Dark Money

by Jane Mayer

  What Pope brought to the panel that weekend was the chance for donors to help him turn North Carolina into a laboratory for REDMAP. Historically, North Carolina had been a pivotal swing state. It was both the face of the New South and the stomping ground of Jesse Helms’s race-baiting National Congressional Club. But Obama had carried it narrowly in 2008 and remained popular in 2010. Democrats also dominated the state legislature; the Republicans hadn’t controlled both houses of the North Carolina General Assembly for more than a hundred years. “Not since General Sherman,” the joke went. Winning a legislative majority in 2010 wouldn’t be easy. But no one was better situated than Pope to make it happen. He both was a master of arcane election law and had a fortune that few individuals could match. But like the Kochs and the DeVoses, he had had little luck over the years persuading voters to follow his lead. While he had served in the state legislature in North Carolina, he had been soundly defeated when he ran for lieutenant governor in 1992, his one bid for statewide office. “He was a terrible candidate,” recalled Bob Geary, a political reporter for the Indy Week, an alternative newspaper in Durham, who covered the race. “I’ve never seen him smile. He was very introverted and pedantic.” With the precision he was known for, Pope admitted, “I’m not a charismatic stump speaker.”

  Flipping the state would require political artistry and some guile. For this, the panel turned to its fourth member, Jim Ellis. The Kochs were notoriously picky about who received coveted invitations to their summits but didn’t seem to mind that he was under indictment at the time for violating campaign-finance regulations. Ellis, an old friend of Noble’s, was there to make predictions about the outcome of the 2010 races, but he had other specialties too.

  Ellis had a history of creating fake movements in support of unpopular corporations and causes. In the 1990s, he had headed a company called Ramhurst, which documents revealed to be a covert public relations arm of R. J. Reynolds, the giant tobacco company. Under his guidance, Ramhurst organized deceptively homegrown-looking “smokers’ rights” protests against proposed regulations and taxes on tobacco. In 1994 alone, R. J. Reynolds funneled $2.6 million to Ramhurst to deploy operatives who mobilized what they called “partisans” to stage protests against the Clinton health-care proposal, which would have imposed a stiff tax on cigarette sales. Anti-health-care rallies that year echoed with cries of “Go back to Russia!”

  If the outbursts bore a striking resemblance to those against Obama’s health-care proposal fifteen years later, it may be because the same political operatives were involved in both. Two of Ellis’s former top aides at Ramhurst, Doug Goodyear and Tom Synhorst, went on in 1996 to form DCI Group, the public relations firm that was helping Noble foment Tea Party protests against the Affordable Care Act.

  Ellis, meanwhile, had moved into the heart of Washington’s Republican money stream. He became what some news reports described as the “right-hand man” to Tom DeLay, the powerful House Republican leader from Texas who was infamous for his “K Street operation,” which serviced corporate lobbyists while shaking them down for campaign contributions. DeLay made him executive director of his political action committee. The duo’s high-handed approach resulted in both men getting indicted for campaign-finance violations in 2005. In time, DeLay’s conviction was overturned, but Ellis was less lucky. In 2012, he pleaded guilty to a single felony count and paid a fine. Undaunted, he airbrushed DeLay’s name from his corporate résumé and kept on. Asked about his career in manufacturing protests for pay, Ellis sounded untroubled. “The grass roots was designed to give people the right to exercise their voice,” he said with a shrug. As he addressed the big donors on the “opportunity of 2010,” Ellis’s legal status was uncertain, but his acquaintance with politics’ seamier side was beyond doubt.

  The donors left Palm Springs optimistic about 2010, inspired by Noble and the other members of his panel, but their elation over killing Obamacare soon proved premature. “The assumption in Washington and everywhere else was that when they got Scott Brown, it was the death knell for health care,” Axelrod recalled. “The guy who wouldn’t accept that was Obama. He said, ‘We’re going to do this underground and find a path.’ ”

  The Democrats eventually came up with a plan to get the bill through. The House would approve the version that had already passed the Senate with sixty votes in December. Then the Senate would use a parliamentary maneuver that would require only fifty-one votes to add modifications—circumventing the threat of a Republican filibuster. Despite widespread skepticism, by mid-March the tenacious House Speaker, Nancy Pelosi, was on the verge of success.

