Ban on Corporate Funds Is a Fixture in Texas Election Law

Times Staff Writer

The Texas law that Tom DeLay is accused of violating dates to the era of the robber barons and has been widely emulated in other states concerned about corporate influence in politics. It bans the use of corporate funds on behalf of state political candidates.

Such laws -- including bans at the federal level -- have withstood legal challenges that they violate the free-speech rights of corporations.

Nonetheless, it is far from clear whether Rep. DeLay (R-Texas), who is charged with conspiracy to break the law, committed a crime. He has asserted that he played no active role in the affairs of the political committee that raised corporate funds and allegedly funneled them to Texas candidates.

His lawyers are likely to argue that the funds were legally spent. The prosecutor has disclosed little of his evidence.


Such a prosecution, although rare, shows the downside of banning corporate contributions. It leads corporations to find other ways to get money to candidates -- or at least that is the argument of some campaign finance reformers.

California, by contrast, permits corporations to contribute to state legislative campaigns. The theory is that, combined with disclosure requirements, this makes it easier to track corporate influence-peddling, and avoids the sort of backdoor chicanery alleged in the case of DeLay, who has stepped aside as House majority leader for now.

DeLay was charged with a single count of conspiracy to violate the election code, and participating in what the indictment describes as an elaborate political money-laundering operation.

About $190,000 in illegal corporate contributions from such companies as Sears, Roebuck & Co. and Bacardi USA Inc. were collected by a political action committee that DeLay founded, according to the indictment against DeLay and two associates and fundraising veterans, including a former associate of White House political director Karl Rove.


The money was then given to an arm of the Republican National Committee, which allegedly distributed it back to seven Republican candidates for the Texas House in 2002.

The aid was far from inconsequential: The work of the political committee helped elect the first Republican majority in the Texas House since Reconstruction, and led to a redrawing of congressional districts that later bolstered the Republican majority in Congress.

The precise role that DeLay played in the operation is in dispute. But the law itself is a fixture in Texas and many other states.

About half of the states have laws banning the use of corporate money in state elections, and a prohibition has long existed at the federal level. Corporations have complained that such laws violate their free-speech rights under the U.S. Constitution, but they have been rebuffed in the courts.


“It is a well-established tenet of campaign finance law,” said Craig Holman, a campaign finance expert at Public Citizen in Washington.

The Texas law, enacted in 1905, was a reaction by the Progressive movement to the growing clout of railroad and banking interests in the state Legislature, and even beat the federal ban to the punch by a few years. The aim was to “starve corrupt machine politics,” said Craig McDonald, director of Texans for Public Justice, a public-interest firm that filed a complaint that helped launch the DeLay probe.

Few prosecutions have been brought under such laws. One reason is that corporate funds are sometimes circulated through different fundraising entities, as alleged in this case -- making it difficult to trace the money, document its source and prove a crime. Tracking the money will be a key element in the DeLay case.

The DeLay indictment “is an unusual case, and an unusual fact situation too,” said Robert M. Stern, president of the Center for Governmental Studies in Los Angeles.


California enacted limits on individual and business contributions to state campaigns as part of a 2000 ballot initiative, although there has been little interest in pushing to ban corporate giving outright, Stern said.

One reason is that disclosure laws make it easier to identify who is trying to peddle influence. “You know right away that Shell Oil or ABC Corp. is giving the money. There are no questions about it,” Stern said.

As it is, plenty of influence comes indirectly from corporate interests. Even in states where corporations are barred from making contributions, their employees are permitted to give, usually through political action committees that their employers are legally free to establish.

While the defense did not reveal its hand, a major portion of the argument is apt to focus on an aspect of the Texas law that permits corporations to cover “administrative expenses,” including the costs of rent and utilities, in setting up political committees. The committee DeLay helped establish has acknowledged receiving corporate support, but has contended that it was never used to support individual candidates.


DeLay has also said that although he helped form the committee and sat on its advisory board, he never was intimately involved in its daily operations. His lawyers are likely to argue that, being out of the loop, he could not have had the knowledge or intent to break the law.

But there are indications that DeLay may have played a more active role than he has acknowledged. A civil suit brought in state court in Texas this year by the Democratic losers in the 2002 race revealed that DeLay had met with donors and wrote a cover letter for a fundraising brochure used by the committee.

“Many of the facts have already been presented at trial, and in our case, the judgment was a resounding affirmation of the constitutionality of the election code, and a very strong finding that the conduct of [the political action committee] was way over the line,” said Cris Feldman, an Austin, Texas, attorney who represented the plaintiffs in the civil case.