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07/6/2018

District Court Enjoins Cigar Labeling Requirements Pending Appeal

As we recently discussed, a district court ruled against cigar manufacturers and upheld onerous new labeling requirements imposed by the Food and Drug Administration (“FDA”). The case is not over, however, as the cigar plaintiffs have decided to appeal to the Court of Appeals for the D.C. Circuit.

Just yesterday, as a result of the pending appeal, the district court judge issued an order blocking the FDA from implementing any of its labeling regulations without first hearing from the D.C. Circuit. This might seem odd at first: didn’t the judge originally rule on behalf of the FDA?  Why is the agency now blocked from enforcing its regulations?  The judge determined that–because the regulations are costly and the legal questions are so important–it’s better to wait for the appeals court to decide the case before allowing the FDA to enforce the ban.  He conceded that many of the issues in the case, including essential First Amendment questions, are purely legal.  Therefore, it’s possible that the appeals court could disagree with his ruling.

Most interestingly, the judge cited the Supreme Court’s decision from just a couple weeks ago in National Institute of Family and Life Advocates v. Becerra, which held that a California law requiring pregnancy clinics to provide certain information to their patients likely runs afoul of the First Amendment. The cigar companies argued that Becerra is strong evidence that the court of appeals would overturn the district court’s ruling here.  Even though the judge disagreed, he did concede that “Becerra makes clear that Plaintiffs’ appeal raises serious legal questions.”

This latest ruling provides a temporary respite for cigar companies as they take their appeal to the higher courts.  Here’s hoping common sense and the rule of law prevail.



Stay Pending Appeal (Text)

Eric R. Bolinder is Counsel at Cause of Action Institute. You can follow him on Twitter @EricBolinderLaw.

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07/6/2018

OMB Confirms Agencies Required to Disclose Earmarks, Declines to Enforce

The White House Office of Management and Budget (“OMB”) has confirmed that all executive branch agencies are required to disclose attempts by congressional and other outside force to influence the merit-based decision-making process for federal spending.  These efforts to earmark federal spending must be disclosed on agency websites within thirty days of their receipt.  But OMB has refused to issue new guidelines directing agencies to comply with the rule.

OMB’s reaffirmation came in a letter during litigation declining Cause of Action Institute (“CoA Institute”) and Demand Progress’s 2015 petition for rulemaking that asked the agency to enforce President George W. Bush’s Executive Order 13,457.

Background

In 2008, during the congressional debate over the earmark ban, President Bush issued EO 13,457, both to take a position in the ongoing debate and in an attempt to foreclose members of Congress from evading the ban by going directly to agencies.  Part of the order relied on transparency as a tool to dissuade these “executive branch earmarks” by requiring agencies to publish efforts to influence their decision making on their website within thirty days of receiving such communications.  The order also directed agencies not to fund these “non-statutory” earmarks.  Shortly after, OMB issued a memorandum instructing agencies how to comply with the order while implementing recent appropriations law.

CoA Institute had concerns that agencies were not complying with the order and conducted an investigation into which agencies were properly disclosing executive branch earmarks; only the Departments of Justice and Energy had published any meaningful content on their website.

In 2015, CoA Institute joined with Demand Progress and asked President Obama’s White House to depoliticize federal spending decisions by upholding the order.  We filed a petition for rulemaking asking the Obama OMB “to issue a rule ensuring the continuing force and effect of Executive Order 13457[.]”

In November 2017, after two years of not receiving a response, CoA Institute sued OMB over its failure to act on the petition.  With a new administration now in the White House, we urged President Trump’s OMB to issue updated guidance ensuring that agencies followed the order and disclosed earmarking efforts.

OMB Declines Petition, Confirms Executive Order Still in Effect

Due to the lawsuit, OMB has finally responded.  Although OMB declined to issue a new memorandum, it confirmed that “EO 13457 Remains In Force [because] No Executive Order has been issued that displaces, alters, or withdraws EO 13457 and [because] OMB is also not aware of any judicial decision vacating EO 13457.”


Therefore, agencies are still obligated both to refuse to fund non-statutory earmarks and disclose any attempts to influence their decisions within thirty days.  The Trump Administration, however, refuses to make them live up to their responsibilities.

James Valvo is Counsel and Senior Policy Advisor at Cause of Action Institute.  You can follow him on Twitter @JamesValvo.

