Reclaim the American Dream

Progress Report: Fighting Dark Money

Progress Report:
Disclose Campaign $$$

The Push to Get Dark Money Out in the Open

 

The Supreme Court, in its rulings, has openly invited Congress and the American people to declare war on secret money in political campaigns – to pass laws and write rules that force dark money out into the open and insure transparency in American election campaigns.

There are ample opportunities in the American political system for the public to demand full disclosure and put pressure on Congress and federal agencies to expose dark money.

The push is already under way in several arenas, blessed tacitly by decisions of the Supreme Court, from the 1976 Buckley v Valeo case to the 2010 decision in Citizens United, that it is constitutional for Congress and the states to require disclosure of campaign funding and spending.

With full disclosure, Justice Anthony Kennedy wrote in Citizens United, shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are in the pocket of so-called money interests.”

Drying Up Rivers of Money

Full disclosure is what most of the voting public wants, right, center and left. Opinion polls show that the public favors clear rules and a level playing field. In one poll, nearly two-thirds wanted disclosure on political funding and spending – 66% of Democrats, 62% of independents, and 61% of Republicans.

The critical question is whether average Americans feel strongly enough about the dangers of dark money to organize and mobilize at the grass roots to force change at the state level and in Congress and at federal regulatory agencies.

If the public acts, campaign experts predict that genuine, sweeping disclosure laws would have significant impact, drying up major rivers of MegaMoney flowing into elections because many big donors, whether corporations or individuals, seek anonymity. Openly backing controversial candidates can be bad for business. It risks offending customers and shareholders. If forced out of the shadows, many such funders, experts say, would stop funding or cut back.

In Congress, the D-I-S-C-L-O-S-E Act

The first to pick up on Justice Kennedy’s challenge to create a system of “effective disclosure ” were Democrats in Congress pushing for a new disclosure law before the 2010 mid-term elections. Rep Chris Van Hollen of Maryland and Senator Chuck Schumer of New York introduced what they called the D-I-S-C-L-O-S-E Act (Democracy Is Strengthened by Casting Light on Elections).

Delaware Republican Rep. Mike Castle joined Van Hollen in a bipartisan op-ed in The Washington Post, headlined “The Disclose Act Is a Matter of Campaign Honesty.” This bill, they said, “prevents special interests from hiding behind third-party groups, sham organizations and dummy corporations by requiring the heads of organizations to ’stand by their ad’ the same way political candidates must take personal responsibility for their ads.”

That bill specifically required 501C nonprofits and all other outside groups spending $10,000 or more on election-related activities to disclose within 24 hours any donor who has given more than $10,000 to the organization. The law also required disclosure of transfers between organizations, if related to campaign spending.

The high water mark came on June 24, 2010, when reform advocates overcame the opposition of then-House Minority Leader John Boehner and won a majority vote of 216-209 in favor of transparency in the funding of American elections.

Disclosure Misses by One Vote

In the Senate, the DISCLOSE Act ran into down-the-line Republican opposition spearheaded by Minority Leader Mitch McConnell of Kentucky, a long-time foe of campaign reforms. McConnell accused Democrats of drafting the bill behind closed doors and mobilized a Republican filibuster to block the Disclose Act from being put on the Senate calendar.

On the crucial procedural vote deciding whether the bill should go to the floor for debate and a vote, all 59 Democrats voted to end the procedural filibuster and 39 Republicans lined up solidly in opposition, leaving the bill one vote short of being sent to the floor, where its backers had a solid majority.

In 2012, the Disclose Act came up for two more Senate procedural votes, but Republican filibusters and solid opposition blocked the bill.

 Pressing the FEC, SEC and IRS to Take Action

With Congress deadlocked, campaign reform advocates have pressed for action by regulatory agencies such as the Federal Election Commission, the Securities Exchange Commission and the Internal Revenue Service. Even without new laws, each agency has the power to require significant new campaign funding disclosures. Some groups have called on President Obama to issue an executive order requiring  companies with government contracts to reveal their campaign donations.

