Ruling allows major political donors to hide identities
Paper firms keep source of money secret
When the Supreme Court ruled two years ago that corporations could make unlimited political donations, the justices probably did not have in mind big checks from paper corporations operating from an address at a postal box or an accounting firm.
It’s one aspect of a phenomenon known as “dark money’’ to super PACs that help specific candidates even though they technically operate independently. The other shade of dark money involves funds flowing to super PACs from several tax-exempt “social welfare’’ advocacy groups, which do not disclose any information about donors.
Candidates on both sides of the political aisle are benefiting.
Several big donations to a super PAC supporting Mitt Romney have come from companies that appear to have no real business purpose. After news reports raised red flags, the super PAC has twice amended its public filings to reveal the individuals behind the dummy companies.
Meanwhile, a super PAC supporting President Obama, and another that is allied with the Tea Party, are among those that draw funds from their affiliated “social welfare’’ organizations, often referred to by the part of the federal tax code under which they are organized, section 501(c)(4).
By law, the tax-exempt 501(c)(4) organizations cannot be forced to disclose to the public where the money came from and super PACs are not required to investigate the bona fides of businesses that contribute — thus the “dark money’’ reference to donations that obscure the original source of the funds.
In a few instances, the source of the donations has turned into a who-done-it game.
The New York Times, attempting to identify the individuals who controlled several businesses that gave money to the pro-Romney PAC, had appealed to its readers for help in unmasking a $250,000 contribution last August from “Glenbrook LLC,’’ a company that appeared to exist only on paper in Redwood City, Calif. As the Globe reported on its website last week, Restore Our Future, the super PAC supporting Romney, had amended its latest report to the Federal Election Commission, solving the mystery. The donation from Glenbrook LLC was replaced with a pair of $125,000 contributions from Jesse Rogers, a Palo Alto investment fund manager, and his wife, Melinda.
This hidden-identity case resembles another instance last year when Edward Conard, a former executive at Bain Capital, acknowledged he and not a dummy business was the real source of a $1 million contribution in April to Restore Our Future.
The stream of interested money gushing into the 2012 campaign — more than $41 million and counting spent by super PACs in the Republican presidential contest — has alarmed watchdogs. There are rumblings about seeking a constitutional amendment that would take years and be difficult to pass, and congressional Democrats led by Maryland Representative Christopher Van Hollen have filed legislation that would increase disclosure requirements and compel social welfare groups engaged in political activity to reveal their donors. A similar bill failed in the Senate in 2010.
“We don’t believe there should be all this secret money funding campaigns,’’ Van Hollen said. The bill would require, among other things, that the organizations list their top five donors as part of the disclaimer at the end of ads.
Obama, who was critical of the high court’s ruling and called the proliferation of super PACs “a threat to our democracy,’’ last week did an about-face and indicated he will encourage big Democratic donors to support Priorities USA Action, a super PAC formed by former White House aides to help Obama. The group has struggled to raise funds compared with its GOP counterparts.
Spokesmen for Restore Our Future, Priorities USA Action, and FreedomWorks for America, which often helps the Tea Party, all said they are operating within the law. “We collect all the information from donors that the [Federal Election Commission] requires from us to disclose on our reports,’’ said Brittany Gross, spokeswoman for the pro-Romney super PAC. “At the request of Jesse and Melinda Rogers, Restore Our Future has amended the report to reflect them as donors.’’
The issue is more complicated in the case of Priorities USA Action and FreedomWorks for America. Both are super PACs with affiliated 501(c)(4) social welfare advocacy groups. Like the super PACs, 501(c)(4)s may raise unrestricted funds from corporations, labor unions, and individuals, but unlike super PACs are not required to disclose their donors. They may engage in political activity as long as it is not their primary purpose. It’s a gray area because the social welfare issues they promote typically break down along partisan lines - Republican groups advocating for lower taxes, for example, and Democratic groups promoting tax fairness. The 501(c)(4)s are not heavily regulated by the IRS.
These entities became a major force in the 2010 midterm elections. Now some are playing a supportive, albeit limited role thus far, for super PACs, which have sprung up after the Supreme Court decision in the Citizens United case.
Last year, Priorities USA Action reported receiving $215,234 in reimbursements for “operating expenses’’ from Priorities USA, the tax-exempt organization. The super PAC reported raising $4.4 million and spending $2.9 million last year, including about $306,000 in independent expenditures, mostly critical of Romney. FreedomWorks for America itemized $436,779 in in-kind contributions for staff, overhead, and operating costs from FreedomWorks, the 501(c)(4), plus $900,000 in cash from the tax-exempt entity that was not earmarked.
“We’ve gone beyond what’s required in terms of transparency,’’ said Bill Burton, senior strategist and cofounder of Priorities USA Action. “Where there are shared costs for office space and other administrative costs, we’ve disclosed them . . . We will absolutely follow the law.’’
After the Globe’s inquiries, however, the super PAC and 501(c)(4) changed their cost-sharing and reimbursement policies and will pay bills separately in most cases.
“We do work incredibly hard to stay in compliance,’’ said Ryan Hecker, chief operating officer of FreedomWorks for America. “But I don’t think there’s anything wrong with the c4 giving to a [super] PAC as long as the c4 remains in compliance with all laws and regulations . . . Transferring money rather than actually engaging in [campaign] behavior seems even more transparent. At least you know this is happening,’’ he said.