April 22, 1997
Honorable James Hansen, Chairman
Honorable Howard Berman, Ranking Minority Member
House Committee on Standards of Official Conduct
HT-2, The Capitol
U. S. House of Representatives
Washington, DC 20515
RE: The Proposed Dole Loan to Speaker Newt Gingrich
Dear Representatives Hansen and Berman:
We are writing to urge the House Committee on Standards of Official Conduct ("Ethics Committee") to reject House Speaker Newt Gingrich's proposal to borrow $300,000 from Bob Dole. The facts suggest that the loan is an impermissible gift under House Rules. We urge you to suggest to Speaker Gingrich that if he wants to obtain a loan, he should procure a loan with usual and customary terms from a commercial bank by an arm's length transaction.
Furthermore, we strongly urge you not to provide the Speaker with a
special and unique waiver to the House gift Rule so that he may accept
the Dole loan.
A: The Proposed Dole-Gingrich Loan Terms Are Generous
The terms of the Dole loan are more generous than ordinary commercial loan terms. The payment schedule is too easy, and the interest rate is too low. The loan has an eight year term, but no requirement for regular payments. It is, in essence, an eight year zero coupon bond, at an interest rate of prime plus 1.5%, with an option for pre-payment. The Los Angeles Times reported that:
Bert Ely, a banking consultant based in Alexandria, Va., said: "The vast majority of the banks out there would not make this loan."
While banks do make character loans based on borrowers' unique situations, it would be unusual for a bank loan to defer all payments until 2005, as Gingrich's deal does, Ely and other experts said....
"Banks normally like to see the debt serviced," said Martin Mayer, a finance expert at the Brookings Institution. "The bank auditors frown on no payments."
Banking experts said that most financial institutions would have insisted on a lien on Gingrich's home, or required his wife, Marianne Gingrich, who controls most of the couple's assets, to co-sign the loan agreement.(1)
Similarly, The Washington Times reported:
How many banks would lend Newt Gingrich $300,000 under the terms the House speaker outlined yesterday?
Not very many, banking analysts said yesterday....
many [banking experts] questioned whether banks would have accepted the same terms [as the Gingrich-Dole loan]. It's doubtful, for example, they would allow Mr. Gingrich to forgo regular interest payments throughout the loan's eight-year term, as Mr. Dole agreed to do.
"That's very unusual," said Robert Pincus, president of D.C.-based Franklin National Bank. "That's a liberal accommodation by the lender."....
According to a Chicago-based survey called Meyers Report, banks are
charging between 13 and 14 percent for unsecured consumer loans -- 3 to
4 percentage points more than Mr. Gingrich's fixed, 10 percent rate. "Typically,
we would be looking at something in the prime-plus-3 percent range, with
monthly payments," said John Scaldara Jr., chief financial officer at Columbia
Bank in suburban Maryland.(2)
B: The Proposed Loan Likely Violates the House Gift Rule
Even if the loan's generous payment schedule and interest rate terms were remedied, the Ethics Committee should not allow this loan to stand, because it does not fall within the limits of the House gift rule:
No Member, officer, or employee of the House of Representatives shall knowingly accept a gift except as provided in this rule.
For the purpose of this rule, the term 'gift' means any gratuity, favor, discount, entertainment, hospitality, loan, forbearance, or other item having monetary value.(3)
This Rule prohibits gifts to House members, with exceptions specifically enumerated in the Rule. The most pertinent of these is the exception regarding loans, which allows House members to accept
Opportunities and benefits which are....in the form of loans from banks and other financial institutions on terms generally available to the public....(4)
However, the Dole loan does not fit this exception. It is not from a bank or financial institution, and its terms are more favorable than those generally available to the public.
Speaker Gingrich may try to claim that the Dole loan fits the personal friendship exception. If he makes this claim, then he must meet the criteria set out in the Rule regarding gifts from personal friends. The Rule allows:
Anything provided by an individual on the basis of a personal friendship unless the Member, officer, or employee has reason to believe that, under the circumstances, the gift was provided because of the official position of the Member, officer, or employee and not because of the personal friendship.(5)
The Dole loan cannot meet this test. Dole himself volunteers that the loan is intended to assist the Speaker in his role as the highest ranking Republican in elective office today. Dole states "I consider this not only an opportunity to support a friend, but a long-term investment in the future of our party."(6) Here, Dole plainly admits that the loan is provided "because of the official position of the Member," which puts it beyond the bounds of the personal friendship exception.
Additional hurdles erected by the Rule make it difficult for the Dole loan to qualify for the personal friendship exception. The Rule states:
In determining whether a gift is provided on the basis of personal friendship, the Member, officer, or employee shall consider the circumstances under which the gift was offered, such as:
(i) The history of the relationship between the individual giving the gift and the recipient of the gift, including any previous exchange of gifts between such individuals.
