“Where There’s Smoke, There’s Money”: Tobacco Giant Reynolds American Inc Funded Conservative Nonprofits
Tobacco giant Reynolds American Inc. last year helped fund several of the nation’s most politically active — and secretive — nonprofit organizations, according to a company document reviewed by the Center for Public Integrity.
Reynolds American’s contributions include $175,000 to Americans for Tax Reform, a nonprofit led by anti-tax activist Grover Norquist, and $50,000 to Americans for Prosperity, a free-market advocacy outfit heavily backed by billionaire brothers Charles and David Koch.
The tobacco company’s donations are just a fraction of the nearly $50 million that those two groups reported spending on political advocacy ads during the 2012 election cycle, almost exclusively on negative advertising. Federal records show that Americans for Prosperity alone sponsored more than $33 million in attack ads that directly targeted President Barack Obama.
But the money, which Reynolds American says it disclosed in a corporate governance document at the behest of an unnamed shareholder, provides rare insight into how some of the most powerful politically active 501(c)(4) “social welfare” nonprofits are bankrolled.
Reynolds American is the parent company of R.J. Reynolds Tobacco, which makes Camel and Winston brand cigarettes.
“The shareholder specifically requested that we disclose information about 501(c)(4)s, and in the interests of greater transparency, we agreed,” Reynolds American spokeswoman Jane Seccombe said.
Large corporations — tobacco companies or otherwise — almost never release information about their giving to such groups, and it’s most unusual for the groups themselves to voluntarily disclose who donates to them.
These groups, which obtain their nonprofit status because they say their “primary purpose” is not political activity, are generally under no legal obligation to detail their funding sources. Super PACs and other recognized political committees, by contrast, must report the names of their contributors who give more than $200 and the amounts they give.
Yet during the 2012 election cycle, various social welfare nonprofit organizations, emboldened by the U.S. Supreme Court’s Citizens United v. Federal Election Commission decision in January 2010, spent more than $250 million to promote or attack federal political candidates, according to the nonpartisan Center for Responsive Politics. The source of most of that money remains a mystery.
Reynolds American’s other contributions last year to 501(c)(4) groups include $100,000 to the Partnership for Ohio’s Future, an organization run by the Ohio Chamber of Commerce that spent several million dollars in a failed 2012 ballot initiative campaign to uphold a law limiting public workers’ collective bargaining rights. It also gave $12,500 to the National Taxpayers Union, a 501(c)(4) group that backed Republican candidates last year with modest expenditures.
Ohio Chamber of Commerce Executive Vice President Linda Woggon told the Center for Public Integrity she wasn’t aware that Reynolds American planned to disclose its donation to Partnership for Ohio’s Future.
But Woggon said she did not have a problem with officials there doing so, adding that “the decision is up to the company.”
Americans for Prosperity, which in 2011 reported to the IRS it received more than $25.4 million in contributions and grants, “leaves it up to our supporters” to decide whether to reveal their donations,” spokesman Levi Russell said.
“It’s their right, and we respect it,” he said.
Officials at Americans for Tax Reform, which in 2011 reported to the IRS that it received nearly $4 million in contributions and grants, did not reply to several requests for comment.
Within the tobacco industry, Reynolds American competitor Lorillard, which manufactures Newport brand cigarettes, has no nonprofit donation disclosure policy in place.
Ronald Whitford, the company’s associate general counsel, said Lorillard “could look at possibly enhancing disclosure in the future.”
Altria, the world’s largest tobacco company, does make contributions to politically active nonprofit organizations, spokesman Bill Phelps said — but he would not name any beneficiaries.
Altria’s corporate policy only requires it disclose its contributions to 501(c)(4) nonprofits in narrow circumstances, none of which applied to its 2012 donations, Phelps said.
For example, Altria, which makes Marlboros, the top-selling cigarettes, would publicly disclose a contribution if a nonprofit used at least $50,000 specifically for “political activities” as defined by the Internal Revenue Service — but only if the nonprofit informed Altria of this fact.
The IRS considers political activity to be the “participation in, or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office.”
