Politics and Money
Despite its Role in a Billion Dollar Corruption Scandal, “Dark Money” is Here to Stay
In writing the majority opinion in Citizens United, former Justice Anthony Kennedy promised Americans a remedy for the torrents of money that’d soon be washing over our elections.
“With the advent of the Internet,” Kennedy wrote, “prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. 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 moneyed interests.”
As will be unsurprising to anyone whose been even moderately sentient about politics over the last ten years, the conservative majority’s disclosure regime fell apart almost before the ink on the Citizens United decision could dry. Though borne of a 2007 Supreme Court decision in the case of Wisconsin Right to Life v. FEC, it was the 2010 Citizens United case that gave birth to a wave of anonymous political spending unseen in American politics for decades.
“Dark money,” or spending by groups seeking to influence an election who exploit legal loopholes to hide their donors, has become a permanent fixture of American elections at all levels of government. Over $1 billion of dark money was spent in federal elections in the three electoral cycles that followed Citizens United, according to the Center for Responsive Politics. Countless millions have been spent in the states — leading to several scandals and controversies over the past decade.
Just last week, yet another scandal erupted involving a dark money organization. This time, the Republican Speaker of the Ohio House of Representatives was indicted by the FBI for allegedly funneling $60 million in illicit payments through a dark money group in order to secure bailouts of several power plants on behalf of an Akron, Ohio based energy company. That energy company, FirstEnergy, received over $1 billion dollars from Ohio taxpayers as part of HB 6, which as UC Santa Barbara political science professor Leah Stokes explained, also gutted that state’s clean energy laws.
The corruption charges against Speaker Larry Householder aren’t even the first this year involving a state-level elected official and a dark money group. In March, a North Carolina billionaire was convicted of federal bribery charges after promising that state’s insurance commissioner millions towards his reelection campaign via a dark money group — promises that were caught on tape by an FBI hidden camera.
Dark money has become a ubiquitous feature of state politics. According to a 2017 report by the Center for Responsibility and Ethics in Washington, more than one in three governors holding office could be linked with a dark money group. Among Republican governors, that figure was one in two. Preliminary work I’ve done with a group of student researchers at Claremont McKenna and Pomona Colleges found that 11 of the 36 governors elected during the 2018 cycle had affiliations to a dark money group, though in that cycle elected Democrats with dark money ties outnumbered Republicans.
Perhaps the most problematic aspect of dark money groups is that the anonymity they afford donors also makes policing quid-pro-quo corruption impossible. Previously, these organizations — who most typically incorporate as 501(c)(4) nonprofits — had to provide the IRS with a list of their donors. However, this requirement was lifted by Treasury Secretary Steve Mnuchin in July 2018. As such, for the last two years, these groups have essentially been operating on the honor system. Most problematically, this could lead to dark money organizations becoming vehicles for foreign entities to influence American elections — something they’re prohibited by law from doing.
The anonymity that dark money offers can also be used to create the illusion of grassroots support. Recently, several nonprofits backed by some of the most prominent political donors on the American right organized a series of protests around the country against shelter-in-place rules instituted to prevent the spread of COVID-19. Astroturf campaigns like these are a common tactic for dark money groups who use anodyne names and complex financial networks to obscure their connections to some of the most connected and active names in politics.
In a working paper, I traced the flow of money into these dark money groups active in Congressional elections during the three elections following the Citizens United decision. Examining over 2.3 million disclosure forms, I found that many of the most active dark money organizations in those elections were part of dense financial networks, supporting and receiving grants from other nonprofit groups. The result — when viewed through the typical disclosure portals utilized by journalists and academics — is an illusion of spontaneous speech that belies a far more coordinated reality.
Dark money also shifts the behavior of some political donors as well. Typically, political scientists view political donations as a “consumption good,” something akin to a charity where a buyer derives a psychic benefit for supporting an organization or cause that they personally align with. While likely true for the typical individual donor, we know far less about the motivations for larger political givers.
Utilizing a unique disclosure of a list of dark money donors to a group active in two California ballot initiative campaigns, I looked at the ideological profile of the dark money donors compared to those who gave transparently to those campaigns. I found that the dark money donors were distinctly more liberal than the conservatives that supported these two initiatives — indicating that when these donors thought no one would be looking, they gave more instrumentally than previous theories would have predicted.
Given their deleterious effects on the integrity of the electoral process, what can be done to better regulate dark money? Unfortunately, the answer is very little in the near term. After a two-month reprieve, the Federal Election Commission once again lost its quorum in early July and will return to the dormant state it has existed in since August 2019. Even with a quorum, however, the Republican commissioners on that body systematically blocked any investigations or enforcement of campaign finance malfeasance which makes the FEC an oversight agency in name only. Similarly, the IRS has shown little appetite to enforce any of its own rules regarding nonprofit corporations ever since the overwrought “scandal” involving former IRS director Lois Lerner in 2013.
However, if Democrats manage to take control of Congress and the Presidency this November, the prospects for reigning in dark money will improve dramatically. In 2019, House Democrats elected during the 2018 midterm wave introduced H.R. 1, a broad overhaul of American campaign finance law. Specifically, H.R. 1 would require nonprofits who create electioneering communications to disclose donors who contributed more than $10,000 to the group. It’d also require increased disclosure of digital advertising as well as doubling the reporting window for direct-advocacy ads around an election.
Further, a Democratic president could direct the IRS to end the fiction that organizations who devote a majority of their resources to electioneering are “social welfare organizations.” Currently, an unwritten rule exists that 501(c)(4) nonprofits can spend just under 50 percent of their total funds on electioneering without losing their tax status. In reality, that rule is almost never enforced.
For instance, a dark money group named “Carolina Rising” spent 100 percent of its funds advocating for the election of Republican Thom Tillis in North Carolina’s 2014 Senate race. Not only did the Republican commissioners on the FEC block any enforcement action against that group, but that group’s director was named Executive Director of the NC Republican Party just a year later. Forcing 501(c)(4)’s to spin off their electioneering activities into a separate super PAC, who like dark money groups aren’t encumbered by spending limits but who must disclose their donors, would be a good start.
In the end, however, it’s likely that Democrats, having now developed dark money networks of their own, have lost the appetite to tackle this secretive spending. In the 2018 cycle, liberal-leaning dark money groups outspent Republicans for the first time since Citizens United. In this current cycle, liberal dark money groups have aired about three times as many ads as their conservative counterparts, according to an analysis by the Wesleyan Media Project. As such, campaign finance reform will likely take a back-seat to other priorities in the event that Democrats find themselves controlling Congress and the Presidency in 2021.
Anonymous advertising has dug itself a permanent place in American elections — making voters less-informed and corruption more difficult to police for the foreseeable future.