Day: November 16, 2009

           The newly formed Office of Congressional Ethics has run into a bit of trouble as a result of one of the first matters that it has referred to House Ethics Committee.  In a lengthy report, the Ethics Committee rejected and sharply criticized OCE’s findings with regard to an investigation of Representative Sam Graves.  OCE found “substantial reason to believe” that Representative Graves created the “appearance of a conflict of interest” when he and his staff invited a witness to testify at a 2009 Small Business Committee hearing on renewable fuels.  This appearance was allegedly created by the fact that the witness, Brooks Hurst, owned shares of two biofuel companies in which Graves’ wife was also an investor. 

            In evaluating whether Graves had an apparent conflict of interest, it is important to first consider whether Graves’ financial interest in the biofuel industry created an impermissible conflict of interest (actual or apparent) with respect to his legislative activity in the area of renewable fuels.  If so, Graves would be required either to divest himself of any financial interest in the two biofuel companies or to refrain from taking any legislative action that might affect (or be reasonably be perceived as affecting) his financial interest.  Arguably, participating in a Small Business Committee hearing on renewable fuels could constitute such an action. 

            One school of thought would hold that Graves’ financial interest does not create a conflict at all, but rather serves to align his interests with those of the constituents in his rural farming district, who tend to benefit from federal policies that promote biofuels.  Andrew Stark, in his book Conflict of Interest in American Public Life (2000), terms this the “Kerr argument,” so-called after Senator Robert Kerr, who said in 1962: “I represent the oil business in Oklahoma, because it is Oklahoma’s second-largest business and because I am in the oil business . . .  They don’t want to send a man here who has no community of interest with them, because he wouldn’t be worth a plugged nickel to them.” 

            One can criticize the Kerr argument, as Stark does, and it would be going too far to say that Kerr’s position represents the official policy of the U.S. Congress.   Nevertheless, it is a fact that neither the House nor the Senate has sought to prohibit Members from holding financial interests that may be affected by their legislative activities.  In its report on the Graves matter, the Ethics Committee quotes the House Ethics Manual on this point, observing that “’[n]o federal statute, regulation or rule of the House absolutely prohibits a Member or House employee from holding assets that might conflict with  or influence the performance of official duties.’” 

            Instead, Members of Congress are required, by statute and rule, to disclose their financial holdings so that the public can judge whether their actions may have been influenced by these interests.  As the Ethics Committee notes, Graves fully and accurately complied with this requirement.  It is also worth observing that the ownership interest in question amounted to only 0.18% and 0.125% of the two companies respectively, and were valued at a total of between $16,000 and $65,000.  (Hurst’s holdings in the same companies represented about a 0.5% and 0.33% interest respectively). 

The only other relevant provision is House Rule 3, clause 1, which provides “[e]very Member . . . shall vote on each question put, unless having a direct or pecuniary interest in the event of such question.”  However, this provision could not prohibit Graves’ participation in the Small Business Committee hearing because (1) it applies only to actual votes on legislation, not to committee hearings; (2) as interpreted by House precedent, this provision would not apply to the kind of legislation that was discussed in the Small Business Committee hearing because such legislation would have only affected Graves’ financial interests as a member of a class; and (3) the House rule does not actually prohibit anything, but merely leaves it up to the Member to determine whether he or she has a “direct or pecuniary interest” that makes it appropriate to refrain from voting. 

OCE, therefore, did not find that Graves’ financial interest created a conflict with regard to participating in the hearing.  Instead, it found substantial reason to believe that Graves’ financial interest created (the appearance of) a conflict with regard to his role in inviting Hurst to be a hearing witness, given that Hurst had a financial interest in the same two biofuel companies. 

OCE’s position, however, suffers from certain difficulties.  First, OCE does not explain how Hurst’s testimony or participation in the hearing could possibly have advanced Graves’ financial interests, other than the fact that Hurst recommended in the course of his testimony that Congress take certain legislative actions, such as extending the federal Biodiesel Blender’s Credit, which would benefit the biofuel industry.  But these actions, which Hurst advanced as a representative of the Missouri Soybean Association, would benefit the industry as a whole, not just the two biofuel companies in question.  If there would be no impermissible conflict of interest in Graves himself sponsoring, supporting or voting for such legislation, it is difficult to see how Hurst’s testimony could possibly create one. 

Second, it is not obvious why the fact that Graves and Hurst happened to share a financial interest in the same companies has any bearing on the conflict issue.  Why would the issue be any different if Hurst had happened to own shares in a different biofuel company that would benefit from the same legislation?  Or if Hurst had no personal investment at all, but had taken the same position as a representative of the industry?  If there is nothing improper in Graves inviting a witness who supported the same legislative positions as Hurst (and OCE does not suggest otherwise), it is hard to see why it would be improper to invite Hurst. 

Finally, the OCE’s position is further undermined by the fact that there was no realistic possibility that Hurst’s testimony would actually benefit Graves or anyone else.  As the Ethics Committee noted, the Small Business Committee’s hearing was purely informational, and the committee itself had no jurisdiction over the legislation discussed.  Thus, the potential benefit to Graves would seem to be not only indirect, but extremely remote as well. 

           

All in all, I have to agree with the Ethics Committee’s view that inviting Hurst to testify did not create any impermissible conflict, or appearance of a conflict, under the applicable House rules.