December 26, 1996

In Political Money Game, the Year of Big Loopholes

By DAVID E. ROSENBAUM

---

In This Article:

The Laws: All the Players Look the Other Way

The System: A Vested Interest in Resisting Change

The Constitution: Hurdle of Passing High Court's Test

The Politics: Ulterior Motives of the Parties

---

ASHINGTON -- This was the year when all semblance of restraint in campaign financing went by the boards.

The candidates for president and Congress and their advocates raised and spent an estimated $2 billion on their campaigns, almost double what had ever been spent before on an election.

There were prominent scandals: John Huang, a Democratic operative who had worked in the Commerce Department, raised large sums illegally from an Indonesian conglomerate and other Asian interests. Vice President Al Gore held a fund-raising event at a Buddhist temple. A finance vice chairman of Bob Dole's presidential campaign, Simon Fireman, was convicted of laundering illegal corporate donations to the Dole campaign, fined $6 million and sentenced to detention in his Boston home with an electronic monitor around his ankle.

But to many, the worst outrages were not the illegal ones but the activities of politicians and donors in both parties that slipped through the loopholes of the macrame-like campaign finance law.

By the end of June, the 50 largest donors -- corporations, unions and trade associations, all prohibited by law from giving money directly to candidates -- had used legal bypasses to spend more than $800,000 apiece to support the candidates of their choice, and these sums have grown in the last six months. Philip Morris, AT&T, the trial lawyers' association and the teamsters, to name some of the top givers, donated well over $2 million each. Hedging their bets, most big donors gave to both parties.

"Not so long ago," said Michael Lewan, a lobbyist here who has raised money for Democrats for years, "a senator or a fund-raiser would call and ask for $1,000 and you'd give them $500 and they'd be grateful."

"People now call," he said, "and ask me to get my clients to give $100,000 or $200,000 or $250,000."

Large contributors were openly rewarded with support for the government policies they advocated, dinners at the White House and seats on international trade missions.

The news broke so fast this year that often the context was lost. How, for example, are companies able to skirt a law that has prohibited corporate contributions to federal candidates since 1907? What did the big donors expect in return? Why don't politicians or the Federal Election Commission or the courts or somebody else put an end to what George Washington Plunkett, the turn-of-the-century Tammany Hall boss, called honest graft?

The answers are varied. With the campaign going full bore, the Supreme Court last summer ruled that legal restrictions on what political parties could spend on behalf of candidates violated the First Amendment. Republican senators filibustered to death the latest attempt at campaign finance reform. And Congress gave the election commission about 15 percent less money than the agency initially said it needed to enforce the law.

"Pure and simple, this year the wheels came off," said Fred Wertheimer, former president of Common Cause, who has worked on campaign finance issues for more than 20 years.

The matter will be in the headlines again next year. Republicans have promised a full-scale investigation of Asian donations to the Democrats. Sens. John McCain of Arizona, a Republican, and Russell Feingold of Minnesota, a Democrat, plan to re-introduce their legislation that was killed this year by the Senate filibuster. Democratic leaders say they will push for a constitutional amendment to override the Supreme Court decisions on campaign spending.

To keep matters in perspective, a number of basic points should be kept in mind.

The Laws: All the Players Look the Other Way

n political circles, campaign finance laws are treated more like nuisances -- comparable, say, to parking rules -- than like serious sanctions that must be followed in letter and spirit.

"What was most extraordinary this year was the way everyone -- Democrats, Republicans, corporations, unions, everyone -- thumbed their noses at the law," said Ellen Miller, executive director of the Center for Responsive Politics, a nonprofit, nonpartisan organization that tracks campaign finance matters.

"The law puts up minimum hurdles," Ms. Miller continued. "In 1996, every hurdle was jumped with ease. The parties and the candidates operated as if there were no regulations whatsoever."

THE STATUTES: Corporate contributions to candidates for president and Congress have been outlawed since 1907; contributions from labor unions have been prohibited since 1943. The 1974 law passed in the aftermath of Watergate limits individuals to total contributions of $25,000 a year to federal candidates and no more than $2,000 per candidate ($1,000 each for a primary and general election). The law allows individual donations of $20,000 to a political party and $5,000 to political action committees, which are formed usually by business, labor or ideological groups to raise money and distribute it to candidates supporting their interests.

The 1974 law also provides for government grants to presidential candidates. Federal money matching that raised by the candidates is provided to them during the presidential primaries. A lump sum is given to the candidates in the general election. Candidates who accept the government grants agree not to exceed spending limits -- a specific sum based on population for each state in the primaries and the lump sum ($62 million apiece in 1996) in the general election.

