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Saturday, March 2, 2013


Testimony of Chairman Gary Gensler Before the US Senate Committee On Agriculture, Nutrition & Forestry, Washington, DC

February 27, 2013

Good afternoon Chairwoman Stabenow, Ranking Member Cochran and members of the Committee. I thank you for inviting me to today’s hearing on oversight of the Commodity Futures Trading Commission (CFTC). I also want to thank the CFTC Commissioners and staff for their hard work and dedication.


I am pleased to have the opportunity to discuss with you the CFTC’s efforts on behalf of the public. The agency has been directed by Congress to oversee and police the nation’s derivatives markets, both in the futures and swaps markets. It strives to promote transparency, fairness and integrity in these markets. The CFTC continues to carry out its historical mission regarding the rapidly changing futures market, while developing and integrating comprehensive standards for the swaps market. The Commission has reorganized its divisions to best ensure ongoing oversight of the futures market, as well as the swaps markets. We also have implemented improvements in protections for customer funds and are developing others. We continue to engage in targeted enforcement efforts in the public interest, such as the historic actions regarding benchmark rates, including the London Interbank Offered Rate (LIBOR), a reference rate for much of the U.S. futures and swaps markets.

The New Era of Swaps Market Reform

Congress made history with the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the CFTC now oversees the entire derivatives marketplace – across both futures and swaps. The common-sense rules of the road for the swaps market that Congress included in the law have taken shape and market participants are adapting to them.

For the first time, the public is benefiting from seeing the price and volume of each swap transaction. This post-trade transparency builds upon what has worked for decades in the futures and securities markets. The new swaps market information is available free of charge on a website, like a modern-day ticker tape.

For the first time, the public will benefit from the greater access to the markets and the risk reduction that comes with central clearing. Required clearing of interest rate and credit index swaps between financial entities begins next month.

For the first time, the public is benefitting from specific oversight of swap dealers. More than 70 swap dealers have provisionally registered. They are subject to standards for sales practices, recordkeeping and business conduct to help lower risk to the economy and protect the public from fraud and manipulation.

An earlier economic crisis led President Roosevelt and Congress to enact similar common-sense rules of the road for the futures and securities markets. I believe these critical reforms of the 1930s have been at the foundation of our strong capital markets and many decades of economic growth.

In the 1980s, the swaps market emerged. Until now, though, it had lacked the benefit of rules to promote transparency, lower risk and protect the public, rules that we have come to depend upon in the futures and securities markets. What followed was the 2008 financial crisis – a crisis that was due in part to swaps markets. Eight million American jobs were lost. In contrast, the futures market, supported by earlier reforms, weathered the financial crisis.

Congress and the President responded to the worst economic crisis since the Great Depression and carefully crafted the Dodd-Frank swaps provisions. They borrowed from what has worked best in the futures market for decades: transparency, clearing and oversight of intermediaries.

The CFTC has largely completed swaps market rulewriting, with 80 percent behind us. On October 12, the CFTC and Securities and Exchange Commission’s (SEC) foundational definition rules went into effect. This marked the new era of swaps market reform.

The CFTC is seeking to consider and finalize the remaining Dodd-Frank Act swaps reforms this year. In addition, as Congress directed the CFTC to do, I believe it’s critical that we continue our efforts to put in place aggregate speculative position limits across futures and swaps on physical commodities.

The agency has completed each of these Congressionally-directed reforms with an eye toward ensuring that the swaps market works for end-users, America’s primary job providers. It’s the end-users in the non-financial side of our economy that provide 94 percent of private sector jobs.

Dodd-Frank Act swaps market reforms benefit end-users by lowering costs and increasing access to the markets. They benefit end-users through greater transparency – shifting information from Wall Street to Main Street. Following Congress’ direction, end-users are not required to bring swaps into central clearing. Further, the Commission’s proposed rule on margin provides that end-users will not have to post margin for uncleared swaps. Also, non-financial companies, other than those genuinely making markets in swaps, will not be required to register as swap dealers. Lastly, when end-users are required to report their transactions, they are given more time to do so than other market participants.

Congress also authorized the CFTC to provide relief from the Dodd-Frank Act’s swaps reforms for certain electricity and electricity-related energy transactions between rural electric cooperatives and federal, state, municipal and tribal power authorities. Similarly, Congress authorized the CFTC to provide relief for certain transactions on markets administered by regional transmission organizations and independent system operators. The CFTC is looking to soon finalize exemptive orders related to these transactions, as Congress authorized.

The CFTC has worked to complete the Dodd-Frank reforms in a deliberative way – not against a clock. We have been careful to consider public input, as well as the costs and benefits of each rule. CFTC Commissioners and staff have met more than 2,000 times with members of the public, and we have held 23 public roundtables. The agency has received more than 39,000 comment letters on matters related to reform. The rules also have benefited from close consultation with domestic and international regulators and policymakers.

Throughout this process, the Commission has sought input from market participants on appropriate schedules to phase in compliance with swaps reforms. Now, over two-and-a-half years since Dodd-Frank passed and with 80 percent of our rules finalized, the market is moving to implementation. Thus, it’s the natural order of things that market participants have questions and have come to us for further guidance. The CFTC welcomes inquiries from market participants, as some fine-tuning is expected. As it is sometimes the case with human nature, the agency receives many inquiries as compliance deadlines approach.

My fellow commissioners and I, along with CFTC staff, have listened to market participants and thoughtfully sorted through issues as they were brought to our attention, as we will continue to do.

I now will go into further detail on the Commission’s efforts to implement the Dodd-Frank Act’s swaps market reform, our efforts to enhance protections for futures and swaps customers, and the CFTC’s work with international regulators regarding benchmarks.

Transparency – Lowering Cost and Increasing Liquidity, Efficiency, Competition

Transparency – a longstanding hallmark of the futures market – both pre- and post-trade – lowers costs for investors, consumers and businesses. It increases liquidity, efficiency and competition. A key benefit of swaps reform is providing this critical pricing information to businesses and other end-users across this land that use the swaps market to lock in a price or hedge a risk.

As of December 31, 2012, provisionally registered swap dealers are reporting in real time their interest rate and credit index swap transactions to the public and to regulators through swap data repositories. These are some of the same products that were at the center of the financial crisis. Building on this, swap dealers will begin reporting swap transactions in equity, foreign exchange and other commodity asset classes tomorrow. Other market participants will begin reporting April 10.

With these transparency reforms, the public and regulators now have their first full window into the swaps marketplace.

To further enhance liquidity and price competition, the CFTC is working to finish the pre-trade transparency rules for swap execution facilities (SEFs), as well as the block rule for swaps. SEFs would allow market participants to view the prices of available bids and offers prior to making their decision on a transaction. These rules will build on the democratization of the swaps market that comes with the clearing of standardized swaps.

Clearing – Lowering Risk and Democratizing the Market

Since the late 19th century, clearinghouses have lowered risk for the public and fostered competition in the futures market. Clearing also has democratized the market by fostering access for farmers, ranchers, merchants, and other participants.

A key milestone was reached in November 2012 with the CFTC’s adoption of the first clearing requirement determinations for swaps. The vast majority of interest rate and credit default index swaps will be brought into central clearing. This follows through on the U.S. commitment at the 2009 G-20 meeting that standardized swaps should be brought into central clearing by the end of 2012. Compliance will be phased in throughout this year. Swap dealers and the largest hedge funds will be required to clear March 11, and all other financial entities follow June 10. Accounts managed by third party investment managers and ERISA pension plans have until September 9 to begin clearing.

Consistent with the direction of Dodd-Frank, the Commission in the fall of 2011 adopted a comprehensive set of rules for the risk management of clearinghouses. These final rules were consistent with international standards, as evidenced by the Principles for Financial Market Infrastructures (PFMIs) consultative document that had been published by the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions (CPSS-IOSCO).

In April of 2012, CPSS-IOSCO issued the final Principles. The Commission’s clearinghouse risk management rules cover the vast majority of those standards. Commission staff are working expeditiously to recommend the necessary steps so that the Commission may implement any remaining items from the PFMIs not yet incorporated in our clearinghouse rules. I look forward to the Commission considering action on this in 2013.

I expect that soon we will complete a rule to exempt swaps between certain affiliated entities within a corporate group from the clearing requirement. This year, the CFTC also will be considering possible clearing determinations for other commodity swaps, including energy swaps.

Swap Dealer Oversight - Promoting Market Integrity and Lowering Risk

Comprehensive oversight of swap dealers, a foundational piece of Dodd-Frank, will promote market integrity and lower risk to taxpayers and the rest of the economy. Congress directed that end-users be able to continue benefitting from customized swaps (those not brought into central clearing) while being protected through the express oversight of swap dealers. In addition, Dodd-Frank extended the CFTC’s existing oversight of previously regulated intermediaries to include their swaps activity.

