Indirect Benefits and Parents of Government Contractors
Indirect benefits are one of the most problematic issues in government
ethics. Usually, indirect benefits relate to an official's
relationships, that is, where the official receives not a direct
financial benefit, but satisfaction or an indirect benefit from a financial benefit
going instead to a relative, employer, customer, or substantial political
supporter.<br>
<br>
But there are other indirect benefits, for example, benefits that go
not to a business that employs the official or his spouse, but to the
parent company of the business. The official may have no relationship
whatsoever to the parent company, and yet not only is there an
appearance of impropriety, but also there might very well be an
indirect benefit to the official, because helping a parent is often a
way of furthering one's career or indirectly helping the subsidiary you
work for. Money is, after all, fungible. There's no telling if the
benefit did not actually go to the subsidiary, using the parent
company as a conduit.<br>
<br>
This situation came to mind reading <a href="http://blogs.wsj.com/washwire/2010/10/20/joe-miller-files-fec-complaint…; target="”_blank”">a
<i>Wall Street Journal</i> blog post yesterday in its Washington Wire</a>. A
U.S. Senate candidate filed a complaint with the Federal Election
Commission (FEC) against a political committee (PAC) whose principal
donors have subsidiaries with federal
contracts. According to <a href="http://www.fec.gov/pages/brochures/citizens.shtml#prohibited" target="”_blank”">the
FEC's Citizens' Guide</a>, "Federal government contractors may not make
contributions to influence Federal elections." The candidate is arguing
that the parents of federal contractors should also not make such
contributions.<br>
<br>
But according to the blogger, "The FEC has ruled in the past that 'a
holding company is considered a distinct legal entity in its own right,
apart from its subsidiaries,' so a parent company could make a
contribution even when FEC rules prevent its subsidiary from doing so."<br>
<br>
This appears to be too tight an interpretation of the law. This
interpretation would lead lawyers to recommend that government
contractors form holding companies to allow them to make political
contributions. Companies are fictions, not distinct individuals. Unlike
people, they can be formed and maintained at very little cost, and they
can be legally and safely cloned. A contractor's parent, as the owner
of a company that benefits from the contracts, has exactly the same
incentive to influence government. It is also just as likely to be hit
up by officials, via related or supporting PACs, who require
contributions in order to get contracts (pay-to-play).<br>
<br>
It would make no sense for an official's relationship with his human
parent to be considered a conflicting relationship, but an official's
relationship with his company's parent not to be considered a
conflicting relationship.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
---