CONSIDERATIONS IN DRAFTING A CONFLICT OF INTEREST LAW
Richard Messick
World Bank, December 2010
The aim of conflict of interest laws is straightforward: to help public officials make “good”
decisions. “Good” here means decisions not clouded by personal financial considerations.
Conflict of interest rules prevent such considerations from impairing an official’s ability to
weigh the benefits and costs of alternative courses of actions. Another way of expressing what
we mean by a “good” decision is to say that it is one that is in the public interest.
Conflict of interest laws can also increase citizen confidence in government. As the head of one
ethics agency has explained:
An effective conflicts of interest system [creates a culture of integrity]. . . . Mayor
Bloomberg in New York City is a billionaire. And when he was first elected, we received
phone calls from all over the world and there were stories in newspapers all over the world
suggesting it was a conflict of interest for him to own all that he owns and be mayor of the
City of New York. Those phone calls and those stories stopped the day after our agency
issued an advisory opinion approving the plan we worked out for the mayor to avoid
conflicts of interest. In other words, a conflicts of interest system can help create a sense of
public confidence in the integrity of public officials. Mark Davies, “A Practical Approach
to Establishing and Maintaining A Values-Based Conflicts of Interest Compliance
System,” paper delivered at IV Global Forum on Fighting Corruption, Brasilia, June 2007.
A well-written conflict of interest law can also take the politics out of ethics. Many political
decisions – from how to combat the global recession to whether and where to build a new oil
refinery – involve complex technical, economic, and legal issues. Rather than contesting such
decisions on their merits, opponents often find it easier to claim the decisions were “wrong”
because a conflict of interest was involved. But when the rules are clear, and adhered to, such
claims will have little credibility.
Many kinds of considerations beyond financial considerations can cloud or impair an official’s
judgment. An official educated in the United Kingdom may favor British interests. Someone
whose property was destroyed during the Iraqi occupation may be biased against today’s
government in Iraq. In countries where officials are chosen by elections, an elected official’s
political interest in pleasing those who voted for him or contributed money to his campaign may
affect his judgment. Examples of such “political”’ conflicts include a Member of Parliament
pressuring a government agency to award a contract to a supporter or a minister hiring those who
voted for her.
While such biases can distort an official’s judgment, to date no country has sought to enact
legislation making them illegal. For one reason, it is much harder to measure the impact of a
“non-financial” bias. An official educated in the United Kingdom may favor British interests
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when making decisions, but he may have come away from his experience in Great Britain with a
distaste for the British and disfavor their interests. It thus very hard to make the kind of
distinctions required to write a law.
This is particularly true of political conflicts. A Member of Parliament elected with the support
of private banks may introduce for legislation that favors private banks as a reward for their
support. But it may also be true that the member long ago concluded that national prosperity is
more likely with a strong private banking sector. Rather than “buying” his views through
campaign contributions, private banks may have contributed to his campaign because of his
already formed views, and his legislation, rather than rewarding the banks for their support, may
reflect his genuine opinion on what is best for the nation.
1.
Consideration of Conflict of Interest Legislation
When considering conflict of interest laws, it is important to note that they cannot operate
directly. They cannot reach into the mind of an official and stop him from taking account of a
how a decision will affect his financial interests. Conflict of interest laws must therefore operate
indirectly. They do so either by preventing situations that might lead an official to take account
of a personal consideration or else through ensuring that the official’s supervisor or the public
generally is alerted to the consideration
Preventive laws do so by identifying situations where the conflict is particularly striking and
likely to affect a decision. These laws prevent the conflict from ever affecting the decision by
making it an offense for an official with the interest to participate in the decision. The classic
example is the award of a contract to a firm the official owns. A preventive law bans officials
from awarding contracts to firms they own.
Disclosure laws require officials to disclose their interests so that potential conflicts be examined
before a decision is taken. Depending upon to whom the disclosure is made, it will allow his
supervisor, the legislator, the media, or even the public at large to judge whether he should
participate in a decision. Or, if he does make a decision, whether it reflects self-interested bias.