As the result of CFTC rules completed in the first half of last year, more than 70 swap dealers are now provisionally registered. This initial group of dealers includes the largest domestic and international financial institutions dealing in swaps with U.S. persons. It includes the 16 institutions commonly referred to as the G16 dealers. Other entities will register once they reach the de minimis threshold for swap dealing activity.

In addition to reporting trades to both regulators and the public, swap dealers will implement crucial back office standards that lower risk and increase market integrity. These include promoting the timely confirmation of trades and documentation of the trading relationship. Swap dealers also will be required to implement sales practice standards that prohibit fraud, require fair treatment of customers and improve transparency.

The CFTC is collaborating closely domestically and internationally on a global approach to margin requirements for uncleared swaps. We are working along with the Federal Reserve, the other U.S. banking regulators, the SEC and our international counterparts on a final set of standards to be published by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions (IOSCO). The CFTC’s proposed margin rules excluded non-financial end-users from margin requirements for uncleared swaps. We have been advocating with global regulators for an approach consistent with that of the CFTC. I would anticipate that the CFTC, in consultation with European regulators, would take up final margin rules, as well as related rules on capital, in the second half of this year.

Following Congress’ mandate, the CFTC also is working with our fellow domestic financial regulators to complete the Volcker Rule. In adopting the Volcker Rule, Congress prohibited banking entities from proprietary trading, an activity that may put taxpayers at risk. At the same time, Congress permitted banking entities to engage in certain activities, such as market making and risk mitigating hedging. One of the challenges in finalizing a rule is achieving these multiple objectives.

International Coordination on Swaps Market Reform

In enacting financial reform, Congress recognized the basic lessons of modern finance and the 2008 crisis. During a default or crisis, risk knows no geographic border. Risk from our housing and financial crisis contributed to economic downturns around the globe. Further, if a run starts on one part of a modern financial institution, regardless of where it is around the globe, it invariably means a funding and liquidity crisis rapidly spreads and infects the entire consolidated financial entity.

This phenomenon was true with the overseas affiliates and operations of AIG, Lehman Brothers, Citigroup and Bear Stearns.

AIG Financial Products, for instance, was a Connecticut subsidiary of the New York insurance giant that used a French bank license to basically run its swaps operations out of Mayfair in London. Its collapse nearly brought down the U.S. economy.

Last year’s events at JPMorgan Chase, which executed swaps through its London branch, are a stark reminder of stark reality. Transactions may be entered into by an offshore office, but the institution here in the United States absorbs the losses. Trades being booked offshore by U.S. financial institutions should not be confused with keeping that risk offshore.

Failing to incorporate these basic lessons of modern finance into the CFTC’s oversight of the swaps market would fall short of the goals of Dodd-Frank reform. It would leave the public at risk.

More specifically, I believe that Dodd-Frank reform applies to transactions entered into by overseas branches of U.S. entities with non-U.S. persons, as well as between overseas affiliates guaranteed by U.S. entities. Failing to do so would mean American jobs and markets may move offshore, but, particularly in times of crisis, risk would come crashing back to our economy.

Similar lessons of modern finance were evident, as well, with the collapse of the hedge fund Long-Term Capital Management in 1998. It was run out of Connecticut, but its $1.2 trillion swaps were booked in its Cayman Islands affiliate. The risk from those activities, as the events of the time highlighted, had a direct and significant effect here in the United States.

The same was true when Bear Stearns in 2007 bailed out two of its sinking hedge fund affiliates, which had significant investments in subprime mortgages. They both were organized offshore. This was just the beginning of the end, as within months, the Federal Reserve provided extraordinary support for the failing Bear Stearns.

We must thus ensure that collective investment vehicles, including hedge funds, that either are managed (or otherwise have their principal place of business) in the United States or are directly or indirectly majority owned by U.S. persons are not able to avoid the clearing requirement – or any other Dodd-Frank requirement – simply due to how they might be organized.

Last July, the Commission published for public comment proposed guidance addressing market participants’ obligations under the Dodd-Frank Act (and Commission regulations) with respect to their cross-border activities. In December, the Commission granted time-limited relief until this July for non-U.S. swap dealers (and foreign branches of U.S. swap dealers) from certain Dodd-Frank swap requirements. The relief is limited to transactions involving such registered non-U.S. swap dealers and was intended to facilitate their transition to the new swaps regime; it does not extend to transactions where neither counterparty is registered as a swap dealer or major swap participant. It also does not extend to transactions between U.S. swap dealers and counterparties that are not registered as swap dealers or major swap participants, such as hedge funds.

We are hearing, though, that some swap dealers may be promoting to hedge funds an idea to avoid required clearing, at least during an interim period from March until July. I would be concerned if, in an effort to avoid clearing, swap dealers route to their foreign affiliates trades with hedge funds organized offshore, even though such hedge funds are managed (or otherwise have their principal place of business) in the United States or they are majority owned by U.S. persons. Such effort is not consistent with the spirit of Dodd-Frank or the international consensus to clear all standardized swaps. The CFTC is working to ensure that this idea does not prevail and develop into a practice that leaves the American public at risk. If we don’t address this, the P.O boxes may be offshore, but the risk will flow back here.

Congress understood these issues and addressed these realities of modern finance in Section 722(d) of the Dodd-Frank Act, which states that swaps reforms shall not apply to activities outside the United States unless those activities have "a direct and significant connection with activities in, or effect on, commerce of the United States." Congress provided this provision solely for swaps under the CFTC’s oversight and provided a different standard for securities-based swaps under the SEC’s oversight.

To give financial institutions and market participants guidance on section 722(d), the CFTC last June sought public consultation on its interpretation of this provision. The proposed guidance is a balanced, measured approach, consistent with the cross-border provisions in Dodd-Frank and Congress’ recognition that risk easily crosses borders.

Pursuant to Commission guidance, foreign firms that do more than a de minimis amount of swap-dealing activity with U.S. persons would be required to register with the CFTC within about two months after crossing the de minimis threshold. A number of international financial institutions are among the swap dealers that are provisionally registered with the CFTC.

Where appropriate, we are committed to permitting foreign firms and, in certain circumstances, overseas branches and guaranteed affiliates of U.S. swap dealers, to meet Dodd-Frank requirements through compliance with comparable and comprehensive foreign rules. We call this substituted compliance.

For foreign swap dealers, the Commission would allow such substituted compliance for entity-level requirements, as well as for certain transaction-level requirements when facing overseas branches of U.S. entities and overseas affiliates guaranteed by U.S. entities. Entity-level requirements include capital, chief compliance officer and swap data recordkeeping. Transaction-level requirements include clearing, margin, real-time public reporting, trade execution, trading documentation and sales practices.

When foreign swaps dealers transact with a U.S. person, though, compliance with Dodd-Frank regulation is required.

To assist foreign swap dealers with Dodd-Frank compliance, the CFTC recently finalized an exemptive order that applies until mid-July 2013. This time-limited Final Order incorporates many suggestions from ongoing consultation on cross-border issues with foreign regulatory counterparts and market participants. For instance, the definition of "U.S. person" in the Order benefited from comments in response to the Commission’s July 2012 proposal.

Under its terms, a foreign swap dealer may phase in compliance with certain entity-level requirements. In addition, foreign dealers will have time-limited relief from specified transaction-level requirements when they transact with overseas affiliates guaranteed by U.S. entities, as well as with foreign branches of U.S. swap dealers.

The Final Order provides time for the Commission to continue working with foreign regulators as they implement comparable swaps reforms and as the Commission considers substituted compliance determinations for the various foreign jurisdictions with entities that have registered as swap dealers under Dodd-Frank.

The CFTC will continue engaging with our international counterparts through bilateral and multilateral discussions on reform and cross-border swaps activity. Earlier this month, SEC Chairman Walter and I had a productive meeting with international market regulators in Brussels.

Given our different cultures, political systems and legislative mandates some differences are inevitable, but we’ve made great progress internationally on an aligned approach to reform. The CFTC is committed to working through any instances where we are made aware of a conflict between U.S. law and that of another jurisdiction.

Customer Protection

Dodd-Frank included provisions directing the CFTC to enhance the protection of swaps customer funds. While it was not a requirement of Dodd-Frank, in 2009 the CFTC also reviewed and updated customer protection rules for futures market customers. As a result, a number of the enhancements affect both futures and swaps market customers. I would like to review these enhancements, as well as an important customer protection proposal.

