Laws Preventing Dark Money Disclosure Are Sweeping the Nation

ALEC-inspired bills making dark money disclosure illegal are passing more states each year.

Laws Preventing Dark Money Disclosure Are Sweeping the Nation

As legislative sessions wind down in many states, political groups that don’t want to disclose their funders have a lot to celebrate. 

In four states, laws were adopted this year that bar government agencies from requiring nonprofit organizations to report their donors, essentially codifying the campaign finance loopholes that have allowed for an explosion of “dark money” in politics. 

The laws’ supporters claim they are needed to prevent governments from violating the privacy of charitable donors, but each of the bills are worded so that they would also apply to other types of 501(c) nonprofits that, unlike 501(c)(3) charities, are allowed to spend money on politics. Money from nonprofits such as labor unions, trade associations, and social welfare groups is increasingly being spent on politics in many states. 

The bills create preemptive protections against state and local agencies that could seek to require nonprofits that spend money to influence their elections to reveal their donors in order to give voters information about the political messages they are seeing. 

“These bills are about making dark money darker,” said Aaron McKean, legal counsel at the nonpartisan, nonprofit Campaign Legal Center. “These aren’t churches or the Salvation Army, these are politically-active nonprofits that are spending money in elections, or spending money lobbying for changes in the law, or trying to change public opinion, but they don’t want to have to disclose their donors.”   

The four laws passed this year represent the acceleration of a trend dating back to 2018, when Arizona became the first state to prohibit itself from seeking to disclose the identities of nonprofits’ donors. Mississippi adopted a donor disclosure ban in 2019, and three states enacted them last year: Utah, Oklahoma, and Virginia. 

The states that adopted the laws in 2021 are Arkansas, Iowa, South Dakota, and Tennessee. 

Penalties for violating the laws vary between the states, but in some states could include prison sentences. Iowa’s law, for example, says that anyone who knowingly discloses nonprofit donors would be “guilty of a serious misdemeanor punishable by imprisonment for not more than ninety days or a fine of not more than one thousand dollars, or both“

Another of these proposals is still winding its way through the legislative process in North Carolina. That bill, SB 636, passed the State Senate on May 11 by a party-line vote with all Republicans voting yes and all Democrats voting no, and is now referred to the House Committee on Rules. 

The text of the bill says it will not apply to any disclosures that are required under the state’s existing campaign finance laws, but according to the Campaign Legal Center, that provision is effectively meaningless because donors in the state often use shell games and pass funds through multiple groups before it reaches the accounts of the ultimate spender.

“While current law ostensibly requires disclosure by groups that spend in North Carolina elections, the law does not extend to dark money groups that are three or four or more transactions removed from the entity that directly pays for an election ad,” the Campaign Legal Center wrote in a letter opposing the bill that was sent today to the Rules Committee and its chair. “Existing law makes it easy to influence North Carolina elections in secret by funneling money intended to influence an election through one or more intermediary entities.”

All of these laws generally copy language from a model bill that was put forward by the American Legislative Exchange Council ( ALEC) in 2017. ALEC is a nonprofit that brings together corporate representatives, conservative movement activists, lobbyists, and state lawmakers to partner up on the crafting of rightwing legislation and other initiatives. The so-called “corporate bill mill” has been behind measures like the “Stand Your Ground” laws that protect people who use deadly force when faced with a perceived threat even when they could have retreated, and anti-protest bills that allow prison sentences for people who are found to have entered property containing oil and gas sites and other so-called “critical infrastructure facilities” without permission.

ALEC is deeply enmeshed with the sprawling political influence networks tied to billionaire families like the Kochs and the Bradleys, both of which use non-disclosing nonprofits that help to conceal how money is funneled. The billionaires’ groups have all provided funding to ALEC, either directly through entities they control, or through groups they heavily fund. The Koch-tied group Americans for Prosperity typically sends dozens of representatives to ALEC’s annual meetings, and the group has ties to several of the sponsors to the dark money protection bills. For example, Americans for Prosperity has hosted town halls for North Carolina Republican Senator Joyce Krawiec, the chief sponsor of SB 636. 

The ALEC model bill says in its summary section that it was put forward “In response to attempts to expand the scope and application of donor disclosure requirements of nonprofit tax-exempt organizations.”

States are generally not required to defer to the IRS’ determination as to whether a group that is spending money on its elections is properly designated as a nonprofit and thus allowed to hide its donors. A state agency could review a politically-active nonprofit’s records and determine it is abusing its IRS nonprofit status, but if it has adopted one of these “donor privacy” laws it would not be able to force it to disclose its donors.

Some Democrats in Congress and in some state legislatures have called for requiring all organizations that have to report political spending for things like ads and mailers to the Federal Election Commission or state equivalent agencies to also disclose their donors, just like PACs and campaigns. 

Since the Supreme Court relaxed campaign finance regulations for independent groups in its 2010 Citizens United ruling, more political spending has been routed through social welfare and trade association nonprofits that allow donors to remain anonymous. A 2016 report from the Brennan Center for Justice found that 38 times as much “dark money” was spent in six states in the 2014 election cycle, on average, than in the 2006 cycle. The state that saw the largest dark money increase over that period, Arizona, passed its “donor privacy” law in 2018, preempting the state and local governments from seeking to provide voters with more information about who is trying to influence their votes. 

At the federal level, congressional Democrats have included provisions in the For the People Act that would require nonprofits that spend money on elections to disclose the names of donors who give more than $10,000 in a reporting period, the date and amount of donations, and the aggregate amount donated by donors. That bill has passed the House, but appears to be stuck in the Senate without enough votes to pass. 

North Carolina Voters for Clean Elections Director Melissa Kromm, who is lobbying legislators to stop the North Carolina bill from becoming law, told Sludge that its Republican backers are warning about the need to protect donors from “cancel culture” and that donors could face harassment. 

But to Kromm, SB 636 is “a solution in search of a problem.”

“No one has actually said this is a problem in North Carolina,” Kromm said. “I’m putting it on the bill sponsors to explain to us why they actually need this, because they can’t really explain it. And on top of that, this is an ALEC model bill, so it’s suspect.”

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