Today we continue our series on compliance in the Trump Era by looking at what could happen with Washington politics.
Compliance officers might wish that’s something you can ignore, something that exists on a plane beyond your world of internal investigations, whistleblower complaints, and regulatory probes.
No such luck. Republicans and the Trump Administration have big ambitions for the tax code, healthcare, and trade policy, to name only a few. Democrats will seek to steer or stifle those ambitions somehow. The coming machinations over new legislation will very much affect you, whether that’s because they alter the climate for your business or they leave your audit committee asking, “What do you think might happen?”
So let’s talk about what might happen.
First, we should dispense with the canard that the Republican Party won the election. That’s not accurate. The presidential candidate pretending to be Republican, who really was a populist, protectionist, political neophyte willing to lie to get votes—that candidate emerged victorious over a weak Democratic opponent undercut by an unprofessional FBI director, in an electoral system that favors small rural states.
That’s not the same as winning. Donald Trump has no mandate, nor even a majority of votes cast. He only has his hand on the levers of power in the executive branch. Yes, that’s a vast amount of power—but Trump did not win, so much as he stumbled into a position of great power by default.
As for Republicans in Congress: fewer of them will be in office next year, in both the House and Senate. That’s not winning. That’s losing.
My point in splitting all these hairs is this: the Trump Administration and Republicans can advance their agenda only so long as the executive and legislative branches work together. Individually, each base of power is weaker than it looks.
That tells a lot about what Washington is likely to do next year. Trump can only move ahead with issues that will win support in Congress, and vice-versa. Tax reform will be at the top of that list, because Republicans in Congress can force passage even without Democratic support. Infrastructure spending will come next, because enough Democrats will support it that Trump can force passage even without lockstep Republican support.
After those two achievements, the legislative possibilities get much more cloudy. For example, we already see Republicans shifting their position on Obamacare to some repeal-in-name-only, replace-it-later vote—because they can’t find consensus on what the replacement should be, and Trump doesn’t care. He will take the cosmetic vote to repeal, tweet it as victory, and fly off to a rally.
I suspect we’ll see something similar with the Dodd-Frank Act. We’re already starting to see shifts on that issue, too. The Trump Administration’s foremost goal seems to be removing those parts of Dodd-Frank that stifle banks’ ability to raise capital and do deals. (All the more true now that our treasury secretary-designate is a Goldman Sachs banker who spent most of his career raising capital and doing deals.)
That seems to be the foremost goal of Dodd-Frank reform in Congress, too. If you look at the legislation proposed by Rep. Jeb Hensarling, chairman of the House Financial Services Committee, its top priority is to defang the Financial Stability Oversight Council and prevent regulators from forcing banks to increase capital reserves. That aligns with what Treasury Secretary-To-Be Steve Mnuchin wants, and what Trump wants. So that part is likely to come to pass.
Compliance and risk officers in the banking sector, then, should brace for plenty of change. (Even if reform legislation fails, Trump can still install conservative allies like Paul Atkins in powerful jobs such as Fed vice-chair for regulatory policy.)
What about the rest of us, wondering about reforms to the corporate governance provisions of Dodd-Frank? What about conservatives’ chronic calls to privatize Fannie Mae and Freddie Mac? What about the future of the Conflict Minerals Rule, and smaller issues (relatively speaking) like that?
Well, sketch out a scenario where those ideas have support in the Trump Administration and support of a majority in both chambers of Congress. Those scenarios are possible, but they aren’t necessarily clear. Republicans may have their hands on the levers of power in both the executive and legislative branches, but if you can’t find a scenario where they agree to pull those levers of power together, to achieve the same result, nothing happens.
This is also why I suspect we’ll see less action on trade policy than one might expect. From his perch in the executive branch, Trump can re-negotiate NAFTA and possibly even negotiate new trade deals. (Stranger things have happened.) But he will still need Congress to approve those new deals—and that’s where the politics will get difficult. Most large corporations now have supply chain operations straddling all of North America and the globe. Those corporations have home districts with lawmakers eager to keep the donations flowing.
We could see a similar dynamic with immigration. As president, Trump has considerable discretion to restrict immigration levels from certain countries, to step up deportations, and so forth. Major changes in immigration law, however, will still need a working majority in Congress. We don’t have one. Hence Trump keeps talking about deportations and extreme vetting; they are executive branch functions he can control himself. He can’t control anything else on the subject. Right now, nobody else can either.
Remember the Other Guys
Democrats see all these political contours, of course. That’s why their foremost strategic goal won’t be to oppose Trump at every turn. Their foremost goal will be to drive a wedge between Trump and Congress. That’s how you expose a president to a primary challenger during re-election; that’s how you get a president impeached.
Democrats won’t be able to do that on an issue like tax reform, so instead they’ll try to lard their own priorities into whatever legislation comes forward. They could drive a wedge on immigration or trade policy. After all, they have 48 votes in the Senate, and will only need three more Republican votes to block anything. So they will constantly seek ways to box Trump into a hard-line position, and peel away just enough Republicans who will find themselves saying, “The president’s position isn’t quite what I meant.”
If you want an example more tangible to compliance professionals, look to the Foreign Corrupt Practices Act. Trump has called the FCPA “a horrible law.” Would he like to see it loosened or repealed? Probably. But Democrats can find enough Republican votes to oppose that idea because repealing anti-bribery statutes doesn’t look good. So if we see any change in FCPA compliance at all, we’ll see it in how the executive branch enforces it.
Next week we’ll look at Labor Department issues: whistleblower protections, the gig economy, union organizing, and the like. If you have other subjects you want to discuss here, email me at [email protected] or comment below.