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    Hidden Rivers: How Trade Associations Conceal Political Spending

    In a new report entitled “Hidden Rivers: How trade associations conceal political spending, its threat to companies, and what shareholders can do,” the Center for Political Accountability (CPA), a non-profit coordinating a nationwide shareholder initiative on corporate political disclosure and accountability, describes how some trade associations help companies conceal and spend over $100 million in corporate funds.  Calling these trade associations “the Swiss bank accounts of American politics,” the report notes that this undisclosed spending poses serious risks to company economic interests and reputations and to shareholder value.

    “Hidden Rivers” identifies 18 of well-known companies whose payments to several trade associations (including the U.S. Chamber of Commerce, the National Association of Manufacturers, the Business Roundtable, the American Tort Reform Association, the Pharmaceutical Research & Manufacturers of America, and Americans for Job Security) and political contributions underwrote, directly or indirectly, political activity in 2004 on behalf of a group of state judicial candidates with strong stands on controversial social issues that companies traditionally have avoided. In one case, $300,000 from a trade association funded ads on behalf of a Mississippi supreme court candidate accused of running a racist campaign.

    According to the CPA, trade association political spending is subject to even less disclosure than the much criticized spending of independent political committees ("527s"). “Hidden Rivers” details how the 2002 Bi-Partisan Campaign Act of 2002, meant to limit “soft money” political contributions, served as a turning point in campaign funding, with companies redirecting money to other groups, such as trade associations. While soft money contributed by corporations to independent political committees must be disclosed by the recipient, corporate payments made to trade associations that are used for political purposes remain completely hidden. Neither companies nor associations are required to report the source, the amount or the recipients of these funds, in most cases, even if they are earmarked for a particular political purpose. Moreover, many trade associations do not disclose their membership.

    The report examines judicial races in Illinois, Ohio, West Virginia, Alabama, Mississippi, Louisiana and Texas in 2004 to develop a picture of the secret flow of corporate money often passes through trade associations and related groups. It focuses on six judicial races in four states to trace how money went from companies through associations to candidates or campaign activities.

    The report describes how, over the past decade, many trade associations have emerged as powerful conduits for political spending, which, in many cases, enable companies to claim ignorance when their money ends up supporting candidates or organizations they wouldn’t otherwise publicly associate with or whose interests are in direct conflict with those of their shareholders. Drawing upon specific case studies it shows how weak political disclosure at the state level makes corporate political spending difficult, if not impossible to uncover.

    Among the study’s key points:

    - 3M, Altria, Anheuser Busch, Boeing, DaimlerChrysler, Dow Chemical, Georgia-Pacific, GlaxoSmithKline, Johnson & Johnson, MeadWestvaco, Merck, MetLife, New York Life Insurance, Pfizer, R.J. Reynolds, TRW Automotive, Weyerhaeuser, and Wyeth were among the companies that made direct or indirect political payments in 2004 state judicial races that jeopardized their credibility and business reputations. The Center found that the companies have personnel policies regarding gay employees and diversity that were in direct conflict with the positions of the judicial candidates who the companies directly or indirectly supported in 2004;

    - at least one trade association, Americans for Job Security, was apparently used solely as a conduit to hide corporate political spending and insulate companies from accountability; the use of the U.S. Chamber of Commerce to hide the political spending of Microsoft and the brand name pharmaceutical companies raises serious questions about whose interests the group represents and whether it may be working against the interests of its other members;

    - the absence of disclosure and accountability in trade association political spending blocks shareholders from getting a full picture to assess a company’s political expenditures. They also deny directors information critical to carrying out their fiduciary responsibility to oversee all of a company’s activities; and

    - the lack of corporate oversight of trade association political activity may unwittingly expose corporation members to legal liability for actions of the trade association.

    The report lays out a seven-point action agenda to protect shareholders and companies from the risks of secret trade association political spending. Among other things, it calls on companies to disclose and account for payments to trade associations and other tax-exempt groups that are used for political activity, require board oversight of these expenditures, and demand that trade associations of which they are members inform and consult them about the group’s political activities and spending. Finally, in the report, the CPA urges companies to drop their memberships in associations that refuse to comply.

    For the full report please visit the CPA’s website: www.politicalaccountability.net

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Expert James A. Thurber Outlines the Critical Ethics Reforms that the U.S. Senate Should Consider

Testimony to the U.S. Senate Committee on Rules and Administration, February 8, 2006.

