Slush Fund: Meaning, Types, Legality, and History (2024)

What Is a Slush Fund?

A slush fund is a sum of money that is set aside as a reserve. In accounting, a slush fund is ageneral ledgeraccount of commingled funds that does not have a designated purpose. In more sinister cases, a slush fund may be used as a so-called "black fund," which is unaccounted for and kept off the books.

In politics and the corporate world, the term slush fund thus often carries a negative connotation, describing capital that has been raised secretly, perhaps from an illegitimate source, and is intended to be deployed primarily for illegal or unethical purposes.

Understanding Slush Funds

A slush fund can be thought of as a cash reserve that is not always clearly accounted for in terms of where the money originally came from or what it is intended to be used for. Assets in slush funds may simply be squirreled away for some unspecified future use, functioning as a sort of rainy-day fund, or employed for something more nefarious.

Sometimes, the reason for holding a slush fund is innocent and perfectly legal. Money put aside to deal with unexpected costs or contingencies does not violate any laws but technically qualifies as a slush fund.

Still, questions will understandably be asked when businesses and politicians funnel off capital without giving a clear reason for it. The long, negative history behind the term also doesn't help.

Over the years, slush funds have often been used to bribe or influence politicians and other influential persons in return for preferential treatment, to buy material nonpublic information, or obtain other services. As a result, in politics and business contexts these funds have become synonymous with unethical, fraudulent, and illegal activities.

Variations on Slush Funds

In Politics

In the political arena, slush funds have been used to hide illegal campaign contributions or to finance high-flying lifestyles, among other ends. They can also be deployed—quite legally, in fact—to make contributions and influence people indirectly by paying for travel and expensive fundraising activities like golf events. In the United States,political action committees (PACs)often entertain lavishly using such a fund.

The Dictionary of American English (volume IV, 1940) says that a slush fund was originally "a contingent fund appropriated annually by Congress to be administered at the discretion of the disbursing officer, usually the Secretary of the Treasury," but that the term came to mean "in later use, a fund for bribery, corruption, etc." It traced the term back to at least 1874 in the Congressional Record.

Perhaps the best-known case of a politician maintaining a slush fund was President Richard Nixon, whose operatives used the money to finance "dirty tricks" against the Democrats in the 1972 election and funneled campaign contributions from such a fund to pay hush money to the Watergate burglars.

More recently, in February 2024, former South Carolina governor and one-time presidential aspirant Nikki Haley accused former President Donald Trump of trying to turn the Republican National Committee into his "legal slush fund," using the money to cover the legal bills for his multiple trials.

In Business

In business circles, slush funds are common and used legitimately to pay for things like incidentals, client parties, and other forms of entertainment aimed at winning business. Alternatively, a slush fund might be deployed for corporate perks, such as executive cars or employee bonuses, gifts, outings, and staff lunches.

There is also a much seedier side to corporate slush funds. Businesses have been known to use slush funds tobribelabor representatives, siphon money from pension funds, or hide profits—so they can be used to fatten returns later on. Unsurprisingly, such slush funds are often not properly accounted for or are kept off the official books entirely.

In addition, there are countless examples of bogus charities that have been turned into personal slush funds, where charity dollars can be wasted on salaries, bonuses, and luxury vacations, if not on outright fraud.

How the Term Originated

The word slush first appeared in England in the mid-17th century to describe half-melted snow. While it is still used for that purpose, a hundred or so years later it also began to take on another, completely different meaning.

Today's definition of slush fund dates back to the days when enterprising cooks working on sailing ships began saving the grease left over from the meat they prepared for the sailors' meals. The smelly fat they collected in barrels was given the nickname slush and sold to candle makers and other merchants when the ship docked at port, either for the cook's personal benefit or to be shared with the crew. The money thus obtained came to be known as a slush fund.

The Bottom Line

Slush funds can have both legitimate and illegitimate purposes, although they are more often associated with the latter—especially in politics.