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“Groups Hide in Greater Darkness”: Foreign Nationals Using Charity Backdoor to Influence American Elections

December 15, 2023 — Blog    — Oversight    — Press Releases   

Four Key Moments from Ways & Means Oversight Subcommittee Hearing on Foreign Influence Through Tax-Exempt Charities on America’s Political Process

WASHINGTON, D.C. – At a hearing of the Ways and Means Subcommittee on Oversight, members focused on the total lack of transparency surrounding how money from foreign nationals can influence the American political system when funneled through 501(c)(3) and 501(c)(4) organizations. Currently, these nonprofit organizations are allowed to move millions of dollars from foreign nationals through the political system without a trace. One Swiss billionaire alone donated over $200 million to political groups that the New York Times found “helped Democrats in their efforts to win the White House and control of Congress.” These organizations include parts of the Arabella Advisors network – a for-profit philanthropy and nonprofit management consulting company that has been described by the New York Times as a leading vehicle for “dark money” on the left.

However, it is not just foreign nationals potentially taking advantage of loopholes in the tax code to manipulate the political process. In 2020, Mark Zuckerburg donated $328 million to 501(c)(3) charities that subsequently funded grants to state and local election offices in a clearly partisan manner. One analysis found the large majority of grants from one of the charities, known as “Zuckerbucks,” went to counties that voted for then-candidate Joe Biden.

“Single Most Effective Tactic”: Foreign Money Could Loom Large in America’s Political System via Tax-Exempt Organizations

Several witnesses shared how money from foreign nationals given to tax-exempt charities influenced the 2020 election. However, as one witness shared with Ways and Means Chairman Jason Smith (MO-08), foreign money could continue to play a significant role in American politics, particularly as U.S. nonprofits do not have to disclose contributions they receive from foreign nationals. One Democrat super PAC even praised donations to these groups as “the single most effective tactic for ensuring Democratic victories.”

Chairman Smith: “During this Committee’s investigation into 501(c) tax-exempt organizations, we came upon a quote from Mind the Gap, a Democrat super PAC, that stated in a 2020 memo to donors, in part, ‘the single most effective tactic for ensuring Democrat victories – 501(c)(3) voter registration.’ Mr. Walter, do you know if this group continues to hold this view and communicate this to their donors?”

Scott Walter, “I do, thanks to reporter Teddy Schleifer at Puck News. I can tell you that they have a 2024 cycle memo and let me quote a sentence, ‘Our strategy early in the 2024 presidential race will be to massively scale high-performing voter registration and mobilization programs.’ The only grantee they recommend is the Voter Registration Project, a 501(c)(3).”

Prominent “Vehicle for Liberal Dark Money” Group Taking Advantage of Foreign Donation Loophole 

Right now, 501(c)(3) and 501(c)(4) organizations engaging in issue advocacy or political activity do not have to list foreign donors on their required IRS Form 990. Several groups are taking advantage of this loophole, including some that are part of the Arabella Advisors network of organizations. Oversight Subcommittee Chairman David Schweikert (AZ-01)questioned how changing Form 990 could provide more transparency. 

Rep. Schweikert: “Would a change in the 990 forms make at least understanding what’s really going on out there in the world easier for the researchers?”

Scott Walter, political financing expert: The single obvious thing would be in the case of Arabella Advisors: They have literally hundreds of fiscally-sponsored groups, and nothing in the 990 requires them to say anything about those particular groups, which lets those groups hide in greater darkness than a regular nonprofit…”

Private Donors Are Using the Tax Code to Impact Public Elections

During the 2020 election, so-called “Zuckerbucks” largely went to Democrat-run cities and counties in swing states as one witness testified. The Meta billionaire used two 501(c)(3) charities to donate the money, potentially abusing the tax code by appearing to favor one political party over another. Rep. Claudia Tenney (NY-24), co-chair of the Election Integrity Caucus, highlighted how her proposed legislation, H.R. 1725 – End Zuckerbucks Act, would prohibit state and local election offices from accepting private donations.

Rep. Tenney: “I offered the End Zuckerbucks Act, and thankfully that lead was taken by a number of states around the country, to end Zuckerbucks. Mr. Walter, thank you so much for continuing to fight the election integrity issue. Thank you for the shout out, Mr. Whitson, for the Promoting Free and Fair Elections Act to get rid of the Biden executive order that is really electioneering and an attempt to, in a partisan way, use the government in place of what Zuckerbucks was out to do – using dark money. The darkest of dark money is exactly as you cited, Mr. Walter, this newfound way to use 501(c)(4)s into 501(c)(3)s and to hide the fact that these are partisan. Zuckerbucks was a perfect example of how partisan these were.”

Frightening Hypothetical: Foreign Adversary Could Manipulate U.S. Elections Without Public Knowledge

In response to a series of hypotheticals from Rep. Michelle Fischbach (MN-07) about concerns of a foreign adversary interfering in U.S. elections, one witness acknowledged that a foreign adversary could abuse the lack of information on foreign donors to 501(c)(3) organizations to ultimately participate in elections. Specifically, this foreign adversary could donate to a 501(c)(3) that subsequently spends millions on issue campaigns, supports get-out-the-vote efforts for a preferred candidate, and sends money to a super PAC through a 501(c)(4) to air political TV ads.

Rep. Fischbach: “If a foreign national from a country that is an adversary of the United States wanted to donate millions of dollars to a 501(c)(3), is there any reporting requirement that would let Americans know that American adversaries are funding a nonprofit?”

Philip Hackney, nonprofit tax law professor: “The government itself would get names and addresses on the Schedule B because the names and addresses have not yet been removed…But right now, the government has that information, but the public does not. So the public does not have that information.”

Fischbach: “Could this nonprofit then spend millions of dollars on issue advocacy campaigns to support policies that reduce, let’s say American energy independence, or any other issue they may come up with?”

Hackney: “…You would not be able to see it.

Fischbach: “Could that same nonprofit funded by American adversaries use the funds to conduct get-out-the-vote activities in targeted or not-targeted places that may support a certain candidate?”

Hackney: A charitable organization is able to carry out get-out-the-vote efforts, and there is nothing that stops that from taking place.

Fischbach: “Then could that same nonprofit also send money to a 501(c)(4) organization that’s able to donate to a Super PAC, which can run television?”

Hackney: “The Supreme Court itself…found that the limitation on lobbying for charities satisfied the First Amendment challenge because the 501(c)(3) can give money to a 501(c)(4) and in turn give it to a PAC. Under First Amendment principles, we have long accepted this as an aspect, but yes, you’re correct that they can do that.