Accountability After Citizens United – Panel Two Questions and Answers Transcript

Panel 2: Regulatory Pressure Points: New Strategies for Accountability

Questions and Answers

Mimi Marziani: Wonderful and thank you all. I truly appreciate that you can approach what can be very controversial issues with common sense and sanity. I think that’s to be applauded and, as Marc noted, sometimes unfortunately too rare. And I think I will lead off the question period but people should feel free to start lining up at the microphones.

My question, and Marc hit on this somewhat, but as an advocate who cares deeply about enhancing accountability, and as a concerned citizen, what one top pressure point would you recommend to me as something that I could support and has a reasonable likelihood of success? I’m thinking what’s our next step, in other words? Anybody can start.

Marc Elias: I was just going to say I would sort of pick up two themes that I heard earlier. The first is, I think Commissioner Bauerly pointed out correctly the language in Citizens United around disclosure and not just in Citizens United, but in other cases, around disclosure. I am not, there are others who have spent a lot of time and think deeper thoughts than I do around what this jurisprudence is, but I think there is certainly a way to tease out a jurisprudence around disclosure that frankly right now I think there is a reflexive answer to disclosure and I think that the Supreme Court has given the building blocks to create a more thoughtful jurisprudential position around disclosure.

Holly Schadler: I would second that and I wouldn’t just look at Citizens United, though I don’t think that’s what anyone is suggesting. In preparing for this I went back to Massachusetts Citizens for Life and it had some very interesting passages about disclosure that again are measured. The Court seems in certain passages in that opinion to have talked about what is necessary to achieve the end we’re trying to achieve and not disclosure that is so burdensome that you end up ultimately either having a backlash as Marc was alluding to or you have disclosure that is tantamount to what federal political committees are subject to though the organizations that are disclosing are not federal political committees. So I think going back to Massachusetts Citizens for Life is really important as well. And I would second this idea of looking at opportunities for advisory opinions because I do think that that’s a useful tool and one that has produced some real clarity in certain circumstances and could be useful in the disclosure as well.

Mimi Marziani: Do you have any thoughts?

Bruce Freed: No.

Ellen Aprill: One of the issues we have in tax is the purpose of disclosure in the tax laws, and if it’s different in the tax laws. The reason why we get disclosure within private foundations is, at the time the law was enacted, we thought private foundations were suspect. It is not clear whether we can legitimately do that for c-4’s  that do not get charitable contribution deductions, and which exist for many different kinds of purposes, not all of whom engage in campaign intervention. What disclosure means in tax as opposed directly in campaign finance is an issue that requires further thinking.

Audience Member #1: Hi, Bruce, I have a question. These accountability, disclosure, transparency policies are being adopted in the C Suite. We have also heard, Charles Kolb say today that there seems to be a disconnect between the C Suite and K Street, and not just K Street but the equivalent streets in Albany and Sacramento and the other 48 states. So, how are you tracking implementation company wide because you can adopt a policy at the top but these corporations often have multiple subsidiaries and others that can take independent action and I go back to the 80’s when there was a big rush to adopt corporate privacy policies because the Europeans were adopting all of these personal privacy legislation and about 120, 130 corporations with a lot of publicity adopted personal privacy policies but when we drill down and the we then was business international it didn’t permeate very low and the policies weren’t followed, so in terms of the kind of negotiation you’re doing with company to what level of implementation are you getting and how are you tracking the companies are really disclosing and not giving money to citizens for the clean air which is really supporting fracking.

Bruce Freed: I mean companies that have adopted disclosure. There are some that honor agreements in the breach. We go through and try as much as possible to monitor adherence. The index is a powerful tool for that and that’s why we’re doing it with the S&P 100 and then expanding it. We are using that as the tool for going back and with those companies that have lower scores and that have adopted disclosure re-engaging them. That means re-engaging them directly by CPA but also with our partners. Doing it with the partners is important because an agreement allows the partner to go in and say you’re not adhering to an agreement that you have reached with us, an agreement that has standing. When Charlie was talking about the disconnect between the C Suite and others, that’s another interesting question. I was just speaking to the Council of Chief Legal Officers of the Conference Board. The audience included the general counsels of 34 companies, a very interesting mix because there were two folks from companies that had adopted political disclosure and who were very open about why their company did it and were positive and supportive. But then there were general counsels from other companies who were skeptical or hostile. I think you need to deal with folks at that level. Having groups like The Conference Board that are now supportive of dealing with political spending and its risks is important because there is an education process that needs to be continued and enlarged to get companies to recognize the need for political disclosure and accountability. Increasing the number of companies that have adopted political disclosure is important because it begins to create pressure on other companies that have not adopted to do so. That will make political disclosure a standard. Moving from a best practice to a standard is important because it creates those further pressures on companies to adopt political disclosure and accountability.