  As passage looked increasingly likely, Tea Party protests grew ever more ugly. Behind them, invisible to the public, was the Kochs’ money. Tim Phillips, the head of Americans for Prosperity, popped up as the organizer of a March 16 “Kill the Bill” protest on Capitol Hill, at which he accused the Democrats of “trying to cram this 2,000-page bill down the throat of the American people!” At a second Capitol Hill rally a few days later, protesters spat on a passing Democratic congressman; mocked Barney Frank, a gay representative from Massachusetts, in lisping catcalls as a “faggot”; and shouted racist epithets at three black congressmen, John Lewis, Emanuel Cleaver, and Jim Clyburn.

  Nonetheless, on March 21, amid mounting excitement, the House’s scoreboard registered 216 votes for Obama’s Affordable Care Act, the exact number needed to pass the legislation. Spontaneous chants of “Yes we can!” and “Yes we did!” on the House floor evoked election-night euphoria. That night, Obama and his staff held a rare celebration on the Truman Balcony of the White House, but the president suspected political payback wasn’t going to wait long. As he raised a champagne flute to his political director, Patrick Gaspard, he cracked, “You know they’re gonna kick our asses over this.”

  Downtown, in the Washington office space that Sean Noble shared with several other Koch operatives, Obama’s premonitions proved correct. Shortly after the House passed the Affordable Care Act, Noble and his partners studied the vote numbers closely. The glimmer of a new plan formed. They agreed that what they had to do now was to take the political organization they had built to fight the health-care plan and use it to take over the legislative body that had just given Obama his greatest victory.

  “We made a deliberate recommendation that you gotta focus on the House,” Noble later told National Review. “That’s where this bill passed. Pelosi broke so many arms of Democrats that had no business voting for that bill. Obamacare clearly was the watershed moment that provided the juice to deliver the majority back to the Republicans in the House.”

  Few knew it, but for all intents and purposes a midterm election like no other had begun. Noble spent most of April on the road, talking with Charles Koch, Rich Fink, Randy Kendrick, and others in the network to plan the operational details. David Koch was more of an afterthought, or as one participant put it, he was very much the younger brother. Charles, who was methodical and deliberate, pressed the planners closely. The Koch network had grown so big that it took weeks just to touch base with its many donors. All across the country, millionaire by millionaire, Noble made his pitch. They’ve had their vote, the argument went. Now it’s time for some accountability.

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  Fund-raising for Noble’s group, the Center to Protect Patient Rights, quadrupled by the end of 2010, to $61.8 million. As with all such “social welfare” groups, under the tax code the sources of its funding didn’t have to be publicly disclosed. The same held true for another mysterious Koch-tied group, something called the TC4 Trust, which raised an additional $42.7 million that year. About a third of this was steered back into the Center to Protect Patient Rights through a method disguised on disclosure forms. This brought Sean Noble’s kitty up to almost $75 million. Flush with cash, the Kochs finally had a political operation commensurate with their wealth.

  Previously, they had given relatively small amounts to 501(c)(4) “social welfare” groups. Before Citizens United,
these nonprofit corporations, like for-profit corporations, had been restricted from spending money for or against candidates in elections. Some skirted the law by running what they claimed were issue ads. But legal danger hovered. After Citizens United, though, the Kochtopus essentially sprouted a second set of tentacles. The first cluster was the think tanks, academic programs, legal centers, and issue advocacy organizations that Fink had described as the ideological production line. These ventures were defined for legal purposes as charities and were still prohibited from participating in politics. Donations to them were tax deductible. Added to this in 2010 was a second cluster, a dizzying maze of “social welfare” groups that disbursed hidden money into the midterm elections.

