Ethics Analysis: Trump’s Conflicts of Interest

February 16th, 2017 by Kara in Case Studies

By: Michelle Chan

Part 1 in SPI’s Trump Financial Ethics Watch Series

Donald Trump’s Conflicts of Interest

As President Donald Trump has adjusted to his first month in the White House, a host of questions have arisen about the future of his multi-billion dollar empire during his time in the Oval Office. After all, President Trump represents something entirely new in the White House; he will be the first president to be actively involved in over 500 local and global companies (as listed on his FEC filing) with ongoing litigation against his businesses and a nine-figure debt to a foreign bank. Blurred lines between his political position and business empire bring up a host of questions regarding conflicts of interest between Mr. Trump’s White House and his sprawling businesses.

President Trump was criticized as having been in violation of the Emolument Clause, anti-nepotism laws and the federal contract related to his lease of the Old Post Office Hotel as soon as he was sworn into office. This paper will look into the purpose behind the establishment of these laws and the societal implications Mr. Trump faces in relation to the assumed conflict between his business interests and the interests of the nation.

Emolument Clause

What is the Emolument Clause and why is it important to uphold?

A section known as the Emoluments Clause in Article I, Section 9, Clause 8 of the Constitution states that no American officeholder shall, “without the consent of the Congress, accept of any present, emolument, office, or title, of any kind whatever, from any king, prince, or foreign state.”

The theory behind the Emolument Clause is that rather than handling potential misconduct in a case-by-case manner, or with ad hoc managerial barriers between the President and his private interests, the Constitution would prohibit the exact circumstances that could potentially progress into such concerns in the first place. Hence, the Emolument Clause is important to uphold in order to avoid a situation in which the American people must try to read their President’s or a foreign leader’s mind, in search for hints of favoritism toward foreign powers. It also acts as a deterrent to foreign attempts to persuade the President of the United States into compromising the nation’s interest in exchange for private profits. This can be avoided by imposing clear limitations as demonstrated by the implementation of the Emolument Clause. The American people would be subjected to uncertainty and the state of politics in the United States would be rife with unresolved and unresolvable accusations of corruption if the Emolument Clause were to be constantly violated or ignored.

How could Donald Trump be violating the Emolument Clause and what are the implications of violating the Clause?

Mr. Trump’s business holdings present significant problems under the Emoluments Clause. For example, if any of Mr. Trump’s businesses accept money or anything of value from foreign governments or state-owned entities, Mr. Trump may be breaking the law and violating the Constitution of the United States. This breach of law is a real possibility with his many business deals in foreign countries, Trump’s Old Post Office Hotel that is soon to be frequented by foreign dignitaries, and his multi-million-dollar debt to the government-owned Bank of China. Even though federal conflict-of-interest law prohibits Mr. Trump from using his presidential powers to the advantage of his businesses or the financial interests of other family members, it would be difficult to conceive of any major global trade deal that would not raise a red flag given Mr. Trump’s international presence. For example, a foreign or domestic company could choose to license the Trump name for a real-estate development with the knowledge that their investment would be benefiting President Trump no matter who is managing the Trump Organization and Trump as the President would know it too.

The result of violating this Clause would be that Mr. Trump’s stature as the U.S. President, the status of his many private ventures and his relationships with foreign business partners and leaders of their governments could become intertwined. This creates the appearance of impropriety as nearly every single company is trying to get on the good side of the executive branch.

It also causes a host of conflict of interest issues for U.S. foreign policy as other geopolitical and national security policies may also contradict the policies of Mr. Trump’s overseas companies. President Trump’s wide-ranging businesses will involve thousands of interactions across multiple countries (such as India, Saudi Arabia, Turkey, and China), and in countries whose foreign governments’ will have clear incentives to be in the President’s favor. The risks of unethical dealing may increase if foreign powers come to believe, even mistakenly, that benefiting Trump-associated businesses is important to maintaining good will with the President. That perception could affect the conduct of foreign nations, resulting in many more situations that present the appearance of impropriety and fuel persistent doubts, at home and abroad, about the integrity of the political system in the U.S.