RavelQuoteMore than a million people have signed petitions demanding that the SEC issue new rules mandating that corporations disclose their political spending to their shareholders. Some shareholder groups have  shown up at corporate annual meetings demanding – and in some cases winning – shareholder votes calling for disclosure of political spending by their companies.

Despite heavy fire from Congressional Republicans, the Internal Revenue Service proposed in November 2013 to tighten rules on “social welfare” groups, suggesting that their continued tax-exempt status depends on greater openness about their heretofore covert forays into political campaigns. But corporate interests and wealthy donors pushed Congress to block action by regulatory agencies and the new regulations were put on hold.

The Federal Election Commission is under steady pressure from election watchdog groups to tighten its standards and to enforce laws already on the books. But for a decade or more, partisan deadlocked between the three Republican and three Democratic Commissioners has paralyzed the FEC. with the GOP side repeatedly blocking enforcement.  As the new rotating FEC chair in 2015, Ann Ravel, who had scored significant gains on funding disclosure in California as head of that state’s election watchdog agency, pushed for action. But after several months, she vented her frustration. “People think the FEC is dysfunctional, it’s worse than dysfunctional,” she fumed, saying that some commissioners were not even on speaking terms.

Will the FEC Crack Down on LLCs Channeling Masked Money?

But the 2016 campaign wrinkle that may spark an unusual bipartisan agreement for FEC action is the rising use of Limited Liability Corporations (LLCs) popping into existence for apparently no other reason than to mask the donors of $500,000 and $1 million donations to SuperPACs backing Republican contenders Ted Cruz, Marco Rubio, John Kasich and Jeb Bush, and Democrat Hillary Clinton, and many other political candidates.

In one case, an LLC named DC First Holdings donated $1 million to Jersey City’s Democratic Mayor Steven Fulop on its second day in business. “That, to me, is a red flag,” said Paul Ryan of the nonpartisan Campaign Legal Center, “because it is unlikely that this business entity could have generated $1 million of its own revenue in a day.” In another case, Brooklyn investor Andrew Duncan funneled $500,000 to a pro-Rubio PAC through IGX LLC and admitted to the Associated Press that he had used the ghost corporation to avoid possible reprisals. These and dozens of other cases were cited in complaints to the FEC by watchdog groups like the Campaign Legal Center, Democracy 21, the Sunlight Foundation and the Center for Public Integrity.

Suddenly, after long resisting a crackdown on LLCs, the three Republican FEC commissioners came out strongly against the masking of the true campaign donors through shell companies, joining the three Democrats.  “Six  commissioners have now taken the position that closely held LLCs can violate the law under certain circumstances when they make contributions to super PACS,” said Republican Lee Goodman. “Now everyone should be on notice. If you funnel money through an LLC entity for the purpose of making a political contribution and avoiding disclosure of yourself, that is an abuse of the LLC vehicle.”

Crossfire at the SEC 

The first shot in this battle was fired in  August 2011, when ten legal experts on corporate governance at major universities filed a collective petition calling on the Securities and Exchange Commission to require corporations to disclose their political spending to shareholders.  Citing earlier SEC rulings as precedents, they pointed to rising demands from the investing public for political transparency and asserted that disclosure was “necessary for corporate accountability.”

In 2011 alone, they noted, 25 of 100 major U. S. companies faced shareholder demands for proxy votes on campaign funding disclosure. “The level of shareholder interest in this area has been quite high, not just during the most recent proxy season, but throughout the past five years,” their petition asserted.

After the SEC put the issue on its agenda for 2013, Congressional Republicans set out to block SEC action. At a hearing in May 2013, House Republicans repeatedly warned SEC Chairwoman Mary Jo White against adopting any rule on corporate disclosure. New Jersey Republican Scott Garrett hounded White “to make a clear and emphatic statement” that the SEC would not force corporations to disclose their campaign spending. A few months later, White and the SEC dropped the disclosure rule from the SEC’s agenda.

