ETHICS MANUAL

Chapter 3 OUTSIDE EMPLOYMENT AND INCOME OF MEMBERS, OFFICERS, EMPLOYEES, AND SPOUSES

Highlights

Rules concerning the outside employment and compensation of Members, officers, and employees of the House generally address the potential for conflicts of interest, e.g.:

* private commitments that might infringe on public obligations;

* possible improper influences on official conduct;

* distractions from the time and attention expected to be devoted to congressional responsibilities; and

* the appearance that an individual is profiting from a position in Congress.

To avoid these problems, Members, officers, and employees of the House are subject to the following restrictions:

Income Level Restriction

All Members, officers, and employees
May not accept honoraria for appearances, speeches, or articles.
May not represent others in a private capacity before the Government.
May not accept compensation of any kind from a foreign government or act as an agent for a foreign principal.
May not attempt to cash in on an official position.

Members and those employees earning at least 120% of the GS-15 rate of basic pay ($77,080 in 1992) May not receive more than 15% of a House Member's salary in total outside earned income ($19,425 in 1992).
May not accept compensation for providing professional services involving a fiduciary relationship, or for being employed by an organization that provides such services.
May not allow their names to be used, regardless of compensation, by organizations providing fiduciary services.
May not accept compensation for serving as a board member or officer of any organization.
May not accept compensation for teaching, without prior written approval from the Committee on Standards of Official Conduct.
Must file annual financial disclosure forms.

Members and those employees paid at least 75% of a Member's rate of basic pay ($97,125 in 1992) May not lobby former colleagues for one year after leaving office.
May not represent foreign governmentsfor one year after leaving office.
Members of the House of Representatives
May not contract with the Federal Government
May not practice in the United States Claims Court or the Court of Appeals for the Federal Circuit.

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The mere potential of a conflict of interest does not preclude a Member's spouse from accepting outside employment. However, Members should avoid circumstances suggesting that they receive direct or indirect benefits that influence official acts.

Chapter 3 OUTSIDE EMPLOYMENT AND INCOME OF MEMBERS, OFFICERS, EMPLOYEES, AND SPOUSES

Numerous restrictions limit the amount and source of outside earned income that Members, officers, and employees of the House of Representatives may accept. These restrictions attempt to avoid any possible conflict between the narrow interests of private employers and the broader interests of the general public.

As explained by the Bipartisan Task Force on Ethics:

The current limitations on outside earned income and honoraria were prompted by three major considerations: First, substantial payments to a Member of Congress for rendering personal services to outside organizations presents a significant and avoidable potential for conflict of interest; second, substantial earnings from other employment is inconsistent with the concept that being a Member of Congress is a full-time job; and third, substantial outside earned income creates at least the appearance of impropriety and thereby undermines public confidence in the integrity of government officials.

. . . The earned income limitation was intended to assure the public that (1) Members are not using their positions of influence for personal gain or being affected by the prospects of outside income; and (2) outside activities are not detracting from a Member's full-time attention to his or her official duties. (FOOTNOTE 1)

(FOOTNOTE 1) House Bipartisan Task Force on Ethics, Report on H.R. 3660, 101st Cong., 1st Sess. 12 (Comm. Print, Comm. on Rules 1989), reprinted in 135 Cong. Rec. H9253, H9256 (daily ed. Nov. 21, 1989) (hereinafter Bipartisan Task Force Report).

A Member or employee should never use the prestige or influence of a position in Congress for personal gain. The House has adopted various standards of conduct to implement this principle and to preclude conflicts of interest.

Most significantly, as of January 1, 1991, no Member, officer, or employee may accept any honoraria. In addition, Federal law and House rules limit the total amount of outside earned income that Members and certain officers and employees may receive in a calendar year. House Rule 47 (FOOTNOTE 2) defines covered officers and employees as those paid, for more than 90 days in a calendar year, at a rate equal to or exceeding 120 percent of the base salary for grade GS-15 of the executive branch's General Schedule. In 1992, this salary threshold is $77,080. (FOOTNOTE 3) The earnings cap is set at 15 percent of the Executive Level II salary, that is, a Member's base annual salary. In 1992, the cap is thus $19,425 (in 1991, it was $18,765). The Committee can inform Members and staff of the amount of the threshold and the cap in subsequent years.

(FOOTNOTE 2) Donnald K. Anderson, Clerk of the House of Representatives, Rules of the House of Representatives, 102d Cong. (1991) (hereinafter House Rules).

(FOOTNOTE 3) At the outset of 1991, the salary threshold was tied to the annual rate in effect for grade GS-16. This was $72,298 from January 1, 1991 through May 3, 1991. The Federal Employees Pay Comparability Act of 1990 (Pub. L. No. 101-509, sec. 529, 104 Stat. 1389, 1427, enacted Nov. 5, 1990) and Executive Order 12748 of Feb. 1, 1991 eliminated the GS-16 classification as of May 4, 1991. It was replaced with the classification ``above GS-15,'' meaning 120 percent of the GS-15 base pay. Thus, as of May 4, 1991, the applicable salary threshold rose to $73,972. This rate remained in effect through the end of 1991.

Further restrictions limit the type of work that Members and senior staff may do. (Again, senior staff are those paid above GS-15.) The Ethics Reform Act of 1989 prohibits Members and these senior employees from acting in certain fiduciary capacities. Thus, these individuals may not receive compensation for practicing a profession that offers services involving a fiduciary relationship. They may neither affiliate with nor lend their names to firms that provide fiduciary services. A Member or senior employee may not serve as a paid officer or board member of any organization, including a nonprofit organization. Neither may such an individual teach for compensation without prior written approval from the Committee on Standards.

A number of other statutes affect particular types of outside activities. For example, Members, officers, and employees of the House generally may not represent others in a private capacity before the Government. They also may not receive compensation from a foreign government or act as an agent for a foreign principal. Members may not contract with the Federal Government. Members and senior employees also must file annual financial disclosure statements. (FOOTNOTE 4) House Rule 43, clause 12, restrains any employee who files a financial disclosure statement from contacting executive or judicial branch personnel on matters in which the House employee has a significant financial interest, unless the employee gets a prior written waiver from his employer.

(FOOTNOTE 4) Chapter 4 of this Manual details the financial disclosure requirements.

CONFLICTS OF INTEREST

Although the term ``conflict of interest'' may be subject to various interpretations in general usage, under Federal law and regulation, this term ``is limited in meaning; it denotes a situation in which an official's conduct of his office conflicts with his private economic affairs.'' (FOOTNOTE 5) The ultimate concern, ``then, is risk of impairment of impartial judgment, a risk which arises whenever there is temptation to serve personal interests.'' (FOOTNOTE 6)

(FOOTNOTE 5) Robert S. Getz, Congressional Ethics 3 (1966); see also Bayless Manning, Federal Conflict of Interest Laws 2-5 (1964); Black's Law Dictionary 299 (6th ed. 1990).

(FOOTNOTE 6) James C. Kirby, Jr. (exec. director), Ass'n of the Bar of the City of New York Special Comm. on Congressional Ethics, Congress and the Public Trust 39 (1970).

In addition to statutory restraints limiting particular types and amounts of outside income, general ethical standards and rules restrict any outside activities that are inconsistent with congressional responsibilities. The Code of Ethics for Government Service, affirms that a ``public office is a public trust'' and cautions all Government officials not to engage in any business with the Government, ``either directly or indirectly, which is inconsistent with the conscientious performance'' of governmental duties. (FOOTNOTE 7) This Code specifically provides that a Member or employee should never accept ``benefits under circumstances which might be construed by reasonable persons as influencing the performance'' of official duties. (FOOTNOTE 8) To do so would raise the appearance of undue influence or breach of the public trust.

(FOOTNOTE 7) H. Con. Res. 175, 85th Cong., 2d Sess., 72 Stat., pt. 2, B12, para. para. 10, 7 (1958), reprinted at the front of this Manual. See House Comm. on Standards of Official Conduct, In the Matter of a Complaint against Representative Robert L.F. Sikes, H. Rep. No. 94-1364, 94th Cong., 2d Sess. 7-8 (1976), as to the continuing applicability of this Code.

(FOOTNOTE 8) Id. para. 5.

The Committee found that this standard was violated, for example, when a Member persuaded the organizers of a privately-held bank to sell him stock while he was using his congressional position to promote authorization for the establishment of the bank. (FOOTNOTE 9) The Member also sponsored legislation to remove restrictions on the development of property in which he had a personal financial interest. Thus, the Member was found to have wrongly used his official position for personal benefit.

(FOOTNOTE 9) See H. Rep. No. 94-1364, supra note 7, at 3-4.

The House Code of Official Conduct prohibits any Member, officer, or employee from receiving any compensation or allowing ``any compensation to accrue to his beneficial interest from any source, the receipt of which would occur by virtue of influence improperly exerted from his position in the Congress.'' (FOOTNOTE 10) As noted in the debate preceding the adoption of the rule, an individual violates this standard if he uses ``his political influence, the influence of his position . . . to make pecuniary gains.'' (FOOTNOTE 11) Along similar lines, Members and employees of the House are prohibited from using confidential information received in the performance of their official duties as a means for making private profit. (FOOTNOTE 12)

(FOOTNOTE 10) House Rule 43, cl. 3.

(FOOTNOTE 11) 114 Cong. Rec. 8807 (Apr. 3, 1968) (statement of Representative Price).

(FOOTNOTE 12) Code of Ethics for Government Service para. 8, supra note 7; see also, e.g., 50 U.S.C. app. sec. 2160(f) (barring Federal employees from using inside information to speculate on any commodity exchange).

Such restrictions accord with other professional standards, which may apply to particular Members and employees. For example, Canon 9 of the American Bar Association (ABA) Model Code of Professional Responsibility for lawyers cautions that ``[a] lawyer should avoid even the appearance of professional impropriety.'' More specifically, Disciplinary Rule 8-101 provides:

(A) A lawyer who holds public office shall not:

(1) Use his public position to obtain, or attempt to obtain, a special advantage in legislative matters for himself or for a client under circumstances where he knows or it is obvious that such action is not in the public interest.

(2) Use his public position to influence, or attempt to influence, a tribunal to act in favor of himself or a client.

(3) Accept anything of value from any person when the lawyer knows or it is obvious that the offer is for the purpose of influencing his action as a public official.

These strictures reflect the same type of concerns evidenced in the House Code of Conduct and the Code of Ethics for Government Service.

A House employee who has an outside job must not allow it to interfere with official responsibilities or to impinge on official time, that is, the employee's regularly scheduled working hours. House rules specifically require that a Member not retain anyone under his or her payroll authority ``who does not perform official duties commensurate with the compensation received.'' (FOOTNOTE 13) Any person in Government service is required by the Code of Ethics for Government Service to ``[g]ive a full day's labor for a full day's pay; giving to the performance of his duties his earnest effort and best thought.'' (FOOTNOTE 14) These provisions recognize that the United States Treasury pays House employees for the performance of official duties. (FOOTNOTE 15) These standards thus require every employee to ensure that any private employment does not detract from the performance of, or from the time and attention necessary to, the individual's Government job.

(FOOTNOTE 13) House Rule 43, cl. 8.

(FOOTNOTE 14) Code of Ethics for Government Service para. 3, supra note 7.

(FOOTNOTE 15) See Comm. on House Admin., U.S. House of Representatives Congressional Handbook sec. 2.I.A, at 2.1, sec. 3.I.A, at 3.1 (Sept. 1985) (hereinafter Congressional Handbook).

WHAT IS OUTSIDE EARNED INCOME?

House Rule 47 (FOOTNOTE 16) places various restrictions on the outside earned income of Members, officers, and employees. These restrictions apply only to earned income, that is, employment, rather than investment income. The rule defines the term ``outside earned income'' as ``wages, salaries, fees, and other amounts received or to be received as compensation for personal services actually rendered.'' The rule specifically excludes (1) the individual's congressional salary; (2) compensation for services rendered prior to coming to Congress or before the effective date of the rule; (3) amounts paid to a qualified pension, profit-sharing, or stock bonus plan; (4) in the case of a family-controlled business or farm, amounts received in connection with protecting or managing one's investment as long as the personal services rendered do not in themselves generate a significant amount of income; and (5) copyright royalties received from established publishers under usual and customary contractual terms. In the debate preceding adoption of Rule 47, one Member distinguished earned income as that which one earns ``by the sweat of [one's] brow.'' (FOOTNOTE 17)

(FOOTNOTE 16) Adopted on Mar. 2, 1977 (H. Res. 287, 95th Cong., 1st Sess.) and amended on Dec. 15, 1981 (H. Res. 305, 97th Cong., 1st Sess.), and again, as a result of the Ethics Reform Act of 1989, Pub. L. No. 101-194, sec. 804, 103 Stat. 1716, 1776 (1989).

(FOOTNOTE 17) 123 Cong. Rec. 5902 (Mar. 2, 1977) (statement of Representative Frenzel).

The House Commission on Administrative Review of the 95th Congress, in recommending the limitation, explained the basic reasons for focusing on and restricting income from outside employment activities, rather than from assets or investments:

Earned income creates a variety of more serious potential conflicts of interest than does investment income, ranging from overt attempts to curry favor by private groups to subtle distortions in the judgment of Members on particular issues. . . . The Member who has stock holdings can transfer his holdings at any time to another company, and, thus, is not as subject to the same degree of potential conflict as a Member whose . . . salary [from a private company] could be cut off arbitrarily.

Outside earned income also presents a ``time conflict'' between the Member's private interest and the public interest. Supplementing salary with outside earned income can detract from a Member's full-time attention to his official duties and creates subtle distortions in judgment as to how Members should use their time. . . .

Moreover, many citizens perceive outside earned income as providing Members with an opportunity to ``cash in'' on their positions of influence. Even if there is no actual impropriety, such sources of income give the appearance of impropriety and, in so doing, further undermine public confidence and trust in government officials. (FOOTNOTE 18)

(FOOTNOTE 18) House Comm'n on Admin. Review, Financial Ethics, H. Doc. No. 95-73, 95th Cong., 1st Sess. 10 (1977).

The Ethics Reform Act of 1989 enacted a number of changes to the laws regulating outside employment of Members and staff, chiefly in the areas of honoraria, fiduciary and related professional restrictions, and the outside earned income limit. For the first time, senior staff were brought under the same outside earned income limit as Members, effective January 1, 1991. Violation of these laws may lead to disciplinary action in the House and/or civil fines of up to $10,000 or the amount of compensation for the prohibited conduct, whichever is greater. However, the statute specifically provides that any House Member or employee who acts in good faith in accordance with a written advisory opinion from the Committee on Standards shall not be subject to any sanction. (FOOTNOTE 19) Therefore, the Committee encourages anyone with questions regarding outside employment or income to call or write for guidance.

(FOOTNOTE 19) 5 U.S.C. app. 7, sec. 504.

