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Campaign finance moves called ‘political money laundering’

Campaign finance moves called ‘political money laundering’The controversy over a secretive nonprofit’s funding of two ballot measure committees put a renewed focus on campaign finance disclosure this year.

Whether that will translate into action, however, remains to be seen.

Some lawmakers are wary of new campaign finance restrictions that may be overly burdensome or might stifle free speech. And even those who support stricter disclosure laws aren’t sure how to do it.

California’s highly publicized fight to force an Arizona-based nonprofit to disclose its contributors revealed nothing more than another secretive nonprofit.

Americans for Responsible Leadership (ARL) made headlines in Arizona for putting about $1.6 million into the campaigns against Proposition 204, a proposed sales tax increase, and Proposition 121, which would have created a “top-two” primary system. ARL provided the overwhelming majority of the funding against those measures, both of which failed.

Critics, especially those involved in the campaigns for the two initiatives, decried the secrecy of ARL’s funding. Because the group is nonprofit, it didn’t have to reveal the source of its money.

Last session, Rep. Eddie Farnsworth unsuccessfully pushed a bill that would have required nonprofits, other corporations, labor unions and LLCs that make independent expenditures to register as political committees. The Gilbert Republican does not plan to revive the legislation next year.

But Rep. Steve Farley, D-Tucson, intends to introduce a similar measure. Farley said he will sponsor a bill to create an Arizona law similar to the statute that allowed California to force ARL to disclose the source of $11 million it contributed to two California ballot measure campaigns.

“There’s got to be a way that you have to show who’s paying the money,” Farley said. “What’s the point of having any election laws if people can dodge it that easily?”

Farley, who will move to the Senate in January, believes there is bipartisan support for such a bill. He noted that many Republicans faced opposition from independent expenditure campaigns with unclear funding sources.

Sen. John McComish, who was the target of $300,000 in attack ads from independent expenditure committees with vague names such as Revitalize Arizona and Arizona Accountability Project, agreed that it’s a bipartisan issue. The Phoenix Republican said he’s open to new disclosure legislation, depending on the details.

“I think … individuals, corporations, whatever it is have the right to contribute their money wherever they want to contribute it. And I think, in terms of transparency, that people have the right to know who’s supporting what candidate. I’m not sure how and what should be done. But I think there should be more transparency,” McComish said.

The independent expenditures against McComish were tied to unions and Democratic organizations. But he said it took some digging to figure it out.

“You can’t tell anything from (the name), other than they want to revitalize Arizona,” he said.

Even if Farley can get the support he needs for such a bill — Farnsworth’s legislation never got a vote on the House floor — he’ll likely run into another problem. Finding out the true source of an organization’s money is easier said than done.

California’s Fair Political Practices Commission forced ARL to reveal the source of the $11 million. But the source turned out to be another 501(c)(4) nonprofit, whose contributors were secret as well.

Secretary of State Ken Bennett, who worked with Farnsworth on his legislation earlier this year, said he’d like to see a renewed attempt next session at transparency laws that would let voters know who is funding campaigns. But that’s a difficult task, he said, when contributors can give money through intermediaries, as happened with ARL.

Bennett said he isn’t sure whether a California-style law is the best answer to the problem.

“They had a commission that was able to kind of force them to disclose. But what good did it do them?” Bennett said. “I don’t know how to get around that for sure. But that would be one of the questions that we’d have to work on.”

Sen. Michele Reagan, who will chair the Senate Elections Committee next session, said she’d be open to legislation creating more transparency. She said she knows of lawmakers who are planning transparency legislation, and that she would bring the issue to a group of election officials she’s working with on an elections omnibus bill.

But Reagan, R-Scottsdale, worried that a California-style law might run afoul of the U.S. Supreme Court’s Citizens United ruling, which upheld the rights of corporations and labor unions to spend on campaigns. She said California’s law hasn’t been challenged since the high court issued its ruling in early 2010.

Reagan also said she’d want to ensure that any legislation aimed at groups like ARL that are formed for the purpose of giving money to campaigns doesn’t affect nonprofit organizations with other purposes.

“It would be wonderful if we can figure out a way to get it written,” Reagan said. “The limit for disclosure would need to be high enough where you’re not unduly affecting nonprofits who have large memberships.”

Elections attorney Kory Langhofer said there are ways to write such laws so regular nonprofit organizations, corporations or labor unions wouldn’t be forced to disclose the source of all their funds. A lot of legitimate social welfare organizations and companies also contribute to campaigns, he said.

And the Legislature could pass laws requiring the contributors to the groups to disclose their funding as well, he said. But the law would be hard to enforce if it drilled down too far into the money chain.

“Can Coke really figure out where all this money (that the company contributed to a campaign) came from?” Langhofer asked.

He said the Legislature could tie disclosure regulations to the percentage of a group’s funds or activities that are dedicated to campaign activities. But setting the bar too low, he said, could be problematic.

“You’re going to catch more PACs in disguise, but you’re also going to catch more legitimate 501(c)(4)s,” he said. “You’ve got to be really careful about overreaching.”

And any law that forced nonprofit organizations to disclose their membership would likely be found unconstitutional, Langhofer warned.

Farley said he wants election officials and law enforcement representatives to be able to find out the funding source for groups that give to organizations such as ARL. He compared it to criminal money laundering investigations that attempt to find the source of illegally concealed money.

“If they’ve made a contribution to a group over which we have authority, then we should have the legal authority to check where that money’s coming from,” Farley said. “In effect, what we’re looking at here is political money laundering.”

There’s support for new transparency laws on both sides of the aisle.

But not everyone is supportive.

Rep. Bob Robson, R-Chandler, said any proposals in the next session would likely be only a knee-jerk reaction to the ARL controversy or other incidents from the 2012 election cycle. After all, such spending has been occurring for years, he said.

Robson warned against stifling free speech by passing new laws that are overly burdensome.

“I don’t know if there’s a hue and cry. You have to balance both sides of this equation very carefully,” Robson said. “Growing up, I was always taught caveat emptor (let the buyer beware). For some reason, that’s, I think, some very sage advice.”

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