All of the ruckus over political campaign contributions in the last couple of years is definitely resulting in more public awareness. Shareholders are even getting political now. A proxy advisory service, Institutional Shareholder Services, states that “Investors filed more than 100 resolutions this year asking companies to disclose what they spend on political advocacy. The number of proposals for the first time exceeded shareholder resolutions on energy and environmental issues, which have long attracted significant interest from investors.” This is an inspirational development that investors are starting to request transparency by corporations about their political expenditures. It is not the norm for companies to disclose this information. In fact, 86% of the Standard & Poor’s 500 companies do not provide shareholders with information about indirect political expenditures like money given to trade associations and other groups.
Why the noisy public relations campaign for the mortgage fraud task force? Thankfully, main street has not stopped demanding accountability. As Politico reports, Members of the liberal activist group CREDO Action have made more than 3,000 calls since March to the White House and Obama’s Chicago campaign headquarters urging the administration to assign more investigators to the mortgage fraud task force. About 50 struggling homeowners also protested this month outside an Obama fundraiser at George Clooney’s house in Los Angeles.
“We’re not talking about putting people in jail by executive order,” said Becky Bond, political director at CREDO Action. “We’re just talking about putting a couple thousand investigators on the case. We believe if there’s a full investigation, that’ll result in criminal charges.” Unbelievably, the citizens actually have to rise up and demand that the law enforcement agencies perform their duties. This is quite a state of affairs.
An astonishing explanation was provided by Robert Khuzami, director of enforcement for the Securities and Exchange Commission and one of five co-chairs on the mortgage fraud task force, “The fact they may look around and not see a particular [case] being filed is not the appropriate metric at this early stage of the effort of the working group, but that shouldn’t be mistaken for a lack of progress.” No, Mr. Khuzami, the SEC defines lack of progress with its announcement that no charges will be filed against Lehman Brothers. Since he doesn’t view that as a failure of law enforcement, I can only imagine what his aspiration of justice is in regards to mortgage fraud.
The root of this indefinite “delay” is quoted in Politico by an anonymous source:
A government source working on housing issues said the unit is struggling in part because of a lack of commitment from the White House since its roll out in the State of the Union, citing a leadership vacuum since DOJ Associate Attorney General Thomas Perrelli left the Obama administration in February.
“It’s not happening at the level that it should be happening,” the source said. “There’s no person with juice at the federal level that is banging heads and making sure things are happening the way they should.”
If the priority was to actually hold anyone accountable, we know that an investigation would have started years ago with the first whistleblowers. As early as 2004, the FBI was warning of a mortgage fraud epidemic. Investigators should have went to the businesses where higher volumes of bad mortgages were issued and questioned the agents on up until reaching the top levels of the banks. This same strategy should have been implemented with securitization firms and credit ratings agencies. Instead, years have passed and we find ourselves in another election year. In an attempt to placate the public, a public relations campaign is kicked off with a dramatic uptick in “shuffling the shit”. This new task force was created, people and paper have been shuffled around, subpoenas issued, a website was launched and frequent grandiose public announcements are being made. This is eerily similar to failing corporations that undergo massive organizational restructuring efforts back-to-back until finally being bought out.
This task force isn’t even pursuing criminal investigations. All evidence is starting to point to a repeat of the hush money settlement we witnessed this year because bank attorneys are gearing up for monetary penalties. How is this going to change future behavior? It should not be acceptable for people in the industry to commit fraud and there should be serious consequences for those who do. At the moment, fraud for profit looks like a bet that only has an upside.
As I covered in a previous post, Schneiderman penned an Op-Ed article in which he used phrases like “attacking the foreclosure crisis” and “working aggressively to provide accountability”, in describing the mortgage fraud task force. Below, in another post, I suggested that any new press releases for this ‘force-to-be-reckoned-with’ should include indictments. Unfortunately, another press release was announced letting the public know that a website for complaints is unveiled and available. Seriously? Three and a half years into this and we are supposed to be impressed with a website? Whistleblowers have been filing complaints with various federal departments for years, even before 2009, and they haven’t been given any attention. I wonder if the website falls under the category of “attacking the foreclosure crisis” or is it part of “working aggressively to provide accountability”?
