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special assignment from President Spann, of the American Bar Association, the problem of studying financial disclosure legislation.
Recommendations were made to the American Bar Association House of Delegates, which were approved at its meeting last February.
Mr. HARRIS. Without objection, we will insert your whole statement in the record at this point.
[The prepared statement of Profs. Livingston Hall and Herbert S. Miller follows:]
SUMMARY OF AMERICAN BAR ASSOCIATION TESTIMONY ON
FINANCIAL DISCLOSURE LEGISLATION
1. The ABA supports the adoption of financial disclosure legislation covering top officials in all three branches.
2. Such legislation should cover, among others, GS-16 or 0-7 level officials and above (with provision for policymaking officials at lower levels to be included where appropriate), candidates in primary as well as general elections, Presidential nominees for salaried positions requiring congressional confirmation, members of Congress, and all federal judges.
3. Filing and auditing of reports should be done at an office within each of the three branches. GAO should have an oversight audit role to ensure proper procedures are established and followed.
4. In making disclosure, a threshold level higher than $100 may be appropriate, for items other than gifts and honoraria, to avoid excessive burdens on those reporting. Blind trusts should be permitted. Judges should have to identify assets, but not give amounts of holdings, due to recusal requirements applicable to them. Total amounts, but not sources of income should be reported by officials if a recognized privilege would be violated by disclosure.
5. Public disclosure of judges' financial statements should be limited to parties in litigation before the judge. Full public disclosure should apply to all other officials.
6. Civil and criminal sanctions should be provided for violations.
STATEMENT OF PROF. LIVINGSTON HALL AND PROF. HERBERT S. MILLER ON
BEHALF OF THE AMERICAN BAR ASSOCIATION
Mr. Chairman and members of the Subcommittee, I am Livingston Hall, Professor Emeritus of Harvard Law School and chairman of the ABA Special Committee to Study Federal Law Enforcement Agencies. I am accompanied today by Professor Herbert S. Miller, Co-Director of the Institute of Criminal Law and Procedure of the Georgetown University Law Center, and a member of the Special Committee. It is a privilege to appear before you today on behalf of the Association to share with you our views on the important subject of financial disclosure legislation.
The Special Committee was created in 1973 to examine the functioning of federal law enforcement agencies and to formulate recommendations to ensure they would not be improperly politicized or misused. While the creation of the Special Committee was occasioned by the series of events generally called Watergate, the Association and the Special Committee were fully aware that the problems being addressed were not peculiar to a particular administration but have been of concern for many years.
I have been privileged to serve as chairman of the Special Committee for the past year. My predecessor as chairman of the Committee, William B. Spann, Jr., is now the President of the Association, and it is at his request that we appear before you today. Under Mr. Spann's guidance, the Special Committee produced a report, “Preventing Improper Influence on Federal Law Enforcement Agencies," detailing the problems of abuse of the Department of Justice, the Federal Bureau of Investigation, and the Internal Revenue Service and making twenty recommendations for minimizing the possibility of such abuses in the future. The twenty recommendations were adopted as official policy of the Association by our House of Delegates in February, 1976.
One significant area which was not addressed by that report, however, was the need for financial disclosure legislation covering top-level federal officials. The Special Committee, therefore, at the request of the ABA Board of Governors,
undertook a study of this matter last fall, during the course of which we consulted with representatives of the Civil Service Commission, staff members from Congress, Common Cause, the Federal Judiciary, and the General Accounting Office. Our recommendations were acted upon by the House of Delegates of the American Bar Association at its Midyear Meeting last February. Attached to the testimony as Exhibit A are the detailed recommendations of the Special Committee as approved by the Association.
The Subcommittee may be interested to know that, with today's appearance, representatives of the ABA Special Committee have testified before committees and subcommittees of Congress seven times in the last year and a half on various aspects of insulating our governmental processes from improper pressures and influences. I mention these appearances because I think they provide strong evidence of my belief and the ABA's belief in the importance of congressional action in this field.
The ABA believes that basic institutional and structural reform is essential to assure the public of the integrity of our federal government processes. The Association agrees with the statement made by James Madison in the 51st Federalist Paper :
"If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed, and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity for auxiliary precautions.".