Therefore, by its own rules, Altria would not disclose contributions that a 501(c)(4) used to fund so-called “issue advertisements” that are sometimes barely distinguishable from ads that directly advocate for or against a politician.
Politically active nonprofit groups such as Americans for Prosperity and Crossroads GPS, which was co-founded by GOP strategist Karl Rove, together spent millions of dollars on these kinds of communications last year.
Reynolds American’s written corporate policy on nonprofit donation disclosure is similar to that of Altria. But the policy “represents the minimum disclosure threshold,” said Seccombe, the company spokeswoman.
Reynolds American specifically acknowledged its donation to Americans for Tax Reform “because of expected stakeholder interest, not because the contributions were intended to be used or were in fact used for ‘political activity’ as that term is meant for purposes of the Internal Revenue Code,” Seccombe added.
She declined to speculate on which 501(c)(4) organizations Reynolds American will donate to this year. But officials will release information on its 2013 donations early next year, she said.
The company’s actions, although limited and hardly in real time, “set a precedent” and are “to be commended,” said Bruce Freed, president of the Center for Political Accountability, which tracks and advocates for political transparency by corporations.
“We just haven’t seen this with other companies related to their giving to (c)(4)’s,” Freed said.
By: David Levinthal, The Center for Public Integrity, May 31, 2013
“The Politics Of Free Food”: The Rules On Campaign Contributions In Virginia Are Pretty Much The Same As In Texas
Today, let’s talk about Virginia, host of the nation’s most interesting off-year election. True, the New York mayor’s race has been pretty frisky since we acquired Anthony Weiner as a candidate, but I’m still going with Virginia.
The governor’s race there has a dandy ethics controversy that began with charges that a businessman with a rather dicey background gave Gov. Bob McDonnell $15,000 to pay for the catering at his daughter’s wedding. Actually, this would have been perfectly legal if McDonnell had just disclosed it. Under Virginia’s ethics laws, the governor can accept anything — house, car, private jet, former Soviet republic — as long as he puts it in the proper form.
He also might have been able to get off the hook when the transaction was discovered, just by saying he forgot to mention it. (Virginia’s rules are more flexible than a Slinky.) But McDonnell claimed total innocence, arguing that the $15,000 was a wedding gift to his daughter and, therefore, didn’t count.
“It’s caused a fair amount of pain for me personally,” he said. “I’m a governor, but I’m a dad, and I love my daughter very much.”
What, exactly, do you think that means? That McDonnell feels bad about shoveling the blame onto his offspring? That he could not have afforded to give her all the jumbo shrimp she deserved without financial assistance?
Looks like an investigation for Attorney General Kenneth Cuccinelli! Except — whoops — it turned out that Cuccinelli had also taken gifts from the same businessman, some of which he, too, had failed to report. Like several stays in a vacation home, one of which involved a catered Thanksgiving dinner. Have you noticed a theme here?
McDonnell’s term is up and Cuccinelli is running to replace him. Perhaps unreported freebies will be a big campaign issue. Although in a more perfect world, voters might focus on the attorney general’s two-year investigation of a University of Virginia scientist for the crime of believing in global warming.
But, still, the catered affairs are pretty interesting. When politicians take freebies, it is, alas, generally more compelling than conflicts involving campaign finance. Governor McDonnell had previously taken more than $100,000 in campaign contributions from the same benefactor, the dietary supplement maker Jonnie Williams. But somehow that seemed to pale beside those shrimp.
“There’s a personal relationship attached to gifts and perks,” said Peggy Kerns, the director of the National Conference of State Legislatures Center for Ethics in Government. A former Colorado lawmaker herself, Kerns offered a vision of resentful voters, sitting shivering at the end zone of a Broncos game, while comfy officials enjoyed the buffet in a corporate sponsor’s luxury box.
Campaign contributions do way, way more to corrupt the political process than gifts to politicians. Unfortunately, it’s harder to make the emotional connection to a wayward PAC. This is why so many public officials get into trouble for accepting free home repairs. Everybody wants a kitchen with granite countertops. But few of us yearn to purchase our own negative ad campaign.
