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Disclosure needed as Obama administration reverses lobbyist ban


K Street, Washington’s lobbying HQ. Photo credit: Wikimedia Commons.

The Obama administration announced it will reverse part of the lobbying ban it instituted in 2010 and allow registered lobbyists to serve on any of 1,000 advisory boards, commissions or panels that provide policy making advice to the government. Reporting on the subject, Politico noted “watchdog groups” were “disappointed” by the decision. The Sunlight Foundation — often labeled one of those “watchdog groups” — is, in fact, not disappointed. At least not yet. We have long thought that rather than an arbitrary ban on one category of influencers, while still offering corporate heads, union leaders and “stealth” or unregistered lobbyists a seat at the table, the public would be better served with a strengthened disclosure regime.

There can be no doubt that too many special interests have too much access to decision-makers in Washington, D.C. But it is the height of absurdity to pretend that only registered lobbyists wield undue influence. As a result of a loophole in existing law, many of the most influential people in Washington avoid registering as lobbyists by claiming that they spend less than 20% of their time lobbying for any particular client. Yet former members of Congress — Tom Daschle and Newt Gingrich come immediately to mind — are far more influential than the vast majority of lobbyists who do register and have therefore been banned from serving on advisory boards.

It is equally foolish to believe that wealthy political donors, like Sheldon Adelson and Tom Steyer, who give millions of dollars in hard and dark money are somehow less influential than a mid-level lobbyist from a small shop who may or may not get his calls returned by senior administration officials. Yet the prior ban would preclude the latter and not the former from serving on advisory boards.

But, while the administration has rightfully decided to set aside the ban, it must ensure that there are new, strong disclosure requirements in place so that the public is aware of every individual who has special access as a result of serving on an advisory board, and what interests he or she represents. Robust, timely transparency is a far better tool than a limited ban in order to determine whether advisory boards are balanced or whether they are stacked to favor one special interest or position.

Even with this reversal, the Obama administration leaves in place an unnecessary prohibition that demonstrates it continues to favor stealth lobbyists and large donors to registered lobbyists. Under the revised rule, registered lobbyists are still prohibited from serving on advisory boards in their “individual capacity,” and may only serve if they are specifically appointed to represent the interest of a particular group.

This twisted position means that a casino magnate like Adelson could, for example, serve on a board addressing Internet gambling and could also serve as a private citizen, advising the government on just about anything of interest to him. However, a registered lobbyist would be limited to serving only on a board addressing the interests she represents, regardless of her expertise in other areas. If the ban on serving in an individual capacity is necessary, it should apply as to every member serving on advisory boards, or else it should not apply at all.

It’s likely that the administration maintained the prohibition against lobbyists serving in their individual capacity as an effort to save face—demonstrating its continued antagonism towards K Street, while attempting to address issues raised in a lawsuit challenging constitutionality of the ban. But if the Obama administration really wants to address undue influence in Washington, it should stop creating hollow exceptions and instead focus on making membership on advisory boards much more transparent.

[...]


New research indicates STOCK Act might be working

The US Capitol, bathed in sunlight. Photo via Flickr user Sky Noir A recently released working paper by Meng Gao and Jiekun Huang of University of Illinois at Urbana-Champaign, has examined how hedge funds have historically benefitted from … [...]


Public universities, for-profit colleges seek higher stake in student loans

Younger voters are notoriously disinterested in the political process, at least when it comes to elections for Congress. But a Sunlight Foundation analysis of student loan lobbying data suggests that major players in the political process are interested in them.

Since Congress voted in 2010 to push commercial banks out of the federally funded student loan market, lobbying by commercial banks on the subject has dropped significantly. But lobbying by other entities that have much to gain from keeping young adults in debt continues apace – especially higher education organizations, which have redoubled their efforts to ensure public lines of credit for school are not neglected.

Lobbying by the education sector increased from 315 total reports between 2008 and 2010 to 480 reports between 2011 and 2013 — a 52 percent increase. With a growing majority of students relying on loans to attend college, universities have obvious interests in ensuring access to credit.


Figure 1. Graphic credit: Sunlight Foundation

The most active education organizations are a mixed bag. Some, like Emory University (18 reports since 2008) or the University of Iowa (22 reports since 2008) are well-regarded and nationally-known institutions. Others, like Greater Caribbean Learning Resources (22 reports since 2008) are for-profit institutions. One of the most active colleges, Keiser Collegiate System (21 reports since 2008), is a for-profit turned non-profit.

When we zoom into the organization level, the most active organizations before the 2010 reforms were major student loan providers SLM Corp. (45 reports from 2008-2010), the parent company of Sallie Mae and First Marblehead (41 reports in 2008-2010). Interestingly, Ashland Inc. (a chemical company) and Eisai Co. Ltd. (a pharmaceutical company) were both quite active on “student loans,” but their interest in the issue was more indirect. Both firms held large positions in securitized student loans during the financial crisis when the securities market collapsed. They advocated for the government to restore liquidity to a “frozen” market in student loan-backed auction rate securities (SLARS).


Figure 2. Graphic credit: Sunlight Foundation

Notably, not a single organization dedicated to representing students’ or borrowers’ interests shows up in any of our lists.

Meanwhile, since 2010, financial sector lobbying declined (Table 1). In fact, lobbying reports mentioning “student loans” by both the securities and investments sector as well as commercial banks declined by 43.2 percent — from 373 reports (2008-2010) to 212 reports (2011-2013).

Sector Before Reform (2008 — 2010) After Reform (2011 — 2013)
Securities and Investments 218 128
Commercial Banks 155 84
Total 373 212
Table 1

Figure 3. Graphic credit: Sunlight Foundation

But financial lobbying on the topic of student loans didn’t go away. After all, there is still a thriving private student loan market.

Now, it’s the loan servicers who probably have the most to lose. One bill, introduced by Sens. Marco Rubio, R-Fla., and Mark Warner, D-Va., would change repayment structures. Rather than being on the hook for a fixed payment, borrowers would be on the hook for 10 percent of their annual income, capped at $10,000 a year. Another bill, is a proposal by Sen. Elizabeth Warren, D-Mass., to allow the 25 million or so individuals with outstanding debt to refinance their loans at lower interest rates, which would amount to a tremendous loss in revenue for loan servicers.

In general, loan servicers are compensated based on the unpaid principal balance. They also often get money from late fees. In other words, the easier it is for borrowers to pay off their loans, the less profitable it is to be a loan servicer. As a result, a lot of lobbying by loan providers is defensive; they profit from the existence of a student loan bubble, and anything that challenges it (including direct subsidy for higher education) is a threat to their business model.

While different organizations have different reasons for being active on student loans, a few things are clear: One, a thicket of organized interests care about the issue; two, the passage of the 2010 student loan reform bill changed that thicket; and three, not a single organization representing students or borrowers shows up in any of our lists of leading organizations.

[...]


Labor is split on supporting Keystone XL, but not on lobbying for it

Unions have long been split publicly on their positions on the Keystone XL pipeline. Building trade unions have supported the pipeline and progressive service unions have opposed it.

When it comes to lobbying, however, labor presents a unified pro-pipeline voice. Only the unions who support the pipeline have actually bothered to lobby on it. Those who oppose it have not.

Figure 1 below shows that none of the labor organizations that have filed lobbying reports mentioning Keystone are publicly opposed to the project.

bar chart of union lobbying on Keystone XL
Figure 1. Graphic credit: The Sunlight Foundation

The Laborers Union, whose president, Terry O’Sullivan, has been perhaps the most vocal labor advocate for the pipeline, tops the list with 20 reports. The Plumbers & Pipefitters Union (11 reports) and the Operating Engineers Union (10 reports) round out the top three organizations. In fact, all of the top five lobbying unions are those which have signed on to construct the pipeline for TransCanada, and whose memberships stand to gain from the jobs created.

