Millions in Masked Money Was Funneled Into the 2018 Elections

The 2018 election cycle has attracted record spending by partially-disclosing groups that give the appearance of reporting at least some of their donors but, in reality, are little if any more transparent than other ‘dark money’ groups.

Voters may not be left totally in the dark about these groups’ spending but, in many cases, the identities of funders behind the spending ultimately remain hidden. By deploying novel tactics to mask their financial activities, these groups have been able to keep donors secret while giving some illusion of more transparency.

Partially-disclosing groups have already reported $405 million in 2018 election spending, according to federal election records analyzed by the Center for Responsive Politics.

This is the third consecutive election cycle that the portion of outside spending made up by partially-disclosed groups has more than doubled. Making up more than 31 percent of all outside spending, spending by partially disclosing groups this election cycle is up from 12.5 percent in 2016 and 6.1 percent in 2014. The 2018 election cycle is even on track to amass around $100 million more in spending by partially disclosing groups than the previous record of $306.9 million in the 2012 election cycle.

Political ad spending by partially-disclosing groups is also on the rise.

On top of the record-breaking portion and volume of spending by partially-disclosing groups, 2018 has also seen more ‘dark money’ funding political advertising than the last two election cycles, according to a new Wesleyan Media Project report produced in partnership with the Center for Responsive Politics.

Partially-disclosing groups have accounted for over 42 percent of TV ads during the 2018 election cycle, the Wesleyan Media Project’s research in partnership with the Center for Responsive Politics found.

More than half of the group-sponsored ads for GOP House candidates are from partially-disclosing groups and nearly half of the outside group ads backing Senate Democrats come from partially-disclosing sources.

FEC disclosures also corroborate the growing role of partially-disclosing groups in 2018 elections, and the overall decline in the overall percentage of outside spending that can be attributed to fully-disclosing groups.

Groups that do not fully disclose donors have been responsible for over 50 percent of 2018 elections’ outside spending reported to the FEC, up from just 27.8 percent in the 2016 election cycle and 40 percent in 2014 but slightly lower than 59.6 percent of 2012 election spending accounted for by non-disclosing or partially-disclosing groups reporting to the FEC.

The overall percentage of spending made up by fully-disclosing groups dropped from 72.2 percent in 2016 to less than 50 percent for the 2018 election cycle.

While partially-disclosing groups have seen the sharpest jump in spending, ‘dark money’ groups that patently reject disclosure altogether have continued to play a substantial role in 2018 elections.

‘Dark money’ groups have reported spending more than $750 million on independent expenditures since 2010 — the year the Supreme Court’s Citizens United decision came down — and even more on political activities framed as “issue” advocacy that may not be reported to the FEC.

The number of ‘dark money’ television ads has hit a four-cycle high, with around a quarter million ads in the 2018 election cycle as of October 25, 2018. Despite the significant number of ads, televised ads by non-disclosing ‘dark money’ make up a smaller portion of overall TV ad spending by outside groups than the 2012 and 2014 election cycle — a finding that may be explained in part by the rising overall spending on elections and the increase in spending by partially-disclosing groups.

Democrats Dominate “Dark Money” Spending

Democrats were later to jump on the dark money bandwagon, but quickly ramped up momentum in recent years — a trend that has only escalated during the 2018 election cycle.

The 2018 election has set new records for the number of ‘dark money’ ads run backing Democrats in both House and Senate elections as well as the share of overall Democratic outside spending in congressional races those ads account for, according to the Wesleyan Media Project’s report. More than 90,000 dark money ads have aired for Democrats in Senate elections and nearly 40,000 more have aired in support of Democratic House candidates, totaling around 40 percent of all outside group ads supporting Democrats running for Congress.

Democratic ‘dark money’ groups also make up a larger portion of outside spending backing candidates than Republicans in House and Senate races, with 41 percent of outside group ads for Democrats in House races paid for by ‘dark money’ groups compared to 28 percent for Republican candidates. ‘Dark money’ has accounted for 43 percent of outside group ad spending on Democratic candidates running for the Senate, slightly higher than the 39 percent of ads for Republican candidates that have been funded by ‘dark money.’

For the first time since the Wesleyan Media Project partnership with the Center for Responsive Politics began collecting data on TV ad spending, the portion of ‘dark money’ backing Democrats exceeds the share backing Republican candidates.

