A Question of Ethics

How Can a Company Comply With Gift Rules?

April 27, 2010

Q: I am the compliance director for a company that recently decided to hire its own in-house lobbyists. I know that this creates a number of new legal obligations for us, including filing disclosure forms and monitoring lobbying activity. I think I am on top of those. What concerns me more is that our company is now bound by the Congressional gift rules. As compliance director of a company with thousands of employees, I am not sure how to go about ensuring that we comply with the rules. Is there any official guidance regarding how companies can comply?

A: With respect to the Congressional gift and travel rules, your decision to hire in-house registered lobbyists means several things. First, your company must not knowingly make a gift in violation of the rules. Specifically, your company may “not make a gift or provide travel to a covered legislative branch official [with] knowledge that the gift or travel may not be accepted by that covered legislative branch official” under House and Senate rules. This applies to gifts made on behalf of the company by all employees, not just in-house lobbyists.

Second, twice a year your company must make two important certifications regarding the rules. First, your company must certify that it “has read and is familiar with” the rules. Second, it must certify that it “has not provided, requested, or directed a gift, including travel, to a Member of Congress or an officer or employee of either House of Congress with knowledge that receipt of the gift would violate” the rules.

These new obligations present unique challenges for you as compliance director. In essence, the Congressional gift rules say that your company may not make any gift to a Congressional employee unless an exception applies. Given that you have thousands of employees and there are roughly 15,000 Congressional employees, you have quite a compliance issue on your hands.

So, is there any official guidance regarding how companies can ensure compliance? Unfortunately, no. The official guidance that does exist regarding the Congressional gift rules is published by the House and Senate ethics committees and is intended for Members and staffers themselves. It provides in-depth analysis of the rules and the exceptions, including many illustrative examples. While Companies will certainly find this guidance helpful in understanding the rules, it does not address the rules from the perspective of companies.

In the absence of any official guidance, here are a few tips. Let’s start with the general prohibition on gifts from your company to Congressional employees. While there is no one-size-fits-all approach for companies to comply with this prohibition, there are a few tools that your company might consider.

First, you might want to create a formal company policy regarding gifts to Congressional employees and communicate the policy clearly to your employees. A policy that merely exists on paper somewhere in company files will be far less helpful in compliance than one that is communicated to and generally available to employees.

Another tool to consider is training your employees regarding the rules. For many companies, it would be impractical and probably unnecessary to train one’s entire work force regarding the rules. However, training at least some significant portion of employees can help minimize risk.

In addition, if your company happens to sell services or merchandise directly to the public, you should be mindful of the risk in sales to Congressional employees. In some circumstances, special discounts or perks might be considered gifts in violation of the rules. Therefore, it can be useful to have a policy regarding sales to Congressional employees and to train salespeople regarding the rules.

Another potential tool is some mechanism that will prevent the company from inadvertently reimbursing employees for expenses associated with Congressional employees’ meals or entertainment. Many companies provide travel and entertainment reimbursements to employees for business-related expenses, such as business trips and meals. A company might consider requiring employees who seek reimbursement to certify that no Congressional employee has benefited from the expenditures for which they seek reimbursement.

While none of these tools is legally required, they all might help companies comply with not only the prohibition on gifts but also their certification requirements. Twice a year your company must certify that it has read the rules, is familiar with the rules and has complied with the rules. The government can seek stiff penalties for false certifications, including heavy fines and jail time.

Thus, you should prepare your company for government scrutiny of your certifications. For example, suppose the government were to initiate an investigation focused on the truth of your company’s certifications. The employee who certifies on behalf of your company should be prepared to respond to pointed questions like: Before certifying, what did you do to confirm that your company complied with the rules? What did you do to confirm that your company had read the rules? What did you do confirm that your company was “familiar with” the rules?

These are all difficult questions. Written policies, training programs and employee certifications like those discussed above all would make them a little bit easier to answer. Be prepared.

© Copyright 2010, Roll Call Inc. Reprinted with permission. Widely regarded as the leading publication for Congressional news and information, Roll Call has been the newspaper of Capitol Hill since 1955. For more information, visit www.rollcall.com.


A Question of Ethics

Is There Any Merit to the C Street Ethics Complaints?

April 13, 2010

Q: I am hoping that you can clear up some confusion I am having about the recent ethics complaints alleging that some Members paid below-market rates for rooms rented in a Capitol Hill house. I have read conflicting accounts. Some have said that the complaints are bogus. Other reports suggest that there could be some merit to the complaints. Who is right?

