Thorny Ethical Concerns: Office of Strategic Capital, where some wear two hats—working for the DOD while holding private sector jobs.

An array of new federal intelligence and military offices have been launched in recent years with one overriding goal: to connect the slow-moving federal bureaucracy to private, venture capital-backed companies doing cutting-edge work.

Several military services and intelligence agencies have launched venture capital offices, and the CHIPS Act that President Joe Biden’s team is implementing is premised on public-private partnerships to advance the US’s high-tech manufacturing sector.

All these efforts can pose a set of ethical quandaries given the blurry line between the public interest and corporate interests. And a recent career move illustrates those stakes.

This week, lawyer Linda Lourie announced that she was joining the Pentagon’s newly established Office of Strategic Capital, which is designed to connect military-tech companies with private investors, as a part-time consultant. She posted on LinkedIn how excited she was to “attract and scale private capital for emerging and frontier technologies in support of national security.”

What stood out, however, is that she would maintain her private-sector job at WestExec Advisors, the ultra-connected Washington consultancy that works with tech and defense companies. The work of the Office of Strategic Capital is remarkably similar to the services that WestExec provides. Now, she would be working in the private and public sectors at the same time.

The career shift for Lourie appears messy, but it is not illegal. “Outsourcing defense to a corporate adviser doesn’t seem like an ideal way to put the public’s interests first,” Walter Shaub, a top ethics official in the Obama administration, told me.

“My work for the different organizations cover different issues, and although I don’t expect any conflicts of interest, I will be very cautious to ensure that it doesn’t occur,” Lourie posted in response to Shaub’s reply on LinkedIn. (Requests for comment from Lourie and WestExec Advisors were not returned.)

The Pentagon reiterated that principle and said Lourie wouldn’t be working on specific investment decisions.

“These employees are hired to contribute to broad policy discussions that relate to DoD’s role of informing and encouraging private sector investment in our nation’s critical technologies,” a Pentagon spokesperson said in a statement. “DOD ethics officials provide special government employees with clear guidelines on the ethics rules and specifically how to avoid conflicts of interest.”

But government ethics experts say it will be hard to verify no conflicts arose in those policy discussions: Hiring people as “special government employees,” as Lourie is, requires fewer disclosures for the public. More broadly, the gray area in which she’s operating connects to the larger questions of what it means to marry private corporations to government, and whether it’s the American people or the corporations that benefit.

The core question is whether Lourie’s dual-hatted roles are unique or representative of how the government works today. While OSC says there is only one other employee hired as a special government employee, the increase of these appointees in substantive roles across the government could pose similar issues.

As more and more government offices are established to grease connections to the private sector, and as former policymakers continue to use the revolving door into corporate consulting when they leave government, this issue is likely to keep occurring.

When the government seeks the private sector’s help

In December, the Department of Defense launched the Office of Strategic Capital to broaden private investment in technologies critical to national security.

The biggest consumers of many new military technologies are, of course, often the government. But since Pentagon contracts can take years, it means that startups often struggle to break into the federal bureaucracy. That’s been called the “valley of death,” and over the last two decades, a variety of new divisions have been designed to overcome the hurdles startups face in getting into the Pentagon. This has also been a key policy area that Michèle Flournoy, an Obama Pentagon official who co-founded WestExec Advisors with Antony Blinken in 2017, has researched extensively.

In 2019, Flournoy co-authored an article about how the US could maintain its tech superiority. One suggestion: “The government could also help connect critical technology and resource suppliers to private sector capital.” That seems similar to what the Office of Strategic Capital has set out to do.

In the 2024 Pentagon budget, the Biden administration has sought $115 million to fund the office, which will ultimately use financial tools like loans and loan guarantees to boost startups of interest. Its first year will largely consist of research. Only a handful of staffers are currently listed as being a part of the office, according to Linkedin. As it seeks new authorities to deploy investment tools, the office has partnered with the Small Business Administration’s investment program.

The idea behind the office isn’t new. It builds on investment efforts in the Army and Air Force and the Defense Innovation Unit (DIU), an incubator launched in 2015. Among the emerging startups that the DIU has backed to multibillion-dollar success is the military-tech company Anduril.

When Silicon Valley Bank crashed at the end of March, many military-tech startups were exposed to economic stress. The Office of Strategic Capital was “actively collaborating with our DoD and other government colleagues to advocate for our national security community” and “constantly monitoring national security-related impacts to the crisis,” according to a press release.

What’s off about working for government and the private sector at once

For all their successes, these public-private partnerships can create ethical issues.