Over 120 countries now require public servants to disclose -- either to their supervisor, an
anticorruption agency, or to the public – what properties they own and what outside interests
they have.
Conflict of interest laws typically ban certain obvious, “hard core”, types of conflicts
complemented by provisions for disclosure so that less clear cases of conflict can be examined in
advance of the decision. For example, a law might ban the head of a government agency from
hiring close relatives and require disclosure of any distance relationship with a potential
employee.
Where to draw the line between conflicts that should be outlawed per se and those where
disclosure is a sufficient remedy depend upon the level of public trust in government and the
country’s size. Where the level of public trust is high, citizens may be willing to accept a rule
that permits an agency head to hire his or her relatives so long as the relationship is disclosed in
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advance. Where the public is suspicious of government, a rule banning the hiring of relatives
may be needed.
A counter balancing consideration is the country’s size. If the brother of a hospital administrator
is a leading heart specialist, an absolute ban on the administrator hiring a close relative will deny
patients the brother’s services. In a populous nation with a large pool of heart specialists, the
cost may be minimal. In small nations the cost could be significantly greater. Likewise, banning
an official from participating in any decision that might affect a relative, no matter how distant,
may have little impact in government with a large number of technical specialists. But in a
government with fewer people, a broad ban could deny government the expertise required to
make a wise decision.
The flexibility disclosure laws provide in addressing conflicts is why a number of countries use
them to address possible political bias. Members of a legislature, for example, will disclose who
contributed to their campaign and how much each contributor gave. It is then up to the public at
the next election to decide whether the contributions biased his actions or not. Alessandra
Fontana, Money in Politics: Transparency in Action, (Bergen: U4 Anticorruption Resource
Center, 2007).
3.
Good Practices in Conflict of Interest Legislation
i. Give real/factual examples of conflict of interest incidents
Almost any illegal or corrupt conduct can be characterized as a “conflict of interest” in the sense
that the conduct “conflicts” with the public interest. But, as the Organization for Economic
Cooperation and Development has explained, among the industrialized nations “conflict of
interest” has come to be limited to those situations where there is “a conflict between the public
duty and private interests of a public official, in which the public official has private-capacity
interests which could improperly influence the performance of their official duties and
responsibilities.” OECD, Managing Conflict of Interest in the Public Service, p. 58. The most
obvious conflicts of interest involve a direct clash between the personal and/or financial interest of
a government decision-maker and citizens’ interest in good public policy, for example, an
employee awards a contract to a firm which he owns.
Besides “self-dealing,” various other kinds of corrupt behavior are classified as “conflicts of
interest.” They include –
Nepotism. An official in the position to hire a relative or a friend is also in a position where his
judgment may be impaired. He may choose the relative or friend over a more qualified individual.
One examples is where an employee is given a high performance rating by a relative or friend.
The relationship clouds the manager’s judgment. There is thus a conflict between the duty owed
the public – an accurate rating – and the duty owed the friend or relative – favorable treatment.
Undue influence. In 1997 then Canadian Prime Minster Jean Chrétien lobbied the head of the
Canadian development bank to make a loan to a tourist hotel that adjoined a golf course he owned.
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Although the bank’s head was technically independent of the government, in deciding whether to
extend a loan his judgment could well have been impaired by the Prime Minister’s lobbying. Thus
such situations, where one official lobbies another official, is treated as a conflict of interest.
Abuse of office. In the late 1970s U.S Congressman Mario Biaggi lobbied an agency of the
American government to award contracts to Wedtech, a company represented by a law firm in
which he was a partner. As Wedtech received more and more contracts from the federal
government, it hired the Biaggi’s firm to do more and more work, thus paying it ever higher legal
fees. Biaggi argued that there was nothing corrupt about this arrangement as the firm provided
services for the fees it received. The American courts disagreed. U.S. v. Biaggi, 909 F. 2d 662
(2d Cir. 1990). They ruled that Biaggi’s judgment had been impaired because he would feel
grateful to Wedetch for hiring his law firm and his judgment when advocating on its behalf would
thus be colored.
