Hiding in Plain Sight:
The Problem of Transparency
in Political Finance
The Committee for Economic Development
Written by Anthony Corrado
July 2013

Hiding in Plain Sight:
The Problem of Transparency in Political Finance

Since its inception in 1942, the Committee for
Economic Development (CED) has addressednational priorities that promote sustained
economic growth and development to benefit all
Americans. These activities have helped shape
the future on issues ranging from the MarshallPlan in the late 1940s, to education reform in thepast three decades, and campaign finance reform
since 2000. CED’s research findings are coupledwith outreach efforts throughout the country andabroad, achieving meaningful impact at the local,
state, and national levels.
CED’s Trustees understand that business,government, and individuals together are
responsible for our mutual security and prosperity.
CED is deeply concerned about recent trends inpolitical finance. In the decades following theFederal Election Campaign Act (FECA), disclosureof political contributions was widely accepted– from both political parties – as necessary tofair elections. This consensus has been eroded as
partisan groups attempted to keep their politicalspending secret.

Includes bibliographical references.
First printing: 2013
Printed in the United States of America

We are pleased to present this issue brief, Hidingin Plain Sight: The Problem of Transparency in
Political Finance, to provide an update on politicalfinancing of the 2012 elections and restate therecommendations outlined by CED’s Money in
Politics Subcommittee in our 2011 report, Hidden
Money: The Need for Transparency in Political
Finance. These reports do not seek to hinder
the free speech of individuals, labor unions, or
corporations, but rather to urge transparency
in political finance. CED Trustees believe thattransparency is an essential ingredient of freeand competitive markets, and that it is equallyimportant to free and competitive elections.

Committee For Economic Development
2000 L Street, N.W., Suite 700
Washington, D.C., 20036
202.296.5860
www.CED.org

CED would like to thank Anthony Corrado,
Project Director of CED’s Money in Politics
Subcommittee, who wrote this report.

Hiding in Plain Sight:
The Problem of Transparency in Political FinanceIntroduction
Congress and the courts have long recognized
the value of transparency in the political process
and the importance of providing citizens withinformation about the monies raised and spent to
influence their votes. Yet, in the 2012 presidential
and congressional elections, hundreds of millionsof dollars were spent by organized groups that
kept their contributors hidden from public view.
Tax-exempt organizations, including nonprofit
social welfare groups, labor unions, and tradeassociations, reported spending substantial sumsin support of federal candidates, and did so
without revealing the sources of their funding.
Consequently, the American public will neverknow the origins of much of the money used
to finance the electioneering activities andunprecedented advertising in the 2012 elections.
This is not the way a democratic electoral systemshould work.
Transparency is an essential principle of freeand competitive markets; it is equally importantin a system of free and competitive elections.
Public disclosure of campaign contributions andexpenditures is a core requisite of any effective
system of campaign finance, and its value has been
noted repeatedly by Congress and the courts. In
the landmark 1976 decision in Buckley v. Valeo, theSupreme Court upheld the constitutionality andnecessity of disclosure requirements stating that“disclosure requirements deter actual corruption
and avoid the appearance of corruption by exposing
large contributions and expenditures to the light ofpublicity.”1 The Court further noted that disclosure
provides valuable information to voters, since
it “helps voters define more of the candidates’
constituencies” and allows them to better evaluate
candidates “by identifying the interest to which a
candidate is most likely to be responsive.”2
In 2010, in its historic decision in Citizens
United v. Federal Election Commission, theCourt reaffirmed the importance of disclosure
requirements. In this ruling, which determinedthat corporations have the same right as others
to spend money independently in support offederal candidates, the Court assumed that any
monies spent to advocate the election or defeat ofcandidates would be subject to public disclosure.
In an 8-1 vote upholding disclosure requirements
for independent expenditures, the Court notedthat disclosure would help to deter and expose
violations of law, and would help citizens “makeinformed choices in the political marketplace.”3
The Court summarized its view by declaring: “TheFirst Amendment protects political speech; anddisclosure permits citizens and shareholders toreact to the speech of corporate entities in a properway. This transparency enables the electorate to
make informed decisions and give proper weight
to different speakers and messages.” 4However, due to the inadequacy of current
disclosure laws and the Federal Election
Commission’s narrow interpretation of thesestatutes, the Court’s assumption has proven to befaulty. Political donors and spenders are finding
it increasingly easy to avoid public scrutiny, as a
growing number of organizations take advantage ofporous rules to finance campaign activity without
revealing the sources of their funding. The financial
activity within the political process is thus becoming
more opaque and the amount of undisclosed money
flowing into federal elections is increasing.
CED believes that the money raised and spent to
influence voting decisions and election outcomesshould be publicly disclosed. The use of hidden
money in elections undermines First Amendment
guarantees and is contrary to the basic values ofour democracy. Reform is needed to ensure thatthe funds used to finance election activities arebrought to light.