Audience Member #1: Can I just follow up? What kind of support would help move that process along?

Bruce Freed: You need to have foundation support to provide the sustained and substantial resources to underwrite the effort and achieve results. We’re working with other organizations on this. Support from the business community is important because political disclosure and accountability must be seen as something that’s acceptable but also something that is the norm, that companies are expected to do. That’s why we’re developing relationships with companies that want to be leaders on this. We work with them, we continue to expand that, because it’s much like the ripple effect. We need to be able to get more companies and more leading companies to adopt political disclosure and accountability.

Mimi Marziani: Thank you. Adam, do you have a question? 

Adam Skaggs: In the last several days we’ve seen a substantial amount of attention to the leaked Executive Order, that’s come to public attention and I wonder if anyone on the panel would have any thoughts to share either on the content of the order or at least what we understand it to be and the criticisms that have been leveled at that?

Holly Schadler: I can speak to the content of the order which I went through rather quickly. What the order seems to say is that the if an entity applies for a federal contract, it is required to disclose all contributions and expenditures to or on behalf of Federal candidates, parties and party committees made by the entity and its directors, officers and any affiliates or subsidiaries and then contributions made to third party entities with the intention or reasonable expectation that they’ll be used for contributions or to make independent expenditures and it’s a look back of two years. So it’s a very broad provision.

Adam Skaggs: And in terms of some of the criticism that we’ve seen about that in terms of violating NAACP and these cases that protected some anonymity and political speech, do you have any responses to any of that?

Holly Schadler: Well I’ll just say very briefly that I’m not sure, I’d have to think about it a bit more but I’m not sure NAACP really is invoked here simply because this is, the spender itself disclosing its contributions or independent expenditures so no third party is being required to disclose receipts, its receipts. I think that some of the issues that have been discussed are very interesting, there is a whole discussion about how this interacts with the Pay to Play rules which is very well worth taking a look at and we don’t have time to talk about that here but it’s a very interesting issue. The second issue is the language in the second part of the draft order seems to talk about giving donations to third parties where there’s an intention or reasonable expectation and those terms we know from the Disclose Act and other debates of a similar nature raise some significant issues about intent and how you determine that intent.

Marc Elias: I mean the only thing I would add which is on a kind of related point is that I think there’s probably no area, at least on a campaign finance front that is expanding more rapidly and dynamically than Pay to Play generally. I mean the FCC has adopted pay to play regulations, G-37, of course, has been in place for a long time but there’s a lot of different places to look at, law typically either follows the sort of the mini model where there’s a federal stature then mini state statutes or the laboratories of democracy approach and paid to pay is one of these areas where other’s lots of laboratories of democracy going on and I suspect we will see more of that stuff bubble up to various ideas at the Federal level.

Audience Member #2: With a panel like this with such well established and well known technical expertise and practical experience in this area I want to nudge at you a bit more. To talk about what disclosure we think would be beneficially, what we mean by disclosure and what we don’t mean by disclosure and where we think the pressure points of opposition may be. And I’m specifically interested in money trails, not just disclosing one’s own activity but the movement of money. Now there’s nothing inherently wrong with the movement of money, but as Ellen and I know from the entities that we have represented and written about for more years than we’re going to enumerate right here or anywhere else potentially, our entities serve as disclosure blockers. Or can, and other entities say they want to disclose but they may be relying on us as disclosure blockers. And I will say about Common Sense Ten, you’ve got a great deal, you’ve got corporate money for disclosure and it was a wonderful bit of lawyering and I thought it was terrific. And, I’m one admires the ability to do this and again that’s Citizens United and fine, but it was good, nevertheless, good lawyering, but if we’re thinking about money trails and all the places where the block to disclosure can occur, quite legally and even with good arguments about why that block to disclosure should occur then it is fascinating to have the President’s Executive Order with Part II and I knew Holly or somebody would have the executive, I couldn’t be the only person with the Executive Order in my briefcase today, but Part B talks about these contributions to third parties. No reference to a charity carve-out, no reference to tax exempt status and different taxable status. It seems quite broad, but I would just like to take it out of the Pay to Play context which I agree with you, Marc, is going to be a tremendous area of controversy, and probably legislation and just talk about money trails, what are the pressure points? What are the blocker entities? Do they necessarily have to be blocker entities and the big question is what do we mean by disclosure?