Payment for public service. An employee of the Boeing Company quits to work for the U.S.
Department of Defense. Boeing agrees to make regular payments to him over a five year period as
part of his deferred compensation policy. The conflict of interest arises because the employee’s
judgment may be colored by his on-going financial relationship with Boeing. The solution
adopted in the United States and approved by its. Supreme Court is for the employer to make a
lump sum payment to the individual before he or she joins the public payroll. Crandon v. U.S.,
494 U.S. 152 (1990).
Private gain from public office. When public officials leave office, they often try to capitalize on
their personal relationships with people still in government, sometimes to advance their own
interests, sometime to advance the interests of clients who hire them. When making a decision
affecting the former official or his clients, current employees’ judgment may be skewed by their
friendship for the former official. A particular example that is becoming more important with the
growth of international trade and investment agreements is “side switching.” A negotiator for a
government leaves and provides advice to the government on the other side. Or a lawyer who
represented the government in a case with a private firm leaves the government and appears as an
advocate for the company in the same case.
For further discussion of these examples, see Group of States Against Corruption, Rules and
Guidelines Regarding Revolving Doors: Tour de Table, (Strasbourg: Secretariat, 2007); OECD,
Managing Conflicts of Interest in the Public Service: OECD Guidelines and Overview (Paris:
OECD, 2003); Andrew Stark, Conflict of Interest in American Public Life (Cambridge: Harvard
University Press, 2000).
ii. What are the benefits gained for beneficiaries of conflict of interest?
Psychological and economic benefits accrue from a conflict of interest. The person educated in
the United Kingdom may take personal pleasure in advancing British interests as a government
official. The obvious benefits, and the ones that conflict of interest laws and regulations attempt
to prevent, are economic benefits such as the profits that result from the award of a contract to
one’s company or a friend’s company.
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The recognition that corruption crimes like conflict of interest are motivated by a desire for
economic gain is behind the recent trend to enact “asset recovery” laws. These laws permit the
government to seize the fruits of corrupt acts – the proceeds of a bribe, the profit realized from
self-dealing, an unlawful gift. Article 53 of the United Nations Convention against Corruption
requires parties to the convention, to give other nations access to its courts to recover any corrupt
funds or property located in another country.
iii. Which sectors of the government are most prone to conflict of interest issues?
The different branches of government, the different level of employees within a branch, and the
different areas of responsibility all face different kinds of conflicts with different levels of
intensity. In some governments there is a separate office within each ministry responsible for all
procurements. In others, procurements above a certain amount are handled by a central tender
board or agency. Officials who work in these units are more prone to possible situations of selfdealing than those working in other areas. Likewise, while employees of the civil service
commission may never be involved in procuring large public works, they may constantly face
conflicts when hiring new employees or promoting or evaluating existing employees because of
family ties and friendships. While an oil ministry official could have intensive conflicts in areas
related to petroleum matters, members of parliament could have extensive conflicts because they
vote on so many areas where they may have a financial interest.
iv. Is there a relation between conflict of interest and the rank of an employee?
Usually the more senior an employee in a ministry, the greater the chance that he will participate
in a decision that could affect a personal financial interest. The Minister of Finance will at least be
asked to approve all decisions coming out of his agency while an employee in the customs
division, say, will only participate in decisions affecting customs issues.
v. What are the reasons/cause(s) behind conflict of interest?
Conflicts are a natural consequence of governing. All government employees have interests –
financial, religious, ideological, personal. Whenever they must make a decision, it is possible that
this interest will influence his decision. To prevent any possible conflict, Plato recommended in
The Republic that the rulers of a country be stripped of all personal possessions and that their
children be brought up communally – all this in the name of ensuring that nothing affected their
decisions except the good of the country. Almost since its publication 2500 years ago, the
solution it advanced has been dismissed as impractical.
vi. What are conflict of interest prevention methods?
