House Democrats are finally investigating stock trading in Congress. There’s a loophole there.

Democrats have worked for months to enact legislation that would make it harder for members of Congress to use information they get at work for their own financial gain, after seeing a series of incidents in recent years which they appear to have done just that. For example, remember 2020 when Sens. Kelly Loeffler (R-GA) and David Perdue (R-GA) came under scrutiny for stock trades they made during the pandemic subjected.

These efforts culminated in the promulgation of the Combating Financial Conflicts of Interest in Government Act, a bill prohibiting members of Congress, their spouses and dependent children from trading in stocks. This ban would apply to the federal judiciary and senior members of the executive branch, as well as Congress.

However, ethics experts warn that there is a risk that a key provision of the bill will be exploited, diluting its impact.

Under the legislation, the legislature would be required to either divest itself of its stock holdings or invest them in a qualifying blind trust, a corporation run by an independent person known as a trustee who would be able to sell stock without her Buy or sell knowledge. The bill also requires that any existing shares contributed to that trust be sold within 18 months of its formation, so lawmakers don’t know what shares are in it.

But as part of the bill, the House and Senate could set their own new definitions of what a “blind trust” is, a policy that could offer malicious actors a way to be more flexible in their requirements. Former Obama administration ethics chief Walter Shaub expressed concerns about this in a Twitter thread on Wednesday.

A House Administration Committee staffer pushed back on that characterization, telling Vox that the ability to establish new definitions was necessary to adapt to changes in the financial sector and allow lawmakers to change language over time.

Kedric Payne, senior director of ethics at the Campaign Legal Center, a nonprofit government watchdog group, acknowledged both possibilities, noting that there was a slim chance the law could be abused. “In good faith, this provision was only inserted to prepare for the unexpected,” Payne told Vox. “From the bad perspective, you think someone is building in a trapdoor that allows for too much flexibility in the law and a complete loophole.”

The possible loophole in the draft law briefly explained

The problem Shaub addressed with the bill revolves around what constitutes “blind trust.”

For a blind trust to work, the legislature should know nothing about the stocks it contains, and should have no say in the purchases and sales made. As explained Shaub on Twitterexisting “blind trust” requirements were established by an ethics law in the 1970s and were fairly strict.

The Democrats’ new bill would give flexibility to the House, Senate, Supreme Court, the rest of the federal judiciary and executive branch ethics bodies to determine what a “blind trust” is. That power, Shaub argues, could be used to build what he calls “false blind faith.”

“Pelosi’s bill would… [authorize] Any ethics office can allow whatever it wants and call it blind trust. Literally everything. There are no limits in the bill to what these offices can do.” wrote Shaub in a tweet.

Shaub’s point of reference is the “false blind trust” set up by former President Donald Trump, which involved handing over control of his businesses to a council composed of his children and other senior executives to suggest independence.

If this principle of the bill were similarly abused, lawmakers could theoretically gain more visibility and influence over the purchases and sales made in each trust, effectively defeating the purpose of the legislation.

Payne said that is a risk posed by the bill, although he believes there is little chance Congress will capitalize on it and that there are simple fixes lawmakers could make to the bill, to outline how strict blind trust must be.

Another issue Payne raised, as did Shaub and the Citizens for Responsibility and Ethics of Washington (CREW), was the inclusion of the judiciary and executive branch in the bill, both branches of government he said are there already had a strong walkout policy was a conflict of interest. Shaub has suggested that the inclusion of these two branches is intended to reduce Senate support the bill might have.

However, the House Counsel argued that ethics rules have typically been applied in all three branches and that the bill would only strengthen existing policies.

How the bill would address conflicts of interest

The Stock Trading Act is the result of renewed scrutiny by Congress and lawmakers’ use of information they learn on the job to increase their own personal gains.

A 2022 Business Insider investigation found that 72 members of Congress had violated the STOCK Act, which requires lawmakers to disclose stock trades they make and prohibits them from using confidential information in their own financial transactions. Enforcement for this bill has long been tenuous, a problem the Democrats’ new proposal also seeks to address. Under the new bill, lawmakers could also continue to invest in diversified mutual funds and exchange-traded funds (ETFs) and government bonds.

Stock trades by Loeffler and Perdue and Senator Richard Burr are among those that have caught the attention of Congress recently. At the start of the pandemic, Loeffler had made millions worth of trades after attending a briefing on the coronavirus, raising questions as to whether those trades were informed by that meeting.

At this point, there is still uncertainty as to whether the bill will have the votes to pass the House of Representatives, where some Democrats have resisted legislation on the issue, believing it unnecessary. Lately, Punchbowl News reported that House Majority Leader Steny Hoyer is among lawmakers who have signaled opposition to the bill, a position that could also cause other Democrats to defect. A Hoyer spokesman said he was still reviewing the text of the law, which was released on Tuesday.

House Democrats had originally planned to vote in favor of a Legislature’s stock trading surveillance bill before going on an October recess ahead of the midterms, but internal disagreements on the issue could mean it’s tucked into the lame duck session afterwards. Because of their slim majority — and likely lack of Republican support — Democrats can’t afford to lose more than a handful of lawmakers trying to pass the law.

Senators have also said they will not introduce stock trading legislation until after the midterms. In both chambers, supporters of the bill have stressed that it is critical for Congress to hold itself accountable and give itself the same oversight as other industries.