HONORARIA BAN (affecting All Members, Officers, and Employees)

[I]n calendar year 1991 or thereafter, a Member or an officer or employee of the House may not . . . receive any honorarium.

-- House Rule 47, cl. 1(a)(1)(B).

The honoraria rules have undergone major changes in the past few years. Until 1991, all Members, officers, and employees were free to accept honoraria of up to $2,000 per speech, appearance, or article, subject only to the outside earned income cap then effective for Members. The Ethics Reform Act of 1989 enacted a comprehensive ban, prohibiting all Members, officers, and employees of the House (as well as all executive branch employees) from receiving any honoraria, as of January 1, 1991. (FOOTNOTE 20) At the end of the first session of the 102d Congress, the House passed a bill, H.R. 3341, that would have permitted rank-and-file Federal employees (including those who work for Congress) to accept payments for appearances, speeches, and articles unrelated to their official duties and status. The Senate did not act on this bill, however, so (as of the printing of this Manual), the honoraria ban remains in effect. (FOOTNOTE 21)

(FOOTNOTE 20) Pub. L. No. 101-194, supra note 16, secs. 601 and 804, 103 Stat. at 1760, 1776-78, (amending 5 U.S.C. app. 7, sec. 501(b); House Rule 43, cl. 5; House Rule 47, cl. 1(a)(1)(B)).

(FOOTNOTE 21) On March 19, 1992, the Federal District Court for the District of Columbia declared the honoraria ban unconstitutional as applied to executive branch employees. The court noted Congress's constitutional power and duty to promote the integrity of the Government and recognized that the First Amendment rights of Government employees may, in certain circumstances, be limited. However, it found this law to be both over-inclusive, in that it restricted payments for speeches and articles that had no relation to office, and under-inclusive, in that other forms of expression (e.g., fiction, film, painting) were unrestricted even where payment might be related to office. Observing that the legislative history of the Ethics Reform Act indicated that Congress's primary concern was to eliminate honoraria for Members, the court left the ban in place for Members and all congressional employees. Nat'l Treasury Employees Union v. United States, Civ. No. 90-2922 (D.D.C. Mar. 19, 1992).

Federal law defines an honorarium as ``a payment of money or any thing of value for an appearance, speech, or article (including a series of appearances, speeches, or articles if the subject matter is directly related to the individual's official duties or the payment is made because of the individual's status with the Government) by a Member, officer or employee, excluding any actual and necessary travel expenses . . . .'' (FOOTNOTE 22) The ban is absolute. It encompasses every appearance, speech, or article, regardless of its subject matter or relationship to official duties. The statute does not authorize the Committee to grant waivers under any circumstances. (FOOTNOTE 23)

(FOOTNOTE 22) 5 U.S.C. app. 7, sec. 505(3).

(FOOTNOTE 23) Note that unlike all the other income restrictions, this provision bars the receipt of the payment after the effective date, regardless of when the payment was earned. Since, however, the statute defines honorarium as a payment ``for an appearance, speech or article . . . by a Member, officer or employee,'' the Committee does not construe the law to prohibit payments for work done before an individual became a Member, officer, or employee of the Federal Government. See 5 U.S.C. app. 7, sec. 505(3) (emphasis added).

Example 1. Staffer A works for the Education and Labor Committee. A teacher's union offers him $2,000 to write an article for the union newsletter on legislative initiatives to improve the quality of public education. The staffer may write the article but may not accept any payment.

Example 2. Staffer B, who works for the Foreign Affairs Committee, writes an article on rare butterflies for a nature magazine. B writes the article in her spare time, on her home computer. Even though this has nothing to do with B's official duties or status, she uses no official resources, and the magazine has no interests that could be substantially affected by the performance of B's official duties, Staffer B may not accept payment for the article.

The Bipartisan Task Force explained the need for such a broad prohibition as follows:

Significant increases in honoraria income in recent years [have] heightened the public perception that honoraria [are] a way for special interests to try to gain influence or buy access to Members of Congress, particularly since interest groups most often give honoraria to Members who serve on committees which have jurisdiction over their legislative interests.

. . . There is growing concern that the practice of acceptance of honoraria by Members, particularly from interest groups with important stakes in legislation, creates serious conflict of interest problems and threatens to undermine the institutional integrity of Congress. (FOOTNOTE 24)

(FOOTNOTE 24) Bipartisan Task Force Report, supra note 1, at 13-14, 135 Cong. Rec. H9257.

Definitions

The Committee defines the terms ``speech,'' ``appearance,'' and ``article'' as follows:

A speech means an address, oration, talk, lecture, or other form of oral presentation, whether delivered in person, transmitted electronically, recorded, or broadcast over the media, but does not include teaching in an established educational program that conforms to criteria established by the Committee.

An appearance means attendance at a public or private conference, convention, meeting, social event or like gathering, possibly but not necessarily involving incidental conversation, discussion, or remarks.

An article means a writing that has been or is intended to be published, for which a payment, if made, would be other than a royalty received from an established publisher pursuant to usual and customary contractual terms.

Exclusions

Speaking, appearing, and writing are integral to many jobs. Most jobs require the employee to ``appear'' at the work site in order to perform. The Committee does not construe the honoraria law to preclude all outside employment just because the employee must show up to do the work. The Committee has determined that the following types of compensation are not honoraria:

Compensation for activities where speaking, appearing, or writing is only an incidental part of the work for which payment is made (e.g., conducting research).

Bona fide awards and gifts. If a Member, officer, or employee is presented with an award, memento, or gift at an event, the Committee does not consider the object to be an honorarium, unless it is specifically given in consideration of the speech or appearance. Similarly, an individual may accept an award for artistic, literary, or oratorical achievement made on a competitive basis under established criteria.

Paid engagements to perform or to provide entertainment where the artistic, musical, or athletic talent of the individual is the reason for the employment, rather than the person's status as a Member or employee of Congress.

Witness and juror fees by a court or other governmental authority.

Fees to a qualified individual for conducting worship services or religious ceremonies (but not for delivering speeches or invocations at religious conventions);

Payments for works of fiction, poetry, lyrics, or script, where the payment is not offered because of the author's congressional status.

Thus, not all jobs that involve speaking, appearing, or writing are barred. Conducting religious ceremonies plainly involves speaking, yet qualified Members and employees may still accept compensation for these services. The fact that a speech is made before a religious group or at a religious convention, however, will not suffice to remove it from the statute's ban. Similarly, a Member could not accept a fee merely for offering an invocation at the beginning of an event.

Performers ``appear'' on stage. The Committee does not interpret the law to prohibit paid engagements to perform or to provide entertainment where the performer is being paid for artistic (including dramatic), musical, or athletic talent, rather than for the individual's status as a Member or employee of Congress.

Writers, too, may continue to ply their craft in many ways. If the writing is not for publication, or the writing is an incidental part of a job, payment may still be permitted. Congressional authors of fiction, poetry, lyrics, or scripts may accept compensation. Moreover, House Rule 47 has long exempted book royalties from outside earned income restrictions, royalties being deemed return on the author's intellectual property, akin to other unrestricted returns on property. As the Senate Special Committee on Official Conduct reasoned: ``If an individual writes a book, and it becomes a best-seller, any royalties received are beyond his direct control. It is income which is, in effect, a return on a prior investment of time and energy.'' (FOOTNOTE 25)

(FOOTNOTE 25) Senate Special Comm. on Official Conduct, Senate Code of Official Conduct, S. Rep. No. 95-49, 95th Cong., 1st Sess. 39 (1977), quoted in House Comm. on Standards of Official Conduct, Statement in the Matter of Representative James C. Wright, Jr., 101st Cong., 1st Sess. 32 (1989).

The honoraria ban, too, distinguishes between books and articles. A book author's royalties generally reflect the book's sales, that is, the public's assessment of the book's worth. An article, on the other hand, typically garners a one-time fee, based only on what the publisher is willing to pay the particular author (and not necessarily limited by the marketability of the piece). To be exempt from the honoraria prohibition, a book must be published by an established publisher pursuant to a usual and customary royalty agreement.

In an investigation in the 101st Congress, the Committee found reason to believe that certain income that a Member reported as book royalties were actually excessive honoraria. The Committee's Statement of Alleged Violations charged that the Member, having reached his outside earned income limit, arranged bulk book sales to groups before whom he spoke in lieu of collecting honoraria. (FOOTNOTE 26) The Member resigned before the Committee could proceed further.

(FOOTNOTE 26) Statement in the Matter of Representative James C. Wright, Jr., supra note 25, at 19-42.

Bulk book sales are not, however, invalid per se. In another case, the Committee declined to initiate a Preliminary Inquiry based on allegations (among others) that a bulk book sale might have been an improper gift or political contribution, where the Member received no personal financial benefit from the sale. (FOOTNOTE 27) Unlike the previous case, here there were no allegations that the sale was arranged to compensate the Member for personal services.

(FOOTNOTE 27) House Comm. on Standards of Official Conduct, Statement Regarding Complaints against Representative Newt Gingrich, 101st Cong., 2d Sess. 41-43 (1990).

Example 3. Member A writes a book of memoirs about his years in public service. An established publisher offers the Member its usual and customary royalty terms for the right to publish the book. Member A may have the book published and collect royalties. The royalties will be deemed ``unearned income'' and will not count against A's outside earned income cap.

Example 4. Staffer B has an outside part-time job as a consultant at a local university. Her duties include research and analysis on subjects unrelated to her official duties. In order to inform her faculty supervisor of her findings, she must write them up. Since the writing is incidental to her primary responsibilities, she may accept a salary for this job as long as it does not otherwise conflict with her official duties.

Example 5. Staffer C was a music major in college and is an accomplished violinist. He is occasionally invited to play with the local symphony orchestra at evening and weekend concerts and is compensated at the same rate as other musicians of his caliber in the community. Because he is hired based on his talent and not his status as a congressional employee, he may accept compensation for these performances.

Example 6. Staffer D works for a House committee by day and plays piano evenings and weekends. In the course of lobbying her on some legislation, Lobbyist Z learns of her avocation and, without knowing anything about her musical abilities, offers to hire her to play at his firm's Christmas party. He offers to pay her twice the going rate for such an engagement. Staffer D should decline.

Example 7. Staffer E writes a fictional story, which is published in a children's magazine. Since it is a work of fiction, he may accept payment.

Stipends

A regulation of the Federal Election Commission interpreting prior law on honoraria excluded stipends, that is payments ``for services on a continuing basis.'' (FOOTNOTE 28) The Bipartisan Task Force on Ethics, however, noted its concern that such a blanket exemption for stipends would invite circumvention of the honoraria ban. (FOOTNOTE 29) Congress directly addressed this issue in 1991 by changing the definition of honorarium to include a payment for ``a series of appearances, speeches, or articles if the subject matter is directly related to the individual's official duties or the payment is made because of the individual's status with the Government.'' (FOOTNOTE 30) Thus, stipends are now banned if they are related to the individual's official duties or status in Congress. Members and staffers who are unsure as to whether the ban applies to a particular activity should seek the Committee's guidance.

(FOOTNOTE 28) 11 C.F.R. sec. 110.12(c)(3) (1991).

(FOOTNOTE 29) Bipartisan Task Force Report, supra note 1, at 14, 135 Cong. Rec. H9257.

(FOOTNOTE 30) 5 U.S.C. app. 7, sec. 505(3), as amended by the Legislative Branch Appropriations Act, 1992, sec. 314(b), 105 Stat. 447, 469 (1991).

Example 8. A network news affiliate in Member A's district invites her to deliver a regular two-minute commentary on their Saturday evening news show on the topic, ``This Week in Congress.'' The affiliate offers the Member a stipend of $5,000 a year for her time. While the Member may do the commentary, she may not accept the stipend because the offer is related to her official duties and status.

Example 9. A philatelic magazine commissions Staffer B to write a series of articles on stamp collecting. Since stamp collecting is unrelated to B's official duties and status, B may accept payment for the series.

Donations to Charity

The statute does authorize the sponsor of a speech, appearance, or article to make a payment in lieu of an honorarium directly to a charity qualified under sec. 170(c) of the Internal Revenue Code. (FOOTNOTE 31) The sponsor may make a donation of up to $2,000 per speech, appearance, or article, as long as the sponsor makes the payment directly. Even if the sponsor makes the check payable to the charity, the Member or employee may not accept the check and personally forward it to the charity.

(FOOTNOTE 31) Section 170(c) defines charitable contributions that are tax deductible. It includes contributions to the United States; the District of Columbia; any state, possession or political subdivision; religious, charitable, scientific, literary, or educational organizations; and organizations to foster amateur sports competition or for the prevention of cruelty to children or animals. These organizations may not be operated for profit, nor may they attempt to influence legislation or participate in political campaigns for public office. 26 U.S.C. sec. 170(c). Since an organization's tax status is determined by the Internal Revenue Service, a Member or employee who wishes to designate a particular organization to receive payments in lieu of honoraria should verify with the organization that the IRS has granted it tax deductible status under sec. 170(c).

The Member or employee may suggest a particular charity to receive the donation, within the following limits. The House individual may not receive any tax benefit from the donation. Accordingly, the individual may neither add the donation to income nor deduct it for income tax purposes. (FOOTNOTE 32) The charity may not be one from which the individual or his or her immediate family (parent, sibling, spouse, child, or dependent relative) derives any financial benefit. (FOOTNOTE 33) The Task Force construed this restriction narrowly:

(FOOTNOTE 32) 26 U.S.C. 7701(k).

(FOOTNOTE 33) See 5 U.S.C. app. 7, sec. 501(c).

The task force intends that a financial benefit for purposes of this rule would be a direct benefit to the individual or a family member that is separate from any general benefit that the institution would derive. For example, this provision would not prohibit a payment to a university at which the Member's child is a student, or to a health care facility at which a family member is a patient. (FOOTNOTE 34)

(FOOTNOTE 34) Bipartisan Task Force Report, supra note 1, at 15, 135 Cong. Rec. H9257.

Thus, where the Member, staffer, or family member draws a direct financial benefit (such as a salary) from a particular charity, the Member or staffer may not designate that charity to receive payments in lieu of honoraria. In the case of a national or international charity, however, the fact that a family member works for a local unit would not preclude a Member or staffer from designating the parent organization. Any remote benefit to the family member from the donation in that situation would be too indirect to fall within the statute's prohibition.

Example 10. Member A gives a speech to a trade association in New Orleans. The association pays A's travel, food, and lodging expenses and sends a check for $2,000 to the Boy Scouts, with a note saying: ``In lieu of an honorarium, Member A has asked us to make this donation to the Boy Scouts in honor of his speech to our association.'' A and the association have complied with the honorarium law.