Hiding in Plain Sight:
The Problem of Transparency in Political Finance

The Inefficacy ofCurrent Regulations
The 2012 elections were defined by theunprecedented sums of money organized groups
spent independently advocating federal candidates.
In all, Super PACs, political committees, taxexempt organizations and other non-party entities
reported $1.04 billion in spending on independent
expenditures and electioneering communications
advocating federal candidates, or three times
the $338 million reported by groups in the 2008
elections and five times the amount reported in
2004.5 Of this $1 billion total, $336 million wasreported by tax-exempt organizations, including
social welfare groups, labor unions and businessassociations, including $311 million in spending byorganizations that did not disclose their donors to
the Federal Election Commission (FEC). To put thissum in perspective, the reported spending financedwith money from undisclosed sources in 2012 wasequivalent to the total spending reported by allgroups in 2008. What is more, this total represented
only a portion of the political spending by taxexempt organizations. Because these groups are only
required to disclose certain types of expenditures
to the FEC, untold tens of millions of dollars inelection-related expenditures were never reported.
The financing of the 2012 elections thus highlighted
the limited efficacy of current disclosure laws,
particularly as applied to the growing politicalactivity of tax-exempt organizations. Under current
statutes, federal candidates, parties, and PACs are
required to disclose contributions and expendituresof $200 or more to the FEC. Super PACs, which firstemerged in 2010 and may spend unlimited amounts
independently of candidates and receive unlimited
contributions so long as they do not make directcontributions to candidates, are also required toreport their contributions and expenditures to the
FEC. Section 527 committees, which are politicalcommittees that do not qualify as federal PACs andare therefore not required to register with the FEC,
disclose their contributions and expenditures, butthey report to the Internal Revenue Service rather
than the FEC.

Tax-exempt organizations established under
Section 501(c) of the tax code, including nonproft
501(c)4 “social welfare” organizations, 501(c)5labor unions, and 501(c)6 trade or businessassociations, are not formed for the primary
purpose of engaging in political activity and are
not required to publicly disclose their finances.
Those that do decide to participate in federal
election campaigns are required to report only two
types of political activity to the FEC under current
campaign finance law. First, these committees
are subject to the rules that require disclosure ofindependent expenditures, which are expendituresthat directly advocate the election or defeat of afederal candidate. Any group that spends money inthis way must disclose any expenditure of $250 or
more, as well as the sources of funding to the FEC.
Second, they are required to report monies raised
and spent on “electioneering communications,”
which are broadcast advertisements featuring afederal candidate that are aired within thirty daysof a primary or sixty days of a general election andare subject to no other reasonable interpretation
than as an appeal to vote for or against a candidate.
Such ads are considered to be the functional
equivalent of express candidate advocacy. Anyorganization that spends $10,000 or more in acalendar year on advertisements that qualify aselectioneering communications must disclose theamounts spent, as well as any donors of $1,000 or
more who provided funding for the ads.
Otherwise, tax-exempt organizations are notrequired to disclose their election spending to the
public. So, for example, these organizations do
not have to publicly disclose any funds used tofinance election-related advertisements that do not
advocate a candidate. Nor do they have to reveal
the monies used to pay for direct mail, telephonecanvassing efforts, Internet communications,or voter registration and turnout programs, solong as they do not expressly urge a vote for aparticular candidate. The principal restriction
on political spending by 501(c) organizations is
the Internal Revenue Code requirement that agroup’s “principal purpose” may not be to influenceelections or engage in political activity. But thisrequirement does not prohibit tax-exempt entities
from engaging in political activity; in practice, it
simply means that a group may not spend a major
share of its budget on political activities.
Current law does not require comprehensive
disclosure of the election activities of tax-exemptgroups, but Congress did seek to ensure that the
public would have information about the monies
used to advocate candidates. Yet even this limited
objective has been undermined by the FEC’s
recent implementation of the law. In 2007, theagency adopted regulations that eviscerated thedisclosure requirements applied to electioneeringcommunications. Prior to the adoption of theseregulations, a group or organization was required todisclose contributions received “for the purpose offurthering electioneering communications” in oneof two ways: an organization could either report all
donors who gave $1,000 or more in a calendar year
or establish a separate account to be used for suchads and disclose only donors who gave $1,000 or
more to this account. The new rules require donor
disclosure only if a donor specifically designatesa contribution “for the purpose of furthering
electioneering communications.”6 The FEC’s three
Republican commissioners have further interpreted
this rule to require donor disclosure only if acontributor specifies that a contribution be used
to pay for the airing of a particular ad.7 The rules
for reporting independent expenditures include
similar language, requiring spenders to disclose
donors who make a contribution “for the purposesof furthering an independent expenditure.” 8 Given
that most groups raise money before creating ads
and donors typically do not specify the purpose forwhich their donations should be used, the FEC’s
actions have had the effect of essentially eliminating
the requirement that groups disclose their sourcesof funding. The commission’s narrow application of
the law has opened a wide path for the use of secretcontributions in federal campaigns.
Tax-exempt organizations (most of which areincorporated entities) are allowed to makeindependent expenditures directly advocating
the election of a candidate as a result of the

