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House NDAA would further limit Pentagon officials’ stock ownership

Top officials would be barred from owning stock in about 75 companies

Rep. Katie Porter’s new proposal was part of a bloc of amendments that the House adopted by voice vote during consideration of the $840.2 billion NDAA.
Rep. Katie Porter’s new proposal was part of a bloc of amendments that the House adopted by voice vote during consideration of the $840.2 billion NDAA. (Bill Clark/CQ Roll Call file photo)

The House voted quietly Thursday to include in its defense authorization bill tighter restrictions on top Defense Department officials owning stocks in major defense contractors. 

The proposal to address potential conflicts of interest among Pentagon leaders comes despite the fact that Congress has yet to set statutory limits on its own stock ownership or that of the Supreme Court — changes that many on Capitol Hill and beyond say are past due. 

At the Pentagon, current law bars Senate-confirmed officials or those serving in certain top defense acquisition posts from owning publicly traded stock in companies that were among the top 10 Pentagon contractors by revenue in any of the five previous fiscal years. 

The National Defense Authorization Act that the House passed Thursday includes an amendment that would expand the covered companies to comprise those that earned $1 billion or more in revenue from Pentagon contracts in the preceding calendar year.  

The difference would be this: Instead of prohibiting top officials from owning the stock of 10 companies, the officials would be barred from owning stock in about 75 companies, according to government data on defense contractor revenues.

The law would still allow top officials to own stock in those companies if its value is $15,000 or less or, secondly, if the stocks are part of a mutual fund, as long as the fund is not focused on the defense sector, experts say.

Public vs. private interests

The new proposal, by California Democrat Katie Porter, was part of a bloc of amendments that the House adopted by voice vote during consideration of the $840.2 billion NDAA. 

Porter told CQ Roll Call via email that the provision is important to protect tax dollars from being misused by officials who have conflicts of interest.

“Americans need to be able to trust that their government is working for them, not for corporate special interests or in government officials’ self-interests,” Porter said.

Dylan Hedtler-Gaudette, government affairs manager at the Project on Government Oversight, a watchdog group, said certain factors should not be a part of any federal contracting decision. These include, he said, the effect that the decision might have on the value of an official’s stock portfolio or on his or her prospects for employment in the private sector after leaving government service. 

“The principle at play here is to ensure the integrity of the acquisition and procurement processes,” Hedtler-Gaudette said. 

No limits

The House NDAA and the stock ownership provision it contains still must be reconciled with the Senate Armed Services Committee’s version of the bill, which the Senate has yet to consider.

A Senate Armed Services Committee summary of its bill made no mention of any stock ownership provision. The draft Senate NDAA and its accompanying report are expected to be made public soon. And senators may have an opportunity to amend their bill on the floor.

More broadly, Congress has yet to tackle potential conflicts of interest due to stock ownership in its own ranks, though members of both parties in both chambers have written bills to do so.

Currently, lawmakers must file reports on stock ownership and trading. And insider trading based on nonpublic information, including that gleaned as a member of Congress, is illegal. But there are no limits on the extent or kinds of stock lawmakers can own.

Hedtler-Gaudette said members of the Armed Services panels, for example, are not restricted from owning stock in a major defense contractor.

“Quite the potential conflict of interest there, to say the least,” he said. “But Congress operates on the principle of: ‘Conflicts of interest for me but not for thee.’”

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