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Supreme Court’s nonprofit donor disclosure ruling may have ‘dark money’ consequences

The Supreme Court ruled Thursday that California’s nonprofit donor disclosure requirement is unconstitutional since it could chill the First Amendment rights of donors who might be deterred from contributing if their names became public. However, some argue the ruling may open the floodgates to even more “dark money” in politics after a record-breaking $1 billion from untraceable sources was spent during the 2020 election.

The opinion, decided 6-3 along ideological lines, struck down California’s rule requiring nonprofits—from charities to politically-active dark money groups—to provide state government officials with donors’ identities and addresses. The case was brought by Americans for Prosperity Foundation, a charitable arm of the conservative Koch network’s flagship politically-active nonprofit, and the Thomas More Law Center, a conservative nonprofit public interest law firm.

California’s law required nonprofits to provide state officials with their IRS Form 990 Schedule B, where nonprofits generally disclose the names and addresses of major donors along with the amounts of donations. The government claimed donors’ identities were used to detect fraud or self-dealing, but the plaintiffs claimed the state failed to sufficiently secure the information, which resulted in leaks.

Nonprofits were already not legally required to make the names and addresses of donors available to the public or, after a rule change under the Trump administration, even to the IRS.

However, 501(c) nonprofits must still disclose the amounts of significant donations to the IRS in their Schedule B and share them with the public upon request. The IRS also requires nonprofits to keep records of the other information including names and addresses.

Because the IRS requires nonprofits to disclose some information, the Court’s ruling won’t imminently change how much information is available to the public.

While it may not have an immediate effect on most members of the public, the Supreme Court’s ruling will enable politically active nonprofits to continue hiding their donors.

The 2020 election attracted more than $1 billion in total dark money and contributions, and only a small portion of that was reported as spending to the Federal Election Commission.

The vast majority of that dark money was channeled through donations from opaque political nonprofits and shell companies to outside groups such as super PACs, which are legally required to disclose their donors but can disclose the dark money groups rather than name of the ultimate source of funding.

Dark money groups also spent considerable sums on “issue ads” targeting candidates online and on the airwaves during the election—hundreds of millions of dollars that was not disclosed to the Federal Election Commission due to disclosure loopholes.

Dark money has also boosted various causes across the ideological spectrum. Because there is no single federal government entity overseeing disclosures, most of this spending goes unchecked. Dark money groups have been some of the main sponsors fighting donor disclosure rules across the country. And the Supreme Court itself has been a key target of dark money spending.

Chief Justice John Roberts’ majority opinion argued a disclosure law must be “narrowly tailored” to an important government interest in order to satisfy the “exacting scrutiny” standard. In this case, Roberts concluded that the standard was not met.

“While exacting scrutiny does not require that disclosure regimes be the least restrictive means of achieving their ends, it does require that they be narrowly tailored to the government’s asserted interest,” Roberts wrote in the majority opinion.

Some critics of the decision argued Roberts’ interpretation of exacting scrutiny as requiring disclosure rules to be “narrowly tailored” will make enforcement of other disclosure cases more difficult. Critics of the decision instead argue exacting scrutiny requires only a “substantial relation” to a “sufficiently important government interest.”

A statement from the nonpartisan Campaign Legal Center noted the opinion “needlessly brushes aside precedent in favor of wealthy special interests—toughening the standard of scrutiny applied to California’s law beyond what the Court’s earlier disclosure decisions would have required.”

Even some groups that supported invalidating the disclosure law said the decision was too broad. The NAACP’s legal defense fund criticized Thursday’s ruling as overly broad after urging the Court to apply a more relaxed definition of exacting scrutiny. That’s a noteworthy shift after the NAACP’s support was used as fodder for efforts to strike down the rule. Americans for Prosperity Foundation’s argument before the Court rested in part on a 1958 decision stopping the NAACP’s membership list from being publicly disclosed.

“Today’s analysis marks reporting and disclosure requirements with a bull’s-eye,” Justice Sonia Sotomayor wrote in her dissent. It echoed the sentiments of several activists and lawmakers led by Sen. Sheldon Whitehouse (D-R.I.) who warn that the decision will open the door to more dark money. But the part of the decision widely cited as most threatening to other disclosure rules is Roberts’ definition of exacting scrutiny, a part of the majority opinion only two other justices concurred with.

A majority of the Court found that California’s law is facially unconstitutional under exacting scrutiny, but only Roberts, joined by justices Amy Coney Barrett and Brett Kavanaugh, argued that disclosure laws like California’s must satisfy this higher burden of proof.

Justices Clarence Thomas, Samuel Alito and Neil Gorsuch joined Roberts’ opinion but did not join the section calling for exacting scrutiny to be applied.

Thomas would have applied strict scrutiny, requiring the disclosure requirement to be the least restrictive means of achieving a compelling government interest. Alito, joined by Gorsuch, argued there was no need to decide if a single standard applies to all disclosure requirements in this case, which would leave open the possibility that some future disclosure cases would be subject to different standards.

Experts have also speculated that similar laws in other states could be on the proverbial “chopping block” following the Court’s ruling. The decision may also help build momentum around counter-efforts by state lawmakers across the country pushing bills prohibiting government entities from requiring nonprofits to disclose their donors, efforts that are also boosted by dark money spending.

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