Entering the Executive Branch of Government: Potential Conflicts of Interest with Previous Employments and Affiliations
Released: 2015-04-07T00:00:00

This report examines the federal laws and regulations relevant to entering into federal government employment from the private sector, with respect particularly to the potential conflicts of interest that may arise because of the past employment, affiliations, or financial interests or involvements of a nominee or new officer or employee in the executive branch of government. The report is intended to provide those conducting congressional oversight with an outline of some of the issues, rules, regulations, and oversight tools that may be available regarding this subject.

Background/Issues

Concerns have been expressed about the impartiality, bias, or fairness of government regulators, administrators, and other executive branch decisionmakers who, shortly before entering government service, represented, owned, or were employed by the industries, firms, or other entities which they must now regulate and oversee, or about whom they now provide advice to the government. Several instances of alleged conflicts of interest, "appearances" of conflicts of interest or bias, or "cozy relationships" between the regulated entities and the government official who formerly worked for or represented that regulated entity, have been examined in the press over the last several years. Additionally, concerns have been raised with regard to large cash pay-outs or "rewards" to personnel of private entities who are about to enter government service. The allegations and concerns in such instances are that loyalty to private economic and business interests, rather than fealty to the general public interest, is being served by such officials in their actions.

Individuals entering federal service will bring with them existing financial investments, ownerships, properties, and other economic arrangements typical of anyone similarly placed in American society. Those entering federal service immediately from private industry will also enter with certain former affiliations, employment, or other financial, economic, or business associations with particular private interests. Federal conflict of interest law and regulation focuses primarily on current economic and financial interests of a government official and those closely associated with the official. However, there are some limited conflict of interest regulations and ethics standards which look also to previous employment and past associations of those becoming federal officers and employees.

Conflicts of Interest Generally

The term "conflict of interest" may have a broad meaning in general usage. However, under federal law and regulation a "conflict of interest," for the most part, deals with a conflict between a federal employee's official, governmental duties and responsibilities on the one hand, and the personal, financial, or economic interests of the employee on the other. When the official duties of a government employee may impact upon the outside, private business or economic interests of that employee, or the economic interests of those closely associated with the employee, a conflict of interest situation presents itself.

The overall scheme of the conflict of interest laws adopted by Congress generally embodies the principle "that a public servant owes undivided loyalty to the Government," and that advice and recommendations given to the government by its employees and officials be made in the public interest and not be tainted, even unintentionally, with influence from private or personal financial interests. The House Judiciary Committee, reporting out major conflict of interest revisions made to federal law in the 1960s, found,

The proper operation of a democratic government requires that officials be independent and impartial; that Government decisions and policy be made in the proper channels of the governmental structure; ... and that the public have confidence in the integrity of its government. The attainment of one or more of these ends is impaired whenever there exists, or appears to exist an actual or potential conflict between the private interests of a Government employee and his duties as an official.

The concern in such regulation "is not only the possibility or appearance of private gain from public office, but the risk that official decisions, whether consciously or otherwise, will be motivated by something other than the public's interest. The ultimate concern is bad government ... " The conflict of interest laws are thus directed not only at conduct which is improper, but rather are often preventative in nature, directed at situations which merely have the potential to tempt or subtly influence an official in the performance of official public duties. As explained by the Supreme Court with regard to a predecessor conflict of interest law requiring disqualification of officials from matters in which they have a personal financial interest:

This broad proscription embodies a recognition of the fact that an impairment of impartial judgment can occur in even the most well-meaning men when their personal economic interests are affected by the business they transact on behalf of the Government.

Conflict of Interest Regulation

The application of federal conflict of interest laws and regulations, particularly the laws requiring an official's recusal or disqualification from certain matters, or regulations or procedures requiring the divestiture of certain assets, have traditionally been directed at current and existing financial interests and ties of that official, and those closely associated with the official. The regulatory scheme regarding financial interests encompasses what has colloquially been called the "three-D" method of conflict of interest regulation, that is: disclosure, disqualification, and divestiture.

Financial Disclosure: Identifying and Deterring Potentially Conflicting Financial Interests

Upon entering the federal government, and then annually on May 15 thereafter, high-level government officials must file detailed, public financial disclosure statements. Public financial disclosures were first required by law with the passage of the Ethics in Government Act of 1978 ( P.L. 95-521 , as amended), and were intended to serve the purpose of identifying "potential conflicts of interest or situations that might present the appearance of a conflict of interest" for government officials in policymaking positions. In addition to the purpose of merely identifying potential conflicts, and then attempting to resolve such conflicts of interest, the committees considering the ethics legislation adopted in 1978 recognized the fact that there was potentially a "deterrent factor" in requiring public disclosure of a government official's personal and family financial information,—both in deterring the holding of certain assets (and thus deterring certain potential conflicts of interest), but also possibly in deterring the recruitment of certain persons into the government because of such persons' uneasiness with the required details of public financial disclosure. As noted by the Senate committee, however, this latter deterrent effect was not necessarily a negative consequence of required public disclosures, but could be a positive consideration in the enactment of the financial disclosure requirement:

Public financial disclosure will deter some persons who should not be entering public service from doing so. Individuals whose personal finances would not bear up to public scrutiny ... will very likely be discouraged from entering public office altogether, knowing in advance that their sources of income and financial holdings will be available for public review.

