Chairperson Lofgren, Ranking Member Davis, and Members of the Committee, on behalf of the Congressional Research Service thank you for this opportunity to discuss current legislative proposals that would limit or prohibit certain financial transactions by Members of Congress.

My testimony focuses on three areas: (1) current financial disclosure laws under the Ethics in Government Act; (2) current disclosure requirements for financial transactions under the STOCK Act; and (3) an analysis of current legislative proposals to limit or prohibit certain financial transactions introduced in the 117^th Congress (2021-2022). The discussion of current legislative proposals focuses on the content of the bills and resolutions, including proposed prohibitions on holding, purchasing, and/or selling certain assets; amendments to the Ethics in Government Act and/or STOCK Act; potential requirements for the use of qualified blind trusts; changes to public access of disclosure documents; and proposed penalties for non-compliance. Additionally, this testimony discusses two proposals to amend House Rule XXIII, the Code of Conduct.

This written statement is drawn largely from other CRS products, including CRS Insight IN11860, Stock Trading in Congress: 117th Congress Proposals to Limit or Prohibit Certain Financial Transactions. Accordingly, my statement summarizes and expands key portions of the Insight, and addresses the legislative proposals introduced to date in the 117^th Congress.

Background on Current Financial Disclosure Laws

Federal government officials and employees, including Members of Congress, when taking official action, are expected to "put loyalty to the highest moral principles and to country above loyalty to persons, party, or Government department."¹ Using these guiding principles, in 1978, Congress enacted the Ethics in Government Act, which created the current government ethics program to "preserve and promote the integrity of public officials and institutions."²

As amended,³ the Ethics in Government Act requires covered employees, including Members of Congress, congressional officers, and selected congressional staff,⁴ to file annual financial disclosure statements that report "income, gifts, liabilities, property—both real property and business-related personal property—positions in business enterprises and other organizations and also any agreements relating to post-Government employment."⁵ As one scholar noted, "the Ethics in Government Act of 1978 [is] a reflection of one of our nation's most fundamental aspirations for government: that official decisions should be made in the interests of the common good, not in the narrow self-interests of the individuals in power."⁶

Members of Congress and officers or employees of the Congress are included as covered officials in the Ethics in Government Act.⁷ Subsequent amendments provided that Representatives, Delegates, the Resident Commissioner, Senators, House and Senate officers, and other specified covered employees are required to file annual financial disclosures statements with the Clerk of the House of Representatives and the House Ethics Committee,⁸ or the Secretary of the Senate and Senate Select Committee on Ethics,⁹ respectively. The House Ethics Committee and the Senate Select Committee on Ethics each provide guidance for financial disclosure filing.¹⁰

Stock Trading Disclosure in Congress

On April 4, 2012, President Obama signed the STOCK Act.¹¹ The STOCK Act, as amended, affirms that Members of Congress, congressional employees, and other federal officials are not exempt from "insider trading"¹² laws and regulations.¹³ It also requires covered individuals (primarily those that already file financial disclosure statements) to file periodic transaction reports with their supervising ethics office within 30 days of receiving notification of a covered financial transaction and no later than 45 days after the transaction.¹⁴ For the House of Representatives, the supervising ethics office is the House Ethics Committee, and for the Senate it is the Senate Select Committee on Ethics.¹⁵

Under STOCK Act amendments to the Ethics in Government Act, covered individuals, including Members of Congress, officers, and covered congressional employees report financial transactions (e.g., sales and purchases of stocks, bonds, commodity futures, and other securities) that exceeded $1,000.¹⁶ Periodic transaction reports are filed in the same manner as the covered official's annual financial disclosure. For Members of Congress, both their financial disclosure forms and their periodic transactions reports are available for public inspection from the Clerk of the House (for Representatives) or the Secretary of the Senate (for Senators).¹⁷

Proposals to Limit or Prohibit Certain Financial Transactions in the 117^th Congress

In the 117^th Congress, there has been interest in further limiting or prohibiting Members of Congress and other covered congressional officials and employees from engaging in certain financial transactions. As of March 1, 2022, some Members of Congress have introduced at least 14 bills or resolutions on these issues, eight in the House and six in the Senate. Broadly, these measures propose to amend the Ethics in Government Act, the STOCK Act, and/or House Rules to prohibit certain transactions, increase financial disclosure reporting requirements, and prescribe remedies to alleviate real or perceived conflicts of interest and penalties for engaging in certain behaviors. Table 1 lists the 14 measures (bill or resolution number and title); the proposed affected party; proposed actions; timeline for implementation, if enacted; and proposed penalties. For organizational ease, Table 1 lists companion measures together.

