In recent years, 501(c) nonprofits have become the entities of choice for secret campaign spending. These nonprofit groups, which do not have to report any donor information to the public, can receive unlimited contributions from any source and, thanks to the Supreme Court’s 2010 Citizens United decision, spend unlimited amounts on elections.
Foreign spending, whether by a foreign national or a foreign-owned corporation, is still illegal under federal law. But the law has been poorly enforced, and the few instances in which penalties have been applied in recent years have come in reaction to publicly reported foreign corporate spending to Super PACs, such as The Intercept’s reporting on Chinese corporate donations in 2016 and the recent federal indictment over a shell company owned by a Russian national that gave to President Donald Trump’s Super PAC in 2018.
The one check on foreign contributions to dark-money groups has been the Schedule B form, which reports 501(c) donor information confidentially to the Internal Revenue Service. Under a new rule proposed last September by the Treasury Department and the IRS, nonprofits will no longer be required to report donor information, even to the government, allowing an unprecedented level of secrecy.
Lobbyists for foreign-funded groups have pushed the administration to move forward with the rule, which is close to being finalized.
“Identifying, harassing, and intimidating the organization’s supporters is a chief means of silencing that organization’s speech,” wrote Caroline L. Harris, the Chambers’ chief tax policy counsel, and Ryan P. Meyers, the deputy general counsel of the group, in a regulatory letter to officials overseeing the rule change. “The Chamber applauds the work of Treasury and the Internal Revenue Service (IRS) in eliminating onerous reporting requirements.”
The National Association of Manufacturers, which counts several corporations based in foreign countries as members, in a letter to IRS officials, similarly called the Schedule B requirement an “unnecessary administrative filings that raise the potential for misuse in a way that chills protected speech.”
Both NAM and the Chamber of Commerce, which spends more than $160 million a year, are organized as 501(c)(6) trade associations and under no obligation to disclose donor money to the public — only to the government through the annual Schedule B form to its 990 annual filing. After the Citizens United decision, the two groups led an effort to defeat the DISCLOSE Act, legislation that would have forced groups engaged high-dollar election advocacy to reveal donor information. The Chamber also lobbied successfully to stop President Barack Obama from issuing an executive order to force government contractors to disclose grants to 501(c) groups.
Foreign-based firms such as Brazilian petrochemical firm Braskem, Al Zayani Investments in Bahrain, and Turkish conglomerate Tekfen are listed on the Chamber’s website as dues-paying members. Faced with criticism in the past that its foreign funding might bleed into the Chamber’s vast domestic lobbying and campaign spending budget, the group has claimed that any foreign donations are walled off from domestic funds, and that foreign donors make up a small percentage of its overall budget.
But the removal of the Schedule B requirement could make those claims impossible to verify. A large foreign national firm could provide multimillion-dollar donations for use in U.S. elections to the Chamber under the new rule and such giving would never be reported to government officials.
That’s precisely the danger of removing Schedule B forms, campaign finance experts warn. The Campaign Legal Center, a campaign finance watchdog that has filed the ethics complaints that led to enforcement action on foreign money in the past, cautioned the IRS that the rule would simply open the door to more foreign spending.
“Congress has failed to pass new transparency legislation, and the FEC has failed to enforce the transparency laws that are on the books,” said Brendan Fischer, director of Campaign Legal Center’s federal reform program. “As a result, the only donor disclosure reports that dark-money groups file with any federal agency are the confidential Schedule B reports filed with the IRS. These confidential donor reports are one of the few ways that federal agencies could detect and deter foreign money in U.S. elections.”
It’s not hard to comprehend the many ways in which completely secret legal entities could incentivize illegal election behavior. In 2016, reporters from the Telegraph conducted a sting operation on a Republican campaign operative working in support of Trump. The operative was offered a $2 million check from a Chinese businessman by the reporters. He responded by offering a plan for how to conceal the money, suggesting that it be routed through his consulting firm to a pair of 501(c)4 groups and then to a pro-Trump Ssuper PAC.
The FBI is also investigating the National Rifle Association over allegations that the group, which is organized as a 501(c)4, may have received financial support from Russian sources. McClatchy reported that counterintelligence officials believe that Russian interests may have contributed to the NRA’s $30 million election advertising campaign in 2016.
Foreign firms increasingly finance major American business associations. As The Intercept has previously reported, a major Chinese chemical company joined the American Chemistry Council, a 501(c)6 that routinely lobbies lawmakers and spends money in elections.
The Trump administration had originally tried to remove the Schedule B form last summer in a surprise decision. A federal judge in Montana, however, ruled that the IRS had failed to follow proper regulatory procedure and ordered the agency to conduct a formal rule-making to allow the public and stakeholders to weigh in on the change.
“The rise of ‘dark money’ in U.S. elections has made it easy for foreign entities to contravene these laws by funneling money into U.S. elections through groups that that [sic] do not publicly disclose their donors, such as 501(c)(4) social welfare organizations and 501(c)(6) trade associations,” wrote the Campaign Legal Center in a letter to the IRS. “This change would further enable foreign entities to donate millions of dollars to such organizations for the purpose of influencing U.S. elections without any risk of scrutiny by federal regulators.”
Republican-aligned think tanks have joined the business-backed push to eliminate the Schedule B. Several nonprofits backed by billionaire Charles Koch, including his marquee group Americans for Prosperity, testified on February 7 in support of the rule change. FreedomWorks, a conservative grassroots group backed by business interests, has also mobilized hundreds of letters to the agency.
Hans von Spakovsky, a former Federal Election Commission member now with the Heritage Foundation, appeared at the hearing alongside other conservative activists in support of the rule change.
Von Spakosvsky, an avowed critic of campaign finance regulations and voting rights laws, testified that “their claim that this will somehow allow foreign money to suddenly flood into American elections is absurd,” according to a transcript of his remarks. Von Spakovsky said the FEC had plenty of authority and expertise in combating foreign money during his tenure, despite the fact that the agency has historically only intervened to investigate foreign money through disclosed political action committees on a few occasions in its 45-year history. He did not cite any examples of the FEC investigating 501(c) groups.