Saurav is Director of Federal Reform at CLC. He previously served as an enforcement attorney in the FEC’s Office of General Counsel and worked on the Tread Standard FEC matter discussed here.
The use of shell companies to hide the true sources of election spending is a growing problem that fundamentally undermines the transparency of elections. Voters have a right to know who is spending money to support candidates and influence elections (and thus who’s likely to have those candidates’ ears if they take office.)
That’s essential to an electoral system that serves voters, not wealthy special interests.
Transparency is also essential to electoral security and anti-corruption efforts. If the sources of campaign funding are hidden behind shell companies, we won’t be able to tell if foreign nationals are interfering in our elections or if lobbyists or government contractors are surreptitiously trading political contributions for favors, influence or taxpayer dollars.
That's why federal law prohibits making a political contribution through a straw donor. It’s illegal to give money to another person — or for that matter a company, trust or other entity — so they can contribute that money to a candidate or political committee in their own name.
The law is designed to ensure that the person actually providing the money to a candidate or political committee is identified in publicly disclosed campaign finance reports.
Yet the practice of funneling political contributions through shell companies is alive and well, despite public scrutiny and the efforts of watchdog organizations like Campaign Legal Center (CLC). One example from Florida illustrates how the practice has persisted.
In April 2015, during the early stages of the 2016 presidential election, a mysterious company named Tread Standard LLC was registered in Delaware.
Delaware is notorious for allowing anyone to register a company without disclosing even the most basic information to the public, such as the company’s owners, purpose or actual location (which does not have to be in Delaware).
Like thousands of other Delaware LLCs, Tread Standard disclosed as its "registered agent" a company that provides this service for a fee, which obscures any link between the LLC and its owners.
Less than two months later, Right to Rise USA, a super PAC that eventually spent millions of dollars to support Jeb Bush’s presidential candidacy, received a $150,000 political contribution in the name of this newly formed company. Tread Standard's contribution led to a formal complaint with the Federal Election Commission (FEC), the agency charged with enforcing federal campaign finance laws.
The complaint alleged that Tread Standard had no other apparent activity or discernible online presence, suggesting that there was no way for it to make a six-figure political contribution without someone transferring money to it for that purpose. The FEC ultimately deadlocked on the matter.
Straw donor schemes have been illegal for decades, but after the U.S. Supreme Court’s 2010 decision in Citizens United v. FEC, these schemes have more frequently used a shell company as a straw donor.
Because super PACs can accept corporate money, straw donations through an LLC or corporate entity can hide in plain sight among numerous other corporate contributions listed on a super PAC’s campaign finance disclosure reports.
Only closer scrutiny would reveal that in some cases, the named contributor (the LLC) was not the true source of the contribution.
The FEC, unfortunately, has often failed to provide that scrutiny. As many commentators have observed, in recent years the FEC has frequently deadlocked, as it did in the Tread Standard matter.
But the Commissioners who voted against investigating Tread Standard offered a caveat: For these kinds of contributions made after April 1, 2016 — the date the agency first issued a statement publicly addressing alleged straw donations made through an LLC — the Commissioners said that the FEC would examine “whether the funds used to make a contribution were intentionally funneled through a closely held corporation or corporate LLC for the purpose of making a contribution that evades” federal disclosure laws, thereby “making the individual, not the corporation or corporate LLC, the true source of the funds.”
But that caveat didn’t dissuade Tread Standard’s secret contributors from using it to continue concealing their political spending. Instead, they merely switched to targeting state and local elections in Florida, which are generally regulated by state authorities rather than the FEC.
On the day of the 2020 election, the unknown individuals behind Tread Standard contributed $25,000 to South Florida Residents First, a super PAC supporting Carlos Gimenez, then the mayor of Miami-Dade County running to represent south Florida in Congress.
They also subsequently gave $50,000 to the Republican Party of Florida, $110,000 to a state PAC supporting Florida Gov. Ron DeSantis, $100,000 to a PAC supporting Miami Mayor Francis Suarez and $20,000 to a PAC supporting Wilton Simpson, the president of the Florida Senate.
To date, Tread Standard has been used to make $480,000 in contributions targeting federal, state and local elections, and most of that money has been used to target Florida voters. Although Florida law also prohibits straw donor schemes, Florida authorities don’t appear to have investigated Tread Standard.
We don’t know where all this money came from, and, as FEC Commissioner Ellen Weintraub stated candidly, “we may never know.”
That’s a major problem for transparency. Voters have a right to know who's spending money to influence their vote, and it’s vital that wealthy special interests be unable to conceal their political spending. Ironically, when it comes to elections, the Sunshine State needs more sunshine.