Five years to the day after the Senate passed the Dodd-Frank Act, Senator Tammy Baldwin of Wisconsin and Congressman Elijah Cummings of Maryland gathered for a press conference in the Capitol to announce legislation that would strengthen ethics in the executive branch and work to reduce Wall Street influence in Washington, D.C.
“We can’t afford to have a revolving door working to stack the deck in favor of Wall Street and against hard working Americans who are struggling to get ahead,” Baldwin proclaimed as she introduced the Financial Services Conflict of Interest Act on July 15. “The American people deserve to have trust in the fact that government is working for them and that the system is not being rigged against them.”
Soon after entering office in 2009, President Obama ordered into action an ethics pledge that requires presidential appointees to adhere to protocol aimed at managing the revolving door and minimizing exposure to conflicts of interest. The Baldwin-Cummings legislation would expand and strengthen the existing requirements by including senior officials with significant regulatory authority, increase the mandatory “cooling off” period to two years, and perhaps most strikingly, ban golden parachutes, which is the practice of a firm giving employees a significant bonus when they take a job in government. The golden parachute is an unspoken quid pro quo that has come to epitomize the perception of corruption in Washington.
Advocates say that the bill would be a significant step in reducing this current (and future) administration’s heavy reliance on Wall Street veterans to staff the important financial regulation positions in the executive branch and limit former officials’ ability to exploit their government experience and contacts after returning to the sectors they once regulated.
The role of lobbyist influence and the revolving door in government has garnered a surprising amount of attention early on in the presidential election. Notably, Senator Elizabeth Warren, who has signed on as a co-sponsor to the bill, used her platform at the progressive Netroots Nation conference to urge presidential candidates to back this legislation. “[The bill] won’t fix everything, but it will throw some heavy sand in the gears of the revolving door—and it’s a bill any presidential candidate should be able to cheer for.”
Bernie Sanders and Martin O’Malley are expected to support the bill as well. Hillary Clinton’s position, however, remains unclear. Though, as David Dayen reported for The Intercept, Clinton has a rather troubling history of hiring senior State Department officials whom she knew had lucrative golden parachute deals from various financial firms.
Republican contender Jeb Bush recently announced his intentions to push for a six-year lobbying ban for former members of Congress—the current ban is one year for House members and two years for Senators.
The bill would expand ethics rules to cover the most senior officials (GS 15 and above) working for the Comptroller of Currency, Federal Reserve, Bureau of Consumer Financial Protection, the Securities and Exchange Commission, and other financial overseers. There are already well over 1,000 presidential appointees subject to ethics rules; experts estimate that such an expansion would subject thousands more government officials to more stringent guidelines.
Good, But Could Be Better
Good government advocates applauded Obama when he introduced his administration’s ethics pledge for appointees within his first month in office. Nearly seven years in, the pledge appears to have had an impact on slowing the revolving door in his administration. According to a Public Citizen report, Obama has appointed 56 reverse revolvers—those who come directly from the industry that they will oversee—during his presidency. Bill Clinton appointed 64 reverse revolvers and George W. Bush appointed 91. To comply with Obama’s code, officials with clear conflicts of interest are required to recuse themselves. No other administration had such restrictions.
But as his term has worn on, he has been criticized for a continued—and some say troubling—reliance on Wall Streeters to staff the West Wing, as well as the SEC, the Treasury Department, and other important regulatory agencies. These are the senior officials who are charged with regulating the vast financial sector, many of whom currently do not labor under conflict of interest rules as strong as other appointees do.
Another important aspect of ethics is merely cutting down on the appearance of conflicts of interest. That’s been a big problem for the Obama administration as senior officials begin leaving en masse as his tenure winds down. As Glenn Greenwald wrote for The Intercept, “So many Obama officials have ‘spun through the revolving door’ that it’s almost impossible to count them all.”
Most recently, former Attorney General Eric Holder returned to the Wall Street law firm, Covington & Burling (a firm where several former Obama officials have already landed), where he worked before heading up the Justice Department. Marilyn Tavenner, who led the administration’s rollout of Healthcare.gov, left her position in February and recently took a job as the top lobbyist for the powerful health insurance trade group America’s Health Insurance Plans. A slew of other prominent Obama officials have taken lucrative positions at corporate powerhouses like McDonald’s, Amazon, and Uber.
“Whether they are going to roles where they will be directly lobbying government or go into positions where they are directing lobbying, you have these extremely well-connected people who know the people in government to call to sort out problems for the company,” Bill Allison, a former senior fellow at the Sunlight Foundation, told The Guardian in March. “Seven years into the Obama administration, this is the time when people are leaving and cashing in by joining companies.
According to the Center for Public Integrity, 82 percent of lobbyists who went through the revolving door said that they’ve lobbied their former agency or government office after their one-year cooling off period. This new bill is not intended to stop the revolving door, but merely to mitigate its influence over government regulation. So how is that done?
“There isn’t a magic [cooling-off] period; we just know that one year is too short. One year has been the cooling-off period for both the Congress and executive branch for decades, and it hasn’t worked,” said Craig Holman, the government affairs lobbyist for the good government organization Public Citizen. “We know with a certain period of time, those networks, that rolodex that people cash in on, becomes considerably weakened.”
The bill would also kill the practice of companies like Citigroup and JPMorgan Chase providing highly lucrative bonuses—so-called “golden parachutes”—to employees if they agree to take a high-level government position, typically with a wink and a nod that they’ll come back to the company when they’ve finished their public service. Under current ethics rules, government officials who have taken such payments are required to observe a certain recusal period for regulatory matters specifically involving their former employers, but not in general industry regulation matters.
