California's Dark-Money Investigation Is Making Conservatives Sweat

Details of a shadowy donor network emerge as Golden State watchdogs trace the source of $11 million in election spending.

| Mon Apr. 15, 2013 5:00 AM EDT

Investigators with California's election watchdog and attorney general's office are hot on the trail of the true source of millions in dark money spent to defeat two hard-fought ballot propositions last fall. The wide-ranging probe has conservatives worried that a network of nonprofit groups used to move secret money around the country could be in for some unwanted exposure.

The investigation, led by the state's nonpartisan Fair Political Practices Commission, has already done more than most watchdogs to pry open the black box of the conservative dark-money groups that spent freely in 2012 without disclosing the sources of their money. Last fall, the FPPC revealed what it called "the largest contribution ever disclosed as campaign money laundering in California history" after it discovered that three nonprofits had funneled $11 million from Virginia to Arizona to California.

As the probe progresses, some conservatives are nervous that more details—such as the identities of actual donors—could be publicized. "This case has got very, very deep and significant implications," says a conservative lobbyist with knowledge of the investigation. "A lot of folks are going to have their dirty laundry hung out, and it's not going to be pretty. Why would money go through such a circuitous route if not to conceal the donors?"

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And the FPPC isn't done. Investigators recently issued a dozen more subpoenas to individuals and nonprofits in connection with the case, the Huffington Post reported. "The most important factor of any investigation of this sort is getting the names of who's contributing to campaigns in California," says Ann Ravel, the FPPC's chairwoman. "Because that's the law." After initially balking, the nonprofits are now cooperating with investigators.

The saga began last October with a mysterious $11 million contribution from a little-known Arizona nonprofit called Americans for Responsible Leadership. ARL gave the money to a political action committee in Sacramento that opposed Gov. Jerry Brown's Proposition 30, which would have raised taxes on the wealthiest Californians, and supported Proposition 32, which would have restricted unions' campaign spending. Though its goals were clear, ARL itself was an enigma: Founded in 2011, it had focused almost exclusively on Arizona; this was its first foray into California politics. And it revealed nothing about where its money originated.

The secret $11 million rocked Golden State politics. Brown tried to score political points by wondering whether foreigners or terrorists were the source of the controversial donation. "I challenge those opponents of Proposition 30: Come out from behind the shadows," the governor said. "Take your mask off. Let voters see who you are."

"A lot of folks are going to have their dirty laundry hung out, and it's not going to be pretty," says a conservative lobbyist. "Why would money go through such a circuitous route if not to conceal the donors?"

Under federal law, ARL, a 501(c)(4) nonprofit, doesn't have to disclose its donors. But in late October, the Fair Political Practices Committee sued ARL to name the source of the $11 million. The FPPC could do that because California's disclosure laws are tougher than federal ones. The two sides battled it out in court, with ARL refusing to name names. The case reached the state Supreme Court, which agreed with the FPPC and ordered ARL to reveal the source of the $11 million. The group then asked the US Supreme Court to intervene, but to no avail.

On the Sunday before Election Day, Americans for Responsible Leadership finally came clean—sort of. Pay close attention: The source of the $11 million, ARL said, was a shadowy nonprofit in Virginia named Americans for Job Security. What's more, Americans for Job Security didn't give the money directly to ARL; instead, it funneled the money through yet another nonprofit, the Center to Protect Patient Rights. In other words, ARL was just a pass-through, and its money had changed hands at least three times before it arrived in California.

After ARL laid out this shell game, the FPPC declared that the $11 million was "the largest contribution ever disclosed as campaign money laundering in California history." Yet ARL did not reveal where its money originally came from, and that remains a mystery. (Jason Torchinsky, an attorney for ARL, did not respond to a request for comment for this story.)

But we can glean a few hints from the different groups who handled the money:

• Americans for Job Security, founded by Republican operative Dave Carney, who ran Rick Perry's 2012 presidential campaign, is suspected of being little more than a slush fund for donors seeking anonymity. After investigating AJS in 2009, staffers with Alaska's Public Offices Commission concluded that (PDF) AJS "has no purpose other than to cover various money trails all over the country." Its M.O.: Donors give money to AJS with a cause or campaign in mind, AJS effectively scrubs the donor's fingerprints, and then it spends the money. AJS paid $20,000 to settle the Alaska case and promised not to encourage future anonymous giving in Alaska, but admitted no wrongdoing.

Another clue about AJS: In February, the California chapter of the American Council of Engineering Companies, a trade group that supports privatizing government jobs, disclosed that it had given $400,000 last year to Americans for Job Security to pass the anti-union Prop. 32. Here's the kicker: In a September blog post urging members to donate in support of Prop. 32, an ACEC director wrote that members could give "directly to the 'Yes on 32' campaign (which will be a matter of public record), or to 'Americans for Job Security' (which will allow the donation to remain anonymous)." The post reinforced the notion that AJS is a pass-through for dark money. (AJS president Stephen DeMaura did not respond to a request for comment.)

• The Center to Protect Patient Rights might be described as an ATM for conservative dark money. In 2010 and 2011, the group doled out $59 million to nearly two dozen conservative nonprofits, including the Koch-backed Americans for Prosperity, Grover Norquist's Americans for Tax Reform, the 60-Plus Association, and the anti-abortion Susan B. Anthony List. The original source of all this money is unknown because the CPPR is not required to disclose its funders. Sean Noble, an Arizona-based operative with ties to the Kochs' donor network, ran CPPR at the time.

The Fair Political Practices Commission won't say how close it is to wrapping up its investigation. Regardless of the final result, the commission has shown the importance of strong disclosure laws, says Rick Hasen, a professor at the University of California-Irvine Law School. The commission's aggressive actions and California's tough disclosure laws are something worth emulating at the state and national levels, he says, as more donors make use of secretive nonprofits, pass-throughs, and shell companies to mask their spending. "California is doing what reformers have been urging the federal government to do," Hasen says, "which is not to pay lip service to disclosure, but to actually ensure that disclosure is effective."

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