California Donor Disclosure Case Exposes How Nonprofits Can Be Exploited in Politics

Well-funded nonprofit organizations that disclose little about their donors or how they operate are playing a larger role in elections across the country, the Washington Post reports.

Groups such as Americans for Job Security (AJS), Americans for Responsible Leadership (ARL), and the American Future Fund reported more than $68 million in campaign-related expenditures during the past two national election cycles. Critics of such "dark-money" groups, however, point to Arizona-based ARL and a second conservative nonprofit group, which helped raise $15 million for ballot-initiative campaigns in California in 2012 while hiding the identity of donors, as proof that such groups are subverting the democratic process.

The California effort was spurred by the success of an earlier conservative advocacy campaign in Wisconsin to roll back union rights that was funded in part by the billionaire Koch brothers. Led by Tony Russo, a Republican strategist in Sacramento, and Jeff Miller, a fundraiser who once headed finance operations for former Governor Arnold Schwarzenegger, the California effort hoped to raise $50 million to fight Proposition 30, a temporary tax-hike measure backed by Governor Jerry Brown, and in support of Proposition 32, which would bar unions and corporations from using payroll deductions to raise money for political campaigns.

By the fall of 2012, Russo and Miller had about $25 million in donations for issue ads, but because the money had come in later than planned, a lawyer advising the team suggested swapping funds with other nonprofit organizations as a way to get the funds into the state without running afoul of disclosure rules. Over the course of five weeks, $24.55 million was transferred from Americans for Job Security in Virginia to the Center to Protect Patient Rights (CPPR), a Phoenix-based nonprofit with ties to the Kochs. At the time, CPPR official Sean Noble was also working as a consultant to Koch Industries. According to the Post, CPPR dispersed the funds to the American Future Fund in Iowa and ARL in Phoenix. When $11 million was transferred from ARL to Russo's effort, the large sum from an obscure, out-of-state group caught the attention of Common Cause, which filed a complaint with the state's Fair Political Practices Commission.

Two days before the 2012 election, the California Supreme Court ordered ARL to reveal the source of its contribution. ARL named CPPR, which in turn pointed the finger at AJS in Virginia. After a year-long investigation, the commission and the California attorney general's office absolved the Virginia nonprofit of wrongdoing but fined CPPR and ARL a combined $1 million. The fair practices commission also ordered two state political committees, including the Small Business Action Committee to pay the state $15 million. That decision stunned SBAC president Joel Fox. "We cooperated with this inquiry from the beginning and were told by the attorney general's office we were clean," he told the Post. Besides, he added, "I don't have $11 million sitting around."

Tom Hamburger. "California Donor Disclosure Case Exposes How Nonprofits Play in Politics." Washington Post 11/04/2013.