Original Post Published May 2, 2012:
What would you expect a speech given by NY AG Eric Scheiderman, of the Financial Fraud Task Force, on Law Day to include? Possibly a huge announcement about prosecuting those responsible for misconduct and illegalities that contributed to both the financial collapse and the mortgage crisis? In fact, the speech announced that every New Yorker facing foreclosure will be represented by lawyers. Well, isn’t that nice.
Schneiderman puts on his best song and dance maintaining he is tough on bankers and fair to the public by funding foreclosure prevention legal services and housing counseling. The funding for this program comes from the recent multi-state settlement with the five largest mortgage servicing banks. The Invertebrate takes advantage of Law Day to polish a turd. The mortgage settlement is a turd because it allows the rampant foreclosure fraud to continue unabated.
As Abigail C. Field so eloquently explained, “No one yet knows which servicing “standards” will take effect when, or if the deadlines will be extended as the deal allows. Until a standard is in effect, there’s nothing to measure compliance with. Worse, the measuring process itself still has to be negotiated, so standards may take effect without a compliance process to verify implementation. Worst, the metrics let the servicers systematically steal from you and defraud the courts without risk of consequence. Heck, even if all servicing standards take effect before the deal expires, and all the work plans are finalized so that all the metrics are being computed, and banker theft rises to the level that a bank fails a metric, no penalty kicks in unless it’s the second quarter in a row that the bank failed that metric.”
If I were the public relations director for Invertebrate Straw Man Schneiderman, I would propose that the next press release include INDICTMENTS.
The ban on earmarks by the House in 2010 is proving difficult to uphold. Apparently the ban applied to passing legislation with earmarks and did not in any way apply to existing earmarks. Representative Harold Rogers, a Republican who is now the chairman of the House Appropriations Committee, added an earmark to a 2009 spending bill. Specifically, the purchase of $17,000 drip pans instead of the going rate on the market of $2,500. The Army has bought about $6.5 million worth of the “leakproof” drip pans in the last three years to catch transmission fluid on Black Hawk helicopters. For the last three years, that outlay of spending has continued without question racking up a fraudulent expense to the taxpayers of $5.5 million. Isn’t the Pentagon facing billions of dollars in cutbacks? But yet it didn’t occur to anyone to review the spending line item by line item to remove frivolous spending?
On the flipside of this coin is the revenue stream for our government. On Thursday, The House Ways and Means Committee published a list of approximately 1,300 proposed limited tariff bills under consideration for inclusion in legislation that Chairman Dave Camp(R-Mich.) is pushing. Since 1,284 proposals benefit 10 or fewer companies, they are flagged as “earmarks” under House rules.
The list of tariff bills includes proposals from across the ideological spectrum:
Rep. Mick Mulvaney (R-S.C.), Rep. Joe Wilson (R-S.C.), Rep. Tim Huelskamp (R-Kan.), Rep. Andy Harris (R-Md.), Rep. Peter Welch (Vt.) and Democratic Congressional Campaign Committee Chairman Steve Israel (N.Y.). Appropriations Chairman Hal Rogers (R-Ky.) has argued that the proposals are clear violations of House rules.
It doesn’t appear that Washington is getting the taxpayers’ message at all.
Original Post Published on April 26, 2012
We have recently learned about the departmental waste of the GSA and that prompted me to look up another famous form of government waste – the earmark. Technically there should no longer be a story on earmarks because the House voluntarily imposed a ban on pork-barrel spending in 2010 and the Senate followed with the same in 2011. Tom Schatz’s watchdog group, Citizens Against Government Waste, has tracked Washington pork since 1991 and released the 21st edition of its Congressional Pig Book on April 17, 2012. The amount of tax dollars destined for earmarks in 2012 is way down to only $3.3 billion. The high was $29 billion in 2006. I’m thankful that after years of anger by taxpayers over this type of spending that our Congress has reduced the habit to only $3.3 billion.
