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New York Board of Elections Must Close LLC Loophole

After the governor and legislature failed to pass the most needed ethics reforms this spring, the Board of Elections must close a corporate loophole that allows wealthy donors to bypass campaign limits and donate millions in state elections.

April 9, 2015

Loophole Allows Wealthy Contributors to Bypass Limits, Donate Millions in State Elections

New York, NY – After Gov. Andrew Cuomo and the New York State legislature failed to pass the most needed ethics and campaign finance reforms this spring, the Board of Elections must close a corporate loophole that allows wealthy donors to bypass campaign limits and donate millions of dollars in state elections, urged the Brennan Center for Justice at NYU School of Law and the law firm Emery Celli Brinckerhoff & Abady LLP in a letter Thursday.

The New York Board of Elections currently classifies limited liability companies (LLCs) as individuals rather than “corporations” or “partnerships,” as they are treated under federal law. This allows each LLC to give hundreds of thousands of dollars every year, many times the corporate limit. Worse, individuals with multiple LLCs can use them to evade contribution limits entirely — and because they don’t need to disclose the identities of their officers, we often don’t know the source of those funds.

This so-called “LLC loophole” allows wealthy contributors to spend millions of dollars on campaign donations — far exceeding the legal individual limit. In one of the starkest examples, one wealthy donor used 27 LLCs to contribute at least $4.3 million to political committees in the state over the past two years.

“The Board’s current treatment of LLCs thwarts the underlying purpose of New York’s campaign finance system, making contribution limits and disclosure requirements extremely easy to evade,” reads the letter. “It is imperative that the Board close the LLC Loophole and faithfully adhere to New York’s Election Law. … More than seven years have passed since the Board last promised to revisit this problem. Remedial action is long overdue. With parties and candidates already gearing up for 2016, there is no time to lose.”

New York has been rocked by scandal over the last few years, with several lawmakers arrested on corruption charges and campaign finance violations. Most recently, after the arrest of Assembly Speaker Sheldon Silver, Cuomo pledged to overhaul state ethics rules to stem Albany’s culture of corruption. The ethics package passed last week fell well short of Cuomo’s promise. Closing the LLC loophole is one step to help change Albany’s money-hungry culture.

The Brennan Center urged the Board of Elections to:

  1. Rescind its 1996 opinion creating the LLC loophole.
  2. Issue an opinion treating LLCs as either corporations or partnerships, which would follow federal law.
  3. Clarify that no person may use multiple LLCs to circumvent contribution limits and disclosure requirements.

The Board’s treatment of LLCs was based primarily on a 1995 advisory opinion from the Federal Election Commission. But after the FEC changed course with new rules in 1999, the Board never revised New York’s rule. In 2007, several advocacy groups urged the Board to close the LLC loophole. But more than seven years later, the LLC loophole remains, undermining the legislature’s intent to effectively limit contributions from both individuals and business entities.