Could a new bill stop US politicians' war stock profits impacting Ukraine and Gaza?

Politicians who trade in defence equipment face questions on conflict of interest when sitting on committees that involve national security

Shares in Lockheed Martin have grown by 15.71 per cent since October 6. AFP

War stocks face heavy scrutiny as a new bill looks to stop US politicians from trading.

A new bill introduced by a group of US senators last week could end the practice of politicians trading in defence stocks, as their investments continue to profit from the wars in Ukraine and Gaza.

The bill would add to the 2021 Stop Trading on Congressional Knowledge (Stock) Act by increasing the fines for those found to breach its disclosure requirements from $200 to $500.

The bipartisan agreement would immediately ban politicians, president and vice president from buying and selling commodities, futures and options, among other assets. This includes defence stocks that US politicians own in the billions of dollars. Elected officials, their spouses and children would also be required to divest those assets in 2027.

According to US politician investment tracker Capitol Trades, defence stocks contributed to 96 trades by politicians last year. Twenty-two of those were purchases, with eight occurring within the days after October 7.

Trading in focus

Currently, no US law forbids politicians from trading in stocks, even if access to information grants them special knowledge on the industry, or if they are placed on committee assignments that could conflict with their portfolios. Insider trading is prohibited by law en masse, and the Stock Act has pushed for greater transparency to hold government officials accountable.

“There is no reason why members of Congress ought to be profiting off of the information that only they get and the rest of the American people don’t get,” Republican senator Josh Hawley said.

“There is no reason why members of Congress ought to be profiting off of the information that only they get and the rest of the American people don’t get.”

Republican senator Josh Hawley

Democratic senator Gary Peters said: “The public should be confident that federal elected officials are making decisions that are in the best interests of the American people, not their own personal finances."

Fifty-one US politicians and their spouses own between $2.3 million and $4.8 million of shares in companies that are among the world's largest defence contractors, according to findings from investigative and non-profit website Sludge.

Their success at beating the market has spawned the creation of apps and sites such as Unusual Whales, Quiver Quantitative and Autopilot to track their performances for everyday traders.

One particular conflict of interest are those who sit on committees that deal with national security, as their decisions could see them profit from their positions on war.

While they are legally permitted to engage in certain types of trading, the continuing wars in Gaza and Ukraine have cast new light on the performance of defence – or war – stocks. These companies make weapons or provide materials to the military that are being sold to use in wars abroad. These include Lockheed Martin, RTX Corp (formerly Raytheon) and Northrop Grunman.

Lockheed Martin was the top recipient of defence contracts in the 2022 fiscal year at $44.5 billion, the Pentagon said. Raytheon and Northrop Grunman received $25.4 billion and $12.8 billion, respectively.

Seventy-three per cent of Lockheed Martin's consolidated net sales came from the US government last year, including 64 per cent from the Defence Department, the company said in its 2023 annual report.

“A reduction in overall US defence spending … because of shifting priorities, budget compromises or otherwise could adversely affect our business,” it said.

General Dynamics, which builds ships and tanks, was awarded $21.5 billion. And Boeing, which has branched out into submarines in addition to aircraft, received $14.20 billion.

War profiteers

A 2022 analysis by The New York Times found at least 25 members who were part of committees involved in US security policy traded in companies such as Lockheed Martin, Northrop and Palatir.

As of Monday, shares in Lockheed Martin have grown by 15.71 per cent since October 6, while RTX shares have grown by 46.45 per cent.

A separate analysis conducted by a separate investment tracker, Unusual Whales, found a trove of politicians could profit if the war spills over into the region.

The tracker found the portfolios of Republican US representatives Kevin Hern, Mark Green, Michael McCaul, Republican US senator Tommy Tuberville and former Democratic House speaker Nancy Pelosi are set to benefit should an armed conflict between Iran and Israel develop.

Offices for a number of US politicians said they do not personally make stock selections.

A lawyer for Mr McCaul told The National in a statement that the politician did not buy the stocks and had no knowledge of the purchase, and learnt of it through a periodic transaction report filing members are required to carry out.

“Rather, his wife has assets she solely owns, and a third-party manager made the purchase without her direction,” they said in a statement.

Miranda Dabney, spokeswoman for Mr Hern, told The National he “doesn’t have any day-to-day management or control over his stocks or his businesses”.

A member of Mr Green's office pointed to a January 2 statement in which the politician said he has no insight into how the trades are made, adding that using insider information “for personal benefit is a crime that should be strictly enforced”.

And a representative for senator Markwayne Mullin, who bought RTX shares in the days and weeks before the Hamas attack that Capitol Trades valued at $65,000, said he does not conduct trades himself.

“Senator Mullin uses an independent, third-party operator firm that manages all stock portfolio investments. … This independent company reports bi-weekly with Senate Ethics to ensure compliance with all federal laws,” the representative told The National.

Even before the fear of the conflict expanding took shape, some politicians made well-timed trades in the days before the war began.

Other members of Congress who purchased shares in Lockheed Martin last year include Dan Goldman – who sits on the Homeland Security Committee – and Mr Hern, a member of Ways and Means.

A representative for Mr Goldman said his assets have been held in a blind trust since August 2023, and that he is prohibited from directing or speaking investments with his financial advisers under the terms of it.

Mr Hern purchased Lockheed Martin shares worth between $1,000 and $15,000 on March 29, according to database Capitol Trades.

Kathy Manning, who sits on the House Foreign Affairs Committee, in February disclosed two transactions of Lockheed Martin stock her spouse bought days before a drone attack at a US outpost in Jordan. Her spouse bought the shares, each worth between $1,000 and $15,000, on January 23.

Offices for Mr Tuberville, Ms Pelosi and Ms Manning did not return The National's request for comment.

Can the latest bill become law?

Previous efforts to limit or ban stock trading have failed to materialise in Congress, giving the current bipartisan effort a steep hill to climb if it is to ever become law.

This is despite an overwhelming number of Americans in favour of prohibiting politicians rom trading stocks altogether. According to a 2023 survey by the Program for Public Consultation at the University of Maryland’s School of Public Policy, 87 per cent of Republicans and 88 per cent of Democrats want to ban politicians from trading stocks.

Other bills introduced in recent years, including the Ban Stock Trading for Government Officials Act and Ending Trading and Holdings In Congressional Stocks (ETHICS) Act have sought to go further in restricting trading.

And progressive politician Rashida Tlaib this year introduced the Stop Politicians Profiting from War Act to prohibit political figures, their spouses or children from trading defence stocks and having financial interests in companies that do business with the Defence Department.

“It is shameful that some of my colleagues are profiting financially when they vote to support wars and weapons manufacturing,” she said in a February news release.

Mr Hawley introduced another bill last year – the Preventing Elected Leaders from Owning Securities and Investments (Pelosi) Act – seeking to prohibit Congress members or their spouses from holding or trading certain investments.

None of those four bills made it out of committee.