Few face greater peril under the campaign finance and criminal laws than an undisputed bad actor. Yesterday, former Iowa state senator Kent Sorenson admitted in a plea agreement that he willfully caused Representative Ron Paul’s 2012 presidential campaign to falsely report payments made to two companies. In fact, Sorenson acknowledged, the campaign paid the companies—who then paid Sorenson—to induce him to switch his endorsement to Paul from Representative Michele Bachmann. The Center for Responsive Politics has published the text of Sorenson’s plea agreement here, along with other documents and a summary of the case. Continue Reading
At yesterday’s public meeting, the FEC voted unanimously to approve three advisory opinions, including one requested by the internet startup Crowdpac. The company, which was represented by a bipartisan team of Perkins Coie’s own Marc Elias and Tyler Hagenbuch, along with veteran election lawyer Benjamin Ginsberg of Jones Day, plans to use an algorithm to synthesize data on political candidates and provide information and suggestions on the candidates to potential donors.
While Crowdpac’s original request covered practically every relevant aspect of its planned operations, the discussion at yesterday’s open meeting focused primarily on whether the company’s proposed use of FEC contributor data was permissible. Specifically, Crowdpac sought to display the names, cities, and states of individual contributors identified from FEC reports alongside aggregated campaign finance data about candidates.
However, the Federal Election Campaign Act prohibits FEC data from being “sold or used by any person for the purpose of soliciting contributions.” One draft released by the FEC employed a strict reading of this provision that would have prohibited Crowdpac’s proposed activity. But the Commissioners unanimously decided that Crowdpac simply sought “to promote … the transparency of political information” – not use contributor data for solicitation purposes.
In addition to Crowdpac’s request, the Commission approved two other advisory opinions. One allowed Reed Marketing Consultants to develop and market an affinity card product for political committees that would allow cardholders to forward their rebates to committees of their choosing. The second opinion allowed Joan Farr, an Independent Senate candidate in Oklahoma, to purchase and distribute a book she authored. Last, the Commission made a small revision to a final audit report for the Nebraska Democratic Party.
Besides choosing the wrong Rolling Stones song to quote in a campaign finance opinion – “Salt of the Earth” from Beggars Banquet would have been better, with its references to “stay at home voters” and “gray suited grafters” – there was a lot that the D.C. Circuit got wrong in Stop This Insanity Inc. Employee Leadership Fund v. FEC.
First, the court repeatedly asserted that the separate segregated fund – or what laypeople call a “corporate PAC” – is a “statutory artifact,” “functionally obsolete,” and a “relic.” Yet it remains the prescribed, lawful way by which corporations, and also unions, contribute to federal candidates. And it remains the dominant mode of federal political participation for most major companies. The court glosses over the holding of Citizens United v. FEC and SpeechNow.org v. FEC, which is that the state may regulate contributions more stringently than independent expenditures. It strongly suggests that STII should just go ahead and make independent expenditures, instead of bothering to form a PAC. The court’s strange assault on the PAC option is a startling embrace of the brave new world of campaign finance that has followed Citizens United.
Second, the court failed to confront why STII wanted to shun direct independent expenditures in the first place. A section 501(c)(4) social welfare organization, STII feared that, if it made independent expenditures except through a PAC, it might become a federal political committee and trigger disclosure for the entire organization. Republicans on the FEC readily grasped this fear when STII made the advisory opinion request that gave rise to the litigation. As Commissioner McGahn said then:
Let’s say you do this out of the (c)4, and set aside the tax issues. You only have a handful of employees, you’re not that large, and you start doing independent expenditures … Couldn’t your whole thing become a political committee at some point? Particularly the way the Commission sort of has a case-by-case … There’s no way you’re going to know.
(You can hear McGahn’s comments here at 15:47, with similar comments from McGahn at 2:30 and 33:33, and from Commissioner Matthew Petersen at 26:41.)
A corporation might have many reasons to “do things the hard way” and finance independent expenditures through a PAC, regardless of any desire to evade disclosure of political spending. A tax-exempt organization that genuinely operates as a 501(c)(4) has reason to separate its social welfare activities from its political activities, and to limit disclosure only to those who give for electoral purposes. Indeed, STII appeared to want to preserve the anonymity of one group of donors – those to the 501(c)(4) – by raising and disclosing contributions from an entirely different group of donors – those to the PAC. Were that not the case, then STII would have had little reason to sue, except to avoid other burdens of FEC registration, which it had already chosen to accept by forming the PAC.
