Testimony by Democracy 21 President Fred Wertheimer

On Draft Obama Administration Executive Order

Submitted to Joint Hearing Held by House Oversight and
Government Reform and House Small Business Committees

May 12. 2011

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Thank you for the opportunity to submit testimony today.

My name is Fred Wertheimer and I am president of Democracy 21, a nonprofit,

nonpartisan organization that supports effective campaign finance laws, including
comprehensive disclosure laws.

We believe such laws are necessary to protect the integrity of our political system and
serve as a safeguard against corruption and the appearance of corruption in government.

Democracy 21 strongly supports the draft proposed Executive Order of the Obama
Administration to require government contractors to disclose all of the campaign contributions
and expenditures they make to influence federal elections.

These disclosure provisions are an appropriate way for the Executive Branch to help
protect the public against pay-to-play efforts by persons seeking to influence Executive Branch
contracting decisions or seeking to obtain earmarks by Members of Congress for government
contracts.

I would like to submit for the record a letter recently sent to President Obama by thirty-
four organizations urging the President to sign the Executive Order.

In January 2010, the Supreme Court in the Citizens United case struck down the ban on
corporate expenditures in federal elections. In doing so, the Court made clear that disclosure
laws to cover the new campaign finance activities permitted by the decision were constitutional
and necessary.

The Supreme Court by an 8 to 1 majority held that disclosure is “needed to hold

corporations and elected officials accountable for their positions and supporters.” The Court said
that disclosure allows citizens to “make informed choices in the political marketplace,” and
“permits citizens and shareholders to react to the speech of corporate entities in a proper way.”

The Court also stated, “A campaign finance system that pairs corporate independent
expenditures with effective disclosure has not existed before today.”
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Unfortunately, however, as evidenced by the 2010 congressional races, such a system of

“effective disclosure” did not exist on the day Justice Anthony Kennedy wrote the decision and
still does not exist.
The new opportunities for independent spending in federal elections permitted by the
Citizens United decision resulted in more than $135 million in secret contributions being spent
by outside groups to influence the 2010 congressional races. This represented an unprecedented
return to secret money in federal elections that has not been seen since before the Watergate
scandals of the 1970s.
Secret money in American politics is a formula for scandal and corruption. As Albert
Hunt, executive Washington editor and a columnist for Bloomberg News aptly noted in a
column:

A prediction: The U.S. is due for a huge scandal involving big money, bribery and
politicians. Not the small fry that dominates the ethics fights in Washington; really big
stuff; think Watergate.

It is axiomatic in politics that without accountability there is abuse. This year, there is a
massive infusion of special-interest money into U.S. politics that is secret, not reported.

The American people overwhelmingly support disclosure of the campaign finance

activities being conducted by outside groups. According to a New York Times/CBS Poll last year
(October 28, 2010):

92 percent of Americans said that it is important for the law to require campaigns and
outside spending groups to disclose how much money they have raised, where the money
came from and how it was used.

In the landmark case of Buckley v. Valeo (1976), the Supreme Court explained why
campaign finance disclosure is constitutional and necessary. In upholding the comprehensive
disclosure provisions of the Federal Election Campaign Act, the Court stated:

First, disclosure provides the electorate with information "as to where political campaign
money comes from and how it is spent by the candidate" in order to aid the voters in
evaluating those who seek federal office.
…….
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Second, disclosure requirements deter actual corruption and avoid the appearance of
corruption by exposing large contributions and expenditures to the light of publicity.
…….
Third, and not least significant, recordkeeping, reporting, and disclosure requirements are
an essential means of gathering the data necessary to detect violations of the contribution
limitations described above.
These basic principles are just as true today as they were thirty-four years ago. The
constitutionality of campaign finance disclosure laws has repeatedly been reaffirmed by the
Supreme Court, as recently as last year in the Citizens United decision.
Democracy 21 supports congressional enactment of new disclosure laws to cover the
new campaign finance activities permitted by the Citizens United decision. The disclosure should
be comprehensive and encompass campaign finance activities by corporations, tax-exempt
advocacy groups, business associations and labor unions.
In the last Congress, we supported the DISCLOSE Act, which passed the House and
received 59 votes in the Senate, one vote short of the 60 votes needed to break a filibuster and
pass the legislation.
We continue to support in this Congress the enactment of new disclosure laws to require
all persons – including corporations, tax-exempt advocacy groups, business associations, and
labor unions – to disclose the independent campaign finance activities they are undertaking to
influence federal elections as a result of the Citizens United decision.
Short of new legislation, we support alternative ways to provide to the American people
the campaign finance disclosure information that the Supreme Court has made clear citizens
have a basic right to know. This includes the draft Executive Order of the Obama
Administration.
In considering a disclosure Executive Order applicable to government contractors, it is
important to understand that government contractors are in a special category and have long had
to abide by a special provision in the campaign finance law designed to protect the integrity of
the government contracting process.

