By Nandor Kiss
Last November California voters had to decide the fate of two controversial ballot initiatives. Proposition 30 was intended to raise the income tax rate of California’s highest tax brackets and increase sales tax a quarter of a percent in order to fund new education programs. Proposition 32, which many believed was highly deceptive in describing its purpose, was intended to limit the ability of corporations and unions from using payroll-deducted funds for political purposes. While many were interested in the results, probably no one as much as Tony Russo, a Republican consultant who raised millions in order to support Prop. 32 and defeat Prop. 30 as part of the GOP’s “California Comeback” plan. Through his fundraising efforts, Russo was able to assemble approximately $74 million in donations for the cause, but he soon ran into a problem.
Of the $74 million he raised, $29 million was sent to the Virginia-based Americans for Job Security (“AJS”) to be used on issue ads that don’t require any disclosure under California law. However, the money that Russo raised came in later than expected and by early fall of 2012, there was still about $24 million in AJS’s coffers. That is when Russo ran into an obscure section of the California election code. The California Political Reform Act (“the Act”), while amended multiple times, was passed in 1974. The Act generally allows for anonymity in cases of independent political expenditures, the type typically associated with PACs and the type that AJS had intended to make. There is, however, an exception that requires disclosure as the day of the election draws near. In 2012, “Late Independent Expenditures” were defined as expenditures “totaling in the aggregate $1,000 or more that is made for or against any specific candidate, committee, or measure involved in an election that is made or received before the date of the election but after the closing date of the last campaign statement required to be filed prior to the election.” As the closing date of the last campaign statement had already passed, Russo would inevitability fall within the “late” period. This was a problem because “late” expenditures have additional reporting requirements. Under §84204 of the Act, the late expenditures required disclosing the name of every person who contributed $100 or more to the fund.
Many of Russo’s donors contributed to his organization solely because they knew that their names wouldn’t have to be disclosed leaving Russo with $24 million in essentially worthless contributions. His solution to that problem has now been popularly referred to as California’s “Dark Money” scandal. Essentially, Russo sent the money a national advocacy group, Center to Protect Patients Rights, in the hopes that they would return an equal amount to the state of California. This would allow the same amount to be spent on the “California Comeback” without having to disclose the anonymous donors. The transaction saw funds transferred between several different PACs and other organizations spanning multiple states. The money trail became extremely complex but luckily, the Washington Post created a graphic explanation to explain it. In the end, only $11 million dollars made it back to California, but the plan had worked, the money was no longer associated with any of Russo’s anonymous donors.
Now for those who read this and felt uneasy about the plan’s similarity to a criminal money-laundering scheme, you are not alone. The multi-million-dollar out-of-state contribution raised a few eyebrows and soon the California Fair Political Practices Committee (“FPPC”) began a full investigation. FPPC ultimately traced the money trail back to Russo and AJS. At the investigation’s conclusion, the FPPC claimed that the $11 million contribution was “the largest contribution ever disclosed as campaign money laundering in California history.” In early November 2013, the groups were collectively fined $1 million dollars and ordered to return $15 million in contributions they received. In addition to these penalties, many of the anonymous donors, that the groups tried so hard to conceal, have been revealed.
Since the 2012 election, California lawmakers have been trying to find a remedy to ensure that this type of problem doesn’t happen again. One option some are advocating is SB 27, a bill that is designed to amend California law to require disclosure of donors regardless of the non-profit status of the organizations they donate too. The bill promises to usher in even more transparency in the state by shining light on “dark money.” Hopefully the bill will work but if this “Dark Money” scandal has demonstrated anything it’s the lengths donors will go through to ensure their identities stay hidden, and the lengths organizations like AJS will go through to ensure they keep donors happy.