Blind Trusts: are they enough to avoid conflicts of interest?

Author: Daniel Beizsley

16 September 2020

The Guardian reported on the 3rd September that Lord Agnew had relinquished control over his shares in Faculty Science after Spotlight on Corruption and several media outlets flagged a potential conflict of interest between his position in government and the AI firm continuing to win contracts across government.

Lord Agnew, who serves as the Minister of State at the Cabinet Office was reported to have transferred his shares into a ‘blind trust arrangement’. 

Blind trust arrangements have been presented as a solution to help politicians balance the responsibilities of public office without having to dispose of their private interests. Here Spotlight on Corruption looks into how effective these arrangements are at maintaining integrity in government and preventing conflicts of interest.

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What are blind trusts?

A blind trust arrangement is where control over shares and other assets is handed over to an independent trustee empowered to make investment decisions on behalf of the beneficiary. The beneficiary continues to profit from the financial interest and retains full ownership rights but is no longer involved in any decision over its management, acquisition or disposal. 

In theory, as the beneficiary has no control over the assets or detailed knowledge of their status, the individual is insulated from any accusation of a conflict of interest when undertaking public duties.

How common is the arrangement?

According to the latest register, seven sitting government ministers have blind trust arrangements in place including: 

  • The chancellor Rishi Sunak; 

  • The Lord Chancellor Robert Buckland; 

  • The Deputy Leader of the House of Lords Earl Howe; and 

  • Ministers of State Lord Goldsmith, Lord Grimstone, Lord Keen of Elie, Lord True and Lord Agnew. 

According to the House of Commons’ register of members’ interests, two MPs (Jeremy Hunt and Jonathan Djanogly) pro-actively declare the existence of blind trust arrangements although the number of individuals who have the arrangement in place without declaring it on the register could be higher.

What are the rules on conflicts of interest and blind trusts?

The present rules across the House of Lords, House of Commons and for Ministers (see table) do not offer consistent, specific and sufficiently detailed guidance on the establishment and use of blind trusts meaning that the current landscape for dealing with the arrangement is a hot-potch of different rules.

House of Lords

Members are not required to register blind trust arrangements and therefore they do not appear on the register of members’ financial interests. Where sitting Lords have taken up positions in government and have declared blind trust arrangements on their ministerial submission, it is not immediately clear which of their declared assets on the House of Lords registry are included in the blind trust arrangement. This makes it more difficult to ascertain whether a Lord’s responsibility in government may clash with his/her private interests.

House of Commons

MPs are exempt from registering blind trusts but the code stipulates that if MPs do hold blind trusts then they should be prevented from receiving information on how the shares in the trust are invested. They are also forbidden from offering specific instruction to trustees on their management save for when the trust is established. MPs are required to declare the existence of blind trusts when they satisfy the test of relevance including during proceedings concerning legislation which has the potential to affect such trusts, as well as when the MP is aware that the trust invests in a particular sector that could present a specific conflict of interest.

Government Ministers

The use of blind trusts as a mechanism for avoiding conflicts is not referred to explicitly in the Ministerial Code. Instead it is left to the “personal responsibility of each Minister to decide whether and what action is needed to avoid a conflict or the perception of a conflict.” The latest report from the government’s Independent Advisor on Ministers’ Interests states that in cases where ministers’ interests are connected to their portfolios the cabinet office ministers have been encouraged to place shareholdings in blind trusts or dispose of them entirely. The criteria by which the Independent Adviser recommends the disposal of shareholdings is not disclosed in the annual report and neither is any additional information included on how often this has occurred during the reporting period (March 2019-December 2019). 

 

Do blind trusts solve conflicts of interest?

There are questions about the effectiveness of blind trusts as a means of dealing with conflicts of interest, especially given the ways in which the arrangement’s safeguards can be circumvented. In the absence of a cast-iron barrier between beneficiary and assets it is perhaps useful to consider blind trusts as a tool to encourage the public perception that steps have been taken to manage conflicts of interests without requiring politicians to divest of their financial interests.

The arrangement is most effective when trusts are established to control portfolios of shares that are actively traded by the trustee (which means there is a turn-over of the companies invested in) and which are sufficiently diverse for the beneficiary to be genuinely unaware of the names of individual companies in which interests are held. Over time a trustee may engage in dozens of transactions, leading to an effective barrier being created between the beneficiary’s knowledge and its contents. Practically, and in cases where shares amounted to a very large or controlling interest in a company, share transfers of this type of shares would be declared on publicly accessible databases meaning that the beneficiary would be made aware of any significant movements in shares.

Under the current rules the beneficiary may still receive general updates on the trust’s performance, but as has been pointed out elsewhere, policing communication between the beneficiary and the trustee is impossible and leaves the arrangement open to abuse if the trustee receives detailed investment instructions from the beneficiary. This is further strained if shares were held in a family business where it would be possible to seek and receive detailed instructions from family members.

At the moment, newly appointed ministers can choose to establish a blind trust arrangement while being fully aware of the assets involved. This means that the ability of blind trusts to manage conflicts of interest is weakest when they are first created. This is worsened when individuals own static shareholdings or portfolios that are grown through additions instead of being traded frequently. If trustees are given instructions to maintain the portfolio in its present form, then ministers continue to have an accurate view of their interests during their time in office. This leaves them open to potential and perceived conflicts between private interests and public responsibilities even when a blind trust arrangement is in place. 

 

What should happen now?

Conflicts of interest (both real and perceived) need to be managed proactively by the government to promote integrity and prevent private interests from influencing decision making. The use of blind trust arrangements can offset conflicts but the current system is heavily reliant on self-disclosure and operates without meaningful monitoring or enforcement mechanisms.

Spotlight on Corruption recommends:

 

1. Harmonising the rules on blind trust arrangements across the House of Lords, House of Commons and at Ministerial level.

 

The House of Commons’ and House of Lords’ registers should include information on whether individuals have blind trust arrangements in place in line with the list of Ministerial interests. At present when Lords enter government and put in place a blind trust arrangement it is not clear which of the shareholdings reported to the House of Lords are included or fall outside the arrangement listed on the register of Ministers’ interests, meaning conflicts of interest are more difficult to monitor.

 

2. On appointment to government, Ministers should supply the Parliamentary Under-Secretary and Independent Adviser on Ministers’ interests with a list of potential conflicts between their financial interests and the ministerial post.

 

In addition, copies of the blind trust arrangement should be submitted as well as a list of assets transferred to the trust on its establishment and contact details for the trustee.

 

3. The bi-annual report published by the Independent Adviser on Ministers’ Interests should contain summaries of the contents of blind trusts if they are relevant to the Minister’s brief. 

 

The report should also contain summaries of how many times advice was sought on potential conflicts of interest and information on how many times this resulted in the individual establishing a blind trust arrangement, divesting from the shareholding or not undertaking any action.