Section 441c of the Federal Election Campaign Act explicitly prohibits government
contractors from making any contribution, directly or indirectly, to “any political party,
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committee, or candidate for public office or to any other person for any political purpose or use.”
An exemption is provided in the section that allows the PACs of government contractors to make
contributions, with such contributions subject to disclosure under existing disclosure laws.
Special rules for government contractors were considered necessary in order to help
protect the integrity of the government contracting process and protect against pay-to-play
efforts. This has been true both nationally and in a number of states which have enacted strong
campaign finance restrictions and/or disclosure requirements on state and local government
contractors.
The Draft Executive Order

The draft Executive Order is intended to ensure that the federal contracting process is
“free from the undue influence of factors extraneous to the underlying merits of contracting
decision-making, such as political activity or favoritism.” Draft EO at 1. The draft Order notes
that “additional measures are appropriate and effective in addressing the perception that political
campaign spending provided enhanced access to or favoritism in the contracting process.” Id. It
states that the Order is intended “to increase transparency and accountability to ensure an
efficient and economical procurement process.” Id.

Contrary to statements made by opponents of the Executive Order, there is nothing new
about government contractors making campaign finance disclosures. And, few, if any, concerns
were raised in the past about such disclosures having a “chilling effect” or stifling speech”

Under existing campaign finance disclosure laws, government contractors are already
required to make a number of campaign finance disclosures. They are required to disclose the
campaign contributions and expenditures made by their PACs, as well as the individuals
contributing to their PACs. They also are required to disclose the campaign expenditures they
directly make on “independent expenditures” and “electioneering communications.” The
contributions made by officers and directors of government contractors also have to be disclosed
by the recipients of the contributions.

What is missing today, however, and what the draft Executive Order would provide, is
disclosure of contributions made by government contractors to third parties “with the intention or
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reasonable expectation” that the third party groups will spend the contributions on independent
expenditures or electioneering communications to influence federal elections.
This information would have been disclosed under existing campaign finance disclosure
laws but for Federal Election Commission regulations that have eviscerated the disclosure
requirements covering these contributions.

The draft Executive Order is intended to address for government contractors a gaping
disclosure loophole that has arisen as a result of the Citizens United decision. Following that
decision, corporations organized as “social welfare” organizations under section 501(c)(4) of the
Internal Revenue Code or as business associations under section 501(c)(6) of the Code engaged
in an unprecedented amount of campaign spending to influence the 2010 congressional elections.

This led to more than $135 million in secret contributions being spent by third party
groups in the 2010 congressional races

. The draft Executive Order would require public disclosure of donations made by
government contractors to third party groups where the donor knows or has reason to know that
the money will be used by the third party group for expenditures to influence federal elections.

This would ensure that the public is fully informed about the campaign finance activities
undertaken by government contractors and would help protect against government contractors
using campaign funds to obtain influence with Executive Branch officials and members of
Congress over government contractors.

The Executive Order is simply an effort by the Administration to do what the President
appropriately can do under his own authority to obtain campaign finance information from
government contractors that is being hidden from the American people.

The Executive Order would also provide the public with a more easily accessible
database to use to obtain the campaign finance information being disclosed by government
contractors. This would help to more effectively carry out the goals of disclosure laws to inform
the American people and protect the integrity of government decisions.
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The Constitutionality of the Disclosure Requirements

Opponents of the draft Executive Order argue that its disclosure requirements violate the
constitutional rights of government contractors to engage in anonymous campaign spending and
would “chill” and “stifle” free speech.

It is remarkable that these arguments are even being made, since the Supreme Court has
clearly, consistently and repeatedly upheld the constitutionality of campaign finance disclosure
requirements against such claims in cases spanning more than 35 years, beginning with Buckley
v. Valeo, 424 U.S. 1, 43-55 (1976).

Indeed, these issues are completely laid to rest in Citizens United itself, where the Court
by an 8 to 1 majority made clear in striking down the ban on corporate expenditures that it is
constitutional to require corporations and labor unions to disclose the campaign expenditures and
the donors behind these expenditures.

I would like to submit for the record a letter sent to House members last year by
Democracy 21 on the constitutionality of campaign finance disclosure laws.

