Dark money — defined as political spending where the donor is undisclosed — has grown into an omnipresent shadow shaping our laws and lawmakers. Citizens United v. Federal Election Commission is seen as the catalyst of the dark money problem. The Citizens United decision reversed century-old campaign finance restrictions and enabled corporations and other outside groups to spend unlimited funds on elections. The justices rested their decision on the assumption that the unlimited spending would be transparent, and would therefore pose a minimal threat to democracy. 

This assumption that corporate and non-profit political spending would be transparent was quite odd. The opinion itself enacted no disclosure requirements and at the time of the decision, Corporations and nonprofits had (and still have) minimal disclosure requirements for political spending. The Court used an entirely fallacious notion of transparency to open the floodgates to unlimited dark money spending. 

Interestingly, two of the deciding votes in the case, Justice Roberts and Justice Alito, had themselves benefited from anonymous political contributions just five years earlier. A dark money group called the Judicial Confirmation Network (which would later be renamed the Judicial Crisis Network) spent roughly $15 million provided by anonymous donors to campaign for the justices’ nominations.   

The Court used an entirely fallacious notion of transparency to open the floodgates to unlimited dark money spending. 

Between 2010, when Citizens United was decided, and 2019, dark money groups reported spending nearly $1 billion to the FEC. This is a tenfold increase in dark money spending as compared to the pre Citizens United era. Then, in the 2020 presidential election, dark money groups outdid themselves by spending another $1 billion on that election cycle alone. The kicker here is that not only do dark money groups refuse to disclose their donors, but they also often find ways to avoid reporting that political spending occured in the first place. Meaning that these billion-dollar figures are gross underestimations.

There are three main vehicles through which dark money can be donated to political causes: (1) corporations, (2) limited liability companies (LLCs), and (3) 501(c) nonprofits. 

As mentioned before, Corporations are allowed to donate to organizations engaged in political advocacy with essentially no disclosure requirements. Corporations do not have to disclose which political organizations they donate to nor do they have to disclose how much they donate. 

In these states, an individual hoping to set up an LLC can hire a company to act as its registering agent, and just like that, the curtain covering the Wizard of Oz is erected. 

The second vehicle through which dark money is funneled are LLCs. So long as an LLC is incorporated in a state with lax laws, such as Delaware or Wyoming, the LLC does not have to list an owner or a primary beneficiary — meaning the person or people behind the LLC can remain completely hidden. In these states, an individual hoping to set up an LLC can hire a company to act as its registering agent, and just like that, the curtain covering the Wizard of Oz is erected. 

The Department of Treasury has previously expressed concerns over these dark LLCs, noting how they are inherently vulnerable to abuse. The Department specifically noted how they can serve as vehicles for funneling billions of dollars into a wide range of illicit activities including fraud and terrorism. Similarly, LLCs can serve as anonymous vehicles through which to pour cash into elections and judicial nominations.

In 2018, a Super Pac supporting Susan Collins received a sizable contribution from an LLC called the Society of Young Women Scientists and Engineers. The LLC had been created just weeks before the contribution, which raised red flags because it seemed implausible that the LLC had earned sufficient business revenue to make the contribution in such a short time frame. The Department of Justice opened an investigation into them and uncovered that the money came from a federal defense contractor that had landed a $7 million contract thanks to Susan Collins’ advocacy right before making the contribution.

It is important to note that this practice of using an LLC as a shell company or conduit is illegal. In fact, two LLCs called Fraud Guarantee and Energy producers that were being used to funnel foreign money anonymously into the Trump campaign were discovered, dissolved, and punished. But as long as these “anonymous” LLCs engage in additional legitimate business activities – for example, by having real estate transferred to them –  their dark money political spending is perfectly legal. This is significant as LLC’s are being leveraged more and more each election cycle as a source of anonymous political spending. 

The third type of dark money vehicle is 501(c) non-profits. There are a few different types of 501(c) organizations, and the rules governing their use vary slightly, but they all share the same important feature of not being required to publicly disclose the identity of their donors. 

The most popular nonprofit structure used in dark money is the 501(c) 4, colloquially known as C4s. C4s are “social welfare” organizations that can freely engage in political activities, so long as their “primary purpose” isn’t political. The IRS has never defined what “primary purpose” means — they tried but faced intense backlash and have since been blocked from doing so by Congress, but more on that later — so the de-facto guidance is that as long as C4s don’t spend more than 50% of their funds on political causes, they are in the clear. 

