Understanding H.R. 1 (Part 4): Conflict-of-Interest and Revolving-Door Issues

March 17, 2021, Covington Alert

With a growing chorus of support across the progressive landscape, the For the People Act of 2021 has emerged as a key legislative priority for congressional Democrats in the 117th Congress. Envisioned as a “transformational anti-corruption and clean elections reform package,” the bill would enact sweeping changes to federal election laws along with important changes to federal campaign finance, lobbying, and government ethics laws. Taken together, these changes would have significant implications for private parties engaged in all manner of political activity.

After House Democrats relied on their slim majority to pass the For the People Act, the bill now faces more uncertain prospects in the evenly divided Senate. Nonetheless, Democratic leaders are sure to continue to press aggressively to move the bill through the upper chamber. Likewise, even absent passage of the entire package, Democrats may look for opportunities to pass key elements of the broader bill on a bipartisan basis

To assist clients in understanding how the For the People Act would affect their existing activity and compliance obligations, this is the fourth of several alerts that will provide insights into key elements of the bill and what they mean for our clients. This alert addresses the bill’s proposed changes to the federal conflict-of-interest and revolving-door provisions.

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In a prior alert, we summarized the most important federal post-employment restrictions and highlighted key considerations for companies considering hiring current or former federal officials and employees. If enacted, the For the People Act would expand a number of these restrictions, while imposing additional limitations on interactions between current and former federal officials and the private sector. These proposed changes, along with their implications for individuals, companies, and other organizations, are discussed in greater detail below.

Codifying Ethics Rules for Political Appointees

A key element of the government-ethics provisions of the For the People Act is the codification of expanded ethics obligations for federal political appointees originally adopted by President Obama as an executive order, and then renewed with modifications by President Trump and President Biden. These Executive Orders have required political appointees to sign a pledge that they would abide by more stringent revolving-door and gift limitations than required under federal law. The For the People Act would require all future executive branch appointees to sign a similar pledge as a condition of their appointment. Those who have navigated the restrictions and waivers in these three executive orders will find the statutory provisions in H.R. 1 very familiar.

The key provisions of this statutory pledge would include:

• A two-year “cooling off” period before “senior” executive branch officials (including employees paid on the Executive Schedule, military officers in pay grade O-7 or above, and certain White House staff) can communicate or appear, with an intent to influence, before their former agency or department.
• A bar on lobbying any covered executive branch official or noncareer Senior Executive Service appointee for the remainder of the current Administration.
• A near-total ban on gifts to political appointees from lobbyists or entities registered under the Lobbying Disclosure Act, including the removal of the statutory exceptions for gifts of modest value and food and beverage provided at so-called “widely attended gatherings.”
• A two-year “cooling off” period for political appointees participating in a particular matter involving specific parties that directly and substantially relates to a former employer or former clients.
• A two-year “cooling off” period for lobbyists going into the administration participating in a particular matter they lobbied on, or on a general issue area in which they lobbied.
• A requirement that those who sign the pledge agree to be bound by the enforcement mechanism in the Ethics in Government Act.

Importantly, the bill does not place any additional statutory restrictions on those who register under FARA (unlike the Biden Executive Order). However, as we explained in a previous alert, the bill would elsewhere amend the Lobbying Disclosure Act to require individuals who “counsel” on lobbying issues to register as lobbyists, even if they do not make a direct contact with a federal official. This would mean that the bill effectively bars such behind-the-scenes work by former political appointees (like both the Trump and Biden Executive Orders).

Finally, federal laws currently prohibit government employees from receiving “any salary, or any contribution to or supplemental of salary” as compensation for government services from sources other than the U.S. government. The For the People Act would clarify that this restriction also applies to “bonus” payments. Such a rule could bring added scrutiny to one-time payments to private sector employees who leave for government. This in turn could raise additional risk for companies whose employees enter federal government service.

Considerations for Federal Contractors – Expansion of Procurement Integrity Rules

The For the People Act would significantly expand the Procurement Integrity restrictions set forth in Section 3.104 of the Federal Acquisition Regulation (FAR). The Act would amend the existing prohibition on former procurement officials later receiving compensation from certain government contractors. Under current law, officials who serve in certain capacities—or are otherwise responsible for making key decisions—with respect to government transactions totaling more than $10 million, are generally prohibited from receiving any compensation as an employee, officer, director, or consultant from federal contractors receiving contracts through those transactions for one year after leaving government service. Under current law, however, this ban does not extend to divisions or affiliates of a contractor that do not produce the same or similar products or services as the entity that received a covered contract.

The For the People Act would expand both the universe of former federal employees covered by this restriction and the types of compensation these employees may not accept. First, current law imposes a “cooling off” period on employees who “personally made” key decisions with respect to covered transactions, including the award of a contract valued at more than $10 million, the approval of payments totaling more than $10 million, and the payment or settlement of a claim in excess of $10 million. The For the People Act would expand this restriction to cover all former federal employees who participated “personally and substantially” in such decisions. Further, the bill would bar compensation not only from federal contractors involved in covered transactions, but any division, affiliate, or subcontractor of those contractors. Finally, the bill would expand the current prohibition to include compensation received from such entities, not only as an “employee, officer, director, or consultant,” but also as an attorney or lobbyist. If the bill is ultimately adopted, federal contractors considering employing current procurement officials would need to undertake additional diligence to ensure compliance with these rules.

Likewise, employees who “personally and substantially” participate in a federal procurement already must promptly report any contacts with bidders regarding possible employment and disqualify themselves from the procurement action. Notably, however, the For the People Act would expand this disclosure requirement to mandate that government employees report to their supervisor and their agency’s designated ethics official a bidder’s employment-related discussions with an incredibly broad group of the covered official’s relatives, including the official’s immediate family, mother- and father-in-law, brothers- and sisters-in-law, uncles, aunts, and even cousins, nieces, and nephews. So long as such discussions are ongoing, employees must disqualify themselves from further personal and substantial participation in the relevant procurement. Because failure to comply with these disclosure and recusal obligations not only can result in the rescission of a contract, but also trigger present responsibility concerns and possible suspension or debarment from eligibility for future procurements, this new requirement could impose substantial new compliance burdens on federal contractors who engage in employment discussions with government officials and their family members.

Finally, the For the People Act would impose a new two-year ban on federal employees participating personally and substantially in a contract award to their former private sector employers. While this restriction applies only to the employee, violation of this rule also could raise significant risks for government contractors, including but not limited to present responsibility concerns and suspension and debarment as well as other reputational risks. As such, if this provision is enacted, companies whose former employees now work for federal agencies would do well to monitor compliance with this new provision.

Few New Restrictions for Members of Congress

The For the People Act makes relatively few changes to existing congressional ethics rules. For private parties, the most significant change would be a new prohibition under the House Rules barring Members from serving on the boards of for-profit entities.

If you have any questions concerning the material discussed in this client alert, please contact the following members of our Election and Political Law practice.