We find no public position on Keystone for the MTA Police Benevolent Association or the Transportation Communications Union, which dissolved in 2012.

The pipeline promises to create thousands of jobs to be filled by members of many of the nation’s largest unions. This has pushed labor into a choice between environmentalists — their natural democratic coalition allies who oppose the pipeline — and pro-business, often anti-union forces that favor building the pipeline. This has been widely reported on as something of a “civil war” amongst the union left in the last few years. However, even as unions remain divided, the unions that have lobbied on Keystone XL have not.

In 2012, CWA, SEIU, UAW, Transport Workers Union, United Steelworkers Union and Amalgamated Transit Union issued a joint statement with the Sierra Club and the National Resources Defense Council applauding President Obama’s move to delay the pipeline. Meanwhile, as the Keystone XL project website notes, the Laborers Union, Teamsters Union, Plumbers and Pipefitters Unions, AFL-CIO, the Operating Engineers Union and the Pipeline Contractors Association have entered into “comprehensive Project Labor Agreements” with TransCanada to work on construction of the pipeline should it be approved.

The unions whose members will concretely benefit from the pipeline — mostly building trades unions — have been quite active in favor of the pipeline, despite the fact that it involves breaking from their traditional coalition allies. The unions that won’t directly benefit from the pipeline — mostly service sector unions — have held with their progressive coalition allies. But they haven’t lifted a lobbying finger to try to stop it.

Unions may be publicly divided on Keystone XL, but when lawmakers hear from labor’s lobbyists in Washington, they hear that labor loves Keystone.

[...]


In Washington lobbying, pro-Keystone XL advocates dwarf pipeline opponents

To approve or not to approve the Keystone XL pipeline? To anger environmental activists and some high profile donors (most prominently, Tom Steyer), or to put vulnerable Senate Democrats at an even bigger risk (most prominently, Mary Landrieu, D-La.)? That is the decision that President Obama continues to delay, and Senate Majority Harry Reid, D-Nev. continues to put off.

With a final decision still looming six years after the original application, it’s as good a time as any to look at the cumulative lobbying efforts on this issue. While Keystone has become a cause célèbre for many environmental activists and prominent political donors, who oppose its construction, the professional lobbyists active on the issue in Washington are almost all asking for the pipeline to be built.

We looked at the 10 sectors that filed the most lobbying reports mentioning “Keystone” since 2008, visualized in Figure 1. Unsurprisingly, oil & gas dwarfs the rest of the list with 206 reports, more than four times the 49 reports filed by environmental groups. Building trade unions, a traditional Democratic constituency, are third on the list at 46 reports. These unions support the pipeline because they believe it will create jobs for their members.

Bar chart of top sectors lobbying on Keystone XL
Figure 1. Graphic credit: The Sunlight Foundation

Of the 10 sectors (all of which filed at least 10 reports), nine support building the pipeline. Only environmental groups are opposed.

Figure 2 looks at the lobbying activity over time. For the first year of lobbying, 2009, it was just the oil & gas industry and the environmental groups. Then, in 2010, the building trade unions and electric utilities got involved. Then, in 2011, the oil & gas industry really kicked up its lobbying efforts, and a bunch of other industries supporting the pipeline got involved as well — increasingly overwhelming the environmentalists.

Tilegrid chart of sector lobbying on Keystone XL over time.
Figure 2. Graphic credit: The Sunlight Foundation

At the organization level, the same pattern persists. As seen in Figure 3, of the organizations that filed more than 10 reports mentioning Keystone, eight support the pipeline. And the six most active organizations all support the pipeline.

Top organizations lobbying the most on Keystone XL pipeline
Figure 3. Graphic credit: The Sunlight Foundation

Of these most active organizations, only the Western Organization of Resource Councils (14 reports, #7 on the list) and the League of Conservation Voters (10 reports, tied for #10 on the list) opposed the pipeline.

While a final decision on Keystone XL continues to be postponed, our analysis shows that the inside-the-Beltway resources come down heavily in support of building the pipeline.

Notes on methods:

We determined organizational positions on the Keystone XL pipeline based on public statements of position released by the corporation/organization or its officers.

The pipeline is a project of the TransCanada corporation, which supports its construction. ExxonMobil and Royal Dutch Shell both operate Gulf Coast refineries that would benefit from the Canadian crude delivered by the pipeline. Both companies and their officers have made public statements in favor of Keystone XL (Shell, ExxonMobil). TransCanada has signed project labor agreements with the Laborers International Union of North America, the Plumbers and Pipefitters Union and the Union of Operating Engineers, to build the pipeline. Because of the jobs this construction promises, all of these unions publicly support of the pipeline. Canadian oil shale producers represented by the In Situ Oil Sands Alliance rely on pipelines like Keystone XL to export their crude and get it to refineries. There has been congestion in the past and they will benefit from the increased capacity Keystone XL will bring. The CEO of Devon Energy, another Canadian Oil producer, is also an outspoken proponent of the pipeline. Business Roundtable and the American Petroleum Institute are also both in favor of the pipeline because it will benefit their members.

The Western Organization of Resource Councils is a regional grassroots environmental organization with chapters in the areas in the path of the proposed pipeline. It has been vocally opposed to the pipeline plan, specifically focusing on local landowners who would be affected. The League of Conservation Voters, an influential environmental organization and major political contributor, is also strongly opposed to Keystone XL.

[...]


Let’s talk lobbying and transparency at Open Knowledge Festival 2014

From banking to data protection, arms trade and climate change; from Washington, D.C. to Brussels, Santiago and Canberra; big business and special interest groups will always find a way to influence public policies.

At its best, professional lobbying has the power to educate public officials and help them make more informed decisions. In reality, influence advocacy has, in many countries, created a new form of policy capture that goes beyond bribery and traditional corruption — but is equally dangerous to our democracies and economies.

Professional lobbyists and policymakers usually negotiate behind closed doors, and do so deliberately: They tend to believe they can do their job better if it remains in the shadows. And even if it does not directly result in political scandals — such as the EU’s Dalligate, the Indian Radia tapes controversy or various “cash-for-questions” scandals in the UK — excessive industry lobbying can misrepresent the facts, disregard diverse perspectives and thus skew public policy.

Still, only a handful of countries have attempted to regulate lobbying, and most of these attempts are so weak and limited in their effect that it’s as though they did not exist.

As always, the lack of political will is an important factor, but not the only one to blame for ineffective regulation. In 2014, there is still no global consensus on who constitutes a lobbyist (Is it only paid professionals? Does it include in-house lobbyists as well as third party representatives?); what is considered lobbying (Should regulations cover grassroot organizing and public relations activity?); and who might be a target of lobbying (Is it only high level public officials or a broader range of civil servants?).

We’re now starting a dialogue to bring lobbying out of the shadows.

The Sunlight Foundation, Access Info Europe, Transparency International and Open Knowledge are preparing a session at OKFestival to boost the conversation around lobbying transparency and gather evidence from the open government community that can guide our future reform efforts.

We believe that a clear and robust lobbying disclosure regime is essential to understanding the dynamics of politics. Opening up information about lobbying also allows civil society to create tools such as Influence Explorer and LobbyPlag, which enable others to convert lobbying information into meaningful narratives; evaluate, fact-check or counter political messages; and track business influence.

