Trumping the Constitution

Buried deep in Article I of the U.S. Constitution is an obscure provision known as the “Emoluments Clause.”  In relevant part, it provides that:

“[N]o person holding any Office of Profit or Trust under them, shall, without the consent of the Congress, accept of any present, Emolument, Office or Title, of any kind whatever, from any King, Prince, or foreign State.”[1]

Arguably, it was the first conflicts of interest prohibition in U.S. history, and its origins lie in a gift of a snuff box by the King of France to Benjamin Franklin, then our Ambassador to France, which gift made the Founding Fathers nervous about the dangers of foreign governmental influence on federal personnel.  Still, this provision has seldom been construed by judicial decision, and its interpretation has instead largely rested with the Justice Department’s Office of Legal Counsel (“OLC”), which reads it broadly.[2]  Because the Clause is interpreted by the OLC to apply even to lower level federal employees (including retired military personnel receiving pensions), it can preclude innocuous payments, for example, such as reimbursement for travel paid by a foreign public university or expenses incurred for service on an advisory committee.  Its true goal, however, is to restrict and preclude foreign influence on senior federal personnel.

This column will analyze the application of the Emoluments Clause to Donald J. Trump.  Why focus on this special provision when Mr. Trump is ensnarled in a host of other conflicts of interest problems, will not divest his business holdings, and intends to ignore all anti-nepotism standards by employing his son-in-law in the White House?  The answer is that the Emoluments Clause is uniquely and fundamentally a “national security provision” (as Harvard Law Professor Lawrence Tribe and others have recently stressed[3]).  If the Emoluments Clause seeks to protect national security by restricting foreign governmental influence on federal personnel, it can hardly exempt the President (and this may be one reason why the OLC has ruled the Emoluments Clause does apply to the President[4]). In fairness, some scholars doubt that the Emoluments Clause should be read to apply to the President.[5]  Nonetheless, it has to be disconcerting that the new President would ignore the OLC’s position that it took in the case of his immediate predecessor.  In any event, my focus will instead be on the specific nature of President Trump’s conflicts and how they expose him to foreign governmental pressure that will be largely invisible.[6]  Whether or not the Clause applies, tolerating the exposure of the President to foreign pressure is inexcusable.

From my corporate governance perspective, it is clear that Mr. Trump and The Trump Organization are, by the nature of their business model, particularly vulnerable to foreign influence and pressure.  Why?  For some time, they have specialized in building major high-rise buildings in foreign capitals (hotels, condominiums, mixed-use buildings coupled with shopping malls, etc.).  They have been successful, and no accusation is here made that they have paid bribes (which in any event would not violate the Emoluments Clause).

Still, almost by definition, such multi-billion dollar construction projects give a foreign government a “hostage.”  That is, the foreign government, if it wished, could take low-visibility actions, either to benefit or disfavor these projects.  For example, the foreign government could subsidize the project in a variety of ways.  It could cause its sovereign wealth fund to make the construction loan for the project at a below-market interest rate.  Alternatively, it could reduce the real estate taxes on the site below what others pay.  Even if some subsidies could be detected, subtler variations will be below the radar.  For example, a hypothetical foreign government could induce local banks or financial institutions in their country to buy the bonds that will finance the project by assuring them that the government will stand behind the loan.  This implicit (but invisible) guarantee should result in a lower bond interest rate and hence a gain to The Trump Organization.  Or, the foreign government could ensure full occupancy for the hotel by sending its visitors there.  President Trump’s staff has argued that the Emoluments Clause is not violated by arm’s length transactions at fair market value.  But surely any hotel-keeper (including Trump) knows that the difference between 98 percent occupancy and 50 percent occupancy is the difference between a profit and a loss.  All these benefits—however indirect—fall within the scope of the existing interpretations of the Emoluments Clause (for example, under long-standing OLC interpretations, any governmental instrumentality, including even a private corporation in which the foreign state owns a controlling block, is deemed equivalent to the foreign state itself[7]).

Conversely, the foreign state could take adverse actions.  The greatest risk for a real estate developer embarked on a major project is that the construction period will be stretched out beyond the contemplated schedule.  That means that the point at which the project will earn revenues is delayed and typically the construction loan carries a higher interest rate than does a permanent “take-out” loan.  The foreign state could thus threaten (or actually punish) The Trump Organization by sending squadrons of building and fire code inspectors to find violations that delay the project’s completion.  Or, it can covertly organize wildcat strikes.  Ordinarily, it would have little incentive to do this, but suppose the U.S. government is taking an action that the foreign state considers contrary to its interests.  Now, it has a convenient hostage against which to retaliate in an invisible fashion.

The Emoluments Clause bars only the former type of actions, which can be characterized as gifts or emoluments, but not the latter punitive actions.  Still, the exposed position of a developer invites both.  Also, it is much safer for the foreign state to seek to punish or threaten the project than to take action against the U.S.

