Chinese Walls or Chinese Screens?

Anonymous

Mon, 03/08/2010 - 04:48

Business Associates

Do <a href="http://en.wikipedia.org/wiki/Chinese_wall" target="”_blank”">Chinese walls</a> (that is, mechanisms that separate someone from
information or involvement in a matter)
work in conflict situations in government? And what considerations determine whether they work or not? 
 
One consideration is whether, even with the Chinese wall, there is still an
appearance of a conflict. Another consideration is whether the
individual will still have access to the information or still be
involved in the matter despite the Chinese wall; that is, whether the
Chinese wall is really a Chinese screen. 
 
There are two important Chinese walls in the news the last couple of
days. One involves congressional representatives in the position of
choosing defense-related earmarks and their access to information about
which recipients of those earmarks made campaign contributions to them,
at what amounts and at what times. The other involves what was
apparently a sweetheart deal between Florida and the United States
Sugar Company, where the governor's chief of staff's law firm
represented U.S. Sugar in the negotiations.

A Chinese Screen in a Congressional Office 
To simplify things, I will focus on
<a href="http://oce.house.gov/pdf/OCE-Referral-for-Dismissal-Regarding-Rep-Dicks…; target="”_blank”">the
November 2009
Office of Congressional Ethics report on Rep. Norman
Dicks</a>, who sat on the House Appropriations Defense Subcommittee,
where
he had the opportunity to make defense-related earmark decisions. The
question is whether there was an appearance of impropriety in Dicks'
giving earmarks to firms that gave him large campaign
contributions. 
 
According to the report, Dicks had a
Military Legislative Assistant who reviewed earmark requests and set up
meetings between requesters and the congressman. In addition, Dicks
told OCE staff that he had very little involvement in fundraising,
made few fundraising calls, and did not look at FEC filings to
determine
who had given to his campaign. Here are two paragraphs from the report: 
<ul>
41. Representative Dicks credibly articulated a process that separates
his legislative activities and his campaign fundraising activities.
Representative Dicks has achieved this separation by reducing or
eliminating his and his legislative staff’s exposure to information
from the campaign’s fundraising operation. Similarly, to the extent
Representative Dicks has campaign staff or retains a professional
fundraiser, his campaign staff and professional fundraiser are isolated
from his legislative agenda. As a result, neither the campaign nor
Representative Dicks’ legislative staff is aware of what the other is
doing. 
 
42. Representative Dicks explained to the OCE that he operates his
campaign and Congressional office in this manner to prevent even the
appearance that his legislative acts are influenced by contributions to
his campaign or PAC. One risk associated with this type of operation is
the possibility of an appearance of a conflict of interest if, out of
ignorance, the Member’s campaign accepts a contribution near in time to
a legislative act that impacts the individual or entity making the
contribution. This potential for an appearance of a conflict may
explain why companies requesting an earmark appear to think that a
contribution to the respective campaign or PAC affects the ultimate
receipt of the earmark. The House Ethics Manual is unclear as to what
obligations, if any, are placed on a Member to discourage or disabuse a
company of that impression. 
</ul>
There is no doubt that the creation of a wall in a
congressional office, if known to the outside world, would tend to
create a perception that there is no unethical conduct. But if the
companies themselves don't believe that this wall exists, why should
the public? And is it of any value for a congressional office to create
a visible division of labor when everyone knows that they work closely
together and that, for example, a congressional representative does not
need to look at FEC files to find out which firms have given him what
amounts of contributions? All he needs do is talk with the contributors
at the
fundraisers he attends or at the meetings he holds with them. Or he can
simply ask his aides. They may not be his legislative aides, but they
are his aides. 
 
In short, there is no way to create a believable wall in a
congressional office. The attempt to do so will be seen by everyone as
a sham. 
 