Those restrictions were conspicuously breached this year by what are known as soft-money contributions and independent expenditures.

SOFT MONEY: Since 1978, the Federal Election Commission, the enforcement agency established by the 1974 law, has allowed the political parties to raise money without limit from corporations and unions for party-building activities like administrative expenses, bumper stickers that say "vote Democratic" or "vote Republican," voter registration and get-out-the-vote drives.

Since 1992, when the commission ruled that these contributions had to be disclosed publicly, the parties have raised more of this so-called soft money each year. For the 1992 election, $89 billion was raised; for 1994, $107 billion, and when all the figures are tallied this year, they will probably total $250 billion, divided evenly between Democrats and Republicans. The only rule on the source of soft money -- one Huang apparently broke -- is that it must come from people who live in the United States or companies that at least have a subsidiary here.

In addition, without further word from the election commission, the parties have expanded each year the definition of what uses the money can be put to. This year, for the first time, the parties used the money for television advertisements that were theoretically not coordinated with the candidates but were virtually indistinguishable from those the candidates produced for themselves.

This may not have been legal, experts in the field say. No matter. By the time the election commission and the courts catch up with the perpetrators, the 1996 election will be long over, and the winners safely ensconced in their seats of power.

INDEPENDENT SPENDING: Organizations advocating a cause are legally allowed to spend limitless amounts on political advertising -- called issue advertising -- as long as the advertisements do not specifically urge a vote for or against one candidate or another.

Groups as disparate as the AFL-CIO, the Christian Coalition, the Chamber of Commerce and advocates of term limits took advantage of this aspect of the law to make the case for the candidates they were supporting this year.

Labor unions spent $35 million in a futile effort to restore Democratic control of the House of Representatives; businesses probably spent many times more, some of it for Democrats, but most for Republicans. A prominent Republican advertisement, for example, showed film clips of President Clinton in rapid-fire fashion saying that the budget could be balanced in seven years, in nine years, in 10 years and so forth. It ended with the line, "Tell Mr. Clinton to support the balanced-budget amendment."

Dole was teased about how an advertisement devoted entirely to his biography never mentioned explicitly that he was running for president. "I hope that it's fairly obvious," the candidate joked, "since I'm the only one in the picture."

THE PAYBACK: It is impossible to prove exactly what donors get in return for their contributions. A direct payoff would clearly be illegal, a violation of the bribery statutes. The stock answer from politicians and contributors alike is that all that is expected and all that is returned is better access to the politicians for the donors.

Yet, this answer depends on believing, for instance, that there is no connection between the millions of dollars that the Archer-Daniels-Midland Co. and its chairman, Dwayne Andreas, have donated over the last quarter century to politicians from both parties and the multibillion-dollar tax break the government allows for ethanol, one of the company's main products.

Rep. Barney Frank, D-Mass., once put the matter this way, "We are the only people in the world required by law to take large amounts of money from strangers and then act as if it has no effect on our behavior."

ENFORCEMENT: As an enforcement agency, the Federal Election Commission is basically toothless.

People know that if they cheat on their taxes or participate in investment scams, they risk being caught and penalized by the Internal Revenue Service or the Securities and Exchange Commission.

No one is afraid of the election commission. . The agency's authority is limited. And when it does crack down on wrongdoing, the action almost always comes too late to affect the outcome of the election.

For example, the commission found that Dole's 1988 campaign for the Republican presidential nomination had committed several serious violations, including accepting improper corporate contributions and exceeding spending limits in several important primary states. The case was finally resolved in 1993, five years after the campaign. The remnants of the Dole campaign paid a $123,000 fine.

Lee Ann Elliott, who just completed a term as chairman of the commission, acknowledged in an interview that no candidates worried about possible fines or about the outcome of their elections being adversely affected.

Enforcement actions take such a long time in large part because Congress keeps such a tight rein on the agency's budget. For the current fiscal year, the agency asked for a budget of $33.6 million and received $28.2 million, a 16 percent cut.

This has led some to conclude that politicians do not want rigorous enforcement. Starting next year, the agency will ask candidates voluntarily to file required data on their campaign contributions on computer disks so that the public can gain access in a more timely fashion.

Scott Thomas, a commissioner at the agency, said he had no confidence that there would be many takers. "Our fear," Thomas said, "is that there won't be many candidates who are anxious to stick their necks out there."

