Federal officials are prohibited from having a financial interest in the industries they regulate. Watchdog to require OCC ethics rule investigation

A government watchdog will soon require the Treasury Department to investigate whether a top banking agency ignored ethics rules prohibiting federal officials from having a financial interest in the industries they regulate, according to documents obtained by POLITICO.

The Office of Special Counsel, which handles claims from government whistleblowers, is preparing to send a letter to Treasury in the coming weeks detailing the allegations of an anonymous employee at the Office of the Comptroller of the Currency — which oversees the country’s biggest banks — who claims officials failed to enforce a key ethics requirement designed to prevent government conflicts of interest.


The letter does not mean that the special counsel’s office has substantiated the claims made by the whistleblower but that it has found they have merit and need to be investigated.

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The allegations could add fuel to the debate over whether the country’s top bank regulators are too cozy with the industry, a reputation the OCC, in particular, has tried to shed in recent years as its leaders worked to restore the agency’s credibility — especially among critics on Capitol Hill.

“The ultimate goal of government ethics is said to be public confidence, a meaningless mantra if senior officials actively hide and distort the facts as the OCC has in this case — to avoid additional, post-crisis public scrutiny of OCC senior employees’ closeness to the banks they are supposed to regulate without regard to their personal financial interests,” the whistleblower wrote to the Office of Special Counsel in March.

At issue are government ethics rules dating back to 1997 that prohibit employees from writing regulations or making policy decisions that could affect an entire industry if that employee has a financial interest in a company that could be affected.

The whistleblower alleges that for years the agency never enforced this prohibition or told employees it existed until a midlevel ethics official realized the blunder in 2011.

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The problem first became public in 2012, after a high-ranking OCC official — the husband of a Bank of America executive who owned more than $25,000 in BofA securities — was demoted because of an apparent financial conflict of interest. At the time, the agency downplayed the situation as an isolated, albeit embarrassing, incident that it had already fixed.

What the OCC did not acknowledge is that the official — and possibly many others — had for years unwittingly violated longstanding ethics rules involving policymaking and conflicts of interest because the agency never enforced them, the whistleblower told the Office of Special Counsel. As many as 60 to 100 employees may have been subject to the restriction at any one time, according to the whistleblower, who also provided emails and internal OCC documents to POLITICO. The agency currently has nearly 4,000 employees.

While no one is specifically accused of using their positions to enrich themselves, the whistleblower asserts that officials with a financial stake in a bank never should have been involved in industry policymaking decisions. The failure to enforce the rules and subsequent attempts to minimize the problem underscore deep flaws in the agency’s ethics program, the person said.

“It clearly was a miss, and it was a big miss, and it’s become a bigger miss because they tried to cover it up — they lied about it,” the whistleblower said in an interview.

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The OCC in the past routinely allowed employees to own significant amounts of bank stock, as long as they recused themselves from matters directly involving the institution. For instance, an employee who is on the examination staff for a specific bank — meaning they enforce rather than draft rules — could own stock in an institution they don’t oversee.

The whistleblower’s allegations focus on the failure to prohibit employees that help develop industrywide policies from having a financial stake in banks.

The Office of Special Counsel doesn’t have the power to investigate whistleblower claims on its own. Instead, it can require an agency head to investigate allegations of wrongdoing and issue a report to the president and Congress within 60 days. The investigations are usually conducted by the agency’s inspector general.

In sending the letter to Treasury, the office is making the rare determination that there is a “substantial likelihood” that the claims are valid — the standard for requiring an investigation. In fiscal year 2014, the office referred just 7 percent of the claims it received, according to a spokesman, who would not confirm whether a letter was pending in this case.

“The OCC has not been notified of any investigation,” Bryan Hubbard, an OCC spokesman, said in an emailed statement. “It is OCC policy that all employees and executives rigorously follow federal and agency ethics policy and guidance.”

Since 1997, government ethics rules have prohibited all federal employees from participating in a “particular matter” in which they or close family members have significant financial interest.

The OCC also has specific rules prohibiting its employees from owning bank stocks, though it routinely issued waivers for workers who recuse themselves from matters involving the institutions.

In 2006, the Office of Government Ethics issued guidance to make clear that the rules also apply to policymaking that affects an identifiable group — for example, the meatpacking industry or trucks on interstate highways. OGE referred to these as “particular matters of general applicability.” Employees with less than $25,000 in stock are exempt from the rule.

