making local government more ethical

A D.C. Loan Officer's Possible Conflicts of Interest

Are loans to businesses that do business with a city sufficient to create a conflict of interest? This is the question that has been batted around recently in Washington, D.C., according to an article in today's Washington Post.

A bank vice president is chair of a board that oversees D.C.'s charter schools. His bank loans millions of dollars to charter schools, as well as to landlords and developers whose buildings they use. The board chair has been involved in many of these loans. He has continued to participate in these loans as well as in matters before the board relating to schools and landlords his bank has made loans to. On occasion, he has recused himself on board votes, and he has said that his bonus, based on the amount of loans he makes, has not included loans to charter schools, although it apparently does include loans to involved landlords and developers.

D.C. has a clear conflict of interest provision, but when the Post raised this issue in December, who dealt with it? The district attorney. Even though no one suggested anything criminal had occurred.

The D.A. gave the board chair a glowing report, based on written answers to questions, without an interview. "The individuals who had either a direct or indirect conflict of interest appeared to have recused themselves" when it was appropriate to do so, the D.A. said.

However, the bank V.P. often did not recuse himself, as the Post pointed out. The D.A. characterized these situations as indirect and beyond the scope of the law, adding that he saw no evidence that the bank V.P. benefited from his actions.

And it's likely he did not. It's even possible that the bank did not, but there's no way to determine whether, for example, the bank would benefit from a recommendation by the board chair/bank V.P. to approve a lease for a charter school in space being renovated with a loan from his bank.

But it certainly looks like the bank would benefit from this, and with $55 million in outstanding loans to charter schools and related landlords and developers, it certainly looks as if the bank has an interest in their success.

But what does a D.A. care about the appearance of impropriety, or indirect conflicts? He has the power to give his seal of approval, but is the seal of any value?

This is yet another example that shows why it's so important to have a strong, independent ethics program that can deal with a situation such as this without politics and without a confusion between crime and ethics.

Robert Wechsler
Director of Research, City Ethics