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Citizens United -- My how the money rolls in

By MICHAEL KIRKLAND, UPI Senior Legal Affairs Correspondent   |   July 15, 2012 at 3:30 AM   |   Comments

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WASHINGTON, July 15 (UPI) -- Secret corporate money continues to swamp the American political process in the wake of the 2010 U.S. Supreme Court ruling in Citizens United vs. FCC, evoking the words of an old folk song: "My father makes counterfeit money, My granny makes bathtub gin, My sister sells kisses to sailors, And oh how the money rolls in."

And oh how the money is rolling in for 501(c)(4) groups that pretend to be "social welfare organizations" but are political right down to the bone. They operate in secret and get away with it because of lax or loose regulation by the Federal Elections Commission, and because "the Internal Revenue Service [has] no clear test for determining what constitutes excessive political activity by a [tax-exempt] social welfare group," The New York Times reported.

The tens of millions in secret contributions are driven by what seems to be a white-hot desire to control the White House and Congress. And all early indications are that when it comes to secret money, Republican allies, making independent political expenditures, are giving President Obama an old-fashioned "whuppin.'"

The previously most expensive presidential election in history, based on money spent per vote, occurred in 1896, at about $15 a head, to elect corporate friend William McKinley, the Enik Rising blog reported.

Then the Tillman Act of 1907, with the encouragement of President Theodore Roosevelt, banned money contributions to national political campaigns by corporations. From that point on, costs per presidential vote stayed relatively low and steady until rising again to about $10 per vote in 2008.

Then came January 2010 and Citizens United, which lifted the ban on corporate and union indirect contributions, and all the old measures became meaningless. About $4 billion was spent on those midterm elections, quadrupling the money spent in 2006.

The U.S. public may never know how much money is being spent in the 2012 presidential and congressional elections. Unlike super PACs, regular political action committees and direct contributions to candidates and party committees, 501(c)(4) groups do not have to report donations or donors.

Dan Schnur, director of the Jesse M. Unruh Institute of Politics at the University of Southern California in Los Angeles, told Bloomberg last year, "This will be the most expensive campaign in American history."

The New York Times -- finally waking up to the issue -- reported in a lead story last week that after Citizens United "relatively little money has flowed from company treasuries into 'super PACs,' which can accept unlimited contributions but must also disclose donors. Instead, there is growing evidence large corporations are trying to influence campaigns by donating money to tax-exempt organizations that can spend millions of dollars without being subject to the disclosure requirements that apply to candidates, parties and PACs.

"The secrecy shrouding these groups makes a full accounting of corporate influence on the electoral process impossible," the Times said.

But Times writers Mike McIntire and Nicholas Confessore said a "review of corporate governance reports, tax returns of non-profit organizations and regulatory filings by insurers and labor unions" gives a "glimpse" of their donors.

Large corporations reportedly are holding off from rehiring employees until after the November elections, keeping U.S. unemployment high. They show no such reticence in doling out political money from corporate treasuries.

"From a redistricting fight in Minnesota to the sprawling battleground of the 2012 presidential and congressional elections, corporations are opening their wallets and altering the political world," the Times writers said.

Some of the recipients of big corporate money are organized under Section 501(c)(4) of the tax code. These 501(c)(4) groups are supposed to be "civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare," tax code regulations say, "or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational or recreational purposes."

The Times said the secrecy allows corporations to donate money to 501(c)(4) groups while "shielding corporate contributors from shareholders or others unhappy with their political positions."

The OpenSecrets blog of the Center for Responsive Politics in Washington says the Supreme Court ruling "allowed non-profit corporations under the Tax Code 501(c) to spend unlimited amounts of money running ... political advertisements while not revealing their donors." The blog said conservative non-profit groups have "spent $121 million without disclosing where the money came from."

The Center for Public Integrity reports 62 percent of the money raised by the two conservative groups "associated with former Bush adviser Karl Rove have come from mystery donors."

Rove and fellow former Bush adviser Ed Gillespie founded two groups in 2010 after the Citizens United ruling: American Crossroads, a super PAC which has to report the sources of funds, and Crossroads Grassroots Policy Strategies, a non-profit organized under section 501(c) of the U.S. Tax Code, which doesn't have to say where its money originates.

The center reports the two groups raised $123 million from 2010 through the end of 2011, but the lion's share, $76.8 million, went to the non-profit.

Bloomberg reported last year Crossroads GPS and American Crossroads doubled their initial fundraising target to $240 million, after raising $71 million in 2010.

Crossroads GPS has fewer than 100 donors, all of them secret.

The Times said its review showed corporations, including Prudential Financial, Dow Chemical and drug maker Merck, poured millions into the U.S. Chamber of Commerce, a tax-exempt trade group that has pledged to spend at least $50 million on political advertising this election cycle.

The national chamber largely backs Republican candidates. The Times said as a non-profit "business league" under the tax code, the chamber does not have to disclose donors who helped finance its $33 million in political ads in the 2010 midterm elections.

Not everyone is a fan of the chamber's political activity.

Writing in the blog of The Nation online, George Zornick said, "We don't know much about how the U.S. Chamber of Commerce funds its political campaigns. In fact, that's the essential feature of its operations -- as a 501(c)(6) trade organization, the chamber has no obligation to disclose who funds its electioneering campaigns, and so corporations can give massive amounts of money to the chamber without having any fingerprints on the resulting attack ads that hammer Democrats and push for industry deregulation."

The blog points out that New York Attorney General Eric Schneiderman has issued wide-ranging subpoenas targeting $18 million allegedly channeled through charitable groups to the chamber allegedly to achieve political ends.

Despite that investigation, U.S. regulatory agencies are having a tough time keeping up with the pace of independent political spending.

Bloomberg pointed out last year that Sen. Ben Nelson, D-Neb., was faced with a barrage of attack ads funded by tax-exempt groups such as the American Future Fund before he knew who his Republican challenger would be this year. Nelson since has decided to retire at the end of his term rather than seek re-election in November.

The Times article notes tax-exempt groups are allowed to begin raising and spending money even before the IRS formally recognizes them.

A case in point: Two years after helping Republicans win control of the House, Rove's Crossroads GPS's application for tax-exempt status is still pending.

Also still pending is a petition by 10 corporate law professors who call themselves the "Committee on Disclosure of Corporate Political Spending." Last August, the group submitted a "petition for rulemaking" to the Securities and Exchange Commission with a simple message: "We ask that the commission develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities."

In other words, if executives want to participate in high-stakes politics using corporate funds, they should have to publicly tell stockholders, who actually own the funds, what they're doing.

The committee is composed of "10 academics [from Harvard, Columbia, Yale and similar institutions] whose teaching and research focus on corporate and securities law."

"We differ in our views on the extent to which corporate political spending is beneficial for, or detrimental to, shareholder interests," the group told the SEC. "We all share, however, the view that information about corporate spending on politics is important to shareholders -- and that the commission's rules should require this information to be disclosed.

"Disclosure of corporate political spending is necessary not only because shareholders are interested in receiving such information, but also because such information is necessary for corporate accountability and oversight mechanisms to work," the petition argued.

"Absent disclosure, shareholders are unable to hold directors and executives accountable when they spend corporate funds on politics in a way that departs from shareholder interests."

The SEC is under no obligation to act on the petition.

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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