Federal

Dismantling Investments in Violation of Ethical Standards through Trusts Act

Source: Congress.gov · 1,918 words in original text

What This Bill Does

This bill stops senior federal employees, their spouses, and their dependent children from buying, selling, or holding certain types of investments while the employee works for the federal government. The bill creates rules about what types of investments are banned and what penalties apply if someone breaks these rules. (Sec. 2) ##

Who It Affects

- Senior federal employees (people in Senior Executive Service positions) - Spouses of senior federal employees - Dependent children of senior federal employees - The supervising ethics office (the agency that enforces ethics rules) - The Office of Government Ethics - The Government Accountability Office (a congressional auditing agency) ##

Key Provisions

- Senior federal employees, their spouses, and dependent children cannot hold, buy, or sell covered financial instruments (stocks, commodity futures, or similar investments gained through derivatives like options) during the employee's term of service, with some exceptions (Sec. 13152(a)) - Covered financial instruments do not include diversified mutual funds, diversified exchange-traded funds, U.S. Treasury bills/notes/bonds, or compensation from a spouse or dependent child's job (Sec. 13151) - Employees currently serving have 180 days after the law passes to sell any covered financial instruments; new employees have 180 days from their start date (Sec. 13152(b)(1)) - Senior federal employees must submit a written certification at least once per year proving they follow this rule (Sec. 13153(a)) - A senior federal employee who violates this rule must give all profits from the violation to the U.S. Treasury, cannot deduct losses from their income taxes, and may be fined between $1,000 or 10 percent of the highest value the investment reached during the time it was held (Sec. 13152(d)) - The supervising ethics office must publish all certifications and fine details on a public website (Sec. 13153(b), 13154(b)(3)) - An employee can appeal a fine within 30 days of receiving it (Sec. 13154(b)(4)) ##

What Changes

If this bill becomes law, senior federal employees will no longer be allowed to own most stocks, commodity investments, or derivative investments. Employees currently working must sell these investments within 180 days. Employees who break this rule face serious penalties including giving up profits, paying fines, and potentially losing deductions on their taxes. The supervising ethics office gains authority to enforce these rules, conduct hearings, assess fines, and publish violations publicly. ##

Important Definitions

- **Covered financial instrument**: An investment in stocks, security futures, commodities, or similar economic interests created through derivatives (complex financial tools like options or warrants) (Sec. 13151(1)(A)). Does not include mutual funds, exchange-traded funds, U.S. Treasury products, or job compensation (Sec. 13151(1)(B)) - **Senior Federal Employee**: Any person holding a Senior Executive Service position (a high-level federal job) (Sec. 13151(3)) - **Qualified blind trust**: A special trust arrangement where the employee cannot see what investments are held (defined elsewhere in federal law) (Sec. 13151(2)) - **Supervising ethics office**: The office responsible for enforcing ethics rules (defined elsewhere in federal law) (Sec. 13151(4)) ##

Effective Date

The restrictions on buying, selling, and holding covered financial instruments start 12 months after the bill becomes law (Sec. 2(b)). However, employees serving at the time have 180 days from the bill's passage to sell investments they already own (Sec. 13152(b)(1)(A)).

