EP. 6 — THE DARK MONEY SHELL GAME

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Weston Wamp:  I'm Weston Wamp and this is Swamp Stories brought to you by Issue One.

In order to tell this story from the swamp — which I’ll warn you, is the most complicated one of this entire podcast — I'm going to reveal how dark money connects rough rider Theodore Roosevelt to a Grammy award winning rapper to a foreign billionaire pumping money into our elections… All in, we’re talking about some of the swampiest practices you can imagine. It starts in 1904 when President Theodore Roosevelt faced off with Democratic presidential nominee Alton Parker, who was a judge from New York. Now, Teddy Roosevelt's face is literally carved into the side of a mountain in South Dakota, so some of the consequences of his landslide win in 1904 are obvious.

Not so obvious though, is that what we now called "dark money" was born in this election, when Wall Street picked Roosevelt as their guy. President Roosevelt was dogged by rumors that he had brought major CEOs in the White House to shake them down for campaign money, but it was a year later that a revelation from a New York Life executive convinced the American people that there was a problem.

Here's what happened:  In a special legislative committee meeting in the New York assembly, New York Life vice-president George Perkins acknowledged that a suspicious $48,700 expense from the company was given to the Republican National Campaign committee for the 1904 election. Newspaper reports the next day report that there was quite a stir in the densely packed room when Perkins followed up that quote, "We felt that the assets of New York Life would be jeopardized by Democratic success." In 2019 dollars, the $1.4 million that New York Life secretly gave to support President Roosevelt was basically the first major dark money scandal in our nation's history. Roosevelt, though, responded by pledging his support for new legislation that would clean up money in politics, even promoted a ban on corporate contributions, but over a hundred years later, Roosevelt's political party has gone eerily quiet when it comes to dark money.

This is Episode Six, the Dark Money Shell Game.

Dark money isn't new. Throughout the 20th century, every loophole you can think of was used to circumvent federal election law, which since the days of Teddy Roosevelt has called for major donors to federal campaigns and political committees to be disclosed. But with every new tactic to evade the law, good government advocates have fought for transparency. Yet here we are in the middle of what I'll call the "dark money era" with record amounts of money flowing into our elections that we've got no idea where it's coming from. Beginning with Teddy Roosevelt in the election reforms he supported after that 1904 election, over time, both political parties have generally agreed on the merits of transparency in our elections. A good example of that is that it was John McCain who brokered the deal with the Bush White House to pass the first significant update to our nation's campaign finance laws in decades. And by the way, my dad, who you met in episode one, was one of the key Republicans whose support ultimately sent McCain's bill, better known as McCain-Feingold, to the White House for signing.

Another example, even in his defense of the Supreme Court Citizens United ruling, the late Justice Scalia emphasized the importance of transparency in American elections.

Justice Antonin Scalia:  I think, as I think the framers thought, that the more speech the better. Now you, you are entitled to know where the speech is coming from. You know, information as, as to who contributed what.

Weston Wamp:  But almost no one on the conservative side has spoken as eloquently about the importance of transparency laws and the harms of unlimited undisclosed independent expenditures as Kentucky's then Junior Senator in 1987.

Mitch McConnell:  We require the reporting so at least you'll know what's coming, what's being spent on behalf of candidates. The reporting of soft money might also indicate, as I did earlier, that I think a political action committees which have become rather controversial, could also be eliminated. And the so-called independent expenditure, that's where somebody who has, for example, a huge amount of money decides to come into New York and run ads against a candidate. Under the Constitution, you can't keep them from doing it, but at least we could disclose the content of the commercial to the candidate in advance. And disclose where the money is coming from. That's not currently disclosable. So there are some good campaign reforms that could be made. It's just that none of them are in S2.

Weston Wamp:  But times are changing. Not everyone is for transparency. In fact, in Washington today, no one is as opposed to transparency and election reforms as Kentucky’s Senator. Here's his answer when he was asked,

Unknown Man:  Is there any level of undisclosed spending campaigns that would make you uncomfortable?

Mitch McConnell:  No. I think the fact that more people are speaking out is a good thing for America. Not a bad thing.

Weston Wamp:  If those voices sounded similar, it's of course because Kentucky's Junior Senator in 1987 is now Senate majority leader, Mitch McConnell and boy, he's changed his tune.. He’s now infamous for his opposition to anything that even smells like political reform - whether it’s transparency measures or reducing the influence of big money in our elections. He was even the first person to challenge the constitutionality of McCain-Feingold. He wanted his name out there, up front, so the Supreme Court case would forever be called “McConnell vs Federal Election Commission. So draw your own conclusions on how McConnell went from this guy:

Mitch McConnell:  You could not constitutionally say to a PAC or to an individual, "you can't go into a state and make independent expenditures, that is uncoordinated expenditures." I don't like those. And frankly I would support a constitutional amendment to restrict those

Weston Wamp:  To saying this about the Citizens United decision.

