After Watergate and corporate abuses in the early 1970s, Congress passed the Foreign Corrupt Practices Act. One part of the act prohibits CEOs from using corporate treasuries as their own political war chests. News Corp. and other companies are required to have internal controls to protect against just such abuse. Companies must therefore be careful that they have internal controls in place to ensure that political contributions are in fact made for a business purpose.
The News Corp. donation highlights the need for more controls on corporate political donations. For example, Congress could determine that political donations by corporations are considered constructive dividends to shareholders (a tax that could be paid by the corporation) or could potentially require corporations to pay tax on political contributions at 35 percent instead of at its effective rate. This would somewhat equate the tax situation facing corporations with that of citizens who do not control a corporation (this is especially true for closely held corporations).
Congress could also amend the Foreign Corrupt Practices Act and require shareholder approval before corporations could make political contributions. Finally, Congress or the Securities and Exchange Commission could require that corporations report these contributions on their quarterly reports.
The recent Supreme Court decision in Citizen’s United has created a free-for-all with regard to corporate contributions for political advocacy. The Wild Wild West is now in Washington, D.C. There are few rules and checks on the potential abuse by corporations. However, several first steps — putting corporate donations on par with individual donations and requiring shareholders of corporations to approve any political contribution over a certain amount — will help ensure that corporations are actually operating on behalf of the shareholders and not on behalf of an executive’s friend.
Donald B. Tobin is a professor of law at the Ohio State University Moritz College of Law and is an expert on the intersection of tax and campaign finance laws. Tobin previously worked on Capitol Hill and served in the tax division of the Justice Department.
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