Fortunately for wealthy individuals and entities hoping to anonymously influence policy, the 50% norm is notoriously easy to subvert. One way around it is for C4s to play a game of financial hot potato, whereby C4s give money to each other to avoid reaching the 50% threshold. If C4 Alpha spends 50% of its funds on political contributions, and then donates the other 50% to C4 Beta, and C4 Beta in turns spends 50% of its funds on political purposes, then it’s as if C4 Alpha gave 75% of their funds to political contributions. 

As Senator Sheldon Whitehouse points out, “a crew of four ‘social welfare’ organizations — perhaps with the same staff and address— could cycle a million-dollar donation through themselves and put nearly 95 percent of the donation into political ads.” And there is significant evidence that this dark money hot potato happens often. For example, Crossroads GPS’s 2010 tax returns show that it made $15.8 million in grants to other dark money organizations, including $4 million to Grover Norquist’s Americans for Tax Reform, and $2.75 million to the Center for Individual Freedom. 

Dark Money Alchemy by OpenSecrets

The other method that C4s use to get around the primary purpose limitation involves political issue advertisements. Ads related to political issues or political candidates, so long as the advertisements don’t use specific trigger words such as “vote,” do not count as political. C4s can label what are essentially attack ads as educational for tax purposes, and as such, these ads don’t count towards the 50% requirement. Even better, the ads are not reported to the FEC, so they can fly completely under the radar.

Even if a C4 blatantly directed more than 50% of their funds to political purposes, the IRS does not do much about it. Primary purpose investigations are rarely initiated, and even when they are, the vast majority of cases are never sent to the committee for review. Anna Massoglia, lead dark money investigator at Open Secrets, looked into a case where a C4 significantly exceeded the 50% threshold and, “[the] group very clearly actually labeled their spending as political [in their tax return], and they essentially wrote the IRS an IOU saying that they would engage in less political spending the following year.” The IRS seemingly just let this IOU slide and when the next year rolled around, the organization no longer existed.​​ 

It seems that this practice of allocating a majority of funds to political causes may be the norm among dark money C4s, whose primary purpose is supposed to be social welfare. As Anna Massoglia noted, Majority Forward, which is a massive Democrat-leaning dark money group, “so far [exceeds] 50% that it’s hard to fathom how they could say their primary purpose is not political”. At this point, the glaring question is, why is enforcement against dark money vehicles so weak?

C4s are not effectively regulated. 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.” There are 3 main factors contributing to this lack of enforcement.

         The first relates to a grave lack of resources. Despite Citizens United unleashing unlimited political spending, Congress reduced the IRS budget. While the IRS Exempt Organization Unit had to deal with an 80-fold increase in the number of politically focused organizations seeking approval as C4s, their staff and resources were being reduced. This combination of skyrocketing demand and diminishing ability to meet the demand was predictably disastrous. In a 2013 email, Lois Lerner, then-head of the Exempt Organizations Unit of the IRS wrote that her “level of confidence that we are equipped to do this work continues to be shaken,” and that she “[didn’t] even know what to recommend to make this better.”

While the IRS Exempt Organization Unit had to deal with an 80-fold increase in the number of politically focused organizations seeking approval as C4s, their staff and resources were being reduced.

To make matters worse, not only was Lerner’s unit overwhelmed by a surging number of C4s to oversee, the Exempt Organizations Unit also had an extremely tedious process that they had to follow in order to investigate the C4s under their purview. To even initiate an investigation into an exempt organization, IRS officials had to go through six time-intensive steps. Why would anyone design such a convoluted system? Perhaps the IRS wanted to protect themselves from scrutiny from the very individuals in Washington who benefit from the C4s that the IRS investigates. Roger Vera, who was in charge of overseeing investigative referrals of exempt organizations, stated that “[the IRS] made the system so complicated because they didn’t want the inspector general to come in and say, ‘Hey, you only looked at two or three cases and they’re all a certain political group. 

This fear of scrutiny and accompanying tedious investigative process rendered the Exempt Organization Unit almost entirely powerless when it came to dark money groups. The three-year time limit for acting on a C4 complaint often expired before the IRS could take any action. An investigation by the Senate Finance Committee found that almost every complaint that was filed between 2010 and 2014 was bogged down before field agents could even initiate an investigation into the C4 groups. 

