Tuesday, January 17, 2017

Apple #739: Anti-Corruption Laws and Blind Trust

Maybe you've seen some of the news articles recently saying that our President-elect has some serious conflicts of interest that he needs to resolve prior to taking office.  Maybe you even saw this statement from the Office of Government Ethics, which handles ethics issues in the Executive Branch.

Office of Government Ethics director Walter Schaub making a statement that Trump's plan for dealing with conflicts of interest is inadequate, and why. This may seem at first to be boring and procedural, but in your Apple Lady's opinion, this is what speaking truth to power looks like: should be -- calm, thought-out, supported by evidence, and determined to do what is right no matter what the circumstances may be.

For the sake of clarity and focus, I'm going to discuss only those conflicts that are related to our President-Elect's business holdings.  I'm not going to get into all the stuff with Russia, even though talking about his business holdings can very quickly lead to the Russia morass.

But that is in fact the very reason the conflicts of interest are a problem: when you have business deals with international governments and then you become a head of state, you may very quickly be faced with a situation where you have to decide which are you going to put first, the financial success of your company, or the political health of your country?  The conflicts of interest clauses in the Constitution were created so foreign leaders wouldn't be allowed to bribe our officials, nor would our officials be put in a situation where they would even be tempted.

Is the President Exempt from Conflicts of Interest? Of Course Not

The President-elect has said, "The law's totally on my side, the president can't have a conflict of interest."  Many of our laws dealing with conflict of interest fall into one group (Title 18, Section 208 of the US Code), and they include an exception for the president (18 USC 202(c) ) who touches so many parts of the government and the country's operations that it would be nearly impossible for the president not to have any conflicts of interest.  To ban all conflicts would restrict so many people from the presidency that it wouldn't be feasible or desirable.  Further, expecting the president to recuse himself or herself from any situation where there's a conflict of interest isn't workable either because there's no other person who holds that position who could act in the president's stead..  So, looking only at that part of the law, he is correct.

However, there are many other parts of federal law and the Constitution which restrict the president from receiving payments from other entities.  I'll discuss the three main places where corruption is specifically not allowed (though there are more anti-corruption laws than only these three).

This is the first place that says -- twice -- that the president must not even have the opportunity to be corrupt.
(Photo of the Constitution from the National Archives)

No Payments from Foreign Entities

The founders were very concerned about keeping the office of the president free from corruption, or even having the appearance of corruption.  So there is a clause in the Constitution -- this is present since the very founding of this country -- that says

[N]o Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.

This is usually referred to as the Emoluments clause, or the foreign emoluments clause.  An emolument is any kind of payment, compensation, profit, or literally "bettering."

This is one kind of emolument.
(Photo from Vice Lounge

Interpreted strictly, any money of any kind that comes from a foreign head of state and is paid to the president could be a violation, if Congress decides that it is.  So let's say after Jan 20, the leader of Dubai stays at the hotel Trump owns in Dubai and pays his hotel bill.  This is a payment from a foreign head of state to a business that is owned by the president. Violates the foreign emoluments clause, doesn't it?

(In fact, following the election, many foreign diplomats flocked to Trump's hotel in D.C., believing it would be beneficial to them to be able to say, "I stayed at your hotel."  That hotel was even "pitching" itself to foreign officials.  Sure sounds more than iffy to me.  But let's go back to the Dubai guy in the Dubai hotel.)

Most people say yes that's a violation, but some people say no.  They argue that the payment for the room wouldn't be a payment to the Office of the President; or they say, how could a busy president keep track of all his hotel tenants and be influenced by that; or, as one CEO who stayed in his hotel is quoted as saying, “Do you think the president-elect knows who rents rooms for two hours?”

Then Trump's tax attorney said, well, he'll just donate all hotel profits from foreign governments to the US Treasury.  So, on the one hand, he can't keep track of who's staying in his hotel, but on the other hand, he'll donate all foreign payments to the Treasury.  Uh-huh.

You see how murky this can get.

No Payments from U.S. States

There is also a domestic emoluments clause in the Constitution (Article II Section 1) -- again, the founders really did not want a corrupt president -- which prohibits the president from receiving any payment from within the United States:

The President shall, at stated times, receive for his services, a compensation, which shall neither be increased nor diminished during the period for which he shall have been elected, and he shall not receive within that period any other emolument from the United States, or any of them.