During the session, we want to hear more about the challenges activists face when trying to introduce lobbying regulation and how they think lobbying should be defined. We will showcase transparency projects that try to translate lobbying into stories average citizens can relate to. We are planning to talk about how to better advocate for lobbying data, how to translate the information that’s available and how to connect the dots about the influence industry without reliable government data. The session will introduce and discuss ongoing efforts to create globally applicable principles for definitions, disclosure and enforcement, and touch base on advocacy campaigns that proved successful.

There is real need for learning and coordination around the ways in which countries can promote better lobbying disclosure norms. Our hope is this session will result in stronger civil society activities around the issue, and that we can form a network of transparency watchdogs and open government activists who will coordinate and support reform. You don’t have to be an expert in lobbying regulation to attend — we want to begin a dialogue that fits the needs and challenges of a broader segment of this community.

[...]


Transparency Case Study: Lobbying disclosure in Hungary


The Hungarian Parliament Building in Budapest. Photo credit: Wikimedia Commons/tisza_

Introduction

Lobbying regulation in Hungary provides a trenchant reminder that the political culture and the context in which reform is undertaken can have a profound impact on how a law is implemented — and whether it succeeds. The Lobbying Act was passed in 2006 as part of a larger government reform agenda, with very little policy consultation. When the new FIDESZ government came into power in 2011, the lobbying law was repealed because it was widely understood to be ineffective. The law has not been replaced.

When we began this case study research, we noted the importance of looking at failures along with successes, as they can provide rich opportunities to learn and improve future transparency interventions. In this case study, we pay particular attention to how and why the Hungarian lobbying regulation failed to provide meaningful transparency into interest advocacy and lobbying during the policy-making progress.

According to Petra Burai, head of Legal Affairs at Transparency International Hungary, the act was essentially “a policy transfer, and they copied best practices from all around the world” (8:00). Ms. Burai continued, “It was basically a copy-and-paste of the best practices but not taking into consideration how reality worked out in Hungary. … It was a strange phenomenon in a country that wasn’t ready to accept a regulation on lobbying” (10:00).

Our look at this ineffective policy provides some useful insights into how to think about crafting successful transparency policies:

  • In the past, we at Sunlight have written extensively about the importance of open and machine-readable data. The lack of compliance in Hungary highlights that the format and processes of release matter very little if there is not quality data to be released in the first place. They are certainly related – but some minimal level of compliance must come first.
  • It is important not to under-estimate existing political culture. Hungary had a well established – albeit opaque – manner in which the private and public sector related. This process worked quite well for many powerful interested parties. Significant reform requires cooperation from these communities, and real sanctions to alter the incentives of actors.
  • To regulate professional lobbying, it is important for professional lobbying to be an integrated part of the political economy. This is not the case in Hungary. Because a lot of political influence in Hungary happened through personal interactions in ethical and legal gray areas, it was easy for all parties involved to claim that the lobbying law did not cover their behavior.
  • Achieving high rates of compliance in a law regulating a formerly unregulated gray market requires substantial political will, and a strong and independent enforcement body, neither of which were present in Hungary when the Lobbying Law was in effect.

For these reasons and others, the law never took hold effectively — and is a useful example of how well-meaning lobbying regulation can fail.

Disclosure under the lobbying law

The act defines lobbying as “The act or behavior of trying influence the decision-making process or expressing self-interests, based on a contract or conducted as business.”

The lobbying law required registration by individuals or third parties who contact the government to influence a decision on behalf of a client on a contract basis. Registrants were required to have a university degree, a clean criminal record and provide standard background and contact information. The law imposed reporting requirements on both lobbyists and public office holders, who were required to report activity – including the content and method of lobbying activity – on a quarterly basis.

The lobbying regulations also attempted to incentivize registration by offering special privilege to lobbyists upon registration. Registered lobbyists were granted a “hall pass” that entitled them enter government offices and formalized procedures for meeting with members of the national assembly, ministers, committees and other public servants (Fanny Hidvégi 4:00).

However, according to all of our interviewees, registration rates were quite low (Ádám Földes 44:00). According to Ms. Burai, “The main problem was everybody was kind of happy remaining in a gray area because they know the gray area and how to get around in that. … They were not really interested in passing the new law; not the government, not the business sector and, well, NGO’s are not really into lobbying per se because they had their own civic ways of interest [for example, advocacy]. (12:00)

Since the repeal of the lobbying law, the registry is no longer accessible online; however, an analysis by Zoltan Pogats found that while the law was in effect, “The database of lobbyists functions well, and is readily available online on the website of the Central Office of Justice without any password or special access privileges.” He continues by finding that “as of March 2010, some 248 individual lobbyists have registered themselves, along with 44 lobby organisations. Regular quarterly reports on lobbying are also readily available on the same website, with details of what kind of contact was made by whom with which specific civil servants in what specific matters.“

Problems with registration and disclosure

The dual public/private reporting responsibility over reporting activity was ineffective in practice.

Balázs Dénes, former executive director of the Hungarian Civil Liberties Union and now at Open Society, described his experience trying to get data disclosed under the lobbying law:

You can argue if the law wasn’t perfect or it was a good one. One thing is sure, nobody took it seriously. Nobody filed those – in theory – mandatory lobby notes. … No one took this thing seriously. On the surface and level of slogans, of course. But when we tried to get some of those reports and somehow we never could achieve, we never could get any of them (17:00).

Our interviewees agreed that the activity that was disclosed in the registry (noted above) represented a very small fraction of those who were engaging in political influence activities. Under the lobbying law, the vast majority of influence activity continued to be done by non-registered lobbyists in a non-transparent way. According to Petra Burai, those who did register and lobby under this system were those who already “really did their job quite openly and did the government affairs and government relations anyway, so they thought that it would be an advantage to them. For example, those public affairs firms and lawyers, those were the typical ones to register.” She continued on to note that, however, because there was no strong incentive,”no sanction system that was operating, they dropped out quite early” (20:00).

So they didn’t write reports or [those] who wrote the reports or weren’t really happy about the feedback or the feedback that they never got or that they were sometimes neglected because of being registered lobbyists. So there were some public affairs experts who told me that they were basically neglected for being the lobbyists and they recognized all of this because nobody wanted them at the meeting (Burai 20:00).

Ádám Földes, an advocacy advisor with Transparency International, expanded on this issue, noting that the only person he recalled who consistently registered:

was an individual … an anti-tobacco activist that doesn’t really have a CSO. Because he influences or tried to influence public decisions, though he’s not required to register, he registered and reported on his meetings. That was the only thing I remember where I could see any meaningful information on concrete pieces of legislation. … For the rest, even if they were registered, they always reported that they there was no lobbying activity and there was nothing to report (46:00).

It is, of course, difficult to prove what kind of lobbying activity was happening but going unregistered. However, when looking at archived lobbying registry data prior to our interview, Ms. Hidvégi, head of Data Protection and Freedom of Information at the Hungarian Civil Liberties Union, found “that no really big companies were a part of such conversation. For example, there was no energy company in the registry” (20:00). Dr. Ernő noted in a study that essentially the entire construction and financial sectors were also absent from the registry as well.

Political culture

In large part, the failure of the Hungarian lobbying registration and disclosure system can be attributed to an unfavorable political culture for lobbying transparency and a lack of political investment in the law’s success.

Ms. Burai noted that ”lobbying had no real tradition in Hungary,” and that, while interest-based advocacy has of course always existed, “it’s tradition, whereas lobbying is a recognized profession or a way of making policy or channeling interests that was not accepted” (8:00). Instead, in Hungary, “Lobbyist and lobbying are kind of a negative terms. So when we think about lobbyists or usually people talk about lobbyists there is some kind of negative connotation. Those experts who do the actual lobbying work, don’t really like to call themselves lobbyists at all” (4:00). People engaged in influencing policy tend to refer to themselves as public affairs experts. When Ms. Burai was researching the implementation of the lobbying law for Transparency International, she said, “When I started to track them or we started to track down lobbyists, we basically had to go to PR firms and in PR firms we found public affairs experts who were kind enough to talk to us and share their experiences, but even they were not a bit happy to call themselves lobbyists” (6:00).