Generally, the 14 measures in Table 1 propose to regulate the financial activities of Members of Congress and covered congressional staff.¹⁸ Most frequently, these proposals seek to prohibit covered individuals from the holding, purchase, sale, and/or active management of certain types of financial assets; require certain assets to be placed in qualified blind trusts; and/or change access to filings and/or penalties for noncompliance. To accomplish these goals, the legislative proposals seek to amend the Ethics in Government Act and/or the STOCK Act, create new law, or amend House Rules.

Amend Ethics in Government Act, the STOCK Act, and/or Create New Law

Several legislative proposals would either amend the Ethics in Government Act, the STOCK Act, or both.¹⁹ Others would create new law to address Member and covered officials' financial holdings and transactions. In some cases, the proposals would authorize or require the use of a qualified blind trust (see "Require the Use of Qualified Blind Trusts" below) to avoid or prevent potential conflicts of interest.

The legislative proposals to amend the Ethics in Government Act and/or the STOCK Act all focus on codifying new prohibitions on covered individuals from holding, purchasing, or selling covered assets (discussed below under "Prohibit Holding, Purchasing, and Selling Certain Assets"). All of the proposals would apply restrictions to Members of Congress, but some would also apply to Members' spouses and dependents.²⁰ Fewer would also apply to congressional officers or covered staff members.²¹

While the general approaches of each measure are similar, some differences exist. For example, H.R. 6490 and S. 3504, "The Ethics Reform Act," propose to require that Members of Congress file annual "certification of compliance" forms with their supervising ethics committee, which the committee would then publish on a publicly available website.²² Further, these measures would authorize the House Ethics Committee and the Senate Select Committee on Ethics to issue civil fines, as they deem appropriate, for non-compliance.²³

Similarly, H.R. 6694 and S. 3612, "STOCK Act 2.0," propose to authorize the use of qualified blind trusts on a case-by-case basis and establish a civil penalty of "not less than 10 percent of the value of the covered instrument" for a covered individual who knowingly fails to comply with the amendments.²⁴ Further, the legislation would amend the STOCK Act to require that certain financial disclosure forms be publicly available for Members of Congress and other government officials.²⁵

Two other proposals (H.R. 6490 and S. 3504, "Banning Insider Trading in Congress Act") would provide the supervising ethics office with the power to impose civil fines and require the Government Accountability Office (GAO) to audit compliance with the law. GAO has similar authority under the Lobbying Disclosure Act (LDA),²⁶ which requires GAO to audit LDA filings and submit an annual report to Congress.²⁷

Prohibit Holding, Purchasing, and Selling Certain Assets

Each of the legislative proposals in Table 2 would generally prohibit covered officials from holding, purchasing, selling, and/or actively managing certain types of assets. Aspects of these measures would prohibit the purchase or sale of specified financial instruments, require additional disclosure and potential divestment of prohibited assets, and/or increase penalties for noncompliance. Each measure generally approaches covered assets in a particular way. Table 2 reports the types of assets covered by each proposal.

Most of the proposals prohibit Members of Congress from holding, purchasing, or selling similar assets, including commodities,²⁸ securities,²⁹ security futures,³⁰ and other named assets. Currently, Congress does not prohibit the ownership of specified financial assets, but some executive branch agencies do. For example, the Nuclear Regulatory Commission has supplemental Standards of Ethical Conduct that include a list of prohibited securities.³¹

All but two proposals would exempt some type of assets. Most commonly, exemptions include United States Treasury bills, notes, or bonds; and certain "widely held investments."³² Widely held investments would generally not need to be reported, but must meet three criteria: the fund must be publicly traded, the assets of the fund are widely diversified, and "the reporting individual neither exercises control over nor has the ability to exercise control over the financial interests held by the fund."³³

Require the Use of Qualified Blind Trusts

A number of the proposals would allow or require a Member of Congress (and their spouses and/or dependent children) to place covered assets in a qualified blind trust.³⁴ Qualified blind trusts are specific instruments that may be used to remediate real or perceived financial conflicts of interest.³⁵ Created in the Ethics in Government Act, qualified blind trusts

confer on an independent trustee and any other designated fiduciary the sole responsibility to administer the trust and to manage trust assets without participation by, or the knowledge of, any interested party or any representative of an interested party. This responsibility includes the duty to decide when and to what extent the original assets of the trust are to be sold or disposed of, and in what investments the proceeds of sale are to be reinvested.³⁶