Who Must File, Generally

Whether an employee of the federal government is required to file public financial disclosure statements is determined, in the first instance, by the rate of compensation that the employee receives or will receive from the federal government, and then, secondly, by the number of days such an employee works for the federal government. Any officer or employee of the executive branch of government who "occupies a position classified above GS-15," or, if "not under the General Schedule," is in a position compensated at a "rate of basic pay ... equal to or greater than 120 percent of the minimum rate of basic pay payable for GS-15," is generally subject to the public disclosure provisions. Those employees compensated at the rate of pay described above will be required to file public disclosure statements if the individual works for the government for more than 60 days in the calendar year. This requirement for detailed, public financial disclosure under the Ethics in Government Act of 1978 applies to nearly 30,000 officials in the federal government. In addition to the statutory mandate for public disclosure based on salary level, all "Schedule C" employees, regardless of salary, must file public financial disclosures unless exempted from such disclosure by the Office of Government Ethics.

Anyone entering the federal service who is covered by the public financial disclosure laws generally must, within 30 days of appointment, file an entry report. Thereafter, covered employees must file annual reports by May 15.

Advice and Consent Positions

All presidential nominees requiring Senate confirmation must file public disclosure statements regardless of salary (but uniformed and foreign service nominees file only if they meet the pay threshold), and such reports incur other specific procedural steps. Their disclosure statements are not only filed with and reviewed by their department or agency, but are also "transmitted" to the Office of Government Ethics for review, and are "foward[ed]" for review to the committee of the Senate with jurisdiction over the particular individual's nomination.

Once the President has transmitted to the Senate the nomination of a person required to be confirmed by the Senate, the nominee must within five days of the President's transmittal (or any time after the public announcement of the nomination, but no later than five days after transmittal), file a financial disclosure statement. This financial disclosure statement is filed with the designated agency ethics officer of the agency in which the nominee will serve, and copies of the report are transmitted by the agency to the Director of the Office of Government Ethics (OGE). The Director of OGE then forwards a copy to the Senate committee which is considering the nomination of that individual. A presidential nominee must file an updated report to the committee reviewing his nomination at or before the commencement of hearings, updating the information through the period "not more than five days prior to the commencement of the hearing," concerning specifically information related to honoraria and outside earned income.

Where Filed/Availability

For most incoming federal officials filing their entry report, as well as for current employees filing their annual financial disclosure statements by May 15 of each year, such reports are filed with the designated agency ethics officer (most commonly in the office of general counsel) in the agency in which the reporting officer or employee serves or is to serve. The President and the Vice President, however, file their reports with the Director of the Office of Government Ethics.

All financial disclosure reports filed by federal officials are open generally for public inspection upon request made in writing, subject to rules on the impermissible commercial or political use of the information contained in the reports. The repository agencies are instructed to retain the reports as public records for six years. Additionally, under legislation known as the STOCK Act, reports for the highest level officials in the government, including the President, Vice President, Members of and candidates to Congress, and executive officials compensated at level I of the Executive Schedule (Cabinet officials), and level II of the Executive Schedule (which includes deputy secretaries of the departments as well as the heads of many executive and independent agencies), are now also required to be posted on the Internet by their respective agencies.

Information to Be Reported: Current Financial Interests

Most of the information required to be filed and publicly disclosed concerns current and existing financial information on assets, property, debts, income, and existing associations which may present or potentially involve a conflict of interest with the officer's or employee's official responsibilities for the government. The regular annual financial disclosure reports to be filed in May of each year generally require information concerning eight different categories of financial information. The disclosure statement requires public listing of the identity and/or the value (generally in "categories of value") of such items as: (1) the official's private income of $200 or more (including earned and unearned income such as dividends, rents, interest and capital gains) and the source of income; (2) gifts received over a certain amount (including reimbursements for travel over threshold amounts); (3) the identification of financial assets and income-producing property (such as stocks, bonds, other securities, rental property, etc.) of over $1,000 in value (including savings accounts over $5,000); (4) liabilities owed to creditors exceeding $10,000 (but generally not including one's home mortgage or car loans); (5) financial transactions, including purchases, sales or exchanges exceeding $1,000 in value, of income-producing property, stocks, bonds, or other securities; (6) positions held in outside businesses and organizations; (7) agreements for future employment or leaves of absence with private entities, continuing payments from or participation in benefit plans of former employers; and (8) the cash value of the interests in a qualifying blind trust.

