last week’s column, I laid out the problem of nonprofit organizations, especially 501(c)4, “social welfare” organizations being used to channel money toward campaigns while keeping their donors secret. In fact, for all the ink spilled concerning super PAC committees, which must reveal donors, according to iWatch News, these nonprofits have been spending more money on the 2010 campaigns than the super PACs. The trend is now to start a super PAC and a C4 organization at the same time, then have the skittish donors, especially corporations that don’t want the public to know that they are backing specific candidates, use that money for campaign ads done by the C4 and give some of the money from the C4 to the super PAC, which still hides the original source of the money.In
This use of C4s greatly overreaches their charter as laid down by the Internal Revenue Service (IRS):
The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity.
However, the law is only as good as the enforcement by the IRS and Federal Election Commission (FEC) and they publicly haven’t come down hard on this abuse. It is unlikely that these two agencies will be able to effectively enforce the rules before the election, and the damage will be done after the election even though the Democrats have suggested that the IRS do more to enforce the law. The Democrats have also used the same super PAC/C4 model, but have not raised the type of money culled by the Republicans, whose various super PAC/C4 combination groups have raised the most money in the campaign. One of the biggest examples is Karl Rove’s American Crossroads super PAC and its sister C4 organization, Crossroads GPS.
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Another problem is that these C4 organizations, which are clearly set up to primarily do election ads and spending, can dismantle themselves after the election and avoid any penalties once they are abolished. Adam Skaggs of the Brennen Center for Justice told me in a recent interview that these C4 groups have become like “shell companies” that are “money laundering” for elections and have stepped way beyond their bounds of social welfare. Because of the recent abuse, there has been a push to try to reform these errant C4 groups for blatantly ignoring their nonprofit charters. The New York Times exposed how widespread the problem is in a news story last week:
The growing role of issue groups has prompted a rash of complaints and lawsuits from watchdog organizations accusing groups like the American Action Network, Crossroads and the pro-Obama Priorities USA of operating as sham charities whose primary purpose is not the promotion of social welfare, but winning elections. Efforts in Congress to force more disclosure for politically active nonprofit organizations have been repeatedly stymied by Republicans, who have described the push as an assault on free speech.
“These groups are being used as a conduit to hide from voters the identity of people and corporations who are bankrolling these television ads, which are designed to influence the outcome of elections,” said Representative Chris Van Hollen, Democrat of Maryland.
So, there are attempts now in Congress to force C4 groups to disclose their donors. The DISCLOSE Act will be coming up for a vote in the House of Representatives, but most don’t believe that any reforms will pass this year that would stem the flow of this lucrative but secret money flow.
While I agree that there is great abuse by using these C4 organizations, I am concerned that we shouldn’t throw the baby out with the bathwater in forcing C4s to reveal their donors. I have personal experience with how important it is for people to associate with a group in private under the protection of our freedom of association rights as outlined in the Constitution’s First Amendment. It is frustrating that these irresponsible C4 groups are threatening an important safeguard by abusing the system for rich individuals and corporations to play havoc with our elections behind the veil of anonymity.
I founded and ran a 501(c)3 nonprofit organization, the Project on Military Procurement (now the Project on Government Oversight, POGO, where I still serve as treasurer and on the board of directors) in the 1980s. We exposed fraud and waste in the Pentagon, including weapons that didn’t work and the infamous overpriced spare parts such as the $7,622 coffee brewer. I was successful in exposing so much of the internal fraud in a notoriously evasive Pentagon because I had a large group of sources in the building and in defense companies, who anonymously leaked me unclassified information which I took to the media and the Congress. We were especially successful in exposing fraud and mismanagement in many Lockheed programs, and Lockheed decided to go after me to find out my sources in the Pentagon and in their company.
One of Lockheed’s employees came to my office to tell me her story of mismanagement, and then she filed a wrongful termination suit against Lockheed. Because she filed the lawsuit, Lockheed subpoenaed me to talk about what she told me in the office. They had a right to do that because she had decided, by filing a lawsuit, to go public. However, Lockheed informed me that they expected me to bring all documents from other Lockheed and Pentagon sources who came to me in confidence and said that I was to disclose all my sources that were connected to Lockheed or Lockheed programs in the Pentagon in this deposition.
I knew that I had to protect my sources at all costs because I knew how badly they had treated their employees and Pentagon employees who had crossed them in the past. I planned to use some portion of the law to say that I would not name sources. Lockheed let me know that if I did not name the sources, they were willing to go to court to find me in contempt and their attorneys threatened to put me in jail and fine me monetarily on a daily basis until I gave them the names. I didn’t really have a reporter shield law to protect me because we investigated wrongdoing and gave our information to reporters and the public, but in this pre-Internet era, we didn’t publish the information ourselves in a journalistic way.
Luckily, I had a great attorney named Thomas Mack, who had represented other nonprofit groups from having to disclose their sources. The law was on my side because of the right of freedom of association, which allowed people to associate with organizations in private. The past precedents for this protection included landmark cases where the NAACP did not want to give up their membership lists to the Ku Klux Klan in the 1950s because they feared for the physical safety of their members. As quoted in a follow-up whistleblower case, Garde v. NRC:
In a series of cases beginning with NAACP v. Alabama,357 U.S. 449, 78 S.Ct. 1163, 2 L.Ed.2d 1488 (1958), the Supreme Court has held that, absent a compelling government interest, an organization could not constitutionally be compelled to identify the names of its members, agents, contributors, or recipients of contributions if it could be demonstrated that such disclosure would subject those identified to harassment or retaliation by virtue of their association.
