May 10, 2022

Money and Politics: Part 2

Unregulated Campaign Financing and Funding Further Distort Politics and Impede Sustainability

Dollar Head by Online Trading Academy, licensed under CC BY-SA 2.0

Time and time again we witness modern democracies around the world choosing money over the environment and people. In the race to halt the environmental and social crises, a key barrier lies in the undue influence of wealthy individuals and companies over decision-making. With plentiful capital and a desire to maintain the status quo, these groups use their disproportionately powerful voices to promote the election of officials supporting their interests, slowing progress towards a more sustainable future.

Part 1 of the campaign financing blog series explored regulated campaign financing. As Part 2, this blog discusses the lesser known grey area of campaign funding: unregulated financing (see Figure 1). Unlike regulated financing, contributions made through unregulated financing pathways are not subject to federal laws. Note: the pathways explored in this blog primarily apply to campaign financing in the United States.

Figure 1: a simplified flowchart of campaign financing. Unregulated methods appear in colour, with the regulated financing of Part 1 shown in grey. Blue boxes represent the sources of money and their destination; green boxes identify the means or middleman. PAC stands for political action committee (see below).

An Unlimited Source of Leverage for the Wealthy

As detailed under the Super and Hybrid PACs and Dark Money sections below, unregulated pathways for campaign finance present pathways for an unlimited flow of funds to politicians, and thus an unlimited source of leverage for the wealthy. Super and Hybrid PACs are two types of political action committees with more loose regulations than the Traditional PACs of Part 1 and Dark Money refers to anonymous, untraceable money. For more details see the sections at the end. This problem is, on the whole, much worse in the US than in Canada, but both nations have weaknesses.

What This Means for Sustainability

Unlimited spending and dark money give certain wealthy and powerful groups leverage over campaigns, allowing for the influence of unsustainable vested interests to take hold.

A prime example can be found in the United States involving the notorious oil and chemical tycoons, Koch Industries, using dark money to influence policy. Over the years, Koch Industries donated extensively to multiple 501c(4)s.1 These charities had no public ties to the corporation and appeared as social welfare organizations; however, in the background, Koch Industries discretely funnelled millions of dollars through them to campaigns to push a pro-oil political agenda. As a result, Koch Industries acquired extensive political influence, which they used to block environmental legislation and spread doubt about climate change.

Cases like these reveal the power and influence of money on political outcomes. Many of these outcomes can not only manipulate the climate conversation and block legislation, but may even go as far as stripping the government of the ability to regulate harmful human activities (see forum post West Virginia v. EPA for an example of coal companies influencing a court case to limit the EPA’s ability to regulate greenhouse gasses). It hints at a broader concern regarding the rule of law and the infiltration of vested interests in the decision-making process (see Lever 3, Strengthening Environmental Law).

Why is it legal for individuals to exploit the 'dark money' path to wield tremendous sway over politics and policy? Is that truly democratic?

The Power of the Voter

Free and fair elections are the foundations of democracy, but when big money is allowed to infiltrate this practice, democracy is undermined. We might wonder how real reform could be introduced, given how money in the system continuously prevents closing the very loopholes that give that money power. Perhaps strategic and pervasive civic action could overcome the power of the rich.

Reforms that directly target the underlying sources of unregulated money and corporate influence present a greater potential for change rather than focusing solely on specific facets of the problem. This could include extending campaign financing regulations to any activity directly for or against a candidate during an election cycle, no longer allowing for unlimited spending (see Part 1 for restrictions). Also vital is increasing requirements for transparency, so that a public record of every contribution is visible and known. Furthermore, relying solely on governments to take this step may be ineffective. Why would officials instigate removing the resources that enabled their rise to power?

This is where voters come in. No matter how much money a candidate accumulates, in the end, they rely on votes. A reform at the necessary scale entails significant pressure from voters for transformative change from within the government. By pushing to remove big money from campaigns and directing their votes towards candidates sharing this sentiment, voters actually possess immense power. After elections, constituents can continue to pressure elected officials to uphold their campaign promises, holding them accountable if they double back on their words. Using these drivers, there is the potential to radically shift the power dynamic towards the good of the many, and away from strictly the few.

So, what can you do to help? Reach out to your elected officials to voice your demand to take big money out of elections. Follow local movements working towards ensuring fair and free elections. Take advantage of the power you hold and vote. Encourage and support others to do the same and together we can spark the change we want to see in the world (see Three Spheres of Influence for Change).

Interested in learning more about PACs and Dark Money? Read the following sections that dive deeper into what they are and how they influence elections.

Super and Hybrid PACs

While corporations cannot contribute directly to federal campaigns in the United States, unregulated money can evade these laws. Some corporations can contribute unlimited funds through the use of independent expenditure-only committees a.k.a. Super PACs (political action committees) as well as some Hybrid PACs (see below).

Similar to the other types of PACs, Super PACs are committees formed with the purpose of influencing electoral outcomes (see Part 1 for Connected and Traditional Nonconnected PACs). Unlike Traditional PACs, Super PACs cannot make direct donations to parties or candidates. They instead put the money towards independent expenditures. “Independent expenditure” refers to activities such as advertisements or voting drivers, which must be done without coordination with the candidate or party they are supporting. This type of spending allows them to voice support for a particular candidate or party, but not actually directly contribute to campaigns. It is also not subject to strict federal regulations, meaning Super PACs can raise and spend unlimited funds, as long as the money does not go to a candidate’s financial account.

Hybrid PACs, in simplistic terms, are a mix between Traditional PACs and Super PACs, with different financial accounts taking on the specific regulations of whichever PAC that account mirrors. In other words, one account operates like a Super PAC with no direct contributions but unlimited spending, and the other like a Traditional PAC with direct contributions but limited spending.

Please Respect by Kristina D.C. Hoeppner, licensed under CC BY-SA 2.0

Dark Money

A unique challenge to campaign integrity is the presence of anonymous money. Money from anonymous sources (called “dark money”) is funnelled through various organizations, and can eventually fund partisan activities and influence decision-making. This complex funnelling obscures the trail of money, allowing some corporations to side-step federal restrictions and make political donations without public record.

In the United States, dark money is typically donated through charitable organizations (called "501c(4)s"), trade associations (called "501c(6)s"), or through shell companies (i.e. companies with little to no business operations). In the case of 501c(4)s, as long as political activity is not the “primary activity” and they do not coordinate directly with the candidates, they can legally engage in partisan activities for or against a candidate using money from anonymous donors. Shell companies were not required to disclose donor identities until very recently. While new legislation addresses transparency to combat dark money, it notably excludes several types of organizations.

Though not as well-documented in Canada, dark money also poses a challenge to Canadian electoral integrity. While political activities are closely regulated during election cycles, in between cycles, nonprofit organizations are not required to disclose a donor’s identity. Historically, dark money in Canada flowed through shell companies, which used to operate with few regulations. To combat this, a beneficiary registry for shell companies was introduced, which partially prevents anonymous donations by requiring donor registration. However, this registry only applies to the federal government and not provincial, thus likely only serving as a band-aid solution to a much bigger problem.

Not all 501c(4)s, 501c(6)s and shell companies participate in the facilitation of dark money. Many are perfectly legitimate and not involved with dark money, corruption, or environmental harm.