In contrast to the United States or Canada, where formalized and relatively transparent professionalized lobbying is a well understood part of the political economy, Hungary has historically operated – and continues to operate — largely through informal connections. Földes expanded on this point in great detail in our interview. He noted:

It’s a rather important part of business that everybody has connections. Everybody knows who is who, went to the same school, same university. There are relations everywhere. … If you make business with the state, like trying to take part in public contracting, public procurement, then you also need the decision-makers in the state. Either for legislation or for public contracts, you need a good relation with them, and as the corruption is quite high, any business has to find its way to the decision-makers.

If it goes everything through an informal channel, the main thing that matters is there is trust between the public decision-maker and, let’s say, a private company or CEO of the company, and what they care about that they agree. It may be corruption or it may not be corruption, I would say there is a big gray zone. There, it’s quite clear they don’t want to disclose anything about that.

For the illegal part, it’s clear. For the legal part, it’s just reputation risk, I would say, and why to make it public if there are no strict rules to make it public. The same for the public administration side, it’s not Scandinavia where the public administration has a tradition of being open (28:00 – 32:00).

However, rather than “professional lobbyists try[ing] to influence lawmaking, it turned out it’s more usual that, for example, the CEOs of companies do lobbying themselves” (Földes 8:00). So when it came to compliance, many people engaged in interest advocacy did not really think of the law as applying to them, especially since it was explicitly drafted to focus on a set of registered lobbyists.

As for public officials, compliance with the lobbying registry was also viewed as unimportant and burdensome. Ms. Hidvégi, noted that “public servants saw this only as an administrative task. It feels that they didn’t even see the aim of these provisions and why they had to do it, so they just avoid it as other administrative tasks. As you know, they can be very annoying.” On top of that, there was no training offered to public officials as the law was implemented. She added that “they were not trained on lobbying or how to handle these companies or what should they do when they are being contacted. It was a mere administrative barrier for them” (22:00).

Public office holders were put in a position where complying with the law felt like merely an administrative burden. On the other hand, in a political culture still very much reliant on personal relationships and trust, revealing who they were meeting with came with real downside risk to their careers and future. Petra Burai summarized this effect on public officials during our interview:

Whether sensitive information goes out, what they can talk about, what they can’t talk about, and whether they write the report of the whole meeting and somebody can’t just knock on their head and say hey, you shouldn’t have said that or you had no entitlement to decide on that or being influenced about that. So it’s kind of a psychology of being a public official, you never know whether you are entitled to do something or you are not. And the easiest way to remain in a secure position when those meetings are hidden or secret so nobody can know what’s really said and how you are influenced or the way you are not influenced.

So it takes courage to admit how you deal with lobbyists and whether you deal with lobbyists at all because that was the issue. We never knew that. You have to understand how government works or governmental official works in that way (16:00).

Unfortunately, compliance by public officials was quite low. Many ministries did not comply with their mandate to appoint leaders who were designated to accept registered lobbyists, nor did they routinely publish reports indicating the lobbyists who had contacted them, as the regulations required. Rather, “In most situations they had to decide whether it is more dangerous to give out information that they were talking about — and this is kind of a dangerous situation for them — or not to write the report” (Burai 16:00). Ms. Burai continued, “It’s not the easiest way to convince public officers that they have to act transparently. And this is not just a lobbying issue. … They still take them as a favor to answer, not an obligation” (18:00).

Civil society engagement

Hungary has a mature and robust civil sector, and the organizations we spoke with were eager to use the information that should have been disclosed under the lobbying law. However, none of them were able to find any usable data. Földes best summarized the experience of trying to use the lobbying registry working as a watchdog:

Whenever we were interested in who has a little bit on what, I could hardly find any meaning for any useful piece of information in that database. There was no voluntary observance of the law, so neither side took this law seriously and the department [Central Office of Justice], their oversight didn’t really have the means to enforce it. It was not very useful for a watchdog NGO because there was practically nothing useful in the database (26:00).

Ms. Hidvégi explained that even when the law was in effect, trying to find out anything about who was influencing policy was “more like an investigative journalism activity, and try to find something in the dark, but the revealed information is not enough for anything” (34:00). However, whenever watchdogs would go to ministries to ask about the lobbying activity reports that they were supposed to be filing, they were told “’No, we didn’t have lobbying activities here’” (Lederer 18:00).

Civil society was widely involved in criticizing the law, and offering substantive suggestions for reform and strengthening its implementation — but they quickly learned not to expect to find any meaningful information in the registry itself.

Enforcement powers

The Central Office of Justice was charged with control over the registry, and, according to Ms. Burai, it was not “independent in a way they could have imposed anything.” She continued, “They could have demanded [compliance], but they were not powerful enough to impose sanctions. Not to those who weren’t really submitting the reports. Basically, it was that they were really, really powerless institution“ (23:00).

According to Dr. Tóth Ernő’s research, this office was supposed to have a coordination role only, with a specific focus on helping centralize the reporting that was to take place in a decentralized fashion across various agencies. Dr Ernő, who worked inside the Office of Justice as the law was implemented, argued “since in Hungary lobbying has had no previous history and there was no strong ecosystem of lobbying transparency, the enforcement agency should have given much stronger investigative roles and powers.”

So far we have seen that the Hungarian lobbying law creates incentives in which both lobbyists and public officials see little upside potential, and high downside potential, to compliance. Compliance cost them in terms of decreased effectiveness and loss of trust in the largely informal and personal world of interest advocacy.

The law provided neither strong enough positive incentives to induce registration, nor strong enough sanctions to make failure to register a real concern. Ms. Burai explained that the law was:

too harsh in many ways to them because there were no incentives for those who registered as lobbyists. So there was no extra given. When you are transferred, then you are good enough to make your reports, write your reports, submit what you’ve done in the year and stuff like that. So there were no incentives and positive consequences when you work good. On the other hand, there were no sanctions either. According to the law, there could’ve been fines incurred if somebody breached the law. I think the maximum amount was 10 million forints and I think that should be ~$45,000. But never was a fine imposed. Nobody used the law, it’s tough and that’s one of the reasons they said it was easier to stay hidden because there was no use in the law (12:00).

One of the major penalties under the law was forbidding a lobbyist who failed to comply from registering the following year. In a system where registration was already quite low and most interest advocacy still happened outside of the channels of registered lobbying activity, this was not a meaningful threat. Additionally, Dr. Zoltán Pogátsa noted in a report for Europeum that “a maximum penalty of ten million forints ($45,000 USD) for non-registered or inappropriate lobbying can hardly be a deterrence when a the potential profits at stake might be measured in billions, or even tens of billions of forints.”

Sandor Lederer, the CEO of K-Monitor, concluded that “the biggest issue was that there were no real sanctions and that’s why nobody was afraid of having any problems with doing illegal [lobbying activities] or not register[ing] for lobbying activities. Nobody talked about any other aspect of the law because it wasn’t obvious from the beginning that it won’t really work. It was more to show that we have such law, that it did something against corruption or we did something for the transparency of lobbying, but really it was not used by anybody” (10:00).

None of our interviewees were familiar with any cases where sanctions occurred under the lobbying law.