Example 11. Member B gives a speech to a political club in Chicago. The following week, she receives a check for $1,500, payable to her, with a note from the club saying: ``Thank you for addressing our club. We did not know which charities you support, so we are sending you this check, knowing that you will pass it along to some worthy organization.'' Member B may not keep the check, even if she immediately endorses it over to a charity. She must return the check to the club. If she wishes, she may suggest that the club donate the money to a specific charity of her choice or to any charity of the club's choice that is qualified under sec. 170(c) of the tax code.

Example 12. Member C gives a speech at an executives' roundtable in Kansas City. In honor of the event, the executives' group presents C with a check for $1,000, made out to C's favorite charity. C may not send the check on to the charity. C must return the check to the executives, who may then forward it to the charity themselves.

Example 13. Staffer D writes an article that is accepted for publication by a magazine. The magazine normally would pay $500 for a comparable article and asks D if he would like the money to be donated to some charity. D's favorite charity is a homeless shelter in his home town where his sister works as a counselor. Since his sister receives a direct financial benefit from the shelter (her salary), D may not designate the shelter to receive the payment from the magazine. He may designate another charity.

Example 14. Staffer E writes an article that is accepted for publication by a magazine that offers to donate $500 to the charity of E's choice. E's husband is a lab technician at the local Red Cross blood bank. E may, if she chooses, designate the national or international Red Cross to receive the payment in lieu of honorarium.

Foundations

Members often cooperate with or help organize charitable foundations, which they may designate to receive payments in lieu of honoraria or for which they may solicit contributions. Typically, these foundations attempt to address particular needs in the Member's district (such as scholarship funds) or national problems of particular concern to the Member. Such foundations are permissible under the laws and rules subject to the Committee's jurisdiction, provided that they comply with the solicitation guidelines set forth in Chapter 2. A Member may designate such a foundation to receive payments in lieu of honoraria if the foundation is qualified under sec. 170(c) of the tax code. The Member may permit use of his or her name on the foundation's letterhead and sign letters on the organization's behalf, using the title ``Member of Congress,'' ``Representative,'' ``Congressman'' or ``Congresswoman.''

Official and unofficial activities must remain absolutely separate. By statute as well as regulations of the Committee on House Administration, official resources may not be used to assist the work of an outside organization. (FOOTNOTE 35) Conversely, House Rule 45, prohibiting ``unofficial office accounts,'' prevents congressional offices from accepting any funds, goods or in-kind services from private sources. (FOOTNOTE 36) The ``wall'' between public and private activities and resources should not be breached. (FOOTNOTE 37)

(FOOTNOTE 35) See 31 U.S.C. sec. 1301(a); see generally Congressional Handbook, supra note 16.

(FOOTNOTE 36) See House Select Committee on Ethics, Advisory Opinion No. 6 (May 7, 1977), reprinted in Final Report of the Select Committee on Ethics, H. Rep. No. 95-1837, 95th Cong., 2d Sess. app. at 64-66 (1979) and at the end of Chapter 6 of this Manual.

(FOOTNOTE 37) See Chapter 6 for a general discussion of the parameters of Rule 45.

Under the Ethics Reform Act, as of January 1, 1991, Members and other senior government officials may not serve for compensation as officers or members of the board of any association, corporation or other entity. Thus, a Member may sit on the board of a foundation but may not receive any payments, beyond reimbursement for travel and other expenses incurred on the foundation's behalf. In addition, the Internal Revenue Code assesses penalties on certain acts of ``self-dealing'' (e.g., payment of compensation and certain expenses, lending of money, leasing of property) between private foundations and some Government officials, including elected officials in the legislative branch and House employees who receive a salary of at least $15,000 per year. (FOOTNOTE 38) The tax sanctions include an imposition of excise taxes on both the self-dealer and the manager of the foundation, in an amount that multiplies if the original matter is not rectified within a certain time. A Member contemplating establishing a foundation should consult with a qualified tax accountant or attorney.

(FOOTNOTE 38) See 26 U.S.C. sec. 4941.

ADDITIONAL EARNED INCOME LIMITATIONS (affecting Members and Senior Staff)

For Members and those officers and employees earning above the GS-15 level for more than 90 days in a calendar year (i.e., $77,080 in 1992), (FOOTNOTE 39) the Ethics Reform Act and House Rules limit both the total amount of outside earned income and the type of permissible outside employment. House Rule 47 caps the amount of permissible outside earned income in a calendar year at 15 percent of the Executive Level II salary (that is, the Members' base annual salary). In 1992, the cap is $19,425, for both Members and covered employees. (FOOTNOTE 40)

(FOOTNOTE 39) See House Rule 47, cl. 2(b)(1). The salary threshold was $72,298 per year as of January 1, 1991, and rose to $73,972 as of May 4, 1991. See note 3, supra.

(FOOTNOTE 40) In 1991, the cap was $18,765.

In addition, the rule restricts, and in some cases prohibits, compensation for certain types of activities, regardless of whether the individual's income has reached the cap.

Fiduciary and Related Restrictions

A Member or [a covered] officer or employee . . . shall not --

(1) receive compensation for affiliating with or being employed by a firm, partnership, association, corporation, or other entity which provides professional services involving a fiduciary relationship;

(2) permit that Member's, officer's, or employee's name to be used by any such firm, partnership, association, corporation, or other entity;

(3) receive compensation for practicing a profession which involves a fiduciary relationship;

(4) serve for compensation as an officer or member of the board of any association, corporation, or other entity; or

(5) receive compensation for teaching, without the prior notification and approval of the appropriate [supervising ethics office].

-- 5 U.S.C. app. 7, sec. 502.

Teaching

Under the terms of the teaching restriction, Members and covered employees may not teach for compensation, unless they receive prior written permission from the Committee on Standards. This requirement ensures that teaching does not become an avenue for circumventing the honoraria ban. The Committee therefore scrutinizes each request. In order to receive approval, the teaching must conform to the following criteria:

1. The teaching is part of a regular course of instruction at an established academic institution.

2. All compensation comes from the funds of the institution and none is derived from federal grants or earmarked appropriations.

3. The payment is for services on an ongoing basis, not for individual presentations or lectures.

4. The teacher's responsibilities include class preparation and student evaluation (for example, grading papers, testing, and homework).

5. The students receive credit for the course taught.

6. The compensation does not exceed that normally received by others at the institution for a comparable level of instruction and amount of work.

7. No official resources, including staff time, are used in connection with the teaching.

8. The teaching does not interfere with official responsibilities nor is it otherwise inconsistent with the performance of congressional duties.

9. The employment or compensation does not present a significant potential for conflict of interest.

Items 1 through 6 should be confirmed in writing by the institution at which the paid teaching will occur. Documentation might be in the form of an explanatory letter or copy of a teaching contract attached to the request for Committee approval. Items 7 through 9 should be affirmed in writing by the individual seeking to teach.

The Committee also approves requests to teach for compensation in less formal settings such as Sunday School, piano lessons, aerobics classes, and other situations clearly unrelated to official duties or an individual's status in Congress. No documentation need be submitted from the employing institution in such instances.

The 15 Percent Cap: Earned vs. Unearned Income

Rule 47 restricts compensation for personal services (termed ``earned income''), but not moneys received from ownerships or other investments of equity (so-called ``unearned income''). (FOOTNOTE 52) The distinction between earned and unearned income is important because only earned income is subject to the 15-percent cap. In an advisory opinion, the Select Committee on Ethics of the 95th Congress emphasized that the ``real facts'' of a particular case would control as to whether moneys received would be deemed earned income:

(FOOTNOTE 52) See 123 Cong. Rec. 5901-02 (Mar. 2, 1977) (statement of Representative Frenzel).

[T]he label or characterization placed on a transaction, arrangement, or payment by the parties may be disregarded for purposes of the Rule. Thus, if the amounts received or to be received by a Member are in fact attributable to any significant extent to services rendered by the Member, the characterization of such amounts as partnership distributive share, dividends, rent, interest, payment for a capital asset, or the like, will not serve to prevent the application of Rule XLVII to such amounts. . . .

. . . For purposes of this Opinion, there are two types of income - earned and unearned. If the compensation received is essentially a return on equity, then it would generally not be considered to be earned income. If the income is not a return on equity, then such income would generally be considered to be earned income and subject to the limitation. (FOOTNOTE 53)

(FOOTNOTE 53) House Select Comm. on Ethics, Advisory Opinion No. 13 (Oct. 1978), reprinted in Final Report, H. Rep. No. 95-1837, supra note 36, app. at 81, 82, and at the end of this chapter.

Personal Service Businesses

In businesses where capital is not a material income-producing factor, such as in the practice of one's profession as a doctor, lawyer, or carpenter, the Select Committee noted that the entire share of profits is generally considered earned income, unless it can be shown that some income actually derives from a return on investment. Even where the Member performs no personal services, it is presumed, lacking a strong showing to the contrary, that the Member's share of profits from a service business is for attracting or retaining clients and thus is considered earned income. (FOOTNOTE 54) As to law practices specifically, the Select Committee noted that ``buy-out'' arrangements are permitted and will not be counted toward the earned income limit when fair and reasonable in relation to comparable practices. (FOOTNOTE 55) To ensure that these criteria are satisfied, a Member may wish to consult with the Committee's Office of Advice and Education before accepting a ``buy-out.'' As described above, the fiduciary restrictions of the Ethics Reform Act substantially limit the actual practice of these types of professions.

(FOOTNOTE 54) Id. at 83.

(FOOTNOTE 55) Id.

Business Corporations

In business corporations, only payment for services the Member performs is considered earned income. An increase in the value of the firm's stock or distribution of profits is not considered earned income. This, however, cannot be used as a subterfuge, such as where a Member would incorporate for the purpose of making speeches or writing articles, then have all fees directed to the corporation and later distributed to the Member as ``profits.''

Close Corporations, Partnerships, and Unincorporated Businesses

Where a Member has an ownership interest and also performs some services, as in a close corporation, partnership, or unincorporated business, some of the profits might result from the personal services of the Member and therefore would be considered earned income. ``[T]he determining factor is whether the Member's personal services generate significant income for the business.'' (FOOTNOTE 56) The Member may protect his or her interest and investments in the business through general oversight and management of investments without generating earned income. However, fees, compensation, or salaries from such a business are earned income. Where the Member's principal function is to refer or to help retain clients, then ``the Member would be deemed to be rendering income-producing services, even though the actual time involved might be minimal.'' (FOOTNOTE 57)

(FOOTNOTE 56) Id.

(FOOTNOTE 57) Id.

The rules on income-producing services for a business in which the Member has an ownership interest would also apply to a family business or farm. (FOOTNOTE 58) The Commission on Administrative Review in the 95th Congress offered this explanation concerning the family business or farm exemption from the personal earned-income limitation:

(FOOTNOTE 58) See House Rule 47, cl. 3(e)(4).

. . . [T]he Commission believes that Members should be able to render personal services to manage or protect their equity in a family trade or business without having to allocate these personal services toward the 15-percent limitation. However, if the personal services, in and of themselves, generate any significant amount of income, the resulting income should be subject to the . . . limitation. Conversely, the Commission believes that in implementing this limitation care should be taken to prevent Members from circumventing it by incorporating themselves into a ``family business'' and then withdrawing what in reality are fees for personal services in the form of dividends or profits. (FOOTNOTE 59)

(FOOTNOTE 59) Financial Ethics, H. Doc. No. 95-73, supra note 18, at 11.

The debate preceding the adoption of this rule emphasized that personal services that generate income do not come within the exemption and would thus be subject to the earned income limitation:

The crucial element in determining whether the limitation applies . . . is this: If the personal services produce the income, then it does not matter whether it is a family business or whether it is a law firm, or anything else. If those personal services actually produce the income, then it comes under the limitation. (FOOTNOTE 60)

(FOOTNOTE 60) 123 Cong. Rec. 5897 (Mar. 2, 1977) (statement of Representative Hamilton); see also id. at 5902 (statement of Representative Obey).

Additionally, the Select Committee emphasized the following with respect to the ``family business'' exemption:

[T]he definition of earned income in Rule XLVII, which excludes amounts received by a Member from a family controlled business ``so long as the personal services actually rendered by the Member . . . do not generate a significant amount of income,'' was simply intended to assure Members that they could continue to make decisions and take actions necessary to manage or protect their equity in a family trade or business, and would not be forced to divest themselves of their family business interests. As with any business, a Member would not be required to allocate his share of the profits of the business as outside earned income when the facts and circumstances show that the income is in reality a return on investment. (FOOTNOTE 61)

(FOOTNOTE 61) Advisory Opinion No. 13, supra note 53, H. Rep. No. 95-1837 app. at 85-86.

Income generally comes within the limitation when the Member earns it -- that is, ``the year in which the Member's right to receive it becomes certain.'' (FOOTNOTE 62) A Member may not avoid the income limitation by deferring receipt of income that he has already earned to another year or to when he leaves Congress.

(FOOTNOTE 62) Id. at 81.

PRACTICE OF LAW

While the Ethics Reform Act severely curtails the paid practice of law by Members and senior staffers, these persons may still practice without compensation and other employees may practice for compensation, within the following parameters.

No public official should take on a private obligation that conflicts with his or her primary duty to serve the public interest. The lawyer's duty of undivided loyalty to his or her clients (FOOTNOTE 63) makes the practice of law particularly susceptible to conflicts with the wide-ranging responsibilities of Members and staff. Congressional lawyers who wish to maintain private practices should also consult their local bar associations with respect to professional restrictions on them. Federal law prohibits Members from practicing in the United States Claims Court or the United States Court of Appeals for the Federal Circuit (FOOTNOTE 64) or from serving as attorneys to contractors or charterers holding contracts under the Merchant Marine Act. (FOOTNOTE 65) In addition, Members and employees may not privately represent others before Federal agencies, as described below.

(FOOTNOTE 63) See, e.g., ABA Model Rules of Professional Conduct Rule 1.7 (1989); Model Code of Professional Responsibility, Canon 7, DR 5-105, EC 5-1, EC 5-14, EC 5-15, EC 5-21 (1981).

(FOOTNOTE 64) 18 U.S.C. sec. 204.

(FOOTNOTE 65) 46 U.S.C. sec. 1223(e).

REPRESENTING OTHERS BEFORE FEDERAL AGENCIES

Federal criminal law prohibits Members, officers, and employees from privately representing others before the Federal Government. One provision bars these individuals from seeking or receiving compensation (other than as provided by law) for ``representational services'' before any Government agency, department, court, or officer in any matter or proceeding in which the United States is a party or has an interest (18 U.S.C. sec. 203). A second provision forbids any officer or employee from acting ``as agent or attorney for anyone'' (other than in the proper discharge of official duties) before any Government entity in any particular matter in which the Government has an interest, whether or not the individual is compensated (18 U.S.C. sec. 205). The individual need not actually be an attorney or have a strict common law agency relationship with another in order to be restricted by the statute. (FOOTNOTE 66) Moreover, House Rule 41 prohibits any officer or employee of the House from acting as ``an agent for the prosecution of any claim against the Government or be[ing] interested in such claim otherwise than as original claimant or than in the proper discharge of official duties.''

