Pruitt’s Legal-Defense Fund Heightens Ethical Concerns

Experts say the EPA head’s pledge to refuse industry money could be little more than window-dressing.

Environmental Protection Agency Administrator Scott Pruitt
AP Photo/Andrew Harnik
May 21, 2018, 8 p.m.

Environmental Protection Agency chief Scott Pruitt is banking on a little help from his friends.

A legal-defense fund for the beleaguered Cabinet official is now up and running to combat the roughly one dozen or more federal investigations into Pruitt’s alleged ethical violations.

But the fund faces a dilemma: A large portion of the EPA administrator’s traditional cadre of patrons have direct business before the agency, and federal regulations—at least ostensibly—restrict contributions from those individuals and businesses.

Ethics officials and legal experts are sounding the alarm bells, even before Pruitt’s defense fund files its first disclosures. Federal regulations prohibit parties with business before a government body from donating to an official in charge of that body.

“There are a number of ways that special interests that want something from the EPA as a general matter would find ways to support Scott Pruitt’s legal-defense fund,” Brendan Fischer, a director at the Campaign Legal Center, told National Journal.

An uptick in the use of defense funds within the Trump administration, led by the administration-wide Patriot Legal Expense Fund Trust, is fueling speculation about the use of shell companies and other straw donors to dump money into these funds.

“In theory, somebody could set up a Delaware [limited-liability company] and funnel donations through an LLC. I just don’t know how that would be enforced,” said Bob Rizzi, a tax and ethics attorney and partner at Steptoe & Johnson LLP.

Pruitt pledged at a Senate hearing last week not to accept donations from lobbyists or corporations with business before the EPA, but he seemed to quickly backpedal.

“I don’t accept donations. I don’t solicit donations. That’s done by attorneys and others,” he told Sen. Chris Van Hollen.

Ethics and legal experts say Pruitt’s fund is likely a tax-exempt IRS Section 527 political organization or some form of a trust. EPA spokespersons didn’t respond to requests for comment on the details of the fund or filings.

“I don’t think that saying lawyers and others do the solicitation tells us whether it is a 527,” said Ellen Aprill, a professor at Loyola Law School in Los Angeles and a preeminent expert on gift rules for these types of funds. “It may be set up as a trust with him as beneficiary, along with a demand power that he won’t exercise.”

Aprill pointed to a so-called Crummey trust, which exempts gift taxes for donations up to $15,000, as a potential option for Pruitt’s legal-defense fund. The tax exemptions in both the Section 527 and Crummey structures could also help accomplish another possible priority for Pruitt—ethics observers say he’ll likely pull out all the stops to avoid paying taxes.

“Pruitt definitely has demonstrated for several years a desire to live beyond the means of his salary,” Jeff Hauser, executive director of the Revolving Door Project at the Center for Economic and Policy Research, told National Journal.

Several months since controversy erupted, Pruitt is still under fire for a string of alleged ethical lapses involving first-class airfare, a large security detail, international trips, and cozy arrangements for prime accommodation.

Still, the policy implications of the defense-fund donations are raising the most eyebrows.

Pruitt has led an ambitious regulatory rollback at the EPA after the agency under President Obama issued regulations on the power sector, bodies of water, and other parts of the EPA portfolio that spurred potent opposition. The administrator’s critics, like Senate Environment and Public Works Committee ranking member Tom Carper, stress that Pruitt hasn’t been successful in many of his actions.

“More than 140 lawsuits have been filed against EPA either because the Pruitt EPA has failed to meet statutory deadlines, or in response to efforts by Administrator Pruitt to repeal regulations, delay their implementation, or deny the public access to agency information,” Carper’s staff said in a statement Monday that accompanied a report detailing the litigation.

But Pruitt plans to unveil new rules to replace the Clean Power Plan and the Clean Water Rule, and he’s finalized more than 20 deregulatory actions to the tune of $1 billion in potential savings, according to the agency.

And industry, much of which supported Pruitt financially in the past, continues to cheer him on. Some of Pruitt’s biggest donors during his time as attorney general in Oklahoma, where he filed high-profile suits against EPA’s most significant rules, include Devon Energy, Monsanto, Phillips 66, and other companies with direct interest in EPA action.

Ethics officials say those groups, and other industry behemoths, are likely angling to fill the coffers of Pruitt’s defense fund.

“They’re the ones of course most willing to give to something like this. They have the most at stake here,” said Craig Holman, a lobbyist at the left-leaning watchdog Public Citizen. “Scott Pruitt is in deep legal trouble, and he does need legal assistance. I don’t mind the concept of establishing a legal-defense fund. I just want to make sure it’s not used as an avenue for undue influence-peddling by special interests.”

Cleta Mitchell, a partner at Foley & Lardner LLP, and Paul Rauser, a partner at Aegis Law Group LLP, are currently counseling Pruitt, according to reports.

Pruitt told the Senate he would publish donations “pursuant to the requirements of disclosures,” adding that his team is working with the White House and the General Accountability Office to stick to the rules. The Office of Government Ethics instructs officials—in guidance that is only arguably enforceable, according to some ethics experts—to report defense-fund donations totaling more than $390 from a single source on annual disclosures. Pruitt will likely file that disclosure next year.

In the meantime, at least one prominent Pruitt ally hasn’t donated.

“I have not made any contributions,” Republican Sen. James Inhofe of Oklahoma told reporters last week, striking a smile and dismissing the ethical concerns. “What he doesn’t want to do is be in a position where the government is paying legal fees.”

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