Dark money

Not to be confused with Dark Money (book).
Anti-"dark money" advertisement in April 2015 in the Union Station stop of the D.C. Metro. The image was part of a comic book-themed campaign sponsored by three groups—AVAAZ, the Corporate Reform Coalition, and Public Citizen—aimed at pressuring Securities and Exchange Commission chairwoman Mary Jo White to rein in dark money.[1][2]

In the politics of the United States, dark money is a term that describes funds given to nonprofit organizations—primarily 501(c)(4) (social welfare) and 501(c)(6) (trade association) groups—that can receive unlimited donations from corporations, individuals, and unions, and spend funds to influence elections, but are not required to disclose their donors.[3][4]

According to the Center for Responsive Politics, "spending by organizations that do not disclose their donors has increased from less than $5.2 million in 2006 to well over $300 million in the 2012 presidential cycle and more than $174 million in the 2014 midterms."[3] The New York Times editorial board has opined that the 2014 midterm elections were influenced by "the greatest wave of secret, special-interest money ever raised in a congressional election."[5]

Etymology

The term was first used by the Sunlight Foundation to describe undisclosed funds that were used during the United States 2010 mid-term election.[6][7]

Activities and influence

In some elections, dark money groups have surpassed traditional political action committees (PAC) and "super PACs" (independent-expenditure-only committees) in the volume of spending.[4] In 2014, the group Freedom Partners was identified as the "poster child" for the rise of dark money.[4] In 2012, Freedom Partners had the ninth-highest revenues among all U.S. trade associations which filed tax returns that year, more than "established heavyweights" such as the American Petroleum Institute, PhRMA, and U.S. Chamber of Commerce.[4] Freedom Partners largely acted as a conduit for campaign spending; of the $238 million it spent in 2012, 99 percent went to other groups, and Freedom Partners itself did not have any employees.[4] This was a major distinction between other high-revenue trade associations, which typically have many employees and devote only about 6 percent of spending to grants to outside groups.[4]

The largest and most complex network of dark money groups are funded by conservative billionaire business magnates Charles and David Koch; the Koch brothers' network accounted for about a quarter of dark money spending in 2012.[4]

The rise of dark money groups was aided by the U.S. Supreme Court decisions in FEC v. Wisconsin Right to Life, Inc. (2008) and Citizens United v. FEC (2010).[4] In Citizens United, the Court ruled (by a 5-4 vote) that corporations and unions could spend unlimited amounts of money to advocate for or against political candidates.[8]

2010 election cycle

According to the Center for Responsive Politics, dark money (which it defined as funds from outside groups that did not publicly disclose donors, plus groups that received a substantial portion of their contributions from such nondisclosing groups) accounted for nearly 44% of outside spending in the 2010 election cycle.[9]

2012 election cycle

In the 2012 election cycle, more than $308 million in dark money was spent, according to the Center for Responsive Politics.[10] An estimated 86 percent was spent by conservative groups, 11 percent by liberal groups and 3 percent by other groups.[10]

The three dark money groups which spent the largest sums were Karl Rove's American Crossroads/Crossroads GPS ($71 million), the Koch brothers' Americans for Prosperity ($36 million) and the U.S. Chamber of Commerce ($35 million), all conservative groups.[10][11] The three liberal groups with the largest dark-money expenditures were the League of Conservation Voters ($11 million), Patriot Majority USA, a group focusing on public schools and infrastructure ($7 million), and Planned Parenthood (almost $7 million).[10]

2014 election cycle

The 2014 election cycle saw the largest amount of dark money ever spent in a congressional election; the New York Times editorial board described 2014 "the greatest wave of secret, special-interest money ever."[5] On the eve of the election, Republican-leaning dark money groups dominated, with $94.6 million in expenditures, exceeding dark money expenditures by Democratic-leaning dark money groups ($28.4 million), and by expenditures that could not be classified ($1.9 million).[12] Karl Rove's dark money group Crossroads GPS alone spent over $47 million in the 2014 election cycle.[13]

In the Senate elections, dark money spending was highly concentrated in a handful of targeted competitive states, and especially in Alaska, Arkansas, Colorado, Kentucky, and North Carolina.[14] In the eleven most competitive Senate races, $342 million was spent by non-party outside groups, significantly more than the $89 million spent by the political parties.