Here is <a href="http://www.washingtonpost.com/wp-dyn/content/article/2010/03/06/AR20100…; target="”_blank”">what
the
Washington Post said</a> about the Dicks case in an article
yesterday: 
<ul>
Norm Dicks (D-Wash.) similarly presides over fundraisers arranged by
his staff for defense firms and lobbyists every three months or so,
according to his office's account. An aide in charge of Dicks's
earmarks [that is, one of the legislative aides who is supposed to be
kept away from fundraising] attends the fundraising events. But Dicks
and the aide told
investigators they were unaware of the substantial overlap between
defense industry contributions to Dicks and his earmarks to
contributors. 
</ul>
The article goes to the core of the matter: "The fact that this
practice appears to be legal is beside the point, because both donors
and voters view it as corrupt..." The congressman's Chinese wall was
nothing but a Chinese screen, a thing intended to look good, but that
didn't totally block the view. 
 
Do Chinese Walls Work with Chiefs of Staff or Law Partners? 
According to <a href="http://www.nytimes.com/2010/03/08/us/08everglades.html" target="”_blank”">a long
article in today's New York Times</a>, in a deal to be closed this
month, Florida will be paying hundreds of millions of dollars too much
for U.S. Sugar land intended to be used to help save the Everglades. In
addition, much of the land being purchased cannot be used for this
purpose, and not enough is being purchased to make the plan work.
According to the article, only U.S. Sugar and its law firm are
benefiting from the deal. 
 
As soon as I read this about the law firm, which is reportedly getting
tens of millions of dollars in fees, a conflict of interest light
flashed in my head. As I read on, I discovered that the law firm's
chair was the governor's chief of staff when the plan was first
conceived, and that he returned to the firm as the deal was being
negotiated (last year the governor appointed him to be a U.S. Senator,
a position the governor is now campaigning for). The lawyer is a close
confidant of the governor's. 
 
The lawyer says that, while chief of staff, he recused himself from involvement in the
matter, and didn't even discuss it with the governor, which was
"awkward as heck." 
 
And after he returned to his law firm, he sent an e-mail message to the
firm's compensation committee, saying he shouldn't be compensated for
the U.S. Sugar matter. And he said he had only “management type
discussions” about the case as chairman. 
 
But as with the congressman, we have only the individual's word on what
actually happened. Let's assume everything he has said is true. Can a
partner truly not benefit, indirectly if not directly, from his firm
receiving tens of millions of dollars from one deal? For example, don't
partners receive a portion of what their associates earn, and doesn't a
big case lead to hiring more associates? In addition, isn't there a
personal benefit to enriching one's partners and helping one's firm? 
 
It's also clear that the lawyer's relationship with the governor was
very close, and characterized by helping each other. After all, the
lawyer is keeping a Senate seat warm for the governor, not something everyone
would agree to do. In addition, the governor calls the lawyer the
"maestro” of his 2006 election victory. 
 
And the person who did much of the work and attended the meetings on
the U.S. Sugar matter was the deputy chief of staff, reporting directly
to the lawyer. The lawyer has not apparently said that he did not speak
about the matter with his deputy. 
 
Of course, one should not accept the word of someone with such a
serious apparent conflict. According to the article, the lawyer made a
keynote address in which he "described the United States Sugar deal as
'an unprecedented opportunity, really a game changer. ... We really
stand at the intersection of opportunity and possibility. We have a
historic opportunity to change the face of the Everglades and our
environment with this acquisition of the U.S. Sugar lands.'” 
 
This is just one example, but if someone has truly recused himself, he
would not have mentioned the matter at all, not to mention tried to
sell it. 
 
By the way, try to read this fascinating article about how an idea that was good for
the environment turned into something good for U.S. Sugar. And for its
law firm. 
 
Both of these situations show that Chinese walls are
not adequate solutions to a serious conflict involving people who are not simply employees of the same company, as in a corporate Chinese wall, but are close political allies or law partners. If you are chief of staff
to a mayor trying to push through a big deal, your law firm should not
be involved in the deal. Period. If you are a council member able to
hand out earmarks, you should not give earmarks to anyone who has
contributed substantially to your campaign. Period. 
 
All the Chinese walls in the world won't make the deal or the earmark
look like anything but a way of benefiting yourself, your partners, and your contributors.
In fact, Chinese walls can often end up looking like cover-ups planned in advance. In
most cases, Chinese walls are bad for government ethics. 
 
Robert Wechsler 
Director of Research-Retired, City Ethics 
 
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