Charles Koch’s Campaign to Make Dark Money Even Darker

Last year, the Supreme Court handed a major victory to Charles Koch in his long-running quest to make political dark money even darker. The Court ruled in Americans for Prosperity Foundation v. Bonta that California cannot require nonprofits to disclose the same donor information that other groups provide to the Internal Revenue Service (IRS). 

Winning the case was a high priority for Koch. IRS filings from his organization Americans for Prosperity Foundation confirm that the group paid $10 million to the law firm Quinn Emanuel Urquhart & Sullivan, LLP, which litigated the lawsuit from 2015 through 2021.

As part of a decades-long war against donor disclosure requirements, Koch's litigation established a precedent that will likely be used to hide donor identities from state governments, potentially undermining accountability for bribery, fraud, and corruption in politics and policymaking.

The public was already in the dark when it came to nonprofit donors. Groups like Americans for Prosperity (AFP) and its sister group, the AFP Foundation, only disclose donors privately to the IRS and to certain state governments. 

In July 2021, the Supreme Court ruled 6–3 in favor of Koch's AFP Foundation. The three most recently confirmed justices—Neil Gorsuch, Brett Kavanaugh, and Amy Coney Barrett—each benefited from millions of dollars in spending by Koch's AFP during their respective Senate confirmation hearings. David Koch personally presided over this effort to shape the Court until poor health forced him to pull back in 2018, a year before he died.

Justice Barrett did not respond to a letter from U.S. Senators asking her to recuse herself from AFP Foundation v. Bonta due to the conflict of interest posed by AFP's support for her confirmation. 

Koch Coalition Behind the Suit

The AFP Foundation and the Thomas More Law Center initiated the litigation in 2015 against Kamala Harris, California's attorney general at the time. The effort later merged into a single lawsuit against the state's subsequent AGs, Xavier Becerra and Rob Bonta.

As summarized by Brendan Quinn of the Campaign Legal Center, which worked to oppose Koch's lawsuit:

Americans for Prosperity Foundation and the Thomas More Law Center failed to comply with California state law by refusing to provide a list of their largest donors—the 'Schedule B' from federal tax forms—to the Attorney General's (AG) office on a nonpublic basis.

Schedule B of the IRS Form 990 typically only requires donors to be listed in filings to the government—and not the public—if they provide at least 2% of an organization's funding in a single year. States like California have laws requiring similar non-public disclosure of top nonprofit donors.

Given annual revenues averaging more than $20 million over the past decade, the AFP Foundation was only required to disclose donations over $400,000 on its Schedule B filing.

But in its public statements, AFP portrayed the case as a way to protect the privacy of everyday donors, implying the general public would be at risk of political retaliation for donating to charities if California’s requirement was upheld.

Similar messages were broadcast by People United for Privacy, a project of the Koch-funded State Policy Network (SPN) that launched in 2016. The group sponsored advertisements claiming that "your legislators and neighbors" would retaliate against small-scale charitable donors and spread other deceptive messages, implying that anyone could access an organization's Schedule B information. 

AFP and SPN rallied support for the lawsuit from scores of high-profile charities that are not frequent allies, including the American Civil Liberties Union (ACLU), the NAACP, the Human Rights Campaign, and the Southern Poverty Law Center.

In addition to AFP and the AFP Foundation, other groups financed by Charles Koch supported the lawsuit:

• The Cato Institute—founded and heavily funded by Koch—submitted an amicus brief with seven other organizations to support the AFP Foundation. The Koch-funded Reason Foundation, Mountain States Legal Foundation, and Foundation for Individual Rights in Education all signed the brief.
  
• The Koch-funded Philanthropy Roundtable filed two amicus briefs supporting the plaintiffs.

• A Wall Street Journal op-ed written by Naomi Schaffer-Riley, who is affiliated with the Koch-funded American Enterprise Institute and Independent Women's Forum, presented the lawsuit as an antidote to "woke philanthropy" and "cancel culture."

• DonorsTrust, the Federalist Society, the Heritage Foundation, and the Competitive Enterprise Institute all helped to amplify the case.
  
• SPN, which includes most of the organizations listed above as members, celebrated the July 2021 ruling.

• Several Koch-funded blogs and magazines publicized the lawsuit, including the Daily Caller, RealClear Network, Center Square, National Review, and American Spectator.

Koch's Troubled History with the IRS and California

Charles Koch's lawsuit appears to be at least partially reactive. Several of his affiliates have faced government fines and investigations for running afoul of nonprofit laws.

Perhaps most prominently, the state of California fined one of Charles Koch's organizations $1 million in 2013 after it failed to disclose money funneled into a state ballot measure. Three years later, Citizens for Responsibility and Ethics in Washington (CREW) filed an IRS complaint against Koch-controlled groups, including the same group that was fined by California. CREW submitted a related complaint to the Federal Election Commission (FEC), resulting in fines that totaled $233,000.

Reform groups have claimed that the American Legislative Exchange Council (ALEC), which is also a member of SPN, has been subverting lobbying and campaign finance laws for more than a decade. This has led to several IRS complaints, starting with one from Common Cause in 2012 and continuing through the most recent complaint filed by the Center for Media and Democracy (CMD) in 2021. Koch Industries wields great influence within ALEC and has long held a seat on its corporate board. 

Certain Koch-funded groups have reportedly faced IRS investigations, including the Buckeye Institute and the Commonwealth Foundation, which were both audited by the IRS in 2013. Both organizations are members of SPN and have been financed by Koch-controlled foundations.

