TOP SECRET How Shady Operators Used Sham Non-profits and Fake Corporations to Funnel Mystery Money into the 2012 Elections How Shady Operators Used Sham Non-profits and Fake Corporations to Funnel Mystery Money into the 2012 Elections Brendan Fischer, Staff Counsel Center for Media and Democracy Blair Bowie, Democracy Advocate U.S. PIRG Education Fund Acknowledgements The authors would like to thank Mike Russo of the U.S. PIRG Education Fund and Lisa Graves of the Center for Media and Democracy for their thoughtful review, U.S. PIRG Education Fund Democracy Intern Steven Franks for wading through large amounts of data on shell corporations, and the data team at Demos for helping to provide specific figures. The Center for Media and Democracy (CMD) is a nonpartisan, non-profit watchdog and investigative reporting group based in Madison, Wiscon- sin, which publishes PRwatch.org, ALECexposed.org, SourceWatch.org, and BanksterUSA.org. CMD has received numerous awards for its investigations into corporate influence on democracy, policy or media, including the “Izzy” I.F. Stone Award for outstanding achievement in independent media, the Sidney Award for investigative journalism (shared jointly with The Nation magazine), and the Professional Freedom and Responsibility Award from the Association for Education in Journalism and Mass Communication, Culture and Critical Studies Division. U.S. PIRG Education Fund conducts research and public education on behalf of consumers and the public interest. Our research, analysis, reports and out- reach serve as counterweights to the influence of powerful special interests that threaten our health, safety or well-being. With public debate around important issues often dominated by special interests pursuing their own narrow agendas, U.S. PIRG Education Fund offers an independent voice that works on be- half of the public interest. U.S. PIRG Education Fund, a 501(c)(3) organization, works to protect consumers and promote good government. We investigate problems, craft solutions, educate the public, and offer meaningful opportunities for civic participation. Cover photos: Flickr.com/vgm8383; eskay lim/Bigstock (inset) Design & layout: Alec Meltzer TABLE OF CONTENTS Executive Summary ..................................................................... 1 Introduction ................................................................................. 2 Secret Money in the 2012 Elections ............................................ 6 Conclusion ................................................................................. 16 Endnotes .................................................................................... 18 Executive Summary Elections Confidential describes how secret do- • Dark money non-profits reported spend- nors poured hundreds of millions into the ing over $299 million in the 2012 election; 2012 election through “social welfare” non- however, because these groups ran “issue profits that are really political vehicles and via ads” that need only be reported when aired shell corporations formed as conduits to hide a just before primaries or election day, the funder’s identity. total spending by these non-profits is cer- tainly much higher than was reported to The first post-Citizens United presidential elec- the FEC. Crossroads GPS, for example, tion cycle was bought and paid for by a handful told the FEC that it spent just under $71 of wealthy donors, but the corrosive influence million in the 2012 election cycle, but it of money in politics was amplified by the fact actually spent more than twice as much as that we don’t know who—or what—actually was reported, topping at least $165 million. provided much of the funding. • Dark money non-profits, which are not Despite widespread public support for disclo- supposed to have electoral intervention sure and decades of legal precedent supporting as a primary activity, will justify their tax- the public’s right to know the sources of elec- exempt status in the post-election period tion-related spending, voters were bombarded by engaging in activities like lobbying. with messages from secretly-funded, innocu- Incredibly, this qualifies as advancing the ously-named “dark money” non-profits that do “social welfare.” not disclose their funding sources. Even those groups that do disclose their donors received • A dark money group’s lobbying clout is millions from fake corporations that covered amplified by the fact that, come election the money trail. time, they can back an uncooperative law- maker’s primary challenger. Key findings include: • With both “dark money” non-profits and • Shell corporations that do not disclose the shell corporations, it is almost impossible sources of their funding funneled at least to identify violations of election or tax law, $17 million to Super PACs in the 2012 such as the infiltration of foreign funds. elections. • Nearly seventeen percent of all business contributions to Super PACs came from identified shell corporations. 1 ELECTIONs CONFIDENTIAL INTRODUCTION “There is not a crime, there is not a dodge, limit, threatening to drown out the voice of or- there is not a trick, there is not a swindle, dinary citizens who could not dream of giving there is not a vice which does not live by at such levels.1 secrecy…Publicity may not be the only But one of the most striking aspects of the thing that is needed, but it is the one thing 2012 elections is that average Americans can- without which all other agencies will fail.” not even estimate the level of corporate or special interest influence thanks to the amount of secret, undisclosed money flowing through —Joseph Pulitzer our election system. Although there has been wide public opposition to the U.S. Supreme Court striking down Congress’ power to regu- The 2012 elections were marked by a nearly late election-related spending, the majority of unprecedented level of secrecy, with entirely justices in the Citizens United case affirmed the anonymous donors pouring hundreds of mil- long-standing notion that the identity of do- lions of dollars into efforts to influence our nors who seek to influence elections should not vote. Sunshine might be the best disinfectant be kept secret. Ironically, in that very opinion but since the Citizens United ruling America which helped open the door for secret spend- has been living in the dark. ing in elections, Justice Kennedy laid out the three main virtues of transparency in elections, Thanks to hundreds of millions spent by “dark which are undermined by secret money. money” non-profits that do not disclose their donors and “shell corporations” that allow First, “[c]itizens can see whether elected offi- funders to disguise their identity while contrib- cials are ‘in the pocket’ of so-called moneyed uting to Super PACs, voters did not know the interests,” he wrote. source of nearly a third of all reported dollars spent by outside groups in the 2012 elections. Second, “transparency enables the electorate to make informed decisions and give proper weight Thanks to the U.S. Supreme Court’s 2010 deci- to different speakers and messages . [which sion in Citizens United v. FEC and related court provides] citizens with the information needed decisions, the vast wealth of for-profit corpo- to hold corporations and elected officials ac- rate treasuries and CEO bank accounts can countable for their positions and supporters;”2 now be released into an election and wealthy individuals can give to nominally independent Finally, “[r]ecordkeeping, reporting, and dis- Super PACs and non-profit groups without closure requirements are an essential means ELECTIONs CONFIDENTIAL 2 of gathering the data necessary to detect viola- want something in return for the millions they tions” of campaign finance law, he noted. And invest getting a candidate elected. as the D.C. Circuit wrote in SpeechNow.org v FEC, a case that followed Citizens United and Justice Kennedy is correct that transparency gave rise to Super PACs, “requiring disclosure allows voters to discern “whether elected of- of such information deters and helps expose ficials are ‘in the pocket’ of so-called moneyed violations of other campaign finance restric- interests.” But unfortunately the Court’s un- tions, such as those barring contributions from derstanding of ‘in the pocket’ is too narrow a foreign corporations or individuals.”3 descriptor for the distortion of our democracy by Big Money. There is a deeper, more system- Justice Kennedy and four other justices got ic corruption that the Supreme Court failed a lot wrong in Citizens United, and as a result to recognize: how democracy is undermined helped unleash a torrent of money into our when an elite set of wealthy donors and in- elections that has diminished the voices of av- terests dominate campaign financing, thereby erage voters. having a much larger influence over who can take office—and what that officeholder’s pri- But, Citizens United accurately described why orities will be—than the average donor. transparency in election spending is so vital demonstrating that reforms to mandate dis- Although campaign financing has long been closure of the sources of money in politics are dominated by the very wealthy, Citizens United constitutionally sound and providing a frame- exaggerated this problem to a new level, con- work for understanding how secrecy tainted centrating the influential donor class to just a the 2012 elections: handful of individuals who can give donations that are $1 million or larger. This truth is best embodied