So none of the states in the union can slip the president a Benjamin or two and get some kind of favorable treatment, like let's say more federal funds for that state's schools, or relaxed regulation on hospitality laws only in that state, or an executive pardon for every guy in the state of New York who's ever committed sexual assault.
Another difference between this clause and the foreign emoluments clause is that receiving payment isn't allowed under any circumstance. In the case of foreign payments, if Congress says it's OK, it's OK.  With domestic payments, never OK.

So, in our running example, what if it's not the leader of Dubai but the governor of Texas who stays in his hotel, and it's for some sort of state meeting or conference.  So the taxpayers of Texas would cover the cost of the governor's stay.  So in paying that hotel bill, is the state of Texas making a payment to the president?

Here's another example that is less directly covered by that clause, but is more realistic and no less problematic: Let's say a bill lands on President Trump's desk that, I don't know, bans some kind of building material that is found to be so hazardous it's been killing people, but his contractors used it in all of his hotels because it was cheap.  Is President Trump going to sign that law and put his company on the hook for replacing all of that building material, or opening up his properties to huge liability lawsuits?  That's a huge conflict of interest, where he would be asked to choose between the good of the public or the financial benefit of his companies.  I think I know which action he would take, but I also think most of us don't even want a president to be in that situation in the first place.

No Bribery

The emoluments clauses try to keep the president from being in a position to be corrupted.  As legal scholars have pointed out, they say the president can't accept payments, period.  With bribery laws, you have to prove that not only did someone receive money, they did something in return for that money.  The emoluments clauses say you don't have to prove the action in return; they can't accept the money period, regardless of what happens afterwards.

But there are bribery laws, and they do cover the office of the president.  So even if he could skate past the emoluments clauses, if he were shown to take some sort of action in return for a payment, he could be found guilty of bribery.

The Bribery of public officials part of the US Code (18 USC 201) is written in a very inclusive complex way, so I'll break it down for you into its digestible parts: 
  • Any public official -- high or low, doesn't matter in what office
  • who directly or indirectly 
  • receives or accepts, or seeks without ever receiving, or so much as promises
  • for themselves or for anybody else (like, family) or any other entity (like, their business)
  • anything of value 
  • in return for
  • influence in how the public official performs his or her job, or
  • being any part of any kind of fraud against the United States, or
  • influence not to do something that is part of his or her job, or
  • influencing the testimony of a witness at any kind of trial or hearing
  • shall be punished as follows:
  • fined up to 3x the monetary value of the bribe in question, or
  • put in prison for up to 15 years
  • or both
  • and "may be disqualified from holding any office of honor, trust, or profit under the United States."
So, to return to our first example, if it could be proven that the leader of Dubai's payment for staying in the Trump hotel in Dubai was directly connected to some kind of action Trump made or did not make that benefited Dubai or harmed the United States, then he would have violated the bribery laws.

Or let's say a president accepted investments made to his business from foreign investors and then in return for those investments, he lifted sanctions on that country, or if he failed to take action against that country when it had been shown to have acted in a way detrimental to our democracy, or if he said he has no problem with their actions that violate international agreements of which our country is a part, or if he in any way performed his job in any way that was colored by those "investments," then he could be found guilty of having accepted a bribe, and he would be punished accordingly.

Emoluments Clauses Precede the Bribery Laws

The anti-bribery laws are in some ways more strict, but they are more difficult to prove because you have to demonstrate quid pro quo (you give me this, so in exchange I give you that).  The emoluments clauses are like the watchdogs that try to keep the bribery from happening in the first place. They try to keep the office-holder from being in a situation where bribery could occur.

So even though the anti-bribery law would absolutely apply to Trump should he violate it, the Emoluments clauses raise their heads first. That is why people are talking about these more than they are the bribery statutes.

What complicates all this is that there is zero precedent for litigation of the Emoluments clauses.  No past president has violated them to the extent that anyone wanted to take him to court over it.  Some experts aren't even sure if a lawsuit would be appropriate because they say you wouldn't be suing the person, you would be suing the president, and that becomes a political situation and something that should be handled not in a court of law but by Congress.

How Should the Conflict of Interest Laws Be Enforced?

I think we can all agree that we do not want our president accepting bribes.  We don't even want to have reason to think that could happen.  But unfortunately, Trump and his lawyers disagree with what several people are saying is necessary action for him to take to make sure he can't be found guilty of bribery, or even have the appearance of being in a bribe-able position.