The CFTC’s completed amendments to rule 1.25 regarding the investment of customer funds benefit both futures and swaps customers. The amendments include preventing in-house lending of customer money through repurchase agreements.The CFTC’s gross margining rules for futures and swaps customers require clearinghouses to collect margin on a gross basis. FCMs are no longer able to offset one customer’s collateral against another or to send only the net to the clearinghouse.

Swaps customers further benefit from the new so-called LSOC (legal segregation with operational comingling) rules, which ensure funds are protected individually all the way to the clearinghouse.

The Commission also worked closely with market participants on new customer protection rules adopted by the self-regulatory organization (SRO), the National Futures Association (NFA). These include requiring FCMs to hold sufficient funds for U.S. foreign futures and options customers trading on foreign contract markets (in Part 30 secured accounts). Starting last year, they must meet their total obligations to customers trading on foreign markets computed under the net liquidating equity method. In addition, withdrawals of 25 percent or more of excess segregated funds would necessitate pre-approval in writing by senior management and must be reported to the designated SRO and the CFTC.

These steps were significant, but market events have further highlighted that the Commission must do everything within our authorities and resources to strengthen oversight programs and the protection of customers and their funds.

In the fall of 2012, the Commission sought public comment on a proposal that would strengthen the controls around customer funds at FCMs. It would set new regulatory accounting requirements and would raise minimum standards for independent public accountants who audit FCMs. And it would provide regulators with daily direct electronic access to the FCMs’ bank and custodial accounts for customer funds. Last week, the CFTC held a public roundtable on this proposal, the third roundtable focused on customer protection.

Further, the CFTC intends to finalize a rule this year on segregation for uncleared swaps.

Benchmark Interest Rates

I’d like to now turn to the three cases the CFTC brought against Barclays, UBS and RBS for manipulative conduct with respect to LIBOR and other benchmark interest rate submissions. The reason it’s important to focus on these matters is not because there were $2.5 billion in fines, though the U.S. penalties against these three banks of more than $2 billion were significant. What this is about is the integrity of the financial markets. When a reference rate, such as LIBOR – central to borrowing, lending and hedging in our economy – has been so readily and pervasively rigged, it’s critical to discuss how to best change the system. We must ensure that reference rates are honest and reliable reflections of observable transactions in real markets.

The three cases shared a number of common traits. At each institution the misconduct spanned multiple years, involved offices in multiple cities around the globe, included numerous people, and affected multiple benchmark rates and currencies. In each case, there was evidence of collusion among banks. In both the UBS and RBS cases, one or more inter-dealer brokers were asked to paint false pictures to influence submissions of other banks, i.e., to spread the falsehoods more widely. At Barclays and UBS, the banks also were reporting falsely low borrowing rates in an effort to protect their reputation.

Why does this matter?

The derivatives marketplace that the CFTC oversees started about 150 years ago. Futures contracts initially were linked to physical commodities, like corn and wheat. Such clear linkage ultimately comes from the ability of farmers, ranchers and other market participants to physically deliver the commodity at the expiration of the contract. As the markets evolved, cash-settled contracts emerged, often linked to markets for financial commodities, like the stock market or interest rates. These cash-settled derivatives generally reference indices or benchmarks.

Whether linked to physical commodities or indices, derivatives – both futures and swaps – should ultimately be anchored to observable prices established in real underlying cash markets. And it’s only when there are real transactions entered into at arm’s length between buyers and sellers that we can be confident that prices are discovered and set accurately.

When market participants submit for a benchmark rate that lacks observable underlying transactions, even if operating in good faith, they may stray from what real transactions would reflect. When a benchmark is separated from real transactions, it is more vulnerable to misconduct.

Today, LIBOR is the reference rate for 70 percent of the U.S. futures market, most of the swaps market and nearly half of U.S. adjustable rate mortgages. It’s embedded in the wiring of our financial system.

The challenge we face is that the market for interbank, unsecured borrowing has greatly diminished over the last five years. Some say that it is essentially nonexistent. In 2008, Mervyn King, the governor of the Bank of England, said of Libor: "It is, in many ways, the rate at which banks do not lend to each other."

The number of banks willing to lend to one another on such terms has been sharply reduced because of economic turmoil, including the 2008 global financial crisis, the European debt crisis that began in 2010, and the downgrading of large banks’ credit ratings. In addition, there have been other factors that have led to unsecured, interbank lending drying up, including changes to Basel capital rules and central banks providing funding directly to banks.

Fortunately, much work is occurring internationally to address these issues. I want to commend the work of Martin Wheatley and the UK Financial Services Authority (FSA) on the "Wheatley Review of LIBOR." Additionally, the CFTC and the FSA are co-chairing the International Organization of Securities Commissions (IOSCO) Task Force that is developing international principles for benchmarks and examining best mechanisms or protocols for transition, if needed. On January 11, the IOSCO Task Force published the Consultation Report on Financial Benchmarks. The consultation report said: "The Task Force is of the view that a benchmark should as a matter of priority be anchored by observable transactions entered into at arm’s length between buyers and sellers in order for it to function as a credible indicator of prices, rates or index values." It went on to say: "However, at some point, an insufficient level of actual transaction data raises concerns as to whether the benchmark continues to reflect prices or rates that have been formed by the competitive forces of supply and demand."

Among the questions for the public in the report are the following:
What are the best practices to ensure that benchmark rates honestly reflect market prices?
What are best practices for benchmark administrators and submitters?
What factors should be considered in determining whether a current benchmark’s underlying market is sufficiently robust? For instance, what is an insufficient level of actual transaction activity?
And what are the best mechanisms or protocols to transition from an unreliable or obsolete benchmark?

On February 20, the IOSCO task force hosted a roundtable in London, which was followed by a second public roundtable yesterday at the CFTC to gather input from market participants and other interested parties. I expect the final report incorporating public input will be published this spring.


The CFTC’s hardworking team of 690 is less than 10 percent more in numbers than at our peak in the 1990s. Yet since that time, the futures market has grown five-fold, and the swaps market is eight times larger than the futures market.

To provide for effective market implementation of swaps reforms by the CFTC requires additional resources. Investments in both technology and people are needed for effective oversight of these markets by regulators.

Though data has started to be reported to the public and to regulators, we need the staff and technology to access, review and analyze the data. Though more than 70 entities have registered as new swap dealers, we need people to answer their questions and work with the NFA on the necessary oversight to ensure market integrity. Furthermore, as market participants expand their technological sophistication, CFTC technology upgrades are critical for market surveillance and to enhance customer fund protection programs.

Without sufficient funding for the CFTC, the nation cannot be assured this agency can closely monitor for the protection of customer funds and utilize our enforcement arm to its fullest potential to go after bad actors in the futures and swaps markets. Without sufficient funding for the CFTC, the nation cannot be assured that this agency can effectively enforce essential rules that promote transparency and lower risk to the economy.

The CFTC is currently funded at $207 million. To fulfill our mission for the benefit of the public, the President requested $308 million for fiscal year 2013 and 1,015 full-time employees.

Thank you again for inviting me today, and I look forward to your questions.


Carter Sends Letters to Governors Most Affected by DOD Cuts
By Jim Garamone
American Forces Press Service

WASHINGTON, March 1, 2013 - Sequestration will have serious and real effects for people, and to hammer that point home Deputy Defense Secretary Ash Carter has sent warning letters to the governors of the states that will suffer most.

The letters alert the governors of sequestration's impact on military bases their states, and both the direct and indirect impacts of sequestration. The 10 states most affected are: California, Virginia, Texas, Maryland, Pennsylvania, Georgia, Florida, Ohio, Alabama, and Washington.

Sequestration means the department must cut $47 billion from its fiscal year 2013 budget -- meaning $47 million by the end of September 2013. All states will be affected, but these 10 states will bear the largest brunt.

For example, roughly 26,000 Defense Department civilian employees work or reside in Pennsylvania, and they will take home $155 million less over the rest of fiscal 2013. In Virginia, maintenance on 11 Navy ships at Norfolk Naval Base is cancelled, with a associated loss of civilian contractor jobs. In California, sequestration will affect Beale, Edwards, Vandenberg and Travis air force bases.

In Maryland, the cuts will impact the Army's Aberdeen Proving Ground, Andrews Air Force Base and Patuxent Naval Air Station. In Texas, operations at bases around the state will be affected and operations at Red River Army Depot could lose $1.4 billion.

"While these reductions are unfortunate and will be damaging, the department is doing everything within our power to minimize adverse effects on our national security mission," Carter wrote to all the governors.

He vowed the department will work with the states to help manage the effects of the reductions. "Should Congress take subsequent actions that change the level or the nature of these reductions, we are committed to working closely with you to manage changes quickly," Carter wrote.