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07/6/2018

Carelessness, Certifications, and Millions of Dollars: The SBA’s Mishandling of Federal Contracts

The Office of the Inspector General (“IG”) for the Small Business Administration (“SBA”) released a report last month detailing its findings from an agency-wide audit of the Women-Owned Small Business Contracting Program (“Program”). The Program provides greater access to federal contracting opportunities for women-owned small businesses (“WOSBs”) and economically disadvantaged women-owned small businesses (“EDWOSBs”) that meet Program requirements. The IG found that an astounding 81% of the audited contracts awarded on a sole-source basis (i.e., without competitive bidding) within a sixteen-month time-period from 2016 to 2017 may have been given to firms that were ineligible for the Program. The total value of the contracts awarded to potentially ineligible firms exceeds more than $52 million.

Previous audits conducted in 2015 by the SBA IG and in 2014 by the U.S. Government Accountability Office (“GAO”) warned that the Program was vulnerable to fraud without changes to its certification process. Unfortunately, the SBA failed to make those changes.

The IG found that contracting officers—the federal employees responsible for awarding contracts to firms—did not comply with federal regulations for fifty of the fifty-six set-aside contracts awarded on a sole-source basis. The contracts studied under the audit were all valued individually at equal to or greater than $250,000. Further, the fifty firms that received those contracts did not comply with the Program’s self-certification requirements, leaving no assurance that federal funds were given to eligible WOSB or EDWOSB firms.

The IG audit lists examples of other missing documentation, including WOSB and EDWOSB self-certifications, birth certificates, and mandatory financial information. Indeed, eighteen of the fifty-six contracts, valued at $11.7 million in total, were awarded on a sole-source basis to firms that uploaded no documentation to Certify.SBA.gov, the SBA’s online platform for federal contracting program applications.

The 2015 GAO report explicitly recommended better training for contracting officers because of a lack of understanding regarding SBA certifying procedures. The SBA agreed with that recommendation. However, according to the recent IG audit, one contracting officer, who awarded contracts to firms that had not uploaded any documentation in Certify.SBA.gov, told the IG that “he was not aware of the requirement to verify documents in Certify.SBA.gov.” Other contracting officers incorrectly coded contracts as sole-source contracts. These officers handle awards worth hundreds of thousands of taxpayer dollars, and the numerous mistakes show a vulnerability that the SBA knew it should have addressed.

Just as it did in 2015, the SBA agreed with the IG’s latest assessment and findings. The agency’s intended actions, however, will not rectify the deficiencies identified by the IG. For example, the SBA acknowledged it needed to initiate debarment proceedings for ineligible firms and implement a certification requirement, but it does not anticipate finishing those tasks until summer 2020. The SBA also refused to implement the IG’s recommendation that would strengthen controls to prevent contracting officers from inappropriately coding contracts, instead arguing that the “recommendation is vague and would not likely help the [P]rogram.”

In perhaps the most interesting point of dissent, the SBA argued that “the audit findings unnecessarily rely on unverified and/or refuted data.” In response, the IG pointed out the problem with the SBA’s criticism:

The [data] that we used to conduct this audit was the same data the SBA relies on to formulate the Small Business Goaling Report, which is submitted to Congress and other stakeholders. If the SBA is admitting that the data it uses is inaccurate, the SBA should immediately communicate this inaccuracy to Congress to ensure that all stakeholders understand the SBA’s use of inaccurate data when assessing the Federal Government’s achievement of small business procurement goals.

Either the SBA is knowingly using inaccurate data in its federal reports, or its criticism of the IG report is fundamentally dishonest.

The Program was designed to expand federal contracting opportunities for WOSBs and EDWOSBs. Inflating the competition pool with ineligible businesses reduces the Program’s effectiveness and diminishes the opportunity for WOSBs and EDWSOBs to succeed as the Program intended. Americans deserve an efficient and effective government. Washington bureaucrats spend our money, and they owe it to us to make sure that contracts and funds are properly awarded to eligible businesses. The SBA must fix its mistakes—its negligence is inexcusable.

Chris Klein is a Research Fellow at Cause of Action Institute

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06/29/2018

Congress Should Let the EB-5 Cash-for-Visa Program Expire

Can the EB-5 Immigrant Investor Program be fixed? It’s been over a year since we called for an end to the program that is now set to expire unless renewed by September 30. As we previously wrote: 

Simply stated, the EB-5 Program operates as a cash-for-visa scheme. Whatever economic advantage it might offer is outweighed by the corruption it engenders and negative influence it has on national security and good government.  Congress should end the program or work to reform its governing rules to prevent continued abuse by the political class. 

There wasn’t much congressional interest in ending the program when we wrote that in May 2017, but the tide appears to be turning. The Senate Judiciary Committee recently held a hearing to discuss the EB-5 program with Lee Francis Cissna, Director of the U.S. Citizenship and Immigration Services (“USCIS”), which is the agency responsible for the program. At the hearing, members of both parties and Director Cissna agreed that, barring legislative reform or publication of long-pending modernization rules, the EB-5 program should be allowed to expire. 