Mimi Marziani: A great question, and Bruce, let’s start with you perhaps because you work so closely with so many business corporations.

Bruce Freed: I think you’re absolutely right and this is something that we have been very concerned about and we do have an eye on because you can give money to an entity, and then that money goes further along. You would give it to a 527 in the past or to a trade association and the money moves along. We’ve seen in this in judicial races in the South, in Alabama particularly. It’s a daisy chain and it’s used deliberately to hide the source of the money.

Audience Member #2: It’s Laundering.

Mimi Marziani: Great, thank you.

Bruce Freed: Oh it is laundering, without question and we addressed this in the handbook. I want to hold this up for everyone to see. It’s on the CPA website. You can get it from The Conference Board. The Conference Board was going to charge for this but decided it was so important that they are distributing it free of charge. There is a footnote, footnote 45. It deals with Avon and Avon’s practice of disclosing how its money is being used. The company is not a major contributor. However, it felt disclosure was important and it agreed to the policy. It doesn’t give direct contributions but it does make payments to trade association. It disclosed how some of the trade associations were using its money. They’re not major trade associations, but it established a precedent. In discussions with companies, we do talk about the importance of, the need for companies to know how their money is being used, because as it goes down the line, the company is still associated. It is the origin of the money that is being used for various purposes that can create risk. This whole thing about companies placing restrictions on how trade associations can use their money is very important. We’ve had discussions with companies where they’ve said yes, money is fungible, so we place the restriction and it means that trade association tells us, oh no, we’re not using your money for that purpose. But you know that either it is or that other monies are being used. Other monies are being freed up. I think companies are recognizing that this is something that they need to look seriously at, and some of them have said to us, let’s work on developing restrictions that are meaningful, that are effective. In the case of a major financial services company, when they agreed to disclosure, they said we’re sending a letter to all of our associations, stating that our money is not to be used for political purposes and we’re requiring the associations to acknowledge receipt of the letter and adherence to this.

Holly Schadler: I don’t have an answer for you. But, I’ll give a few thoughts, because I think this is a very tricky issue and I come at it, largely from the perspective of organizations that are trying to be involved in the political process, they think in a beneficial way and the burdens of disclosure and even if they’re very, very much of the mind that disclosure is a good thing the administrative burdens get to be slightly overwhelming, particularly if they, you take it very seriously and it begins to discourage what is probably you know very very noble and good activity in furthering democracy. So what I would say is one thing to do would be to sit down with these groups that are really trying to, that are not working on necessarily campaign finance reform but are working on their types of issues that are social and economic issues and say how would these proposals work for you. Because I think that will be a very instructive exercise. With some really careful thought about what the implications would be of various disclosure regimes, particularly these ones that reach back and aren’t just, these are our donors, but those that say if you give with the intent and you know that sort of thing.

The second issue is: when we talk about the responsibility for your donation through a process you get into situations where you do have an organization that has a $3 million budget and makes $100,000 worth of independent expenditures and you really do question whose money is it and it would really be quite inaccurate to say it’s, you know, one or another individual entities’ money that was being used for this unless it was earmarked for that purpose. On the other hand disclosing all of the millions of contributions that they received, big and small, would probably overload the disclosure system and make it really difficult for the public to use it in any useful way. And there is some actually very interesting language again and I don’t have it written down so I’m probably going to get it slightly wrong but in the MCFL decision it talks about really two different types of contributions, one which the donor continues to have some role in, or with, where they’ve earmarked the contribution and another where there’s really a delegation of authority and they’ve just given because they very generally think this organization is going to do good things and that’s the end of their involvement and I do think that’s a very interesting conceptual issue that should be thought through in any disclosure regime.