Overall, more than 38 percent of TV ads during the 2018 election cycle have come from ‘dark money’ groups, the report found.

And ‘dark money’ groups funnel money into elections through multiple channels, with millions more dollars spent on Facebook and other digital platforms. Because Facebook only requires the funders of digital ads purchased on behalf of pages to be subject to a limited outside confirmation of a funder’s identity once an ad buyer is approved to purchase ads on the platform, unincorporated entities with innocuous-sounding names that do not exist in any other physical forms can spend unlimited sums with little accountability or disclosure. Without FEC filings, incorporation records, tax documents or other disclosure requirements, it is almost impossible to uncover who is actually behind many of these ads or who is funding them.

Despite hundreds of millions of dollars in spending, donors to most of the ‘dark money’ groups and partially disclosing groups that mask their funding sources remain hidden from voters.

Federal Regulators’ Shot in the Dark

Midterm elections have also provided a test case for new FEC guidance intended to increase transparency of ‘dark money’ spending. The guidance was an offshoot of a multi-year battle over whether a politically active 501(c)(4) nonprofit spending in support of candidates in federal elections should be required to disclose its donors. After a long series of appeals, the Supreme Court declined to stay a lower court ruling that struck an FEC regulation that created a disclosure loophole allowing ‘dark money’ groups to avoid statutory disclosure requirements because it was deemed at odds with statutory disclosure requirements. Chief Justice Roberts issued an order without opinion staying the district court ruling but the full Court vacated the Chief’s order and denied the stay — giving the FEC just 45 days to come up with new regulations that comply with the statute in a move that many transparency advocates hoped could have a substantial impact on the level of disclosure behind spending in 2018 elections.

In addition to the enduring rule that a ‘dark money’ group spending on independent expenditures explicitly advocating for or against a candidate is required to report that spending to the FEC, the new FEC guidance requires all ‘dark money’ groups that spend at least $250 on independent expenditures explicitly advocating for or against a candidate to report every donor who gave at least $200 for “political purposes” in the calendar year. A key issue with that guidance, however, is that there is not yet a clear definition of “political purposes” in this context. The guidance is subject to change and clarification over the course of the FEC rulemaking process, but years of indecision amongst FEC commissioners on the topic does not bode well for clarity any time soon.

Already, we’ve seen groups finding ways to skirt the new guidance in FEC reports during the final month of the election cycle.

Some groups have simply listed other ‘dark money’ groups as their donors, giving the appearance of disclosure but masking the ultimate source of funding, while others have pled their cases to the FEC arguing why they should not have to disclose.

Of the top spenders during the time frame impacted, just four groups reported any contributors in the quarterly filings after the FEC guidance went into effect. Even among the four groups that did report donors to the FEC, not a single one reported contributors outside of ‘dark money’ groups or other organizations that were already publicly tied to the spender.

Union-affiliated groups made up much of that disclosure. Two of the groups that disclosed are Unite Here Arizona and Working People Rising, union-affiliated nonprofits that unsurprisingly reported donations from unions and other union-affiliated groups.

The bulk of Working America’s reported funding was from For Our Future Action Fund, a non-disclosing 501(c)(4) nonprofit organization with an affiliated super PAC primarily funded by unions, along with additional funding directly from a union-affiliated group.

Another 501(c)(4) nonprofit spending $162,686 in 2018 elections, Mi Familia Vota, reported just one contributor: a 501(c)(4) ‘dark money’ group called Arizona Wins, which spent another and reported independent expenditures to the FEC during the time frame subject to the new guidance but has yet to disclose its donors.

Despite the limited additional disclosure by groups who reported contributors under the new FEC guidance, more groups simply claimed they are not subject to the requirement.

Many of the groups’ arguments simply included claims that they had not received any reportable contributions earmarked for independent expenditures or political purposes.

Other groups took this a step farther, including notes claiming to have adopted policies against ever accepting funding earmarked for political purposes despite spending tens of millions of dollars on politicking — a foreboding sign for how the FEC’s new disclosure guidance will play out going forward.

While it may seem on first glance that this was a direct response to the new guidance, some groups beat the FEC to the punch, including notes in earlier FEC filings months earlier claiming to have adopted policies against donations earmarked for “political purposes.”