The bipartisan Citizens for Responsibility and Ethics in Washington, on January 23rd filed a lawsuit alleging Mr. Trump is in violation of the emoluments clause. It cited Mr. Trump’s new Washington hotel in the Old Post Office Building.

Anti-nepotism law

What is the anti-nepotism law and why is it important to uphold?

The anti-nepotism law passed by Congress in 1967 prohibits the President from appointing a family member to work in the Presidential office or agency they oversee. It is stated specifically in 5 U.S.C. § 3110 – “Employment of relatives; restrictions” that:

“A public official may not appoint, employ, promote, advance, or advocate for appointment, employment, promotion, or advancement, in or to a civilian position in the agency in which he is serving or over which he exercises jurisdiction or control any individual who is a relative of the public official. An individual may not be appointed, employed, promoted, or advanced in or to a civilian position in an agency if such appointment, employment, promotion, or advancement has been advocated by a public official, serving in or exercising jurisdiction or control over the agency, who is a relative of the individual.”

In this context, the term “public official” includes the President and the term “relative” includes sons, daughters and sons-in-law.

For the public to have faith in Mr. Trump’s leadership, the people will require clarity from the new administration to distance itself from any decisions that benefit the business interests of the Trump empire and any of Mr. Trump’s partners across the world. Hence, Donald Trump’s plans to simply hand over his multi-million-dollar company to his children is not a meaningful act of separation as Mr. Trump’s self-interests are co-extensive with his children’s interests.

How could Donald Trump be violating the anti-nepotism law and what are the implications of violating this federal law?

As it is not possible to attach your identity to assets in a “true” blind trust agreement, the Trump brand poses a unique challenge. This is because dropping the Trump name would likely reduce the value of Mr. Trump’s biggest assets significantly. This could explain Mr. Trump’s apprehension when it comes to liquidating all his assets and selling off his business empire, some of which would require the consent of his business partners.

However, by listing his three children and Ivanka Trump’s husband, Jared Kushner, as trustees in his “blind trust” arrangement and as part of his transition team’s executive committee, which may continue to be their informal advisory role in his administration, Mr. Trump may be in violation of the anti-nepotism federal law. This is because not only do Mr. Trump’s children have financial beneficiary conflicts with managing the trust, but as they continue to advise him on his transition team, this makes the details of the trust extremely accessible to Mr. Trump. So far, Ivanka, Eric, and Donald Jr., have been heavily involved in shaping the Trump administration. Photos surfaced of Ivanka Trump and Kushner present for the President-elect’s meeting with Japanese Prime Minister Shinzo Abe at the Trump Tower, neither of whom have national government security clearance. The photo coincided with news that Kushner sought legal advice on whether he could join the Trump administration, a move that could violate federal anti-nepotism law and risk legal challenges and political backlash.

Furthermore, Jared Kushner was formally appointed senior adviser to the president on January 9, 2017, an arrangement which would further entangle the fledgling White House team, which includes three of Mr. Trump’s eldest children, in a web of potential conflict of interest issues and accusations of nepotism. However, as long as Kushner and the Trump children are not federal employees but are simply frequently present around the White House, they may not be in direct violation of the law. The primacy of the Trump children is unsettling not simply because of their number (together Ivanka and her husband Jared Kushner, Donald Jr. and Eric accounted for a quarter of the transition executive committee) but because, like their father, they lack any experience in government, at any level, along with any particular policy expertise.

The implications of the 1967 anti-nepotism law barred all federal officials from hiring or appointing relatives to serve directly under them. At a macro level, nepotism is shown to be an important element of corruption as it hints at favoritism. It causes the public to question if the person is actually the most qualified or qualified at all for the role. Also, concerns that the family member is getting special favors and treatment, or extra pay that he/she doesn’t deserve tend to arise in these cases. Overall, nepotism as a form of corruption poses a significant challenge to the legitimacy of political institutions and has detrimental effects on the economic growth of a country.

Contract law

What is the contract in question and how is Mr. Trump violating it?

Trump International has debuted a new hotel on Pennsylvania Avenue in Washington, DC which the President and his three adult children own through a Delaware LLC. After beating out proposals from other major companies such as Hilton, Hyatt and Marriott, the Trump organization managed to win the bid in 2012 to redevelop the historic Old Post Office on a 60-year lease from the GSA.

