Disclosure Laws Under Attack: Campaign Finance Restrictions and Reporting of Donors, Contributed by Tania N. Archer, Moore & Van Allen PLLC

Bloomberg Law®, an integrated legal research and business intelligence solution, combines trusted news and analysis with cutting-edge technology to provide legal professionals tools to be...

The Offense of Forced Disclosure

Many political donors and campaigns seek to limit campaign finance restrictions, which not only prohibit certain types of donations, but also require the reporting of donors at specified contribution levels. Sometimes high dollar donors prefer to spend those dollars anonymously.1 On those occasions, individuals and organizations want the freedom to donate to positively impact political representation of their interests without public judgment, embarrassment or condemnation. Donors are now brawling over the rules themselves, not just their competing interests. The Supreme Court's decision in Citizens United2 involved a nonprofit corporation that produced a negative advertisement against then-Senator Hillary Clinton who was running for President, subjecting the corporation to restrictions under the Bipartisan Campaign Reform Act of 2002 on corporate and union funding of speech that is deemed either an “electioneering communication” or an independent expenditure.3 Independent expenditures are political campaign communications that expressly advocate the election or defeat of a clearly identified candidate and that are not made in cooperation, consultation or concert with or at the request or suggestion of a candidate, a candidate’s authorized committee, or a political party.4 Electioneering communications are publicly distributed broadcast, cable or satellite communications referring to a clearly identified candidate for Federal office, made within 30 days of a primary election or within 60 days of a general election.5 The Court in Citizens United declared the expenditure ban unconstitutional, holding that corporations may not be prohibited from spending money for express political advocacy when those expenditures are independent from candidates and not coordinated with the candidates’ campaigns.6Citizens United has emerged as a landmark campaign finance case, cited as a game changing victory for those unions, businesses and trade associations seeking to fund political advocacy.7 Corporations and associations won the battle against limiting independent spending during campaigns for federal office.8 However, Citizens United did not sanction anonymous donations, and federal election law still requires donors to identify themselves and file reports with the Federal Election Commission.9 Further, the Court reaffirmed that disclosure and disclaimer requirements for political advertisements are presumptively valid and that disclosure requirements are an acceptable mode of campaign finance reform.10 The Court’s decision did not lift the disclosure or reporting provisions of BCRA; instead, it confirmed that state and local governments have the authority to apply disclosure rules.11Citizens United expressly addresses federal law, leaving states the option to mimic or expand the Court’s guidance for campaign finance reform in state regulations.

Defending Disclosure

Proponents defend disclosure laws as a legitimate form of campaign finance reform. While invalidating longstanding restrictions on corporate political spending, Citizens United also identified disclosure as the least restrictive alternative for regulation of speech.12 The Court agreed that, Disclaimer and disclosure requirements may burden the ability to speak, but they “impose no ceiling on campaign-related activities,”13 nor do they “prevent anyone from speaking.”14 . . . The First Amendment protects political speech; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.15 In ruling on Citizens United, the Court pointed to Buckley v. Valeo, a 1976 decision considered the U.S. Supreme Court’s seminal case on campaign disclosure.16 The Court in Buckley noted that disclosure can be justified by a governmental interest in “providing the electorate with information” about election-related spending sources.17 The Court in Buckley outlined three vital governmental interests served by campaign finance disclosure:

  1. “Disclosure provides the electorate with information 'as to where political campaign money comes from and how it is spent”;
  2. “Disclosure requirements deter actual corruption and avoid the appearance of corruption by exposing large contributions and expenditures to the light of publicity”; and
  3. “Disclosure requirements are an essential means of gathering the data necessary to detect violations” of other campaign finance regulations.18

McConnell v. FEC also applied this governmental interest test in rejecting facial challenges to the BCRA disclosure requirements under Sections 201 and 311.19 Three of McConnell’s Justices would have found the BCRA to be unconstitutional, believing that First Amendment free speech rights were violated by the prohibition on all independent expenditures by corporations and unions. Nonetheless, they voted to uphold its disclosure and disclaimer requirements.20 In January 2010, at least 38 states and the federal government required disclosure for all or some independent expenditures or electioneering communications, regardless of whether the speaker was a corporation.21 These disclosure rules were intended to deter potentially or seemingly corrupt contributions. Voters are able to identify high dollar donors who may seek mutual favor from a candidate taking office. One year later, ten states—Alaska, Arizona, Colorado, Connecticut, Iowa, Massachusetts, Minnesota, North Carolina, South Dakota and West Virginia—enacted new campaign finance disclosure laws to replace the expenditure bans rendered unconstitutional by Citizens United.22