In the 2014 Kentucky election, a key player was the "Kentucky Opportunity Coalition," a group supporting Mitch McConnell, Republican of Kentucky,[15] whom the New York Times editorial board has described as "the most prominent advocate for unlimited secret campaign spending in Washington."[5] The Kentucky Opportunity Coalition, a 501(c)(4) "social welfare" group,[16] raised more than $21 million, while McConnell raised about $32 million and McConnell's opponent, Democratic candidate Alison Lundergan Grimes, raised about $19 million.[16] According to a Center for Public Integrity analysis of data provided by advertising tracking firm Kantar Media/CMAG, the group ran more than 12,400 television advertisements.[16] Every Kentucky Opportunity Coalition's television advertisements mentioned either McConnell or Grimes; overall, about 53 percent of the group's ads praised McConnell while the rest were attack ads against Grimes.[17] The Kentucky Opportunity Coalition relied heavily on political consultants in Washington, D.C. and Virginia linked to Karl Rove's Crossroads groups,[18] and received $390,000 in a grant from Crossroads GPS.[16] Described as "mysterious," the group was listed by a Post Office box,[16] and the only name formally associated with the group was political operative J. Scott Jennings, a deputy political director in the George W. Bush administration, a worker for McConnell's previous campaigns.[17] Melanie Sloan of the watchdog organization Citizens for Responsibility and Ethics in Washington said that the Kentucky Opportunity Coalition was "nothing more than a sham."[16]

Dark money also played a role in other competitive Senate seats in 2014. In ten competitive Senate seats, the winners had the following in dark-money support, according to an analysis by the Brennan Center for Justice at New York University School of Law:[19]

Winning Candidate Dark Money
in Support		 Dark Money as %
of Nonparty
Outside Spending
in Support
Thom Tillis (R-NC) $22,888,975 81%
Cory Gardner (R-CO) $22,529,291 89%
Joni Ernst (R-IA) $17,552,085 74%
Mitch McConnell (R-KY) $13,920,163 63%
Tom Cotton (R-AR) $12,502,284 65%
David Perdue (R-GA) $11,098,585 86%
Dan Sullivan (R-AK) $10,823,196 85%
Pat Roberts (R-KS) $8,454,938 78%
Gary Peters (D-MI) $4,226,674 28%
Jeanne Shaheen (D-NH) $3,478,039 35%
Total $127,475,231 71%

In North Carolina, the pro-Tillis group "Carolina Rising" received nearly all (98.7%) of its funds from Crossroads GPS; the Center for Responsive Politics highlighted this as an example of how Crossroads GPS, a 501(c)(4) group, "evades limits on political activity through grants" to other 501(c)(4) groups.[15][20] In the 2014 cycle, Crossroads GPS also gave $5.25 million to the U.S. Chamber of Commerce, $2 million to the American Future Fund, and $390,000 to the Kentucky Opportunity Coalition.[20] In total, Crossroads GPS spent more than $13.6 million on grants to other groups, which it described as being for the purposes of "social welfare."[20]

In 2014, the Democratic Party-aligned dark money group Patriot Majority USA, a 501(c)(4), spent almost $13.7 million on "direct and indirect political campaign activities," airing 15,000 television ads in targeted Senate races.[21] About half of the $30 raised by the group came from five anonymous donors.[21] The group was led by Craig Varoga, "a staunch ally" of Senate Minority Leader Harry Reid, Democrat of Nevada.[21]

In Alaska, Mark Begich was "one of the few Democratic candidates to come close to receiving as much support from dark money as his Republican opponent."[14] The pro-Begich Alaska Salmon PAC, funded entirely by the League of Conservation Voters and its Alaska affiliate, spent funds in support of Begich.[14]

