MN Reformer: The Hagedorn rule: Watchdogs say congressional family deals need oversight

From the Minnesota Reformer, September 21

The Hagedorn rule: Government watchdogs say congressional family deals need oversight

By Daniel Newhauser

WASHINGTON — Even if U.S. Rep. Jim Hagedorn loses his first re-election race in November and leaves office after a single, little noted term in the House minority, he could still be leaving a lasting legacy: Call it the “Hagedorn Rule.”

Congressional ethics experts say Congress should clarify who can or can’t do business with congressional offices, following revelations that Hagedorn’s office quietly paid his chief of staff’s brother hundreds of thousands of dollars to send positive mailers to constituents.

Nepotism and conflicts of interest are explicitly banned in the ethics rules for members of Congress. For instance, a lawmaker can’t hire his wife’s firm. He also can’t hire a company owned by a member of his staff, and a member of the staff can’t contract his own company. (Hagedorn’s office appears to have violated the latter two rules, but we’ll get to that in a minute.)

Hiring a chief of staff’s brother, on the other hand? Well, the rules become murkier when you drop one rung down the chain of command and one branch over on the family tree.

Hagedorn alleged in an internal review of the matter that his then-chief of staff, Peter Su, hired Delaware-incorporated company Abernathy West to design and print postcards and fliers for the office. A lawyer hired by Hagedorn to investigate the issue found that the company is owned by Nien Su, Peter Su’s brother. A spokeswoman for Abernathy West later confirmed the ownership to the Minnesota Reformer.

Ethics experts were hard pressed to find a rule that explicitly bans a chief of staff from hiring a company controlled by his or her family member to perform services for the office. While that may seem like something that should be prohibited, there is no rule outright banning a staff member from contracting with a family member, so long as the staff member isn’t getting a kickback or doesn’t have part-ownership in the company, according to the ethics specialists.

An analogous regulation can be found in the Members’ Congressional Handbook, a guide the House Administration Committee puts out for legislators, governing their taxpayer-funded office budgets, also known as Members Representational Allowances, or MRAs.

“No Member, relative of the Member, or anyone with whom the Member has a professional or legal relationship may directly benefit from the expenditure of the MRA,” the rule states.

Hagedorn’s payments for similar work to Invocq Technologies, which is owned by his staffer John Sample, are a clear-cut violation of this provision, according to several ethics experts. But it doesn’t mention anything about the brother of a chief of staff. Bryson Morgan, a former investigator at the Office of Congressional Ethics, said maybe it should.

“The language of that rule in the Members’ Congressional Handbook is one paragraph and it’s exceedingly broad,” Morgan said. “It would be in the best interest of members for the Committee on House Administration to provide more detailed guidance on prohibited personal, legal and business relationships.”

Don’t hold your breath, said a spokesman for the House Administration Committee, the panel that regulates how members can spend their pot of taxpayer money.

“To my knowledge, there have been no discussions about amending the member handbook, which is clear,” said Peter Whippy, citing that passage.

Still, that doesn’t mean it won’t come up now that the questionable spending has been aired out. And the language could get a rewrite in another context: The House Ethics Committee is undertaking an overhaul of the ethics manual, and even got a budget increase last year to finance that task, the largest percentage increase of any single House committee.

On Monday, it became more likely that the Ethics Committee will be taking a look at Hagedorn’s office spending, after Minnesota attorney Sybil Dunlop filed a complaint against the congressman with the Office of Congressional Ethics, an independent body that investigates allegations of wrongdoing and refers them to the Ethics Committee.

But even Dunlop, who did a thorough analysis of House rules, said she couldn’t find a rule explicitly banning the relationship. Instead, she pointed to measures in the Code of Ethics for Government Service, which state that the members should find the most “efficient and economical” services, not “discriminate unfairly by the dispensing of special favors or privileges to anyone” and engage in no business that is “inconsistent with the conscientious performance of his governmental duties.” She also pointed to an even more vague clause that states members and officers of the House must “adhere to the spirit and the letter” of the rules.

“A blanket rule certainly makes it easier to know what the right move is,” Dunlop said in an interview.

In fact, the larger issue could arise if it can be proven that Abernathy West was overcharging Hagedorn’s office, as alleged in the internal review of the mailings carried out by Hagedorn’s lawyer.

A spokeswoman for Abernathy West disputed that claim, however, justifying the price tag by saying the mailers were not “cookie cutter” and were produced under time constraints.

“Abernathy West stands behind the quality and value of its work,” the spokeswoman said.

Schuman, a government transparency advocate and policy director of the nonpartisan democracy reform group Demand Progress, said that despite the vagueness of the House’s internal rules, the Su brothers could run into legal problems if investigators start throwing out subpoenas or asking for documents.

Schuman said the fact that Abernathy West hid its ownership behind Delaware incorporation papers seems suspicious on its face, and that if investigators uncover any financial interest in the company by Peter Su or Hagedorn or documents outlining attempts to defraud the office of taxpayer money, the violations could change from technical to legal.

“It looks a little bit like a kickback scheme, doesn’t it?” Schuman said. “They didn’t disclose the relationship to the member. If they had they would have said so. So they were sending money to an affiliated company without disclosing to the member they did it at a rate that’s way above the appropriate rate. I mean, either it’s fraud or they’re massively incompetent.”

A spokeswoman for Abernathy West referred questions about whether Hagedorn knew the company was owned by his chief of staff’s brother to Hagedorn’s office and said Nien Su does not want to interpret whether his business relationship with the office was prohibited by House rules. The spokeswoman also said Nien Su is the only owner of the company and neither Peter Su, nor Hagedorn nor his family received any monetary compensation because of the deal.

She added that the Delaware incorporation was a run of the mill business registration.

“Mr. Su, like millions of others, chose to incorporate in Delaware to avail himself of the favorable business laws and tax treatment available in Delaware,” she said. “He was not trying to hide his ownership.”

Hagedorn said he did not know about the relationship, according to the internal review of the spending conducted by D.C.-based lawyer Elliot Berke.

The earliest evidence tying Hagedorn to knowledge of the company’s ownership came courtesy of Peter Su, who leaked to the Minneapolis Star Tribune a recording of a conversation he had with Hagedorn on August 7 — one day after the Minnesota Reformer first reached out to Hagedorn’s office seeking comment about the spending on Invocq Technologies and Abernathy West.

In that conversation, Hagedorn said, “I don’t believe there’s any problem.”

With the rules around the issue being so vague, who could blame him?

Also from the author at the Minnesota Reformer: Exclusive: Minneapolis lawyer files first known ethics complaint against Hagedorn.

Image: U.S. Rep. Hagedorn sent more mail to constituents — and spent more on it — than all other members of Congress. The printing contractors included a company owned by a member of his staff and another owned by the brother of the chief of staff, since fired. Source: the Minnesota Reformer.

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