Slush funds are axillary accounts and reserve funds used by companies and politicians. They are not designed to serve a specific purpose, which gives their users the flexibility to conduct a wide range of financial transactions. This also allows the people who use them to avoid oversight. While the slush funds can be used for products and services that are themselves perfectly legal, most funds are used for something unscrupulous and illegal. Either way, slush funds are illegal.
Slush Funds and Accountability
When a private individual sets aside some money for any reason, he or she generally does not have to account for it to anyone. However, with companies and politicians, the situation is more complicated. Since they derive their funds from money that was collected from a large number of private individuals, they are held accountable for the way that they use their funds. Corporate financial transactions show up in their balance sheets and financial documents. Politicians' expenses are listed in statements that are available to government regulators and the public. They have to justify their spending, and they have to show that their spending doesn't break any local, state or federal laws.
Slush funds are used to get around disclosing information about certain funds. Because the companies and politicians don't report how much is in slush funds and how they are used, they use the money any way they want.
What Slush Funds Are Used For
As mentioned above, the funds aren't necessarily used for illegal products or services. For example, companies may set aside a slush fund to cover emergency travel expenses. Government intelligence agencies often use slush funds to persuade people to give up information that's important to United States security.
However, in most cases, slush funds are used for illegal purposes. Companies use slush funds to manipulate financial reports, hiding profits to finance bonuses and other perks during the years when the profits are down. Banks create slush funds to lend money to organized crime organizations, terrorist organizations, foreign governments that are subject to international sanctions and other organizations and individuals that would not be able to use their services legally. Politicians use slush funds to reward donors and lobbyists, buy favors and fund luxuries they would not be able to afford on their salaries. And regardless of who created a slush fund, chances are pretty good that its funds will be used to pay bribes.
How Slush Funds Work
Most of the time, slush funds are simply accounts that are hidden from public oversight. This can take many forms. They are usually established under someone else's names and hidden in places where they wouldn't be easily found. Many slush funds are held in foreign banks, where they are protected by local confidentiality laws. In most cases, the money is deposited in slush funds in secret. In other cases, the money is deposited under a seemingly legal facade. For example, many politicians have deposited money by creating fake jobs. In this setup, real people are put on the payroll, and they seemingly get paid out of the campaign funds. In reality, the jobs don't exist, and the "salaries" are deposited into slush funds.
Tracking Down Slush Funds
First and foremost, it is important to remember that even if slush funds are not used for illegal purposes, the slush funds themselves are illegal. The problem is that the financial regulators that are supposed to keep track of slush funds don't have the money or the manpower to pursue every single lead. So, unless someone brings them evidence that suggests that slush funds exist, they won't pursue them. As a result, many slush funds aren't discovered for years or, in some of the more notorious cases, decades.