Mr. Pogátsa has highlighted a few additional ways in which the lobbying act – even as it is written – does not provide adequate sanctions to enforce compliance. In particular, there are no sanctions on public officials for failing to file quarterly reports about which lobbyists approached them, nor does it sanction officials for not reporting non-registered lobbyists who approach them. As a result, failure to register as a lobbyist is not a significant barrier to accessing to public officials.

A simple formal model of lobbying compliance

We propose the following simple formal model to help explain the failure of lobbyists to comply with the Hungarian lobbying law.

In this model E[P(Bnc)] is the expected direct benefit of non-compliance (Bnc). E[P(Cc)] is the expected value of the cost of compliance (Cc) — the avoidance of which we treat as an indirect benefit of non-compliance — and E[P(Cnc)] is the expected value of the cost of non-compliance (Cnc).

toy formal model of compliance

Essentially, this formalizes the hypothesis that when the net expected benefits of non-compliance (on the left-hand side) exceed the net expected costs of compliance (on the right-hand side), the default expectation is non-compliance. When this inequality is reversed, and the net expected benefits of non-compliance are less than the net expected costs of non-compliance, we expect actors to tend towards compliance.

Unpacking the components can clarify its applicability to the Hungarian lobbying case. The left-hand side (LHS) of the equation describes the net expected benefits of non-compliance. The first term on the LHS is the expected direct value of the benefit of not complying with the lobbying disclosure regulation. This expected value is quite high under current circumstances in Hungary, because interest group advocacy and influence primarily occurs through informal channels that do not comply with regulations. The second term on the LHS, which represents the expected costs of compliance, is also quite high in Hungary. This covers costs like hiring extra staff to meet reporting requirements and potential lost business because risk averse public officials are loath to meet with registered lobbyists. As our interviewees indicated, the cost of complying with reporting requirements is a significant concern for interest advocates, and registering may make lobbyists less effective.

The net expected benefit of non-compliance (the LHS) is the sum of these first two terms, the expected direct value and the indirect benefit of avoided costs.

The right-hand side of the equation (RHS) represents the expected value of the costs of non-compliance. We can understand this as the probability of getting caught in violation of the law multiplied by the severity of the penalty for violating the law. As our interviewees indicated, investigation was rare-to-non-existent, and the sanctions were quite low, relative to the benefits.

In short, this means that our best estimate is that both terms on the LHS of the inequality are rather large, while the term on the RHS is vanishingly small. This leads us to conclude that in the Hungarian context, non-compliance is the simple equilibrium position.

This highlights several potential levers for reform. Reform could focus on decreasing the value of the LHS (i.e. making compliance less costly) or increasing the value of the RHS (making non-compliance more costly) or both.

On the LHS, this could mean lowering the benefit to non-compliance, perhaps by making it harder for non-registered lobbyists to meet with or do business with politicians. This could also mean decreasing indirect costs by making compliance cheaper by streamlining the administrative burden and providing additional incentives and access to registered lobbyists. Increasing the value of the RHS could include both strengthening sanctions or vesting an independent agency with real investigative authority, which would increase the likelihood that violators are caught. Either of these would lead to an increase in the expected cost of non-compliance.

Conclusion

The lobbying law in Hungary was brought into force in a situation where there was no established culture of professionalized lobbying, and where public officials and lobbyists had strong incentives to keep influence peddling in the shadows. Absent strong intervention to change the cost/benefit payoff of these actors, it was unreasonable to expect change.

Petra Burai offered an important insight on establishing a more effective lobbying regulation regime in Hungary:

First the recommendations had to be advocated because everybody has to be convinced that the lobby is necessary thing and it’s not something unnatural or natural evil or something like that that’s going on. Lobbying is good. Lobbying is acceptable and it is necessary for policy process. If you are doing it in a way that is transparent and accountable enough, it’s not what people would trust. I guess that’s the most important thing what we had as an outcome. Of course, the practical side is that the old act was not really effective to solve or effective enough. That has to be addressed as well (38:00).

Only once an established tradition of professionalized lobbying is in place can it be effectively overseen. Otherwise the infrastructure and practice of off-the-books, non-registered lobbying is so common-place that registration and disclosure will ultimately lead – as it did in this case – to effectively empty registries. The Hungarian case reminds us that policy reform cannot overcome the constraints of political culture unless it is crated to effectively alter the incentives of the key actors of those to whom it will apply.

Supporting materials

Ádám Földes

Advocacy Advisor, Transparency International

Download interview transcript here.

Balázs Dénes

Director, European Civil Liberties Project at Open Society Foundations

Download interview transcript here.

Fanny Hidvégi

Head of Data Protection and Freedom of Information Program, Hungarian Civil Liberties Union

Download interview transcript here.

Petra Burai

Head of Legal Affairs & Head of Research, Transparency International Hungary

Download interview transcript here.

Sandor Lederer

Co-Founder and CEO, K-Monitor

Download interview transcript here.

[...]


Transparency Case Study: Lobbying disclosure in Hungary


The Hungarian Parliament Building in Budapest. Photo credit: Wikimedia Commons/tisza_

Introduction

Lobbying regulation in Hungary provides a trenchant reminder that the political culture and the context in which reform is undertaken can have a profound impact on how a law is implemented — and whether it succeeds. The Lobbying Act was passed in 2006 as part of a larger government reform agenda, with very little policy consultation. When the new FIDESZ government came into power in 2011, the lobbying law was repealed because it was widely understood to be ineffective. The law has not been replaced.

When we began this case study research, we noted the importance of looking at failures along with successes, as they can provide rich opportunities to learn and improve future transparency interventions. In this case study, we pay particular attention to how and why the Hungarian lobbying regulation failed to provide meaningful transparency into interest advocacy and lobbying during the policy-making progress.

According to Petra Burai, head of Legal Affairs at Transparency International Hungary, the act was essentially “a policy transfer, and they copied best practices from all around the world” (8:00). Ms. Burai continued, “It was basically a copy-and-paste of the best practices but not taking into consideration how reality worked out in Hungary. … It was a strange phenomenon in a country that wasn’t ready to accept a regulation on lobbying” (10:00).

Our look at this ineffective policy provides some useful insights into how to think about crafting successful transparency policies:

  • In the past, we at Sunlight have written extensively about the importance of open and machine-readable data. The lack of compliance in Hungary highlights that the format and processes of release matter very little if there is not quality data to be released in the first place. They are certainly related – but some minimal level of compliance must come first.
  • It is important not to under-estimate existing political culture. Hungary had a well established – albeit opaque – manner in which the private and public sector related. This process worked quite well for many powerful interested parties. Significant reform requires cooperation from these communities, and real sanctions to alter the incentives of actors.
  • To regulate professional lobbying, it is important for professional lobbying to be an integrated part of the political economy. This is not the case in Hungary. Because a lot of political influence in Hungary happened through personal interactions in ethical and legal gray areas, it was easy for all parties involved to claim that the lobbying law did not cover their behavior.
  • Achieving high rates of compliance in a law regulating a formerly unregulated gray market requires substantial political will, and a strong and independent enforcement body, neither of which were present in Hungary when the Lobbying Law was in effect.

For these reasons and others, the law never took hold effectively — and is a useful example of how well-meaning lobbying regulation can fail.

Disclosure under the lobbying law

The act defines lobbying as “The act or behavior of trying influence the decision-making process or expressing self-interests, based on a contract or conducted as business.”

The lobbying law required registration by individuals or third parties who contact the government to influence a decision on behalf of a client on a contract basis. Registrants were required to have a university degree, a clean criminal record and provide standard background and contact information. The law imposed reporting requirements on both lobbyists and public office holders, who were required to report activity – including the content and method of lobbying activity – on a quarterly basis.

