$2 million donation shows clear difference between the federal and Missouri system

  

JEFFERSON CITY, Mo. – When a super PAC called “SEALs for Truth” donated just under $2 million to Republican gubernatorial candidate and former Navy SEAL Eric Greitens Monday afternoon, the committee became not only Greitens’ top donor in this cycle with just one check, it became the largest single donation in state history.

The contribution broke the record of $1 million dollars set by St. Louis mega donor Rex Sinquefield with a contribution to 2016 Lt. Governor candidate Bev Randles. But the difference between the two is more than just the size. Under Missouri’s system, within 48 hours the person who made the donation is known. But because the SEALs for Truth contribution came from a system of federal PACs that means Missourians might never know who is truly behind that contribution.

Besides the “upstream contributor,” the financier of the SEALs for Truth PAC, being hidden in the shadows, the donation was so large it led to questions about who would pour so much money into a Missouri race from outside the state. Missouri’s campaign finance laws are designed to force candidates for office in the state to be completely transparent in who is funding their campaign, such as with the Sinquefield donation, but because that donation was from a federal PAC in Washington D.C., it’s likely that no one will know who actually made the donation.

Large amounts of money in politics have always been the norm, but since the end of campaign contribution limits in Missouri after a vote by the General Assembly in 2009, the phenomenon has existed much more openly. Just this cycle in the race for governor, Sinquefield has personally donated over $900,000 to former House Speaker Catherine Hanaway’s campaign. Various PACs in which he is involved, such as the Missouri Club for Growth, Missourians for Excellence in Government, Grow Missouri, and Great St. Louis, have added another $2.9 million and change to that amount.

Democratic nominee Chris Koster has many donations from labor unions, including $750,000 from American Federation of State, County and Municipal Employees this year. Lt. Gov. Peter Kinder has raised $1.5 million from David Humphreys and Sarah Atkins, and businessman John Brunner has served as his own largest donor, self-financing his campaign with $4 million out of his own pocket.

Eric Greitens speaks at a campaign event at the University of Missouri Oct. 1, 2015. (Travis Zimpfer/THE MISSOURI TIMES)
Eric Greitens, who has raised the most money on the Republican ticket by far, has garnered a significant proportion of his donations from out-of-state. (Travis Zimpfer/THE MISSOURI TIMES)

However, unlike SEALs for Truth, all of those actors are known quantities in Missouri politics and have been for years. Sinquefield has backed business-minded conservatives, Humphreys has donated to pro-right-to-work causes for years, and most of those union organizations that back Koster have existed for decades.

While people on both sides of the aisle are quick to denounce the other side’s largest donors, the names of Sinquefield and Humphreys are made public through Missouri’s transparent system, and thus open to scrutiny from the voters.

After the March 17 gubernatorial debate in Columbia, Hanaway was asked her thoughts on Missouri’s lack of campaign contribution limits. She said that even with some people funneling millions of dollars into specific campaigns, including hers, transparency had come as a result of the change.

“People know more sooner about who’s contributing to my campaign now,” she said. “Those same people were just as involved when we had limits. The difference was instead of making a direct contribution, they’d make a contribution from one legislative committee and then another and then another state party committee or a PAC, and the public wouldn’t know who was making the contribution.”

That system however seems to have returned, at least in part, to the Show-Me State, because the group that made the largest single donation in Missouri history is shrouded in mystery.

Background and “dark money”

federal vs state donor system
Click to enlarge

Most people are familiar with 501(c)(3) charitable organizations, but there is also a 501(c)(4) which is a “social welfare” organization. Both groups file with the IRS, but 501(c)(3)s cannot participate political or legislative activities while 501(c)(4)s can. However, expenditures on political activities are not supposed to predominate a 501(c)(4)’s activities, and they may be subject to federal taxation.

Yet these federal 501(c)(4) committees have been pouring money into Missouri and other states in part because the federal election laws allow for unlimited money but lack the same transparency measures the farther upstream one follows the money. Neither a 501(c)(3) are legally allowed to advocate for or against a particular candidate, but a 501(c)(4) effectively can by contributing to groups that are allowed to pick sides. Where contributions to a 501(c)(4) are not tax deductible for the donor, contributions to 501(c)(3)s are tax deductible. It can be very difficult to learn the donors to a 501(c)(4)s, such as SEALs for Truth.

A super PAC is an entity that can spend theoretically infinite amounts of money on political campaigns. A super PAC is not filed as either a 501(c)(3) or (c)(4) but rather as a 527, the same as any political organization.

The 2010 Citizens United ruling by the Supreme Court found that political donations are a protected form of speech and paved the way for such organizations, with some caveats. Super PACs cannot donate money directly to political candidates, and they cannot coordinate with any particular political campaign. However, 501(c)(4)s can donate to super PACs, and since 501(c)(4)s do not need to disclose their donors, it essentially means that a super PAC can be secretly funded. The Sunlight Foundation, a national, nonpartisan transparency advocacy group, calls this “dark money.”

While a few of these dark money groups have supported University of Missouri law professor Josh Hawley in his bid for Attorney General, those groups pale in comparison to the governor’s race, which has seen extensive activity from three PACs funded by 501(c)(4)s or with other questionable organizations with the murky water of anonymity surrounding them.