Ellen Aprill:  One thing we might think about, not answering all of Fran’s questions, is raising the threshold for disclosure.  The IRS number of $5000 or more, seems more meaningful and may very well give the information that the public needs.. One of the interesting things about the Disclose Act was the organizations it limited disclosure to and if Congress  had said  that only these have to disclose, all sorts of other 501(c)’s would suddenly become vehicles, I believe, for this kind of activity. I’m still astonished that veterans organizations that are allowed to take deductions and can lobby and engage in political activities, but we don’t see them as players in this area,.No one I’ve asked has said they have gotten to this area. If, however, you start saying, telling c(4)’s, (5)’s and (6)’s that they can’t engage in this activity, I bet we will see 501(c)19’s veterans organizations doing it. In the private foundation area we have something called expenditure responsibility. If a foundation makes a grant to something that is not a public charity and there may be some places where we would require expenditure responsibility for certain kinds of grants. But Fran and I would have to talk together to figure out where that line might be drawn.

Marc Elias: I just want to add just very briefly to what Holly said. For many years the opponents of campaign finance reform would regularly talk about, if only we had disclosure we wouldn’t need all of it, and the disclosure was not just going to be disclosure, it was going to be instantaneous, it was going to be on the Internet, it was going to be like billboards with disclosure. I mean there’s going to be disclosure everywhere you turn around, there would be disclosure, and honestly I thought and maybe naively so, I thought that the Disclosure Act was an effort to get at exactly what you’re talking about. Some of the criticism that came with Disclose Act I thought was unfair because it was precisely to try to get at those blockers to use your term and try to figure out, okay, let’s getting meaningful disclosure around this and, in the end, the opponents of Disclose didn’t seem to come forward with any alternative compromised position to the Internet real time billboard, you know, some sort of disclosure that they had talked about and so I think that that’s a real issue and I think that in some ways it’s unfortunate that the opponents of Disclose rather than seeing that as a problem to help try to say okay we don’t like exactly the way Disclose did it, so let’s try to solve this problem a slightly different way, they I think instead just used as an opportunity to oppose the bill which I think was unfortunate.

Mimi Marziani: I’m actually going to take the Moderator’s prerogative, use Charlie’s term, to ask a follow up. Because something I thought was interesting about the Disclose Act, or one particularly interesting aspect was that it allowed a C(4) organization that wanted to get involved in partisan politics to put aside some separate segregated funds, and then it would have to disclose individual donations when they were given to that fund, so that we would avoid the problem that Holly mentioned where you know a Planned Parenthood type entity would be in a situation of having to disclose every person who had ever given a $50 donation which I think strikes you know, the insanity, I mean that just seems crazy and I wanted to hear your thoughts on that kind of compromise solution in the Disclose Act, whether you think it makes sense and whether you think it would work.

Holly Schadler: And that kind of segregated fund is available under the regulations for election and communications too, to avoid disclosure of all contributions but to have a specially dedicated fund. The little that I remember in looking at the Disclose Act… months ago and during the election cycle as well, so my attention was not entirely on it, is that the one issue that is raised by that is because this is theoretically money that is going to be used in the political process it could raise 527 tax issues. I mean is that separate segregated fund actually a 527 tax entity which you really get into complicated issues.

Ellen Aprill: And I was astonished that nobody addressed that in any of the discussions.

Holly Schadler: We did.

Ellen Aprill: It seemed to be a very big issue.

Holly Schadler: Yeah, that was why I remembered it.

Marc Elias: But again, you know it strikes me that we’re in the context of Congress passing a law that’s solvable since Congress could have changed the law.

Mimi Marziani: Right.

Marc Elias: So if that’s the basis upon which opponents of Disclose didn’t want to support it, then let’s solve that issue through the passage of the Disclose Act. Like I said, in the end at least in some quarters and I won’t say universally, in some quarters there just seemed that having suggested that disclosure might be a solution when it actually was upon, when it was actually upon them as an opportunity to discuss, here’s a real piece of legislation rather than saying, okay we have to adjust this threshold up or we have to deal with related tax issue that was just, there was no interest in engaging in that and it was just an opposition.