However, the lease contains a provision that says no U.S. official “shall be admitted to any share or part of this Lease or to any benefit that may arise therefrom.” This may mean that Mr. Trump broke his lease as soon as he was sworn into office. This could be the case as Donald Trump’s development of the Old Post Office building in Washington is being overseen by the federal government, which leases the historic building to Mr. Trump. Thus, Trump International would be operating out of the Old Post Office building, which the federal government owns. This means that the Trump Organization is leasing the pavilion from the government. Problems arise as Mr. Trump is now his own landlord as of becoming president.

As reported in Government Executive: “The Post Office Lease differs from many of Mr. Trump’s other business arrangements. That’s because, in writing the contract, the federal and D.C. governments determined, in advance, that elected officials could play no role in this lease arrangement. The contract language is clear: ‘No … elected official of the Government of the United States … shall be admitted to any share or part of this Lease, or to any benefit that may arise therefrom…’”

What are the possible outcomes of this breach of contract?

This potential conflict differs from many of the others because: 1) The arrangement could be voided or altered as a matter of contract law. This means that it does not matter that Mr. Trump is otherwise exempt from federal conflict-of-interest laws, because contract law governs here. Moreover, 2) the arrangement presents the prospect of future self-dealing. However, it is possible that a judge may find a change in the status of one of the parties. For example, that a Trump presidency was not foreseen at the time of the arrangement. Hence, not constituting a material breach.

Why is federal contract law important to uphold?

The sole existence of a Trump International Hotel operating out of the Old Post Office building presents opportunities for Trump to abuse his presidential authority to protect his hotel and the businesses his children are managing while he’s in office.

However, as President, Trump’s conflicts of interest go beyond the hotel lease as he will have significant power over the future of the hotel. This is because he is in charge of appointing the next Administrator of General Services, the head of the agency that is leasing him the hotel. In turn, the Administrator of General Services he appoints has the power to name judges to the administrative court that oversees contract disputes, the Civilian Board of Contract Appeals.

Hence, it can be said that by the end of Mr. Trump’s presidency, his hotel lease will be an agreement between the companies that Trump has started and a government agency that he also oversees. More worrisome is that disputes on his hotel lease will be heard by the Civilian Board of Contract Appeals, made up of judges who are appointed, and can be dismissed, by the GSA administrator that Trump picks.

Hence, eroding the longstanding policy that federal officials can’t hold government contracts would also put the credibility of the entire system at stake.

Ethics vs. Law

Conflicts of Interest

Mr. Trump has repeatedly invoked the tradition that US Presidents are not legally bound to conflicts of interest laws. However, as President and leader of the country Mr. Trump should feel bound by an even higher set of laws that is, moral laws. As President of the US, he is morally obligated to put the interests of the country before his own interests, particularly base materialistic interests. By not giving up ownership or actual control of his widespread businesses, Mr. Trump indicates he is unwilling to sacrifice his financial interests for the sake of the common good. Among other things, the common good requires the majority of citizens feel a level of trust towards the individual who holds the highest office in the land. By not giving up true control of his businesses, Mr. Trump risks continuous erosion of trust in his character and his Presidency. People invariably question the motives for his decisions, especially when vigilant press and civil society groups report on every choice made. Without trust, the office eventually loses its legitimacy, the political system its capacities.

Nepotism

The basic ethical problem with nepotism comes down to fairness. Aristotle famously said that justice or fairness consists in treating equals equally and unequals unequally but in proportion to their relevant differences. Fairness is giving each person her due. Nepotism interferes with fairness because it gives due advantage to someone who does not necessarily merit this treatment. In the case of the President and the public sphere, nepotism undermines the common good. When a Trump family member is granted a privileged political position because of blood connections rather than credentials or experience, the service rendered to the public may be inferior or worse, incompetent. The practice of nepotism is often covert and diminishes transparency, that should be part of governmental hiring. Finally, the appearance of favoritism weakens morale in government service, as well as public faith in the integrity of government.

Conclusion

What are Donald Trump’s suggestions to resolve the scores of conflict of interest issues surrounding his presidency and how effective are these suggestions to resolving the aforementioned issues?