2016 election cycle

According to the Center for Responsive Politics, by October 2015, $4.88 million in dark money had already been spent for the 2016 election cycle, "more than 10 times the $440,000 that was spent at this point during the 2012 cycle."[10] The money was spent by six groups - five conservative groups (including the U.S. Chamber of Commerce, which spent $3 million, and Americans for Prosperity, which spent $1.5 million) and one liberal group (Planned Parenthood, which spent just under $75,000).[10]

According to Richard Skinner of the Sunlight Foundation, "the focus of early dark money being spent in the 2016 cycle" is on competitive U.S. Senate elections and some U.S. House of Representatives races.[10] However, dark money also is playing a role in the 2016 Republican presidential primaries; by June 2015, at least four Republican presidential candidates were raising funds via 501(c)(4) organizations: Bobby Jindal's America Next, Rick Perry's Americans for Economic Freedom, John Kasich's Balanced Budget Forever, and Jeb Bush's Right to Rise.[22]

Comparison to (and relationship with) super PACs

Dark money (501(c)) groups and super PACs compared
(source: Sunlight Foundation[23])
Super PACs Dark-money groups
Type of entity Campaign committee
(regulated by FEC)		 Nonprofit
(regulated by IRS)
Disclosure of contributors required? Yes No
Disclosure of expenditures required? Yes Through tax filings (Form 990s)
(Typically delayed by year or more;
often submitted long after elections have ended)
Limits on dollar amount of contributions? None None
Can be wholly political? Yes No
(political activity cannot be
majority of expenditures)
Coordination with candidates? Impermissible Impermissible

501(c) "dark money" groups are distinct from super PACs.[24] While both types of entity can raise and spend unlimited sums of money, super PACs "must disclose their donors," while 501(c) groups "must not have politics as their primary purpose but don't have to disclose who gives them money."[24] However, a single individual or group can create both types of entity and combine their powers, making it difficult to trace the original source of funds.[24][25] ProPublica explains: "Say some like-minded people form both a Super-PAC and a nonprofit 501(c)(4). Corporations and individuals could then donate as much as they want to the nonprofit, which isn't required to publicly disclose funders. The nonprofit could then donate as much as it wanted to the Super-PAC, which lists the nonprofit's donation but not the original contributors."[24] In at least one high-profile case, a donor to a super PAC kept his name hidden by using an LLC formed for the purpose of hiding their personal name.[26] One super PAC, that originally listed a $250,000 donation from an LLC that no one could find, led to a subsequent filing where the previously "secret donors" were revealed.[27]

Bradley A. Smith, a former FEC chairman who is now with the Center for Competitive Politics, a group that opposes campaign-finance reform, argues that this practice is not problematic, writing that "it is possibly the making of a campaign contribution in the name of another," a violation of existing law.[28]

According to Kathy Kiely, managing editor of the Sunlight Foundation, "untraceable dark money is a preferred tactic of conservatives, while Democrats tend to use traceable super PACs."[29]

Disclosure in U.S. elections

The first federal law requiring disclosure of campaign contributions, the Federal Corrupt Practices Act, was passed in 1910. By the late 1970s, virtually all states and the federal government required public disclosure of campaign contributions and information on political donors. Most states and the federal government also required public disclosure of information about donors and amounts spent on independent expenditures, that is, expenditures made independently of a candidate's campaign.

In January 2010, at least 38 states and the federal government required disclosure for all or some independent expenditures or electioneering communications, for all sponsors.[30]

Yet despite disclosure rules, it is possible to spend money without voters knowing the identities of donors before the election.[31][32] In federal elections, for example, political action committees have the option to choose to file reports on a "monthly" or "quarterly" basis.[33][34][35] This allows funds raised by PACs in the final days of the election to be spent and votes cast before the report is due.

