INTRODUCTION

The widespread exploitation of loopholes in the campaign finance system undermines laws intended to prevent corruption or even the appearance of corruption. In the 20 years since Watergate, special interests have devised ingenious ways to take advantage of cracks in the federal laws and regulations. The problem is not that the activities are illegal; indeed, most are carefully crafted to fall within the letter, if not the spirit, of the law. The problem is much more pernicious: Money that could not legally be given directly to candidates works its way into the political system.

Almost everyone with an interest on Capitol Hill - corporations and labor unions, political parties and interest groups, lawyers and lobbyists, presidential candidates and members of Congress - exploits the law to unfathomable extremes. They do so by taking advantage of loopholes created by Congress, the Federal Election Commission (FEC), and the federal courts. The justifications offered to defend the widespread use of these loopholes cannot mask the damage they do to the campaign finance system.

The loopholes - many legally sanctioned, others not - are varied. Some, such as "soft-money," "issue advocacy," "independent expenditures," and "bundling" are common in the world of campaign finance. Others are less well known or are exploited on a smaller scale. In some cases, it is difficult to distinguish one loophole from another, because their use is overlapping. What all the loopholes have in common is that they render the law's limitations on contributions and its provisions for public disclosure virtually meaningless.

Political players reach into a large bag of tricks to find ways to skirt the law's restrictions. This report examines the way that big money seeps through the cracks in the campaign finance system.