The establishment of a qualified blind trust requires permission from a covered official's supervising ethics office (e.g., the House Committee on Ethics or the Senate Select Committee on Ethics for Representatives and Senators, respectively). Should a qualified blind trust be established to remediate a financial conflict of interest, the covered official "gives up the management of the assets to an independent trustee, who makes investment decisions of the individual's benefit without the individual's knowledge."³⁷ Further, the trustee must

be an independent financial institution, lawyer, certified public accountant, broker, or investment advisor; there may be no restrictions on the disposal of the trust assets; [and] the trust instrument must limit communications between the trustee and interested parties.³⁸

Qualified blind trusts may be considered expensive to establish and maintain.³⁹ Accordingly, some supervising ethics offices have determined that they are not always an appropriate remedy when other solutions might be available.⁴⁰

At least two proposals (H.R. 336 and S. 3494) would require a covered official to either divest or place certain assets in a qualified blind trust. Current Members of Congress would be required to divest and/or place covered assets in a qualified blind trust within a specified number of days of enactment. New Members of Congress would have to do the same within a specified number of days after being sworn in.⁴¹ Other proposals would provide the option of using a qualified blind trust.⁴²

Qualified blind trusts can serve as a way to "immunize" a public official "from potential conflicts of interest stemming from assets held in the trust because the legislator-beneficiary would have no knowledge of the impact of official actions on [their] personal financial interests."⁴³ If a covered official places their assets in a qualified blind trust they are separated from the day-to-day decision making about their holdings, which can serve to remedy potential conflicts that might arise from decision-making that could impact their individual holdings.

The creation of a significant number of new qualified blind trusts could present administrative challenges to the House and Senate. In a scenario where all Representatives, delegates, and the Resident Commissioner, and Senators, were required to create a qualified blind trust within a certain number of days of enactment, the review and certification process currently used by the House Ethics Committee and the Senate Select Committee on Ethics could be strained. A similar scenario, albeit with a smaller number of individuals, could occur at the beginning of each subsequent Congress, as newly elected Members would have a deadline by which they would need to seek approval of their trust documents. Should Congress enact a proposal to require the use of qualified blind trust, the House Committee on Ethics and the Senate Select Committee on Ethics might require additional resources to conduct necessary reviews and certifications.

The House and Senate do not currently appear to publish data on the number of qualified blind trusts reviewed or certified. The House Ethics Committee and the Senate Select Committee on Ethics, however, do report the total number of financial disclosure and periodic transaction reports that it receives annually. Each year, the House Ethics Committee and the Senate Select Committee on Ethics review thousands of filings. The addition of qualified blind trusts for hundreds of filers could significantly add to the review and certification burden.⁴⁴

Change to Public Access to Disclosure Filings

Current law requires Members of Congress to file public financial disclosure and periodic transaction reports.⁴⁵ For Representatives and Senators, periodic transaction reports and financial disclosure reports are available for public inspection on the Clerk of the House's and Secretary of the Senate's website, respectively.⁴⁶ Periodic transaction reports and financial disclosure reports for officers and other covered congressional employees are not available for public inspection.⁴⁷

Four proposals would require additional public access to certain financial disclosure and periodic transaction report related information. H.R. 6694 and S. 3612 would amend the STOCK Act to require public access to covered officials' financial disclosure and periodic transactions reports. H.R. 336 would require the supervising ethics office to post certification for qualified blind trusts on a public website. S. 3494 would require the supervising ethics office to post qualified blind trust certificates, trust agreements, schedules of assets, any extensions granted, and any penalties levied.

