UNITED STATESSENATEELIZABETH WARREN

WASHINGTON, DC 20510-2105

MASSACHUSETTS

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July 9 , 2023
www.warren.senate.gov

Ms.Heidi Shyu

UnderSecretaryof Defensefor Researchand Engineering(OUSD (R & E))
DepartmentofDefense
The Pentagon
Washington, DC 20301

Dear UnderSecretaryShyu:I write regardingmy concerns that the Departmentlacks the safeguardsnecessaryto prevent
conflictsofinterestin the Officeof Strategic Capital ( OSC) . While I understandthat one ofthe
objectivesof
is to improvethe government'srelationshipwiththe venture community, I
am concernedthat this is resultingin a conflationofintereststhat creates clear conflicts.

OSC was created in 2022 to to integrate efforts across the Department of Defense and to partnerwith other U.S. Government Departments and Agencies to develop, integrate, and implement
The
proven partnered capital strategies to shape and scale investment in critical technologies.
Director ofthe OSC prepares and provides investment priorities in the form of an investment
prospectus to the Strategic Capital Advisory Council, which is made up of the Undersecretaries
for Research and Engineering, Acquisition and Sustainment, Policy, [the] Comptroller , [ the]General Counsel of the Department of Defense and the Director of Cost Assessment and Program
Evaluation, and other members as deemed appropriate.

Ifthe Department's budget request isapproved by Congress , OSC would receive $115 million in fiscal year 2024.4
While someexperts seethis officesupportingthe developmentof key nationalsecuritycapacities,
others havecalledit merely goodinnovationtheater.
I am concernedthat this office is alreadytoo cozywithprivateinvestmentfirms. For example, whenthere was a run on Silicon Valley
Bank( SVB) , OSC was one of the officesurginggovernmentintervention. The director of OSC
Bloomberg, Boeing Joins Defense Startup to Develop-Piloted Aircraft , Lucy Papachristou , March 8 , 2023,

https://finance.yahoo.com/news/boeing-joins-defense-startup-develop-223842888.html
2.

DepartmentofDefense, Establishmentofthe Office of StrategicCapital, December1, 2022,

https://media.defense.gov/2022/Dec/01/2003123982/-1/-1/1/ESTABLISHMENT-OF-THE-OFFICE-OF
STRATEGIC- CAPITAL.PDF.

3.

Breaking Defense, Pentagon teams up with SBA to sweetenthe pot for tech investments Sydney J. Freedberg Jr.,March 20 , 2023, https://breakingdefense.com/2023/03/pentagon-teams-with-sba-to-make-key-tech-investments-dod
cant-legally-do-itself/.
5

WallStreetJournal, PentagonOfficeto SupportTechInvestmentCriticalfor NationalSecurity, Sharon

Weinberger and Doug Cameron, December 1, 2022 , https://www.wsj.com/articles/pentagon-office-to-support-techinvestment-critical-for -national-security - 11669918443 ?st nga9nrb5ep9yhug.
The Intercept, PentagonTries to CastBankRunsas NationalSecurityThreat KenKlippensteinand Daniel
Boguslaw, April3 , 2023, https://theintercept.com/2023/04/03/silicon-valley-bank-bailout-pentagon/.

wrote in an engagements

listserv email that many ofthe small businesses affected by the SVB

failure are not only organizations that have worked alongside us, but also employ close friends .
He went on to explain that the office was actively collaborating with ourand othergovernment colleagues

in their advocacy for the companies impacted by SVB's failure.8

One ofthe consultants OSC hired will simultaneouslywork at WestExec Advisors, an ultra
connected Washingtonconsultancy that works with tech and defense companies and offers
remarkably similar services to what will be provided bythe OSC WestExec has succeeded ingettingtech startups into defense contracts and helpeddefense corporations modernizewithtech
Another OSC adviser also still
and worked to help multinationalcompanies break into China.
works atNew Vista Capital, which is focused on supportingemerging companies in aerospace,defense, and logistics and transportation.
1011

According to press reports , OSC hired both ofthese consultants as special government employees()

13

SGEs are subject to many but not all of the ethics laws that apply for federal

employees .

14

For example , SGEs are prohibited from participating personally and substantially inany particular matter that has a direct and predictable effect on their own financial interests or on
15
the financial interests of any person whose interests are imputed to them.
Any violations could
subject them to penalties , including imprisonment of up to five years or civil penalties ofnot morethan $ 118,635 per infraction.

But depending on their rank and duties , SGEs are not barred from17

lobbying on behalf of or representing outside entities to federal agencies in all cases, and may
continue to receive outcome income. Ifa senior SGE serves for less than 60 days they are notsubject to a one-year cooling off period that bars them from contacting their former agency onmatters seeking official action.
197NextGov, PentagonOffice TrackingNationalSecurityImpactof SiliconValleyBank Collapse, EdwardGraham,
March 13, 2023, https://www.nextgov.com/emerging-tech/2023/03/pentagon-office-tracking-national-security-impact
silicon-valley-bank-collapse/383941/.
.
9Vox , The thorny ethical issues of the Pentagon partnering with the private sector, Jonathan Guyer, April 28, 2023 ,https://www.vox.com/politics/2023/4/28/23698006/pentagon-investing-capital-ethical-gray-areas-consulting

The Intercept.

Meet the Consulting Firm That's Staffing the Biden Administration , Jonathan Guyer and Ryan

Grim, July 6 , 2021, https://theintercept.com/2021/07/06/westexec-biden-administration/.

