How British companies pour cash into the American elections

More than one in five of Britain's largest corporations are channelling political donations to favoured candidates ahead of next month's elections in the US – though these sums may be only the tip of a new campaign-financing iceberg, according to leading politicians, judges and pro-transparency watchdogs.

As election year reaches its climax, America is forecast to experience the most extensively corporate-influenced race for the White House, and for control of Capitol Hill, in living memory.

Among the industries already well versed in bankrolling US politics are finance, pharmaceuticals, energy and defence. British multinationals such as HSBC, Barclays, Experian, Prudential, GlaxoSmithKline, AstraZeneca, BP, Shell and BAE all have political action committees (PACs) that channel donations from employees to US politicians.

Some 14 of the top 50 most active foreign-controlled PACs have parent groups listed in London, according to Washington group the Centre for Responsive Politics. This makes the UK the biggest hub for non-US multinationals seeking to exert influence at the US ballot box on 6 November. Despite this, some FTSE 100 groups continue to tell shareholders in annual reports and elsewhere that they do not make political donations.

Companies are able to make such claims because PACs receive their funds from US employees – often led by the most senior American executives – and only dip into company coffers to cover administrative costs. Typically, the PACs are staffed by company lobbyists and distribute campaign contributions in line with the company's lobbying agenda.

Recent supreme court rulings have transformed the regulatory landscape for corporations seeking to bring their influence to bear. So concerned has President Obama become that he raised the issue in his state of the union address two years ago: "I believe [the rulings] will open the floodgates for special interests – including foreign corporations – to spend without limit in our elections."

While investor attitudes in Europe have been hardening against public companies helping to finance campaigns, the trend is markedly in the opposite direction in the US. Transparency campaigners fear many tens of millions of dollars in "dark money" – that is, expenditure that need not be disclosed because it is not directly funding individual candidates – is already seeping into the American electoral process, raising the spectre of compromised democracy, even corruption. "The door has been pushed wide open to the abuses we had during Watergate," says Bruce Freed, president of the Washington-based Centre for Political Accountability. "Company shakedowns, massive amounts of money being given privately and much more."

PAC activity has largely been overlooked by UK governance groups because sums involved have been small. There are tight caps both on money-flows into and out of PACs. For example, even the most active FTSE 100-linked PAC, sponsored by BAE, has only released $609,750 in the 2012 election race, of which 61% has gone to Republican candidates.

Moreover, the strict disclosure regime ensures it is possible to pore over Federal Election Commission (FEC) filings to see who gives to which PAC. Linda Hudson, BAE's top US executive, and her chief lobbyist, Erin Moseley, for example, are big donors to their company PAC.

Other high-profile donors include Experian chief executive Don Robert, who contributed to the credit check group's 78% Republican-leaning PAC; BP chief executive Bob Dudley, who gives to the oil major's 71% Republican-leaning PAC; and former AstraZeneca chief executive David Brennan, who, until he resigned in April, gave to the group's 54% Republican-leaning PAC.

Meanwhile, politicians who receive PAC cash are also there in FEC filings for all to see. Fourteen members of the 21-strong Congressional armed services subcommittee on readiness, for example, received money from BAE's PAC.

Few PACs linked to FTSE 100 firms have given directly to presidential candidates, but one exception is Citizens Financial, a committee backed by the US banking subsidiary of Royal Bank of Scotland. Despite RBS being 84% owned by the UK taxpayer, its PAC has channelled $2,500 to Mitt Romney. Asked if the bank thought this was appropriate, a spokesman said: "This is not company money. These are voluntary staff contributions and this is standard practice in the US."

George Dallas, the corporate governance director at UK asset manager F&C, also sits as chairman of the business ethics committee of the International Corporate Governance Network, an organisation whose 500-plus members have $18tn under management. "Our position is we basically discourage financial donations because once you start to bring money into the equation, the black and white can turn to grey," he explains.

"But if you are going to sponsor a PAC there should be disclosures about this. We are not sticking our heads in the sand; we know that companies in the US are going to make political expenditures because that is the way things work in the US. And while we might discourage it, we say: 'If you're going to do it, this full disclosure is the way forward'."

RBS's annual report tells investors: "The Group made no political donations, nor incurred any political expenditure in the UK or EU." Like many FTSE 100 firms, it does not refer to political engagement outside Europe.

Whatever the eccentricities of the PAC system, it has ensured that much corporate spending has remained transparent and comparatively small scale for many years. But the landscape changed radically two years ago, largely as a consequence of the controversial Supreme Court ruling in Citizens United v FEC. The ruling found that a corporation's first amendment right to freedom of speech trumped rules that sought to keep in check the influence of big business on American democracy.

Effectively, the decision – which split the court five-four – opened the door for companies or trade associations to spend more freely on publicity campaigns attacking, or supporting, policies associated with candidates. Though the law still prohibits businesses from giving directly from shareholder funds to a candidate's official war chest in federal elections, a way of working around that ban has effectively been established in law.

In his dissenting opinion, Justice John Paul Stevens said the decision "will undoubtedly cripple the ability of ordinary citizens, Congress, and the states to adopt even limited measures to protect against corporate domination of the electoral process."

Some transparency campaigners have suggested there is already plenty of evidence of such corporate domination right from the mid-term elections which took place only a few months after the 2010 Citizens United ruling.

One example cited is the financing that the American Petroleum Institute (API) reportedly provided for a pre-election TV advert by Americans for Tax Reform, in which viewers were told Pennsylvanian congressman Joe Sestak "voted for Pelosi's job-killing cap-and-trade plan". The ad said the initiative from Democrat minority house leader Nancy Pelosi constituted "a great big tax that would make utility bills skyrocket, gas prices soar". Sestak lost a bid for Senate and his congressional seat fell to a Republican.

More recently the API funded an advert targeting Missouri Democrat senator Claire McCaskill. It reportedly stated that her opposition to oil subsidies would raise petrol prices. The advert audience were told: "Senator McCaskill, higher taxes won't lower gas prices ... Tell her American's can't afford to pay more".

Members of the API include BP, and the oil group's top US executive, Lamar McKay, sits as a director of the trade body. A BP spokesman said US energy policy issues "impact on how we operate in the US and the jobs of our 23,000 US employees, so it is natural for many of BP's US citizens to choose to be politically active and for the company to support energy trade groups."

He added: "Our employees' voluntary participation in political action committees, our lobbying and trade association memberships are all publicly reported in accordance with US law." BP's ethical policy on business conduct reads: "BP will never make political contributions, whether in cash or kind, to any political party or to organisations or individuals whose activities are designed to promote the interests of political parties."

Next week's Diageo AGM presents investors with an opportunity to take a stand. As one of the few FTSE 100 companies both to sponsor a PAC and make direct donations in some US state elections, the company will ask shareholders at their annual meeting to support a routine resolution authorising political donations in the EU.

The Guinness brewer made US donations of £400,000 last year, which it says "were all made, consistent with applicable laws, to federal and state candidates and committees in North America, where it is common practice to make political contributions".

However, governance group Pirc is urging a "no" vote on the resolution, even though it only applies to the EU, noting: "Political donations are not considered to be an appropriate use of shareholders' funds."

So far, few UK institutional investors have shown much appetite for kicking back against this issue – but it may come back to haunt them.