This article was originally published by the Capital Research Center on July 15, 2019.
A decade ago, Bill Allison of the Sunlight Foundation was looking for a short phrase to put before the following fact: “Of the 202 outside organizations spending money to influence the 2010 mid-term elections, just 93 of them have disclosed donors to Federal Election Commission” (FEC). The fact was the first one reported in Sunlight’s online “Daily Disclosures” on October 18, 2010.
Allison settled on the phrase “dark money,” and that’s reputedly the first use of the term. Short, pithy, ominous. Sunlight—a left-of-center, government-transparency advocacy group plagued by scandals—must have liked the way the term put a negative connotation on money spent by groups not legally required to disclose the original sources of their funds.
The nonprofit “outside organizations” to which the Sunlight Foundation referred are tax exempt under section 501(c)(4) of the Internal Revenue Code. These “social welfare” groups are permitted to engage in partisan political campaign activity and lobbying, as long as it’s not their “primary” purpose or activity. And when these groups spend money on politics, they report that spending to the FEC. But Sunlight was unhappy with the fact that (c)(4) groups do not have to publicly report who originally gave them the money. The identity of those donors remains private.
Hence the adjective in “dark money.”
The Sunlight Foundation advocates for “largely center-left government transparency measures,” as InfluenceWatch explains. Allison, the Sunlight staffer, was previously an investigative journalist for the Center for Public Integrity—“a left-of-center journalism group,” InfluenceWatch notes—and the Philadelphia Inquirer.
When Sunlight coined the term “dark money” in October 2010, the U.S. Supreme Court’s Citizens United v. FEC decision was nine months old. That High Court decision held that the First Amendment prohibits bans or limits on how much money a (c)(4) group can spend, so long as its spending is not coordinated with candidates for office. That decision and its effects were already drawing criticism from groups like Sunlight and the Center for Public Integrity, which track the flow of funds into politics and are especially critical of funds that support conservative causes.
Hence the need for the negative connotation.
The New Yorker’s Jane Mayer wrote an entire book entitled Dark Money in 2016. Its subtitle was The Hidden History of the Billionaires Behind the Rise of the Radical Right. Mostly, it liberally attacked conservatives Charles and David Koch. Left-of-center advocates like Mayer were displeased to see how, in the election cycles after Citizens United, (c)(4) funding began flowing to explicitly political causes, particularly on the conservative/Republican side. As my colleague Michael Watson and I observed in a February 2018 report for the Capital Research Center, this imbalance may have been as much a function of conservatives’ and Republicans’ challenges to incumbent office-holders as anything else, because in the election cycles since then, liberal and Democrat non-incumbents have seen their funding rise. Indeed, the left-of-center group Issue One reported that in the 2018 election, liberal/Democrat groups spent 54% of all “dark money,” while conservative/Republican groups accounted for only 31%.
A few lonely liberals urged a different attitude toward “dark money” during the post-Citizens United era. They knew that their side uses and will want to keep using the same type of funding. There “is a very real risk that if donors on the left become squeamish about supporting new 501(c)(4)s, the progressive community will lose the huge advantages of social-welfare organizations in the era of Trump, the worst possible time to sacrifice any tool in the toolbox,” wrote the Alliance for Justice’s Nan Aron and Abby Levine in 2017.
Sunlight and the Center for Public Integrity are just two among many organizations and allied journalists that track and criticize “dark money.” These groups almost always use the term based on the same understanding as Sunlight’s.
They typically call (c)(4)s “political nonprofits” and often note that (c)(4)s can give money to “super PACs”—a new type of group that arose in the wake of Citizens United that can raise and spend unlimited sums on politics, provided they do not coordinate with or donate to a specific political candidate. Although super PACs are required to publicly disclose their donors, they can themselves raise money from (c)(4)s, whose original donors need not be disclosed, thereby making the money “dark.” Any original individual donor, of course, may just not want public disclosure of his or her name, home address, occupation, and employer to a political opponent, nosy neighbor, friend, dentist, or the like.
When “the source of political money isn’t known, that’s dark money,” according to a definition from the Center for Public Integrity. “The two most common vehicles for dark money in politics are politically active nonprofits and corporate entities such as limited liability companies. Certain politically active nonprofits—notably those formed under sections 501(c)(4) and 501(c)(6) of the tax code—are generally not required to publicly disclose their donors.” (Section 501(c)(6) groups are business associations like the Chamber of Commerce, some of which make public their corporate dues-paying members in order to enhance their lobbying efforts.)
“Meanwhile, when limited liability companies are formed in certain states, such as Delaware and Wyoming, they are essentially black boxes; the company’s name is basically the only thing known about them,” the Center continues. “These LLCs can be used to make political expenditures themselves or to donate to super PACs.”
The Center for Responsive Politics, which maintains the popular OpenSecrets.org website, may be the biggest user of the “dark-money” term. According to its definition, “Dark Money refers to political spending meant to influence the decision of a voter, where the donor is not disclosed and the source of the money is unknown. Depending upon the circumstances, Dark Money can refer to funds spent by a political nonprofit or a super PAC.” While super PACs “are legally required to disclose their donors, they can accept unlimited contributions from political non-profits and ‘shell’ corporations who may not have disclosed their donors.” In those cases, “they are considered Dark Money groups” by the Center for Responsive Politics.