Mitch McConnell:  Well, I think it was a terrific decision. I don't think there's any harmful consequences to come out of it.

Weston Wamp:  That's a full 180, from being willing to change the Constitution to stop big money in politics, to now fully endorsing it. To take a step back from Mitch McConnell's Washington, I wanted to reach out to a Republican who would bring more of a mainstream perspective and I thought of JC Watts who in a lot of ways epitomizes the Republican party that I grew up around in the late nineties. He was the House Conference Chair and a darling of the Republican party across the country.

JC Watts:  There's a side of me that says, "I don't know why someone wouldn't want their names to be public to say, "Yes. I supported this candidate because he has a pro-life candidate because he does stand for a balanced budget. He does stand for paying down the the public debt. He does a stand for reducing spending and and eliminating the waste and the fraud and the abuse of government. Yes, I am supportive of her because this is where she stands and this is where she stands on that issue." Yeah, that's why I give...

Weston Wamp:  As you can hear, he has no problem declaring his support for basic transparency. When I ask him about Republicans' tendency these days to shy away from reforming dark money. He pointed to larger political trends that he sees underway in politics.

JC Watts:  That's the thing. When we get to the point that we play politics because it's the lesser of two evils, that is an extremely, extremely slippery slope because we have to recognize a lesser of two evils, it's still evil. I don't care what side of the aisle you're on. Dave Army used to say, "if you go in business with the devil, remember you're the junior partner" at Grace Covenant Church where I worshiped in Virginia. The people that sat in the pews on Sundays at Sunny Lane Baptist church where I was a youth pastor for eight years. Those people have no idea what 80% of the political process how it operates.

You know politicians, we've gotten to the point that we don't tell you what we believe about debt and deficits and why that bad. We don't tell you what we believe about issues. We tell people what they believe, so they'll go and vote for us and then you know, we get in, get elected office, and we don't try and clean up the process when it comes to the dark money or comes to balancing the budget. Or I had a guy tell me once, he said, "it's funny how people come to Washington it's a cesspool and after about six months, you think it's a jacuzzi."

Weston Wamp:  Stick with us. We're going to take just a short break.

We're back.

JC Watts just explained what this series is really all about and why it's so hard to drain the swamp. In fact, I've found over many conversations with members of Congress and their staffs that few understand how dark money actually works or even what it is. This isn't about candidates and their campaigns. Individuals and PACs that give to candidate committees have to be disclosed. That's not a question.

Dark money today is fueled by powerful outside special interests, corporations, unions, large nonprofits that start these innocuous sounding groups like "Americans Who Love America". A web of nuanced laws and weak federal enforcement is navigated by lawyers to allow all types of bad actors to spend in our elections without their identity ever being disclosed. So in order to test the theory, that Republicans are winning with dark money more than Democrats are, I went digging to understand exactly what the loopholes are in our system.

I wanted to know how they're being abused and most importantly, who is abusing them. What I've found were three vehicles through which money is being hidden from the public. So I'm going to tell three stories quickly to illustrate exactly what's happening in order for dark money to enter our elections. And I'll go ahead and give you a heads up. The people involved in these three stories, aren't who you might expect based on the bigger narrative around dark money.

 So the first of the three examples seems to always involve an LLC. And what I mean by that is that donors are using an LLC, each of which is going to be incorporated in a state, Delaware being a state that makes it really hard to figure out who's behind the LLC. And so political donors are using these LLCs to then give to super PACs or maybe even to give to another LLC to disguise who's really involved here. You know, you wouldn't be crazy to expect that based on Mitch McConnell's absolute opposition to fixing any of this, that the LLC transfer a loophole was being abused by say, coal barons in Kentucky trying to fund Republican led efforts to deny climate change or something like that. But this issue goes much deeper than that. It even allowed foreign money to enter our elections. Listen to this story from TMZ.

Male Reporter: They say that there was a Malaysian businessman who was funneling millions and millions into the Democratic Party. Uh, and his name is Jho Low. And recently actually just last week, Pras from The Fugees was indicted on a four count indictment.

Male Pundit:  Conspiracy and all sorts of things cause he was supposedly operating with Jho Low.