We do not know what the future holds, but there is ample historical evidence that men are not angels and “auxiliary precautions" must be taken to prevent future officials from being tempted to abuse their power.
Erosion of public confidence in government has been widely noted in recent years. As the December, 1976 report of the Commission on Executive, Legislative and Judicial Salaries stated as a preface to recommending a series of ethics reforms, including financial disclosure:
“Mr. President, we believe it is an exercise in futility (a judgment Congress has confirmed more than once) to propose any significant increase in executive legislative and judicial salaries unless you are satisfied that the leaders of the other branches of government will join you in a commitment to major reform. (Speaking for ourselves, we would not have proposed significant salary increases except in the context of such reform.) Such a reform must be sufficiently tangible to persuade a substantial majority of Americans that the post-Watergate era has truly begun. Such a majority is by no means persuaded now."
Existing financial disclosure requirements are inadequate. A hodge-podge of legislation. Presidential Executive Orders, agency regulations, and Code of Judicial Ethics offer a variety of reporting requirements. Executive Branch Presidential appointees are covered voluntarily, on a one-time basis, by agreement with President Carter. Other Executive Branch personnel file only with the head of their agency or department; there is no public disclosure, and many agencies do not have effective regulations for review and audit of reports. Numerous General Accounting Office studies indicate that many employees of federal regulatory agencies have holdings involving conflict or potential conflict. Justices of the Supreme Court are not covered by any disclosure requirements. Finally, public financial disclosure by members of Congress and federal judges is presently limited or unenforceable.
Both Houses of Congress, of course, have adopted this year stringent codes of ethics with substantial financial disclosure requirements, and when these go into effect they should achieve the objectives set for the proposed legislation. Both the House and the Senate are to be congratulated for taking these actions. But we believe comprehensive federal legislation providing for financial disclosure by officials in all three branches is appropriate and necessary to ensure accountability of public officials and public confidence in such officials.
The various bills which are now before this Subcommittee (H.R. 1, H.R. 9 and H.R. 6951) agree in most areas with each other and with the ABA recommendations. There are, of course, differences among these bills, and there are a few ABA recommendations which are not reflected in any of these bills. Having already voiced our support for this legislation generally, we would now like to discuss those areas in which differences are evident.
1. Individuals required to file
First, with respect to the individuals who would be covered by the disclosure requirements, we favor inclusion of persons nominated by the President for any salaried federal office subject to Senate or congressional confirmation. H.R. 1 covers "each Presidential nominee,” which may be unnecessarily broad in covering appointees to nonsalaried, largely honorary positions on government boards. H.R. 6954 limits coverage to those persons whose nominations require Senate confirmation but makes no mention of salary, while H.R. 9. does not cover nominees at all. We believe the same principles applicable to candidates for elective office should apply to Presidential nominees.
We also support inclusion of members of Congress, candidates for election to Congress, and judges; H.R. 1 and H.R. 9 cover these persons but H.R. 6954 does not.
We have also recommended that candidates for nomination for President, Vice-President or member of Congress be covered, as well as candidates for election. H.R. 9 follows this approach, as does H.R. 6954 with respect to the Presidency and Vice-Presidency, while H.R. 1 does not. We believe that both primary and general elections are public elections and should be treated in the same fashion, particularly since in many congressional districts and some states the primary nomination is tantamount to election.
