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It tripped up Karl Rove, President George W. Bush’s senior adviser. And it has kept Defense Secretary Donald Rumsfeld’s lawyers and financial advisers busy for months. It’s the law that forces hundreds of executive branch appointees to disclose details of their personal finances — and, in many cases, sell off or pull out of lucrative investments and business deals. Many appointees resent the duty as an invasion of their privacy. Think tanks cite it as a cause of confirmation delays, saying a law to increase confidence in government is, ironically, deterring good candidates. Now the tiny agency that serves as the financial disclosure gatekeeper for many senior officials is asking Congress to “streamline” the process. In a move that has received little attention, the Office of Government Ethics on July 30 sent Congress a proposed revision of the Ethics in Government Act, the 1978 law that laid out the framework of disclosure rules that appointees labor under today. The proposal is sparking an important, if mostly unnoticed, debate: How much public disclosure of personal finances is necessary to keep government officials honest? Not everyone agrees on where the tipping point falls. The OGE says the proposed changes would reduce the reporting burden on appointees while still allowing ethics officials to detect potential conflicts of interest. Others question that claim and contend that the agency’s proposals would undermine the public’s ability to gauge the financial interests of presidential picks. Nearly everyone seems to agree on one thing: The 1978 law and its financial disclosure rules have not kept pace with the increasingly complex personal finances of people entering government. Agency ethics officials, OGE veterans, and the lawyers working the appointments process observe that the U.S. has become a nation of investors. The mutual funds, 401(k) plans, IRAs, day-trading accounts, and stock option grants that have become common features of personal financial portfolios can pose reporting headaches for appointees trying to comply with the ethics act. What’s more, wealthy investors in recent years have been drawn to complex financial arrangements like venture capital and hedge funds — private partnerships that may in turn invest in other private partnerships in intricate and hard-to-trace webs. Several of President Bush’s nominees, with Rumsfeld being only the most prominent, have had a difficult time untangling themselves from such investments. “When you look at this statute and when it was drafted, people had what, stocks, bonds? Did people have these more complex investments?” says Suzanne Rich Folsom, a Washington, D.C.-based of counsel at O’Melveny & Myers who has advised appointees of both President Bush and former President Bill Clinton. Richard Hauser knows the process from both sides. He handled clearances as a deputy White House counsel for then-President Ronald Reagan and then advised appointees while in private practice. Earlier this year, he guided some of Bush’s top-level nominees through confirmation, and then ran the OGE gantlet himself in becoming general counsel of the Department of Housing and Urban Development. Hauser says the financial disclosure regime has “been overtaken” by the variety of investments that appointees now bring to the table. In some cases, he says, this leads to “mind-boggling” reporting requirements. “We had a situation where somebody had an account that was basically a day-trading account of about $250,” he says. “We had to go back and produce pages of records of stocks that were owned for 10 minutes.” Amy Comstock, the director of the OGE, echoes Hauser’s point. “Ideally, our form should be able to accept what’s really going on out there,” she says. ADMINISTRATION AUDITOR The Office of Government Ethics opened its doors in 1979, a year after Sen. Carl Levin, D-Mich., and former Sen. William Cohen, R-Maine, won passage of the Ethics in Government Act. Aimed at deterring corruption and shoring up public confidence in government, the act requires various officials in all branches of government to report the details of their finances — not just when they enter government service, but also annually while they serve and, finally, when they leave the government. The OGE, which deals only with the executive branch, operates a bit like an auditor. For jobs that require Senate confirmation, the OGE must sign off on nominees’ disclosure forms, indicating that they’re complete and accurate, before the relevant Senate committees will take up the nominations. For these nominees as well as a bigger class of executive branch employees who fall under the act — from the president down to midlevel career bureaucrats — the OGE decides exactly what has to be reported on financial disclosure forms, and how. Many of the trickiest questions about resolving potential conflicts of interest are negotiated by incoming government officials and their agencies — or in the case of the president and his staff, by the Office of White House Counsel. The OGE plays a kind of shadow role in some of these matters. Appointees may be required to sell assets that could cause a conflict, or to recuse themselves from matters in which they have a personal stake. Officials can also strike deals with their agency for waivers to hold on to assets deemed too insignificant to pose a conflict. Of course, government workers at any level who trade on their official posts for personal gain can be prosecuted. Every year, the Justice Department secures convictions or guilty pleas in about 10 cases of such corruption, according to OGE surveys. REFORM PROPOSAL The OGE plan to streamline the financial disclosure process has its roots in the much-publicized campaign to speed up executive branch appointments. The time spent from presidential nomination to Senate confirmation has been increasing for years. Last year Congress directed the OGE to propose ways to “standardize, streamline, and coordinate” the financial disclosure regime. In a report released in April, the OGE floated several such proposals, drawing heavily on research by the nonprofit, Washington, D.C.