The reports from those just entering federal service—including the reports of incoming presidential appointees requiring Senate confirmation—include most of the information required in the annual reports under Section 102(a) of the Ethics in Government Act, but do not include the information on gifts and travel reimbursements (§ 102(a)(2)), the information on financial transactions during the previous year (§ 102(a)(5)), or the cash value of trusts (§ 102(a)(8)). The new entrant reports specifically require disclosure of private income received for the filing year and the preceding calendar year; ownership interests in assets and income producing property over $1,000 in value, and liabilities of over $10,000 owed, as of the date specified in the report, but which must be no more than 31 days before the filing date; the identity of positions held in private entities; and any future agreements for employment, leave of absence, continuing payments from or participation in benefit plans of former employers.

Information to Be Reported: Past Associations, Clients

Although most of the public financial disclosure requirements under the Ethics in Government Act of 1978, as amended, are directed at current and existing financial holdings and interests, there are certain provisions which look to past affiliations and interests. Perhaps most significantly for first-time filers, including nominees to Senate-confirmed positions, the public disclosure law requires non-elected reporting individuals to list in public reports the identity of persons, including clients, from whom the reporting official has received more than $5,000 in compensation in any of the two calendar years prior to the year in which the reporting official files his or her first disclosure report. Such listing of clients and others who paid the reporting individual compensation above the statutory threshold, should also include a statement of "the nature of the duties performed or services rendered" for such client or employer. Furthermore, new entrant reports, including reports of nominees, are to contain the required information concerning all private income received for the filing year and the preceding calendar year; and the identity of positions held in private entities must be disclosed not only for positions held during the current calendar year, but also during the two preceding years.

Executive Branch Review and Ethics Agreements

The ethics officials to whom the annual disclosure reports are made are instructed to review the reports within 60 days to determine if the filer is in compliance with applicable conflict of interest laws and ethical standards of conduct regulations, and if so, to sign off on such reports. If there are assets, ownerships, income, or associations which indicate a conflict of interest or ethics problem, that is, that "an individual is not in compliance with applicable laws and regulations," then after consultation with the individual, the reviewing ethics official or office may recommend several steps which may be appropriate to rectify the ethics problems, including "divestiture," "restitution," the establishment of a "blind trust," the request for a personal conflict of interest exemption under 18 U.S.C. § 208(b), or a request for a "transfer, reassignment, limitation on duties or resignation."

As noted, presidential nominees who are subject to Senate confirmation also file with the agency or department in which they will serve. That agency or department conducts an expedited ("accelerated") review of the disclosure report, and where appropriate, the reviewing official is to certify that there are no problems with the private financial interests of the nominee, that is, that there are "no unresolved conflict of interest" issues. Where there are real or apparent conflict of interest problems revealed in the financial disclosure reports, the reviewing official, consulting with the reporting officer, must determine what "remedial action" is to be taken. "Remedial action" may include divestiture where appropriate, agreements to recuse, and the establishment of a qualified blind trust or a diversified trust. Subsequently, a letter to the Director of the Office of Government Ethics must be provided setting out the apparent or real conflicts of interest, the remedial measures taken to resolve those issues, and any "ethics agreements" entered into to resolve such conflicts. Ethics agreements are specific agreements between the nominee or official and the agency, as approved by OGE, as to future conduct that the nominee or official will take, such as divestiture, recusal or resignation from an outside position, to resolve a conflict of interest problem. If the Director of OGE is satisfied that all conflicts have been resolved, the Director signs and dates the report form, then submits the form and any ethics agreement, with a letter to the appropriate Senate committee expressing the Director's opinion that the nominee has complied with all conflict of interest laws and regulations.

Committee Requirements for Advice and Consent Positions

All financial disclosure statements from presidential nominees who require Senate confirmation are forwarded to the committee of jurisdiction from the Office of Government Ethics. The nominee is also required to update the disclosure statement with respect to certain items within five days before nomination hearings. Committees of the Senate, because of the Senate's express constitutional power of approval of presidential nominations of officers of the United States, are not limited or restrained by the disclosure forms as to the information that they may request from a nominee to assist in their constitutional "advice and consent" function; and may require any additional information from a nominee that they deem necessary or desirable. Furthermore, a Senate committee, or the Senate, may require the nominee to agree to dispose of certain assets, and/or to recuse himself from participating in certain governmental matters, even beyond any "ethics agreement" made between the nominee and agency or OGE officials.