Earmarks have been one of the traditional vehicles for members of Congress to pay debts owed to campaign contributors. A one-of-a-kind, comprehensive database is available that links campaign contributions with earmarks of members of Congress. “This tool shines a light on the current system where millions of dollars in campaign contributions can turn into billions of earmarked tax dollars,” said Ryan Alexander, president of Taxpayers for Common Sense. “Funding decisions must be based on project merit. With the nation facing enormous budget deficits, we cannot afford to waste a dime.”
Instead of second-guessing a politician’s motives on every legislative action, we could end the valid and true need elected officials have to raise money. By changing the system and therefore the motivations, we can at least eliminate the need to exchange favors for campaign donations. For those claiming that using taxpayer dollars to pay for elections is a waste of money, please take note that under our current system $3.3 billion was spent for elections through ‘banned’ earmarks alone. This method of paying for elections is not reflective of free market forces at all. The perverse incentives and distorted motivations built into this system breed corruption and waste. This faulty foundation of our political system ultimately manipulates our economic system of free-market capitalism into an oligarchy. The only time we will have free-market capitalism under our current campaign financing system is when pigs fly.
Bloomberg reported today that the U.S. Securities and Exchange Commission issued an internal agency memo stating, “The staff has concluded its investigation and determined that charges will likely not be recommended.”
It appears the SEC determined Lehman had questionable conduct, but not illegal conduct in respect to the now infamous REPO 105 transactions. “The SEC would have to prove that the accounting wasn’t correct under GAAP, and sometimes that’s subjective,” said Joseph Dever, a former SEC attorney who is now at law firm Cozen O’Connor in New York. “When you have a subjective analysis like that, it’s hard to prove to a judge or jury that they intentionally got the numbers wrong.” We are not pursuing justice because it is hard to prove? Of course this requires subjective analysis ~ anything of any importance in life does. I thought that the whole point of a judge and/or jury court case was to make a subjective judgment about wrongdoing. This injustice speaks volumes about our society.
Original Post on May 9, 2012:
As mentioned in The Lehman Lynching In 60 Minutes, Anton Valukas, the investigator appointed by the federal bankruptcy court to determine what caused the Lehman Brothers bankruptcy, submitted a 2,200 page report two years ago stating that there was enough evidence for a prosecutor to bring a case against top Lehman officials and the Ernst & Young accounting firm for misleading government regulators and investors. During the CBS 60 Minutes show, the question debated was why there haven’t been any prosecutions. Unbelievably, the answer was that the SEC and the Federal Reserve may have compromised such prosecutions by their own participation in the cover-up because regulators were on site.
After that show aired, there was a meeting between the House financial service committee and SEC chair Mary Schapiro. New Jersey Congressman Scott Garrett stated that constituents called his office to ask “Should [the SEC] have caught something and didn’t?” and if the SEC was going to take any legal action against top executives at Lehman related to the firm’s demise. “We [got] calls from the district … [about] the lack of civil actions,” Garrett said. Many kudos to the constituents! We must never forget. This complete lack of justice stabs the heart and soul of our society. At this point, the regulators who were actually inside Lehman for months before the collapse should also be prosecuted for their role in the crime.
Where is the SEC watchdog? Absent. The SEC Inspector General position has been vacant since January. Actually there are IG leadership vacancies at many key agencies. Just this week there was an announcement about an outside investigator being hired to investigate the Office of the Inspector General for the SEC. OK, so we have regulators at the SEC who didn’t regulate, we have inspectors at the IG who didn’t inspect and we are adding an outside investigator to investigate. The only conclusion I can make of this three-ring circus is that we, the taxpayers, are funding an expensive boondoggle while any resemblence of justice is stripped out of our society. Any investigation of the SEC must include a thorough and exhaustive review as to what SEC officials were doing inside Lehman, Bear, and Merrill as these firms collapsed in 2008 – yes, FOUR years ago! I recommend that the outside investigator be a world-renown blood hound to successfully track this very old scent.