Given this history, the 2021 Supreme Court win represents the most significant progress in Charles Koch's strategic attacks on nonprofit disclosure laws in the past few decades.

Koch's Long-Term Strategy

Charles Koch has long sought to abolish the IRS, the FEC, and many other federal agencies. His distaste for the IRS is reflected in his ongoing attempts to allow corporations and wealthy individuals to spend unlimited anonymous money on political campaigns and groups influencing policy. This special privilege stands in contrast with hundreds of millions of citizens who are expected to disclose more modest political and charitable contributions to the government. 

Koch has been an important financier and collaborator in the effort to shield wealthy political donors from public scrutiny since the 1970s. He helped subsidize the important Buckley v. Valeo Supreme Court ruling through his financing of the Libertarian Party, as CMD Board President Lisa Graves has documented.

The road from Buckley v. Valeo in 1976 to Citizens United v. FEC in 2010 involved several key stepping stone rulings that have steadily eroded limitations on corporate influence in politics. Last year's AFP Foundation ruling has extended this troubling trend, undermining the Supreme Court's justification for the Citizens United ruling, as Ian Millhiser reported for Vox:

In its infamous decision in Citizens United v. FEC (2010), the Supreme Court tossed a bone to lawmakers seeking to regulate money in politics. With a few exceptions, Citizens United stripped the government of its power to limit the amount of spending on elections, especially by corporations. But the decision also gave the Court’s blessing to nearly all laws requiring campaigns and political organizations to disclose their donors. 

[...]

On Thursday [July 1, 2021], the Court handed down a 6–3 decision in Americans for Prosperity Foundation v. Bonta, which flips Citizens United’s approach to disclosure laws on its head.

Before Thursday, the Court treated most disclosure laws as valid, and it typically only allowed plaintiffs who objected to such a law to seek an exemption from it—not to seek a court order striking down the law altogether. After Americans for Prosperity, there is now a presumption that all such laws are unconstitutional…

In addition to his litigation against California, Charles Koch challenged political transparency laws in at least one other state. 

In 2019, AFP hired the same law firm representing the AFP Foundation against California, Quinn Emanuel, to sue the state of New Jersey over a new law requiring increased donor transparency for 501(c)(4) and 527-category nonprofits. AFP disclosed payments of almost $1.4 million to Quinn Emanuel in 2019. The New Jersey law was nullified in 2020, after the ACLU also filed a lawsuit complementing AFP’s own effort.

Complementary Political Attacks on IRS Donor Requirements 

Efforts to increase the political privileges of corporate billionaires like Charles Koch are unfolding in other arenas, complementing the AFP Foundation lawsuit.

In 2020, the Trump administration ordered the IRS to stop requiring donor disclosure for nonprofits. Given the influence of Charles Koch's donor network on that administration, it is likely this was among his many priorities during the Trump presidency. The Biden administration has not rescinded this rule, despite requests from dozens of Senate Democrats.

In Congress, Senator Mike Braun (R-IN) attempted to codify Trump's rule with a 2021 bill, but it did not advance. Braun received $10,000 from the Koch Industries PAC in 2018. AFP spent over $2 million on advertisements against Braun's opponent, former Senator Joe Donnelly (D-IN), during the 2018 election. AFP has continued to support and promote Braun's political career, including by hosting events featuring the senator.

Many states have become battlegrounds in the legislative strategy to expand the power of political dark money, advanced by organizations that are affiliated with SPN. In 2017, ALEC adopted a model Resolution in Support of Nonprofit Donor Privacy, then published a legislative toolkit and other materials to help SPN affiliates and Republican legislators implement the policy state by state.

The Philanthropy Roundtable has also helped facilitate the state legislative strategy, contextualizing it alongside the AFP Foundation v. Bonta litigation. The Roundtable is financed by Koch and most of the other conservative corporate foundations that fund the SPN and its dozens of member organizations.  

At least 11 states have passed laws to limit donor disclosure since 2018. This trend has been tracked by the Campaign Legal Center, the Nonprofit Times, and Ballotpedia (which is financed by the Bradley Foundation, a common donor to many groups advocating for these laws):

• Arizona, 2018 HB 2153
• Mississippi, 2019 HB 1205
• West Virginia, 2020 SB 16 substitute
• Oklahoma, 2020 HB 3613
• South Dakota, 2021 HB 1079
• Arkansas, 2021 SB 535
• Iowa, 2021 HF 309
• Tennessee, 2021 SB 1608 / HB0159
• Virginia, 2022 HB 970
• Kansas, 2022 HB 2109
• Missouri, 2022 HB 2400

This list excludes states that failed to pass bills. It also excludes states that vetoed bills, like North Carolina, where Democratic Governor Roy Cooper rejected a dark money donor bill that was approved by the legislature in August 2021. 

With money continuing to flow in unprecedented amounts to shield the identity of donors, this strategy will likely continue until the ultimate goal is reached: blocking state and federal governments from reviewing nonprofit donors who participate in politics and policy influence. 

Indeed, this month the Buckeye Institute teamed up with the Institute for Free Speech (IFS) to file another lawsuit—this one against IRS donor disclosure efforts for nonprofits. Both Buckeye and IFS are funded by Koch foundations.

While some politicians have championed donor transparency and limits to political spending by corporations and the country's wealthiest individuals, their efforts face an uphill battle. After all, many elected officials depend on dark money, and they're committed to protecting the anonymity of their donors.