The second reason why oversight and enforcement of 501(c) nonprofits has been limited is because past attempts to solve the problem have resulted in extreme backlash and complete vilification of IRS employees. Starting in 2010, the Exempt Organization Unit tried to overcome their lack of resources and cumbersome investigation process, by creating a shortcut. If a group applying for C4 status had a keyword in their name that sounded political, they flagged it for extra attention. In 2013, the Treasury Inspector General for Tax Administration released a report about this use of keywords, and indicated that “tea party” and other conservative terms were being targeted at a disproportionate rate. Mind you, it appears that the only denial of tax-exempt status by the IRS that happened under this scheme was to a progressive group. Nevertheless, chaos ensues. 

Conservative-leaning media outlets react in outrage. IRS commissioner Steven Miller is forced to resign. House Republicans have a field day accusing the IRS of spearheading a partisan assault against conservative groups. In one hearing, Rep. Kevin Brady, R-Texas stated that “this is the most corrupt and deceitful IRS in history.” Hearings on the subject continued intermittently for four years and the IRS ultimately spent 98,000 hours in staff time responding to the congressional investigations.   

The situation escalated further when the Republican-led House Oversight Committee charged Lois Lerner, head of the Exempt Organization Unit, with Contempt of Congress for claiming a 5th Amendment Right to refuse to testify. As Lerner faced potential prosecution over the charge, IRS officials were reeling from the intense backlash. One IRS employee explained to ProPublica reporter Maya Miller that during the time of the investigation “I was scared of being pilloried, dragged to the Hill to testify, getting caught up in lawsuits, having to sink thousands of dollars in attorneys bills that I couldn’t afford, and having threats made against me or my family…I locked down my Facebook page. I deleted all personal Twitter posts. I stopped telling people where I worked.”

Image of Lois Lerner as she pleads the fifth

Lois Lerner was never charged, and the Senate Finance Committee and Department of Justice each came out with reports concluding that the use of keywords was a result of lack of resources, bureaucratic restraints, and mismanagement, as opposed to being politically motivated. But the crusade was not over. Just a year after these reports were released, the House Oversight and Government Reform Committee voted 23-15 to censure Koskinen as a result of the keyword scandal, and called for his removal from office as well as the forfeiture of his government pension and other federal benefits for which he is eligible.

Four years after their initial report exposing the use of keywords, the Treasury Inspector General of Tax Administration released a new report noting that the Exempt Organization Unit also used keywords targeting progressive groups, including terms such as, “green energy,” “medical marijuana,” and “occupy”. But by this point in time, nobody was still paying attention. The dust had settled, people moved on, and the damage was done. As Senator Whitehouse wrote in his book entitled The Scheme, “by the time the inspector general investigation confirmed that the influence machine’s claims were bogus, the damage had been done and dark money had an avenue into politics that many feared to touch.”      

The whole reason that the keyword search was necessary, besides lack of resources, was the fact that the IRS had no clear guidance as to what “primary purpose” meant (remember, this is a requirement for C4s, which are intended to be social welfare organizations). Therefore, as Congressional hearings were unfolding, the inspector general set out to define primary purpose. IRS Commissioner Koskinen initially proposed that C4s should be barred from any campaign-related activity. But in light of Congressional opposition, Koskinen instead proposed a percentage-based definition of “primary activity” – the 50% rule. Congressional Republicans not only disapproved of this new suggestion, but they disapproved of any attempts to define “primary purpose” and restrict C4 political activity. 

In December 2015, Republican House leadership inserted a rule into a budget appropriations bill banning the IRS from issuing or finalizing any regulation “to determine whether an organization is operated exclusively for the promotion of social welfare.” This language remains in budget appropriations bills to this day. So to answer the question of why doesn’t the IRS do more to constrain C4 political activity? It’s Because Congress has literally barred them from doing so. 

Lastly, it’s time to discuss Corporations. In theory, the SEC could alter disclosure requirements such that Corporations would have to reveal who they make political contributions to and in what amount. Such disclosure rules would make a lot of sense in the context of corporate law, which operates under the theory of shareholder primacy – which holds that as owners of corporations, shareholder interests should be Corporation’s highest priority. Surely, highest priority includes a right to know when and how the Corporation’s money is being spent to influence politics? Apparently not. In a move that might sound familiar, Congress used a budget appropriations bill to ban the SEC from issuing corporate political spending disclosure rules. That ban remains in place to this day. 

