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Nov. 11, 2015

FEC Refuses to Close the ‘Chevron’ Loophole in the Ban Against Campaign Contributions From Government Contractors

Deadlocked Commission Spurns Advice From Philadelphia Mayor, Connecticut and New York Elections Officials Who Enforce Pay-to-Play Laws

WASHINGTON, D.C. – A deadlock by the U.S. Federal Election Commission (FEC) on Public Citizen’s request that the agency close a loophole of its own making that allows federal contractors to make campaign contributions through subsidiaries means the loophole remains. The 3-3 vote came Tuesday evening.

“It’s irresponsible for the agency to let stand a policy that guts a key campaign finance rule,” said Craig Holman, government affairs lobbyist for Public Citizen’s Congress Watch division. “Any major corporation can set up multiple entities within the same corporate family, one for making campaign contributions to curry favor and another for receiving the largess of lucrative government contracts.”

The silver lining, Holman said, is that Public Citizen’s petition (PDF) and the comments from the public and other elections enforcement agencies in support of it may have helped guide the FEC general counsel’s office on how to enforce effective pay-to-play laws and helped win over the Democratic commissioners to support reconsidering the agency’s current policy. The petition is well poised to resurface with any change in the FEC’s membership.

Although federal law prohibits government contractors from making campaign contributions, the FEC decided in a 2014 complaint about Chevron’s $2.5 million contribution to a super PAC that, while Chevron USA held contracts prohibiting it from making such contributions, Chevron Corp. did not hold contracts and therefore could make the campaign contribution.

After the FEC created the “Chevron” loophole in 2014, Public Citizen filed a petition for rulemaking, pointing out that the loophole renders the pay-to-play law against contractor contributions almost meaningless.

Elections agencies from across the nation in charge of enforcing effective pay-to-play restrictions agreed: the FEC’s current rules take the teeth out of the federal law and allow for easy evasion by federal contractors.

Comments filed by the New York City Campaign Finance Board in support of new rulemaking stated: “The Pay-to-Play Ban and other laws like it are at risk of being rendered unenforceable if corporations can skirt the law by creating nominal subsidiaries to make political contributions.”

Philadelphia Mayor Michael Nutter noted that the FEC’s “Chevron” loophole would not be tolerated under that city’s pay-to-play ordinance: “Corporate entities, whether affiliates, parents or subsidiaries, should not be able to hide behind the corporate veil so that the campaign contributions of an affiliate do not count against its obviously, closely connected parent.”

The Connecticut State Elections Enforcement Commission also chimed in: “Public Citizen raises strong points in favor of broadening the standards for evaluating when related businesses should be treated as separate for the purposes of pay-to-pay laws. The result in the Chevron case illustrates how the federal contractor ban on contributions can be easily evaded by technical legal maneuvering that leaves the intent of the law completely thwarted. In order for the law to be effective in its purpose, the Commission should adopt new criteria for dealing with business enterprises, families of businesses and commonly controlled businesses.”

More than 20,000 other comments in support of the petition for rulemaking were filed by citizens across the nation.

“Government contracts should be awarded based on merit and not subject to influence by campaign contributions,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division.

View the petition (REG 2014-09) and public comments.

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