Big Sky, Big Money

Montana court rules 'dark money' group violated state law

Friday, January 11th, 2013 

For more than two years, the politically active nonprofit Western Tradition Partnership (WTP) has fought the state of Montana’s attempts to regulate the group under state campaign finance laws, arguing that it was a social welfare group and as such was not required to disclose its donors.

Now, a Montana court has sided with the state, with Judge Jeffrey Sherlock finding in a court opinion released Jan. 4 that WTP used “subterfuge” to avoid complying with state disclosure law during the 2008 election cycle.

The judge’s ruling is a clear victory for state officials and backs up the essential premise of a 2010 report issued by the Montana Commissioner of Political Practices, which found that WTP was a political committee and had created “sham” front groups to avoid disclosing its spending and donors to influence elections to the public.

Details of WTP’s activities were featured in "Big Sky, Big Money," an October FRONTLINE film produced in association with the Investigative Reporting Workshop, which showed how the group created a number of other organizations to send out mailers attacking candidates for state office.

WTP, which renamed itself American Tradition Partnership as it expanded nationally, was the group at the center of a successful challenge in the U.S. Supreme Court last year, which reaffirmed that the landmark Citizens United decision applied to all state and local elections across the country.

The Montana dispute reflects a larger national debate about the role of social welfare nonprofits, also known by their tax code number as 501(c)(4)s, in elections. While these groups are allowed to engage in some campaign activity, it can’t be their primary focus. In federal elections, 501(c)(4)s are not required to publicly disclosure their donors, but state laws can — and do — differ.

The court’s ruling, according to Marcus Owens, former head of enforcement at the IRS’s nonprofit division, reaffirms the state’s authority to regulate social welfare nonprofits if they appear to be engaging in political activity.

“He’s saying they are political animals and political animals have to register,” Owens said. “It’s a signal that Montana looks to what actually happens and makes a decision based on that and not on federal tax characterization.”

“WTP’s fortunes have changed in Montana,” said state attorney Michael Black, who noted that the group could face penalties of up to three times the amount of political spending it failed to report to the state. But state officials say they are still poring over documents including the group’s bank records to try to determine that figure.

WTP’s outside counsel James Brown called the ruling “procedural,” adding: “It wasn’t through presentation of evidence. It was because we wouldn’t turn over documents that they wanted.”

Indeed, the judge’s ruling came after a bitter discovery dispute in which the judge wrote: “Never in this author’s 24 years on the bench has he had a litigant flatly refuse to comply with two discovery orders.” Fed up by WTP’s failure to hand over all the material, the court issued its findings against the group.

WTP’s Montana spokesperson, Doug Lair, said in an emailed response that the group “continues to believe that ATP/WTP does not meet the definition of a political group” and “that Judge Sherlock ruled in error.”

He added: “ATP will continue to fight in court to protect our First Amendment right to educate the public on important issues and where public officials stand on those issues.”

Though the ruling could be appealed, whether the group will be able to maintain its fight it less clear. In an affidavit filed with the court in December, then-Executive Director Donny Ferguson wrote that he was the only WTP staff member and that the group was struggling to raise money, in part, since the court had ordered the public release of its bank records, requested by FRONTLINE.

Ferguson continued: “If I leave this position it is unlikely WTP will be able to hire a new Executive Director. As a result, WTP would likely have a hard time complying with the Court’s order on sanctions in the near future.”

In January, Ferguson left his post as executive director to work for newly elected Rep. Steve Stockman (R-Texas).

WTP’s Lair did not say whether the group would hire a new executive director, but in his email he wrote, “ATP is currently operating with volunteer leadership, and fully intends to continue our work as a grassroots organization.”

The group is also believed to be a focus of a federal grand jury, which the Associated Press reported has subpoenaed WTP documents that were in possession of the state’s Commissioner of Political Practices.

Those documents were first disclosed in the FRONTLINE film and appear to show that the group had been illegally coordinating with candidates during state elections.