The Line of Attack – Challenges to Disclosure

Challenges to campaign finance disclosure multiplied in the wake of the Court’s 2007 decision in FEC v. Wisconsin Right to Life (WRTL).23 This case gutted BCRA’s corporate and union funding restrictions on electioneering communications without explicitly striking them down.24Citizens United then provided an additional boost to new and pending anti-reform litigation challenges by affirming that disclosure is appropriate even in connection to political communications that do not expressly advocate the election or defeat of a candidate. Perhaps emboldened by the conservative majority in the Supreme Court, cases which had been quietly challenging increased regulation emerged from the margins of campaign finance reform. As plaintiffs, many corporations and organizations have since attempted to topple Citizens United. National party committees, trade associations, ideological groups, 527 organizations and other opponents of campaign finance regulation have launched an all out litigation attack to challenge disclosure requirements, at the federal, state and municipal levels. Opponents of campaign finance disclosure laws focus mainly on the states that have strengthened political transparency regulation in response to Citizens United. Thus, BCRA’s electioneering communication disclosure requirements are currently under attack, in addition to state disclosure laws modeled on it. Anti-reform attacks on political disclosure requirements have also advanced beyond the world of strict campaign finance law and into the related spheres of ballot measure advocacy and lobbying. Koerber v. FEC, a case filed in October 2008 in the Eastern District Court of North Carolina, deals with challenges to federal disclosure provisions as applied to two television advertisements that met the statutory definition of “electioneering communications,” while potentially missing the functional equivalent of “express advocacy” to qualify as a political committee.25 The district court denied the plaintiff’s motion for a preliminary injunction, and the plaintiff appealed to the Fourth Circuit Court of Appeals.26 However, the plaintiffs voluntarily dismissed the appeal after the Supreme Court issued its decision in Citizens United, and filed an amended complaint in May 2010.27 Similarly, the plaintiffs in The Real Truth About Obama v. FEC, et al. challenge FEC regulations using the “major purpose” test to qualify an independent group as a “political committee,” and to therefore subject the group to federal disclosure requirements.28 The RTAO plaintiffs petitioned the Supreme Court for certiorari after being denied preliminary relief in both district and circuit court.29 The Court vacated the Fourth Circuit's judgment and remanded the case for further consideration in light of Citizens United.30 Both Koerber and RTAO are proceeding on the merits in the district courts below, with Koerber amending its complaint to address Citizens United.31SpeechNow.org v. FEC also challenged the comprehensive disclosure system applicable to all federal political committees.32 The Court in this case found that the public has an interest in knowing who is speaking about a candidate and who is funding that speech. The Court concluded that disclosure serves a sufficiently important governmental interest to justify the burdens of requiring SpeechNow to register as a political committee and to comply with the associated reporting requirements.33 In Ohio Right to Life (ORTL) v. Ohio Election Commission, ORTL disputes multiple provisions of Ohio campaign finance law, including disclosure requirements on state electioneering communications.34 Repeating the legal argument made by the appellants in Citizens United, ORTL asserts that the Court’s decision in WRTL renders the state electioneering communication disclosure law unconstitutional as applied to any communication which does not meet WRTL’s definition of express advocacy or its functional equivalent. In September 2008, the Southern District Court of Ohio rejected ORTL’s request to enjoin Ohio’s electioneering communications disclosure law. The case on the merits is still proceeding. In addition to ORTL, the plaintiffs in Vermont Right to Life Committee, Inc. (VRTL) v. Sorell,35 and West Virginians for Life (WVFL) v. Ireland36 dispute state-level electioneering communications disclosure laws and are proceeding in lower state courts. Using a more creative interpretation of Citizens United, the plaintiffs in the ongoing Yamada v. Kuramoto argued that the Court had established a standard for the “absolute ceiling” in permissible electioneering communication disclosure regulation.37 Even though the Hawaii disclosure laws are narrower in scope than the federal regulations, Yamada argued that any deviation by a state disclosure law would be overbroad and unconstitutionally vague.38 Further, Yamada disputed the requirement that the state definition of “advertisements” required disclaimers disclosing the sponsor of the ad and its connection to any candidate.39 In February 2011, the Supreme Court denied certiorari in Human Life of Washington v. Brumsickle.40 The Ninth Circuit upheld Washington state disclosure laws that require ballot measure advocacy groups like Human Life of Washington to register and report their financial activities as “political committees." The Ninth Circuit concluded that Washington’s disclosure laws are substantially related to the “vital” government interest of providing information to the electorate, and that they are especially relevant to voter-decided ballot measures.41 The Ninth Circuit also rejected the reasoning in Citizen United that disclosure requirements must be limited to express advocacy speech.42 The National Organization for Marriage, a non-profit political organization which funded several different PACs, has established itself as the battering ram of donor disclosure attacks. Using a state-by-state, repeat attack strategy, NOM has launched attacks against disclosure requirements in many states—including Maine, California, New York, Rhode Island, Minnesota and Iowa—or has sued to prevent the disclosure of its donors in those states.

