What is political ‘dark money’ — and is it bad?

Introduction

By now, you’ve probably heard the phrase “dark money.”

Activists use it. Politicians use it. And journalists use it, including here at the Center for Public Integrity.

For some people, it’s just another piece of confusing campaign finance jargon. For others, it’s a term of art, with a precise definition.

So here are answers to some of the most frequently asked questions about dark money in politics.

What makes political money dark money?

The sources behind most of the money raised by politicians and political groups are publicly disclosed. Candidates, parties and political action committees — including the super PACs that are allowed to accept unlimited amounts of money — all report the names of their donors to the Federal Election Commission on a regular basis. Or, to be technical, they regularly disclose the names of all their donors who each give more than $200. But when the source of political money isn’t known, that’s dark money.

What does political dark money look like?

The two most common vehicles for dark money in politics are politically active nonprofits and corporate entities such as limited liability companies. Certain politically active nonprofits — notably those formed under sections 501(c)(4) and 501(c)(6) of the tax code — are generally not required to publicly disclose their donors. Meanwhile, when limited liability companies are formed in certain states, such as Delaware and Wyoming, they are essentially black boxes; the company’s name is basically the only thing known about them. These LLCs can be used to make political expenditures themselves or to donate to super PACs.

How much money are we talking about?

During the 2012 election cycle — the last time the presidency was at stake — dark money groups pumped about $300 million into political messages that called for the election or defeat of federal candidates, according to the nonpartisan Center for Responsive Politics. Additionally, dark money groups spent hundreds of millions of dollars on political advertisements that focused more on issues than candidates. The most notable example? Americans for Prosperity, the flagship nonprofit of the conservative billionaire brothers Charles and David Koch. Also worth noting: Dark money doesn’t affect every election. It frequently targets the most high-profile political races.

Do Democrats use dark money?

Yes. Neither party wants to be left behind in the political money arms race. The result: Dark money groups are multiplying — and thriving — on both ends of the political spectrum. However, during the 2012 election cycle, conservative dark money groups that reported expenditures to the FEC outspent liberal ones by about 8-to-1, according to the Center for Responsive Politics.

How does dark money relate to the U.S. Supreme Court’s Citizens United v. Federal Election Commission ruling?

The Citizens United decision gave the green light to corporations, including certain types of nonprofit corporations, to spend money on political ads that expressly called for the election or defeat of federal candidates. A prior U.S. Supreme Court ruling in 2007, known as Wisconsin Right to Life v. FEC, had allowed corporations, including certain types of nonprofits, to spend money on issue ads during the run-up to elections — so long as they did not overtly call for the election or defeat of candidates. The Bipartisan Campaign Reform Act of 2002 had banned both types of corporate spending in politics. Now that these restrictions have been overturned, politically active nonprofit groups are spending more money than ever to directly influence elections.

Are there other types of money in politics that come from unknown sources?

The names of small-dollar donors who give $200 or less are not publicly disclosed. Some conservative activists and politicians have worried that foreigners, or other illicit donors, might try to exploit this disclosure rule to their advantage. But most election observers can’t point to any evidence of widespread abuse.

Why are so many people upset about dark money in politics?

Campaign finance reform activists argue that voters should know who is funding political advertisements. Such information, they assert, is essential to voters’ ability to evaluate the merits of political messages — and to know if certain special interests may be trying to curry favor with politicians. Fred Wertheimer, the founder and president of Democracy 21, for one, has said that “history makes clear that unlimited contributions and secret money are a formula for corruption.” Likewise, the Campaign Legal Center has called the emergence of dark money a “serious threat to our democracy.” In a portion of the controversial Citizens United decision, eight of the nine Supreme Court justices agreed that disclosure of money in politics was important because “transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”

Who thinks dark money in politics is good?

Supporters of anonymity in politics frequently note that The Federalist Papers and Thomas Paine’s Common Sense were published anonymously during the country’s founding. Lawyers at the Wyoming Liberty Group, for instance, have argued that throughout American history, “anonymous political speech has been the scorn of entrenched powers and the saving balm of emerging voices.” Meanwhile, officials at the Center for Competitive Politics have argued that dark money is a “pejorative term” and that its threat is “overblown.” The Center for Competitive Politics has further argued that “disclosure comes with a cost,” including the potential to chill speech and for donors to be harassed.

Who regulates political dark money?

The nation’s primary regulator of money in politics is the six-member FEC. However, the FEC’s three Republican commissioners and three Democratic ones have significant ideological disagreements about the degree to which dark money is a problem. Meanwhile, the Internal Revenue Service regulates nonprofit organizations and can revoke a nonprofit’s tax-exempt status if a group is deemed to not deserve it. But in recent years, only a handful of 501(c)(4) nonprofits — which have the primary purpose of promoting “social welfare” — have had their tax-exempt status revoked because the Internal Revenue Service deemed them to be too political. The Department of Justice can also criminally prosecute “knowing and willful” violations of campaign finance law, although this, too, is rare.

So, is there really no way to know who’s behind political dark money?

Over the years, journalists have developed a number of backdoor approaches to follow the money flowing to dark money organizations. But oftentimes, these approaches only yield results long after a dark money spending spree is over.

What are these backdoors?

Sometimes dark money groups receive money from other political groups that must disclose their expenditures to either state or federal campaign finance regulators. Other times, dark money groups receive substantial amounts of money from other nonprofits that must report doling out these grants on their own annual tax filings with the IRS. Similarly, some dark money groups receive money from labor unions, which must report those expenditures on annual reports filed with the Department of Labor. And on rare occasions, corporations voluntarily disclose their contributions to politically active nonprofits. If an individual donates to a dark money group, there is essentially no public paper trail to follow.