I 118TH CONGRESS 1ST SESSION H. R. 310 To amend title 5, United States Code, to prohibit transactions involving certain financial instruments by senior Federal employees, their spouses, or dependent children, and for other purposes. IN THE HOUSE OF REPRESENTATIVES JANUARY 12, 2023 Mr. CLOUD (for himself and Mr. GOLDEN of Maine) introduced the following bill; which was referred to the Committee on Oversight and Account- ability, and in addition to the Committee on Ways and Means, for a pe- riod to be subsequently determined by the Speaker, in each case for con- sideration of such provisions as fall within the jurisdiction of the com- mittee concerned A BILL To amend title 5, United States Code, to prohibit trans- actions involving certain financial instruments by senior Federal employees, their spouses, or dependent children, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Dismantling Invest- 4 ments in Violation of Ethical Standards through Trusts 5 Act’’. 6 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H310.IH H310 pbinns on DSKJLVW7X2PROD with $$_JOB 2 •HR 310 IH SEC. 2. PROHIBITING TRANSACTIONS AND OWNERSHIP OF 1 CERTAIN FINANCIAL INSTRUMENTS BY SEN- 2 IOR FEDERAL EMPLOYEES, THEIR SPOUSES, 3 OR DEPENDENT CHILDREN. 4 (a) IN GENERAL.—Chapter 13 of title 5, United 5 States Code, is amended by adding after subchapter III 6 the following: 7 ‘‘SUBCHAPTER IV—RESTRICTIONS REGARDING 8 FINANCIAL INSTRUMENTS 9 ‘‘§ 13151. Definitions 10 ‘‘In this subchapter: 11 ‘‘(1) COVERED FINANCIAL INSTRUMENT.— 12 ‘‘(A) IN GENERAL.—The term ‘covered fi- 13 nancial instrument’ means— 14 ‘‘(i) any investment in— 15 ‘‘(I) a security (as defined in sec- 16 tion 3(a) of Securities Exchange Act 17 of 1934 (15 U.S.C. 78c(a))); 18 ‘‘(II) a security future (as de- 19 fined in that section); or 20 ‘‘(III) a commodity (as defined in 21 section 1a of the Commodity Ex- 22 change Act (7 U.S.C. 1a)); and 23 ‘‘(ii) any economic interest com- 24 parable to an interest described in clause 25 (i) that is acquired through synthetic 26 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H310.IH H310 pbinns on DSKJLVW7X2PROD with $$_JOB 3 •HR 310 IH means, such as the use of a derivative, in- 1 cluding an option, warrant, or other simi- 2 lar means. 3 ‘‘(B) EXCLUSIONS.—The term ‘covered fi- 4 nancial instrument’ does not include— 5 ‘‘(i) a diversified mutual fund; 6 ‘‘(ii) a diversified exchange-traded 7 fund; 8 ‘‘(iii) a United States Treasury bill, 9 note, or bond; or 10 ‘‘(iv) compensation from the primary 11 occupation of a spouse or dependent child 12 of a senior Federal employee. 13 ‘‘(2) QUALIFIED BLIND TRUST.—The term 14 ‘qualified blind trust’ has the meaning given the 15 term in section 13104. 16 ‘‘(3) SENIOR FEDERAL EMPLOYEE.—The term 17 ‘senior Federal employee’ means any individual occu- 18 pying a Senior Executive Service position (as that 19 term is defined in section 3132). 20 ‘‘(4) SUPERVISING ETHICS OFFICE.—The term 21 ‘supervising ethics office’ has the meaning given the 22 term in section 13101. 23 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H310.IH H310 pbinns on DSKJLVW7X2PROD with $$_JOB 4 •HR 310 IH ‘‘§ 13152. Prohibition on certain transactions and 1 holdings involving covered financial in- 2 struments 3 ‘‘(a) PROHIBITION.—Except as provided in sub- 4 section (b), a senior Federal employee, their spouse, or 5 their dependent children may not, during the term of serv- 6 ice of the employee, hold, purchase, or sell any covered 7 financial instrument. 8 ‘‘(b) EXCEPTIONS.—The prohibition under sub- 9 section (a) does not apply to— 10 ‘‘(1) a sale by a senior Federal employee, their 11 spouse, or their dependent child that is completed by 12 the date that is— 13 ‘‘(A) for an employee serving on the date 14 of enactment of this title, 180 days after that 15 date of enactment; and 16 ‘‘(B) for any employee who commences 17 service as an employee after the date of enact- 18 ment of this title, 180 days after the first date 19 of the initial term of service; 20 ‘‘(2) a covered financial instrument held in a 21 qualified blind trust operated on behalf of, or for the 22 benefit of, a senior Federal employee, their spouse, 23 or their dependent child; or 24 ‘‘(3) a covered financial instrument exempted 25 from coverage under section 208 of title 18 pursuant 26 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H310.IH H310 pbinns on DSKJLVW7X2PROD with $$_JOB 5 •HR 310 IH to section 2640.202 of title 5, Code of Federal Reg- 1 ulations (or any successor regulation). 2 ‘‘(c) APPLICATION OF CERTIFICATE OF DIVESTITURE 3 PROGRAM.—For purposes of section 1043 of the Internal 4 Revenue Code of 1986— 5 ‘‘(1) this section shall be treated as a Federal 6 conflict of interest statute; and 7 ‘‘(2) any person required to dispose of any 8 property by reason of this section shall be treated as 9 an eligible person. 10 ‘‘(d) PENALTIES.— 11 ‘‘(1) DISGORGEMENT.—A senior Federal em- 12 ployee, their spouse, or their dependent child shall 13 disgorge to the general fund of the Treasury any 14 profit from a transaction or holding involving a cov- 15 ered financial instrument that is conducted in viola- 16 tion of this section. 17 ‘‘(2) INCOME TAX.—A loss from a transaction 18 or holding involving a covered financial instrument 19 that is conducted in violation of this section may not 20 be deducted from the amount of income tax owed by 21 the applicable senior Federal employee, their spouse, 22 or their dependent child. 