Changes must be made at the federal level to guard against the influence of outside interests pumping enormous amounts of undisclosed “dark” money into our elections. That’s the message I delivered to the U.S. Senate last week when I testified about the Fair Political Practices Commission’s efforts during my tenure as chairwoman to uncover the sources of $15 million anonymously funneled into California’s last election.
In FPPC v. Americans for Responsible Leadership, we revealed for the first time how networks of nonprofits steer campaign contributions through a byzantine series of transfers all over the country. These networks use shell corporate entities, wire transfers and fund swapping to skirt disclosure laws and allow donors to cloak their identities from public view.
Just weeks before the 2012 election, a California political action committee focused on supporting Proposition 32 and defeating Proposition 30 received an $11 million contribution. This was the largest anonymous contribution ever made in the history of California elections. The contribution came from an Arizona nonprofit, Americans for Responsible Leadership, which had never before spent a dime in California.
After a complaint was filed with the FPPC, we attempted to determine whether Americans for Responsible Leadership followed the requirements in California law to disclose the source of its contribution. We eventually had to go to court.
In an emergency Sunday session, the California Supreme Court unanimously ruled that Americans for Responsible Leadership had to hand over its records. Because of this, the next day – the day before the election – Americans for Responsible Leadership revealed that the sources of the $11 million were two other nonprofits, one in Virginia and the other in Arizona, called Center to Protect Patient Rights. Americans for Responsible Leadership admitted that it functioned solely as an intermediary to receive the money from the two nonprofits and funnel it to the California PAC. This is a clear violation of the law that prohibits making contributions in the name of another.
After the election, a full investigation found that approximately $25 million raised from California donors who wished to remain anonymous went to the Virginia nonprofit, and then was transferred to the Center to Protect Patient Rights. There was a tacit understanding that CPPR would direct other funds back to California through an intricate web of groups.
Fifteen million dollars was then passed through a maze of multiple nonprofits around the country. That money was then returned to California for political committees to spend on the ballot measures. Eleven million dollars of this money was funneled through Americans for Responsible Leadership; the other $4 million was routed through an Iowa nonprofit. And what happened to the rest of the original $25 million? Because of the attention resulting from the FPPC’s pre-election litigation, the remaining $10 million was not anonymously injected back into the California election.
The Americans for Responsible Leadership case shows that disclosure is a national issue, as money flows across state lines. There is an elusive web of intermediaries that funnels money throughout the country and avoids disclosure laws. The groups involved in this case stretched from Virginia to Arizona to Iowa. None of those out-of-state groups had any apparent connection to California, each had generic names revealing nothing about its donors or incorporators, and they may have been little more than shell entities. In fact, as if to underscore how easily these groups can move money around to avoid disclosure, the $11 million that Americans for Responsible Leadership transferred was arranged by text message.
Dark money undermines public trust in elections and contributes to disengagement from government. It makes it hard to determine if contributions are legal, including whether they are from foreign sources. Studies have shown that if people know the source of campaign funds they have the information necessary to evaluate political advertisements.
The purpose of the California Political Reform Act is to “assure public trust in government” by requiring disclosure. Disclosure not only helps restore confidence, it also helps voters make decisions consistent with their views. Voters benefit from cues to help them decide how to vote, like a candidate’s party or whether the candidate has a particular cause, industry or other interest financing his or her campaign. In short, people want to know: Who is this outside group? Why are they funding this?
Independent Sen. Angus King of Maine, who chaired the Senate hearing, and retired Supreme Court Justice John Paul Stevens, who also testified, each pointed out that campaign finance is not a partisan issue. They’re right. In the Americans for Responsible Leadership case, the FPPC showed how public officials from both political parties can and should work together to uphold disclosure laws. The FPPC, a bipartisan body, unanimously levied a record-setting $1 million fine and sought disgorgement of the $15 million in improperly disclosed funds.
As I told the Senate last week, the Americans for Responsible Leadership case demonstrates that dark money has become a nationwide problem best solved on the federal level. I hope that federal policymakers will follow the example we set at the FPPC and work in a bipartisan way to ensure that voters are informed when it matters most – before the election.