Congress is taking another look at the Stop Trading on Congressional Knowledge Act (S. 2038) enacted earlier this year that is primarily aimed at preventing insider trading by lawmakers. The concern lies with a provision in the law to extend public financial disclosure requirements to government scientists and thousands of other federal employees.
Lawmakers are responding to fears relating to the required Internet posting of disclosure information. Opponents argue that open access to such data would inadvertently reveal the identity of U.S. intelligence operatives and put diplomats and military officials in jeopardy. Executive branch employees are also complaining that publicly exposing their personal financial data unfairly invades their privacy and would increase the risk of identity theft.
The financial disclosure information was originally set to post on the Internet at the end of August. But the posting was put on hold by a measure (S. 3510) unanimously passed by the House of Representatives and the Senate on Aug. 2. The measure delays for one month the public reporting of financial transactions by high-level federal officials in a searchable, online database.
The delay in online publication of disclosures until the end of September is intended to give Congress time to revise the insider-trading law, which both chambers passed with strong bipartisan support.
Known as the Stock Act, S. 2038 seeks to clarify an ambiguity in the 1934 Securities Exchange Act by prohibiting members of Congress and their staffs from trading on information they obtain from their work that is not available to the general public.
Members of Congress are not explicitly exempt from the law used to prosecute illegal insider trading. But experts disagree over whether the existing ban applies to nonpublic information about current or upcoming legislative activity, because lawmakers are not technically obligated to keep that information confidential.
Under the Stock Act, lawmakers, spouses, and dependents are required to file a “periodic transaction report” of the sale or purchase of any property, stocks, bonds, or other financial instruments worth more than $1,000. The reports have to be filed within 45 days of the transaction taking place. The information posts on a public database.
The law also includes a provision authored by Sen. Richard C. Shelby (R-Ala.) that requires 28,000 executive branch employees to disclose their financial assets “on the official websites” of their respective agencies. The data would reveal, among other things, employees’ ownership of stocks and bonds, investment income, business interest, and noninvestment income such as salary and retirement benefits.
During the Senate debate on the merits of the bill on Feb. 2, Shelby argued that his amendment would provide fairness and parity as well as improve transparency. “It only seems fair that executive branch officials who are already required to file annual financial reports also be directed to meet the same additional reporting requirements being imposed on the legislative branch,” he remarked.
“Some people have argued that the executive branch has other ways to deal with insider trading,” Shelby added. “But none of those will subject executive branch employees to the same public scrutiny.”
The legislation was shepherded through the House of Representatives a week later by Majority Leader Eric I. Cantor (R-Va.). It was signed into law by President Barack Obama in early April.
At a White House bill-signing ceremony, Obama noted that the Stock Act “creates new disclosure requirements and new measures of accountability and transparency for thousands of federal employees. That is a good and necessary thing. We were sent here to serve the American people and look out for their interests—not to look out for our own interests.’’
But over the summer, groups representing career federal employees and government scientists, as well as national security experts, began voicing concerns about the new law.
The Stock Act is an “inadequately considered law, unfortunately enacted with extreme haste in an election year,” according to a position paper issued on June 19 by the Senior Executives Association (SEA), which represents top officials in the federal civilian workforce. The requirement for an online database of high-ranking career executives’ financial information is an invasion of privacy, a security threat, and an obstacle to recruiting top-level talent, SEA charged.
The new provisions, the association said, will make federal employees “prime targets for identity thieves,” and Foreign Service officers serving and traveling abroad “could come under easy scrutiny by foreign interests, including terrorists.”
The Assembly of Scientists, whose members include scientists at the National Institutes of Health and others receiving federal research grants, raised similar objections in a July 2 letter to Sens. Joseph I. Lieberman (I-Conn.) and Susan M. Collins (R-Maine), the chairman and ranking member, respectively, of the Senate Homeland Security & Governmental Affairs Committee.
“The Assembly of Scientists supports the Stock Act’s stand against insider trading, which is illegal and immoral,” the group wrote. “But we are very concerned that the Stock Act creates burdens that we believe are deleterious to the ability of NIH and other U.S. institutions of science to best accomplish their missions.”
In addition to putting its 600 members at heightened risk of identity theft, the organization said, the law will drive top scholars to the private sector, where they can enjoy greater privacy.
Fourteen former high-ranking government officials joined the mix on July 19 when they sent a letter to congressional leaders. They urged that an exception from the Internet posting requirement of the Stock Act be created for career executive branch officials in sensitive national security positions.
“We believe that this new uncontrolled disclosure scheme … will create significant threats to the national security and to the personal safety and financial security of executive branch officials and their families, especially career employees,” the letter warned.
The bipartisan signers included Michael Chertoff, former secretary of the Department of Homeland Security; Jamie Gorelick, former deputy attorney general; John Hamre, former Defense Department deputy secretary; and John B. Bellinger III, former State Department and National Security Council legal adviser.
The financial disclosure requirements would provide a treasure trove of information for domestic and foreign criminal groups, terrorist organizations, and foreign intelligence services intent on harming U.S. national security, Bellinger tells C&EN.
“With the anonymous click of a button, they can know which executive branch officials have the most assets or the greatest debts,” notes Bellinger, now a partner at Arnold & Porter, a law firm in Washington, D.C. “Foreign intelligence services spend billions to try to find out who’s vulnerable to influence, and this would lay it all out for them.”
Although Congress could not agree on a permanent fix, Bellinger says the 30-day delay should give Congress and the White House “breathing room to reconsider and amend this dangerous and shortsighted provision.”
An aide to Lieberman says the senator would like to “find a way to prevent online disclosure of personal financial information that would risk national security or endanger safety of the filers and their families.” Lieberman was the prime sponsor of the Stock Act, but he did not support Shelby’s amendment expanding the scope of the disclosure requirement to executive branch officials.
But with congressional action uncertain before lawmakers adjourn in early October to focus on the upcoming elections, four government employee associations and seven individuals are taking legal action to block online posting of their finances.
A lawsuit filed on their behalf by the American Civil Liberties Union (ACLU) in the U.S. District Court for the District of Maryland alleges that the Stock Act violates the federal employees’ constitutional right to “informational privacy” by subjecting their sensitive private financial data to invasive public scrutiny.
The plaintiffs, who include the Assembly of Scientists and SEA, contend in the suit that making the financial disclosure forms of high-ranking government officials readily available online will cause “an immediate and irretrievable loss of their most private and confidential financial information, ... simply because they are public servants.”
“This is like putting your tax returns on the Internet for everyone to see,” ACLU Legal Director Arthur B. Spitzer says. “Think about what that would mean to you. It’s a privacy disaster, and it’s compounded by the risk to employees’ safety and to our national security.”
One of the plaintiffs, NIH neuroscientist Joshua Zimmerberg, says there is “no question” that unless the law is revised, it will be more difficult to recruit talented scientists to public service.
“I am already aware of individuals who have resigned positions or refused to apply for positions that include a Stock Act disclosure obligation,” Zimmerberg remarks. “This directly harms the U.S.’s ability to conduct research into critical areas not covered by commercial interests.”
Jack McKay, a partner at the law firm of Pillsbury Winthrop Shaw Pittman and the plaintiffs’ cocounsel, says the “reach of this law and its consequences are unprecedented.
“What was originally supposed to make members of Congress subject to insider-trading laws evolved into unregulated public access to the most intimate financial details of thousands of government employees,” McKay says. “The consequences for personal privacy and national security are extraordinary.”