Before the Bipartisan Campaign Reform Act (BCRA) was passed in 2002, both political parties were diverting unlimited “soft money” donations into federal elections. This was in violation of the Federal Election Campaign Act (FECA) which stipulated that “soft money” be used for “party-building” activities and not on federal elections. Furthermore, FECA placed limits on the amount of money that could be given to political parties for use in federal elections. Since there were no limits on “soft money” donations from any source, this not only allowed individuals and any entity to circumvent the limits on political contributions but, in particular, allowed corporations and unions to circumvent the law and use their treasuries to fund federal elections. BCRA put an end to the abuse of “soft money” by political parties.
After BCRA was enacted, it didn’t take long before someone thought of a way to get around that law. This time 527 groups were used to replace the role that “soft money” had played in the political process. As mentioned in an earlier post, these nonprofit organizations are similar to PACs, but 527 groups cannot donate to or work directly with a candidate’s campaign. Because of this and because they do not expressly advocate for the election or defeat of candidates, 527 groups are not regulated by the FEC (although there may be FEC disclosure requirements if they run certain types of ads) . Because of BCRA’s crackdown on soft money-funded activities by political parties, activities that were once carried out by political parties were taken over by 527 groups.
The 2000 presidential election was the first time that a 527 group was used to funnel a large amount of money into the election process. This occurred when the billionaire Wyly brothers of Texas used a 527 group to give $2.5 million for an advertising campaign to help George W. Bush. In the 2004 presidential election, donors used 527 groups to funnel even more money into the election process. George Soros gave $23.7 million and Peter Lewis of Progressive Insurance gave $23.2 million to 527 groups.
During the 2004 presidential election, there was heavy spending by 527 groups on issue ads. Some of these “issue ads” appeared to advocate for the election or defeat of candidates. There were numerous complaints about this. However, it wasn’t until 2006 and 2007 that the FEC finally acted and fined a number of 527 groups, including MoveOn.org and Swift Boat Veterans for Truth, for violations in the 2004 campaign. The FEC ruled that these groups’ ads had advocated for the election or defeat of candidates and were thus subject to federal regulation and the restriction limits on contributions to the organizations.
After the 2004 election, the FEC banned 527 groups from distributing ads or video which questioned a candidate’s character and fitness for office. This was the original crux of the lawsuit that the 527 group, Citizens United, had filed against the FEC because the FEC had ruled that “Hillary, The Movie” questioned Hillary Clinton’s character and fitness for office. As stated in an earlier post, after hearing the case initially, the Supreme Court asked the two sides to go back and argue the case on more expansive grounds.