A wave of congressional stock trading scandals, ranging from suspiciously timed trades at the start of the pandemic to members of Congress failing to comply with transaction disclosure requirements, have prompted calls for reform this year. Under pressure from the public, Democratic leaders of the House of Representatives have finally introduced a long-awaited bill to ban members of Congress and their spouses from trading stocks.
To say the bill is weak, however, would be an understatement. The bill is dangerous. It would undermine what little ethics we have in our federal government.
That’s not to say the Republican House leaders have done better; they haven’t risen to the challenge of introducing a good bill, either. But only one side is in control, and it was the job of Speaker Nancy Pelosi (D-CA) to oversee the introduction of a strong bill.
The Pelosi bill would replace the government’s strict blind trust requirements with a regime that would permit fake blind trusts, like the one former President Donald Trump invented for himself in 2017. Pelosi backing a bill that would clear the way for fake blind trusts—Trump’s greatest scam—should shock the nation into paying attention.
House Democrats made a point of criticizing Trump’s assault on government ethics, so it’s maddening to see their leadership adopting his most notorious ethics dodge just a few years later.
Some background is needed to understand why this is such a problem. Congress passed the Ethics in Government Act of 1978, in reaction to Watergate. Among other requirements, that law established a set of rigorous standards for blind trusts—so rigorous that President Jimmy Carter, its chief proponent, had to break open his own blind trust and disclose the holdings because it didn’t meet the new standards. Carter wasn’t alone. John McCain, Hillary Clinton, and Mitt Romney were all forced to break open their blind trusts when they ran for president.
But Pelosi’s bill would change that by allowing ethics offices for each branch of government to approve any kind of trust they want, ignoring established government-wide standards. It’s not hard to imagine how that will go.
The House and Senate ethics committees have notoriously failed to enforce the STOCK Act, and the Senate has rarely disciplined members for violations.
The Supreme Court has refused to adopt any ethics code, and the rest of the judicial branch hasn’t demonstrated much more commitment.
Ethics wouldn’t fare better in the executive branch. If an incoming president asked the director of the Office of Government Ethics to approve a weak trust, the director could be hard pressed to resist a president who can fire them at will. I stood up to President Trump when he created his fake blind trust in breach of existing presidential norms, but it would be another thing entirely to refuse a blind trust expressly allowed by law.
Worse still, Pelosi’s bill would excuse officials from disclosing the holdings of their fake blind trusts. Even Trump disclosed the holdings of his, but these new vehicles of corruption would lack transparency.
The bill suffers from other problems, too, though none as grave. While it imposes strong penalties for violations, it leaves enforcement to each supervising ethics office. It also permits those offices to waive penalties in cases of “extraordinary circumstances,” whatever that means. The bill allows for investment in diversified investment funds, but, unlike other pending bills, it doesn’t define what counts as “diversified.” Like most of the pending bills, this one lets members inherit prohibited assets (subject to prompt divestiture). But this bill also bizarrely okays acquisition of prohibited assets by gift. The bill would also automatically defer capital gain taxes, without regard to circumstance.
These problems are the product of a broken process. Last December, Pelosi touched off an uproar by saying she opposed banning members of Congress from trading stocks: “We have a free market economy; they should be able to participate in that.” The strong negative public reaction to the remark prompted the speaker to later begrudgingly agree to consider a ban “if members want to do that.”
But in the nine months since, Pelosi and committee leaders have refused to allow votes on the many congressional stock ban bills that members have introduced, including two with bipartisan support. Democratic Representative Abigail Spanberger (D-VA) recruited 12 Republicans and 58 Democrats to cosponsor her bill. Representative Pramila Jayapal (D-WA) joined with Republican Representative Matt Rosendale (R-MT) and several Democratic colleagues to introduce a House bill with Democratic and Republican co-sponsors.
Instead of supporting either of these, or even allowing the legislative process to move forward, Pelosi tasked Representative Zoe Lofgren (D-CA) to create a new bill. If Lofgren’s name sounds familiar to those who’ve listened as calls for a stock ban have grown louder, it’s because she presided over an April hearing where she sarcastically asked advocates whether, in addition to selling off stocks, members of Congress should have to give up their homes.
Lofgren drafted the bill for Pelosi in relative isolation, by all accounts excluding the Democrats who most vigorously supported a ban and all Republicans. The reason for this partial secrecy became clear when her committee released the text of the bill late Tuesday night: The bill is terrible.
I am horrified by what it could do to the executive branch ethics program I once led. This bill would weaken conflict of interest and transparency laws in the federal government. Whether that effect is immediate or delayed, it would be inevitable. Although I have passionately advocated for a congressional stock ban, Pelosi’s bill would leave the nation worse off than we are now.
The Speaker has accomplished something I’d have thought impossible: She has produced a congressional stock trading ban I must oppose.
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