In his opinion in Citizens United striking down the ban on corporate independent expenditures, Justice Kennedy anticipated a “campaign finance system that pairs corporate independent expenditures with effective disclosure,” thereby “enabl[ing] the electorate to make informed decisions and give proper weight to different speakers and messages.” Yet the current law’s disclosure system was not created in anticipation of the widespread independent expenditures that Citizens United has brought.
In response, some in Congress have moved to fill the gap, with Senators Wyden and Murkowski introducing the “Follow the Money Act of 2013” and Congressman Van Hollen re-introducing the DISCLOSE Act. And a group of law professors have petitioned the Securities and Exchange Commission to promulgate a rule requiring corporate disclosure of political spending.
As these initiatives percolate, it’s worth reviewing what federal law currently requires when organizations run ads to influence federal elections. The short answer: political organizations generally must disclose all donors that provide more than $200 in a calendar year, while nonpolitical organizations generally can avoid public disclosure by ensuring that incoming funds are not earmarked for particular election advertisements.
Political Organizations: Super PACs and 527 Organizations
While some point to super PACs as a symbol of “what’s wrong” with the post-Citizens United system, they largely operate in a manner consistent with Justice Kennedy’s vision: unlimited spending paired with robust disclosure. While the term “super PAC” is sometimes used loosely to describe any type of group that spends unrestricted money, it actually refers to a political committee that registers with the Federal Election Commission (FEC); accepts unlimited contributions from individuals, corporations, and labor unions; and warrants that it will not use these unlimited funds to contribute to candidates or political parties or coordinate its communications with them. Like other FEC-registered political committees, super PACs disclose to the public all donors that contribute more than $200 in a calendar year.
Years before Citizens United allowed late-night comedians to have their own super PACs, groups that wished to spend outside federal contribution limits operated as “527 organizations.” This name was always a bit misleading: every organization in the United States that operates primarily to influence elections – from Bartlet for America to the Republican National Committee to the local alderman’s campaign – is a section 527 organization under the Internal Revenue Code. But the term came to mean something specific in the 2004 election cycle: a group that operated outside federal contribution limits by contending that their “major purpose” was not federal campaign activity. The Citizens United decision rendered the 2004-era “527 organization” somewhat obsolete. Nowadays, a political organization that wishes to make independent expenditures in federal races can register with the FEC as a “super PAC” and still accept unlimited contributions. And a section 527 organization that avoids registering with the FEC still must publicly disclose to the Internal Revenue Service the name of each donor that contributes more than $200 per calendar year.
The bottom line: if your group’s major or primary purpose is to influence elections, your donors that give more than $200 per year must be publicly disclosed.
Prior to Citizens United, nonpolitical corporations (with some limited exceptions) could not spend a dime on advertisements expressly advocating the election or defeat of a federal candidate. Now, these groups – which includes section 501(c)(4) social welfare organizations, section 501(c)(6) trade associations, for-profit corporations, and other organizations that have a primary purpose other than influencing elections – may spend without limit, as long as they do not coordinate with candidates or political parties.
Which donors must they disclose? That is the source of some confusion and dispute. The Federal Election Campaign Act says that any person that donates more than $200 for the purpose of “furthering an independent expenditure” must be disclosed. But the FEC’s regulations are narrower: they say that disclosure is required only when a person donates more than $200 for the purpose of “furthering the reported independent expenditure.” In other words, as long as the donor does not earmark the contribution for a particular advertisement, the regulation could be read to suggest that disclosure of that donor is not required. Not surprisingly, very few nonpolitical organizations that make independent expenditures disclose any donors to the FEC.
Early in 2012, a federal district court ordered that any organization that makes “electioneering communications” – television and radio advertisements within 30 days of a primary or 60 days of a general election, which refer to a clearly identified candidate but do not expressly advocate the election or defeat of a candidate – had to disclose to the FEC every person that had donated $1,000 or more to the organization since January 1 of the preceding year, regardless of whether the funds were earmarked for that purpose. But even this decision, celebrated at first as a victory for disclosure, had little ultimate impact: organizations that previously made “electioneering communications” began making “independent expenditures” instead, thereby falling under the more permissive rule described above. And later that year, a federal appeals court reversed the lower court decision (the case is now back before the lower court).
Don’t Forget the States
The focus on the disclosure regime at the federal level can lull nonpolitical organizations into thinking that donor disclosure is never required. But for those that play in nonfederal elections or that engage in grassroots lobbying activity at the state or local level, donor disclosure sometimes is required. Navigating the laws of 50 different states can be awfully difficult for nonprofits, particularly smaller ones, but has become necessary in an environment where many donors wish to influence nonfederal elections and legislation without being disclosed. We’ll talk about these laws in more depth in a future post.