National bank regulator followed erroneous ethics guidance for 15 years, then made corrections, special counsel reports

The federal regulator of national banks followed erroneous guidance on certain employee ethics requirements for 15 years despite subsequent guidance issued by the Treasury that should have cleared up any ambiguity, a letter from the Office of Special Counsel (OSC) states.

However, the letter by OSC Special Counsel Henry J. Kerner – dated Feb. 14 and first reported by Politico Tuesday – notes that the Office of the Comptroller of the Currency (OCC) ultimately recognized its failures in the erroneous guidance by 2011 and implemented policies to correct its approach and “to ensure that employees received updated ethical guidance.”

The letter from the OSC, addressed to President Donald Trump, deals with a complaint filed by an OCC whistleblower. The complaint alleged, the letter states, that for more than 10 years OCC ethics officials failed to enforce a regulation prohibiting Treasury employees from “participating in an official capacity in certain matters in which they had a personal financial interest, commonly known as particular matters of general applicability (PMGA), resulting in numerous ethics violations.”

Kerner’s letter stated that the whistleblower also alleged that OCC officials failed to fully disclose the ethical lapse to employees and the public. The whistleblower specifically cited OCC’s ethics review of an employee appointment to a senior policymaking position as an example of OCC’s failure to properly interpret and implement the PMGA requirements, according to the letter.

“In 1996, OCC issued a memorandum summarizing the various approaches to PMGA under 18 U.S.C. § 208 (a) and recommending that OCC recuse only employees who are negotiating for employment with a bank from matters focusing on the specific bank or narrowly focused on a discrete and identifiable class of banks,” Kerner’s letter states.

However, Kerner added, despite subsequent guidance issued by Treasury that “should have informed the OCC’s interpretation, including the Treasury Ethics Handbook beginning in 2000, which advised a broader approach to PMGA than OCC’s guidance,” the bank regulator continued to follow the erroneous guidance until 2011 (15 years after OCC guidance was issued). The agency acknowledged that OCC district ethics officials were not aware of the PMGA guidance in the agency’s Ethics Handbook, the letter states.

By 2012 (following a review of its PMGA guidance), the letter states, the OCC initiated an ethics clearance process for employees in public filer positions and higher-graded positions under the agency’s Chief National Bank Examiner. OCC also issued an agency-wide ethics bulletin on the scope of the recusal requirements, the OSC letter stated. “Thus, the agency determined that OCC training and policy currently reflects an appropriate interpretation of PMGA. In addition, the agency noted that OCC has increased its communication with the Treasury Legal Division in recent years, including reviews of ethics advice and financial disclosure filings.”

However, Kerner wrote, “I am concerned by such a critical ethical oversight, particularly given the availability of alternative PMGA interpretations, the extended period of the lapse, and the number of employees who may have been affected.”

Nevertheless, he added, OCC implemented policies to correct its interpretation of PMGA and to ensure that employees received updated ethical guidance upon recognizing its failures. “While the whistleblower disagreed with the manner of OCC’s PMGA ‘rollout’ and questioned the forthrightness of its public statements, the report makes clear that OCC identified and corrected its PMGA policy and reassigned affected employees as required,” Kerner wrote.

A copy of the letter, agency reports and comments by the whistleblower were also sent by Kerner to the chairmen and ranking members of the Senate Banking and the House Financial Services Committees.

Feb. 14 letter by Office of Special Counsel about OCC ethics violations allegations

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