Shady Dark Money

My mom wanted to buy a t-shirt from a political project she supports. Let's call them Project X.

But as she moved to check out, she did something that only my mom would do — she actually read the fine print. It said, "Project X's spending is independent, and it does not make contributions to or coordinate its spending with, any candidates or political parties."

Mom called me and asked, "well, what's the point then?" It's a fair question.

By buying a t-shirt, my mom had inadvertently stepped into a new world of big-money political giving.

Most of the writing about political money takes strong positions for and against. In this note, I'll do the best I can to separate politics from fact. If you know what's going on, you'll be able to form your own opinions.

If you're a Republican, you've probably heard about George Soros secretly funneling shady dark money into our electoral process.

If you're a Democrat, you've probably heard about Koch Brothers secretly funneling shady dark money into our electoral process.

The following is a guide to how it happens.

Most people, including donors, have no idea how this process works. 

It's convoluted.

Most people give directly to a candidate. Your friend is running for City Council, you chip in $20. Those people (including the candidate) may not realize that they are operating an entity called a 527.

527s have some unique features. Their donors are publicly disclosed, the contributions can be limited by law, and they can do explicitly political work.

Joe Biden's campaign is a 527. The Georgia Democratic Party is a 527.

And, interestingly, a Super PAC is a 527.

You may have heard of Super PACs. 

PAC stands for Political Action Committee. Don't worry too much about the difference between a Super PAC and a PAC. If you're curious, Colbert did a great job of explaining it.

Here's the critical part: People think Super PACs are the shady dark money. But they're not. 

Yes, Super PACs can accept unlimited contributions. But you know who else can do that? A non-profit.

A non-profit? 

Yes indeed. Non-profits fall into two* designations: 501c3 and 501c4.

* There's actually more than two, but ignore that for now.

Non-profits accept unlimited political contributions. Non-profits do not need to disclose their donors. And sometimes, non-profits are tax-deductible.

So why even bother giving to a 527? I'll answer below. But first, there's an important word you need to know:

"Coordination"

This is where my mom's t-shirt comes in.

Let's pretend I'm wealthy. You were my best friend in high school, and you decided to run for City Council. The contribution limit (the most I'm allowed to give by law) is $500.

I give you $500. But I want to do more.

So I buy a full-page advertisement in the local paper. I do it on my own without telling my friend the candidate.

We live in a place where free speech is essential. So important, in fact, that the government is VERY limited in telling me how I can spend my own money.

Giving to a political candidate is part of a government process, so the government has more power to regulate it. But in America, I can buy a newspaper ad for whatever I want, whenever I like it.*

*This is obviously very oversimplified, but you catch my drift.

As you might guess, this becomes tricky. What if it's more than a newspaper ad? What if it's $500M of television advertising?

That's why these organizations have what they call a "disclaimer." 

When you hear an ad say "Paid for by the People for a Better Government" or "I'm Joe Biden, and I approved this message," that's a disclaimer. By law, these organizations have to tell people who paid for the advertising.

Notably, "People for a Better Government" and "Joe Biden" CANNOT work together. The minute they start working together, it's called "coordination," which is very illegal. Like, go-to-jail illegal.

As you might remember, my mom's T-shirt disclaimer read: "Project X's spending is independent, and it does not make contributions to or coordinate its spending with, any candidates or political parties."

They're acting like the rich guy buying a newspaper ad.

They're spending money and doing it without strategy or knowledge from a campaign.

In other words, they're not coordinating.

But…I mean…clearly they're on the same side. Right?

Right.

The laws are murky. For example, Mitt Romney's Super PAC wasn't allowed to coordinate with Mitt. Who ran his Super PAC? Why his personal lawyer, of course.

Stephen Colbert started a Super PAC. Who did he hand it off to? His good friend Jon Stewart. No chance of coordination there, right?

But it gets much weirder.

Believe it or not, Super PACs aren't the most secretive operators. 

As you'll remember, non-profits come in two flavors: 501c3 and 501c4.

Important disclaimer: this is not legal advice.

Here's how they break down:

501c3: No politics allowed. Tax-deductible. Donors can be anonymous. Donors can be foreign.

501c4: Politics cannot be the "primary purpose." Not tax-deductible. Donors can be anonymous. Donors are from the USA.

None of these organizations can take out an ad that says, "Vote Donald Trump." If they did, they'd be operating politically, and that would make them a 527.

But as a non-profit, there's a lot of things they can do.

A 501c3 can support "educating the voters about issues" and "voter registration." If the voter registration happens to take place in a district, that's 90% Democrat? So be it. If the voter education happens to be about your first amendment right to bear arms, and you're talking to 90% Republicans? So be it.

And importantly, a 501c3 can take big anonymous international checks. Side note here — the NRA Foundation is a 501c3.

A 501c4 can do even more political work. They stop just short of telling people how to vote. But they can say things like "Barack Obama is a threat to America." They can take anonymous checks, but only from the US.

Let's get even fancier:

What if I started a company anonymously which gave to a 501c4, and that 501c4 gave to a SuperPAC? Yup, totally possible (although much more rare).

This is disturbing.

Yup. Everyone agrees the system is broken, but because politicians all have different ideas for fixing it, it's scarce for something meaningful to change in the system.

There are a few people who see how broken it is and are making meaningful changes. I've been lucky to work with a few of them (Abdi Soltani, Ann Ravel, and Jonathan Stein are three that come to mind).

But hey, now you know more than 99% of people about how election finance works. 

When you see those disclaimers at the bottom of an ad, check and see. If they're a candidate or a PAC, it's usually possible to find their donors. Start here.

If it's a 501c3 or 501c4, check their messaging. How political are they?

By paying attention to what's going on and sharing the info with our friends, we can raise awareness.

And believe it or not, it actually can make a difference.

When Ulysses S. Grant had 25% of his presidential campaign paid for by one person, people started to pay attention. Soon after, in the first meaningful campaign finance reform, Teddy Roosevelt outlawed corporate contributions in 1905.

Since then, we've made all sorts of changes. Disclaimers, public funding of elections, contribution limits, and more are designed to add checks and balances. Sometimes they work, sometimes they don't.

But if you ever get bored, feel free to write to your representatives.

There's a lot more work to do.