Pressures on Corporate America

But such groups as the nonprofit Center for Political Accountability kept up the drumbeat for reform. Public pressures for SEC action  continued to mount. “The case for transparency in this area is clear and compelling to a broad spectrum of people,” observed Harvard law professor Lucien Bebchuk.

The U.S. Chamber of Commerce, one of the largest dark money spenders in recent campaigns, strenuously objected. The disclosure proposals, thundered Chamber President Tom Donahue, were an attempt to silence Corporate America and stop business from promoting its interests through politics. In fact, however, petitions to the SEC did not seek to stop corporate political spending – only require such spending to be publicly disclosed.

At corporate shareholder meetings, the pressure for openness on campaign donations persists. In 2014, a majority of shareholders at Fannie Mae, Lorillard, Valery Energy, Dean Foods and Smith & Wesson voted for transparency on corporate political spending on campaigns and political lobbying. Already, 60 companies have agreed voluntarily to make some disclosures, evidence that corporate disclosure can work.

DonohueMcConnell

US Chamber of Commerce President Tom Donahue (left) and Sen. Majority Leader Mitch McConnell (right). Images (CC),The Aspen Institute, and Gage Skidmore

Corporate America Strikes Back

But in December 2015, the U.S. Chamber of Commerce and its political allies on Capitol Hill such as Senate Majority Leader Mitch Mcconnel, a staunch foe of campaign reform, struck back hard to block any governmental action to expose dark money.

Hidden deep in the $1.1 trillion omnibus spending bill passed on Dec. 18, they inserted a terse but blunt ban against any SEC action to force corporate dark money campaign contributions into the open.  Section 707 declared that no funds “shall be used by the Securities and Exchange Commission to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.”

And in a counterattack against public calls for the Obama Administration to issue orders requiring disclosure of political spending by government contractors, the Republican-controlled Congress fashioned Section 735, a provision that bars any government agency funded by the spending bill from requiring disclosure of campaign spending by government contractors. A third provision, Section 127, blocks the Internal Revenue Service from using appropriated funds to issue rules that would clarify and define what constitutes “political activities” by so-called non-profit “social welfare” organizations.

Reformers Ask the IRS to Close Loopholes

Since 2010, the IRS has been a flash point in the battle over dark money – accused by Congressional Republicans of biased and dictatorial tactics toward conservative groups. But it has also castigated by reform-mined Senators like Rhode Island Democrat Sheldon Whitehouse as “toothless” – too vague in its rules and too lax in enforcement. Reformers want the I.R.S. to close legal loopholes that protect dark money.

Toothless“The IRS must enforce the tax laws to prevent groups from improperly claiming tax-exempt status as section 501 (c ) 4 ‘social welfare’ organizations,” Fred Werthemier, head of the pro-reform group Democracy 21, wrote. “These groups have misused the tax code to deny citizens basic information … about the donors financing campaign expenditures to influence their votes.”

The I.R.S. is not tasked with enforcing campaign spending laws, but it sets rules for the tax-exempt status of non-profit groups. That includes determining whether such groups qualify for federal tax exemptions because they are working for the common good and “social welfare,” or whether their funding of political campaigns and political attack ads disqualifies them for tax-exempt status.

The Howl from Special Interest Groups

When Congress granted tax exemptions to charitable social organizations in 1913, it specified that they had to be “operated exclusively for the promotion of the social welfare.” In short, no politics. In recent years, the I.R.S. has reinterpreted that law more leniently, allowing 501 (c ) 4’s to do some political spending, but not as a majority of their activities. That has led to sharp disputes.

Confronted by a mounting hemorrhage of dark money and a chorus of public criticism, the I.R.S announced in November 2013 that it planned to spell out clearer rules on just how much political activity can legally be undertaken by 501 (c ) 4’s if they want to remain tax-exempt. It cited campaign laws and Federal Election Commission rules to define what it would consider “candidate-related political activities that do not promote social welfare.”

