The Power of The Department of Justice’s Office of Legal Counsel

Zero Hedge

It is easy to forget that the United States Government and its citizens have distinctly different relationships with the law.  While citizens and corporations look at statutes to see what they are prohibited from doing, governments must look to statutes to see what they are specifically authorized to do.  In effect, the United States must ask for permission rather than beg for forgiveness when undertaking action.  As one might imagine, this has a very particular effect on how the lawyers that work for the general counsel’s office of various government agencies and departments go about doing their job.

In a corporation, the general counsel spends a lot of time pointing out that “doing that will probably get us sued.”  Their job is (or should be) to protect the company from liability, or to reduce that liability if the company wades into it.  While governmental lawyers deal with claims litigation as well (defending against wrongful discharge and employment discrimination being a big portion of this effort since sovereign immunity applies to a number of cases) senior attorneys are generally more concerned with penning opinions on the authorization a given agency or department has (or does not have) to undertake actions of one type or another.

Clever Zero Hedge readers will quickly recognize the conflicts of interest and the potential for “capture” that plague the halls in government General Counsel offices.  The issue, however, rarely surfaces in the public.  The last major spotlight probably coincided with the scrap over memos tied to Office of Legal Counsel attorney John Yoo, then at the Department of Justice, which authorized enhanced interrogation techniques and warrantless wiretapping programs during the Bush Administration.

One sympathizes with senior government attorneys just a little.  Being a stick in the mud in the face of an administration badly wanting, needing to squeeze their agenda through the maze of statutory and constitutional restrictions is likely to result in a short career in government service.  Someone will probably write that memo even if they don’t.  Of course, don’t feel too bad as lucrative lobbyist positions generally follow senior governmental attorney positions.

To give you an idea of the power held by the Department of Justice’s Office of Legal Counsel we need only turn to the September memo from that office which gutted then Federal Housing Finance Agency Inspector General Ed Kelley’s power to investigate fraud, wrongdoing or mismanagement at Fannie Mae and Freddie Mac.  As a result, there is presently no independent auditor at either GSE- not that the FHFA Inspector General (appointed by the executive and approved by Congress) was ever necessarily “independent” for any definition of that word one might choose to adopt.

Unsurprisingly, the Office of Legal Counsel had an interesting perspective on the prospect of the GSEs (and the FHFA for that matter) operating without an Inspector General.

Insofar as the absence of an Inspector General creates practical difficulties for the FHFA, we note that the Reform Act authorizes the FHFA Director to “delegate to officers and employees of the [FHFA] any of the functions, powers, or duties of the Director, as the Director considers appropriate….”  As you have suggested, this authority might permit the Director to give designated employees certain responsibilities for auditing and monitoring the FHFA’s activities.

Could it be that with all the noise and motion that seems to accompany discussions on Corporate Governance and oversight of banks and public companies that we are moving in exactly the opposite direction with respect to two agencies which arguably blew up the mortgage market and which, even now turn, chin up, mouths open, gaping hungrily for another $15 billion in taxpayer cash to make up for another quarter of eye-popping losses?  And even this totally ignores the fact that the FHFA, also lacking independent oversight at the moment, has become the new Mr. Bubble of the housing market.

President Obama has assured the public that he will “get right on that” little Inspector General problem since Fannie and Freddie have lacked a formal auditor for 15 months now.  Of course, the Office of Legal Counsel started to rattle Ed Kelley’s cage just four months after Obama’s coronation, so we aren’t holding our breath on that one.  And after all, there is probably nothing to worry about.  The FHFA (which just fired its own Inspector General) accepted the CEAR Award For Fiscal Responsibility and Accountability, the Federal government’s highest award for accountability reporting, this last Spring.  (Zero Hedge waits with bated breath to see if the United States Securities and Exchange Commission will extend its streak of three straight CEAR wins next spring.  The Department of Labor has won eight CEAR Awards in a row).  What could possibly go wrong?  The Huffington Post has a decent article on the entire Inspector General situation from earlier this week.

Getting back to the central issue, the GSEs currently represent something like three fourths of all taxpayer losses due to mortgages, a figure that will likely only grow.  Assuming that an Inspector General with a staff of two and a $150,000 budget could have been effective at all in a sprawling GSE complex (though certainly someone seemed to suspect so), one might credit the Office of Legal Counsel with one of the great cover-ups of all time.  Time will tell.

Still, government lawyers aren’t just weapons for eliminating troublesome investigations.  As it turns out, at least in some agencies, the role of the government attorney has become so much of a rubberstamp joke that the “yes man” role is well woven into agency culture.  Attorneys at the IRS apparently often joke about their “Section Zero” authority, referencing a fictitious (and presumably empty) section of the United States Code from which they derive authority to authorize just about anything that comes across their desks with little or no scrutiny.  We somewhat doubt that a FOIA request for material referencing “Section Zero” authority would be fruitful, but members of Congress may wish to ask about this particular term of art when next they have occasion to write IRS Chief Counsel William J. Wilkins, who, as he is also officially attached to the Office of the General Counsel for the Treasury, technically reports to George W. Madison, General Counsel for the Department of the Treasury.

Similar questions might be well directed to George W. Madison himself.  After all, how likely, exactly, is the Chief Counsel of the Internal Revenue Service to suffer to be written in his office and on his watch a memo halting a Treasury program?

Heretofore, government attorneys have enjoyed both statutory and a form of de facto immunity from scrutiny or legal process.  The latter because sunshine seems rarely to penetrate the marble office walls of the many Offices of General Counsel in the beltway.  Perhaps this should change.

We wonder exactly how the state bars and various state attorneys general would view the wholesale conflict and malpractice implicit in bad-faith rubber stamping of Federal programs of questionable authority.  In this connection, Zero Hedge is particularly interested in the names of attorneys at the IRS, the Treasury and Scott G. Alvarez’s Legal Division at the Federal Reserve Board who wrote legal opinions suggesting that the Treasury and the Fed were authorized to undertake programs (PPIP comes to mind) which essentially put them in the position of writing options- taking just one example.  That might, at least, expose this sector of government “oversight” to some much-needed scrutiny.  But this is only one step.

Last year former Department of Justice attorney John Yoo was sued in the United States District Court for the Northern District of California by Jose Padilla over his “torture memos.”  Yoo immediately moved to dismiss the suit citing, among other things, sovereign immunity.  The court was having none of it, denying almost every element of his motion to dismiss and permitting the case to proceed.

Government attorneys, take note.

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