Senators back anti-smoking funds while investing in manufacturers that benefit

When the U.S. Department of Health and Human Services awarded $3 million in smoking cessation funds to Iowa clinics back in 2010, home state Sen. Tom Harkin crowed he helped secure the money using his position on the powerful Senate Appropriations Committee.

"Smoking cessation programs have a proven track record of bringing down health care costs," he said.  "These programs will help more Iowans kick the habit.”

And when Republicans this spring tried to cut funding for a health prevention fund that had spent tens of millions of dollars on smoking cessation efforts, Harkin took to the Senate floor to object. "Keep the prevention fund in there. Keep our people healthy," the Iowa Democrat implored.

There's just one thing he failed to mention.

Over the last four years as he repeatedly pressed for federal funding to stop smoking, Harkin has owned between $50,001 and $100,000 in health products maker Johnson & Johnson, which makes the popular anti-smoking product Nicorette.  Senate disclosure forms give ranges instead of exact amounts.

He's hardly alone. A half-dozen senators who have been among the most vocal advocates for federal funding for smoking cessation -- including Majority Leader Harry Reid and his Whip Dick Durbin -- have direct or indirect investments in companies that make anti-tobacco products.  

On the flip side, some of the Republican opponents of the anti-smoking funds owned stocks in tobacco companies, too. Rep. James Sensenbrenner, R-Wis., a vocal critic of the anti-smoking funds, owns between $100,001 and $250,000 in stock in tobacco giant Altria.

There's strong evidence that the lawmakers involved on both sides have long held their convictions about tobacco. But the whole debate is a stark reminder that despite a high-profile effort by Congress to tighten ethics rules and end potential insider trading, lawmakers still routinely shape and vote on legislation that can impact their investment portfolio, and therefore their financial bottom line.

And there's little scrutiny, especially when the cause seems well-intentioned, like improving public health.

"A lot of times it’s the old moniker, 'follow the money,'" said Peter Schweizer, author of the book Throw Them All Out that last year prompted the debate over stopping Congress from engaging in insider trading. "It just seemed to me that we’re very, very quick to question the profit motives of corporations and businesses, but not to view those in public service with the same sense of skepticism."

Even when members of Congress are acting on behalf of their constituencies, they still can create the appearance of acting in their own self-interest, said Angela Canterbury, the director of public policy at the non-partisan Project On Government Oversight. "The fear is that they will make policy decisions and cast their votes based upon their financial interest," she said.

In April, President Barack Obama signed into law the STOCK Act, which prevents lawmakers from using insider information gained from government duties for personal financial gain.  But just one month later, senators were debating anew the smoking cessation funding, including several who began the year with investments that could be impacted by the outcome.

Reid, for instance, fought to save the funding successfully, saying it "pays for successful tobacco cessation programs that avert billions in healthcare costs to treat emphysema, heart disease and cancer."

But according to Senate financial disclosure records, Reid has invested between $50,001 to $100,000 in mutual funds whose portfolios include health care giant Johnson & Johnson, which makes Nicorette gum, and the drugmaker Pfizer, which also produces smoking cessation products.  Reid just bought into the mutual funds in February 2011.

Reid's lieutenant in the Senate, Majority Whip Dick Durbin, has long been one of the anti-smoking champions on Capitol Hill and has just over $2,000 in Pfizer. In May, the Illinois Democrat co-sponsored legislation that would crack down on tobacco companies trying to take advantage of tax loopholes.  The companies were marketing pipe tobacco, which is taxed at a lower rate then cigarettes, but consumers would then use the tobacco to roll their own cigarettes.

"We are already seeing tobacco manufacturers abusing them by changing the labels on their products to avoid paying the higher tax," Durbin wrote. "This bill will stop tobacco manufacturers from gaming the system and protect more children and teens from this dangerous habit."

Stopping smoking has become a big government endeavor.  All told, for fiscal 2012, HHS will spend roughly $1 billion combatting smoking, according to spokesman Bill Hall.