In Citizens United, the Supreme Court held that that disclosure requirements regarding
campaign expenditures by outside groups “do not prevent anyone from speaking” and serve
governmental interests in “providing the electorate with information” about the sources of money
spent to influence elections so that voters can “make informed choices in the political
marketplace.”

The Supreme Court noted the importance of disclosure for the new corporate campaign
finance activities being permitted, stating:

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. Shareholders can determine
whether their corporation’s political speech advances the corporation’s interest in making
profits, and citizens can see whether elected officials are “‘in the pocket’ of so-called
moneyed interests.”
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The Supreme Court further stated:

The First Amendment protects political speech; and disclosure permits citizens and
shareholders to react to the speech of corporate entities in a proper way. This
transparency enables the electorate to make informed decisions and give proper weight to
different speakers and messages
Importantly, the Court in Citizens United also specifically noted the problems that result
when groups run ads “while hiding behind dubious and misleading names,” thus concealing the
true source of the funds being used to make campaign expenditures. The Court said:

In Buckley, the Court explained that disclosure could be justified based on a

governmental interest in “provid[ing] the electorate with information” about the
sources of election-related spending. 424 U. S., at 66. The McConnell Court
applied this interest in rejecting facial challenges to BCRA §§201 and 311. 540
U. S., at 196. There was evidence in the record that independent groups were
running election-related advertisements “‘while hiding behind dubious and
misleading names.’” Id., at 197 (quoting McConnell I, 251 F. Supp. 2d, at 237).
The Court therefore upheld BCRA §§201 and 311 on the ground that they would
help citizens “‘make informed choices in the political marketplace.’” 540 U. S., at
197 (quoting McConnell I, supra, at 237); see 540 U. S., at 231.

Id. (emphasis added).

In rejecting the challenge by Citizens United to the disclosure requirements applicable to

its campaign activities, the Court said:

The Court has explained that disclosure is a less restrictive alternative to more
comprehensive regulations of speech. See, e.g., MCFL, 479 U. S., at 262. In
Buckley, the Court upheld a disclosure requirement for independent expenditures
even though it invalidated a provision that imposed a ceiling on those
expenditures. 424 U. S., at 75–76. In McConnell, three Justices who would have
found §441b to be unconstitutional nonetheless voted to uphold BCRA’s
disclosure and disclaimer requirements. 540 U. S., at 321 (opinion of
KENNEDY, J., joined by Rehnquist, C. J., and SCALIA, J.). And the Court has
upheld registration and disclosure requirements on lobbyists, even though
Congress has no power to ban lobbying itself. United States v. Harriss, 347 U. S.
612, 625 (1954) (Congress “has merely provided for a modicum of information
from those who for hire attempt to influence legislation or who collect or spend
funds for that purpose”). For these reasons, we reject Citizens United’s
contention that the disclosure requirements must be limited to speech that is the
functional equivalent of express advocacy.

Id. at 916 (emphasis added).

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While a bare majority of five Justices in the Citizens United case voted to strike the ban
on corporate expenditures in campaigns, eight of the nine Justices in the same case voted to
strongly endorse disclosure as a means to “provide shareholders and citizens with information
needed to hold corporations and elected officials accountable for their positions and supporters.”

The disclosure provisions for government contractors provided by the draft Executive
Order will hold “elected officials accountable for their positions,” on government contracts.

The “Chilling” Effect Argument

Opponents of the draft Executive Order claim that disclosure will have a “chilling” effect
on government contractors. These opponents contend that disclosure of their campaign finance
activities will subject them to harassment by customers or the public.

These arguments are not supported by law or by fact.

They also contend that government contracting officials may use the information to favor
Administration supporters or punish Administration opponents by withholding contracts from
them. This represents an attempt to take the arguments that have long been considered by
Congress and the courts as the justification for disclosure and turn them upside down.

The chilling effect argument ignores the reality that government contractors as noted
earlier already are subject to substantial campaign finance disclosure requirements.

What is missing and what the Executive Order would add, is disclosure of the funds
given by government contractors to third party groups that are then spent by the third party
groups to influence federal elections.

The Executive Order would facilitate disclosure and make it easier for citizens to know
what government contractors are doing to influence federal elections by providing all of the
relevant campaign finance information for a contractor in one centralized location.

This campaign finance information is necessary for public accountability and to guard
against pay-to-play efforts involving decisions by the Executive Branch and actions by Members
of Congress.
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The idea that disclosure would facilitate the misuse of campaign finance support or
opposition to make decisions is backwards. Disclosure to the public will protect against decisions
being made on the basis of campaign finances and that is one of the cardinal principles used by
the Supreme Court to uphold campaign finance disclosure laws.

