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Will Russians be able to funnel illegal donations into the 2020 presidential elections? Democrats in Congress are determined to thwart any such meddling. They have zeroed in on a Trump administration rule change last summer regarding nonprofits known as “dark money” groups, which are no longer are required to disclose their donors even to the IRS. Democrats worry that could allow foreigners to donate to such politically active nonprofits without detection.
Two bills making their way through Congress would address such loopholes, with the House passing H.R. 1 last week and the Senate considering the Spotlight Act. However, Republicans see such measures as an overreaction to what was likely a minuscule percentage of overall spending in the 2016 election. “You’re going to let a few hundred thousand dollars of Facebook ads bought by the rump state of the Soviet Union cause us to give up our speech rights?” asks Bradley Smith, chairman of the Institute for Free Speech in Arlington, Virginia. “Their solution is to apply restraints that will affect every American and not just these entities they are supposedly worried about.”
With special counsel Robert Mueller’s investigation reportedly wrapping up, the spotlight on Russian election interference is heating up. And one of the most contentious issues, aside from any possible collusion between the Trump campaign and Russia, is how to prevent foreign money from influencing the 2020 election.
Democratic members of Congress, in their opening salvo after winning the majority in the U.S. House of Representatives last fall, spearheaded passage of a major bill late last week that includes provisions to thwart foreign spending in U.S. elections. The sweeping anti-corruption act, known as H.R. 1, covers a wide range of issues from campaign finance to voter rights and government ethics.
Not a single Republican voted in favor of the bill, which passed 234-193, reflecting a deep partisan divide over how best to shore up American democracy after the tumultuous 2016 campaign.
Democrats and campaign finance advocates see an urgent need to close loopholes that could allow foreign money to surreptitiously influence American voters, citing in particular a Kremlin-linked company that bought divisive Facebook ads and a Trump administration tax rule change last summer that could allow illegal foreign donors to evade detection.
H.R. 1 would require greater disclosure of donors, increased transparency on digital ad spending, and disclosure of gifts from foreign agents to officeholders. It would also change the structure of the Federal Election Commission (FEC) to break its current partisan deadlock, which has severely hampered the commission’s ability to enforce existing campaign finance rules.
Republicans, while acknowledging Russia’s previous attempts to sow dissension, see Democratic legislators’ measures as an overreaction to what was likely a minuscule percentage of overall spending in the 2016 election. They describe Democrats as using a foreign boogeyman to push through an agenda that predates Russian trolls – an agenda which they say would curtail American rights to privacy and free speech.
“You’re going to let a few hundred thousand dollars of Facebook ads bought by the rump state of the Soviet Union cause us to give up our speech rights?” asks Bradley Smith, the former head of the FEC who is now the chairman of the Institute for Free Speech in Arlington, Virginia. “You’ve got this kind of made-up crisis and these appeals to xenophobia, ... and their solution is to apply restraints that will affect every American and not just these entities they are supposedly worried about.”
But Democratic Rep. David Price, a former Duke University political science professor who represents North Carolina, says it’s not about the current extent of the practice; it’s about the possibility of greater abuse. “Why would they assume that this … couldn’t take on greater proportions in the future?” he asks.
Technically, it is illegal for foreign donors to give money to nonprofits for political purposes. But there are several channels through which such money could still flow.
One key channel of concern is so-called “dark money” groups, particularly 501(c)4s. These are nonprofits which are allowed to accept political donations in unlimited amounts and do not have to disclose their donors to the public. They can spend up to half of their funds advocating for or against political candidates, with the rest available for other activities, including advocating for certain issues in which they can also mention candidates by name who support or oppose those issues.
In the 2018 cycle, such groups spent about $150 million. That accounts for only about 4 percent of total spending on the midterm elections, but in highly competitive races it can play an outsized role.
“If we know there’s big secret money, we can’t possibly know whether it’s foreign or not,” says Sheila Krumholz, executive director for the Center for Responsive Politics (CRP), the top group tracking money in U.S. politics.
“You’re seeing groups spending tens of millions of dollars or popping up and spending $1 million on an election, and you don’t know if this was some billionaire donor with a stake in the election … [or] a foreign power trying to influence the election,” says Anna Massoglia, who researches nonprofits and foreign influence for CRP. “It’s really just hard to tell.”
Up until last summer, these groups were required to disclose their donors to the IRS, which redacted such information in public releases of tax forms. But then in July 2018, Treasury Secretary Steve Mnuchin announced that given privacy violations and the fact that donor information was not necessary for tax administration (because donations to such groups are not tax-deductible), they would no longer be required to disclose their donors on the Schedule B form filed with their 990s every year.