Schweizer, who is the president of the investigative Government Accountability Institute, said that even with the STOCK Act, there are currently no restrictions on what investments lawmakers can make.  For example, members of Congress serving on bank oversight committees are still allowed to buy bank stock.

In contrast, federal judges generally aren't allowed to rule in cases that involve a company they own stock in, Schweizer points out, and high-ranking Pentagon officials are required to sell any stock they have in defense businesses that get government contracts.

"Because politicians essentially get to make the rules, those rules haven’t applied to them," he said. "What they can do to move markets is far more substantial than what people in the private sector can do.”

Lawmakers only file a complete report on their finances once a year, each spring. The latest reports filed in May detailed their investments only through Jan. 1, 2012, and the lawmakers involved in the smoking cessation debate did not respond to repeated requests by phone, email and in-person visits from the Washington Guardian to say whether they still owned the Pfizer and Johnson & Johnson stock at the exact moment the debate began in May.

By the time they file their next ethics disclosure reports in May 2013, the debate will be a distant memory for most Americans.

Still past ethics reports show Harkin and others have owned the stocks in the drugmakers going back to as far as 2009 when Congress first created the new health care prevention fund and directed it to cover smoking cessation products as part of Obama's economic stimulus law.

But by far the largest amount of money was invested by Sen. John Kerry, D-Mass., who put between $750,000 and $1.5 million into Pfizer. He voted for the stimulus law that created the health prevention fund for anti-smoking efforts. Harkin, meanwhile, has put between $50,001 to $100,000 directly into Johnson & Johnson stock since 1995, when disclosure records first became digitally available.

On the flip side of the argument, the Republican who led the effort to strip money from the health prevention fund, House Speaker John Boehner, owned between $50,001 to $100,000 in Pfizer stock at the beginning of the year, too. In fact, 54 lawmakers in both chambers of Congress owned Johnson & Johnson stock while 62 had investments in Pfizer at the start of 2012. Overall, health and drug stocks are the 11th most popular investment held by members of Congress.

And 24 lawmakers have invested in Altria Group, the cigarette giant that owns Philip Morris.  Some members of Congress - apparently hedging their bets - have invested in both the tobacco companies and the pharmaceutical corporations that are making the anti-smoking products.

Schweizer said the STOCK Act was a step in the right direction, but didn't go far enough.  The trouble, he said, lies with government agencies that try to investigate lawmakers for violations of the act.

"They are going to be loath to take on a powerful member of Congress," he said, comparing it to past troubles the FBI has had when it investigates sitting lawmakers.

Instead, he suggests forbidding members of Congress who sit on oversight committees to trade stock in the particular sector they are supposed to be overseeing.  It's easy to determine if lawmakers have violated that rule, he said.

Many lawmakers hold stock and other financial investments in companies, and the major drug companies produce thousands of products beyond anti-smoking items.  Just because a lawmaker invests in such a company  doesn't mean that policy decisions are driven by the prospect of personal gain. Experts point out that most lawmakers have several investments in multiple sectors, making it less likely that their actions would be directed by financial concern over a single asset.

And combating smoking is a popular position supported by many voters.  According to a 2004 study by the Centers for Disease Control, each year, smoking kills about 443,000 Americans and costs $96 billion in health care.  Speaker Boehner is a long-time smoker.  President Obama has largely tried to give up the habit after his first election in 2008.

Canterbury said there are many areas and kinds of investments that would help insulate members of Congress from potential conflicts of interests - such as blind trusts, where investors don't know what companies their money is going to.

"There are lots of grey areas, but it's certainly an area that needs more sunshine,” she said.

Schweizer agreed that blind trusts are a good idea to consider.

"The left hand of the legislator doesn’t know what the right hand of the stock broker is doing," he said.

Even if insider trading by lawmakers stops, Schweizer said, the government should remain vigilant about the issue. "For the integrity of our government and the institution of Congress, we need to err on the side of caution," he said.

Editor's note: Lachlan Markay, a freelance journalist who works with the conservative Heritage Foundation, discovered the smoking cessation investments by advocates of the programs, and worked with Washington Guardian on this story. Washington Guardian independently verified Markay's findings and added its own reporting.