Think about what we've experienced by doing oversight of private military and security contractors over the past decade in places like Afghanistan and Iraq. Think it was difficult? In fact it was very difficult, and in many cases it still is, despite a decade's worth of learning curve.
But at least we've learned from our mistakes and it can only be easier now, right? Well, actually not, Or as the old saying goes, you ain't seen nothing yet, when it comes to overseeing contractors.
That's because we've barely begun to consider the use of private contractors in another critical, formerly primarily inherently governmental, national security realm. That would be, wait for it, the intelligence community (IC).
Aside from the professional spook literature and the 2008 book, Spies for Hire, by Tim Shorrock, this remains a covert mystery, wrapped in classification, inside a contractual black hole, to paraphrase Winston Churchill.
Don't take my word for it. Instead, take a look at the article "Outsourcing Covert Activities" by George Washington University Law School professor Laura Dickinson and published in the Journal of National Security Law & Policy. She is the author of the 2011 book Outsourcing War and Peace: Preserving Public Values in a World of Privatized Foreign Affairs.
When it comes to intelligence community's use of contractors, it appears that at least sometimes the right hand doesn't know what the left hand is doing. Dickinson notes that while the CIA and the Pentagon have now formally banned the use of contract interrogators and DoD has outlawed intelligence gathering by contractors, the lines appear to be blurred on the ground. Indeed, even after the military ban, former CIA agent Duane Clarridge reportedly established a private network of spies and information gathered by these agents to the U.S. government.
Why does this matter? Dickinson writes:
"Government privatization of covert activities is of particular concern. To be sure, reining in the excesses of government actors engaged in covert operations is a challenge even without outsourcing. This is because it is much harder to gather information about such activities, regardless of whether they are carried out by government employees or by contractors. And the tools of oversight and accountability we might deploy to control covert actors are especially limited because of the secrecy that these kinds of operations demand. Increased oversight by Congress and the general public through enhanced transparency laws such as an expanded Freedom of Information Act (FOIA), greater whistleblower protections, and agency reporting, may often be impractical."
Spoiler alert for those industry advocates who may think Dickinson is proposing to bar use of private contractors by the IC. She believes that outsourcing, even of covert operations, is here to stay, at least for a long time to come.
"Most notably, a political culture that assumes the efficiency of the private sector (without necessarily accumulating data to prove it) makes the hiring of contract workers much easier politically than expanding the number of government employees or uniformed soldiers. Providing contracts to private employees serves the illusion that "government is not big" or "is getting smaller." As a consequence, the starting point for my argument is that we should accept the reality of outsourcing and seek to control it better. We are in a brave new world, and we cannot ignore it. Accordingly, our best way forward is not to rail against the use of contractors in toto, but to provide better accountability for the contractors upon whom we increasingly rely."
She has various recommendations to improve oversight but given that we are talking about spy agencies after all, it is safe to say that expanding transparency (say what?) is not one of them. But she does have this rather novel recommendation:
"Even for contractors conducting covert operations, we could require contract firms to install internal accountability agents with a role comparable to that of uniformed lawyers in the military. Such agents should be responsible for training employees, monitoring their actions, tracking abuses, and imposing sanctions in the case of such abuses. Perhaps the decision by Academi (formerly Blackwater) to appoint former Attorney General John Ashcroft as their lead ethics agent is a step in this direction."
Putting aside the fact that John Ashcroft and ethics are not normally words I use in the same sentence this might be something the congressional oversight committees might want to try implementing.
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On the Meaningless of Contracts and the New Optionality
An old saying is that contracts are only as good as the parties that enter into them. And the evidence is growing that when there is a meaningful power disparity between two parties to an agreement, the odds are high that the bigger player will elect to behave badly.
This blog is rife with examples: pervasive contractual and regulatory violations in securitizations and foreclosures, banks exploiting not just ordinary consumers with “tricks and traps” but even billionaire clients; debt collection abuses; routine raiding of employee pensions while CEO pay and perquisites remain sacrosanct; and, of course, the pilfering of customer accounts at MF Global.
We can see the damage of the breakdown of the norms of commerce.
The private label securitization market, which functioned fairly well when originators and servicers acted in accordance with their agreements with investors, is now dead.
The securitization market, which was 60% private label prior to the crisis, is now effectively 100% government guaranteed (there was all of one private label deal last year).
Various reform proposals have been suggested; some have been well thought out enough that past investors reacted positively.