The lobbying regulations also attempted to incentivize registration by offering special privilege to lobbyists upon registration. Registered lobbyists were granted a “hall pass” that entitled them enter government offices and formalized procedures for meeting with members of the national assembly, ministers, committees and other public servants (Fanny Hidvégi 4:00).

However, according to all of our interviewees, registration rates were quite low (Ádám Földes 44:00). According to Ms. Burai, “The main problem was everybody was kind of happy remaining in a gray area because they know the gray area and how to get around in that. … They were not really interested in passing the new law; not the government, not the business sector and, well, NGO’s are not really into lobbying per se because they had their own civic ways of interest [for example, advocacy]. (12:00)

Since the repeal of the lobbying law, the registry is no longer accessible online; however, an analysis by Zoltan Pogats found that while the law was in effect, “The database of lobbyists functions well, and is readily available online on the website of the Central Office of Justice without any password or special access privileges.” He continues by finding that “as of March 2010, some 248 individual lobbyists have registered themselves, along with 44 lobby organisations. Regular quarterly reports on lobbying are also readily available on the same website, with details of what kind of contact was made by whom with which specific civil servants in what specific matters.“

Problems with registration and disclosure

The dual public/private reporting responsibility over reporting activity was ineffective in practice.

Balázs Dénes, former executive director of the Hungarian Civil Liberties Union and now at Open Society, described his experience trying to get data disclosed under the lobbying law:

You can argue if the law wasn’t perfect or it was a good one. One thing is sure, nobody took it seriously. Nobody filed those – in theory – mandatory lobby notes. … No one took this thing seriously. On the surface and level of slogans, of course. But when we tried to get some of those reports and somehow we never could achieve, we never could get any of them (17:00).

Our interviewees agreed that the activity that was disclosed in the registry (noted above) represented a very small fraction of those who were engaging in political influence activities. Under the lobbying law, the vast majority of influence activity continued to be done by non-registered lobbyists in a non-transparent way. According to Petra Burai, those who did register and lobby under this system were those who already “really did their job quite openly and did the government affairs and government relations anyway, so they thought that it would be an advantage to them. For example, those public affairs firms and lawyers, those were the typical ones to register.” She continued on to note that, however, because there was no strong incentive,”no sanction system that was operating, they dropped out quite early” (20:00).

So they didn’t write reports or [those] who wrote the reports or weren’t really happy about the feedback or the feedback that they never got or that they were sometimes neglected because of being registered lobbyists. So there were some public affairs experts who told me that they were basically neglected for being the lobbyists and they recognized all of this because nobody wanted them at the meeting (Burai 20:00).

Ádám Földes, an advocacy advisor with Transparency International, expanded on this issue, noting that the only person he recalled who consistently registered:

was an individual … an anti-tobacco activist that doesn’t really have a CSO. Because he influences or tried to influence public decisions, though he’s not required to register, he registered and reported on his meetings. That was the only thing I remember where I could see any meaningful information on concrete pieces of legislation. … For the rest, even if they were registered, they always reported that they there was no lobbying activity and there was nothing to report (46:00).

It is, of course, difficult to prove what kind of lobbying activity was happening but going unregistered. However, when looking at archived lobbying registry data prior to our interview, Ms. Hidvégi, head of Data Protection and Freedom of Information at the Hungarian Civil Liberties Union, found “that no really big companies were a part of such conversation. For example, there was no energy company in the registry” (20:00). Dr. Ernő noted in a study that essentially the entire construction and financial sectors were also absent from the registry as well.

Political culture

In large part, the failure of the Hungarian lobbying registration and disclosure system can be attributed to an unfavorable political culture for lobbying transparency and a lack of political investment in the law’s success.

Ms. Burai noted that ”lobbying had no real tradition in Hungary,” and that, while interest-based advocacy has of course always existed, “it’s tradition, whereas lobbying is a recognized profession or a way of making policy or channeling interests that was not accepted” (8:00). Instead, in Hungary, “Lobbyist and lobbying are kind of a negative terms. So when we think about lobbyists or usually people talk about lobbyists there is some kind of negative connotation. Those experts who do the actual lobbying work, don’t really like to call themselves lobbyists at all” (4:00). People engaged in influencing policy tend to refer to themselves as public affairs experts. When Ms. Burai was researching the implementation of the lobbying law for Transparency International, she said, “When I started to track them or we started to track down lobbyists, we basically had to go to PR firms and in PR firms we found public affairs experts who were kind enough to talk to us and share their experiences, but even they were not a bit happy to call themselves lobbyists” (6:00).

In contrast to the United States or Canada, where formalized and relatively transparent professionalized lobbying is a well understood part of the political economy, Hungary has historically operated – and continues to operate — largely through informal connections. Földes expanded on this point in great detail in our interview. He noted:

It’s a rather important part of business that everybody has connections. Everybody knows who is who, went to the same school, same university. There are relations everywhere. … If you make business with the state, like trying to take part in public contracting, public procurement, then you also need the decision-makers in the state. Either for legislation or for public contracts, you need a good relation with them, and as the corruption is quite high, any business has to find its way to the decision-makers.

If it goes everything through an informal channel, the main thing that matters is there is trust between the public decision-maker and, let’s say, a private company or CEO of the company, and what they care about that they agree. It may be corruption or it may not be corruption, I would say there is a big gray zone. There, it’s quite clear they don’t want to disclose anything about that.

For the illegal part, it’s clear. For the legal part, it’s just reputation risk, I would say, and why to make it public if there are no strict rules to make it public. The same for the public administration side, it’s not Scandinavia where the public administration has a tradition of being open (28:00 – 32:00).

However, rather than “professional lobbyists try[ing] to influence lawmaking, it turned out it’s more usual that, for example, the CEOs of companies do lobbying themselves” (Földes 8:00). So when it came to compliance, many people engaged in interest advocacy did not really think of the law as applying to them, especially since it was explicitly drafted to focus on a set of registered lobbyists.

As for public officials, compliance with the lobbying registry was also viewed as unimportant and burdensome. Ms. Hidvégi, noted that “public servants saw this only as an administrative task. It feels that they didn’t even see the aim of these provisions and why they had to do it, so they just avoid it as other administrative tasks. As you know, they can be very annoying.” On top of that, there was no training offered to public officials as the law was implemented. She added that “they were not trained on lobbying or how to handle these companies or what should they do when they are being contacted. It was a mere administrative barrier for them” (22:00).

Public office holders were put in a position where complying with the law felt like merely an administrative burden. On the other hand, in a political culture still very much reliant on personal relationships and trust, revealing who they were meeting with came with real downside risk to their careers and future. Petra Burai summarized this effect on public officials during our interview:

Whether sensitive information goes out, what they can talk about, what they can’t talk about, and whether they write the report of the whole meeting and somebody can’t just knock on their head and say hey, you shouldn’t have said that or you had no entitlement to decide on that or being influenced about that. So it’s kind of a psychology of being a public official, you never know whether you are entitled to do something or you are not. And the easiest way to remain in a secure position when those meetings are hidden or secret so nobody can know what’s really said and how you are influenced or the way you are not influenced.

So it takes courage to admit how you deal with lobbyists and whether you deal with lobbyists at all because that was the issue. We never knew that. You have to understand how government works or governmental official works in that way (16:00).

Unfortunately, compliance by public officials was quite low. Many ministries did not comply with their mandate to appoint leaders who were designated to accept registered lobbyists, nor did they routinely publish reports indicating the lobbyists who had contacted them, as the regulations required. Rather, “In most situations they had to decide whether it is more dangerous to give out information that they were talking about — and this is kind of a dangerous situation for them — or not to write the report” (Burai 16:00). Ms. Burai continued, “It’s not the easiest way to convince public officers that they have to act transparently. And this is not just a lobbying issue. … They still take them as a favor to answer, not an obligation” (18:00).

