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Rules of the Game: Campaign Finance Rules Too Lax, Some Say

Chris Maddaloni/CQ Roll Call
Wisconsin-based nonprofit Prosperity USA reportedly spent some $40,000 on travel and other costs early in Herman Cain's presidential bid.

In his ongoing spoof of the nation's campaign finance laws, comedian Stephen Colbert has a new gimmick: a secretive nonprofit that can launder donations to his satirical super political action committee.

"So I can take secret donations of my (c)(4) and give it to my supposedly transparent super PAC?" Colbert asked his lawyer, Trevor Potter, in an on-air exchange last month.

Potter gave the nod, prompting Colbert to quip: "What is the difference between that and money laundering?" Potter's retort: "It's hard to say."

In fact, the group Colbert had cited as the inspiration for this new "Colbert Super Pac Shh" nonprofit the $240 million American Crossroads operation masterminded in part by GOP operative Karl Rove makes no such transfers. In response to an email from the group's lawyer, Colbert clarified on a later show that "there is no evidence of money laundering" at the Crossroads group.

But other groups do make such transfers, and the amount of money funneled through politically active tax-exempt organizations is escalating. Surging political activity by nonprofits has prompted watchdog groups to call on the Internal Revenue Service and the Federal Election Commission to better enforce the law. It has also prompted some state election officials and judges to crack down.

The latest campaign-oriented tax-exempt group to make headlines is Prosperity USA, a Wisconsin-based nonprofit that reportedly spent some $40,000 on travel and other costs early in GOP White House candidate Herman Cain's presidential bid.

Run by Mark Block, now Cain's chief of staff, the group may have run afoul of both tax and campaign finance laws, election lawyers say. As a 501(c)(3) charity, Prosperity USA is barred under tax laws from partisan political activity. Under federal election laws, even candidates who are in the early "testing-the-waters" phase of their campaigns must follow disclosure and other rules.

The scandal could drag in Americans for Prosperity, a much larger, unrelated tax-exempt group underwritten in part by conservative billionaire David H. Koch. Americans for Prosperity, whose 2010 budget exceeded $20 million, is now investigating its own financial dealings with Prosperity USA, iWatch News has reported. Block previously ran Americans for Prosperity's Wisconsin affiliate.

Cain campaign officials have also said they have asked an outside counsel to investigate. It's one more headache for a campaign struggling to tamp down a furor over allegations that Cain behaved improperly toward three female employees when he was president of the National Restaurant Association.

The boom in political nonprofits has followed the Supreme Court's landmark 2010 ruling in Citizens United v. FEC to permit unrestricted independent spending by corporations and unions. That ruling ushered in super PACs that may take unlimited donations from corporations of any kind, including nonprofits, as long as they keep candidates and parties at arm's length.

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