Absent disclosure, public officials and elected officeholders are always able to know who
provided them campaign finance support and who did not. The only people who will not know
are the American people and the public absence of this information will make it easier, not
harder, to make improper decisions based on campaign finance support or opposition.

Justice Antonin Scalia rejected the “chilling” effect argument in a forceful defense of
disclosure in a concurring opinion in Doe v. Reed (2010). In this case, which upheld disclosure
requirements for petition signers for ballot measures, Justice Scalia wrote:

Requiring people to stand up in public for their political acts fosters civic courage,
without which democracy is doomed.
Furthermore, as a constitutional memo by the Campaign Legal Center (May 4, 2011)
states regarding the harassment issue:

Moreover, the Supreme Court has already formulated a remedy for any group who can in
fact demonstrate a legitimate fear of harassment from campaign finance disclosure. In
Buckley, it held that a specific group could request an “as-applied” exemption to a
campaign disclosure law if it presented evidence showing “a reasonable probability that
the compelled disclosure of [its] contributors' names will subject them to threats,
harassment, or reprisals from either Government officials or private parties.” Indeed,
several years after Buckley, the Supreme Court recognized that the Socialist Workers
Party was entitled to such an exemption.[2] So if there is indeed evidence of harassment
or reprisals, the Court has already fashioned a remedy.

But the Buckley Court resoundingly rejected the proposition that general allegations of
potential harassment like those offered by opponents here would render a campaign
disclosure law facially unconstitutional. In the words of the Court, “NAACP v. Alabama
is inapposite where, as here, any serious infringement on First Amendment rights brought
about by the compelled disclosure of contributors is highly speculative.”

. [2] The inadequacy of opponents’ arguments is also brought into relief by a review of
the evidence of injury offered by the Ohio Socialist Workers Party (“SWP”) in Brown v.
Socialist Workers '74 Campaign Committee, 459 U.S. 87 (1982), where an exemption to
disclosure was granted. In Socialist Workers, the SWP brought an as-applied challenge to
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the constitutionality of Ohio’s state political disclosure law. The SWP had introduced
proof of specific incidents of private and government hostility toward the SWP and its
members within the four years preceding the trial, including threatening phone calls and
hate mail, the burning of SWP literature, the destruction of SWP members’ property,
police harassment of a party candidate, and the firing of shots at an SWP office. Id. at 99.
In the year before trial, four Ohio SWP members were fired because of their party
membership. Id. The District Court also found a past history of government harassment,
including FBI surveillance of both the national party and the Ohio SWP, and interference
with their political activities. Id. at 99-100. The Supreme Court concluded that in light of
the “substantial evidence of past and present hostility from private persons and
government officials against the SWP,” Ohio’s disclosure law could not be
constitutionally applied to the SWP.

I would like to request the full Campaign Legal Center memo be included in the record.

The Argument that the Executive Order Frustrates Congressional Intent

Opponents of the draft Executive Order also claim that it is an attempt at an end-run
around Congress. This argument has no merit and makes no sense.

The Obama Administration is proposing to take steps that it appropriately can under its
own authority to provide citizens with campaign finance information that is currently being
hidden from the public.

The Executive Order is just one of various ways to provide citizens with important
campaign finance information they have a fundamental right to know. Democracy 21 supports
and is pursuing legislative, litigation and administrative avenues to ensure that citizens are
provided with this campaign finance information.

The United States Congress can and should enact comprehensive legislation to require
disclosure for all groups of the new campaign finance activities permitted by the Citizens United
decision. But Congress has no monopoly on whether voters are informed about the campaign
money being used to influence their votes and government decisions.

The President also has a right to act within the appropriate sphere of his powers, which
include protecting the integrity of the Executive Branch contracting process.
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The courts have a right to determine whether existing campaign finance disclosure laws
are being properly interpreted and enforced by the Federal Election Commission. The
Democracy 21 legal team joined by the Campaign Legal Center has filed a lawsuit on behalf of
Representative Chris Van Hollen on this question that challenges FEC contribution disclosure
regulations as contrary to law and as having eviscerated contribution disclosure requirements.

The widespread opposition to new campaign finance disclosure requirements voiced by

Republican Members of Congress last year and this year is puzzling, particularly in light of the
past history of consensus support for disclosure laws and the overwhelming public support for
disclosure.

In the past, there has always been strong and broad bipartisan support on Capitol Hill for
full and timely disclosure of campaign finance activities. Even the most vocal congressional
opponents of various other campaign finance reforms have argued that full and timely disclosure
of campaign finance activities is the one reform that makes sense.