Do you remember John Rowland, the governor of Connecticut who got sent to the clink for corruption? A ton of corruption, including an aide who took a bribe in the form of gold coins that he then buried in the backyard. But the thing that stuck in everybody’s mind was the free $3,600 hot tub.
This week, Bernard Kerik, the former New York City police commissioner, celebrated his release from prison after serving three years for eight felony charges, from tax fraud to lying to White House officials. But we will all remember his fall from grace in terms of $250,000 in apartment renovations. (Kerik was welcomed home with a shrimp scampi dinner provided by a star of “The Real Housewives of New Jersey.” It was probably a gift, but we don’t care anymore.)
Virginia believes that as long as officials report what they take, the system will work honorably. But there’s not even a mechanism to assure those reports are accurate. There isn’t a huge record of political corruption, but, as John McGlennon, a professor of government at William and Mary pointed out, “our laws are so loose, it’s hard to run afoul of them.” The home of George Washington and Thomas Jefferson regards itself as someplace special. But the rules on campaign contributions are pretty much the same as in Texas.
“Virginians probably would not want to hear you say that,” said McGlennon.
Some states have already figured out an answer to the gift question, which is to prohibit officials from accepting even a free cup of coffee from lobbyists or people who do business with the government. This appears likely to happen in Virginia several months after hell freezes over. And that’s actually the easier issue. The big problem is campaign contributions, which have become so huge and complicated that it’s hard for despairing voters to get their heads around them.
If we could only figure out a way to require that they all are made in the form of shrimp.
By: Gail Collins, Op-Ed Columnist, The New York Times, May 31, 2013
Fear not, billionaire super PAC and 501(c)(4) funders. You may feel oppressed, you may fear the pitchforks and torches of the unwashed masses gathering at the gate of your manse, you may wake in the night in a cold sweat and bellow to your footman, “Dare I give Paul Ryan $10 million for his 2016 presidential race, lest some bearded plebian pen a vicious blog post aimed at my very heart?” If nothing else, Mitch McConnell has your back.
Today, McConnell takes to the pages of The Washington Post to defend the right of America’s millionaires and billionaires to pour their funds into campaigns while remaining anonymous. Those with long memories may recall that when the McCain-Feingold campaign finance law was being debated, McConnell and others said that the answer to the problem of money and politics was disclosure: Let the wealthy give as much as they want, but disclose contributions quickly, and with everything out in the open we could forestall the possibility of corruption. But with McCain-Feingold safely struck down and Citizens United inaugurating a new dawn of American liberty, disclosure is now McConnell’s enemy:
These tactics are straight out of the left-wing playbook: Expose your opponents to public view, release the liberal thugs and hope the public pressure or unwanted attention scares them from supporting causes you oppose. This is what the administration has done through federal agencies such as the FCC and the FEC, and it’s what proponents of the Disclose Act plan to do with donor and member lists.
The fearsome “liberal thugs” notwithstanding, this gets to the heart of democracy’s messiness. You can have a political system where everyone is unfailingly polite to each other, or you can have a system where people are free to express their views, but you can’t have both. By choosing to have a democracy, we make a series of bargains. We enshrine freedom of religion, even though we know that means people who believe in idiotic faiths (i.e. those different from our own) will be able to practice them, too. We create a system of due process, even though that means guilty people, even monstrous people, will be given fair trials with at least the possibility of getting off. And we defend freedom of speech, knowing that that means we’ll have to tolerate the voicing of abhorrent ideas, not to mention Two and a Half Men and the career of will.i.am.
And if our election rules will allow the Sheldon Adelsons of the world to put millions behind their favorite candidate—something which, by the way, residents of most of the world’s democracies find beyond absurd—it isn’t too much to ask that if you choose to use your enormous wealth to attempt to shift the outcome of elections, if nothing else the public should know who you are. That way we’ll know whom our elected officials are indebted to. And yes, there is a price to pay for that participation: people might say you’re wrong, or even call you a jerk. Money is speech, you say? Well freedom of speech means the right to say whatever you want, not the right to be immune from criticism. It’s amazing how often conservatives can’t see the difference.
