Chinese Walls or Chinese Screens?

Do Chinese walls (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 the November 2009 Office of Congressional Ethics report on Rep. Norman Dicks, 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:

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.

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 what the Washington Post said about the Dicks case in an article yesterday:

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.

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 long article in today's New York Times, 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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