Dark money. The words evoke sinister plots, secret organizations, and conspiracies fit for a James Bond villain. We hear about dark money in politics, dark money in the elections, and dark money supporting a web of organizations dedicated to undermining the American experiment.
Dark money seems to be everywhere—and it is.
Dark money has become the most important fuel driving the debate on every single public issue. In fact, dark money is being deployed in new and revolutionary ways to affect our elections. Seemingly unlimited streams of philanthropy are pouring into organizations and mechanisms that just three years ago seemed fanciful and beyond the wildest imagination of activist strategies.
But what exactly is dark money, and how does it hurt or help? Is dark money good or bad?
Let’s start with some definitions. Dark money refers to money injected into the process from anonymous sources. Somebody somewhere knows where the money came from, but that information is not public. Usually, the source is a tightly guarded secret.
Dark money is used to fuel television advertisement campaigns and organizations. It is used to buy newspaper advertisements and pay the rent at 501(c)(3) tax-exempt organizations.
Dark money often works like this. A source with deep pockets is interested in an issue. The issue might be green energy, gun rights, Israel, national defense, or any of hundreds of other issues affecting the American debate. The source wishes to remain anonymous and wires money to a donor-advised fund. A donor-advised fund is a non-profit that pools funding and decides how to distribute it. They are not required to disclose their own donors.
The donor-advised fund then might distribute the money to the ultimate recipient—a charity, a foundation, or even a traditional media campaign. That’s the most common model for moving “dark money.”
But there is even darker dark money. The institutional left has developed models in the last decade that dispenses with any pretense of charitable purpose. They essentially create hyper-funded businesses structures whose only purpose it to spend money on issues. The dark money is even darker because there are utterly no disclosure requirements from start to finish. Remember, in the previous, more familiar, charitable example, the ultimate charitable recipient has to disclose to the IRS the sources of larger donations, even if that information is not available to the public.
When the revenue flows to a 501(c)(3), it is a tax-exempt donation (and tax deductible to the donor), and it usually must be disclosed. When the revenue flows to a regular business structure, such as a limited liability corporation or even the money for a cup of coffee at Starbucks, the revenue is taxable but the sources or revenue need not be itemized to the Internal Revenue Service.
But this darker dark money—with funding streams wholly outside of the charitable or tax-exempt world—faces no disclosure obligations. The owners, or members in the case of a limited liability corporation, would be liable for any taxes flowing from net profits. But rest assured, these dark money-fueled businesses spend every last dime as a business expense, so there might be no tax liability in the end.
It’s all business. And “business is good.”
These dark money business models are different from traditional political spending. Compare dark money to campaign contributions to candidates for federal election. The source of every cent of hard dollar support given to a candidate must be disclosed in filings to the Federal Election Commission. Every donor’s name and address must be disclosed. Every dollar spent must be traced to a vendor or person who spent it.
So is dark money good or bad? The truth is the answer is both, depending on how dark money is used.
Before you get too uncomfortable with all this secrecy surrounding dark money, let’s travel back to the founding of the United States and recall why anonymous movements were so important.
Back when the NAACP fought outright racial segregation in court, a favorite tactic of the segregationist states was to try to find out who the donors were to the NAACP, in order to intimidate the donors. In a case brought by the NAACP against Alabama, this fight about donor secrecy went all the way to the Supreme Court in 1958. Alabama argued that the names of the NAACP donors were relevant to the case, and the NAACP argued that Alabama just wanted to harass their donors. The NAACP wanted the names of donors to be kept secret.
The Supreme Court agreed with the NAACP in one of the most important cases involving issue-oriented philanthropy. The Court ruled that donors could be kept secret because of the real risk they face of harassment. The Court found that dark money, even if the Court did not call it dark money, was as important as it had during the American Revolution. Alabama was blocked from getting the list of NAACP donors.
So is this good or bad?
Dark money spent through 501(c)(3) and 501(c)(4) organizations comprises the vast majority of issue-oriented spending. It dwarfs hard dollar expenditures by candidates by at least a factor of ten. Naturally, left-wing causes enjoy the overwhelming numeric advantage in spending. But that is due in part to the fact that these left-of-center organizations got a decade-long head start in creating organizations and infrastructures that allowed 501(c)(4) and 501(c)(3) spending. Conservative groups were slow to catch on compared to the vast networks established by funding sources like the Open Society Institute, Democracy Fund, and Arabella Advisors, which are but three of the streams of left-wing dark money.
Dark money is increasingly important because of the organized harassment campaigns that conservative donors face. When the donations of Betsy DeVos, former Secretary of Education, and Dan Cathy, the owner of Chick-Fil-A, became known, organized harassment campaigns were launched.
Dark money is now being used in revolutionary ways surrounding our elections. Here are three new developments:
Lastly, no discussion of dark money is complete without mentioning ballot harvesting. Because of the unprecedented rush to mail-in voting in 2020, dark money flowed into structures designed to go out and collect ballots at voters’ homes. I had seen this on a smaller scale when I was a lawyer at the Department of Justice Voting Section, where politically-connected collectors would go into minority communities and actually fill in ballots in the voter’s home, and, tragically, with the voter’s consent. In 2020, dark money was on the ground fueling ballot harvesting on a massive scale. Unless we had video footage in every home where this occurred, it is impossible to say it was illegal. That is the problem with ballot harvesting: it goes on behind closed doors, out of sight of election officials.
There are very smart and savvy individuals designing new and revolutionary ways to affect our elections. In the last two years, they have designed and implemented revolutionary new structures that affect voting on the ground, convert government election offices to turnout machines, and scare away anyone who tries to stop it. None of this is possible without unprecedented flows of dark money. The question is whether opponents of these efforts can be as imaginative, and whether even a fraction of the funding used in the last two years can be mustered to stop it.