February 3, 2012

THERE IS a certain belt-and-suspenders quality to the ban on insider trading by members of Congress that was just passed by the Senate. Current law may prohibit such practices. But to the extent that there is ambiguity, it is important, for purposes of both potential prosecution and public perception, to make clear that such activity is indeed illegal. If anything, the measure does not go far enough.

It is bad practice for members of Congress to own and trade in individual stocks. That is particularly true in areas of their direct involvement, such as defense stocks for members of the Armed Services committees. President Obama, in applauding the Senate vote, argued for “prohibiting elected officials from owning stocks in industries they impact.” But given lawmakers’ broad portfolios, the better approach would be for lawmakers to divest individual stock holdings in favor of mutual funds or to put their investments into a blind trust. An amendment to this effect, sponsored by Sens. Sherrod Brown (D-Ohio) and Jeff Merkley (D-Ore.) failed decisively, but lawmakers ought to consider the unattractive optics of owning individual stocks.

Some of the most useful aspects of the Senate measure involve strengthened disclosure rules. The measure would require lawmakers and their senior staff to report stock trades within 30 days; currently they are required to disclose annually. However, as Sen. Jeff Bingaman (D-N.M.) noted in voting against the measure, there is a serious question about the broad scope of an amendment that expanded those disclosure rules to an estimated 300,000 executive-branch employees. In the aftermath of the controversy over VIP mortgage loans made to members of Congress by Countrywide Financial, a new requirement for lawmakers and top executive-branch officials to disclose mortgage terms is reasonable.

Another critical change, and one that is essential to include when the measure is brought up in the House, would restore prosecutors’ ability to go after official corruption. Sens. Patrick J. Leahy (D-Vt.) and John Cornyn (R-Tex.) have proposed such an amendment. The Supreme Court, in a 2010 ruling involving former Enron executive Jeffrey K. Skilling, limited the reach of the “honest services fraud” law to instances of outright bribery and kickbacks. The amendment, a version of which has also passed the House Judiciary Committee, would make it illegal for public officials to engage in undisclosed “self-dealing,” returning an important tool to prosecutors in cases of public corruption.