By SUZANNE DERSHOWITZ and ANGELA CANTERBURY
At a time when the nation has become increasingly skeptical of the way Washington works, the Senate and the House have each passed ethics and anti-corruption legislation in the form of the Stop Trading on Congressional Knowledge, or STOCK Act—Senate version S.2038.ES and House version S.2038.EAH. POGO and other reform groups support this legislation.
The STOCK Act clearly prohibits Members of Congress, their staff, and executive branch employees from using nonpublic information for insider trading and makes it easier to prosecute these crimes. Specifically, both bills require officials to publicly report any transactions exceeding $1,000 in stocks, bonds, commodities, and other forms of securities within 30 days. The bills require that federal officials' public financial disclosure forms be made available online (instead of only providing paper copies upon request)—something POGO has long called for and will allow the public to keep a watchful eye.
But there are key differences between the House and Senate versions of the bill. POGO supports the House bill’s coverage of a wider universe of executive federal officials. However, we strongly favor the Senate bill’s provisions on political intelligence, honest services, and illegal gratuities—provisions which POGO explicitly called for in the Act.
Politico recently reported that Senate leaders are considering taking up the House version of the bill to avoid a filibuster attempt instead of convening a House-Senate conference committee to hammer out a final bill. An open conference committee is vital to ensuring the strongest possible STOCK Act.
Here’s a closer look at the key differences between the two versions of the bill.
Political intelligence industry reporting requirements
One of the biggest differences between the two versions of the bill centers on the political intelligence industry. The global market for policy research and political intelligence services totaled a reported $402 million in 2009.
An amendment offered by Senator Chuck Grassley (R-IA) that was adopted in the Senate version of the STOCK Act requires political intelligence consultants to register and report their activities as lobbyists under the Lobbying Disclosure Act of 1995. As defined by the bill, political intelligence activities include any communication to or from a public official to derive information intended for analyzing markets or informing investment decisions. Political intelligence consultants would have to disclose who their clients are and on which specific issues they are employed to gather intelligence.
This provision is meant to curb Washington insiders’ practice of soliciting non-public information about pending legislation, regulations, and policies from federal government employees and selling it to hedge funds and wealthy individuals for investment purposes. Wall Street lobbying groups such as the Securities Industry and Financial Markets Association are up in arms over this provision, arguing that the definition of a political intelligence consultant is overly broad and will ensnare too many people.
Wall Street lobbyists were successful in getting the House to cut the entire provision from their version of the bill. Senator Grassley criticized the outcome. "The Senate clearly voted to try to shed light on an industry that's behind the scenes,” he said. “If the Senate language is too broad, as opponents say, why not propose a solution instead of scrapping the provision altogether?"
Representative Louise Slaughter (D-NY)—who authored the original STOCK Act in the House—told The Daily Show with Jon Stewart, “Political intelligence was a part of our original bill, and to me it’s really the most important part.”
Given the minimal reporting of communications of influence between private industry and government, POGO thinks it quite sensible to require disclosure of political intelligence in the final version of the bill.
Executive branch reporting
A lot has been said about the STOCK Act’s implications for Members of Congress, but its impact on the executive branch has received less attention. There are some differences between the two bills in terms of who is required to report financial transactions and whose public financial disclosure form will be available online. The House version nearly mirrors the Ethics in Government Act of 1978 in listing the categories of senior executive branch officials and employees who are required to disclose any sale or exchange of $1,000 or more in stocks, bonds, commodities futures, and other forms of securities. This seems like the right approach.
In contrast, the Senate version refers vaguely to “noncareer appointee[s] in the Senior Executive Service…or a similar personnel system for senior employees in the executive branch.” It is unclear whether a “similar personnel system” would include, for instance, the special pay system at regulatory agencies such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), Consumer Financial Protection Bureau (CFPB), the Government Accountability Office (GAO), and others. We can’t see any reason why senior officials at financial regulatory agencies should be exempted from the disclosure requirements.
The Senate version also does not cover Special Government Employees (SGEs). This is important because many SGEs serve on federal government advisory committees, advising federal decision-makers on a range of significant issues, such as drug approvals and food safety standards. These are positions where conflicts of interest and the potential for insider trading and political intelligence have been demonstrated. The Senate version also excludes administrative law judges, employees of the U.S. Postal Service, and, incredibly, agency ethics officials. Ethics officials should be held to the highest standard of disclosure and accountability.
The House version also allows the director of the Office of Government Ethics (OGE) to include any additional officers in the executive branch determined to be of equal classification even if they are not expressly mentioned in the bill. This would allow the director of OGE room to account for important individuals who may have been left out.
POGO urges Congress to include the House version’s better executive branch coverage for reporting and disclosure.
Public corruption prosecution improvements
The critically needed “honest services” and “illegal gratuities” provisions included in the Senate bill were scratched from the House bill entirely.
Before the STOCK Act, POGO supported a bill cosponsored by Representatives James Sensenbrenner (R-IL), Steve Cohen (D-TN), and Mike Quigley (D-IL) that would tighten wording of the honest services fraud statute (18 U.S.C. § 1346). For decades, government attorneys had used this statute to hold public officials accountable for denying their “honest services” to taxpayers. But in 2010, in Skilling v. United States, the Supreme Court gutted this entire category of deceptive conduct from the scope of the law, leaving the Department of Justice unable to effectively prosecute a large portion of public corruption crimes.
The Senate version of the STOCK Act would clarify crimes of illegal gratuities, bribery, and graft. This would go a long way to help restore public trust.
The bottom line…
Senate Majority Leader Harry Reid (D-NV) should decline to take up the House version of the STOCK Act. Since both bills have strong provisions that should be included in the final version that is sent to the President for signature, a formal, fully open conference committee is essential. Again, POGO echoes Representative Slaughter in advocating for a conference committee that is completely open to the public to help deter the watering down of reforms behind closed doors. Fully open would mean televised, webcast, and online posting in real time of draft legislative proposals.
Stay tuned for upcoming developments with this key reform legislation.
Suzanne Dershowitz is POGO’s Public Policy Fellow. Angela Canterbury is POGO’s director of public policy.