Primer on Disclosure and Electronic Filings

Primer on Disclosure and Electronic Filings


Brandeis’ oft-quoted dictum prescribes the value of openness and publicity to root out crime. This dictum was again cited in the landmark 1976 Buckley v. Valeo decision as the guiding principle to justify public disclosure of campaign finance records as a key means to curtail corruption in politics.

Public disclosure is a widely accepted principle of campaign finance law. Proponents and opponents alike of strong campaign finance regulations tend to believe that disclosure of where campaign money comes from and how it is spent is a pillar of fair and free elections. Indeed, without disclosure of money in politics, the potential for corruption would go entirely unchecked.

Nevertheless, disclosure is no magic bullet. It is a valuable means for the public to monitor the influence of money in politics, but disclosure in and of itself cannot ensure that politicians will not be unduly influenced by large contributors or guarantee that citizens will regain confidence in their elected officials. A comprehensive campaign finance reform program must both inform the public of the sources and beneficiaries of campaign money and limit the amount of special interest money that flows into campaign coffers. [The state of Illinois, for example, has among the finest campaign finance disclosure systems in the nation, but it also has among the weakest limits on the sources and amounts of campaign contributions. As a result, politics in Illinois is plagued with scandal after scandal every year over money in politics, often "earning" the largest number of influence peddling convictions of any state in the nation.]

But a good disclosure system forms the foundation for cleaning up politics.

A. Brief History of Federal Disclosure Law

Following a series of allegations and counter-allegations of corporate bribery in the presidential election of 2004, then-elected President Theodore Roosevelt helped secure passage of the 1907 Tillman Act. The Tillman Act only prohibited corporate contributions; it did not require any form of disclosure of campaign records. Nevertheless, both Democratic candidate William Jennings Bryan and Republican candidate William Howard Taft voluntarily agreed to publish lists of their contributors, and the amounts contributed and expended, following the election. This is the first time complete campaign records were disclosed in federal elections.

Demands for public disclosure of campaign finances were echoed by an influential lobby group known as the National Publicity Law Association. This association succeeded first at encouraging New York to adopt a disclosure law at the state level, and finally helped convince Congress to adopt the Federal Corrupt Practices Act of 1910, better known as the Publicity Act of 1910, which was a disclosure law for committees involved in House elections. Receipts and disbursements were to be reported to the Clerk of the House following the election. The Publicity Act was amended in 1911, extending the disclosure requirement to Senate elections as well.

The overriding philosophy behind the original Publicity Act was that public disclosure of the sources and uses of campaign money would be the best "disinfectant" against political corruption—a theme echoed by many scholars today. Disclosure would make quid pro quos and bribery easier to detect; officeholders and candidates would be less influenced by large contributors because of the potential for voter backlash against an appearance of being bought; and voters would be provided important information about who is supporting which candidate and could vote accordingly.

That was the theory behind the disclosure provisions of the Publicity Act. The reality did not quite work out that way.

Despite the Publicity Act, campaign finance records tended to be incomplete and not readily available to the public. What few news reports that were generated from access to campaign finance records under the Publicity Act failed to stir the electorate one way or the other. Such reports revealed that all three major parties—and even the reform factions within these parties—relied primarily on large contributors; that small individual contributions comprised a fraction of campaign budgets; that special interest groups vying for political favors contributed to both parties; and that money tended to flow to incumbent officeholders regardless of party or ideology, who make public policies and award government contracts, rather than to challengers.

The "Teapot Dome" scandal—involving oil company payoffs to federal officials in exchange for grant oil leases—increased public pressure for additional campaign finance reform, which led to the Federal Corrupt Practices Act of 1925. The provisions of the Act applied to general elections only; established expenditure ceilings of $5,000 for House candidates and $25,000 for Senate candidates; and required quarterly reporting of itemized contributions and expenditures of $100 or more. In essence, the Act recodified much of the Publicity Act and expanded the disclosure requirements somewhat. The 1925 Act remained the nation’s basic federal campaign finance law until the 1970s.

Neglecting to address the problems of the earlier laws, the Federal Corrupt Practices Act was a classic failure. Campaign expenditures remained only sporadically reported; campaign records were destroyed after two years; the spending limits could be evaded by a candidate claiming no knowledge of various campaign expenditures; multiple campaign committees were established by individuals to evade the limits; no audits were required; and the law was rarely enforced. Over the life of the law—the next 45 years—no one was prosecuted for federal campaign finance abuses.

After losing the presidential race of 1968, spurred congressional Democrats decided to return to the campaign finance issue, and approved the Federal Election Campaign Act of 1971 (FECA). This measure replaced the failed Federal Corrupt Practices Act of 1925.

The FECA represented a significant departure from the Federal Corrupt Practices Act by establishing extensive disclosure requirements for candidates and committees and establishing strict procedures for monitoring and auditing campaign funds. Ironically, the FECA was signed into law by President Richard Nixon which, because of its more thorough mechanisms for disclosure and monitoring of campaign money, played a useful (though not decisive) role in uncovering the Watergate scandal that led to Nixon’s resignation two years later. The FECA, as subsequently amended, embodies much of the federal campaign finance disclosure regime of today.

B. Campaign Finance Disclosure Today

In terms of federal political activities, there are three different regimes for financial disclosure:

Campaign activity for and against federal candidates is reported to the Federal Election Commission (FEC) and disclosed on the FEC Web site.

Political activity by Section 527 groups that affects elections, but is not defined as electioneering activity promoting the election or defeat of candidates, is reported to the Internal Revenue Service (IRS) and disclosed on a new IRS Web site.