Mimi Marziani: Well in all fairness, if we had a majority rule Senate, we actually would have a Disclose Act.

Marc Elias: Indeed.

Mimi Marziani: Arguably it would have passed in a different universe.

Marc Elias: I think it got close, it got 1 or 2 votes…

Mimi Marziani: Yeah I think it was 59 votes.

Marc Elias: Yeah.

Mark Ladov: I was hoping that the panel could follow up on something that Marc mentioned about political parties and sort of their role in this new Citizens United world. One of the concerns that I have and that I’ve heard in a lot of quarters is that with all this new outside money coming in that the candidates who are actually accountable to voters and the political parties who are at least somewhat accountable to voters, are being pushed to the margins of elections. I think, as I believe Chair Bauerly alluded to earlier, there’s been research about the 2010 election showing that outside spending groups were much more likely than parties or candidates to run negative ads and that the groups that were not disclosing their funders were even more likely to be running negative ads, and you know much more likely to be running misleading ads, because at the end of the day nobody is going to really be calling them on it. And so I’d be curious to know I guess what proposals the panel would have, I guess whether you share that concern, and what you would think we should be doing to try to bolster the role of parties in the system.

Marc Elias: So far, I’ve spoken a lot about this. Let me put two concrete things on the table and let me preface it by saying that for the reform community I think they just have to, each of you have to sort of make a decision here whether you want to actually help solve this problem by strengthening parties, or whether it’s simply a talking point to talk down corporate spending. If you want to solve the problem with weak parties, I think there are a couple of things you could do. Number one, the Federal Election Commission took a statute that says FEC write new restrict coordination rules for ads run by everyone other than candidates and parties, and they wrote restrictions that applied to parties. It was an error when they wrote the rule. I don’t believe it’s consistent with McCain-Feingold, Commissioner Bauerly wasn’t on the FEC at the time but she certainly said this before, the FEC tomorrow could open a rule-making, change the coordination standard for parties, lower it significantly, I would bet you if the Democratic Commissioners went along with that, I bet you the Republican Commissioners would go along with it, it could be done and if the reform community filed that petition, I bet you it would be go through. The second thing which was a part of, at least part of the Disclose Act in one of the two chambers and I can’t remember which, which was actually an amendment offered during McCain-Feingold by Senator Torricelli, which is to extend lowest unit rate to party committees. You could significantly advantage party committees in buying television time, by applying a more robust standard of lowest unit rate generally but applying it to ads purchased by party committees. Those would be two things you could do that would strengthen the role of parties vis-a-vis third party groups.

Elizabeth Kennedy: Well I wanted to return us for a second to talking about how to effectuate real disclosure of these issues because I think that as we saw in 2010 with so much stark political spending that we’re really only continue as people learn how to play more effectively and in a more sophisticated fashion in the current regulations, they’ll be able to as Lance had called launder more of their money through organizations that in fact then don’t have to share their true source of funds with the voters, and I wonder if anyone on the panel thinks that the concept particularly when we’re discussing business corporations that they would have to go through and disclosure these organizations would have to disclosure under the concept of doing business as. So for example, groups, you know, when it was I believe it was Littleton Neighbors for Sensible Development or something was almost entirely funded by Wal-Mart, so if you’re looking at an organization that receives a very high percentage of its funding from a specific source and if that source is specifically a business corporation that we definitely have seen those examples and if you think that that concept of doing business as, which exists in other elements of corporate law and I believe in regulations, although you would know more if we could import that in a useful way. And then generally on the developing narratives of disclosure you know recently we’ve seen all of this attempt to portray disclosure which used to be agreed upon, they were for it, before they were against it, but suddenly we’re seeing this attempt to develop this idea that it is in fact chilling of speech or a burden of political speech and I noticed Professor Schadler that you just had said that it begins to discourage participation and that’s exactly the kind of means that opponents of disclosure are trying to forward, so I think that we want to be really sensitive to how we discuss those things.

