Given their ongoing community involvement and day-to-day business interaction with public officials, banks and bankers can be uniquely subject to potential inadvertent violations of government ethics laws and regulations. The potential for such issues increases exponentially in election years, when candidates are even more actively involved in aggressive fund-raising and other activities, and bankers must be on the alert. Even inadvertent violations can result in significant exposure as well as reputation risk issues for institutions and their officers, directors, and employees.
Now, two new developments have set the stage for increased enforcement of ethics laws. A new state law expands the time frame for bringing charges against private entities that violate the law. In addition, it appears that the Internal Revenue Service (“IRS”) has joined the ranks of investigating agencies on the lookout for unethical expenditures by private entities.
These developments make it more important than ever before for banks and financial institutions to adopt strong policies and educate employees about Ohio ethics laws.
Statute of Limitations
Starting July 21, 2008, the window will open wider for prosecuting violations of the Ohio ethics laws. Ohio Senate Bill 219 (“S.B. 219”), effective July 21, 2008, expands the statutes of limitations for violations of Ohio ethics laws committed by private sector individuals.
Ohio Revised Code Section 2901.13 spells out the statutes of limitations for prosecuting various Ohio ethics violations. The statute of limitations for a felony violation is six years, meaning charges for committing the crime must generally be brought within six years after the crime is committed. For misdemeanors, the statute of limitations is two years, and for minor misdemeanors prosecutors have six months to bring charges.
Specific to ethics violations, Ohio law currently tolls the statutes of limitations for offenses committed by public servants, allowing charges to be brought at any time while the accused remains a public servant, or within two years after leaving office. This provision allows the Ohio Ethics Commission or prosecutors to file charges for an ethical violation against public servants, even if the violation is discovered after the applicable statute of limitations has expired.
Private sector individuals who give a bribe, take an official to dinner, or provide a thing of value to a public official or employee in violation of the ethics laws face the same penalties. However, prosecuting private sector individuals for their part in committing an ethical violation sometimes proved difficult. Until S.B. 219 was passed, the statute of limitations for prosecuting these same crimes against private sector individuals was not extended as it was for public sector employees and officials. But for violations committed on or after July 21, 2008, the Ohio Ethics Commission will be able to pursue both the public servant and the private sector individual involved in ethical violations for an equal length of time.
The operation of the new provisions of the law will toll the statutes of limitations for any offense which is directly related to misconduct in office by a public servant. These offenses include, but are not limited to:
- Violation of Ohio lobbying law;
- Prohibitions against giving a public official or an employee anything of value or an honorarium;
- Soliciting or receiving improper compensation;
- Making cash contributions to a candidate; or
- Concealing or misrepresenting political contributions that have been made.
This amendment will provide more time for prosecutors and the Ohio Ethics Commission to charge and prosecute bankers who take part in an ethical violation. As a result, we can expect to see more enforcement activity against private sector participants in unethical behavior.
In addition to having a longer period of time to bring charges against private entities that violate Ohio’s ethics laws, there are more eyes watching this issue than ever before. Private companies have always needed to be concerned about scrutiny from public officials, the Ohio Ethics Commission, whistleblower employees and the media, but as enforcement and general awareness of the Ohio ethics laws grows, even more entities are bringing violations to light. Most recently, the Internal Revenue Service noted what appeared to be improper expenditures by a private company, so they alerted the public entity involved, which triggered an investigation.
An Ohio newspaper reported that a public hospital official was fired for taking gifts and meals from a construction company doing business with the public hospital. The issue came to light as a result of a letter from the IRS, which was examining the finances of the construction company involved. The construction company indicated to the IRS that it had given a number of gifts and provided entertainment to a public employee in connection with the contract between the construction company and the public hospital. Gifts included gift certificates to local retail stores, travel and entertainment to resorts in California, Florida and Maine, tickets to a professional football game, repairs to an automobile registered to a hospital employee, and other miscellaneous customer appreciation gifts.
As a result of the IRS inquiry, the public hospital issued a press release noting that the senior executive involved had been terminated. In addition, the hospital conducted its own inquiry and discovered it may have been a victim of criminal conduct, which it has reported to law enforcement authorities.
As a result of these alleged transactions, the hospital, the construction company, and the individual employees involved have all been placed under unwanted public scrutiny. More importantly, the individual employees involved and the company face potential criminal liability for their role in providing or accepting these gifts and entertainment.
Any bank or financial institution that interacts with state and local public officials should regularly review their ethics policies with appropriate personnel. Bankers who entertain public sector clients should be very familiar with, and cautious of, the ethical restrictions imposed. In some circumstances, even a modest lunch or a nominal gift can violate the ethics laws. And if the employee expenses that meal or gift back to the bank, the bank can also be implicated.
In many states, the laws -- and enforcement climate -- are much more lenient. But Ohio calls for a conservative approach. This is an opportune time for banks to review their internal policies regarding gifts, meals or entertainment of public officials or employees.