Its proposed list of political activities included advocating for or against candidates; contributing money and volunteers’ time to candidate campaigns; funding TV ads or any other form of candidate messaging including mass mailings, websites and phone banks; “electioneering communications” close to election day; as well as voter registration and get-out-the-vote drives.

The I.R.S. was inundated with more than 150,000 public comments. Special interest groups from left to right, from Planned Parenthood and the American Civil Liberties Union to Tea Party affiliates, squawked that their civic engagement activities would be curtailed. In fact, new I.R.S. rules would not curtail such activities, just set conditions for tax-exempt status.

The prospect of new rules set off another Congressional firestorm and Republican efforts to block I.R.S. action, but bills passed by the House died in the Senate. In late May, 2014, the I.R.S. trimmed its sails a bit. After reviewing the mass of public comments, it said it might modify its proposed rules but was still “committed to providing updated standards for tax-exemption that are fair, clear, and easier to administer.” Then in December 2015, the Republican-controlled Congress seemed to slam shut any possible IRS action by barring the IRS from using appropriated funds to issue new rules designed to rein in political spending by non-profit groups.

Washington’s Stuck –
States Take Action

When Washington gets paralyzed, state and local governments often move into the vaccuum,  and that has happened on campaign transparency. In the past few years, several states have adopted new laws or regulations to shed sunlight on campaign dark money and force secret donors out into the open.

As a tool for reform, the nonpartisan Campaign Legal Center in Washington has drafted the American Anti-Corruption Act, which bans campaign donations by lobbyists and by businesses dealing with elected officials as well as promoting disclosure of campaign contributors. Represent.US, another nonpartisan reform group, has developed a Do-It-Yourself version of the American Anti-Corruption Act for grass roots organizations to use for achieving sunlight reforms at the state and city level.

Check this list to see which states and regions are taking the lead for greater transparency:


Arizona:

Arkansas:

California:

  • May 2014 – California’s legislature breaks new ground by enacting a law that requires any organization that spends $50,000 in a California election to rapidly report all funding and spending. This is the first disclosure law in the nation that covers nonprofit social welfare groups as well as political committees. Until this law was passed, “social welfare” groups avoided disclosure by contending that their primary mission is not politics and so laws requiring disclosure by “political committees” do not apply to them. The California law erases the legal distinction between political committees and 501C’s. It treats them all as “multi-purpose” organizations and requires them all to report political expenditures and all donors.
  • Sept. 2015 – A group led by Silicon Valley entrepreneur Jim Heerwagen announces a drive to pass a referendum, dubbed the Voter’s Right to Know Act, that would amend the state constitution with a provision that would require that the top “true donors” be listed on every political ad. It would also require modernizing California’s campaign finance disclosure database to make it easier to track special interests. If this act passes, California would become the first state to put the voter’s right to know about campaign funding on a legal par with fundamental guarantees for basic rights such as free speech and privacy. On Feb 8, 2016, the group notified the California Secretary of State that it had collected 25% of the 585,407 signatures needed to get their proposal on the ballot.
  • Jan. 2016 – Wealthy Republican real estate attorney John Cox proposes taking transparency a giant step further – requiring California politicians to wear the corporate logos of their ten top campaign donors on their clothes, like race-car drivers. Cox, moving to put the issue before California voters in November 2016, pledged $1 million to help pay for gathering 376,880 signatures needed to qualify for the ballot.
  • Pologos

    A mockup of California politicians wearing corporate logos. Courtesy California is Not for Sale

    Jan. 27, 2016 – With a bipartisan super-majority vote of 60-15, the California State Assembly passes the California Disclose Act (AB 700. The act requires that all ads on radio, TV, and in print, mailings, robo-calls and online that either support or oppose candidates or ballot measures, prominently disclose the three “top contributors” –  individual donors contributing $50,000 or more to any group paying for the ads. Bill spells out rules to make disclosures easily readable – size, placement, minimum five seconds on 30-second TV ad, lettering in sharp contrast with background, all to insure easy reading. After first reading in California Senate, bill,  which has been heavily promoted by the  California Clean Money Campaign, is sent for action to Committee on Elections and Constitutional Amendments.

