The last time there was talk of regulating the political intelligence industry, most senators supported a proposal to have consultants disclose their identity and clients the same way lobbyists do under a law meant to improve transparency in lobbying.

But the provision that would have called for that level of transparency from political intelligence operatives — floated by Sen. Charles E. Grassley and passed by the Senate 60-39 in an early version of the 2012 Stop Trading on Congressional Knowledge Act (STOCK) Act — was dropped in the House after financial services firms lobbied against it.

The final version of the STOCK Act, which explicitly says insider trading laws apply to members of Congress and their staff, had no mention of the disclosure requirement, other than to say a government study would look at the benefits of imposing such rules.

Now, Grassley (R-Iowa) and Rep. Louise Slaughter (D-N.Y.) are renewing efforts to get disclosure rules back on the table. But financial services firms and industry groups that criticized Grassley’s previous proposal will likely rally against it again, say open-government advocates and lawyers who have represented financial services firms.

“Any legislation that requires political intelligence professionals to register and disclose their activities will be controversial, and likely an uphill battle, for the same reasons those requirements were stripped from the final version of the STOCK Act,” said Justin Shur, a lawyer at MoloLamken who has represented hedge funds in Congressional investigations of market ma­nipu­la­tion. “Congress would need to provide further clarity regarding the definition of ‘political intelligence’ and what triggers the need to register and disclose ... Even if those concerns are ultimately addressed, the financial services and investor community will likely push back.”

Shur, a former deputy chief of the Justice Department’s public integrity section, has investigated and prosecuted white collar crime. He wrote a guide in the industry publication Hedge Fund Law Report on how hedge funds can manage the risks of working with political intelligence consultants.

$400 million industry

The political intelligence industry is regarded as the network of lobbyists and consultants who gather insider knowledge about government actions for firms to use to make investment and other business decisions.

The political intelligence industry, which by some estimates is a $400 million dollar a year business, has come under heightened scrutiny recently after an analyst from stock brokerage firm Height Securities — allegedly acting off of a tip from a Greenberg Traurig lobbyist — alerted clients about an upcoming government action on Medicare rates that could benefit health insurers. The stock price of several health care firms quickly surged, prompting Grassley’s office and the SEC to investigate the relationship between the lobbyist and the brokerage firm.

Some industry groups that lobbied against the disclosure rule last time, including the Securities Industry and Financial Markets Association — which represents securities firms, banks and asset managers, said they would reserve comment until after the bill is introduced. But many remain opposed to what they called overly broad language in the first Grassley amendment that they say would have forced people who aren’t necessarily core political intelligence operatives to register.

Defining ‘political intelligence’

Grassley’s amendment proposed subjecting political intelligence consultants to the same disclosure rules as lobbyists, who under the Lobbying Disclosure Act must register if they come in contact with a government official and spent at least 20 percent of their time advocating on behalf of lobbying clients in a three-month period. The amendment defined “political intelligence activities” as any communication to or from a government official “for use in analyzing securities or commodities markets, or in informing investment decisions.”

This idea riled many in the financial services industry.

“The amendment had such a broad definition of ‘political intelligence contact’ that it potentially would have included research analysts for financial institutions who call staffers on Capitol Hill to find out relatively mundane information such as when agendas for meetings will be posted,” said Charles Borden, an attorney at Allen & Overy who at a prior firm represented financial institutions in political intelligence efforts around the Fairness in Asbestos Injury Resolution Act, a failed 2006 bill that would’ve created a $140 billion fund for victims of asbestos exposure who sued for compensation.

A spokesman for Slaughter said the upcoming bill is still being drafted, but the definition of political intelligence will be the same as that in the Grassley amendment, which was identical to what Slaughter proposed for inclusion in the original version of the STOCK Act. The new version, like LDA, will also include a media exemption and a revolving-door provision that restricts government officials who join private sector firms from some activities until a certain amount of time has passed.

Lisa Rosenberg, a lobbyist for Bernstein Strategy Group, pushed for the disclosure requirement on behalf of the government transparency group Sunlight Foundation. She said the group will lobby for it again once it is reintroduced, but expects major push-back from the financial services lobby.

“There’s no question hedge funds and financial firms and lobby shops are going to continue to fight these disclosure rules and will use their political pull to try to stop it,” said Rosenberg, who added that the outcry over political intelligence being too broadly defined was an excuse to oppose disclosure rules.

“I don’t think that was the real concern by hedge fund groups,” she said. “I think that’s an excuse they’re using, that it’s too broad. No language requiring them to disclose activity would satisfy them.”