Conflicts of interest are the main concern. That’s why government employees disclose their employers, investments, clients, and assets in filings, and then they work with ethics officers and their managers to avoid favoritism and guard against working on aspects of a project that could affect their own financial interests.

Roles that have close ties to the private sector and that hire government contractors pose particular issues. The director of the Defense Innovation Unit from 2018 to 2022, Michael Brown, allegedly engaged in unethical hiring and contracting, according to the unit’s CFO. Those complaints could not be substantiated by the DoD Inspector General, which cleared Brown last year. But the ordeal led him to withdraw his nomination for a senior Pentagon appointment.

Part-time employees, like Linda Lourie, create a distinct set of potential landmines.

Lourie worked in the Biden White House’s Office of Science and Technology Policy. When she left and joined WestExec in 2022, the firm said it was, “leveraging Linda’s robust knowledge-base to help our clients capitalize on strategic opportunities.” WestExec Advisors has worked for clients including Big Tech companies, prominent banks, prime military contractors, and new defense-tech startups. The firm has specialized in linking “private equity and multinational corporations to emerging technology.”

Lourie’s designation as a special government employee (SGE) would allow her to work simultaneously in government and at WestExec, without publicly revealing her clients.

An SGE is just anyone who is expected to work no more than 130 days in a 365-day period. Its use may have been legitimate during the early days of Covid, when bureaucracy was moving slowly amid pandemic restrictions. And when technocratic knowledge is needed for a specific issue, it’s a helpful classification. “One of the great benefits of the SGE option is you can attract talent for a limited time that you might not otherwise get,” says Don Fox, who worked as acting director of the Office of Government Ethics from 2011 to 2013.

But this particular SGE role comes with less transparency than other roles a private sector adviser might normally fill, such as working as a government contractor or serving on federal advisory boards. The latter is different because there are “more ethical safeguards” and more “transparency, like open meetings requirements,” says Kathleen Clark, a law professor at Washington University in St. Louis. “None of this applies to this kind of SGE.”

The Pentagon spokesperson said, “Employees designated as special government employees are limited to broad policy discussions, and are not included in discussions that relate to specific investments.”

But Jeff Hauser of the watchdog Revolving Door Project worries that the role is still prone to exploitation. “It would take Herculean firewalls in one’s brain — that human beings are not capable of — to ignore the fact that you continue to be employed at an entity that has ongoing interest in certain outcomes on decisions you’re working on in government,” he told me.

About 1,600 special government employees worked in the Office of the Secretary of Defense in 2021, the most recently available calendar year.

Experts say the overuse of them for high-profile hires can undermine trust in government ethics enforcement. The most prominent Biden appointee to use the designation has been Anita Dunn, who revolved in and out of the White House as a senior adviser to the president on short stints that allowed her to avoid publicly disclosing her clients and financial interests. Matt Miller, the incoming State Department spokesperson, appears to have been a special government employee when he worked as a White House comms official at the beginning of Russia’s invasion of Ukraine.

This trend was perhaps more prevalent in the Trump administration, with such high-profile appointees as State Department Ukraine envoy Kurt Volker. White House lawyer Emmet Flood started out as an SGE and was converted to full time. Mick Mulvaney, in his job as Ireland envoy, worked under this designation. But the Trump administration’s brazen and unprecedented ethical malfeasance shouldn’t obscure troubling dynamics in the Biden administration.

Shaub, who ran the Office of Government Ethics from 2013 to 2017, notes that Lourie could take proactive transparency measures to mitigate potential conflicts. The main concern is that WestExec, which already has numerous ties to the Biden administration, might appear to have an advantage given one of its senior members working in a government office doing work relevant to the firm.

“She could choose to disclose her clients and disclose her work for the government. That would be a voluntary disclosure, of course, but the optics are terrible and the government owes the public concrete assurances,” Shaub, who is now at the Project on Government Oversight, told me.

Lourie is not the only one in the office simultaneously in the public and private sectors. Kirsten Bartok Touw, an aerospace and defense investor at New Vista Capital, also works as an adviser to the Office of Strategic Capital.

Since the Pentagon’s Office of Strategic Capital is new, the responsibilities of the job might not be clear. “I would want to be updated on [the role] periodically, because with a brand new function or office, this could be iterative,” Fox, who previously served as deputy general counsel of the Air Force, told me. The scope of the work may evolve.

Many of the current ethics laws and major reforms came out of the post-Watergate moment, and the Trump administration tested their limits and enforcement. As Fox put it, “Public perception is, in some ways, everything.”