How Trump's Cabinet nominees are being vetted on ethics

How Trump's Cabinet nominees are being vetted on ethics
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President-elect Donald TrumpDonald John TrumpTrump claims media 'smeared' students involved in encounter with Native American man Al Sharpton criticizes Trump’s ‘secret’ visit to MLK monument Gillibrand cites spirituality in 2020 fight against Trump’s ‘dark’ values MORE’s Cabinet nominees are being subjected to rigorous vetting from an obscure federal agency as they seek confirmation from the Senate.

The independent Office of Government Ethics (OGE) is responsible for overseeing ethics rules across the federal government, including reviewing and approving the ethics agreements of government officials for senior White House posts and agency heads.

While wealthy individuals have helmed federal agencies in the past, the vast holdings of Trump’s nominees presents a challenge for the small ethics agency. Worth upwards of $11 billion, Trump's Cabinet would be the richest in history.

Trump’s pick to head the State Department, former ExxonMobil chief Rex Tillerson, took in an annual salary of $10 million and held tens of millions of dollars in stock, a slew of investments, and holds a range of positions on other boards and entities. He is worth at least $300 million.

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Meanwhile, Steven Mnuchin, a film financier and Goldman Sachs alum chosen to lead the Treasury Department, has a net worth of at least $118 million and signed an ethics agreement promising to divest himself from 43 companies and investments.

Ethics agreements are part of the process in confirming a nominee, and are also required for some other senior staff, as part of ethics reforms put in place after Watergate-era scandals. For Senate-confirmed posts, the ethics agreements must be approved before hearings can be held. 

As of Friday, only half of Trump’s 24 nominees to Senate-confirmed agency positions had OGE-approved ethics agreements sent to Capitol Hill, according to a tally by The Hill.  

The Ethics and Government Act requires political appointees to submit detailed disclosures of their financial holdings, assets, and other items that could present the appearance of a conflict, such as a spouse’s job. 

While wealthy nominees generally have an army of lawyers and accountants for the process, it can take as long as two weeks to compile the person’s portfolio, according to Richard Painter, chief White House ethics lawyer for President George W. Bush.

Those personal financial disclosure forms, which must be checked and approved by OGE, become the basis for how ethics agreements are structured.

Each federal agency has its own “designated agency ethics official” with a team of lawyers to help craft and shape the agreements nominees will eventually sign. 

“The agency lawyers know where the problems are,” said Painter, “whereas OGE looks at the big picture.”

State Department lawyers, for example, have years of experience and know what kinds of items come across the desk of senior State Department officials that may present a potential conflict — even if the conflict is not inherently apparent.  

For political appointees who must be confirmed by the Senate, the transition team’s lawyers will typically work in tandem with the agency’s ethics outpost on the plan, ethics experts say.

Nominees with complex holdings will often retain outside counsel to smooth the process along. For example, Reginald Brown— a partner at WilmerHale who formerly worked in the White House Counsel’s office — represents Tillerson.

Nominees then send the draft ethics agreement to OGE for approval. Often times, the office will push for more aggressive treatment of assets, or catch things that other ethics lawyers may have missed, or simply make technical corrections.

Walter Shaub, the OGE’s director, recently praised the ethics agreement signed by Tillerson.

“Mr. Tillerson is making a clean break from Exxon. He’s also forfeiting bonus payments worth millions. As a result of OGE’s work, he’s now free of financial conflicts of interest,” Shaub said at a Brookings Institution event on Wednesday. “His ethics agreement serves as a sterling model for what we’d like to see with other nominees. He clearly recognizes that public service sometimes comes at a cost.”

Although Shaub is a political appointee, most of his office’s employees are career government officials, according to another former ethics official who was not able to speak on the record.  

The office has about 75 employees and works to ensure that ethics agreements take the necessary steps to avoid potential conflicts. 

Part of Tillerson’s agreement stipulates that he will place a $180 million payment of more than 2 million shares of Exxon stock into a blind trust.  

Should he return to the oil industry after his government service, he will lose all the money left in the trust, and it will be donated to a charity of the trustee’s choosing; specifically, one working to fight poverty or disease. 

Such a step is not required of nominees, and is being undertaken voluntarily by Tillerson. 

While Tillerson’s agreement is a strict one, and relatively unusual, there are generally four options for individuals with assets that may present a conflict. 

The least desirable, ethics experts say, is obtaining a waiver from the president, allowing a person to keep an asset while still working on policies that could affect outcomes for that investment. 

Second, a nominee can keep an asset but recuse themselves from any matters that may present the appearance of a potential conflict of interest. Some investments, Painter warned, may not seem like they could cause a conflict — until they do. Others, he said, are much more obvious. 

“Recusals, you want to keep to a minimum,” he said. “It means you can’t make a decision at your job.”  

“If you’re Treasury secretary and you keep your Goldman Sachs stock, all you can do is go to the Metropolitan Club and talk about the Washington Nationals,” he added with a laugh. 

Third, nominees can divest from any investments that may cause trouble down the line. 

For some appointees, they can also avoid an immediate tax bill on the sale of those assets, decided on a case-by-case basis, by obtaining a certificate of divesture and deferring the capital gains taxes. The money from the liquidated assets have to be invested in benign investments such as Treasury bonds or mutual funds. 

If political appointees choose to hold on to assets and release them if a conflict arises rather than recusing themselves, Painter says it could potentially trigger rules against insider trading and launch an investigation by the Securities and Exchange Commission once they do sell off the assets.

Finally, those seeking government posts can place their holdings into a blind trust. This allows for an independent trustee with no former business or personal relationship with the nominee — and no current contact — to handle their affairs.

Shaub has been thrust into the headlines amid the Trump transition, an unusual situation for the otherwise behind-the-scenes office.  

On Wednesday, following Trump’s press conference detailing his plans for his businesses, Shaub called the proposal “meaningless” in terms of mitigating any conflicts of interest. 

Earlier that day, Trump’s lawyer said that he would not be placing his assets into a blind trust, but transferring his interests to his two adult sons.

“I call that the off-balance sheets financing, the Enron of financing,” Painter said. “If you can grab the assets back after they leave the government, that’s just like owning it.”

The president and vice president are not covered by the Ethics in Government Act, a post-Watergate era law that requires disclosure of financial information and resolve potential conflicts before taking their posts. Historically, however, Republican and Democratic administrations have taken such actions. 

“We can’t risk the perception that government leaders would use their official positions for professional profit,” Shaub said. 

“I’ve been pursuing this issue because the ethics program starts at the top. The signals a President sends set the tone for ethics across the executive branch. Tone from the top matters,” he said. 

Schaub’s public rebuke of Trump has drawn criticism from Republicans in Congress, who have summoned the ethics chief to testify behind closed doors.