The Senate Ethics Committee has issued letters to Senators Kent Conrad and Chris Dodd dismissing a complaint filed by Citizens for Responsibility and Ethics in Washington (CREW) regarding mortgages the Senators obtained through the Countrywide Financial “VIP” program. The committee found no “substantial credible evidence” that the mortgages violated Senate ethics rules, but nonetheless told each Senator that “you should have exercised more vigilance in your dealings with Countrywide in order to avoid the appearance that you were receiving preferential treatment based on your status as a Senator.”
In order to understand and evaluate the Committee’s findings, it is necessary to look at the relevant provisions of the Senate gift rule which the Senators were charged with violating. Unfortunately, the Committee itself does not discuss these provisions, or explain how its factual findings relate to these provisions.
In relevant part, the Senate gift rule provides:
No Member, officer, or employee of the Senate shall knowingly accept a gift except as provided in this rule.
A Member, officer, or employee may accept a gift (other than cash or cash equivalent) which the Member, officer, or employee reasonably and in good faith believes to have a value of less than $50, and a cumulative value from one source during a calendar year of less than $100. No gift with a value below $10 shall count toward the $100 annual limit. No formal recordkeeping is required by this paragraph, but a Member, officer, or employee shall make a good faith effort to comply with this paragraph.
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For the purpose of this rule, the term “gift” means any gratuity, favor, discount, entertainment, hospitality, loan, forbearance, or other item having monetary value. The term includes gifts of services, training, transportation, lodging, and meals, whether provided in kind, by purchase of a ticket, payment in advance, or reimbursement after the expense has been incurred.
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The restrictions . . . shall not apply to the following:
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19) Opportunities and benefits which are
(A) available to the public or to a class consisting of all Federal employees, whether or not restricted on the basis of geographic consideration;
(B) offered to members of a group or class in which membership is unrelated to congressional employment;
(C) offered to members of an organization, such as an employees’ association or congressional credit union, in which membership is related to congressional employment and similar opportunities are available to large segments of the public through organizations of similar size;
(D) offered to any group or class that is not defined in a manner that specifically discriminates among Government employees on the basis of branch of Government or type of responsibility, or on a basis that favors those of higher rank or rate of pay;
(E) in the form of loans from banks and other financial institutions on terms generally available to the public; or
(F) in the form of reduced membership or other fees for participation in organization activities offered to all Government employees by professional organizations if the only restrictions on membership relate to professional qualifications.
In order to determine whether Senators Conrad and Dodd violated this rule, one would expect that the Committee would ask the following questions:
1. Did the Senators receive a benefit from Countrywide that qualifies as a “gift” as defined in the Senate rules?
2. Was the particular benefit one that had a value of more than $100?
3. Was the benefit one that was generally available to the public?
4. Was the benefit offered to members of a group or class in which membership was unrelated to congressional employment?
5. If the answers to questions 1-3 above were yes, and the answer to question 4 was no, were the Senators aware of (or should they have been aware of) these facts?
Did the Senators receive a “gift” as defined in the rule? It is clear that the Senators received loans from Countrywide. It is less clear from the Committee letters what other benefits they may have received. According to the Committee, participants in the VIP program (including those designated as “Friends of Angelo [Mozilo],” the Countrywide CEO, like Senators Conrad and Dodd) “were often offered quicker, more efficient loan processing and some discounts.” However, the Committee does not specifically say whether the Senators received these benefits and, if so, what they were.
Were the benefits received worth more than $100? With regard to the loans, the answer is obviously yes. Assuming that the Senators received discounts, the answer is presumably yes for these as well. The Committee neither describes nor attempts to determine the monetary value of any improved service the Senators may have received.
Were the benefits received generally available to the public? The Committee states to both Senators that “the loans you received appear to have been available industry-wide to borrowers with comparable loan profiles.” This suggests that mortgages on the properties in question would have been generally available to the public. However, with respect to the mortgage that Senator Conrad received on an eight-unit apartment building, the Committee also states that “the substantial credible evidence is that it would not be unprecedented for Countrywide to approve mortgages on multi-unit properties if the loan could be resold on the secondary market.” There is a significant gulf between a loan being “generally available” to the public and it not being “unprecedented” for Countrywide to extend such a loan. The Committee does not attempt to reconcile this discrepancy.