President's Weekly Address: Congress Must Compromise to Stop the Impact of the Sequester | The White House

Weekly Address: Congress Must Compromise to Stop the Impact of the Sequester | The White House


Army to Make Force Structure Changes in Europe
American Forces Press Service

WASHINGTON, March 1, 2013 - Germany-based elements of the U.S. Army's 173rd Airborne Brigade Combat Team will relocate within Germany and to Italy this summer, according to a Defense Department news release issued today.

A total of four battalions will be relocated. Two battalions will relocate from Germany to Italy; the brigade's headquarters battalion and one infantry battalion will relocate to Caserma Ederle in Vicenza, Italy and to the Army's new facility in Del Din [formerly known as Dal Molin] in Vicenza. The other two battalions will relocate from Schweinfurt and Bamberg, Germany, to Grafenwoehr, Germany.

In addition to the previously announced inactivation of V Corps Headquarters and the 170th and 172nd Infantry Brigades, the disposition of 2,500 enabling forces are provided in the attached DOD news release.

Information on the disposition of other units in the closing U.S. military communities of Bamberg and Schweinfurt will be provided in the near future, as those force structure actions are determined.

These actions are part of DOD's ongoing restructure of resources worldwide in line with the national defense strategy and in support of combatant commanders, NATO and our European allies.


The Data Acquisition Segment antenna, located in Huntsville, Ala.

The Data Acquisition Segment antenna, located in Huntsville, Ala. is a principle component of the Eagle Vision system used by the 226th Combat Communication Squadron to receiving the satellite imagery for processing and distribution.

A KC-135 "Stratotanker" from the Nebraska Air National Guard's 155th Air Refueling Wing passes fuel to a B-2 bomber over Southern Colorado May 22. The KC-135, first deployed in 1956, is one of the Air Force's longest-serving aircraft type. The B-2 "Spirit" fleet is one of the Air Force's youngest, reaching initial operational capability in 1997. Together, these two aircraft and their crews allow the Air Force to reach targets across the globe in a matter of hours. (U.S. Air Force photo/Duncan Wood)



Pursuing Space TCBMs for Long-Term Sustainability and Security
Frank A. Rose
Deputy Assistant Secretary, Bureau of Arms Control, Verification and Compliance
International Symposium on Sustainable Space Development and Utilization for Humankind
Shinagawa, Tokyo, Japan
February 28, 2013

I am very pleased and honored to be back in Tokyo for the second International Symposium on Sustainable Space Development and Utilization for Humankind. I had such a great experience during last year’s symposium and would like to thank the Japan Space Forum for inviting me back. I am pleased that this symposium is becoming an annual event that highlights how space debris poses an increasingly serious threat to the long-term sustainability of the space environment, and I would like to commend the Japan Space Forum for continuing to organize these symposia. I’d also like to thank the Office of National Space Policy; the Ministry of Foreign Affairs, the Ministry of Education, Culture, Sports, Science, and Technology; the Ministry of Economy, Trade, and Industry; and the Society of Japanese Aerospace Companies for their support of this symposium.

Last year I discussed the vital importance of utilizing space assets for disaster monitoring and mitigation. Japan’s use of space assets during the 2011 earthquake and resulting tsunami shed light on the vital importance of space assets for disaster monitoring and mitigation, and I applaud Japan’s continuing development of space-based capabilities to better predict and aid future disasters.

Today, I’d like to begin by discussing another example of how space assets proved to be critical during what became known as "Superstorm Sandy," which impacted the eastern seaboard of the United States last October. Reports estimated that this storm resulted in over $60 billion in damage and other losses in the United States, including the damage or destruction of over 600,000 homes and business. Prior to the storm, scientists utilized global data from satellites as well as from weather balloons, commercial airplanes, buoys at sea, and weather stations in order to predict the track and intensity of the storm. Several days before Superstorm Sandy hit the United States, models based on data from these sensors predicted that the storm would make landfall in New Jersey. In the end, the storm hit just five miles from where the earliest forecasts estimated it would.

The data derived from satellites proved to be particularly significant in this case. Analysis showed that forecast of Sandy’s track would have been off by hundreds of miles without the critical information provided from polar satellites. In fact, analysis shows that without satellite data, forecasting models would have shown Sandy remaining at sea rather than making landfall in the United States.

The accurate forecasting of Sandy’s path was essential in allowing people enough time to evacuate, and experts postulate the advance warning may have saved thousands of lives. This is but one example of how truly reliant we are on space capabilities today, and how space assets can have a tremendous impact on preserving life and property on Earth. In order to ensure that we can continue to utilize these capabilities and obtain their benefits, we need to take action now to sustain the space environment.

I will focus my remarks today on how pursuing transparency and confidence-building measures (TCBMs), such as the International Code of Conduct, measurably contributes to ensuring that we can continue to utilize space for future disasters as well as the many other benefits space assets provide. In addition to discussing the next steps to advance the Code, I will also discuss other ongoing efforts to establish multilateral TCBMs such as the work of the UN Committee on the Peaceful Uses of Outer Space, and the study by the UN Group of Governmental Experts on space TCBMs. Finally, I’d like to discuss the successful ASEAN Regional Forum (ARF) Workshop on Space Security that was held last December and how this workshop contributed to our efforts to preserve the space environment.

Transparency and Confidence-Building Measures

In accordance with President Obama’s 2010 U.S. National Space Policy, the United States is pursuing bilateral and multilateral TCBMs to encourage responsible actions in, and the peaceful use of, space. TCBMs are the means by which governments can address challenges and share information with the aim of creating mutual understanding and reducing tensions. They consist of pragmatic, voluntary, near-term actions that we can do to increase trust and prevent misperceptions, miscalculations, and mistrust between nations. To overcome these dangers and risks requires, in part, building confidence between nations, which can be achieved with transparency, openness, and predictability through, for example, information-sharing. TCBMs, also have the potential of enhancing our knowledge of the space environment, by addressing important areas such as orbital debris, space situational awareness, and collision avoidance, as well as undertake activities that will help to increase familiarity and trust and encourage openness among space actors. TCBMs can be undertaken globally or regionally, bilaterally, multilaterally, or unilaterally. Today, I will focus on the numerous multilateral efforts that we are pursuing.

Pursuing an International Code of Conduct

A recent space TCBM effort is the European Union’s draft International Code of Conduct for Outer Space Activities, or "the Code". As I discussed last year, in January 2012, then-Secretary of State Hillary Clinton announced the U.S. decision to work with the European Union (EU) and other space-faring nations to develop an International Code of Conduct for Outer Space Activities. The development of such a non-legally binding Code of Conduct is an effective, pragmatic and timely way of strengthening the long-term sustainability, stability, safety, and security of the space environment. The European Union is leading efforts to develop a text that is acceptable to the greatest number of governments. We believe the EU’s latest draft is a useful foundation and constructive starting point for developing a consensus on an International Code.

The stated purpose of the draft Code is to "enhance the security, safety, and sustainability of all outer space activities," which is fundamentally in the interests of all nations. A widely subscribed International Code would establish internationally adopted TCBMs – including "best practices" or "rules of the road" that would encourage responsible behavior in outer space. A Code of Conduct would also help reduce the risk of misunderstandings, miscalculations, and misperceptions by committing States to share space policies, strategies, and procedures, thus improving the stability and security of the space environment.

Additionally, a Code of Conduct would increase the transparency of operations in space to reduce the danger of collisions and the hazards of debris-generating events. Considering the serious and enduring hazard posed by orbital debris and potential collisions, I think we can all agree that cooperation is necessary to address and mitigate this growing problem. This has been illustrated multiple times over the past few years when astronauts on the International Space Station have been forced to take shelter when debris came close to the Station. Had that debris collided with the space station, it could have caused catastrophic damage and endangered the crew, which regularly includes Japanese astronauts.

An International Code will establish a set of voluntary transparency and confidence-building measures and would also build upon existing instruments and measures relating to conduct in the use of outer space. For example, the Code would commit Subscribing States – albeit with specific exceptions – to refrain from conducting any intentional damage to, or destruction of, a space object.

Next Steps for the Code

You may be wondering what the next steps are for this initiative. The United States has been consulting closely with the EU and others on the Code, and we will continue to shape an International Code through international consultations and negotiations. The United States and the EU also continue to actively engage a large number of countries on the Code (and I have the frequent flyer miles to prove it. In fact, I think the only person with more frequent flyer miles than me is an astronaut!). We are greatly appreciative of our close allies such as Japan and Australia who are also engaging other nations on the Code.

On June 5, 2012, the EU held a kick-off meeting in Vienna, Austria and released a new draft of the Code. We look forward to continuing our close partnership with the EU, Japan, Australia, and many other nations in order to advance the Code.

