The Federal office overseeing Ethics for Executive branch employees is considering cracking down on a type of financial arrangement that allows some Federal officials to avoid publicly reporting investments that could benefit them.
The Office of Government Ethics (OGE) published a notice this week asking for public comment on whether it may have been too lax in its treatment of Discretionary Trusts, a holding method for investments in which the beneficiary is not guaranteed any particular payment or income.
President-Elect Trump's Transition team was exploring the Discretionary Trust arrangement, although it was not clear whether Trump Aides were looking into the issue on behalf of Trump, his family members or other potential Appointees. Outside Ethics Watchdogs warned that creating such trusts could amount to an end run around Conflict-of-Interest laws.
The Ethics office ruled in 2008 that, for the purpose of Federal Criminal Conflict-of-Interest laws, property and other investments held in Discretionary Trusts would not be considered to belong to the Government employees who might receive payments from the Trust. In 2013, the office expanded that ruling, declaring that officials in line to benefit from such Trusts do not have to report the underlying investments on Financial Disclosure forms.
The arcane notice printed in the Federal Register on Tuesday said the Ethics Czar recently became aware that Trust beneficiaries may sometimes be able to sue a Trustee to force payments from the Trust, even if they're not typically guaranteed any particular payment.
"Should this question be appropriately answered in the affirmative, OGE may need to revisit the premise underlying its 2008 guidance memorandum on discretionary trusts — i.e., that such a beneficiary could never have enforceable right to a distribution or payment from the trust," the notice signed by OGE Director Walter Shaub said. He asked members of the public with expertise in the issue to submit views to his office within 60 days.
OGE said it became aware of the potential flaw in its analysis "this month," apparently meaning December, since the notice was dated Dec. 23, 2016.
Asked whether any inquiries from the Trump Transition team or issues related to Trump Nominees triggered the review, an OGE spokesman said Friday that he could not provide any guidance beyond the published notice.
A Law Professor whose work is quoted in the notice, Alan Newman of the University of Akron, said he suspects some issue related to Trump may have led to the fresh look at the OGE policy. "I wonder if Pres[ident-]elect Trump might be a beneficiary of a discretionary trust that his father, for example, may have created,".
A Financial Disclosure form Trump filed as a Presidential candidate in 2015 shows him as Trustee for 14 Trusts. Another version of the form, filed in April 2016, trimmed that list to nine but reported that the earlier report omitted the existence of three Family Trusts holding many of Trump’s stocks.
However, if Trump was the beneficiary of a Discretionary Trust that qualified under the 2008 or 2013 rulings, and he was not the Trustee, he may not have been required to report those Trusts on his disclosure forms.
Trump’s daughter Ivanka also has at least one Trust, according to public records available in connection with the new Trump International Hotel in Washington. Her financial interest in the project is held through the “Ivanka Trump Revocable Trust,” says a document released by the General Services Administration under the Freedom of Information Act. That Trust appears to be a typical estate-tax planning arrangement and probably wouldn’t be covered by the carve-out from Conflict-of-Interest rules, experts said.
Trump is scheduled to hold a news conference on Wednesday to discuss his plans to separate himself from his business interests while he serves as President. He is not subject to the main criminal Conflict-of-Interest law but is subject to Disclosure requirements, other conflict-related statutes and a Constitutional prohibitions on accepting gifts or payments from Foreign Governments and from States that take part in Interstate Commerce.
The Foreign prohibition can be wavered by Congress on a case-by-case basis. The State prohibition has no waver option.
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