By Mark S. Nelson, J.D.
Senator Elizabeth Warren (D-Mass) said she will introduce a wide-ranging anti-corruption bill aimed at curbing perceived abuses within the three constituent branches of the federal government and among those who lobby the federal government. The bill, if enacted, would address conflicts of interest in the White House, Congress, and the courts, while also prescribing a set of rulemaking reforms. This is the second major legislative announcement from Sen. Warren since last week when she introduced the Accountable Capitalism Act. Senator Warren detailed the scope of her latest bill in a speech to The National Press Club.
“Fighting back.” According to Sen. Warren, the need for anti-corruption legislation has its roots in American’s declining trust of government, a result she deems a “crisis of faith” that can spur the rise of authoritarianism. “Our national crisis of faith in government boils down to this simple fact: people don’t trust their government to do the right thing because they think government works for the rich, the powerful and the well-connected and not for the American people,” said Sen. Warren. “And here’s the kicker: They’re right.” Despite the gloomy assessment, Sen. Warren said she was introducing legislation to “fight back” rather than to report on “the death of democracy.”
As a result, Sen. Warren has organized her anti-corruption bill around several larger themes, including ending the revolving door by which individuals shuttle between the private sector and government (during a Q&A session following her speech, Sen. Warren cited former SEC Chair Mary Jo White as an example of someone whom she said had traversed the revolving door). Other aspects of the bill seek to stop public officials from engaging in self-dealing and would attempt to weaken the influence of corporate interests on rulemaking at federal agencies. The legislation would be among the most wide-ranging since the reforms enacted after the Watergate scandal.
Administrative law judges. Section 405 of the bill would amend 5 U.S.C. §3105 to clarify that ALJs are part of the competitive service. That U.S. Code provision currently provides for the appointment of ALJs by federal agencies for purposes of hearings and initial decisions and further provides for assignment of ALJs to cases in rotation while banning ALJs from engaging in duties inconsistent with being an ALJ.
Section 405 would reverse an executive order issued by President Trump that excepted ALJs from the competitive service. The executive order was issued shortly after the Supreme Court held in the Lucia case that the SEC’s ALJs must be appointed in conformance with the requirements of the U.S. Constitution’s Appointments Clause.
Securities trading by government officials and staff. Under provisions contained in Title I, Subtitle A regarding conflicts of interest, officers and employees of executive agencies, and members of Congress and their staffs generally would be disallowed from owning or trading securities if the value of the securities may be directly influenced by their actions at the agency or in Congress. Most of the provisions include an exception for widely held investment funds. With respect to executive agencies, the director of a proposed Office of Public Integrity could, in individual cases, waive restrictions if there would be no possibility of (or appearance of) a conflict of interest, or there is an approved plan to deal with any needed recusals to ensure there is no conflict of interest.
Subtitle A also contains a provision to ban bonuses (sometimes referred to as “golden parachutes”) paid to corporate executives who serve in government. Specifically, the bill would amend 18 U.S.C. §209(a) to clarify that the provision applies to a “bonus” and not just to “salary.” The bill also would amend the same provision to clarify that “his services” means “services rendered or to be rendered.” Further proposed amendments would define “compensation” to include bonuses and other similar payments tied to future government service and would clarify that such payments, if contingent on taking a federal government job, are not bona fide. Moreover, Treasury Regulation 1.409A-3(j)(4)(iii) would be deprived of legal force. That rule interprets Internal Revenue Code (IRC) Section 409A with respect to nonqualified deferred compensation plans such that acceleration of payments is disallowed unless it would allow an executive branch officer or employee to comply with an ethics agreement with the federal government or to avoid violation of relevant federal, state, local, or foreign ethics or conflict of interest laws. Section 409A was amended by the Tax Cuts and Jobs Act to provide that qualified stock is not treated as a nonqualified deferred compensation plan solely because an employee does (or has the ability to) elect to defer recognition of income under IRC Section 83.
Rulemaking reforms. Senator Warren’s bill also would bring significant changes to the rulemaking process at federal agencies. Many of her proposals stand in stark relief versus proposals on similar topics made by Rep. Jeb Hensarling (R-Texas) in the Financial CHOICE Act, which in many instances runs in the opposite direction (See generally, Title III; more specifically, compare the CHOICE Act’s de novo standard for court review of agency rulemakings (Section 341) against Sen. Warren’s proposed version of Chevron analysis discussed below).
Chief among the many proposed rulemaking reforms is a provision in Section 314 that would repeal a part of the Congressional Review Act that bars an agency from re-issuing a rule that was disapproved by Congress in substantially the same form as the disapproved rule without specific, new legislative authority. The provision could impact the SEC. In 2017, President Trump singed a Congressional resolution disapproving the SEC’s resource extraction issuers rule. That rule had been the subject of one re-write after a court challenge but the latest version of the rule fell within the CRA’s review window and Congress used the rule as an opportunity to make it the first agency rule disapproved under the Trump Administration.
Under Section 311, federal courts would apply a codified version of the Supreme Court’s Chevron doctrine such that a reviewing court must defer to an agency’s reasonable or permissible interpretation of a statute that is silent or ambiguous, if the agency followed the applicable procedures detailed in the Administrative Procedure Act. Chevron applies when an agency interprets a statute to fill gaps in the law (i.e., legislative rules) as compared to Auer deference, which applies when an agency interprets of its own regulation, or Skidmore deference which applies to agency interpretive rules.
Section 315 of the bill would require agencies to consider as part of their cost-benefit analyses of regulations the public benefits of the regulation, including nonquantifiable benefits. Any regulation adopted by an agency would have to prioritize these benefits.
Section 302 of the bill would address issues that can impact studies or research presented to agencies during the rulemaking process. Studies or research offered by interested persons generally would have to be made publicly available subject to exceptions recognized under the Administrative Procedure Act. Moreover, an agency must not consider a study or research submitted by an interested person who has a conflict of interest unless the interested person certifies pursuant to standards from the National Academy of Sciences that the materials offered were subjected to independent peer review. “Conflict” in this setting would mean that 20 percent of the funding for the study or research came from an entity regulated by the agency or that an entity regulated by the agency exercised editorial control over the study or research. A related provision, Section 308, would establish criminal penalties for those who submit false information to agencies; a person could be fined up to $250,000 and/or imprisoned for up to five years.
Other changes proposed in the bill would impact the role of the Office of Information and Regulatory Affairs (OIRA). For certain rulemakings, an agency would have to publish the “substance” of differences between the text of a rule submitted to ORIA and the text published in a general notice of proposed rulemaking (and the version published in the Federal Register) along with a statement about who requested any changes (e.g. ORIA, another agency, or lawmakers). Agencies also would have to publish statements in the Federal Register justifying the withdrawal of agency actions after having provided the regulatory action to ORIA. OIRA would further be limited in its communications with agencies and with persons outside the executive branch and with agencies before an agency submits a regulatory action to ORIA. ORIA reviews of significant regulatory actions would last not less than 45 days and could be extended once for an additional 30 days.
The bill also would establish an Office of the Public Advocate within the Office of Public Integrity (separately proposed) to be headed by the National Public Advocate. The new office would, among other things, help individuals resolve conflicts with agencies and help agencies to solicit public participation in the rulemaking process.