To a limited extent, President Trump or his staff has recognized that there are dangers (political and legal) from developing new projects abroad.  Thus, he will transfer control over The Trump Organization to his two adult sons, as trustees of a “blind trust,” and will find an “ethics expert” to monitor for conflicts.[8]  No time need be spent on why this “solution” produces little, if any, insulation.  But, even if a capable, independent trustee or monitor were chosen, little reason exists to believe that such a person can solve this problem.  Independent monitors are often used (with debatable success) by corporations entering into deferred prosecution agreements with the Department of Justice.  Typically, the monitor studies the actions and policies of the company within a specified area and makes recommendations.  Seldom does the monitor have any substantive authority.  But the more fundamental problem here is that it is less the corporation than the foreign state that we need to monitor.  That is, the monitor is in no position to understand if the state (or instrumentalities thereof) are taking actions to benefit The Trump Organization.  No such monitor or ethics expert will be able to know if the state has (a) reduced the real estate tax rate applicable to the project, (b) secured it cheaper financing by implicitly pledging to the lenders that they will be protected, (c) intervened to solve labor problems or end a strike, or (d) increased its occupancy rate.  Yet, such actions could be quietly communicated to the management of The Trump Organization.  As a result, the use of a monitor cannot solve the problem that the Emoluments Clause was intended to address: namely, undue foreign influence over federal officers and personnel.

Some ethics scholars have suggested that the answer is a “blind trust” (and President Trump has partially adopted this approach by naming his two sons as the trustees).  Nonetheless, even if an objective and respected trustee were chosen, this response is equally inadequate.  A blind trust may be an acceptable solution if the prospective appointee simply holds a portfolio of securities, but President Trump instead owns a large private company.  The Trump Organization cannot be sold at its full market value without an elaborate auction process and much due diligence (all of which would become public knowledge quickly).  Also, it is hard to imagine a trustee (or a son) brave enough to sell the President’s empire without his consent.  Hence, the President knows that he will eventually come back into possession of his empire.

What then is the answer?  One simply cannot give the foreign state a “hostage” that it can use to reward or retaliate against the U.S. official.  This problem has not arisen before because we have never before had a billionaire President.  To some degree, the Trump staff has realized the need to reduce conflicts and has pulled back from projects in Azerbaijan and Georgia and ceased to negotiate prospective deals in Brazil, India, and Saudi Arabia.[9]  That was a reasonable step, but other major projects are underway.

Under Article 1, Congress could waive the Emoluments Clause’s application to President Trump.  Although Republicans control both Houses of Congress, this would be embarrassing, and this scenario seems unlikely.  Thus, the only satisfactory solution is for President Trump to divest these projects.  Construction projects underway in the U.S. pose less danger—unless they were to be financed by a foreign sovereign wealth fund or other instrumentality of a foreign state.  Ultimately, the Emoluments Clause cares only about “gifts” or “emoluments” from foreign states, and ignores gifts from domestic power brokers.

Is it realistic to expect President Trump to take this step?  So far, he has refused to release his tax returns or divest any holdings, and he plans to employ his son-in-law in the White House despite anti-nepotism rules.  Suffice it to say that law compliance is not one of his most cherished values.  To paraphrase a famous quotation by a friend and ally of Theodore Roosevelt, we have to recognize that the President is emotionally only 12 years old.  At such an age, children do not like to give up their favorite toys.  Indeed, try to take the favorite toy of your neighbor’s pit bull terrier, and you will probably encounter the same reaction.

If the President violates the Emoluments Clause, there are no immediate or inevitable consequences.  The Attorney General is unlikely to sue him to recoup any gift (but conceivably a later Attorney General could).  The only potential remedy is impeachment on the ground that he has transgressed a Constitutional prohibition or that he has simply exposed himself to foreign pressure for personal gain.  Still, this step is hardly likely today.  But if ever the tide turns and impeachment did become conceivable, this could be one charge, particularly if evidence later surfaces that some foreign state did try to reward him.  It may be a remote possibility, but not one to ignore.


[1] United States Constitution, art. I, §9.

[2] On the OLC’s approach, see Nelson Lurd, Rational Choice at the Office of Legal Counsel, 15 Cardoza L. Rev. 437 (1993) (observing that OLC decisions are treated as binding on government agencies).  In some limited circumstances (not here likely to apply), those who violate the Emoluments Clause can face even criminal penalties. See 18 U.S.C. §219.

[3] See Chris White, “Harvard Law Prof: Trump’s Plan is “Walking, Talking, Tweeting” Violation of Constitution,” LawNewz, January 12, 2017; Susan Hennessy, “Ethics Rules Are National Security Rules,” LawFare, January 10, 2017 (quoting various experts, including Professor Tribe).

[4] In 2009, in connection with considering whether President Obama could receive the Nobel Prize, the OLC opined that the Emoluments Clause applied to elected officials, including the President.

[5] An alternative interpretation is that the Emoluments Clause applies only to governmental “officers”—that is, persons who must be confirmed by the Senate. Still another argument is that the President does not hold an “Office,” as the Constitution means by that term a position created by congressional statute. See Will Baude, “Some Misgivings about the Foreign Emoluments Clause Arguments,” Washington Post Blogs, January 9, 2017.

[6] I should acknowledge that I do not specialize in constitutional law and am largely relying on the analysis of others. I have neither the expertise nor the enlarged ego of a traditional constitutional law professor.

[7] For an overview, see Jeffrey Green, Application of the Emoluments Clause to Department of Defense Civilian Employees and Military Personnel, 2013 Army Law, 15, 17-19 (2013).

[8] See Peter Nicholas and Alexandra Berzon, “President-Elect Moves to Put His Assets Into Trust,” The Wall Street Journal, January 12, 2017 at p. A-1.

[9] See also Drew Haswell and Rosalind S. Helderman, “Trump scrambles to avoid conflicts,” The Washington Post, January 10, 2017 at A-1.

This post comes to us from Professor John C. Coffee, Jr., the Adolf A. Berle Professor of Law at Columbia University Law School and Director of its Center on Corporate Governance.