Still, the court’s eagerness to urge onto STII what is now a largely unregulated course of action is hardly an outcome for disclosure proponents to celebrate.
At its public meeting today, the FEC approved two advisory opinions, one of which allows Rep. Paul Ryan’s campaign committee and leadership PAC to promote the Congressman’s upcoming book.
The FEC released three drafts prior to the meeting, all of which allowed the committees to promote the book to varying degrees. As Brian Svoboda explained on this blog yesterday, the drafts differed as to just how much Representative Ryan’s leadership PAC, Prosperity Action, could promote the book. Rep. Ryan will receive royalties from sales of the book.
The Commissioners disagreed generally over the scope of the Federal Election Campaign Act’s prohibition on the personal use of campaign funds, and specifically over whether the prohibition applies to leadership PACs. Members of Congress may not use campaign funds for payments that would exist irrespective of their campaign or status as an officeholder. The Commission has repeatedly found that the personal use prohibition can be implicated when a campaign purchases or promotes a book from which the candidate receives royalties. However, it asked Congress last year to amend the personal use statute to apply to leadership PACs, implying at least that the prohibition does not extend to them.
The Commission adopted a modified version of Draft C, allowing Rep. Ryan’s PAC to promote the book on the Internet under the same limits that apply his campaign, but stating that the Commission could not agree on whether the personal use restrictions applied to his PAC.
Commissioner Ravel said that she was not comfortable allowing unlimited promotion of the book by the leadership PAC, because Rep. Ryan will receive royalties from book sales. Commissioners Weintraub and Walther went further and argued that even de minimis promotion, whether by the leadership PAC or the campaign, would violate the personal use prohibition.
After voting on the opinion, Commission Chair Goodman raised the separate issue of whether the publisher’s promotion of the book was covered by the media exemption from the campaign finance laws. Draft C stated that the book publisher’s costs were not subject to the Act’s regulation because they stemmed from bona fide commercial activity. But Goodman argued forcefully that the Commission should have relied on the “media” exemption instead, stating that the exemption for commercial activity subjected the publisher to additional regulation. He said the opinion could create a “festering legal uncertainty” that could restrict activity by nonprofit book publishers and prevent them from stating their editorial viewpoints. Commissioners Weintraub and Ravel disagreed forcefully with Goodman, arguing that since Congress did not include the category of books in the media exemption, the Commission had to rely on the commercial vendor exception instead.
The Commission unanimously approved a request from the Henry Ford Health System Government Affairs Services Political Action Committee, a corporate PAC that sought to raise funds from its corporate parent and the parent’s subsidiaries. The Commission was scheduled to consider a request from a congressional candidate who sought to appear on a reality TV show, but the candidate withdrew the request late last night.
At issue in Advisory Opinion Request 2014-06 is whether Representative Paul Ryan’s leadership PAC, Prosperity Action, may promote the sale of his upcoming book on the Internet beyond de minimis levels. Representative Ryan intends to receive royalties from the book.
The Federal Election Commission published two drafts of a response to his request. The first, Draft A, would grant it. The second, Draft B, broadly asserts that “the Act’s personal use prohibition applies to leadership PACs, such as Prosperity Action.” Adopting Draft B would be a significant policy change for the FEC. In its legislative recommendations just last year, the FEC asked Congress to amend 2 U.S.C. § 439a to cover leadership PACs, saying: “Congress might not have considered the application of the personal use prohibition to this particular type of political committee.”
But at the heart of the request is a highly technical question that vexed many during the failed prosecution of John Edwards. A separate FEC regulation, 11 C.F.R. § 113.1(g)(6), asks: when a third party pays an expense that the candidate’s campaign cannot pay, when is that payment still treated as a contribution to the candidate, and thus as a prohibited personal use of campaign funds by the candidate? If the third party would not have made the payment irrespective of candidacy, then the payment is a contribution, and a prohibited personal use of funds. In the Edwards case, the “third party” was Bunny Mellon, and the expense was to conceal an extramarital affair. In Representative Ryan’s request, the third party is Prosperity Action, and the expense is to promote his book. Draft B holds that Prosperity Action would trigger personal use through excessive promotion.
