Court Allows Challenge to FEC Rule Shielding Nonprofit Donors

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By Kenneth P. Doyle

A Federal Election Commission rule on “independent expenditures,” which has allowed millions of dollars’ worth of campaign ads to air without disclosure of the donors funding them, can be challenged in court, a federal judge ruled.

The FEC rule has been widely cited by nonprofit groups seeking to keep their donors secret while trying to influence federal elections through ads supporting or opposing candidates.

Numerous ad sponsors have responded to inquiries from the FEC by telling the agency that none of their donors had to be revealed because none gave money “for the purpose of furthering” a specific election-related expenditure. When this provision of its independent expenditure rule—11 C.F.R. Section 109.10(e)(1)(vi)—has been cited by ad sponsors, the FEC hasn’t questioned them further.

The March 22 preliminary court ruling came in a lawsuit filed by the liberal watchdog group Citizens for Responsibility and Ethics in Washington (CREW) regarding the FEC’s dismissal of an administrative enforcement action against Crossroads GPS, a conservative nonprofit that worked to elect Republicans. Judge Beryl Howell of the U.S. District Court for the District of Columbia denied an FEC motion to dismiss the challenge of its independent expenditure rule as time-barred.

The judge noted that CREW alleged it was “denied access to information to which [it was] lawfully entitled about who funded certain of Crossroads GPS’s independent expenditures” for television ads aimed at electing Republican candidates.

The U.S. Court of Appeals for the D.C. Circuit previously has ruled that an FEC rule can be challenged by an affected plaintiff based on the grounds that the rule “conflicts with the statute from which its authority derives,” Howell’s ruling said.

Several FEC Court Challenges on Disclosure

The FEC independent-expenditure rule has been cited increasingly since the congressional elections in 2010 to shield donors funding campaign spending.

The Supreme Court in 2010 struck down decades-old restrictions on corporate campaign spending in Citizens United v. FEC. In addition, FEC deadlocks in key enforcement cases narrowed the agency’s previous interpretations on disclosure of donors. The result was a system in which disclosure was demanded only in cases where it could be shown that a donor was specifically consulted about the content of a particular ad being funded.

The CREW case seeking to overturn the FEC’s dismissal of an enforcement complaint involving Crossroads GPS ads in the 2012 election is one of several pending court challenges of similar FEC decisions involving Crossroads GPS and other groups active in recent elections.

In this case, CREW’s complaint alleged that Crossroads GPS received a $3 million contribution for the explicit purpose of supporting Josh Mandel, a 2012 Republican U.S. Senate candidate in Ohio. The identity of the contributor has never been revealed—a fact that CREW alleges is a violation of FEC rules requiring disclosure of money given to influence a campaign.

In the lawsuit, CREW’s lawyers cited a sworn affidavit provided to the FEC from Karl Rove, a top Republican strategist and key fundraiser for Crossroads GPS. In it, Rove acknowledged talking to a donor who indicated he was a supporter of Mandel and issued a “matching challenge” to raise funds.

Rove’s affidavit said the conversation with the donor “did not include any discussion of any particular television advertisements, or television advertisements in general.” There was “no discussion of the contents, timing, or targeting of any actual or hypothetical television advertisements,” Rove added.

FEC Commissioners Deadlocked

Although the CREW suit focused mainly on the $3 million contribution linked to support for Mandel, it also alleged that Crossroads GPS should have disclosed other contributors who funded its activities in the 2012 U.S. Senate races in Montana, Nevada, Ohio and Virginia.

According to the suit, Crossroads GPS donors were shown “example” campaign ads at a 2012 fundraising event and then solicited for money with a pitch that said their contributions were needed to pay for the rising cost of broadcasting such ads. Crossroads GPS subsequently ran campaign ads in those states echoing the claims and arguments made in the ads shown at the fundraiser, the lawsuits said.

The FEC announced dismissal of CREW’s administrative complaint on the matter in January of 2016. The six FEC commissioners deadlocked 3-3, along party lines, in a vote on whether to pursue enforcement action. The three Republican commissioners voted to follow the recommendation in a report from the FEC general counsel’s office saying the case should be dropped in light of a response from Crossroads GPS claiming that it received no contributions “for the purpose of furthering” a particular campaign ad.

In addition to facing FEC complaints, Crossroads GPS also fought a nearly six-year-long battle with the Internal Revenue Service over whether it was eligible for a tax exemption under Section 501(c)(4) of the tax code. That struggle ended last year with the IRS reversing a preliminary ruling and officially approving 501(c)(4) status for the conservative organization.

Crossroads Groups Dormant

In all of its legal battles, Crossroads GPS and its allies insisted that they conformed with relevant campaign finance and tax laws and that the organization was a victim of attacks by political opponents.

Crossroads GPS President Steven Law said in a statement after the IRS ruling that the organization was not surprised by the ultimate outcome, but was “surprised by was how long it took and how people outside the IRS improperly tried to influence and politicize the process, not just against us but against many other law-abiding advocacy groups.”

Crossroads GPS and a related super political action committee, American Crossroads, were launched in the wake of the Citizens United Supreme Court ruling. American Crossroads registered with the FEC and complied with PAC reporting rules, including donor disclosure. Crossroads GPS has maintained it was a policy-oriented organization exempt from the FEC donor disclosure rules governing PACs.

Crossroads GPS and American Crossroads spent tens of millions on political ads in previous election cycles but were largely dormant in the 2016 campaign.

Two new groups, a nonprofit called One Nation and a super PAC called the Senate Leadership Fund, have been launched to aid Republican candidates. The organizations, which together spent well over $100 million to help Republican candidates in 2016, are headed by Law, a former top aide to Senate Majority Leader Mitch McConnell (R-Ky.).

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

To contact the editor responsible for this story: Paul Hendrie at phendrie@bna.com

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