In addition to PACs, non-profit groups ranging from Planned Parenthood to Crossroads may make expenditures in connection with political races. Since these non-profits are not political committees, as defined in the Federal Election Campaign Act, they have few reporting requirements beyond the amounts of their expenditures. They are not required by law to publicly disclose information on their donors. As a result, voters do not know who gave money to these groups. Reports have disclosed instances where non-profits were managed by close associates, former staff, or a candidates family member, and this has led to concern that the candidates benefiting from their expenditures would be able to know who donated the funds to the non-profit group, but the public would not.[36] [37]

For example, in the 2012 election cycle, one organization, the National Organization for Marriage, or NOM, operated two non-profit arms that received millions in donations from just a few donors. It in turn funded several different PACs. While these PACs had to disclose that NOM contributed the funds, they were not required to disclose who gave money to NOM.[38]

On March 30, 2012 a U.S. District Court ruled that all groups that spend money on electioneering communications must report all donors that give more than $1,000.[39][40] However, this ruling was overturned on appeal.[41]

Legislative and regulatory proposals and debate over dark money

Democrats in the United States Congress have repeatedly introduced the DISCLOSE Act, proposed legislation to require disclosure of election spending by "corporations, labor unions, super-PACs, and, most importantly, politically active nonprofits."[42] The 2014 version of the DISCLOSE Act would require covered groups, including 501(c)(4), to reveal the source of election-spending donations of $10,000 or more.[42] The bill also targets the use of pass-through and shell corporations to evade disclosure by requiring that such groups disclose the origin of contributions.[42] Senate Republicans, led by their leader Mitch McConnell, "have blocked earlier iterations of the DISCLOSE Act since 2010."[42]

According to Columbia Law School's Richard Briffault, disclosure of campaign expenditures, contributions, and donors is intended to deter corruption.[43]

The Federal Elections Commission, which regulates federal elections, has been unable to control dark money. According to the Center for Public Integrity, FEC commissioners are voting on many fewer enforcement matters than in the past because of "an overtaxed staff and commissioner disagreement."[11] The IRS (rather than the FEC) is responsible for oversight of 501(c)(4) groups.[11] The IRS "found itself ill-prepared for the groundswell" of such groups taking and spending unlimited amounts of money for political purposes in the wake of the U.S. Supreme Court's decision in Citizens United v. Federal Election Commission in 2010.[11] The agency particularly "struggled to identify which organizations appeared to be spending more than the recommended 50 percent of their annual budgets on political activities—and even to define what 'political spending' was."[11] When the IRS began looking at nonprofit spending, it was accused of improper targeting in a 2013 controversy.[11]

"With the FEC and IRS duly sidelined" advocates for disclosure turned to the Securities and Exchange Commission (SEC); nine academics from universities across the U.S. filed petitioned the SEC in August 2011 for the agency to "develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities."[11] The petition received over a million comments in the following month, "a record amount for the SEC, with the overwhelming majority of voters asking for better disclosure."[11] According to Lucian Bebchuk, a Harvard professor of law, economics, and finance who helped draft the petition, the request had drawn the support of "nearly a dozen senators and more than 40 members of the House."[11] Under current SEC regulations, public corporations must file a Form 8-K report to publicly announce announce major events of interest to shareholders.[44] The Sunlight Foundation, a group which advocates for a comprehensive disclosure regime, has proposed that the 8-K rule should be updated to require that aggregate spending of $10,000 on political activities (such as monetary contributions, in-kind contributions, and membership dues or other payments to organizations that engage in political activities) should be disclosed and made publicly available via the 8-K system.[44]

In 2015, Republicans in Congress successfully pushed for a rider in a 2015 omnibus spending bill that bars the IRS from clarifying the social-welfare tax exemption to combat dark money "from advocacy groups that claim to be social welfare organizations rather than political committees."[45] Other provisions in the 2015 bill bar the SEC from requiring corporations to disclose campaign spending to shareholders, and a ban application of the gift tax to nonprofit donors. The Obama administration opposed these provisions, but President Obama eventually acceded to them in December 2015, with the White House declining to comment. The nonpartisan Campaign Legal Center said in a statement that the dark-money provision ensures "that the door to secret foreign dollars in U.S. elections remains wide open through secret contributions to these ostensibly 'nonpolitical' groups that run campaign ads without any disclosure of their donors."[45]