Civil society engagement

Hungary has a mature and robust civil sector, and the organizations we spoke with were eager to use the information that should have been disclosed under the lobbying law. However, none of them were able to find any usable data. Földes best summarized the experience of trying to use the lobbying registry working as a watchdog:

Whenever we were interested in who has a little bit on what, I could hardly find any meaning for any useful piece of information in that database. There was no voluntary observance of the law, so neither side took this law seriously and the department [Central Office of Justice], their oversight didn’t really have the means to enforce it. It was not very useful for a watchdog NGO because there was practically nothing useful in the database (26:00).

Ms. Hidvégi explained that even when the law was in effect, trying to find out anything about who was influencing policy was “more like an investigative journalism activity, and try to find something in the dark, but the revealed information is not enough for anything” (34:00). However, whenever watchdogs would go to ministries to ask about the lobbying activity reports that they were supposed to be filing, they were told “’No, we didn’t have lobbying activities here’” (Lederer 18:00).

Civil society was widely involved in criticizing the law, and offering substantive suggestions for reform and strengthening its implementation — but they quickly learned not to expect to find any meaningful information in the registry itself.

Enforcement powers

The Central Office of Justice was charged with control over the registry, and, according to Ms. Burai, it was not “independent in a way they could have imposed anything.” She continued, “They could have demanded [compliance], but they were not powerful enough to impose sanctions. Not to those who weren’t really submitting the reports. Basically, it was that they were really, really powerless institution“ (23:00).

According to Dr. Tóth Ernő’s research, this office was supposed to have a coordination role only, with a specific focus on helping centralize the reporting that was to take place in a decentralized fashion across various agencies. Dr Ernő, who worked inside the Office of Justice as the law was implemented, argued “since in Hungary lobbying has had no previous history and there was no strong ecosystem of lobbying transparency, the enforcement agency should have given much stronger investigative roles and powers.”

So far we have seen that the Hungarian lobbying law creates incentives in which both lobbyists and public officials see little upside potential, and high downside potential, to compliance. Compliance cost them in terms of decreased effectiveness and loss of trust in the largely informal and personal world of interest advocacy.

The law provided neither strong enough positive incentives to induce registration, nor strong enough sanctions to make failure to register a real concern. Ms. Burai explained that the law was:

too harsh in many ways to them because there were no incentives for those who registered as lobbyists. So there was no extra given. When you are transferred, then you are good enough to make your reports, write your reports, submit what you’ve done in the year and stuff like that. So there were no incentives and positive consequences when you work good. On the other hand, there were no sanctions either. According to the law, there could’ve been fines incurred if somebody breached the law. I think the maximum amount was 10 million forints and I think that should be ~$45,000. But never was a fine imposed. Nobody used the law, it’s tough and that’s one of the reasons they said it was easier to stay hidden because there was no use in the law (12:00).

One of the major penalties under the law was forbidding a lobbyist who failed to comply from registering the following year. In a system where registration was already quite low and most interest advocacy still happened outside of the channels of registered lobbying activity, this was not a meaningful threat. Additionally, Dr. Zoltán Pogátsa noted in a report for Europeum that “a maximum penalty of ten million forints ($45,000 USD) for non-registered or inappropriate lobbying can hardly be a deterrence when a the potential profits at stake might be measured in billions, or even tens of billions of forints.”

Sandor Lederer, the CEO of K-Monitor, concluded that “the biggest issue was that there were no real sanctions and that’s why nobody was afraid of having any problems with doing illegal [lobbying activities] or not register[ing] for lobbying activities. Nobody talked about any other aspect of the law because it wasn’t obvious from the beginning that it won’t really work. It was more to show that we have such law, that it did something against corruption or we did something for the transparency of lobbying, but really it was not used by anybody” (10:00).

None of our interviewees were familiar with any cases where sanctions occurred under the lobbying law.

Mr. Pogátsa has highlighted a few additional ways in which the lobbying act – even as it is written – does not provide adequate sanctions to enforce compliance. In particular, there are no sanctions on public officials for failing to file quarterly reports about which lobbyists approached them, nor does it sanction officials for not reporting non-registered lobbyists who approach them. As a result, failure to register as a lobbyist is not a significant barrier to accessing to public officials.

A simple formal model of lobbying compliance

We propose the following simple formal model to help explain the failure of lobbyists to comply with the Hungarian lobbying law.

In this model E[P(Bnc)] is the expected direct benefit of non-compliance (Bnc). E[P(Cc)] is the expected value of the cost of compliance (Cc) — the avoidance of which we treat as an indirect benefit of non-compliance — and E[P(Cnc)] is the expected value of the cost of non-compliance (Cnc).

toy formal model of compliance

Essentially, this formalizes the hypothesis that when the net expected benefits of non-compliance (on the left-hand side) exceed the net expected costs of compliance (on the right-hand side), the default expectation is non-compliance. When this inequality is reversed, and the net expected benefits of non-compliance are less than the net expected costs of non-compliance, we expect actors to tend towards compliance.

Unpacking the components can clarify its applicability to the Hungarian lobbying case. The left-hand side (LHS) of the equation describes the net expected benefits of non-compliance. The first term on the LHS is the expected direct value of the benefit of not complying with the lobbying disclosure regulation. This expected value is quite high under current circumstances in Hungary, because interest group advocacy and influence primarily occurs through informal channels that do not comply with regulations. The second term on the LHS, which represents the expected costs of compliance, is also quite high in Hungary. This covers costs like hiring extra staff to meet reporting requirements and potential lost business because risk averse public officials are loath to meet with registered lobbyists. As our interviewees indicated, the cost of complying with reporting requirements is a significant concern for interest advocates, and registering may make lobbyists less effective.

The net expected benefit of non-compliance (the LHS) is the sum of these first two terms, the expected direct value and the indirect benefit of avoided costs.

The right-hand side of the equation (RHS) represents the expected value of the costs of non-compliance. We can understand this as the probability of getting caught in violation of the law multiplied by the severity of the penalty for violating the law. As our interviewees indicated, investigation was rare-to-non-existent, and the sanctions were quite low, relative to the benefits.

In short, this means that our best estimate is that both terms on the LHS of the inequality are rather large, while the term on the RHS is vanishingly small. This leads us to conclude that in the Hungarian context, non-compliance is the simple equilibrium position.

This highlights several potential levers for reform. Reform could focus on decreasing the value of the LHS (i.e. making compliance less costly) or increasing the value of the RHS (making non-compliance more costly) or both.

On the LHS, this could mean lowering the benefit to non-compliance, perhaps by making it harder for non-registered lobbyists to meet with or do business with politicians. This could also mean decreasing indirect costs by making compliance cheaper by streamlining the administrative burden and providing additional incentives and access to registered lobbyists. Increasing the value of the RHS could include both strengthening sanctions or vesting an independent agency with real investigative authority, which would increase the likelihood that violators are caught. Either of these would lead to an increase in the expected cost of non-compliance.

Conclusion

The lobbying law in Hungary was brought into force in a situation where there was no established culture of professionalized lobbying, and where public officials and lobbyists had strong incentives to keep influence peddling in the shadows. Absent strong intervention to change the cost/benefit payoff of these actors, it was unreasonable to expect change.

