Week in Review: Return of the Secret Donors

By JILL ABRAMSON

Published: October 16, 2010 New York Times
http://www.nytimes.com/2010/10/17/weekinreview/17abramson.html?_r=1&hp=&pagewanted=all

To old political hands, wise to the ways of candidates and money, 1972 was a watershed year. Richard M. Nixon's re-election campaign was awash in cash, secretly donated by corporations and individuals.

Rick Bowmer/AP Fred Malek served in President Nixon's re-election campaign. To- day, he is the founder of American Action Network, a nonprofit like Crossroads GPS, which is linked to Karl Rove. These groups have raised and spent millions in 2010.

Fred Prouser/Reuters Karl Rove

Fred Wertheimer, a longtime supporter of campaign finance regulation, was then a lawyer for Common Cause. He vividly recalls the weeks leading up to April 7, 1972, before a new campaign finance law went into effect requiring the disclosure of the names of individual donors. “Contributors,” he said, “were literally flying into Washington with satchels of cash.”

The Committee for the Re-Election of the President was also illegally hauling in many millions of dollars from corporations, many of which felt pressured into making contributions.

The record of donors was so tightly held that it was kept in a locked drawer by Rose Mary Woods, Nixon's secretary. The list — which came to be known as “Rose Mary's Baby” — wasn't released until Mr. Wertheimer forced the issue through a lawsuit. Among those on the list were William Keeler, the chief executive of Phillips Petroleum, who pleaded guilty, during the post-Watergate prosecutions, to making an illegal corporate donation.

Rose Mary's Baby itself, now an artifact of the nation's biggest political scandal, sits in the Watergate collection of the National Archives.

In this year's midterm elections, there is no talk of satchels of cash from donors. Nor is there any hint of illegal actions reaching Watergate-like proportions. But the fund-raising practices that earned people convictions in Watergate — giving direct corporate money to a campaign and doing so secretly — are back in a different form in 2010.

This time around, the corporations are still giving secretly, but legally. In 1907, direct corporate donations to candidates were legally barred in a campaign finance reform push by President Theodore Roosevelt. But that law and others — the foundation for many Watergate convictions — are all but obsolete. This is why many supporters of strict campaign finance laws are wringing their hands.

Certainly, it is still illegal for corporations to contribute directly to candidates. But they now have equally potent ways to exert their influence. This election year is the first since the Supreme Court's Citizens United decision, which allows corporations for the first time to finance ads that directly support or oppose political candidates. And tax laws and loopholes have permitted a shadow campaign network of Republican-leaning nonprofit groups to collect a flood of anonymous donations and spend it widely.

If the Republicans make big gains in the House and Senate on Election Day, there is rare bipartisan consensus that they will owe part of their victory to the millions of dollars raised and spent by these nonprofit groups, much of which has come from businesses.

The groups, including the Chamber of Commerce, the American Action Network and Crossroads GPS, which is linked to the Republican strategist Karl Rove, have committed to spending well over $150 million this year. President Obama has railed against these groups as they have poured money into races in which once-secure Democrats are hanging by a thread.

But the attacks may have only helped build the groups' fund-raising muscle. Crossroads GPS and a sister organization, American Crossroads, have received more than $100,000 in small donations through the Web, when they had expected most gifts to come in big checks. And the groups' leaders have only grown more influential — far more influential than the Republican National Committee, led by Michael Steele. Evidently, the corporate donors love having a secret route to influence politics and elect Republicans without showing their hands to a Washington still controlled by the Democrats.

In past elections, the Democrats have also used outside groups, including those organized by the party strategist Harold Ickes. In 2004, groups linked to the Democratic Party spent $150 million to influence the elections and agreed to pay $1.3 million in fines to settle charges that they had made illegal expenditures. In the last three elections, Democratic groups substantially outspent Republican groups. But many of these groups were so-called 527s, which were required to disclose donors' identities.

In this election, Mr. Obama and the Democrats have either refused, or have been unable, to fight fire with similar, Democrat-leaning groups. With an angry Wall Street and donors like George Soros on the sidelines — “I don't believe in standing in the way of an avalanche,” he recently said — the Democrats don't have an obvious counter, except for labor unions, which probably can't match corporate contributors.