Disqualification and Prohibited Conflicts of Interest

The principal statutory method of dealing with potential conflicts of interest of an executive branch officer or employee is to require the disqualification (or "recusal") of the officer or employee from participating in any official governmental matter in which that official—or those close enough to the official such that their financial interests may be "imputed" to the official—has any "financial interest." The statutory provision requiring disqualification and recusal is a criminal provision of federal law, and covers only current or existing financial interests of the officer or employee. Under the law, criminal penalties may attach to an officer or employee who has the requisite financial interest in an official matter and who participates in that official matter.

There is also a "regulatory" recusal requirement that may be broader in some aspects than the statutory restriction, and may apply to certain past affiliations and previous economic interests. Current regulations promulgated by the Office of Government Ethics expressly require in certain circumstances that the executive branch official refrain from participating in certain particular matters when businesses, entities, or economic enterprises with which the official had been affiliated in the past one year are parties to or represent parties in that matter; and require as well certain disqualifications for two years in cases where the private entity had made "extraordinary" payments to the government official upon the official's departure. Under the "ethics pledge" which presidential and vice-presidential appointees in the Obama Administration must take, the one-year recusal requirement for particular matters involving specific parties is increased to two years, and additional restrictions are added on participating in particular governmental matters for former lobbyists entering the Administration.

Statutory Disqualification or Recusal

The federal statutes deal with existing conflicts of interest of administrative or regulatory personnel principally by requiring the disqualification of such federal official from certain governmental matters in which the official may be financially interested, as opposed to specifically requiring the divestiture of conflicting interests. The federal statute at 18 U.S.C. § 208, which is the principal, general conflict of interest provision under federal law, requires an official's disqualification (recusal) from a particular governmental matter in which the officer, his or her spouse or dependent " has a financial interest," or where there is affected a financial interest of an outside entity "in which he [the government official] is serving" as an employee, officer or director, or with whom the official " is negotiating or has an arrangement" for future employment. The statutory language is thus stated in the present tense and is directed only to current financial interests and existing arrangements or current understandings for future employment, and the statutory provision does not require disqualification on a matter because of a past affiliation or previous economic interest.

The statutory provision at 18 U.S.C. § 208 specifically bars a federal officer or employee in the executive branch of the federal government from taking official action "personally and substantially" through "decision, approval, disapproval, recommendation, the rendering of advice, investigation or otherwise," in any "particular" governmental matter, such as a proceeding, request for a ruling, claim, or a contract, which affects the financial interests of that officer or employee, that employee's spouse or dependents, or which affects the financial interests of an organization in which the employee is affiliated as an officer, director, trustee, general partner or employee, or "with whom he is negotiating or has any arrangement concerning prospective employment."

Although there is no de minimis exception expressly stated, the law does provide that regulations may exempt certain categories of investments and interests which are deemed too remote or inconsequential to affect the performance of an official's governmental duties. The current Office of Government Ethics regulations exempt several such interests, including all interests in "diversified" mutual funds; interests in sector funds which include some companies affected by a governmental matter but where those companies are outside of the primary sector in which that fund specializes, and other sector funds even specializing in the particular sector but where one's interest in the fund is no more than $50,000; securities, stocks and bonds in a publicly traded company which is a party to and directly affected by a governmental matter if one's ownership value is no more than $15,000; securities, stocks and bonds in such a company which is not a specific party to a matter but is in a class affected by the governmental matter, if the employee's ownership interest is no more than $25,000 (if securities in more than one such company are owned, then the aggregate value cannot exceed $50,000 to be exempt from the statute).

Regulatory Disqualification for Current Conflicts of Interest

In addition to the statutory recusal requirement, there also exists regulatory requirements for disqualification which may reach other financial interests and connections. Although the range of private interests potentially affected by an official's governmental actions are broadened in the regulation, the regulatory recusal provision is more narrowly focused than the statutory provision as to those specific governmental matters covered. The regulations of the Office of Government Ethics provide this regulatory disqualification provision to help assure the avoidance of "an appearance of loss of impartiality in the performance of" official duties by a federal employee. The regulation, in comparison to the statutory recusal requirement, expands the persons and entities who are deemed to be so connected to the employee that their financial interests may be "imputed" to that employee (and, as such, would constitute cause for recusal or disqualification of the employee from a governmental matter affecting or involving those interests); but, as compared to the statutory disqualification, narrows those particular governmental matters that are included in the disqualification requirement. Even if covered by this particular regulatory provision, there are circumstances in which the employee may still be authorized by his or her agency to participate in the particular matter when warranted.