By Dr. James A. Thurber, Distinguished Professor & Director, Center for Congressional and Presidential Studies American University Washington, DC

(Please See Below on this Page for Coverage of a January Washington Lobbying Reform Summitt, as well as a January 2006 Wall Street Journal Editorial on Reform Proposals)

Importance and Scale of Lobbying

Public advocacy, lobbying, is a fundamental right guaranteed by our Constitution and plays an essential role in the functions of Congress, representation, lawmaking, deliberation, oversight and the education of the American public.  Lobbying is an honorable profession, but this profession is in deep trouble as a result of the illegal actions of Jack Abramoff, the criminal case against Representative Duke Cunningham and the charges against Representative William Jefferson and a multitude of other accusations against lobbyists, Members and staff. All of this has damaged our democracy and the tarnished the image of how Washington works. 

Lobbying is the third largest enterprise in our nation’s capital after government and tourism, with an estimated 27,611 (plus) full-time professional lobbyists registered by Congress representing virtually every type of interest in America.  It has been estimated that the number of persons employed in Washington who are either lobbyists or associated with them in some way is well over 100,000.  Spending by registered lobbyists has increased thirty percent in the last five years to $2.1 billion.  That comes to $177 million per Member per year or $407,599 per month per Member.  That is just the tip of the lobbying expenditures since it only includes what is recorded by registered lobbyists in public records.  It does not include money spend for grassroots organizing, coalition building, issue advertising on television, radio, and in the print media, advocacy on the Internet and websites.  Some estimate the total spent on lobbying is closer to $8 billion per year in Washington. 

Several “dilemmas” are presented by the current interest group and lobbying scandals that have nothing to do with breaking the law as was done by Jack Abramoff and others.  They include the huge sums of money put into the process by lobbyists and interest groups and the norm of reciprocity that exists between those advocating public policy outside of government and those in government. I would like to focus on two aspects of lobbying and procedural reform that will address these two dilemmas:  enforcement and transparency. 

Enforcement

Lobbying reform should strengthen the enforcement of existing laws and ethics rules that cover Members of Congress, staff and lobbyists.  The congressional committees with jurisdiction over lobbying laws and ethics should pursue rigorous oversight over the administration of these laws and codes of ethics.  Congress and its committees need to enforce existing laws and ethics or create new institutions that will do that.  The congressional bodies that are responsible for enforcing the laws and ethics rules are broken, but fortunately for us all, not irretrievably broken. They have not been doing their job. The Senate and House Ethics Committees have neither the resources not the inclination to investigate serious allegations of ethics violations by Members of Congress. The failure of the ethics committees to oversee and enforce existing ethics rules must stop.  At a minimum the Congressional committees with jurisdiction over lobbying and ethics should hold regular oversight hearings, investigate allegations of existing ethics and lobbying law violations.  The committees should make recommendations to the full House and Senate for censure and sanctions.  Congress does not need to change the limit on gifts, it needs to effectively oversee and enforce the existing gift ban.  Congress does not need to prohibit the support of legitimate educational travel by Members and staff, it needs to enforce existing rules and significantly limit private interests from financing or subsidizing the travel for Members of Congress and staff.

            In a perfect world all this would occur.  However, this is not a perfect world so I urge the Committee to support the establishment of an independent, nonpartisan and professional office to oversee and enforce ethics rules and lobbying laws.  Such an office would monitor and oversee lobbying reports, conduct investigations of allegations of ethics violations, advise Members, staff and lobbyists on compliance with the rules, and, if necessary, refer potential lobbying law violations to the Department of Justice for civil enforcement.  Several Members have introduced legislation to create the office.  It could be structured to assist the committees responsible for seeing that the rules are followed.  I support these proposed reforms.   

Transparency

Lobbying reform should enhance disclosure and transparency of lobbying activities and lobbyists.  Lobbying activities and financial disclosure reports should be improved.  Lobbying activities must be reported more rigorously and made more accessible to the American public.  I recommend that lobbying reports required under existing law be filed by lobbyists in a common format for the House and the Senate and that these reports be made available and easily retrievable from a common website.  The reports should be simple and easy to complete by lobbyists or they may not be filed.  They should be filed on a quarterly basis in a timely fashion rather than filed semi-annually.  In most instances, four weeks would be enough time for filing.  Many reports are now filed months late or not at all.  There should be sanctions for those not filing in a timely fashion.  The reports should include a list of Members’ offices and congressional committees that were directly lobbied during the quarter.  Congress should also make the reports of all privately funded travel transparent and available to the public.

