Show us your money: halting the use of trade organizations as covert conduits for corporate campaign contributions

Journal of Corporation Law, The, Fall, 2007 by Shayla Kasel

The next congressional action on campaign finance was a response to the Tea Pot Dome Scandal in 1925. (44) The Federal Corrupt Practices Act of 1925 tried again to stop corporate contributions by requiring quarterly disclosure reports. (45) However, the Act contained no enforcement mechanism or penalties for noncompliance, and the disclosure requirements did not include publishing the reports or public access to the reports. (46) Thus, it was wholly ineffective. (47)

B. The First Substantial Regulation: The Federal Election Campaign Acts of the 1970s

The current election regulatory system was established by the 1971 Federal Election Campaign Act (FECA), and its amendments in 1974, 1976, and 1979. (48) FECA was intended both to correct the inadequacies from the Federal Corrupt Practices Act of 1925 and to halt growing campaign costs. (49) FECA required meaningful disclosure and reporting of campaign contributions and expenditures for the first time. (50) However, the Watergate Scandal highlighted the limitations of the new regulations, as Nixon's campaign committee attempted to circumvent FECA's restrictions. (51) Subsequent amendments to FECA were the most sweeping reforms ever in campaign finance, and they left little of the 1971 law intact. (52) The goal was to ban corporate and union contributions and to end illegal corporate gifts and hidden "slush funds"--which were already prohibited--by adding penalties for candidates who accepted such money. (53)

The 1974 Amendment created the Federal Election Commission (FEC), a regulatory board to enforce the Act and strengthen the disclosure system. (54) However, while the FEC was empowered to enforce contribution limits and to oversee disclosure of contributions and expenditures used in federal elections, its effectiveness was undermined from the moment of its creation. (55) Congress vetoed FEC actions when the agency conducted random audits of campaign committees and Congress ensured that the Commission was continually understaffed and under budgeted. (56) Congress also established the FEC as a six person commission, evenly divided on party lines, ensuring that no controversial actions could be taken. (57) The FEC is the only board that Congress has ever set up with the intention of creating an inter-agency stalemate. (58) For most of the 1980s and 1990s, the FEC was simply a housekeeping body that did not engage in any controversial investigations. (59)

Corporate political contributions found a new outlet following the 1976 FECA amendments, which established lower contribution limits for individuals and higher limits for PAC contributions, encouraging the growth of PACs. (60) Although the first PAC was created in 1943, it was not until the 1980s that corporations took full advantage of this avenue to influence federal elections. (61) An additional benefit of PACs was that corporations and unions were permitted to use treasury funds to organize the PAC and to fund contribution solicitation. (62) However, PACs were limited because they were subject to contribution and expenditure limits set by FECA and had to disclose their financial activities to the FEC. (63) Once corporations and unions reached their PAC contribution limits, they looked for other avenues to contribute money; they found a new loophole to exploit, in an exception carved out by the Supreme Court in Buckley v. Valeo. (64)