Where Does Dark Money Hide? the power of 501(c)(4)

dark money

The $180m raised last year by Crossroads Grassroots Policy Strategies included 50 donations of at least $1m. No one knows who those generous people were. Crossroads, co-founded in 2010 by Karl Rove, a Republican strategist, does not have to reveal its donors because it is registered as a non-profit “social welfare organisation” under section 501(c)(4) of America’s tax code. Chief among the groups receiving grants from Crossroads was Americans for Tax Reform, a group founded by Grover Norquist, which during last year’s elections extracted pledges on tax and spending from Republican politicians.

To its critics, this made Crossroads the most egregious example of “dark money”: anonymous donors financing political campaigns under the guise of traditional social-welfare charity. The volume of dark money has soared in recent years. Last year some $256m was spent on political ads, phone calls and mailings by around 150 501(c)(4) non-profits. Most of this was by conservative groups; only 15% was from the left and centre, such as Organising for America, which raises funds for Barack Obama…  The proposed rules are a response to social-welfare charities being used for a purpose they never previously had, as money denied its traditional voice sought new ways to influence politics…

The proposed new rules would apply only to 501(c)(4) organisations, not to (c)(5) or (c)(6), notes Kim Barker of ProPublica, a news outfit that has done pioneering research into dark money. Because most money going to (c)(5) groups is from trade unions, anonymous wealthy donors may be tempted to switch to (c)(6) groups, which are mostly trade associations, such as the US Chamber of Commerce and Freedom Partners, a group set up by Charles and David Koch, two conservative billionaire brothers. But Marc Owens, a lawyer who works to tackle dark money, says the proposed rules are sufficiently ambiguous not to shut down the big partisan players. They could, however, restrict non-partisan organisations such as the League of Women Voters, which provides information on elections to its members.

The consultation process is likely to be fierce, but it is still uncertain whether the new rules that emerge will be enforced. Since 2010 only one small non-profit has been denied tax-exempt status by the IRS on political grounds. Unless the IRS makes this a higher priority, it may be some time before the days of dark money are over.

Regulating political spending: Lighten our darkness, Economist, Nov. 30, 2013, at 30

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