Defense nominee Hagel plans to shed some holdings

AP News
Posted: Jan 29, 2013 2:05 PM
Defense nominee Hagel plans to shed some holdings

WASHINGTON (AP) — Secretary of Defense nominee Chuck Hagel has told Pentagon officials he plans to divest some of his financial holdings and resign from several corporate boards and public interest groups to avoid potential conflicts of interest if he wins Senate confirmation.

Hagel told Defense Department officials in a letter last week that he would resign his corporate board post at Chevron Corp. and shed investments in the energy firm, a major government contractor. He would also cut ties and investments with the McCarthy Group LLC, an Omaha-based private equity firm.

A new personal financial disclosure filed with the Office of Government Ethics lists Hagel's assets at between $2.8 million and $6 million, according to an Associated Press analysis. Hagel made earnings of more than $1 million last year, including board fees from Deutsche Bank, Zurich Insurance Group and Corsair Capital. Hagel said he would also server ties to those firms.

Hagel's Pentagon nomination has run into heavy fire from conservatives and Republicans who question whether he is sufficiently supportive of Israel. They also question his support for reductions in the nuclear arsenal. Some of his wide-ranging corporate and activist roles have also drawn criticism that his decision-making could be swayed by prior relationships. Hagel's letter to defense officials indicates he is willing to sell off possible conflict holdings and end his directorships to mute those concerns, but would still retain the ability to make his own investments.

In a letter sent last week to Robert Taylor, the Pentagon's acting general counsel, Hagel said that if he wins the defense post, he and his wife would not "invest in any company identified as a Department of Defense contractor or any other entity that would create a conflict of interest with my government duties." Hagel also pledged that if any firm that he has holdings in wins a defense contract, he would sell off those investments.

Some previous nominees for top government positions, such as former Bush administration Treasury Secretary Henry Paulson, have placed their holdings in federally approved blind trusts so that they have no direct role in private investments during their tenure. Others have not used blind trusts because of their minimal investments or their preference to keep control over their holdings. Former Reagan administration Defense Secretary Caspar W. Weinberger was among those who avoided blind trusts.

Sen. John Kerry, President Barack Obama's pick for secretary of state, has holdings worth more than $184 million, and is also not using a blind trust. Most of Kerry's investments are made through family trusts, which limit his direct involvement but are not as segregated as blind trusts qualified by the Office of Government Ethics.

Marie Harf, a White House spokesman, said Hagel worked with the OGE and Pentagon lawyers "to ensure he is in compliance with all applicable ethics laws and regulations." She added that his decision to shed any investments and directorships was "typical protocol."

In his letter, Hagel said he would not participate in any decision that "has a direct and predictable effect on my financial interests" and would request a waiver from the ethics office if he planned any move that could affect him financially.

Hagel's decision to sever his dealings and investments with Chevron were clearly dictated by the firm's extensive dealings with the Pentagon. According to government figures, Chevron received more than $500 million in defense contracts in 2012, ranking 78th among the department's largest corporate beneficiaries.

Hagel joined Chevron's board of directors in 2010 and made $116,000 in fees in 2012. He also has Chevron common stock worth between $100,000 and $250,000 according to his disclosure.

Activists from both the left and right have questioned Chevron's recent involvement with repressive governments, including its plans to develop natural gas reserves in Turkmenistan and its pipeline work in Burma.

One conservative non-profit interest group, the American Future Fund, took aim at Hagel's relationship with Chevron, asking in an attack ad: "How can Chuck Hagel run the Pentagon with so many ethical questions about his own record?"

That broadside came before Hagel's letter outlining his divestment plans. In addition to Hagel's pledge, the Senate Armed Services Committee also has some of the most stringent rules for nominees for senior civilian positions in the Defense Department, requiring nominees to divest all financial interests in any company contracting with the Pentagon. The committee bases its rules on a 330-page list of firms with any Defense contract exceeding $25,000.

Hagel also said he would cut ties to the McCarthy Group, headed by a former campaign treasurer, Michael McCarthy. In 2009, Hagel was named a senior adviser at McCarthy Capital Corporation, a subsidiary of McCarthy's company. The firm's investments include HDR and Vornado, which both have defense contracts.

And Hagel also agreed to step down as an adviser to M.I.C. industries, where he earned $120,000 last year. The firm's business includes making temporary structures under contract for the U.S. military.

His role as a member of Deutsche Bank's America's Advisory Board could also have posed problems because of reports that the German bank was among several global lenders under investigation by the Justice Department for allegedly helping to skirt U.S. trade sanctions on Iran's energy industry. The German-based bank has denied the allegations.

In his letter, Hagel also pledged to cut ties with several academic and public interest groups, including Georgetown University, the Atlantic Council, the Center for the Study of the Presidency, the America Security Project and the Ploughshares Fund. The latter group has pressed for nuclear non-proliferation and Hagel's outspoken views on that issue has also raised complaints from some Senate conservatives.