Ask Labor Whether Foreign Money Is Pouring In

Foreign money may be having a profound influence on the U.S. elections, more so than many people are aware.

I'm talking about the tens of millions of dollars that flow each year from foreign sources to organizations with an immense stake in the course of U.S. politics.

More groundless speculation about the U.S. Chamber of Commerce? No. This is real money going to American labor unions, an influx of foreign cash that is now harder to trace thanks to actions taken by President Barack Obama's administration.

This is the same Obama who is riling Democratic campaign rallies with warnings, backed by no evidence, that Republican "front groups" and even the U.S. Chamber of Commerce may be using money from foreign interests to support Republicans.

"Tens of billions of dollars are pouring in" to "special interests," Obama told supporters at a rally on Oct. 15 for Chris Coons, the Democratic nominee for Senate in Delaware. "And they don't have the courage to stand up and disclose their identities. They could be insurance companies or Wall Street banks or even foreign-owned corporations. We will not know because there's no disclosure."

Here are some things we do know:

Unions and corporations got the green light from the U.S. Supreme Court earlier this year to spend their own money on political advertising. The 1.6 million-member American Federation of State, County and Municipal Employees is, for now, the biggest outside spender of the 2010 elections, according to the Wall Street Journal. And America's unions, which are among Obama's biggest political backers, rake in foreign money by the bushel.

Loophole Lives

According to financial reports filed with the Labor Department--and available online--unions received at least $46 million from foreign sources in 2008 alone.

Even this most basic of public disclosure is in peril. The Obama administration has abandoned a reasonable effort to close a huge loophole that allows unions to avoid reporting requirements by creating exempt offspring organizations.

Historically, unions have been required to fill out the Department of Labor's Form LM-2, which, among other things, details their revenue sources and major contributors. A number of holes in the reporting requirement developed over time, including exemptions for union subsidiaries, such as the AFL- CIO-affiliated Working America, and trusts in which unions have interests, including strike funds, credit unions, pension plans, training funds and apprenticeship programs.

No Paper Trail

At least hypothetically, funds from non-U.S. sources could flow through such organizations to political activities, and the public would not be able to follow the paper trail.

President George W. Bush's administration tried to close down the potential for these financial shell games. In 2008 it issued a rule requiring unions to file a new form, the T-1, detailing the finances of trusts in which they have a controlling interest or to which they have supplied at least 50 percent of the revenue.

The fate of the T-1 was probably sealed when Obama took office in 2009 and nominated as his labor secretary Hilda Solis, a California congresswoman who was a director and former treasurer of American Rights at Work, an organization funded by the AFL-CIO and other unions. She had been one of organized labor's foremost champions in Congress, voting with the AFL-CIO 97 percent of the time and receiving three-quarters of her campaign funds from organized labor.

Come Together

Solis stopped the T-1 in its tracks. The Labor Department's new rule, proposed on Feb. 2, 2010, would remove the requirement that financial information be disclosed for organizations that are not wholly owned subsidiaries of a single union.

In other words, if a union sets up a subsidiary on its own, the public can monitor its income and spending. If it joins with a few of its friends to do so, the public is in the dark on matters such as whether it receives money from outside the U.S.

It's illegal for a non-U.S. citizen or corporation to spend money in connection with a U.S. election--a prohibition, it's worth noting, that hasn't stopped Obama and his backers from dishing accusations against the Chamber of Commerce and other Republican-allied groups. But money is fungible, of course, so even for law-abiding unions, having tens of millions of dollars on hand from foreign sources could free up more domestic cash for political activities.

Of foreign-money suspicions directed at Republicans, the Annenberg Public Policy Center's website said:

"Democrats, from President Barack Obama on down, are trying to turn an evidence-free allegation into a major campaign theme, claiming that foreign corporations are 'stealing our democracy' with secret, illegal contributions funneled through the U.S. Chamber of Commerce. It's a claim with little basis in fact."

This same disregard for facts might explain why the Obama administration wants to limit, rather than increase, available information about an actual--not imagined--avenue of foreign money into American affairs.

Kevin A. Hassett is a senior fellow and the director of economic policy studies.

Photo Credit: iStockphoto/Ralf Siemieniec

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About the Author


Kevin A.
  • Kevin A. Hassett is the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (AEI). He is also a resident scholar and AEI's director of economic policy studies.

    Before joining AEI, Hassett was a senior economist at the Board of Governors of the Federal Reserve System and an associate professor of economics and finance at Columbia (University) Business School. He served as a policy consultant to the US Department of the Treasury during the George H. W. Bush and Bill Clinton administrations.

    Hassett has also been an economic adviser to presidential candidates since 2000, when he became the chief economic adviser to Senator John McCain during that year's presidential primaries. He served as an economic adviser to the George W. Bush 2004 presidential campaign, a senior economic adviser to the McCain 2008 presidential campaign, and an economic adviser to the Mitt Romney 2012 presidential campaign.

    Hassett is the author or editor of many books, among them "Rethinking Competitiveness" (2012), "Toward Fundamental Tax Reform" (2005), "Bubbleology: The New Science of Stock Market Winners and Losers" (2002), and "Inequality and Tax Policy" (2001). He is also a columnist for National Review and has written for Bloomberg.

    Hassett frequently appears on Bloomberg radio and TV, CNBC, CNN, Fox News Channel, NPR, and "PBS NewsHour," among others. He is also often quoted by, and his opinion pieces have been published in, the Los Angeles Times, The New York Times, The Wall Street Journal, and The Washington Post.

    Hassett has a Ph.D. in economics from the University of Pennsylvania and a B.A. in economics from Swarthmore College.

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