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Financial Fraud Law

Corruption is Commonplace in New York, and Reforms Cannot Wait, Commission Finds

 Several months ago, New York Governor Andrew Cuomo created a commission to investigate public corruption. The commission has just released a report that contains a stinging indictment of the scope of corruption in New York’s state government, political campaigns, and elections.

The commission investigated the effectiveness of New York’s campaign finance laws, the management and affairs of the New York Board of Elections, the weaknesses of laws relating to lobbying, conflicts of interest, public ethics, the use of tax-exempt organizations to influence public policy and elections, and the strength and effectiveness of New York's criminal laws with respect to public corruption and abuses of public trust.

The commission said that the results of its investigation led it to conclude that “reform cannot wait.” New York “needs comprehensive reform to restore the public trust and change the permissive culture of both illegal and legal corruption in state government.”

William Fitzpatrick, co-chair of the commission, said, “In just a few months since tasked with this mission by Governor Cuomo, the Commission to Investigate Public Corruption has, among other things, uncovered clear relationships between cash and legislative actions, gaps in campaign and outside income disclosure requirements, ineffective enforcement of the state’s election law, deficiencies in the state penal law addressing public corruption, and has recommended, consistent with the beliefs of numerous government officials, the need for public financing of campaigns.”

Kathleen Rice, co-chair of the commission, added, “This report is a stinging indictment of our state’s porous laws and of many of the politicians, patrons and political players who protect and benefit by them. We have unearthed widespread compliance apathy and have isolated the structural flaws that have made all of this possible. Our recommendations include new reform ideas and also potential fixes previously shelved by a disinterested legislature. This report is a blueprint for how we can start fixing the problems that have given rise to the dysfunction. These fixes won’t happen naturally... It’s now up to us all to transition from this preliminary fact-finding phase to an era of implementation and legislative action.”

The report is divided into four areas that the commission has focused on thus far in its investigation: campaign finance, enforcement at the Board of Elections, the adequacy of current laws for effectively prosecuting corruption, and outside income of legislators and legislative discretionary funding.

The key findings and recommendations of the Commission’s preliminary report include the following:

Reform New York’s Campaign Finance System with Public Financing, Robust Disclosure, and Tighter Rules

The commission said that Albany’s pay-to-play political culture is “greased by a campaign finance system in which large donors set the legislative agenda.” Wide-open loopholes allow “virtually unlimited contributions through vehicles like limited liability companies and party ‘housekeeping’ accounts.” Meanwhile, the commission found, “outside spending groups make unlimited independent expenditures to influence our elections, hiding behind out-of-state dummy corporations to shield their donors in the absence of robust disclosure rules.”

The commission said that its investigation revealed that public financing systems, such as the one in place in New York City, “make a real difference, empowering regular citizens, reducing the power of massive checks and special interests, and increasing the accountability of officials to those they serve.”

The commission said that New York “needs comprehensive campaign finance reform.” The commission recommended, among other things, “lowering contribution limits and closing campaign finance loopholes, empowering regular New Yorkers with a small donor matching system of public financing, limiting the use of campaign funds, and creating tough new disclosure rules for shadowy outside spending groups.” 

  • Lower Contribution Limits, and Fix Loopholes: The commission said that “[t]ruly massive contributions – over $50,000 to a statewide candidate for office and unlimited checks to party “housekeeping” accounts – are currently legal in New York. This must end.” The commission recommended substantially lowering the contribution limits to political campaigns and political parties; closing the so-called “LLC loophole” that allows certain easily-formed companies to make contributions of up to $150,000 and the party “housekeeping” account loophole that allows unlimited contributions to political parties; and adopting new limits for transfers from political parties to campaigns.
  • Institute Public Financing of Campaigns for New York: The commission said that it believed that public financing of campaigns, in the form of small donor matching funds, would free elected officials “from reliance on massive donations from wealthy and powerful interests and invigorates citizens’ democratic participation, increasing public accountability and renewing the public trust.” According to the commission, small donor matching also “allows those without access to well-heeled interests and without the support of large independent expenditures to nevertheless compete in elections.”
  • Limit Use of Campaign Accounts: The commission recommended “tougher and more specific standards for restricting the personal use of campaign funds and for better disclosure of campaign expenditures.”
  • Disclose and Monitor Outside Spending: The commission also recommended changing New York laws “to ensure that New Yorkers can know who is spending to influence our elections. That means expanding the legal definition of an ‘independent expenditure’ to cover ads that reasonable people would think are campaign ads; requiring disclosure of ultimate sources of funding for all of those ads, before the election; and making the disclosed information easily accessible in a searchable database.” 

