Is a blind trust a helpful way for politicians, and others in public office, to manage the risk of perceived conflicts of interest? Blind trusts might not be perfect, but they do separate a politician’s personal interests from his public duties. Yet a blind trust can look and sound somewhat opaque, which may raise more questions than it answers. UK Chancellor Rishi Sunak’s blind trust arrangements hit the news recently, and I examined the pluses and minuses in this blog for Spear’s (the original text can be found here: https://www.spearswms.com/blind-trusts-explained-2-spears/)
In 1912, several UK Government ministers, privy to information about a contract that would be awarded to the English Marconi Company, bought shares in the firm before the news became public. It took nearly 100 years (and many more scandals) before the UK required its politicians to register their private interests. In many other countries, there are still no rules to hinder self-interested dealings.
This week, some opposition parties have called for Rishi Sunak, the Chancellor of the Exchequer, to give more information about a blind trust he created in 2019 to hold his investments, including ‘whether any of the investments are held in offshore tax havens’. It’s said that this transparency is essential, because public trust in the Government is ‘plummeting’, although that may somewhat conflate the Chancellor’s handling of the economy through the pandemic with his personal investment interests – a link that ordinary people might struggle to find.
For the last decade, UK Government ministers have been required to register their holdings in (or dealings with) any businesses. The aim is obvious and twofold – to avoid ministers carrying out their public duties in a way which might be influenced by their private interests, or making a private profit from the knowledge and influence that their public role brings.
Some ministers have no outside interests, or (like David Cameron) deliberately sell all their holdings to ensure that they have no potential conflicts. Others simply register their interests – holding a small portfolio of standard investments is hardly controversial, or there might be specific cases where you don’t want to sell (for example, if you part-own a family business). A third option is the ‘blind trust’.
Not scientifically defined in any legislation, a blind trust is usually just a bare trust (like appointing nominees), but with carefully drafted terms to make sure that the trustees cannot tell the minister what’s in the trust. The minister transfers his investments to the trustees, who have complete discretion to buy, sell or hold on his behalf. He cannot be influenced, consciously or not, if he has no idea what he owns.
Blind trusts have some limitations. It would be difficult to hold shares in a family business this way, unless you were genuinely indifferent as to whether they were sold or not. And with some trusts, you might receive information about dividends or sales (to complete your tax return) which could indicate what the trust has held in the previous tax year, and more importantly what it has not sold. Perhaps this exposes a flaw – if there were specific legislation about blind trusts, it could ensure that tax was paid without the politician receiving any information.
Any sensible risk planning focuses, not on what might go wrong, but on what you do if anything does go wrong. A blind trust, if properly set up, enables a minister truthfully to say ‘I don’t know’ if asked what his other interests are, but that’s not always a complete answer to the challenge. If the arrangements are fairly new, or there is a big scandal, it might sometimes be relevant to admit what went into the trust, to avoid any suggestion that your judgment is clouded by your previous investments, in case the trustees are still holding them.
But should risk management extend to restricting the trustees’ powers, so that they cannot invest in entities in ‘offshore tax havens’? Or could the minister positively emphasise ‘green’ investments? On balance, any such step probably creates more risk than it might seem to solve. The battle cry against ‘offshore’ can be confusing, as most ordinary investment funds are headquartered in tax-neutral jurisdictions, but that has no bearing on how much tax the owners of shares or units must pay. Any investment guidelines (more ESG, or no big oil or tobacco) are potential pitfalls for public officials. Defining what the trustees can and cannot invest in might raise a perception that the minister intends to favour (or support legislation against) those sectors. Better to give the trustees free rein to invest as they think fit, but choose the trustees wisely so that they won’t do anything controversial.
So, blind trusts may not be perfect, but they do have a role to play in managing the risk that politicians might be perceived to feather their own nests. But in a year when all businesses, and all economies, have been turned upside down by astonishing events, it might be challenging for anyone in public office to attempt to favour his own interests, whether held in a trust or not.