Groups leading the way in deploying this tactic include the biggest reported ‘dark money’ spender of the 2018 election cycle, a liberal 501(c)(4) nonprofit called Majority Forward.

Majority Forward has quickly racked up a tab exceeding $45 million in 2018 elections, making it the top spender among ‘dark money’ groups disclosing independent expenditures to the FEC with four times as much money flowing into elections as the next highest spender. Moreover, Majority forward has deep ties — including shared employees and office space — with Senate Majority PAC that were even noted by the IRS in its application for tax-exempt status approved last year.

Despite IRS rules prohibiting 501(c)(4) nonprofit organizations from having politics as a primary purpose, little social welfare work or activity can be easily traced back to Majority Forward beyond its discernibly political activities.

In what may be the understatement of the decade, Majority Forward projected their advertising spending to be $6,939,000 for 2017 and just $1,364,500 for 2018 in the group’s IRS application to be recognized as a tax-exempt 501(c)(4) nonprofit organization.

Nevertheless, Majority Forward has yet to disclose its donors to the public — and it is unlikely that will change in the near future, even under the FEC’s new guidance.

Majority Forward has repeated told the FEC that it doesn’t have to disclose who gives money because it “does not accept contributions earmarked for a specific political purpose,” a disclaimer that has mirrored the evolution of FEC guidance to encompass rejection of all donations “earmarked for independent expenditure activity or for other political purposes in support or opposition to federal candidates.”

Since then, a number of other Democratic and liberal-leaning groups have followed suit, including the line verbatim in third quarter FEC filings. As of the final quarterly filings of the 2018 election cycle, these group included the Texas Organizing Project, Taking Texas to the Top, Patriot Majority and Floridians for a Fair Shake.

Floridians for a Fair Shake is fiscally sponsored by 501(c)(4) tax-exempt nonprofit Sixteen Thirty Fund. This kind of fiscal sponsorship scheme can provide an additional buffer to conceal dark money by allowing a 501(c)(4) nonprofit organization like Sixteen Thirty Fund to provide a legal home and steer money from secret donors to a number of different unincorporated entities that are consequently not required to file separate tax returns — non-entities operating with effectively no paper trail.

Read broadly, these blanket policy statements could potentially preclude almost any future disclosure by nondisclosing politically active nonprofits spending in elections by this conglomerate.

Avoiding disclosure of ‘dark money’ sources has superseded partisan or ideological leanings, with groups like Heritage Action including a broad claim that “no reportable contributions were made for the purpose of furthering these expenditures,” noting a policy that general treasury funds are instead used for independent expenditures — a structure that, by design, would also preclude the ability to parse out reportable contributions that are used for independent expenditures.

Longtime spenders like the US Chamber of Commerce have gone as far as to include a disclaimer stating that it does not solicit or accept funds earmarked for political purposes in its membership application materials, but that is also nothing new.

Instead of more dislosure, a flood of ‘dark money’ donations to groups like super PACs that are required to disclose donors has led to a substantial increase what some have termed “grey money” — spending by partially-disclosing groups which either don’t reveal all of their donors or take money from ‘dark money’ sources.

Although ‘dark money’ groups and other non-political committees have continued to spend millions on independent expenditures since the third quarter FEC filing deadline, the new FEC guidance does not set the next deadline to disclose donors until January 15 — months after the midterm elections are over — leaving voters in the dark about who has been spending on political messaging to boost different candidates as they go to the ballot box.

As federal regulators attempt to make progress to increase disclosure about ‘dark money’ spending in elections, the tactics deployed by operatives and donors behind that ‘dark money’ spending are continuing to get more complex at an even more rapid pace — making it hard for federal regulators to keep up.

While spending by groups that only partially disclose funding sources is nothing new, evolving tactics to hide the ultimate sources funding while giving the appearance of more disclosure have led to an onslaught of this spending during the 2018 election cycle. While it is hard to distinguish these partially disclosing groups from “grey” money groups that disclose some funding sources but not others, the precipitous increase in spending by groups that give the appearance of disclosure while still masking their donors has been a hallmark of this election cycle. This may only increase as more ‘dark money’ groups and other non-political committees mask their funding sources by reporting other ‘dark money’ contributors under the FEC’s new guidance.

The high levels of partial disclosure suggest that dark money is not disappearing, but rather is being funneled through super PACs and other outside spending groups that give the appearance of disclosing their donors.