AFL-CIO Files Suit to Block New Financial Reporting Rule

Theft within a labor organization, like theft within a corporation, can go undetected for years. Union officials have become increasingly sophisticated in how they conduct financial transactions. And like corporate theft, a good portion of union-related criminal activity could have been avoided if potential conflicts of interest were disclosed beforehand. That’s why the U.S. Department of Labor (DOL), led by Secretary Elaine Chao, during this decade has been trying to inject more detail into union annual financial reports. The added time and cost of compliance might seem an exercise in needless aggravation, but consider the alternative:  ever higher amounts of funds illegally diverted from union accounts into the pockets of their chieftains, families and associates. Labor officials – the honest ones included – understandably don’t like the new rules. Several years ago, the AFL-CIO, incensed over the department’s introduction of a longer Form LM-2 (the one required of larger unions), went to federal court to block its implementation. It lost on appeal in May 2005. But the Washington, D.C.-based federation hasn’t lost its taste for battle with the Labor Department. 


On January 14, the AFL-CIO asked the U.S. District Court for the District of Columbia to set aside a regulation issued by the DOL last July (AFL-CIO v. Chao, No. 08-00069). The focus is on Form LM-30, which requires unions and certain employees to indicate payments received from employers, vendors and financial institutions such as banks and credit unions. The purpose of the LM-30, which like the LM-2 is authorized by the Labor-Management Reporting and Disclosure Act of 1959 (also known as the Landrum-Griffin Act or LMRDA), is to reduce the incidence of conflicts of interest. But based on ample evidence, DOL officials came to believe that the existing form was insufficient to the task of stopping corruption. During 2005 the department initiated revisions of LM-30. Finalized after two years of analysis and comment, the new form would apply to union fiscal years beginning on or after August 16, 2007. The starting date for submissions would be November 16, 2008. “Our cooperative compliance program and the proposed changes to the Form LM-30 will enhance union financial integrity for the benefit of union members, and will clarify the form for officers and employees to help them comply with the law,” Victoria A. Lipnic, DOL’s assistant secretary for employment standards.


The unions aren’t taking such a benign view. Back in December, a month before filing suit, AFL-CIO President John Sweeney denounced the rule change as forcing more than 100,000 volunteers, such as shop stewards, to report “run of the mill consumer transactions” to the Labor Department. “President Bush and the Senate Republicans yet again invoked their increasingly no-holds-barred obstructionism and refused to back off, while the Democrats, to our great disappointment, did,” he stated. Sen. Hillary Clinton, D-N.Y., now locked in a presidential race with Sen. Barack Obama, D-Ill., also expressed some heated words: “The Bush administration’s goal is harassment, plain and simple,” she said. “We have a duty to hold President Bush accountable for the ideological abuse of power and to restore a Department of Labor that is actually pro-labor.” The AFL-CIO, which claims some 10 million members who belong to more than 50 unions, is alleging the new rule runs contrary to LMRDA requirements. Moreover, the federation argues, the DOL didn’t comply with the notice and comment requirements of the Administrative Procedures Act when it made the changes.           


AFL-CIO spokeswoman Lane Windham clarified her organization’s position, stating its main objections concern Secretary Chao’s authority to issue certain provisions. These include “treating stewards and grievance reps as labor union employees who are covered by the rule; requiring reporting of financial transactions from credit unions; and requiring reporting of financial transactions from financial institutions whose employees are represented by the filer’s union, or that do a substantial amount of business with employers whose employees are represented by the filer’s union.” That would seem to cover a lot of territory.


What is it about the revised LM-30 form that so exercises labor officials and their political allies? The changes do one of three things: 1) explain key terms in LMRDA, with examples of financial matters that must be reported; 2) eliminate certain LMRDA exemptions for unions; and 3) add an up-front summary table plus supporting schedules. All reporting forms would be available online, giving union members easy viewing access. “Protecting the rights of union members is an obligation the department takes seriously,” said DOL’s Lipnic. When the department unveiled the new rule last July, it cited a dozen or so examples of questionable financial arrangements that should have served as red flags. They included the case of a union president who owned a building where the union rented office space and that of a spouse of a union employee who owned an ad agency receiving $245,000 in business from the union. Such examples strongly suggest certain inadequacies of the existing LM-30 form, and on top of that, misplaced union hostility. 

The revised LM-30 is motivated by a desire to prevent rather than punish. Since 2001, probes initiated by the Department of Labor’s Office of Labor-Management Standards (OLMS) have produced roughly 800 convictions and more than $100 million in restitution orders. Much of this wrongdoing might well have been nipped in the bud had union officials been required to provide greater detail in reporting. These sums, of course, don’t include ongoing or past corruption not yet uncovered. The AFL-CIO’s fear that more than 100,000 persons would have to be enlisted to comply invites skepticism. Remember, the same AFL-CIO predicted a few years ago that compliance with the revised LM-2 form would add an extra $1 million to its own compliance costs and fully $1 billion to those of unions as a whole. The actual figure for the AFL-CIO, at least, turned out to be $54,150. More importantly, rank-and-file members have a right to know if their dues are supporting ethically-challenged deals. The new form, a product of substantial input from many sides, represents an overdue step. (U.S. Department of Labor, 8/25/05; AFL-CIO Weblog, 12/18/07; Washington Times, 2/6/08; Bureau of National Affairs, Labor Relations Week, 2/7/08).