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 a general ledger account of commingled funds that does not have a designated purpose. In more sinister cases, a slush fund may be used as a "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, or to be deployed primarily for unethical or illicit purposes.

Key Takeaways

  • A slush fund is a sum of money that is set aside as a reserve and that is kept for no particular purpose.
  • A lack of stated purpose and opacity regarding where its funds come from has led slush funds to be viewed negatively as a platform to potentially finance illicit or unethical activities.
  • Slush funds have been exposed as being used to bribe or influence, to hide transactions, or to acquire non-public information or other services.

Understanding Slush Funds

A slush fund can be thought of as a money reserve that has not always been properly accounted for in terms of where the funds have come from or what they are used for. Assets in slush funds may be squirreled away, functioning as a sort of rainy-day fund, or used for something more nefarious.

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

Still, questions will understandably be asked when businesses and politicians funnel away capital without giving a clear reason what it will be used for and, in some cases, how it was even obtained. The negative history behind the term also doesn’t help.

Over the years, slush funds have been found to be used to bribe or influence people in return for preferential treatment, to buy material non-public information, or obtain other services. As a result, in politics and business contexts these have become synonymous with unethical, fraudulent, and illegal activities.

Variations on Slush Funds 

Politics

In politics, slush funds have been used to hide illegal campaign contributions or to fund high-flying lifestyles. They can also be deployed—quite legally, in fact—to fund 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.

Perhaps the most well-known case of a politician operating a slush fund was Richard Nixon. The former president’s personal lawyer controversially used campaign contributions to pay hush money to the Watergate burglars.

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 to bribe labor representatives, siphon money from pension funds, or hide profits—so they can be used to flatten returns later on. Unsurprisingly, such slush funds are not often properly accounted for or are kept off the official books entirely.

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

A Brief Origin of Slush Funds

The word slush first appeared in England in the mid-17th century to describe half-melted snow. Then, one hundred years or so later, it began to take on a completely different meaning.

Today’s definition of slush fund dates back to when a handful of enterprising cooks working on ships stranded for long periods at sea began hiding away the grease left over from the meat they served up at dinner time. The smelly fat they collected was given the nickname slush and sold on to candle makers and other merchants when the ship docked at port. Demand was high for the animal fat they’d been storing, enabling the cooks to rake in money to live more lavishly. Any proceeds from these transactions went on to become known as the slush fund.

The origins of a slush fund can be linked back to the 18th century when cooks sold grease they gathered from cooking meat to buy luxury items.