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Bankers' Group Seeks End to Ban on Gifts to Local Candidates

Clarkson Fisher Federal District Courthouse, Trenton, New Jersey (Photo: Carmen Natale/ALM)

Clarkson Fisher Federal District Courthouse, Trenton, New Jersey (Photo: Carmen Natale/ALM)

A century-old law barring banks from making contributions to candidates in local and state elections is being challenged by the New Jersey Bankers Association.

The bankers filed suit Tuesday in the U.S. District Court for the District of New Jersey, seeking a declaration that the ban on campaign contributions by banks is unconstitutional, and asking for an order enjoining enforcement. The lawsuit claims banks' First Amendment rights are violated by the inability to make campaign contributions.

Banks are banned from making contributions of any kind or amount to, or in support of, political parties or candidates for any state or local office under the New Jersey statute, the lawsuit says. But nonbank corporations are not subject to any such prohibition, with a few exceptions, according to the plaintiff. The restraint on banks' political expression does not support any important state interest, and the U.S. Supreme Court has held in its 2010 decision, Citizens United v. FEC, that independent expenditures, regardless of source, do not corrupt or give rise to the appearance of corruption, according to the suit.

The New Jersey Bankers Association, which represents 88 banking institutions with headquarters or operations in the state, wants to contribute to political campaigns for state and local office and to political parties, according to the suit. The association also seeks to make independent expenditures in support of candidates for state and local offices, including advertising in media outlets and mailing political materials to voters.

New Jersey's ban on political contributions by banks was first enacted in 1911 as part of the Corrupt Practices Act, which was described in a press account from the New York Daily Tribune at the time as one of the most stringent laws in any state, the plaintiff claims.

The restrictions on contributions by banks, codified at N.J.S.A. 19:34-45, also prohibit contributions and expenditures by any insurance, railroad, street railway, telephone, telegraph, gas, electric light, heat or power, and canal or aqueduct company, as well as any company that has the right to condemn land.

"A ban on these industries' political speech targeted the biggest corporations at the time the statute was enacted in 1911, where wealth was most heavily aggregated," the suit said.

The New Jersey law appears to single out political activity by banks. The New Jersey Bankers Association said it knows of no other states that permit corporations to make campaign contributions as a general matter but completely restrict banks from doing so.

New Jersey's statute resembles a Montana law that the U.S. Supreme Court struck down in a  2012, American Tradition Partnership v. Bullock, according to the Bankers Association suit. In addition, the suit claims New Jersey law is unconstitutional because it does not further a sufficiently important state interest and because it is not closely drawn to avoid unnecessary infringement of associational freedom.

The history of the statute shows it was not enacted to combat "this for that" corruption but to limit the effects of large aggregations of wealth by corporations and to reduce the ability of targeted corporations to influence, gain access to or earn the gratitude of elected officials. However, the state's interest in limiting the effects of aggregations of wealth is no longer a legitimate interest, as the Supreme Court held in Citizens United, the Bankers Association said.

The statute was enacted during Woodrow Wilson's term as governor, which was marked by a major drive to reform corruption, said Micah Rasmussen, director of the Rebovich Institute for New Jersey Politics at Rider University in Lawrenceville.

The nation needs a better scheme for regulating campaign finance, said Rasmussen. But "there's no good way in our current system of campaign finance of keeping money out," he said. "Money always finds a way in. If you can't give directly, you give to a PAC that supports the candidate, you give to a county organization," said Rasmussen, who said it seemed "counterintuitive" for one industry to be singled out for special treatment.

Rasmussen said an argument can be made that the most the state can do with campaign contributions is ensure transparency by making details of contributions available to the public while permitting corporations to express their views with the use of contributions.

The Bankers Association is represented by Lawrence Lustberg and John Haggerty of Gibbons in Newark and David Blatt, Rachel Rodman and Benjamin Moskowitz of Williams & Connolly in Washington, D.C. Lustberg said he could not comment without checking if he was authorized to speak.

The attorney general's office did not immediately respond to a request for comment.