Could feds run afoul of vague 'political intelligence' guidelines?

The emerging "political intelligence" industry is hard to define, much less regulate, the Government Accountability Office found. And that poses challenges to federal employees who might provide such insights.

Political intelligence firms advise clients on the outcomes of federal rulemaking proceedings, congressional activity, and other government actions that could affect their business interests and investments. The GAO's probe, required under the Stop Trading on Congressional Knowledge Act that was signed into law exactly one year ago, looked at what is known about such firms, what legal and ethical constraints might control the sale of political intelligence, and whether further regulation or disclosure requirements would be beneficial.

The report provides little guidance for agency officials and congressional staffers who might find themselves being chatted up by collectors of such political intelligence at conferences, industry events, or in informal settings. If there is any advice in the report, it is essentially to remember that insider trading law forbids the disclosure of "material nonpublic information" for personal gain.

Clients tap political intelligence firms for many of the same types of information that journalists seek: embargoed news announcements, sneak peeks at upcoming legislation, the status of ongoing rulemaking proceedings, and the expert opinions of former officials and issue experts. Sometimes the forecasts of such firms can have immediate and dramatic effects on stock prices. For instance, shares in three insurance companies shot up as much as 6 percent in just over 15 minutes of trading on a tip from Height Securities regarding Medicare rates, according to a story in the Wall Street Journal.

When the STOCK Act was being crafted, Sen. Charles Grassley (R-Iowa) successfully amended the Senate version of the bill to include disclosure for such political intelligence firms, but the provision was taken out before the measure became law. Grassley issued a joint statement with STOCK Act sponsor Rep. Louise Slaughter (D-N.Y.) saying that the GAO report "shows the dire need for transparency in the political intelligence industry, which profits from the cozy relationship between Washington, D.C. and Wall Street."

The report is likely to stimulate discussion of new rules and regulations to cover this growing industry. Grassley and Slaughter plan to introduce legislation establishing disclosure requirements. "When a political intelligence professional is paid to gather inside information from congressional or agency sources that can be used to make investment decisions, that professional should have to register and disclose his or her activities to the public," they said.

There are also concerns that legislation will not do enough to carve out an exception for journalists. "No one wants to ban the gathering of information," said Angela Canterbury, director of public policy at the Project on Government Oversight.

"If we had more disclosure about the kinds of brokers and kinds of clients, the public and regulators could decide whether political intelligence firms provided an unfair advantage," Canterbury said. "The challenge is to do that and also ensure that there's not a chilling effect on speech."

GAO did not provide any specific recommendations for Congress, but it noted that legislators would have to answer some critical questions to create new disclosure requirements, including a working definition of political intelligence, what constitutes a "direct communication" between a government official and a political intelligence operative, and how a disclosure process would be managed.