Magazine | March 6, 2017, Issue

Foreign Entanglements

(Roman Genn)
The Trump Organization’s unnecessary emoluments-clause problem

It is a measure of the foresight of the Founding Fathers that every few years we suddenly consider some obscure part of the Constitution that had long been ignored, from the procedures for impeachment to the resolution of deadlocked elections. This year, thanks to Donald Trump’s sprawling global business empire, it’s the foreign-emoluments clause (Article I, Section 9, Clause 8):

No title of nobility shall be granted by the United States: and no 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.

How obscure is the foreign-emoluments clause? There are few references to it in the convention and ratifying debates of 1787, the courts have never been asked to interpret it, and Congress has never charged any federal official with violating it. Potential violations rarely get farther than the Office of Legal Counsel, which in 2009 advised President Obama that his Nobel Peace Prize (a gratuitous gift if ever there was one) did not violate the clause, since the Nobel committee is not a foreign sovereign.

But the foreign-emoluments clause wasn’t an afterthought in the Constitution. It was carried over from the Articles of Confederation, which in turn had borrowed it from a 17th-century Dutch statute. It was chiefly aimed at the practice among European royalty of lavishing gifts on foreign diplomats, but it was written to cover all federal officers. A constitutional amendment that was passed by Congress in 1810 and nearly ratified would have expanded the clause beyond federal officers to cover every American citizen and strip the citizenship of anyone who violated it. The concern it reflects for insidious corruption of American officials by foreign sovereigns remains a serious one, touching on issues that range from foreign donations to the Clinton Global Initiative to the long list of American officials who have ended up on the Saudi payroll after leaving office.

One durable argument in favor of electing billionaires to public office is that they are too rich to be bought. Yet whatever the actual size of Trump’s fortune, he could still face a blizzard of potential conflicts of interest in representing America while his Trump Organization runs overseas hotels and golf courses that can be dependent on regulatory favor (especially in diplomatically sensitive countries such as Turkey and the Philippines), rents space to a state-owned Chinese bank in Trump Tower, and has opaque financing relationships with Russian interests. Trump’s lifelong habit of mixing business with everything else hasn’t abated even in the Oval Office. He took to Twitter to berate Nordstrom for dropping his daughter Ivanka’s clothing line, even though she had supposedly resigned from any role in the clothing business. He has also used Trump Organization properties for state purposes, footing the bill for Japanese prime minister Shinzo Abe to stay at Mar-a-Lago and mix with the paying members.

Liberals looking for a silver bullet to justify an immediate impeachment of Trump have seized on the idea that Trump’s business dealings violate the foreign-emoluments clause. A Brookings Institution paper by Norman L. Eisen (the chairman of David Brock’s liberal gadfly group Citizens for Responsibility and Ethics in Washington [CREW]) and law professors Richard Painter (the vice chairman of CREW) and Laurence Tribe argues that any payment or legal benefit from a foreign government or leader to the Trump Organization — such as when a head of state or a diplomatic delegation stays at one of Trump’s hotels around the world, or even when any Trump business is granted a trademark or a building permit — would qualify as an “emolument” from a foreign sovereign that Trump might accept only with the consent of Congress.

While there is scholarly debate over whether the foreign-emoluments clause actually applies to the president, based on conflicting evidence from the founding generation, Trump’s lawyers have agreed that he must comply with it. But what, exactly, is an “emolument”?

The Constitution mentions emoluments in two other clauses. The compensation clause (Article II, Section 1, Clause 7) bars the president from receiving emoluments from a state or the federal government besides his presidential salary, and the incompatibility clause (Article I, Section 6, Clause 2) bars senators and representatives from taking any federal office whose emoluments have been increased during their current term in Congress, until the full term is over. In both clauses, the term has historically been understood to refer only to the salary and monetary benefits of the office itself. President Obama faced no compensation-clause challenges for collecting income from the federal government on more than half a million dollars’ worth of Treasury bonds he owned while president, since the income wasn’t connected to his job. And “benefits” has sometimes been construed narrowly: The Office of Legal Counsel approved President Reagan’s receipt of a pension from the State of California despite the compensation clause, and Hugo Black was allowed to leave his Senate seat in the middle of his term and sit on the Supreme Court after Congress had recently given retired justices a pension, despite the incompatibility clause. When Hillary Clinton was nominated for secretary of state in 2009, after Congress had increased the salaries of Cabinet officers during her term, Congress revoked the increase for Clinton’s office to avoid an incompatibility-clause problem.

