As we reach the sixth anniversary of Citizens United two things are clear: (1) there's a dark money problem and (2) the SEC isn't helping to fix it yet. But it's also important to know that the SEC can still work on the issue despite a troubling rider added to the federal "cromnibus" budget.
In brief, in January 2010, the Supreme Court decided a case called Citizens United v. FEC, which allowed corporations to spend unlimited amounts in elections. Part of the Court's rationale was that this spending was permissible because it would be disclosed. "[W]ith the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable," the opinion said.
Yet what the Supreme Court didn't seem to appreciate was that the regulatory agencies responsible for setting the disclosure rules would simply abandon their watchdog roles. We are now in the fourth federal election after Citizens United (2010, 2012, 2014 and 2016), and groups that don't disclose their donors are still infecting our politics. Since 2010, there has been more than $600 million in dark money.
The Citizens United was written by Justice Anthony Kennedy. He spoke at Harvard Law School last fall, and while he conceded "what happens with money is politics is not good," he appeared utterly clueless about the lax disclosure rules. He re-iterated his technology-will-cure-all approach. We "live in this cyber-age," Kennedy said. "We don't have to wait three months for a report. A report can be done in 24 hours."
But the "reports" Kennedy alluded to simply do not exist.
Under the Internal Revenue Service code, there are two primary conduits for dark money:501(c)(4)s better known as social welfare organizations and 501(c)(6)s better known as trade associations. According to Open Secrets, the top source of dark money in three of the last four election cycles was the US Chamber of Commerce. (In 2012, the Chamber was third behind American Crossroads which was run by Karl Rove and Americans for Prosperity which is affiliated with the Koch Brothers). The Chamber won't name its donors, but calls itself "the world's largest business organization" and an "advocate for pro-business policies." Since 2010, the Chamber has plowed more than $105 million into elections, including nearly $3 million so far in the 2016 race.
It's a safe bet that some of the Chamber's money came from publicly held corporations. The SEC is responsible for setting disclosure rules for these companies. Since 2011, the SEC has been asked repeatedly to adopt a new rule to requiring corporations to tell their shareholders (and by extension, the public) how they are spending money on politics. More than 1.2 million comments have poured in supporting disclosure, according to Public Citizen.
This groundswell has caught the attention of the Republican Congressional leadership, who have pressured the SEC Chair not to work on a political transparency rule. Last year, Congress took the additional step of barring the SEC from finalizing a rule to illuminate dark money by sneaking in a rider to the federal budget.
But hasty drafting has left the SEC some wiggle room. Harvard Law Professor John Coates has examined the budget language and believes the SEC can still work on the rule this year as long as the agency does not finalize it. And given that rule making processes can be long affairs (think of all the long delayed Dodd-Frank and Jobs Act rules), it would behoove the SEC to start work on corporate disclosure rules now, especially since 94 members of Congress have urged them to move ahead.
Meanwhile, stockholders are acting on their own. There were 530 stockholder resolutions related to corporate political activity between 2010 and 2014, and more than 100 last year. And New York state's Comptroller has filed suits under Delaware law seeking more political transparency, most recently, against Oracle.
The Center for Public Accountability and the Zicklin Center of the University of Pennsylvania publishes an annual index of political disclosure by the S&P 500. While 54 per cent of these companies disclose their political spending policies online, "there continues to be resistance to disclosing payments to (c)(4) nonprofit organizations that are permitted to conceal their donors," the research found. The only way to get uniform disclosure and comparability is through one unified SEC rule.
As the Obama Administration winds down, it's time for the SEC to think about its legacy. Historically, the SEC is known for bringing more transparency to America's capital markets. Does the SEC really want to be known as one of the biggest enablers of dark corporate political money?
The views expressed are the author's own and not necessarily those of the Brennan Center for Justice.