By: Paul Waldman, Contributing Editor, The American Prospect, May 23, 2013
“Tea Party Is An Election Category”: The IRS, Non-Profits, And The Challenge Of Electoral Exceptionalism
What the IRS scandal really shows us is that it’s getting harder and harder to draw a line between electioneering and political speech.
As the report of the IRS Inspector General shows, the agency’s scrutiny of conservative groups applying for non-profit status was, more than anything, a clumsy response to a task the IRS is ill-equipped to carry out – monitoring an accidental corner of campaign finance law, a corner that was relatively quiet until about 2010.
That corner is the 501(c)(4) tax-exempt organization, belonging to what are sometimes called “social welfare” groups, which enjoy the triple privilege of tax exemption (though not for their donors), freedom to engage in some limited election activity, and, unlike other political committees (PACs, SuperPACs, parties, etc.), freedom from any requirement to disclose information about donors or spending. The use of (c)(4)s as campaign vehicles didn’t originate with the Citizens United decision in 2010 (Citizens United, the organization that brought the case, was already a (c)(4)), but the decision seems to have created a sense that the rules had changed, and even small groups – especially, apparently, local Tea Party organizations — rushed to create (c)(4)s.
501(c)(4)s are not prohibited from engaging in political speech of most kinds. They are free to be “biased” without jeopardizing their tax exemption. They can advocate for or against legislation, they can lobby the government or criticize it. They don’t have to make any effort to be “non-partisan” – for example, they can support a proposal that is only supported by members of one party, or directly advise only members of one party. And they can engage in some activity directly intended to influence the outcome of an election, as long as that doesn’t constitute the organization’s primary purpose.
There’s some confusion about the definition of “primary purpose,” discussed in great depth elsewhere, but what the IRS was trying to do was to identify organizations that seemed more likely to be heavily involved in electoral activity. Since the organizations were new, there was no way to look at their actual activities to see whether they were mostly electoral. So the agency had to rely on clues in the applications, like names and telltale phrases. If organizations had words like “Democrat” or “Republican” in their titles, for example, it would be reasonable to look more closely at their election activities, or possible future activities, than an organization that called, for example, “Save the Turtles.” I’m told that organizations with the names of political parties do receive extra scrutiny, even if in some cases, like “Students for a Democratic Society,” the word might mean something unrelated to the name of the party. That’s what the closer scrutiny would find out.
“Tea Party” in 2009 and 2010 was unquestionably an election category – there were “Tea Party” candidates and there was a “Tea Party Caucus” in Congress. It was not unreasonable for the IRS to use that phrase as an indicator that an organization using that phrase might be more inclined to engage in elections. There are comparable phrases on the left – for example, the term “Netroots” might suggest election involvement, as there were groups that identified and endorsed “Netroots” Democratic candidates in 2006 and later. Perhaps there were simply fewer organizations applying for (c)(4) status with that word, or they came in before the 2010 flood, or perhaps the IRS did screen on that word – we don’t know.
While there’s a perfectly plausible case for the IRS to use flag-words that indicate an election-focused movement, the actual questions asked of the groups do raise some concerns. If accurate, they did seem to go beyond evidence that these organizations were primarily engaged in elections, such as questions about lobbying and the role of family members.
But the reason these questions are complicated for the IRS, or for any agency assigned to police these complicated distinctions, is this: The line between robust political speech and influencing elections has become frightfully difficult to draw. Finding the right line around what is an “election” is really the fundamental problem in campaign finance. Almost everyone accepts the premise of “electoral exceptionalism” – elections are structured and require some particular rules, different from the rules that apply generally to political speech. The rule in most states that keeps campaigners 75 or 100 feet from the voting booths is the most obvious uncontroversial restriction on political speech, and there is broad acceptance of the idea that direct contributions to candidates and campaigns should be limited to prevent corruption and dependence. But what happens after that? What about outside spending that looks just like campaign spending? We used to think there was a clear distinction between “issue ads” that were expressing a view on an issue and “electioneering communications” that were the equivalent of campaign contributions. That distinction is actually what the Citizens United case was about — the provision of the 2002 Bipartisan Campaign Reform Act that defined broadcast communications that mentioned a candidate within 30 days before a primary or 60 days before a general election as electioneering, which had to be financed with regulated funds.