23 ‘‘(3) FINES.—A senior Federal employee who 24 holds or conducts a transaction involving a covered 25 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H310.IH H310 pbinns on DSKJLVW7X2PROD with $$_JOB 6 •HR 310 IH financial instrument in violation of this section may 1 be subject to a civil fine assessed by the supervising 2 ethics office under section 13153. 3 ‘‘§ 13153. Certification of compliance 4 ‘‘(a) IN GENERAL.—Not less frequently than annu- 5 ally, each senior Federal employee shall submit to the su- 6 pervising ethics office a written certification that the em- 7 ployee, their spouse, or their dependent child has achieved 8 compliance with the requirements of this title. 9 ‘‘(b) PUBLICATION.—The supervising ethics office 10 shall publish each certification submitted under subsection 11 (a) on a publicly available website. 12 ‘‘§ 13154. Authority of supervising ethics office 13 ‘‘(a) IN GENERAL.—The supervising ethics office 14 may implement and enforce the requirements of this sub- 15 chapter, including by— 16 ‘‘(1) issuing— 17 ‘‘(A) for applicable senior Federal employ- 18 ees— 19 ‘‘(i) rules governing that implementa- 20 tion; and 21 ‘‘(ii) 1 or more reasonable extensions 22 to achieve compliance with this subchapter, 23 if the supervising ethics office determines 24 that an employee is making a good faith 25 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H310.IH H310 pbinns on DSKJLVW7X2PROD with $$_JOB 7 •HR 310 IH effort to divest any covered financial in- 1 struments; and 2 ‘‘(B) guidance relating to covered financial 3 instruments; 4 ‘‘(2) publishing on the internet certifications 5 submitted by senior Federal employees under section 6 13153(a); and 7 ‘‘(3) assessing civil fines against any senior 8 Federal employee who is in violation of this sub- 9 chapter, subject to subsection (b). 10 ‘‘(b) REQUIREMENTS FOR CIVIL FINES.— 11 ‘‘(1) AMOUNT.—A fine imposed under this sec- 12 tion against a senior Federal employee shall be equal 13 to the greater of— 14 ‘‘(A) $1,000, or 15 ‘‘(B) an amount equal to 10 percent of the 16 greatest dollar value of the applicable covered 17 financial instrument during any period that 18 such instrument was held by the applicable sen- 19 ior Federal employee or their spouse or depend- 20 ent child (as the case may be). 21 ‘‘(2) IN GENERAL.—Before imposing a fine pur- 22 suant to this section, the supervising ethics office 23 shall provide to the applicable senior Federal em- 24 ployee— 25 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H310.IH H310 pbinns on DSKJLVW7X2PROD with $$_JOB 8 •HR 310 IH ‘‘(A) a written notice describing each cov- 1 ered financial instrument transaction for which 2 a fine will be assessed; and 3 ‘‘(B) an opportunity, with respect to each 4 such covered financial instrument transaction— 5 ‘‘(i) for a hearing; and 6 ‘‘(ii) to achieve compliance with the 7 requirements of this subchapter. 8 ‘‘(3) PUBLICATION.—The supervising ethics of- 9 fice shall publish on a publicly available website a 10 description of— 11 ‘‘(A) each fine assessed pursuant to this 12 section; 13 ‘‘(B) the reasons why each such fine was 14 assessed; and 15 ‘‘(C) the result of each assessment, includ- 16 ing any hearing under paragraph (2)(B)(i) re- 17 lating to the assessment. 18 ‘‘(4) APPEAL.—A senior Federal employee may 19 appeal to the supervising ethics office a fine assessed 20 under this section during the 30-day period begin- 21 ning on the date the fine is so assessed. 22 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H310.IH H310 pbinns on DSKJLVW7X2PROD with $$_JOB 9 •HR 310 IH ‘‘§ 13155. Audit by Government Accountability Office 1 ‘‘Not later than 2 years after the date of enactment 2 of this subchapter, the Comptroller General of the United 3 States shall— 4 ‘‘(1) conduct an audit of the compliance by sen- 5 ior Federal employees with the requirements of this 6 subchapter; and 7 ‘‘(2) submit to each supervising ethics office a 8 report describing the results of the audit conducted 9 under paragraph (1).’’. 10 (b) APPLICATION.—The amendments made by sub- 11 section (a) shall apply to individuals described in section 12 13152(a) of title 5, United States Code, (as added by sub- 13 section (a)) beginning on the date that is 12 months fol- 14 lowing the date of enactment of this Act. 15 (c) ADDITIONAL EMPLOYEES.—Section 13121(c)(1) 16 of title 5, United States Code, is amended by inserting 17 ‘‘up to 100’’ after ‘‘appoint’’. 18 (d) FUNDING.—The Director of the Office of Man- 19 agement and Budget may transfer such funds as the Di- 20 rector considers appropriate, to be derived from unobli- 21 gated amounts available for executive branch programs 22 identified by the Director to be duplicative, to the Office 23 of Government Ethics for the purpose of carrying out this 24 VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H310.IH H310 pbinns on DSKJLVW7X2PROD with $$_JOB 10 •HR 310 IH Act, to remain available until the date that is 5 years fol- 1 lowing the date of the enactment of this Act. 2 Æ VerDate Sep 11 2014 01:21 Jan 24, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6301 E:\BILLS\H310.IH H310 pbinns on DSKJLVW7X2PROD with $$_JOB

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