(FOOTNOTE 66) United States v. Sweig, 316 F. Supp. 1148, 1157 (S.D.N.Y. 1970).

Under section 203, a Member, officer, or employee of the House may not receive compensation, other than congressional salary, for any dealings with an administrative agency on behalf of a constituent or any other person or organization. Even if contacting a Federal agency on behalf of a private individual or organization is within the scope of official duties, an individual who accepts additional compensation for such services has violated the law. (FOOTNOTE 67) In this sense, section 203 supplements the law against illegal gratuities discussed in Chapter 2.

(FOOTNOTE 67) May v. United States, 175 F.2d 994 (D.C. Cir.), cert. denied, 338 U.S. 830 (1949).

Section 203 prohibits the receipt of compensation ``directly or indirectly'' for services before Federal agencies. Therefore, if a Member or employee is in a partnership arrangement or otherwise shares in fees from services rendered before Federal agencies, a violation of this provision may occur even if the individual did not personally perform the services. (FOOTNOTE 68) The Department of Justice has stated, for example, that section 203 ``bars a partner in a law firm from sharing in any fees received by the firm before any Federal department or agency during the time he is or was a Federal employee.'' (FOOTNOTE 69) This same informal letter opinion notes, however, that the Justice Department ``has interpreted sec. 203 not to apply to a person who receives a fixed salary as an employee of a firm (as opposed to someone who shares in the firm's profits), even though some of the firm's overall income may be attributable to service covered by sec. 203.''

(FOOTNOTE 68) See House Comm. on Standards of Official Conduct, Advisory Opinion No. 1, reprinted in 116 Cong. Rec. 1077-78 (Jan. 26, 1970) and at the end of Chapter 7 of this Manual.

(FOOTNOTE 69) Letter from Leon Ulman, Dep. Ass't Att'y Gen., Office of Legal Counsel, Dep't of Justice (Mar. 14, 1978) (on file at Committee office).

Both sections 203 and 205 carry the same possible penalties: imprisonment for up to one year (or five years if the violation is willful); a civil fine of up to $50,000 per violation or the amount received or offered for the prohibited conduct (whichever is greater); and/or a court order prohibiting the offensive conduct. (FOOTNOTE 70) In one case, a Federal court held a former Member of Congress liable for repayment of compensation unlawfully received. The court ruled that a violation of section 203 --

(FOOTNOTE 70) 18 U.S.C. sec. 216.

. . . unquestionably demonstrates a breach of trust, for in order to fall within its prohibition, a member of Congress must shed the duty of disinterested advocacy owed the government and his constituents in favor of championing private interests potentially inconsistent with this charge. (FOOTNOTE 71)

(FOOTNOTE 71) United States v. Podell, 436 F. Supp. 1039 (S.D.N.Y. 1977), aff'd, 572 F.2d 31 (2d Cir. 1978). See also United States v. Eilberg, 507 F. Supp. 267 (E.D. Pa. 1980).

Sections 203 and 205 exempt certain activities. Individuals may represent themselves before the Government. One may also represent one's spouse, parent, child, or any person for whom one serves as guardian, trustee, or personal fiduciary. (FOOTNOTE 72) Even on behalf of these people, however, the individual must refrain if the matter at issue is one in which he or she participated personally and substantially on behalf of the Government or one which falls within his or her official responsibilities. A staffer needs the approval of his or her employing Member. (FOOTNOTE 73) In addition, one may, without compensation, represent anyone in a disciplinary or personnel proceeding. (FOOTNOTE 74)

(FOOTNOTE 72) 18 U.S.C. secs. 203(d), 205(e).

(FOOTNOTE 73) Id.

(FOOTNOTE 74) 18 U.S.C. sec. 205(d).

Example 26. Staffer A is a caseworker. Because of his sophistication in dealing with Government agencies, A's sister asks him to represent her at an FCC hearing at which she is contesting the agency's denial of her license application. A must decline.

Example 27. Staffer A's parents have a dispute with the Social Security Administration. A may represent them at their hearing.

Example 28. Staffer B is a tax lawyer. B's college roommate has a dispute with the IRS and asks B to accompany her and to assist her at the hearing. B may not do so, even if she receives no compensation.

CONTRACTING WITH THE FEDERAL GOVERNMENT

Under the Federal Criminal Code, a Member of Congress may not enter into a contract or agreement with the United States Government. Any such contract is deemed void, and both the Member and the officer or employee who makes the contract on behalf of the Government may be fined (18 U.S.C. secs. 431-32). To ensure that these prohibitions are carried out, public contracting law requires every Government contract to contain a clause expressly stating that no Member of Congress shall share in any benefits arising from the contract (41 U.S.C. sec. 22). (FOOTNOTE 75)

(FOOTNOTE 75) The criminal statute specifically exempts contracts entered into under the Reconstruction Finance Corporation Act, the Agricultural Adjustment Act, the Federal Farm Loan Act, the Emergency Farm Mortgage Act of 1933, the Farm Credit Act of 1933, the Home Owners' Loan Act of 1933, the Farmers' Home Administration Act of 1946, the Bankhead-Jones Farm Tenant Act, crop insurance agreements and contracts that the Secretary of Agriculture enters into with farmers (18 U.S.C. sec. 433). In addition, contracts under the Federal Farm Mortgage Corporation Act are exempt from 41 U.S.C. sec. 22, as are contracts that the United States Information Agency makes in foreign countries (22 U.S.C. sec. 1472). The public contracting clause must appear, however, in contracts for the acquisition of land pursuant to flood control laws (33 U.S.C. sec. 702m).

The criminal law precludes Members from ``directly or indirectly'' holding, executing, undertaking, or enjoying ``in whole or in part'' any contract with the Government. The Attorney General has interpreted this language to prohibit a general or limited partnership that includes a Member of Congress from entering into a contract with the Federal Government. (FOOTNOTE 76) There are no definitive Federal rulings as to whether a Member of Congress may receive compensation as an employee, rather than a partner, of an organization holding a Government contract. Some state decisions, however, do prohibit such arrangements. (FOOTNOTE 77) Even a Member of Congress who receives compensation (e.g., as salary or subcontract) under an independent organization's Government contract might be considered to be improperly benefiting from that Federal contract.

(FOOTNOTE 76) Memorandum from Lynda Guild Simpson, Deputy Ass't Att'y Gen., Office of Legal Counsel, Dep't of Justice, to Robert C. MacKichan, Jr., Gen. Counsel, Gen. Services Admin. (Aug. 3, 1989) (on file at Committee office); 4 Op. Att'y Gen. 47 (1842).

(FOOTNOTE 77) See Bernard J. McNamee &and; Edward M. Payne, III, Note, Conflict of Interests: State Government Employees, 47 Va. L. Rev. 1034, 1050-1051 (1961).

Unlike a partnership, a corporation with a relationship to a Member of Congress may enter into a contract with the Federal Government for the general benefit of the corporation. (FOOTNOTE 78) Thus, a Member of Congress apparently may be a stockholder, even a principal stockholder, or an officer of a corporation that holds a Government contract without incurring criminal liability. (FOOTNOTE 79) Similarly, the spouse of a Member may enter into a contract with the Federal Government. Incorporating for the obvious purpose of circumventing the statute's prohibition might, however, give rise to a cause of action, and justify a ``piercing of the corporate veil.'' It would appear that the statutory exception in the criminal law for contracts with corporations would likewise apply to the contract law provision of 41 U.S.C. sec. 22, since all the provisions discussed, and the exceptions to them, were originally passed as part of the same act. (FOOTNOTE 81)

(FOOTNOTE 78) 18 U.S.C. sec. 433.

(FOOTNOTE 79) See 39 Op. Att'y Gen. 165 (1938) (Member held 30% of corporation's stock and was president of company); 33 Op. Att'y Gen. 44 (1921).

(FOOTNOTE 80) 39 Op. Att'y Gen. 165, 170-171 (1938).

(FOOTNOTE 81) Revised Statutes secs. 3739-3741, 2 Stat. 484, ch. 48 (Apr. 21, 1808).

In addition, Federal Acquisition Regulations state that contracts between the Government and Federal employees (including employees of the House of Representatives), or firms substantially owned or controlled by Federal employees, should not knowingly be made ``except for the most compelling reasons,'' such as where the needs cannot otherwise be reasonably fulfilled. (FOOTNOTE 82) The general ethical standards in the Code of Ethics for Government Service state further that an employee ``[s]hould engage in no business with the Government, either directly or indirectly, which is inconsistent with the conscientious performance of his governmental duties.'' (FOOTNOTE 83)

(FOOTNOTE 82) 41 C.F.R. secs. 3.601 - 3.602.

(FOOTNOTE 83) Code of Ethics for Government Service para. 7, supra note 7.

Example 29. The Resolution Trust Corporation holds an auction of assets of failed banks. Member A may not purchase anything at the auction because the contract of sale would be a contract with the Government.

Example 30. Member B is invited to speak at a conference sponsored by the executive branch. Although private sector speakers at this conference are receiving fees, B may not accept payment.

STAFF CONFLICT OF INTEREST RULE

A new provision of House rules, enacted by the Ethics Reform Act, restricts the official activities of employees who file financial disclosure forms. These individuals may not contact other Government agencies with respect to nonlegislative matters affecting their own significant financial interests (Rule 43, clause 12). An employing Member may waive this disqualification by notifying the Committee on Standards, in writing, that the Member is aware of the employee's financial interest, but deems this person's participation necessary nonetheless.

Example 31. Staffer A, the banking expert on Member B's staff, is part owner of a bank in B's district. A new banking regulation will adversely affect all the banks in B's district, and B wishes A to contact the banking regulators on his behalf to urge reconsideration. B writes to the Committee on Standards, stating: ``I authorize my staffer, A, to contact banking authorities concerning Regulation 123. I understand that A, as part owner of Central Bank, may benefit if the Regulation is withdrawn. Nonetheless, I waive the application of House Rule 43(12)(a) because A's expertise in this area makes her participation necessary.'' A is then free to contact the agency.

HOLDING LOCAL OFFICE

House employees are often tempted to run for local offices themselves. No statute or rule prohibits this. Staff should take care, however, to avoid any undertaking that is inconsistent with congressional responsibilities.

Employees who run for or hold local office may not do so to the neglect of congressional duties, nor on ``official time'' for they receive Government salary. (FOOTNOTE 84) No local elective service may be performed in the congressional office or in a manner that utilizes any official resources, including the telephones. In dealing with the public, staff who serve as local officials should always make clear in which capacity they are acting. They should discourage any suggestion that their local constituents will receive special treatment from the congressional office, beyond that received by other residents of the congressional district. (FOOTNOTE 85)

(FOOTNOTE 84) See id. para. 3; House Rule 43, cl. 8.

(FOOTNOTE 85) See House Rule 43, cl. 3; Code of Ethics for Government Service para. 5, supra note 7.

House employees should also recall that they are prohibited by 18 U.S.C. sec. 205 from acting as an agent in connection with any particular matter in which the United States has a direct and substantial interest, except in the course of their official duties. While the Committee is not aware of any local official being prosecuted under this statute, employees should avoid situations that might be construed as unlawful representation of a locality before the Federal Government.

DUAL GOVERNMENT EMPLOYMENT

A House employee may not hold another non-House Government job if the salaries of the two positions combined exceeds $20,987 per year. (FOOTNOTE 86) A ``position'' means ``a civilian office or position (including a temporary, part time, or intermittent position), appointive or elective, in the legislative, executive, or judicial branch of the Government.'' (FOOTNOTE 87) The dual employment bar does not apply when the positions involved are expert or consultant positions and pay is received on a ``when-actually-employed'' basis for different days. (FOOTNOTE 88) An individual also may not hold two House jobs, if the combined salary exceeds the maximum annual rate of pay authorized to be paid out of a Member's clerk hire allowance. (FOOTNOTE 89) Thus, the law allows House employees to work part-time and allows House offices to share employees, as long as each employee receives pay commensurate with the work done for each office and no individual's combined salary exceeds the cap.

(FOOTNOTE 86) 5 U.S.C. sec. 5533(c)(1); the cited amount is the $7,724 limit provided by the statute, as adjusted by the Clerk of the House through January 1, 1992, in accordance with authority contained in 2 U.S.C. sec. 60a-2.

(FOOTNOTE 87) 5 U.S.C. sec. 5531.

(FOOTNOTE 88) 5 U.S.C. sec. 5533(c)(4).

(FOOTNOTE 89) Id. sec. 5533(c)(2).

FOREIGN GOVERNMENTS

The United States Constitution prohibits any Member or employee of the House (as well as any other Federal official) from receiving an ``emolument'' of ``any kind whatever'' from a foreign government or a representative of a foreign state, without the consent of the Congress. (FOOTNOTE 90) An ``emolument'' means ``any profit, gain, or compensation received for services rendered.'' (FOOTNOTE 91)

(FOOTNOTE 90) U.S. Const. art. I, sec. 9, cl 8.

(FOOTNOTE 91) Comp. Gen. Op. B-169035, 49 Comp. Gen. 819, 820 (1970); see also Comp. Gen. Op. B-180472 (Mar. 4, 1974).

This provision was introduced during the debates of the Constitutional Convention in August of 1787 by Mr. Pinckney of South Carolina. As noted in Elliot's Debates, ``Mr. Pinckney urged the necessity of preserving foreign ministers, and other officers of the United States, independent of external influence,'' and introduced this provision, which passed without objection. (FOOTNOTE 92) Justice Joseph Story, in his Commentaries on the Constitution of the United States, explained that this constitutional prohibition was ``founded in a just jealousy of foreign influence of every sort.'' (FOOTNOTE 93) As noted by the Comptroller General, ``It seems clear from the wording of the constitutional provision that the drafters intended the prohibition to have the broadest possible scope and applicability.'' (FOOTNOTE 94)

(FOOTNOTE 92) 5 Elliot's Debates 467.

(FOOTNOTE 93) 3 Joseph Story, Commentaries on the Constitution of the United States 215-16.

(FOOTNOTE 94) Comp. Gen. Op. B-169035, supra note 90, 49 Comp. Gen. at 820.

Congress must consent, generally by means of a private or public bill, before a Member or employee of Congress may accept any compensation from a foreign government, or from an organization or person representing or acting as an instrumentality of a foreign state. Although Congress has consented, in the Foreign Gifts and Decorations Act, to the acceptance by Federal officers of certain gifts, no statute grants a general consent for the receipt of emoluments or other compensation from foreign governments. (FOOTNOTE 95) The Comptroller General has ruled that transportation or expenses for travel gratuitously given by a foreign government would fall within regulations promulgated on the receipt of foreign gifts. However, if the same were offered by a foreign government in return for or in connection with some service that a Member or employee would provide, such as making a speech, then such expenses could be deemed ``compensation'' and thus be an ``emolument.'' (FOOTNOTE 96) Note the difference between this Constitutional provision and the honoraria statute: The honoraria statute generally permits one to accept necessary travel expenses to deliver a speech; the Constitution, however, prohibits the acceptance of such expenses from a foreign government.

