With near-unanimous bipartisan majorities, Congress last year passed the Stop Trading on Congressional Knowledge (“STOCK”) Act in an effort to confront alleged insider trading by federal officials. A major part of that legislation required that financial information of high-level government employees be disclosed in a searchable, sortable, and downloadable internet database. Although the officials’ underlying financial disclosure forms were already publicly available (if the requestor is willing to jump through some hoops), Congress believed that posting the data in a searchable online database would further deter and uproot insider trading. Under the law, as amended, online posting of officials’ financial forms is slated to begin on April 15, 2013, and the searchable database is required to be released in about six months. A congressionally commissioned report released today, however, recommends that these online reporting requirements be shelved indefinitely.
The colorful report — which refers to Beyoncé in a footnote and at one point compares the incremental release of financial data on the internet to boiling a frog — comes following objections raised and lawsuits filed by groups representing senior federal employees. The federal employee representatives claimed that the online disclosure of financial information potentially jeopardized their agencies, agency employees, and their families. In response to these concerns, Congress directed the National Academy of Public Administration, a congressionally chartered independent non-profit, to review the STOCK Act’s online posting provisions.
Following an extensive investigation involving 80 interviews, today’s 153-page report concluded that the “online posting requirement does little to help detect conflicts of interest and insider trading, but … can harm federal missions and individual employees.” Quoting from a letter the Department of Defense sent to the Academy’s panel, the report warned that online posting of financial assets could subject government personnel serving in dangerous locations to “kidnapping, robbery, or extortion.” Other cited drawbacks to online posting include cyber-security threats and negative effects on recruitment and retention of senior-level federal executive branch officials. Existing executive branch financial disclosure reviews — which do not rely on a searchable internet database — are already effective at identifying potential conflicts of interest, the report finds.
The report concludes with two recommendations. The first, which is likely to receive the most attention, is that “the online posting requirement be indefinitely suspended.” The second recommendation, however, is also interesting. The report suggests that it is time to “modernize” the 35-year old Ethics in Government Act. Of particular interest, Appendix B of the report proposes specific changes that Congress should make to simplify and streamline the complex questions asked to the federal government filers of financial disclosure reports.