Dark Money: What it is, How it Works, Examples

What Is Dark Money?

Dark money refers to political contributions received from donors whose identities are not disclosed. Dark money can have a significant influence on elections, particularly when used by “independent expenditure” group—commonly referred to as Super PACs—that are legally permitted to receive and spend an unlimited amount of contributions.

Understanding Dark Money

Transparency has become a standard for many organizations and endeavors affecting the public, including funding elections for public office. Both federal and state governments have enacted regulatory regimes intended to make elections more open and honest by requiring disclosure of the identities of contributors to political candidates and parties. When the source of such political funding is unknown—because disclosure rules do not apply, are avoided through “loopholes,” or are deliberately evaded—the funds from the unidentified contributors are characterized as “dark money.”

Over the last decade, election expenditures, including dark money spending, have increased enormously in the wake of the Supreme Court decision in Citizens United v. Federal Election Commission. In that 2010 decision, the Court concluded that a statute prohibiting the use of corporate money in elections—a ban originally enacted in 1909 and subsequently amended and expanded—was unconstitutional. Since that ruling, corporate contributions have added enormously to election spending while information identifying the contributors has become less available.

Funding Vehicles for Political Contributions

Political candidates and parties rely on contributions and expenditures by third parties to financially support election campaigns. A variety of political committees and organizations—subject to different degrees of legal regulations—are authorized to collect and expend contributions.

Three principal types of funding mechanisms or organizations are involved in elections: traditional political action committees (PACS); social welfare organizations, often called “(c)(4)s,” a reference to their designation section in the tax code; and Super PACs. Traditional PACs are transparent about their contributors and do not attract dark money. Social welfare organizations comprise the category that is most frequently identified as a dark money source. Super PACs, although subject to contributor disclosure requirements, increasingly receive funds from “shell corporations” that facilitate anonymity for their owners’ dark money contributions.

Traditional PACs

PACS can contribute funds directly to candidates and campaign committees. They are the most transparent funding source and are not associated with dark money. Many corporate PACs—for example, Comcast, Corp. and AT&T, Inc.—bear the company’s name. They must file reports that include the identity and contribution amount for all donors of $200 or more with the Federal Election Commission (FEC).

PACs can receive contributions of up to $5,000 per year from individual donors, often corporate employees or union members, and can give up to $5,000 to a candidate and $15,000 to a party committee per election. PACs also can make unlimited expenditures independent of a party. In the 2020 elections, PACs made approximately 5% of total election expenditures of $14 billion.

 Social Welfare Organizations

For a long period, dark money was associated primarily with social welfare organizations, which are regulated by the Internal Revenue Service (IRS). Social welfare organizations are not required to disclose their contributors. Accordingly, donors to these organizations enjoy anonymity. 

Social welfare organizations are required to engage primarily in promoting the common good and general welfare. These organizations generally have taken the position that so long as involvement in elections is not their “primary activity,” they can contribute to campaigns for, or in opposition to, political candidates.

The requirement that social welfare organizations be primarily nonpolitical may be too great a burden for some donors seeking anonymity. This operational rule may account for these organizations' contributions declining to 4% of total 2020 spending and the increase in Super PAC funding, discussed below.

Nonetheless, this interpretation of the social welfare organization regulation with respect to a "primary purpose" has resulted in significant spending in elections by anonymous donors. Often characterized as a "loophole," this position has aroused criticism of IRS enforcement of the social welfare regulations. The IRS' own watchdog, the Treasury Inspector General for Tax Administration, issued an audit report in January 2020 asserting that the IRS failed to identify 9,774 politically active nonprofit organizations. According to the report, these organizations also failed to register as "social welfare" organizations and should be assessed millions of dollars in penalties and fees.

The political orientation and even the names of donors of some social welfare organizations are publicly available. Tax-exempt charitable organizations that have associated "(c)(4)s" usually include the charity's name in that of the social welfare organization, such as NRDC Action Fund, Inc., the NAACP National Voter Fund, and NARAL Pro-Choice America. Other social welfare organizations have established public identities, such as Americans for Prosperity and the Club for Growth.

