THE BLOG
09/19/2006 11:32 am ET | Updated May 25, 2011

AIG and the Corporate Subsidiary Ruse

A remarkable story in today's New York Times reports on a campaign contribution scheme innovated by the insurance giant AIG. Under New York law, corporations are permitted to give up to $5,000 to a candidate. AIG skirted this limitation by having over a dozen of its subsidiaries make contributions -- drawn from the same bank account, using sequential checks.

AIG acknowledges that the parent company directed the subsidiaries to act, but the practice may well be legal under New York law, the Times reports, so long as the contributions are allocated to the balance sheets of the subsidiaries.

This is, plainly, yet another argument for public financing of public elections, and a reminder of how important public financing arrangements are at all levels of government.

It should also be a reminder of how the legal rules that govern how corporations are structured help enable corporations to dominate their human creators.

In the AIG case, the parent company explicitly gets it both ways: it is able to direct the subsidiaries, and also able to treat the subs' actions as independent for the purpose of measuring compliance with campaign finance laws.

Abuse of the corporate form is commonplace. Corporations routinely use parent-subsidiary relationships to avoid taxes (as Enron did to an extreme, and as drug giant GlaxoSmithKline has allegedly done to avoid paying billions in U.S. taxes) and to escape liability in lawsuits (as Philip Morris and BAT are scheming to do in the U.S. litigation against them, and as many multinationals have sought to do to avoid responsibility for their overseas activities).

This is a problem deeply engrained in our legal and regulatory systems, and in our consciousness of what is possible when it comes to controlling corporations. Fixing the problem won't be easy (though admittedly the AIG case calls for a simple fix), but that doesn't mean it isn't necessary, or can't be done.