Update 638 — House Democrats Offer
Congressional Stock Trading Ban Bill
After months of negotiations, House Democrats yesterday introduced legislation, the Combating Financial Conflicts of Interest in Government Act, to impose the tightest restrictions yet on trading stocks by senior government officials, members of Congress, and their families. The bill may go to the House Rules Committee to be readied for a House floor vote by the end of this week. The House is expected to adjourn this week until after the midterms elections, returning for a lame duck session thereafter. Senate action would come during that session at the earliest.
Polls show 70 percent of voters support this reform. A recent New York Times front-page article pictured 97 members of Congress who traded stocks related to committee work. Speaker Pelosi signaled her support for the bill and is pushing for a vote this month. Next, the House Rules Committee will act and, we hope, report the bill favorably in time for a floor vote before adjournment.
In today’s update, we discuss the Combating Financial Conflicts of Interest in Government Act, potential hurdles, and the policy and political value of passing legislation this Congress.
What Does the Bill Do?
In a Dear Colleague Letter last week, Chairperson Lofgren of the House Administration Committee detailed a four-part framework restricting members of Congress from trading financial assets. Then last night, she released the bill text. After champions in both chambers spent months over the summer working to find a compromise, this leadership-backed package has elements from and looks much like the dozen-plus stock trading bills previously introduced this Congress. But this one has a chance to make it to the House floor for a vote this week.
The bill features the following central provisions:
- Restrictions on trading and ownership of covered investments by senior government officials
- Penalties for violations of restrictions on trading and ownership of covered investments
- Accountability and public disclosure of enforcement measures
- Reforms to financial disclosure requirements
The first imposes restrictions on financial activity by senior government officials, their spouses, dependent children, and senior staff. This provision applies not only to members of Congress, but senior executive and judicial branch officials as well. They and their families would be banned from owning or trading investments in securities, commodities, futures, cryptocurrencies, and other similar investments, outside of a qualified blind trust.
To comply, covered individuals can transfer holdings to a qualified blind trust (QBTs) or certain diversified funds such as mutual funds, ETFs, retirement plans, and Treasury bonds. Qualified blind trusts in this bill are defined by the supervisory ethics office for each branch who can create exceptions, which creates a dangerous precedent of different and inadequate standards for trusts. Covered persons have 180 days from the enactment of the bill to divest. They would be issued a certificate of divestiture to signify compliance and defer any tax burdens.
The title providing penalties and enforcement authorizes the supervising ethics offices to assess a $1,000 fee after a 30-day period that a covered person is in violation with an additional fee of 10 percent of the value of the assets or transactions in violation. The penalties are indexed to inflation. The Department of Justice would have enforcement power and can bring civil actions for violations.
The next title ensures accountability and transparency to the public, directing ethics offices to publicly disclose information and compliance. The Attorney General and the Department of Justice will also report to Congress the criminal and civil proceedings brought against violators.
The final section is focused on transparency and strengthening current disclosure requirements. It would:
- Require government officials to file assets and transactions to a close rounded value instead of the broad range permitted under current law
- End the spousal loophole to provide more granular reporting beyond just “above $1 million”
- Raise the late fee for reporting from $200 to $500, which would recur every 30 days if a covered person fails to report, adding on another penalty of 10 percent of the value of the transactions that should have been disclosed
- Require swifter disclosures of larger transactions
- Mandate electronic filing of all financial disclosure filings in all three branches
- Enhance disclosures for all filers, including candidates and nominees
Hurdles to Ultimate Passage
The inclusion of certain provisions may ruffle the feathers of members hoping for a cleaner approach to this effort, and text coming this late is a point of consternation. Inclusion of the executive and judicial branches in the bill has pros and cons but including the other branches also risks broadening a fight that is currently focused on financial transactions in Congress. Some members, particularly Republicans who have collaborated on this effort thus far, may feel the inclusion is Democratic leadership overextending the bill and could thus sink it.
The late arrival of text itself also presents concerns as members will have little time to understand the legislation and how it might affect them before it is brought to the floor for a vote. There has been concern from some members that some of the provisions are too burdensome, and without adequate time to understand the bill and give input, passage could be difficult.
All of these concerns are exacerbated by the rather last-minute push to get reform over the finish line. Despite months of pressure for this Congress to put forward a consensus package, House leadership only unveiled a framework the second to last legislative week before the midterm elections and text with only three days to spare. The perception of closed-door negotiations and centralization of writing legislation degrades trust among legislators, advocates, and the public looking for real reform. The foregoing notwithstanding, these concerns are not enough to stall or kill the effort. They need to be addressed nonetheless in a transparent fashion, but that may have to wait until the bill’s probable conference.
Momentum Before the Midterms
This meaningful reform package deserves a House vote, though some provisions stand to be improved upon anon. Adding clear standards for qualified blind trusts and removing loopholes – specifically the discretion that supervising ethics offices have to approve trusts that do not comply with the Ethics in Government Act of 1978 – will serve as a critical disincentive for insider trading by officials. Not much time exists to change the bill before a House vote this week, but this is not the last opportunity to amend the bill; it’s a commendable starting point.
And it represents a critical opportunity before the midterms for members of Congress to show they are accountable to the people they serve, not their wallets. Removing financial conflicts of interest will help to restore trust in the government and will combat the all too common attacks of a corrupt Washington. This will be another item where Democrats can point to their record of lowering costs for families and working to represent the public interest.
The next hurdle will be passing legislation in the Senate where a 60-vote threshold will likely force edits to the House bill. While the Senate is unlikely to take this up until after the midterms, we cannot let this be another important reform that passes the House and falls dead in the Senate. Once the Senate returns after the elections, pressure to pass stock trading reform and work with the House to pass a strong bill both chambers can agree on will be critical. From the long battle starting with the STOCK Act in 2012 to a hopeful House vote this week, we are one substantial step closer to banning members of Congress from trading stocks. It is now time to get it across the finish line.