While the SEC is not pursuing justice, it is quite interesting to see what the agency is up to. A couple of weeks ago, the agency brought a civil case against a ratings agency called Egan-Jones. Have you ever heard of it? The agency is not as big or as powerful as Moody’s Investors Service or Standard & Poor’s. Certainly Egan-Jones’s ratings didn’t cripple the global economy, as the other two ratings agencies did. As a matter of fact, there was a whistle-blower — Eric Kolchinsky, a former Moody’s executive who oversaw the firm’s collateralized debt obligation ratings. He claimed that Moody’s fraudulently inflated ratings on a loan deal called Nine Grade Funding in January 2008 because it had already made a decision that it was going to downgrade the assets that were going into the deal. Some three years after that allegation was dropped at the door of the SEC, there’s been no action. The inescapable conclusion is that the SEC is letting Moody’s and S&P officials walk free while pursuing Mr. Egan on minor technicalities.
This week, May 22-24, Reuters conducted a poll and found that seventy-five percent of Americans feel there is too much money in politics.
Almost the same proportion – 76 percent – feel that the amount of money in elections has given rich people more influence than other Americans, the online survey found.
“What we’re essentially seeing is Americans are fed up with the system and they think all the money in the system is not fair and they don’t like it,” said Chris Jackson, research director at Ipsos public affairs.
The poll found 79 percent of Democrats believe there is too much money in politics, compared with 68 percent of Republicans. Independents largely agreed with Democrats on the issue, with 77 percent saying there is too much money in politics and campaigns.
There was a similar gap between the parties on whether rich people have more influence because of the additional money in elections. Four out of five Democrats and independents – 81 percent and 80 percent, respectively – agreed with that statement. Sixty-five percent of Republicans agreed.
The Reuters/Ipsos poll found that most Americans, while concerned about campaign spending, had not heard of the Citizens United decision, at least by its name. Only 19 percent of the respondents knew of the case.
“Despite all the debate that we’ve had in (Washington) D.C. about Citizens United, the rest of the country, at least talking about it as Citizens United, hasn’t heard about it,” Jackson said.
The Campaign Legal Center represents the public interest in enforcement of campaign and media law. During this speech, Potter traces the evolution of the current campaign finance crisis and discusses an agenda to escape it if the political willpower can be mustered. The full text of the speech follows below:
I am often asked how, after 25 years as an election lawyer, service as an FEC Commissioner, and General Counsel to 2 presidential campaigns, did you end up as Stephen Colbert’s lawyer on late night TV. The answer is “I was lucky…”
It just goes to show—90% of life is “just showing up”—and returning phone calls.
I was at my desk one day last spring and the Colbert staff called—“What is a PAC. Would you be willing to explain it on the Show?” And I’ve been doing it ever since…with the forbearance of my law partners at Caplin & Drysdale, although as one of them put it to me, “For the first time in 30 years, my kids care what I do, because I work with Stephen Colbert’s lawyer!”
Stephen Colbert does have a knack for taking very complicated legal subjects and hours of staff discussions and research and distilling it into 4 ½ minutes of Q&A that captures the essence of the issue, and explains it in layman’s language in a humorous, captivating way. What every Supreme Court advocate wishes for!
On one Show a shell corporation we had registered with the State of Delaware as “Delaware Shell Corporation” was turned into the Stephen Colbert 501(c)(4) with a pro forma 15 second board meeting in front of the studio audience. Afterwards, I had a call from a law professor at a prominent West Coast law school who said she wanted to thank me. “I have been trying to find ways to explain the role of incorporator to my students—now I can just show them the Colbert Report.”
But it is NOT the role of the incorporator that causes millions of idealistic younger Americans— and seen-it-all older ones—to watch the Colbert Report’s coverage of campaign finance in this Presidential election year. Nor is it the riveting discussion of IRS filing procedures for Section 501(c)(4) organizations that won the Show a Peabody Award.