These quid pro quo payments were thrust into the public eye earlier this year when it was discovered that Antonio Weiss, who is serving as counselor to Treasury Secretary Jack Lew, was to be paid $21 million in unvested income and deferred compensation from his investment bank employer Lazard Freres in return for Weiss taking a government post. Financial reform advocates furiously argued that this should keep Weiss from becoming undersecretary for domestic finance, a position he was being closely considered for. The public pressure led to his dropping out of consideration, though he subsequently took the counselor’s job, which, unlike the undersecretary’s, did not require senatorial confirmation. Lew himself was grilled during his confirmation hearing as well for taking a golden parachute bonus for heading to the government. There are endless other examples throughout the myriad levels of the federal bureaucracy.
One of the more controversial aspects of the bill is that it expands the definition of lobbying to include former officials who engage in behind-the-scenes strategizing with companies that are in the sector the official was previously regulating. Critics say that this is an overreach because it would severely hamper former government officials’ ability to find employment in the field of their expertise.
“That’s a difficult balance,” says Richard Painter, who was the former ethics czar for the George W. Bush administration. Take, for instance, an energy company that wants to get an offshore drill passed in Congress. A former energy department regulator who now works for that company could advise them that such a bill would need to require certain environmental protection language. “I think that’s a legitimate role for a former government official,” Painter contends. “Using your knowledge in the private sector to advise people.” But not within a two-year period after leaving government, he adds.
The bill’s supporters say the current strict definition of lobbying leaves too many loopholes. “If you don’t include the sort of strategic services or look at exempting folks who do just a limited amount of lobbying, the conflict is still allowed to exist,” Baldwin told The American Prospect on the day the bill was introduced. “Sometimes the difference between strategy and lobbying is very small. That’s what people are so troubled by.”
What Do the Ethics Czars Think?
Presidential administrations are overseen by an Office of Government Ethics, but also have a team of ethics specialists in the counsel’s office. The head of the ethics programs have been informally dubbed the “ethics czar.”
While the Clinton administration imposed some regulations covering what government officials could do right after leaving their posts, the George W. Bush administration’s ethics guidelines basically just required abiding by existing law and avoiding any appearance of impropriety.
Painter was an associate counsel to George W. Bush and his ethics czar. He was responsible for enforcing rules that required Hank Paulson to liquidate his $600 million in Goldman Sachs stock before taking on his post as Treasury Secretary in order to avoid financial conflicts of interest.
Since leaving the administration Painter has been a vocal advocate for regulating the revolving door and cutting down on conflicts of interest within regulatory bodies. He enthusiastically supports forbidding the golden parachute scheme, saying that it’s one of the clearest and easiest ways to cut down on regulatory capture, and the perception of regulatory capture. He also favors expanding the period in which a government official cannot actively lobby from one to two years. But as noted above, he thinks that expanding lobbying to include strategy and broadening instances that call for recusal are too restrictive.
“It seems to me that you really aren’t going to be able to hire from private sector,” he says. “The finance lawyer would have to go to [the Department of Energy], the energy lawyer would go to the SEC. That strips what the good parts of the revolving door are.”
Painter also thinks that the ethics rules shouldn’t be limited to just the financial services agencies, pointing out that the revolving door spins with fury in health care, telecommunications, and energy as well. “It should be across the board. I would avoid these piecemeal actions,” he says, as the Baldwin-Cummings bill proposes.
Norm Eisen, who was the ethics czar in the beginning of the Obama administration, agrees that the law should cover all agencies, but sees financial services as a logical jumping off point. A report from the Project on Government Oversight shows how much the door revolves injust the SEC: From 2001 to 2010 more than 400 former SEC officials filed lobbying disclosure forms saying that they were planning on representing a client or employer before the financial regulator.
Eisen was in charge of overseeing and enforcing the first-of-its-kind ethics pledge, becoming known within the White House as “Dr. No” and “The Fun Sponge” due to his insistence on a rigorous adherence to the new ethics rules. He later served as ambassador to the Czech Republic and is now a visiting fellow at the Brookings Institution. The former czar is highly supportive of the Financial Services Conflict of Interest Act and says the current pledge is good starting point for future regulations.
“I think the existing pledge has been successful in making the White House and the administration score well by historic standards on being free from conflicts of interest,” Eisen told the Prospect. It’s both doable and necessary, he adds, to expand cooling-off periods and expand ethics coverage to more officials. “Because they are in senior positions it makes sense to for them to enjoy a similar cooling off period as part of the rebalancing in the public interest,” he says.
Eisen also believes that bolstering ethics rules will not only cut down on the public perception of corruption in government, but will do real work in ending actual conflicts as well. “I want to make clear that you are able to get top-notch people from every field [while still] setting up safeguards that protect the public interest and public perception of their interest...I think this bill does that.”
“A lot of people spend time trying to figure out how to punish people after the fact. Well, we’re trying to do some things before they even happen,” Congressman and legislative co-sponsor Elijah Cummings said at the press conference. “[The American people] want to know that there is a divide between the hen and the fox. It would be legislative malpractice if we did not try, and that’s what it’s all about.”
That sums up the essence of this legislation. The question is whether it can gain any political traction. It would seem that Republicans would be eager to support strengthening regulations of White House power, but so far bipartisan support has proven elusive.
Craig Holman with Public Citizen has been working furiously to find a Republican to bring the bill before committee, so far with no luck. He’s also been actively lobbying the White House to come out in support of the bill, which again would seem logical as it is building on the administration’s own policy. Still, the White House has remained quiet.
But with public support from Sanders, Warren, and a coalition of government watchdog groups, the revolving door issue is seeping into the political conversation as the presidential primaries ramp up.
“There’s always a chance, and we’re gonna try to maximize this,” Baldwin says. “We just want to get the ball rolling and seize the opportunity of this moment.”