Blind Trusts--Few Public Officials Utilize Them

Blind trusts, such as the one Los Angeles Mayor Tom Bradley announced he is setting up Thursday, have received a lot of attention in recent years, although few public officials use the investment vehicles as a means of avoiding possible conflicts of interest and burdensome reporting requirements, according to interviews with lawyers in the field.

Besides being costly and complex, blind trusts are not foolproof.

“In the final analysis, the blindness, the confidentiality . . . is a matter of integrity of the people involved,” said Roy Miller a partner with the law firm of Gibson, Dunn & Crutcher and the architect of the blind trust used by former President Ronald Reagan.

In a blind trust, a person gives total power to invest his or her assets to another individual. The holder of the trust is typically given periodic reports that list only the total value of the trust, income for the period and only limited information about what is actually owned, bought or sold.

In theory, public officials are thus shielded from knowingly making any decisions in their public capacity that could affect their personal finances, and they are protected from accusations of conflict of interests.

But the instructions given in establishing the trust or communications afterwards can drastically lessen the “blindness,” according to lawyers who work in the field.

“There’s nothing wrong with the (official) saying, ‘My primary interest is in income or capital appreciation,’ ” said Richard Stack, partner in the law firm of Darling, Hall & Rae. “But it would be a problem if he said, ‘I only want my money in oil stocks or invested with certain developers.’ ”

Federal and state ethics regulations require that trustees be truly independent and not related by blood or marriage, not be a close personal friend and not be otherwise employed by the official.

Even those clear-cut guidelines cannot cover all potential conflicts.

Labor Secretary Elizabeth Dole established a blind trust when she was transportation secretary in the Reagan Administration. Her trustee was independent, but he, in turn, hired a financial adviser who was a major fund-raiser for Dole’s husband, U.S. Sen. Robert Dole (R-Kan.).

Former U.S. Atty. Gen. Edwin Meese ran into problems when the person overseeing his blind trust, W. Franklyn Chinn, became a central figure in the Wedtech Corp. influence buying scandal.

Bradley has not yet announced who will control his blind trust.

Though the trusts can save politicians plenty of headaches and the burden of reporting their finances in detail, the cost of a trustee makes them available only to wealthy individuals, and some consider the loss of control over assets too high a price.

At the federal government level, only a few dozen of the 1,000 highest-ranking Administration officials use blind trusts.