The buying and selling of stocks by members of Congress has festered a palpable sense of dissatisfaction and distrust within the American public. Although these activities have been commonplace since the 18th century when war bonds were shored up by prominent government officials, the trading on insider knowledge that occurred at the onset of the COVID-19 pandemic made the issue optimally visible to the public. Even with legislation in place like the STOCK (Stop Trading on Congressional Knowledge) Act, which is intended to prevent the misuse of non-public information, minimal accountability and transparency allows for the persistence of unethical dealings across the political spectrum.
Background:
Improper financial dealings made in Congress often fly under the radar. Given so many representatives seemingly act on insider knowledge, knowing the full extent of the abuses of power is a tall order. Although the STOCK Act delineated trading on non-public information to be a crime and expanded requirements for reporting transactions for representatives and their immediate family members, no charges have been filed against a member of Congress thus far, even amidst frequent and flagrant violations of the law. Compliance failures go unchecked because establishing direct causality between Congressional knowledge and trades is inherently complex from a legal standpoint, and representatives take full advantage of this reality.
In 2020, numerous members of Congress sold shares in sectors hardest hit by the pandemic just before the severity of COVID-19 became widespread public knowledge, and many purchased stocks in industries (i.e., pharmaceutical and telecommunications) that predictably stood to gain. Four senators who were briefed on the impending threat of the outbreak in January 2020 each sold hundreds of thousands of dollars in stock options a few days after the debrief. Across Congress, a combined total of $150 million dollars in stock options were traded prior to March 2020. All the while, these same representatives would often downplay the intensity of the looming threat to the general public. The issue extends to general conflicts of interests as well. A report by the New York Times uncovered that at least 97 members (nearly 20%) of the current Congress (or their immediate family members) engaged in the buying and selling of financial assets that were directly related to their line of congressional work. The American public has naturally been left to question the real motivations behind the legislation representatives throw their weight behind, and the extent to which those motivations are rooted in personal financial advancement.
How Should We Evaluate Proposed Policy Options?
Apart from general feasibility, important criteria for the evaluation of policy options are the ability to maximize fairness and the capacity to enhance accountability. For a policy to maximize fairness, it must effectively level the playing field between legislators/their immediate family members and their constituents. This means eliminating unfair financial advantages stemming from privileged information that legislators have access to, but constituents do not. It also means ensuring that fair outcomes are produced for legislators and their families. Is it fair to potentially stifle opportunities for financial growth for Congressional members, given they chose to occupy positions of power? Is it justifiable to require that their family members, who in theory should not be privy to the same classified information, also disassociate from the buying and selling of shares? To what extent will restraints placed on members of Congress deter political participation all together? These are all crucial considerations in generating a proposal that has a high likelihood of passing.
For a policy to enhance accountability, it should succeed in both promoting transparency and assigning consequences for compliance failures. Without strict requirements in place for transparency, individuals have no incentive to disclose details of their financial holdings to the general public and can therefore profit covertly without fear of oversight. The other equally important piece of the puzzle is ensuring that there are consequences associated with a failure to be transparent and, more importantly, with the appearance of ethical deviations in one’s financial exchanges. To this end, an effective policy would succeed in either circumventing or solving the issue of the high burden of legal proof required to demonstrate that a particular trade was directly influenced by insider information.
What is the Best Course of Action?
The suggested evaluative criteria are maximally satisfied by the following multipronged proposal: (i) ban direct stock trading among members of Congress and require them to either divest their holdings or place them in a blind trust, (ii) require certification of divestment and/or establishment of blind trusts to the public, (iii) assign monetary penalties to failures to comply, and (iv) allow spouses and dependents of Congressional members to directly participate in the buying and selling of stocks.
Though different versions of legislation to ban stock trading have been met with high levels of bipartisan support in recent years, there are lingering hesitations in those withholding their backing, particularly relating to the extension of the ban to family members. Therefore, a ban on stock trading for members of Congress alone may be more likely to pass than a ban for members of Congress, spouses, and dependents. Blind trusts are another important component of this policy option, as they grant legislators the opportunity to continue to invest and simultaneously enhance voters’ trust that personal finances aren’t influencing the priorities of their leaders. Finally, the requirement of certification of both divestment and the establishment of blind trusts is crucial to attaining transparency and enhancing accountability. While monetary penalties for failures to comply may run the risk of seeming inconsequential to wealthier members of Congress, the assignment of a more punitive consequence may produce a feasibility failure in the implementation phase.
Conclusion
The intersection of voter interest and visibly growing support within Congressional chambers for a trading ban presents a unique window of opportunity to resolve an issue that has for too long undermined public trust. Continued malfeasance by members of Congress will have significant repercussions on our institutions and our nation’s health. Therefore, the proposed recommendation should be met with serious consideration and acted upon sooner rather than later.
About the Author
Sahana Srinivasan (she/her) is a second-year MPP student at the McCourt School of Public Policy. Among Sahana’s policy areas of interest are healthcare delivery systems reform and voter rights expansion. In her free time, Sahana enjoys singing, speechwriting, and traveling.
