Inquiry Looks Into a Shield for Donors in Elections

15 january 2013

Attorney General Eric T. Schneiderman of New York has begun investigating contributions to tax-exempt groups that are heavily involved in political campaigns, focusing on a case involving the U.S. Chamber of Commerce, which has been one of the largest outside groups seeking to influence recent elections but is not required to disclose its donors.

Mr. Schneiderman issued a wide-ranging subpoena on Tuesday to executives at a foundation affiliated with the chamber, seeking e-mails, bank records and other documents to determine whether the foundation illegally funneled $18 million to the chamber for political and lobbying activities, according to people with knowledge of the investigation.

The investigation is also looking at connections between the chamber’s foundation, the National Chamber Foundation, and another philanthropy, the Starr Foundation, which made large grants to the chamber foundation in 2003 and 2004. During the same period, the National Chamber Foundation lent the chamber $18 million, most of it for what was described as a capital campaign.

In a complaint filed last year with the attorney general, watchdog groups asserted that the loan had been used to finance lobbying for “tort reform” legislation in Congress and to run issue advertising in the 2004 presidential and Congressional campaigns, most of it against Democrats.

A spokeswoman for the chamber declined to comment, as did a spokesman for Mr. Schneiderman.

Mr. Schneiderman’s investigation is the first significant one in years into the rapidly growing use of tax-exempt groups to move money into politics. The biggest such groups, including Americans for Prosperity, which is backed by the billionaire brothers Charles and David Koch, and Crossroads Grassroots Policy Strategies, which was founded by Karl Rove and other Republican strategists, are expected to spend hundreds of millions of dollars this year on issue advertisements against candidates to sway the outcome of the presidential and Congressional elections.

But the sources of that money are largely obscured from public view by mazes of transactions between allied groups and laws that allow tax-exempt organizations — unlike candidates and “super PACs” — to shield their donors.

Calls from Democrats and ethics watchdogs for tighter oversight of the groups’ political activities have resulted in little action by either the Federal Election Commission, which is deadlocked over the issue, or the Internal Revenue Service, which regulates charities at the federal level. But the subpoena from Mr. Schneiderman, a Democrat who made tougher campaign finance laws a centerpiece of his 2010 election campaign, suggests that he — like his predecessors Eliot Spitzer and Andrew M. Cuomo — is preparing to aggressively exploit the unusually broad regulatory powers of his office to vault onto the national stage.

Under New York law, tax-exempt groups — including foundations, trade associations and social welfare organizations — that do business or raise money from donors in New York must file auditors’ reports and their federal tax returns with the attorney general’s office. The Starr Foundation is based in New York.

The U.S. Chamber of Commerce is among Washington’s biggest political players. The group spent $66 million on lobbying in 2011, according to the Center for Responsive Politics, and its officials have pledged to spend at least $50 million on issue ads during the 2012 election cycle.

While the chamber claims roughly 300,000 members, its political and lobbying activities are largely financed by a much smaller group of corporations, which can donate unlimited amounts to the chamber for issue ads against candidates without having to disclose the contributions publicly. During 2008, close to half of the chamber’s $140 million in contributions came from just 45 donors, often coinciding with lobbying or political campaigns of concern to the companies giving the money.

The chamber’s loan transactions have been the subject of several complaints lodged with federal authorities by U.S. Chamber Watch, a union-backed group, and other organizations. People with knowledge of the investigation said Mr. Schneiderman was looking at how the $18 million had been accounted for and raising questions about whether it had been a legitimate loan.

The chamber reported paying no interest on the loan until 2005, the people said. No principal was paid until 2009 — payments that were disclosed in tax returns dated after U.S. Chamber Watch filed its complaint with the I.R.S.

Mr. Schneiderman is seeking documents and correspondence connected with the loan, including any loan agreement between the chamber and the foundation. He is also seeking information on whether any other individuals and corporations were solicited in the capital campaign for which the foundation has asserted most of the money was earmarked.

The Starr Foundation is one of the country’s largest philanthropies, with total assets of about $1.3 billion. Named after Cornelius Vander Starr, the founder of American International Group, the foundation is headed by Maurice R. Greenberg, who was AIG’s chairman until being forced out in 2005. As AIG chairman, Mr. Greenberg also served on the board of the Chamber of Commerce and was a vocal advocate of legislation limiting class action lawsuits.

The National Chamber Foundation has not confirmed that the Starr Foundation grants paid for its loan to the chamber. But the chamber foundation’s tax returns suggest that the loan would not have been possible without the Starr grants, which totaled roughly $19 million.