Never Mind Super PACs: How Big Business Is Buying the Election

Never Mind Super PACs: How Big Business Is Buying the Election

Never Mind Super PACs: How Big Business Is Buying the Election

Thanks to Citizens United, US and foreign corporations can secretly spend millions on political campaigns under the cover of trade associations.


This article was reported in collaboration with the Investigative Fund at the Nation Institute, where Lee Fang is a reporting fellow.

Undisclosed campaign spendingOn January 27, 2010, one year into his term, President Barack Obama used the occasion of his State of the Union address to issue a warning. The Supreme Court had just opened the “floodgates for special interests—including foreign corporations—to spend without limit in our elections.” He was speaking about the ruling in Citizens United v. Federal Election Commission, in which the Court struck down nearly a century of law, granting corporations vast new leeway to influence the outcome of elections.

In the months after Obama’s speech, the American Petroleum Institute, an oil industry trade association that represents hundreds of multinational oil and gas companies, would demonstrate just how prescient the president’s warning was.

Before Citizens United, API had gone to battle with the president over his efforts to address global warming. It took out issue ads, hired lobbyists from K Street, and financed dubious studies to claim that even the most piecemeal legislative fixes, such as the Waxman-Markey bill designed to cap carbon emissions, would lead to economic ruin. The group spent $7.3 million on federal lobbying during the year the bill was being debated.

But as the 2010 midterm elections loomed, Citizens United handed API an additional arrow for its quiver. The group could now funnel undisclosed corporate donations directly to campaign entities. Among the oil executives leading API at the time—and still to this day—was Tofiq Al-Gabsani, a registered lobbyist for the Saudi government. Al-Gabsani is the chief executive of Saudi Refining Inc., a wholly owned subsidiary of the Saudi Arabian Oil Company, the government-owned Saudi oil giant better known as Aramco.

Aramco, by means of its US subsidiary, is understood by insiders to be one of the top donors to API, where, according to the Washington Post, membership dues for the largest firms can be as much as $20 million a year. API has roughly 400 member firms, but only a small group of oil and gas industry CEOs sit on its board of directors, which oversees the trade association’s major political campaigns, according to API state business filings and two former API executives. Alongside the top officials of such major American firms as ExxonMobil and ConocoPhillips, one of those directors for the past three years has been Al-Gabsani.

US law still bans foreign corporations from participating directly in elections. But after Citizens United, trade associations like API—whose influential members include foreign corporations—are free to spend as they wish, unburdened by disclosure requirements. And these groups have taken full advantage of their new freedoms. While other campaign committees, from labor unions to Super PACs, face strict transparency rules, trade associations enjoy unparalleled power to covertly manipulate elections using corporate money.

API-funded groups were a force behind the tidal wave of negative advertisements to hit Democrats in the midterms. Pennsylvania Representative Joe Sestak “voted for Pelosi’s job-killing cap-and-trade plan,” intoned one election-season TV ad from Americans for Tax Reform, one of several groups financed by API in 2010. Sestak’s vote for a bill to put a price on carbon pollution, the ad continued, constituted “a great big tax that would make utility bills skyrocket, gas prices soar.” Sestak lost his bid for the US Senate, and his Congressional seat was one of sixty-three taken by the Republicans.

The ads bankrolled by entities like API helped deliver one of the greatest midterm election upsets in American history. For the first time, outside spending groups eclipsed party spending. The young president, with his party’s ranks decimated and the House flipped into the hands of the far right, was forced to abandon much of his domestic agenda.

Perhaps the most profound aspect of the Democrats’ defeat that year: the window for confronting global warming all but closed. With extreme weather events convulsing the globe, 86 percent of incoming freshman Republicans signed an oil industry–sponsored pledge to oppose all climate regulation. As John Boehner lifted the House speaker’s gavel, any chance of passing climate legislation collapsed. In this way, the Democrats’ defeat was a resounding victory for the oil companies represented by API—and for Saudi Arabia, the world’s largest exporter of crude oil.

