In a campaign finance case watched around the country, California's political watchdog has levied a $1 million fine against two non-profit groups for inappropriately laundering money during last year's ballot initiative wars.
The Fair Political Practices Commission announced the settlement with the Center to Protect Patient Rights and Americans for Responsible Leadership, two groups based in Arizona that the FPPC describes as part of a network operated by the conservative Koch brothers.
The groups acknowledge they broke California law by not appropriately reporting two campaign contributions.
The commission also sent letters to two California committees demanding they pay the state general fund more than $15 million they received from groups that didn't properly report the source of their funds.
Actually getting the money, however, will likely be a challenge.
Despite the size of the fine, the settlement brings Californians no closer to knowing the identities of the original individual donors.
Gary Winuk, the FPPC's chief of enforcement, said the case highlights the need to change California law to reflect that political spending is now largely being funneled through nonprofit organizations.
"They are being used to hide donors," he said.
The Arizona groups had not been active in California politics until last fall, when Democrats led by Gov. Jerry Brown were pushing for a tax increase known as Proposition 30, and Republicans were pushing Proposition 32 to limit how labor unions use the dues they collect. A few weeks before the November election, Americans for Responsible Leadership gave $11 million to the Small Business Action Committee, which was working to oppose Proposition 30 and support Proposition 32.
In September, a related group called the American Future Fund gave $4.08 million to something called the California Future Fund, which was also giving money to oppose Proposition 30 and support Proposition 32.
The FPPC and the Attorney General's Office set out to determine who was behind the mysterious donations.
Today's settlement answers part of the question, revealing that the money for the two donations came from the Center to Protect Patient Rights, which acknowledges that it should have reported its contribution last year. But it does not compel the groups to report which individuals gave them the money.
The lawyer representing the Center to Protect Patient Rights said his client's lack of reporting amounted to a mistake.
"This was the first contribution they had ever made in the state of California," Malcolm Segal said, adding that the state's campaign finance laws amount to a "very complicated environment with many, many regulations."
"They believed they were in compliance," Segal said. "But the FPPC believed they were mistaken about their compliance and (under state law) even a mistake is punishable conduct."
The FPPC says the Center to Protect Patient Rights is affiliated with billionaire businessmen Charles and David Koch, who run a network of nonprofit groups around the country that solicit donations and then use the money to support Republican causes. The format allows donors to support political causes without being identified. When donors give directly to a political cause, their identities are reported in campaign finance reports. But when donors give to a nonprofit, the law does not require their identities be disclosed.
Because the groups acknowledge they did not report contributions as they should have, the FPPC can now go after the recipients of the money to pay the funds to the state. The agency sent letters today to Barbara Smeltzer, head of the California Future Fund, and Joel Fox of the the Small Business Action Committee, directing them, respectively, to pay $4.08 million and $11 million to California's general fund.
"It's required under state law," Winuk said. "Just receiving a contribution where the true source is not disclosed means you have to give it up."
But the attorney for the Small Business Action Committee said his group is not required to pay the money, arguing that the California laws governing so-called "disgorgement" apply to political candidates -- not ballot measures.
Furthermore, attorney Steve Churchwell said, his client was not found guilty of any violations and doesn't have $11 million anyway.
"Not one dime of this money is sitting in a bank account," Churchwell said.
"It all was spent on Props 30 and 32."
Here is the stipulation.
Here is the letter to the Small Business Action Committee.
Here is the letter to the California Future Fund.
PHOTO: FPPC Chair Ann Ravel in her office on Tuesday September 17, 2013. The Sacramento Bee/ Renee C. Byer
Editor's note: This post was updated at 2:10 p.m. with a reaction from the Small Business Action Committee.