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February 27, 2015

CPAC Organizer’s Conduit Contribution Demonstrates Challenge of Stopping Dead End Disclosure

By Matt Corley

CPAC 2015Earlier today, CREW filed a complaint with Federal Election Commission (FEC) and requested that the Justice Department (DOJ) investigate a $1.71 million conduit contribution made by the American Conservative Union (ACU) to the Now or Never PAC during the 2012 election.  By disclosing on its tax return that it simply served as a pass-through for the money, ACU has offered a rare window into dead end disclosure – the practice of political groups hiding the true source of their funding by funneling contributions through nonprofits that do not have to disclose their donors – and demonstrated why it is so hard to stop the flow of dark money into the political system.

ACU, which organizes the annual Conservative Political Action Conference (CPAC) that is currently taking place at the Gaylord National Resort & Convention Center in National Harbor, MD, bills itself as “the oldest and largest grassroots conservative organization in the nation.”  Now or Never PAC reported spending $7.7 million on independent expenditures during the 2012 election cycle, much of which was funded by nonprofit groups like ACU.

Normally, when a super PAC like Now or Never PAC reports contributions from nonprofits, the only recourse for groups like CREW is to point out that a loophole in campaign finance disclosure rules is being abused.  Without additional information, it is nearly impossible to prove that a conduit contribution has taken place, since the trail of how the money moved into the nonprofit and then on to the super PAC is obscured by the secrecy allowed under federal tax and campaign finance laws.

For instance, CREW previously flagged how New Models, another political nonprofit, contributed $2.17 million to Now or Never PAC in 2012.  That same year, a single donor contributed $2.3 million to New Models.  It certainly looks like that donor used New Models as a pass-through to avoid disclosing support for Now or Never PAC’s attack ads, but it’s not certain.   In that case, although there is a lot of smoke, it is not clear there is a fire.

ACU’s acknowledgment that the $1.71 million “was a political contribution received by the organization and promptly and directly delivered” to Now or Never PAC pulls back the curtain on an increasingly common practice of using groups not subject to disclosure requirements to funnel money for political purposes.  The true source of the money that Now or Never PAC reported receiving from ACU is not ACU.  It is whoever gave the initial contribution to ACU and that is who Now or Never PAC should disclose as one of its funders.           

Not So Fiscal Conservatives

The conduit contribution admission isn’t the only revelation in ACU’s new tax return.  The filing also makes clear the CPAC organizer and balanced budget proponent initially underreported its 2012 revenue by almost $4 million.  The group’s expenses were off by even more.  In addition, ACU added 10 new people to its list of officers, directors, trustees, key employees, and highest compensated employees.

ACU also made significant changes to its list of the organization’s top five independent contractors who were paid more than $100,000.  In particular, the changes shed additional light on a lawsuit the group became embroiled in with the Marriott Wardman Park Hotel after ACU decided to move CPAC to another venue in 2013.  Initially, ACU reported it had paid the Marriott $104,464 for “convention space” in 2012.  In the amended return, the group disclosed that the Marriott had been paid $400,000 for “space & settlement.”  ACU’s description of its legal costs also changed.  Originally, the ACU said it paid law firm Wiley Rein $422,318 for “legal” expenses.  Now, the group says it paid Wiley Rein $314,186 for “legal & arbitration.”

The amended return appears to be the result of an independent audit of the organization’s books that determined the group’s initial 2012 tax statement was way off.  According to a copy of an audit filed with the Office of the Massachusetts Attorney General, the accounting firm Conlon and Associates delivered the audit on April 9, 2014.  ACU filed its amended return a month later, writing it had been “amended, to incorporate audit of the financial statements.”

When ACU first filed its 2012 tax returns, the organization claimed it had not engaged in any political campaign activities regarding candidates for public office and neglected to report its $1.71 million contribution to Now or Never PAC, despite the fact that the $1.71 million contribution had been publicly disclosed to the FEC by Now or Never PAC in December 2012.  The audit noted the group had spent $1.71 million on political donations, which presumably triggered ACU’s need to explain the donation in its amended tax return.  Otherwise, the group could have run afoul of the IRS.  The admission left them vulnerable, however, to FEC and DOJ scrutiny.

Unusual circumstances provided CREW with solid evidence to bring ACU and Now or Never PAC’s conduit contribution scheme to the attention of the proper authorities.  Unfortunately, many similar abuses involving political nonprofits and super PACS are likely to go unpunished without greater disclosure requirements and more aggressive enforcement of the rules.

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