Serving Two Masters? Public Ethics and the Regulation of Financial Conflicts of Interest in the Administrative State

Abstract

Federal law regulates financial conflicts of interest via a legion of mechanisms, including criminal prohibitions on self-dealing, mandatory financial disclosure requirements for federal officials in all branches of government, and administrative provisions that demand disqualification or divestiture of assets, to name a few. While certainly complicated, however, the current law governing conflicts of interest is underinclusive in scope and inconsistent in execution. Indeed, the extant regulations may permit as many conflicts as they deter.

Because conflicts of interest create immense complications for public legitimacy, regulations of financial conflict seek to limit both actual and apparent conflict for officials in the federal executive branch. Despite this aspiration, officials in federal administration encounter no uniform legal prohibition on owning investments that, while not the direct object of administrative action, may nevertheless fluctuate in value as a proximate result of agency choices. These penumbral financial conflicts of interest may jeopardize the integrity of the administrative state.

This Article offers a critique of the present regulations governing financial conflicts of interest and uses original data on the personal finances of executive branch officials to assess penumbral conflicts of interest in federal administration. Through a multi-method empirical investigation that employs both observational and natural experimental analyses, the Article suggests that penumbral financial conflicts of interest should beget significant but resolvable concerns about the current state of public ethics in the executive branch.

Keywords: public ethics, conflict of interest, regulation, administrative law

JEL Classification: K23, K2, L5