Other Ongoing TCBM Efforts

In addition to the Code, there are a number of other complementary ongoing efforts to establish multilateral TCBMs: that is, for example, the work of the UN Committee on the Peaceful Uses of Outer Space, or COPUOS, and the study by the UN Group of Governmental Experts (GGE) on Space TCBMs. These efforts will be discussed in further detail during this symposium so I will just briefly touch on them.

While many approaches to ensuring stability in space come from the "top-down," there is great value in "bottom-up" approaches from experts and satellite operators, such as the efforts of the Working Group on Long-Term Sustainability of Space Activities of the Scientific and Technical Subcommittee of COPUOS. This working group is a key forum for the international development of guidelines for space activities. One of the groups is examining best practices for "Space Debris, Space Operations, and Space Situational Awareness" and has had active participation by experts from Japan, the United States, Europe, Russia, and other leading spacefaring nations. Many of the best practice guidelines addressed by this working group are integral to our efforts to pursue TCBMs that enhance sustainability in space.

A second multilateral TCBM effort currently being undertaken is the UN GGE study on Outer Space TCBMs, for which I serve as the U.S. expert. Under the capable chairmanship of Victor Vasiliev of Russia, the GGE offers an opportunity to advance a range of voluntary and non-legally binding TCBMs in space that have the potential to mitigate the dangers and risks in an increasingly contested and congested space environment. The key objective of the GGE is to develop a consensus report that outlines a list of pragmatic space TCBMs that nations can sign up to on a voluntary basis. As part of its effort to draw upon as much expertise as possible, the GGE welcomes written contributions from intergovernmental bodies, industry and private sector, civil society, and other UN Member States not already represented in the group. The GGE serves as a real opportunity to move forward with pragmatic steps to strengthen stability in space through unilateral, bilateral, and multilateral measures.

ARF Space Security Workshop

The United States, and our allies and partners, including Japan, are clearly committed to addressing the challenges facing the space environment. However, we cannot address these challenges alone. All nations—established spacefaring nations, emerging spacefaring nations, and those nations just beginning to consider how they can benefit from space capabilities – should work together to adopt approaches for responsible activity in space to preserve its use for the benefit of future generations.

The Asia-Pacific region in particular is seeing rapid expansion in its number of spacefaring nations, and rapid development of those nation’s capabilities. For that reason, I was extremely pleased and honored to speak at the first-ever ASEAN Regional Forum (ARF) Workshop on Space Security, held in early December of last year. This workshop was organized by the Governments of Vietnam and Australia and sponsored by the Governments of Japan and the United States. This event was the first time the ARF had discussed space security issues, but the participants agreed that space is vital for the development and security of all nations, and that we must work together to ensure the sustainability and stability of the space environment. We hope that the ARF will consider holding additional workshops on this worthy subject.


In September 1900, 8,000 people were killed when a hurricane struck in Galveston, Texas. There was no warning system in place at this time, and it wasn’t for another 70 years until satellites were used in weather forecasting. We have come a long way since then, and our space capabilities have become instrumental in saving lives during national disasters, such as Superstorm Sandy.

We are increasingly reliant on space, not only when disasters strike, but also for our day-to-day life. However, our ability to continue to use space for these benefits is at serious risk. Accidents or irresponsible acts against space systems would not only harm the space environment, but would also disrupt services on which the international community depends. As a result, we must take action now and pursue TCBMs in space, including the ones that I discussed today. These TCBMs will enhance the long-term sustainability, stability, safety, and security of the space environment. Protecting the space environment for future generations is in the vital interests of the United States, Japan, and the entire global community.

Thank you very much.


Tuesday, February 26, 2013
Two Virginia Businessmen Plead Guilty to Illegally Reimbursing Campaign Contributions

William P. Danielczyk Jr. and Eugene R. Biagi pleaded guilty today to reimbursing $186,600 in contributions to the Senate and Presidential campaign committees of a candidate for federal office, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division, U.S. Attorney Neil H. MacBride of the Eastern District of Virginia and Valerie Parlave, Assistant Director in Charge of the FBI’s Washington Field Office.

Danielczyk, 51, and Biagi, 78, both of Oakton, Va., pleaded guilty to making illegal conduit campaign contributions. The charge carries a maximum penalty of five years in prison. Danielczyk also faces a fine of not less than 300 percent of the amount involved and not more than the greater of $50,000 or 1,000 percent of the amount involved, and Biagi faces a potential fine of not more than $250,000 when they are sentenced on May 17, 2013.

"With today’s guilty pleas, Danielczyk and Biagi admit they used straw donors to circumvent the rules of the electoral process," said AAG Breuer. "Our democracy depends on voters honoring campaign contribution limits and other campaign finance laws, and the Justice Department will continue to pursue corrupt individuals whose illegal tricks threaten the legitimacy of elections and undermine public confidence in the democratic process."

"Today Mr. Danielczyk admitted that he tried to corrupt the electoral process by evading corporate contribution limits," said U.S. Attorney MacBride. "Mr. Danielczyk abused his power as an employer and abused his power as a participant in a U.S. election. Direct contribution limits for corporations provide an important check in the integrity of our electoral process, and today’s convictions help ensure that those who illegally go beyond those limits are held accountable."

"With today’s guilty pleas, Mr. Danielczyk and Mr. Biagi admitted their roles in a scheme in which they evaded FEC law to donate money to a Senate and Presidential candidate. By doing so, they funneled more than $186,600 through their company by creating fraudulent invoices for straw donors and falsely back-dating letters to those individual contributors," said Assistant Director in Charge Parlave. "The FBI will continue to work with the U.S. Attorney’s office to investigate allegations of campaign finance abuse, which are in place to ensure openness and fairness in our elections so the people’s interests are protected."

According to court records, Danielczyk was the Chairman of Galen Capital Corporation, and Biagi served as the corporation’s secretary and treasurer. In September 2006, Danielczyk co-hosted a fundraiser for a candidate’s campaign for the U.S. Senate and in March 2007 he co-hosted a fundraiser for the same candidate’s 2008 campaign for the President of the United States.

Danielczyk admitted that he recruited individuals, including Biagi and other corporate employees, to serve as "straw donors" to the campaigns, assuring the donors that they would be reimbursed for their contributions. Danielczyk’s assistant collected the contributions, and Danielczyk and Biagi then reimbursed the straw donors for their contributions using Galen Capital Corporation’s corporate funds.

Biagi admitted that he disguised the nature of the reimbursement payments by writing "consulting fees" on the checks’ memorandum lines and by issuing the checks for amounts slightly larger than the campaign contributions. Danielczyk and Biagi also created falsely back-dated letters to the individual contributors, which characterized the reimbursement payments as "consulting fees" or that a contributor would receive money for certain work.

Danielczyk and Biagi admitted they used corporate funds to reimburse a total of $186,600 to the two campaigns. The campaigns unwittingly reported the straw donations as lawful contributions from the individual donors.

This case was investigated by the FBI’s Washington Field Office. Trial Attorney Eric L. Gibson of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorneys Mark D. Lytle and Timothy D. Belevetz from the U.S. Attorney’s Office for the Eastern District of Virginia are prosecuting the case on behalf of the United States.


New York, N.Y., Jan. 31, 2013 -- Workers continue to repair Bellevue Hospital after it was evacuated due to flooding by Hurricane Sandy. Bellevue has developed mitigation strategies that can minimize the risk of damage and disruption of hospital operations in the event of future disasters. Sandy flooded the lower floors of the hospital with millions of gallons of water damaging the electrical systems, medical equipment, fuel and water pumps, and information technology infrastructure. K.C.Wilsey-FEMA

Mantoloking, N.J., Feb. 25, 2012 -- This house was washed off its foundation during Hurricane Sandy. It still remains in the middle of Barnegat Bay. Photo by Liz Roll-FEMA



Micro-sub Explores Buried Antarctic Lake

NASA/JPL researcher Alberto Behar joins an international Antarctic expedition to investigate a subglacial lake.


Photo:  El Yunque Plant Life.  Credit:  Wikimedia Commons. 
El Yunque, Majestic Rocky Icon of Puerto Rico: Impervious to the Ravages of Time?

El Yunque. It could be the name of an ancient chieftain. On the island of Puerto Rico, in a sense it is.

El Yunque, Spanish for "the anvil," is a majestic, flat-topped promontory. It stands high above rivers and streams below, and has been an icon since pre-Columbian times.

With Puerto Rico's humid tropical climate, El Yunque should be covered with plant life--and should be eroding rapidly, say scientists. But it isn't.

To solve this mystery, researchers from the National Science Foundation's (NSF) Luquillo Critical Zone Observatory (CZO) set out to measure the current rate of the rock's erosion.

El Yunque is usually shrouded by mist from clouds. Swept by the trade winds, it's often buffeted by hurricanes. The barren rock, some 3,412 feet tall, lords it over miles of rainforest that surround it on all sides.