While social welfare organizations are not required to disclose their donors, some may occasionally identify contributors. The Lincoln Project and the Club for Growth, among others, indicate that they disclose all donors. However, other groups—for example, the American Liberty Fund—reportedly do not disclose any.

Because many social welfare organizations involved in elections collect substantial funds and make expenditures that are not coordinated with candidates or parties, they often are referred to as "Super PACs." However, due to their unique structure and "(c)(4)" status, social welfare organizations are discussed separately from Super PACs, which are organized under section 527 of the tax code.

Super PACs

Super PACs can collect unlimited contributions and spend unlimited funds. But, they cannot contribute directly to candidates or political parties and must not “coordinate” their expenditures with candidates or parties. Super PACs’ independent expenditures now account for the largest share of independent political funding. In the 2020 election, it is estimated that Super PACs spent 63% of the $2.6 billion of independent expenditures made by political parties, social welfare organizations, and Super PACs.

Many Super PACs provide some measure of transparency concerning their purpose and contributors. The political orientation of Super PACs is often evident from their names. For example, ActBlue supports Democrats, and GOPAC has long supported Republicans. Super PACs are required to include the names of their contributors and their respective contribution amounts in FEC filings. However, these filings do not always reveal the actual source of their funds since some contributions are made through “shell corporations” whose owners are not disclosed.

Limited Liability Companies (LLCs)

A growing number of contributors are making their political contributions to Super PACs through limited liability companies (LLCs). Many spokespeople and advocates of these companies contend that their ultimate sources need not be disclosed. However, the practice of using LLCs to provide donor anonymity for U.S. citizens has been controversial. For some, an even greater concern is the possibility that foreign contributions—wholly barred by law—might be directed to American elections through such shell companies. As such, Super PACS that have received contributions from LLCs and other shell entities constitute another source of “dark money.”

Legislative Action to Bar Dark Money

Legislative battles have continued to play out between dark-money opponents and organizations supporting the non-disclosure of donor information.

For example, California previously had a state law in place requiring not-for-profit organizations to disclose their donors when funds were raised for political purposes. However, in 2021, the Supreme Court struck down that law, ruling that the requirement of donor lists from nonprofits violated the donors' First Amendment rights. The ruling was a setback for those advocating for an end to dark money funding for political groups.

To date, legislation issuing an all-out ban on dark money has failed to gain traction.

Beyond Elections: Lobbying and Lawsuits

Increasingly, political figures and legal scholars are advocating for greater transparency around expenditures that influence legislative actions and that pursue strategic litigation to obtain court rulings, including Supreme Court decisions, favorable to their funders.

Transparency Issues

Although legislative and administrative lobbying is subject to extensive federal and state disclosure requirements, filings may be made in the names of coalitions or associations that effectively shield the identities of actual funders. A listing for "Citizens for Healthcare,” for instance, might appear to be a grassroots effort, but in fact, it may be funded by a single wealthy individual.

In 2020, The New York Times reported that an organization named “Texans for Natural Gas,” which had self-described as an grassroots organization, was in fact created and run by a multinational business and consulting firm.

Possible Supreme Court Influence

Sen. Sheldon Whitehouse, Democrat from Rhode Island, highlighted concerns about strategic, or special interest, litigation during the Senate Judiciary Committee hearings on the Supreme Court nomination of Amy Coney Barrett.

Previously having written about this subject for the Harvard Journal on Legislation, he has argued that targeted litigation sponsored by nonprofit organizations with overlapping directors, officers, and funding sources has resulted in activist judicial decisions favorable to corporate and anti-regulatory interests.

The Bottom Line

Dark Money refers to political contributions from donors whose identities are obscured or unknown. This often occurs when traditional disclosure rules are evaded, such as through shell company contributions to Super PACs or anonymous donations through social welfare nonprofits. Both avenues are a contrast to traditional PACs, which are required to file reports disclosing the identity of all donors. There have been efforts to curb or ban dark money spending in elections, but dark money spending remains at high levels, according to oversight groups.