US election donor loophole gives anonymity

ALINA SELYUKH AND PATRICK TEMPLE-WEST
Last updated 12:09 07/09/2012

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Political advocacy groups pumping millions of dollars into the US elections are about to circumvent a court-ordered deadline on Friday that opponents had hoped would rein them in and shed light on their secret backers.

Tax-exempt "501(c)" organisations aligned with both political parties are raising big money this year and having a major impact on the campaigns.

Under tax law, their donors can stay anonymous as long as politics is not the groups' primary activity.

The groups have become known for dominating the airwaves with nuanced "issue ads" that do not overtly call for the election or defeat of specific candidates, but for instance, talk about their voting records.

Critics have said that such ads leave little room for doubt about the groups' political allegiances, however, and argue that the 501(c)s are taking advantage of a regulatory loophole that lets them influence voters while preserving donors' anonymity.

Two Republican-allied 501(c) groups — Americans for Prosperity, founded by billionaire brothers David and Charles Koch, and Crossroads GPS, run by former aide to President George W. Bush, Karl Rove — have spent more this campaign season than any other outside group.

Many Democrats fear their 501(c) backers are losing the money arms race to Republicans, such that it may cost them seats in Congress and even the White House.

In March, a federal court ruled that, in the final 60 days before the November 6 elections, groups running "issue ads" must reveal the identities of donors of US$1000 or more. Friday marks the beginning of that 60-day homestretch.

A critical test for the 501(c)s strategy had been expected by campaign finance reformers and by Democrats seeking to curb the strength of Republican groups.

But leading advocacy groups made clear this week they plan to carry on and have no intention of revealing their donors' identities.

In the absence of a crackdown by the Federal Election Commission and the Internal Revenue Service, the 501(c)s face little immediate risk from forging ahead, effectively doing business as usual, said Rick Hasen, an election law expert and professor at the University of California, Irvine.

"In this legal environment they aren't really afraid," he said, adding that the worst-case scenario for the groups would be a tax penalty levied well after the November 6 election.

 

GOING EXPLICIT

Groups have found a quick solution in yet another quirk in the law: When the court ruled for more disclosure in March, the ruling did not apply to ads that are explicitly political. Such ads would overtly call for election or defeat of a candidate.

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By law, these ads qualify as express advocacy and so, according to the law's common interpretation, have to take up less than half of the groups' budgets.

Democratic Representative Chris Van Hollen, who was the plaintiff in the case leading to the court deadline, said he hoped that it would push 501(c) groups to breach the amount they can spend on politics and cost them their tax-exempt status.

"You have a lot of these groups masquerading as educational organisations, but really doing political work," Van Hollen said.

"This will make it more difficult to do that high-wire act without falling off."

But on Monday, AFP, founded by conservative billionaire brothers David and Charles Koch, launched an 11-state, US$6.2 million sweep with an ad calling to "replace Obama".

Together, Crossroads GPS and AFP have spent about US$106 million this election cycle through the end of August, almost double the ad spending of Republican presidential candidate Mitt Romney, according to Republican media consultancy SMG Delta.

"We will not be doing any disclosures as we're ending any efforts that would require disclosure," said AFP President Tim Phillips. Crossroads declined to comment.

The US Chamber of Commerce, the nation's largest lobbying group for businesses and a traditional backer mostly of Republicans, also plans to push ahead.

Chamber Political Director Rob Engstrom said, "Rest assured, the chamber will continue to educate voters on the issues important to the business community."

Priorities USA, aligned with Democratic President Barack Obama, and several other liberal groups including Planned Parenthood Action Fund did not return requests for comment.

- Reuters

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