Formal legal opinions issued by the Justice Department since 1976 have disapproved severance payments similar to the $50,000 received by William French Smith when he resigned from the board of directors of a California steel company nine days before becoming attorney general.
In a legal opinion of Sept. 15, 1977, the Justice Department ruled that a longtime employe in the private sector about to enter government service could not receive a severance payment of $7,800 on the ground that it might violate the federal law prohibiting certain kinds of salary supplements to federal officials.
Several attorneys who specialize in government ethics were interviewed this week and said that that ruling and a May 10, 1976, ruling disapproving the acceptance of money from an electric company's benefit plan for an incoming federal employe set a precedent that should have been followed by Smith.
A Justice Department ruling is an official in-house legal opinion based on the Office of Legal Counsel's interpretation of federal law. Although such rulings are not legally binding, they traditionally carry over from administration to administration and in most cases are adhered to rigorously.
A current Justice Department official who declined to be named said, "It the $50,000 is flatly inconsistent with a line of Office of Legal Counsel opinions dating since 1976. . . . If it had been submitted, in no way, shape or form would it have been approved. . . . It's got everything going against it."
The earlier Justice Department rulings on severance payments are based on interpretations of Title 18 of the U.S. Code, section 209.
According to the Office of Government Ethics guidelines issued in 1980, that law concerns "not bribery, but prelude to bribery."
The law was designed to prevent someone who is working for the government from, in essence, serving two masters. To violate the prohibition on such salary supplements an official does not have to do anything to help the company making the supplement. In addition, the official does not have to have a federal job that deals in an area that might regulate or have some kind of jurisdiction over the company. The crucial issue is whether the payment is intended to provide a supplement to the individual's government work.
Smith's $50,000 payment was made by the Earle M. Jorgensen Co., a California steel firm headed by Earle Jorgensen, a member of the Reagan "Kitchen Cabinet." At Smith's last board meeting on Jan. 12, 1981, the directors unanimously voted to thank him by awarding the payment, which he took with him that day. According to a spokesman for Jorgensen, other retiring directors had received gifts of a gold watch or continuation of annual director's fees but never before had one been given a monetary severance payment.
Leon Ulman, who served for 26 years in the Office of Legal Counsel in the Justice Department until 1980 and is considered an expert on conflicts of interest, said of the 1976 opinion: "We went into the question thoroughly and we labored over it and wanted to lay down broad guidelines. . . . If someone is going to be appointed to a position and was going to be given a substantial sum of money. If the company had a plan that applied across the board and it was clearly said and if the sum of money was set in advance" then the payment would be approved.
Ulman said that the opinions issued by his former office state that such payments cannot be accepted unless they are regular, routine benefits and not tailored to a specific individual.
Based on the facts in the Smith case, Ulman said, "It sounds improper. . . . If I was attorney general I wouldn't have taken it."
While several ethics attorneys emphasized that each case is different and should be reviewed separately, they said there are more questionable elements in Smith's case than in the ones disapproved.
A severance payment is normally a small portion of the total salary or payment for service given to a departing director or employe. Since the $50,000 Smith received is more than he made during the entire six years he served on the board of directors and the three years he served on the California firm's audit committee, several attorneys said it raises an automatic question about whether the payment was in fact genuine or traditional severance.
Thomas P. DeCair, Smith's spokesman, said that the attorney general considers the payment "a perfectly proper and fully disclosed transaction." In defending the payment, DeCair said Smith received approximately $8,000 a year in fees and was the only lawyer on the audit committee, an assignment to which Smith devoted "a great deal of time."
Smith may be allowed to keep the $50,000 or may be advised to give it back. Other officials said it is even possible that a special prosecutor will have to be appointed to determine whether his receipt of the payment is a direct violation of the law.
J. Jackson Walter, the director of the ethics office, said this week that he is continuing his review of Smith's financial disclosure form to determine whether the $50,000 payment violated any law or Justice Department precedent. He said he has not seen the Justice Department opinions on severance payments, but he added, "In the past, Office of Legal Counsel opinions are given heavy weight." At the same time he said he would not consider such opinions binding and that he hoped his office could make its own determination soon.
Walter said that he has "a range of questions about fees" received by Smith and anticipated receiving answers soon to questions he had posed last week to Smith's aides.
Rudolph W. Giuliani, associate attorney general, signed Smith's financial disclosure report May 11 and certified that it contained no information contrary to the conflict of interest laws. Walter is also required to review the form. "I have to sign a piece of paper eventually that says it is okay," he said.
If he disapproves of the $50,000 payment, Walter said that under a previous agreement with the Justice Department his office has the authority to write advisory opinions on what should happen to Smith and the $50,000.