The Internet has enhanced the capacity of small donors to have an impact on elections. (Small donors are roughly defined as individuals who give campaigns less than $200, the threshold for disclosure of their names to the Federal Election Commission.) We will have a lot more to say about this already-minor, ought-to-be-major development in American democracy in a report on online fundraising next spring. However, we wish to take note of an unmistakable if partly unintentional message sent to the small donor pool of millions of citizens by the juxtaposition of two events in the past week.

One event concerns Ron Paul, the libertarian Republican who, despite never polling above 4 percent in the Republican nomination horse-race polls, has raised more money than any candidate for president in either party this quarter: $18.5 million so far, including $10 million on two “money bomb” days, one commemorating Guy Fawkes Day, the other the Boston Tea Party. The other event involves ActBlue, an innovative online clearinghouse that processes contributions to Democratic candidates for federal and state office. ActBlue enables citizens to collect and send money to their own virtual slates of candidates on the Democratic side without leaving their computer. Should a donor desire, ActBlue will hold funds in escrow until a Democratic nominee emerges from a primary contest. It will also withhold the donor’s phone and e-mail contact information, leaving the donor with the upper hand in citizen-campaign communications.

Now, here’s what’s just happened: Ron Paul’s supporters launched a blimp to promote his campaign in the air, on the Internet—and around the disclosure and contribution limit laws. It is flying high, thanks to a corporate contrivance we analyze ahead, whereas ActBlue’s petition to the FEC to permit federal matching funds to go to candidates benefiting from its service was grounded. Message: playing by the rules is for losers.

How can this be? It has a lot to do with the definition of a Political Action Committee (PAC).

Under federal campaign finance law, contributions made to a PAC and transferred to a federal candidate are not eligible for federal matching funds. ActBlue is registered with the FEC as a non-connected Political Action Committee. It is also registered as a 527 political organization with the IRS, and as a political committee with more than twenty state governments. Unlike most of its legal cognates, ActBlue engages in no campaign activities. It doesn’t advertise, organize volunteers, speak with the press, or stage rallies. Its sole purpose is to serve as an Internet-based money conduit. However, since it is registered as a PAC, the Federal Election Committee determined that under the plain language of the law, otherwise eligible funds collected by the John Edwards campaign through ActBlue could not be matched. That decision cost the Edwards campaign several million dollars.

As they teach you in law school, this is an incredibly formalistic interpretation of the law. The FEC is following form and ignoring substance with no regard for the intent of the law, which was to ensure that individuals did not contribute more than the legal limit to a campaign organization by funneling money through different entities. Given the tracking of contributions that ActBlue undertakes through Internet technology—not available at the time the law was enacted—there is no danger of that here. Indeed, the intent of the law was to encourage and empower small donors, which the ActBlue system does in deed.

Meanwhile, while we cannot help but grin at the ingenuity of the citizen-led zeppelin (with a cool online geo-tracker!), our smile vanishes at the sight of the legal fabric sheathing the operation from public accountability of its donors. As the organizers explain, they have deliberately not formed a PAC. Instead, they have gone into the advertising business, and they are selling sponsorships (and, to not-so-small donors, free rides). This means that donations will not be considered donations to the Ron Paul campaign and therefore will not count against the $2,300 limit contributors are allowed to give candidates for president under federal campaign finance law. In fact, it means contributors can give any amount of money they want—the Web site has a check-off box for $1 million.

So Ron Paul fans say they have not set up a PAC, and they have retained a former chair of the FEC, Bradley Smith, to validate their claim. But have they nonetheless? A PAC is defined as a group whose major purpose is to influence the outcome of elections and receives or spends more than $1,000. It sounds like the blimp is a PAC. But absent a complaint, and given the slow turning wheels of the Federal Election Commission, the Paulites are likely to get away with this for the time being.

The problem, of course, is that much of politics succeeds and fails in the time being. We should take steps to insure that next time an election year rolls around, we don’t create perverse incentives that reward those who flout the rules, while indirectly punishing those willing to play by them. That will turn small donors—current and prospective—into cynics, and befoul the emerging, and promising, online democratic space.

Michael Cornfield is Vice-President of Research and Media Strategy at 720 Strategies. Tova Andrea Wang is a Democracy Fellow at The Century Foundation.