Loophole Mentalities
By Robert B. Reich  
 
CAMBRIDGE, Mass – “You know the rule: no sugary snacks before dinner.”  “But Daddy,” my son said plaintively, chocolate all over his face, “it wasn’t a snack. It was just a few cookies.  It wasn’t sugary.  The package said it was natural.  And, besides, I didn’t eat them before dinner.  It’s 5 o’clock and dinner isn’t till half-past 6.”  Since then, the family snack rule as been more specific.
            When the spirit of the law is disregarded, the letter of the law expands until it claims attention.  In coming months, the same drama will be played out on a larger stage.  Investigations into wrongdoing at the highest levels of American business and government will be turned over to prosecutors and defense attorneys, who will argue over narrow definitions, while Congress will try to prevent recurrences by enacting ever more detailed constraints.
            Regardless of who wins in the courts, we all will lose.  When the law degenerates into cat-and-mouse games of discovering and closing ambiguities, it loses its moral force, without no set of detailed proscription can ever be detailed enough. The cumulative effect is to loosen the bonds of mutual trust and responsibility on which a free society depends.  And this exacts a real cost from all of us, as our society becomes as rule-bound as a potted plant no longer able to grow. A coterie of Wall Street bankers and their friends now stands accused of insider trading.  The first of their cases comes up before the United States Supreme
Court this term.   The Securities and Exchange Commission, charged with enforcing the law, has always defined insider trading broadly as a type of fraud.  But in response to elaborate arguments by the bankers, there has been pressure on the S.E.C. to be far more explicit.
            So it’s recommending to Congress a new law barring the use of insider information if “it has been obtained by, or as a result of, or its use would constitute, theft, bribery, misrepresentation, or espionage through electronic or other means, or a breech of duty to maintain such information in confidence or to refrain from purchasing, selling or causing the purchase of sale, the security, which duty arises from any judiciary, contractual, employment, personal or other relationship with…” and so on, for five turgid pages.
Securities lawyers thinks this clarifies and closes loopholes in the old standard, and thus will be easier for S.E.C. to enforce.  Maybe.   But there was never any doubt about the purpose of the former law: to make sure that no one profits from information unavailable to the public, lest investors eschew a market that seems
rigged.  And the bulwarks thrown up in the new version will pose little challenge to defense attorneys skilled in the art of legal circumnavigation.
            A gaggle of former presidential assistants now stands accused of using public office for personal gain.  The Ethics in Government Act of 1978 – itself a post-Watergate effort to render explicit what had always been understood as inappropriate conduct –bars former officials from lobbying their old offices within a year of leaving them, especially on matters that were pending when they left.  But one of the accused-a former White House deputy chiefs of staff-says the law doesn’t apply to what he did.  He had a right to lobby the Office of
Management and Budget on behalf of a private client as soon as he departed his office, he claims, since O.M.B. is not technically part of the White House, where he worked.  Another recently indicated White House aide argues that he did no wrong even in lobbying the White House, since the White House isn’t a place where matters are ever “pending” anyway; it’s where they’re decided.  In response, Congress is now trying to tighten the lobbying law, no doubt rendering it as the S.E.C.’s proposed ban on insider trading.
            A band of high-level military officers is suspected of having violated several laws funneling money to contras.  In late 1985, Congress expressly barred “any agency or entity of the United States involved in intelligence activities” from doing so.  (This law, by the way, was an effort to close loopholes in earlier laws intended to stop military aid to the contras.) But the officers, who were then staff members of the National Security Council, now argue that the N.S.C. is an advisory agency, and thus was not included
in the ban.  Next time, Congress will be sure to close this loophole.
            The solution is not to be found in more niggling rules, which even a small boy intent on chocolate cookies can elude.  It lies in a society that focuses on why laws are enacted rather that how they are phrased, and thus demands adherence to the law’s purposes as well as to its literal constraints.  Fines or imprisonment, or even impeachments are appropriately reserved for those who transgress the letter of the law.  Those who violate its spirit deserve a less official but no less sure form of punishment: They should stand disgraced in the court of public opinion.