Pentagon Chief May Have to Steer Clear of $10 Billion Contractor

  • General Dynamics board post may haunt Trump’s defense choice
  • Company is up for billions for nuclear subs, destroyers

Retired Marine General James Mattis, President-elect Donald Trump’s nominee for defense secretary, may have to recuse himself for at least a year from decisions involving General Dynamics Corp. -- the fifth-biggest U.S. defense supplier with $10 billion in contracts last year -- after serving on its board.

That would take Mattis out of the loop on billion-dollar decisions across the military services: The Pentagon may buy ground-warfare vehicles from General Dynamics for the 65,000 Army troops Trump has promised to add, and it may benefit from his pledge to expand the Navy to 350 vessels by supplying its Arleigh Burke-class destroyers and Virginia-class nuclear submarines.

James Mattis

Photographer: Nicholas Kamm/AFP via Getty Images

Most immediately, the company is the lead contractor to build 12 of the new nuclear missile submarines to replace the aging Ohio class -- the Navy’s top-priority program. Unless current Secretary Ash Carter acts before departing, Mattis and his deputies may inherit a decision on letting the program enter full-scale development. They would also oversee a planned major increase in its funding in the fiscal 2018-2022 plan. A new draft Navy estimate sees procurement spending increasing to $2.8 billion in fiscal 2019 from $773 million this year.

“Mattis will have to recuse himself for at least one year from any contracting issues dealing with the company” under government ethics regulations in addition to shedding his General Dynamics holdings, Richard Painter, who was chief ethics lawyer for President George W. Bush, said in an interview.

Million-Dollar Awards

As a General Dynamics director since August 2013, Mattis has received at least $276,000 in fees plus equity awards valued at more than $1.03 million as of Tuesday’s close in New York, according to data compiled by Bloomberg. About half of those awards are scheduled to vest in the coming years only if Mattis stays on the board.

The company’s proxy filing didn’t specify what happens to unvested awards given to directors who leave for a job in government. Lucy Ryan, a company spokeswoman, declined to comment beyond the filing.

Read about Rex Tillerson’s $187 Million Question on Unvested Exxon Stake

The Trump transition office didn’t respond to an e-mailed request for comment about how Mattis intends to handle potential conflicts of interest. Mattis, who retired after a 41-year career in the Marines, has yet to fill out the standard government financial disclosure statement and questionnaire required by the Senate Armed Services Committee, which will hold the confirmation hearing on his nomination, so the full extent of his assets and holdings aren’t known.

Questions raised by Mattis’s participation on the General Dynamics board “are precisely the kinds of issues the committee must examine during the confirmation process,” said Chip Unruh, a spokesman for Senator Jack Reed, the committee’s top Democrat.

While Mattis would be likely to adjust the Pentagon’s budget proposal for fiscal 2018, which is already being crafted, he may have to step back from decisions such as policies and contracts directly affecting Falls Church, Virginia-based General Dynamics.

‘Draining the Swamp’

“We think he should recuse himself from decisions regarding General Dynamics for at least two years,” said Mandy Smithberger, a director with the Project on Government Oversight, a defense watchdog organization. “‘Draining the swamp’ has to start with the Pentagon,” said Smithberger, invoking a Trump campaign slogan.

Decisions on how Cabinet officials avoid or resolve potential conflicts of interest are reviewed and enforced by the U.S. Office of Government Ethics, which can spell out requirements to divest assets, to refrain from making decisions that pose a conflict -- or both -- to meet requirements of regulations and law.

Read more about Trump’s conflict-of-interest worries: QuickTake Q&A

A guidebook issued to nominees by the ethics office says “the ethics rules prohibit you from participating as a government official in any particular matter involving specific parties if you have a ‘covered relationship’ with a party to the matter (or with the representative of a party), whenever a reasonable person would question your impartiality.”

A “covered relationship” includes “any organization in which you held a position in the past year or are currently serving as an ‘active member,’” according to the guide.

Confirmation Vote

Mattis is a respected figure on Capitol Hill, especially in the Senate Armed Services Committee, which will review the agreement he reaches with the ethics office, the White House and the Defense Department before voting on his nomination. Congress also will have to pass legislation exempting Mattis from a ban on serving as defense secretary within seven years of leaving the military.

Under President Barack Obama, some administration officials have been permitted to retain their stock and benefits packages -- even the use of corporate offices and travel services -- while pledging in ethics agreements to recuse themselves from matters involving their prior employers.

Top Pentagon officials often have followed stricter standards when holdings in defense industries are involved.

When Deborah Lee James became secretary of the Air Force in 2013, she divested all her stock in defense contractor Science Applications International Corp., her prior employer. She took a pro-rated $150,000 payout on her unvested stock and forfeited the remainder. She pledged to avoid matters involving the company for two years, according to her ethics agreement.

The last time a defense official’s nomination was slowed over ethics questions was in 2009 with William J. Lynn’s nomination to be the new Obama administration’s deputy defense secretary. The Raytheon Co. executive was a registered lobbyist.

Under pressure from Armed Services Committee member John McCain, who’s now chairman, Lynn agreed he wouldn’t ask to participate in any decision involving six Raytheon programs on which he had served as lobbyist. He also agreed to divest restricted Raytheon stock valued at as much as $500,000 that didn’t vest until late 2009 or 2010.

“These kinds of situations are not uncommon for nominees at the most senior levels of the Department of Defense,” said Dustin Walker, a spokesman for McCain. “That is why the Armed Services Committee has policies in place to address them in the confirmation process.”

— With assistance by Bill Allison

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