Nonprofits, shell corporations help shield identity of ad backers

Introduction

In the 2012 election, nonprofits have been the preferred vehicle for donors who prefer to keep their identities secret. But with the right lawyers, super PACs, which are supposedly transparent about their donors, can accomplish the same feat.

Social welfare nonprofits, known as 501(c)(4)s by the Internal Revenue Service, file tax returns with the IRS. The names of their top donors are revealed to the IRS — but not to the public.

Super PACs, on the other hand, do report their donors. In some instances, though, those donors are nonprofits. Or the funds might come from shell corporations, which have passed through millions of dollars to the political organizations from unidentified donors in this election.

Aetna’s oops

Occasionally, the veil is lifted on the secrecy of these groups, sometimes inadvertently.

Insurance giant Aetna accidentally disclosed to insurance regulators earlier this year that in 2011, it had contributed $3 million to the American Action Network, a 501(c)(4) group that has spent $11 million targeting mostly Democratic candidates for Congress.

The company later scrubbed the disclosure from its filing and declined to elaborate on it despite demands from institutional shareholders for an explanation.

Last week, the American Energy Opportunity Fund, a 501(c)(4) group led by two executives at an oil and gas company, revealed it had paid for nearly $800,000 in radio ads targeting President Barack Obama on his energy policy and the funds came thanks to a donation from Las Vegas casino titan Sheldon Adelson.

Adelson and his family have given more than $53 million to super PACs this election.

Shell corporations

Not all secret money comes from nonprofits.

On Sept. 26, a corporation was formed in Knoxville, Tenn., with the most mundane of names: Specialty Group, Inc. On its registration paperwork, one name was listed, that of attorney William S. Rose Jr. The address provided was a home owned by Rose.

Specialty sent several checks totaling $5.2 million to FreedomWorks for America, a super PAC affiliated with the tea party network and with former Republican House Majority Leader Dick Armey.

The donations make Specialty Group the fifth-largest organization contributing money to super PACs, and only a handful of individuals have contributed more.

Rose could not be reached for comment and all listed phone numbers have been disconnected.

Specialty Group, Inc., isn’t the first apparent shell corporation — a company with no known physical presence, product or staff — to throw cash into the post-Citizens United campaign finance arena.

In 2011, two other shell companies, one called Eli Publishing and the other called F8 LLC, both incorporated at the same address in an office building in downtown Provo, Utah, contributed $1 million to Restore Our Future, the super PAC backing Mitt Romney.

The suite number given for both corporations doesn’t actually exist, and there is no office, but the registered agents for both companies had connections to Nu Skin, a cosmetic company whose chairman is Utah resident Steve Lund.

No official confirmation has ever been made, however, and Lund and his wife have gone on to contribute a combined $1 million, in their own names, to Restore Our Future.

The extended money trail

Taking money from hard to track shell corporations isn’t the only way for a super PAC to skirt disclosure rules.

Another common tactic is for a nonprofit to give money to a super PAC. This happens frequently when a nonprofit is closely affiliated with the super PAC it is giving money to.

In total, Center for Responsive Politics data shows that 501(c)(4) groups contributed at least $10 million to super PACs.

Sen. Dick Lugar, R-Ind.’s failed bid for re-election stopped at the primary when he lost to Richard Mourdock, his tea party-affiliated opponent. He was helped by a group called Indiana Values Super PAC, which spent $459,000 opposing Mourdock.

The super PAC received $137,000 of its funds from a 501(c)(4) group also called Indiana Values, based out of the office of a lobbying firm on K Street in Washington, D.C., where the money trail ends.

Sometimes the chain is longer, but with a similar result.

In Pennsylvania, a super PAC called Freedom Fund for America’s Future spent $175,000 attacking Republican Senate candidate Tom Smith during the primary.

At least $165,000 of that money came from another super PAC, called Fight for the Dream, based out of a post office box at a UPS Store in Allentown. Fight for the Dream in turn got all of its money from a nonprofit called Restore the Dream, based out of the very same post office box.

Organizers told the Center for Responsive Politics that the group was designed with the help of their legal counsel, a lawyer named Anthony Ferate. Ferate is also an in-house lobbyist for natural gas company Devon Energy.

He denied there was anything improper about the setup, and said in an interview with CRP that it is a widespread practice.

“This was set up within federal election laws,” he said. “I would disagree that there’s anything to question about transfers between super PACS. In fact, the Democrats are coordinating between their super PACs.”

According to a CRP analysis, the super PAC that is the single largest recipient of cash from a nonprofit is FreedomWorks for America, the same super PAC that received $5.2 million from the Tennessee shell corporation.

CRP data shows the group received $2.3 million from its own nonprofit, FreedomWorks. That means that although the group has disclosed $15.4 million in donations, $7.5 million of it is untraceable.

This story is a collaboration between the Center for Public Integrity and the Center for Responsive Politics. For up-to-date news on outside spending in the 2012 election, follow our Source2012 Tumblr and the hashtag #Source2012 on Twitter.