The Rise of Soft Money and Dark Money in US Politics

THE NEW SOFT MONEY
Citizens United, 527s, 501(c)s and the Rise of
Super PACs

PRIOR TO CITIZENS UNITED…
 Outside groups
certainly spent money
 Some had as much or
more impact than
Super PACs
 Swift Boat Vets
 Ashley’s Story
 Willie Horton
 First three done
through “527
committees”

WHAT IS A 527?
 This is Section 527 of
the Internal Revenue
Code.
 Defines tax treatment
of political org income
 not taxed:
contributions
 taxed: capital gains on
investments
 Hasvery little to do
with election law

HOW THE IRS DEFINES
“POLITICAL ORGANIZATION”

 “influencing or attempting to influence the selection,
nomination, election, or appointment of any individual
to any Federal, State, or local public office or office in a
political organization…”

 Federal, state and local
campaign and party
committees and PACs
are organized under
Section 527 of the
Internal Revenue Code
 Most are also regulated,
and must disclose
information, to their
relevant governing body
 FEC
 State election overseers

THE OLD 527S DIDN’T TRIGGER
REPORTING REQUIREMENTS
 They did not run express
advocacy ads
 No “Vote for Jones”
 No “Vote against Smith”
 Instead: Will Smith ever stop
beating his wife?
 They did not donate to federal
candidates
 They did not donate to political
parties or PACs
 Under federal rules, they were
not federal committees

WHICH IS NOT TO SAY THAT THIS
IS WHAT THEY REALLY WERE…
 FEC fines three 527s for
 Taking excessive
contributions
 Taking corporate
contributions
 Express advocacy
 This was 2006
 Sounds a lot like what
Super PACs do
 Post Citizens United,
these aren’t violations

ENTER CITIZENS UNITED
 501(c)4 organization (i.e.,
not a 527 political
organization)
 Doesn’t disclose donors

 Made a documentary
about Hillary Clinton
 Critics called it a hit piece
 Wanted to air 30 second
ads for it in Jan. 2008
 Asked FEC if this were
permissible

FEC SAID NO
 CU’s ads mentioned a
federal candidate
 Would run within 30
days of a primary
 In effect, both the ads
and documentary...
 Expressly advocated
defeat of Clinton
 Paid for straight from a
corporate treasury
 Donors not disclosed
 CU not a political
organization
 FEC applies law, says
no to CU

ENTER JAMES BOPP JR.
 Represents Citizens
United
 Two tack strategy
 Narrow: These
aren’t political ads
 Broad: FEC violated
First Amendment
 Is asking the FEC if
speech is
permissible prior
restraint?
 Loses in lower court

ON TO THE SUPREME COURT
 Ted Olson takes over
case for CU
 Supreme Court rules
in favor of CU
 Disclosure doesn’t
interfere with speech
 Independent ads don’t
corrupt

MEANWHILE, IN A LOWER COURT…

 527 that raised money only from individuals
 Wanted to exceed $5,000 limits

 Wanted to make “express advocacy” (vote for,
vote against) independent expenditures
 FEC said it couldn’t accept more than $5,000

 Sued

 After Citizens United, District Court ruled it
could exceed limits, had to register with FEC

THIS LEADS TO…
 Super PACs
 File letter with
FEC
 Take unlimited
money from…
 Individual
 Corporations,
including C4s
 Labor Unions

CAN ALSO COORDINATE
FUNDRAISING WITH CANDIDATES…
 Remember James
Bopp Jr.?
 He starts Republican
Super PAC
 Plans to coordinate
fundraising
 Won’t coordinate
spending
 Democratic groups
ask FEC if it’s ok
 FEC says yes

MEMBERS OF CONGRESS SOLICIT
FUNDS FOR THEM
 Can only solicit limited
donations from
individuals, PACs
 Majority PAC did this
ahead of the FEC ruling
 Romney has attended
super PAC fundraisers
 Top Gingrich donors give
to “his” super PAC
 Obama has one too—
Priorities USA Inc.

HOW TO RESEARCH SUPER PACS

 Most people are looking at the PACs themselves
 Who are their donors?

 Who do they support?

 Who works for them?

