Sunday, August 5, 2018

Court Closes Campaign Finance Disclosure Loophole

Chief Judge Beryl A. Howell (D.D.C.) ruled on Friday in CREW v. FEC that an FEC regulatory loophole that allows 501(c)(4) organizations and cooperating super-PACs to avoid statutory disclosure requirements was invalid. The ruling strikes the FEC regulation, invalidates the FEC's dismissal of CREW's administrative complaint against Crossroads GPS, and means that the FEC has to reconsider the complaint for failure to disclose contributors. Judge Howell stayed the ruling to give the FEC time to issue valid interim regulations.

The ball's now in the FEC's court. Depending on what the FEC does, this ruling could strike a serious blow to 501(c)(4)s and cooperating super-PACs that use the regulatory loophole to fly under the radar and evade disclosure of contributors.

The case tests the FEC disclosure reg at 11 C.F.R. Sec. 109.10(e)(1)(vi) against the authorizing federal law at 52 U.S.C. Secs. 30104(c)(1) and (c)(2)(C). The reg requires a non-political committee (like a 501(c)(4) organization) to report "[t]he identification of each person who made a contribution in excess of $200 to the person filing such report, which contribution was made for the purpose of furthering the reported independent expenditure." The statute requires a non-political committee "who makes independent expenditures in an aggregate amount or value in excess of $250 during a calendar year" to report "the identification of each person who made a contribution in excess of $200 to the person filing such statement which was made for the purpose of furthering an independent expenditure."

The court explained how the reg falls short:

First, the challenged regulation wholly fails to implement another disclosure requirement, mandated in 52 U.S.C. Sec. 30104(c)(1), requiring reporting not-political committees to identify non-trivial donors, as well as the date and amounts of their contributions, when the contributions were made for political purposes to influence any election for federal office, or at the request or authorization of a candidate or the candidate's agent. Such contributions may, in fact, be intended to fund the not-political committee's own contributions and be routed to candidates, political parties, or political committees, such as super PACs. Second, the challenged regulation impermissibly narrows the mandated disclosure in 52 U.S.C. Sec. 30104(c)(2)(C), which requires the identification of such donors contributing for the purpose of furthering the not-political committee's own express advocacy for or against the election of a federal candidate, even when the donor has not expressly directed that the funds be used in the precise manner reported.

These disjunctions between the reg and the statute allow non-political committees and cooperating super-PACs to evade disclosure requirements. The court explains how this works:

Reading subsection (c)(1) out of the statute makes a difference. By contrast to the donors covered in subsection (c)(2)(C), who contributed to support the not-political committee's independent expenditures . . . the donors covered in subsection (c)(1) contributed to not-political committees to support political efforts in connection with federal elections, which contributions may be used by the not-political committee, in some cases, to contribute directly to candidates or political committees, including to fund super PACs. For example, super PACs set up only to make independent expenditures, may receive unlimited contributions from donors, including not-political committees, to fund their independent expenditure activity. While super PACs, as political committees, must disclose their contributors, those disclosed contributors may serve merely as pass-through entities to route the funds to the super PAC.

Indeed, super PACs are often affiliated with not-political committees, such as 501(c)(4) organizations, because, as a political committee and not-political committee, respectively, each entity "abides by a particular set of rules, enjoys distinct opportunities, and is subject to different restraints." Allowing not-political committees to mask donors, who otherwise are subject to disclosure under subsection (c)(1), facilitates the role of these organizations as pass-throughs, enabling donors to contribute to super PACs without being identified by routing their contributions through affiliated 501(c)(4) organizations or other types of not-political committees. Absent enforcement of subjection (c)(1), super PACs disclose the identities of contributing not-political committees, but the latter do not disclose the original contributors, subverting the FECA's broad disclosure regime.

The ruling strikes the FEC reg, but gives the Commission another bite at the apple--45 days to issue interim regs that comply with the statute.

 

http://lawprofessors.typepad.com/conlaw/2018/08/court-closes-campaign-finance-disclosure-loophole.html

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