Is Senator Blumenthal Violating the Foreign Emoluments Clause?

Senator Richard Blumenthal is one of the wealthiest members of Congress, with his net worth being pegged at a minimum of $67 million according to a Roll Call analysis of his financial disclosure statements. (Because financial disclosures report within broad ranges, they do not permit an exact calculation; this article says the senator’s actual net worth is more like $104 million.)

In addition to being really rich, Blumenthal is the lead plaintiff in Blumenthal v. Trump, a lawsuit brought by members of Congress against President Trump in the U.S. District Court for the District of Columbia. The lawsuit alleges that Trump is in violation of the Foreign Emoluments Clause (U.S. const., art. I, § 9, cl.8) because he “has a financial interest in vast business holdings around the world that engage in dealings with foreign governments and receive benefits from those governments.” Complaint ¶ 2. Because of this financial interest, plaintiffs allege, Trump “has accepted, or necessarily will accept, ‘Emolument[s]’ from ‘foreign State[s]’” within the meaning of the FEC. Id.

The Blumenthal plaintiffs therefore assert a simple legal proposition: If a federal officeholder (a) has a financial interest in a business and (b) that business derives revenue from foreign governments, then the officeholder receives prohibited emoluments within the meaning of the FEC. Thus, for example, because (a) Trump has a financial interest in Trump Tower in New York and (b) Trump Tower has at least two tenants owned by foreign states (a Chinese bank and the UAE’s Abu Dhabi Tourism & Culture Authority), Trump “has accepted, or necessarily will accept” prohibited emoluments when those tenants make their lease payments. Complaint ¶¶ 53-54.

This raises an obvious question. If it is that easy to receive an “emolument,” how is it that this issue has never come up before? After all, the FEC doesn’t just apply to the president or a few senior officials. The Office of Legal Counsel views the clause as applying to all federal officers and employees, meaning that millions of individuals are subject to its prohibitions at any one time. See Application of Emoluments Clause to Part-Time Consultant for the Nuclear Regulatory Commission, 10 Op. O.L.C. 96, 99 (June 3, 1986) (see also this DOD white paper on the subject).

Of course, few government employees are as wealthy as President Trump or Senator Blumenthal, but the theory of the Blumenthal complaint would not seem to require significant wealth. Under this theory, any government employee who owned all or part of a small business, say a farm, shop or restaurant, would violate the FEC if that business received any revenue, no matter how insignificant, from a foreign government customer. Moreover, it is not immediately apparent why the theory wouldn’t apply to owning shares in a publicly traded company that does business with foreign governments. For example, if I am a government employee who owns one share of McDonalds Corp., do I receive an “emolument” when foreign government employees send the intern out to buy burgers for their working lunch? (That probably happens sometimes, right?)

Although not stated in the Blumenthal complaint, perhaps a limiting principle can be derived from the OLC opinions it cites. OLC has indicated “that when an employment relationship formally exists between a domestic employer and a Federal office holder, the question whether the latter may be paid from foreign governmental funds that the employer receives turns on whether the employer is acting as a mere conduit for those funds.” Applicability of the Emoluments Clause to Non-Government Members of ACUS, 17 Op. O.L.C. 114, 118 (1993). So long as the employee is genuinely working for the domestic employer, not the foreign government customer or client of the employer, OLC considers that the payment to the employee is from the employer, not the foreign government. Id.

On the other hand, in the context of a law firm partnership, OLC concluded that each partner would be receiving a portion of the profits from fees paid by the firm’s foreign government clients. Therefore, the partner would be considered to be receiving a payment from the foreign government and the partner’s acceptance of that portion of the firm’s profits would be deemed a prohibited emolument within meaning of the FEC. Id. at 119. This is true, according to OLC, even if the partner had no involvement in the representation of the foreign government. Id.

It is unclear how this reasoning would apply to an owner/investor in a property or business. Let’s take the most garden-variety situation first. I am a federal employee and I own common stock in a publicly traded corporation that does business with foreign governments. One could argue that, like a partner in a law firm, I own a portion of the company and have a right to share in its profits, including profits earned from transactions with foreign governments. Presumably, however, OLC would distinguish this situation from the law partnership, perhaps on the grounds that a shareholder does not share directly in the profits and losses of a corporation and/or does not participate in the operation and management of the business. I say “presumably” less because the OLC memos compel this reasoning and more because it is unthinkable OLC would declare hundreds of thousands, if not millions, of federal employees to be in violation of the FEC merely because their portfolios or retirement plans contain equity positions in corporations that do business with foreign governments.