The Colbert Report coverage is so successful because it accurately describes a campaign finance world that seems too surreal to be true. A system that claims to require disclosure of money spent to elect or defeat candidates, but in fact provides so many ways around that requirement as to make disclosure optional; a system that says that “independent expenditures” cannot be limited as a matter of Constitutional law because they cannot corrupt because they are “totally independent” of candidates and parties—when the daily news reports about these supposedly “independent” groups show that candidates raise money for them, candidates’ former employees run them, and candidates’ polling and advertising vendors advise them. And the major donors to these “independent” groups are often also official fundraisers for the candidate. Other major donors have private meetings with the candidates, or travel with them on campaign trips!
Some of the other realities of modern campaign finance are just as bad. This year, for the first time since 1972, we have a Presidential election with no candidates financed by public funds in either the primary or the general elections. Instead of receiving grants from the U.S. Treasury to campaign, we see a race by both sides to raise a billion dollars each from private donors. They won’t make it, by the way, because so much of the money instead will be going into the SuperPACs and 501(c)(4)s and (c)(6)s allied with the parties and the candidates.
Those groups will raise and spend hundreds of millions of dollars, not just in the presidential race but in House and Senate races which present “opportunities” for the interests funding them…opportunities to change control of Congress by knocking off unsuspecting incumbents with last minute expenditures of large sums of money, often paid for by undisclosed sources.
And all of this will be done with unremittingly negative ads created by unaccountable media advisers for unaccountable “independent” “outside” groups. Because if the candidates do not have to stand behind their advertising, and answer to the public for it, there is nothing to prevent every minute of every campaign ad being negative, because those ads are more effective—they do a better job of depressing the opponent’s vote. The dirty secret is that voters may not like your candidate any better, but they grow disheartened about theirs, and stay home.
Incumbents have reacted to this new world by running faster and faster on their fund-raising treadmills. Incumbent Senators have to raise hundreds of thousands of dollars a month—every month of their six-year terms.
I recently heard a presentation by the President of a respected centrist Washington foreign-policy think-tank. He discussed the tense situation in the South China Sea, the pirates in the Straights of Malacca, and the geo-political challenges of the melting polar ice cap. Then he identified what he said was “the greatest threat to the United States today”—“the campaign finance system.” I froze, wondering if I had heard correctly. He explained that there were two reasons for this. The first was that campaign money had become the largest corrupting factor in Washington policy making today. And the second was the TIME that this fundraising took. Members are only in Washington two and a half days a week—from Tuesday afternoon until Thursday night. While here they spend most free moments in party-provided phone booths dialing for dollars—or at lunch and cocktail and dinner fundraising receptions. On weekends they are often on a coast –or a mountain top—far from home, at fundraising events. The result, said the think-tank president, is that it is the staff who are trying to make policy. As he put it, “I was staff, and I have great respect for staff, but that job belongs to the elected Members, not to staff!”
Harvard Law Professor Larry Lessig has written a new book called Republic, Lost, in which he argues that our campaign finance system is destroying our ability to have a functioning government. He does not claim that Members of Congress are venal and corrupt—to the contrary he says that they are largely good people, stuck in a system that focuses overwhelmingly on the need to raise money from interests who have it and contribute to influence legislation. To give you a sense of his book—which I commend to you—a couple of the Chapters are called:
WHAT SO DAMN MUCH MONEY DOES
HOW SO DAMN MUCH MONEY DEFEATS THE LEFT
HOW SO DAMN MUCH MONEY DEFEATS THE RIGHT
As you may have heard, Jack Abramoff is now back in Washington, out of prison and having seen the light. “Ban contributions from lobbyists”, he says, “and from the executives of companies that employ them.” Not because lobbying is bad, but because in his own personal experience the involvement of lobbyists in campaign fundraising can dominate the legislative process.
All of this is observed—overseen would be the wrong word, because it would suggest some activity—by a Federal Election Commission riven with partisan and philosophical gridlock. It is so bad that the Commission did not even have the necessary majority vote—four out of six Commissioners—to put out a Notice of Proposed Rulemaking after Citizens United and seek comment on whether it should change the regulations just invalidated by the Supreme Court. It is an agency so deadlocked that on several occasions it has not been able to agree to appeal when its own regulations were declared “contrary to law” by federal district courts.
