Today, Sunlight is sending the following letter (see below) to the Government Accountability Office, or GAO.

We are urging them to review the personal financial disclosure system, that requires top officials throughout the federal government to publicly disclose their assets. A comprehensive GAO review is important to ensuring the effectiveness of our system, is long overdue, and is actually already required by law.

For those unfamiliar, this may seem to be an abstract or wonky subject.  But if you've news stories about Justice Thomas, or Rep. Rangel (or many, many others) then you've heard about the importance of financial disclosure. Our laws requiring our top officials to publicly declare their assets are an essential safeguard against corruption and conflicts of interest, and are a bulwark for accountability in government service.

The GAO should review our financial disclosure system, and help strengthen an essential democratic safeguard.

GAO Financial Disclosure Letter 10132011

Last year the New York Times ran an article on the corporate donations to charities associated with members of Congress. The article showed that corporate and lobbyist donations are able to flow in unlimited sums to the favored causes of specific lawmakers, including to charities bearing the name of the lawmaker. This provides another conduit for influence seeking that falls outside of this normally regulated and disclosed realm. It seems odd that members of Congress do not have to disclose on their financial disclosure reports the non-profits and charities that they are associated with.

Only three of the twenty-one lawmakers mentioned in the New York Times article actually disclosed their association with the charity or non-profit affiliated with them. A further search of contribution records found another six lawmaker affiliated nonprofits, none of which were disclosed by the affiliated lawmaker. This may be due to an oversight in financial disclosure reporting rules. The official rules state:

The identity of all positions held ... as an officer, director, trustee, partner, proprietor, representative, employee, or consultant of any corporation, company, firm, partnership, or other business enterprise, any nonprofit organization, any labor organization, or any education or other institution other than the United States. This subparagraph shall not require the reporting of positions held in any religious, social, fraternal, or political entity and positions solely of an honorary nature.

This rule only covers obvious conflicts that should be disclosed. It leaves a series of other conflicts out that the New York Times article helps to illuminate including contributions to organizations that a lawmaker founded or are run by family members. This disclosure rule should go as far as influence does by requiring the disclosure of all charities affiliated with lawmakers and their immediate family.

There is a clear connection between these charitable donations of corporations to these organizations and their attempts to gain access and influence lawmaker activity. The New York Times article quoted a spokesman for Duke Energy on his company's contributions to these charities:

Tom Williams, a spokesman for Duke Energy, acknowledged that the company participates in lawmakers’ charitable events in part to get access to them and push its agenda. “We are not apologetic about it at all: it is part of our overall effort to work with policy makers,” he said. “Social settings are always a good way to get to know people.”

Lawmakers should be required to disclose nonprofits and charities that are affiliated with them even if they do not sit on the board or hold honorary titles. If companies are going out of their way to contribute and list these lawmakers as honorees then lawmakers should have to disclose these affiliations on their annual financial disclosure reports. It seems completely off-base that Rep. Jim Clyburn does not disclose his affiliation with the James E. Clyburn Research and Scholarship Foundation or that Rep. Nick Rahall does not disclose his relationship with the Rahall Transportation Institute.

Furthermore, lawmakers should be required to disclose the affiliations their spouse holds with nonprofits or charities. Huntington Bancshares reports a contribution of $5,000 to the Community Foundation of West Chester-Libery in honor of Rep. John Boehner. No where are we informed that Boehner's wife serves on a committee at the foundation. These kinds of relationships should be disclosed.

There is currently one way to track the contributions made by corporations and individuals to charities on behalf of members of Congress. The Honest Leadership and Open Government Act of 2007 required new disclosure filings regarding contributions made to lawmakers and on behalf of or in honor of lawmakers.

A Wall Street Journal investigative report revealed yesterday that at least 72 hill staffers “traded shares of companies that their bosses help oversee” in 2008 and 2009. While Congress ponders legislation to ban insider trading (which we wrote about in November 2009), WSJ’s Deal Blog points to transparency rules and searchable databases of lawmakers’ financial disclosures as providing a window into whether insider trading has occurred.

In recent years, there’s been progress on making congressional ethics information available online -- most notably with lobbying disclosure reports -- but there’s a long way to go. In January, we called for all congressional ethics information that’s required to be publicly available to be posted online, including the personal financial disclosure reports that were the foundation of the Wall Street Journal’s reporting.

Currently, the Center for Responsive Politics* and Legistorm spend enormous amounts of time and money accessing and digitizing personal financial disclosure forms. We believe that Congress has the responsibility to make this information available to the public on the Internet in a timely fashion and in machine-readable formats. The Sunlight Foundation issued recommendations on changing the House Rules to do that (among other things).

The personal financial disclosure reports themselves deserve a second look. Congress should reexamine who is required to disclose information, what should be disclosed, and how frequently that disclosure should take place.

As things stand, Members of Congress and certain staff are required to disclose stock transactions, but only once a year on June 15. My colleague Paul Blumenthal suggests that real-time reporting would be beneficial and not too burdensome. He’s right, and there’s more to be done.

