he is required by part 2634 of this chapter to file written evi-dence of compliance with an ethics agreement with the Office of Govern-ment Ethics or is specifically asked by an agency ethics official or the person responsible for his assignment to file a written disqualification statement. However, an employee may elect to create a record of his actions by pro-viding written notice to a supervisor or other appropriate official. (f) Relevant considerations. An em-ployee’s reputation for honesty and in-tegrity is not a relevant consideration for purposes of any determination re-quired by this section. § 2635.503 Extraordinary payments from former employers. (a) Disqualification requirement. Ex-cept as provided in paragraph (c) of this section, an employee shall be dis-qualified for two years from partici-pating in any particular matter in which a former employer is a party or represents a party if he received an ex-traordinary payment from that person prior to entering Government service. The two- year period of disqualification begins to run on the date that the ex-traordinary payment is received. Example 1: Following his confirmation hearings and one month before his scheduled swearing in, a nominee to the position of As-sistant Secretary of a department received an extraordinary payment from his em-ployer. For one year and 11 months after his swearing in, the Assistant Secretary may not participate in any particular matter to which his former employer is a party. VerDate Aug< 31> 2005 11: 15 Feb 27, 2006 Jkt 208010 PO 00000 Frm 00573 Fmt 8010 Sfmt 8010 Y:\ SGML\ 208010. XXX 208010 10 Exhibit B Transmittal Letter and Ethics Agreement 11 12 13 14 15 Exhibit C Senate Transcript 16 17 18 19 20 21 22 23 24 25 26 27 28 Exhibit D Martin Letter to Congressional Leaders 29 30 31 Exhibit E Authorization Memo 32 33 34 35 36 37 38 39 40