Drug (Money) Traffic

The pharmaceutical industry's main trade association quietly gave $41 million to "stealth PACs" in 2002 and failed to mention most of it to the IRS, according to a report issued by a watchdog group.

Public Citizen says four non-profit groups, so-called 501(c)(4)s for the IRS code under which they operate, were heavily financed by The Pharmaceutical Research and Manufacturers of America (PhRMA), a gargantuan trade association representing more than 40 of the world's most recognized drug companies. The groups, which pitch themselves as advocacy groups for senior citizens, but are not obligated to disclose funding sources, apparently used the millions of dollars to broadcast TV ads and send out direct mail brochures supporting political candidates friendly to drug industry interests.

That, in itself, is not illegal. But not reporting the financing or not disclosing political activity may be illegal.

Public Citizen, basing its allegations on federal disclosure forms and tax filings, asked the IRS last week to investigate PhRMA for not disclosing a combined $31 million it gave two of the groups, United Seniors Association and 60 Plus.

It also accused all four non-profits – the other two being Seniors Coalition and America 21 – of lying to the tax authorities about the extent of their political efforts.

But even if the IRS takes PhRMA to task, observers say it won't mean a hill of beans.

The association's wealth and political leverage are near impossible to overstate. The primary industry mouthpiece on Capital Hill, PhRMA counts among its members some of the world's biggest corporations, including Eli Lilly and Company, Bayer Corporation Pharmaceuticals Division and Merck & Co. From 1991 to 2002, members of PhRMA spent $558 million dollars on political contributions, lobbying and advertising, according to Common Cause, a citizen advocacy group which tracks money in politics. And last year alone, in order to shape the Medicare prescription drug bill, PhRMA spent more than $16 million on lobbyists, according to Public Citizen.

If found to be in violation of tax law, however, the groups which PhRMA funded could lose their cherised non-profit status.

Court Rosen, a PhRMA spokesperson, says the association doesn't discuss advocacy tactics or make its contributions public. "But any contributions we make are always within the letter and spirit of the law," he says.

And contributions it will make.

PhRMA will spend what it can to keep friends in Congress. That´s because its members so heavily depend on government favors. Patents, tax credits and deductions, taxpayer-funded scientific research – these are the life-affirming taxpayer gifts to industry. Also helpful are laws that shut out lower cost foreign imports of drugs, keep cheaper generic drugs off the market, and push government regulators out of drug price negotiations' laws that PhRMA-friendly lawmakers have handed up over the years.

Keeping warm ears in Congress means getting the right propaganda to voters, but in nuanced ways.

"Names like 60 Plus Association, Seniors Coalition and United Seniors Association have a far more pleasant connotation that the Pharmaceutical Research and Manufacturers of America," says Taylor Lincoln of Public Citizen. "The first list of names smacks of alliances of concerned citizens, presumably largely volunteers, while PhRMA sounds like what it is, a trade association for a for-profit industry."

And even though PhRMA and the non-profit groups did not disclose their financing, Public Citizen researchers, in making their case, connected what they say were obvious dots.

In 2002, for example, United Seniors got $20 million from a single undisclosed source, a sum constituting 79 percent of its total revenue that year. PhRMA acknowledged providing an "unrestricted educational grant" to United Seniors the same year. Similarly, about $11 million of the $12 million budget of 60 Plus flowed from one source in 2002. PhRMA said it also gave an "unrestricted educational grant" to 60 Plus that year.

United Seniors Association, which did not respond to an interview request by press time, is active in this year's election cycle. Public Citizen claims the group has sponsored TV ads in at least 17 House races, praising candidates who supported the PhRMA-backed Medicare drug law passed by Congress in 2003. That law is widely considered to be a gift horse for the pharmaceutical industry.

In a letter sent last week, Public Citizen asked IRS Commissioner Mark Everson to open a special investigation of PhRMA and the non-profit groups. The key allegation is that the groups undertook enough political activity to breach a prohibition against making political activity their primary purpose. The letter, signed by Public Citizen President Joan Claybook, also claimed PhRMA "failed to disclose its grants to USA and 60 Plus, perhaps as much as $20.1 million and $11 million, respectively, to whom it is known to have given money in 2002."

Another claim is that all the non-profit groups claimed zero political expenditures to the IRS, asserting instead that their 2002 communications were not intended to influence elections.

"These claims do not seem plausible given the content of the groups‚ television commercials and direct mailings, the timing of their messages, and the groups' decisions to direct the messages disproportionately to voters who lived in particularly competitive election districts," the letter stated.

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