Below are the key quotes and exchanges from the hearing:

Chairman Grassley’s opening statement laid out the significant issues associated with the Regional Center Program:  

As interest in the EB-5 Regional Center Program has grown, so have cases of fraud, corruption and threats to national security. There are many, many well-documented examples of the inherent problems in this program. In fact, over the last five years, I along with several of my colleagues, have written over thirty oversight letters highlighting the various vulnerabilities of this visa program. 

USCIS Director Cissna agreed that the program is rife with fraud and should be eliminated. In his opening statement, he said, “In the absence of legislative reforms, I believe Congress should indeed consider allowing the program to expire.”  

Senator Feinstein then prodded Cissna, “That’s the reason I’m concerned with this program, I think its rife with fraud.” In response, Cissna carried Feinstein’s concern even further, stating, “I think a lot of the cases . . .  involve full on criminal activity too. Fraud with our agency is one thing, but then it often gets magnified into full on criminal activity.”  

Senator Feinstein stated, “It’s no secret that I oppose this program. I believe it should be eliminated entirely.” She continued, lamenting that “under the EB-5 system, the wealthy can cut to the front of the line. This on its face is fundamentally unamerican.” These are the same cronyism concerns that we’ve been worried about throughout our time investigating the program. 

Finally, Senator Durbin said, “I am proud to be the only cosponsor of the Grassley-Feinstein bill to eliminate this program, I hope others will join us.” He then claimed that the EB-5 program is “outrageous and embarrassing to this nation.”  

Come September 30, Congress should allow the EB-5 program to expire with or without modernization rules. While the modernization rules would be better than the current system, they will not fix the endemic problems of fraud and corruption with the cash-for-visa program. It’s time to end it.  

Max Menkes is a Research Fellow at Cause of Action Institute.

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06/28/2018

SEC Adopts CoA Institute’s Recommendations in Updated FOIA Regulations

The Securities and Exchange Commission (“SEC”) finalized new Freedom of Information Act (“FOIA”) regulations today, adopting two revisions from a comment that Cause of Action Institute (“CoA Institute”) proposed in January 2018.  The FOIA allows for the disclosure of records of federal agencies, including documents, emails, and reports, and is an essential tool for promoting government transparency.

CoA Institute made three recommendations in response to the SEC’s proposed rulemaking.  First, we urged the agency to remove outdated “organized and operated” language from its definition of “representative of the news media.”  Such language has been used in the past to deny FOIA fee waivers to organizations like CoA Institute that investigate agency waste, fraudulent activity, cronyism, and wrongdoing.  In 2015, we argued Cause of Action v. Federal Trade Commission before the D.C. Circuit, which resulted in a landmark ruling that invalidated the “organized and operated” requirement.

In Cause of Action, the D.C. Circuit clarified proper fee category definitions and the application of fees for FOIA requests.  CoA Institute cited this case in its comment to the SEC and the agency concurred with our proposal to remove the outdated “organized and operated” language from its definition of a news media requester.  The FTC also acknowledged the D.C. Circuit’s landmark decision in its final rule.

Second, CoA Institute recommended eliminating “case-by-case” fee category determinations.  Under the original rule proposed by the SEC, FOIA offices would “determine whether to grant a requester news media status on a case-by-case basis based upon the requester’s intended use of the requested material.”  CoA Institute again cited Cause of Action to argue that the focus of the fee waiver inquiry should be on “requesters, rather than [their] requests.”  The SEC agreed and removed the restrictive language.

Finally, CoA Institute recommended that the SEC recognize that a news media requester may use “editorial skills” to turn “raw materials into a distinct work” when writing documents such as press releases and editorial comments.  This understanding broadens the potential pool of news media requesters and our recommendation tracks language from the D.C. Circuit’s decision in Cause of Action.  Although, in this respect, we did not recommend any specific changes to the final rule the SEC nevertheless acknowledged our comments by stating that it “will consider Cause of Action and any other relevant precedents in applying the fee provisions in its regulations.”

Americans have an interest in living free and prosperous lives without the interference of arbitrary and abusive executive power.  One of the ways CoA Institute monitors government overreach is by fighting for access to information on the federal government’s activities.  Our successful comment is a small but important victory in our work to ensure a transparent government that works for the benefit of all Americans.