In the sprit of transparency there should be a public report of earmarks, who sponsors them and the justification for each earmark especially if it is added to a final conference report without having been approved by a vote of either the House or Senate.  There is nothing inherently wrong with earmarks, but there is if they are hidden and done secretly and without deliberation.  When justified and appropriate, Members should be able to add earmarks to spending bills, but Members should be required to justify them to their colleagues and to the American public.  I support Senator Lott and Senator Feinstein’s bill on earmarks and conference reports. It does not specifically prohibit earmarks but allows a point of order against any that are added to a Conference Report that were not considered by either house.  A Senator would need 60 votes to wave the point of order.  It would also require the conference report to be available to the Senate on the Internet for a least 24 hours, another reform toward more transparency that would enhance deliberation.  The 24 hours is a fair amount of time for earmarks that are added during the work week, but more time should be allowed if an earmark is inserted over a weekend or holiday if the 24 hours falls within these days.

This is a start. Good government is a process, not an event.   


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Lobbying Reform, Ethics and the US Political System

A “Lobbying Reform Summit” convened at the National Press Club in Washington DC on January 26, 2006 to focus on some of the critical ethical challenges now confronting the American political system.

The meeting was organized by the Center for Congressional and Presidential Studies (CCPS) at American University and by the Committee for Economic Development.

Professor James Thurber, Director of CCPS, opened by highlighting the huge influence lobbyists exert in Washington: he noted that annual spending by lobbyists on Member of Congress amounts to around $2.1 billion (approximately a 30% gain in the last 5 years). Moreover, he pointed out that this sum represents only the tip of the iceberg as it does not include, for example, campaign spending and political advertising. He continued by saying that there are an estimated 150,000 lobbyists in Washington DC today.

While cleaning up the lobbying system has become a priority for policymakers, in part due to public outrage over the Abramoff scandal, Mr. Thurber emphasized that is only one piece of a larger effort to clean up Washington. He noted that lobbying reform is closely linked to the broader issues of campaign finance reform (total campaign spending in Federal elections in the United States in 2004 involved approximately $4.2 billion) and Congressional Procedural Reform, both of which must be addressed to achieve real change in Congressional ethics.

Former Congressman Lee Hamilton (D-Indiana) discussed the issue of private funding for travel by Members of Congress. He argued that, while Congressional travel can serve an important educational role in policymaking, it too often enables the special interests that fund the trips to exercise excessive control over the time and actions of Congressmen and, by extension, the legislative process. He proposed a full-scale ban on all forms of privately paid travel for Members of Congress. He contended that in order to ensure that trips truly serve the public interest, all travel should be fully disclosed and paid for by the government.

Leading expert on lobbying and President of Democracy 21, Fred Wertheimer, proposed the establishment of a special Congressional "office of integrity" with independent powers to oversee the enforcement of new ethics rules and regulations. According to Wertheimer, this suggestion is gathering support. This is partly because it is widely recognized that it is very difficult for Congressmen to fully and impartially oversee the ethics of their peers. In fact, he pointed out that both the ethics committees of the U.S. House of Representatives and the U.S. Senate have been largely inactive in recent years.

U.S. Senator Barack Obama (D-Illinois) noted that he has been designated by his Democratic colleagues to lead the reform effort in the U.S. Senate, which he hopes will be bi-partisan. He underscored that the fundamental problem in the current system is the dominating influence of money in politics, of which corruption in lobbying is a symptom. He said that politicians are forced to spend a disproportionate amount of time with the very small number of Americans wealthy enough to contribute to political campaigns and that major corporations (he singled-out oil and pharmaceutical industries) have displayed exceptional power in influencing legislation in ways that benefit them at the expense of the great majority of the American people.  

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Corrupted By Lunch

A Wall Street Journal Editorial, As Ethics Reforms Are Proposed in the United States Congress


"Corrupted by Lunch" Is the headline on the leading editorial article of The Wall Street Journal on January 19, 2006. The opinion article highlights the folly of some of the aspects of the current wave of public statements by leading members of the United States Congress on ethics reform.

As investigations deepen into unethical actions by numerous members of Congress and their current and former staff, so there is a scramble by political leaders to propose reforms. The editorial starts by suggesting that these leaders are:telling the country they can all be seduced for as little as a free lunch. How else to interpret the House Republican proposal this week to clamp down on Members who dine out on a lobbyist's dime? "

The editorial then describes various other rather modest proposals that are being presented as if they were the solution to the ethics difficulties. Then, write the editors, “The truth is that none of this will truly reduce corruption any more than the many previous lobbying reforms did, or the campaign finance reform of 1974 did, or the McCain-Feingold reform of 2002 did. Money always finds a way in politics, as the American people instinctively understand.

