Oct. 31, 2006

U.S. Chamber of Commerce Failed to Report Electioneering Spending and Grants

Statement of Joan Claybrook, Public Citizen President

Today, Public Citizen filed a complaint with the IRS asking for an investigation of political expenditures by the U.S. Chamber of Commerce and its Institute for Legal Reform from 2000 to 2004. Since 2000, the Chamber and ILR spent millions of dollars in a stealth campaign to influence federal and state political and judicial campaigns without declaring this spending on tax returns as required by law. The Chamber focused on state attorney general and supreme court races, and federal congressional contests, seeking to stack the deck with business-friendly judges and public officials.

The Chamber has secretly funded attack ads against candidates as part of a hostile corporate takeover of state supreme courts and state attorneys general offices. Rather than allowing the public to choose the best and the brightest candidates, the Chamber’s attack ads promote candidates subservient to a business point-of-view. The Chamber’s role in elections is mainly hidden because it plays a shell game with state-level front groups to conceal the source of this political money from the public and fails to disclose its grants to local groups on tax forms.

The electioneering effort is led by Chamber President Tom Donohue and financed by a group of multi-nationals far removed from America’s small business roots such as Wal-Mart, Home Depot, the insurance company AIG, Daimler Chrysler, the American Council of Life Insurers and other special interests. They shell out millions of dollars to change the outcome of state races for judicial and other offices charged with upholding the rule of law, yet have failed to report these expenses as required by law.

For example, in the year 2000, the Chamber publicly claimed it spent $6 million on judicial races and took credit for winning 15 out of 17 state supreme court contests, but told the IRS that it did not spend a dime to influence elections. In 2002, the Chamber said it planned to spend $20 million on state-level attorney general and judicial races, but again refused to own up to its expenditures on tax forms.

In 2004, the Chamber and ILR reported political expenditures for the first time since at least 2000, coinciding with release of a 2004 Public Citizen report, “The New Stealth PACs,” showing that the Chamber omitted information in reports to the IRS. But even in 2004, it appears the groups underreported the extent of their activities. The two groups reported a combined $18 million in electioneering expenditures, but in a memo released the day after the November elections, Chamber President Thomas Donohue claimed the Chamber spent up to $30 million to influence races around the country. 

Our complaint today also cites the groups’ failures to report grants to outside organizations as IRS tax forms require. Both groups failed to report grants to outside groups from 2000 to 2004. But in a 2005 deposition, a Chamber official acknowledged that the Chamber partnered with at least six outside groups to do their bidding.

At least two 501(c) groups reported receiving contributions from the Chamber, but these grants did not appear on the Chamber’s tax filings. The IRS has in its possession tax forms from other groups, not available to the public, that likely document additional contributions from the Chamber.

We are also asking the IRS to investigate the Chamber’s unconventional commingling of money with that of the Institute for Legal Reform, a separately chartered corporation, in the same bank account. This practice could have tax implications because IRS rules require 501(c) groups to pay taxes on either electioneering expenses or investment income, whichever is lower.

The Institute for Legal Reform reported more than $38 million in revenue in 2004 but told the IRS it did not owe taxes on electioneering expenditures because it had zero investment income. We are surprised that the leaders of the foremost business association in the country so poorly manage money that a $38 million organization does not earn even a nickle of profit from interest.

Tom Donohoe claims his efforts are about “fairness and balance,” but the real goal is an assault on the civil justice system that would weaken enforcement by state attorneys general and limit consumer access to the courts. At a time when we are seeing truly shocking levels of business fraud that hurt tens of thousands of workers, Donohue and Company are unabashedly attacking the public institutions that should be helping to ensure fair play and establish a level playing field.

The Chamber’s invisible hand deceives American voters and undermines our democracy and public trust while appearing to violate the law. This is hardly the behavior we expect from the nation’s largest business group, which should be modeling the honesty and integrity of business, not trying to rig the system to aid a privileged few.

The Chamber‘s elaborate shell game is meant to conceal its gambit to stack the courts with hand-picked pro-corporate judges. But we are not fooled by its sleight-of-hand. The IRS should promptly investigate its dubious tax reports and address any abuses it finds.

###