(FOOTNOTE 95) 5 U.S.C. sec. 7342. But see 37 U.S.C. sec. 908, consenting to the civilian employment of retired military members and members of the reserve by foreign governments, when approved by the relevant Cabinet Secretaries. See also discussion of Gifts from Foreign Governments in Chapter 2 of this Manual, at 44-47.

(FOOTNOTE 96) Comp. Gen. Op. B-180472, supra note 90.

Members and employees may not therefore receive any payment for services rendered to official foreign interests, such as ambassadors, embassies, or agencies of a foreign government. Caution should thus be exercised in accepting expenses or other compensation from any foreign organization (such as a foundation) that receives sponsorship, funding, or licensing from a foreign government because it could be considered an official arm or an instrumentality of the government. The Comptroller General has ruled, for example, that a Member of Congress could not accept a fee from the British Broadcasting Corporation for participation in a television program to discuss the American Presidency. The BBC, because of its funding relationship and regulation by the British Government, was considered an instrumentality of the British Government, and thus a ``foreign state'' under the constitutional ban. (FOOTNOTE 97) While the Foreign Gifts and Decorations Act prohibits gifts from multinational organizations (such as the United Nations or the World Bank), no similar provision bans compensation from such organizations.

(FOOTNOTE 97) Id.

Regardless of compensation, a public official may not act as an agent or attorney for a foreign principal required to register under the Foreign Agents Registration Act of 1938, as amended, that is, generally, those individuals engaged in lobbying, political, or propaganda activities. (FOOTNOTE 98) In addition, United States officials may not accept campaign contributions from foreign nationals. (FOOTNOTE 99)

(FOOTNOTE 98) 18 U.S.C. sec. 219; see Foreign Agents Registration Act, 22 U.S.C. secs. 611-621.

(FOOTNOTE 99) 2 U.S.C. sec. 441e.

VOTING

Certain issues go to the very heart of a Member's official responsibilities. Chief among them is voting on legislation. House Rule 8 states:

1. Every Member . . . shall vote on each question put, unless he has a direct personal or pecuniary interest in the event of such question.

* * * *

3.(a) A Member may not authorize any other individual to cast his vote or record his presence in the House or Committee of the Whole.

(b) No individual other than a Member may cast a vote or record a Member's presence in the House or Committee of the Whole.

(c) A Member may not cast a vote for any other Member or record another Member's presence in the House or Committee of the Whole.

In the 100th Congress, prior to the adoption of this rule, the House reprimanded a Member for allowing another to vote on the floor in his place. In recommending disciplinary action, the Committee declared its firm belief that ``nothing is more sacred to the democratic process than each person casting his own vote.'' (FOOTNOTE 100)

(FOOTNOTE 100) House Comm. on Standards of Official Conduct, in the Matter of Representative Austin J. Murphy, H. Rep. No. 100-485, 100th Cong., 1st Sess. 3 (1987).

Voting on Matters of Personal Interest

No statute or rule requires the divestiture of private assets or holdings by Members or employees of the House upon assuming their official positions. Since legislation considered by Congress affects such a broad spectrum of business and economic endeavors, a Member of the House may be confronted with the possibility of voting on legislation that would have an impact upon a personal economic interest. This may arise, for example, in a bill authorizing appropriations for a project for which the government contract is held by a corporation in which the Member is a shareholder, or a bill providing federal guarantees for municipal securities when a Member is among those holding such securities. Longstanding House precedents have not found such interests to warrant abstention under the rule of the House that instructs Members to vote on each question presented unless they have ``a direct personal and pecuniary interest in the event of such question.'' (FOOTNOTE 101) Rather, it has generally been found that ``where legislation affected a class as distinct from individuals, a Member might vote.'' (FOOTNOTE 102)

(FOOTNOTE 101) House Rule 8, cl. 1.

(FOOTNOTE 102) See 5 Asher C. Hinds, Hinds' Precedents of the House of Representatives sec. 5952, at 504 (1907) (hereinafter Hinds).

House Rule 8, clause 1 has been explained as follows:

It is a principle of ``immemorial observance'' that a Member should withdraw when a question concerning himself arises; but it has been held that the disqualifying interest must be such as affects the Member directly, and not as one of a class. In a case where question affected the titles of several Members to their seats, each refrained from voting in his own case, but did vote on the identical cases of his associates. And while a Member should not vote on the direct questions affecting himself, he has sometimes voted on incidental questions. (FOOTNOTE 103)

(FOOTNOTE 103) Wm. Holmes Brown (parliamentarian), The Constitution, Jefferson's Manual and Rules of the House of Representatives of the United States, One Hundred Second Congress, H. Doc. No. 101-256, 101st Cong., 2d Sess. sec. 659, at 343 (1991) (citations omitted) (hereinafter Jefferson's Manual).

Thus, Members holding stock in national banks have voted on legislation ``providing a national currency and to establish free banking'' since Members ``do not have that interest separate and distinct from a class, and, within the meaning of the rule, distinct from the public interest.'' (FOOTNOTE 104) Veterans in the House have properly voted on questions of pay and pensions in the military since such Members ``did not enjoy the benefit arising from the legislation distinct and separate from thousands of men in the country who had held similar positions.'' (FOOTNOTE 105) The Speaker would not rule that a Member owning stocks in breweries or distilleries should be disqualified in voting on the proposed amendment to the Constitution concerning prohibition of the manufacture and sale of liquor. (FOOTNOTE 106) Members who were stockholders in or had interests in import businesses voted on a tariff bill affecting the import business since ``the bill before us affects a very large class. . . . The Chair would be surprised if there were not hundreds of thousands of American citizens who were stockholders in these companies.'' (FOOTNOTE 107)

(FOOTNOTE 104) 5 Hinds, supra note 102, sec. 5952 at 503-504.

(FOOTNOTE 105) Id.

(FOOTNOTE 106) 8 Clarence Cannon, Cannon's Precedents of the House of Representatives, sec. 3071, at 620 (1935).

(FOOTNOTE 107) Id. sec. 3072, at 623.

Although the rule has been found not to apply when a Member is affected only as a member of a class rather than as an individual, some precedents in the House indicate that the rule might apply if legislation affects only one specific business or property, rather than a class or group of businesses or properties. Thus, although the Speaker found that a Member interested in breweries or distilleries could vote on ``prohibition'' because it affected a class of businesses, the Speaker specifically noted: ``Now if there was a bill here affecting one institution, if you call it that, the Chair would be inclined to rule that a Member interested in it pecuniarily could not vote, but where it affects a whole class he can vote.'' (FOOTNOTE 108) Similarly, in ruling that Members with interests in import businesses could vote on a tariff bill, the Speaker observed: ``Certainly it would not be within the power of the Chair to deny a Member the right to vote except in the case where the legislation applied to one and only one corporation.'' (FOOTNOTE 109) In the case of an amendment to a bill specifically relating to the Central Pacific Railroad, the Speaker suggested that a stockholder Member should disqualify himself from voting, although a ruling disqualifying the Member was not made by the Chair:

(FOOTNOTE 108) Id. sec. 3071, at 621.

(FOOTNOTE 109) Id. sec. 3072, at 623.

In this case if the gentleman from Massachusetts be a stockholder in the road the Chair would rule he had no right to vote. It differs from the case of national banks which has been brought up in several instances, in the fact that this is a single corporation, and is not of general interest held throughout the country by all classes of people in all communities. . . . But if a stockholder in a single railroad corporation, as in this case, has his vote challenged it would be the duty of the Chair to hold, if he is actually a stockholder of the road, that he has no right to vote. . . . The Chair so decides without any knowledge in this particular case. It is for the gentleman from Massachusetts whose delicacy the Chair knows and cheerfully recognizes to relieve the House from any embarrassment on that question. (FOOTNOTE 110)

(FOOTNOTE 110) 5 Hinds, supra note 102, sec. 5955, at 506.

As shown by more recent applications of the rule, however, even where one corporation or entity is primarily affected by legislation, a Member's interest in such corporation or entity might not be found to be a disqualifying interest in the subject matter. As this Committee has noted:

House precedents establish the rule that ``where the subject matter before the House affects a class rather than individuals, the personal interest of Members who belong to the class is not such as to disqualify them from voting.'' This principle was followed by the House as recently as December 2, 1975, when the question arose whether House Rule VIII(1) would disqualify Members holding New York City securities from voting on a bill to provide federal guarantees for these securities. Speaker Albert ruled that a point of order to disqualify Members holding such securities would not be sustained. (FOOTNOTE 111)

(FOOTNOTE 111) H. Rep. No. 94-1364, supra note 7, at 15.

The Committee further found that a Member's ownership of 1,000 shares of common stock in a defense contractor corporation, out of more than 4,550,000 shares outstanding, ``was not, under House precedents, sufficient to disqualify him from voting on'' an appropriations bill authorizing funds for a project for which the corporation was under contract with the government to perform. (FOOTNOTE 112)

(FOOTNOTE 112) Id. at 14-16.

Finally, House precedents favor ``the idea that there is no authority in the House to deprive a Member of the right to vote.'' (FOOTNOTE 113) Given the size of today's districts, when a Member refrains from voting, roughly half a million people are denied a voice on the pending legislation. While the Committee has endorsed the principle that ``each individual Member has the responsibility of deciding for himself whether his personal interest in pending legislation requires that he abstain from voting,'' (FOOTNOTE 114) it did so after investigating allegations (among others) that the Member had violated Rule 8 in not refraining from voting in a particular instance. The Committee cleared the Member of this charge, but it has occasionally advised Members, in private advisory opinions, that it would be inappropriate for them to introduce or to vote on legislation directly affecting significant and uniquely held financial interests. A Member's decision on whether to sponsor legislation affecting personal financial interests requires added circumspection since sponsorship implies a degree of advocacy above and beyond that involved in voting. Similarly, Members should exercise caution before accepting positions on the boards of organizations that are subject to the oversight of committees on which the Members sit.

(FOOTNOTE 113) Jefferson's Manual, supra note 103, sec. 658, at 343; see also 5 Hinds, supra note 102, sec. 5956, at 506.

(FOOTNOTE 114) H. Rep. No. 94-1364, supra note 7, at 15-16; see also 121 Cong. Rec. 38135 (Dec. 2, 1975).

POST-EMPLOYMENT RESTRICTIONS

Executive branch officers and employees have long labored under restrictions on their professional activities upon leaving office. Depending on how closely those activities touch upon their former Federal responsibilities, the restraints could last one year, two years, or permanently. (FOOTNOTE 115) The Ethics Reform Act of 1989 enacted, for the first time, post-employment restrictions on certain legislative branch officials, codified at section 207 of the Federal Criminal Code. (FOOTNOTE 116) These limitations went into effect for Members with the swearing in of the 102d Congress on January 3, 1991 at noon, and for staff on January 1, 1991. The law applies only to Members, officers, and those employees who earn at least 75% of a Member's salary ($97,125 in 1992). (FOOTNOTE 117) An employee must have earned that salary for at least 60 days in the year prior to leaving Government service for the restrictions to come to bear.

(FOOTNOTE 115) See generally 18 U.S.C. sec. 207(a)-(d).

(FOOTNOTE 116) See generally 18 U.S.C. sec. 207(e)-(f).

(FOOTNOTE 117) 18 U.S.C. sec. 207(e)(6)(A). In 1991, 75% of a Member's salary was $93,825 per year.

The law imposes a one-year ``cooling-off period'' on these former legislative officials. For one year after leaving office, covered individuals may not seek official action by communicating with or appearing before specified current officials with the intent to influence them. Thus:

* Former Members may not seek official action from current Members, officers, or employees of either House of Congress or from current employees of any other legislative office. (FOOTNOTE 118)

(FOOTNOTE 118) 18 U.S.C. sec. 207(e)(1). Other legislative offices include the Architect of the Capitol, the United States Botanic Garden, the General Accounting Office, the Government Printing Office, the Library of Congress, the Office of Technology Assessment, the Congressional Budget Office, the Copyright Royalty Tribunal, and the Capitol Police. See 18 U.S.C. sec. 207(e)(7)(G).

* Former elected officers of the House of Representatives may not seek official action from current Members, officers, or employees of the House. (FOOTNOTE 119)

(FOOTNOTE 119) 18 U.S.C. sec. 207(e)(1).

* Covered former employees from the personal staff of a Member may not seek official action from that Member or from any of the Member's current employees. (FOOTNOTE 120)

(FOOTNOTE 120) 18 U.S.C. sec. 207(e)(2).

* Covered former committee staff may not seek official action from any current Member or employee of the employing committee or from any Member who was on the committee during the last year that the former employee worked there. (FOOTNOTE 121)

(FOOTNOTE 121) 18 U.S.C. sec. 207(e)(3).

* Covered former employees on the leadership staff may not seek official action from current Members of the leadership (FOOTNOTE 122) or any current leadership staff employees. (FOOTNOTE 123)

(FOOTNOTE 122) The ``leadership'' of the House of Representatives consists of the Speaker, majority leader, minority leader, majority whip, minority whip, chief deputy majority whip, chief deputy minority whip, chairman of the Democratic Steering Committee, chairman and vice chairman of the Democratic Caucus, chairman, vice chairman, and secretary of the Republican Conference, chairman of the Republican Research Committee, chairman of the Republican Policy Committee, and any similar later-created position such as deputy whip. 18 U.S.C. sec. 207(e)(7)(L).

(FOOTNOTE 123) 18 U.S.C. sec. 207(e)(4).

* Covered former employees of any other legislative office may not seek official action from current officers and employees of that legislative office. (FOOTNOTE 124)

(FOOTNOTE 124) 18 U.S.C. sec. 207(e)(5). For these employees, post-employment restrictions do not go into effect unless their rate of basic pay equalled or exceeded that in effect for level V of the Executive Schedule ($104,800 in 1992). 18 U.S.C. sec. 207(e)(6)(B).

For the purposes of this statute, detailees are deemed to be employees both of the entity from which they come and the entity to which they are sent. (FOOTNOTE 125)

(FOOTNOTE 125) 18 U.S.C. sec. 207(g).

