PhRMA Appears to Have Funneled Up to $41 Million To “Stealth PACs” to Help Elect a Drug Industry-Friendly Congress

Sept. 20, 2004

PhRMA Appears to Have Funneled Up to $41 Million To “Stealth PACs” to Help Elect a Drug Industry-Friendly Congress

Four Seniors Groups Campaigned for Pro-PhRMA Candidates; Public Citizen Requests IRS Review of Compliance with Tax Laws

WASHINGTON, D.C. – With its eyes on passage of an industry-friendly Medicare prescription drug bill, the Pharmaceutical Research and Manufacturers of America (PhRMA) appears to have quietly channeled as much as $41 million to four stealth PACs in 2002 to help elect a Congress sympathetic to the pharmaceutical industry’s interests, according to a new Public Citizen report.

Money that likely came from PhRMA, the drug industry’s trade association, enabled the United Seniors Association, 60 Plus Association, the Seniors Coalition and America 21 to broadcast ads and send direct mail in 39 U.S. Senate and House contests that year, supporting candidates friendly to PhRMA’s agenda and criticizing those who weren’t, the report reveals.

At least one of the groups, United Seniors Association (USA), is again active in the 2004 elections, recently sponsoring TV ads in 17 or more House races that praise incumbents who supported the PhRMA-backed Medicare drug law pushed by President Bush and passed by Congress in 2003.

Released today, Big PhRMA’s Stealth PACs: How the Drug Industry Uses 501(c) Non-profit Groups to Influence Elections report is available at www.stealthpacs.org, a new Public Citizen Web site and comprehensive database to track 501(c) non-profit groups active in elections, which Public Citizen has dubbed the “new stealth PACs.”

“The Medicare drug bill is a gold mine for the pharmaceutical companies because it expands their base of paying customers for brand-name drugs and protects them from lower-cost foreign imports and government attempts to negotiate price discounts,” said Frank Clemente, director of Public Citizen’s Congress Watch. “PhRMA’s apparent bankrolling of these stealth PACs left voters with no way of knowing whether the campaign messages aimed at them were bought with the drug industry’s money or whether PhRMA helped elect a Congress that will do its bidding and enact industry-friendly bills like the Medicare drug law.”

The four groups PhRMA apparently financed are registered within Section 501(c)(4) of the tax code as social welfare organizations. These and other politically active groups also registered under Sections 501(c)(5) and 501(c)(6) of the tax code are allowed to accept unlimited amounts of money from any donor without ever having to publicly divulge the source of the funds, according to Public Citizen.

Groups with these three tax statuses are permitted to make substantial political expenditures, which the IRS defines as expenditures intended to influence the outcomes of elections, but they are prohibited from making electoral activities their primary purpose.

In a letter sent today to IRS Commissioner Mark Everson, Public Citizen asked the agency to “consider initiating a formal investigation into the financial transactions and electioneering activities” of the four groups that appear to have been funded by PhRMA. Public Citizen believes that in 2002, the PhRMA stealth PACs may have engaged in enough activities intended to influence elections to raise the question of whether they violated the prohibition against allowing political work to be their primary activity.

Further, each of the four PhRMA stealth PACs declared zero political expenditures to the IRS, claims that do not seem plausible given the content of the groups’ television commercials and direct mailings, the timing of their messages, and the groups’ decisions to direct the messages disproportionately to voters who lived in politically competitive states and congressional districts.

Additionally, PhRMA failed to disclose its grants to USA and 60 Plus, to which it is known to have given money in 2002. And if PhRMA is the source of the other large contributions to the Seniors Coalition and America 21 identified in the Public Citizen report, it again failed to disclose these grants.

In its report, Public Citizen also documents that:

  • In 2002, USA received $20.1 million from a single source, according to its IRS filing – 79 percent of its total revenue that year. PhRMA acknowledged providing an “unrestricted educational grant” to USA in 2002. USA also received $1.5 million from PhRMA in 2001, according to its IRS filing. Public Citizen estimates that USA spent at least $13.6 million on political ads in 25 races in 2002.
  • Almost $11 million of 60 Plus’ $12 million in revenue came from a single source in 2002. PhRMA also is reported to have provided an “unrestricted educational grant” to 60 Plus that year. The $11 million allowed 60 Plus to increase its revenue more than sixfold from its $1.9 million in 2001 revenue. During the lead-up to the 2002 elections, 60 Plus distributed direct mail or other election-oriented communications in at least 24 political contests, praising or criticizing candidates on prescription drug issues.
  • In 2002, the Seniors Coalition reported that it received a contribution of $6 million – nearly 48 percent of that year’s revenue – from a single person or organization. That year, the group disseminated communications in at least 11 political contests, praising candidates who favored the Medicare drug bill. Although the identity of the $6 million donor was not disclosed, the Seniors Coalition had received a $2.1 million gift from PhRMA in 2000.
  • America 21’s funding increased dramatically in 2002 with a $3.65 million gift.After failing to raise even the $25,000 in revenue that would have required an IRS disclosure for 2000 or 2001, America 21 reported $3.7 million in revenue in 2002 – including $3.65 million (98.3 percent) from a single donor, according to the only tax filing of the group that has been made public. The group proceeded to distribute direct mail in at least 20 political contests in 2002. Most, if not all, of the mailings prominently mentioned a candidate’s support for the Medicare prescription drug bill.

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To view a chart of United Seniors Association’s Election Activities in 2004, click here.