Saudi Arabia has worked for years to obstruct progress on climate reforms. Just weeks prior to Obama’s State of the Union address warning of the dangers of foreign corporate money, Mohammad Al-Sabban, a senior adviser to the Saudi government on energy policy, helped lead the opposition to a global climate accord in Copenhagen. Like many of the interest groups dependent on fossil fuels, Al-Sabban even disputed the idea that industry has contributed to global warming. “Climate is changing for thousands of years, but for natural and not human-induced reasons,” he told BBC News.

* * *

Before the advent of the Roberts Court, Saudi Aramco would have been prohibited from using corporate money to influence an American election. The company’s only option would have been to ask its US-based employees to make small donations to a transparent political action committee.

A 1990 Supreme Court decision, Austin v. Michigan Chamber of Commerce, required trade associations to spin off separate, highly regulated PACs if they sought to influence federal elections. These PACs could only be funded with disclosed contributions from individuals, in amounts limited by the Federal Election Commission. Trade associations were further restricted by the 2002 McCain-Feingold campaign finance reform act, which prevented corporations from airing so-called electioneering communications within sixty days of a general election. This ban encompassed sham issue ads, which attack a candidate without explicitly calling for his or her defeat—those ubiquitous commercials that go something like: “Call Senator John Smith and tell him to stop killing jobs!”

Then, in 2007, just a year after Samuel Alito replaced Sandra Day O’Connor, and only two years into John Roberts’s tenure as chief justice, the Court went to work chipping away at these restrictions. That year, in Federal Election Com-
mission v. Wisconsin Right to Life, the Court’s conservative majority struck down the limits on corporate-funded sham issue ads. Three years later, Citizens United vastly expanded the scope of that ruling, striking down any prohibition against corporations airing election ads of any type, at any time.

In his dissent, Justice John Paul Stevens warned that the Court’s logic, which put campaign spending by corporations on an equal footing with spending by individuals, would open the door to foreign influence on American elections. The decision affords “the same protection to multinational corporations controlled by foreigners as to individual Americans,” wrote Stevens.

The retiring justice, in the longest dissent of his career, mocked the majority’s claims that corporations are censored in American society. Had the decision been in place before World War II, he noted, Japanese propaganda broadcasts in the South Pacific would have been accorded First Amendment protections. And although Stevens continued to sound the alarm about foreign influence in speeches, lobbyists immediately recognized the ways that corporations could take advantage of the extraordinary decision.

In 2010, Cleta Mitchell, a prominent Republican election attorney who advises GOP candidates as well as corporations, began delivering a PowerPoint presentation to the officers of major trade associations. In one version called “Political Activity After Citizens United: Understanding the Opportunities and the Risks,” presented at a Washington, DC, conference center for such trade groups as the Consumer Electronics Association, Mitchell pointed out that “many corporations will not risk running ads on their own,” nor will they choose to work with Super PACs, which are subject to disclosure requirements. Such direct corporate involvement, she warned, could lead to “public image problems like those experienced by Target.”

She was referring to an episode that has since become notorious in the world of corporate electioneering, when Target and Best Buy became two of the first large firms to take advantage of Citizens United by donating a combined quarter of a million dollars to Minnesota Forward, the committee set up to support Tom Emmer, a Republican gubernatorial candidate. But Emmer was an outspoken opponent of gay rights, and when filings revealed that Target had funded his campaign, called for a boycott of the company’s stores. Target CEO Gregg Steinhafel was forced to backpedal, and the entire episode became what James Kahl, a former general counsel to the FEC who now advises trade associations, calls “a cautionary tale.”

In such a system, Mitchell said, “[trade] associations are the big winners”: no filings, no disclosure, no fuss.

