Legislation to curb insider trading in Congress required under international law
A public outcry has followed the broadcast of a CBS “60 Minutes” segment detailing the common practice on Capitol Hill of using insider knowledge to play the stock market. Since this sort of activity is illegal in the private sector, many Americans may have assumed that it would be against the law for elected officials as well. But that is not the case.
According to ProCon.org, the US Senate and the US Supreme Court are the only two out of 975 federal entities that have no rules or laws prohibiting them from trading stocks based on nonpublic information they gain on the job. The US House of Representatives Ethics Manual states that its members should “never use any information coming to him confidentially in the performance of governmental duties as a means for making private profit,” but the rule is not legally binding.
The CBS report documented that members of Congress bought stock in companies during debates on legislation that might affect the businesses, a clear conflict of interest that may be unethical, but in the United States, is not illegal.
And it appears that the insider knowledge that members of Congress possess (being that they are the ones who make the laws which affect industries and individual businesses) pays off handsomely.
A 2004 Georgia State University study revealed that US Senators’ stock trades performed 12.3% better than the market average. A 2011 study showed that US House members’ stock trades performed 6% better than the market average.
This is the very essence of corruption, defined by global watchdog Transparency International as “the abuse of entrusted power for private gain.”
Introduced three times in Congress, the Stop Trading on Congressional Knowledge (STOCK) Act intended to close this loophole for members of Congress, but it has received only a handful of cosponsors for predictable reasons.
Now, members of the House Financial Services Committee are advocating new restrictions on insider trading to help lift waning public trust in Congress. With a congressional approval rating of just 9 percent – lower than the public support for porn, polygamy and communism – members feel that the legislation is necessary to appease an angry public.
“This is about restoring faith,” said Representative Tim Walz (D-Minn), who is sponsoring legislation to explicitly ban insider trading. “If you think a 9 percent approval rating is bad, don’t do anything, drag it out and watch what happens,” he said.
While curbing this corruption in Congress may be necessary to placate the public, it is also an obligation that the United States has as a state party to the UN Convention against Corruption, which states:
Each State Party shall, in accordance with the fundamental principles of its domestic law, endeavour to adopt, maintain and strengthen systems that promote transparency and prevent conflicts of interest …
Each State Party shall endeavour, where appropriate and in accordance with the fundamental principles of its domestic law, to establish measures and systems requiring public officials to make declarations to appropriate authorities regarding, inter alia, their outside activities, employment, investments, assets and substantial gifts or benefits from which a conflict of interest may result with respect to their functions as public officials …
These international obligations have been legally binding on the United States since its ratification of the treaty in 2006.