The regulation requires a government employee in the executive branch to recuse himself or herself from a "particular matter involving specific parties" when (1) the employee knows that the matter will have a direct and predictable effect on the financial interests of a member of his or her household, or (2) when a person or entity with whom the employee has a "covered relationship" is a party or represents a party to the matter. Such recusal should be done under those circumstances when the employee believes that his or her impartiality may be questioned, unless the employee first advises his or her agency about the matter and receives authorization to participate in the matter. As to current and existing financial interests, the regulation provides that a "covered relationship" is one with: those persons or entities with whom the employee seeks a business, contractual or other financial relationship; a member of the employee's household, or a relative with whom the employee has a close personal relationship; a person or entity with whom the employee's spouse, child, or parent is serving or seeks to serve as an officer, director, trustee, general partner, agent, attorney, consultant, contractor, or employee; or an organization (other than a political party) in which the employee is an active participant.

As noted, the regulatory recusal requirement, although broader as to the affected financial interests, applies to a narrower range of governmental matters than the statutory provision. The regulation applies only to particular governmental matters "involving specific parties," and as such would not cover such "particular matters" as general policymaking or drafting regulations affecting an economic or business sector; while the statutory recusal requirement applies to all governmental "particular matters," including even the drafting of such regulations.

One-Year Regulatory Disqualification for Past Affiliations

In addition to the Office of Government Ethics regulations applying a recusal requirement beyond the interests and relationships set out in the criminal conflict of interest statute concerning other current or existing interests, the regulations also expand and apply a potential recusal and disqualification requirement of a federal executive branch official for certain past business and economic associations. The regulations provide that a federal official should recuse or disqualify himself or herself from working on a particular governmental matter involving specific parties if a "person for whom the employee has, within the last year, served as an officer, director, trustee, general partner, agent, attorney, consultant, contractor or employee ..." is a party or represents a party in such matter.

This one-year recusal requirement, concerning matters affecting an official's former employers, businesses, clients, or partners, applies to any officer or employee of the executive branch, but applies narrowly only to "a particular matter involving specific parties" when such former employer or business associate is or represents a party to the matter. As noted above, matters "involving specific parties" cover generally things such as contracts, investigations, or prosecutions or cases involving specific individuals or parties, as opposed to broader "particular matters" which may involve a number of persons or entities (such as most rule making). Notwithstanding the fact that a past employer, client, or business associate with whom the employee has a "covered relationship" may be a party or represent a party to such a matter, an employee may, as with the regulatory restriction on current interests, receive authorization by his or her agency to participate in the matter. An Executive Order issued by President Obama would, for full-time presidential and vice presidential appointees to non-career positions in the Obama Administration, apply a similar restriction for two years after entering the government concerning such appointees and their former employers or clients.

Two-Year Regulatory Disqualification for Extraordinary Payments From Past Employers

In addition to the one-year recusal requirement for particular matters involving specific parties when a former client, employer, firm, or business is or represents a party in that matter (or two years by Executive Order if one is a presidential or vice presidential appointee in the Obama Administration), the regulations of the Office of Government Ethics also provide for a two-year recusal requirement which bars an official in the executive branch from participating in a particular matter in which a "former employer" is or represents a party when that former employer had made an "extraordinary payment" to the official prior to entering government. An "extraordinary payment" is one in excess of $10,000 in value made by an employer after the employer has learned that the employee is to enter government service, and one which is not an ordinary payment, that is, is a payment other than in conformance with the employer's "established compensation, benefits or partnership program." This disqualification provision may be waived in writing by an agency head, or if the individual involved is the head of an agency, by the President or his designee.

Payments to Employees Entering the Government

There have been concerns raised in the media about large cash payments or "rewards" given to employees and officers of private firms when such persons are about to enter the federal government. The concern is that such large cash payments or rewards would unduly influence those individuals to make policy decisions, recommendations, or otherwise take actions favorable to the donor private firm when they enter federal employment.

As noted above, "extraordinary payments" from a private employer to an individual who is to become a federal official may encounter the two-year disqualification requirement under OGE regulations. Such regulations require the recusal of that incoming employee for two years from participating in any particular governmental matter involving that former employer as a party, or if the former employer or partner represents a party to the matter.

Additionally, there is a criminal provision of federal conflict of interest law, at 18 U.S.C. §209, which prohibits a federal employee from receiving any outside, additional, or supplemental compensation from a private source for his or her official government duties as a federal employee. One who has already entered federal service may not, therefore, accept a salary supplementation from a business or organization intended to "make up the difference" between private sector and federal government salaries, or to otherwise reward or compensate the new federal employee for his or her public service. This statutory restriction originated in 1917 from an initial legislative concern over private foundations paying the compensation of persons who were serving under a cooperative agreement in the Bureau of Education within the Department of the Interior, and the undue and, to some, "noxious" influence of such foundations on national educational policy. The law at §209 has been described as a conflict of interest statute "in the strictest sense," that is, an "employee does not have to do anything improper in his office to violate the statute," but rather his or her special status as a government employee "makes an unexceptionable act wrongful—wrongful because of the potential dangers in serving two paymasters." The law thus seeks to assure that a federal employee is compensated for his or her services to the government only by the government, is not placed in a position of "serving two masters," and is not, nor appears to be, beholden or grateful to any outside group or private interest which "could affect the independent judgment of the employee."