There has never been a president in American history with as vast business conflicts both domestically and internationally as Mr. Trump. Despite the best of intentions, anyone with the number of companies Mr. Trump owns would be hard pressed to make completely unbiased decisions. In an attempt to appear to eliminate some ethical concerns associated with the U.S. President holding office while still owning multi-billion dollar businesses, Mr. Trump announced he would put his assets into a “blind trust” managed by his three children: Ivanka Trump, Donald Jr. and Eric Trump. However, this is not a completely “blind” arrangement as Mr. Trump does not liquidate assets and/or these assets are not managed by an independent trustee approved by the Office of Government Ethics. Hence, it is misleading to represent the arrangement as a blind trust.

A true blind trust works to prevent biased decision-making for personal economic interest with the intention of eliminating major conflict of interest issues by allowing the trustee to reinvest and/or manage the assets at the trustee’s discretion, leaving a trust owner completely blind. Mr. Trump has insisted that he will build a wall between his White House and his company by placing his holdings into a blind trust, but this is a highly unlikely scenario if his children are appointed as its trustees.

What is even more worrying is the statement Mr. Trump has made in an interview with the New York Times November 22, 2016 in which he declared that “the president can’t have a conflict of interest,” a statement that many have ridiculed. However, as Mr. Trump has not provided any further details into his future plans to overcome these concerns as President of the United States of America, it remains to be seen how he will handle the scores of conflict of interest issues that will inevitably arise between his presidency and his business empire as well as the legal issues associated with it.

 

Editor: Eric Witmer

 

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Reference list

Brookings,. THE EMOLUMENTS CLAUSE: ITS TEXT, MEANING, AND APPLICATION TO DONALD J. TRUMP. NORMAN L. EISEN, RICHARD PAINTER, AND LAURENCE H. TRIBE, 2017. Web. 1 Jan. 2017.

University of Cincinnati College of Law,. NEPOTISM IN THE FEDERAL JUDICIARY. Michael Solimine, 2006. Web. 1 Jan. 2017.

Davis, Ross. “The Federal Conflict Of Interest Laws”. Columbia Law Review 54.6 (1954): 893-915. Web. 20 Dec. 2016.

Penzenstadler, Nick and John Kelly. “How 75 Pending Lawsuits Could Distract A Donald Trump Presidency”. USA TODAY. N.p., 2016. Web. 15 Dec. 2017.

Penzenstadler, Nick and David McKay Wilson. “Exclusive: More Than 100 Lawsuits, Disputes Over Taxes Tied To Trump And His Companies”. USA TODAY. N.p., 2016. Web. 15 Dec. 2016.

Kolhatkar, Sheelah. “Trump’s Conflict-Of-Interest Problem”. The New Yorker. N.p., 2016. Web. 15 Dec. 2016.

Blumenthal, Paul. “What Is The Emoluments Clause And How Does It Apply To Donald Trump?“. Huffington Post Australia. N.p., 2016. Web. 16 Dec. 2016.

Walters, Joanna. “Trump Transition Provokes Cries Of Nepotism – But Can Anything Be Done?”. The Guardian. N.p., 2016. Web. 17 Dec. 2016.

Eder, Steve. “How Federal Ethics Laws Will Apply To A Trump Presidency”. Nytimes.com. N.p., 2016. Web. 7 Dec. 2016.

Fernando, Gavin. “America Didn’t Just Elect A President. It Elected A Family.” NewsComAu. N.p., 2016. Web. 7 Dec. 2016.

John, Tara. “Ivanka Trump Had Business At Stake When She Met Japan’s Prime Minister”. Fortune. N.p., 2016. Web. 7 Dec. 2016.

Marcus, Ruth. “Will Trump’s Kids Help Run His Businesses Or Help Run The Country?“. Washington Post. N.p., 2016. Web. 7 Dec. 2016.

Matt Flegenheimer, Barry Meier and Hiroko Tabuchi. “Business Since Birth: Trump’s Children And The Tangle That Awaits”. Nytimes.com. N.p., 2016. Web. 7 Dec. 2016.

Roles of Trump Children Blur Line Between Politics, Business – The Denver Post“. Denverpost.com. N.p., 2016. Web. 7 Dec. 2016.

 

 

 

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