Meanwhile, Congress itself is gridlocked over most of these issues—when they are here, and working, rather than fundraising. Disclosure, which used to be like “Mom and Apple Pie”—everyone was for it…is suddenly one of the most partisan issues in Washington. For two straight Congresses, there is not a single Republican Senator supporting the DISCLOSE Act, which would give us the disclosure the Supreme Court said in Citizens United that we already had! And the Republican response is that the Act is written to avoid requiring the unions to disclose the individual names of their millions of small dues-paying members. That is true, but is it a relevant criticism? Would they really support disclosing the names of millions of individual small donors to the NRA as well?
How did we get here? It is often forgotten, but for long periods of the previous Century, we had a pretty well functioning campaign finance system. In 1904 President Roosevelt called for public funding of the political parties, and a ban on corporate contributions. In 1907 he got one of those with the passage of the Tillman Act, which banned corporate contributions in federal elections, Congress extended contribution and expenditure restrictions to unions in 1947, and rewrote the laws following Watergate to ensure disclosure, set new individual contribution limits to candidates and parties, and create for the first time a public funding system for presidential elections and establish the FEC as an enforcement and disclosure agency.
Then in 2002, Congress passed McCain-Feingold, which essentially was designed to bring the system back into compliance with the Watergate-era reforms. I know everyone does not agree, but I believe the McCain-Feingold law largely worked in the 2006 and 2008 elections—the parties and candidates raised more money than before, much in small contributions, and there were comparatively few attempted end-runs around the system, and relatively little undisclosed money.
All of that is changed now. Obviously not everything I have described is the result of Citizens United—the Congressional fundraising race has been getting worse for years. But much of what we face today is the result—intended or otherwise—of that 2010 decision.
The Court made three fundamental mistakes in Citizens United. First, it declared that while corporate spending in all elections—state and local as well as federal—must now be allowed, that would be accompanied by complete disclosure of all campaign spending. Shareholders would know how their corporations are spending their funds, and voters would know who is paying for the election ads they are watching. As we have seen, this has not proved to be the case—largely because the Supreme Court majority was reading the statute, rather than the more obscure FEC regulations which “interpreted” the statutory disclosure mandate out of existence.
Then, the Court assumed that “independent expenditures” would be “totally independent” of candidates and parties—which is how the Supreme Court defined independent expenditures in Buckley v. Valeo back in 1976, and why it found them to be free of any possibility of corruption. As we have learned this year, that is a nice theory—with very little grounding in political reality, or in FEC regulations. Instead the FEC has actually deadlocked on an advisory opinion asking about the possibility of making coordinated non-coordinated election communications.
Finally, the Court erred, most seriously of all, in announcing that the only corruption that the government can attempt to avoid is “quid pro quo” corruption—explicitly trading votes or similar official actions for money—exactly the sort of personal venality that rarely exists. Justice Kennedy wrote: “The appearance of influence or access, furthermore, will not cause the electorate to lose faith in our democracy…Ingratiation and access, in any event, are not corruption.” The Court seems to be saying that the Congress, and state legislators cannot address systemic corruption—what Prof. Lessig calls “type two” corruption– the effect on the legislative process of the massive amounts of money being raised and spent, and the sale of special access to large donors, and the threats of massive “independent” expenditures if the legislators don’t vote as they are asked. This, the Court seems to say, is all protected by the First Amendment—even if it is this sort of systemic corruption which most worried the founders when they sought to make Congress independent of other interests, “accountable only to the people.”
I do not pretend this is a simple constitutional issue, precisely because this is where two important Constitutional values meet, sometimes head on: the First Amendment, the quintessential individual right to free speech, which we know about, and the important collective right to a functioning, representational government, which we sometimes forget is the whole purpose of the Constitution. But the Supreme Court has until now recognized repeatedly that the legitimacy of government is threatened at its core when it is corrupt, or even appears to most citizens to have a serious conflict of interest.
