Three Republicans on the Federal Election Commission who have signaled their willingness to crack down on the growing use of secretive limited liability companies (LLCs) to make campaign contributions will soon be put to the test on the issue.
The FEC faces multiple complaints from watchdog groups regarding the alleged use of LLCs to make large “straw” donations to super PACs. In this election, LLCs are, at an increasingclip, making six- and seven-figure contributions to super PACs supporting Republicans and Democrats alike. In some cases, the LLCs have come into being just days or weeks before making a large campaign contribution.
The FEC also faced complaints about LLCs in 2012, but failed to take action. Some of those LLC donors even admitted to the FEC that they had set up the companies specifically to make a contribution, saying they thought it was legal. The FEC general counsel recommended further investigation in three out of four 2012 LLC cases but the commission deadlocked along partisan lines, failing to investigate further.
On Friday, the FEC’s three Republican commissioners released a 15-page explanation stating that they had decided not to act because the FEC hadn’t given sufficient guidance to corporations on the matter in the wake of the Supreme Court’s Citizens United ruling, which opened the door to corporate expenditures. The GOP statement asserted that it would be “manifestly unfair” to take action against those LLCs.
But in a recent interview withTheWashington Post, Republican FEC Commissioner Lee Goodman said LLCs would face FEC scrutiny in the future.
“Six commissioners have now taken the position that closely held LLCs can violate the law under certain circumstances when they make contributions to super PACs,” he said. “Now everyone should be on notice. “If you funnel money through an LLC entity for the purpose of making a political contribution and avoiding disclosure of yourself, that is an abuse of the LLC vehicle.”
But watchdogs with LLC complaints pending before the FEC greeted that comment with skepticism. Some even think last week’s GOP statement explaining the commission’s inaction after the 2012 election could give immunity to all past LLC contributors.
Under the commissioners’ reasoning, the Republicans could justify letting off the hook any player subject to an LLC complaint prior to its Friday statement, says Paul S. Ryan, deputy executive director at the Campaign Legal Center, one of the groups that has complained to the FEC about LLCs.
In fact, Ryan sees the potential for last week’s Republican statement of explanation to open up further loopholes in the law. Campaign-finance lawyers could begin to advise clients who want to make anonymous contributions to use other vehicles on which the FEC also has failed to give clear guidance, like unincorporated associations or limited liability partnerships, he said.
But in the near-term, campaign-finance groups will be keeping a close eye on the FEC, hoping for the best but expecting continued inaction. If the Republican commissioners really want to scrutinize LLCs more closely, as Goodman’s comments to the Post suggest, they will have plenty of chances to do so as the agency mulls a half-dozen LLC complaints from the Campaign Legal Center, Democracy 21, and Citizens for Responsibility and Ethics in Washington (CREW.)
“The standard they have set out appears to be written to be easy to get around, so we will hold off on further judgment until we see them actually taking meaningful action on shadow-LLCs," said CREW Communications Director Jordan Libowitz said in a statement to the Prospect.