These and other historical precedents are cited by University of Iowa law professor Andy Grewal, who argues that, in general, the term “emoluments” was long understood to refer to the compensation for holding a particular office or performing specific duties for a government, and not to every kind of revenue produced by commerce or investments. As Grewal notes, under the broad definition of emoluments used in the Brookings paper, the proposed 1810 amendment would have stripped the citizenship of any American innkeeper who rented a room to a passing diplomat, or any merchant who sold tobacco to foreign royalty, or even the author of a book if one copy was purchased by a foreign prince — a draconian sanction that would surely have raised some debate before it passed both houses of Congress. Under that test, Obama would have been impeachable if any foreign head of state had bought a copy of The Audacity of Hope, and Trump would be in violation if one of his hotels rented a room to an official from a foreign nation.

Under Grewal’s interpretation, President Trump might still be deemed to have received a prohibited “present” if one of his hotels were paid above-market rates by a foreign sovereign (a particular concern when doing business in areas that, unlike hotel rooms, have no clearly comparable market price, such as a licensing deal or the construction of a landmark building). Even if the Trump Organization doesn’t violate the Constitution, there could still be an appearance of impropriety if foreign leaders tried to curry favor with Trump by patronizing his businesses.

Presidents and other high executive-branch officials often have significant business interests before taking office, but typically as stockholders — sometimes large stockholders, such as Dick Cheney as Halliburton’s ex-CEO and Rex Tillerson as ExxonMobil’s ex-CEO. Stocks and partnerships, as passive investments, can more easily be managed with blind trusts and other strictly financial solutions to reduce conflicts with a public official’s duties.

The Trump Organization is another matter. The “Organization” is a web of hundreds of privately held enterprises, often with Trump and/or his family as controlling owners, so shares cannot easily be liquidated. Moreover, Trump’s businesses are often highly leveraged (i.e., bought with mostly borrowed money), so disposing of them at fire-sale prices would trigger significant losses on outstanding debt. And many of them count the “goodwill” of Trump’s personal “brand” on their books as a major asset. Trump is also very resistant to dismantling the business: Even if he serves two full terms and is ready to retire at age 78, he has built the organization with the obvious intention of handing it over to his children. A true blind trust is also impossible: Trump has actively managed the organization for years and is intimately familiar with its holdings, many of which consist of landmark buildings with Trump’s name on them.

These are all matters that Trump and voters should have considered well before he became president. Nonetheless, the voters elected Trump, and practical accommodations should be made to enable him to serve to the best of his ability. Trump has proposed a complex and opaque series of protections against conflicts of interest, including an ethics ombudsman for the Trump Organization and the donation of “all profits from foreign governments’ patronage of his hotels and similar businesses during his presidential term to the U.S. Treasury” (in the words of Trump’s lawyers). This is a good start, but it’s essentially a toothless honor system. That’s particularly true with the malleable concept of “profits,” given how easily privately held businesses can show a paper loss.

A more responsible way to resolve the foreign-emoluments clause and conflict-of-interest issues would be to obtain bipartisan congressional approval for an ethics structure that would install a nonpartisan federal monitor to confirm the Trump Organization’s compliance with specified rules for avoiding profits from foreign governmental business. A monitor could report confidentially to a select committee of Congress.

Unfortunately, nobody has an incentive right now to do that. Trump got away with flouting prior ethical norms when he refused to release his taxes, and he has every reason to think he can do the same for now. Congressional Republicans want to save their bullets to push Trump to support their policy priorities and are loath to engage him on an issue with no immediate political upside. And Democrats would rather have an ethical cloud hovering over Trump than offer him any solution he might be tempted to accept.

Under the best reading of the foreign-emoluments clause, the Trump Organization’s ordinary business operations won’t put President Trump in violation of the Constitution. But any ethical conflicts that might be presented by his businesses are completely avoidable, and if Trump’s promises of forgoing profits from foreign deals are sincere, he has nothing to lose from accepting oversight. If Trump and congressional Republicans want to avoid trouble from a less friendly Congress down the road, they’d be well advised to present a plan now for congressional sign-off on neutral oversight of the Trump Organization.

– Mr. McLaughlin is an attorney practicing securities and commercial litigation in New York City and a columnist at National Review Online.

Dan McLaughlin is an attorney practicing securities and commercial litigation in New York City, and a contributing columnist at National Review Online.

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