For example, residences and loans do not need to be disclosed unless they provide income to a lawmaker. That should be changed. Disclosure of residential and loan information would have shed light on the potential conflict of interest raised by mortgage company Countrywide Financial giving allegedly preferential treatment to lawmakers, which created a big brouhaha last year and triggered a year-long ethics committee investigation. These questionable practices could have been nipped in the bud, or entirely deterred, were they required to be reported.

Additionally, lawmaker assets and debts are reported within very wide ranges. Our Executive Director Ellen Miller suggests that assets and debts should be reported to the penny, but even tightening the reporting ranges, as suggested in the Transparency in Government Act (HR 4983), would be a dramatic improvement.

It’s also worthwhile to consider whether using an earnings threshold to trigger staffer reporting is the best way to go. As we’ve seen in other contexts, sometimes staff salaries are set to avoid reporting requirements. It may be necessary to also look at a staffer’s responsibilities to see whether reporting should be triggered.

Finally, although we’re focusing on the congressional context, we shouldn’t forget that financial disclosures are also filed by members of the executive and judicial branch. It may be time to revisit what they must file and how their reports are publicly disclosed. GAO already has a mandate to conduct a review of financial reporting requirements.

There’s a careful balance that must be struck between transparency and privacy, and a weighing of the burden new rules could impose on government versus the benefits that would accrue to the public. As yesterday’s reporting makes clear, there’s a larger role for transparency to play. Placing the personal financial disclosure reports online, with greater detail and increasing frequency, is a great place to start.

• Note: The Sunlight Foundation has provided grants to the Center for Responsive Politics to maintain their money-in-politics resources, including personal financial disclosures.

According to Roll Call, Rep. Michael McCaul did not properly report dozens of stock transactions on both his 2008 and 2009 personal financial disclosure forms.

McCaul is the ranking Republican member on the ethics subcommittee trying Rep. Charlie Rangel, among many other things, failing to report certain assets on his own personal financial disclosure forms.

The problem here may not be the individual actions of either lawmaker--barring the outcome of the trial of Rep. Rangel--but rather the fault of the both the rules themselves and the enforcing body, the ethics committee.

Personal financial disclosure rules are hardly complete and many members take advantage of this by not reporting their assets or stock transactions properly. I wrote about this earlier this year and said, "When the [personal financial] disclosure documents are released [perusing through them is] like finding an incomplete artifact at an archaeological dig. If anything, these incomplete rules create more suspicion about lawmakers, not less, as they were intended to do." (Here are some suggestions to fix these disclosure documents.)

Even worse, perhaps, is that the ethics committee, the body in charge of the oversight of these documents, does not properly police them for proper disclosure. This task often falls to reporters at publications like Roll Call or here at the Sunlight Foundation. Last year my colleague Bill Allison found 28 instances of incorrect reporting totaling between $239,026 and $831,000 in Rep. Rangel's financial disclosures going back to 1978. An ethics committee that was actually paying attention should have caught something like that.

USA Today had a couple of dueling editorials yesterday about stocks held by lawmakers. Should they recuse themselves from votes if they hold stock in company that could be affected by legislation or oversight hearings? Or should the disclosures be made more accurate and accessible?

The first editorial poses that stock holdings create an appearance of conflict:

Lawmakers, of course, uniformly deny any connection between votes and holdings. There's no direct proof to the contrary. But, when a vote can significantly affect a stock's price, there's at least the appearance of a conflict of interest. And weak disclosure rules make it hard for voters to judge for themselves.

The rebuttal editorial states:

In the Internet age, personal financial disclosure reports should be filed electronically and be publicly available in searchable and downloadable format. The public has a right to conveniently access this information whether from judges, administrators or legislators. Online public disclosure will promote ethical behavior and educate voters when they next vote for their representative.

Both views are absolutely correct and there are ways that lawmakers could eliminate this appearance of conflict through individual and legislative action. First, as the initial editorial states, lawmakers could follow the example of Rep. Barney Frank and "confine their equity holdings to diverse mutual funds." I don't personally think that lawmakers should be suspended from trading stock, but if they do care about reducing public distrust they could move their equity holdings into something that does not create public suspicion.

Secondly, Congress needs to pass reforms to their personal financial disclosure rules. These rules do not provide timely disclosure and do not provide accurate information. When the resulting disclosure documents are released it is like finding an incomplete artifact at an archaeological dig. If anything, these incomplete rules create more suspicion about lawmakers, not less, as they were intended to do.

An initial step to fix this would be to pass the financial disclosure reforms in the Transparency in Government Act. These include simplifying the ranges used to denote the value of each asset, online disclosure, real time disclosure that is downloadable, searchable and sortable, and requiring more frequent (quarterly) disclosure for asset sales or purchases exceeding $250,000. That's a good start.

One could even argue going further and requiring lawmakers to disclose their stock trades after they make them. This could dissuade any actual improper behavior and dispel the common belief that anything lawmakers do is to enrich themselves and their friends. This both creates an accountability mechanism and is in the lawmaker's self-interest.

