The three Republican appointees on the divided Federal Election Commission have indicated that political donors who give through private companies solely to shield their identities can be sanctioned, signaling that the agency may scrutinize a rash of “pop-up” corporations giving large sums to super PACs.
Their stance suggests the potential for movement by the polarized six-person panel, where a sense of stasis has been the norm. Democratic commissioners, however, reacted with skepticism, saying their GOP colleagues have until now delayed and actively blocked examination of such cases.
But Lee Goodman, one of the Republican commissioners, said in an interview that contributors seeking to mask themselves through a privately held company or limited liability corporation (LLC) should think twice.
“Six commissioners have now taken the position that closely held LLCs can violate the law under certain circumstances when they make contributions to super PACs,” he said. “Now everyone should be on notice.”
“If you funnel money through an LLC entity for the purpose of making a political contribution and avoiding disclosure of yourself, that is an abuse of the LLC vehicle,” Goodman added.
The 2016 elections have seen a proliferation of mysterious corporate donations, with super PACs collecting millions of dollars from opaque and hard-to-trace entities, as The Washington Post reported last month.
Advocates for stricter enforcement of campaign finance rules have complained that the FEC is failing to check the use of such vehicles, a complaint echoed by the Democrats on the panel.
Earlier this year, the three GOP members denied a recommendation by the FEC’s general counsel to investigate several donations made during the 2012 elections in which contributors allegedly hid behind “ghost corporations.”
The Republican commissioners explained their reasoning in a 15-page statement released Friday evening. Chairman Matthew Petersen, Commissioner Caroline Hunter and Goodman wrote that pursuing the cases would have been “manifestly unfair” because the FEC had not provided “adequate notice” of how it planned to apply to corporations a longtime federal law banning a donor from giving money in the name of another person or entity.
Direct corporate political spending was not permissible until the Supreme Court’s 2010 Citizens United decision. More than six years later, the agency has yet to issue new rules regarding the decision.
While the commissioners have not agreed to pursue new regulations, Goodman said he and the other Republicans purposefully made it clear in their statement how they will interpret the law going forward.
“The proper focus will be on whether funds were intentionally funneled through a closely held corporation or corporate LLC for the purpose of making a contribution that evades the Act’s reporting requirements,” the three commissioners wrote. “If they were, then the true source of the funds is the person who funneled them through the corporate entity for this purpose.”
Republican election law lawyer Jason Torchinsky said the language was striking.
“The FEC made clear that pop-up LLCs can no longer be used for super PAC contributions,” he said. “Going forward, any such pop-up LLCs run a real risk of civil enforcement.”
It remains to be seen whether the panel will authorize an investigation into one of the complaints lodged this cycle against mystery corporate donors — and if it does, whether the commissioners can agree on a circumstance in which a corporate donation violated the straw-donor ban.
In their separate statements filed in response to the 2012 cases, the Republicans and Democrats laid out very different views of when such a contribution would evade disclosure, with the GOP offering a much narrower interpretation.
Commissioner Ann Ravel, one of the Democrats on the panel, said she is not convinced that the Republicans will ultimately support investigations of donations by ghost corporations. Among the 2012 matters that they refused to pursue, she noted, was one in which a donor acknowledged that he gave through a newly formed LLC solely to hide his identity.
The case involved Edward Conard, a friend and former business partner of 2012 GOP presidential nominee Mitt Romney. Conard admitted that he set up an LLC in Delaware so he could use it to make a $1 million donation to a pro-Romney super PAC without revealing his identity, saying he was worried that being linked to such a large contribution could jeopardize the safety of his family. In a statement to the FEC, an attorney for Conard described the Delaware LLC as “a vehicle for one man’s one-time political donation.”
“I don’t see any other circumstance that would be quite as clear,” Ravel said. “I think they are just trying to give some explanation for their failure to act. If they wouldn’t act in these cases, I think it’s highly unlikely they would in any case.”
Ravel disagreed with the assertion by the GOP commissioners that before the FEC could pursue such cases, it had to first provide notice that the straw-donor ban applies to corporate contributions.
“The law is really clear that you cannot use an entity, whatever it is, solely for the purpose of hiding your identity,” she said.
Democratic Commissioner Ellen Weintraub said the fact that it took more than three years for the FEC to address the complaints filed in 2012 sends a message that the agency is not on the job.
“When the law is plainly violated and the commission just sits on it, then people assume there is not going to be any consequence for violating the law,” she said.