September 22, 2014

Freedom Partners Makes Things Even More Complicated

By CREW Staff

Koch BrothersFreedom Partners Chamber of Commerce, the financial nerve center of a network of secretive politically active nonprofit groups linked to the Koch brothers, has filed a new tax return that provides some tantalizing clues to its activities during the current election cycle.

The tax return covered the period between November 1, 2012 and October 31, 2013, and, as news reports have already noted, the group’s revenue and spending dropped sharply. This would not be surprising for a political committee in an off-year, but Freedom Partners claims it is a trade association whose primary focus is not politics. There were, however, interesting disclosures that drew less notice. For one, Freedom Partners’ legal bills appear to have skyrocketed. The purported trade association reported paying Pillsbury Winthrop Shaw Pittman LLP $680,502, and Weinberg, Jacobs & Tolani received $119,279, a total of about $800,000. It’s impossible to tell what type of legal services the firms provided. Both are known for advising nonprofit groups, but such high legal fees suggest Freedom Partners may have required more than routine service.   

The high fees stand in stark contrast to Freedom Partners’ prior year’s tax return when, under the section where the group was required to disclose its five highest paid contractors receiving more than $100,000, it listed none. This year, it listed four – the two law firms and two consulting companies. Freedom Partners reported paying $215,375 to the Herald Group, a consulting firm that has worked for big companies and trade associations such as Wal-Mart and the Information Technology Industry Council. The Herald Group was also paid $262,033 in 2012 by another Koch-affiliated group, the Center to Protect Patient Rights. Freedom Partners also paid $122,177 to VeraCruz Advisory, LLC, a strategic and financial consulting firm for nonprofits.

The Koch-affiliated nonprofit network is known for using arcane aspects of nonprofit law to obscure its operations as much as possible, particularly by setting up bizarrely named organizations known as “disregarded entities” that make following the money more difficult. Disregarded entities are single-member limited liability companies wholly controlled by the nonprofit, and groups in the Koch-affiliated network have used them to add another layer of concealment to the sources of money moving through the network. Freedom Partners’ latest tax filing reveals the network has layered yet another opaque entity on top of the already confusing setup. The group reported three new entities that had been set up as so-called C corporations: Cavhoco, Inc., described as a holding company, and Dbldbl, Inc., and Knslt, Inc., which are described as consulting companies. 

According to the tax return, Dbldbl and Knslt are controlled by Cavhoco, which in turn is controlled by one of Freedom Partners’ disregarded entitites, American Strategies Group, LLC. American Strategies Group LLC is controlled by yet another Freedom Partners disregarded entity, American Enterprise Group LLC, which is ultimately controlled by Freedom Partners.

The appearance of the C corporations on Freedom Partners’ tax return may explain some of the group’s legal fees. Only one other group in the Koch network has so far reported setting up C Corporations: the Themis Trust, a group specializing in data analysis. The same year that Themis’ c-corporations, Thoco Inc. and Demeter Analytics Services Inc., first appeared on the organization’s tax returns is also the same year that Themis paid Weinberg, Jacobs & Tolani, LLP $246,662 for “legal services.” 

What isn’t clear is the purpose of the new companies, or what Freedom Partners plans to hide by using them. Of course, maybe that’s really the point.

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