These restrictions bar certain types of contacts with certain categories of officials, basically former colleagues and those most likely to be influenced on the basis of the former position. The law focuses on communications and appearances. By contrast, if a former official plays a background role, does not appear in person or convey his or her name on any communications, the law apparently does not prohibit that person from advising those who seek official action from the Congress. Such a background role does not pose the risk of improper influence since the current officials are not even aware of the former official's participation. (FOOTNOTE 126) The law does, however, absolutely preclude one set of activities regardless of whether the former official acts openly or behind the scenes. None of the officials subject to the limitations described above may represent, aid, or advise a foreign entity with the intent to influence any officer or employee of any department or agency of the United States Government. (FOOTNOTE 127)

(FOOTNOTE 126) Former officials who are lawyers may be precluded from playing such background roles by bar association rules mandating disclosure of their activities to their former agencies. See, e.g., ABA Model Rule of Professional Conduct 1.11. Lawyers who leave government service should consult their local bar associations for guidance.

(FOOTNOTE 127) 18 U.S.C. sec. 207(f).

Exceptions

These restrictions do not apply to official actions taken by employees or officials of: the United States Government; the District of Columbia; state and local governments; accredited, degree-granting institutions of higher education; and hospitals or medical research organizations. They further do not preclude activities on behalf of international organizations in which the United States participates, where the Secretary of State certifies in advance that such activities serve the interests of the United States. In addition, section 207 does not prevent individuals from making uncompensated statements based on their own special knowledge, from furnishing scientific or technological information in areas where they possess technical expertise, or from testifying under oath. (FOOTNOTE 128)

(FOOTNOTE 128) See 18 U.S.C. sec. 207(j).

Penalties

Violation of sec. 207 is a felony, carrying penalties of imprisonment and/or fines. The statute authorizes imprisonment for up to one year (or up to five years for willfully engaging in the proscribed conduct). Additionally, an individual may be fined up to $50,000 for each violation or the amount received or offered for the prohibited conduct, whichever is greater. The statute further authorizes the Attorney General to seek an injunction prohibiting a person from engaging in conduct that violates the act. (FOOTNOTE 129) However, it is a legal defense to any Justice Department prosecution that an official sought the advice of his or her supervising ethics office before leaving office, and conducted his or her future activities in accordance with that advice. (FOOTNOTE 130) Thus, departing individuals with any concerns about the applicability of these restrictions to their proposed conduct would be well advised to secure an advisory opinion from the Committee on Standards.

(FOOTNOTE 129) See 18 U.S.C. sec. 216.

(FOOTNOTE 130) See United States v. Hedges, 912 F.2d 1397 (11th Cir. 1990).

Example 32. Member A retired with the 101st Congress. A is not subject to any post-employment restrictions.

Example 33. Member B retires in the middle of the 102d Congress to accept an appointed position in an executive branch agency. B may lobby Congress on behalf of the agency.

Example 34. Member C retires at the end of the 102d Congress to become Governor of his state. C may lobby Congress on behalf of his state.

Example 35. Member D retires at the end of the 102d Congress to become president of a private university. D may lobby Congress on behalf of the school.

Example 36. Staffer E, who earns more than 75% of a Member's salary, resigns from her position on Member F's personal staff. She may not lobby F or anyone on his staff for one year (except on behalf of an exempt organization), but may lobby any other Member of Congress as soon as she leaves.

Example 37. Staffer G, who earns more than 75% of a Member's salary, resigns from his position on the Ways and Means Committee. He may not lobby any current member or staffer of Ways and Means, or any Member who was on that committee during G's last year of congressional service, for any non-exempt person or entity, for one year. He may, however, lobby any other Member or staffer on any issue.

Negotiating for Future Employment

The House Code of Official Conduct prohibits House Members and staffers from receiving compensation ``by virtue of influence improperly exerted'' from congressional positions (Rule 43, clause 3). The Code of Ethics for Government Service (para. 5) forbids anyone in Government service from accepting ``favors or benefits under circumstances which might be construed by reasonable persons as influencing the performance'' of governmental duties. In light of these restrictions, individuals should be particularly careful in how they go about negotiating for future employment, especially when negotiating with someone who could be substantially affected by the performance of official duties. It would be improper to permit the prospect of future employment to influence official actions. Therefore, while it is not specifically required, one should consider recusing oneself from any official activities affecting an outside party with whom job negotiations are under way.

EMPLOYMENT CONSIDERATIONS FOR SPOUSES OF MEMBERS

Being married to a Member of Congress does not, of course, preclude one from earning a salary. Certain aspects of a spouse's employment, however, may have ramifications for the Member. (FOOTNOTE 131)

(FOOTNOTE 131) See generally Marc E. Miller, Politicians and their Spouses' Careers (Congressional Management Found. 1985).

Federal law, at 5 U.S.C. sec. 3110, generally prohibits a Federal official from hiring or promoting a relative, including a spouse. A Member's spouse may work in the congressional office, but only on an unpaid basis (unless the employment predated the marriage). (FOOTNOTE 132)

(FOOTNOTE 132) See Chapter 5 of this Manual for further discussion of the law against nepotism.

Spouses who accept positions with Federal, state, or local governments should be aware of a political limitation. Under the ``Hatch Act,'' (FOOTNOTE 133) most employees in the executive branch of Government may not take active part in political campaigns. Thus, an individual employed by the Federal Government may not be able to campaign on behalf of his or her spouse. Because the penalty for violation ranges up to removal or suspension, the employed spouse should consult with his or her supervising ethics office to determine the propriety of proposed campaign activities.

(FOOTNOTE 133) 5 U.S.C. secs. 7324-7328; 5 C.F.R. Part 733. See also 5 U.S.C. secs. 1501-1508 (the so-called ``little Hatch Act,'' imposing more modest restrictions on certain state and local officials).

Neither Federal law nor House rules specifically precludes a Member's spouse from engaging in any activity on the ground that it could create a conflict of interest with the Member's official duties. However, House rules and statutory provisions impute to the Member certain benefits that are received by the spouse. Thus the question may arise as to whether the Member is improperly benefiting as a result of the spouse's employment.

House Rule 43, clause 3, part of the Code of Official Conduct, prohibits a Member from receiving any compensation, or allowing any compensation to accrue to the Member's beneficial interest, from any source as a result of an improper exercise of official influence. Additionally, the Code of Ethics for Government Service (para. 5) admonishes officials never to accept benefits for themselves or their families ``under circumstances which might be construed by reasonable persons as influencing the performance'' of official duties. The income received by a spouse from employment usually accrues, albeit indirectly, to a Member's interest. Nonetheless, neither of these provisions is triggered by a spouse's employment unless the Member has improperly exerted influence or performed official acts either in order to obtain compensation for or as a result of compensation to the spouse.

Caution must also be exercised regarding the receipt of gifts. The House gift rule (Rule 43, clause 4) limits the value of gifts a Member may receive to $250 from any one source in any one year. While gifts from relatives are exempt, gifts from other third parties to a spouse (or dependent child) may count as indirect gifts to the Member, unless the gifts are wholly independent of the family relationship. (FOOTNOTE 134)

(FOOTNOTE 134) The gift rule in general, and gifts to spouses in particular, are discussed in detail in Chapter 2 of this Manual.

As explained in more detail in Chapter 6, official resources may only be used for official purposes. Thus a Member may not use any congressional resources (including, e.g., staff time or the office computer) on behalf of any private enterprise, including a spouse's professional activities.

This Committee has formally addressed matters relating to spouses in a number of instances. In the 98th Congress, two Members were found to have violated rules relating to filing Financial Disclosure Statements under the Ethics in Government Act. (FOOTNOTE 135) In the first case, the Member had already been convicted of four counts of knowingly and willfully filing a false statement with the Government under 18 U.S.C. sec. 1001. (FOOTNOTE 136) Among other discrepancies, he failed to report properly a bank loan to his wife, the payoff of that loan by a third party, and receipt of the proceeds of a commodities transaction.

(FOOTNOTE 135) House Comm. on Standards of Official Conduct, In the Matter of Representative George V. Hansen, H. Rep. No. 98-891, 98th Cong., 2d Sess. (1984); In the Matter of Representative Geraldine A. Ferraro, H. Rep. No. 98-1169, 98th Cong., 2d Sess. (1984). See generally Ethics in Government Act of 1978, as amended, 5 U.S.C. app. 6, sec. 101-111, and Chapter 4 of this Manual.

(FOOTNOTE 136) United States v. Hansen, 566 F. Supp. 162 (D.D.C. 1983), aff'd, 772 F.2d 940 (D.C. Cir. 1985), cert. denied, 475 U.S. 1045 (1986).

In the second case, the Member improperly claimed the spousal exemption, thus failing to report assets and income attributable to her. In general, only the source of a spouse's earned income over $1,000, not the amount, need be shown on a Member's Financial Disclosure Statement. Other information concerning a spouse (as well as a dependent) must be reported with the same degree of detail as that required of the Member, except for the following:

. . . items (i) which the reporting individual certifies represent the spouse's or dependent child's sole financial interest and responsibility and which the reporting individual has no knowledge of, (ii) which are not in any way, past or present, derived from the income, assets, or activities of the reporting individual, and (iii) from which the reporting individual neither derives, nor expects to derive, any financial or economic benefit. (FOOTNOTE 137)

(FOOTNOTE 137) 5 U.S.C. app. 6, sec. 102(e)(1)(E).

The Committee noted, in this case, that ``[i]t is only under rare circumstances . . . that the exemption is available.'' (FOOTNOTE 138) It would not be available, for example, where a spouse's holdings support the Member's vacations, the education of the Member's dependents, the maintenance of the Member's home, or where the Member has a possibility of inheriting the spouse's assets. (FOOTNOTE 139)

(FOOTNOTE 138) H. Rep. No. 98-1169, supra note 135, at 25.

(FOOTNOTE 139) Id. at 26.

On occasion, the Committee has looked into allegations that spouses were not earning their income, but rather that their salaries and benefits were provided as indirect gifts to the Members. In one case, the Committee issued a Statement of Alleged Violations, finding reason to believe that the Member had violated the gift and financial disclosure rules. There, the Committee found no evidence supporting or establishing that the spouse had provided identifiable services or work products to the employer in return for her salary, free and reduced housing benefits, and the use of a company car. Thus, the Committee imputed the money and benefits to the Member, since circumstances indicated that they were not provided wholly independent of her relationship to him. (FOOTNOTE 140) The Member resigned before a disciplinary hearing could take place. Where, however, a spouse is performing work in return for his or her salary, attempts to impute that salary as a gift to the Member will not stand. (FOOTNOTE 141)

(FOOTNOTE 140) Statement in the Matter of Representative James C. Wright, Jr., supra note 25, at 64, 68, 71, 74.

(FOOTNOTE 141) See Statement regarding Complaints against Representative Newt Gingrich, supra note 27, at 34-36.

Appendices to Chapter 3

Select Committee on Ethics Advisory Opinion No. 113

(FOOTNOTE 1)

(FOOTNOTE 1) This opinion was originally issued in October 1978. It has been updated to reflect changes to applicable rules and laws made by the Ethics Reform Act of 1989, Pub. L. No. 101-194, 103 Stat. 1716 (1989), the Federal Employees Pay Comparability Act, Pub. L. No. 101-509, 104 Stat. 1389 (1990), and the Legislative Branch Appropriations Act, 1992, Pub. L. No. 102-90, 105 Stat. 447 (1991).

SUBJECT: GENERAL INTERPRETATION OF HOUSE RULE XLVII, DEALING WITH LIMITATIONS ON MEMBERS' OUTSIDE EARNED INCOME

1. General

(a) Purpose of the rule. -- House Rule XLVII, was adopted on March 2, 1977 as part of the financial ethics code. Originally limited to Members, it was amended by the Ethics Reform Act of 1989 to include officers and senior employees. (FOOTNOTE 2) Besides restricting the type of employment in which covered individuals can engage, the Rule limits the amount of ``outside earned income'' a Member, officer, or senior employee may have. (FOOTNOTE 3) Two major considerations prompted adoption of the Rule. First, substantial payments to a Member, officer, or senior employee for rendering ``personal services'' to outside groups presents a significant and avoidable potential for conflict of interest. Second, it is inconsistent with the concept that being a Member, officer, or senior employee of Congress is a full-time job to permit substantial earnings from other employment.

(FOOTNOTE 2) Senior employees are those compensated at or above 120 percent of the GS-15 base salary.

(FOOTNOTE 3) In addition to being a Rule of the House of Representatives, the outside earned income limitations of Rule 47 have been enacted into law. See 5 U.S.C. app. 7, secs. 501-505. As a result, the limitations may be enforced not only by the Committee on Standards of Official Conduct and the House of Representatives, but also through civil action by the Attorney General.

(b) Annual Limitation generally. -- Clause 1 of the Rule prohibits a Member, officer, or senior employee from having outside earned income attributable to a calendar year which exceeds 15 percent of the annual rate of basic pay for level II of the Executive Schedule as of January 1 of such calendar year. (FOOTNOTE 4) In order for an item to be counted against this limitation for a particular year: (i) it must be ``outside earned income'' within the meaning of Rule XLVII; and (ii) it must be attributable to that year. The Rule defines outside earned income to mean ``wages, salaries, fees, and other amounts received or to be received as compensation for personal services actually rendered.''

(FOOTNOTE 4) The Executive Level II salary is normally the same as that paid to a Member of Congress.

Outside earned income is attributed to the year in which the Member's, officer's or employee's right to receive it becomes certain (i.e., under the accrual method) rather than to the year of receipt. Therefore, receipt of income earned during a particular year cannot be deferred to a future year in which the Member, officer, or employee has less outside earned income or until after the individual retires from Congress. The limitation is not applicable to compensation for personal services rendered prior to the effective date of Rule XLVII, or prior to the effective date of the individual's becoming a Member, officer, or employee, if later. Outside earned income is determined without regard to any community property law. That is, even though under applicable community property law one-half of any personal service income earned by an individual is deemed to belong to the spouse, all of such income is considered earned income of the Member, officer, or employee for purposes of the Rule. (c) Real facts controlling. -- The limitations imposed by Rule XLVII may not be avoided by the characterization or disposition of any payment for services rendered. In all cases, the real facts will control. For example, if a spouse, child, other relative of a Member, officer, or employee, or trust for the benefit of any of them, is paid an amount, however denominated, and the true consideration for the payment is services rendered by the Member, officer, or employee, the amount will be deemed outside earned income by the Member, officer, or employee. Similarly, the label or characterization placed on a transaction, arrangement or payment by the parties may be disregarded for purposes of the Rule. Thus, if amounts received or to be received by a Member, officer, or employee are in fact attributable to any significant extent to services rendered by the Member, officer, or employee, the characterization of such amounts as partnership distributive share, dividends, rent, interest, payment for a capital asset, or the like, will not serve to prevent the application of Rule XLVII to such amounts. Moreover, the Rule applies to outside earned income realized in a medium other than money, for example, in property or services or through a bargain purchase or forbearance in consideration of personal services rendered. In short, income may not be recharacterized in order to circumvent the Rule. Indeed, characterization of income is essentially irrelevant. For purposes of this Opinion, there are two types of income -- earned and unearned. If the compensation received is essentially a return on equity, then it would generally not be considered to be earned income. If the income is not a return on equity, then such income would generally be considered to be earned income and subject to the limitation. When such amounts received or to be received by a Member, officer, or employee are designated as salary, fees, or commissions, the overriding presumption is that such amounts, almost by definition, constitute compensation for personal services rendered. An honorarium from a speaking engagement, for example, is obviously outside earned income. (FOOTNOTE 5) With respect to income from business ventures, the Committee is convinced that in the overwhelming majority of cases, there will be little or no difficulty in determining whether certain income is subject to the Rule. Again, the facts of each individual case will govern applicability of the Rule, but the principles set forth in this Opinion should be followed in making that determination.