We have suggested also that the pay levels for individuals holding the grade of GS-16 or 0-7 and higher be covered. H.R. 9 uses these levels, while H.R. 1 uses GS-15 and 0-6. Using these lower levels would expand the pool of covered individuals from approximately 20,000–25,000 people to perhaps 100,000 people. The ABA does not believe that the enormous administrative burden and consequent increase in cost which would result from such an expansion would be justified, since many individuals in the lower grades are not in policymaking positions. At the same time, we would permit appropriate agency heads, commanding officers, or comparable authorities in the legislative and judicial branches to bring individuals below the GS-16 or 0–7 levels who do exercise substantial policymaking responsibilities under the financial disclosure requirements. 2. Filing of reports
H.R. 1 and H.R. 9 each provide for most covered individuals to file with the Comptroller General, with copies of their statements to be filed with officers within their branches or departments. We believe such filings should more logically be made with a designated authority within the official's own branch: the Civil Service Commission for Executive Branch officials, the Comptroller General for Legislative Branch officials, and the Administrative Office of U.S. Courts for Judicial Branch officials. (We also provide for filing copies with other appropriate offices). We believe the filing of all reports with the Comptroller General would create an unnecessary burden on that office which may not be consistent with its general mandate, and that the offices in the other two branches can fully satisfy the requirements of the legislation. 3. Contents of report
In general, the items to be reported, the "threshold" levels for reporting items, and the categories of values for reporting certain items do not vary greatly among the various bills, or between the bills and ABA's recommendations. We decided that with respect to cash gifts and honoraria, a threshold of $100 was reasonable (and $500 for gifts in kind), but that for other items of income and for assets and liabilities, a uniform level of $1,500 made sense. This level is higher than that suggested for income items in the various bills. It was our opinion, however, that for any person who is not salaried and whose income derives from services rendered or sales made to a host of persons, a $100 threshold would be burdensome and unproductive. At the other end, our threshold for liabilities is substantially lower than that provided in H.R. 6954 ($2,500), on the theory that assets and liabilities should be treated in the same fashion.
We also stress in our recommendations that only the total amount, and not the identity of the sources, of any items of income which exceed $1,500 must be reported if the identity of the source is confidential information resulting from an attorney-client, doctor-patient or other recognized privilege. Without such a provision, the disclosure legislation would place a professional person in the position of having to violate the confidentiality of a privileged relationship, and incur potential liability, in order to comply with the statute.
With respect to private residential property, we recommend that the reporting individual should only have to report the city, and not the street address, as provided in H.R. 6954.
Income and assets of spouses and dependents raise difficult problems. Persons who are not occupying positions of public trust should not have to bare their private lives; at the same time, a blanket exclusion for spouses and dependents would create a substantial loophole in the legislation. We have recommended that spouses and dependents be required to make the same disclosures as the covered individual, except to the extent that their financial interests are not derived from the activities of the covered individual. H.R. 9 is very close to our recommendation on this point.
We would also permit blind trusts to be used but would require disclosure of the total value of the assets in the blind trust. Also, if the blind trust was recently created, the individual should be required to disclose the assets which were placed in the trust when it was created.
The final area in which our recommendations differ from the bills is with respect to the reporting of amounts, as well as identities, of the financial interests of sitting judges as part of their annual filings. We have recommended that all nominees, including those for federal judgeships, disclose both identity and amounts of their financial interests. Thereafter, however, we believe that other factors obviate the need for disclosure of amounts of financial interests (other than items of income, cash gifts, and honoraria) by judges, providing the identity of assets is disclosed. This is because existing statutory recusal requirements, applicable only to judges and not to other federal officials, mandate that a judge disqualify himself in any matter in which he has any financial interest, no matter how small—including even one share of stock (28 U.S.C. 455). Amounts of holdings therefore become superfluous. Whether it be one or one thousand shares of stock, or a minor or major interest of some other sort, judges are required to recuse themselves. 4. Extent of public disclosure
All three bills provide for public disclosure of the financial reports submitted by all covered individuals. The ABA believes all individuals being considered for covered elective or appointive positions and offices should be required to make the full public disclosure of their finances prior to their confirmation or election. We also believe that with respect to those persons occupying public office, procedures should be worked out to assure access to reported information by the public and also to assure that the reporting individual can ascertain who is requesting to examine the report. It seems to the ABA that parallel to the public's right to know about a government official's finances, the government official has a corresponding right to know who is examining his financial report. H.R. 6954 assures this latter right; H.R. 1 and H.R. 9 make no specific assurance.
We recommend an exception to general public disclosure for sitting judges for several reasons: (1) Judges do not select the issues which they will consider; (2) The possibility of conflict of interest is confined to the facts of particular cases before them; and (3) Recusal is an appropriate and required remedy in cases in which judges have a financial interest, however small, in any of the parties to the litigation. Thus, public access to judges' financial reports should be limited to the attorneys and litigants in a particular case before that judge.