All past presidents have chosen to take steps to avoid raising any kind of doubt about their susceptibility to corruption.  They sold their assets before taking office, or they turned over detailed financial records and sat through hearings while members of Congress painstakingly combed through them, or they put their assets into a blind trust.  The blind trust is the route that most people are saying Trump should take.  Trump, through his lawyer, said he's not going to do that.

Blind Trusts

This is what setting up a blind trust looks like on paper, har har.  Really, it's the rules and the circumstances behind it that are crucial.
(Photo from eHow)

A trust is a legal name for an agreement you make with someone else when you ask them to hang onto your money for you and manage it on your behalf.  Like, your grandmother might put her bank accounts and all the stuff she owns (her estate) into a trust that is managed by a lawyer and then when she dies, the lawyer contacts you and says, Hey, your grandma left you all this money, and I've been managing it for her, but now that she's died, it's yours, what do you want me to do with it?  That's the kind of trust most people are familiar with.  But a trust can be much more general than that.

Most trusts are set up so the person managing it talks to the owner and says things like, Hey, this stock price is tanking, do you want me to sell it? or Hey, this building you owned just got bombed, what do you want me to do with it?  There is open communication between the trust manager and the owner (beneficiary) about what property is in the trust, how it's performing, and what the trust manager should do with that property.

A blind trust is set up so the owner of the property (beneficiary) does not know what's going on with it.  The trust manager has total decision-making control, and the beneficiary literally and totally trusts the manager to do a good job with the property until the beneficiary can take control of it again.  Lots of public officials have used blind trusts because they allow the person to retain ownership of the stuff, but they can't see whether the stock in such & such a company just went up because they tweeted some ridiculous remark, or whether the stock in such & such took a nosedive because they said they think that company shouldn't get any more government contracts. There is no danger of being accused of a conflict of interest because they don't even know exactly what is in the trust, let alone how it might be affected by their work as a public official.

Another element to the blind trust is the beneficiary should not even know what's in it, let alone how it is managed.  If you know you've got stock in BP, your response to the Deepwater Horizon fiasco might be different than if you didn't know you had that stock.  So what a lot of public officials have done is not only create a blind trust, but also sell or convert what they have to cash prior to putting it into the trust, and then the trust manager takes that cash and re-invests it in a way that the beneficiary knows nothing about.  That way, all the public official knows is that their money is being managed.  They don't know what form that money has taken, if it's stocks or bonds or mutual funds, or bars of gold sitting at the bottom of the ocean.

This is the course of action that some people, including Mr. Walter Schaub up there at the top, are saying Trump should take before assuming the Office of the President.

Mr. Trump's lawyers are saying no, we're not going to do that.

Trump's Proposed Trust

Trump's attorney Sheri Dillon delivering the news that -- surprise! -- they're going to do things their own way. 
(Photo from LawNewz)

What Trump's lawyers say they are going to do is as follows:
  • Convert the hundreds of entities into a single trust
  • To be managed by Trump's two sons plus a long-time Trump executive (these three are "the management team")
  • An ethics adviser, as yet unknown, will be assigned to the management team, and the ethics adviser will have to approve everything the team does
  • Trump has already sold his stock in publicly traded companies, so the cash from those sales will go into the trust.  
  • All the properties he owns -- golf courses, hotels, resorts, etc., -- he's going to keep, and those will go in the trust.  
  • All currently pending deals will be terminated, and no foreign deals will be undertaken while he's president.
  • Domestic deals will be allowed, but "will go through a vigorous vetting process" done by the ethics adviser.  
  • Trump will continue to see profit & loss statements, but at a top-level only.

His lawyer says it's ridiculous to expect him to sell everything because whatever price he got for his properties people would say was unduly influenced by his impending office.

His lawyer says that he couldn't sell his businesses to his children because they couldn't afford it, so they'd have to get third-party investors, and that would raise concerns.  Selling it to anybody else, well, apparently that is unthinkable because "President-elect Trump should not be expected to destroy the company he built."  In other words, It's my business and I'm not going to get rid of it.

He also says his brand is part of the business, and if he were to sell it, it would lose its value because it's not associated with him anymore.  Conversely, he's also said that he couldn't really sell it because he would retain royalty rights for the use of his name, and he wouldn't be able to accept royalty payments. So gosh, gee whiz, and golly, I just have to keep my doggoned business.