(ii) Whether to the actual knowledge of the Member, officer, or employee the individual who gave the gift personally paid for the gift or sought a tax deduction or business reimbursement for the gift.
(iii) Whether to the actual knowledge of the Member, officer, or employee the individual who gave the gift also at the same time gave the same or similar gifts to other Members, officers, or employees.(7)
Consequently, Speaker Gingrich would have to show that he and Dole have exchanged lavish and munificent gifts in the past, and that Dole will not claim the loan as a tax deduction or business expense.
The bottom line is that the Speaker cannot surmount these hurdles. That
is why former Ethics Committee counsel Ellen Weintraub believes that the
Dole loan is an impermissible gift. "As far as I can tell, this arrangement
does not comply with the gift rule unless the committee specifically exempts
it," Weintraub told the Los Angeles Times.(8)
C: The Proposed Loan Likely Violates the House Code of Official Conduct
Bob Dole was recently hired by the Washington lobbying firm of Verner, Liipfert, Bernhard, McPherson & Hand.(9) Speaker Gingrich cannot accept a $300,000 loan from any key employee of Verner, Liipfert without violating the House Code of Official Conduct.
Dole's firm is retained by a wealth of corporate clients, including major tobacco companies such as Phillip Morris, R. J. Reynolds, Brown & Williamson, Lorillard, and U. S. Tobacco. Verner, Liipfert was hired by the tobacco companies to provide advice on the tobacco industry's enormous regulatory and legal problems, including how to resolve multi-billion dollar tobacco litigation.(10) The New York Times has reported that Dole's colleague at Verner, Liipfert, former Senate Majority Leader George Mitchell, was representing tobacco interests at secret talks with state attorneys general to reach an agreement that would grant the tobacco firms immunity from lawsuits based on smoking-related health claims.(11)
The Ethics Committee should reject the loan because of the deplorable appearance of accepting a such a large favor from a lawyer employed by a top Washington lobbying firm with powerful tobacco clients. The House Code of Official Conduct states that:
A Member, officer, or employee of the House of Representatives shall conduct himself at all times in a manner which shall reflect creditably on the House of Representatives.(12)
The American people depend upon the Ethics Committee to uphold the integrity
of the House of Representatives, to ensure that House members avoid even
the appearance of impropriety, and to protect against influence peddling.
Legitimate questions can plainly be raised about the propriety of this
loan. Even if former Senator Dole never actually asks Speaker Gingrich
for a favor in return for the loan, there is the unmistakable appearance
that Bob Dole has provided a great favor to the Speaker -- at a time when
the Speaker was in need -- and that the Speaker is duly indebted to Dole,
his firm, and their powerful clients. Such appearances erode trust in our
Congress, and should be rejected as unacceptable in a democracy.
The Ethics Committee must come to grips with to the enormous public relations problem involved in allowing Bob Dole, who is employed by a major Washington lobbying firm which represents major tobacco interests, to provide an extravagant favor to the Speaker of the House. If the Ethics Committee is to protect the public, it must reject this favor, at a minimum because of its unseemly appearance, and direct Speaker Gingrich to obtain a loan from a commercial bank.
1. Sam Fulwood III, "Gingrich to Borrow $300,000 From Dole to Pay Fine." Los Angeles Times, April 18, 1997.
2. Peter Kaplan, "Dole, Gingrich Work Out 'Family' Deal." The Washington Times, April 18, 1997. See similar comments from bankers in David E. Rosenbaum, "The Speaker Chooses the Buddy Plan." The New York Times, April 18, 1997.
3. House Rule 51, clause 1.
4. House Rule 51, clause 18(E).
5. House Rule 51, clause 4.
6. Statement of Bob Dole, April 16, 1997.
7. House Rule 51, clause 4.
8. Sam Fulwood III and Marc Lacey, "Critical Eyes Focus on Terms of Gingrich Loan." Los Angeles Times, April 19, 1997.
9. David E. Rosenbaum, "Dole Takes Position with Washington Law Firm." The New York Times, April 10, 1997.
10. Peter H. Stone and James A. Barnes, "From the K Street Corridor." National Journal, February 15, 1997. Myron Levin, "Tobacco's Move Could Signal Settlement Steps." Los Angeles Times, February 19, 1997.
11. John M. Broder, "2 Top Cigarette Makers Seek Settlement." The New York Times, April 17, 1997. Barry Meier, "A Tangled Web of Factors Led to Tobacco Talks." The New York Times, April 21, 1997.
12. House Rule 43, clause 1.