So Much for Campaign Finance Reforms: Ghost Corporations Fund 2016 Elections

Campaign finance reform is the political effort to change the involvement of money in politics, primarily in political campaigns.

Attempts to regulate campaign finance by legislation date back to 1867, but the modern era of “campaign finance reform” in the United States began in 1971 with the passage of the Federal Election Campaign Act (FECA). The Bipartisan Campaign Reform Act (BCRA) of 2002, also known as “McCain-Feingold” after its sponsors, is the most recent major federal law on campaign finance, a key provision of which limited the use of corporate and union money to fund ads discussing political issues within 60 days of a general election or 30 days of a primary election. In 2010, however, the Supreme Court struck down that provision on constitutional grounds in Citizens United v. Federal Election Commission.

Now comes news that mysterious “ghost” corporations — newly-formed limited liability companies (LLC) with cryptic names that offer few clues about their owners — are funding campaign super PACs).

Note: A political action committee (PAC) is an organization that pools political campaign contributions from members and donates those funds to campaign for or against candidates, ballot initiatives, or legislation. Super PACs, officially known as “independent-expenditure only committees”, may not make contributions to candidate campaigns or parties, but may engage in unlimited political spending (supposedly) independently of the campaigns. Unlike traditional PACs, super PACs can raise funds from individuals, corporations, unions, and other groups without any legal limit on donation size.

Matea Gold and Anu Narayanswamy report for The Washington Post, March 18, 2016, that there is “a growing cadre of mystery outfits financing big-money super PACs,” many of which were formed just days or weeks before making 6- or 7-figure contributions — an arrangement that election law experts say violates a long-standing federal ban on straw donors.

Note: A straw donor is a person who illegally uses another person’s money to make a political contribution in their own name, in violation of 2 U.S.C. § 441f of the 1971 Federal Election Campaign Act.

The ghost corporations make it difficult to discern the identities of wealthy players seeking to influence this year’s presidential and congressional elections. But the individuals behind the “ghost corporations” appear to face little risk of reprisal from a deeply polarized Federal Election Commission (FEC), which recently deadlocked on whether to even investigate such cases although federal law requires political committees to confirm that a donation is legal before accepting it.

One of the ghost corporations is a trust called DE First Holdings that, two days before Christmas, was quietly formed in Delaware where corporations are required to reveal little about their workings. A day later, DE First Holdings dropped $1 million into a super PAC with ties to Steven Fulop, Democratic mayor of Jersey City, N.J., who is considering a gubernatorial bid. DE First Holdings’ owner is unknown.

The 2016 campaign has already seen the highest rate of corporate donations since the Supreme Court unleashed such spending with its 2010 Citizens United v. FEC decision:

1 out of every 8 dollars collected by super PACs this election cycle have come from corporations, including millions from opaque and hard-to-trace “ghost” entities.
So far, 680 companies have given at least $10,000 to a super PAC this cycle, together contributing nearly $68 million through Jan. 31. Their donations made up 12% of the $549 million raised by such groups, which can accept unlimited donations.
At this rate, corporations will far exceed the $86 million they gave to super PACs in the entire 2012 presidential cycle, when such donations totaled 10% of the money raised by such groups.
Many corporate donors in the 2016 elections are well-established hedge funds, energy companies and real estate firms. But a significant share of the money is coming from “ghost entities”.

One of the new “ghost corporations” is Children of Israel LLC, a company formed in California last June by Shaofen “Lisa” Gao, a real estate agent in Cupertino, Calif., whose Happy Realty firm helps Chinese buyers find homes in Silicon Valley. Gao has no history of making political contributions in California or at the federal level.

On a form filed with the secretary of state’s office in September, Gao listed Children of Israel’s type of business as “Donations”. Weeks after being formed, Children of Israel began giving money to Pursuing America’s Greatness, a super PAC supporting the presidential bid of former Arkansas governor Mike Huckabee, totaling $150,000, FEC records show. After Huckabee backed out of the presidential race, in January 2016 Children of Israel donated $250,000 to Stand for Truth, a super PAC backing Ted Cruz.

Gao did not respond to repeated calls and emails seeking comment.

The Little Rock-based treasurer for the pro-Huckabee super PAC did not respond to a request for comment about whether the group vetted Children of Israel. Eric Lycan, the attorney for the pro-Cruz super PAC Stand For Truth, declined to address specific donations but said in a statement that the super PAC “at all times complied with the law” and investigated any potentially illegal contributions. “Contributions from an LLC to a super PAC are legal and permissible, and the fact standing alone that a contribution came from an LLC would not be reason to return the contribution,” he added.

Jan Baran, a longtime Republican election-law attorney, agreed that there is a need for the FEC to weigh in, noting that the commission has not issued any new rules regarding corporate donations since the 2010 Citizens United ruling made such spending permissible. He said, “The agency is just not providing any legal guidance on what the rules are in the aftermath of all these momentous court decisions. That’s the job of the FEC, and it hasn’t done its job.”