Since the Supreme Court’s decision in Buckley, which upheld most of the Watergate campaign finance reforms (with the important exception of “expenditures totally independent of a candidate or party”), the Supreme Court’s jurisprudence in campaign finance has changed. The Court has moved from largely upholding regulation of campaign fundraising and corporate spending, to striking it down. The 6-3 Austin decision acknowledging the corrupting potential of corporate money in elections was succeeded by the Supreme Court’s 5-4 decision in McConnell v. FEC upholding the McCain-Feingold restrictions and then shortly after by the Court’s 5-4 decision the other way in Citizens United striking down McCain-Feingold’s regulation of corporate and labor money in elections.
One noteworthy aspect of Citizens United is that it was decided by a Court which, for the first time in U.S. history, has not a single Member who has held elective office. Justice O’Connor, the key vote to uphold McCain-Feingold, had run for office, raised campaign funds, served in the Arizona legislature as majority leader, and understood how dangerous and complicated the intersection of campaign money and legislation can be. She was willing to defer to Congress, after it spent years discussing the potential and appearance of corruption in the fundraising done by members and party committees. She deferred to the considered judgment of Congress in dealing with what it identified as a serious problem, on the theory that they knew more than the Supreme Court about corruption in the legislative process.
Other Justices show no such deference—in fact, they appear to think any regulation of campaign finance by Congress is suspect, that it must be nothing more than incumbent protections. Having watched firsthand as insurgents and rank and file members of Congress passed McCain-Feingold with considerable public support and over the bitter opposition of insiders of both parties,—I did not regard the legislation that way.
But more importantly, I think the clear propensity of this Court to brush aside Congress’ judgment that there is a danger of corruption of the legislative process because of election spending creates a serious institutional barrier to Congress’ ability to safeguard the legislative process.
In the last two years, the Supreme Court has allowed unlimited corporate and labor spending in all elections in the U.S., overturning 60 year old federal laws and some older laws in 26 states. It has declared unconstitutional as a restriction on speech the Arizona public financing system, because it provided additional public funds for more speech to candidates participating in the public funding system, triggered if their opponents spent that amount. The DC Circuit has declared unconstitutional the longstanding $5,000 contribution limit to independent-expenditure only political action committees, which decision has resulted in the creation of what we know as SuperPACs—like Stephen Colbert’s Americans for a Better Tomorrow, Tomorrow.
All of this has been done in the name of the First Amendment, which as Americans, and as lawyers, we revere. But one can be a First Amendment absolutist without being absolutely sure what it requires and what is prohibits. Well-meaning and wise people can differ on these questions, which I believe argues for some deference to Congress when it seeks to limit corrupting activity, as they are the ones who experience the campaign finance system on a daily basis.
The courts themselves have been of several minds about what the First Amendment requires, and remain closely divided. The Supreme Court’s current doctrine is that spending money for an ad that elects a candidate is not corrupting, but giving the candidate the money to run the same ad is. The Court has held that Congress could prohibit corporate and labor expenditures in elections—until it held that it couldn’t. The Supreme Court in Citizens United said that the government had no business limiting anyone’s speech, and that we are better off hearing ALL voices, no matter their source. Then it summarily affirmed the decision of a three-judge district court in Bluman v. FEC that held that the government could prohibit foreigners legally residing and working in the U.S. from speaking in U.S. elections. The three-judge court explained that the difference was that foreigners were traditionally outside of participation in the U.S. political system, even if they lived here. Of course, many people thought that was true of corporations too, until Citizens United.
My point is not that the Court was right in one case or wrong in another, but rather, that these are close and complicated issues of Constitutional interpretation and that the Court slashing its way through campaign finance statutes with a machete seriously threatens the stability of our democracy.
I am occasionally asked questions by reporters and foreign visitors about our campaign finance system and I have taken to responding that there is now no such a “system.” The laws written by Congress have been so rearranged by various Court decisions that they resemble the pieces of a jig-saw puzzle, laid out randomly on a table, with important pieces missing.
On occasion, it suits the partisan interests of one side or another to claim that the pieces cannot be put back together even when they can—that a constitutional barrier exists when it does not—because that argument sounds better than acknowledging the partisan reality.