Since Watergate, the names of political donors have largely been disclosed, even by so-called independent groups. In 2004 and 2006, nearly all independent groups involved in politics revealed their donors, according to a report by Public Citizen, a group that has long supported campaign finance reform. In 2008, fewer than half of these groups disclosed donors, and so far this year, fewer than one-third.

Because United States tax law permits certain social welfare and labor groups to collect donations anonymously if political activity is not their key focus, the only way to stop the undisclosed donations is to change the law. But Democrats recently failed to move a bill requiring disclosure through the Senate; not a single Republican voted for it.

Such legislation is unlikely to grow any more popular before 2012, and most political experts agree that the secret money spent by outside groups this year will look like a pittance by then, when President Obama will face re-election.

“This year is practice for 2012,” said Jan Baran, a partner at Wiley Rein L.L.P. in Washington, who is a former general counsel of the Republican National Committee. Mr. Baran filed an amicus brief in the Citizens United case on behalf of the Chamber of Commerce, which opposed donor disclosure. “It would lead to intimidation and harassment of contributors,” Mr. Baran explained. (While the decision blessed certain corporate donations, the court supported disclosure requirements for money given to political parties and candidates. The nonprofits were unaffected.)

The 1972 campaign had its own dry run for the fund-raising abuses of Watergate. In 1970, President Nixon tried to orchestrate a Republican sweep in the off-year Congressional elections. Known as the Townhouse Operation, a group of Nixon loyalists, some of whom are leading this year's nonprofit push, operated out of a townhouse near DuPont Circle in Washington, raising illegal corporate cash and distributing it in key Senate races.

The legacy of Watergate is quite clear. But the repercussions from today's campaign finance system are still being measured and debated.

“It creates all the appearances of dirty dealings and undue influence because our candidates are awash in funds the public is ignorant about,” said Roger Witten, a partner in the New York office of WilmerHale, who served as assistant special prosecutor in the Watergate special prosecution force. “This is the problem that was supposedly addressed after Watergate.”

Mr. Baran, the Republican lawyer, said Watergate comparisons are way overblown; plenty of restrictions still exist. “To make the Watergate analogy is an exaggeration,” he said, “and I have five inches of statutes that repudiate that comparison.”

Still, some players shaking the corporate money trees for nonprofit groups this year cut their teeth in the Nixon re-election campaign. There is Fred Malek, a founder of the American Action Network, whose members include many well-known Republicans, like former Senator Norm Coleman of Minnesota. Mr. Malek was the White House personnel chief in 1972 and helped dispense patronage for major Nixon donors as well as serving as deputy director of Creep.

Back then, Mr. Malek was interviewed by Hamilton Fox III, another Watergate prosecutor, and acknowledged that some of the campaign's activities might have “bordered on the unethical.”

In an interview last week, Mr. Malek said he founded his new group to “counter what the labor unions are doing on the Democratic side.” Started in February, the group is split into two parts: the Action Forum, a 501(c)(3), which allows donations to be tax-deductible but limits political activities, and the Action Network, a 501 (c)(4), in which contributions are not deductible or disclosed but the group can advocate for political causes.

The American Action Network has spent heavily in New Hampshire, where it backed Kelly Ayotte, the Republican nominee for United States Senate. She was endorsed in a tough primary battle by Sarah Palin, the former Alaska governor. (Mr. Malek is a fan of Ms. Palin, according to his blog.) Mr. Malek's group has also spent heavily in Wisconsin, where it hopes to help unseat Russ Feingold, the Democratic senator. It is also spending on close House races.

The American Action Network shares office space with American Crossroads, led by Mr. Rove, who also was an active participant in Nixon's re-election as executive director of the College Republican National Committee.

Mr. Malek also attends meetings of the Weaver Terrace Group, which was named for the street where Mr. Rove used to live. The participants, who include leading Republican strategists from outside groups, routinely trade political intelligence and sometimes make joint fund-raising trips.

The list of donors for either Mr. Malek's group or Mr. Rove's group is unknown. Yet Mr. Wertheimer predicts that the groups will, one day, have to disclose their contributors. “I don't believe secretly funding our elections can be sustained,” said Mr. Wertheimer, who now runs Democracy 21, which pushes for campaign finance reform. “It won't hold up. The public won't stand for it. This is guaranteed corruption.”

With so many different Republican groups spending so much, he said, no desk drawer is big enough to hold the 2010 list of secret donors, like the one that held his hard-fought-for Rose Mary’s Baby.