Delaware:

  • Aug. 15, 2012 – Gov. Jack Markell signs Delaware Elections Disclosure Act that tightens state laws to require independent expenditure groups that spend $500 or more on “electioneering communications” to disclose their funding sources within 24 hours. To stop groups and individuals from skirting previous disclosure requirements simply by not using trigger phrases like “Vote for Smith” or “Defeat Jones,” the new law requires funding disclosure (regardless of wording) for any ad that mentions a candidate’s name within 30 days of a primary or special election or within 60 days of a general election. In addition, the law requires identification of the “responsible party” of any organization that contributes more than $1,200 to a political party or a political action committee during a given election cycle.
  • Oct. 23, 2013  – The Center for Competitive Politics files suit on behalf of Delaware Strong Families, a 501(c)3 group that regularly distributes voter guides before elections, charging that the disclosure law violates the group’s First and Fourteenth Amendment rights. “The law requires groups to choose between publishing a voter guide or submitting to substantial regulatory burdens while violating the privacy of even their small-dollar supporters,” said Allen Dickerson, CCP’s Legal Director.
  • July 16, 2015 – U.S. Third Circuit Court of Appeals upholds constitutionality of Delaware Disclose Act, allowing state to enforce the law which had been temporarily enjoined by a lower court ruling. The appeals court rejects the argument that disclosure can apply only to “express advocacy” for a candidate, and asserts specifically that the law applies to the voter guide circulated by Delaware Strong Families. The court decision is hailed by Governor Markell as “an important victory for transparency in Delaware elections…in an era of increasing spending by outside interest groups who too often have been allowed to hide the sources of their revenues.”

Florida:

Idaho:

Maryland:

Massachusetts:

  • Aug. 4, 2014 – Gov. Deval Patrick signs SuperPAC disclosure law passed by wide majorities in both houses of the Massachusetts legislature, seeking to expose deluge of corporate and labor money flooding into 2014 campaigns for state offices. Tightening up previous disclosure laws passed  in 2009,  new law immediately requires all groups making independent expenditures, widely known as super PACs, to disclose their donors within seven days, or within 24 hours of running ads if the ads are booked or run within 10 days of an election. Previously, independent expenditure groups had to report their campaign spending on ads within seven days, but donors were only reported after the election. Also, under the new law, television, print and radio ads created by independent groups must list the names of the group’s top five donors in the ad, for any contributors who give $5,000 or more.
  • Fall 2015 – To further tighten Massachusetts campaign disclosure laws, Democratic representative Josh Cutler introduces a bill requiring disclosure of funders by any group spending $250 or more on an “electioneering communication” within 90 days of a Massachusetts election, including groups not registered as political committees. Earlier laws had specified that to require disclosure, funds had to be “solicited” for campaign ads, a loophole that allowed groups to refuse disclosure on grounds that their funds were solicited for general purposes such as public education or lobbying. To close that loophole, the new bill simply requires disclosure of funders for money spent on political communications, regardless of how funds were raised.  A second measure, sponsored by Rep. Garrett Bradley, the Democratic Majority Whip, requires listing of the top five  funders for direct mailings to voters and billboard ads as well as television, print, radio and internet advertisements.

