A long-awaited bill by Sen. Michele Reagan aims to force independent expenditure campaigns to disclose the source of the anonymous “dark money” that has played an increasingly large role in Arizona’s elections.

After months of work with election officials, attorneys and other stakeholders, Reagan, R-Scottsdale, introduced SB1403 on Feb. 3. The provision that Reagan described as the most important part of the bill would make it a crime for corporations, limited liability companies and labor unions to hide the identities of contributors by transferring the money through other entities.

Other provisions would tighten the rules on which independent expenditure committees have to register with election officials and file campaign finance reports, force IE committees to disclose their largest contributors in their campaign ads, and give the Secretary of State’s Office broad leeway to investigate alleged violations in city and county elections.

Some skeptics question whether the bill will actually be effective. They say the proposed law will be difficult to enforce and do little to clamp down on dark money at the state level, while others point out that federally registered nonprofits will still have free reign to spend anonymously. Still others worry that it will have a chilling effect on people’s First Amendment rights to political speech and that full disclosure will dissuade people from speaking out against powerful incumbents.

But Reagan, a candidate for secretary of state, said the bill will make great strides in combatting dark money.

“If you are going to be in the business of influencing a campaign, then you need to file just like everyone else,” Reagan said.

Election attorney Lee Miller, who was part of the stakeholder group that helped Reagan craft SB1403, said the bill’s effectiveness will depend on the people whose job it is to enforce it. If regulators are willing to enforce it, he said, the bill will be effective.

“In order to get to those questions, I’ve got to have a motivated investigator who’s going to want to ask some questions,” said Miller, who serves as counsel to the Arizona Republican Party.

The core of the problem

In its landmark 2010 ruling in Citizens United v. FEC, the U.S. Supreme Court ruled that corporations and labor unions have the right to spend unlimited amounts of money on campaigns. Since then, people who wish to spend heavily on campaigns without disclosing their identities have used nonprofits and dummy corporations that are created for the sole purpose of electioneering. Often, the money they spend is washed through multiple other organizations to hide its origins.

There are two kinds of independent expenditures under Arizona law. Independent expenditure committees that are created for the sole purpose of influencing elections must register with election officials and disclose their fundraising and spending. The other kind is post-Citizens United spending by corporations, LLCs and labor unions that must disclose their expenditures, but not the source of their funds.

Reagan said her bill attempts to get to the core of that problem by forcing groups to disclose their “identifiable contributors,” meaning the person or organization that originally provided the funds, as opposed to a shell company created during an election season to influence a campaign.

“What we need to know is what’s called an identifiable contributor. That’s the key word: identifiable,” Reagan said. “Let’s say that Pepsi does something as a corporation. Well, we know who Pepsi is. So what we’re really trying to get at is what I call ‘convenience corporations.’”

Reagan said the provision barring transfer of money “with the intent to prevent the disclosure” of contributors’ identities is modeled on a similar statute making it a Class 6 felony for a person to give a contribution in another person’s name. Former Fiesta Bowl CEO John Junker pleaded guilty in 2012 to violating that law after reimbursing employees for campaign contributions.

Some skeptics argue that the word “person” applies to companies as well, and that Reagan’s bill is redundant because it bars activities that are already illegal. But Miller said election regulators don’t like making those kinds of “subjective conclusions” about whether someone has broken the law. The clarity provided by SB1403 will assist election officials in making those determinations, he said.

To help enforce the provisions against transferring money through “convenience corporations,” SB1403 gives regulators the power to investigate whether a corporation’s primary purpose is to influence elections. If election officials receive a complaint about a group, they can require the group to provide “reasonable written evidence” that its main purpose isn’t electioneering.

Reagan plans to remove some provisions from that part of the bill that outline specific criteria that regulators can use, such how long a corporation has been in existence and the way it obtains its revenue. She said those provisions give election officials too much latitude to dig into organizations, and wants the process to be complaint-driven instead.

“It was a little too IRS-esque,” Reagan said of the provisions she plans to remove.

But Miller said the bill won’t necessarily need those provisions anyway. Regulators such as the Secretary of State’s Office can still use those kinds of criteria to determine whether a company is legitimate or simply a front for campaign activity, he said.

Kory Langhofer, an election attorney who was also part of Reagan’s stakeholder meetings, agreed. He said the criteria provisions are far too onerous. But the provision allowing election officials to require written evidence is still “a pretty big deal” because it gives them a kind of de facto subpoena power.

“Currently, the secretary of state has no power to subpoena the internal records of an organization,” Langhofer said. “It’s the same thing as a subpoena, essentially. That’s a big change.”

A major loophole

But Langhofer said he doubted that the bill would actually do much. For one, it leaves open a major loophole that the state can’t touch — federal tax law.

Under federal law and Internal Revenue Service rules, 501(c)(4) nonprofit groups, which don’t have to disclose their contributors, can engage in campaign activity, as long as their primary purpose isn’t electioneering. Nonprofits that break those rules will suffer under Reagan’s bill, Langhofer said, but groups that follow the law can spend without disclosing the source of their revenue.

“If this bill passes exactly as it’s written … my 501(c)(4) clients are going to keep on spending dark money, because it’s still legal in Arizona with this bill,” Langhofer said.

Even with other groups that aren’t federally regulated, not everyone is convinced Reagan’s bill will have much of an impact. Roopali Desai, an election attorney with the firm Coppersmith Brockelman, questioned how much authority election officials would really have to look into organizations’ internal books to see where they’re getting their money.

“I’m not sure how you track that,” Desai said.

And while Miller said the bill’s effectiveness will depend on regulators’ motivation to enforce it, attorney Jim Barton, a former assistant attorney general who used to represent the Secretary of State’s Office, questioned whether elected officials would have the wherewithal to really investigate each other.

Langhofer predicted that the bill won’t actually change much, largely because of the things that SB1403 would ban are technically already illegal. Barton had a similar takeaway.

“I’ll be surprised if there are things that are illegal now that were not illegal before. And it really just has to do with having someone who’s willing to enforce these laws,” Barton said.

Effects on free speech

Other critics are more concerned about the free speech implications. Attorney Mike Liburdi, of the firm Snell and Wilmer, said it could have a chilling effect on free speech.

“The concern that we have in politics is not necessarily that somebody will ultimately be convicted of a crime. It’s that somebody is going to be threatened with criminal prosecution and how that then impacts somebody’s decision to either engage in free speech themselves or make a contribution to another entity,” Liburdi said.

Some lawmakers, such as Senate President Andy Biggs, R-Gilbert, and Senate Majority Leader John McComish,

R-Phoenix, expressed similar concerns. Though people already have to disclose contributions to candidates themselves, McComish said businesses and other entities could be more vulnerable to political retaliation for independent expenditure spending because of the amount of money and divisive nature of those kinds of campaigns.

“It’s a problem that needs to be addressed, because there’s a lack of transparency. But are you going to create other problems?” asked McComish.

SB1403 has a bipartisan coalition of co-sponsors, and Reagan said she believes it will have enough support to pass.