91.12

OPINION NO. 91-12

An employee of the Maryland Port Administration has requested an opinion as to whether he may serve on the Board of Directors of a Maryland bank (the Bank). The individual (the Requestor) also is a member of the Higher Education Supplemental Loan Authority. We advise the Requestor that this service would not be barred by the employment provisions of the Public Ethics Law (Article 40A, Annotated Code of Maryland, the Ethics Law), though he should be sensitive to issues that could arise under the Law.

The Requestor is a CPA and auditing expert who currently serves as the Director of Finance for the Maryland Port Administration, a unit of the State Department of Transportation that has significant financial and fiscal operations, with an annual operating budget of $40 million and a capital budget of $150 million. He supervises a staff of 60 whose functions include accounting, budgeting, leasing and insurance, purchasing, real estate, and management information systems. The Requestor is responsible for customer collections and negotiating lease rates with customers, and has fiduciary responsibility for the agency's bank accounts. He indicates that the primary account used by State agencies for deposit to the State Treasury is selected by the Treasurer's Office. In addition, however, the agency has its own depository accounts, which Requestor says can be significant. The Port has many large customer accounts, and payments may be deposited in order to clear a check prior to payment to the State Treasury or because it is anticipated that some or all of the payment will be refunded. None of these accounts are currently with the Bank with which the Requestor seeks to serve.

In addition to his employment at the MPA, the Requestor is a member of the Maryland Higher Education Supplemental Loan Authority (the Authority). This is an entity established in 1982 to issue tax-exempt bonds and use the proceeds to make student loans. (Education Article, §18-1301 et seq., Annotated Code of Maryland.) He is one of nine members appointed by the Governor as a person experienced in State and municipal finance. The Authority has issued bonds and made loans in the past. At this time, however, it has no loan funds available and its primary functions involve collection of loan payments and repayment of outstanding bonds. The Authority currently uses out-of-State banks for its debt service reserve and liquid paper accounts. A local bank holds "lock boxes" to which payments are made by students and parents into three trust accounts managed by this bank, which is not the Bank with which the Requestor would be serving. According to the Authority's Executive Director, she handles the day-to-day operations of the Authority, which meets about three times a year.

The Bank is a large local commercial bank. The Requestor was invited by a local businessman whose company does business with the MPA to be one of several persons on a slate of candidates for this Board of Directors. The Board election process is ongoing, but if he is elected, the Requestor would like to take this compensated position as a Director of the Bank. He also advises that he has purchased stock in the Bank. He indicates that he was recommended for the slate by a colleague at the Port Administration who had been approached but declined. He indicates that he has several years experience with a major Washington, D.C. auditing firm and has developed significant expertise in auditing and financial management. He advises that this is why he was suggested as a nominee for the slate, and anticipates that his role on the Bank Board would be to serve on the Audit Committee.

The Requestor's service on the Bank's Board of Directors would be an employment relationship for purposes of §3-103(a) of the Ethics Law, and, as noted, he also owns stock in the Bank. §3-103(a) prohibits an official from having private employment relationships with or holding a financial interest in an entity that is subject to his authority or that of his agency, or that has contractual dealings with his agency (subsection (a)(1)(i)). It further prohibits any other employment relationship that would impair a person's impartiality or independence of judgment in carrying out his State duties (subsection (a)(1)(ii)). It would appear, based on the information provided, that the Bank does not have contractual or other relationships directly with the Port or the Authority that would bring the strict prohibition of subsection (a)(1)(i) into play here. The question is thus whether the facts warrant a conclusion that this employment would result in impairment as contemplated under subsection (a)(1)(ii), or raise issues under the participation, prestige or information provisions of the Law (§§3-101, 3-104, and 3-107).

The Bank is a major financial institution in the Baltimore area, and in the State, and the Port is a State entity that has significant interaction with the private sector. It has many large customers and handles a significant amount of business in the area. It is therefore likely that customers with which the Requestor may be dealing in connection with his State position may also be customers of the Bank. There could be a variety of other business and financial undertakings between the Port and its customers that would entail interaction between the Port and the Bank. Also, we note that the Requestor's service with the Bank would entail his involvement with an individual who through his private company has dealings with the Port. The Requestor indicates that he has participated in transactions involving this individual in the past, but that these transactions are not substantial and that, in any case, he could disqualify himself from them.

We recognize that these circumstances present potential for issues to arise under the employment and other provisions of the Law. However, there appears currently to be little direct interaction between the Bank and the Port Administration. Also, though the Requestor is the person with responsibility for the agency's banking activities, the accounts are currently with another bank. Given these facts as they now stand, and assuming that his State position was not used to encourage his selection for the Bank Board slate, we cannot conclude as a matter of law that the Requestor's service with the Bank would impair his functioning in his State position as intended by the prohibition in §3-103(a)(1)(ii), or would raise issues under the other provisions of the Law that bar the service completely. The impairment provision of the Law has generally been viewed as addressing situations where there are relationships that raise clear and serious concerns about the ability of an individual to hold a private position and continue to function properly in his State position. In applying it we have therefore looked to the person's actual assigned duties and activities and have generally said that for a prohibition to apply more than the mere potential or possibility for a conflict is required. (See, for example, our Opinion No. 91-7 for discussion of this provision in connection with another candidate for this same Bank Board.)

Moreover, the Secretary of the Department of Transportation has advised that he has reviewed this situation and does not believe that a conflict of interest is presented. We assume, of course, that the Requestor will avoid involvement on behalf of the Port Administration in matters relating to his Bank Board colleague, and if issues should arise in the course of his service where Port clients are also involved with the Bank, that he will take action to resolve these issues. This would include possible resignation from the Bank position if such issues arise with any significance or frequency. Based on the current facts, the Secretary's view, and these understandings, however, we advise the Requestor that his service with the Bank would not be barred from the point of view of his employment with the Port.

Nor do we believe that his position as a member of the Higher Education Supplemental Loan Authority would prevent him from being a member of the Bank's Board. The Supplemental Loan Authority is also an entity that has interactions with banks and with the financial community. At this point, however, it does not appear to have any direct relationships with the Bank, and there thus do not appear to be any specific issues under subsection (a)(1)(i) as to this affiliation. Nor, given the absence of any substantive responsibilities that would involve the Authority's banking relationships, do we believe (based on the criteria discussed above) that there are any impairment issues arising in connection with the Requestor's service on the Authority.

It should be noted, of course, with regard to both the Authority and the Port, that the current absence of relationships with the Bank is subject to change and that both do have banking activities that could potentially lead to interactions with the Bank. The Requestor must therefore take great care to be aware of any relationships that may arise between these two State agencies and the Bank, as well as any situations in which the Bank has dealings with entities with which he deals in his State service, particularly entities that interact with the Port. He needs to keep in mind that changes in these relationships could very well result in a situation requiring his resignation from the Bank Board. The Requestor should also take care to avoid involvement as a Bank Director with matters involving its relationships with the State.

William J. Evans, Chairman
   Mark C. Medairy, Jr.
   Mary M. Thompson

Date: September 25, 1991