* * *

Though much media attention has been heaped on Super PACs—the new political action committees that can take unlimited contributions from nearly any source, such as Mitt Romney’s Restore Our Future—they haven’t caught fire within corporate America owing to their monthly (in some cases, quarterly) disclosure requirements. Most donations to Super PACs are from wealthy individuals, such as casino magnate Sheldon Adelson, making them not so different from the so-called 527 groups that proliferated in the immediate wake of McCain-Feingold. Among the eight largest Super PACs active during the Republican presidential primaries, 86 percent of their funding came from individuals, not corporations.

The real tsunami in corporate spending has come from nonprofits, in particular trade associations, which are classified as 501(c)(6) organizations under the tax code and are virtually fully funded by corporate cash. In 2010, 501(c)(6) trade associations and 501(c)(4) issue-advocacy groups outspent Super PACs $141 million to $65 million, according to the Center for Public Integrity and the Center for Responsive Politics.

After Citizens United, trade associations quickly moved to augment their traditional PAC spending with secret corporate cash. Take the Pharmaceutical Research and Manufacturers of America, the pharmaceutical industry’s trade association. In 2008, PhRMA spent less than $200,000 on federal elections, using only money bundled from transparent individual contributions, mostly from drug company executives. The following election cycle, after Citizens United, PhRMA spent $10.36 million on federal elections, 98 percent of it from undisclosed corporate sources.

Likewise, the shift allowed the National Association of Realtors, already a heavy hitter when it came to PAC spending, to unleash an additional $1.1 million on federal elections from undisclosed real estate companies in 2010.

“What Citizens United has done, it has wholesale changed the landscape,” said Stefan Passantino, a partner at the law and lobbying firm McKenna, Long & Aldridge and a former Newt Gingrich campaign adviser. He was addressing a seminar in Atlanta, Georgia, on corporate political engagement in the 2012 election cycle. He recounted advising one corporate client on how to “engage in an issue where we’re not popular,” in this case to preserve certain tax loopholes. Passantino said businesses have enormous new opportunities for influencing elections without being detected. “We gotta keep our corporate logo out of the bull’s-eye,” he added.

The ability to avoid disclosure is what makes trade associations the perfect vehicle for corporate electioneering. Quirks in IRS rules allow trade associations to hide all of their donor information. The few disclosures mandated for 501(c)(6) organizations, which pertain to yearly budget information and transfers of money to other groups, only become public a full year after an election has occurred. The disclosures for trade associations active this election season won’t be released until the fall of 2013—and even then we won’t know which individual corporations provided funds for the ads blanketing the airwaves.

By an eight-to-one vote, the Supreme Court, in Citizens United, upheld existing disclosure laws. It’s ironic now to note that Justice Anthony Kennedy’s majority opinion spoke of the danger that groups running election-season ads would hide “behind dubious and misleading names,” and that citizens deserved disclosure to “make informed choices in the political marketplace,” since the decision he wrote has ushered in a new era of dubious and misleading campaign entities. Since then, Congress has failed to pass an updated disclosure law to deal with trade associations and other groups exempted from election transparency rules. And a three-to-three deadlock at the FEC has prevented a tighter reinterpretation of the existing rules.

* * *

The consequence is that API and other trade associations can cloak multinational and even foreign corporate election spending under an American flag. API no longer has to formally segregate its corporate dollars when seeking to influence federal elections, allowing companies like Aramco to pour money into campaign ads without detection. Federal law prevents Saudi lobbyist Al-Gabsani, as a foreign national, from leading a political action committee. But there’s nothing stopping him from leading a trade group that makes campaign expenditures just as a PAC would.

Over the years, API has spent tens of millions of dollars on ads casting oil industry prerogatives as patriotic responsibilities, taking up the GOP’s call for American “energy independence” through increased domestic drilling. After pushing climate reform off the table by funding Republican victories in the midterm elections, API has now set its sights on pressuring the administration to back the Keystone XL pipeline and to preserve billions in tax credits extended to oil companies, both foreign and domestic.