Citizens United decision, and may use unlimited
contributions in doing so. Politically active taxexempt groups, primarily 501(c)4 organizations,
are now spending substantial sums on independent
expenditures or electioneering communications
without revealing the sources of their funding. Morenotably, a growing number of political organizations
are establishing affiliated 501(c)4s so that they thatcan offer their donors anonymity and shield at least
some of their funding from public scrutiny.

The Rise of Hidden Money
CED’s 2011 report, Hidden Money: The Need forTransparency in Political Finance, noted the effect
the FEC’s regulatory decisions have had on thetransparency of political funding.9 In the 2010
elections, most of the groups that reported
electioneering communication expenditures did
not reveal their donors. As a result, close to halfof the $295 million in spending reported by­‑organized groups did not include information
about their sources of funding.
Since then, the use of secret political contributions
has grown and the sums of money involved haveincreased. In all, organized groups, excluding party
committees, reported $1.04 billion in election
spending in 2012, or more than the total sum
reported in the previous three federal elections.
About thirty percent of the election spending
reported by nonparty organizations in 2012 was
the result of electioneering by groups that did notdisclose their donors. The total amount spent by
these groups, $311 million, represented a steep
increase as compared to previous elections.
The dramatic growth in overall spending canlargely be attributed to the rise of Super PACs,
which were fueled by contributions of $1
million or more and thus able to amass sizeable
warchests. These committees, which disclose theircontributions and expenditures to the FEC, spent$609 million on election activity, as compared
to $63 million in 2010, the first year in whichthese groups were sanctioned by the courts andHiding in Plain Sight:
The Problem of Transparency in Political Financerecognized by the FEC. Other political committees
and organizations spent more than $420 million inall, including $311 million from tax-exempt entities
that did not disclose donors. Thus, excluding Super
PACs, three out of every four dollars of spending
reported by nonparty organizations was financedwith contributions that were not publicly disclosed.
While tax-exempt groups reported unprecedented
expenditures in support of candidates, the extent
to which this increase represented an actual
increase in resources devoted to political activity as
opposed to a shift to activities that must be reported
is difficult to discern given the current state ofdisclosure rules. For example, some organizations
that were prohibited from spending money insupport of candidates prior to Citizens United may
have simply changed their practices, deciding tofinance independent expenditures or electioneeringcommunications, which are disclosed, rather thanadvertisements broadcast before the thirty-day
or sixty-day windows that trigger reporting orother activities that are not subject to disclosure
laws. What is certain is that the number of taxexempt organizations that report spending money
to directly advocate candidates has increased, theamounts of money they report spending on these
activities has risen sharply, and the sources of thisfunding are not being revealed to the public.