There are four: recusal, divestiture, disclosure and incompatibility. Three of them are preventive
measures in that, as explained above, they prevent any conflict from arising. Recusal means
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excusing oneself from participating in a decision. If the member of a procurement committee
owns an interest in one of the companies bidding for the contract, he declines to participate in the
contract award decision. Divestiture means that the official sells off the conflicting interest. A
person named as minister of defense would sell, or divest himself, of all stock in defense
contractors. Incompatibility refers to the holding of two or more positions that may be in conflict.
Many countries have laws that prohibit members of parliament from serving on the board of
directors of a company. Armenia bans members from managing a private company.
Disclosure is the most common method of addressing conflicts. Richard E, Messick, Regulating
Conflict of Interest: International Experience with Asset Declaration and Disclosure, August
2007. An employee participating in a decision over where to build a road might be required to
disclose to his superior that he owns land near one of the possible paths being considered. His
superior might decide that he should recuse himself from the decision-making process. Or he
might allow him to participate but take account of his potential bias when weighing his advice.
Special considerations apply when regulating conflicts of interest involving members of
parliament. Unlike civil servants, parliamentarians do not hold their job for life; they may be
voted out office at the next election. In addition, in many countries the job of a legislator is not a
full-time position and the legislator is thus not paid enough to support himself and his family. So
an outside job, as a lawyer, business owner, or whatever is necessary. Quentin Reed, Sitting on the
Fence: Conflicts of Interest and How to Regulate Them (Bergen: U4 Anticorruption Resource
Center, 2008).
In the case of members of parliament, many countries require each member to disclose to the
public their financial holdings: stocks owned, companies they work for, and so forth, so that the
public can judge whether they are putting their own interests or those of their political supporters
ahead of the public interest. National Democratic Institute for International Affairs, Legislative
Ethics: A Comparative Analysis (Washington, D.C.: NDI, 1999).
Disclosure can also be required of those wishing to do business with the government. “Applicant”
disclosure can be required of an entity bidding on government business or requesting a permit or
license from the government. Its purpose is to alert government officials to their own possible
conflicts of interest and to notify other government officials, other bidders or applicants, the
public, and the media to possible conflicts of interest. Applicant disclosure therefore serves as a
“check” on the employee’s own disclosure. It also serves to give the public and private firms some
stake in public officials complying with the conflicts of interest code.
Typically, the law will require the bidder or applicant to state the name of any official in the
government that owns, or has a financial interest in, the bidder or applicant. "Interest" should
include the interest of family members of the official. Example: "Mr. Lee, an owner of the
company, is the brother of Dr. Jho, the Ministry’s Director of Purchasing." See Davies, “A
Practical Approach . . . .” p. 16.
Because applicant disclosure alerts other firms of an actual or potential conflict, it can be an
important source of information on possible violations. Competitors have a financial interest in
ensuring the competition is fair, and thus a reason for “blowing the whistle” on violations. A
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second source of information on violations is fellow employees. When properly trained on what
the rules are, and offered ways to blow the whistle on colleagues that violate them, the honest
employee can be a key element in an enforcement effort.
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vii. Which government entities are responsible for monitoring conflict of interest?
Different governments have different arrangements. Almost always, there are different agencies
for the three branches of government. Parliaments are reluctant to subject themselves to control
by any agency of the executive and thus always have their own office, committee, or entity
responsible for monitoring members’ conflicts. For a discussion of the methods the American
state legislatures have adopted, see Peggy Kerns and Luke Martel, Ethics Committees: Internal
Oversight of Ethics Laws, (Washington, D.C.: National Conference on State Legislatures, 2008).
The judiciary typically also has an office, often located in the Judicial Council, for overseeing
possible conflicts of judges. A common model for the executive branch is a central agency, often
the civil service commission that oversees conflicts of employees in all ministries. When there is
a violation of the law, the public prosecutor will also become engaged.
