Will Nick Ryan and the American Future Fund own up to campaign finance violations?

California Attorney General Kamala Harris announced yesterday that her office and “the Fair Political Practices Commission (FPPC) have jointly secured a $1 million civil settlement against two out-of-state organizations for violations of the California Political Reform Act.” In addition, a political group registered in Iowa called the “California Future Fund for Free Markets” is supposed to to pay a $4.08-million penalty to the state of California. The 501(c)4 group American Future Fund, run by longtime Iowa Republican operative Nick Ryan, was the sole source of funding for the now-defunct California Future Fund for Free Markets.

Follow me after the jump for details on the scheme to evade California’s campaign finance disclosure rules last year.

A press release from the California Attorney General’s Office sketches out the “unlawful intermediary contributions” made to support Proposition 32 and oppose Proposition 30 in California’s 2012 general election. Two groups based in Arizona, the Center to Protect Patient Rights and Americans for Responsible Leadership, agreed to pay fines of $500,000 each but did not admit any intentional wrongdoing. (The Koch brothers are leading funders of the Center to Protect Patient Rights.) Chris Megerian reported for the Los Angeles Times,

According to the settlement, a California political consultant was raising money in 2012 to fight higher taxes from Proposition 30 and support reducing unions’ political power through Proposition 32. The consultant offered donors two options — contribute directly to the Small Business Action Committee and have their identities disclosed, or give money to Americans for Job Security, a trade association in Virginia, and keep their identities secret.

The money sent to Virginia was handled carefully to avoid triggering disclosure requirements in California. When Americans for Job Security sent money to the Center to Protect Patient Rights in Arizona, there were no stipulations on how the money would be used, according to the settlement.

The money then changed hands before reaching California. It was sent to Americans for Responsible Leadership, then soon re-routed to the Small Business Action Committee.

The Center to Protect Patient Rights also provided $4 million to the American Future Fund in Iowa, which then passed off the money to the California Future Fund for Free Markets.

These transfers improperly circumvented disclosure rules in California, “depriving the public of the knowledge of the initial source” of the money, according to the settlement.

According to the California AG’s press release,

on September 11, 2012, CPPR [the Center to Protect Patient Rights] donated $7 million to the Iowa-based American Future Fund (AFF). As an intermediary, AFF then made a contribution of $4.08 million to a third entity, the California Future Fund (CFF). CFF used that money to support Proposition 32 in the California general election.

Under California law, that $4 million should have been reported as a campaign expenditure, with donors disclosed. A similar scheme involved $11 million funneled through other groups. The violators are supposed to transfer to the state’s general fund the same amount of money they spent during the 2012 election without proper disclosure.

Anyone who’s interested how shadow money influences U.S. elections has heard of Nick Ryan and the American Future Fund, but before yesterday, I hadn’t heard of the California Future Fund for Free Markets. I wasn’t the only one out of the loop. The Associated Press reported last night,

The California Future Fund has been disbanded since the election. A message left with its associate, American Future Fund, was not returned Thursday.

Barbara Smeltzer, one of two people named in the commission’s letter as responsible for paying $4 million, said she knew nothing about the investigation or the demand.

Smeltzer, who is active in Republican politics from her home in Dubuque, Iowa, is listed as assistant treasurer of California Future Fund, but said she had never heard of CFF and never wrote or accepted checks.

Asked why her name surfaced in connection with the case, she said, “I have no clue whatsoever.”

My hunch is that California’s general fund will never collect the $4 million that the California Future Fund is supposed to hand over. The group that has been assessed the $11 million penalty for a similar shell game claims no wrongdoing and refuses to comply. Even if California manages to recover that $11 million, how will state officials force the California Future Fund to pay up when the California Future Fund doesn’t exist anymore?

Nick Ryan came up with some pretty good moneymaking schemes during the 2012 election cycle, but this one may top them all. Not only did he help major donors conceal their involvement in California elections, he kept the American Future Fund out of any direct campaign spending in California. So state regulators can’t come after him or his group for the $4 million penalty. I’ll bet this won’t be the last time the Koch brothers funnel money through the American Future Fund. (A $1 million civil settlement is chump change to them.) I see nothing to stop Ryan from setting up more fake organizations like the “California Future Fund” in 2014 or 2016 to avoid liability for the American Future Fund.

Any relevant comments are welcome in this thread.

P.S.: California voters rejected Proposition 32, which would have restricted labor union spending for political purposes.

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