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Baker May Be Forced to Sell Bank Holdings : Ethics Rules Studied to See if His Decisions Could Affect Companies

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Times Staff Writer

Secretary of State James A. Baker III may be required to divest himself of large bank stock holdings under the Bush Administration’s new, more stringent interpretations of government ethics rules, Baker aides said Thursday.

But they denied a report in today’s Washington Post that President Bush’s top ethics adviser, White House counsel C. Boyden Gray, has been pressing Baker to divest the stocks, or that Baker has resisted Gray’s advice.

“They have not come to him and told him he has to divest,” a senior Baker aide said. “There is no decision on that. . . . Should they ever come to him and say that, then he has a decision to make.”

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“If they tell him to sell his stocks, he’ll do it,” another Baker adviser said.

New Interpretation

At issue is the proper response to a new interpretation of government ethics standards that require officials to avoid making decisions that could directly affect--or appear to affect--their own private investments.

Baker has owned large blocks of bank and oil stocks since well before he came to Washington as former President Ronald Reagan’s White House chief of staff in 1981--including a substantial holding in Chemical New York Corp., a bank holding company that has more than $4 billion in loans to Third World nations.

Baker’s Chemical stock derives from his family’s holdings in a Texas bank that his grandfather, James A. Baker Sr., founded and which, as Texas Commerce Bankshares, was acquired by Chemical in 1987.

As White House chief of staff and, later, as secretary of the Treasury, Baker complied with ethics rules by putting his holdings in a blind trust and by recusing himself from policy issues that might affect those companies particularly, his aides said.

Before he was confirmed as secretary of state last month, Baker filed new letters of recusal to cover his holdings, they said.

However, the Justice Department in 1987 issued new, more stringent, interpretations of the requirements of the Ethics in Government Act. Under the new interpretation, an official can be charged with a conflict of interest not only on issues that specifically affect a company, but on general policy questions that could have a “direct and predictable effect” on holdings, according to lawyers who have advised Baker.

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In Baker’s case, that could cover an enormous range of policy decisions on international economic issues.

There are two possible courses of action for Baker: either divest the holdings, or ask Gray for a specific waiver of the requirement.

‘Waiver Authority’

“We think it would be a good idea if he used the waiver authority,” a senior Baker adviser said. “Under the law . . . the White House counsel can look at the holdings and may determine that they are not so substantial as to affect the integrity of his decision-making.”

Gray discussed the issue with Baker aides last month, before Baker was confirmed as secretary of state, and initially said that he was prepared to waive the requirement, the adviser said.

“But the next day, he said he was not prepared to sign the waiver,” the adviser said. “It was not a clear decision that a waiver was not appropriate . . . and the lawyers are still working on the issue.”

“Baker is a very careful lawyer, and he’s always relied on the advice of the government’s lawyers. He has done what the White House told him to do. If something more needs to be done, he’ll do it. . . .

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Says He Would Sell

“Putting the recusal in effect is what they’ve advised him to do. If they tell him to sell his stocks, he’ll do it.”

Baker’s investments are in a “qualified blind trust,” a structure that puts the assets in the hands of a trustee but allows the owner to know, at least generally, what his holdings are.

The value of Baker’s shares in Chemical has not been disclosed. In the financial disclosure statement he filed this year, it was listed as worth “over $250,000,” a category that could reach much higher.

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