As Marc Elias Tweeted yesterday evening, the FEC considered a very similar question before. In 2008, it told Senator Kit Bond that, while his campaign may not pay the co-author of a book he was writing on terrorism, his leadership PAC could make the payment. “Because the book would advance the leadership PAC’s goals and the leadership PAC would pay for the book and the co-author’s expenses irrespective of the campaign, the $25,000 payment to the co-author would not constitute a contribution under 11 CFR 113.1(g)(6).” Unlike Representative Ryan, Senator Bond averred that he would not receive royalties on the book. But one can certainly argue that the receipt of royalties is irrelevant to whether the book advances PAC goals, and whether the PAC would have paid for it irrespective of the Member’s campaign.
Even if the FEC sides with Representative Ryan and adopts Draft A, Prosperity Action still may not be able to promote the book beyond a de minimis level. This is because House ethics rules separately prohibit the personal use of campaign funds—and this prohibition can apply to leadership PACs. (A sensational “60 Minutes” report last October completely overlooked the separate congressional ethics restrictions, claiming instead that a “loophole” allowed Members of Congress to spend their leadership PAC funds on personal use “with no restrictions.”) The Committee on Ethics tells Members specifically that the House prohibition on personal use reaches beyond their own principal campaign committees “to any campaign funds under a Member‘s control”—which can include their leadership PACs. (House Ethics Manual at 152.)
In fact, if the FEC were to reject Draft B, Representative Ryan may even be worse off. To reject Draft B, the Commission would have to conclude—at least tacitly—that the PAC would make the payment even if Representative Ryan were not running for federal office. Affirming the personal nature of the expense in such a way would not help Representative Ryan before the Committee on Ethics or the Office of Congressional Ethics, if they were to review the PAC’s payments.
At its open meeting today, the FEC considered an audit division recommendation regarding the Democratic Party of Illinois and issued an advisory opinion in response to a request from Enterprise Holdings, Inc.
The Commissioners’ debate over the audit division recommendation hinged on the records that state parties must keep. (Perkins Coie represented the party in the audit.) One of the findings in the audit division recommendation concerned the FEC’s employee time log requirement. The Commission’s Republican and Democratic members have repeatedly disagreed over how to enforce the rule, which is designed to ensure that state and local parties do not spend nonfederal funds in connection with federal elections. It requires state and local parties to pay employees entirely with federal funds if more than 25 percent of their compensated time during a calendar month is spent on activities in connection with a federal election. The Commission’s Republican members, led by Chair Goodman, have insisted that the requirement should not be enforced for party employees paid only with nonfederal funds, because the Commission has no jurisdiction over purely state-level activity. The Commission deadlocked over whether to adopt an adverse finding over logs for purely non-federal employees.
Next, the Commission considered an advisory opinion request from car-rental company Enterprise Holdings, which had been held over from a previous meeting. At issue was whether a New York Department of Labor regulation prohibited the company’s federal PAC from using a payroll deduction system to raise funds from its New York-based employees. Since the Department of Labor submitted comments on the request saying that its regulation did not apply to the proposed activity, the Commission was unsure at its previous meeting whether it was appropriate to issue an advisory opinion stating that federal law preempted the regulation. The draft the Commission adopted at today’s meeting, however, permitted the company’s proposed activities, while declining to reach the preemption question.
The Harvard Law Review today published an article by Jonathan Berkon, an associate in the Perkins Coie Political Law Group, and Marc Elias, partner and chair. Entitled After McCutcheon, the article examines the legal and practical ramifications of the April Supreme Court decision that struck down the limit on the total amount an individual may give to all federal candidates and committees combined. The case was discussed on this blog here, here and here.
The article is available at the following URL: http://harvardlawreview.org/2014/06/after-mccutcheon/
The FEC today held a hearing on an audit staff finding that former Rep. Quico Canseco’s campaign accepted $100,000 in illegal contributions. The Commission also held an open meeting at which it considered an advisory opinion request from Enterprise Holdings, Inc.
According to a staff audit report, Rep. Canseco’s 2010 campaign accepted $100,000 in illegal campaign contributions from a Mexican corporation called Caza. Rep. Canseco’s attorney, Chris Gober, argued at the audit hearing that the funds were in fact a loan from the candidate’s personal funds, claiming that the loan represented the candidate and his sister’s equitable interest in a partnership that owns a 99% stake in Caza. Under federal law, candidates may not accept contributions from foreign corporations; they are, however, permitted to provide unlimited funding to their own campaigns. In accordance with the FEC’s audit process, the Commission will formally vote on the audit staff’s recommendations in this case at a later date.
