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It’s Time to Turn Leaks Into Public Disclosure

Lack of transparency forces investors and the voting public to wait on whistleblowers for information about corporate political spending.

November 24, 2014

Watching CitizenFour, the documentary about Edward Snowden’s revelations,  prompted me to think about the whistleblowers we protect and those that we don’t.

Among the many reforms in the Dodd-Frank Wall Street Reform and Consumer Protection Act (or Dodd-Frank for short) are robust incentives for whistleblowers who help reveal violations of securities laws. Indeed Dodd-Frank allows the SEC to pay a whistleblower up to 30 percent of penalties of $1 million or more from enforcement actions.  On September 22, 2014, the SEC announced its largest whistleblower award yet of $30 million to someone outside the United States in a fraud enforcement action.

Sean McKessy, chief of the SEC’s Office of the Whistleblower, noted, “This award of more than $30 million shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice.  Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”

Federal law thus dangles a large monetary carrot to enforce our securities laws.  And the law provides protection for such whistleblowers from employment retaliation including the right to be rehired, double back pay, litigation costs, and attorneys fees.  All of this is done to protect the integrity of the capital markets and to ensure that there is good reason for those who know the truth to come forward with information. 

According to the Congressional Research Service, Dodd Frank is one of 18 federal statutes that provide whistleblower protection.  Unfortunately, neither of the major laws (Federal Election Campaign Act (FECA) and Bipartisan Campaign Reform Act (BCRA)) that deal with money in politics is on that list. As a nation we haven’t decided to incentivize the protection of the electoral process in the same way that we have incentivized the protection of the market. And thus secrets in the electoral process, like how much corporate money was in the 2014 election, may remain secret forever.

There is a huge “dark money” problem in our elections.  Over the past four years (2010–2014), there has been around a half a billion dollars of dark money in federal elections. A big chunk of that is running through major trade associations (501(c)(6)s). So while only the spenders know 100% where the money is from, some of it is surely corporate.  This fact is also confirmed by some of the voluntary disclosures from publicly traded firms like Intel which in 2013 reported giving over $4 million to trade associations. Intel added: “We estimate that in 2013, our trade association membership dues attributed to political activities totaled approximately $488,000.”

In another example, Microsoft gave at least $500,000 to the U.S. Chamber of Commerce, with more than half of it—$255,000—going to the Chamber for nondeductible political purposes.  Trade associations are worth keeping an eye on since as Professors Lucian Bebchuk and Robert Jackson noted in a recent law review article, over $1.5 billion has been spent by just eight large trade associations over five years, most of it on lobbying.

But despite the loopholes at the FEC, SEC and IRS that allow the dark money problem to fester, pieces of the truth have an odd habit of bubbling to the surface through inadvertent disclosures like the one that happened at Aetna.  As the New York Times described it: “Aetna’s check to the American Action Network, along with a $4.5 million contribution last year to the [C]hamber, was mistakenly included in a filing with insurance regulators.” This disclosure was particularly embarrassing as the American Action Network attacked the Affordable Care Act at the same time as Aetna publicly supported the law, which made Aetna look like it was talking out of both sides of its mouth.

Inadvertent corporate disclosures can also be the result of investigative reporters asking a few pointed questions. This was how the press figured out that public companies were funding a group associated with the Alabama Republicans. “Companies including Alabama Power, drugmaker Pfizer and insurer Blue Cross and Blue Shield of Alabama helped fund the secretive ‘social welfare’ nonprofit arm of the Alabama House Republican Caucus during 2012, the Center for Public Integrity has learned.”

Or disclosures can come out in litigation settlements like the disclosure by Qualcomm after the Comptroller of New York sued to get the information out of them using his right under Delaware General Corporation Law §220 to see the firm’s books and records in his capacity as a Qualcomm shareholder.

And more recently an inadvertent disclosure by the Republican Governors Association (RGA) showed that corporations were giving between $25,000 to $250,000. Among the publicly traded corporations in the leaked documents were Yum! Brands giving on the low side, Shell in the middle, and the Corrections Corporation of America giving on the high side.  

As I’ve written before, relying on whistleblowers or leaks for campaign finance information isn’t a reliable way get to the truth since it is unlikely that there will be an honest broker at each dark money source.  What we need instead are clear money in politics disclosure rules from Congress, from States and from relevant federal agencies with jurisdiction like the Securities and Exchange Commission.

Which reminds me, there are now over one million comments asking for a new disclosure rule from the SEC.  And still, there has been no action, which leaves investors in the dark about corporate political expenditures.  Until we get better transparency rules, investors and the voting public will have to wait for the next whistleblower to provide at least some information about corporate political spending that should already be in the public domain. A new rule would be far preferable to the drip, drip, drip of leaks.

(Photo: flickr/scleroplex)

The views expressed are the author’s own and not necessarily those of the Brennan Center for Justice.