A: It is not always possible to assess the validity of an ethics complaint on its face. The officials who review and make recommendations regarding ethics complaints often conduct extensive investigations before reaching a conclusion regarding the validity of a complaint. With that in mind, let’s turn to your question.

On April 1, a watchdog group filed complaints against four Senators and five Representatives. The complaints, filed by Citizens for Responsibility and Ethics in Washington, allege that the Members accepted lodging at below-market rates in violation of the House and Senate gift rules. In accordance with House and Senate rules, the complaint against the Senators was filed with the Senate Ethics Committee, and the complaint against the Representatives was filed with the Office of Congressional Ethics, which screens complaints filed by the public before review by the House ethics committee.

The complaints are based on news articles regarding the C Street House, a residence near the Capitol that the complaints say is owned by a company called C Street Center Inc. The complaints say that the house is 5,732 square feet, with 12 furnished bedrooms, nine bathrooms and five living rooms. The complaints allege that Members pay $950 per month to stay at the house and that they also receive housekeeping services provided by eight college-age volunteers and a “house mother.” According to the complaints, $950 is a below-market rate and therefore qualifies as an improper gift, in violation of the House and Senate gift rules.

The complaints argue that there are only two exceptions that would permit accepting the “gift” of lodging. One allows Members to accept gifts based on personal friendship. The other allows Members to accept “personal hospitality.” In either case, however, the complaints say, the exceptions apply only when the donor is a person – not a corporation or similar entity, such as C Street Center.

These are the only exceptions that the complaints address. Depending on the facts, however, it is possible that other exceptions might apply. For example, one exception permits Members to accept opportunities and benefits that are available to the public or a group that is not defined on the basis of being a Member of Congress. If the C Street House monthly rate were available to residents who were not Members, this exception might apply.

But all this talk of exceptions bypasses a threshold issue that is not clear from the complaints: whether the Members have received a gift in the first place. In support of the claim that the Members have received a gift, the complaints say that $950 is a below-market rate for the rooms and cite much higher monthly rates at nearby hotels and corporate housing suites. For example, they say, a month at the Capitol Hill Liaison Hotel would cost $6,000, and a month at Marriott ExecuStay would cost $4,000 to $5,000. They also cite the rates for furnished efficiencies and one bedroom apartments in the Capitol Hill area, stating that rents are upward of $1,700.

I am no expert in real estate, but I wondered whether these were apt comparisons. So I contacted a real estate agent who specializes in D.C. rentals. He says that the comparisons drawn in the complaints are apples to oranges. The big distinction in his mind is that, unlike the examples in the ethics complaints, the C Street House sounds like a “rooming house,” meaning that residents share common space with one another, including bathrooms. The most analogous rentals to this type of living arrangement, he said, would be furnished “rooms and shares.” Unfortunately, he said, it is difficult to assess the market value of rooms and shares because their landlords typically do not use formal real estate listings but rather seek tenants via word-of-mouth or by posting ads on forums such as Craigslist. The absence of formal listings means there is not an extensive record of recent rentals for comparison.

So, I did my own Craigslist search for listed “rooms and shares” on Capitol Hill. I discovered that most furnished rooms and shares on Capitol Hill are listed for $600 to $1,000 per month, though none appeared to include housekeeping services.

The agent and I also discussed the total rental revenue that the owner of a 5,700-square-foot Capitol Hill house might expect. The agent said that it would be highly dependent on the condition of the house and that the small rental market for such large homes again makes it difficult to assess. If the C Street House were to operate at full occupancy of its 12 bedrooms, and all of the residents paid $950 per month, the monthly rental revenue for the house would be $11,400. At 75 percent occupancy, the revenue would be $8,550. In either case, the agent said, the owners of a 5,700-square-foot Capitol Hill house would likely be very pleased with monthly revenue that large.

Ultimately, then, the complaints against the Members may turn on the issue of whether they received a “gift.” If the agent I spoke to is right, it appears that they did not. In any event, the ethics complaints are now in the hands of the Senate Ethics Committee and the Office of Congressional Ethics. Perhaps they will be contacting real estate experts as well.

© Copyright 2010, Roll Call Inc. Reprinted with permission. Widely regarded as the leading publication for Congressional news and information, Roll Call has been the newspaper of Capitol Hill since 1955. For more information, visit www.rollcall.com.