  • On February 27, 2012, the Supreme Court refused to hear a constitutional challenge to Maine's financial disclosure requirements as applied to political action committees.43 The First Circuit has already rejected NOM’s claim that Maine disclosure regulations are unconstitutionally vague and overbroad in violation of the 1st and 14th amendments.44 In challenging that ruling to the Supreme Court, NOM unsuccessfully argued that the states do not have the constitutional authority to impose such obligations unless an organization has election campaign activity as its “major purpose.”45
  • On January 31, 2012, the First Circuit upheld Maine’s campaign disclosure laws related to ballot question committees and required NOM to release its donor list.46 NOM believes that releasing donor lists offends free speech and will continue its fight before the Supreme Court.
  • In August 2011, NOM was again defeated when the First Circuit Court of Appeals upheld a ruling refusing a preliminary injunction to allow NOM to avoid disclosing money spent in support of various candidates, in accordance with Rhode Island election laws.47 The court concluded that the disclosure law imposed “little burden” and had “a valuable governmental interest in identifying the people who give more than $100 to support or defeat a candidate.”48
  • The plaintiffs in NOM v. Walsh filed suit to prevent the New York State Board of Elections from classifying the organization as a political committee in order to avoid various disclosure and reporting requirements.49 The case is on appeal to the Second Circuit, following dismissal by the Western District Court of New York.50
  • In an August 2011 case on appeal before the Eleventh Circuit, NOM contests the disclosure requirements associated with electioneering communications in Florida, arguing that its "appeal to vote" test is vague and overbroad, and that the speech did not warrant disclosure burdens.51
  • The Minnesota Campaign Finance and Public Disclosure Board ruled in June 2011 that corporate donations to groups advocating for or against a constitutional amendment that would ban same-sex marriage must be disclosed. As part of a Minnesota coalition trying to pass the state amendment, NOM rejects the Board’s updates to ballot initiative reporting requirements.52