Dark money’s unchecked rise to power over the last decade has enabled anonymous donors and corporations to exert influence over elections, judicial nominations, and policy. One of the main reasons why it is critical to have transparent political spending is that dark money hides transactional giving. 

The dark money curtain does not get pulled back often, but when it does, we often find the exact type of transactional giving that people fear will happen in the absence of transparency. 

One example of this is the Yasmin Clark case against lead-based paint manufacturers discussed earlier. The paint companies and their executives anonymously poured money into dark money groups that supported Wisconsin legislators, and those same Wisconsin legislators just happened to insert an oddly specific provision retroactively barring lead-based paint litigants from using an important legal doctrine to win their case. The situation was a win-win for legislators and paint companies alike, the only losers being Yasmin and the 170 children like her who were suffering severely from lead poisoning. 

In the same leak that revealed the paint industry’s involvement in dark money, it was revealed that a mining company called Gogebic Taconite gave $700,000 to a dark money non-profit that was supporting Scott Walker during his 2012 campaign for Governor. Sure enough, shortly after he won, one of Walker’s top legislative priorities was pushing a controversial ore-mining bill into law to the dismay of environmentalist and tribal groups. 

A third example of dark money being used for quid-pro-quo purposes involves Ohio’s House Bill 6, which gutted renewable energy and energy efficiency standards while putting ratepayers on the hook for nearly $1 billion in subsidies for nuclear power plants. Due to bankruptcy filings, it was eventually revealed that FirstEnergy, a major recipient of the billion-dollar-bailout, had given nearly $2 million to a dark money nonprofit that spent millions of dollars on misleading ads, petition blockers, and Ohio elections. The dark money curtain does not get pulled back often, but when it does, we often find the exact type of transactional giving that people fear will happen in the absence of transparency. 

A related concern pertaining to dark money is that anonymity erodes democracy by obscuring the populace’s perception of the messages they receive and their perception of powerful entities. For example, in the wake of the January 6th attack, numerous companies pledged that they would withhold money that supported insurrectionists. But Brendan Fischer and Anna Massoglia both expressed concerns that it’s entirely plausible that these same corporations are still funneling money to insurrectionist supporters through dark money channels. Based on public spending records, it seems that these fears regarding secret spending are warranted. 

Unlike individual donors’ whose spending tends to concentrate around elections, and more recently, judicial nominations, Corporations tend to give more post-election contributions. The benefit of post-election contributions is that you can still curry favor with lawmakers, while also having a continuing influence on policy enacted throughout the term. In fact, the Supreme Court ruled this year that political candidates can use donor funds to repay candidate loans after elections. 

As of 2021, more than half of the fortune 500 still refuse to disclose donations to C4s that are laundered into political advertising. Corporations are legal entities that were designed and created to be able to amount vast wealth, and the main checks to their power is public scrutiny, consumer choice, and shareholder voting power. But neither the consumers nor the shareholders can hold corporations accountable for their political spending if it is hidden in the shadows.  

Anonymity doesn’t just conceal discrete instances of one discrete donor giving money to one discrete political group, it also conceals coordinated groups of individuals working together to create a political influence network. 

One of the most recent and significant political influence schemes was an effort to systematically re-shape, or capture, the composition of the Supreme Court. This effort was spearheaded by former Federalist Society co-chair Leonard Leo who received funding from the Federalist Society’s C4 Dark Money arm — the Judicial Crisis Network (JCN). Due to various leaks and investigations, it is known that JCN has received millions of dollars from foundations tied to extremely powerful conservative families, including the Kochs, the Bradleys, and the Mercers (founders of Breitbart). Many of JCN’s donors and the exact dollar amounts of many of the donations remain unknown. 

The work of this political influence network started to lay bare when Leo used $15 million of anonymously donated money to promote the judicial confirmations of Justices Roberts and Alito. Then in 2016, JCN leveraged a $28 million anonymous donation to spearhead its effort to block Merrick Garland’s confirmation. Soon thereafter, Trump was elected and JCN along with its anonymous donors no longer had to work very hard – their goal of shaping the Supreme Court was handed to them on a silver platter. Former President Trump literally said, “and we’re going to have great judges, conservative, all picked by Federalist Society.” Before Trump’s four years were up, three Federalist Society Justices were added to the court, including Gorsuch, Kavanaugh, and Barrett. You can draw a direct line from dark money spending to Supreme Court decisions that have removed constitutional protections for abortion rights and instituted a series of sweeping pro-business rulings. The plan was to capture the court, and the court has indeed been captured.

