Is five percent the standard rate for acting as a dark money pass-through?
If an organization is going to participate in an illegal conduit contribution scheme, there has to be something in it for the group to make the risk worthwhile, right? For the American Conservative Union (ACU), which recently paid a $350,000 fine to the Federal Election Commission (FEC) for knowingly allowing its name to be used for a conduit contribution to a super PAC, the cost of doing business appears to have been a five percent cut off the top. Is ACU unique or is five percent the standard fee groups charge for making dark money contributions to super PACs?
On October 31, 2012, ACU made a $1.71 million contribution to Now or Never PAC, a super PAC, which it later reported on its tax return as “a political contribution received by the Organization and promptly and directly delivered” to a political organization. An FEC investigation, which was prompted by a CREW complaint, found that shortly before it made the contribution, ACU received $1.8 million from an obscure corporate entity called Government Integrity, LLC, which had itself received $2.5 million from another — still secret — source “[o]n or around October 31, 2012.” The FEC’s investigators obtained emails showing that ACU staff coordinated with lawyers and consultants who were working with both the LLC and the super PAC to execute the transaction.
For its efforts, ACU appears to have been paid $90,000 – the difference between the $1.8 million it received from the LLC and the $1.71 million it subsequently gave to Now or Never PAC. In an email exchange following ACU’s wire transfer to Now or Never PAC, the group’s then-executive director wrote to the group’s then-finance director, “We have the $90k,” eliciting a celebratory reply of, “[w]ell done!!!!” As FEC Commissioner Ellen Weintraub pointed out in a statement on the case, ACU’s apparent cut was “exactly 5 percent” of the money it received from the LLC.
ACU wasn’t the only nonprofit that contributed to Now or Never PAC in 2012 and the FEC’s findings in the case raise new questions about whether those contributions could have been the result of similar conduit schemes. Take the case of New Models, a nonprofit that made two contributions totalling $2.171 million to Now or Never PAC that year.
A copy of New Models’ 2012 tax return obtained by CREW that included a redacted listing of major contributors shows the group received a contribution that year for $2.3 million, enough to cover the total cost of the contributions to Now or Never PAC.
It’s impossible to know for sure without more information if the contributions are connected, especially since unlike ACU, New Models has never disclosed that it “promptly and directly” transferred any contributions it received to super PACs. But the similarity between New Models’ contributions to Now or Never PAC and the ACU’s pass-through donation to the same group is striking. The difference between the $2.3 million New Models received and the $2.171 million it contributed to Now or Never PAC is $129,000, which is 5.6 percent of $2.3 million. That’s very similar to the five percent cut ACU received for its role as a pass-through to Now or Never PAC.
Another contribution New Models received in 2012 fits the same pattern. That year, New Models also gave $627,000 to a super PAC called The Government Integrity Fund Action Network. The contribution lines up nicely with $660,000 New Models reported receiving that year. The difference between the money New Models reported receiving and what it gave to The Government Integrity Fund Action Network is $33,000. In other words, exactly five percent of the money that came in.
The initial $660,000 appears to have come from Citizens for a Working America, a nonprofit organization whose then-treasurer, Norm Cummings, was listed as a New Models board member in 2011 and 2013, but not 2012. On its fiscal year 2012 tax return, which covers the period from October 1, 2012 through September 30, 2013, Citizens for a Working America reported making a $660,000 grant to New Models.
If the money Citizens for a Working America gave to New Models was ultimately meant for The Government Integrity Fund Action Network, there may have been a logical reason for the multistep set up. On its 2012 tax return, Citizens for a Working America admitted that it had spent nearly $1.7 million on political activity, which accounted for 40 percent of the $4.2 million it spent in total. If Citizens for a Working America had contributed directly to The Government Integrity Fund Action Network, its total political spending would have been more than $2.3 million and at least 55 percent of its total expenditures. If that were the case, political activity would have been Citizens for a Working America’s primary activity that year, which could have put the group’s tax-exempt status in peril as well as potentially drawn scrutiny from the FEC.
Of course, The Government Integrity Fund Action Network reported to the FEC that it received $627,000 from New Models, not Citizens for a Working America, and New Models has never claimed it acted as a pass-through for any of its super PAC contributions. Overall, according to FEC records, New Models contributed more than $3 million to super PACs in 2012, accounting for nearly 70 percent of its total expenditures for the year. Based on the public record, CREW filed a complaint against New Models with the FEC in 2014 for failing to register and report as a political committee in 2012.
The FEC’s Office of General Counsel subsequently recommended the Commission find reason to believe New Models violated campaign finance law by failing to register and report as a political committee in 2012 and to authorize an investigation. Unfortunately, in November 2017, the FEC’s commissioners deadlocked on whether to agree with the general counsel’s office and open an investigation into New Models’ 2012 spending, dismissing the matter.
CREW is now suing the FEC for its dismissal of the New Models complaint, arguing it was “contrary to law.”