Vox , The thorny ethical issues of the Pentagon partnering with the private sector , Jonathan Guyer , April 28, 2023 ,https://www.vox.com/politics/2023/4/28/23698006/pentagon-investing-capital-ethical-gray-areas-consulting
12

Export- Import Bank, Kristen Bartok Touw , https://www.exim.gov/leadership-governance/advisory.

committees /exim-chairs - council-china-competition /kirsten - bartok-touw .

, The thorny ethical issues of the Pentagon partnering with the private sector,

Jonathan Guyer , April 28, 2023,

https://www.vox.com/politics/2023/4/28/23698006/pentagon-investing-capital-ethical-gray-areas-consulting
14

Department of Defense Standards of Conduct Office,.

An ethics guide for special government employees, including

consultants and experts ( such as advisory committee members) , p.3,
Documents/ SGE_Re
https://dbb.defense.gov/Portals/35/Documents/Miscappointments/ 2020% 20SGE% 20Guide% 20with% 20cert.pdf.

p .2 .
16 18 U.S.C.

216 (a ) and (b ) (penalties and injunctions) ; Federal Register , U.S. Department of Justice Notice, Civil

Monetary Penalties Inflation Adjustments for 2023 , January 30, 2023 , p . 4 ,https://www.govinfo.gov/content/pkg/FR-2023-01-30/pdf/2023-01704.pdf.

1819

OfficeofGovernmentEthics,,. 8-9 .

Ethics Laws Applicableto SpecialGovernmentEmployees, p. 5.

. 10.
2

The Department claims these consultants will be limited to broad policy discussions

and not

specific investment decisions , but ethics watchdogs have raised concerns that it would take
Herculean firewalls in one's brain to prevent conflicts of interest.

Their positions provide themaccess to non-public political intelligence information, which can be collected through briefings,
meetings, committee hearings, public or non-public documents , personal conversations , and othercommunications between an employee of a political intelligence firm and an executive branch
employee, a Member of Congress , or a legislative branch employee .
The OSC appears to beproviding these consultants an opportunity to refresh their rolodexes without having appropriate
guardrails in place to protect the public interest. As one of the consultants has observed , winningdefense contracts is about relationships and connectivity .
My Anti- Corruption and Public Integrity Act would require all federal ethics rules for federal
employees to apply to SGEs who serve for 61 days or longer .

It would also require most

executive branch employees , including SGEs , to recuse themselves from matters that might
financially benefit themselves , a previous employer , or client from the preceding four years .

24

Inorder to betterunderstandhow OSC is preventingconflicts ofinterest, please answerthe
followingquestionsno later than July28, 2023:

1. What is DoD's policy to review and determine whether SGEs investments present aconflict of interest with their official government duties?
2. Has DoD required any SGEs employed by OSC to recuse themselves from any particularmatters that have been specifically identified as affecting their outside employers , clients,
or investments ? What were those matters ?

3. WhichcompaniescontactedOSC aboutSVB'scollapse?

4. Are any ofthe companies that contacted OSC about SVB's collapse current or former
employers or clients of OSC personnel?

5. Which companies are currently clients of or have received investments from firms thatemploy SGEs hired by OSC?
6. Areemployedby OSC requiredto discloseto OSC whenthey are pursuing
prospectiveinvestmentsor clients?

20Vox , The thorny ethical issues of the Pentagon partnering with the private sector , Jonathan Guyer, April 28, 2023 ,https://www.vox.com/politics/2023/4/28/23698006/pentagon-investing-capital-ethical-gray-areas-consulting.
Government Accountability Office, Political Intelligence: Financial Market Value of Government Information

Hinges on Materiality and Timing, April 4 , 2013 , p . 4 , https://www.gao.gov/assets/gao-13-389.pdf.

Business Executives for National Security, Building the Base episode 5: Kirsten Bartok Touw, Co-Founder, New
Vista Capital, June 20 , 2022, https://bens.org/building-the-base-episode-5-kirsten-bartok-touw-co-founder-new-vista
capital/23

Anti-Corruption and Public Integrity Act , S. 5070 , Section 108 (c), https://www.congress.gov/bill/116th

congress/ senate -bill/5070
24 Id, Section 103.

3

7. How many days a year does OSC expect itsto work ?

8. Has DoD established any written screening arrangements foremployed by OSC toprevent conflicts of interest? Please provide copies of those screening arrangements.
9. Please provide copies of all SGE financial disclosure forms.

10.Doesrequireemployedby OSC to disclosethe clients oftheir outside

employerswho are not their own clients? Ifnot, how does DoD ensure that they do notwork on particularmattersthat would benefittheir employers clients?
11. How many

work in OSC? How many of thoseare senior employees? How

many of the SGE senior employees will work for more than 60 days?

12.Have any OSC employees beenissuedwaivers from governmentethics rules? Pleaseprovideany waivers issued.
13. Were OSC employees asked to make any divestments to avoid conflicts of interest ? Pleaseprovide any requests and the responses to the requests .
14.How will OSC assess companies financial stability in awarding funding?
15.Does OSC plan to use competition in recommendinginvestment priorities?

16.How will OSC use market research to inform investmentpriorities?

17.Are there any representational or lobbying restrictions imposed on OSC staff
18. Will

employed bygree to a two year cooling off period ?

Thank you for your attentionto this matter.

Sincerely,

Elizabeth Warren
UnitedStates Senator4