Undisclosed Contributions
Since the FEC adopted its new regulations in
2007, the amount of spending reported by nondisclosing groups has risen dramatically in eachelection cycle, and the number of politically
active tax-exempt groups has grown. According
to the summary of FEC filings reported by the
nonpartisan Center for Responsive Politics,

Table 1: Reported Election Spending by Organized Groups 			Election

Total Reported($ millions)

Total Without Donor
Disclosure ($ millions)% of Total Without
Disclosure

2006

68.9

0.7

1.1

2008

301.7

78.8

26.1

2010

294.7

126.8

43.0

2012

1,037.80

310.8

29.9

Source: Based on Federal Election Commission data as reported by the Center for Responsive Politics. Amounts include all
independent expenditures, electioneering communications, and communication costs reported by organizations, excluding party
committees, as of June 2013.

Table 2: Reported Election Spending by Top Non-Disclosing Groups		
Election

No. of Groups
Without Donor
DisclosureGroups Spending$1 Million or MoreAmount Spent by$1 Million or MoreGroups ($ millions)% of Total $ Spentby Non-Disclosing
Groups

2006

13

0

0

0

2008

52

14

71.1

90

2010

85

15

113.0

89

2012

140

28

294.2

95

Source: Based on Federal Election Commission data as reported by the Center for Responsive Politics as of June 2013.

between 2006 and 2012, the number of taxexempt groups reporting election expenditures
has grown from 13 to 140, while their reported
expenditures soared from less than $1 million to$311 million (see Table 1). This surge in spending
is primarily due to the activities of a relatively
small number of politically active organizations—twenty-eight in all—that reported expenditures of$1 million or more (see Table 2).
A few high-spending groups intent on keeping
their donors secret have been responsible formost of the funding. In 2012, the eight groups
ranked highest in spending, each of which spentat least $10 million, disbursed a total of $223
million, which constituted about 72 percent of thetotal amount reported by non-disclosing groups.
Similarly, in 2010, the top five non-disclosing organizations reported $87 million in election spending,which constituted 69 percent of the total amountreported by such groups in the midterm elections.

Veiled Contributions
Even in the case of organizations that do reporttheir donors, effective disclosure is not always
ensured. A donor may give unlimited amounts
to a nonprofit social welfare organization or abusiness association. These organizations, as wellas labor unions, can in turn contribute funds to a
Super PAC, which is allowed to receive unlimited
contributions from tax-exempt organizations
and other entities and use them to pay for their
independent expenditures. A Super PAC isrequired to disclose only the amount and sourceof an organizational gift; it is not required todisclose the donors who provided the funding
to the organization in the first place. In this way,intermediary groups can serve as vehicles formasking the actual donors funding campaignrelated expenditures. They can function as passthroughs to veil contributions from public view.
According to one analysis of FEC filings, Super
PACs active in the 2012 elections received at least$14.8 million in contributions from 501(c)4 social
welfare organizations and $3 million from 501(c)6business associations, as well as $35 million
from labor unions.10 While the labor union
funding might be assumed to come from labor
union treasury funds, the original sources of the$17.8 million in organizational contributions
are unknown. For example, Freedomworks for
America, a conservative Super PAC foundedby former House majority leader Dick Armey,
received $2.5 million from its affiliated 501(c)4entity, FreedomWorks.11 A group called Working
for Working Americans gave $2.25 million to
Majority PAC, a Super PAC established to support
Democratic candidates for the U.S. Senate; $1.1
million to House Majority PAC, a Super PAC
established to support Democratic candidates for
the House of Representatives; and $500,000 to
Priorities USA Action, a Super PAC establishedto support the reelection of President Obama.12
The original sources of the monies contributed
by FreedomWorks and Working for Working
Americans remain shrouded in mystery.

The Need for Transparency
In the post-Citizens United world, Super PACs andtax-exempt organizations can receive multi-milliondollar contributions from individuals, politicalcommittees, labor unions, corporations, and otherentities to finance election activities that directly
advocate the election or defeat of candidates. As
argued by the Supreme Court above, it is thus
imperative that the funding of these organizations
be transparent and available for public scrutiny.
Undisclosed money creates the opportunity for
unknown and unaccountable influence buying andabuse. It violates the basic principles of our free andopen elections. And it denies citizens informationthat can help them assess the messages that seek toinfluence their votes.
The Supreme Court has held that disclosure
requirements do not prevent anyone fromspeaking, and they serve the interests oftransparency, accountability, and a more

