Trump must address conflicts of interest

Editor’s Note: Richard W. Painter is the S. Walter Richey Professor of Corporate Law at the University of Minnesota. He was the chief White House ethics lawyer for President George W. Bush from February 2005 to July 2007. Painter is the author of several books on government ethics as well as the ethics of bankers and lawyers. The views expressed are his own.

President-elect Donald Trump promised during his campaign to “drain the swamp” of Washington. And he is right that many Americans believe their capital to be inundated with lobbyists, campaign contributors and influence peddlers. But to reform Washington, Trump will have to address conflicts of interest that are already apparent in his transition team. Unless these problems are fixed, his administration will have little credibility in ethics by the time he reaches the White House – and that will mean reform of the rest of Washington will be very difficult.

Most of the incoming administration’s potential conflicts of interest stem from Trump’s own multibillion-dollar real estate empire. He could sell these holdings, or put them in one or more holding companies and then sell shares in those companies for cash. (Wall Street investment bankers would be more than happy to help him with this.) He could then invest the sale proceeds in conflict-free assets such as mutual funds and treasury bonds, or put the proceeds in a blind trust.

But he apparently does not want to do that. He says that he instead will turn management of these companies over to his adult children during the time he is President, presumably while he continues to own them. Yet that simply will not work from a conflict of interest vantage point – every time his administration does anything that appears to help one of these businesses, Trump will be accused of enriching himself at the expense of the public.

Perhaps the most important conflict is not what Trump owns, but what he and his businesses owe. The Trump real estate empire and others like it thrive on borrowed money. Easy money would likely be the rule for bank lenders seeking to appease a powerful president, and he could reciprocate by loosely regulating the banks. (He has already talked of repealing all or part of the 2010 Dodd-Frank banking reform law.)

Loose regulation of banks leads to easy lending and rising real estate prices, which enrich bankers and real estate moguls. But we know from past experience that the party does not last forever. When the bubble bursts – as it did in the 1990s and again in 2008 – ordinary Americans are crushed in the downturn while clever bankers and real estate investors (particularly those with inside information about government policy) bail out ahead of time.

Then there are the multitude of foreign policy questions that will arise in countries where the Trump business empire has holdings.

In countries where the United States appeases a foreign dictator or negotiates a bad trade agreement, the President’s critics will look for a Trump hotel or casino. Or perhaps there will be a building owned in part by a sovereign wealth fund and bearing the Trump name under a licensing agreement. Or a bank loan from a government-owned bank such as the Bank of China, from which The New York Times reported that Trump businesses took out at least one large loan. These latter two scenarios, and any other scenario involving transactions with foreign government-owned entities, also could violate the Emoluments Clause of the Constitution, which prohibits any government official, including the president, from taking payments from foreign governments without the consent of Congress.

Yet another problem is the unclear involvement of the President-elect’s children in his transition team. As President he will not be able to appoint his children or in-laws to any government job under the anti-nepotism statute passed by Congress after President John F. Kennedy appointed his brother to be attorney general.

Trump’s wife and children could of course give him informal advice without holding a government position. Hillary Clinton did just that for President Bill Clinton when he delegated his health care proposal to her in 1993-94. But now, as then, there will be political backlash if the President overreaches in circumventing the anti-nepotism statute.

And Trump’s children have one big conflict of interest that first lady Hillary Clinton did not have – Trump has already said his children will be running the billion-dollar Trump business empire. If he has any plans to separate his business empire from his administration, his children should have nothing to do with the transition team now, and they should have nothing to do with the official work of the White House after he becomes President.

Americans have a right to a president who not only avoids corruption by personal conflict of interest but the appearance of corruption. This is true even if Trump ignored any self-interest in making all of his decisions, and even if he were to order his subordinates to do the same.

US law requires every other employee of the executive branch, except the president and vice president, to sell assets that create conflicts with official duties or to recuse themselves from all government matters that affect those financial interests. Every other president has voluntarily complied with this law, even though not legally required to do so. Trump owes it to the American people to do the same. Only then will he be credible in telling the rest of Washington how to behave.