Petra Burai offered an important insight on establishing a more effective lobbying regulation regime in Hungary:

First the recommendations had to be advocated because everybody has to be convinced that the lobby is necessary thing and it’s not something unnatural or natural evil or something like that that’s going on. Lobbying is good. Lobbying is acceptable and it is necessary for policy process. If you are doing it in a way that is transparent and accountable enough, it’s not what people would trust. I guess that’s the most important thing what we had as an outcome. Of course, the practical side is that the old act was not really effective to solve or effective enough. That has to be addressed as well (38:00).

Only once an established tradition of professionalized lobbying is in place can it be effectively overseen. Otherwise the infrastructure and practice of off-the-books, non-registered lobbying is so common-place that registration and disclosure will ultimately lead – as it did in this case – to effectively empty registries. The Hungarian case reminds us that policy reform cannot overcome the constraints of political culture unless it is crated to effectively alter the incentives of the key actors of those to whom it will apply.

Supporting materials

Ádám Földes

Advocacy Advisor, Transparency International

Download interview transcript here.

Balázs Dénes

Director, European Civil Liberties Project at Open Society Foundations

Download interview transcript here.

Fanny Hidvégi

Head of Data Protection and Freedom of Information Program, Hungarian Civil Liberties Union

Download interview transcript here.

Petra Burai

Head of Legal Affairs & Head of Research, Transparency International Hungary

Download interview transcript here.

Sandor Lederer

Co-Founder and CEO, K-Monitor

Download interview transcript here.

[...]


Five charts on agribusiness influence

With the House set to battle First Lady Michelle Obama over school lunch nutrition regulations, as Peter Olsen-Phillips reports today, it’s a good time to put big ag influence in context.

The multi-billion dollar food industry is one of the most well connected in Washington. These interests spend tens of millions on campaign contributions every election cycle, concentrating dollars on the members that serve on the agriculture committees, who make the decisions on the nation’s food policy. They also employ some of the biggest name lobbyists and attorneys in town to influence not just legislation, but the regulatory process as well.

In recent years alone, the industry has worked with Congress to torpedo voluntary guidelines for marketing food to children. It has lobbied to slow down, weaken, and introduce exemptions into the newly approved food safety law meant to reduce food borne illnesses. Farm groups have pushed to keep recipients of crop subsidies secret. The potato lobby has been recruiting senators to keep white potatoes part of the federal WIC program that provides food for low income women and families, despite their lack of nutritional value.

See Sunlight’s reporting on:

  • How lobbyists are  working to weaken implementation of the a major new food safety law;
  • How special interests get their way in the farm bill;
  • How the food industry teamed up with the media industry to scuttle voluntary guidelines on marketing food to children.
  1.  Overall, the food industry has funded candidates and committees with nearly $849 million in campaign contributions since 1989. This total includes contributions to both state and federal recipients. The peak years were 2011-2012, the most recent presidential election cycle, with more than $167 million contributed. Not far behind was the previous election cycle, 2009-2010, with $145.2 million. That was when Congress was debating a major revamping of the food safety system, legislation that would become the Food Safety and Modernization Act, signed by President Barack Obama in January 2011.
  1.  The food industry favors Republicans over Democrats. Over the years, federal Republican candidates and committees have benefited from $184.8 million in contributions, while Democrats have gotten $108.6 million.

3. The food industry has reported spending a total of $1.5 billion since 1997 on federal lobbying. The peak cycle to date was 2009-2010, with $297 million, as Congress was debating food safety legislation.

  1.  Since 1997, 2,293 registered federal lobbyists have reported working on food industry issues. Again, the high point was in 2009-2010, corresponding with Congressional debate over the food safety law. Those two years, 1,021 lobbyists were on record lobbying on food industry issues.
  1.  These lobbyists are also the source of campaign dollars themselves. Some of these lobbyists work directly for the food industry. Others work for big-name lobbying firms, such as Patton Boggs and Williams & Jensen, which represent food industries as clients.  Overall, registered federal lobbyists are the source of $19.8 million in campaign contributions to state and federal candidates and committees. Reversing the trend by the food industry overall, most of these lobbyist contributions have benefited Democrats over Republicans: $11.4 million v. $8.3 million.

Note: All data come from Influence Explorer, powered by OpenSecrets.org and Followthemoney.org. “Food Industry,” in this analysis refers to industries coded by OpenSecrets.org as agribusiness, with the exception of tobacco and forestry, plus the restaurant and alcohol industries.

[...]


Improving Philadelphia’s lobbying data

magnifying glass over money

Philadelphia has a new lobbying website that helps make detailed information easier to search, download and reuse. It’s a step forward from how this information was previously shared, but there is still room for improvement.

The story of Philadelphia’s lobbying website highlights some of the problems local governments face with sharing this crucial dataset. Lobbying disclosures help reveal who is trying to influence government and how, but sharing the information with enough detail and in a format that’s easy to analyze and reuse is something that few local governments have been able to accomplish so far.

We noted several problems when we looked at Philadelphia’s lobbying website last spring as part of our exploration of municipal lobbying data transparency. That website was only meant to be temporary though, a placeholder after a failed contract for a more comprehensive site required by city law. The city knew what it needed to do to improve lobbying transparency: finding a way to implement those changes was the problem.

The placeholder website shared detailed information from lobbyist registration and expense reports, but the data was shared in PDFs, a format that makes it difficult to analyze and reuse information.

The new website shows the city is taking steps to implement the 2010 law that requires electronic filing of disclosures and sharing information in a searchable format. It’s clear that progress is still held back in some ways, however, by the limits of the old system.

Philadelphia’s lobbying information is housed in part of the website for the Board of Ethics, which oversees the collection of lobbying reports and is responsible for related enforcement. New features in the lobbying section of the Board of Ethics website allows users to search registration and expense information from principals, lobbying firms, and lobbyists, or browse a full directory of lobbyists that includes their photos. There’s also an option to download several different kinds of reports based on expense and registration data.

While all of these provide much more functionality than what was previously available, these new features are hard to find from the main Board of Ethics website. Accessing the detailed search requires clicking on the “File 2014 Lobbying Registrations and Expense Reports Online” link from the lobbying section of the Board of Ethics website. From the filing page, clicking on the “Philadelphia Lobbying Information System” link will take users to the search functions. It’s not very intuitive for the average user. Why would someone who isn’t a lobbyist click on a link to file lobbying reports? Improving the findability of the search features will be important for helping users easily access the lobbying information Philadelphia is providing online.

Once users reach the search system, there are several improvements from the old website. Now that electronic filing of registration and expense reports is required, PDFs are no longer the only format for accessing the most recent lobbying information. Data can be downloaded in bulk from the search page or for specific searches in CSV format, an important step in sharing information in an open format that makes information easy to access, analyze and reuse. Using the “public reports” tool allows for downloading information in several formats, too, including open formats like CSV and XML.

Anyone looking for older lobbying data will still run into challenges, unfortunately. Fourth-quarter expense reports from 2013 are still available in PDF, as they were on the old site. The problem of earlier expense reports being completely unavailable online remains: users are directed to contact the Board of Ethics for PDF copies of reports from 2013 and 2012. As more quarterly expense and registration reports are filed electronically, it will be easier to analyze historical data about lobbying in the city, but for now there is limited information available.

Once that data starts growing, an API would further improve access to the data. One is in the works, according to Nedda Massar, deputy executive director of the city’s Board of Ethics. An API can help search and retrieve data, especially for those who might want to create applications for displaying or contextualizing the data. We’ve already seen the kinds of tools access to lobbying data can empower, like Lobbying.ph. Imagine what could be done if it’s faster and easier to access the data or combine it with other information.

Philadelphia shows, with this new website, that it is taking steps forward in improving access to lobbying information, and we hope to see the city’s plan for transparency around this crucial dataset realized in full. There are still more improvements to be made, but we look forward to watching the site as it continues to evolve.

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