One example of this is the current debate about disclosure. There are certainly good reasons for some of the organizations running political ads this year to think that they will raise more money if they do not have to disclose their donors. American Crossroads started as an organization that disclosed its contributors—but it did not have as many as expected. Then, they created a 501( c)(4) that did not disclose its donor’s names—and it suddenly had a whole lot more.
Corporations may have good reason to seek to keep political expenditures secret—secret from their shareholders and customers and employees, at least. The example of Target, which faced consumer boycotts, shareholder resolutions, and angry employees when it contributed to a committee supporting a controversial candidate for Governor in its home state of Minnesota in 2010, is often cited as what other corporations hope to avoid.
However, in addition to these practical arguments, opponents of disclosure attempt to wrap their position in the Constitution. They claim that requiring the disclosure of funders of political ads would “undermine” Citizens United. They also claim that the secrecy of corporate funding is protected by the 1950s civil rights case NAACP vs. Alabama.
The Citizens United claim is particularly far-fetched. One under-reported aspect of the Citizens United decision is that the Court upheld the broad disclosure requirements of McCain-Feingold 8-1: every member of the Court except Justice Thomas agreed that “the public has an interest in knowing who is speaking about a candidate before an election.”
The eight Justice majority for this portion of Justice Kennedy’s Opinion went on to praise disclosure of the sources of political speech in robust terms:
“With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests…The First Amendment protects political speech; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”
It is hard to think of a more ringing endorsement from the Court of mandated disclosure of the funding of political spending!
The NAACP comparison rests on a similarly flawed foundation: the harm faced by members of a small and highly unpopular civil rights organization in Alabama in the 1950s was severe physical violence—even death. Groups that allege a fear of “reprisals” today are of a different nature entirely, as is the nature of the alleged reprisal. The NRA and Chamber of Commerce are hardly small and vulnerable unpopular minority groups. Nor is the organization in California that led the campaign against same sex marriage in that state to a 52 percent popular vote victory. And the harm alleged is not death or serious physical danger, but insults and consumer boycotts (itself protected first amendment activity).
As Justice Scalia wrote in Doe v. Reed, a case about disclosure of ballot signatures:
“There are laws against threats and intimidation: and harsh criticism, short of unlawful action, is a price our people have traditionally been willing to pay for self-governance. Requiring people to stand up in public for their political acts fosters civic courage, without which democracy is doomed. For my part, I do not look forward to a society which…campaigns anonymously…[t]his does not resemble the Home of the Brave.”
So, where do we go from here, on disclosure or any other campaign finance issue??
We have campaign finance practices that both parties—and presidential candidates—say they dislike. I would like to think that after this election the problems with the status quo will be overwhelmingly clear to both sides, and a consensus on a new way forward will emerge. Unfortunately, at the moment only the first part of that sentence seems accurate—the problems are clear, but the ability to reach a consensus is not.
There is talk of a constitutional amendment. Not only would such an amendment be hard to draft, putting the interpretation right back into the hands of the Courts, but I think talk of an amendment encourages avoidance of the hard work that should be done to solve these problems. For there are legislative solutions that would be both effective, and constitutional—they just take legislative willpower. Such a reform agenda could include:
- Defining independent expenditures so that they are truly independent-of the candidates, their agents, previous staff, close family members, current vendors
- Requiring disclosure of the sources of funding of all election ads, no matter who runs them
- Reform of the FEC, so that it becomes an effective, independent, enforcement agency
- Restrictions on contributions, and fundraising, by lobbyists
- Lobbying regulation reform, as proposed by the ABA, to ensure that people who lobby or run lobbying campaigns, become registered lobbyists
- An effective public funding system, so that candidates for President and the Congress have the resources needed to campaign for office, and to run for re-election, without spending every moment of their working day thinking about fundraising rather than doing the work they were elected to do
These are not easy solutions, and I do not claim they are the only ones, or even necessarily the right ones. But the time has come that we—all of us—need to dedicate ourselves to acknowledging the problems with our campaign finance practices—and what they are doing to our governmental system—and resolve to correct them.