(FOOTNOTE 5) The Ethics Reform Act of 1989 banned receipt of all honoraria by Members, officers, and employees, effective January 1, 1991. Under amendments to the Act pending in the 102nd Congress, certain employees would be allowed to receive honoraria for speeches, appearances, and articles unrelated to their official duties or status in Congress. However, these amendments had not passed as of the printing of this Manual.

2. Outside earned income from business ventures

This Advisory Opinion differentiates between businesses in which both capital and personal services are material income-producing factors and those in which personal service is the only material income-producing factor.

(a) Personal service businesses. -- Where a Member, officer, or employee owns or participates in a personal service business, such as a professional practice, in which capital is not a material income-producing factor, his or her entire share of the profits is deemed to be outside earned income for purposes of the Rule, except to the extent it can be demonstrated that the income in fact represents a return on investment. In general, capital is not a material income-producing factor where gross income of the business consists principally of fees, commissions or other compensation for personal services performed by an individual. Thus, the practice of one's profession by a doctor, lawyer, insurance broker, or real estate agent will not, as such, be treated as a business in which capital is a material income-producing factor. Even where the practitioner may have a substantial investment in professional equipment or in the physical plant constituting the office from which he conducts his practice, the capital investment would be regarding as only incidental to the professional practice. (FOOTNOTE 6)

(FOOTNOTE 6) Note, however, that Members, officers, and senior employees covered by the earned income limit are also totally precluded from receiving compensation for practicing a profession which involves a fiduciary relationship. See House Rule 47, cl. 2; 5 U.S.C. app. 7, sec. 502.

Moreover, the fact that the Member, officer, or employee may not personally participate to any substantial extent in the rendering of services to the customers or clients of the business, all such services being performed by assistants or associates, would not serve to justify classification of his or her share of the business income as other than earned income. If a Member, officer, or employee shares in the profits of a personal service organization without being required to perform any significant productive services, absent a strong showing to the contrary, it will be presumed that the Member, officer, or employee is being compensated for attracting or retaining clients, and such income is considered outside earned income.

Law practices. -- Since there are a number of attorneys serving in the House of Representatives, for purposes of example, application of the Rule to the practice of law is specifically addressed in this Opinion. Those Members, officers, and senior employees who previously maintained an active affiliation with a law firm generally find it necessary to enter into a buy-out agreement with their partners in order to liquidate their equity in the firm. This is perfectly appropriate. Amounts received or receivable by a Member, officer, or employee in payment for an interest in a law firm or similar organization upon retirement from it would not constitute outside earned income so long as the amounts payable do not, in effect, represent a continuing participation in the law firm and the total amount payable is not in excess of the fair market value of the interest of the Member, officer, or employee. Normally such arrangements call for fixed payments at annual or more frequent intervals over a period of years. In some cases, however, the retiring partner and those continuing the business are unable to agree on a value for one or more assets of the business, such as contingent fee cases or accounts receivable of dubious value, and the buy-out agreement may accordingly provide that the retiring partner will be paid a share of such items, if, as and when they are collected.

Payments to a Member, officer, or employee under a buy-out agreement will not be deemed to be outside earned income where the arrangements are entered into in good faith and agreed to by all the partners, and reflect the usual and customary value of the equity generally accorded to partners in similar law practices in the same geographic area. A buy-out agreement should also be reasonably calculated to avoid the Member's, officer's, or employee's participation in post-withdrawal profits. In general, the proceeds resulting from a buy-out agreement are taxed as capital gains. If such an agreement is not limited to liquidation of the Member's, officer's or employee's equity in the firm, and includes payments which might be taxable as earned income, any such payments under the agreement might be subject to the earned income limitation.

The Committee notes that Rule XLVII, clause 2, and section 502 of the Ethics in Government Act prohibit a Member, officer, or employee from receiving compensation for affiliating with or being employed by a firm, partnership, association, corporation, or other entity which provides professional services involving a fiduciary relationship. Even if no compensation is received, the Member, officer, or employee may not permit his or her name to be used by any such firm, partnership, association, corporation, or other entity. This limitation parallels the American Bar Association Code of Ethics, which states in part: ``A layer who assumes ... a legislative post ... shall not permit his name to remain in the name of a law firm or to be used in the professional notice of the firm during any significant period in which he is not actively and regularly practicing law as a member of the firm.'' (ABA Disciplinary Rule 2-102B).

(b) Business where capital is a material income-producing factor. -- Capital is a material income producing factor if a substantial portion of the gross income of the business is attributable to the employment of capital, as reflected, for example, by a substantial investment in inventories, plant, machinery or other productive equipment. This Opinion discusses the application of the Rule in such cases to income from a fully taxable corporation and income from an unincorporated business or Subchapter S corporation.

(1) Taxable corporations

If a Member, officer, or employee renders services to a fully taxable business corporation, he or she will not be deemed to realize outside earned income from such services beyond the amount of salary or other form of extra compensation designated as consideration for the personal service rendered. In those cases where the sole financial interest of the Member, officer, or employee is stock in the corporation, an increase in the net assets of the corporation would not be considered to be subject to the limitation. An increase in the value of stock or other property is not ordinarily treated as earned income either for tax purposes or under generally accepted accounting principles; and any increase in the corporation's net profits would be subject first to corporate income tax and then to personal income tax before the Member, officer, or employee receives any resulting increment to his or her wealth through a dividend or sale of stock. The foregoing has no application, of course, to income which a Member, officer, or employee earns through personal efforts in dealings with third parties but causes to be paid to a corporation and distributed. For example, if a Member, officer, or employee incorporates for the purpose of conducting a personal service, and all fees are paid to the corporation from which ``profits'' are then drawn, all such amounts would be considered outside earned income. In sum, if a Member, officer, or employee renders services to a taxable corporation, only the salary or other compensation received for those services would be subject to the limitation, but not any increase in the corporation's assets or a share of the profits. This ruling is consistent with the intent of the Commission on Administrative Review which recommended the limitation on outside earned income. In its report (House Document No. 95-73), the Commission stated that ``. . . Members should be able to render personal services to manage or protect their equity . . . without having to allocate these personal services toward the 15 percent limitation.''

(2) Subchapter S corporations, partnerships, unincorporated businesses

In those cases where the Member, officer, or employee has an ownership interest in a business for which he or she also performs services, as in a subchapter S corporation or a partnership, some part of the individual's share of the profits of that business may reflect the value of services, and thus would be considered outside earned income. The determining factor is whether the Member's, officer's, or employee's personal services generate significant income for the business. Of course, if the Member, officer, or employee receives formal income from the business, for example, payments designated as salary or fees, such amounts would be considered earned income. Additionally, in those cases where other partners or associates are providing capital and managerial experience, and the principal role of the Member, officer, or employee is to refer clients to the business or to help retain existing customers or clients, the Member, officer, or employee would be deemed to be rendering income-producing services, even though the actual time involved might be minimal. However, if the Member, officer, or employee is engaged primarily in the general oversight and management or protection of his or her investment, such services would not be deemed to generate significant income. Such non-income generating services would include consultation with other management officials, analysis of financial and other reports, participation in formal meetings, and making decisions concerning the general operations and investment strategy of the business. The application of the Rule to the various types of business organizations as discussed in this Opinion applies equally to a business owned or controlled by the Member, officer, or employee or the individual's family. Again, the determining factor is whether or not the personal services of the Member, officer, or employee actually generate any significant income for the business. In those situations where the services rendered by the Members, officers, or employees are incidental and do not generate significant income, no part of a share of the profits or any increase in the assets of the business would be deemed to be outside earned income. The Committee emphasizes that the definition of earned income in Rule XLVII, which excludes amounts received by a Member, officer, or employee from a family controlled business ``so long as the personal services actually rendered by the individual . . . do not generate a significant amount of income,'' was simply intended to assure Members, officers, and employees that they could continue to make decisions and take actions necessary to manage or protect their equity in a family trade or business, and would not be forced to divest themselves of their family business interests. As with any business, a Member, officer, or employee would not be required to allocate a share of the profits of the business as outside earned income when the facts and circumstances show that the income is in reality a return on investment. For example, if the Member, officer, or employee owns a hardware store and the services rendered are incidental, such as occasionally serving customers, the income received from the business is basically a return on equity, (i.e., profits from the sale of hardware goods) and is not generated by the services of the Member, officer, or employee. Similarly, if the Member, officer, or employee gives overall direction to the management of the business for a family owned farm, the income received from the farming operations is not generated by the personal services of the Member, officer, or employee, but rather is basically a return on equity from the sale of crops or dairy products. These types of businesses are distinguishable from a personal service business where income is essentially produced by the services of the individual affiliated with the organization. (FOOTNOTE 7)

(FOOTNOTE 7) Note, however, that no compensation could be received for serving as an officer or director of the family-owned business. See House Rule 47, cl. 2; 5 U.S.C. app. 7, sec. 502.

(3) When income is attributable

(a) Income from pre-effective date services. -- The Rule excludes from earned income any compensation derived by a Member, officer, or employee for personal services rendered prior to the effective date of the Rule or prior to the effective date of becoming a Member, officer, or employee, if later. This provision would serve to exclude from the limitation, for example, most renewal commissions paid to a Member, officer, or employee with respect to life insurance policies sold prior to the effective date, or similar commissions received by a Member, officer, or employee with respect to pre-employment leases in which the individual was the leasing agent. In most such arrangements, payment of the commission is not contingent upon the performance of any future services by the recipient; the only contingency is that the insured or lessee continue to pay premiums or rent, as the case may be. The exclusion would also apply to a fee received by a Member, officer, or employee who was a lawyer where all the work had been done prior to the effective date. However, this exclusion would not apply to income derived from the continuing or future business of clients brought into the firm prior to the effective date of the Rule.

(b) Application of the limitation to part years. -- Where an individual becomes a Member, officer, or employee during any calendar year, the Rule applies only to outside earned income of the individual attributable to periods after the effective date of becoming a Member, officer, or employee. For the balance of the calendar year, the applicable limitation will be 15% of the Executive Level II salary for that part of the year, and only outside earned income attributable to that part is counted against the limitation.

(4) Other provisions

(a) Payments attributed to deferred compensation plans. -- Amounts received by a Member, officer, or employee from a tax-qualified pension, profit sharing or stock bonus plan are not treated as outside earned income, as provided in the Rule, nor are contributions to such a plan counted as outside earned income. Amounts received by a Member, officer, or employee from a non-qualified deferred compensation plan which were earned in a year prior to the effective date of the Rule or the individual coming to Congress are not outside earned income for the year received under the principle explained in section 3(a), provided no part of the consideration for such payments is current services. Amounts set aside for a Member, officer, or employee under a non-qualified deferred compensation plan for services rendered after the Rule's effective date or coming to Congress will generally constitute outside earned income of the Member, officer, or employee for that year, even though they will not be received until a later year, unless receipt is subject to a substantial risk of forfeiture. (b) Assignment of income to charities. -- Notwithstanding the general holding of this Opinion that a Member, officer, or employee cannot deflect the application of the Rule by assigning to another income which in fact was earned through rendering services, earned income assigned by a Member, officer, or employee to a tax-exempt charity will not be counted as part of the outside earned income of the Member, officer, or employee, provided the individual is not a ``disqualified person'' with respect to the recipient organization within the meaning of section 4946(a) of the Internal Revenue Code. For the purposes of this portion of the Rule, such income would not be deemed to have been ``received'' by the Member, officer, or employee provided that he or she did not personally benefit in any way from such income. (FOOTNOTE 8)

(FOOTNOTE 8) The Internal Revenue Service has interpreted the definition of ``gross income'' in section 61 of the Internal Revenue Code as follows:

Where . . . pursuant to an agreement or understanding, services are rendered to a person for the benefit of an organization described in section 170(c) and an amount for such services is paid to such organization by the person to whom the services are rendered, the amount so paid constitutes income to the person performing the services. (See the last sentence of Reg. sec. 1.61-2(c).)

If an amount paid to charity is treated as constructive income, a Member, officer, or employee could possibly receive an indirect tax benefit. For example, such amounts may be counted as adjusted gross income for the purposes of computing entitlement to make contributions to a tax-favored ``Keogh'' retirement plan. The Member, officer, or employee would also be allowed to take an itemized deduction for a charitable contribution under section 67 of the Internal Revenue Code. Any tax or other financial benefit on account of payments directed to charity in consideration of personal services may result in the Member, officer, or employee being viewed as receiving income for the purposes of House Rule 47 and 5 U.S.C. app. 7, sec. 502.

(c) Honoraria. -- Clause 1(a)(1)(B) of Rule XLVII provides that a Member, officer, or employee of the House may not receive any honorarium. Clause 3(c) defines ``honorarium'' to exclude any actual and necessary travel expenses incurred by the Member, officer, or employee in connection with the event. Payment of actual and necessary travel expenses of a relative accompanying the Member, officer, or employee are also excluded from the limitation. A payment in lieu of an honorarium may be made directly by the sponsor of an event to a qualified charitable organization on behalf of a Member, officer, or employee. No such payment may exceed $2,000, nor may it be made to a charitable organization from which the Member, officer, or employee or a parent, sibling, spouse, child, or dependent relative of the Member, officer, or employee derives any financial benefit. (FOOTNOTE 9) Section 7701(k) of the Internal Revenue Code provides that an amount so paid to a charitable organization is not deemed income to the Member, officer, or employee for tax purposes, nor is any charitable deduction allowed.

(FOOTNOTE 9) See House Rule 47, cl. 1(a)(3); 5 U.S.C. app. 7, sec. 501(c).

Ban on Compensated Professional Services Involving a Fiduciary Relationship

MEMORANDUM OF APRIL 23, 1991

TO: Members, Officers, and Senior Employees of the U.S. House of Representatives

FROM: Committee on Standards of Official Conduct Louis Stokes, Chairman James V. Hansen, Ranking Minority Member

The Ethics Reform Act of 1989 amended Federal law and House Rules to include new restrictions on outside earnings beginning January 1, 1991. Members and senior staff (those earning $72,298 (FOOTNOTE 1) and above) may not receive more than 15 percent of the Executive Level II (House Member) salary in outside earned income in a calendar year. 5 U.S.C. app. 7, sec. 501(a); House Rule XLVII, clause 1(a)(1)(A). For 1991, this limit is $18,765. Regardless of whether this income level is reached, however, certain types of earnings are absolutely prohibited.