It's showered with rain an average of three times a day--in total, more than 14 feet of rain every year. That rain cascades down El Yunque's headland, then flows through the Luquillo watershed in rivers and rivulets.

The Luquillo CZO is one of six NSF CZOs in watersheds across the nation. In addition to the Luquillo site, CZOs are located in the Southern Sierra Nevada, Christina River Basin on the border of Delaware and Pennsylvania, Susquehanna Shale Hills in Pennsylvania, Boulder Creek in the Colorado Rockies, and the Jemez River and Santa Catalina Mountains in New Mexico and Arizona.

NSF-supported scientists are providing a new understanding of the critical zone--the thin veneer of Earth that extends from the top of the forest canopy to the base of weathered bedrock.

The water cycle, the breakdown of rocks and the eventual formation of soil, the evolution of rivers and valleys, the patterns of plant growth and landforms, all result from processes that take place in the critical zone.

"The critical zone is our living environment," says Enriqueta Barrera, program director in NSF's Division of Earth Sciences, which funds the CZO network. "The CZOs offer us new knowledge about this important zone and its response to climate and land-use change."

The CZOs are the first systems-based observatories dedicated to understanding how Earth's surface processes are coupled, she says. "They will help us predict how the critical zone affects the ecosystem services on which society depends."

Peak of endurance

To find an answer to El Yunque's slow erosion rate, scientists Jane Willenbring, Gilles Brocard and the late Frederick Scatena of the University of Pennsylvania used a new approach to calculate how it has changed over time.

The method involved counting isotopes, or variants, of chemical elements that accumulate in rocks when they're hit by cosmic rays from space.

Using these particular isotopes, called cosmogenic nuclides, the researchers confirmed that forest soils that aren't disturbed by human activity erode at rates of 250 to 500 feet per million years.

Undisturbed forested areas in Puerto Rico, for example, have eroded some 1.6 to 3.2 inches since Europeans first landed there in 1498.

The scientists also found that the presence of forests can greatly reduce erosion, even in a steep environment frequently visited by hurricanes.

An ecological view from El Yunque

The Luquillo critical zone is chemically weathering at a wide range of rates. "But its thick weave of matted roots and vegetation holds in the soil and stabilizes the hillslopes such that they erode more slowly than one would expect," says Willenbring.

On the other hand, Puerto Rico waterfalls such as the well-known La Coca Falls are eroding comparatively quickly. Water rushes in torrents through steep canyons and gullies there, carrying gravel and boulders with it.

"A wave of erosion--whether fast or slow--affects all parts of the critical zone," says Willenbring. "It sets the tempo for how quickly minerals and nutrients are ferried to the surface, which in turn feed the forest above.

"We were surprised by how connected the landscape is. It seems as though even the trees understand geomorphology."

How passive are soil microbes and trees? Do they position themselves where it's best to live, or do they actively change the environment they're already in?

Glimpse of El Yunque's past...and future?

To answer these questions as they apply to El Yunque, cosmogenic nuclides allowed researchers to make the first measurements of the erosion rate of the peak.

El Yunque's surface is eroding about 13 feet every million years; it has lost only 0.08 inches since the Europeans first arrived.

Its relatively slow rate of erosion explains why El Yunque juts above the forest.

"The texture and composition of the rocks that form El Yunque are more erosion-resistant than those of the surrounding landscape," says Willenbring.

Why? El Yunque is a remnant of an ancient supervolcano named Hato Puerco. The volcano was one of the region's largest and most active volcanoes during the Cretaceous period 145-66 million years ago.

"El Yunque's hardness and chemical properties came from being 'cooked' in the chamber of the volcano," says Willenbring. Other rocks weren't subjected to this same heating; they're "softer" and less resistant to chemical breakdown and erosion.

Puerto Rico's icon is a hard-headed cap atop the island, Willenbring says, one that escaped the geologic fate of all other rocks there.

Friday, March 1, 2013



The littoral combat ship USS Freedom (LCS 1) departs San Diego Bay for a deployment to the Asia-Pacific region. Freedom will demonstrate her operational capabilities and allow the Navy to evaluate crew rotation and maintenance plans. LCS platforms are designed to employ modular mission packages that can be configured for three separate purposes: surface warfare, anti-submarine warfare or mine countermeasures. U.S. Navy photo by Mass Communication Specialist 3rd Class Christine Walker-Singh (Released) 130301-N-DG226-072

A catapult and arresting gear officer signals for the launch of an EA-6B Prowler from the Wizards of Electronic Attack Squadron (VAQ) 133 aboard the Nimitz-class aircraft carrier USS John C. Stennis (CVN 74). John C. Stennis is deployed to the U.S. 5th Fleet area of responsibility conducting maritime security operations, theater security cooperation efforts and support missions for Operation Enduring Freedom. U.S. Navy photo by Mass Communication Specialist 2nd Class Kenneth Abbate (Released) 130228-N-OY799-058.



U.S. Army Sgt. Calixto Inot, front, provides security outside a meeting at the Farah provincial governor's compound in Farah City, Afghanistan, Feb. 27, 2013. Inot is assigned to Provincial Reconstruction Team Farah. U.S. Navy photo by Lt. j.g. Matthew Stroup
Combined Force Arrests Taliban Facilitator
From an International Security Assistance Force Joint Command News Release

KABUL, Afghanistan, March 1, 2013 - An Afghan and coalition security force arrested a Taliban facilitator and detained three other insurgents during an operation in the Nawah-ye Barakzai district of Afghanistan's Helmand province today, military officials reported.

The arrested insurgent is alleged to be heavily involved in improvised explosive device operations in the district. He also participated in multiple IED attacks and has a history of procuring and distributing IED components to other insurgents.

In Afghanistan operations yesterday:

-- A combined force killed Taliban leader, Sadiq, and wounded another insurgent during an operation in the Nahr-e Saraj district of Helmand province. Sadiq was an experienced insurgent leader responsible for procuring and distributing small arms and IEDs to Taliban fighters for use in attacks against Afghan and coalition forces. He also was involved with kidnappings of government officials and Afghan National Security Force members.

-- A combined force killed an insurgent during an operation in the Kishindeh district of Balkh province


SpaceX Dragon Launches

The SpaceX Falcon 9 rocket carrying the Dragon spacecraft lifted off at 10:10 a.m. EST from Cape Canaveral Air Force Station in Florida, beginning its mission to resupply the International Space Station. The mission will mark the third trip by a Dragon capsule to the orbiting laboratory, following a demonstration flight in May 2012 and the first resupply mission in October 2012.


Background Briefing: En Route to Turkey
Special Briefing
Senior Department Official
En Route, Ankara, Turkey
March 1, 2013

All right, good morning everybody. We are en route from Rome to Ankara. This is now our fourth stop on Secretary Kerry’s first trip.

QUESTION: London, Berlin, Paris, Rome.

MODERATOR: This is our fifth stop on Secretary Kerry’s first trip. We have with us today [Senior State Department Official], hereafter Senior State Department Official, to talk to you about the Ankara stop. Take it away, [Senior State Department Official].

SENIOR STATE DEPARTMENT OFFICIAL: Hi, everybody. So we’ve got a full afternoon and evening planned for Ankara, where the Secretary will have a chance to meet with Foreign Minister Davutoglu, Prime Minister Erdogan, and President Gul. He’ll actually begin as soon as we land by doing a memorial ceremony at the Embassy.

You know, of course, on February 1st there was the bombing at the Embassy that sadly, tragically took the life of a Turkish guard, and he wants to pay tribute to the courage of that individual who was performing his duties and protecting Americans working at the Embassy. And that will also underscore the importance of our common challenge in facing terrorism, which will be one of the big things on our agenda for the discussions.

Turkey – it was – the Secretary felt it important to stop in Turkey on this trip. It’s obviously in some ways a pivot between the European stops that we just did and the challenges in the Middle East, and Turkey naturally plays an important role in both as a member of NATO, an aspirant to the EU with important relations with European countries – Greece, Cyprus, and the Balkans – but also a neighbor and important player in Iran, Iraq, Syria, Egypt, and the rest of the Middle East.

So as always with Turkey, there’s an enormous agenda. We always try to get through it all, and there’s never enough time. But fortunately, as I say, we got a long afternoon and evening, so we should have a chance to really go into depth into a lot of issues. I won’t try to do that for you, and I’m happy to take your questions. I’ll maybe just flag a couple of those that I’m sure will be raised, I guess – starting with Syria, the urgent problem that we have been addressing in Rome.

