October 27, 2013

THE CALIFORNIA FAIR Political Practices Commission has just parted the curtains on a network of hidden donations in the state’s Nov. 2012 campaign, offering a rare glimpse of the dark money coursing through U.S. politics. There are important lessons for the whole country in the California case, which resulted in a record $500,000 civil fine imposed on each of the two groups involved. They will also have to disgorge $15 million, the equivalent of the dark money they received, to the state.

In the 2012 voting, California voters faced two ballot propositions. One, Proposition 30, was an effort by Gov. Jerry Brown (D) to temporarily increase taxes to help balance the budget. The other was Proposition 32, which would have cut off unions’ use of automatic payroll deductions to raise money for political campaigns. In order to influence both propositions — to defeat the first and support the second — a group of California donors who wished their names to remain secret channeled their money through dark-money groups. These are nonprofit groups, supposedly established to support social welfare causes, that are not required to make public the names of donors. Many of them are registered with the Internal Revenue Service as tax-exempt 501(c)4 organizations.

In this case, the nonprofit that received the money, based in Virginia, passed it to another in Arizona that is believed to be connected to the billionaire conservative businessmen Charles and David Koch. This nonprofit passed it to others. Such a networking of dollars did not by itself require public disclosure of donors. But then the money crossed a line. Some $15 million made its way to a pair of groups in California, and it became subject to California law on elections that requires disclosure. The initial source of the cash was not properly disclosed, the commission determined.

What’s revealing about the case is the way the nonprofits were used to hand off contributions to each other while masking the true source of the donations. The weakness exposed here lies in IRS rules that allow dark money to slosh around in nonprofits. The California commission showed a seriousness in pursuing the investigation that hasn’t been in much evidence at the Federal Election Commission, which is hampered by partisan gridlock.

Fortunately, the Senate recently approved President Obama’s two nominees to the commission, Ann Ravel and Lee Goodman. Ms. Ravel, a Democrat, was head of the California commission until this week. In announcing the results of the dark-money probe in Sacramento, she said, “This is a nationwide issue. These groups exploit loopholes in the law to undermine the clear purpose of the law — to give essential information to the public.”

Ms. Ravel will have plenty of opportunity to put these words into action at the FEC. The California investigation never revealed the entire list of who made the original donations, but the network of transfers — millions of dollars being handed off in the shadows — should spark renewed efforts to expose dark money to sunlight.