Will President Obama “say ‘Yes’ to new jobs, ‘Yes’ to economic growth, and make our nation more secure?” asks an API television spot calling for approval of the Keystone XL pipeline, a controversial project to bring crude oil from Canadian tar sands to refineries along the Gulf Coast. “Tell the president we need it now,” the ad ends, as the White House phone number appears over an image of the Stars and Stripes.

During this election season, API has tapped similar themes in radio ads targeting several US senators up for re-election. Senator Claire McCaskill (D-Mo.) is still in a tight race against Republican Representative Todd Akin despite his inflammatory remarks about “legitimate rape,” in part because she’s been hit by so many independent ads, including one from API that claimed her position against oil subsidies would raise gas prices. “Senator McCaskill, higher taxes won’t lower gas prices,” the narrator says. “Tell her Americans can’t afford to pay more.” A similar radio ad aired in Massachusetts to support Republican Senator Scott Brown for backing oil tax breaks. (In that case, because Brown and his opponent, Elizabeth Warren, had pledged to reject outside advertising, Brown’s campaign contributed $34,545—half of the ad’s cost—to charity.)

To make both of these issues—the Keystone XL pipeline and oil subsidies—a prominent part of the campaign this year, API launched a mix of paid grassroots and media efforts. The group has deftly exploited the town hall tradition to push its priorities. At a Pizza Ranch restaurant north of Des Moines in July 2011, I watched as several individuals saying they were from a seemingly local organization called Iowa Energy Forum peppered Rick Santorum with questions about his support for Keystone. Though they didn’t disclose it, their organization was fully financed by API. The same ordinary-looking Americans hounded Mitt Romney during the primaries, and Romney has since made building the pipeline part of his platform.

API also led “Energy Citizens” and “Vote 4 Energy” campaigns that paid for billboards and broadcast ads featuring Americans who say that oil and gas are the most important issues this November. The Energy Citizens website features yet another American flag; it asks visitors to “Pledge Today” to vote for candidates who support Keystone and sign up for e-mail alerts to oppose “energy taxes,” API’s deceptive moniker for efforts to end oil company subsidies.

The campaign, like any political endeavor by a trade association, never discloses the individual companies underwriting the effort. And though API’s furious flag-waving certainly benefits American oil firms, it also masks the multinational scope of the organization’s members. In fact, Saudi Aramco, an API power broker, stands to benefit greatly from both Keystone and federal oil subsidies.

The Keystone XL pipeline will get Canadian crude to refineries that will supply the United States, but much of that refined oil is destined for export to buyers across the globe, according to a report from Oil Change International. Saudi Aramco has joined with Shell Oil to expand their refinery in Port Arthur, Texas, soon to be the largest refinery in the country. That refinery is slated to make its money by processing both imported Saudi oil and crude from the Keystone XL. And Aramco owns a 50 percent share.

Aramco isn’t a publicly traded company, and therefore it’s not required to file reports with the SEC, which would provide a better picture of which taxpayer subsidies the firm collects. But the company is eligible for at least some of the many controversial tax credits extended to oil companies. Industry experts say that Aramco is eligible, for example, for the manufacturing tax deduction that was given to oil refineries in 2004, which now permits them to reduce their taxable income by up to 9 percent. Aramco, which co-owns three major US refineries, has much to gain from preserving this loophole.

The API-led campaign to boost these policies promises to help many of its American member companies, including Chevron and ExxonMobil, but likely also Aramco and TransCanada PipeLines, the US subsidiary of the Canadian firm seeking to build Keystone.

According to John Hofmeister, the former chief executive of Shell Oil and a former board member at API, the board on which Al-Gabsani sits approves all major communication campaigns with “essentially unanimous consent.” An internal API document shows that the board oversees the Political Affairs Committee, which is responsible for API’s political campaigns.

