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Watch Out For the Swamp Monster

Donald Trump promised “to drain the swamp.” But will his administration enforce – or even retain—sensible administrative rules that protect millions of Americans?

January 23, 2017

The views expressed are the author’s own and not necessarily those of the Brennan Center for Justice.

As I write this, President Trump is starting his first full week in the White House. So I do not yet know – does anyone? – how he will change the way the federal government works.  But I hope his instincts are different from those of the 115th Congress, which tried on day one to gut its ethics oversight.  I worry that next on the chopping block will be ethics rules and laws in the executive branch.

For example, there’s the small ethical quagmire of the Trump International Hotel in Washington, D.C.’s Old Post Office building, a 15-minute walk from the White House. In a nutshell, this property is leased by the GSA, a federal agency, to the Trump organization. The lease says an elected official cannot benefit from it. Trump is now President and obviously an elected official.  Not only is he in violation of the lease, but he is also in charge of the party that needs to enforce its terms.   

Who knows how this Trump Hotel saga will end but I predict that he will resist—as he has for months—any efforts to force him to divest the property.  His surrogates will likely take their cue from White House Chief of Staff  Reince Priebus, whose response to the matter has been to attack watchdogs like Walter Shaub, director of the Office of Government Ethics, who has repeatedly raised red flag about Trump’s Washington hostelry.

Given this atmosphere ethical compromise, a recent piece in the Wall Street Journal reporting about the Securities and Exchange Commission (SEC) settling pay-to-play violations with 10 companies left me wondering whether we had just witnessed the last time such a rule would be enforced for the foreseeable future.

These companies ran afoul of a SEC regulation known as the investment adviser rule. This is an anti-pay-to-play provision. Its aim is to protect public pension funds from a particular type of corruption – the awarding of investment adviser contracts on the basis of political donations instead of investing acumen. It’s worth noting that advising public pension funds is not a small-time business. Of the 40 largest pension funds in the world, 15 are U.S. public pension funds.   

Rule 206(4)-5 was enacted in 2010 after scandals in the public pension funds market. The rule basically prevents investor advisers seeking public pension fund work from making large donations to the politicians that control them. The rule gives the investment adviser a choice.  Donate big now and sit out from the pension business for two years, or give only a small amount and remain eligible to compete for the business.   

The SEC settled with 10 firms for fines ranging from $35,000 to $100,000 for making political contributions and then getting business within the two-year cooling off period. NGN Capital LLC paid the largest fine, and that was for giving donations to a New York City mayoral candidate and then doing business with the city’s retirement funds for teachers, police, firefighters and other employees.   

Such sensible prophylactic ethics rules will be vulnerable in the hands of a deregulatory administration.  (Trump’s pick to head the SEC, Sullivan & Cromwell partner Walter Clayton, does not seem likely to have an enforcement agenda.) The anti-pay-to-play rule serves several critical functions. It protects the millions of Americans who are beneficiaries of these funds, it protects the integrity of capital markets by having asset management done on the basis of merit rather than influence, and finally, it protects the democratic process. Preservation – and enforcement – of this rule is important.   

If you voted for “draining the swamp,” keep an eye on whether these little administrative rules change in the months and years to come. A corrupt swamp monster loves deregulation of ethics laws like a Pooh Bear craves honey.

At least the opening day effort by Congress to neuter the Office of Congressional Ethics failed because of an engaged citizenry phoned, tweeted and emailed in protest.  Similar vigilance will be required to keep the SEC and other agencies from rolling back their ethics rules as well during the Trump administration.