Memorandum Of The Inspector General Of The Department of Commerce. Re: Violation Of Ethics Rules By Nancy Victory. Date: June 25, 2003. Editor's Notes:  • The House Government Reform Committee kindly provided TLJ with a PDF scan of a redacted copy of this memorandum.  • TLJ added hyperlinks.  • TLJ converted the one footnote into a sidenote.  • This TLJ document does not reflect the page breaks and page numbers in the original.
		Victory

UNITED STATES DEPARTMENT OF COMMERCE
The Inspector General
Washington, D.C. 20230

JUN 25 2003

The purpose of this memorandum is to provide you with our investigative findings and recommendation concerning the above-captioned matter. The specific details of our investigation, along with supporting documentation, are attached to this memorandum.

INVESTIGATIVE FINDINGS

On January 23, 2003, the Office of the Inspector General initiated an investigation based on information it had received that Nancy J. Victory, Assistant Secretary for Telecommunications and Information, had improperly accepted a gift in the form of a party at her home in October 2001 from telecommunications industry lobbyists, and had failed to properly report this gift on her annual financial disclosure form. It was further alleged that this gift had influenced Ms. Victory's official position on a matter of interest to the companies that hosted the party.

Based upon our review of relevant documentation and our interviews of knowledgeable individuals, we found that on October 14, 2001, six individuals (five of whom were employed by telecommunications companies or associations; one of whom was a partner at Wiley, Rein & Fielding, a law firm specializing in wireless telecommunication law and Victory's old law firm) hosted a party for Victory at her home, the cost of which was borne by the hosts' respective employers. According to Victory, approximately 60 people attended the event. As discussed in greater detail below, we have concluded that Victory's acceptance of the party violated 5 C.F.R. §2635.101(b)(4), which prohibits employees from accepting gifts from any person or entity whose interests may be substantially affected by the performance or nonperformance of the employee's duties. Victory's acceptance of the gift also violated 5 C.F.R. §2635.202(a), which, among other things, prohibits employees from accepting a gift from a prohibited source.

By accepting such a gift, Victory also violated 5 C.F.R. §2635.101(b)(14), which requires employees to endeavor to avoid any actions which create the appearance that they are violating the law or the ethical standards contained in the Standards of Ethical Conduct of Employees of the Executive Branch.

The definition of "prohibited source" set forth in 5C.F.R. §2635.202(d) includes persons or entities who have interests that may be substantially affected by the performance or non-performance of the employee's official duties. Because Victory is the head of NTIA, the executive branch's principal voice on domestic and international telecommunications and information technology issues, the six hosts, all of whom either worked for telecommunications firms or a law firm, which specializes in telecommunications law, clearly were individuals who might be substantially affected by Victory's performance of her official responsibilities. In this case, then, the gift was clearly one offered by prohibited sources.

It does not appear that the party falls within the exception to the general prohibition on accepting gifts that exists for gifts received as a result of a personal relationship because, even though all six hosts of the party indicated that they were personal friends of Victory, they each had their employer pay their share of the party expenses.

Although Victory sought and received advice concerning the propriety of the party form   [redacted text]   it does not appear that Victory made the necessary full disclosure of all relevant circumstances to   [redacted text]   According to   [redacted text]   Victory asked her if it would be permissible for personal friends of hers, some of who were telecommunications industry lobbyists, to hold a dinner party for her.   [redacted text]   stated that she was under the impression that the dinner would involve just Victory, her husband, and two other couples, and that she informed Victory that such a party would be permissible as long as the other couples paid for it with their own funds.1   [redacted text]   stated that it was only when she read press accounts of the party that she realized that the event was larger in scale than she had envisioned at the time she provided advice to Victory.   [redacted text]   indicated that she would have advised against such an event because it was open to misinterpretation. Without an adequate disclosure of the size and nature of the party, Victory cannot rely on the safe-harbor afforded individuals who engage in conduct that violates the standards of conduct in good faith reliance on the advice of an agency ethics official.

With regard to the charge that Victory's acceptance of the party affected the position she took in a matter of interest to the companies that hosted the party, we found that on October 24, 2001, Victory filed a letter to the Federal Communications Commission on behalf of the Administration in which she urged the repeal of commercial mobile radio service spectrum aggregation limits (the spectrum "cap"). We did not find evidence to support the charge that the position Victory espoused was affected by the party given in her honor.

Finally, although it does not appear that Victory appropriately reported the value of the party on her annual disclosure form, the disclosure she made followed advice she was given by lawyers from the Department's Office of General Counsel. When news of the party hit the press, those lawyers sought advice on the correct way to report the party from the Office of Government Ethics. When they found that the advice they had previously given Victory was incorrect, they worked with her to ensure that the correct amount was reported on Victory's annual disclosure form.