Create an Independent Election Law Enforcement Agency 

The commission found that the New York Board of Elections “lacks the structural independence, the resources, and the will to enforce election and campaign finance laws.” The board’s “bipartisan” structure “has effectively led to a tacit, bipartisan agreement to do nothing – or, as one former enforcement counsel said, to ‘do the basement.’” The commission said that the board’s practices “are marked by a haphazard intake process for complaints; lengthy, inexplicable delays in making even initial determinations; an extreme paucity of actual investigations; and an abject failure to use legal and human resources for enforcement.”

According to the commission, New York “needs an independent, professional watchdog for our elections and campaign finance laws.” The commission recommended creating an entirely new, structurally independent election and campaign finance law enforcement agency, headed by a director appointed to a fixed, five year term by the governor with New York Senate confirmation, and removable only for cause.

The agency would be structured “for professional, nonpartisan, vigorous enforcement. All staff would be hired without partisan considerations, and would be free to conduct timely investigations, using all of the tools at their disposal, without the cumbersome burden of political hurdles, and without a politicized approval process. All election law enforcement would benefit from a non-partisan, structurally independent, professional enforcer whose sole purpose is safeguarding the integrity of our elections and our political system.”

Provide Powerful New Tools for Prosecutors. 

In the commission’s view, New York’s criminal laws “are not strong enough to allow New York prosecutors to aggressively fight corruption and self-dealing.” In particular, the commission found that the state’s bribery statute “is singularly weak; we have no law on the books against undisclosed self-dealing; we have no means of preventing corrupt officials from re-entering public life; and our criminal procedure laws make it difficult to crack open inherently insular corruption schemes.” The commission recommended “tough new laws, and penalties that fit the crime.” 

  • Reform the Bribery Statute: The commission said that bribery “is the most blatant form of public corruption,” yet New York’s laws make public servant bribery “incredibly hard to prosecute.” The commission recommended:
  • Ending New York’s “agreement or understanding” requirement for public servant bribery, and bringing New York’s bribery law “into line with federal law, the laws of 48 other states, and [New York’s] own labor, sports, and commercial bribery laws.”
  • Lowering the dollar threshold for bribery of a public official; “a $5,000 bribe is still a bribe, and our law should reflect that.”
  • Creating a new offense, failure to report bribery, “to hold all elected officials to a high standard of integrity and create leverage for bribery prosecutors.”
  • Prohibit Undisclosed Self-Dealing by Public Officials: The commission said that New York’s laws “do not do enough to discourage self-dealing behavior by elected officials – like a public servant steering a state contract to a company she or a family member secretly owns.” The commission recommended a new criminal offense of “Undisclosed Self-Dealing” to help combat corrupt behavior by New York’s public officials.
  • Tough New Consequences for Corruption: The commission said that the recent corruption schemes in New York strongly suggest that corrupt officials are not being deterred from abusing their offices. The commission recommended:
  • Tough new penalties for violating the public trust, including sentencing enhancements for corruption offenses and other offenses, like larceny, when they are committed against the state by public officials.
  • Strong collateral consequences that permanently bar those convicted of public corruption crimes from serving in a public office, registering as a government lobbyist, or obtaining government contracts.
  • Reforming New York’s Immunity Rules: New York’s criminal procedure laws grant total immunity to anyone who testifies before a grand jury. According to the commission, that means that “corrupt officials can be immunized from prosecution even if prosecutors would have discovered their role in a corrupt scheme by some other means.” These rules make it harder to expose corruption schemes and convict corrupt officials. The commission recommended offering a less expansive form of immunity in public corruption cases.
  • Reforming New York’s Corroboration Rules: Similarly, the commission pointed out, New York’s laws do not allow testimony from an accomplice to be the basis for a criminal conviction. Because corrupt schemes are by their nature secretive, the bar on accomplice testimony makes prosecuting corruption much harder than in federal court. The commission recommended allowing accomplice testimony to support a conviction for public corruption. 

Increase the Required Disclosure for Elected Officials. 

The commission said that its investigation revealed that corruption and the appearance of corruption thrive when actual and potential conflicts of interest are shrouded in darkness. The commission strongly urged greater transparency from New York legislators, and within the legislative process. 

  • Broader Disclosure of Outside Income and Lobbyist Relationships: Many legislators earn substantial outside income, but disclose only a general description of what they do. The commission recommended “broader disclosure of large clients, both by legislators and their firms, when those clients have business before the State. We also recommend disclosure of all direct referrals of business to legislators or their firms from lobbyists and those they represent.”
  • More Transparency in Legislative Sponsorship of Discretionary Funding: So-called “member items” – legislative grants of discretionary funding that are not lined out in the State budget – “have been used in some of the most egregious corruption schemes by corrupt officials who funnel state money to those who line the officials’ pockets,” the commission stated. It recommended “greater transparency so that the public will know which legislators are sponsoring what public projects.”

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