US presidential nominees, especially those nominated to positions requiring Senate confirmation, should expect to undergo a rigorous vetting and financial disclosure process. The complexity of these requirements can be daunting, particularly for nominees with extensive business and financial interests.

This article provides a high-level overview of the vetting process and identifies steps potential nominees can take to facilitate a smoother process and minimize the impact on their financial holdings.

In Depth

THE ROLE OF THE OFFICE OF GOVERNMENT ETHICS AND FINANCIAL DISCLOSURE REQUIREMENTS

The US Office of Government Ethics (OGE) is an independent government agency tasked with preventing financial conflicts of interest across the more than 140 executive branch agencies.

The OGE’s most significant responsibility is aiding the transition between presidential administrations. The Ethics in Government Act, which established the OGE, mandates that nominees for certain executive branch positions – including those requiring Senate confirmation – file detailed financial disclosure reports. The two primary disclosure reports are the Executive Branch Personnel Public Financial Disclosure Report (OGE Form 278e) and the supplemental Periodic Transaction Report (OGE Form 278-T). These reports require nominees to disclose income, assets, liabilities, transactions, gifts, and other financial interests, as well as any positions held outside of government. Nominees must also disclose similar information for the nominee’s spouse and dependent children.

The OGE, in conjunction with the White House’s Office of the General Counsel ethics office and the relevant federal agency, is tasked with reviewing these financial disclosure reports to ensure they are complete and to identify potential sources of conflict. If the OGE identifies potential conflicts, the nominee will be required to take steps to resolve them. These can include:

• Divestiture: Divestiture simply means that the nominee resigns from the position in question or sells the asset posing a potential conflict. Under the past administration, divestiture became the default method to eliminate conflicts, as it created a clean break that prevents future conflicts from arising.
• Recusal: A nominee may elect to recuse themselves from matters that could affect their financial interests. In past administrations, recusal has been a less favored method than divestiture, as it is seen as potentially hamstringing a nominee’s ability to perform the duties of the position.
• Waivers: In some instances, an agency, in consultation with the OGE, will elect to grant a written waiver. The OGE may grant a waiver when it determines a nominee’s financial interest is not likely to impact the nominee’s integrity. The first Trump administration favored waivers to address the complexity of the disclosure process and to reduce the burden on nominees. We expect the incoming Trump administration to bring conflict waivers back into favor to expedite a vetting process that could otherwise deter potential nominees from serving in the government. It should be noted, however, that a waiver from the OGE waives only the conflict; it is not a waiver of the nominee’s disclosure obligations.

Once the OGE reviews the nominee’s financial disclosure and is satisfied that any potential conflicts can been resolved, the agency enters into an ethics agreement with the nominee. The agreement outlines the steps the nominee and the OGE will take to resolve any conflicts of interest and ensure the nominee adheres to ethical standards throughout the nominee’s tenure. For example, if the nominee has agreed to resolve potential conflicts through recusal or divestiture, the ethics agreement will detail the scope of the recusal or divestiture and the steps the nominee must take to ensure compliance.

WHAT POTENTIAL NOMINEES SHOULD EXPECT, AND HOW THEY CAN PREPARE

Preparing for the vetting process can be daunting, but understanding the requirements and expectations can help a nominee avoid extensive back and forth with the OGE. What follows are some key points potential nominees should consider.

1. Understand the Scope of the Disclosure Process

Nominees must disclose detailed information about their financial interests, professional history, and personal background. For some nominees, the disclosure and conflict resolution process may be more than they are willing to take on. We have worked with clients who, after reviewing the requirements and the steps needed to resolve potential conflicts, decided that the process was too burdensome and chose not to pursue the nomination. It is important for potential nominees to understand the scope of the disclosure process and discuss the process with a lawyer and financial adviser before moving forward.

The OGE requires nominees to disclose:

• Financial Holdings: Be prepared to provide comprehensive information about your and your spouse’s assets, income, liabilities, real estate holdings, and other financial interests, including the terms and assets of family trusts. Nominees must disclose all sources of income, including salaries, investments, consulting fees, speaking engagements, book royalties, and any other forms of compensation. Collect all relevant financial documents, including bank statements, investment portfolios, tax returns, and records of any liabilities like mortgages or personal loans.
• Professional History: Expect to disclose all positions held outside the federal government, including directorships, partnerships, trustee positions, employment with private organizations, and even volunteer positions.
• Personal Background: Be prepared for a thorough background check examining your personal and professional history. This includes any lawsuit in which the nominee is or has been a named party, as well as any other relevant legal proceedings.

One of the most time-consuming aspects of the vetting process is gathering and organizing financial information, especially for nominees with diverse investments and business interests. Potential nominees can review the OGE’s Form 278e guide for a full overview of the information that must be disclosed and begin collecting the required information. The agency typically engages in an extensive back and forth with the nominee to ensure the OGE Form 278e is complete. A nominee can expedite this process by collecting comprehensive information in advance.

