#BTSpeakingOut – Blind trusts and Integrity Legislation

It is widely known that Barbadian parliamentarians both past and present had and still continue to have concerns about the negative effects of corruption in public life. To this end, our current parliamentarians are making another attempt to have an amended Integrity In Public Life bill passed and thereafter etched in our statute book.

Persons who are serious and committed to ensuring the highest and best possible success rate usually leave no stones unturned in order to achieve such success. It is quite in order to enact legislation that will counteract possible corruption. It is another matter if loopholes and escape routes are not dealt with to achieve the highest conformity and compliance.

To the critical thinker and high-compliance individual, the inclusion of “blind trust” as an enabling instrument within the four walls of “integrity legislation” is likely to raise a red flag.

In an era and environment of sound bites and cliches such as the rule of law, civil society, good governance, transparency, openness, accountability, best practices, fit for purpose and others, one would not expect to have provisions that run counter to transparency and full disclosure.

Website financestrategists.com explains:

a) Blind trusts are trusts in which the grantor or beneficiaries are unaware of the content of their trusts.

b) Blind trusts are designed to serve two purposes:

Protect the privacy of grantors and beneficiaries.

Separate business interests of public officials from their official roles.

c) Blind trusts are generally used by people in public positions or by wealthy and prominent individuals who wish to preserve their privacy and the contents of their trust holdings.

d) The grantors and beneficiaries of blind trusts are not privy to its holdings or value.

e) The trust is considered blind in that the grantor does not have knowledge of its contents and their value.

f) Communication between the grantor and the trustee relating to the trust is prohibited by law.

Financestrategists.com gives the following examples of how blind trusts work:

Consider the case of a wealthy businessman elected to public office. As a public official, he has the power to formulate and sway policy that affects his business. To prevent such conflicts of interest, he might place his business and investment holdings into an irrevocable blind trust for the duration of his term to be managed by a third-party trustee. After he has completed his term, the blind trust is no longer blind and he can view its holdings and balances.   

Another instance can be that of an individual who has won the lottery and come into great wealth. They might create a blind trust in order to hide their wealth from journalists and prying relatives.

A rich person may also create a blind trust to pass on wealth to beneficiaries anonymously. The beneficiary does not have knowledge about the trust’s contents or its holdings but receives a fixed income from it every month.  

In all the above cases, the grantor is aware of the contents of the blind trust only at the time of its creation. The beneficiary does not know about the trust’s holdings or value.  

If blind trusts are supposed to operate in environments of privacy, anonymity, confidentiality and lack of disclosure, how then can the legislation be effective against intended acts of corruption?

Will it be truthful to say that our governance structures and systems are transparent, accountable, and open?

Will it be truthful to say that our governance structures and systems will work for our republic and its people?

Blind trusts have the distinct potential to advantage the few and disadvantage the many.

William Harrison Frist, a physician, businessman and former republican senator from Tennessee, knows only too well about blind trust.

He once said, “The notion that you have a blind trust but you can tell your trustee when to sell stock in it just doesn’t make any sense. It means you have a seeing eye trust and not a blind trust. It’s ridiculous.”

The following extract gives a real-life example of the business of “blind trust” (compliments Wikipedia).

As of 2005, Frist had a fortune in the millions of dollars, most of it the result of his ownership of stock in Hospital Corporation of America, the for-profit hospital chain founded by his brother and father. Frist’s 2005 financial disclosure form listed blind trusts valued between $15 million and $45 million.

Members of the Frist family have been major donors to Princeton University pledging a reported $25 million in 1997 for the construction of the Frist Campus Center. Daniel Golden a Wall Street Journal journalist and author of the book The Price of Admission: How America’s Ruling Class Buys Its Way into Elite Colleges — and Who Gets Left Outside the Gates, has suggested that two of Frist’s sons (Harrison and Bryan) were admitted to Princeton as recognition of this donation rather than their own academic and extracurricular merit.

William and Karyn Frist were the sole trustees in charge of a family foundation bearing the senator’s name, which had more than $2 million in assets in 2004. He and his siblings were vice presidents of another charitable foundation bearing their parents’ names. Frist failed to list his positions with the two foundations on his Senate disclosure form. In July 2006, when the matter was raised by the Associated Press, his staff said the form would be amended. 

Frist had previously disclosed his board position with World of Hope, a charity that gives money to causes associated with AIDS. The charity had come under scrutiny for paying consulting fees to members of Frist’s political inner circle. The status of Frist’s blind trust and subsequent statements about it and activities within it led to a Securities and Exchange Commission (SEC) investigation. He was questioned in 2005 by the (SEC) about stock sales allegedly based on inside information. The investigation ended after 18 months with no charges filed and Hospital Corporation of America paying shareholders $20 million. 

Frist said in a statement, “I’ve always conducted myself according to the highest ethical standards in both my personal and public life, and my family and I are pleased that this matter has been resolved.”

Michael Ray is a frequent commentator on social issues.