-based Brookings Institution, which has steadily beat the drum about the problem of confirmation delays. In its proposed amendment to the Ethics in Government Act, the OGE calls on Congress to make a host of changes. These include raising several reporting thresholds. For example, appointees must now name all private sector clients who paid them $5,000 or more over the previous two years; the OGE wants to raise the trigger to clients who pay $25,000 in the year before appointment. But the proposed change that is likely to draw the most attention would reduce the amount of detail required when reporting income and various assets and liabilities. Under current law, filers report income, assets, and debt amounts by indicating where they fall among 11 categories that creep from “under $1,000″ to “over $50,000,000.” The OGE wants to trim that down to three categories — most importantly, changing the top reporting category to “greater than $100,000.” The result: Officials would have to provide less detail about their assets, and the public record would be less revealing. In its April report, the OGE argues that the current array of categories is unnecessarily large. For the OGE — and the public — to assess a conflict, it’s sufficient to know that a filer owns an asset worth over $100,000, the OGE maintains. “Significant personal privacy will be restored if the requirement to disclose these details of one’s wealth (or lack thereof) is eliminated,” the report states. Lawyers who have represented presidential nominees generally applaud the OGE’s proposal. “Once you accept that net worth is not relevant, then the big question is: What numbers are appropriate?” says Patton Boggs of counsel Gregory Walden, who served as associate White House counsel to the first President Bush and as ethics counsel to George W. Bush’s transition team. “I think the way they’ve divided it makes sense. A reasonable person would think $100,000 is a big deal.” Meredith McGeehee of Washington, D.C.-based Common Cause disagrees. The OGE proposals “fundamentally misunderstand” the Ethics in Government Act, she says. “The point is to make available not only for the agencies but for the general public the magnitude of the potential conflict. The difference between saying, ‘I only have $100,000′ and saying, ‘I have $5 million’ is big,” McGeehee argues. Others, like Abner Mikva, suggest that even the current reporting categories aren’t specific enough. “If you’re giving categories at all, why not just give the actual amount?” asks the former chief judge of the U.S. Court of Appeals for the D.C. Circuit and one-time White House counsel to then-President Clinton. “Of course it’s an invasion of privacy. But if they want to maintain their privacy, they shouldn’t go into the government.” (Mikva writes a regular opinion column for Legal Times, a law.com affiliate.) Some observers are asking whether the OGE’s proposed three-category scheme would be adequate to capture changes in the value of an official’s assets over time. In other words, an appointee could enter government service reporting an asset worth $15,001 and obtain a waiver to hold on to that asset. But if the asset surged in value to $99,999 over the course of a year, the reported value of that asset would remain the same — it would still fall within the proposed middle category of $15,001 to $100,000 — on the annual financial disclosure report. Under that scenario, it’s not clear how ethics officials would know whether the appointee should still enjoy a waiver. “For this process to work, I think OGE would have to monitor changes” in the value of the appointee’s assets, says Paul Light, who heads Brookings’ Presidential Appointments Project. “If the appointee doesn’t report the increase in assets, no one’s going to find it.” Comstock downplays the issue. “I would like to believe that ethics officials, when they go back and review the waiver the following year, [would re-examine the asset's value],” she says. DON’T ASK, DON’T TELL Another section in the OGE’s proposed amendment to the Ethics in Government Act would allow officials to avoid disclosing assets held in certain “illiquid” investments — including some trusts and limited partnerships — so long as the filers agree to divest within 90 days. It appears that at least some of the limited partnership interests held by several Bush nominees, most notably Secretary Rumsfeld, would fall under the proposed rule. Rumsfeld has twice obtained 90-day extensions to his original agreement with the Senate Armed Services Committee, which instructed him to give up a host of illiquid holdings. These include investments in venture and hedge funds. Rumsfeld has not yet divested all these assets, a Defense spokeswoman confirms. Lawyers who do ethics work say the experience of many Bush appointees has brought this particular issue into focus. Fred Fielding, a D.C.-based partner at Wiley, Rein & Fielding who advised the Bush transition, says OGE Director Comstock visited him after the inauguration to discuss the disclosure process. He says one subject they discussed was the challenge of reporting complex partnership interests. “As long as there’s divestiture, I’m fine with it,” says Brookings’ Light. “If you divest the asset, it’s a nonissue.” But McGeehee, of Common Cause, claims the rule could lead to undetected conflicts. “Look at Karl Rove,” she says. “Here’s someone who in fact agreed to divest, and then in the meantime had these meetings.” If Rove’s holdings had been contained within a trust or partnership under the proposed rule, she says, “you wouldn’t know about the conflict.” Patton Boggs’ Walden concedes that the OGE and other government ethics officers would have to act in good faith for the system to work. He, for one, believes that they will. “OGE is saying, ‘Public, don’t be concerned, trust us to make sure that there will be interim recusals and divestiture,’ ” Walden says. “ Here, I think it’s safe to trust OGE and the ethics officials.”

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