Executives Expect Scandal From Undisclosed Campaign Donations c.2011 Bloomberg News

Sept. 27 (Bloomberg) -- Undisclosed campaign money that began pouring into political groups during last year’s congressional elections will, without reform, only grow and lead to scandal, a group of business leaders and university professors said yesterday.

An estimated $500 million was spent to influence congressional elections in 2010 by non-profit groups, trade associations, labor unions and corporations with no trace of where the money came from or how it was used, according to the report by the Committee for Economic Development.

“This lack of transparency poses a grave threat to our democracy,” concluded the report, which was signed by 32 business leaders and university professors, including representatives from Citigroup Inc., Avaya Inc. and Prudential Financial Inc.

The group says the Federal Election Commission watered down disclosure rules against the advice of the U.S. Supreme Court, opening new routes for secret money to get into elections. It is calling on Congress to pass legislation to require disclosure of all money spent to influence elections and discouraging its members from giving to such groups.

“The system we have now takes good men and women who are elected and corrupts them,” said Edward Kangas, the former chairman and chief executive officer of Deloitte Touche Tohmatsu, at a panel discussion yesterday about the committee’s reform proposal.

Executives from pharmaceutical companies Merck & Co. and Pfizer Inc., and from American Electric Power Co., also spoke at the event in support of more disclosure.

Citizens United

The Supreme Court, in a 2010 case known as Citizens United, allowed corporations and unions for the first time to spend unlimited money on ads advocating the election or defeat of a candidate.

In the decision, the high court expressed confidence that interested voters could easily discern the identities of those paying for campaign ads.

“With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters,” Justice Anthony Kennedy wrote for the 5-4 majority.

Disclosure Requirements

The FEC, however, loosened requirements for disclosure of donors, making groups report the names of contributors only if they are paying for a particular ad, the group said.

“The FEC, the agency responsible for implementing campaign finance law, has eviscerated the disclosure regulations applied to campaign advertising,” the report said. “Instead of promoting transparency, the agency has added a new element of secrecy in campaign finance.”

The risks to companies of publicly supporting a political candidate became clear immediately after Citizens United when Target Corp. made a $150,000 donation to MN Forward, a business advocacy group which in turn ran ads supporting a gubernatorial candidate who opposed gay marriage. Gay rights groups boycotted the company and Target CEO Gregg Steinhafel apologized.

That incident showed that “there’s a big risk for companies to go out and be so public politically,” said Barbara Bonfiglio, senior corporate counsel at Pfizer. “It’s just not a place that too many companies are going to be comfortable playing in.”

However, they may be comfortable if their donations aren’t made public, said Fred Wertheimer, president of Democracy 21, a Washington-based group that advocates for limits to money in campaigns.

Electioneering Communications

In the 2010 election cycle, 308 non-party groups reported spending money to influence voters, and only 166 of those reported where the money came from. The U.S. Chamber of Commerce, which reported $31 million in “electioneering communications” spending to the FEC, won’t name any of the companies or individuals who gave it the money.

Independent groups are already raising money for the 2012 elections, with their sights set even higher.

American Crossroads and Crossroads Grassroots Policy Strategies -- created with support from Karl Rove and Ed Gillespie, former aides to President George W. Bush -- set an initial goal to raise $120 million for 2012 and then doubled that target earlier this month.

They gathered $71 million in 2010, according to spokesman Jonathan Collegio. Crossroads GPS keeps its donor list secret.

Priorities USA and Priorities USA Action, two groups founded by Bill Burton and Sean Sweeney, former aides to President Barack Obama, are trying to raise $100 million to help keep the president in the White House.

--Editors: Bob Drummond, Robin Meszoly

To contact the reporter on this story: Alison Fitzgerald in Washington at afitzgerald2bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34bloomberg.net