Eizenstat Tells Why He Gave Waiver to IRS Commissioner

0 Comments | Insight on the News, May 14, 2001 | by John Berlau

President Clinton's deputy treasury secretary, Stuart Eizenstat, called Insight just after this magazine's deadline last week to explain why he gave IRS Commissioner Charles Rossotti a last-minute waiver of conflict-of-interest rules.

Under the waiver, which Eizenstat signed on Dec. 11, 2000, Rossotti was protected for failing to recuse himself from participating in many decisions that could affect the bottom line of American Management Systems (AMS). As Insight has reported Rossotti refuses to divest his millions of dollars in stock holdings in AMS, the information-technology company he cofounded, even though AMS has millions of dollars in contracts with IRS (see "A Taxing Dilemma," April 23).

Eizenstat tells Insight that there was a pressing need to process the waiver because, without it, Rossotti would have had to sell his stock to remain commissioner. "He had to know whether to sell this stock or not," says Eizenstat, now a partner at the Washington law firm of Covington & Burling and a public-policy scholar at the Wilson Center.

Eizenstat defended his decision to sign the waiver but put responsibility for the signing on Kenneth Schmalzbach, Treasury's assistant general counsel for law and ethics. "Ken Schmalzbach is about as tough an ethics officer as you can get, and when he made this recommendation [to grant the waiver] to me, I had no reason to challenge it."

Eizenstat seemed to be misinformed about the extent of Rossotti's AMS holdings, telling Insight that they "were not that substantial." Informed that Rossotti and his wife hold between $16 million and $80 million in AMS stock, according to his latest financial-disclosure form, the former deputy treasury secretary retreated: "You really should talk to Ken, because it was his recommendation that I followed. He's the one that reviewed this and suggested I take this position."

Schmalzbach has not returned Insight's telephone calls.