Restore Trust in Congress Act (SB3649)

The American Council urges passage of SB3649, the Restore Trust in Congress Act. The bill adds a new Subchapter IV to chapter 131 of title 5 of the United States Code. Every provision described below is drawn directly from that text.

Who is covered. The bill defines "covered individual" to include three categories: (A) Members of Congress as defined in existing section 13101; (B) a dependent child as defined in that section, or a spouse of a Member of Congress; and (C) any individual or entity described in section 13104(f)(3)(A) with respect to a covered investment placed in a trust for any individual in category (A) or (B). That third category extends the prohibition to trustees or similar persons holding covered investments in trust for a Member, spouse, or dependent child, so that the restriction cannot be circumvented simply by placing assets in trust -- though we note that the bill cross-references section 13104(f)(3)(A) without reproducing its text here, so the precise scope of category (C) depends on how that existing provision reads.

What is prohibited. Subject to the exceptions described below, no covered individual may, directly or indirectly, own or trade a covered investment while serving in federal office. Compliance requires two things: a covered individual may not purchase a covered investment, and any covered investment already held must be divested at fair market value by the applicable deadline.

What counts as a covered investment -- and what does not. A "covered investment" means an investment in a security, a commodity, a future, or any comparable economic interest acquired through synthetic means, such as the use of a derivative, including an option, warrant, or other similar means. The bill defines each of these terms: "security" takes its meaning from section 3(a) of the Securities Exchange Act of 1934; "commodity" takes its meaning from section 1a of the Commodity Exchange Act but expressly does not include a precious metal as defined in 31 C.F.R. section 1027.100; and "future" means a financial contract obligating the buyer to purchase or the seller to sell an asset at a predetermined future date and price. Eight categories are excluded from the definition of covered investment: (i) a widely held investment fund described in section 13104(f)(8) that is both diversified and publicly traded on a national or regional stock exchange; (ii) a United States Treasury bill, note, or bond; (iii) a State or municipal government bill, note, or bond; (iv) any compensation received by the spouse or dependent child of a covered individual from their employer; (v) an interest in a small business concern as defined in section 3 of the Small Business Act; (vi) an interest in a limited liability company created for the sole purpose of purchasing or holding real estate that serves as the personal residence of the Member of Congress; (vii) any share of Settlement Common Stock issued under section 7(g)(1)(A) of the Alaska Native Claims Settlement Act; and (viii) any share of Settlement Common Stock as defined in section 3 of that Act.

The diversification standard. For a fund to qualify for the widely held fund exclusion it must be "diversified," which the bill defines to mean the fund does not have a stated policy of concentrating its investments in any industry, business, single country other than the United States, or bonds of a single State within the United States -- except for the State in which the Member of Congress resides. A fund that concentrates in a single industry or a single foreign country would not satisfy this definition and would therefore remain a covered investment subject to the prohibition.

Divestiture deadlines. A covered individual who holds covered investments on the date of enactment has 180 days to divest them at fair market value. An individual who becomes a covered individual after enactment has 90 days from the date they become a covered individual to divest any covered investments. These are the baseline deadlines; extensions are available in limited circumstances described below.

Tax treatment of required sales. The bill integrates with the existing IRS Certificate of Divestiture program under IRC section 1043, which permits deferral of capital gains on qualifying sales made to comply with federal conflict-of-interest requirements. It does this by treating this section as a Federal conflict of interest statute, by treating covered individuals who are Members of Congress as eligible persons under section 1043(b)(1)(A), and by treating spouses and dependent children as eligible persons under section 1043(b)(1)(B). Each supervising ethics office is required to issue a Certificate of Divestiture to each covered individual who submits proof of compliance with the divestiture requirements or any extension granted, and the certificate must identify each specific property eligible for the program as determined by that office.

Occupational exception for spouses and dependent children. A spouse or dependent child of a Member of Congress may trade any covered investment if two conditions are both met: the covered investment is not owned by a covered individual, and the trade is performed as a function of the primary occupation of the spouse or dependent child. Both conditions must be satisfied; meeting only one is not sufficient under the plain text.

Trust rules. Any covered investment held in a qualified blind trust as defined in existing section 13104(f)(3) must be divested by the same deadlines that apply to individually held investments -- the blind trust form does not extend the time to comply. A supervising ethics office may grant an exemption for covered investments held in a family trust, but only if all of the following conditions are met: no covered individual (i) is a grantor of the family trust, (ii) contributed any covered investment to the family trust, or (iii) has any authority over a trustee of the family trust, including the authority to appoint, replace, or direct the actions of such a trustee; and the grantor of the family trust is or was a family member of the covered individual. A covered individual seeking this exemption must submit a written request to the applicable supervising ethics office certifying that those conditions are met. We note that the bill does not define "family member" or "family trust" within the subchapter; under section 13152(h), the supervising ethics office is required to issue interpretive guidance on any relevant term not defined in the subchapter, so those definitions would come from that guidance.

Assets acquired outside of purchase. If a covered individual acquires a covered investment after the date of enactment by means other than purchase -- the bill lists marriage, inheritance, and divorce settlement as examples, along with "other circumstance" -- the covered individual has 90 days from the date of acquisition to divest at fair market value.

Extensions. A supervising ethics office may grant an extension of time to comply with a divestiture deadline under the subchapter if a covered investment cannot be divested by the deadline due to low liquidity, vesting schedules, or contractual restrictions.

Interpretive guidance. The supervising ethics office is required to issue interpretive guidance on any relevant term not defined in the subchapter. As noted above, terms such as "family member" and "family trust" are not defined in the bill's text and will depend on that guidance.

Penalties. Any covered individual who violates the restrictions on trading or ownership in section 13152 must, at the direction of the supervising ethics office, both pay a fee equal to ten percent of the value of the covered investment and disgorge the profits of any transaction that violates the subchapter. The disgorgement payment is payable into the Treasury of the United States. The ten-percent fee provision does not specify where that payment goes; the bill is silent on that point.

Restrictions on how penalties may be paid. A Senator or Member of the House may not pay any of the penalties assessed under the penalties section from three sources: (1) if the covered individual is a Senator, the Senators' Official Personnel and Office Expense Account; (2) if the covered individual is a Member of the House, the Members' Representational Allowance; and (3) any contribution accepted as a candidate as defined in section 301 of the Federal Election Campaign Act of 1971, and any other donation received as support for activities of the covered individual as a holder of Federal office as defined in that section. In plain terms, penalties must come from the legislator's personal funds, not from official office accounts or political money.

Public disclosure of penalties. Each supervising ethics office is required to publish on a publicly available website a description of each fine assessed, the reason each fine was assessed, and the result of each assessment.

Why the American Council supports this bill. The Council believes that those who make the laws governing investment markets should not be personally positioned to profit from the information and influence their office gives them. Every day a Member of Congress holds individual stocks or derivatives is a day the public must wonder whether votes, hearings, and policy decisions are shaped by private financial interest rather than the common good. SB3649 closes that gap with enforceable prohibitions, clear deadlines, meaningful penalties paid from personal funds, and public disclosure of every enforcement action. The widely held fund exclusion, the Treasury bond exclusion, and the other carve-outs ensure that Members can still save and invest for retirement without depending on the same individual securities they help regulate. We call on every Member of Congress to support this bill and to vote for its passage.