Ethics guidance on coronavirus relief package: Lawmakers may be able to apply for some loans

Conflict of interest prohibitions do not apply to other components of the CARES Act, including the Paycheck Protection Program

The House Ethics Committee issued guidance regarding relief funds from the CARES Act.  (CQ Roll Call)
The House Ethics Committee issued guidance regarding relief funds from the CARES Act. (CQ Roll Call)
Posted April 21, 2020 at 6:51pm

The House Ethics Committee is recommending that lawmakers and their families exercise “caution” before applying for economic relief through the massive relief packages passed into law to quell the financial ruin caused by the coronavirus pandemic.

The roughly $2.3 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law March 27 and provides aid to businesses, families, hospitals and states. Of that, $500 billion is allocated to provide money to eligible businesses, states and municipalities in need. On Tuesday, the Senate passed a $483.4 billion aid package that will refill the Paycheck Protection Program's small-business loan program and supply funding for hospitals and testing.

Companies in which members — or family members, such as a spouse, child or daughter-in-law — own at least 20 percent equity interest can’t get any loans, loan guarantees or other investments from the pool of funds to be disbursed by Treasury Secretary Steven Mnuchin.

However, those conflict of interest prohibitions do not apply to other components of the law, including the Paycheck Protection Program.

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“Thus, Members or businesses in which Members or certain individuals in their immediate family have an ownership interest may be able to apply for assistance under other parts of the CARES Act, such as the Paycheck Protection Program,” the Ethics Committee said in guidance issued April 13.

The Paycheck Protection Program, which exhausted its initial $349 billion allocation on April 16, applies to companies with 500 or fewer employees and makes special exceptions for hotels and restaurants. It is intended to keep employees from being laid off during the economic crisis and helps eligible businesses to pay rent, utilities and interest on loans.

The Ethics panel notes that other conflict of interest rules could limit a lawmaker’s participation in other provisions of the legislation and encourages members to review their financial assets and read up on the other potential conflicts of interest.

Federal law generally prohibits members from entering into a contract or agreement, which could include a loan, with government agencies. Contracts on behalf of an incorporated company for the general benefit of the corporation are excluded from this prohibition, even when a lawmaker has a substantial interest in that entity. Unincorporated companies are subject to the prohibition.

Donald K. Sherman, deputy director of Citizens for Responsibility and Ethics in Washington, said it was a good move for the Ethics panel to issue guidance but said it highlights that the rules don’t go far enough.

The committee notes that members shouldn’t vote on an issue in which they have a “direct personal or pecuniary interest.” However, there is a precedent of members voting on issues that affect a class that also includes them. One example the committee gives is members who owned breweries and distilleries and were allowed to vote on the repeal of Prohibition because it affected an entire class of businesses.

In light of that precedent, the committee said a member with a financial interest in, say, a vodka distillery that has transitioned during the pandemic to make hand sanitizer could vote on tax incentives for such a business but can’t introduce or sponsor legislation that would provide those tax incentives.

This points to an area of ethics regulations in need of reform, Sherman said.

“The example they use is curious because of how old it is and how problematic it is,” Sherman said, referring to the Prohibition example, which dates to the 1930s.

“The idea that members who owned breweries or distilleries could vote on that issue is kind of ridiculous. Of course they have a vested interest in that,” Sherman said. “The fact that members can’t introduce or co-sponsor legislation is hardly sufficient to address the conflict of interest.”

Members are also advised that they refrain from using their official position to provide a special advantage to an outside organization with which they are affiliated, such as if a member’s spouse works for a trade organization looking to get relief for the industry they represent.