“And because these reforms largely restrict the behavior of Americans who aren't in Congress, they have the cumulative effect of further insulating politicians from accountability by voters and their delegates, some of whom are lobbyists. We doubt it's an accident that the rate of incumbent re-election has only increased in recent decades along with the proliferation of lobbyist and campaign-finance restrictions. If the Members were serious about reform, they'd put in place rules that restrict themselves. They could insist, for example, that at least three days pass after final legislation is drafted, so they could actually read the bills before they vote on them. Or they could eliminate spending "earmarks," which have proliferated under GOP rule and are now a preferred way that Members pay off lobbyists. At a collective cost to taxpayers of about $27 billion in Fiscal 2005, earmarks are a lot more expensive than a free lunch.”

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Russia: Civil Society Under Threat

The Wall Street Journal reported on January 18 that "Russian prosecutors said they closed down a foreign charity in the country's troubled Caucasus region just as a much-criticized law tightening state control over nongovernmental organizations entered Russia's statute books. The Center for Peacemaking and Community Development, or CPCD, a Russian-British humanitarian group, confirmed that a local court had shut down its operations in Ingushetia, a small province in the North Caucasus that borders Chechnya. While the closure wasn't linked to the new law, the ban typifies the increasingly chilly climate for international humanitarian groups in Russia."

The news story continued: "Russian prosecutors said the court also was considering their request to ban another charity, the U.S.-based International Medical Corps. A statement issued by the Prosecutor General's Office said neither CPCD nor IMC had permission to operate in Ingushetia. But IMC's Russia director said the organization's current license is valid until 2008. CPCD, which ran a conflict-resolution program and women's center, said it plans to reregister as a Russian entity so it can continue to work in Ingushetia.The court action came as a controversial bill increasing state supervision of nongovernmental organizations officially became law with its publication yesterday in the government newspaper Rossiiskaya Gazeta."

Resolution by Transparency International
Annual Membership Meeting, 13 November 2005

Transparency International, the global coalition against corruption, strongly condemns provisions of the draft law “On Introducing Amendments to Certain Legislative Acts of the Russian Federation” which promotes discrimination against non-governmental organisations and the rights of foreign organisations and citizens in Russia. The draft legislation proposes putting severe restrictions on civil society organisations in Russia and contradicts existing laws, conventions and basic standards protecting the freedom of speech and association, and is contrary to the Constitution of the Russian Federation.

Corruption undermines the very fabric of the Russian state and society, and can only be fought effectively with the active participation of strong and independent civil society organisations. The Transparency International movement calls on the Russian State Duma, to abandon these restrictive provisions and publicly endorse the freedom of civil society organisations to operate freely throughout the Russian Federation. Transparency International urges the other countries of the Group of Eight industrialised nations to make specific representations on this issue to the government of Russia during its G-8 presidency.  (The resolution was proposed by Elena Panfilova, Director of TI-Russia.)

TI Resolution on Volcker Commission: The TI Annual Meeting also approved a resolution drawing attention to the danger that critical documents compiled by the Volcker Commission on the UN oil-for-food program in Iraq may be lost, thus gravely damaging prospects for follow-up prosecutions - TI.

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Corruption & Democracy in Nepal
by Dr. Devendra Raj Panday

Nepalese anti-corruption leader Dr. Devendra Raj Panday sent EthicsWorld a detailed article on the state of corruption in his country, which is published in full at the website of TI-Nepal.

He starts his article by noting, “ In order to have clean, impartial, and effective governance, one needs to go beyond the domain of the state for initiating reform. Much work needs to be done at the societal level on the issues of values and norms. Such work should be the responsibility of social leaders trusted by the people. Only social leaders can talk about higher motives and goals beyond what a personal utility maximizing political and economic man or woman (including the king) does, and inspire the society. Unfortunately, in the age of politics and power and consultants and experts, social leadership is a vanishing vocation.”

Dr. Panday introduces his analysis by stating, “ One cannot be sure of the real extent of corruption in any country. In Nepal, this is even more true due to a lack of appropriate surveys and data. Even Transparency International’s Corruption Perception Index (CPI) was able, for only the first time last year, to include Nepal. When the incidence or degree of corruption cannot be measured and debated with some certainty, opinion about it becomes subjective, even when the problem is real."

