How Shell Corporations are Corrupting U.S. Democracy

February 7th, 2013

On January 22nd, 2010, the day after the Supreme Court ruled on the Citizens United v. Federal Election Commission case, Americans knew elections in our nation would never be the same. Although no one was really sure exactly how. In the landmark 5-4 decision, the court ruled that, under the First Amendment, the government could not restrict independent political expenditures from corporations, non-profits, and unions.

In his dissent, Justice John Paul Stevens argued that allowing unlimited corporate money to flood the political marketplace would corrupt our democracy.

We might not all agree with the contentious Citizens United decision, but it is the law of the land. And while we don’t all agree on whether or not corporations should be able to exercise a “right to free speech” with unlimited spending on election advertisements, most Americans do agree on two things: 1) foreign nationals shouldn’t be allowed to spend money on American elections, and 2) the American people have the right to know who’s doing the spending.

In fact, of the nine justices, eight agreed on this point. The court ruled 8-1 that Congress can require corporations to disclose their spending and mandate disclaimers on advertisements. As Justice Anthony M. Kennedy, who also wrote the majority opinion in the case, notes: “Disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way.” A case in point is California, where agro-chemical giants, including Monsanto and DuPont, brought public support of a GMO labeling bill from a two-fold lead to defeat by 6% using a $46 million messaging campaign in just a few weeks. Had Californians knew it was these interests behind the televisions ads, instead of just the “Coalition Against the Deceptive Food Labeling Scheme,” they might not have been so apt to change their minds.

Even more important, perhaps, and fundamental to the argument that unlimited corporate spending on messaging will not corrupt our nation’s leaders, is this idea of disclosure and transparency. As the decision also reads: “transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.” Unlimited spending on political messaging may corrupt, but unlimited anonymous corporate spending on those messages almost certainly will. On both the identification and prevention of corruption—transparency in these donations is indispensable.

In practice that is not what we have. Individuals can already anonymously donate to political messaging through 501(c)(4) organizations, the tax-exempt social welfare groups, which are not required to disclose the names of their donors.

Yet there is something even more inimical to transparency in political spending than these 501(c)(4)s. According to a recent report by U.S. PIRG Education Fund and the Center for Media and Democracy, nearly one fifth of business donations to Super PACs is from anonymous shell corporations. As report co-author Blair Bowie, Democracy Advocate for the U.S. PIRG Education Fund, notes this anonymous spending has serious implications for transparency in campaign messaging. Bowie says: “When voters can’t track money in elections, they can’t make informed decisions at the ballot box. When billionaires and corporations are able to sneak money in our elections through shady back channels, it conceals the undue influence of big money and prevents citizens from taking action to correct this distortion of our democracy.”

The use of shell corporations also has implications for another central agreement of the Supreme Court: that foreign nationals should not be able to spend money on political messaging. Because of the use of these phony and anonymous corporations, Super PACs might be able to take money from foreign residents, exposing them to risk on this front as well.

Transparency is fundamental to democracy, but this is an example of its importance in the extreme. Even Justice Kennedy, who wrote the majority opinion in Citizens United, agrees on this point. Yet this is not an example of the rhetorical and practical failing of this decision. In fact, it is our policymakers who deserve credit for the obfuscation of transparency and democracy. This issue isn’t contingent on politics or ideologies. It’s just common sense.

Written by Ann Hollingshead

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