DEPARTMENT OF JUSTICE REVIEW

Officials from the Department of Justice, Public Integrity Section (PIS), are currently reviewing this matter for prosecutorial merit. Although that review is ongoing, PIS officials indicated to us on June 25, 2003, that they have no objection to the Department taking any administrative action it deems appropriate in connection with this case.

RECOMMENDATION

Based on the evidence disclosed in our investigation, we recommend that you take appropriate administrative action against Victory for violation of 5 C.F.R. §§2635.101(b)(4), 2635.101(b)(14) and 2635.202(a).

In accordance with DAO 207-10, your written comments concerning this matter should be made within 60 days, indicating the specific actions contemplated and the planned completion date. If you have any questions regarding the information, findings or recommendations contained in this memorandum, please do not hesitate to contact me at (202) 482-4661 or have your staff contact Anthony D. Mayo, Assistant Inspector General for Investigations, at (202) 482-0934.

DETAILS OF INVESTIGATION

Conception, planning and preparation for the October 14, 2001 party

  [redacted text]   an attorney at Wiley, Rein & Fielding, LLP, a telecommunications law firm in Washington, D.C., was the primary organizer and host for Victory's party. He attributed his participation to his personal friendship with Victory, who was a fellow partner at Wiley, Rein & Fielding until her appointment as Assistant Secretary for Telecommunications and Information in August 2001.   [redacted text]   stated that after Victory's nomination and prior to her confirmation, he suggested having a party to celebrate her new professional accomplishment. He indicated that, due to the events of September 11, 2001, the party was delayed until October of that year.   [redacted text]   stated that Victory told him that she consulted with DOC ethics advisers who told her that a party could be held, but that it had to be hosted by personal friends.   [redacted text]   did not recall being told by Victory that the hosts had to use their personal funds to pay for the party, and he did not pass on any such information to the other hosts. (See Exhibits A, B, C)

  [redacted text]   and Victory together identified five other individuals who could co-host the party with   [redacted text]   These individuals were   [redacted text]   an employee of the Cellular Telecommunications and Internet Association;   [redacted text]   an employee of Cingular Wireless;   [redacted text]   an employee of SBC Communications;   [redacted text]   an employee of Intelsat Global Service Corporation; and   [redacted text]   an employee of Motorola Corporation. The co-hosts all attributed their participation  in the party to their personal friendship with Victory. (See Exhibits A, B, C, D, G through N)

  [redacted text]   stated that he and Victory together decided to hold the party at Victory's home, primarily because of concerns that   [redacted text]   home lacked sufficient space. He indicated that he and Victory together chose a caterer. From that point,   [redacted text]   recalled that he contacted the five co-hosts and made all other arrangements.   [redacted text]   stated that he and Victory exchanged two electronic mail messages during the planning of the party. One was a draft invitation for her review. The other was a draft invitee list, which he indicated that Victory edited (by deleting some invitees and adding others) and then returned to him. (See Exhibits A, B, E)

Consultation with the Office of the General Counsel

At some point prior to the date of the party, Victory consulted with   [redacted text]   regarding the propriety of the party. According to Victory, when she asked   [redacted text]   about the permissibility of the party,   [redacted text]   told her the party would be permissible if given by personal friends acting in their personal capacity, or words to that effect, and that no formal paperwork approving the party was necessary. Victory stated that she passed this information on to   [redacted text]   Victory did not recall having any specific discussion with   [redacted text]   about the funding for the party. (See Exhibit C, G, through N)

  [redacted text]   stated that Victory had personally asked her about the propriety of the party at some unspecified time prior to its occurrence.   [redacted text]   recalled informing Victory that a party given by personal friends, even if they were employed in the telecommunications industry, would be permissible as long as they paid for it with their personal funds. She stated that at the time she provided the advice, she had been under the impression that the party would be a small-scale event, including Victory and two other couples celebrating her confirmation. At that time,   [redacted text]   indicated, she did not discuss with Victory the issue of reporting the party on Victory's SF-278. Neither   [redacted text]   nor Victory documented this conversation. (See Exhibit F)

The October 14, 2001 party, subsequent payment and reporting arrangements

According to   [redacted text]   and Victory, the party took place as planned on October 14, 2001. Victory estimated that a total of approximately 60 people attended the event. Victory also stated that she worked with OGC attorney   [redacted text]   around the time of the party to determine financial disclosure reporting requirements for it, and that their understanding was, as also described by   [redacted text]   that only Victory and her spouse's share of the party costs would be potentially reportable. Both Victory and   [redacted text]   agreed that the party costs ultimately were not reported because they did not reach the reporting threshold (which   [redacted text]   recalled was $260). (See Exhibits A, B, C, Q)

  [redacted text]   stated that in November 2001 he received the $2,925 catering bill for the party. He determined that the individual portion of party expenses to be paid by each co-host was $487, and passed this information to the five co-hosts by electronic mail dated November 16, 2001.   [redacted text]   stated that he paid the full cost of the party by a check drawn on his law firm. The e-mail asked the other co-hosts to have their companies reimburse the firm for their share of the party expenses.   [redacted text]   noted that he utilized the firm's administrative and accounting resources to assist in coordinating this matter. (See Exhibits A, B)

All the co-hosts confirmed that they had arranged for reimbursement to Wiley, Rein & Fielding. In the cases of   [redacted text]   and   [redacted text]   each individual claimed that his or her employer had directly paid the host's share of the expenses when   [redacted text]   forwarded the bill in November 2001. In the cases of   [redacted text]   each individual host stated that he paid Wiley Rein and Fielding by personal check but was subsequently reimbursed by his employer. (See Exhibits G through N).