Hiding in Plain Sight:
The Problem of Transparency in Political Financeinformed electorate. Chief Justice Roberts recently
highlighted these benefits of disclosure, noting
in Doe v. Reed that public disclosure “promotes
transparency and accountability in the electoral
process to an extent other measures cannot.”13
These objectives, however, are not fulfilled bycurrent disclosure rules, which can be easily
evaded and fail to encompass all of the financialtransactions involved in election spending.
CED strongly believes that disclosure andtransparency are essential to the proper functioningof a democracy, just as they are essential to the proper
functioning of a free and competitive economy. CED
agrees with Justice Roberts’ conclusion that disclosure
promotes transparency and accountability to a greater
extent than any other approach. In CED’s view, anygroup or organization that spends money to advocate
candidates or finance election campaign activities
should be required to disclose their expenditures andsources of funding to the public.
CED recognizes that some of the organizations
now involved in political campaigns have broader
purposes as their primary concern. Most of the

Notes
1
2
3
4
5

6
7

Buckley v. Valeo, 424 U.S. 1 (1976), 67.
Ibid., 67 and 81.
Citizens United v. Federal Election Commission, 130 S. Ct.
(2010), 914.
Ibid., 916.
The totals include the independent expenditures, electioneering communications, and labor union communication
costs reported to the FEC, as compiled by the nonpartisan
Center for Responsive Politics as of June 30, 2013. All financial data included herein are based on the compilationsof FEC disclosure filings made available to the publicby the Center for Responsive Politics.
11 C.F.R. Sec. 104.20(c)(9).
Paul S. Ryan, “Citizens United and the ‘Effective
Disclosure’ System That Wasn’t,” American Constitution
Society Blog, January 21, 2011, http://www.acslaw.org/
acsblog/citizens-united-and-the-‘effective-disclosure’-system-that-wasn’t (accessed January 13, 2013). See also,
FEC, MUR [Matter Under Review] 6002, In the Matter ofFreedom’s Watch, Inc., Statement of Reasons of Chairman
Matthew S. Petersen and Commissioners Caroline C.

money these organizations raise and spend isused for purposes wholly unrelated to electoralpolitics. CED believes disclosure should apply tothe monies raised and spent to advocate candidates
and influence elections. Any organization thatspends money advocating candidates or paying forother electioneering activities—whether a politicalcommittee, tax-exempt 501(c) organization, or
for-profit corporation—should publicly disclose
the sources of the funding used to finance these
expenditures. As CED has previously noted, suchan approach “treats all of those who raise and spendmoney on election activity in the same manner. It
provides an across-the-board corrective equallyapplicable to any actor in the electoral process.”14
CED urges members of the business and laborcommunities, civic leaders and public officials to joinin the efforts to promote full and effective campaign
finance disclosure. Without an improvement incurrent disclosure practices, the financing of politicalactivity will continue to move into the shadows, andthe deepening role of undisclosed money will further
erode public confidence in the electoral process andthe integrity of our political system.

Hunter and Donald F. McGahn, August 13, 2010, http://
eqs.nictusa.com/eqsdocsMUR/10044274536.pdf (accessed
June 26, 2013).
8 Paul S. Ryan, Opening Statement to Congressional Forumon Campaign Finance, Campaign Legal Center Blog, April
18, 2012, http://www.campaignlegalcenter.org/index.
php?option=com_content&view=article&id=1687:april-18-2012-paul-s-ryans-opening-statement-to-congressional-forum-on-campaign-finance&catid=63:legal-center-press-releases&Itemid=61 (accessed January 13, 2013).
9 This report is available on the CED website at
http://www.ced.org/programs/money-in-politics.
10 Blair Bowie and Adam Liosz, Billion Dollar Democracy:
The Unprecedented Role of Money in the 2012 Elections,January 17, 2013, http://www.uspirg.org/reports/usp/
billion-dollar-democracy (accessed January 18, 2013).
11 Based on an analysis of contributions reported bythis Super PAC in its FEC disclosure reports.
12 Based on an analysis of contributions reported by theseSuper PACs in their FEC disclosure reports.
13 Doe v. Reed, 561 U.S. ___(2010) (Slip Opinion p. 9).
14 CED, Hidden Money: The Need for Transparency
in Political Finance (2011), p. 4.