Weston Wamp:  So to break that down, a famous American rapper, founder of The Fugees, gets to know a Malaysian billionaire named Jho Low and in what sounds like some ridiculous Hollywood plot, the Malaysian billionaire gives money to the rapper who then puts it into an LLC in a state where it's very difficult to figure out what's really going on from an ownership perspective in that LLC. The LLC then moves the money into a pro- Obama super PAC, which is required by law to disclose its donors, but all you see is the name of the LLC and you can't really figure out who's behind it. But of course all that changes if the FBI and Justice Department get involved, which is what happened in this case and that's why we know about it. Now, I could give you dozens and dozens of examples of LLCs being used to hide donors or potentially corporations, other organizations that don't want their identity to be known, but they're not necessarily as interesting as that one and Malaysian billionaire Jho Low goes to show that foreign nationals can abuse this loophole.

 Now, the second example is actually a little more complicated and it has everything to do with the part of IRS code known as "Section 501" which you probably heard of a 501(c)3, you understand what it is. and if you're listening to this podcast, you probably have heard of a 501(c)4 , social welfare organization and they're very common in Washington. Their intention was to be able to operate in a little bit of a gray area between a full blown political entity and a tax deductible nonprofit that does not engage in political activity. But as with almost all gray areas in Washington, it is completely taken advantage of to get an on the ground perspective, I sit down with Open Secrets to learn exactly how this loophole is abused. In case you haven't heard of Open Secrets, their campaign transparency work is like the Holy Grail of money in politics. They follow everything and their website is an invaluable resource. Here's their dark money and foreign influence researcher Anna Massoglia.

Anna Massoglia:  501(c)4’s are prohibited from having politicking as their primary purpose. They have to have social welfare. In many cases, they frame their ads in a way that it comes off as educational, but when you actually watch the ads, it's much more clearly political in most cases. And a lot of the 501(c)4 , they're spending heavily in those elections, stick to language that comes right up to the line of saying, "vote for, vote against, paints a candidate in a very favorable or disfavorable light, but doesn't explicitly support them. But in some cases that can be more effective.

Weston Wamp:  Here's the exact IRS verbiage on social welfare 501(c)4 , "Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, if an organization is organized exclusively to promote social welfare, it may still obtain exemption, even if it participates legally in some political activity on behalf of or an opposition to candidates for public office. Political activities may not be the organization's primary activities however."

So there you have it. Political activities may not be the organizations primary activities. So you tell me what you think about this example that comes directly from a story that Anna Massoglia wrote for OpenSecrets about the North Carolina special election that garnered so much national attention and outside money.

A group called House Majority Forward, a 501(c)4 came in and planned $10.4 million of spending on democratic races heading into 2020. And they found that based on some budgeting information that had to be disclosed because of its 501(c)4 status, when they matched that up to the overall contributions and the overall expected expenditures, 94% of the money that this 501(c)4  social welfare organization was going to be spending was going to be to advertising in congressional races so they're not even trying to make it look like their primary activities aren't political.

Before I move on to the third example, I've got to go back to 1987 Mitch McConnell, who was just such a legend when it comes to reform. Of course, he had some good things to say about how these nonprofit groups were being abused.

Mitch McConnell:  There are restrictions now on the kinds of activities that, for example, a 501(c)3 and 501(c)4  organizations charitable organizations can engage in that are being abused and not just by people on the right, but most of the so-called charitable organizations who are involved in political activity in this country who are in my judgment involved in arguable violations of their tax-free status and violations of the campaign laws happened to be groups on the left. So that is a problem.

Weston Wamp:  Somehow we gotta get this stuff in front of McConnell because you can tell 1987 McConnell was really bothered that the Democrats were beating the Republicans at these games. And I'm not so sure that he's doing as well in the Dark Money Wars as he thinks he is.

All right, now onto the third example, this final dark money vehicle, this big category is probably the most sinister one. It's all about groups that hide their identities until after Election Day using loopholes in how, and when they report information to the FEC, they're often called pop-up groups. These groups are abusing the rules so they pop up, spend money in elections and then disappear until after the elections. When they disclose their donors, voters are left completely in the dark.

Anna Massoglia:  It depends on how you're defining that. I guess the emblematic pop-up group would be the groups that are gaming disclosure laws that pop up right before an election don't even have to make any disclosures other than their initial registration to the FEC despite technically being a disclosing group and disclosing their donors shortly after the election. But voters going to the polls without knowing the information of who's funding them.

Weston Wamp:  Wild example of this being used comes from Arizona in the 2018 Republican primary to replace John McCain in the U.S. Senate. Martha McSally was running against two extremely conservative challengers, Sheriff Joe Arpaio, a Trump ally, and Kelly Ward, another Tea Party oriented Republican candidate, and even though Martha McSally was the front runner, these two are waging competitive races against her. From the Democratic perspective, Martha McSally was an incumbent member of Congress, veteran, she was the strongest candidate.