Under this approach, a procedure may be established by which an attorney representing a party in a case before a sitting judge may submit to the clerk of the court, at the time of filing the case or thereafter, a list of parties and interests which he believes may be substantially affected by the outcome of the litigation. The clerk will then review the list and identify those parties and interests, if any, in which the judge has a financial interest as reflected in his filed disclosure statements. The clerk will submit this list to the judge, who will in turn review the list for possible conflicts. If there are none, he will instruct the clerk to so notify the attorney. If the judge has a financial interest in any of the parties and interests on the list, he shall either recuse himself, or if his financial interest is in a non-party interest which he does not believe will be substantially affected by the outcome of the litigation, instruct the clerk to so notify the attorney. The attorney may then, if he wishes, file a disqualification motion, as under present law.
We believe this approach meets the requirements of disclosure for sitting judges. We do not analogize the position of judges to that of legislators and officials in executive and regulatory agencies who deal every day on an ongoing basis with a host of major policy issues which require continual decisions on their part. Under such circumstances full public financial disclosure is essential. On the other hand, judges do not deal with issues in such a fashion. They do not select the issues with which they will deal. Moreover, the nature and scope of how the issues are presented to judges may be severely circumscribed by a variety of requirements restricting the kind of evidence which can be heard in a court of law. Thus, the scope of public disclosure can appropriately be limited to the parties in actual cases before a particular judge which may involve conflict of interest. 5. Regulating and auditing financial disclosure
As we stated under section 2 above, we believe filing should most appropriately take place within each branch. The filing authority within each branch would then assume the responsibility for the routine auditing of filed reports as to completeness and accuracy. The General Accounting Office, whose primary function is to examine fundamental government processes and agency adherence to legal requirements, should not have to perform audits of some 20,000–25,000 financial reports from individuals in all three branches.
At the same time, however, the need for uniformity in review and audit procedures, and the need to ensure that the reporting authorities are adequately implementing the law and the procedures, demonstrate the need for GAO to play an important oversight role. Each branch would prepare its own rules and regulations, but the three branches would work together to seek to draft model rules and regulations which all three branches could use with appropriate variations. The GAO could help coordinate these efforts. Additionally, the GAO would have an "oversight" audit function with respect to the other two branches, reviewing their processes to determine if both the spirit and the letter of the law are being observed and if the regulations promulgated are being carried out. Under this approach, GAO could review on a sampling or complaint basis individual reports filed and on a periodic basis the conduct of the agencies themselves in carrying out their obligations under the law and the regulations.
H.R. 1 and H.R. 9 require GAO to conduct random audits of the statements but make no provision for audit of all statements. H.R. 6954 would establish an Office of Government Ethics which would be required to make provision for each report to be reviewed and to conduct random audits on its own. While we have taken no position on the establishment of such a separate Office, the audit role described for it in H.R. 6954 appears very similar to the functions we have suggested for GAO. 6. Prohibitions and sanctions
We recommend that knowing failure to file a financial disclosure statement subject the covered individual to civil penalties, but that knowing and willful falsification or omission of material be subject to criminal penalties. Thus, our recommendations are in basic agreement with the provisions of the three bills your Subcommittee is considering. We do, however, recommend an added requirement that a falsification be “material” before criminal sanctions are invoked, following the example of the Internal Revenue Code.
RECOMMENDATIONS ADOPTED BY THE AMERICAN BAR ASSOCIATION, HOUSE OF
DELEGATES, FEBRUARY 1977
FINANCIAL DISCLOSURE LEGISLATION Resolved, that the American Bar Association supports the principle of legislation requiring reasonable financial reporting by officials and employees of the United States in positions of trust and responsibility;
Further resolved, that any such legislation should conform to the following general principles : 1. The need for financial disclosure legislation
Congress should enact legislation providing for financial disclosure by officials in all three branches of the Federal Government. 2. Individuals required to file financial disclosure reports
The following individuals should be required to file financial disclosure reports : (1) the President; (2) the Vice President; (3) each Member of Congress ; (4) each justice, judge or magistrate of the United States; (5) each officer or em