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Some Sunlight on Political Dark Money

By Liz Roggio

On Tuesday, the Supreme Court declined to intervene in Citizens for Responsibility and Ethics in Washington v. Federal Election Commission and Crossroads GPS, thereby upholding the DC Circuit Court’s August decision requiring increased disclosure requirements for certain political entities. The decision invalidated a Federal Election Commission (“FEC”) rule limiting disclosure requirements for independent expenditure committees. Now, political nonprofits must largely disclose the identities of their donors.

The FEC requires federal campaigns and political committees that spend money in connection with federal elections (“Coordinated Committees”) to file periodic reports disclosing their contributions and expenditures. Prior to Wednesday, when political committees spent money independently, or not in connection or coordination with candidates or Coordinated Committees (“Independent Expenditure Committees”), such organizations only had to report contributions that were specifically earmarked for a candidate or committee. After the Supreme Court determined that corporations could spend unlimited amounts of money on independent expenditures, (see Citizens United v. FEC), political donors began funneling large amounts of money into nonprofit corporations that could effectively spend without limits, and without disclosure.  Many non-profit advocacy groups, including Citizens for Responsibility and Ethics in Washington (“CREW”), have implored the IRS and the FEC to take action to increase transparency and require donor disclosure. But until this decision, any regulatory changes aimed at election transparency have been insignificant or unenforced.

CREW, a political watchdog organization, initially challenged the FEC rule governing Independent Expenditure Committee disclosure requirements in 2006. CREW argued that Crossroads GPS, a conservative non-profit corporation, should disclose the identity of its donors that collectively spent $6 million dollars in opposition to Senator Sherrod Brown of Ohio. They argued that the practical effect of the rule was to allow donors to evade disclosure requirements by making undesignated contributions to political nonprofits. Crossroads argued that increased disclosure requirements would chill free speech. The FEC deadlocked on the issue, and CREW appealed to the DC district court.

In August, US District Court Chief Judge Beryl A. Howell struck down the FEC rule, writing that the regulation “blatantly undercuts the congressional goal of fully disclosing the sources of money flowing into federal political campaigns, and thereby suppresses the benefits intended to accrue from disclosure.” Crossroads GPS applied to the Supreme Court for an emergency stay, and on Tuesday, the Supreme Court vacated the stay temporarily granted by Chief Justice Roberts. The FEC must propose new rules governing Independent Expenditure Committee disclosures, but such rules are unlikely to be finalized prior to the November election.

This ruling has a significant effect on many organizations considering the structure of their political activities. While many organizations have elected to form 501(c)(4) entities in order to shield the identity of their political donors, the CREW ruling now immediately requires such organizations to disclose the identities of federal contributors, and the amounts contributed. While this decision is currently limited to federal election activities, it is reasonable to expect many states to weigh in and promulgate new disclosure requirements for political nonprofits.