Now let’s consider situations that are less common but still must occur with some frequency among the millions of individuals subject to the FEC. Say, for example, I am a federal government employee and I inherit a piece of property. Can I sell that property to a foreign government or foreign instrumentality? (What if the property is overseas and the foreign government takes it by eminent domain?) Or suppose my brother and I inherit a farm? Can the farm continue to do business with foreign government customers? Does it matter whether my brother manages the farm and I am merely a passive investor? Would it matter if I did some work on the farm but it was unrelated to the foreign government customer(s) and/or the work I do as a federal employee? Does it matter whether we operate the farm as a partnership or a corporation?

Although OLC provides no direct answers to these questions, it appears prior to the Trump era no one thought that mere passive investments, at least, implicated the FEC. For example, both the House and Senate ethics manuals warn members and staff that the FEC prohibits them from receiving emoluments from foreign governments. House Ethics Manual 205-06; Senate Ethics Manual 86. They explain that an emolument has been defined as “any profit, gain, or compensation received for services rendered” and thus members and staff “may not receive any payment for services rendered to official foreign interests,” such as making a speech or participating in a panel discussion or media event. Nowhere, however, do the ethics manuals suggest that the FEC imposes any limitation on the receipt of investment or unearned income.

The importance of this distinction is illustrated by Senator Blumenthal’s 2014 financial disclosure (the most recent I could find online). If you look at Part IIIB (Non-Publicly Traded Assets and Unearned Income Sources), pages 3-17, lines 1-450, you will see listings of numerous real estate partnerships and related investments, almost all of which fall under the umbrella of “Malkin Holdings LLC- New York, NY.” Malkin is the family name of Blumenthal’s wife, who is the daughter of New York real estate magnate, Peter L. Malkin. The Malkin family owns and controls Malkin Holdings and the extensive real estate portfolio within it.

I have neither the time nor expertise to analyze the Malkin/Blumenthal real estate empire, but let’s take a look at one important part of these holdings, an entity called Empire State Realty OP, LLP, which is referenced repeatedly in the Blumenthal financial disclosure (see lines 166, 285, 302, 378 and 430). The financial disclosure notes that this entity consists of “18 Commercial Buildings (Retail & Office) located in New York, Westchester, and Connecticut, as well as 3 real estate management companies, and a company which performs Interior Building Construction.” As best I can make out, this entity is the vehicle through which the Malkin family maintains control of the publicly traded company into which this real estate portfolio was placed (see footnotes 4, 13, 14 and 24 of the financial disclosure, indicating that the Blumenthal family received millions of units in Empire State Realty OP on July 15, 2014).

Because Blumenthal therefore has a financial interest in these 18 commercial buildings, it would appear, according to the theory advanced in the Blumenthal complaint, that each building should have a sign saying “sorry, no foreign governments or instrumentalities allowed.” I haven’t made a personal inspection, but I am guessing there are no such signs. I say this because the most prominent of these buildings, the Empire State Building, has at least one major foreign government tenant, namely China’s People’s Daily newspaper, the official newspaper of the Chinese Communist Party. (Perhaps not coincidentally, the Empire State Building has been criticized for being overly friendly to the Chinese government and its interests).

On the broad reading of the FEC advanced in the Blumenthal complaint, it would appear the senator is currently in violation of that constitutional provision. He has a financial interest in at least one business (the Empire State Building) which receives revenue from at least one foreign instrumentality (the People’s Daily). By Blumenthal’s own theory, therefore, he is receiving a prohibited emolument.

I suspect this theory will prove too broad to be sustainable. But the question then becomes whether there is a narrower theory that would encompass Trump’s interest in Trump Tower but not Blumenthal’s interest in the Empire State Building. No doubt Trump’s financial interest in Trump Tower is much greater than Blumenthal’s in the Empire State Building. But this would just mean that Trump may be receiving a larger emolument, not that Blumenthal is receiving none.

One might argue that Trump’s role in actually operating and managing Trump Tower means that he is receiving compensation for services, not merely passive or unearned income. (Of course, if he were compensated for his services through a salary from the entity that actually owns Trump Tower, the OLC analysis suggests it would not be an emolument). But this argument is harder to make since he has turned over all management responsibilities to his children. And if the fact that Trump’s children are managing Trump Tower counts against him for purposes of the FEC, wouldn’t the fact that Blumenthal’s father-in-law and other extended family members manage the Empire State Building likewise be a problem for him?

It’s going to take some constitutional fancy footwork for Blumenthal to avoid getting caught in his own web.