FEC Fines Groups Linked to Koch Network$233,000

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By Kenneth P. Doyle

July 13 — The Federal Election Commission, after years of gridlock over disclosure issues, imposed $233,000 in fines against three conservative groups linked to the so-called Koch network for failing to report sources of funding for political advertising.

The fines listed in newly revealed FEC settlements included $140,000 for the American Future Fund; $50,000 for the 60 Plus Association and $43,000 for Americans for Job Security. The liberal nonprofit watchdog Citizens for Responsibility and Ethics in Washington (CREW), which filed FEC complaints in the matters, revealed the settlements July 13.

The groups acknowledged that they took—but did not report to the FEC—millions of dollars from a nonprofit called the Center to Protect Patient Rights (CPPR), which reportedly was funded by the network of conservative donors linked to Charles and David Koch, who head Koch Industries Inc.

The money was used for targeted television ads in congressional campaigns in 2010.

The settlements provide details on the funding given by CPPR to each of the nonprofit groups: Americans for Job Security received just more than $16 million in 2010, the American Future Fund received nearly $11.7 million and 60 Plus got nearly $9 million. The groups also received funding from other sources.

Each of these groups in turn sponsored millions of dollars worth of campaign ads in the 2010 election cycle.

Consultant's Strategy

According to the FEC settlements, Sean Noble, a political consultant who headed CPPR, directed how the funding from CPPR would be used by the nonprofit groups receiving the money.

The FEC settlements, which cited statements from Noble, said he identified the congressional races in which the groups funded by CPPR would sponsor ads and he helped approve the content for these ads. His consulting firm, Noble Associates, also served as a subcontractor to the groups airing ads and thus actually helped produce the ads funded by CPPR, the settlements said.

Noble still heads CPPR, which is now known as American Encore. He reportedly parted ways with the Koch network, however, following a state campaign finance enforcement case in California, which was settled in 2013.

The California Fair Political Practices Commission (FPPC) made headlines nationwide when it imposed a $1 million fine on two nonprofit organizations, which the FPPC said in a press release were “operated as part of the ‘Koch Brothers' Network' of dark money political nonprofit corporations” (106 DER C-1, 6/3/14).

The nonprofits, including CPPR and Americans for Responsible Leadership (ARL), settled with the FPPC and the California attorney general's office to resolve campaign finance disclosure violations related to more than $15 million in spending on state ballot measure campaigns in 2012. It was the first time groups linked to the Koch network had been named in such a high-profile campaign finance matter.

Freedom Partners Replaced CPPR

A new nonprofit organization, Freedom Partners Chamber of Commerce, was formed in 2012, following the California enforcement action. It reportedly served the function previously performed by CPPR—providing money to other politically active nonprofit groups (181 DER G-4, 9/18/13).

After Politico reported on Freedom Partners in 2012, Koch Industries posted a statement on its KochFacts.com website saying that Freedom Partners was “a non-profit, non-partisan business league that promotes the benefits of free markets and a free society” and “operates independently of Koch Industries.”

Freedom Partners reported in tax forms that it has received nearly $500 million in revenue since its formation in 2012, but it is not known how much of the money comes from the Kochs or their company. Previous to the formation of Freedom Partners, CPPR reported on its tax forms more than $230 million in revenue from undisclosed sources.

The groups named in the FEC settlements did not respond to requests for comment from Bloomberg BNA.

The FEC itself has not yet released any documents or other information on the enforcement matter—designated Matter Under Review (MUR) 6818—including how the individual FEC commissioners voted.

An FEC letter to CREW, released by the watchdog organization, said the commission voted to accept settlements in the enforcement matter on June 16 and July 1.

FEC enforcement matters are handled under strict secrecy rules until they are resolved. Customarily, the FEC does not release documents in a closed enforcement case until a month after a matter is concluded.

‘Significant' Settlement

CREW Executive Director Noah Bookbinder, in a July 13 written statement, said that FEC rules requiring disclosure of those funding campaign-related ads “provide some of the only windows into the funding of dark money groups, but the FEC almost never penalizes groups that break them.”

Bookbinder also said, “It is hard to overstate how significant this is.”

CREW noted that the $233,000 in fines in this single matter were nearly as great as the total fines imposed by the FEC in the first five months of 2016. Before this case, the FEC imposed a total of $273,000 civil penalties pursuant to conciliation agreements revealed this year, for an average penalty of $15,000.

While CREW described the fines as “massive,” the nonprofit Sunlight Foundation said in a blog entry that the amount was tiny compared to the millions of dollars spent on political ads sponsored by the American Future Fund, 60 Plus Association and Americans for Job Security.

Massive fines or not, the case represents a break from the past for the FEC, which frequently has deadlocked over enforcement matters.

Dismissals of a number of these cases based on 3-3, party-line votes of the six commissioners have been challenged in court in litigation that is still ongoing (See previous story, 07/13/16).

Rare FEC Action

In previous cases, the three Republican commissioners on the FEC accepted explanations from nonprofit groups involved in enforcement matters that claimed they did not violate disclosure rules because they did not receive money specifically earmarked to pay for political ads.

The three FEC commissioners recommended by Democrats have shown more willingness to pursue enforcement in these cases against politically active groups, but with Republicans opposed, deadlocked commission votes have prevented the FEC from moving forward with investigations or other action.

The groups involved in these cases are organized under Section 501(c) of the tax code, which doesn't require donor disclosure. FEC rules require disclosure by such groups only of those contributions made “for the purpose of furthering” a campaign-related message.

Nonprofit groups routinely claim that all the money they receive is for general operations and is not provided for their political activities. Critics of these groups say they are dodging disclosure rules while collecting money clearly aimed at advancing a political agenda.

In this case, however, the FEC appeared to be presented with the clearest instance yet of money being provided to nonprofit groups specifically for political ads. A 20-page supplemental complaint filed last year by CREW with the FEC cited comments made by Noble, the consultant and CPPR head, in an article published by the National Review in 2014.

In the article, Noble was quoted describing an extensive political advertising campaign to oppose Democrats running in U.S. House campaigns in 2010, the year Republicans took over the House majority. Noble said he helped produce dozens of ads focusing on opposition to President Barack Obama's health-care overhaul legislation and targeting House Democrats. The ads were funded through CPPR contributions to nonprofits including American Future Fund, Americans for Job Security and 60 Plus, according to the National Review article.

The settlements with the FEC relied on Noble's description of the ad campaign, but did not indicate whether the comments were taken from the article or from direct testimony by Noble.

To contact the reporter on this story: Kenneth P. Doyle in Washington at kdoyle@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

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