This provision of criminal law at 18 U.S.C. § 209 might come into play, therefore, regarding certain "severance" payments, packages, or plans from a former private employer to an individual who has entered federal service if there is evidenced an "intent to compensate" an individual for that person's federal employment. The provision is not as broad in its application to severance payments as it may seem at first glance, however, since the language of the statute applies expressly only to "an officer or employee of the executive branch of the United States Government," and has been interpreted by the courts as applying only to persons who at the time payments were received were federal employees. That is, the restriction does not apply to severance payments which are made at the time one leaves or is contemplating leaving private employment, but before the individual actually becomes an officer or employee of the government. Even if the payment is made to reward the employee for taking a public service job, or is intended to or has the effect of instilling in the about-to-become-official a sense of gratitude or goodwill towards the private employer, there is apparently no violation of this criminal conflict of interest provision for severance payments made before one is a federal official, since federal employment status is an express element of the statute.

Pensions: Past or Present Financial Interest?

One of the issues that arises with respect to current or past associations under the statutory recusal or disqualification requirement is the treatment of pensions from outside entities. Pensions generally involve current payments or vested interests from a fund controlled by an outside entity, but in recognition of or as compensation for past services. There are thus questions raised as to whether an employee's vested interest in a pension is a current financial interest or association with or in the entity making the payment, subject to all of the disqualification restrictions and limitations on current and existing financial interests, or whether pensions are excluded from being a disqualifying interest of an employee. The issue under the statutory recusal requirement is, as stated by the Office of Government Ethics, the concern "about an employee's participation in a Government matter that could have an effect on the sponsoring organization that is responsible for funding or maintaining the Government employee's pension plan."

In interpreting the law at 18 U.S.C. § 208 and the regulations under it, the Office of Government Ethics has distinguished between two common types of pension plans, the "defined benefit plan," and the "defined contribution plan." In a "defined benefit plan," the employer typically "makes payments to an investment pool which it holds and invests for all participating employees"; and such plans are the "obligation of the employer" which pays the former employee an amount generally based on some percentage of what the employee's compensation had been. A "defined contribution plan," however, typically involves contributions by the employer and/or the employee to a specific, individual retirement account, and the payout of income or annuity is based on the amounts, earnings, gains or losses generated by such account.

The conflict of interest concerns thus generally arise more typically with a "defined benefit plan" type of pension where the employer itself is obligated to make the pension payments, but not so in a "defined contribution plan" where the pension payments come out of an already established and funded retirement account. For purposes of the statutory disqualification requirement, therefore, the Office of Government Ethics would not consider a "defined contribution plan" as a "disqualifying" financial interest of the employee: "For matters affecting the sponsor of a defined contribution plan, an employee's interest is not ordinarily a disqualifying financial interest under section 208 because the sponsor is not obligated to fund the employee's pension plan."

If the employee's pension is based on a "defined benefit plan," then the Office of Government Ethics would consider such a pension as a current, disqualifying interest under 18 U.S.C. § 208, in some circumstances. A defined benefit plan will be considered a disqualifying interest in governmental matters relating to the sponsor of the employee's pension if the governmental matter involved is so significant to the pension's sponsor that it could actually affect the employee's pension plan, that is, that "the matter would have a direct and predictable effect on the sponsor's ability or willingness to pay the employee's pension benefit," such as if the matter could result in "the dissolution of the sponsor organization." OGE notes that in a practical sense, it is unlikely that a governmental matter will have such an effect on a private pension sponsor, since even large contracts worth, for example, $500,000 to a firm, would not materially affect a sizable corporation's ability to pay its pension obligations to former employees.

In most cases it is therefore unlikely that a current interest in or receipt of payment from a pension plan, either a defined benefit or defined contribution plan, would trigger the broad statutory, criminal recusal or disqualification requirement of 18 U.S.C. §208, for a federal employee as to the sponsor of his or her private pension; and the Office of Government Ethics has advised agencies to no longer "automatically presume that employees have a conflict of interest in matters affecting the sponsor of their defined benefit plans." The private sponsor of a defined benefit pension plan would, however, for purposes of the regulatory "impartiality" requirement, be one with whom the federal employee has a "covered relationship." In such a case, absent a disclosure to and authorization from the agency, the employee should therefore disqualify himself or herself concerning any official governmental matter which involves the sponsor of the pension plan as a "specific party."