At its open meeting, the Commission considered an advisory opinion request from car rental company Enterprise Holdings, Inc. concerning whether its federal PAC could use a payroll deduction program to raise funds from certain employees living in New York. Under federal law, corporate PACs may use this method to raise money from eligible employees. However, a New York State Department of Labor regulation appeared to conflict with the federal statute, prompting Enterprise Holdings to ask whether the federal statute preempted state law.
The New York State Department of Labor submitted comments on the request, stating that its regulation did not in fact prohibit payroll deduction programs for federal PACs. The Commission’s Office of General Counsel (OGC) took the position that in light of these comments, the advisory opinion request was rendered moot, or hypothetical. Commission Chair Goodman disagreed, and engaged in a lengthy discussion with Acting Associate General Counsel Adav Noti over whether the request was still valid. All the Commissioners appeared to agree that the requestor should be allowed to conduct the payroll deduction plan, and that they were entitled to explicit guidance from the Commission on the matter. However, there also appeared to be a consensus that the Commission needed additional time to formulate a response. Accordingly, the Commission decided to postpone a vote on the request until the Commission’s next public meeting, to be held on June 26.
The report and findings prepared by the Office of Congressional Ethics in its review of Representative Steve Stockman, released yesterday by the U.S. House of Representatives Committee on Ethics, is the latest in a series of reviews in which OCE has recommended investigation of Members over substantive violations of the federal campaign finance laws.
The standard of conduct advanced by OCE as the basis of the alleged violation is clause 1 of House Rule 23, which requires Members to conduct themselves in a manner reflecting creditably on the House. In Mr. Stockman’s review, which involves claims of contributions misreported and made in the name of another, OCE draws support from a passage on page 122 of the House Ethics Manual, which tells Members they must take “reasonable steps to ensure” that their campaigns and leadership PACs operate “in compliance with applicable law.” OCE then cites three authorities to reject the claim of the Stockman campaign’s accountant that he properly reattributed the contributions at issue: (1) a quote from the FEC’s 1987 explanation of its reattribution rules, which OCE uses to assert that a contribution may only be reattributed for reporting purposes “when made by more than one person in a single written instrument”; the Commission’s general reattribution rule at 11 C.F.R. § 110.1(k); and the FEC’s Campaign Guide for Congressional Candidates and Committees.
Setting aside the merits of the Stockman referral—which the Committee on Ethics said it would review—the OCE report and findings raise two questions:
First, when exactly should the Committee on Ethics take up claims of campaign finance violations by Members’ campaigns? None would reasonably contend that the Committee, under the law as now understood, should stand down from all matters involving campaign finance. In a matter involving Representative Jay Kim’s 1997 campaign, the Committee found that it “has jurisdiction to investigate allegations of misconduct relating to a successful campaign for election to the House,” and the House ethics restrictions on personal use of campaign funds are largely co-extensive with the FEC prohibitions.
Still, the Committee has recognized the complexity of these laws and been very cautious in analyzing them. It routinely tells Members to seek advice from the Federal Election Commission before engaging in conduct that may raise campaign finance issues. And its ten members surely know that their colleagues campaigns’ are repeatedly assessed administrative fines by the FEC, and frequently agree to pay civil penalties through the Commission’s enforcement process. The Stockman matter involves highly aggravated facts: the prohibition on contributions in the name of another is a “heartland” provision of FECA that is often criminally enforced. But where is the line between common, often unknowing lapses, and the sort of misconduct for which Members should be held accountable through Committee investigations, reports and sanctions? In the Stockman report, OCE does not say. The Committee will want to provide some guidance on this question, lest Members’ political opponents flood OCE and the ethics process with complaints that they would have once filed with the FEC.
Second, what level of expertise and analysis should be required when OCE prepares and sends written findings, intended for publication, alleging substantive violations of the campaign finance laws? There is a reason why the FEC has exclusive civil jurisdiction over the enforcement of the campaign finance laws, why the Department of Justice has sought FEC expertise in past prosecutions, and why—again— the Committee on Ethics is cautious in referring Members to the FEC on campaign finance matters. As a federal judge in California once said, in remarks previously quoted on this blog: “I think it would be a lot more comprehensible to read the Internal Revenue Code from start to finish than to figure out some of the evidence that was issued on the Federal Election Commission requirements.” But OCE lacks the Commission’s resources and subject matter expertise. It also reviews matters on a fast timetable, and under confidentiality rules that it has interpreted to provide little opportunity to test legal arguments through back-and-forth with respondents’ counsel. The thorny field of federal campaign finance regulation, where the answers are seldom what one expects them to be, offers heightened opportunities for error—with potential prejudicial consequences for Members, staff and witnesses—that the OCE should take special care to consider and avoid.