Minnesota:

  • March 8, 2016 –Thirty-two of 61 Democratic members of Minnesota House introduce bill calling for popular referendum on a state constitutional amendment that would require disclosure of spending on political communications by any person or group, including political nonprofits, seeking to reach an audience beyond its own membership. A previous proposal in 2013 lacked leadership support and failed. This time the House Democratic minority leader Paul Thissen is among the co-sponsors and a similar bill is introduced in the Senate. Instead of codifying disclosure requirements, the proposal asks for a popular vote this November endorsing disclosure of all but “de minimus” spending on campaign communications that ”expressly advocate” for or against a candidate or “not susceptible to any other interpretation” if made “within reasonable proximity” to an election. To go on the November ballot, the measure requires a favorable vote from the legislature, where Republicans hold 73-61 majority in the House while Democrats hold a 39-28 majority in the Senate.
  • May 22, 2016 – Minnesota legislature ends its regular session without taking action on House and Senate bills for a constitutional amendment to require fuller disclosure of campaign funding and spending.

Missouri:

Montana:

  • Montana_DiscloseActSigning2015

    Montana Governor Steve Bull signs the Montana Disclose Act. He is joined by Sen. Duave Ankney (R-Colstrip) and Rep. Frank Garner (R-Kalispell). image: the Office of the Governor.

    Nov. 2015 – Montana legislature adopts broad campaign disclosure law requiring all groups, no matter their tax status, to disclose their sources of funds if they spend money on TV ads or other electioneering communications that mention a candidate or use a candidate’s image. Jonathan Motl, Commissioner of Political Practices, calls on voters to tip him off. “The people of Montana have to be vigilant,” Motl says. State starts implementing law on Jan 1, 2016. Critics fear that despite effort at total disclosure, Montana law leaves a loophole for 501(c)4 nonprofits because commissioner, in order to require funding disclosures, must determine that a group’s “primary purpose” is to support or oppose political candidates or ballot issues.

New York:

  • 2013 – New York Attorney General Eric Schneiderman issues regulation requiring nonprofits, including 501(c ) 4 organizations, “to report the percentage of their expenditures that go to federal, state and local electioneering.” Although this will increase the disclosures of political nonprofits, disclosure is required only once a year – after the election – and the rules lack specifics. Activist campaign reformers want Schneiderman’s rules clarified and put into law.

Rhode Island:

  • In June 2012, Gov. Lincoln Chafee signs a new campaign finance reform law requiring disclosure of principal funders to Super PACs and other independent groups, including tax exempt groups, that spend more than $1,000 on campaign ads or “electioneering communications” in state elections.The Transparency in Political Spending Act, jointly developed by the governor, the legislature Democratic leadership, public interest groups such as Common Cause, defines “electioneering communications” as print, broadcast, cable, satellite, or electronic media communications that unambiguously identify and either support or oppose a candidate, that run within 60 days of a general election or within 30 days of a primary election and that can reach an audience of 5,000 or more. Independent groups are required to identify all donors of more than $1,000 during a given year.

South Dakota:

Texas:

  • Oct. 29, 2014 –Eight-member Texas Ethics Commission adopts a rule requiring nonprofits to register as a Political Action Committee and disclose their donors if they spend 25% or more of their budget on political activity or if more than 25% of their contributions are political in nature. The rule, similar to legislation adopted in 2013 by the Texas legislature and vetoed by Gov. Rick Perry, is quickly challenged in court. The Ethics Commission has been working to clarify how that 25% should be calculated.
  • Oct. 5, 2015 – Texas Ethics Commission adopts another rule targeting clearly political activity by 501(c)4 organizations and sidestepping ineffective test of whether electioneering communications use such telltale words as “vote” “elect” or “against.” New Commission rule requires disclosure of funders for nonprofits running ads or distributing communications within 30 days of an election that are “susceptible to no other reasonable interpretation than to urge the passage or defeat” of a measure or a candidate.

Vermont:

Washington:

IntegrityWashingtonFigures

Integrity Washington leaders include, Ben Stuckart (D) President of Spokane City Council; Kathy Sakahara, League of Women Voters of Washington; Greg Moon, Co-Chair, Seattle Tea Party Patriots Integrity Washington.

Issue Brief  Success Story Additional Readings  Organizations

More Resources to Help You Disclose Campaign $$$ 

F
?