Daniel Carpenter

Daniel Carpenter.

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Nation & World

Lawyers reap big profits lobbying government regulators under the radar

Study exposes how banks sway policy from shadows, by targeting bureaucrats instead of politicians

5 min read

A new study reveals the secret world of lawyers who earn top dollar lobbying government regulators.

“Most people think of lobbying as something that happens in Congress,” said political scientist Daniel Carpenter, the Allie S. Freed Professor of Government and chair of the Department of Government. “We’re pointing to lobbying that happens in administrative agencies.”

The research, published recently in the journal Perspectives on Politics, specifically pulls back the curtain on regulatory advocates — almost always attorneys — with clients in the U.S. finance sector. Carpenter and his co-author drew from a variety of empirical sources, including years of meeting logs kept by government administrators following passage of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. They found a regulatory advocacy market so large, and so lucrative, it eclipses the formal lobbying sector.

“It’s tough to get a precise estimate on the amount of money that moves around when these meetings happen,” Carpenter said. “But even our most conservative estimates imply that it’s double or more of what’s spent in congressional lobbying.”

Carpenter, who studies bureaucratic politics and the administrative state, emphasized that most of the rules governing American life are not written by elected officials. They are drafted by employees of government institutions such as the Federal Reserve.

“And if you violate a rule that’s been finalized by a federal agency, it’s a civil or even criminal violation of the law — just like it was a statute passed by Congress or a state legislature,” he said.

Dodd-Frank contained more than 300 separate rulemaking mandates aimed at consumer protection and stabilizing the banking sector. More than a decade later, many of these provisions are still not implemented. According to the paper, this is due “in large part to the blistering lobbying campaigns waged against federal financial agencies charged with developing those statutory provisions into operative regulations.”

Legislative lobbyists, who press for client interests in Congress, must register with the government under the Lobbying Disclosure Act of 1995. But no such rule applies to those who advance client interests at regulatory agencies. That explains why regulatory advocates rarely appear in public lobbying records. However, they do turn up in government meeting logs.

Carpenter and his co-author, Northwestern University’s Brian Libgober, Ph.D. ’18, collected data on 905 meetings scheduled between 2010 and 2018 with members of the Federal Reserve Board. The researchers identified 6,155 individuals who specifically met with the board concerning Dodd-Frank, with just 953 registered as lobbyists. Compare that with the 4,516 officially registered lobbyists who reported activity on Dodd-Frank or a related predecessor bill.

Cross-referencing names with LinkedIn and personnel databases specific to lawyers allowed Carpenter and Libgober to learn more about these unregistered influence-seekers. One thing stood out about the organizations they worked for. Most of the firms regularly top American Lawyer magazine’s annual rankings by profit-per-partner.

“Law firms that are involved in regulatory lobbying are far more profitable than the law firms that are involved in legislative lobbying,” Carpenter said.

Also noteworthy was the disproportionate representation of senior, high-ranking attorneys. The researchers found 319 exact name matches in an online database called ALM Intelligence Legal Compass, with 235 being law firm partners and 15 in top leadership.

H. Rodgin Cohen, managing partner for more than a decade with the elite firm Sullivan & Cromwell, was the individual who appeared most frequently, with 21 documented meetings with Federal Reserve Board officials. Cohen was formally registered as a lobbyist at times between 1998 and 2004. But he wasn’t registered in the years following the Great Recession, when he is well-documented in news media and books as engaging in regulatory advocacy on behalf of clients including Bear Stearns, Goldman Sachs, and JP Morgan Chase.

Carpenter emphasized that Cohen appears to be in perfect compliance with the law. “The claim we’re making is that scholars should regard him as a lobbyist — and that Congress may want to think about writing a law that makes people like him register,” Carpenter said.

The researchers also sized up the total marketplace for regulatory advocacy. Making this endeavor possible was the fact that banks, which are heavily regulated by the U.S government, must submit detailed reports of legal expenditure and legal exposure alike. Carpenter and Libgober went line by line through disclosures from 798 bank holding companies, with special attention paid to legal spending that coincided with meetings with the Federal Reserve Board.

“What you see across time is that precisely when banks are setting up these meetings — the year before, the year of, and the year after — they’re just spending a lot more money on legal services,” Carpenter said.

The paper uses a range of methodologies to assess how much money might be spent when these meetings happen, producing estimates that range from $137.5 million to $1.17 billion on annual regulatory advocacy spending by U.S. bank holding companies. For comparison, the same sector reported a total of $54 million on lobbying in 2019.

“Do pharmaceutical companies meet with the FDA as they’re writing rules? Do energy companies meet with the EPA as they’re writing a rule? Do health companies meet with the Department of Health and Human Services when they’re ready to roll out new rules?” Carpenter wondered.

He hopes the new study inspires others to take up these questions. “It’s a vital research agenda, not only to scholars and students of politics, but also to all of us as citizens.”