Obama Administration Appointees

On January 21, 2009, President Obama issued an Executive Order requiring the signing of an "ethics pledge" by all presidential and vice presidential appointees to full-time, non-career positions in the executive branch, including all non-career SES appointees, and appointees to positions excepted from competitive service because they are of a confidential or policymaking nature (such as Schedule C appointments) The "ethics pledge" places two additional restrictions on such appointees entering the executive branch, with respect to their former employers or clients.

Initially, such "appointees" may not participate in, and must recuse themselves for two years after entering federal service from any particular governmental matter involving specific parties when a former client or former employer of the appointee is a party to or represents a party in that particular matter. This extends a similar regulatory recusal and disqualification requirement applicable to all executive branch officials from one year to two years for such "appointees."

Secondly, any such "appointees" who were registered "lobbyists" prior to entering the executive branch, are under additional and further restrictions. Such appointees/former lobbyists may not, for two years after entering the government: (1) participate in any particular matter on which the appointee had lobbied within the two years prior to his or her appointment; (2) participate in the specific issue area in which that particular matter falls; or (3) seek or accept employment with any agency that the appointee had lobbied within the two years prior to entering government service.

In a similar fashion as other disqualification rules and laws, this disqualification and recusal requirement of the "ethics pledge" may be waived in certain circumstances. A waiver may be granted when the Director of the Office of Management and Budget, in consultation with the Counsel to the President, provides a written waiver that the strict application of the provision is inconsistent with its purposes, or when such a waiver "is in the public interest to grant."

A further restriction on "lobbyists" serving in federal positions was announced by the Obama Administration in September of 2009, explaining the Administration's intention to prohibit federally registered lobbyists from serving on federal advisory boards and commissions used by federal executive agencies and officials. This position was made a formal policy of the Administration in a Presidential Memorandum to the heads of executive agencies and departments on June 18, 2010, in which the heads of agencies and departments were instructed not to reappoint or appoint federally registered lobbyists to "advisory committees and other boards and commissions."

Divestiture

There is no federal statute which expressly implements a general, over-all requirement for federal employees to divest particular private assets or holdings to resolve likely or potential conflicts of interest with employees' public duties. Occasionally, a statutory provision, often the organic act establishing an agency, bureau, or commission, will provide expressly that the directors or board members of such entities shall have no financial interests in the business or sector which the agency, bureau, or commission is to regulate or oversee. Furthermore, an agency may by regulation prohibit or restrict the ownership of certain financial assets or class of assets by its officers and employees where, because of the mission of the agency, such interests would "cause a reasonable person to question the impartiality and objectivity with which agency programs are administered." In such instances, these statutory and regulatory provisions would, in their effect, require the divestiture of particular assets and holdings of certain individuals to be appointed to such positions or who are incumbents in such positions.

Although there is no general statutory divestiture requirement, the divestiture of assets, properties, or holdings may be required as a conflict of interest avoidance mechanism by administrative provisions and oversight, as well as by a Senate committee or the Senate as a whole as a condition of favorable action on a presidential nominee requiring Senate confirmation. As noted earlier, the principal statutory method of conflict of interest avoidance, with respect to particular assets and holdings of a federal official, is to require the disqualification of that official from a governmental matter affecting those financial interests. However, under current regulations of the Office of Government Ethics, as part of the ethics review process, an agency may require the divestiture of certain assets of an individual employee where those interests would require the employee's disqualification from matters so central to his or her job that it would impair the employee's ability to perform his or her duties, or where it could adversely affect the agency's mission because another employee could not easily be substituted for the disqualified employee. When divestiture is required for ethics reasons, a current employee should be afforded a "reasonable amount of time" to effectuate the disposal of the asset; furthermore, it is possible to ameliorate potential unfair tax burdens that may arise because of such required sale of an asset by receiving a certificate of divestiture and postponing capital gains taxes.

In some instances, a "qualified blind trust" may be used to avoid a conflict of interest as an alternative to "divestiture." While the underlying assets in a trust in which one has a beneficial interest must normally be disclosed in annual public financial disclosure reports, and would generally be "financial interests" of the employee/beneficiary for disqualification purposes, federal officials may, as a conflict of interest avoidance measure, place certain assets with an independent trustee in what is called a "qualified blind trust." The nature of a "blind trust," generally, is such that the official will have no control over, will receive no communications about, and will (eventually as existing assets are sold and new ones obtained by the trustee) have no knowledge of the identity of the specific assets held in the trust. As such, an official will not need to identify and disclose the particular assets in the corpus of a "blind trust" in future financial disclosure reports, and such assets will not be "financial interests" of the employee for disqualification purposes. The conflict of interest theory under which the blind trust provisions operate is that since the official will not know the identity of the specific assets in the trust, those assets and financial interests could not influence the official decisions and governmental duties of the reporting official, thus avoiding potential conflict of interest problems or appearances. Assets originally placed into the trust by the official will be known to that official, and therefore will continue to be "financial interests" of the public official for conflict of interest purposes until the trustee notifies the official "that such asset has been disposed of, or has a value of less than $1,000."

