Loyola University Chicago School of Law, JD 2020
On September 18, 2018, the United States Supreme Court overturned a stay blocking a District Court ruling requiring non-profits to disclose identity of all contributors who give more than $200 a year. Prior to the ruling, IRS designated 501(c)(4) social welfare organizations and 501(c)(6) organizations such as business leagues and boards of trade, who do not register as political committees with the Federal Election Commission (FEC), were required to disclose donors only when they contributed for specific political advertisements. While the ruling requires the FEC to give guidance, newly issued FEC rules limit the scope of the court’s intention. It is likely that the new ruling will allow some donors to remain undisclosed while requiring partial disclosure of donors who contribute towards certain, but not all, expenditures.
Supreme Court Ruling Overturns Stay by Justice Roberts
The Supreme Court’s order to overturn a stay by Justice Roberts allows a District Court ruling requiring certain non-profit groups to disclose names of contributors to stand. The case comes from a complaint made by a group called Citizens for Responsibility and Ethics in Washington (CREW) against Crossroads GPS, a conservative non-profit organization. CREW filed a complaint with the Federal Election Commission (FEC) alleging that Crossroads GPS had violated federal law when it did not disclose its donors. After the FEC deadlocked on a 3-3 decision to investigate Crossroads GPS, CREW filed suit in the U.S. District Court of the District of Columbia and sought a declaratory order stating the FEC’s dismissal of the complaint was arbitrary and capricious. It also alleged that the FEC ignored evidence that Crossroads GPS had violated 11 CFR 109.10(e)(1)(vi) which requires nonprofits to disclose identities of individuals whose donations are over $200. A U.S. District Court judge ruled for CREW and gave the FEC 45 days to issue a new regulation requiring donor disclosure in accordance with the law. Crossroads GPS sought an emergency stay, which Chief Justice John Roberts granted. However, the Supreme Court vacated this stay and allowed the District Court ruling to stand.
Previous Disclosure Compliance Interpretation
CREW’s original allegation rests on the interpretation of 11 CFR 109.10(e)(1)(vi) and 52 U.S.C. § 30104(c)(2). Crossroads GPS argued that contributors did not specifically intend to further a particular independent expenditure in the exact form the money was spent. Social welfare organizations, such as Crossroads GPS, were previously required to submit reports to the FEC if spending fell within one of three categories: 1) “independent expenditures”, 2) “electioneering communications” or, 3) “communication costs.” Crossroads admitted that it had received funds in excess of $3 million from a donor and that it did not report the identity of these donors but it argued that it was not required to. CREW argued that Crossroads should have reported the names of the donors per 52 U.S.C. § 30104(c)(2), which lists reporting requirements for political committees.
Previous FEC interpretation meant that non-profits under the 501(c)4 and 501(c)6 designation could evade the disclosure requirements of 11 CFR 109.10 by cross referencing 52 U.S.C. §30104. Judge Howell in the District Court mentioned that a donor could contribute over $200 to such a committee for the “express purpose of advocating for or against the election of a candidate” but such a donor would not be disclosed “absent the donor’s express agreement that the funds be used for the specific expenditure” even if the donor may otherwise support and in fact contribute to that expenditure. If the money is not earmarked for a specific ad, the donor does not have to disclose.
This “loophole” has allowed about 15 groups nationwide to spend more than $600 million in elections without having to disclose the donors. Between January 2010 and December 2016, such social welfare organizations and trade associations have spent more than $800 million on campaign related activities. A report by government reform group Issue One, argues that FEC enforcement in complying with disclosures is lax due to the nature of the FEC. The FEC is made up of an equal number of Democratic and Republican commissioners. There are currently two vacancies on the commission and one more vacancy will mean that the FEC loses its quorum.
Implications for 2018 and Beyond
Advocates for disclosure are supportive of the ruling and argue that it is a victory for transparency. Opponents of the ruling argue that it is unfair to change the rules about political speech in the middle of a campaign and that it will chill independent speech.
The initial ruling by the DC Circuit Court on August 3, 2018, included a stay of 45 days in order for the FEC to adopt interim regulations. The FEC issued guidance limited in scope on October 4, 2018. The guidance provides that only donors who give money to “independent expenditure” ads must be disclosed but not for “issue” ads. Independent expenditure ads typically advocate for, or against, a particular federal candidate. The FEC guidance also explains that since “no one was on notice until” the district court decision on August 3, no organization will need to change their reporting requirements for independent expenditures made prior to September 18, 2018. The FEC does not address “issue ads” which can misrepresent a particular candidate’s policy on an issue.
This guidance raises one significant question about the delay of disclosure. The FEC guidance states that 24-and 48-hour independent expenditure reports do not need to include identification of the person who made the contribution. Organizations can now mask the identity of such donors until the quarterly report. For example, if a donor donates $1,000,000 today, less than 14 days before the election, for an independent expenditure against a federal candidate, such donor would normally have been disclosed within the 24-hour and 48-hour reports. Now, the public will not know about this donor until the next quarterly report which will be likely released in January 2019.
It remains to be seen how many of these organizations, and the donors who support them, will simply switch to categorizing their donations as earmarked for “issue ads” instead of “independent expenditures”. It may be that we do not see the scope of such independent expenditures until the 2020 election given the that 2018 elections are less than two weeks away and many of these donors have already donated. They fall into the nebulous “no one was on notice” period and these independent expenditures may simply never be reported due to the disclosure donut they fall into.