Ellen Aprill: I don’t know whether this is doing business but it is similar to the suggestion I made about requiring disclosure,  and similar to the private foundation rules, when you have only a few donors which would be defined and would catch these kinds of organizations, and not require Congress to go quite as far as it was clearly unwilling to go.

Holly Schadler: There’s one other thing I would add is that idea that concept is certainly what is contemplated in the FCC petition, that there would be some percentage, 25%, or so that there’s a minimum of four donors, sorry a maximum of four donors disclosed on any particular broadcast ad, now that of course will only ever cover radio and television but the same kind of provision can certainly be brought into other forms of disclosure and for example, California has that, has a provision for all political advertising I believe that requires not only the name of the organization that’s paying for the advertisement, whether it be a handbill or anything, newspaper, but also the major donors to that organization.

Audience Member #3: No, that only covers initiatives, that was passed by, and only publicly passed initiatives and it only covers political advertising related to initiatives campaigns.

Holly Schadler: Right but what I’m saying is that it doesn’t just cover broadcast.

Audience Member #3: No, it covers everything and it basically says you know funding provided by is the top of …

Holly Schadler: Correct, right.

Audience Member #3: Funders above $25,000 dollars.

Holly Schadler: Right, but there are other states that do have this, not many, but …

Mimi Marziani: Washington…

Ellen Aprill: It does cover other types of media.

Mimi Marziani: Great. I think we have time for one more question. Okay, one more question.

Audience Member #4: Yes, actually once we had Citizens United, the spending went up measurably, what was it five times. I want to ask you to give, because you’re on the front lines of dealing with these technical issues, just assume for a second that we have disclosure. Okay, and that’s it’s a significant disclosure. We don’t have a plethora of new veterans organizations… So, given this, would you expect that amount of money now being spent that’s unaccountable to go down, just by the fact of disclosure or do you think it will have no effect?

Holly Schadler: It’s an interesting question and I certainly don’t know the answer. One of the things that I think about is in I guess 2000 when the prior to 2000, 527 organizations were not required to file with the Internal Revenue Service and were not required to disclose their donors so for I guess $200, everyone thought that when the new disclosure regime was instituted that 527 money would significantly drop and I don’t believe that that was the case. So, I think it would be interesting to look back at that experience and see whether that’s the case or whether really it would continue with fuller disclosure.

Ellen Aprill: And maybe partly because the IRS database wasn’t very good.

Marc Elias: Yeah, my instinct, I have no idea, like Holly, I don’t know. My instinct is along the lines of hers that in 2004, we saw some very large 527’s and honestly, you could speak to this but honestly 501(c)(4)’s existed in 2004. And there was not this sort of sense of oh my god we can’t be in a disclosure regime. This needs to be in a … because there are trade-offs, there are issues that involve primarily purpose that make 501(C)(4)’s less optimal for some of this…

Ellen Aprill: and gift tax.

Marc Elias: and gift tax.

Ellen Aprill: 527’s explicitly are not subject to gift tax.

Marc Elias: So, I like Holy I would be curious to see if there’s any data to suggest that at least in that experience there was any dissuasion but …

Bruce Freed: I think that disclosure can be helpful if it is accompanied with monitoring. Some of companies have come under pressure from their shareholders. I know of at least one case where a company has told a shareholder that it will reduce its payments to a trade association by half. If you’re going to get about this type of change, then you need to have that type of monitoring and follow up engagement. That’s why you have to have disclosure and accountability. Accountability means going in and taking a look at where the money is going, are there conflicts with company values and positions? You have to really examine this to understand the level of risk and make companies aware of the risks they are exposed to.

Ellen Aprill: But Bruce, aren’t you saying possibly what Fran talked about - you form two trade associations. One doesn’t do the campaign intervention and they continue to give the money and the ones who want to give the money to the campaign intervention, they go to the other trade association.

Bruce Freed: Now you’re talking about trade associations such as the Chamber, you’re not going to have dual trade associations there.

Ellen Aprill: But smaller ones.

Bruce Freed: The smaller ones are not the major players. When you’re taking a look at the intervention in elections, in this last election it was the Chamber of Commerce, it was Pharma and the health insurance plans. You’re looking at a handful of associations.

Mimi Marziani: Okay, all right, so now we can have thunderous applause for our wonderful panel.