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Do Lobbying and Campaign Contributions Help Corporate Fraudsters?

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Logo Image of the non-partisan Sunlight FoundationThe non-partisan Sunlight Foundation posts about the correlation between corporate fraud and lobbying, presenting findings that should concern every American.

[B]eing politically engaged appears to help firms and individuals get away with fraud for longer and, even when they are detected, reduce the severity of punishment.

The “Corporate Lobbying and Fraud Detection” paper studied lobbying from 1998 to 2004, comparing the 239 firms that had committed financial fraud with those who hadn’t. The researchers found a few very interesting things:

– On average, firms that committed fraud spent $3.48 million lobbying a year between 1998 and 2004, as compared to $1.97 million for firms that did not commit fraud. (So fraudulent firms spent 77% more, on average.)
– Firms that committed fraud increased their lobbying expenses after committing the fraud, by about 29%, on average.
– Overall, 17% of the frauds were detected by regulators (as opposed to analysts, stakeholders, insiders, etc.). But among the firms who lobby, just 12% of the frauds were detected by regulators.

Yu and Yu “conjecture that lobbying has a strong effect on detection by regulators.”

The “Political Contributions and the Severity of Government Enforcement” paper looks at punishment instead of detection: How harshly are perpetrators of financial fraud dealt with?

Fulmer and Knill find that “contribution from a PAC in the first year of the fraud results in the accused individual being banned for 2.90 fewer years, having probation for 4.99 fewer years, being imprisoned for 5.81 fewer years and 75% less likely to receive both prison time and an officer ban.”

If the executive gives directly, the punishment is also going to be lighter, according to the calculations of Fulmer and Knill. The ban from being an officer will be 3.64 years less, probation will be 1.59 years less, prison time will be 4.11 years less, and the probability of both prison and a fine will be 56% less.

CEOs who contribute the largest amounts of money get off even lighter.

Both papers offer striking findings, though it’s hard to pinpoint whether it’s the lobbying and contributions that are affecting regulatory enforcement, or whether companies and executives who are politically active also tend to be companies and executives who are the most sophisticated in dealing with government generally.

There’s certainly more research to be done in looking at how these companies’ lobbying and contribution activity changes around the time they commit fraud. For example, do they start lobbying on SEC issues? Do they start giving more to members on committees who have budgetary authority over the SEC?

Still, the correlations are strong enough to be troubling. They highlight yet another reason why we ought be concerned about the role of money in politics.

If this research angers you as much as it does me, then I recommend you join RootStrikers.

Our republic is dangerously out of balance. Well-financed special interests routinely bend the levers of power to benefit the few at the expense of our general welfare.

Political bribery has been legalized by the courts, and both major parties have been co-opted and corrupted by the system.

The result: The upper 1% have done well. The other 99% of us have been left behind. And now we’ve reached a breaking point.

Rootstrikers aims to restore power over American politics and government to 100% of the people. We hope patriots of all political persuasions will join us to help build an unstoppable grassroots movement that demands and delivers lasting reforms.

Henry David Thoreau wrote, “There are a thousand hacking at the branches of evil to one who is striking at the root.” Together, we must strike at the root of America’s problems.

Nothing in Washington DC will ever change until we, The People, truly take back our country by demanding an end to the corrupting influence of money, via lobbying, donations and SuperPacs, in the political process.


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