One problem with a common agency is that the conflict issues differ from ministry to ministry.
Although the principals are the same, the types of conflicts that may arise in the health ministry
will be different than those that arise in the oil ministry. The solution the U.S. has adopted is a
small, central agency that sets broad principals with each agency left to devise their own detailed
set of rules consistent with these principals. Jane Ley, Managing Conflicts of Interest at the U.S.
Federal Level, December 2001, pp. 14-16.
viii. What should be the legislation needed to combating and monitoring conflict of interest?
Like anticorruption laws generally, those that aim to prevent or regulate conflicts of interest can be
written in a variety of ways. One way is to write separate provisions that prohibit self-dealing,
nepotism, undue influence, abuse of office, and so forth. This requires a careful evaluation of what
conduct society is willing to tolerate and what it wants to condemn.
A second way is to write a very broad prohibition and leave it to an enforcement or ethics agency
to flesh it out. A law could simply ban “conflicts of interest.”The problem with such sweeping
language is that bureaucratic and political rivals can invoke it to question perfectly innocent
actions. Or the press may recklessly charge conflict of interest on the basis of information
provided by an opponent.
In a highly charged political environment, the preferable approach is to write a law that is easy to
understand, simple to apply, and demands little or no judgment in determining its applicability.
This will minimize the use of ethics laws for political purposes. Laws written this way are said to
contain “bright line rules” and are contrasted with those containing standards, which are open to
interpretation by enforcement agencies, the press or the public. Richard E. Messick, Writing An
Effective Anticorruption Law (Washington, D.C.: World Bank, PREM Note 58, 2001).
Below are ten suggested list of bright line rules. Together they prohibit the types of conduct
considered to be egregious, “hard core, “conflicts of interest” –
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1. Misuse of office. You may not -(a) take any action or fail to take any action as a government officer or employee if doing so
might financially benefit
(1) you;
(2) a relative in the __ degree;
(3) any person or entity for which you are an attorney, agent, broker, employee, officer,
director, trustee, or consultant;
(4) any person or entity with which you have a financial relationship;
(5) any person or entity with which you had a financial relationship during the previous
twelve months; or
(6) any person or entity from which you received a gift, or any goods or services for less than
fair market value, during the previous twelve months; or
(b) hire any individual in violation of the rules of the Civil Service Commission.
2. Gifts. You may not request or accept a gift from anyone that you know or should know is
doing business with the government.
3. Gratuities. You may not request or accept anything from any person or entity other than the
government for doing your government job.
4. Confidential information. You may not disclose confidential government information or use
it for any non-government purpose, even after you leave government service.
5. Appearances and representation. You may not accept anything from any person or entity
other than the government to communicate with any agency of the government or to
represent any person or entity in a matter that involves the government.
6. Future employment. You may not discuss possible future employment with anyone that is
doing business with your government agency.
7. Post-government employment. For ___ year(s) after leaving government service, you may
not accept anything from any person or entity to communicate with your former government
agency; you may never accept anything to work on any particular matter that you personally
and substantially worked on while with the government.
8. Inducement of others. You may not cause, try to cause, or help another officer or employee
of the government to do anything that would violate any provision of the Conflicts of
Interest Law.
9. Prohibited outside positions. You may not be a paid attorney, agent, broker, employee,
officer, director, trustee, or consultant for any person or entity that you know, or could
reasonably learn, is doing business or seeking to do business with the government or that
you know, or could reasonably learn, has or is seeking a license, permit, grant, or benefit
from the government.
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10. Prohibited ownership interests. You may not own any part of a business or entity that
does business with your government agency nor may your spouse nor may any of your
children who are less than __ years old.
The conduct identified in each of these ten sections would be made illegal. The punishment for
violations could be a mix of administrative and criminal sanctions. Minor violations might be
punished through a reprimand or demotion in rank determined by the employee’s agency with an
appeal to the civil service commission. More serious violations could be referred to the public
prosecutor for criminal action. This list is a modified version of that which appears in Davies,
“A Practical Approach .. . .” These provisions could then be complemented by a law requiring
public officials to disclose details of the personal finances so that the public or their supervisors
could determine whether there were decisions they should recuse themselves from.