Bradley A. Smith, a prominent defender of free political speech and a former FEC chairman who now chairs the Institute for Free Speech, observes that “dark money” is “merely a pejorative label for nonprofits—such as the NAACP, the Chamber of Commerce, and Planned Parenthood—that may not legally make campaign contributions, whose donors are private, and whose political speech is therefore both limited and independent from candidate campaigns.” One longtime political operative has offered a more cynical definition: “‘Dark money’ is money that supports speech the Left wants to silence.”
If concealment, on purpose or in effect, of the original donors to certain nonprofits is the controlling characteristic of “dark money,” then other revenue streams would fairly fit within the definition. These flows, which attract much less attention in the debates over politics and advocacy, go through groups that are tax exempt under section 501(c)(3) of the Internal Revenue Code. These groups include public charities that take an interest in public policy, such as the Sierra Club and the Brookings Institution. Among (c)(3) charities that are policy-oriented—that is, not counting groups like art museums, symphonies, and soup kitchens—liberal groups enjoy a roughly three-to-one money advantage, as CRC’s Citizens United study found. The same study also found that the river of money flowing into public policy debates through these (c)(3) groups dwarfs the money flows in the (c)(4) and super PAC stream. The latter totaled about a half-billion dollars ($538 million) for the 2013-14 election cycle, whereas in 2014 alone, we counted $9.6 billion flowing through policy-oriented (c)(3)s.
In the (c)(3) flows that could constitute “dark money,” two phenomena are worth examining: fiscal sponsorships and donor-advised funds (DAFs). Fiscal sponsorships essentially allow an existing (c)(3) organization to confer its own tax-exempt status on a new project that is supposed to share the existing group’s charitable purpose. The sponsored project hasn’t achieved its own (c)(3) status, and may never even intend to become an independent entity. It may be happy to maintain its dependent existence because that helps to hide what it’s doing, and/or it may intend to wage a particular brief political fight and then disappear. These kinds of shadowy projects run counter to the traditional justification for fiscal sponsorship, which was originally portrayed as a temporary measure to “incubate” new (c)(3)s that would go on to become independent legal entities.
In other words, fiscal sponsorship is highly susceptible to abuse, and abuses may, in fact, be rife. The scheme certainly can conceal an original donation that may never be publicly linked to the new, sponsored project. And that new project may not last long; short-term, “pop-up” sponsored groups seem increasingly common. (“Pop-up” super PACs are also becoming common.)
So if the sources of the funds spent are concealed, can fiscally sponsored projects be considered “dark?” They certainly seem to fit the OpenSecrets definition of “dark money.”
Many low-profile, left-of-center (c)(3) groups offer fiscal sponsorship as a regular service. They include the large Tides Network, the New Venture Fund (administered by the for-profit and fee-charging Arabella Advisors consulting firm), and the Alliance for Global Justice, as well as the Sustainable Markets Foundation in the environmental field.
Another significant phenomenon in (c)(3) money flows is the use of donor-advised funds, also known as “DAFs,” which are the fastest-growing sector of philanthropy. DAFs allow a donor to deposit money into a personal account at an institution like the Fidelity Charitable Gift Fund, then “advise” the institution to issue charitable grants from that account. The DAF provider (in this example, Fidelity) reports publicly that it has made a grant to the charity, but it does not publicly report who made the original donation. Even the charity receiving the grant may never know the original donor. If the lack of public disclosure is an important part of the definition of “dark money,” then these money flows also fit.
The largest DAF providers are not particularly ideological. They are operated by mutual-fund and money-management firms that have more experience investing money than giving it away, such as Fidelity, Vanguard, and Charles Schwab, among others. DAF providers on the left side of the ideological spectrum include the large Tides Foundation and a provider within the NEO Philanthropy range of products and services. Smaller, conservative DAF providers include DonorsTrust and the newer Bradley Impact Fund.
If lack of disclosure is the critical factor in “dark money,” other methods of funding that are sometimes called “dark” do not deserve the loaded term. For example, contributions to political candidates or to conventional political-action committees are not “dark.” Both candidates and regular PACs, as Bradley Smith has noted, must publicly disclose all donors whose aggregate contributions exceed $200. Smith made that point in response to recent attacks on supposedly “dark money” made by U.S. Rep. Alexandria Ocasio-Cortez (D-N.Y.).
Nor could grantmaking by 501(c)(3) private foundations ever be “dark,” for another example, even though Jane Mayer’s ally, Jill Abramson, has claimed in The Guardian that the Mercer Family Foundation gave away “dark money.” Abramson based her claim on the fact that the Mercer Family Foundation invested part of its assets in overseas accounts, even though such investments are entirely legal, and no one has accused the Mercers of illegally concealing any financial information. But most importantly, the Mercer Foundation, like all private foundations, is required to disclose all grantees and grant amounts in annual Form 990-PFs, which are filed with the Internal Revenue Service and easily accessible to the public from numerous websites.
If Smith is correct, if the term “dark money” has come to mean funds spent on speech or activities with which the user disagrees, then perhaps the term should be shelved. At a minimum, the public should insist that mainstream media use the term just as often to describe left-of-center donors’ giving as they do to describe giving by right-of-center donors. For as Hayden Ludwig of the Capital Research Center has documented, the Left has vast empires of “dark money” of its own.