Politics and Conflicts of Interest

Politicians and their staff are prone to conflicts of interest. Legislative, executive, and regualtory actions will affect the value of companies and their investors.

Hillary Clinton failed to address the conflicts between her actions as Secretary of State and the fundraising of the Clinton Foundation. One of the campaign promises of Donald Trump was to tackle these conflicts of interest and “drain the Washington swamp.” Either candidate would have to address the conflicts when taking over the presidency.

Mr. Trump won, whether you are for or against him, and now its time to figure out how to deal with the conflicts. His task is many times larger than that of any modern candidate. He has extensive business holdings, most of which are based on his name and run by his family, and extensive overseas investments.

Perhaps there is a role for a compliance program here. It’s not just for good ethics. There is a Constitutional requirement in the Emoulments Clause and the Foreign Gifts and Decorations Act.

The standard political solution to wealth management for the president is is a blind trust. The trustees are independent of the candidate and the politician does not know what is in the trust. That would prevent the politician from achieving direct financial gain from his or her time in office.

A blind trust will not work for an active business like the Trump organization. Having it run by his children makes it even less blind. It’s hard to miss the investments made by the company when the Trump name is plastered all over the holdings. Look at his financial disclosures. He listed hundreds of companies that he owns or controls.

In addition, serving as president will not make Mr. Trump immune from private lawsuits. He could easily be dragged into court for a deal gone bad. I would expect that he will be magnet for litigation.

He has extensive holdings overseas. That is going trigger anti-corruption regimes in those countries. Some of his lenders are state controlled organizations.

Put on your compliance hat and offer some advice.

I agree with the Wall Street Journal opinion page’s advice. (I admit that this is an uncommon event for me.)

Mr. Trump needs to sell. He needs to liquidate his interest in the Trump Organization. It’s the only way. If he does not, he is just another alligator in the swamp of Washington DC.

I’m doubtful he will take the right path. To do so would put an actual valuation on the organization. I think he is happy to say he is extremely wealthy. I think he is even happier to not know what that number is.

Selling the organization would place a clear dollar value on his organization and on him. I’m sure Mr. Trump thinks that the value is many times higher than what a third party would be willing to pay, or through an IPO.

I think the chances of a sale is close to zero.

How should Mr.Trump arrange his holdings to avoid a conflict of interest or accusation of kleptocracy. One would be to prove that he not actually receiving financial gain. Unfortunately, that would require a level disclosure that gets him closer to the information he would have to provide in an IPO.

You may agree with some, all, or none of Mr. Trump’s policies, whether actual or perceived. Nobody wants the US president to have the appearance of a kleptocrat. Nobody wants the president to be using the office for overt, personal financial gain while in office.