That was an improvised line then, and it’s gotten even blurrier since. Part of the problem is partisanship – it used to be, for example, that there were environmentalists in both parties, supporters of social spending in both parties. A political ad about the environment was just that. But what’s an ad or brochure attacking “Obamacare” during the election year? Every Republican opposes it, and they’ve given it the name of the president. The Tea Party was based on issues, yes, but above all else, it was based on unflagging, total opposition to Obama and congressional Democrats.
To figure out where election advocacy begins and regular political speech ends in these cases was certainly more than mid-level IRS bureaucrats in Cincinnati could handle. But it’s not an easy challenge for anyone. All the noise about IRS “targeting” and about free speech and corporate speech is a distraction from a real challenge of money in elections: finding an agreement on the line around an “election,” and establishing some clear rules for what happens within that line in order to ensure that elections are fair and open and don’t lead to corruption.
By: Mark Schmitt, The National Memo, May 16, 2013
The IRS is under siege for investigating conservative political groups applying for tax-exempt status. But the real problem wasn’t that the IRS was too aggressive. It was that the agency focused on the wrong people—“none of those groups were big spenders on political advertising; most were local Tea Party organizations with shoestring budgets,” writes The New York Times—and wasn’t aggressive enough. The outrage that Washington should be talking about—what my colleague Chris Hayes calls “the scandal behind the scandal”—is how the Citizens United decision has unleashed a flood of secret spending in US elections that the IRS and other regulatory agencies in Washington, like the Federal Election Commission, have been unwilling or unable to stem.
501c4 “social welfare” groups like Karl Rove’s Crossroads GPS, the Koch brothers’ Americans for Prosperity and Grover Norquist’s Americans for Tax Reform—which don’t have to disclose their donors—spent more than $250 million during the last election. “Of outside spending reported to the FEC, 31 percent was ‘secret spending,’ coming from organizations that are not required to disclose the original sources of their funds,” writes Demos. “Further analysis shows that dark money groups accounted for 58 percent of funds spent by outside groups on presidential television ads [$328 million in total].”
IRS guidelines for 501c4 groups state that “the promotion of 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…a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity.” It’s ludicrous for groups like Crossroads GPS—which spent at least $70 million during the last election—to claim that its primary purpose is not political activity. Only the likes of Karl Rove would believe that running attack ads against President Obama qualifies as social welfare.
So what did the IRS do about this blatant abuse of the tax code by some of the country’s top corporations and richest individuals? Virtually nothing. “When it comes to political spending, the IRS is more like a toothless tiger,” wrote Ken Vogel and Tarini Parti last year in a story headlined, “The IRS’s ‘feeble’ grip on big political cash.”
It’s obvious that our Wild West campaign-finance system needs more, not less, scrutiny and much tighter, not looser, regulation. Yet conservative groups are exploiting the IRS scandal to further dilute regulatory agencies that are already on life support. Writes Andy Kroll of Mother Jones:
The IRS’s tea party scandal, however, could hinder the agency’s willingness to ensure politically active nonprofits obey the law. The IRS will likely operate on this front with even more caution, taking pains not to appear biased or too aggressive. That in turn could cause the agency to shy away from uncovering 501(c)(4) organizations that do in fact abuse their tax-exempt status by focusing primarily on politics.
The Rove’s of the world would like nothing more than for the public to believe that conservative groups had too few opportunities to influence the 2012 election and were wrongly persecuted by evil Washington bureaucrats. Yet the 2012 election should have taught us precisely the opposite lesson—that our patchwork regulatory system is far from equipped to deal with the new Gilded Age unleashed by Citizens United. As Rep. Keith Ellison told Hayes last night: “We need to redouble our efforts to bring real campaign-finance reform forward.”
By: Ari Berman, The Nation, May 14, 2013