In addition to the OGE 278e, nominees must also complete the Standard Form 86 (SF-86), which collects the information necessary for a background check. Past administrations have also required nominees to complete a SF-86 supplement, which requests additional information, along with Form 14767, Consent to Disclose Tax Compliance Check, and a federal campaign contribution report.

The disclosure process does not end with confirmation. Throughout their government service, senior government officials must track reportable transactions and submit an OGE 278-T within 30 days of being notified of the transaction or within 45 days of the transaction occurring, whichever is shorter. Reportable transactions may include any purchase, sale, or exchange by the nominee – or the nominee’s spouse or dependent child – of stocks, bonds, commodity futures, or other securities if the amount of the transaction exceeds $1,000. In addition to these periodic reports, senior officials are also subject to annual and termination reporting requirements.

2. Understand the Options Available to Minimize Financial Impact

Nominees who hold financial assets that the OGE believes may cause a conflict of interest must develop a plan, approved by the OGE, to resolve the conflict upon confirmation.

We have helped clients negotiate with the OGE and establish approved plans that resolve conflict issues while avoiding significant financial burdens. As noted above, resolving a conflict may entail divesting assets, recusal from matters with the potential to impact the nominee’s financial holdings, or obtaining a waiver from the OGE. We have assisted nominees in navigating each of these options.

As previously discussed, divestiture is the most common avenue for resolving conflicts. Once an asset is divested and reinvested on an approved basis, there is no ongoing risk of a conflict of interest. While it may seem prudent for potential nominees with assets that could pose a conflict to divest those assets before undergoing vetting by the OGE, there are benefits to waiting to divest. If a conflict requires a nominee to divest an asset, the OGE can issue a Certificate of Divestiture, allowing the nominee to defer federal taxes on capital gains from the sale of the asset. This is a potentially attractive tax option for nominees, as it offsets the financial burden of divesting the asset and provides a potentially beneficial proposition. However, Certificates of Divestiture are only available in limited instances, and the OGE may not offer divestiture for assets held in trust or when there are other ways to address the conflict.

While nominees required to divest an asset must do so within 90 days of confirmation, Certificates of Divestiture are only effective if obtained before divestiture. Therefore, nominees must plan to seek a Certificate of Divesture from the OGE and obtain it before divesting the asset and before the 90-day window expires.

Nominees may also work with the OGE to request a waiver for certain holdings. Pursuant to 18 US Code § 208(b)(1), waivers are available if the nominee has disclosed the financial interest and receives, in advance, a written determination “that the interest is not so substantial as to be deemed likely to affect the integrity of the services which the government may expect from such officer or employee.” The OGE will only consider a waiver when nominees are fully transparent regarding their financial holdings. We have worked with the OGE to explain the nature of a nominee’s particularly complex financial holdings and have successfully obtained a waiver by demonstrating to the OGE that certain assets would not impact the nominee’s integrity and ability to perform the position if confirmed.

In instances where the nominee’s assets and financial positions are particularly extensive or complex, nominees will benefit from advanced planning to avoid unexpected consequences that may harm their financial position in the long run. Nominees should be ready to educate the OGE on the nuances of certain complex assets, trusts, and financial relationships. While the OGE continues to issue new guidance, particularly regarding private investment funds and trusts, nominees should not assume that the OGE has a set precedent for every type of holding. For example, we worked with the OGE to develop an approved plan to restructure a client’s assets so that the divested assets could receive a Certificate of Divestiture, while other assets were placed in an irrevocable trust that the OGE determined qualified for a waiver.

The incoming Trump administration is likely to nominate several wealthy Americans who will be subject to the OGE vetting process. While we anticipate that the incoming administration may reform the vetting process to relax certain requirements seen by some as unduly burdensome, the disclosure and conflict requirements are statutory, and certain bedrock principles will remain.

3. Be Prepared for Scrutiny

The vetting process involves a high level of public scrutiny. Potential nominees should be prepared for:

• Public Disclosure: The recent trend is to make financial disclosure forms and ethics agreements publicly available. Be ready for your financial interests and potential conflicts to be scrutinized by the public and the media.
• Investigation: Prior administrations have relied on the Federal Bureau of Investigation (FBI) to assist in the vetting process of senior nominees. While it remains to be seen how much the incoming Trump administration will rely on the FBI, nominees should be prepared to undergo an extensive background check.
• Senate Hearings: The Senate confirmation process includes public hearings where your qualifications and background will be examined in detail. Be prepared to answer questions and address any concerns that may arise.

Preparing for the presidential nominee vetting process requires careful planning, transparency, and a thorough understanding of ethical standards. By understanding the process and organizing financial information, potential nominees can navigate the process more smoothly and increase their chances of a successful confirmation.