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Dark Money Basics
What is Dark Money?
“Dark money” refers to spending meant to influence political outcomes where the source of the money is not disclosed. Here’s how dark money makes its way into elections:
- Politically active nonprofits such as 501(c)(4)s are generally under no legal obligation to disclose their donors even if they spend to influence elections. When they choose not to reveal their sources of funding, they are considered dark money groups.
- Opaque nonprofits and shell companies may give unlimited amounts of money to super PACs. While super PACs are legally required to disclose their donors, some of these groups are effectively dark money outlets when the bulk of their funding cannot be traced back to the original donor.
Dark money groups have spent roughly $1 billion — mainly on television and online ads and mailers — to influence elections in the decade since the 2010 Citizens United v. FEC Supreme Court ruling that gave rise to politically active nonprofits.
Citizens who are barraged with political messages paid for with money from undisclosed sources may not be able to consider the credibility and possible motives of the wealthy corporate or individual funders behind those messages.
Infographic: See how Dark Money flows between nonprofits
Types of Election Spending
Political jargon can get confusing. What you need to know about spending to influence elections is that there are two main types.
Hard money: traditional political spending
With this kind of spending, donors must be disclosed, contribution limits apply and organizations are allowed to coordinate their efforts to help elect a candidate. This is not dark money. These groups include candidate committees, political parties and traditional Political Action Committees (PAC).
Soft money: outside political spending
Outside spending — sometimes referred to as independent or non-coordinated spending — refers to political spending made by organizations and individuals other than the candidate campaigns themselves. All outside groups that aren't political parties — except for a few traditional PACs that make independent expenditures — are allowed to accept unlimited sums of money from individuals, corporations or unions. With these donations, groups may engage in a number of direct political activities, including buying advertising that advocates for or against a candidate, going door to door, or running phone banks. However, these organizations are not allowed to coordinate their spending with political candidates or parties. While some outside groups — like super PACs — are required to disclose their donors, others are not. These nondisclosing organizations are referred to as dark money groups.
As the chart below illustrates, dark money groups are growing in size, scope and share of election spending with each election cycle.
Graph: Outside Spending by Nondisclosing Groups, Excluding Party Committees
Based on data released daily by the FEC. Last update on September 30, 2020.
Types of Dark Money Spending
Whenever money is spent in a political election with the purpose of influencing the decision of a voter and the source of the money is not disclosed, it is dark money. Common types of organizations that can spend in elections while shielding the sources of their money are outlined in greater detail below.
Nonprofit, tax-exempt groups organized under section 501(c) of the Internal Revenue Code may engage in varying amounts of political activity. Because they are not technically political organizations, they are generally not required to disclose their donors to the public. These groups, like super PACs, cannot coordinate spending with political parties or candidates, and therefore are allowed to raise unlimited sums of money from individuals, organizations and corporations.
Types of 501(c) Organizations
There are a number of types of 501(c) organizations with different structures, uses and capabilities. None of these organizations are required to publicly disclose the identity of their donors or sources of money though some disclose funding sources voluntarily.
501(c)(3) groups: These organizations operate for religious, charitable, scientific or educational purposes. These groups are not supposed to engage in any political activities, though some voter registration activities are permitted. Donations to these organizations are tax-deductible.
Groups you may know: NAACP, Center for American Progress, Heritage Foundation, Center for Responsive Politics
- 501(c)(4) groups: Often referred to as "social welfare" organizations, these nonprofits are the most common kind of dark money group. They may engage in political activities, as long as these activities do not become their primary purpose. The IRS has never defined what "primary" means, or how a percentage should be calculated, so the current de facto rule is 49.9 percent of overall expenditures, a limit that some groups have found easy to circumvent. Donations to these groups are not tax-deductible.
501(c)(5) groups: These are labor and agricultural groups and may engage in political activities, as long as they adhere to the same general limits as 501(c)(4) organizations. They are generally funded by dues from union employees. Donations to these groups are not tax-deductible.
Groups you may know: Service Employees International Union (SEIU), American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), American Federation of State, County and Municipal Employees (AFSCME)
- 501(c)(6) organizations: These are business leagues, chambers of commerce, real estate boards and trade associations, which may engage in political activity as long as they adhere to the same general limits as 501(c)(4) organizations. Donations to these groups are not tax-deductible.
Graph: 501(c) Spending by Type
Based on data released daily by the FEC. Last update on September 30, 2020.
Technically known as independent expenditure committees, super PACs may raise and spend an unlimited amount of money and accept contributions from companies, nonprofits, unions and individuals. Since super PACs cannot give money directly to candidates, they are exempt from the limits on fundraising and spending that regular PACs must abide by.
Despite the sometimes inaccurate portrayal of them in the media, super PACs must identify all of their donors to the Federal Election Commission (FEC), and thereby to the public. They must do so on a monthly or semiannual basis in non-federal election years and monthly in the year of an election. In that sense, super PACs are quite transparent, except when the donor is a shell corporation or a nonprofit that doesn't disclose its donors.
So-called pop-up super PACs formed shortly before an election may game disclosure deadlines, enabling them to spend unlimited sums influencing races without disclosing their funding sources until after voters go to the polls.
While super PACs are not allowed to coordinate any of their independent expenditures with a candidate's campaign, many single-candidate super PACs are run by individuals who are personally close to a candidate or formerly associated with a campaign.
Hybrid PACs (Carey Committees)
A hybrid PAC has the ability to operate both as a traditional PAC, contributing funds to a candidate's committee, and as a super PAC that makes independent expenditures. To do so, these committees must have a separate bank account for each purpose. The committee may collect unlimited contributions from almost any source for its independent expenditure account, but may not use those funds for its traditional PAC contributions.
LLCs and Shell Companies
Limited Liability Companies (LLC) perform a number of necessary business functions. However, their unique structure may easily be abused or used in order to hide less than above-board activity. In politics, LLCs are sometimes established to help disguise the identity of a donor or source of money spent on behalf of a political candidate.
LLCs are governed by state law, but generally, minimal information is necessary to file the required articles of incorporation. In states such as Delaware, New Mexico, Nevada and Wyoming, LLCs may be incorporated without even disclosing the names of members or managers.
This lack of accountability and transparency have helped disguise the source of millions of dollars in political spending. Shell companies make major contributions to super PACs each election cycle, leaving voters in the dark while the recipient often knows the donor's true identity.
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