Ten years ago, for example, Congress enacted new disclosure legislation to apply to 527
political organizations that were at the time raising and spending undisclosed money to influence
federal elections.

The House passed the disclosure legislation for 527 groups by a vote of 385 to 39. Of the
217 House Republicans who voted, 178 Republican Members voted for the disclosure
legislation. The Senate passed the disclosure legislation 92 to 6. Of the 54 Republican Senators
who voted, 48 Republican Senators voted for the legislation.

In contrast, last year, two House Republicans and no Republican Senator voted for the
DISCLOSE Act.

An article in TalkingPointsMemo (May 6, 2011) included comments made last year in

support of disclosure by House Majority Leader Eric Cantor and House Majority Whip Kevin
McCarthy:

"Anything that moves us back towards that notion of transparency and real-time
reporting of donations and contributions I think would be a helpful move towards
restoring confidence of voters," Cantor told Newsweek right after the Citizens
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United ruling.

McCarthy is quoted in the same article as sharing a similar philosophy.

“I watched in California campaign-finance reform and what's happened is...people

now move money through central committees at the last minute so you don't get the
transparency," he said. "It doesn't get [at] what the public thought was going to
happen. The best way, the fairest way, is greater transparency. Let people understand
where it is going and what's happening.”

There is strong editorial support for the draft Executive Order. For example,
according to a New York Times editorial (May 1, 2011):

When the Supreme Court legalized a new era of unrestrained corporate campaign
spending, the court made a point of upholding disclosure of donors as an alternative
safeguard for voters and the democratic process.
……
President Obama should take the court up on its transparency blessing forthwith and sign
a proposed executive order that would require government contractors to disclose their
donations to groups that support or oppose federal candidates.

According to a Los Angeles Times editorial (May 5, 2011):

Twenty-seven Senate Republicans sent a letter to the White House arguing that requiring
disclosure of contractors would have a chilling effect "if prospective contractors have to
fear that their livelihood could be threatened if the causes they support are disfavored by
the administration." Worse still, the Republicans say, it might pressure companies to
support the administration's party - a variation on the Washington practice of "pay to
play."

But that's wrong. Transparency - and scrutiny from the political opposition - would
provide a check on any abuses. Disclosure is the solution, not the problem.

Government contractors can argue that they are being singled out. The easy remedy for
that is to require that all contributions to all groups that engage in political activities be
made public. Requiring disclosure by contractors is a first step, but it doesn't have to be
the last.

According to a Baltimore Sun editorial (May 9, 2011):

What's particularly galling about the criticism of the proposed executive order is that it's
been cast as an example of "pay-to-play" politics. The Republicans claim Democrats
could make sure those applying for federal contracts are not donating to GOP causes.
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In reality, transparency requirements like those proposed by the White House actually
protect against pay-to-play by forcing contractors to reveal their donations. Without that
requirement, a company - Halliburton, let's say - can direct millions of dollars to get a
member of Congress or president elected without anyone but those involved knowing
about it.
….

If Republicans want to level the playing field, let them pass a campaign finance reform
law in Congress that covers not just federal contractors but all who give to third-party
groups, including unions and other traditional Democratic allies.

Of course, that raises the most nonsensical of GOP objections to the proposal, that it
would chill free speech. Again, the implication is that a contractor who reveals a third-
party political donation to the wrong cause (by which they mean giving to Republicans
while a Democrat is in the White House) would be made to suffer.

Really? If Joe Bag-of-Doughnuts gives $50 directly to a candidate for federal office, that
modest donation must be disclosed to the world. That's the law. Why should corporations
be able to hide behind third-party groups when they give $50,000 or $50 million? Exactly
whose free speech is being slighted? Wouldn't any favoritism shown to companies that
make political donations and subsequently land government contracts only be revealed by
disclosure? The converse is also true - if the Obama White House suddenly stopped
giving contracts to firms that donated to Republicans, it, too, would become public
knowledge.

..…

In the end, revealing the political activities of companies that do business with the
government can only lead to one thing: better government.”

The Supreme Court clearly and unequivocally found in Citizens United that campaign
finance disclosure laws were constitutional and necessary for the new campaign finance
activities permitted by the Court’s decision. The draft Executive Order would provide such
information to citizens and taxpayers whose funds are being spent on government contracts and
who have a basic right to know this information.
President Obama should move promptly to sign the Executive Order.
Congress should enact comprehensive disclosure legislation to require corporations, tax-
exempt advocacy groups, business associations and labor unions to disclose the campaign
finance activities that were permitted by the Citizens United decision.
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