News media reports and follow-up

In January 2003, new media reports appeared which alleged that the party was improperly paid for by individuals representing the telecommunications industry and that it was not properly reported, and further implied that the party had an influence on an October 24, 2001 policy letter to the FCC in which Victory recommended removing the spectrum cap because the employers of some of the party's hosts favored the removal of spectrum caps. (See Exhibit C)

After the media reports appeared   [redacted text]   stated that he reimbursed Wiley, Rein & Fielding for his share of the party.   [redacted text]   indicated that his participation in, and payment for, Victory's party was not motivated by any desire to influence Victory in the conduct of her duties as Assistant Secretary. All the other co-hosts also denied participating in the party with the intent of influencing Victory's official conduct. All stated that they reimbursed their employers for the costs of the party in January and February 2003, after they learned, through contact with the Department's Office of General Counsel and from reports in the media that ethical concerns had been raised about the manner in which they had paid for the party. (See Exhibits A, B, G through N)

  [redacted text]   OGC attorney, noted that, under the OGC position during the fall of 2001 regarding the reporting of parties as gifts, Victory would have had to report only her individual pro-rata share of the value of the party, plus that of her husband, and then only if that share exceeded the reporting threshold (which he recalled was approximately $260), which it did not.   [redacted text]   stated that after the January 2003 news media reports appeared, attorneys at the Office of Government Ethics (OGE) provided OGC with their own assessment of Victory's reporting obligation, which significantly differed from the OGC position described above. The OGE guidance concluded that Victory would have to report not only the cost of her and her husband's attendance at the event but also the pro-rata cost of all party attendees invited personally by Victory. In order to satisfy this OGE requirement,   [redacted text]   indicated that he determined through conversation with Victory and the six individual hosts who paid for the party that nine attendees had been invited personally by Victory, with a corresponding reportable gift value of $675.   [redacted text]   amended Victory's SF-278 Financial Disclosure Form accordingly on January 24, 2003, adding to the cover a signed, handwritten note stating: "Gift not originally listed per advice from ethics office; subsequently listed per guidance from the Office of Government Ethics." The amended SF-278 reported a $675 gift, identified as "participation in private reception by filer and guests she proposed," listing the total cost of the reception at $3,000 and identifying the hosts of the party as   [redacted text]   and   [redacted text]  . (See Exhibit D, O, P, Q)

Victory confirmed that, in the aftermath of the news media stories regarding the party, she submitted a revised SF-278 listing a portion of the total party costs as a gift from the six co-hosts. Victory denied that the funding of the party by individuals and organizations involved in the telecommunications industry influenced her conduct of her duties or her policymaking decisions as Assistant Secretary for Telecommunications and Information. Victory specifically denied that the funding of the party influenced her position on the issue of wireless spectrum caps. Victory produced policy notes she stated were made in July 2001, and authenticated a copy of the October 2001 policy letter in order to support her claim that the policy was conceived prior to the party. While the July 2001 notes recommended periodic review of the spectrum cap policy to assess potential removal or modification, the October 2001 policy letter supported removal.

Victory attributed this difference to the differing purposes of the documents in question; the notes were for the purpose of familiarization with issues for confirmation hearings, while the letter was to formally present a position. Victory stated that spectrum cap removal was consistent with the Bush Administration's policy goals and that she had continued to favor it both before and after the party. (See Exhibit C, Q).

Table of Exhibits

A. Interview of   [redacted text]   February 5, 2003

B. Affidavit of   [redacted text]   with attached E-mail dated November 16, 2001

C. Affidavit of Nancy Victory with attached, authenticated policy letter dated October 24, 2001 and undated, authenticated policy notes

D. Record review, SF-278 Financial Disclosure Form, Nancy Victory

E. Interview of   [redacted text]   June 19, 2003

F. Affidavit of   [redacted text]  

G. Affidavit of   [redacted text]  

H. Interview of   [redacted text]  

I. Affidavit of   [redacted text]  

J. Interview of   [redacted text]  

K. Affidavit of   [redacted text]  

L. Affidavit of   [redacted text]  

M. Interview of   [redacted text]  

N. Affidavit of   [redacted text]  

O. Interview of   [redacted text]   February 3, 2003

P. Interview of   [redacted text]   April 10, 2003

Q. Interview of Nancy Victory