They would have much rather had one of the extreme right wing conservatives as their general election opponent. And so sure enough, in the last couple of weeks of that primary election, an unknown group called 'Red and Gold' comes in, attacking Martha McSally and the best guess on the street was that this might be an organization supporting Kelly Ward or Joe Arpaio for the U.S. Senate. Ultimately, Martha McSally did prevail and when the disclosure report revealed who was behind Red and Gold, sure enough, Democratic donors on Wall Street who were actually trying to take out Martha McSally in the Republican primary. You talk about not operating in good faith that would be secretly trying to undermine a candidate in the other primary than the party with which you're affiliated and support. But in today's dark money Wars, honestly, nothing is surprising except that 1987 Mitch McConnell has morphed into a guy who doesn't seem to understand Republicans aren't winning at this. In fact, in my conversation with Massoglia, she cited a trend that has gotten mainstream attention in the last couple of years.

Anna Massoglia:  We saw a very significant shift towards liberal dark money spenders. The top spending non disclosing group in the 2018 election that reported to the FEC was a liberal group called Majority Forward that did not disclose any of their donors and reported tens of millions of dollars in spending and the 2018 election just on independent expenditures and even more overall. Because they used careful language and exploited some other loopholes, they were able to get away without disclosing any of their donors. Even with the FEC's new guidance that required any group that spends on independent expenditures has to report all their donors within a year as well as any donors giving for political purposes. They simply said they had no donors who gave for political purposes.

Weston Wamp:  The Wall Street Journal reported in early 2019 that Republican groups were in fact outspent massively in the 2018 cycle by group supporting Democrats. The data shows that 54% of dark money in support of democratic candidates, 31% in support of Republican candidates and the remainder was more or less spent behind independent issue advocacy campaigns. Now, whether you like their plans or not, there has been a conversation from the left side of the aisle about fixing dark money for more than a decade.

So let's get this straight. Democrats are beginning to win at the dark money game, but they're for reform and getting rid of dark money. Republicans in Congress are either apathetic or just against transparency. Meanwhile, there are Republicans at the state and local level working with Democrats to pass political reforms, many of which begin with bringing more transparency to campaign spending. And to be clear, there are Republicans in Congress stepping out on this issue like Wisconsin's, Mike Gallagher, New York's John Katko, and Florida's Greg Steube to name a few.

I don't know how to explain any of this, but I'm convinced that regardless of the reasons that most Republicans are staying on the sidelines, this matters to the cause of good government and fixing it will ultimately help both parties. Really, let's be honest, the dark money element of this is only dark to the public because when major donors come in, the candidate knows exactly who they are and JC Watts points out that there's an inherent conflict of interest.

JC Watts:  Yeah. You have to recognize that when someone's investing in those deals, they're usually pretty selfish investments because they're saying it's all about protecting my deal. We don't care what it does to Weston Wamp. We don't care what it does with JC Watts. We want to protect my deal.

Weston Wamp:  Since Citizens United, Mitch McConnell has led my party astray. With loose logic equating free speech and dark money, despite the Supreme Court’s clear intention that there be transparency in political money. 

As a guy who’s run for office, you should know who is spending in elections.

Going back to the days of Teddy Roosevelt, almost all Americans agree that who gives to campaigns and who gives to political organizations ought to be out there for everybody to consider

Anna Massoglia:  I wish there was an easy fix. I think that there's been a lot of progress made, but one of the things that frustrates me as well as I'm sure a lot of other people in the good government space is that every time there is progress made, there's new ways to exploit loopholes in that. For example, with the FEC's guidance last year, group saying that they just don't accept money for political purposes now despite spending millions of dollars on elections and even on independent expenditures. I don't know if there really is one easy solution since one of the things that has become really apparent with dark money groups is that they continue to develop new tactics and evolve in ways that even as we catch up with certain methods for hiding their donors or hiding other financial information, they continue to develop more. We're seeing with online ads, especially present new challenges to groups that can exist online, reach millions of people, and have no paper trail whatsoever. That opens the door to even less disclosure and more influence.

Weston Wamp:  This cause may be more important than it's ever been. It is possible to build bipartisan consensus today in Congress on these transparency issues. It's just a matter of bringing the right people to the table and that's the work that we do every day at Issue One.

In the next episode, we'll look at a David versus Goliath story that defies the way Washington protects its own incumbents.

Thanks for listening to Swamp Stories presented by Issue One the country's leading political reform organization that unites Republicans, Democrats, and independents to fix our broken political system.

Please subscribe to the podcast and share it with your friends. Even better rate and review it on iTunes. To help us reach more listeners, you can find out more at swampstories.org. I'm your host, Weston Wamp. Thank you to executive producer, Ethan Rome, producer William Gray and editor Parker Tan from Parkerpodcasting.com. Swamp Stories was recorded in Tennessee, edited in Texas, and can be found wherever you listen to podcasts.

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