As a lobbyist, Al-Gabsani is registered to shape “public debate regarding the importation of crude oil into the United States” on behalf of the Saudi government, according to lobby disclosures. But he is also accomplishing that through his leadership role at API. His position there has been left off the mandatory Justice Department registration forms filed by the Saudi government. (Both Aramco and API declined to comment for this article in response to calls and e-mails. A representative of Al-Gabsani also declined to respond, referring our queries to API.)

API is hardly the only major trade association that represents foreign corporations. SABIC, the Saudi government–owned chemical company that ranks among the world’s largest, is a dues-paying member of the American Chemistry Council, another 501(c)(6) that has taken advantage of the new system. The council, like API, represents large American-based firms, such as DuPont and Dow Chemical, as well as multinationals like Solvay SA, a Belgian chemical concern, and Daikin Industries, a Japanese company.

In 2010, for the first time, the American Chemistry Council spent corporate money from its general treasury on federal campaign ads. One ad promoted Joe Manchin, then West Virginia’s Democratic governor, in his bid for the late Robert Byrd’s open US Senate seat. The commercial, aired with $225,000 in corporate cash from ACC, hailed Manchin as a “Senator for Our Future.”

Once elected, Manchin went to work as a loyal ally of the industry. He has cited ACC in his speeches on job creation, appeared at the group’s events and supported its interests in Congress. In one of his first acts as senator, Manchin was the lone Democrat to co-sponsor Republican Minority Leader Mitch McConnell’s amendment to bar the EPA permanently from using the Clean Air Act to regulate greenhouse gases—a position being pushed at the time by the ACC’s top lobbyist, Cal Dooley.

Since then, the ACC has aired nearly identical campaign-style ads in support of over a dozen lawmakers from both parties who sit on key committees affecting the chemical industry. In July, the association began airing a second set of Manchin ads to aid his re-election. The ads come at a time when Congress has moved to delay key updates to the Toxic Substances Control Act, which regulates the chemicals used in consumer products. When New Jersey Senator Frank Lautenberg introduced a bill to this effect, Manchin’s name was conspicuously absent from a list of supporting senators. Manchin’s staff did not respond to requests for comment.

For its part, the pharmaceutical industry’s trade association, PhRMA, boasts many French and British firms with US subsidiaries as members. In 2010, after passage of the Affordable Care Act, PhRMA transferred millions of dollars to PACs to curry favor on both sides of the aisle: $4.5 million went to the American Action Network, a Republican group set up to run ads against Democrats (one famously claimed that convicted rapists would receive Viagra “paid for by the new health bill”), while $3.4 million went to a Democratic-aligned Super PAC called Citizens for Strength and Security.

PhRMA’s electioneering came at a time when the industry needed to cultivate political capital with both parties. The industry sought to reward the Democrats for expanding prescription-drug subsidies for seniors as well as protecting drug companies from generic competitors—both part of Obama’s healthcare reform package. On the other hand, PhRMA was counting on Republicans to block government studies that would pit drugs against each other in order to create cost-conscious treatment protocols that would eliminate waste—but put drug sales at risk.

Some progressive organizations, such as community credit unions, have benefited from the new latitude granted by Citizens United. The Credit Union National Association, for example, has lobbied obsessively over one bill, the Small Business Lending Enhancement Act, that would lift the amount credit unions can lend to businesses from 12.25 to 27.5 percent of their assets. The higher rate, credit unions claim, would make them competitive with commercial banks.

Still, it was the group’s direct electioneering that seems to have produced results. CUNA mobilized its members to send 600,000 partisan mailings during the midterm elections, carrying explicit messages like “Support Rob Woodall for Congress.” Trey Hawkins, CUNA’s vice president for political affairs, said that credit unions went in big for Suzanne Bonamici, the Democrat running to fill the Oregon Congressional seat left vacant by David Wu earlier this year. Bonamici won, and her first official act as a member of Congress was to co-sponsor the small business lending legislation. (Check out CUNA’s PowerPoint for members, "The Election 2012 and Your Credit Union.")