Lockheed didn’t care about this argument and proceeded to subject me to an intense, daylong deposition after their attorney threatened me on the phone that they would send me to jail and personally bankrupt me if I didn’t give them the names. Whenever I refused to give them the names of my sources, they certified the transcript of the deposition and told my attorney that they were going to immediately go up to the court and get an order to fine me and jail me. My attorney was concerned enough to already have the legal papers with the arguments on the freedom of association where my sources had a right to not have their names disclosed as they chose to “associate” with my nonprofit organization.
After several nail-biting bouts of dealing with Lockheed, including their hired-gun attorney early on threatening to jail me while my infant son was having heart surgery, we stuck to our principles. Lockheed promised to go to court to jail me, but in the end, because they knew that they would lose to the precedent of freedom of association, they dropped it right before my attorney had to drive up the court to file the papers to keep me out of jail. Lockheed was bluffing up to the end, but I was very grateful for this protection for any sources that wanted to come to my organization so I could promise them that their names would not be disclosed.
So, I was nervous about anything that could put a dent in this protection that protected African-Americans from being threatened and harassed by the Klan and allowed me to protect sources who were trying to expose wrongdoing without having to destroy their careers.
Of course, there is a huge difference between keeping membership rolls and sources protected versus billionaires and wily companies that want to dump millions of dollars into the elections without accountability. Minority leader Sen. Mitch McConnell is also trying to use this freedom of association to say that people like the Koch brothers and corporations that want to push the outcome of the election to get favoritism for their profits should be allowed total secrecy. This bastardization of an important freedom does cry out for reform, but I don’t want to ruin a right that protects so many people.
The DISCLOSE Act, that has been introduced by Democrats in the Congress, has tried to thread the needle on these rights and make it so the common person who wants to associate with nonprofit organizations doesn’t have to give up their rights. Jonathan Backer, from the Brennen Center, laid out how the DISCLOSE Act will try to thread that needle in a Huffington Post blog:
DISCLOSE, which has drawn so much ire from McConnell, would apply to all organizations organized under sections 501(c) and 527 of the Internal Revenue Code that engage in political activity. It requires such organizations to disclose information about donors who contribute more than $10,000. This legislation would apply to a diverse array of organizations such as: the National Rifle Association, MoveOn, the Chamber of Commerce and “social welfare” organizations supporting President Obama and Governor Romney’s campaigns. The legislation even gives donors the option to remain anonymous by designating contributions to covered organizations for non-campaign-related activities.
The DISCLOSE Act does have protections for people who want to associate with the non-election “social welfare” goals of a nonprofit organization by allowing them to designate that their donation over $10,000 must not be used in any election or campaign. The organization can protect their members and contributors by setting up a separate bank account only for election and campaign work and would only need to reveal those donors.
So, much of this is a balancing act between two sets of rights and not allowing those who plan to abuse the system from getting protections that are unfair. Adam Skaggs of the Brennen Center pointed out how this current indiscriminate privacy protection for election money also hurts the ability to root out corruption to those who are donating the money. He said in an interview that if a company decides to use its money for a certain political goal, the public also has the right to vote “with their wallet” to boycott buying that company’s products. In other words, the company had the right to make a monetary political move, but they also, as a public entity, have to be transparent about it and accept any public blowback to their stance. Wealthy individuals also have that right to put in large amounts of money and need to be ready for public reaction. (McConnell is concerned that people such as the Koch brothers would not be able to protect themselves from harassment if they were forced to be completely public.) These groups don’t have the right to hide their political activity with the equivalent of a C4 Swiss bank account, but have all the right in the world to give money to a C4 for their legitimate social welfare activity (if they really have any).
Skaggs also points out that having this election activity public is the only way that the media and the public can check and see if there was a quid pro quo for the political donations once the politician gets into office. It is entirely realistic to believe that these large donors and corporations aren’t just giving this money out of a sense of civic duty, but will expect something from their politicians if they are successful in getting into office. Without public exposure of these two groups, we would never know the special deals that could be made purely in favor for the profit of these high-rolling individuals or their corporations.
Some in the reform world think that the DISCLOSE Act needs to go further, especially since many of these groups have already proven that they are willing to grossly bend the rules. Gary Bass, the former founder and director of the watchdog organization OMB Watch and now the head of the Bauman Foundation, believes that because C4 organizations are not allowed to have their “primary” activities be electioneering, they need to have an imposed cap on how much money can be given to them for campaign work. He suggests that these C4 groups only be allowed to have 25 percent of their funding designated for campaigns and that this will help flush out the groups that have been created solely as fronts to grind out massive campaign donations in secret. I agree that this type of restriction needs to be added because these groups will twist around any IRS language that is as vague as saying that electioneering cannot be their “primary” goals.
When this extra protection was presented to Skaggs as a next step or addition to the DISCLOSE Act, he agreed that unless the IRS and FEC really crack down on this abuse of the C4 charter, that there may have to be limits on even the designated election money.
Because the freedom of association right was vital in protecting my sources from a vengeful Lockheed and Pentagon, I would have hoped that we would never have to try to split the baby on these rights. However, in light of the gross abuse by both parties (albeit, as mentioned in last week’s column, the conservatives outspent the liberal groups, $78 million to $16 million in the 2010 election), I believe that we have to, in the name of transparency, walk the narrow road of protecting basic rights for truth tellers while preventing those seeking to buy influence in our elections from hiding from the public.
Of course, any reforms that may get passed after the election are only as good as their enforcement, so the good government groups and the transparency advocates will have to be constantly vigilant that the oversight agencies, the IRS and the FEC, will not allow the bastardization of nonprofit laws by those who cynically want to buy into the political system using “social welfare” front groups. As a big supporter of nonprofit organizations to do good in our society and act as watchdogs for the public, I hate to see this hijacking of the law go unpunished and we need reforms established to stop them from doing it in the next election. “Eternal vigilance is the price of freedom.” Our nonprofit organizations and our election process deserve better.