When Super PACs Go Dark: LLCs Fuel Secret Spending

AP Photo/Pat Sullivan

Republican presidential candidate, Senator Marco Rubio, speaks at a rally Wednesday, February 24, 2016, in Houston. 

A hallmark of super PACs, the political action committees that may raise unlimited contributions if they act independently from candidates, is that they must publicly disclose their donors.

But in this election, super PACs and their backers are proving increasingly adept at skirting the federal disclosure rules, particularly through the use of limited liability companies, or LLCs—a type of business entity that leaves no paper trail and gives political players cover to hide their identities.

“The supposed transparency of super PACs is completely undermined to the extent that they receive untraceable contributions from LLCs and other business entities,” says Paul S. Ryan, deputy executive director of the Campaign Legal Center (CLC).

The CLC and another watchdog group, Democracy 21, filed two complaints Wednesday with the Federal Election Commission alleging that six- and seven-figure donors funneled money through secretive shell corporations to separate super PACs backing Florida Senator and GOP presidential hopeful Marco Rubio, and Jersey City Mayor Steven Fulop, a Democrat. The complaints come on the heels of similar calls for an FEC investigation filed by the watchdog group Citizens for Responsibility and Ethics in Washington, naming the same two LLCs that funneled big money to the super PACs backing Rubio and Fulop.

The LLC donations to Rubio and Fulop are just the most recent and glaring examples of secret donations to super PACs via shell corporations in this election. Reports by the Associated Press, the Center for Public Integrity and the Sunlight Foundation have flagged dozens of donations of anywhere from $50,000 to $1 million routed through non-disclosing LLCs to super PACs backing Rubio, Hillary Clinton, Texas Senator Ted Cruz, Ohio Governor John Kasich, and to erstwhile presidential hopefuls Jeb Bush and Carly Fiorina.

These include two six-figure contributions to Stand for Truth, one of several super PACs supporting Cruz—$100,000 from an obscure company dubbed ABC Land Development, Inc., and $250,000 from an LLC dubbed Children of Israel. That same LLC had previously given $150,000 to yet another super PAC supporting unsuccessful GOP presidential hopeful Mike Huckabee.

The LLCs named in Wednesday’s FEC complaint were singled out because they offered among the most brazen examples of how LLCs function as thinly-disguised shell corporations set up for purely political purposes, says Ryan. The first complaint involves an LLC known as DE First Holdings that donated $1 million to a pro-Fulop super PAC dubbed the Coalition for Progress within 24 hours after DE First Holdings LLC came into existence.

“That, to me, is a red flag,” says Ryan. “Because it is unlikely that this business entity could have generated $1 million of its own revenue in a day.”

The second complaint involves $500,000 donated by another mysterious corporation, the obscurely-named IGX LLC, to a pro-Rubio super PAC known as Conservative Solutions. An AP investigation identified the company’s owner as Brooklyn investor Andrew Duncan, who told the wire service that he “had used IGX to mask the donation because he was worried about reprisals.” As Ryan notes: “That seems to be an admission of a violation of federal law.”

It’s not the first time watchdogs have lodged election law complaints against LLCs. Last year, the Campaign Legal Center and Democracy 21 asked both the FEC and the Justice Department to investigate $875,000 in contributions made in 2012 by the hip hop artist Pras Michael to a super PAC known as Black Men Vote that was backing President Barack Obama’s reelection campaign. The money, funneled through an LLC known as SPM Holdings, constituted a “straw donor” contribution, the complaint alleged.

The two watchdog groups also complained to the FEC in 2011 about three $1 million contributions donated through non-disclosing LLCs to a pro-Romney super PAC, Restore Our Future. But the agency has failed to act on any of those complaints, and the Restore Our Future matter is about to hit the FEC’s five-year statute of limitations. If the agency does not act before the deadline, it will have to drop the matter. FEC inaction—the agency’s default mode amid partisan stalemates and GOP resistance to regulation— has given the green light to big super PAC donors eager to hide behind LLCs.

The increasing use of LLCs to hide campaign contributions is taking place against the backdrop of growing election secrecy across the board. The more typical route to donor secrecy is via politically active tax-exempt groups, which also operate outside the campaign-finance rules.

In many cases, such nonprofits, which enjoy tax exemption on the grounds that they are promoting the “social welfare,” operate on a parallel track to super PACs, spending millions on campaign-style ads that promote candidates. Sometimes, though, nonprofit social welfare groups simply donate big money directly to super PACs—creating yet another means for contributors to fly under the radar.

This is not at all what the Supreme Court had in mind when it rejected limits on independent political spending in Citizens United v. FEC six years ago. In that ruling, the court majority explicitly cited full disclosure as a leading rationale for deregulation. Similarly, the federal appellate court ruling that paved the way for the creation of super PACs in Speech Now v. FEC found that “the public has an interest in knowing who is speaking about a candidate and who is funding the speech,” and that disclosure “deters and helps expose violations of other campaign-finance restrictions, such as those barring contributions from foreign corporations or other individuals.”

As campaign spending increasingly moves underground, and as supposedly transparent super PACs go dark, the risk that illegal foreign money finds its way into American elections will only grow.

This Story has been updated.

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