Transparency is the cornerstone of election regulation in the United States. Because the Supreme Court has limited the government’s ability to regulate election spending (in cases like Citizens United), we citizens rely heavily on disclaimers and disclosures to monitor how politicians spend money.
But due to a loophole in campaign finance law, campaign spending disclosures fall far short of providing the transparency democracy needs.
As we discuss in a brief published last week by the Center on Science & Technology Policy at Duke University, while campaign committees and political organizations are required to report their spending to the federal government, ad agencies and consultancies disbursing money on their behalf are not. We can see money going into consultancies, but we can’t see money going out.
This loophole creates a black box around political ad spending, which today runs mostly through consultancies, especially during elections. Analyzing 2020 Federal Elections Commission (FEC) data, we estimate that in the last month of the 2020 general election, advertising agencies distributed 94 percent of coordinated ad spending. The black box not only severely limits our ability to track and hold campaigns and political organizations accountable, it complicates our ability to study how policy interventions—such as the recent political ad bans by platforms like Twitter, Facebook, and Google—are impacting paid political speech.
For example, in a single transaction on October 9, the Biden campaign paid the firm Media Buying & Analytics more than $28 million. The FEC data reports this purchase merely as a “media buy.” We do not know if that money was used for TV, radio, print, or digital ads, and we don’t know whether the money was spent on Google, Facebook, or News Corp.
Indeed, this gap in disclosures makes it easier for campaigns to hide illegal campaign spending. According to a complaint filed with the FEC by the Campaign Legal Center, the Trump campaign appears to have illegally hidden campaign money distributed to Trump family members and associates using firms like American Made Media Consultants. And while FEC data shows that AMMC received more than $806 million from the Trump campaign in the year leading up to the election, it shows nothing else about how AMMC spent that money. (A Trump campaign spokesperson told CNBC “the campaign complies with all campaign finance laws and FEC regulations.”)
This loophole has existed for nearly 40 years, but it’s only recently become a giant problem. Although FEC regulations require that all spending made “by or on behalf” of campaigns be reported, in 1983 it issued an advisory opinion that enabled consultancies to avoid this type of reporting if they are kept at “arms-length” from a campaign and take on other clients.
Over the last few election cycles, campaigns have increasingly used consultancies to direct advertising spending. In the year leading up to the 2020 general election, AMMC received payments for coordinated spending from only two organizations: Donald J. Trump for President ($575 million) and the Trump Make American Great Again Committee ($231 million). In the same time period, Media Buying & Analytics received money from only one organization for coordinated spending: Biden for President ($445 million). This makes it hard to justify that either firm was kept at “arms-length” and was not working “on behalf of” the Trump or Biden campaigns.
To break open this black box, we recommend that the FEC issue a new advisory opinion to require campaigns and committees to report ad spending by consultancies and to require standardized, detailed descriptions of how this money is being spent. This would allow us to see, for example, the specific TV stations, digital platforms, or news outlets that received money as part of the $28 million the Biden campaign paid Media Buying & Analytics on October 9.
Alternatively, legislation could provide a more permanent solution. If Congress wanted to require this transparency, it could follow the model set by California and Washington state, which recently revised their campaign financing regulations to require that agencies disclose spending on behalf of campaigns. Or it could consider modifying the Honest Ads Act, which has been recently integrated into election reform legislation that the House recently passed. We also recommend that advertising platforms help to fill in these gaps by revising their political ads archives to include separate variables for both the funder (campaigns) and the purchaser (consultancies) of ads.