With regard to the terms of the loans, the Committee states to both Senators that “[t]here is no evidence that the interest rates for your Countrywide mortgages were below prevailing market rates.” It also states that the “terms and conditions” of the mortgages were “available to borrowers with similar loan profiles.”
With regard to discounts or other financial benefits, however, the Committee is less definitive. It states, for example, that there is no credible evidence the Senators “knowingly received” any “financial benefits not available to other borrowers with similar loan profiles.” It also states there is no evidence that the Senators were ever informed they “were receiving specific discounts or other special treatment not available to other borrowers because [their] status as a Senator.” These statements leave open the possibility that financial benefits or discounts were received, albeit without the Senators’ knowledge about the fact of or reason for preferential treatment.
Finally, with respect to service, the Committee states that “[w]hile your Countrywide loans were handled through the V.I.P. loan unit and designated as F.O.A. loans, the service you received was available to thousands of other non-Senate customers at Countrywide . . . .” This implies that there was service provided through the VIP/FOA program that was not generally available to the public. The Committee, however, does not specifically state that the Senators received preferential service, nor identify the nature of the service or its value.
Were the benefits offered to members of a group or class in which membership was unrelated to congressional employment? The Committee fails to answer this question, which is a surprising omission. It emphasizes the fact that the VIP and FOA programs expanded to be quite large and that the VIP unit “handled thousands of loans worth billions of dollars for a very broad spectrum of individuals, large numbers of whom had never met, let alone befriended, Mr. Mozilo.” But this fact seems rather immaterial to the issue, which is whether Senators Conrad and Dodd were included in the VIP program because they were Senators. The Committee never addresses this issue.
If Senators Conrad and Dodd were included in the VIP/FOA program because they were Senators and thereby received discounts, services or other benefits not generally available to the public and with a value greater than the de minimis level, then they received a prohibited gift under the Senate rule. Reading between the lines, one might infer that the Committee found this to be the case, but it goes to some length to avoid saying one way or the other.
What knowledge did Senators Conrad and Dodd have regarding their inclusion in the VIP/FOA program and any benefits that they received as a result? The Committee told each Senator that it “found no evidence that you fully understood the scope of the V.I.P. program, knew that you were in the ‘Friends of Angelo’ program, or attempted to use your status as a Senator to receive loan terms not available to the public.” It fails to explain what it was that was not “fully understood” by the Senators. One might infer that the Senators received a benefit of which they were unaware, or they received a benefit which they did not understand resulted from their participation in the VIP program. However, if this were the case, the Committee should have said so.
Perhaps the most surprising omission is that the Committee does not say whether the Senators understood that they had been included in the VIP program as a result of their congressional status. It indicates that Conrad “did not recall ever being informed what the program was, and . . . assumed it was merely an employee and customer relations effort.” Dodd told the Committee that he “inquired with Countrywide as to what the V.I.P. program was and [was] told that it offered heightened attention to service quality.” Neither of these statements, however, specifically addresses the question of whether Conrad and Dodd were told, or assumed, that they were “VIPs” as a result of being Senators or for some other reason.
The Committee does tell the Senators that their inclusion in a “VIP” program should have raised “red flags” and caused them to inquire further to determine exactly how they came to be members of the program, whether they received treatment based on their official positions and whether they were receiving preferential treatment not available to other borrowers with similar loan profiles. One might infer, therefore, that the Senators had no specific information as to how they came into the program, but the Committee neither expressly states a position on this point, nor explains why the Senators thought they were in the program.
Finally, it should be noted that although the Committee found “no evidence” that the Senators ever asked for “special treatment,” the Committee does note that Conrad spoke personally with Mozilo in 2002 about the possibility of obtaining a mortgage for his beach property, and he later told a Countrywide employee that he was going to tell Mozilo what great service Countrywide provided. While these facts alone don’t prove that Conrad asked for special treatment, they might suggest that he was willing to accept it.
Conclusion. As this post has gone on long enough, I will save extended analysis for another time. For the moment, suffice to say that the Committee’s letters seem to be carefully worded so as to allow it to find no violation without actually explaining why. The most charitable, and I think the most likely, explanation for this is that the Committee concluded the violations were minimal and not the result of any active effort on the part of the Senators; it therefore wrote the letters in a manner designed to minimize the political fallout for Conrad and Dodd. This is understandable, but it is not without cost in terms of public confidence in the ethics process.