Passed by Congress and signed by President George W. Bush, the Bipartisan Campaign Reform Act (BCRA) of 2002 -- better known as McCain-Feingold (in honor of the U.S. Senators who sponsored the legislation, John McCain and Russ Feingold) -- stipulated that political candidates and parties could thenceforth accept only “hard money” contributions; i.e., contributions given to a specific candidate or party for a specific political campaign. BCRA mandated that such contributions be reported to the Federal Election Commission (FEC), and that they be limited to a per-donor maximum of $2,000 to any one candidate, or $5,000 to any federally registered Political Action Committee (PAC). Historically, Republicans had enjoyed a 2-1 advantage over Democrats in raising hard-money contributions from individual donors.

Democrats, by contrast, had relied much more heavily on "soft-money" contributions from large institutions such as unions. Soft money refers to political donations which for one reason or another have been exempted from the limits imposed by the FEC. Before McCain-Feingold outlawed such contributions, soft-money donors could give as much money to political parties as they wished. Their contributions often amounted to millions of dollars.

While McCain-Feingold deprived the Democrats of their soft money, the Shadow Party -- a nationwide network of non-profit, pro-Democrat activist groups with leftist agendas -- provided an alternate channel by which donors could now funnel unlimited contributions to Democrat candidates and causes. For example, prior to McCain-Feingold, government unions would lavish multi-million-dollar contributions on the Democratic Party -- money which the unions drew from their members, through mandatory dues. Under McCain-Feingold, the unions would still collect their membership dues, but would be barred from passing that money along -- at least directly -- to the Democratic Party. They would now give it instead to the Shadow Party, which in turn would distribute it to Democrat candidates and campaigns.

The Shadow Party used various expedients to evade McCain-Feingold’s limits. First, it worked through independent non-profit groups that ostensibly had no connection to the Democratic Party, either structurally or through informal coordination. The Shadow Party contained many types of non-profit groups, but most of its big fundraisers were “527 committees” – named after Section 527 of the IRS code – sometimes called “stealth  PACS” because, unlike ordinary PACS, they were required neither to register with the FEC nor to divulge their finances to the FEC (except in special circumstances). Ultimately, these 527s were unaccountable to the public.

Another expedient used by the Shadow Party was to claim that it was not engaged in electioneering at all. Most Shadow Party groups said they were soliciting funds not to defeat a particular candidate, but to promote “issues” and non-partisan get-out-the-vote drives. In reality, their issue promotions turned out, in most cases, to be savage attacks on the opposing candidates, and their get-out-the-vote drives used sophisticated demographic marketing techniques to target exclusively Democratic constituencies.

McCain-Feingold also blocked non-media corporations, labor unions, and non-profit groups from airing “issue ads” in the 30 days just before a primary election or 60 days before a general election. During that period, only the media would be permitted to discuss specific candidates. Critics charged that this constituted an infringement on free speech.