President-Elect Donald Trump has a unique and difficult problem. Most recent Presidents have come to the office after years of government service with assets that consist mostly of real estate, stocks, bonds, etc... They have not had a distinct business empire of the sort Trump has built.
Many people are calling on Trump to divest his business, including the WSJ editorial board:
Mr. Trump’s best option is to liquidate his stake in the company. Richard Painter and Norman Eisen, ethics lawyers for George W. Bush and President Obama, respectively, have laid out a plan, which involves a leveraged buyout or an initial public offering.
Mr. Trump could put the cash proceeds in a true blind trust. The Trump children can keep the assets in their name, and he can transfer more to them as long as he pays a hefty gift tax. Finally, Mr. Trump should stipulate that he and his children will have no communication about family business matters.
The alternatives are fraught, perhaps even for the Trump Organization’s bottom line: Thanks to a Clinton Administration precedent, Presidents can face litigation in private matters—so the company will become a supermagnet for lawsuits. Rudy Giulianilamented on television that divestment would put the Trump children “out of work,” but reorganizing the company may be better for business than unending scrutiny from the press. Progressive groups will soon be out of power and they are already shouting that the Trump family wants to profit from the Presidency.
The political damage to a new Administration could be extensive. If Mr. Trump doesn’t liquidate, he will be accused of a pecuniary motive any time he takes a policy position. For example, the House and Senate are eager to consider tax reform—and one sticking point will be the treatment of real estate, which will be of great interest to the Trump family business. Ditto for repealing the Dodd-Frank financial law, interest rates and so much more.
But I suspect PEOTUS Trump will continue to resist doing so. For one thing, divesting a business as complex as Trump's is not something one can do in a hurry. As a leading guide to corporate divestitures explains, this is a lengthy, complex, and fraught process:
Second, Trump has a perfectly legitimate desire to pass his business on to his children. Requiring him to divest would deny him the ability to do so. It would also set an unfortunate precedent that would discourage business men and women from seeking office in the future, creating even greater dominance of government by a permanent political class that cycles from government jobs, to public office, to lobbyist firms, and over again.
Third, Trump is stubborn and likes to tweet his enemies (NB: I meant tweak, but tweet was a happy accident so I'm leaving it). There will be a strong temptation for him to keep his business just to give the finger to progressives. So a plan devised by Painter--who supported Hillary in the last election and vilified Trump in op-eds--and ex-Obama aide Eisen is probably going to be rejected just because of who's behind it.
At the same time, however, it is clear that Trump's business empire is a fertile source of conflicts of interest. There will be many cases--trumped up (pun intended) or not--where he will be accused of creating pay to play scenarios. And so on.
There is an alternative. It's not ideal, but it would reduce the potential for conflicts of interest and enable Trump to pass his business on to his kids.
First, he needs to take a hard look at his sprawling empire and identify the core pieces--the family jewels, if you will--that he wants to pass on. The non-essential rest should be sold off and the proceeds put into a blind trust.
Second, he needs to create an insulation wall separating his political activities from those of the organization. Such walls were formerly known in colloquial legal speech as “Chinese walls.” As a California appellate judge aptly noted, however:
“Chinese Wall” is [a] piece of legal flotsam that should be emphatically abandoned. The term has an ethnic focus that many would consider a subtle form of linguistic discrimination. Certainly, the continued use of the term would be insensitive to the ethnic identity of the many persons of Chinese descent. . . .
Aside from this discriminatory flavor, the term “Chinese Wall” is being used to describe a barrier of silence and secrecy. . . . [But] “Chinese Wall” is not even an architecturally accurate metaphor for the barrier to communication created to preserve confidentiality. Such a barrier functions as a hermetic seal to prevent two-way communication between two groups. The Great Wall of China, on the other hand, was only a one-way barrier. It was built to keep outsiders out—not to keep insiders in.
In law firms, terms such as “ethical wall” or “ethical screen” are emerging as alternatives. In the present context, however, the term “insulation wall” seems superior. First, it does not connote the professional responsibility aspects associated with the ethical wall terminology. Second, it provides a more exact “architecturally accurate metaphor” than does ethical wall.
Key features of such a wall typically include organizational and physical separation of persons with access to information especially likely to be abused from persons who do not need such access. Prohibitions against and penalties for discussing confidential matters with unauthorized personnel or in locations where such discussions could be overheard are also an important part of the insulation wall. Likewise, procedures for preventing unapproved personnel from accessing confidential information and files, delinking approved personnel compensation from trading profits and regular training of personnel on their legal and commercial responsibilities.
In Trump's case, this means:
- He resigns from all positions with his businesses.
- He puts all of his shares in the companies he owns into voting trusts and appoints one of his children, probably Ivanka, as trustee.
- Any members of the Trump family that take formal or informal positions in the White House must resign from any positions they hold in the Trump organization. They should sign confidentiality agreements pursuant to which they commit not to share confidential information with any member of the Trump family, including spouses or children.
- Any members of the Trump family who do not hold positions in the White House should also sign confidentiality agreements, agreeing not to seek access to confidential information and agreeing not to use any confidential information they may learn from government sources.
- Senate Ethics Rules provide that:
- "If a Member’s spouse or immediate family member is a registered lobbyist, or is employed or retained by such a registered lobbyist or an entity that hires or retains a registered lobbyist for the purpose of influencing legislation, the Member shall prohibit all staff employed or supervised by that Member (including staff in personal, committee, and leadership offices) from having any contact with the Member’s spouse or immediate family member that constitutes a lobbying contact as defined by section 3 of the Lobbying Disclosure Act of 1995 by such person."
- Trump should adopt a similar rule for West Wing employees having any contact with members of his family who are not themselves west Wing officials.
- Any contacts between Trump and anyone affiliated with his business--including his children--should be publicly disclosed.
- All West Wing employees-including Trump-should adopt a clean desk rule when Trump business affiliates--including his children--are in the building.
- Any contacts between anyone in the West Wing and any foreign official doing business with the Trump business organization should be disclosed.
Washington is full of power couples that have faced conflicts of interest (Diane Feinstein springs to mind). The press has allowed them to work out reasonable solutions. People ought to give Trump a chance to create an ethics wall that will separate his family's business interests from his new position as POTUS.
Oh by the way, releasing his tax returns--at least on a going forward basis once he enters office--would be a good place to start.