And I think it’s fair to say that we’re very much on the same page with the Turkish Government when it comes to Syria, and have been for some time, starting with the basic commitment of both countries to work towards the political transition and the departure of Assad. And I think Turkey welcomed the announcements that Secretary Kerry made on behalf of the President in Rome yesterday about new assistance to the Syrian opposition. Turkey is also doing its part in helping the Syrian opposition and doing more than its part in welcoming and supporting over 150,000 refugees at great cost. And we are going to continue to work very closely together to get them to that goal.

I mentioned counterterrorism cooperation already. And just to flag that again, at the – near the top of the list, not just in the wake of the February 1st bombing, but obviously, we face very common challenges in dealing with the PKK threat, which we’ve defined as a threat to both countries, the threat from al-Qaida, and other extremist groups. We cooperate well with Turkey, which is a co-chair of the Global Counterterrorism Forum that Secretary Clinton and Foreign Minister Davutoglu launched a couple of years ago. And the Secretary will have a chance to discuss how we can better deal with what is a growing threat in the region in the world.

Israel – you know we have been working hard over the past couple of years to foster a better cooperation to restore what was once historic cooperation between Turkey and Israel. The Secretary will have a chance to express his concern over the remarks that Prime Minister Erdogan made in a – reportedly made in a speech yesterday equating Zionism with a crime against humanity. Obviously, we strongly disagree with that notion. You saw the statements out of Washington yesterday making clear that we felt that statement was both offensive and wrong, and I’m sure the Secretary will be able to convey that to the Prime Minister directly this afternoon.

We have regretted for some time that Turkey and Israel, which are both strong friends and partners of the United States and once cooperated extensively with each other in terms of trade and tourism and even military and strategic cooperation, that cooperation has broken down. Deeply unfortunate. And we’ll continue to urge Turkey and continue to urge both countries to do what they can and normalize that important relationship.

So much else will be on the agenda. I don’t want to take too much time. We’re going to be called up forward in a minute. Iran, obviously; Turkey shares our goal dealing with Iranian nuclear challenge, and the Secretary can provide a readout of the Almaty talks. He’ll also address some regional issues that are important to us, including Armenia and the Caucasus and Nagorno-Karabakh, Cyprus in the wake of presidential election. Turkey, EU – so much more, but why don’t I end there and see what’s on your mind?

MODERATOR: Arshad. No? James.

QUESTION: Since he’s going to be providing a readout of the Almaty talks, perhaps you could do likewise for us.

SENIOR STATE DEPARTMENT OFFICIAL: Well, I think we have already on the ground in Almaty given a readout of the talks. We felt they were constructive. There was no breakthrough and we didn’t expect a breakthrough, but as you saw, the parties agreed to resume in the coming weeks both at a technical level and at a higher political level to see if we can make progress on the package that P-5+1 put on the table. And you’ve read about the elements of that package.

And again, I don’t want to overpromise, but we’re encouraged, at least, that these talks will begin in the near term, because we have long felt that we are proposing a way for Iran to meet its obligations to the international community, to respect UN Security Council resolutions, to take advantage of the possibility of having a civil nuclear energy program but without moving towards nuclear weapons capability, which the President has made absolutely clear is unacceptable.

QUESTION: What I don’t understand is why you consider these talks more encouraging, more – or useful, as the Secretary said, than previous talks that resulted in agreements to talk.

SENIOR STATE DEPARTMENT OFFICIAL: Well, I wasn’t on the ground in Almaty, so I can’t give you a firsthand account of that. But our people who were there felt that the sanctions have gotten Iran’s attention, and they understand that a failure to respond to the constructive ideas we’re putting on the table will only lead to further international isolation and consequences. And they were responsive on that basis.

MODERATOR: But of course, the onus is on Iran, and we’ll see what they come back with when we meet again.

QUESTION: Just wanted to ask about Syria and Russia. Obviously, here you have the 11, and they’re cooperating. There’s a lot of talk about unity, being on the same page, and kind of a – the jobs that each of them have. Are – is the Secretary in any type of cooperation with the Russians as he goes along on this trip? You getting any feedback at all from them on what happened in Rome?

SENIOR STATE DEPARTMENT OFFICIAL: Yes. You know the Secretary spent a good hour and a half with Lavrov on the eve of Rome, and we have been in touch with the Russians again both before and after Rome. We have never felt that dialogue with the Russians and what the countries that met in Rome are doing are mutually incompatible or inconsistent. The countries that met in Rome are determined to do everything they can to support the Syrian opposition in – with the objective of strengthening it, changing Assad’s calculation, and bringing about the political transition that we believe is – and the departure of Assad that we believe is absolutely essential. And they’re consulting together, they’re taking decisions together, and we made progress in moving on that agenda.

But that doesn’t mean we won’t continue to talk to Russia. As I think we discussed in this group the other day, we have long felt that this process would be facilitated if Russia would support it. We’ve been to the Security Council several times seeking Russia’s support and have failed to get it, but we will continue to try because we don’t believe that Russia has a magic wand here like anybody else does, but if Russia would make also clear that Assad needs to go, and if Russia would stop providing him both the political legitimacy and other support that it has been giving him, it would facilitate our task.

So we’re going to carry on with the partners we met in Rome in supporting the opposition and pressuring Assad, but we’re also going to carry on talking to the Russians. The French President Hollande was in Moscow the day after Secretary Kerry was in Paris, taking our common message to the Russians; that we want to see them join us in implementing what we – including the Russians, as Secretary Kerry has reminded everybody in the past couple of days – agreed to in Geneva, which is accepting a transitional body with full executive powers established on the basis of mutual consent, which we all know means that Assad cannot play a role.

QUESTION: Since the Patriot missile batteries have been deployed, how do you assess the comfort level of the Erdogan government about the Syrian border issues? And how much of his earlier concern and request for those Patriots do you think was real, and how much was he playing to the home constituents?

MODERATOR: The question was: Now that the Patriot batteries are in place, is Prime Minister Erdogan feeling more comfortable in terms of Turkish security?

SENIOR STATE DEPARTMENT OFFICIAL: Yeah. I mean, I think the Patriot deployment was a good sign of our bilateral solidarity with Turkey, and general NATO solidarity with Turkey on the question of Syria. After some missiles and artillery had crossed the border, Turkey asked its NATO partners, including us, for help in bolstering its air defenses. And several NATO allies, those with a Patriot capability that can be deployed – the United States, Germany, and the Netherlands – agreed to do that, to deploy Patriots to Turkey, and to do it in a coordinated NATO fashion. Every member of NATO supported the decision and agreed to use NATO command and control. And we said we would do it, and we did it, and it’s now operational on the Turkish border. And I think Prime Minister Erdogan welcomes that, both to strengthen his air defenses against that air and missile threat, and also to demonstrate that we stand by Turkey.

Now, no one ever thought that this was a comprehensive solution to a problem. In the weeks following the declaration of an operational capability, you saw there was a bombing at the border. So there are other ways that Turkey’s borders can be threatened by the Syrians. Obviously, the refugee flow alone is a threat to Turkish borders. So there is great concern, and we continue to stand by Turkey. But the Patriot deployment was one positive element of how we can show our support and solidarity.

PARTICIPANT: (Inaudible.)

QUESTION: Hi, [Senior State Department Official]. The sort of comments that were attributed to Erdogan and other Turkish officials on Israel and Zionism are not really new. They seem to say – they’ve said these things periodically. And so they make these comments, the U.S. condemns them, and then things more or less continue. Is there any special urgency or point Secretary Kerry may make to drive the point home? Because over time, this pattern is likely to have a corrosive effect on American-Turkish relations.

SENIOR STATE DEPARTMENT OFFICIAL: Well, it does have a corrosive effect. I mean, yes, there have been comments in the past that we have taken issue with and we have raised and we’ve criticized both from Washington and directly with our Turkish counterparts. I mean, one thing you can say about this relationship is we do have a frank discussion. And the previous Secretary of State had multiple conversations, frank conversations with her counterpart. The President and Prime Minister Erdogan have as well. And so we have an ongoing and very transparent dialogue, and we’re close enough and friendly enough to say when we disagree, and we’ve strongly disagreed with comments in the past, and we strongly disagree with this one.

I don’t think that this particular comment has been made like this before. This was particularly offensive, frankly, to call Zionism a crime against humanity. I don’t think we’ve heard that before, and like I said, I’m sure the Secretary will be very clear about how dismayed we were to hear it. And I don’t want to get into speculation about the overall relationship, but just to state the obvious, that it complicates our ability to do all of the things that we want to do together when we have such a profound disagreement about such an important thing.

QUESTION: Can I just switch (inaudible)?

MODERATOR: One more question.

QUESTION: Just – it’s brief, but on that. So the Turks have – this is just about the Turkish-Israeli relationship, not about your relationship. How concerning – how bad is it, and how concerning is that to you? And are you still telling the Turks to stop preventing Israel from being invited to all sort of these different events and keeping them out of these NATO advisory councils and things?