That was deeply concerning to campaign finance advocates, particularly in light of the Mueller investigation into foreign actors seeking to influence U.S. elections.
“Rather than the IRS more diligently reviewing Schedule Bs to identify any potential foreign money, the Treasury Department is just doing away with the reporting requirements on the Schedule B altogether,” says Brendan Fischer, director of federal reform at the Campaign Legal Center (CLC) in Washington, D.C. “It could be viewed as a green light to foreign actors that this is a way to funnel money into U.S. elections with even less threat of being caught.”
Democrats found the timing of Treasury’s rule change highly suspect, coming just two weeks after McClatchy reported that Mr. Mueller had likely obtained the NRA’s tax forms revealing its donors in order to investigate whether a Kremlin-linked Russian banker had funneled money through the NRA to help Donald Trump get elected. The NRA, which endorsed Mr. Trump, spent more than $30 million on the 2016 election.
James Bopp Jr., one of the most prominent American lawyers advocating against campaign finance regulation, dismisses that as a conspiracy theory. He cites longstanding concerns over the IRS targeting groups based on partisan affiliation, such as a 2013 scandal in which the agency admitted scrutinizing groups with terms like “Tea Party” or “patriot” in their name. A 2017 report from the Treasury Department’s inspector general found that such groups were unfairly targeted and determined that the IRS had inappropriately targeted liberal-leaning groups as well.
In light of that, Mr. Bopp says, the focus on a supposed link between the IRS rule change and the Mueller investigation is unwarranted.
“This is like a herd of elephants just went through the property, but there’s a little mouse over there – [and saying] it’s the mouse’s fault,” he says.
H.R. 1 would effectively reverse the IRS rule change, thanks to a last-minute addition spearheaded by Representative Price. It would also require disclosure of all donors giving $10,000 or more to groups spending money in U.S. elections. Separately, the Spotlight Act – introduced by Democratic Sens. Jon Tester of Montana and Ron Wyden of Oregon in January – would overturn the IRS rule change and also require dark money groups to disclose not only to the IRS but also to the public any donors making contributions of $5,000 or more.
“Dark money is a threat to our democracy,” said Senator Tester, in a statement issued when the bill was introduced. His state has taken a harder line than most on the issue ever since a copper baron literally bought himself a seat in Congress in 1899. “I will do everything I can to defend Montanans from this shadowy behavior because we need more light in our elections, not less.”
Another channel through which foreign money could flow is donations by U.S. subsidiaries of foreign-owned companies. Such donations are allowed if they are not made at the direction of foreign executives.
In the last presidential election, a U.S. subsidiary transferred $1.3 million at the behest of its Chinese owners into a SuperPAC supporting Jeb Bush. The FEC on Friday handed down a $550,000 fine to American Pacific International Capital, Inc., and a $390,000 fine to Right to Rise, the pro-Bush super PAC involved. The dual fine represents the third-largest financial penalty the FEC has ever handed down.
But even if foreign owners don’t explicitly direct their American partners to make such a donation, it could be implicitly understood.
“If foreign nationals own and run the company, the fact that you have a U.S. national directing the contribution doesn’t mean anything, because they know what their foreign bosses want,” says Mr. Fischer of CLC.
Josh Kirschenbaum, an illicit finance expert at the Alliance for Securing Democracy, says it’s virtually impossible to keep sophisticated foreign actors from funneling money into U.S. elections. “There’s a million ways you can do it,” he says, such as instructing a U.S.-based fund manager to make a donation and then repaying him or her under the guise of a finder’s fee – and not even necessarily into a U.S. account.
But just as people still lock their doors even when it’s possible to break in through a window, he says that if rules are put in place to prevent foreign actors from donating, it will slow them down and likely cause them to leave more of a trail.
H.R. 1, which would bring more transparency and make it easier to spot illegal foreign donations, is unlikely to become law so long as the GOP maintains control of the Senate and the White House. The bipartisan cooperation on campaign finance seen in the wake of Watergate has eroded to the point where it’s nearly impossible to get Republicans on board, says North Carolina’s Mr. Price, who first took office in 1987.
Still, he’s not giving up.
“I think we’ve got to, down the road, explore the possibilities of smaller pieces of this that might get some buy-in,” he says, referring to H.R. 1. “But it is much, much harder than it was 10 years ago.”