making local government more ethical
According to an article in the San Francisco Chronicle last week, Oakland's council approved an amendment to the city charter, to go before voters in November, that would increase the authority of the city's ethics commission and provide it with the funds it needs to do its job. Congratulations to the council for what is, in some ways, an excellent reform package.

This ethics reform process began with a June 2013 civil grand jury report, which called for giving the city's ethics commission more authority to enforce ethics laws, and more resources with which to do it. Then, in May 2014, a working group of individuals mostly from good government-oriented civic organizations filed a report that made numerous ethics reform recommendations (see my blog post on it). The council quickly got to work on a charter amendment that contains some of the working group's recommendations.

According to an Associated Press article this weekend, Jim Moran, a congressman from Virginia, was banned from entering Russia supposedly for a series of financial misdeeds. These supposed misdeeds, as delineated in Moran's Wikipedia page, include ethics and ethics-related criminal allegations that have been dismissed by the House Ethics Committee, the Virginia Attorney General, and the Federal Elections Commission. Allegations of insider trading based on a 2008 briefing by the Treasury Secretary and Federal Reserve chair do not appear to have been investigated. There is no reason to believe that there was any particular wrongdoing by any of these bodies or offices; in fact, at least one of the allegations would not be illegal but, if true, would instead be an example of common, institutional corruption.

This might be the first time an American politician has been sanctioned by a foreign country for ethics violations (with or without a hearing). However, it is believed that the real reason for the ban, besides simply a tit-for-tat response to an American entry ban on certain Russians, was Moran's sponsorship of an amendment prohibiting the U.S. purchase of helicopters from a Russian state arms dealer that is alleged to have supplied the Assad regime in Syria.

A recent action by the Securities and Exchange Commission (SEC) against the city of Harvey, IL, a poor city of 30,000 just south of Chicago, deals with a different sort of fiduciary duty than the usual government ethics case. In a complaint dated June 24, 2014 (attached; see below), the SEC alleges that the city's comptroller acted as financial adviser in three bond issues for a hotel development, diverted some of the funds to himself, and also diverted funds to the city's general fund. The comptroller is acting as financial adviser for a 2014 bond offering, which the SEC is trying to prevent through a court restraining order.

The action is based on the city's fiduciary duty to disclose to investors how bond proceeds will be used, as well as the risks associated with investing in the city's bonds (but the term "fiduciary duty" is not actually used in the complaint). This is part of the SEC's promised crackdown on disclosure failures related to municipal bonds. Alternatively, the complaint alleges fraud and the making of false and misleading statements.

An individual who was asking me government ethics questions recently became angry when I said that codes of conduct that go beyond conflicts of interest are outside of my field. He said that those who engage in bad conduct will probably also engage in bad ethics. He referred to my exclusive focus on conflicts of interest as "compartmentalization."

This reminded me how important it is to make it clear why government ethics programs deal exclusively with conflicts of interests and misuse of government office (and sometimes lobbying, campaign finance, and transparency). The reason I emphasized to the individual was an operative difference, that is, a difference in how the kinds of conduct are dealt with. A conflicts of interest program is based primarily on training, advice, and disclosure. These are much less relevant to officials who make misrepresentations, take drugs, engage in sexual harassment, steal money, have affairs, let their anger get the best of them, etc. No one is going to disclose that they have stolen money, no one can be trained not to have affairs, and no one is going to seek advice about whether to misrepresent facts. This is an important reason why these different kinds of misconduct must be dealt with differently, outside a government ethics program.

Rhode Island's lawmakers really know how to protect themselves. They have fought hard and long to effectively preserve their immunity from state ethics commission jurisdiction. However, with pressure on them to recommend to their constituents a constitutional amendment that would give the EC jurisdiction over them, despite the state's Speech in (sic) Debate Clause, they have planted a bomb in their proposed amendment that will ensure that even the state's good government organizations would oppose it (and that few ordinary citizens would understand what all the fuss was about).

What the state legislature did was to add in a de novo review process, which would allow any state or local official the EC found in violation of the state ethics code to seek a new court trial. The court would not be able to consider the EC's factual findings. In other words, instead of a right to appeal an EC ruling (where the court would determine whether the EC had done anything inappropriate), all officials would get a second chance to argue the facts and the law, and to have their case decided by a judge who would likely care far less about government ethics and have less expertise than the EC.

"Trials are primarily about the truth. Consent decrees are primarily about pragmatism."


— Second Circuit Court of Appeals in SEC v. Citigroup Global Markets, Inc., Nos. 11-5227-cv, 11-5375-cv and 11-5242-cv (2nd Cir., June 4, 2014).

These words from an important court decision yesterday will most likely be quoted in all sorts of contexts, including with respect to ethics settlements, the consent decrees of government ethics.

It's important to recognize why what may be appropriate when a government agency sues a private company is not appropriate when a citizen oversight body handles an administrative action brought against a public servant.