SENIOR STATE DEPARTMENT OFFICIAL: You want to repeat the question?

MODERATOR: So, the question was: How bad is the Turkey-Israel relationship getting, and are we working on the issues like Israeli access to NATO programs, et cetera?

SENIOR STATE DEPARTMENT OFFICIAL: The Turkey-Israel relationship is frozen. It’s not positive in the way that it used to be positive. And that’s deeply unfortunate. We want to see a normalization because – not just for the sake of the two countries, but for the sake of the region, and frankly for the symbolism of it. Not that long ago, you had these two countries –

PARTICIPANT: He’s ready for the briefing.

SENIOR STATE DEPARTMENT OFFICIAL: -- okay – demonstrating that a majority-Muslim country could have very positive and strong relations with a Jewish state. And that was a sign for the region of what was possible. As for the specific latter part of your question, yes, we continue to stand by the principle that Turkey shouldn’t block Israel’s participation in any multilateral activities. We found a way forward in the NATO context to allow exercises and partnership activities to move ahead. And we continue to take the view that if Turkey doesn’t want to participate in activities with Israel, that’s obviously its sovereign right. But we want to see – we don’t want to see Israel excluded from multilateral activities in which they also should have a sovereign right to participate.

MODERATOR: I apologize, guys. We have to cut this off. But the boss is looking to see us. Thanks.


DOD, Homeland Security, Governors Look to Improve Dialogue
By Jim Garamone
American Forces Press Service

WASHINGTON, March 1, 2013 - Senior Pentagon and Department of Homeland Security leaders met Feb. 25 with representatives of the Council of Governors to find how the entities can work together better, officials said in a read-out of the meeting.

Deputy Defense Secretary Ash Carter and Homeland Security Secretary Janet Napolitano met with leaders of the council at the Pentagon. The meeting included discussions on cybersecurity, strategic trends affecting the defense budget and a review of the Hurricane Sandy response.

The council operates under Executive Order 13528 -- signed by President Barack Obama in 2010. It is a bipartisan council designed to strengthen the relationship between DOD, Homeland Security and the states and territories.

Napolitano briefed the governors on the president's executive order and policy directive on improving critical infrastructure cybersecurity and resiliency. Those attending agreed to improve cooperation on the issue and to make it a regular part of the meeting agenda.

They also agreed to a consultative process between DOD and the states for programming and budgetary proposals affecting the National Guard. Governors had raised concerns that the National Guard -- a precious state resource -- was not taken into account during the budgeting process.

The consultative process opens an avenue for the states to communicate their civil support needs to DOD, strengthens unity of effort and maximizes transparency on the strategic context of DOD programming and budgeting, officials said.


About one in five U.S. adult cigarette smokers have tried an electronic cigarette

In 2011, about 21 percent of adults who smoke traditional cigarettes had used electronic cigarettes, also known as e-cigarettes, up from about 10 percent in 2010, according to a study released today by the Centers for Disease Control and Prevention. Overall, about six percent of all adults have tried e-cigarettes, with estimates nearly doubling from 2010. This study is the first to report changes in awareness and use of e-cigarettes between 2010 and 2011.

During 2010–2011, adults who have used e-cigarettes increased among both sexes, non-Hispanic Whites, those aged 45–54 years, those living in the South, and current and former smokers and current and former smokers. In both 2010 and 2011, e-cigarette use was significantly higher among current smokers compared to both former and never smokers. Awareness of e-cigarettes rose from about four in 10 adults in 2010 to six in 10 adults in 2011.

"E-cigarette use is growing rapidly," said CDC Director Tom Frieden, MD, Mph. "There is still a lot we don’t know about these products, including whether they will decrease or increase use of traditional cigarettes."

Although e-cigarettes appear to have far fewer of the toxins found in smoke compared to traditional cigarettes, the impact of e-cigarettes on long-term health must be studied. Research is needed to assess how e-cigarette marketing could impact initiation and use of traditional cigarettes, particularly among young people.

"If large numbers of adult smokers become users of both traditional cigarettes and e-cigarettes — rather than using e-cigarettes to quit cigarettes completely — the net public health effect could be quite negative," said Tim McAfee, MD MPH, director of the Office on Smoking and Health at CDC.

West Wing Week: 03/01/13 or “Hope Springs Eternal” | The White House

West Wing Week: 03/01/13 or “Hope Springs Eternal” | The White House



Sailors from Mobile Diving and Salvage Unit (MDSU) 1 and U.S. Navy contracted salvage crew members from the M/V Jascon 25 safely remove the exhaust funnel structure from the mine countermeasures ship USS Guardian (MCM 5). Guardian ran aground on the Tubbataha Reef Jan. 17. The funnel's removal was a milestone in the dismantling process of the Guardian. The U.S. Navy and contracted salvage teams are safely dismantling and removing the ship from Tubbataha Reef. The U.S. Navy continues to work in close cooperation with the Philippine authorities to safely dismantle Guardian from the reef while minimizing environmental effects. U.S. Navy photo by Mass Communication Specialist 1st Class Anderson Bomjardim (Released) 130226-N-VF350-235

130226-N-VF350-247 SULU SEA (Feb. 25, 2013) A crane from the U.S. Navy contracted ship M/V Jascon 25 safely removes the exhaust funnel structure from the mine countermeasures ship USS Guardian (MCM 5). Guardian ran aground on the Tubbataha Reef Jan. 17. The funnel's removal was a milestone in the dismantling process of the Guardian. The U.S. Navy and contracted salvage teams are safely dismantling and removing the ship from Tubbataha Reef. The U.S. Navy continues to work in close cooperation with the Philippine authorities to safely dismantle Guardian from the reef while minimizing environmental effects. (U.S. Navy photo by Mass Communication Specialist 1st Class Anderson Bomjardim/Released)


Photo:  Money.  Credit:  U.S. Navy. 
Ex-Im Bank and AirFinance Named Corporate Jet Investor’s "Most Innovative Business Jet Financier 2013"

WASHINGTON, D.C. – The Export-Import Bank of the United States (Ex-Im Bank) and AirFinance have been awarded "Most Innovative Business Jet Financier 2013" by the Corporate Jet Investor Web site in recognition of Ex-Im Bank’s Qualified Advisor program.

The award was announced at the International Corporate Jet & Helicopter Finance 2013 Conference held recently in London, U.K. The awards were determined by a vote taken among a select group of business-jet manufacturers and other industry lenders prior to the conference, which was sponsored by Corporate Jet Investor.

"We are honored to receive this award from manufacturers and other leaders in the business-jet and helicopter industry. This vital part of the U.S. aerospace sector provides thousands of American manufacturing jobs," said Ex-Im Bank Chairman and President Fred P. Hochberg. "Financing these exports requires complex structuring, specialized knowledge and experience. By working with partners such as AirFinance, our Qualified Advisor program is enabling us to leverage private-sector expertise to offer timely financing to increase support for these exports. I congratulate Ex-Im Bank’s staff on this achievement."

"As a qualified advisor, AirFinance works with Ex-Im Bank to develop an innovative structure and combines it with ongoing monitoring processes that increase protections against credit losses," said AirFinance Managing Partner Tom Low. "This partnership merges the protection and stature of the U.S. government with the speed and creativity of business-jet and helicopter experts to provide a financial solution that is beneficial for the single purchase of a small aircraft to a large aircraft fleet order."

In 2012, Ex-Im Bank developed and implemented the Qualified Advisor program, a process to address the increased demand for export credits for business aircraft and helicopters arising from the growing percentage of U.S.-manufactured aircraft being sold to foreign buyers. The goal of the process is to facilitate a more complete and comprehensive transaction package being submitted to Ex-Im Bank in order to expedite the application, approval and closing process for foreign borrowers in business-aircraft transactions. Using qualified advisors also provides enhanced credit structures, resulting in additional credit protections for Ex-Im Bank.

The process is designed to benefit manufacturers that can now designate one or more advisors to work with their foreign buyers. The process is available through any advisor that has demonstrated the requisite knowledge, experience and expertise with business-aircraft financing.

AirFinance is a global company focused on the financing of general-aviation aircraft, including business jets, turboprops and helicopters, with an emphasis on transactions outside of the United States. AirFinance and Cessna Finance Corp. are the two finance companies with a focus on general aviation that are approved qualified advisors under Ex-Im Bank’s program.

Corporate Jet Investor is an international Web site developed to help both individuals and companies that buy business jets, corporate aircraft and helicopters find financing to suit their needs. Corporate Jet Investor also helps financiers understand assets, legal and tax risks, and identify new opportunities in developing markets.