

Before the Federal Election Commission (FEC) scuttled a rulemaking to address foreign spending in United States elections last month, Vice Chair Ellen Weintraub pleaded with the two Republican commissioners to approve the proposal.

“We are receiving information from a variety of public and private sources that indicate that we should be seriously concerned about (foreign) people trying to influence the elections in 2018, and spending serious money to do it,” Weintraub said, shortly before the commission voted the proposal down for the third time since 2016.

The Republican commissioners said they wanted to wait to vote on the rulemaking until officials released more information about foreign interference in U.S. elections. But foreign actors could try, and have tried, to influence U.S. elections through various campaign finance loopholes that allow donors to go undisclosed.

Sheila Krumholz, executive director of the Center for Responsive Politics, will be called to testify on one of those loopholes — shell companies — in a Senate Subcommittee on Crime and Terrorism hearing on Tuesday. The hearing, which will be led by Sen. Lindsey Graham (R-S.C.), will focus on the role of shell companies and virtual currencies as avenues for foreign interference in U.S. elections.

Funneling donations through shell companies is one of the many ways donors can spend money in politics without public disclosure. Some donors have set up limited liability companies (LLCs), often used by businesses for favorable tax treatment, as shell companies to contribute to political causes below the radar.

Non-corporate LLCs that donate to candidates or PACs are supposed to report to the intended recipient the names of the people responsible for donations. But many LLCs don’t do that, as OpenSecrets reported last year. President Donald Trump’s presidential campaign committee refunded at least six LLC donations because it could not determine whether they were legal.

Not all LLCs are shell companies. Some LLCs are easy to identify: Motley Rice LLC, for example, is one of the country’s largest litigation firms. But the human or corporate connections to LLCs with alphabet soup names like BH Group LLC, HFNWA LLC, BV-2 LLC, HGI DB Fund LLC, HGIM LLC or HJK LLC — which made substantial contributions to Trump’s inaugural committee — are harder to pin down.

BH Group LLC acted as a cipher to channel $1 million to Trump’s inaugural committee without disclosing the sources of its funding. The group, formed four months before the donation, has no known public-facing operation. OpenSecrets tracked down the group’s connection to conservative legal activists, but the $1 million gift’s true origins remain unknown.

The Koch brothers have used LLCs to conceal how money moves through their vast network of tax-exempt politically active nonprofits. Known as “disregarded entities,” LLCs in the Koch network are in effect subsidiaries of the network’s 501(c) nonprofits formed under different names, further shielding the sources of funding that’s already difficult for observers to trace.

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In recent years, the ever-deadlocked FEC has done little to investigate complaints from advocacy groups that true donors are being hidden behind LLCs.

Foreigners, who are allowed to set up LLCs in the U.S., could hypothetically create a shell company to contribute to U.S. elections. The practice is technically illegal, but observers would have no way to determine where the money originated if the donor is not disclosed.

“A foreign national or a foreign individual or an agent could easily set up an LLC in Delaware, make a contribution and if the true source is not disclosed, the public would have no way of knowing,” Brendan Fischer, federal and FEC reform director at the Campaign Legal Center, told OpenSecrets last year.

Foreign individuals have been caught in attempts to contribute to U.S. elections before. Just last year, the Justice Department sentenced Mexican businessman Jose Susumo Azano Matsura to three years in prison for making illegal campaign contributions totaling almost $600,000 through shell companies and straw donors in San Diego’s 2012 mayoral race.

Perhaps the most publicized instance of foreign spending in U.S. elections came in 1996 when foreigners contributed millions of dollars to the Democratic National Committee (DNC) in an effort by the People’s Republic of China to gain influence in American politics.

The DNC eventually returned more than $2.8 million in contributions it said it believed came from questionable sources, including foreign nationals and straw donors, The Washington Post reported at the time. Much of that money came from fundraisers with ties to China.

Though leaders of the bipartisan Senate Select Committee on Intelligence, which is investigating international meddling in the 2016 elections, have said they have “no doubt” Russia tried to influence races, the scope of foreign influence on U.S. elections through shell companies is unclear.

What is clear, though, is that the number of LLC donations in presidential elections has surged since the Supreme Court’s 2010 Citizens United decision. In 2012, 109 LLCs gave a combined $12 million to presidential candidates and super PACs. Four years later, 840 LLCs would pour a combined $21 million into the 2016 presidential election.

Graham, along with Sens. Sheldon Whitehouse (D-R.I.), Charles Grassley (R-Iowa), Richard Blumenthal (D-Conn.) and Dick Durbin (D-Ill.), introduced a bill in May to impose harsh criminal penalties on people who use or help set up shell companies to hide foreign nationals’ political activities.



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