Gaping Hole in New York Campaign-Finance Law Left Unplugged

MANHATTAN (CN) – As highlighted in a recent bribery trial, New York’s campaign finance laws allow corporations to flood candidates with virtually unlimited cash funneled through alter egos.

On Thursday, a New York appellate court refused to patch this gap, skewered by honest government groups as the LLC loophole.

“We may not grant this request without violating the vital principle of the separation of powers,” a majority from the state’s Appellate Division, Third Department found in a 9-page ruling.

The Brennan Center for Justice, a non-profit group based at the NYU School of Law, filed the lawsuit against the rule along with other advocacy organizations in a lower court in Albany, where the state government has been reeling from a string of high-profile corruption cases.

The most recent prosecution against New York Governor Andrew Cuomo’s former top deputy Joseph Percoco provided a textbook example of how the LLC loophole works: Trial evidence showed that energy company Competitive Power Ventures and real-estate firm COR Development flooded money in Cuomo’s gubernatorial campaign through dozens of limited liability companies.

Prosecutors never charged Cuomo with corruption, but Percoco, known as the governor’s former “right-hand man,” was convicted of three federal felonies.

The department's presiding Justice Elizabeth Garry, who was appointed by Cuomo, agreed that the campaign finance issue was important, but she said it did not belong in her courtroom.

“Despite the importance of the underlying issues, we agree with Supreme Court that this matter is not justiciable,” Garry wrote. “We reach this conclusion both because petitioners lack standing and for the closely-related, and more significant, reason that the issues they raise are nonjusticiable political questions.”

Dissenting Judge Michael Lynch disagreed with that assessment.

“Pursuant to its regulatory authority, [the New York State Board of Elections] was confronted with defining what campaign financing restrictions should apply to LLCs,” he wrote in a 6-page dissent, referring the board’s resolution creating the loophole more than two decades ago.

“Tellingly, no one has suggested that respondent lacked authority to adopt the 1996 opinion – which is an indication that it was not considered a political question then and, in my view, is not a political question now,” he added.

The Brennan Center’s attorney Elizabeth Saylor, from the public interest firm Emery Celli Brincherhoff & Abady, said in a phone interview that her clients would likely file an appeal.

“This is very problematic, and the court has now rubber stamped the board’s illegal actions,” Saylor said.

With two branches of New York government washing their hands on the issue, Saylor urged both the legislature and a higher court to take action.

“I do urge the legislature and Cuomo to reverse the LLC loophole and correct the law, but both the court and the legislature have the power to correct the LLC loophole,” she said.

Representatives for Cuomo did not immediately respond to requests for comment. Board of Elections spokesman John Conklin declined to comment.

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