(FOOTNOTE 1) This rate rose to $73,972, effective May 4, 1991, the implementation date of the Federal Employees Pay Comparability Act (Pub. L. No. 101-509, 104 Stat. 1389 (Nov. 5, 1990)), and rose again on January 1, 1992 to $77,080. Covered employees are those paid for more than 60 days in a calendar year at 120 percent of the GS-15 base level. The salary level for years after 1992 can be obtained from the Committee on Standards of Official Conduct.

All House Members and staff are precluded from receiving any honoraria. 5 U.S.C. app. 7, sec. 501(b); House Rules XLIII, clause 5, and XLVII, clause 1(a)(1)(B). In addition, section 502 of the Ethics in Government Act (5 U.S.C. app. 7, sec. 502) provides that Members and senior employees shall not --

(2) permit that Member's, officer's, or employee's name to be used by any such firm, partnership, association, corporation, or other entity;

(3) receive compensation for practicing a profession which involves a fiduciary relationship; [or]

(4) serve for compensation as an officer or member of the board of any association, corporation, or other entity.

See also House Rule XLVII, clause 3(d). The Committee on Standards of Official Conduct is responsible for interpreting these provisions for the House. The Attorney General, however, is also authorized to seek a civil penalty for prohibited conduct of the greater of $10,000 or the amount of the compensation involved. 5 U.S.C. app. 7, sec. 503.

The statute does not define ``professional services which involve a fiduciary relationship.'' The House Bipartisan Task Force on Ethics report on the Ethics Reform Act of 1989 cited the definition of ``fiduciary'' at page 563 of Black's Law Dictionary (5th ed. 1979) as ``one having a duty to act primarily for another's benefit on matters connected with such undertaking.'' The report further stated:

[T]he task force intends that the term fiduciary not be applied in a narrow, technical sense and wants to ensure that honoraria not reemerge in various kinds of professional fees from outside interests.

The Task Force suggested the fiduciary provision might reach ``services such as legal, real estate, consulting and advising, insurance, medicine, architecture, or financial.'' Report on H.R. 3660 at 16, 135 Cong. Rec. H9257 (daily ed. Nov. 21, 1989). However, during the floor debate on the Act, the Chairman of the Task Force emphasized the definition of fiduciary would ``ultimately be a decision of the Committee on Ethics'' and that ``Members should request an opinion from the Ethics Committee as to the application of the rule in their own particular situation.'' 135 Cong. Rec. H8757 (daily ed. Nov. 16, 1989).

The primary objectives behind the fiduciary restrictions appear to have been as follows: The first was to prevent any conflicts of interest between a private duty to act primarily for another's benefit and the public duty to act for the common good. The second was to avoid the appearance that Members and employees were using their positions for personal gain. And the third was to ``ensure that honoraria not reemerge in various kinds of professional fees from outside interests.'' See Task Force Report, supra, at 15-16.

To determine whether employment in which a Member or senior employee proposes to engage is prohibited under the statute, the Committee will look beyond the title of the position and the kind of services typically performed by those in the occupation. The Committee will evaluate the nature and circumstances of each individual's particular employment on a case-by-case basis in light of the objectives of the Act.

Specifically, the Committee will first look at the company offering the compensation to determine if it primarily ``provides professional services involving a fiduciary relationship.'' If its regular work is to transact business or to handle money or property for another's benefit ``in a relation implying and necessitating great confidence and trust on the one part and a high degree of good faith on the other part,'' then employment with that entity in any capacity is precluded. See Black's Law Dictionary, supra, at 564.

If the firm itself does not provide professional services involving a fiduciary relationship, the Committee will then apply the following three-pronged test to determine whether professional services for which an individual seeks to be paid involves a prohibited ``fiduciary relationship:''

Could the employment result in a conflict of interest between private and public responsibilities?

Does the employment create an appearance that an official position is being used for private gain?

Does the compensation appear to be an effort to circumvent the ban on honoraria?

The Committee will consider, for example, whether the individual is acting on behalf of his or her family or a private client; whether the relationship pre-dates the individual's government service; and whether the employment is consistent with policies enunciated in other laws or House Rules. No one factor will necessarily control.

To provide initial guidance, attached is a summary of some sample advisory opinions recently issued to Members and employees using the three-pronged test adopted by the Committee.

Any Member or senior employee should request the Committee's guidance prior to engaging in any compensated activity which might be construed as involving a fiduciary relationship. Requests for written opinions should be directed to the Chairman of the Committee on Standards of Official Conduct at HT-2, The Capitol, Washington, D.C. 20515. Telephone advice is available from the Committee's Office of Advice and Education at (202) 225-3787.

ATTACHMENT SAMPLE ADVISORY OPINIONS RELATED TO ``FIDUCIARY'' RESTRICTIONS

1. An individual could receive a ``consulting'' fee for management advice relating to a family owned, capital intensive business which was founded before the person came to Congress, but could not be compensated for being on the board of directors.

2. An individual could continue to receive payment for working on unofficial time for another person's campaign committee, but could not be paid for service as Treasurer.

3. An individual could not receive compensation for consulting on computers where official duties involved ongoing oversight of computer activities.

4. An individual could receive compensation for giving management advice to a relative's advertising firm where the individual would neither solicit nor directly advise clients.

5. Even though not compensated, an individual could not be shown as ``Of Counsel'' on the letterhead of a law firm. 6. An individual could not receive fees for legal advice to a corporation in which the person owned a minority interest.

7. An individual could not earn income from insurance sales and acting as a real estate broker.

8. An individual could remain affiliated with a real estate firm as a sales agent in order to maintain a license where not actually selling real estate and where the individual's name was not being used publicly by the firm.

9. An individual could continue to serve as paid trustee for a trust established by one family member for the benefit of other family members where the investment advice of an outside organization was being followed.

10. An individual could continue to receive compensation for serving as trustee for an estate of a client where the relationship predated the congressional service, and could act as named plaintiff in a state court action on behalf of the estate.

11. An individual could receive compensation for acting as the executor of the estate of an immediate family member.

12. An individual could receive compensation for acting as the guardian of the disabled child of a former client where the relationship predated congressional service.

13. An individual could have a corporate director's fee donated to charity only if the action did not entitle the individual to any direct or indirect financial benefit.

14. An individual could not continue to receive a fee per meeting for service as a corporate director, but could receive travel reimbursements as an unpaid director.

Teaching Guidelines

MEMORANDUM OF APRIL 24, 1991

TO: Members, Officers, and Employees of the U.S. House of Representatives

FROM: Committee on Standards of Official Conduct Louis Stokes, Chairman James V. Hansen, Ranking Minority Member

This memorandum sets forth the Committee's criteria for approving paid teaching arrangements.

The Ethics in Government Act (5 U.S.C. app. 7, sec. 502(5)) provides that Members and senior staff (those earning $72,298 (FOOTNOTE 1) and above) may not --

Receive compensation for teaching, without the prior notification and approval of the Committee on Standards of Official Conduct.

Honoraria Ban -- Further Guidance

MEMORANDUM OF APRIL 25, 1991

TO: All Members, Officers, and Employees of the U.S. House of Representatives

FROM: Committee on Standards of Official Conduct Louis Stokes, Chairman James V. Hansen, Ranking Minority Member

The Ethics Reform Act of 1989 revised Federal law and House rules beginning January 1, 1991, to prohibit receipt of honoraria by most Federal officials. While some of the outside income limitations in the House apply only to Members and senior employees, the prohibition against speaking, appearing, or writing articles for pay applies to ALL Members, officers, and employees of the House of Representatives, no matter what the salary level. See 5 U.S.C. app. 7, secs. 501(b), 505(1)-(2); House Rules XLIII, cl. 5; XLVII cl. 1(a)(1)(B), cl. 3(a)-(b). The Committee on Standards of Official Conduct is responsible for implementing this prohibition in the House. This memorandum explains Committee policy on the honoraria ban.

WHAT CONSTITUTES AN HONORARIUM, SPEECH, APPEARANCE, AND ARTICLE

The statute and House Rule use a similar definition, as follows:

The term ``honorarium'' means a payment of money or any thing of value for an appearance, speech, or article by a Member, officer or employee, excluding any actual and necessary travel expenses incurred by such individual (and one relative) ... .

5 U.S.C. app. 7, sec. 505(3); see also House Rule XLVII, cl. 3(c).

In recommending the honoraria ban in its report on the Ethics Reform Act, the House Bipartisan Task Force on Ethics referred to a ``public perception that honoraria is a way for special interests to try to gain influence or buy access to Members of Congress.'' The Task Force intended that --

the prohibition on honoraria for speeches, articles, and appearances extends to payment or compensation for such activity in any form. The ban on honoraria could not be circumvented, for example, by arranging for a continuing series of talks, lectures, speeches, or appearances and re-characterizing the income as a ``stipend'' or ``salary.'' Report on H.R. 3660 at 13-14, 135 Cong. Rec. H9257 (daily ed. Nov. 21, 1989); emphasis added. Consistent with this guidance, the Committee has adopted the following definitions relating to the prohibition on receipt of honoraria:

A speech means an address, oration, talk, lecture, or other form of oral presentation, whether delivered in person, transmitted electronically, recorded, or broadcast over the media, but does not include teaching in an established educational program that conforms to teaching criteria established by the Committee.

An appearance means attendance at a public or private conference, convention, meeting, social event or like gathering, possibly but not necessarily involving incidental conversation, discussion, or remarks.

An article means a writing that has been or is intended to be published, for which a payment, if made, would be other than a royalty received from an established publisher pursuant to usual and customary contractual terms.

Payments for a series of speeches, appearances, or articles will be deemed honoraria, and thus prohibited, if the subject matter is directly related to the individual's official duties or the payment is made because of the person's status in Congress.

The following are not considered honoraria:

Bona fide awards and gifts. Thus, if a Member, officer or employee is presented with an award, memento, or gift at an event, the object would not be considered an honorarium, unless specifically given in consideration of a speech or appearance. Similarly, an award for artistic, literary or oratorical achievement made on a competitive basis under established criteria could be accepted.

Compensation for activities where speaking, appearing, or writing is only an incidental part of the work for which payment is made (e.g., conducting research).

Paid engagements to perform or to provide entertainment where the artistic, musical or athletic talent of the individual is the reason for the employment, rather than the person's status as a Member or employee of Congress.

Witness fees by a court or other governmental authority.

Fees to a qualified individual for conducting worship services or religious ceremonies (but not for speeches or invocations at religious conventions);

Payments for works of fiction, poetry, lyrics, or script, where the payment is not offered because of the author's congressional status.

PAYMENTS TO CHARITY

While no honorarium may be received by a Member, officer, or employee, a payment may be made directly by the sponsor of an event to a qualified charitable organization in honor of an individual's speech, appearance, or article. 5 U.S.C. app. 7, sec. 501(c). While the individual may identify the charity (or charities) which should get a donation, the check to the charity may not pass through the hands of the Member or other individual requesting that the payment be made. The Internal Revenue Code has been amended to provide that any amount so paid to a charitable organization will no longer be deemed income to the individual for tax purposes, nor will any deduction be allowed. 26 U.S.C. sec. 7701(k).

No single payment in lieu of an honorarium may exceed $2,000, nor may a payment be made to a charity from which the ``individual or a parent, sibling, spouse, child, or dependent relative of such individual derives any financial benefit.'' 5 U.S.C. app. 7, sec. 501(c); House Rule XLVII, clause 3. It does not matter whether the relative receives any part of the actual payment in lieu of an honorarium. If the relative receives any financial benefit from the organization, the payment may not be directed there.

The prohibition on payments to charities from which a family member benefits financially extends to separate funds within, or closely affiliated with, the same local organization. However, a payment to an affiliated national organization is permitted, provided that the funds are not earmarked in any way for the local affiliate. The provision also does not prohibit a payment to a university at which the Member's or employee's child is a student or to a health care facility at which a family member is a patient. See Report on H.R. 3660, supra, at 15.

``Charitable organization'' means an organization described in section 170(c) of the Internal Revenue Code. 5 U.S.C. app. 7, sec. 505(5); House Rule XLVII, clause 3(f). To qualify, an entity generally must be organized in the United States and operated exclusively for religious, charitable, scientific, literary, or educational purposes. Donated funds and earnings may not benefit any private individual, nor may a qualified organization attempt to influence legislation or political campaigns.

TRAVEL AND FINANCIAL DISCLOSURE CONSIDERATIONS

The Committee has long authorized Members, officers, and employees to accept necessary travel expenses from the sponsors of events in which they substantially participate, but for which no honoraria are paid. See Advisory Opinion No. 2 of the House Select Committee on Ethics, 95th Congress. Privately paid travel to events involving speaking or appearing is subject to restrictions concerning the number of days for which expenses may be accepted, who may accompany a Member, officer, or employee at the sponsor's expense, and financial disclosure of travel received and payments to charity in lieu of honoraria.

If an individual receives an improper honorarium, not only may the Committee take action under House rules, but the Attorney General may seek a civil penalty of the greater of $10,000 or the amount of compensation received. 5 U.S.C. app. 7, sec. 504.

Any questions regarding the honoraria prohibition or any other matters within this Committee's jurisdiction should be directed to the Committee's Office of Advice and Education at (202) 225-3787. Requests for written opinions should be directed to the Chairman of the Committee on Standards of Official Conduct at HT-2, The Capitol, Washington, D.C. 20515.

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Please refer to the following memoranda for further information:

Outside Earned Income Restrictions on Members and Senior Staff
Salary Levels at which the Outside Earned Income Limitation, Financial Disclosure Requirement, and Post-Employment Restrictions Apply for 2001

Income Level	Restriction
All Members, officers, and employees	May not accept honoraria for appearances, speeches, or articles. May not represent others in a private capacity before the Government. May not accept compensation of any kind from a foreign government or act as an agent for a foreign principal. May not attempt to cash in on an official position.
Members and those employees earning at least 120% of the GS-15 rate of basic pay ($77,080 in 1992)	May not receive more than 15% of a House Member's salary in total outside earned income ($19,425 in 1992). May not accept compensation for providing professional services involving a fiduciary relationship, or for being employed by an organization that provides such services. May not allow their names to be used, regardless of compensation, by organizations providing fiduciary services. May not accept compensation for serving as a board member or officer of any organization. May not accept compensation for teaching, without prior written approval from the Committee on Standards of Official Conduct. Must file annual financial disclosure forms.
Members and those employees paid at least 75% of a Member's rate of basic pay ($97,125 in 1992)	May not lobby former colleagues for one year after leaving office. May not represent foreign governmentsfor one year after leaving office.
Members of the House of Representatives	May not contract with the Federal Government May not practice in the United States Claims Court or the Court of Appeals for the Federal Circuit.