Political activity by 501(c) non-profit groups is supposed to be filed annually to the IRS on Form 990 reports and is disclosed in paper format from the non-profit headquarters or the IRS headquarters in Washington, D.C.

1. FEC Disclosure

Clearly, the most comprehensive reporting system of electioneering activity is implemented by the Federal Election Commission and covers campaign activity by candidates, committees and political parties involved in federal elections. Candidates, parties and PACs are required to file itemized contributions in excess of $200 and itemized expenditures with the FEC on a regular basis. Data on the occupation and employer of each contributors is filed an a "best efforts" basis, meaning that it is not uncommon for 20% to 30% of these records to be missing.

PACs file semi-annually during non-election years and quarterly during election years. Due to recent changes in election law, candidates are now required to file quarterly during non-election years and monthly during election years; parties are required to file monthly every year. Entities are also required to file pre-election reports 12 days before an election and post-election reports 20 days after an election; within 20 days of an election, late contribution reports of each contribution of $1,000 or more must be filed within 48 hours.

Perhaps the greatest feature of the FEC disclosure system is its electronic reporting program. Most entities that expect to raise or spend more than $50,000 in a calendar year must file their financial disclosure reports electronically. (Senate candidates still are exempt from the electronic reporting requirement, but the FEC posts their reports almost immediately on its Web site, anyway.) This means that the records are made available to the public almost as soon as they are filed, and accessible in a searchable, sortable and downloadable format. (Click here to access the FEC electronic disclosure page.)

2. Section 527 Disclosure

Groups whose "primary purpose" is to conduct political activities, but not to expressly advocate the election or defeat of candidates as defined under federal election law, must register and file with the IRS as Section 527 groups.

Groups began claiming Section 527 status in the mid-1990s as a means to raise and spend unregulated "soft money" in federal elections and to evade the FEC disclosure requirements. (For further discussion of electioneering activity of non-profits, click here).

Section 527s became known as "stealth PACs" because they were not subject to any public disclosure requirements by either the FEC or the IRS. Following the 2000 presidential primary election in which one Section 527 aired millions of dollars worth of television ads attacking Sen. John McCain and supporting his Republican opponent George W. Bush without any disclosure of the source of these ads, Congress approved a 527 disclosure law. Section 527s have since had to file regular disclosure reports with the IRS, which would in turn post these filings on the IRS Web site.

The filings were so lackadaisical, and the IRS Web site was so sporadic in its postings, the Public Citizen created its own 527 searchable database for the years 2000 through 2002. (Click here for Public Citizen’s 527 database.)

Two years later, the filing requirements and the IRS Web disclosure system for Section 527s was vastly improved by the Brady-Leiberman 527 disclosure law. Section 527 groups must now file itemized contribution reports and expenditure data on the same schedule that applies for committees the file with the FEC. Section 527s must also file electronically, and the data is searchable and downloadable from the IRS Web site. (Click here for the IRS 527 disclosure page.)

3. 501(c) Non-Profits

The new "stealth PACs" are electioneering 501(c) non-profit groups. Now that Section 527s must file electronic financial activity reports, which are aptly disclosed on the IRS Web site, political groups that are determined to hide their financial activity are turning to 501(c) non-profit status. These are required to file financial reports only annually with the IRS through Form 990. These reports provide simple aggregate data, not itemized records of contributions and expenditures, and are usually filed in paper format. Access to these reports is also difficult, requiring persons to submit written or personal requests to the main headquarters of the non-profit group or to the IRS headquarters in Washington, D.C.

Electioneering 501(c) non-profits comprise the last "black hole" in public disclosure of political financial activity. (For Public Citizen’s comment to the IRS on 501(c) non-profit disclosure requirements, click here.)

Clearly, the best disclosure system is an electronic reporting program. The FEC has led the way in electronic reporting, and the IRS is beginning to catch up. Most state elections agencies are also moving forward in the field of electronic filing and disclosure of campaign finance reports. (For a discussion of the history and operations of state electronic reporting system click here.)

Copyright © 2010 Public Citizen. All rights reserved. This Web site is shared by Public Citizen Inc. and Public Citizen Foundation.  Learn More about the distinction between these two components of Public Citizen.


Public Citizen, Inc. and Public Citizen Foundation

 

Together, two separate corporate entities called Public Citizen, Inc. and Public Citizen Foundation, Inc., form Public Citizen. Both entities are part of the same overall organization, and this Web site refers to the two organizations collectively as Public Citizen.

Although the work of the two components overlaps, some activities are done by one component and not the other. The primary distinction is with respect to lobbying activity. Public Citizen, Inc., an IRS § 501(c)(4) entity, lobbies Congress to advance Public Citizen’s mission of protecting public health and safety, advancing government transparency, and urging corporate accountability. Public Citizen Foundation, however, is an IRS § 501(c)(3) organization. Accordingly, its ability to engage in lobbying is limited by federal law, but it may receive donations that are tax-deductible by the contributor. Public Citizen Inc. does most of the lobbying activity discussed on the Public Citizen Web site. Public Citizen Foundation performs most of the litigation and education activities discussed on the Web site.

You may make a contribution to Public Citizen, Inc., Public Citizen Foundation, or both. Contributions to both organizations are used to support our public interest work. However, each Public Citizen component will use only the funds contributed directly to it to carry out the activities it conducts as part of Public Citizen’s mission. Only gifts to the Foundation are tax-deductible. Individuals who want to join Public Citizen should make a contribution to Public Citizen, Inc., which will not be tax deductible.

 

To become a member of Public Citizen, click here.
To become a member and make an additional tax-deductible donation to Public Citizen Foundation, click here.