But the spending by such groups (in CUNA’s case, slightly over $1 million during the 2010 midterms) is eclipsed by major corporate trade groups like the US Chamber of Commerce, which spent a reported $75 million on electioneering in 2010—a sum larger than any of the Super PACs’ in that election cycle. At least $32.8 million of that spending would have been illegal before the Roberts Court deregulated the system.

The US Chamber of Commerce, like many large trade associations, is international in scope. As I reported in 2010, foreign businesses—many of which have little in the way of US operations, such as the Bahrain Financial Harbour Holding Company—contributed at least $885,000 to the Chamber’s 501(c)(6), the entity that pays for partisan attack ads. The Chamber acknowledged the foreign funds but claimed that the money was segregated from its domestic corporate dues. The American Petroleum Institute and the American Chemistry Council may also segregate their foreign funds from their domestic money—but no one knows for sure, because they aren’t required to say.

“The segregating of money within a trade association, that’s a plausible defense. But as an outsider, I have no idea if they’re mixing their foreign money with their domestic money,” said Ciara Torres-Spelliscy, a legal expert who formerly covered campaign finance for the Brennan Center for Justice.

Current FEC rules allow a foreign-owned corporation to spend in an American election as long as its subsidiary is registered in the United States, the money used for electioneering is generated from US-based operations, and the election spending decisions are made by American citizens or green-card holders.

But under current law, there’s no way to audit foreign corporate spending when it occurs through trade associations. “Precisely because there is no disclosure by these groups, there is no way to monitor what they’re doing,” said Trevor Potter, a former FEC chairman.

Labor unions, like trade associations, are organized under Section 501 of the Internal Revenue Code. But unions are forced to disclose all of their political spending; the LM forms that unions have to file with the Department of Labor list all of their spending in detail, making them uniquely transparent.

By contrast, information about trade associations’ campaign activities only gets out if corporations choose to disclose it—or do so by accident. Some companies, such as the drugmaker Merck, have adopted governance policies that require disclosure of contributions to trade associations. Then there are companies like Aetna, the health insurance giant, which accidentally revealed on a regulatory filing that it had given $4 million to the Chamber in 2011—far more than the $100,000 in Chamber dues it reported in 2010.

In the main, the public and the press are shut out of the process. Only corporations, their army of lobbyists and the politicians they influence fully understand what’s going on behind the legal walls set up around a 501(c)(6).

“Prior to Citizens United, all federal election money could be traced back to an individual who expended it or contributed to a political committee,” said Karl Sandstrom, a former FEC commissioner now with the law firm Perkins Cole. “Once you enable artificial entities to contribute, money is no longer traceable back to identifiable individuals.”

* * *

Defending their new privilege of secret corporate electioneering, trade associations have bitterly opposed any attempts, post–Citizens United, at reform.

Last year, when President Obama publicly considered issuing an executive order that would force companies receiving government contracts to disclose their political spending—including spending done via trade associations—the Chamber reacted harshly. “We will fight it through all available means,” one Chamber lobbyist told the New York Times in April 2011. “To quote what they say every day on Libya, all options are on the table.”

More than 120 trade associations came together last year to reinforce the Chamber’s message, signing a letter endorsing legislation that would block President Obama from enacting such an executive order. And in July, when Senator Sheldon Whitehouse (D-R.I.) put forward the DISCLOSE Act, which would have required the trade associations to reveal their spending, dozens of trade groups joined together to denounce the bill before a Republican-led filibuster prevented it from coming up for debate. A letter from the groups blasting the bill, which placed no restrictions on trade associations but simply required disclosure, described it as a “purely partisan effort to silence one, and only one, group of speakers—the business community.”

Among the signers of both letters: Saudi Aramco’s trade association, the American Petroleum Institute.

For more check out our infographic, Secret Election Money Unleashed.Secret Money unleashed

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