This commentary was written by Eric Wang, a Partner at The Gober Group. In addition to serving as counsel to a Federal Election Commissioner, he has advised clients on compliance with campaign finance laws in all 50 states and in many municipalities and is regarded as a renowned and respected authority on political law.

Recently, two separate criminal indictments involving Michigan nonprofit organizations have spurred calls for state lawmakers to enact broad new reporting requirements for nonprofits. Unfortunately, the commentary surrounding these cases has been misinformed and, at times, nonsensical. Contrary to recent claims, enacting broad new reporting requirements for nonprofits on the basis of misinformation and nonsense would likely violate Supreme Court precedent, which strongly protects the rights of donors and nonprofits to associate privately. This course of action would simply exacerbate the harm that has already been done by the alleged bad actors.

In the first case, Michigan Attorney General Dana Nessel charged two fundraisers with violating Michigan campaign finance reporting requirements by allegedly funneling money into the “Unlock Michigan” ballot measure committee through two 501(c)(4) nonprofit entities. Existing Michigan state law requires ballot measure committees to broadly report their donors while 501(c)(4) entities generally are not required to report donors to the public. Filings in the indictment allege the fundraisers explicitly and implicitly asked donors to contribute to the 501(c)(4) entities for the purpose of funding Unlock Michigan, thereby concealing the donors’ identities.

In announcing the charges, Nessel opined that Michigan’s campaign finance laws are “fundamentally broken” and urged the Legislature to increase penalties for violations. On the February 26, 2024 edition of the MIRS Monday Podcast, Professor Jeffrey Swartz at Cooley Law School suggested that Michigan lawmakers could also respond by requiring 501(c)(4) entities to disclose their donors. Swartz’s convoluted and nonsensical commentary on this issue betrays his apparent lack of any expertise on nonprofit and campaign finance laws.

Swartz referenced shortcomings at the Federal Election Commission and the U.S. Supreme Court’s Citizens United decision, neither of which have any relevance to this issue. The FEC does not regulate state elections, and Citizens United had nothing to do with the state ballot measure at issue here. Rather, the Supreme Court addressed the issue of corporate contributions to state ballot measure committees in 1978 in First National Bank of Boston v. Bellotti – 32 years before Citizens United. Neither Bellotti nor Citizens United undermined states’ ability to require the reporting of donors in connection with election activity.

However, because donor reporting requirements impinge on donors’ and organizations’ First Amendment right to associational privacy, such laws must be “narrowly tailored” to address the government’s interest in compelled disclosure. This means Michigan lawmakers may not require nonprofit organizations to broadly report all their donors, since that is not a narrowly tailored response to the Unlock Michigan transactions.

An article summarizing the podcast quotes Swartz as saying: “If they limited it to a state issue or a state office holder, as opposed to a federal officer, I think at that point the state would have a legitimate argument (in) saying ‘we are regulating our own elections, and as long as we’re regulating our own elections, the federal regulations don’t have anything to do with disclosures that need to be made.’” Here, Swartz explains that the IRS’s regulation of 501(c)(4) groups does not preclude states from enacting their own rules governing the involvement of such organizations in state campaigns. However, those rules are still subject to First Amendment scrutiny and would almost certainly face a legal challenge in federal court.

The gist of Swartz’s commentary seems to be that there is some shortcoming in Michigan’s existing campaign finance reporting requirements. Quite to the contrary, as the indictment itself demonstrates, Michigan’s campaign finance law already requires any organization that raises or spends money for the purpose of influencing a ballot measure election to file campaign finance reports that expose the organization’s donors to government officials and the public. Michigan’s law is already extremely broad (and arguably unconstitutionally so) insofar as it does not limit the donor reporting requirements only to those organizations whose “major purpose” is to engage in election campaign activity.

The individuals running the two 501(c)(4) entities alleged to have acted as conduits or intermediaries for contributions to Unlock Michigan are charged with violating those pre-existing donor reporting requirements. Logic dictates that bad actors who allegedly have violated pre-existing reporting requirements are not going to be deterred by additional reporting requirements; they will simply continue disregarding such laws altogether. The real impact will be felt by law-abiding Michiganders who will drown in additional red tape when attempting to voice an opinion about issues appearing on the ballot.

The Michigan Legislature should instead clarify the existing state campaign finance law’s ban on “contribution[s] in [the] name of another” (commonly known as a “straw donor” ban). The Attorney General notably did not charge the two defendants under this provision. We suspect this is because, on its face and as currently written, the Michigan provision appears to apply only to donors who give through a conduit, but not to those who operate conduits such as the 501(c)(4) entities at issue. Michigan’s existing straw donor ban could be amended so that it also explicitly applies to conduits.

In the second case, Attorney General Nessel charged two former staffers of former House Speaker Lee Chatfield with embezzling money from three nonprofit entities and a political action committee (PAC). Like in the first case involving conduit contributions, Michigan politicians are opportunistically latching on to the embezzlement case as an excuse to broadly undermine the longstanding privacy rights of nonprofit members and supporters. Once again, such a response to embezzlement would not be “narrowly tailored” and therefore would be unconstitutional.

Requiring nonprofit organizations to broadly report their donors would do nothing to address embezzlement. Michigan PACs are already required to generally report all of their spending and contributions, and that mandate did not stop the two individuals charged from embezzling from the PAC. In fact, the indictment also charges the defendants with falsifying records. Again, bad actors who are determined to violate the law will not be deterred by reporting requirements; they will simply falsify the records and reports to conceal their embezzlement, as the defendants in this case apparently did.

Enacting sweeping additional reporting requirements for nonprofits in response to this embezzlement case would be akin to addressing home burglaries by requiring all homeowners to live in glass houses. It is a nonsensical response to the problem.

The two Michigan indictments both allege crimes of deception. While the Legislature could clarify Michigan’s straw donor contribution ban, it is deceptive to suggest that these cases justify the need for broad new nonprofit donor reporting requirements. If anything, the indictments demonstrate there are already existing laws on the books prohibiting the alleged activities the defendants are charged with violating. Any legislation enacted in response to misinformation about these cases that undermines donors’ and nonprofits’ First Amendment right to associational privacy would be unconstitutional.