But there are enormous problems with all of this.  Legal experts and ethics advisers across the country agree this plan is insufficient. 
  • His sons controlling the business along with a long-time executive -- that's not much of a blind wall there, is it?  Especially since he asked for security clearance for all of his children.
  • Continuing to see profit & loss statements is not absenting himself from running the business at all, but maintaining an awareness of its performance.  Not much trust placed in someone else, is there?
  • This ethics adviser to be named later, there's nothing to prevent this person from being a toady yes-man and approving everything the the management team does, regardless of ethics concerns.
  • The properties he does keep open up enormous conflicts of interest because any legislation he considers having to do with labor laws, environmental regulations, infrastructure, land use, banking regulations -- more -- would impact his properties, which he has a vested interest in wanting to protect.
  • Further, his properties with his name on them are a gigantic target to foreign terrorists.  Some wackadoo in InsanityLand sees TRUMP on a building in their city, suddenly that's not only a sign of capitalism run amok, that's a direct connection to the President of the United States.  Wackadoo terrorist bombs that Trump building, and he's carrying out a direct threat against the President.  This puts the lives of all the people who work in those buildings are in danger.  That's a nightmare that no one wants to see happen -- right?
(To see one suggestion about how Trump could resolve some of these conflicts of interest without divesting entirely from all his businesses, see what The Economist recommends.  Recommendations include combining all businesses into one entity, making its operations transparent to the public, and having it run by an independent management group, not his children.)

There are even more potential conflicts of interest than what I've listed here (The Atlantic has described in detail some of the more troubling international ones).  The number and scope of issues is, to quote several experts on the subject, "staggering."  And this is true only of the issues that we're aware of.
We don't even know the full scope of the conflicts because we haven't seen his tax returns.  We don't know to what entities he owes money.  Whoever he owes money to, he has every opportunity now to see that he gets his debts forgiven.  That would absolutely violate the bribery laws, but if we don't know what's in his tax returns, we won't know if he's broken the law, or at the very least, if he has motive.  

Even a blind trust can be manipulated, as Mitt Romney expressed.  But Trump won't even do this much.

What You Can Do

Trump maintains that the public doesn't care about this stuff.  He says people don't want to see his tax returns, that only the media wants to see those, and the public isn't concerned about minor details like these.

I, for one, and extremely concerned.  I am very worried that the only ones who have created a blind trust is us.  By electing him president without seeing his tax returns, we have put our blind trust in him.  We have blindly trusted this salesman and we are about to hand him the keys to the highest office in the land.  If he turns the office into a pit of corruption -- or if he even appears to turn it into a swamp of shady dealings -- that is going to damage our country enormously, down to our very belief in our own democracy.
This is what the world looked like in terms of levels of corruption in 2013.  Our country looks very unusual on the world's scale in these terms.  If we don't do something about this conflict of interest issue, I guarantee our country's level of corruption will increase.
(Image from IndustryWeek)

Ethics experts say that since there is no history of litigation surrounding the emoluments clauses -- because no president has ever been sued for violating them -- and since it's not even certain in what capacity the president COULD be sued, the only real recourse we have to keep the president -- any president -- in line is Congress.

So if you are concerned about these conflicts of interest, if you would like to ask that more be done to protect the highest office in the land from even the suspicion of corruption as our founding fathers intended, start contacting your Congress people ASAP and let them know of your concerns.  
Find your Representative in the House: http://www.house.gov/representatives/find/ 
Find your Senator: https://www.senate.gov/senators/contact/
An app called Call to Action supposedly helps make contacting representatives in Washington even easier. 

See also embedded links in the entry
 Marketwatch Jan 13, 2017
Complete transcript of Trump's press conference, Jan 11, 2017
Washington Post, Foreign leaders flock to Trump's DC hotel, Dec 7, 2016
LA Times, Trump plans to donate hotel profits, Jan 11, 2017
Chief Counsel, Constitutional Accountability Center, On other emoluments clauses, Dec 19, 2016
Fortune magazine, Guide to the emoluments clause, Jan 11, 2017
Fortune magazine, What's a blind trust anyway? Jan 12, 2017
Forbes, Why Trump won't use a blind trust and what his predecessors did, Nov 15, 2016
Office of Government Ethics, Report on Conflict of Interest Laws Relating to the Executive Branch, Jan 2006
CRS Report for Congress, The Use of Blind Trusts by Federal Officials
The Atlantic, Trump announces plan that does little to resolve conflicts of interest, Jan 11, 2017
The Guardian, Blind trusts, Jan 13, 2017


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