The Center for Competitive Politics (CCP), chaired by former FEC chairman Bradley A. Smith, opposes legislation to require the disclosure of dark-money groups, saying: "Our view is that many people will be driven out of politics if they are forced to disclose their names and their personal information. The purpose of disclosure is to help people monitor the government, not for the government to monitor the people."[11] The Center for Competitive Politics views "dark money" as a pejorative term, stating that the phrase "evokes an emotional, fearful reaction" and contending that "many of the statistics published on the topic aim to mislead rather than enlighten."[46] The CCP maintains that dark money "comprises a very small percentage of total campaign spending," calculating the percent of money spent in federal elections by organizations that did not provide itemized disclosure of their donors as 4.3% in 2012 and 3.7% in 2014.[46]

See also

References

  1. ↑ Joseph P. Williams, She's Got the Power: Will SEC Chief Order Clean(er) Elections?, U.S. News & World Report (April 14, 2015).
  2. ↑ Avaaz Uses Comics in a campaign targeting the Security and Exchange Commission, Graphic Policy (April 1, 2015).
  3. 1 2 "Political Nonprofits". opensecrets.org. Center for Responsive Politics. 2015. Retrieved March 10, 2015.
  4. 1 2 3 4 5 6 7 8 Robert Maguire, How 2014 Is Shaping Up to be the Darkest Money Election to Date, Center for Responsive Politics (April 30, 2014).
  5. 1 2 3 Editorial, Dark Money Helped Win the Senate, New York Times (November 8, 2014).
  6. ↑ Allison, Bill (October 18, 2010). "Daily Disclosures". Retrieved December 8, 2013.
  7. ↑ Sibley, Ryan (October 20, 2010). "Dark money: Super PACs fueled by $97.5 million that can't be traced to donors Sunlight Foundation Reporting Group".
  8. ↑ Michael Beckel & Jared Bennett, 12 ways 'Citizens United' has changed politics: Center for Public Integrity investigations illuminate political 'dark money' (January 21, 2015).
  9. ↑ Outside Spending by Disclosure, Excluding Party Committees, Center for Responsive Politics.
  10. 1 2 3 4 5 6 7 Tom Kertscher, Ten times more 'dark money' has been spent for 2016 elections, U.S. Sen. Tammy Baldwin says, PolitiFact (November 5, 2015).
  11. 1 2 3 4 5 6 7 8 9 10 Leah McGrath Goodman, As Dark Money Floods U.S. Elections, Regulators Turn a Blind Eye, Newsweek (September 30, 2014).
  12. ↑ Peter Olsen-Phillips, Dark money still a Republican game, Sunlight Foundation (October 28, 2014).
  13. ↑ Ciara Torres-Spelliscy, Courts Shine Light on Dark Money, Brennan Center for Justice at New York University School of Law (May 26, 2015).
  14. 1 2 3 Paul Blumenthal, Dark Money Concentrates In Small Number of Pivotal 2014 Races, Huffington Post (October 15, 2014).
  15. 1 2 Robert Maguire, Pro-Tillis dark money group funded entirely by Crossroads GPS, Center for Responsive Politics (November 17, 2015).
  16. 1 2 3 4 5 6 Michael Beckel, Mysterious pro-Mitch McConnell group bankrolled by megadonors: Kentucky Opportunity Coalition raised more than Kentucky Republican’s challenger, Center for Public Integrity (November 20, 2015).
  17. 1 2 Michael Beckel, Flush with mystery money, Kentucky nonprofit haunts Grimes’ Senate bid: Pro-McConnell group responsible for one of every seven ads in race, Center for Public Integrity (October 29, 2014, updated May 21, 2015).
  18. ↑ Paul Blumenthal, Karl Rove's Network Lurks Behind Local Kentucky Groups Backing Mitch McConnell, Huffington Post (March 1, 2014).