According to an article in today's Washington Post, the number of lawmakers owning and trading stocks has nearly tripled since 2001. This brings with it a concern that personal financial conflicts of interest may interfere with the honest legislating the public expects from their representatives or appear to to the general public, lessening trust in an institution that is hardly held in high-regard.

You can read the whole Post article to hear about the various stories of lawmakers owning stocks and taking positions that would support their bottom line. I'm going to focus on the underlying disclosure issues that are brought up from this problem.

As has been reported here and at Real Time Investigations, personal financial disclosures for lawmakers are wholly inadequate, particularly in reference to stock trading. As the Post article notes, "The congressional financial disclosure system, an annual form filled out and policed by members of Congress, is supposed to help keep lawmakers honest and reassure the public by making stock holdings transparent. But the reporting is delayed, information is limited and the paper forms prevent the computer analysis of trading that is commonplace elsewhere."

Financial disclosure forms are filed annually. There is no way to police a practice when the reporting is this rare. There is also no reason that the reporting could not be in real time. All of this information is reported in real time to the Securities and Exchange Commission (SEC). Stock sales, purchases and trades could easily be reported in real time to the Clerk of the House or the Secretary of the Senate and publicly disclosed in a delayed fashion so as not to directly affect the daily trading on the exchanges or futures markets.

Rep. Brian Baird sponsored a bill that would begin to move the disclosure train in the right direction. The Stop Trading on Congress Knowledge Act (H.R. 682) -- please forgive the mortifying acronym -- would require lawmakers to disclose to either the Clerk of the House or Secretary of the Senate all stock activity within 90 days of taking action. The bill would also require those trading intelligence to lawmakers on financial matters to register and disclose their activities under the Lobbying Disclosure Act of 1995.

Baird's bill looks like a good vehicle to move disclosure in the right direction, not only on financial disclosure, but also on lobbying disclosure. I'm going to go into the bill and relevant sections to check what it will change and how that could move lobbying disclosure down the road a little more.

Rep. Mike Ross has been the most consistent dissenter from his party's attempt to pass health care reform citing costs, fear of government control and rising deficits. One thing he has failed to mention in all of this is his personal financial investment in making sure certain provisions do not pass into law. According to an investigative report by the award-winning Marcus Stern of ProPublica, Ross sold a pharmacy he owned to a national pharmacy chain for a price that far exceeded its value.

Arkansas Rep. Mike Ross -- a Blue Dog Democrat playing a key role in the health care debate -- sold a piece of commercial property in 2007 for substantially more than a county assessment [2] (PDF) and an independent appraisal [3] (PDF) say it was worth.

...

But the $420,000 was just the beginning of what Ross and his pharmacist wife, Holly, made from the sale of Holly's Health Mart. The owner of USA Drug, Stephen L. LaFrance Sr., also paid the Rosses $500,000 to $1 million for the pharmacy's assets and paid Holly Ross another $100,001 to $250,000 for signing a non-compete agreement. Those numbers, which Ross listed on the financial disclosure reports he files as a member of Congress, bring the total value of the transaction to between $1 million and $1.67 million.

Ross' wife was also allowed to keep her job as the store's pharmacist. Ross is also a huge recipient of health care industry campaign cash having pulled in $342,475 since 2007, more than from any other industry. The pharmacy chain in question, USA Drug, is lobbying Congress to not include a public option in any health reform bill that is reported. Ross is one of the biggest opponents of a public option, stating he will vote against any bill that contains one.

The party may be over, but the investigation is just beginning. The House Ethics Committee confirms that it is investigating lawmakers involved in the PMA Group contributions-cum-earmarks scandal embroiling the House Defense Appropriations Subcommittee.

Lawmakers just filed their personal financial disclosures and we're already seeing problems. Rep. Marion Berry under reported the value of property he owns in here in Washington. Sen. Chris Dodd, facing serious questions about his personal finances, asked for a 90-day extension to file his report. Nearly one-in-five senators were like Dodd and could not file their report on time. This included serial late-filer Sen. Bob Corker. Has this guy ever filed a report on time?

The Hill reports on one of those personal financial disclosures, those of Rep. Don Young. Apparently, Young has spent $1.3 million defending himself in an investigation into his relationship with the oil services company from Hades, VECO. Has there ever been one company that got so many politicians sent to jail or placed under investigation?

ProPublica went through the process of requesting all of the personal financial disclosures from the Obama administration and has posted them to their site. Recently the administration streamlined the process of requesting access to the financial disclosure forms. Sunlight's John Wonderlich wrote about that here.

And you can peruse the 179 Obama administration financial disclosures here.

Rep. Charles Rangel, chairman of the powerful House Ways and Means Committee, failed to report purchases, sales or his ownership of assets at least 28 times since 1978 on his personal financial disclosure forms. Assets worth between $239,026 and $831,000 appeared and disappeared with no disclosure of when they were acquired, how long they were held, or when they were sold, as House Rules require. Rangel told C-SPAN's Newsmakers program that the ethics panel would clear him on multiple ethics questions soon. More details at Real Time Investigations.