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World Bank Issues Key Governance Indicators

The World Bank’s governance indicators leave no doubt that corruption is seen to be pervasive in many of the very poorest countries. In these same countries where corruption flourishes we find, according to the indicators, that levels of press freedom and public accountability of officials is low; that political stability is often precarious; that government effectiveness and regulatory quality are inadequate; and that the rule of law provides cause for grave skepticism. The data provides a wealth of detailed insights into critical developments in governance and anti-corruption across the globe. The World Bank has just published: Governance Matters IV: Governance Indicators for 1996-2004, May 2005, by Daniel Kauffman, Aart Kraay, and Massimo Mastruzzi.

 

Government Indicators
Year

U.S.

Turkey

S.A.

China

Korea, S

India

Voice and Accountability

2004

89.3

41.7

72.3

7.3

68.9

53.9

 

2000

85.3

29.8

80.1

10.5

68.6

62.8

 

1996

95.3

37.7

67.5

12

68.1

60.7

Political Stability

2004

60.7

30.6

38.3

46.6

59.7

24.3

 

2000

89.1

15.2

42.4

54.5

65.5

37

 

1996

86

10.4

16.5

50.6

51.2

18.9

Government Effectiveness

2004

93.8

57.2

74.5

60.1

80.3

55.8

 

2000

93.5

52.7

69.9

64

72.6

52.7

 

1996

95.5

62

70.4

66.5

78.2

55.3

Regulatory Quality

2004

86.7

48.8

64.5

35

71.9

26.6

 

2000

95.2

55.1

52.4

36.9

69.5

38.5

 

1996

95.6

71.3

64.1

47

78.5

44.2

Rule of Law

2004

92.3

54.6

60.9

40.6

68.6

50.7

 

2000

92.5

59.9

64.2

48.7

73.8

62

 

1996

92.2

58.4

66.9

37.3

81.9

56.6

Control of Corruption

2004

92.6

50.7

70.9

39.9

62.1

47.3

 

2000

92.5

48.9

75.3

44.6

71

49.5

 

1996

90

61.3

78

58.7

76.7

43.3

 

Government Indicators
Year

U.K.

Canada

Mexico

Brazil

U.A.E.

Colombia

Voice and Accountability

2004

94.2

94.7

56.8

55.8

21.8

34.5

 

2000

92.1

89

55

63.9

30.4

31.9

 

1996

91.1

92.1

42.9

59.7

27.7

50.3

Political Stability

2004

71.4

86.9

43.7

43.7

78.2

5.8

 

2000

86.7

91.5

43

55.8

86.7

6.1

 

1996

89

84.8

34.1

39.6

79.3

9.1

Government Effectiveness

2004

94.2

95.7

56.7

58.2

86.1

51

 

2000

96.8

96.2

67.2

47.3

75.8

41.9

 

1996

96.6

93.3

55.9

54.7

78.8

64.2

Regulatory Quality

2004

94.1

93.1

68

58.1

79.3

47.8

 

2000

96.8

90.4

76.5

64.7

71.7

52.4

 

1996

97.8

89

74

60.2

85.1

69.6

Rule of Law

2004

93.7

94.2

45.9

46.9

78.7

29.5

 

2000

93

96.3

46

53.5

88.2

29.9

 

1996

94.6

92.8

54.2

46.4

79.5

36.1

Control of Corruption

2004

94.6

93.6

48.8

53.2

86.7

52.2

 

2000

95.2

96.2

43.5

59.7

77.4

41.9

 

1996

94

96.7

39.3

55.3

64

37.3

*Dataset based upon Percentile Rank (0-100), indicating the percentage of countries worldwide that rate below the selected country (therefore higher values imply better governance ratings). Subject to margin of error.
Notes on the next page

Notes:

Definition of Governance Indicators:

    • Voice and Accountability—measuring political, civil and human rights; also includes indicators measuring the independence of the media.
    • Political Stability—measuring the likelihood of violent threats to, or changes in, government, including terrorism.
    • Government Effectiveness—measuring the competence of the bureaucracy and the quality of public service delivery; also measures the independence of the civil service from political pressures and the credibility of the government’s commitment to policies.
    • Regulatory Quality—measuring the incidence of market-unfriendly policies such as price controls or inadequate bank supervision.
    • Rule of Law—measuring the quality of contract enforcement, the police, and the courts, as well as the likelihood of crime and violence.
    • Control of Corruption—measuring the exercise of public power for private gain, including both petty and grand corruption and state capture.

     

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