A Note on General "Impartiality," Alleged "Bias," and Past Affiliations or Activities

The standards of conduct regulations promulgated by the Office of Government Ethics and derived from Executive Orders, provide generally that an employee in the executive branch must "act impartially and not give preferential treatment to any organization or individual." As to past associations, the Office of Government Ethics has noted that "It has long been recognized that former employment with a private organization can raise impartiality concerns. Members of the public, the press, and even the Congress sometimes have questioned whether a particular public official might be subject to continuing influence by a former employer." The "general principles" in the OGE regulations regarding financial interests and connections, outside employment or activities, and "impartiality," are fleshed out and covered in the more specific regulations promulgated by OGE. Although the basic impartiality language is fairly broad on its face, the "impartiality" actually required of a federal employee in a governmental matter by the specific conflict of interest and federal ethics standards, is a disinterestedness in the matter from the point of view of any financial impact that such a matter may have upon the employee personally, or upon certain entities, persons, or organizations which are closely associated with the employee, such that the financial interests of such entities or persons may be fairly "imputed" to the employee. As noted by the Office of Government Ethics,

Questions regarding impartiality necessarily arise when an employee's official duties impact upon the employee's own financial interests or those of certain other persons, such as the employee's spouse or minor child.

Thus, while past employment or other past professional affiliations or connections to private entities may suggest conflict of interest concerns and trigger certain restrictions under regulations, the current ethical standards of conduct and conflict of interest rules do not necessarily imply a prohibited "favoritism" or "impartiality" by the mere fact of past employments or past professional associations or positions beyond those past employment connections that are specifically covered and dealt with in the regulatory disqualification restrictions. That is, no matter how philosophically predisposed an administrative official may arguably seem towards an issue because of his or her professional or employment background, a specific "bias" or "partiality" in a decision cannot be gleaned, as a matter of federal law, merely by the past associations and /or past employment of a federal regulatory or administrative official beyond the specific regulatory restrictions.

In general, the "impartiality" required of a federal employee in a matter does not mean that every federal employee must be completely "neutral" on an issue or matter before him or her, in the sense that the employee has no opinion, view, position, or predilection on a matter based either on past associations, or based upon current noneconomic factors such as the ethical, religious, ideological, or political beliefs in the background or in the current affiliations of the employee. In the specific regulations on "impartiality" and participation in outside organizations, in fact, the Office of Government Ethics notes, "Nothing in this section shall be construed to suggest that an employee should not participate in a matter because of his political, religious or moral views."

As to the issue of "bias" or "impartiality" generally in decision making of federal officials, federal cases dealing with the alleged bias of a federal official have arisen on occasion in a "due process" context with respect to rule making of an agency. In such cases there had been alleged a lack of due process or fairness in the agency proceeding because of some claimed "bias" of a federal agency official. The courts have found, however, that when a federal official is not acting in an adjudicatory capacity, that is, in a similar position as a judge, then judicial standards of impartiality need not apply. The Court of Appeals for the District of Columbia Circuit has noted: "We must not impose judicial roles upon administrators when they perform functions very different from those of judges." The disqualification requirement for those who are part of formal adjudications was "never intended ... to apply in a rulemaking procedure," even a formal rulemaking procedure. In an earlier case in the District of Columbia Circuit, the court had explained,

Agencies are required to consider in good faith, and to objectively evaluate, arguments presented to them; agency officials, however, need not be subjectively impartial.

Going beyond specific statutory or regulatory restrictions on employees' economic interests and attempting to judicially apply very broad bias or impartiality standards upon regulators and administrators beyond those standards, noted one court, "is to invite challenges to officials based not upon true conflicts of interest but upon their philosophical or ideological leanings.... " Limiting "conflict of interest" regulation to current personal financial interests of employees—and the financial interests of those imputed to the employee—may also ameliorate some First Amendment issues regarding attempts to regulate the outside, private associations, memberships, or organizational activities of public employees. While there could be concerns raised about general notions of "bias" or partiality in a governmental function based on alleged associations, past or present, of particular employees involved in a particular matter, issues involving the ethics and conflict provisions in internal governmental standards of conduct regulations are generally not amenable to legal resolution by private litigants. That is, those regulations do not raise an actionable standard for litigation by outside private parties, but rather are generally considered internal, discretionary or disciplinary matters within the agency.