  When Congress created the legal framework for “social welfare” groups almost a century earlier, it never anticipated that they would become a means by which the rich would hide their political spending. In fact, to qualify as tax-exempt, such groups had to certify that they would be “operated exclusively for the promotion of social welfare.” The IRS later loosened the guidelines, though, allowing them to engage marginally in politics, so long as this wasn’t their “primary” purpose. Lawyers soon stretched the loophole to absurd lengths. They argued, for instance, that if a group spent 49 percent of its funds on politics, it complied with the law because it still wasn’t “primarily” engaged in politics. They also argued that one such group could claim no political spending if it gave to another such group, even if the latter spent the funds on politics. Experts likened the setup to Russian nesting dolls. For example, at the end of 2010, the Center to Protect Patient Rights reported on its tax return that it spent no money on politics. Yet it granted $103 million to other conservative groups, most of which were actively engaged in the midterm elections.

  The Kochs were part of a national explosion of dark money. In 2006, only 2 percent of “outside” political spending came from “social welfare” groups that hid their donors. In 2010, this number rose to 40 percent, masking hundreds of millions of dollars. Campaign-finance reformers were apoplectic but powerless. “The political players who are soliciting these funds and are benefiting from the expenditure of these funds will know where the money came from,” argued Paul S. Ryan, senior counsel at the liberal Campaign Legal Center. “The only ones in the dark will be American voters.”

  Managing all of this new, dark money was a challenge. In April, as campaign professionals were trying to figure out how to take maximum advantage of the Citizens United decision, Gillespie invited Republican operatives to what he described in an e-mail as “an informal discussion of the 2010 landscape.” The unusual meeting was to take place in Karl Rove’s living room on Weaver Terrace, a well-off enclave of Northwest Washington. Some joked that they attended the first meeting of what came to be known as the Weaver Terrace Group simply so they could tell friends they had been inside the home of the storied political guru. What transpired was a war council in which the twenty assembled chieftains coordinated their plans of action and divided up their territory. Kenneth Vogel, in Big Money, describes it as “the birthplace of a new Republican Party—one steered by just a handful of unelected operatives who answered only to the richest activists who funded them.”

  Two organizations soon emerged as virtual private banks run by these operatives. The first, American Crossroads and its 501(c)(4) wing, Crossroads GPS, was initiated by Rove. For funds, it drew heavily on his network of Texas tycoons. The second was Noble’s Center to Protect Patient Rights, which began to fill with donations from the Koch donor summits. Working closely with both was the U.S. Chamber of Commerce, which spent millions of dollars more in undisclosed contributions from businesses, much of it aimed at defeating Obama’s health-care act. The chamber sent top officials to both the Weaver Terrace meetings and the Koch donor summits.

  Each of the players’ roles was carefully differentiated. Noble focused on House races, leaving the Senate to Rove’s group. In accordance with his REDMAP strategy, Gillespie continued to concentrate on governorships and state legislatures. To hide their hands, the operatives steered the funds to a plethora of obscure, smaller groups. This also helped satisfy the legal requirement that no single public welfare group spend more than half of its funds on elections. Soon, to the unschooled eye, a rash of spontaneous attacks on Democrats appeared to be breaking out all across the country. In reality, the effort was so centrally coordinated, as one participant put it, “there wasn’t one race in which there were multiple groups airing ads at the same time.”

  As Noble explained his methodology later to Eliana Johnson, Washington editor for the conservative publication National Review, he started by producing an Excel spreadsheet. It listed 64 Democratic congressmen “in order of the likelihood of their defeat.” By the end of June, he said, the list of targets grew to 88, and by August, 105. He assigned each congressional district a “win potential” of between 1 and 5, and each candidate a score of 1 to 40, “based on the voting record of each member and the composition of the district, among other things.” Eventually, he said, he sorted the 105 targeted candidates into “three tiers, based on the likelihood of a GOP victory.”

