The ugly saga of alleged corruption, bribery, money laundering and racketeering on the part of Ohio House Speaker Larry Householder and four political operatives in Ohio lays bare a nasty truth in the Buckeye State: Unaccountable dark money has corrupted our politics, so now we must demand the legislature act to require disclosure.
The mechanism by which dark money 501(c)(4) groups operate — such as the reportedly Larry Householder-run Generation Now — came about in 2010, when the U.S. Supreme Court issued its decision in Citizens United v Federal Election Commission. This decision essentially overturned the bipartisan McCain-Feingold campaign finance law.
In explaining their controversial decision to allow unlimited corporate political expenditures, a majority of justices stressed that disclosure of the sources of the money was key. They wrote that such “transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”
But when dark money groups such as Householder’s engage mostly or exclusively in political activity, that principle is thwarted. Also, corporate political expenditures aren’t supposed to be coordinated with political campaigns — something that happened repeatedly in the HB 6 scheme, the complaint against Householder alleges.
The U.S. Supreme Court’s Citizens United decision opened the door for 501(c)(4) groups to operate as “social welfare” organizations, but multiple failures since have allowed them to thrive while flouting the rule that their funding should be transparent and political activity limited.
The first is on the heads of the Ohio legislature, which has failed to enact legislation demanding disclosure from these organizations as several other states have done. The second is a failure of the IRS, which has all but given up holding these dark money groups accountable.
ProPublica reported in April 2019 that over the past decade, people, companies and unions have dispensed more than $1 billion in dark money, according to the Center for Responsive Politics.
Such spending is legal because of a massive loophole. Section 501(c)(4) of the U.S. tax code allows organizations to make independent expenditures on politics while concealing their donors’ names — as long as politics isn’t the organization’s “primary activity.” The Internal Revenue Service has the daunting task of trying to determine when nonprofits in that category, known colloquially as C4s, violate that vague standard.
But the IRS’ attempts to police this class of nonprofits have almost completely broken down, a ProPublica investigation reveals. Since 2015, thousands of complaints have streamed in — from citizens, public interest groups, IRS agents, government officials and more — that C4s are abusing the rules. But the agency has not stripped a single organization of its tax-exempt status for breaking spending rules during that period. (A handful of groups have had their status revoked for failing to file financial statements for three consecutive years.)
Furthermore, federally, on July 16, 2018, the U.S. Department of the Treasury and the Internal Revenue Service announced that tax-exempt nonprofit groups described under section 501(c) of the nation’s tax code would no longer be required to disclose the names and addresses of their donors on tax documents.
The policy change did not apply to reporting requirements for 501(c)(3) groups, which remained unchanged. But groups covered by the policy change included 501(c)(4) organizations, such as Americans for Prosperity, Organizing for Action, the National Rifle Association, and Planned Parenthood.
Prior to this ruling all nonprofit organizations, including 501(c)(3)s, 501(c)(4)s, and other 501(c) organizations, were required to disclose the names of donors contributing more than $5,000 on their 990. Now only 501(c)(3)s are.
Perhaps unsurprisingly the fight to disclose dark money has some powerful enemies, not least of whom is U.S. Senate Majority Leader Mitch McConnell, a staunch foe of campaign finance reform. In the December 2015 omnibus spending bill, McConnell inserted a ban against any SEC action to force corporate dark money campaign contributions into the open.
Section 707 declared that no funds “shall be used by the Securities and Exchange Commission to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.” Another section, 735, includes a provision that bars any government agency funded by the spending bill from requiring disclosure of campaign spending by government contractors. A third provision, Section 127, blocks the IRS from using appropriated funds to issue rules that would clarify and define what constitutes “political activities” by so-called non-profit “social welfare” organizations.
This is to what Gov. Mike DeWine is referring when he weakly declares he’s “not a Constitutional scholar” and hems and haws about what could be done constitutionally to address the issue of disclosure. The fact is that a Republican-led U.S. Congress shoved a bunch of provisions into a critical spending package to protect corporations and special interests from disclosing how much money they’re spending to buy influence and power in American elections and to conduct nakedly political work.
This all also underscores how hollow DeWine’s talk about his interest in “transparency” rings. Either you’re going to fight dark money, or you’re not, and DeWine seems wholly disinclined. This only makes the fact that before he became DeWine’s legislative director, Dan McCarthy was a lobbyist for FirstEnergy, that much more disconcerting. McCarthy also was president of Partners for Progress Inc., a 501(c)(4) dark money group that passed millions of dollars into Householder’s dark money group, Energy Now. DeWine spent last week defending him.
We don’t need weak-kneed defenses of special interests and corporate dark money while regurgitating political platitudes about valuing transparency. We need a willingness to lead the fight for disclosure. The constitutionality question is for courts to figure out, and the corporations spending millions to profit billions can pay their lawyers for the challenge. The public trust is at stake, and the public interest ought to be the priority of public leaders. Pretty talk won’t do the trick; only action can. If DeWine truly believes in transparency; if the Ohio General Assembly truly wants to atone for this egregious sin against the public trust, let the sunshine in.