As noted in the answer to question two, a growing trend in corruption cases is to require anyone
guilty of corruption offense to forfeit any financial benefit received. For example, if any
employee received a gift from a company he knew was doing business with the government in
violation of provision two above, the employee would have to transfer the gift, or its equivalent
in dinars, to the government. Forfeiture would be in addition to any administrative or criminal
penalty imposed.
ix. How/what is needed to be done in order to control conflict of interest problems?
A series of positive steps – education and training of government employees, the press and civil
society and an advance ruling system– along with sanctions for those who violate the law.
Experience has shown that these elements, together with strong support from senior management,
are essential if unethical conduct is to be curbed. Mark Huddleston and Joseph Sands, “Enforcing
Administrative Ethics,” Annals of the American Academy of Political Social Science, vol. 537, no.
1 pp. 139 – 149 (1995).
In the American federal government all new employees are trained on ethics rules. By law, each
year all senior officials are trained on ethics principles and standards, any special rule applicable to
their agency, and the conflict of interest statutes. They must also be given the names, titles, and
office addresses and telephone numbers of the designated agency ethics official and any other
agency ethics officials available to advise them on ethics issues. Each agency has one or more
official designated to answer questions about the ethics rules that apply to that agency. These
officials must receive refresher training every two years on ethics matters.
In addition to training, the federal government has created an advance ruling system. Employees
concerned about whether proposed conduct is lawful or not can ask the Office of Government
Ethics (OGE) to give them an opinion on its legality. If, based on the facts disclosed, OGE
concludes that the action proposed would not constitute a violation, the employee cannot later be
prosecuted for the action.
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An advance ruling procedure has three benefits. One, it creates a body of decisions that to help
guide both employees and the courts about what is permitted and what is not. Second, it can turn
what could be an adversarial relationship into a cooperative one as civil servants work with ethics
officers to structure transactions in ways consistent with the law. Finally, if a questionable action
is later discovered that was not blessed with an advance ruling, it is one sign that intent to evade
the law was present.
Conclusion
A system for managing conflicts of interest legislation serves two important ends. One, it
bolsters citizens’ confidence in government by providing assurance that decisions are based on
the best interests of the public as a whole rather than those of the official making the decision.
Two, it helps prevent corrupt behavior by reducing the likelihood that decisions will be advance
personal interests at the expense of the larger public interest.
But regulating conflicts of interest is not costless. It can deny government quality people or they
can prevent qualified officials from participating in decisions. Furthermore, in the U.S., where
the regulation of ethical conduct is extensive, a growing number of critics contend that ethics
laws have reduced trust in government. “[E[ver more transparency, ever higher standards and
tighter regulations create ever more violations of ethical rules, more scandals and more
investigations, thus undermining the legitimacy of the institution and destroying public trust and
creating collective costs that far outweigh the individual benefits.” Nathalie Behncke, “Ethics as
Apple Pie: The Arms Race of Ethical Standards in Congressional and Presidential Campaigns,”
Leuven: June 2005. As a recent study for the European Union concluded, to the degree this is
the case policymakers confront a paradox. Citizens across the EU are demanding more ethics
regulations in the name of boosting confidence in government, but to the extent more regulation
leads to more charges of unethical or corrupt behavior, confidence will be lessened. C. Demmke
and colleagues, Regulating Conflicts of Interest for Holders of Public Office in the European
Union: A Comparative Study of the Rules and Standards of Professional Ethics for the Holders
of Public Office in the EU-27 and EU Institutions, (Maastrich: European Institute of Public
Administration, 2007).
Citizens and policymakers will need to be mindful of both the costs as well as the benefits as
they consider conflict of interest legislation. This Bank stand ready to provide additional advice
as requested.
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