You can draw a direct line from dark money spending to Supreme Court decisions that have removed constitutional protections for abortion rights and instituted a series of sweeping pro-business rulings.

In recent years, Democrats have thrown their hat into the ring and have begun engaging with Dark Money. Demand Justice, a C4 which is supposed to serve as a counterweight to JCN, raised over $1 million in an effort to solidify Justice Jackson’s confirmation. The Democrats’ foray into dark money extends to the election sphere as well. The 2020 election saw the highest levels of dark money contributions, with over $1 billion in anonymous funds poured into political spending. Biden’s campaign attracted around $174 million in dark money support which is more than six times the $25.2 million in dark money contributions used to boost President Trump’s re-election effort. This is a marked departure from historical trends, where Republicans outspent Democrats in every election cycle between Citizens United and 2018. 

Conservative domination of dark money spending, created by OpenSecrets

There is reason to find this recent uptick in Democrat dark money spending concerning. Anna Massoglia noted that Democrats will often make the argument that  “if we don’t play by their rules, we’re gonna be at a disadvantage… but I think based on what I’ve seen in the data, generally you’re just feeding the fire of it.” She went on to point out how Democrat dark money groups have come up with new complex strategies to bolster their anonymous spending, and that Leo’s own network of Republican dark money groups have learned from these complex strategies. “Anytime you, as a political party, use a shortcut, you’re just going to make the other side feel emboldened to also use a shortcut and build on your shortcut to get even better than you at your own [game].” Fighting fire with fire only produces larger fires. 

Everything that we know about dark money tends to come from leaks, investigations, and court cases. What we know, and what has been described in this article, is just the tip of the iceberg. It remains very hard to pull the curtain back on dark money when it was legally designed to remain in the shadows. 

Efforts by Democrats in Congress have been increasing in recent years to require heighted disclosure for political spending. Most recently, Senator Whitehouse and Senator Dianne Feinstein sponsored the DISCLOSE act, which would require organizations engaging in political spending, such as C4s, to promptly disclose donors who have given $10,000 or more during an election cycle. In addition to election disclosure requirements, the bill requires groups that spend money on ads supporting or opposing judicial nominees to disclose their donors.

What we know, and what has been described in this article, is just the tip of the iceberg. It remains very hard to pull the curtain back on dark money when it was legally designed to remain in the shadows. 

Republicans blocked the DISCLOSE act from becoming law this past September, when the vote failed 49-49. The measure needed 60 votes to advance. All Senate Republicans in attendance voted against the bill, while all members of the Democratic Caucus in attendance voted for it. As it turns out, Koch Industries and the US Chamber of Commerce had been lobbying against the transparency-promoting law. 

In addition to federal legislation, there have been grassroots efforts throughout the Country to push for more stringent campaign finance disclosure laws at the state and local level. Unfortunately, there are barriers to this approach, as the Supreme Court recently struck down a California law requiring non-profit dark money groups to at least disclose their major donors to state tax regulators. The Suit was brought by the Americans for Prosperity Foundation, which is backed by the Kochs, and was also brought by the Thomas More Law Center, a legal organization active on behalf of Catholic causes that was funded largely by Tom Monaghan, founder of Domino’s Pizza. 

But there is reason for optimism. One grassroots group called the Badass Grandmas in North Dakota introduced a ballot measure to combat dark money spending, including establishing a constitutional right to transparency regarding election spending, setting limits on lobbying, and establishing rules about conflicts of interest. The measure passed, and if any progress is to be made on the dark money front, it seems that these state-level strategies may be the way to go. The Federal Congress and Judiciary are already quite beholden to dark money groups.  

What is the difference between a polity captured by dark money and a puppet? At least puppets have strings that can guide you directly to the puppet master.

From The [F]law:

• Lisa Fanning, The Corporate Roots of Conservative Legal Thought
• Sarah Rosenkrantz, Harvard and the Housing Crisis: The Non-Profit Corporate Landlord Behind Boston’s Housing Crisis

From The Systemic Justice Journal:

• Maggie Hagen, Corporate Capture of Nonprofits: Corporate Law and the Preference for Profits