September 19, 2006

Campaign Gifts From Big Insurer Elude the Limit
By MIKE McINTIRE
New York law prevents corporations from contributing more than $5,000 a year to candidates for state office, but one of the world's largest insurance companies has skirted those limits in giving almost 20 times that amount to some of New York's most prominent politicians, according to a review of contribution data.
The company, American International Group, has enlisted dozens of obscure subsidiaries to distribute contributions, all drawn from a common A.I.G. bank account and often through sequentially numbered checks, totaling hundreds of thousands of dollars.
A.I.G. defends the contributions, which seem to comply with the law as interpreted by the State Board of Elections.
The donations in recent years include totals of $50,000 to the gubernatorial campaign of Attorney General Eliot Spitzer; $335,000 to those of Gov. George E. Pataki; $34,300 to the campaign of Lt. Gov. Mary O. Donohue; and $25,000 to the 2006 campaign of Comptroller Alan G. Hevesi.
Often, the subsidiaries' identities give no hint of their affiliation with A.I.G., making it difficult to determine the extent of A.I.G.'s giving. For example, 10 companies - with names like Green Hills Corporation and Yosemite Insurance - gave $5,000 checks to Mr. Spitzer's campaign on a single day in December 2003. The only clues that the checks came from a common source were that they all had sequential numbers and bore an address of 70 Pine Street in Manhattan, A.I.G.'s headquarters.
Those contributions were made before Mr. Spitzer's office began investigating insurance industry practices, including those of A.I.G., in mid-2004. A.I.G. has made no further contributions to the Spitzer campaign since then.
A.I.G. and 33 subsidiaries used the same approach to direct hundreds of thousands of dollars to Mr. Pataki's campaigns beginning in 2001, in six batches of sequentially numbered checks. A.I.G.-related companies have also contributed to the New York State Democratic Party and to several campaigns for the New York State Senate.
Joe Norton, a spokesman for A.I.G., said that although the company's subsidiaries use checks drawn from a common account maintained by A.I.G., the contributions are charged back to each subsidiary's budget, so that, ultimately, the money comes from the subsidiaries. He said, however, that even though the contributions were made by the subsidiaries, A.I.G. usually decided what candidates to support, a process he said was within the law.
"There's no requirement that decisions about contributions be made by the subsidiaries," Mr. Norton said. "The parent company can recommend that a contribution be made."
A.I.G.'s practices are an example of how corporations have found ways to get around contribution limits in New York's porous campaign finance laws.
Last month, Common Cause New York, a watchdog group, did an analysis showing how limited liability corporations, which are allowed to contribute up to $50,100 to a candidate, were becoming a preferred vehicle for individuals and partnerships to effectively double or triple their contributions. (L.L.C.'s are business entities that can be easily established and provide special tax benefits as well as limits on financial liability.)
As a conventional corporation, A.I.G. is bound by the limit of $5,000 in total campaign contributions each year. The state's election law permits subsidiaries, even those wholly owned by a parent company, to make their own contributions as well. But the elections board issued an opinion in 1977 clarifying that a subsidiary must not receive money from its parent to make the contributions.
Rachel Leon, executive director of Common Cause New York, said A.I.G.'s methods, including the use of a common bank account to write checks for its subsidiaries, "clearly violate the spirit of the law."
"This is definitely one of those cases where it fails the common-sense test," she said.
While it is difficult to determine A.I.G.'s motivation in making contributions to state candidates, its business as an insurer is heavily regulated by state government. A.I.G., though it is based in New York, has also made contributions to candidates in other states and at the federal level.
Asked about the propriety of practices like those of A.I.G. in New York, Robert Brehm, a spokesman for the elections board, initially said that a determining factor would be whether the subsidiaries were making their own decisions, independent of the parent company, when contributing to candidates.
"The regulation and guideline is that the contribution come from a distinct group using its own money, not a situation where the parent company reaches down and makes the decision for them," he said. "What is important is who are the decision makers and that each distinct subsidiary is making those decisions."
But two lawyers with years of experience in New York election law said that the contributions appeared to be legal.
"There are no bright lines" in New York's laws governing contributions by subsidiaries, said Lawrence A. Mandelker, an election lawyer in New York City, adding that A.I.G.'s methods were "probably legal."
Kenneth A. Gross, a prominent election lawyer in Washington who has advised New York candidates on the state law, said there "is nothing that requires the decision to make the contribution be made independently" by each subsidiary.
As for the use of a common bank account, Mr. Gross said: "As long as the subsidiary is being charged back, say on the profit and loss statement, then the method that is used, whether it's through a single paymaster or a common check ledger, is not a concern to the New York Board of Elections."
Mr. Brehm later said that he "may have misspoke" on the issue of whether the subsidiary needs to make its own decisions. The board's position, he said, is that it is acceptable for parent companies to make decisions on contributions for their subsidiaries, since not all subsidiaries have executives on staff to make those decisions.
"The only requirement," he said, "is that the money a subsidiary uses to make a contribution must be its own and not come from the parent company."
The section of the law dealing with corporate contributions takes up only a couple of paragraphs and has been the subject of dispute over the years. In 1975, the board declined to issue an opinion on the legality of subsidiary contributions, saying the Legislature needed to clarify the law, whose intent was to limit the influence of corporations in politics.
But in 1977 the board issued an opinion saying that as long as a subsidiary was a "distinct legal entity," its contributions would not be counted against the limit imposed on its corporate parent.
The lone caveat was that the parent company could not "transfer funds to the subsidiary for the purpose of furthering the subsidiary's political activities," or vice versa.
Since then, the board has had a record of loosely interpreting contribution limits on corporations.
Three years ago, Matthew Lee, a lawyer and community advocate in the Bronx, filed a complaint with the board accusing a large housing lender of using 13 subsidiaries to improperly channel contributions to a number of state candidates. Mr. Lee said that his complaint went nowhere.
"I was amazed that this state agency couldn't seem to articulate a clear answer as to what the law is," he said.
An added wrinkle in the A.I.G. contributions is that two of the companies that made use of A.I.G.'s common account are not actually A.I.G. subsidiaries. Starr Technical Risk Agency and Starr Associates of Massachusetts, which together gave a total of $20,000 to the Spitzer, Pataki and Donohue campaigns, are affiliates of the privately owned C. V. Starr & Company, which is controlled by Maurice R. Greenberg, chairman of A.I.G. until 2005.
Before Mr. Greenberg's departure, the Starr companies shared office space, personnel and administrative services with A.I.G., whose brokerage commissions were the sole source of income for the companies, according to securities filings and news releases by A.I.G. Although not owned by A.I.G., the Starr entities would appear to fall within the election law's description of a subsidiary, as any corporation "financially supported, in whole or in part," by another company.
Mr. Greenberg was ousted at A.I.G. after Mr. Spitzer and federal regulators accused the company of manipulating its accounting practices to raise its stock price.
Mr. Spitzer's campaign has said that its policy is not to accept contributions from anyone who is the subject of an investigation by the attorney general's office, but that it will not return contributions made by companies or individuals before they come under investigation.