 Your interest is a little different…

SUNLIGHT MAINTAINS A LIST OF
ALL SUPER PAC FILERS
 Groups file letter with
FEC
 Say they won’t
contribute to or
coordinate with
candidates
 Can raise unlimited
funds from any source
 Useful resource for
figuring out who’s a
super PAC

THEY REPORT DONORS TO THE FEC
 So far, we’re seeing
individuals
 Note that employers
are listed
 Big contributions

HOW TO SEARCH ACROSS SUPER
PACS FOR DONORS
 Only place to do this now is
OpenSecrets.org
 Donor Lookup is clunky

 But they have data

 If you’re looking for
company donors, enter them
in the donor field
 Pain in the neck, but worth
the effort
 So far, we’re not seeing too
many donors spread across
multiple super PACs

NOT ALL CONTRIBUTIONS EASY TO
FOLLOW
 F8 LLC
 Gave $1 million to
Romney’s super PAC,
Restore Our Future
 Address is in Provo,
Utah
 That’s all the
information you get
 So who is F8 LLC?

SECRETARY OF STATE FILINGS CAN
HELP

KSTU-TV WENT TO THE ADDRESS
 Eli Publishing run
by Steven Lund
 Lund works for Nu
Skin
 F8 LLC’s agent is
Jeremy Blickenstaff
 Not clear that
Blickenstaff is
source of funds
 Blickenstaff used to
be at Nu Skin
 Lund’s son-in-law

AND WHAT IS NU SKIN?
 Top donor to Mitt
Romney’s
campaigns &
PACs
 Mail order
cosmetics firm
 Not clear what
their interest in
Romney is
 They haven’t
lobbied since 2002

BUSINESSES CAN ALSO DONATE TO
501(C)4 & (C)6 ORGANIZATIONS

THESE GROUPS DO NOT HAVE TO
DISCLOSE DONORS
 They can also
contribute to super
PACs
 Businesses look for
anonymity
 Work through largest
group possible
 Chamber of
Commerce, industry
associations
 Don’t want to
alienate customers

 Somewhat
surprisingly, IRS is
now the best source
for 527 data.
 Center for Public
Integrity had a better
database, but it’s
good only through
part of 2005
 OpenSecrets.org has
one as well, but not as
thorough as CPI
 Campaign Finance
Institute also has
some info, but not a
database…

 After clicking
on “Charities
&Non-Profits”
click “Political
Orgs”
 Lots more clicks
to come…

HERE WE ARE
 Busy, user-unfriendly
search page
 It defaults to searches
of form 8871, which
are the initial
registrations
 Sometimes (especially
when a 527 just
surfaces) that’s all you
have
 Let’s look though at
8872…

 Click on the
“Search 8872”
under the
advanced
search tab…
 From Nov
2000 to
present, you
can search for
all sorts fo
data…

NOTES ON USING 527 SEARCH
ON IRS
 Good news – you’ve got digital data that you can
search
 Bad news – it’s a stupid search engine. If you
type “Soros, George” you’ll get no results.
 There’s no name standardization, or even
spellchecking

 Because IRS
does not check
spelling, or
standardize
names, it’s
always a good
idea to look at
the forms of the
527s you’re
following

NOTE THAT 527S DONATE TO
LOCAL CANDIDATES…

WHEN 527S FIRST APPEAR,
YOU WON’T KNOW WHO’S
CONTRIBUTING TO THEM

WHEN TO LOOK FOR 527 FILINGS
 Under IRS regulations, 527s are required
to file their form 8871 (the initial filing
declaring tax exempt status) 30 days after
they’ve raised $25,000 for their exempt
activities
 The first form 8872 isn’t filed until an
organization has raised $50,000; it can be
filed quarterly (April 15, July 15, etc.) or
monthly in election years, and monthly or
semi-annually (twice a year) in non-
election years

RESOURCES FOR DIGGING INTO
THEM
 Guidestar.org and the
Foundation Center both
have 990s online
 IRS has 990s as well in the
same place they have 527
reports
 If you don’t know that an
organization has donated,
hard to to know which C4
to look at
 Does a business share
lobbyists with a C4?

THERE SHOULD BE A LITTLE
DISCLOSURE AROUND C6S
 In 2007, Congress
passed HLOGA
 Changed rules for
disclosure
 Groups list active
participants in lobbying
on their websites
 Links are buried in
lobbying forms and
hard to find
 Call C6s to find out if
they have a list

 Campaign Finance
Institute and Center for
Responsive Politics track
some 501(c)4 activities
 Worth noting that not
every active C4 group
triggers federal
disclosures
 Also, new C4s can be
particularly hard to trace
 State incorporation
records can help

WE KNOW THAT
CORPORATIONS DO DONATE
TO THEM…

BUT THERE’S NO REAL DISCLOSURE
 That doesn’t mean reporters can’t insist on it
 Ask the organization for a list of its donors

 Always point out, when covering them, that they
do not release the names of their donors (unless,
of course, they do so voluntarily)

The Rise of Soft Money and Dark Money in US Politics

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