Treasury Nominee Lew Denies Conflict of Interest

Reuters with AP
Jack Lew speaks during his confirmation hearing.
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The top Republican lawmaker vetting Jack Lew to serve as Treasury secretary zeroed in Wednesday on his work as an executive at Citigroup as a possible conflict of interest for a job that would make him the nation's chief financial regulator.

Sen. Orrin Hatch, the top Republican on the Senate Finance Committee, said he was unclear about what Lew did as chief operating officer at two units at Citigroup, one of which engaged in proprietary trading. As Treasury secretary, Lew would be responsible for regulating such trading at banks.

"If you were to be confirmed, it could lead to an awkward situation in which ... you would effectively be saying to financial firms: 'Do as I say, not as I did,'" Hatch told Lew as the committee opened a hearing on the nomination.

Asked by committee Chairman Max Baucus, a Democrat, whether there was anything that might present a conflict of interest, Lew answered: "No, Mr. chairman."

Senate: Jack Lew Questioned About Citi

Lew also faced questions about a big bonus he received from Citigroup and the Obama administration's plans for the government's finances. (Read More: Treasury Pick Lew Faces Grilling on Citi Bonus)

The 57-year-old New Yorker, who until recently was White House chief of staff, is a budget wonk who would rather avoid television cameras, Obama has said.

But the hearing on Wednesday put him in a spotlight over his own finances, namely a $940,000 bonus he received in January 2009 after a brief stint at Citigroup, just before the bank received a taxpayer-funded bailout.

"I was compensated for my work," Lew said. "I'll leave for others to judge."

Lew: Didn’t Know Fund Was In Cayman Islands

Lew and others familiar with his work at Citigroup have said his role was largely administrative and was separate from any financial portfolio decisions. In remarks to the Senate panel, Lew said his work at Citi focused on "trying to drive organizational change."

His background at Citigroup aside, the hearing was likely to serve as a battlefield in the budget wars that have divided Washington. The senior Republican on the Senate Budget Committee, Sen. Jeff Sessions of Alabama, has already said Lew is unfit to serve.

However, most Republicans have withheld judgment and, with Democrats controlling the Senate 53-45, Lew was widely expected to win confirmation this month.

At the hearing, several senators wanted to know more about Lew's brief time serving as chief operating officer for Citi's alternative investments unit. He took the job in January 2008 and held the position during the peak of the financial crisis, when Citi received a $45 billion bailout from the federal government. He left in early 2009 to join the Obama administration.

Lew's unit had been criticized for making risky investments that imploded during the crisis. Lew told the panel that he did not make decisions about investments during that time.

"I was not in the business of making investment decisions," he said. "I was aware of what was going on, but I wasn't designing" the investment funds.

Lew was also pressed on a $56,000 investment Lew once had in a Citigroup venture capital fund registered in the Cayman Islands.

Lew: Didn't Know Fund Was In Cayman Islands

Obama criticized such offshore accounts when he campaigned for re-election last year. But the White House said the investment should not get in the way of Lew's confirmation, given that it was already known when he was confirmed for two other government positions, including White House budget chief.

Lew told the committee he did not initially know his investment was registered in the Cayman Islands and said he did not receive any tax benefit from the investment and sold at a loss.

Financial Skills

Hatch and others also said they will ask Lew about his knowledge of financial markets, where Lew has admitted to a lack of experience, despite his time at Citigroup.

The Treasury secretary serves as chair of the Financial Stability Oversight Council, a panel of banking and market regulators that is close to imposing additional rules on a handful of large, complex financial institutions meant to ensure they do not threaten the stability of the financial system.

(Read More: What's Lew's to Do at Treasury?)

Lew lacks the international stature of his predecessor, Timothy Geithner, who had met regulators from around the world as president of the New York Federal Reserve Bank and was a senior financial diplomat in a prior stint at the Treasury.

(Read More: What Would You Call Tim Geithner's Book?)

Lew served as deputy secretary of state under Hilary Clinton, but his main responsibility there was managing the State Department's resources.

His real passion is for budgets. He worked as the White House budget chief twice, first under President Bill Clinton.

"Budgets aren't books of numbers. They're a tapestry, the fabric, of what we believe," he told Congress in 2010.

Analysts said the choice of Lew as the administration's top economic official signals the importance Obama places on ongoing battles in Washington over the government's budget.

If confirmed, Lew will take the helm at Treasury as the White House heads into another round of difficult talks with Congress on how to put the United States on a sound fiscal footing. (Read More: Obama Looks for 'Big Deal' on Spending Cuts and Taxes)

Senate Democrats are expected this week to reveal a series of targeted spending cuts and tax increases on high earners to replace across-the-board federal spending cuts due to kick in on March 1. Senate Republicans are likely to reject any proposal that includes tax hikes.

)In his opening remarks, Lew spoke out strongly against allowing the automatic cuts to take place on March 1, saying they would impose "self-inflicted wounds" on a fragile economic recovery.