SEALs for Truth: Money from nowhere

According to the SEALs for Truth PAC’s own Federal Election Commission statement of organization, the group was created June 15, 2016 with a man named Nicholas Britt serving as the treasurer. A statement from the PAC stated they were formed to support veterans running for public office.

“Over the past several months, a decorated former Navy SEAL of the highest integrity, Eric Greitens, has come under attack by status quo career politicians and other political insiders who he is challenging as a candidate for Governor of Missouri,” the group wrote. “As a proven leader of unwavering integrity, we cannot stand by and idly watch as one of our brothers is falsely attacked.”

The group also provided some, albeit limited, insight into their funding.

“As former Navy SEALs, we make up the largest number of donors to our organization,” they said.

The statement was light on details, but in its FEC July Quarterly Report, filed just last Friday, the group reported no cash on hand, no receipts or disbursements. Every bit of financial data in the report is listed as $0.00. The newly-purchased (May 5, 2016) website listed for the PAC, sealsfortruth.com, automatically shows a 403 forbidden error as of this article’s publishing to the nearly dozen people that have tried to access it.

Some time between last Friday and Monday, after the final filing before the Aug. 2 primary election, the PAC raised and spent $2 million. While the 24-hour or 48-hour expenditure report is required by federal law should be released in a few days, that form has nothing to show specifically where that money came from, and no one will know until Oct. 15 when the next federal quarterly report is released and well after the primary for governor.

Patriots for America

The Patriots for America site prominently features a picture of Greitens between current Secretary of State John Kerry and President Barack Obama.
The Patriots for America site prominently features a picture of Greitens between current Secretary of State John Kerry and President Barack Obama.

This super PAC attacked Greitens last year as a closet liberal that has exaggerated his military record. The PAC has come under fire since it was founded by former Brunner staffer Adam McLain, and a Greitens supporter has filed complaints against the PAC with both the MEC and the Federal Election Commission. Greitens’ discovery of this fact led to a phone call in Nov. 2015 in which Greitens’ called Brunner “a weasel,” and that incident famously started the feud between the two campaigns.

The listed receipts for Patriots for America are from a law firm called Franklin and Lee, which is a 501(c)(4). Franklin and Lee has given roughly $84,000 to Patriots for America from Jan. 7 to Feb. 26. In its 2015 year-end filing, it was also indebted $86,000 to Draper Sterling, LLC (which has a mysterious background of its own), Semcasting Inc., and McLain himself, the PAC’s founder and treasurer. The address for the Franklin and Lee firm is that of a home owned by McLain.

LG PAC

The LG PAC has attacked Brunner and Hanaway while defending Greitens. While Greitens has denied any connection between the PAC and his campaign, LG PAC treasurer Hank Monsees was seen phone banking for Greitens in a Facebook post last month after appearing at a campaign event for Greitens in May. 

LG PAC received all $2.3 million of its funding in August from a different super PAC called the Freedom Frontier Action Network. The PAC is based in Austin, Texas and Reno, Nevada and its treasurer is former National Republican Senatorial Committee Executive Director Scott Bensing. Interestingly, Freedom Frontier was approved for termination by the FEC in January, which meant it would no longer be donating in federal races. Its largest cash provider was a political mailer group called Capitol Hill Lists LLC, what appears to be a small investment firm, which gave it $70,000 in 2014. Freedom Frontier has not filed quarterly reports since that time.

Fixing the problem

So, what can Missouri do to keep the “dark money” that plagues the federal system out of the state? In short, very little.

Because these PACs are regulated at the federal level most of the changes would have to start in Washington. Congress could also pass a law mandating that 501(c)(4)s disclose their donors, but another Supreme Court case stands in the way. The Court found in the 1958 NAACP v. Alabama case that compelling the disclosure of anyone affiliated with a social welfare or advocacy group “may constitute [an] effective restraint on freedom of association.” Basically, people have the right to be privately associated with certain groups, if they so choose. There are exceptions that require a group to disclose their donors, but funding a super PAC is not one of them.

At the state level, Missouri could outlaw contributions such as the one from SEALs for Truth directly to Missouri candidate’s committees. But Ketcher believes that Missouri already has laws on the books that could prevent these kinds of transactions from taking place.

“Missouri does have a law which prohibits essentially giving money to one entity when you’re basically hiding the upstream donor,” Ketcher says. “If you do that intentionally, where you move money from one entity to one entity, and you know ahead of time that we’re going to earmark this money to this entity through another entity, that would be a crime.”

Legitimate nonprofits, he says, that have long term interests, like a chamber of commerce or the Associated Industries of Missouri, and occasionally get involved in political donations are perfectly appropriate.

“But if the not-for-profit is just set up one day and then they run a bunch of money through it the next, it could just raise those same earmarking issues that this is really just a device to avoid reporting, and if it is earmarking money through one entity to move that money to another entity… then that could be within the anti-earmarking law.”

Still, he also believes there could be improvements to current statute because it obviously is happening and people are doing it with no legal repercussion.

In the end, Missouri’s relatively new system encourages clear lines with few nodes from donor to recipient. Before, it was a game in and of itself to get a lot of money from one donor to one candidate, shuffling it through various state, district and party committees. The use of 501(c)(4)s to hide identity and intent may be as destructive to Missouri’s newfound transparency as the last two letters of its name implies.