Inside Campaign Finance: Understanding Legal Contributions and Dark Money

’Tis the season of election ads, and candidates are holding rallies and airing commercials asking for contributions to pay the expenses of their campaigns. The Federal Election Commission (FEC) regulates the use of the contributions and the limits of those contributions made to the campaign. It also requires reporting of the campaign’s receipts and expenditures. Campaign finance reports at federal, state and local levels are public documents and posted by the relevant regulatory agencies. I am familiar with FEC regulations regarding the preparation of campaign finance reports, having been engaged in a professional capacity to prepare campaign finance reports for candidates and, at times, interacted with regulatory authorities to resolve disputes.

Before we get into the meat of campaign finance fraud, we need to understand who can contribute to a political campaign and the limits associated with those contributions. So, who can contribute to a campaign?

• Individuals, both adults and minors,
• Trusts,
• LLCs that are treated as a partnership under IRS rules,
• Partnerships,
• Native American Tribes,
• Political party committees,
• PACs,
• Other federal campaigns,
• Authorized committees,
• State PACs, unregistered local party organizations and nonfederal campaign committees, and
• The candidate.

The FEC limits amounts that can be contributed to a campaign during an election. Individuals can contribute $3,300 to a campaign committee per election. For example, for a Representative in Congress (Representatives are re-elected every two years), an individual can contribute $3,300 over a two-year period. For a complete list of campaign contribution limits, see the FEC website.

Campaigns are specifically prohibited from accepting contributions from Corporations, including nonprofit corporations, labor organizations, federal government contractors, foreign nationals, and contributions in the name of another.

Violations of Campaign Finance Laws

The FBI identified federal election offenses, including those considered campaign finance crimes.¹ Campaign finance crimes include:

• Campaign contributions above the legal limits,
• Conduit contributions or straw donor schemes,
• Contributions from prohibited sources,
• Coordination between Super PACs and a candidate’s campaign, and
• Use of campaign funds for personal or unauthorized use.

A recent newsworthy alleged violation of campaign finance laws became public in November 2022, with the news that FTX Trading Ltd. (FTX) filed for bankruptcy after customers pulled approximately $6 billion from FTX over just a few days. Then, on December 13, 2022, the United States Attorney for the Southern District of New York indicted Sam Bankman-Fried, the founder of FTX. The eight-count indictment alleged wire fraud, conspiracy to commit commodities fraud, securities fraud, and money laundering in the first seven counts. What sparked my interest was count eight – “Conspiracy to Defraud the United States and Violate the Campaign Finance Laws.”²

According to published reports, in November 2022, Bankman-Fried did two telephone interviews with Tiffany Fong.³ During the first interview on November 16, 2022 (posted on November 29, 2022), Bankman-Fried talks about his political contributions. He stated that he “donated about the same amount to both parties” and that “all my Republican donations were dark.”

According to the website OpenSecrets⁴, “dark money refers to spending meant to influence political outcomes where the source of the money is not disclosed.” One means of making “dark” contributions is through a Super PAC.

The FEC defines super PACs as committees that may receive unlimited contributions from individuals, corporations, labor unions and other PACs for the purpose of financing independent expenditures and other independent political activity. Super PACs are considered independent committees and cannot coordinate with a candidate’s committee. Although a Super PAC must disclose its sources of contributions, LLCs and shell companies can make unlimited contributions to Super PACs, which in turn can disguise the true identity of the contributor.

More recently, we have been reading reports involving the current mayor of New York City. On September 26, 2024, New York City Mayor Eric Adams was indicted by the Southern District of New York with, among other counts, one count of “Conspiracy to Commit Wire Fraud, Federal Program Bribery, and to Receive Campaign Contributions by Foreign Nationals” and two counts of “Solicitation of a Contribution by a Foreign National.” The indictment alleges that Mayor Adams “sought and accepted illegal campaign contributions in the form of “nominee” or “straw” contributions, meaning that the true contributors conveyed their money through nominal donors, who falsely certified they were contributing their own money,” specifically through a Turkish Official.⁵

Scam PACs

A “scam PAC” is precisely what the term implies. Some background. Political Action Committees (PACs) are political committees that raise money to elect or defeat a candidate. Often, PACs are affiliated with businesses, labor unions, or ideological interests and solicit funds from employees or members. In addition, PACs are neither a party committee nor the authorized committee for a candidate.

In contrast, a scam PAC is not established to elect or defeat a candidate or participate in political activities but to raise funds for personal use. The FBI puts it very simply: “Fraudulent political action committees are designed to reroute political contribution for personal gain.” These scam PACs are often created to circumvent the laws that regulate charities. Some of the reported tactics of scam PACs are very similar to that of telemarketers.

A “scam PAC” that hit the news is called Heroes United PAC.⁶ Heroes United was established in 2017, purportedly to help volunteer firefighters.

The total contributions made to Heroes United from June 14, 2017 (the date of registration) through March 25, 2020 (the last reporting date) were $7,971,898. The table below details the contributions received by Heroes Unlimited.

Contributions by individuals are listed as “itemized” and “unitemized.” Contributions on the Campaign Finance Reports required by the FEC require only detailed information (i.e., name, address, employer, amount) for contributions of $200 aggregated year to date. Over 98% of individual contributions to Heroes United were from unknown sources.

Closing Thoughts

Even with all of the FEC’s regulations and required reporting, candidates, PACs and contributors still find ways around the regulations. As shown in the examples above, the FEC and law enforcement investigate and charge candidates and others with campaign finance violations when warranted. If you choose to contribute to a candidate’s committee, verify it is the candidate’s authorized committee.

Sources

1. Election Crimes and Security — FBI. https://www.fbi.gov/how-we-can-help-you/safety-resources/scams-and-safety/common-scams-and-crimes/election-crimes-and-security#Scam-PACs
2. The Violations of Campaign Finance Law count was dropped in 2023 to enable the extradition of Bankman-Fried from the Bahamas.
3. Tiffany Fong has a YouTube channel that covers “crypto collapses.” https://www.youtube.com/@TiffanyFong/about
4. The nonpartisan, independent nonprofit, OpenSecrets is the nation’s premier research group tracking money in U.S. politics and its effect on elections and public policy. https://www.opensecrets.org/
5. https://www.justice.gov/usao-sdny/pr/new-york-city-mayor-eric-adams-charged-bribery-and-campaign-finance-offenses
6. “Salon” published an investigation into Heroes United PAC. https://www.salon.com/2020/12/09/meet-the-man-at-the-center-of-a-shadowy-multimillion-dollar-scam-pac-network/