  19. ↑ Ian Vandewalker, Outside Spending and Dark Money in Toss-Up Senate Races: Post-Election Update, Brennan Center for Justice at New York University School of Law (November 10, 2014).
  20. 1 2 3 Carrie Levine, New tax documents show Crossroads GPS poured millions into 2014 Senate race: Group supplied nearly all funds to North Carolina 'dark money' group, Center for Responsive Politics (November 17, 2015).
  21. 1 2 3 Michael Beckel, Secret donors fuel pro-Democratic Party campaign powerhouse: Patriot Majority USA raised $30 million in 'dark money' last year, Al Jazeera (November 18, 2015).
  22. ↑ Karoli Kuns, The Dark Politics of Dark Money: A defanged IRS means never having to say you’re accountable, Washington Spectator (June 19, 2015).
  23. ↑ Melissa Yeager, The difference between super PACs and dark money groups, Sunlight Foundation (October 30, 2015).
  24. 1 2 3 4 Kim Barker & Marian Wang, Super-PACs and Dark Money: ProPublica’s Guide to the New World of Campaign Finance, ProPublica (July 11, 2011).
  25. ↑ Stephanie Strom, I.R.S. Moves to Tax Gifts to Groups Active in Politics, New York Times (May 12, 2011).
  26. ↑ Colbert I. King, In D.C., a mockery of campaign finance laws, Washington Post (January 14, 2012).
  27. ↑ Michael Luo, A secret donor revealed, New York Times (February 7, 2010).
  28. ↑ Bradley A. Smith, The Strange Case of W. Spann LLC, Center for Competitive Politics (August 5, 2011).
  29. ↑ Katie Sanders, Which side spent more on the 2014 midterms, Democrats or Republicans?, PolitiFact (November 6, 2014).
  30. ↑ Citizens Informed: Broader Disclosure and Disclaimer for Corporate Electoral Advocacy in the Wake of Citizens United, Yale Law School Legal Scholarship Repository, Page 625 footnote 13, by Daniel Winik Yale Law School, January 1, 2010
  31. ↑ Who funds Super PAC? FEC looks into powerful influence, By Gail Russell Chaddock, The Christian Science Monitor, Feb 02, 2012
  32. ↑ Levinthal, Dave; Vogel, Kenneth P. (December 30, 2011). "Super PACs go stealth through first contests". Politico.com. Retrieved January 12, 2012.
  33. ↑ “Super PACs” in Federal Elections: Overview and Issues for Congress, Congressional Research Service, by R. Sam Garrett, December 2, 2011
  34. ↑ Federal Election Commission web site, Sourced: February 5, 2012
  35. ↑ Forgetting a lesson from Watergate, CNN, By John Blake, February 4, 2012
  36. ↑ Indiana businesses giving big money to presidential super PACs, Indianapolis Star 2012-02-06
  37. ↑ Filing by Restore Our Future, Inc., January 2012
  38. ↑ National Organization for Marriage appeals ruling requiring release of donor list, The Associated Press, March 02, 2011
  39. ↑ Judge tosses rule shielding campaign donors, Associated Press, March 31, 2012
  40. ↑ Ruling Hollen v. FEC, US District Court for District of Columbia, March 30, 2012
  41. ↑ Van Hollen Decision Overturned, Russ Choma, Center for Responsive Politics, September 18, 2012
  42. 1 2 3 4 Andy Kroll, Senate Democrats Re-up Their Dark-Money Disclosure Bill—and Dare GOPers to Block It, Mother Jones (June 24, 2014).
  43. ↑ Campaign finance disclosure 2.0, Election Law Journal, by Richard Briffault, page 14 of 31, November 4, 2010
  44. 1 2 John Wonderlich, A Comprehensive Disclosure Regime in the Wake of the Supreme Court's Decision in Citizens United v. Federal Election Commission, Sunlight Foundation (accessed September 20, 2015).
  45. 1 2 Katy O'Donnell, White House surrenders on 'dark money' regulation, Politico (December 18, 2015).
  46. 1 2 Matt Nese, Five Misconceptions About "Dark Money", Center for Competitive Politics (2015).

Further reading

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