Today the Federal Election Commission convened an “informal public forum” to discuss FEC operations affecting national, state and local party committees. The Perkins Coie LLP Political Law Group sent a letter to the Commission, exhorting the FEC to “choose, among reasonable readings of the rules, those that are most helpful to the parties” when it considers rules, advisory opinions and enforcement actions.
The text of the letter is below, and a PDF version is available here.
The Perkins Coie Political Law Group (“PLG”) is pleased to submit these comments in connection with the Forum that the Commission has convened to “evaluate and improve our administration of the law with respect to political parties.”
For many years, the PLG’s practice has included national, state, and local party committees, and the group has represented these clients before the Commission on a wide range of party issues in the rule-making, advisory opinion and enforcement processes. While a representative of the PLG was unable to be present at the Forum, we have observations to offer from this practice’s experience that may be useful to the Commission. The views expressed here are the PLG’s alone and not those of any client of the firm.
As a result of the enactment of the Bipartisan Campaign Reform Act of 2002 and other developments in the law, the political parties have been required to address open regulatory issues of considerable importance to their ability to conduct basic party functions and to maintain a central, vibrant role in a political process in which “outside groups” have become increasingly prominent. The Commission is aware that we have been active in filing requests for opinions and taking positions before the agency on these issues. For its part, the agency has routinely faced the question of whether it could or would interpret the statute to provide the parties with flexibility in raising needed funds and meeting core institutional expenses.
While in certain of these cases, the Commission acted to provide such flexibility, on other and significant occasions it stopped well short of doing so (with not all Commissioners in agreement on the appropriate outcome). We appreciate that we will not “win them all.” But we also have observed a hesitation to choose, among reasonable readings of the rules, those that are most helpful to the parties, apparently out of a concern that the Commission will open a “loophole” or establish a precedent that might be later abused for other purposes. It is particularly important that in the circumstances faced by the political parties today, the Commission consider adopting the most constructive possible approach to these questions—one shaped less by suspicion about motives and consequences, and more by an openness to the challenges the parties face.
There is no question that the Commission must be faithful to the law. But there are always “gaps” and questions that Congress did not anticipate or address by statute. The question to be asked then should not be “what are the parties up to now?” but instead “in what way can we supply them with constructive guidance in meeting bona fide institutional objectives?”
The Commission has a fresh opportunity to reconsider its regulatory program affecting parties in the wake of recent Supreme Court decisions, most notably McCutcheon v. Federal Election Commission. There, the Court emphasized that the regulatory interest in preventing quid pro quo corruption is not generally implicated by funds donated to a political party in which
party members join together to further common political beliefs, and citizens can choose to support a party because they share some, most, or all of those beliefs. To recast such shared interest, standing alone, as an opportunity for quid pro quo corruption would dramatically expand government regulation of the political process.
McCutcheon v. FEC, 134 S.Ct 1434, 1461 (2014) (internal citation omitted).
The programs devised by parties to achieve access to additional and flexible sources of funding should not be confused with schemes to “circumvent” statutory limits. The parties are doing what they should be doing—exploring avenues to expand their membership and their appeal to the electorate, which requires both resources and the means by which they can be efficiently raised and spent. For the parties, and in the words of the majority in McCutcheon, these activities are not “an opportunity for quid pro quo corruption.” Id. The parties are working to compete with other powerful actors that operate either under more relaxed regulatory standards, or—some would argue—outside the rules altogether. And the parties must also to strive to keep pace at considerable expense with changing campaign techniques and technologies.
We appreciate this occasion for the Commission to consider these questions. For further examples and discussion, we refer the Commission to the numerous presentations the PLG has made on party issues, in Advisory Opinion Requests and in other matters, and to the Commission’s decisions (or failure to reach agreement) in response.
Very truly yours,
Robert F. Bauer
Marc E. Elias
Rebecca H. Gordon
Ezra W. Reese
For the Perkins Coie Political Law Group