  He then disbursed the Koch network’s money in accordance with what he regarded as each candidate’s odds of winning. Rather than disclose that his organization was paying for the ads, he directed the money through an array of different front groups. For instance, Noble explained to National Review that he chose a group called the 60 Plus Association, which was a right-wing version of the senior citizens’ lobby AARP, to air attack ads on Democrats in “Arizona’s First Congressional District, Florida’s Second and Twenty-Fourth, Indiana’s Second, Minnesota’s Eighth, New York’s Twentieth, Ohio’s Sixteenth, Pennsylvania’s Third, and Wisconsin’s Third and Eighth Congressional Districts.” Meanwhile, he said, he used another group, Americans for Job Security, the same “business league” he had deployed in the Scott Brown race, to air ads in “New York’s Twenty-Fourth, North Carolina’s Second and Eighth, Ohio’s Eighteenth, and Virginia’s Ninth Congressional Districts.” He chose the other shadow group that he had used in the Brown race, the Iowa-based American Future Fund, to air attack ads in Alabama’s Second, Colorado’s Seventh, New Mexico’s First, and Washington’s Second Congressional Districts.

  The American Future Fund, like Noble’s own nonprofit group, was a 501(c)(4) “social welfare” group, meaning it could hide the identity of its donors and was not supposed to be primarily engaged in electoral politics. Its stated mission was “to provide Americans with a conservative and free market viewpoint.” In reality, though, it appeared to be little more than a front group acting as a screen for conservative political money. Efforts to track down its office led only to a post office box in Iowa. Founded in 2008 by a Republican operative in the state, it received seed money from one of the country’s largest ethanol producers, Bruce Rastetter, but tax records showed that 87 percent of its funds in 2009 and approximately half its funds in 2010 came from just one source: Sean Noble’s Center to Protect Patient Rights.

  Similarly, Americans for Job Security, a 501(c)(6) “business league,” or “trade association,” was also entitled under the tax code to hide its funders, who were classified as “members.” The organization had a physical office in Alexandria, Virginia, but the premises were almost empty. It had only one employee, a twenty-five-year-old Republican campaign aide who was acquainted with Sean Noble. Founded in 1997 with a million-dollar donation from the insurance industry, the organization had been accused of being nothing more than “a sham front group” by Public Citizen, a liberal group that favored tighter campaign-finance regulations. State officials in Alaska, where Americans for Job Security had waged an earlier campaign, concluded that the group “has no purpose other than to cover various money trails all over the country.” The state charged the organization with violating Alaska’s fair election rules. The group paid a $20,000 settlement but admitted no guilt. But in 2010, with Noble’s help, its business was boo
ming. Noble’s center would steer this group $4.8 million that year.

  In addition, Noble directed millions of dollars into other races through those and other groups, including the antitax activist Grover Norquist’s organization, Americans for Tax Reform; Howard Rich’s group, Americans for Limited Government; and the Kochs’ flagship organization, Americans for Prosperity. The budget for Americans for Prosperity soared accordingly. In 2004, the budget for the Kochs’ flagship group and its foundation was $2 million. By 2008, it had grown to $15.2 million. And in 2010, it reached $40 million, engorged with funds from the Center to Protect Patient Rights.

  In June, Noble tested out the system, using Americans for Prosperity to launch an assault on Tom Perriello, the freshman Democratic congressman from Charlottesville, Virginia, who had defied the fossil fuel interests over the cap-and-trade bill. Noble wanted to start unusually early in order to widen the field of Democrats he could weaken. In an exuberant moment, Perriello had called the climate change fight “a gift,” proclaiming, “For the first time in a generation, we have the chance to redefine our energy economy.” Instead, it was he who got redefined that summer by a barrage of negative ads paid for not by his opponent but by unrecognizable outsiders.

  Perriello was an outspoken liberal in a swing district, so an obvious target. But soon mystery money was tarring Rick Boucher, too, a conservative Democratic congressman whose rural Virginia district encompassed Saltville, the factory town that the Olin Corporation had turned into a toxic waste dump. Boucher had represented the district for twenty-eight years in the House and eight more before that in the state senate. A Virginia lawyer and strong ally of business interests, he had been crucial to passage of the cap-and-trade bill in the House, drafting much of the measure and then winning support for it from a number of huge energy firms, including Duke Energy. He had given away so many goodies to the coal industry while negotiating the bill that many environmentalists had been disgusted. Nonetheless, the fact that he had supported the bill at all had angered conservative extremists, including several Virginia coal barons active in funding the Koch network. He was exactly the kind of centrist that big, polarized political money was rendering extinct.