A Thoughtful Response to a Past Blog Exchange: Is the "Stick" of Regulation Preferable to a Disclosure Scheme?
This week, CityEthics.org analyzed a past exchange that occurred between Common Cause Georgia and the Pay to Play Law Blog that centered on our competing views as to the most effective means of ensuring public confidence in a workable scheme to prevent pay-to-play practices.
Their post is a thoughtful and lengthy analysis of the strengths and weaknesses of the “disclosure only” vs. “government regulation and debarment” schemes emerging throughout the country. Founded as they are by former prosecutors and ethics commission officials whose self-statedmission is to foster such laws as the means “to combat corruption and establish ethical local governments”, it is not surprising that CityEthics.org has reached the conclusion that “[d]isclosure is not an effective solution.”
Notwithstanding the difference in perspectives between the authors of the CityEthics.org site and the contributors to this blog, who view pay-to-play enforcement issues from the perspective of those required to establish compliance programs to comply with such laws and their oft-unintended consequences, the City Ethics post provides a solid recitation of the issue from the perspective of the regulating community and I recommend that you read it. Personal ego impels me, however, to respond to a few of the post’s assertions about the viability of a strict “government prohibition” solution as well as to defend the motivations of those who believe, as we do, that a scheme based on disclosure often accomplishes the same worthwhile goals without the burden of occasional draconian unintended consequences.
The differences in perspectives tend, in large part, toward the tension between what we aspire to achieve and what can realistically be drafted, enforced, and complied with in a real world where enforcement and corporate compliance resources are limited, free speech is respected, and basic human interactions occur between those somehow associated with vendors and those on a public payroll.
The universal and noble goal of pay-to-play laws everywhere is to prevent corruption that can occur at the intersection of private sector benefits (in the form of gifts and contributions) on the one hand, and the award of government contracts on the other, in an environment in which existing laws to prevent such corruption are deemed unworkable because of the difficulty in proving the quid pro quo connection between the two required to make a criminal case. Jurisdictions adopting pay-to-play laws do so upon reaching the conclusion that such laws are necessary to prevent any potential or perceived linkage that can not be proven but that we all know exists to some degree.
Some such solutions, such as those offered by CityEthics.org, overreach to ban even the most fundamental freedoms of speech and association as a means of ensuring that such linkage not occur (“many jurisdictions require contractors to disclose what they do, and yet contractors keep giving large contributions anyway” and “[t]he same people who oppose restrictions on contractors making campaign contributions also oppose giving money to publicly funded candidates running against wealthy candidates”). Even if we were to conclude that such solutions were the most effective and narrowly tailored available to the problem of unprovable quid pro quo corruption, such laws can become impossible to enforce in the real world. As many jurisdictions have already learned, once one embarks down the path of prohibiting contributions by corporations and their “agents”, one has placed one’s hind-quarters squarely on the proverbial slippery slope. To prevent circumvention of a law by those few bad actors determined to gain an advantage, one must legislate prohibitions against otherwise lawful conduct by a vast array of potential agents (directors, directors’ spouses, relatives, domestic partners, etc). As states such as Colorado have learned, to cast a net wide enough to prevent circumvention one often does so at the expense of the constitutional rights of innocent parties and always at the expense of lawful businesses who simply want to follow the law.
My personal belief is that it is not realistic to conclude, as CityEthics.org does, that corporations “already have excellent compliance programs to deal with these matters” or that those smaller companies which do not “would, in this sense, be at a disadvantage but, luckily, they have many fewer individuals to keep track of.” If this premise is wrong, and our experience working with the private sector tells me it is, a less draconian impediment to legal, but arguably unseemly conduct, than loss of one’s ability to do business with government, is likely appropriate.
On September 23, 2009, New York State Comptroller Thomas P. DiNapoli announced a ban on pay-to-play practices related to the $116.5 billion dollar New York State Common Retirement Fund (the “CRF”). The Comptroller issued an Executive Order and Interim Policy that prohibits the CRF from doing business with any outside Investment Adviser within two years after the Investment Adviser, or any senior officers or executives of the Investment Adviser, has made a contribution to the State Comptroller, or to a candidate for State Comptroller. An “Investment Adviser” is any Investment Adviser required to be registered with the SEC, and those Investment Advisers exempt from registration under section 203 of the Federal Advisers Act.