As far back as 2004, Treasury — which oversees OCC — noted in its ethics handbook that the rule applied to policymaking involving national banks.

In 2011, a midlevel ethics official — who had joined OCC from Treasury the previous year — discovered that the agency’s senior deputy comptroller for bank supervision policy was in violation of the rule.

David Wilson was an OCC veteran who had always recused himself from matters involving Bank of America, where his wife had worked for nine years as a senior vice president and received much of her compensation and benefits in stock. But Wilson — and other OCC employees — were never advised that the rules prohibited them from participating in policymaking, the whistleblower alleges.

The ethics official, Jennifer Dickey, raised the issue with her OCC bosses, including David Kane, the director for administrative and internal law, and Julie Williams, the former OCC chief counsel, who told Dickey to seek a waiver for Wilson from the Office of Government Ethics, according to a Treasury IG report.

When the waiver was denied, officials decided in October 2011 that Wilson would switch roles with John Lyons, the examiner in charge at Citibank. The agency issued a news release suggesting the two were switching jobs because Lyons was about to hit a five-year term limit for his position. In fact, Lyons had been on the job only four years.

Wilson left the agency earlier this year. He declined to comment for this story.

Though OCC officials later acknowledged in a story in American Banker that Wilson’s demotion stemmed from a concern about conflicts of interest, they never mentioned that a rule may have been violated or that other employees could be implicated.

In the months after Wilson’s removal, however, the OCC sought to quietly revise its ethics policies and ordered a review of hundreds of employee files to determine how many others might be violating the rule, according to emails shared with POLITICO. Those employees were to be informed that they could no longer participate in policymaking.

On an Oct. 19, 2011, conference call with district ethics officials, Dickey implied the change was the result of OGE broadening its interpretation of the rule, according to emails. But the whistleblower alleges that the interpretation had never changed — it had simply never been enforced by the OCC.

The emails also show district ethics officials fretted among themselves about the far-reaching effects of the new policy and complained about Dickey “camouflaging” the policy change.

“The whistleblower alleged that senior OCC ethics officials’ handling of the ‘new policy’ was detrimental to OCC employees, who might be inadvertently in violation of the restrictions of Section 2640, and whose long-term career choices might be guided by a full understanding of the restrictions,” OSC says in the draft letter to Treasury, which was obtained by POLITICO.

Williams, who oversaw the ethics program and played a key role in driving policy decisions, may have also been in violation of the rules, the OSC letter says.

Williams was a beneficiary of a discretionary trust with BB&T Bank that held less than $15,000 each in GE Corp. and Target Corp. securities, and held a GE bond worth from $50,000 to $100,000, according to a 2013 investigation by the Treasury inspector general. The report found that Williams should have signed a recusal for matters involving those companies because they owned bank subsidiaries — GE Capital Bank and Target National Bank — that were regulated by the OCC starting in July 2011.

By the time OCC ethics officials recommended Williams sign a recusal in June 2012, she had already sold her stocks, which she had inherited from her mother, according to the IG report.

The whistleblower alleges that Williams also violated the prohibition on policymaking, because she was working on broad OCC policy matters in which she had a financial interest.

Williams left the agency in 2012 and is now a managing director at Promontory Financial Group. She declined to comment.

The agency also tightened its policy for securities waivers for new employees, virtually eliminating what was once a common ethics exemption that allowed OCC employees to own bank stocks, according to the whistleblower’s claim. And they made changes to the rules for current employees, requiring those with more than $25,000 in stocks to divest the holdings or sign an “expanded recusal” that would prohibit them from participating in any policy matters. At least 70 employees have had to sign the expanded recusals, according to the whistleblower.

In an email to employees, Dickey said the change was prompted by new legislation regarding insider trading on Capitol Hill, a claim the whistleblower disputed, saying the law had no provisions relating to this particular issue.

When the policy was finalized in August 2012, Paul Nash — chief of staff to Comptroller Thomas Curry — sent an email to all employees presenting the “revised securities bulletin” as a “reminder” to employees of the OGE regulations.

“The whistleblower noted that this was also disingenuous, as OCC did not provide any guidance prior to the issuance of the revised bulletin,” OSC states in the letter.

The OSC sent a similar letter to Treasury last year about the OCC ethics program. The resulting investigation, conducted by the Treasury IG, found the agency failed to properly notify departing employees about a mandatory “cooling off” period that prohibited them from having contact with their previous employer for at least one year — a rule designed to prevent the so-called revolving door.