04/09/2013 03:24 pm ET | Updated Apr 09, 2013

'Dark Money' Enforcement Failures Criticized At Senate Hearing

WASHINGTON -- At a congressional hearing on Tuesday convened by Sen. Sheldon Whitehouse (D-R.I.), officials from the Justice Department and the Internal Revenue Service were unable to name a prosecution undertaken by either agency for false statements made by a nonprofit engaging in political activities or for super PAC contributions made through a shell corporation.

The hearing before the Senate Judiciary Subcommittee on Crime and Terrorism was held to examine enforcement of campaign finance laws since the Supreme Court's 2010 ruling in Citizens United v. Federal Election Commission opened the door to unlimited independent campaign spending by corporations, unions and, through a subsequent lower court ruling, individuals.

Whitehouse highlighted the lack of enforcement, as far as he could see, against two types of potential violations: the use of shell corporations to conceal a donor's identity when contributing to a super PAC, and the making of false statements in registering for 501(c)(4) "social welfare" nonprofit status by a group that asserts it will not engage in political activity but, in fact, does.

Behind both offenses lie the lure of "dark money" and the desire of many major donors to stay hidden: Super PACs are required to disclose their contributors to the FEC, while the nonprofits are allowed to keep their contributors secret.

ProPublica reported in January that at least five nonprofits politically active in the 2012 elections had stated on their registration forms that they would not spend money on elections. The news site also reported that the Karl Rove-founded Crossroads GPS declared its political spending would be "limited in amount." In fact, Crossroads GPS spent $70 million on independent expenditures in last year's election and another $85 million on issue advertising that targeted only lawmakers and candidates up for election in 2012.

There were also multiple reported uses of shell corporations to donate to super PACs. In many of those cases, the super PAC amended its records to reveal the name of the original donor under media pressure.

Whitehouse criticized the Justice Department for deferring to the IRS before prosecuting nonprofits for false statements, arguing that the tax agency was "not particularly well-suited, not particularly well-staffed and not particularly well-disposed to this matter."

"Making a false statement is something the department prosecutes all the time," Whitehouse said. "It doesn't take particular tax expertise to recognize a false statement when you see one or to prosecute one when you see one."

Mythili Raman, acting assistant attorney for the Justice Department's Criminal Division, said that she could neither discuss any ongoing investigation nor confirm whether there were any ongoing investigations.

"Without discussing ongoing investigations, I can tell you that we are incredibly vigilant about the use of these organizations as an end run around contribution [disclosure]," Raman said.

Raman did address elements of the post-Citizens United campaign finance landscape that impede Justice Department action. She pointed to the difficulty in investigating and proving illegal coordination between a super PAC and a candidate, particularly due to the lack of a clear legal definition of "coordination" and the lack of transparency surrounding donations to politically active nonprofits.

The latter point came under sharp scrutiny from Sen. Ted Cruz (R-Texas), who made clear his opposition to campaign finance regulation. Cruz pressured Raman to explain what interest the Justice Department had in greater transparency for contributions to politically active nonprofits.

Raman replied, "There is a risk that we have seen of bad actors using the anonymity that's given to them when they [donate] to 501(c)(4)s to hide the true purpose of their donation, and we need to be vigilant about that. We need to be able to determine when those donors are acting with bad intent and frankly when a campaign or elected official may be knowingly allowing that kind of donation to occur intending to be influenced in some corrupt way."

Later in the hearing, experts representing opposing views on the regulation of campaign money agreed on one thing: that the proper agency to provide oversight is not the Justice Department or the IRS, but the Federal Election Commission, which was created for that sole purpose.

"I think the DOJ needs to do much more, but the locus needs to be on the FEC, and it needs to do much more," said Lawrence Noble, president of Americans for Campaign Finance Reform and a former general counsel of the FEC.

Bradley Smith, president of the Center for Competitive Politics and a former FEC chairman, noted that the independent elections commission is designed to prevent politically motivated prosecutions by the executive branch.


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