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The Supreme Court Moves the Goalposts on Donor Transparency

But the decision’s ultimate consequences remain to be seen.

SCOTUS
DANIEL SLIM/Getty

Folks who worry about dark money in polit­ics like myself have been wait­ing with bated breath for the Supreme Court to decide Amer­ic­ans for Prosper­ity Found­a­tion v. Bonta. The organ­iz­a­tion’s lawyers argued that Cali­for­nia can’t find out the donors to secret­ive nonprofits like the Amer­ic­ans for Prosper­ity Found­a­tion, which was foun­ded by the Koch Broth­ers.

The Court ruled against the state and discoun­ted its given reason for demand­ing donors’ names, which had to do with prevent­ing fraud in char­it­able fundrais­ing.

This is not a campaign finance case, but oppon­ents of polit­ical trans­par­ency will likely try to use it to fore­close efforts to counter the dark money prob­lem in campaign finance. Whether they will succeed is another ques­tion.

In Amer­ican elec­tions over the past decade, there has been a grow­ing prob­lem with dark money, which is spend­ing in elec­tions that cannot be traced to its original donor. Dark money becomes untrace­able when it is syphoned through an opaque nonprofit like a 501(c)(4) social welfare organ­iz­a­tion or 501(c)(6) trade organ­iz­a­tion. Open Secrets estim­ated that there was nearly $1 billion in dark money in federal elec­tions between 2010 and 2020, plus an addi­tional $1 billion in undis­closed money spent in the 2020 elec­tion alone.

Some nonprofits have very complex struc­tures, with a 501(c)(3) char­it­able arm, a 501(c)(4) social-welfare arm, and even a 527 purely polit­ical arm. Amer­ic­ans for Prosper­ity is a 501(c)(3) char­ity. So tech­nic­ally it is not allowed under IRS rules to inter­vene in any partisan elec­tion without risk­ing its tax exempt status.

Mean­while, Cali­for­nia had a rule that all char­it­ies soli­cit­ing funds in the state need to confid­en­tially report their donors to the attor­ney gener­al’s office so that the state can root out poten­tial char­ity fraud. Cali­for­nia required this disclos­ure from Amer­ic­ans for Prosper­ity, which sued stat­ing that the law viol­ated its First Amend­ment rights.

The organ­iz­a­tion made this First Amend­ment argu­ment rely­ing on case law from the 1950s known as the NAACP line of cases. The most famous of these is NAACP v. Alabama, in which the Supreme Court halted a state require­ment for the organ­iz­a­tion to divulge its member­ship lists when naming names could have endangered the lives and live­li­hoods of NAACP members. The threat at that time, 63 years ago when civil rights lead­ers were being assas­sin­ated, was quite real.

Amer­ic­ans for Prosper­ity argued to the Supreme Court that its donors were at risk of harass­ment if they were publicly known or if even just Cali­for­nia admin­is­trat­ors knew their iden­tit­ies. Harass­ment is a far cry from the death threats, phys­ical viol­ence, and murder that members of the NAACP faced during the 1950s and 1960s. Nonethe­less, the conser­vat­ive major­ity ruled that Cali­for­ni­a’s disclos­ure require­ment is facially invalid because it burdens donors’ First Amend­ment rights and is not narrowly tailored to an import­ant govern­ment interest.

In the new case, the plaintiffs chal­lenged Cali­for­ni­a’s disclos­ure rules both facially and as applied to them. An “as-applied chal­lenge” would leave the rule intact but would excuse the plaintiffs — and only the plaintiffs — from the rule. By contrast, a facial chal­lenge to a law argues that the law is uncon­sti­tu­tional in all circum­stances and asks the Supreme Court to inval­id­ate the whole law. In Thursday’s decision, the Court went broad and concluded that “Cali­for­ni­a’s blanket demand for [char­it­ies’] Sched­ule Bs is facially uncon­sti­tu­tional.”

Amer­ic­ans for Prosper­ity Found­a­tion is akin thus to Citizens United v. FEC, which could have been a narrow ruling about nonprofits or docu­ment­ary films, but rather was used as an oppor­tun­ity for the Court to write broadly and thereby grant multina­tional corpor­a­tions the First Amend­ment right to spend an unlim­ited amount of money on polit­ical ads.

The Amer­ic­ans for Prosper­ity ruling moves the goal­posts on how to meas­ure the consti­tu­tion­al­ity of disclos­ure laws. The biggest doctrinal changes in Amer­ic­ans for Prosper­ity are that the justices have bumped up the require­ments for “exact­ing scru­tiny.” Before this, exact­ing scru­tiny was more akin to inter­me­di­ate scru­tiny in Equal Protec­tion cases, which required a “substan­tially related” stand­ard. But after this case, exact­ing scru­tiny is going to require the govern­ment to demon­strate “narrow tail­or­ing” when it defends disclos­ure laws. This will be more oner­ous for states to do going forward when regu­lat­ing char­it­ies.

The Court found that Cali­for­nia has an import­ant state interest in prevent­ing fraud by char­it­ies, but the state failed to meet the high “narrowly tailored” test for why obtain­ing char­it­ies’ donors lists would serve this interest. As Chief Justice John Roberts wrote for the major­ity, “The upshot is that Cali­for­nia casts a drag­net for sens­it­ive donor inform­a­tion from tens of thou­sands of char­it­ies each year, even though that inform­a­tion will become relev­ant in only a small number of cases involving filed complaints.” In other words, the Court found that that Cali­for­ni­a’s approach was over­broad and thereby viol­ated the First Amend­ment right to free­dom of asso­ci­ation.

Again, it’s import­ant to note that Amer­ic­ans for Prosper­ity was not a campaign finance case. However, in vari­ous campaign finance cases, the Supreme Court has heard NAACP-style argu­ments about the right to anonym­ous polit­ical asso­ci­ation and has brushed them aside for 45 years. In BuckleyMcCon­nellCitizens United, and McCutcheon, the court has found that voters’ interest in know­ing who is bank­rolling politi­cians outweighs any coun­ter­vail­ing argu­ment for campaign donors’ anonym­ity.

Trans­par­ency oppon­ents will almost certainly try to use Amer­ic­ans for Prosper­ity to under­mine these rulings to some degree. As Justice Sonia Soto­mayor predicted in her dissent, “[r]egulated entit­ies who wish to avoid their oblig­a­tions” will attempt to do so by “vaguely waving toward First Amend­ment ‘pri­vacy concerns.’” Still, to be success­ful, such future chal­lenges would have to over­come the compel­ling state interest in trans­par­ency that the Court has recog­nized repeatedly in the campaign finance context. Several justices who were in the major­ity in Amer­ic­ans for Prosper­ity also joined these decisions or have issued other rulings recog­niz­ing the value of campaign trans­par­ency, so even now these laws remain on relat­ively firm consti­tu­tional ground.

That being said, the real­ity is that dark money already relies on opaque nonprofits to hide the iden­tity of its true sources. Amer­ic­ans for Prosper­ity makes it easier for the ultra-wealthy to hide their role in bank­rolling polit­ic­ally active char­it­ies. What we don’t know is the extent to which this new preced­ent will be used to under­mine campaign finance disclos­ure rulings from the past 45 years.

The views expressed are the author’s own and not neces­sar­ily those of the Bren­nan Center.