Chris Klein is a Research Fellow at Cause of Action Institute

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06/26/2018

GAO Report Highlights Agencies Failing to Implement the FOIA

A report released yesterday by the Government Accountability Office (“GAO”) provides alarming details about the dearth of agency efforts to fully implement the Freedom of Information Act (“FOIA”).  GAO previewed a draft of its report in March 2018 when its Director of Information Technology Management Issues, David Powner, testified at a hearing on FOIA compliance before the Senate Committee on the Judiciary.  At the time, GAO published a concurrent report on how federal courts regularly fail to refer cases to the Office of Special Counsel (“OSC”) to determine whether disciplinary action is warranted in instances where officials have acted arbitrarily or capriciously in withholding records.  (Cause of Action Institute’s (“CoA Institute”) commentary on that issue can be found here.)  Yesterday’s report finalizes GAO’s findings and incorporates feedback from the eighteen agencies in the sample subject to the audit.

Many Agencies Have Failed to Update Regulations and Appoint Chief FOIA Officers

One aspect of GAO’s audit involved reviewing whether the eighteen agencies properly implemented various requirements introduced by the FOIA Improvement Act of 2016 and the OPEN Government Act of 2007.  Those amendments to the FOIA require agencies, inter alia, to designate chief FOIA officers, publish timely and comprehensive regulations, and update response letters to indicate things such as an extended, 90-day appeal period.  GAO also evaluated what efforts were underway by the Office of Management and Budget and the Office of Information Policy to develop a government-wide FOIA portal.

The chart above, which is taken from the GAO report, encapsulates some of the unfortunate findings.  Even though it is a statutory requirement, five of the eighteen agencies have not designated a chief FOIA officer in line with applicable requirements (e.g., appointing a senior official at the Assistant Secretary or equivalent level).  Chief FOIA officers are responsible for monitoring agency-wide compliance with the FOIA, making recommendations for improving FOIA processing, assessing the need for regulatory revisions each year, and serving as a liaison with the Department of Justice Office of Information Policy, the Office of Government Information Services, and the Chief FOIA Officers Council.  It remains unclear why some agencies are reticent to comply with this aspect of the FOIA.

Another disturbing finding is that few agencies in the sample timely updated and published regulations to implement the FOIA Improvement Act of 2016.  At least five agencies have deficient regulations—such as the Department of State—or have not bothered to issue a preliminary rulemaking—such as the White House Office of Management and Budget (“OMB”).  Agencies offered several reasons for why they have not complied with the law, with most citing a lengthy internal review process.  The State Department explained that it had just finished updating its regulations before passage of the FOIA Improvement Act.  The U.S. African Development Foundation, however, claimed that it did not even need “to disclose information regarding fees in their regulation” because it “has not charged a fee for unusual circumstances.”

OMB’s failure to satisfy GAO’s criteria for proper FOIA regulations is unsurprising and indicative of a general disregard for regulatory compliance with the FOIA at the agency.  For example, for the past few years, CoA Institute has carefully tracked whether agency FOIA regulations have been updated to include the current statutory definition of a “representative of the news media.”  Prior to the D.C. Circuit’s landmark 2015 decision in Cause of Action v. Federal Trade Commission, many agencies relied on OMB’s Uniform Freedom of Information Fee Schedule and Guidelines to impose an “organized and operated” standard that deprived nascent media groups of preferential fee treatment.  The OMB Guidelines, which were written in 1987, have never been updated, despite requests from the FOIA Advisory Committee and the Archivist of the United States.  CoA Institute thus filed its own petition for rulemaking on the issue in June 2016, followed by a lawsuit last November after OMB failed to respond.

Agencies Have Made Little Progress on FOIA Backlogs

Another aspect of GAO’s audit involved examining whether the eighteen agencies had made any headway in reducing their FOIA request backlog, as well as cataloging the statutes used in conjunction with Exemption 3 to withhold records from the public.  GAO found that few agencies had managed to reduce their outstanding backlog.  One major reason for the lack of progress on reducing backlogs was the failure of most agencies to implement “comprehensive plans” laying any sort of strategy.  As for GAO’s catalogue of statues used to withhold information exempt as a matter of law, the most commonly cited provisions were 8 U.S.C. § 1202(f), which concerns records about the issuance or refusal of a visa, and 26 U.S.C. § 6103, which protects the confidentiality of tax returns and return information.

GAO’s audit is an important indication of how far many agencies must go to comply fully with the FOIA.  This is particularly true insofar as GAO’s findings can be generalized across the entire administrative state.  Congress, the transparency community, and the American public must exert even greater pressure on Executive Branch agencies to meet their obligations under the law and to improve their commitment to open government.

Ryan P. Mulvey is Counsel at Cause of Action Institute

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