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Government Contractors Rely on FEC Ruling to Evade Federal Law Against Pay-to-Play

Nov. 18, 2014

Government Contractors Rely on FEC Ruling to Evade Federal Law Against Pay-to-Play

Contractors Now Can Both Give Contributions and Receive Contracts Through Separately Incorporated Divisions of Same Company

WASHINGTON, D.C. – Public Citizen today called on (PDF) the U.S. Federal Election Commission (FEC) to close a loophole of its own making in the federal “pay-to-play” law against campaign contributions from businesses that land lucrative government contracts.

In response to a complaint filed last year by Public Citizen against Chevron – a major government contractor – the FEC ruled that a separately incorporated member of a corporate family may dip into corporate coffers to make campaign contributions if it holds no government contracts, while another separately incorporated subsidiary or affiliate solicits and receives lucrative government contracts. Chevron and a handful of other government contractors relied on this ruling to make campaign contributions in the 2014 elections to the Congressional Leadership Fund, a super PAC closely aligned with U.S. House Speaker John Boehner (R-Ohio) dedicated to electing Republican candidates to Congress.

The petition (PDF) Public Citizen filed today calls on the FEC to recognize the damage done to the pay-to-play law by the agency’s flawed decision on the Chevron complaint and issue a new rule to close the loophole the decision created.

“The FEC ruling effectively gutted the federal ban against federal contractors attempting to curry favor among lawmakers by giving money to candidates, parties and PACs,” said Craig Holman, government affairs lobbyist for Public Citizen’s Congress Watch division. “Any large company easily can create artificial distinctions between its various divisions so that one entity makes the endearing contributions while another pulls in the government largess.”

Other federal regulators and the courts have established more exacting standards for determining whether affiliated corporate entities are treated as a single business enterprise subject to common regulation. Some of the more realistic factors that should be considered in determining whether separate entities should be treated as one company include common ownership, common directors and/or officers, centralized control over activities of the nominally separate entities and dependency among their operations.

“What the FEC has done belies reality. Viewing Chevron Corporation as a separate company from Chevron USA for this purpose seems nonsensical,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division. “In the minds of lawmakers and the public, the campaign contributions come from Chevron and the government contracts are awarded to Chevron. There is no perceived distinction between the two.”

Public Citizen is urging the FEC to clarify the factors for determining whether entities of the same corporate family are in fact distinct business entities. This clarification of the rules should establish more exacting scrutiny to protect the integrity of the federal pay-to-play law in conformance with established legal precedents that prevent corporations from creating nominally separate entities that operate as single enterprises to do what would otherwise be illegal for the company as a whole.

Read Public Citizen’s petition for rulemaking filed with the FEC (PDF).