Federal Court Upholds NJ Law To Limit the Influence of Big Money

A gavel on top of a pile of money.

On June 21, a federal district court upheld a New Jersey law that bans banks and certain other corporations, like public utilities and insurance companies, from making political contributions. This decision is a victory for the people of New Jersey—and all Americans—as it protects public faith in the integrity of our government.

By upholding New Jersey’s ban on direct political contributions by banks and other closely regulated industries, the decision helps guard against actual and apparent corruption, “where concerns for quid pro quo corruption or its appearance are most acute.”

Given the democratic principles at stake, CLC filed an amicus brief in this case on Dec. 1, 2020, supporting the state of New Jersey’s defense of its century-old law (enacted in 1911) prohibiting campaign contributions from banks and other corporations.

CLC’s brief surveyed analogous prohibitions against contributions by corporations and other highly regulated groups at the federal, state and local levels, and described the substantial body of case law upholding similar contribution restrictions.

CLC’s brief also pointed to numerous examples of pay-to-play scandals implicating the financial services and banking industries, to illustrate the anti-corruption interests served by New Jersey’s bank contribution ban.

Finally, CLC’s brief established that the state’s prohibition on bank contributions advances a core First Amendment principle—protecting New Jersey residents’ right to meaningful self-government in our democracy.

The court agreed with CLC’s arguments and reasoning, citing to them extensively in its decision affirming the constitutionality of New Jersey’s bank contribution ban.

(On a question of statutory interpretation, which CLC did not weigh in on, the court also concluded New Jersey’s law impermissibly limits banks’ First Amendment rights to make independent expenditures.

This conclusion highlights the crucial importance of transparency in the context of unlimited independent political spending by corporations and wealthy special interests, to protect the competing First Amendment rights of ordinary Americans to know who is spending big money to influence our elections.)

The decision cited CLC’s argument that, “the First Amendment protects a democratic system that depends on the great body of the people, not on an inconsiderable proportion or a favored class of it.”

New Jersey’s bank contribution ban, “helps counter the erosion of public faith in our democracy”—thereby advancing the First Amendment—“by closing the most direct channel for banks to control state elections and political institutions.”

In upholding New Jersey’s ban on political contributions from banks, the court cited numerous examples CLC and the state of New Jersey provided of recent, “pay-to-play scandals” involving the financial sector as evidence of the need for the state’s law.

At the same time, the court recognized that, “if there is no present epidemic in New Jersey of quid pro quo corruptions by banks, it only shows [the more than hundred-year-old law] is effective in preventing such corruptions.”

Indeed, “evidence of recent quid pro quo corruption is unlikely and unnecessary where . . . contribution restrictions have been in place for a long time.”

The court also extensively cited CLC’s legal analysis, including its explanation that a number of other cases have upheld targeted contribution restrictions on other highly regulated entities, such as contractors and lobbyists. Thus, New Jersey’s bank contribution ban, “is neither unique nor an outlier.”

In sum, the court held that New Jersey’s bank contribution ban is constitutional because it addresses New Jersey’s interest in preventing actual and apparent corruption in the banking industry.

This decision is a victory for New Jersey and for the American people, as it will help protect public confidence in democratic self-governance.

Alex is a CLC legal fellow
Corporate Contribution Bans at the State Level