The battle in Family PAC v. McKenna highlights the fact that proponents of disclosure regulations are less focused on anti-corruption and more focused on providing information to qualified voters. In this case, the Ninth Circuit upheld Washington’s disclosure requirement on ballot initiative PACS, ruling that the state has an important informational interest in identifying financial supporters for ads that support or oppose ballot measures.53 However, the court also struck down the state’s contribution limits for recall committees who run ads regarding the recall of a current office holder, claiming that enforced disclosure rules prevented corruption in the context of recall initiatives.54 Legal analysts claim that these types of rulings indicate that after Citizens United, the state’s informational interest has become a more enforceable argument for the expansion of disclosure regulation. In Wisconsin Prosperity Network v. Gordon Myse, the plaintiffs contested an administrative rule requiring disclosure and disclaimers for speech made just before an election that advocates the election or defeat of candidates for public office.55 The plaintiffs argued that the state’s administrative rule implementing the disclosure statute is unconstitutional on First Amendment grounds.56 This case is still pending. A December 2011 ruling in a Montana’s First District Court rejected a request by two pro-business groups to overturn state laws requiring reporting for the funding of direct mail attacking Montana candidates.57 A trial scheduled for the spring of 2012 will address whether the groups are political committees and whether the mailers are campaign-related, and therefore subject to state disclosure laws. In Center for Individual Freedom (CIF) v. Madigan, the district court denied the plaintiff’s motion for a preliminary injunction challenging two disclosure-related provisions of Illinois law.58 Plaintiffs argued against the state provision requiring non-profit organizations to register and report independent expenditures in excess of $5,000. They also argued that disclosure provisions for political committees are unconstitutionally vague and overbroad. An appeal is pending before the Seventh Circuit. In Doe v. Reed, a ballot measure case, the Supreme Court held that disclosure of information on petitions for ballot referenda, as a general matter, does not violate the First Amendment, but that compelled disclosure is subject to review under the First Amendment.59 Similar suits have also been filed in California and Maine, seeking to strike down laws that require committees financing ballot measure advocacy to disclose their donors. A repeated argument in these cases is that the alleged harassment and reprisals suffered by donor advocates justify the invalidation of ballot measure disclosure laws, or at least an as-applied exemption from such disclosure. Reform advocates fear that if such arguments are successful, they will render ballot measure disclosure laws ineffective, and further, will be utilized in the campaign finance context to weaken disclosure laws in elections as well. With increased attention and investigation from the Internal Revenue Service and the FEC into funding by political action committees, new and amended disclosure requirements will breed subsequent court challenges to increased reporting requirements. PACs have been accused of intentionally exploiting filing technicalities in order to postpone or avoid disclosure. In federal elections, PACs have the option to choose to file reports on a "monthly" or "quarterly" filing schedule. Monies may be collected and spent long before the required filing date of a disclosure. Depending on the timing of disclosure reports, disclosure in some cases does not occur until after the election is held. Additionally, donors may list a limited liability company instead of an individual or other name, thus cloaking their identity behind a larger entity. Reports have disclosed instances where PACs were both managed and funded by close associates, former staff, or a candidate’s family member. Some special interest groups may initially form a tax exempt 501(c) non-profit organization or a 527 organization to collect tax deductible donations under the Internal Revenue Code, and then subsequently form a PAC to receive the donations, keeping the names of the donors secret for years after an election. Litigation efforts are facing off with the established foundation of campaign finance laws, in addition to the transient spirit of campaign finance reform. Many of these plaintiffs are fighting their way to the Supreme Court, utilizing the appeals process to maintain visibility and to build support. The proliferation of challenges to disclosure requirements may be viewed as part of a systemic, longer-term litigation offensive mounted by those who oppose any type of regulation of political spending.

Competing Interests

So far, the attack on disclosure laws has met with nominal success, as courts favor the governmental interest in informing eligible voters over the burden of increased reporting. Legalized corporate and association donations have triggered increased state reporting requirements. While corporations have won a free speech safe harbor for independent expenditures, they are losing the fight on anonymity. It is a political tug of war, with corporate interests both gaining traction and losing ground. Much of the judicial favor at the federal and state level arose in direct response to the removal of corporate spending prohibitions to fund independent expenditures and electioneering communications. In an effort to control this new territory of allowable corporate donations, the governmental interest in preventing actual or apparent corruption justifies increased disclosure regulation. The redundant court scenario pits free speech rights against administrative authority to prevent corruption and inequality. In granting wider flexibility to corporations and unions as to what and to whom they can donate, the laws have tightened on how they can donate. Congressional reaction to the Citizens United overturn of corporate expenditure bans produced the Democracy Is Strengthened by Casting Light On Spending in Elections Act, (DISCLOSE Act), introduced in the U.S. House of Representatives in April 2010 and in the U.S. Senate in July 2010. Among other things, the DISCLOSE Act amends the Federal Election Campaign Act of 1971 to establish additional disclosure requirements on spending in federal elections and thereby make campaign funding more transparent and less susceptible to foreign influence.60 The 2010 bill passed the House, but died in the Senate. The Act was reintroduced by House Democrats in February 2012, including new requirements on television advertisements designed to identify and show individual and corporate donors onscreen.61 The bill has presently been referred to the House Judiciary and House Administration committees for consideration.62 In order to successfully strike down or confine the application of disclosure laws, opponents will have to attack on the same unconstitutional ground which moved the Court in Citizens United. The Court was willing to knock down decades of campaign finance law based on new perceptions of unconstitutionality in the BCRA ban on corporate donations for express political advocacy. Disclosure requirements are subject to exacting scrutiny and must therefore be “substantially related to a sufficiently important government interest.”63 Ironically, in destroying disclosure restrictions, a new form of regulation will inevitably arise to manage their absence, just as disclosure restrictions expanded to fill the gap left by overturned corporate expenditure prohibitions. Tania Archer is an attorney within Moore & Van Allen’s Public Affairs team. She provides counsel on corporate and executive political giving, including solicitation and expenditure prohibitions, and assists with remedies for failure to comply with representation before regulators. Given the Firm’s Charlotte, NC corporate office location, Archer is also positioned to service clients on Democratic National Convention-related needs that may arise in advance of the 2012 Convention.

Disclaimer This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy. ©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

Request Bloomberg Law®