The commission does not have the authority to require electronic disclosures or to issue injunctions to stop actions that are obviously against the law. Ms. Elliott said it was just as well the agency could not issue injunctions. "Every candidate would be in here with a motion for injunctive relief against his opponent," she said, "and that's all we would be able to deal with."

The System: A Vested Interest in Resisting Change

oliticians will not support any changes in the system that would take away an advantage they hold or that would give their opponents an edge. This is the main reason the law has not been changed in 22 years.

For example, Republicans, who generally get more support from wealthy people than Democrats, oppose efforts to place more limits on political contributions or to turn to a system of public financing. In fact, House Speaker Newt Gingrich and the Republican chairman, Haley Barbour, advocate removing the legal caps on donations or at least raising them substantially.

Similarly, Democrats mostly support public financing and want to keep the contribution limit low. Democrats also strenuously oppose Republican moves to outlaw soft-money contributions from labor unions, since almost all union money goes to the Democrats.

Many Republicans would favor a rule that would limit the amount of money that candidates for the Senate or House could accept from donors outside their states or districts. Democrats oppose that. That is because Democrats who represent poor districts would have trouble raising enough campaign money.

The needs of senators are different from those of representatives. The Senate has voted, for example, to prohibit contributions from political action committees. The House has always rejected such proposals, since representatives are much more dependent on such money.

Finally, the law as it stands is skewed in favor of incumbents and against challengers. Obviously, incumbents write the laws. That makes change less likely.

The Constitution: Hurdle of Passing High Court's Test

any proposed changes in the campaign finance law might not pass the Supreme Court's constitutionality test.

In 1976, the Supreme Court upheld limits on the contributions candidates can accept. Such limits, the court said, were justified in that they helped safeguard the integrity of the election process, or at least prevented the appearance of corruption.

But as for how much candidates or parties can spend, the court said most restrictions were unconstitutional. Spending, the court holds, is a form of political speech and is thus protected by the First Amendment. The only time when limits on spending seem to be permissible is when the candidates have tacitly accepted government regulation in return for a government benefit, like public money.

As a consequence, the court has overturned laws limiting how much congressional candidates can spend, how much of their own fortune wealthy candidates like Ross Perot can spend and, just this year, how much political parties can spend on behalf of their candidates.

These rulings almost certainly mean that legislation to outlaw political action committees or to restrict spending by labor unions, both likely to be under consideration in Congress next year, would be found unconstitutional. The courts would probably allow voluntary spending limits for candidates who accept government-mandated free television time, a main part of the McCain-Feingold legislation that was killed by a Senate filibuster this year. But the constitutionality of another part of that bill, a prohibition on soft money, is questionable.

The Politics: Ulterior Motives of the Parties

epublicans have an interest in turning the John Huang affair into a scandal; so, in fact, does everyone who wants to change the system. Democrats have an ulterior motive in advocating a constitutional amendment.

An investigation into illegal contributions raised by the Democrats from Asians could not only prove embarrassing to the Democrats but could also distract attention from the McCain-Feingold bill, which President Clinton and most Democrats support but most Republicans vigorously oppose.

For reformers, a congressional investigation would put the spotlight on what they believe to be a thoroughly corrupt campaign finance system.

By the same token, Democrats are eager to push their case for a constitutional amendment to allow restrictions on campaign spending, in part because this might draw public attention away from the embarrassing Huang investigation.

That Huang made illegal foreign contributions is easily understood. More murky is the accusation that he used his position in the Commerce Department to help Democratic donors.

Clinton's 1992 campaign chairman, Ronald Brown, became secretary of commerce in 1992, and he raised public favors to Democratic donors to new heights. The Center for Public Integrity, a nonprofit, nonpartisan organization, found that the dozens of companies that had contributed to the Clinton campaign were helped by the Commerce Department to strike business deals worth hundreds of millions and in some cases billions of dollars.

But the connection between the Commerce Department and campaign fund-raising has long been a tight one.

President Richard Nixon turned his commerce secretary, Maurice Stans, into his campaign finance chairman in 1972, and Stans became a central figure in the Watergate scandals. He was indicted but ultimately acquitted of using his Government position to help campaign contributors.

President George Bush's campaign chairman in the 1988 election, Robert Mosbacher, became secretary of commerce after Bush was elected and openly rewarded campaign contributors with seats on trade missions around the world and other perquisites. Asked about it at the time, Mosbacher replied frankly, "That's part of what the system has been like for 160 years."