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What is Dark Money?

How Some Political Spending Remains Cloaked in Secrecy

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Anyone who's paid attention to all those mysteriously funded political ads on television during the 2012 presidential election is probably familiar with the term "dark money." Dark money is a term used to describe political spending by innocuously named groups whose own donors - the source of the money - is allowed to remain hidden because of loopholes in disclosure laws.

How Dark Money Spending Works

So why does dark money exist? If there are Federal Election Commission rules requiring campaigns to report their sources of funding, how can it be that some of the money spent on trying to influence elections is coming from unnamed sources?

Most of the dark money making its way into politics comes not from campaigns themselves but outside groups including nonprofit 501[c] groups or social welfare organizations that are spending tens of millions of dollars.

Those groups are required to report how much they spend trying to influence elections. But under the Internal Revenue Service code, 501[c] and social welfare organizations are not required to tell the government or public from whom they get their money. That means they can spend money on electioneering or make contributions to super PACs without naming names of individual donors.

What Dark Money Pays For

Dark money spending is very similar to spending by super PACs. 501[c] and social welfare organizations can spend unlimited amounts of money trying to sway voters on specific issues and thereby influence the outcome of elections.

History of Dark Money

The explosion of dark money followed the U.S. Supreme Court's landmark 2010 ruling in the case of Citizens United v. Federal Election Commission. The court ruled that the federal government cannot limit corporations - including those 501[c] and social welfare organizations - from spending money to influence the outcome of elections. The ruling led to the creation of super PACs.

Dark Money Examples

Groups that spend money on trying to influence elections without having to disclose their own donors appear on both sides of the political spectrum - from the conservative, anti-tax Club for Growth and U.S. Chamber of Commerce to the left-leaning abortion-rights activist groups Planned Parenthood Action Fund Inc. and NARAL Pro-Choice America.

Dark Money Controversies

One of the biggest controversies over dark money involved the 501[c] group Crossroads GPS. The group has strong ties to former George W. Bush adviser Karl Rove. Crossroads GPS is a separate entity from American Crossroads, a conservative super PAC funded by Rove that was sharply critical of President Barack Obama in the 2012 election.

During the campaign, the groups Democracy 21 and the Campaign Legal Center asked the Internal Revenue Service to investigate Crossroads GPS after the 501[c] group received an anonymous $10 million contribution.

"The new $10 million secret contribution to Crossroads GPS to run attack ads against President Obama as he runs for re-election is a stark illustration of the problem caused by groups engaged in campaign spending claiming eligibility as 'social welfare' organizations under section 501(c)(4)," wrote J. Gerald Hebert, executive director of the Campaign Legal Center, and Fred Wertheimer, president of Democracy 21.

"It is apparent that these groups are claiming section 501(c)(4) tax status in order to keep secret from the American people the donors financing their campaign-related expenditures," they wrote. "If these organizations are not eligible for tax status under section 501(c)(4), then they are improperly using the tax laws to shield their donors from public disclosure and improperly using secret contributions to influence the 2012 national elections."

Crossroads GPS reportedly spent more than $70 million from anonymous donors on the 2012 election even though it had previously told the IRS political spending would be "limited in amount, and will not constitute the organization's primary purpose."

Dark Money and Super PACs

Many advocates for transparency believe spending by 501[c] and social welfare organizations is much more problematic than that by super PACs.

"We are seeing some 501c4s becoming pure election vehicles," wrote Rick Hasen on the Election Law Blog. "... The key is to stop 501c4s from becoming shadow super PACs. Yes, campaign finance reform community, it has become this bad: I want more super PACs, because the 501c4 alternative is worse!"

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