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18 U.S.C.S. § 434 forbids a government agent from engaging in business transactions on behalf of the government if, by virtue of his private interests, he may benefit financially from the outcome of those transactions.
A contract for the construction and operation of an electric power plant (commonly called the Dixon-Yates contract) was canceled by the governmental contracting agency, the Atomic Energy Commission, because the power to be generated by the proposed plan was no longer needed. The plaintiff, the private party to the contract, sued the United States in the Court of Claims for the sums it had expended in connection with the contract. The government defended primarily on the ground that the contract was unenforceable because of an illegal conflict of interest of a government consultant, who acted in the dual capacity of the government's key representative in the crucial preliminary negotiations between the government and the sponsors of the project and of a profit-sharing officer of a corporation likely to benefit from the ultimate contract by sharing in the financing of the venture, and who, consequently, violated 18 U.S.C. 434, making it an offense for an officer of a corporation, or a person directly or indirectly interested in the pecuniary profits or contracts of such corporation, to act as agent of the United States for the transaction of business with such corporation. The Court of Claims rejected the government's defenses and awarded damages to the plaintiff.
Did the conflict of interest on the part of a government consultant bar the enforcement of the contract in question?
The claims court rejection of the defense was reversed because the director's activities were found to have constituted a violation of § 434 because his corporation was likely to benefit from the contract and because the court held that such fact alone precluded respondent from enforcing the contract. The court found the sanction of nonenforcement to be consistent with and essential to effectuating the public policy embodied in § 434.