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S. 1779 (114th): Financial Services Conflict of Interest Act


One plank of the draft Democratic platform — pushed by those on the left skeptical of Clinton’s ties to Wall Street — is receiving significant attention. With the Democratic National Convention starting on Monday, where Hillary Clinton will become the party’s presidential nominee and the platform is to be finalized, it’s a policy that a bill currently pending in Congress could codify into law.

About the bill

The Financial Services Conflict of Interest Act, S. 1779 and H.R. 3065, has three major provisions. First, it would prevent government employees from receiving bonuses from the Wall Street firms they used to work for; second,prevent former Wall Street employees in government from dealing with cases involving their former employers for two years after they’ve come to Washington; third, it would expand these ethics rules beyond the ones currently governing presidential appointees (rules that many progressives consider to be too weak), to include all government officials including ones in relevant agencies such as the Federal Reserve, Securities and Exchange Commission, and Consumer Financial Protection Bureau.

What supporters say

Introduced by Sen. Tammy Baldwin (D-WI) and Rep. Elijah Cummings (D-MD7), the bill attempts to remedy a huge concern among many Democrats on the progressive wing who feel that Clinton, her husband Bill Clinton, and Barack Obama have all been too cozy with Wall Street while in office. Even the Democrats that were considered most favorable to Wall Street like Sen. Chuck Schumer (D-NY) have come on board with the legislation.

Critics cite the taxpayer-funded bank bailouts of 2008–09 as “welfare for the rich” and criticize the appointment of Wall Street-connected people including Jack Lew, Timothy Geithner, Larry Summers, and Robert Rubin to financial oversight positions such as Treasury Secretary. Lew received a bonus totalling more than $1 million when he left Citigroup to join the Obama Administration.

“Right now, some private sector employers offer bonuses to employees when they leave to join the government. This bill would prohibit that,” wrote Clinton and Baldwin in a joint op-ed for the Huffington Post. “The private sector shouldn’t be allowed to ‘pay to play’ with their former employees. If you’re working for the government, you’re working for the people — not for an oil company, drug company, or Wall Street bank or money manager.”

The Democrats’ platform includes provisions instituting safeguards to protect against the undue influence of Wall Street in government, including clauses essentially mirroring the Financial Services Conflict of Interest Act.

“We will crack down on the revolving door between the private sector — particularly Wall Street — and the federal government,” the Democrats’ platform states. “We will ban golden parachutes for those taking government jobs. We will limit conflicts of interest by requiring bank and corporate regulators to recuse themselves from official work on particular matters that would directly benefit their former employers. And we will bar financial service regulators from lobbying their former colleagues for at least two years.”

What opponents say

Who opposes this bill? Statements by opponents are virtually impossible to come by, since the bill plays so well with the anti-Wall Street mood of the electorate at the moment. But neither the Republican-controlled Senate and House have yet allowed a vote on the bills, as the party generally opposes the creation of any new rules or regulations governing business or the private sector.

Outlook

The Senate version has five cosponsors, no Republicans. Cosponsors including such famous progressive firebrands as Sens. Elizabeth Warren (D-MA), Kirsten Gillibrand (D-NY) who replaced Clinton in her former New York Senate seat, and Bernie Sanders (I-VT) who finished as runner-up to Clinton for the Democratic nomination. It’s been referred to the Senate Homeland Security and Governmental Affairs Committee, where it has yet to receive a vote.

The House version has 17 cosponsors, all Democrats. Only eight House Democrats endorsed Sanders over Clinton, and three of them are cosponsors: Reps. Tulsi Gabbard (D-HI2), Raul Grijalva (D-AZ3), and Keith Ellison (D-MN5). The bill has been referred to the House Financial Services Committee, where it also has not yet come up for a vote. Both the Senate and House versions were introduced in July 2015.

Last updated Jul 21, 2016. View all GovTrack summaries.

The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on Jul 15, 2015.


Financial Services Conflict of Interest Act

This bill amends the federal criminal code to declare that any pension, retirement, group life, health or accident insurance, profit-sharing, stock bonus, or other employee welfare or benefit plan maintained by a federal employee's former private sector employer that makes payment of compensation contingent on accepting a position in the federal government shall not be considered exempt from certain conflict-of-interest restrictions.

The Ethics in Government Act of 1978 is amended with respect to a financial services regulator who occupies a specified supervisory position within a primary financial regulatory agency, including among specified others the Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission, and the Securities and Exchange Commission.

A financial services regulator shall not make, participate in making, or in any way attempt to use his or her official position to influence a particular matter that provides a direct and substantial pecuniary benefit for a former employer or former client. The regulator must recuse himself or herself from any official action that would provide such a benefit.

Moreover, the regulator may not knowingly participate in any matter which involves an individual or entity with which the regulator is negotiating prospective employment.

If the regulator is negotiating future employment with another entity, that fact must be disclosed to the designated agency ethics official.

The Director of the Office of Government Ethics must discharge certain recordkeeping duties to implement this Act, and refer any non-compliance to the U.S. Attorney for the District of Columbia.

The bill subjects violators of this Act to specified federal civil and criminal penalties.

The bill also increases from one to two years the period during which a former federal procurement officer responsible for a particular federal contract may not accept compensation from the contractor, including for lawyering or lobbyist services. This prohibition shall extend to accepting compensation from affiliates and subcontractors.

Procurement officials must also disclose contacts with procurement bidders or offerors about possible non-federal employment for a relative.

A federal employee may not be personally and substantially involved with the award or administration of a contract to a former employer for two years after leaving the employer.

Federal criminal law is amended to prohibit compensation for a former regulator:

for a one-year period for legal representation, lobbying, or assistance for any person (except the United States) in any judicial proceeding pending under his or her official responsibility as a regulator; or for a two-year period for similar activities on behalf of any person (except the United States) before any executive branch agency or Congress in connection with any pending matter. The Federal Deposit Insurance Act (FDIA) is amended to expand from one to two years the conflict-of-interest restrictions on federal examiners. These restrictions shall apply also to supervisors of up to five financial institutions.

The FDIA subjects to specified penalties the supervisor of a large financial service regulatory agency as well as the supervisor of a senior examiner for knowingly accepting compensation during the prohibited two-year period after the individual's regulatory service ends.