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Shield for Officials : Blind Trust: Banking on Aides' Ethics

February 10, 1988|ROBERT L. JACKSON | Times Staff Writer

WASHINGTON — When former Transportation Secretary Elizabeth Hanford Dole placed $2-million worth of assets in a so-called "blind trust" three years ago, she was following a time-honored formula for shielding herself from conflict-of-interest problems--much as dozens of other officials have done in recent years.

Similarly, after Atty. Gen. Edwin Meese III was criticized during his long Senate confirmation hearings for what some Democrats saw as possible financial irregularities, Meese announced he was placing his holdings with an independent investor.

Earned Fat Commission

But recent scrutiny of the Dole and Meese arrangements has raised questions about how these trusts operate and how well they serve their intended purpose. More than half of Elizabeth Dole's assets, for example, were handled by David C. Owen, a close political associate of her husband, Senate Minority Leader Bob Dole (R-Kan.). And Owen, rather than merely giving arms-length financial advice, earned a fat commission by selling property from the trust and paid back $250,000 he had borrowed from Elizabeth Dole for a private business venture only a few days before the trust was dissolved.

Meese's arrangement for his holdings, meanwhile, has been one of several matters under investigation by a court-appointed independent counsel, James C. McKay, since disclosures that Meese's funds were invested by W. Franklyn Chinn, a key figure in the influence-buying scandal surrounding Wedtech Corp. To make matters worse, the federal Office of Government Ethics said it never approved Meese's trust arrangement with Chinn.

As the history of such things makes clear, the problem of preventing public officials' financial holdings from posing a conflict of interest--whether real or potential--has proved extremely hard to solve.

The difficulties are numerous and complex. Federal rules are far from comprehensive and enforcement is seldom vigorous, the present system is heavily dependent on self-policing by those involved, and would-be officials who have built up large private fortunes are often reluctant to turn everything over to someone else.

Hard to Design Safeguards

"It's hard to design a system of absolute safeguards," concedes Donald E. Campbell, chief counsel of the Office of Government Ethics.

"Ethical standards are still very dependent on the individual, despite tougher new rules," agreed former Defense Secretary Caspar W. Weinberger, who left office last November with an unblemished reputation for high ethical standards. "But I think the required annual financial disclosure statements are a good deterrent to misconduct in office. If the public knows everything you have, that's a pretty good protection."

For his part, Weinberger sold all his corporate stocks--including a heavy investment in Bechtel Corp., of which he had been general counsel--upon taking office seven years ago. "I then put everything into money market funds so I could not be accused of having ties with specific corporations," Weinberger said in a recent interview.

Weinberger, who formerly had served in the Richard M. Nixon Administration as chairman of the Federal Trade Commission and then as secretary of health, education and welfare, said officials at that time underwent "a lot less scrutiny because the rules were less rigid."

Even with the best intentions, fair and effective arrangements can be extremely difficult to work out.

Take the case of David R. Packard, who accepted an appointment as deputy secretary of defense in the Nixon Administration and in 1969--long before firm guidelines existed--set up what may be the largest, most complex blind trust in history.

Would Damage Company

Packard owned $300-million worth of stock in Hewlett-Packard Co. of Palo Alto, a firm he had co-founded. Although previous defense officials had been required to sell off any stock in defense contractors like Hewlett-Packard, it was decided that unloading so much stock on the market would drive down the value of all Hewlett-Packard shares and severely damage the company.

So Packard entered into an agreement with members of the Senate Armed Services Committee prior to his Senate confirmation, placing his Hewlett-Packard shares in a trust administered by the Bank of America.

Terms of the trust agreement were stringent. During his three years at the Pentagon, Packard had to give up $700,000 in regular stock dividends annually to a list of charities and educational institutions designated by the bank. And when he left the Pentagon, the agreement called for the bank to sell off enough Hewlett-Packard shares to offset any appreciation in the value of his stock. Proceeds from the stock sales went to the same charities and institutions.

Packard also had to recuse himself from dealing with any Pentagon matter relating to his company.

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