New federal court ruling shakes up disclosure norms in the federal independent expenditure space

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In a decision likely to throw further uncertainty into the world of campaign finance disclosure rules, an Obama-appointed judge on the United States District Court for the District of Columbia recently invalidated the Federal Election Commission’s (“FEC”) regulation regarding the disclosure of donors by organizations making federal independent expenditure communications.  In light of the ruling, organizations, including 501(c)(4) social welfare entities, seeking to spend money on independent expenditures involving federal candidates between now and the November midterms should be mindful of the shifting legal ground beneath them and the likelihood of increased scrutiny into their FEC disclosure filings moving forward.

The existing FEC regulation at issue – 11 C.F.R. § 109.10(e)(1)(vi) – requires organizations that make independent expenditures in excess of $250 in a calendar year to disclose the identity of donors who gave over $200 for the purpose of furthering the reported independent expenditures.  Independent expenditures are communications that expressly advocate the election or defeat of a clearly identified federal candidate.  According to Judge Beryl Howell’s decision, the current iteration of the 11 C.F.R. § 109.10(e)(1)(vi) “blatantly undercuts” the overall congressional goal of disclosure due to the fact that it only requires organizations to report donors who gave for the particular independent expenditure being reported.  Thus, if donors gave contributions for general independent expenditures, or even if donors gave contributions earmarked for a specific independent expenditure plan but not a particular expenditure, such donors would not need to be disclosed on the independent expenditure reports.

In light of Judge Howell’s ruling, the FEC now has 45 days to issue regulations that more closely align with her understanding of the purpose of the Federal Election Campaign Act of 1971 – greater transparency.  The existing regulation will remain in effect for the 45 days, so organizations spending money on independent expenditures for the next 45 will be subject to those rules.  In the interim period, there is no need to amend past disclosure reports.

Given the significance of this ruling and the mixed reception it has received among lawyers concerned about First Amendment and administrative deference concerns, there will likely be an appeal from Crossroads GPS, an intervenor in the case and one of the most active 501(c)(4) social welfare organizations in the political arena.  It also remains to be seen how the FEC will respond to the court’s order and how it choose to enforce a new regulation that might jeopardize the anonymity of good faith donors to politically-active nonprofits. The Dentons Political Law Team will continue to monitor the legal issues and developments surrounding non-profit disclosure rules, but in the meantime please consult legal counsel should your organization be considering playing in the independent expenditure space.