Penalties for Non-Compliance

Ten legislative proposals would change available penalties for non-compliance and four legislative proposals do not specify potential changes to penalties. Within the ten legislative proposals, two basic penalty strategies are suggested: fine individuals for non-compliance and/or publish the names of individuals who are found in violation of the law on a public webpage. As noted in Table 1, those penalties include

• fines from $500 per case (H.R. 6694 and S. 3612);
• a civil penalty of not less than 10 percent of the value of the covered investment (H.R. 1579, S. 564, H.R. 6694, and S. 3612);
• "disgorgement" to the United States Treasury of any profit from the transaction or holding (H.R. 6490 and S. 3504);
• civil fines of not more than $50,000 if the Attorney General or Special Counsel bring a civil suit before a United States district court and the court determines a fine is warranted (H.R. 6678 and S. 3631);
• a penalty equal to the Member's entire salary for as long as the violation occurs (H.R. 6844); and/or
• a civil penalty equal to the monthly equivalent of the annual rate of pay for the Member, after a written notice from the supervising ethics committee to the Member.
• Additionally, H.R. 6844 would require the respective ethics committees to publish the names of individuals found in violation of the proposed amendments.

Under current law, a covered individual who fails to file financial disclosure and/or periodic transaction reports or who files false reports may be subject to certain civil actions, generally after the supervising ethics office investigates the circumstances. Should the supervising ethics office find "reasonable cause to believe [the filer] has willfully failed to file or report or willfully falsified or willfully failed to file information required to be reported," it may refer the case to the Attorney General.⁴⁸ Further, the Ethics in Government Act specifies that

The Attorney General may bring a civil action in any appropriate United States district court against any individual who knowingly and willfully falsifies or who knowingly and willfully fails to file or report any information that such individual is required to report pursuant to section 102. The court in which such action is brought may assess against such individual a civil penalty in any amount, not to exceed $50,000.⁴⁹

Alternatively, the law also provides that the supervising ethics office "may take any appropriate personnel or other action in accordance with applicable law or regulation against any individual failing to file a report or falsifying or failing to report information required to be reported."⁵⁰

For Congress, the House Committee on Ethics and the Senate Select Committee on Ethics provide additional interpretation of penalties for financial disclosure. The House incorporates the financial disclosure requirements into Rule XXVI.⁵¹ The Senate incorporates financial disclosure requirements into Rule XXXIV.⁵² Both committees, using identical language, also note that "in addition to Committee action, the EIGA [Ethics in Government Act] authorize[s] the Attorney General of the United States to seek a civil penalty ... again an individual who knowingly and willfully falsifies or fails to file or report any required information."⁵³

Amend House Rule XXIII

Two legislative proposals would amend House Rule XXIII, the House Code of Conduct, to add a new section.⁵⁴ The new section would state

A Member, Delegate, or Resident Commissioner may not own the common stock of any individual public corporation.⁵⁵

Amending House Rules to prohibit ownership of individual stocks might require the divestiture of certain assets by Members of the House. As an amendment to the Code of Conduct, jurisdiction over the implementation and enforcement of this proposed rule change would likely be with the House Ethics Committee.⁵⁶ A similar proposal to amend Senate Rules has not been introduced.⁵⁷

Amending House Rules rather than amending the Ethics in Government Act or creating a new law could be interpreted as having somewhat more limited affect (e.g., not allowing for restrictions to apply after a Member leaves office and not applying to Senators).⁵⁸ Some of the proposals involving changes to law would apply to Members for a period after they depart the House.⁵⁹

Concluding Considerations for Congress

In the 117^th Congress, CRS identified 14 legislative proposals that seek to limit or prohibit Members of Congress from engaging in certain financial transactions. These measures include a wide-ranging number of proposals. They propose amendments to the Ethics in Government Act and/or STOCK Act, the creation of new law, or amendments to House rules. Taken together, the 14 legislative proposals include a range of options to limit or prohibit certain financial activities. These include prohibiting the holding, purchasing, selling, and active management of covered assets; requiring the use of qualified blind trusts to remediate real or perceived financial conflicts of interest; changing public access for financial disclosure documents; and amending penalties for non-compliance. Each of these options likely has advantages and disadvantages should Congress choose to implement a particular measure as introduced or incorporate various concepts into another measure.

Policymakers may wish to consider the scope of the proposals, the benefits of particular proposals, any potential administrative adjustments that might be necessary to implement a modification of ethics laws, and the potential costs to covered officials to comply with the proposed laws. Subsequently, several questions might be considered. These might include:

• Should new requirements apply only to Members of Congress, or also to their spouses and dependent children?
• Should congressional officers and staff be subject to the same disclosure and public access considerations as Members of Congress?
• What penalties are appropriate for violations of new or existing requirements and are proposed penalties sufficient to achieve congressional aims?
• What is the financial cost for establishing qualified blind trusts and how might covered officials pay for the establishment of such trusts?