Massachusetts Election Administration, Campaign Finance and Lobby Law Chapter 21 - Federal/State Issues
By Maria R. Durant and Thomas E. Dwyer, Jr.
Send Email to: mdurant@dwyercollora.com or tdwyer@dwyercollora.com
Contents
I. Exploratory Committees – "Testing the Waters" of Federal Candidacy
II. The Interaction Between Federal and State Campaign Finance Laws
III. Federal and Non-Federal Political Committee Accounts
IV. Unregistered Political Organizations
V. Transfers of Funds and Refunds Between Federal and Non-Federal Candidates and Committees
VI. "Soft Money" and Party Committee Transfers
VII. Federal Criminal Liability
Federal and state campaign finance laws often address similar political activities. Consequently, when individuals or organizations support both federal and state candidates, they may be faced with deciding which of two equally applicable yet differing laws applies to their chosen election activity. This chapter summarizes the activities that are subject to the Federal Election Campaign Act ("FECA") and those that are subject to state campaign finance laws.
The chapter begins by discussing exploratory committees, common in today’s political society, to allow would-be candidates to "test the political waters" of federal candidacy. The chapter then discusses federal preemption of state campaign finance laws. The chapter also includes an in-depth treatment of the Federal Election Commission ("FEC") regulations governing political committee accounts which finance activities in both federal and state elections; transfers and refunds between federal and non-federal candidates and political committees; and soft money and party committee transfers. Finally, the chapter concludes by surveying the criminal laws which can and have been applied to conduct which frustrates the goals of the FECA and the efforts of the FEC in enforcing that law.
I. Exploratory Committees – "Testing the Waters" of Federal Candidacy
For some individuals, holding a local or statewide elective office is merely a stepping stone to a federal elective office. Official federal candidacy, however, is a status that most individuals are unwilling to embrace without some sense of their viability in a federal race. As a result, would-be federal candidates typically announce the formation of "exploratory committees" before making a decision whether or not to throw their hats into the federal ring.
While many would-be federal candidates prefer to take the position that they are just "exploring" the possibility of federal office, objective indicators – such as hometown parades, strategic visits to New Hampshire and Iowa, and large-scale fundraisers – often suggest the contrary. For political reasons, a would-be candidate doesn’t want to announce his or her candidacy too early in the election cycle; they want to preserve the "political escape hatch, keeping their options open insisting they are undecided." Susan Glasser, At Election Commission, "Exploring" Means Running, Washington Post, Mar. 21, 1999, at A7. By doing so, the would-be candidate also gets the advantage of a double publicity hit – free press for the announcement of the exploratory committee and again for the announcement of his or her official candidacy. Susan Glasser, At Election Commission, "Exploring" Means Running, Washington Post, Mar. 21, 1999, at A7.
From the Federal Election Commission’s perspective, however, the political distinction between "exploring" and declaring a federal candidacy is one without a legal difference. The FEC does not recognize "exploratory committees" – only candidates and campaign committees. So, regardless of how individuals characterize themselves publicly, they need to be mindful that the FEC may consider them candidates subject to the limitations, prohibitions, and regulations of federal election law.
Under the FECA, an individual becomes a "candidate" whenever she or he, either directly or through another, has received contributions aggregating in excess of $5,000 or made expenditures aggregating in excess of $5,000. 2 U.S.C. § 431(2)(A) (1999); 11 C.F.R. § 100.3(a) (1999). Funds received and payments made for purposes of determining whether an individual should become a candidate, however, are not considered "contributions" or "expenditures" for purposes of triggering candidacy. 11 C.F.R. § 100.7(b)(1)(i) (1999). This so-called "testing the waters" exemption allows would-be candidates to accept and expend funds for activities such as polling, telephone calls, and travel without having those funds count toward the dollar thresholds for candidacy. The exemption does not apply, however, to funds received or expended for activities that clearly indicate that an individual has decided to become a candidate such as the following:
using general political advertising to publicize the individual’s intention to campaign for federal office;
raising funds in excess of what could reasonably be expected to be used for exploratory activities or undertaking activities designed to amass campaign funds that would be spent after the individual becomes a candidate;
making or authorizing written or oral statements that refer to the individual as a candidate for a particular federal office;
conducting activities in close proximity to the election or over a protracted period of time; and
taking action to qualify for the ballot under state laws.
11 C.F.R. §§ 100.7(b)(1)(ii), 100.8(b)(1)(ii) (1999).
The "testing the waters" exemption allows truly undecided candidates to refrain from making a decision before creating a campaign committee and filing requisite disclosure forms. The exemption does not, however, allow individuals to amass substantial funds for later use without disclosing their activities to the FEC. Notwithstanding the legal prohibition of such conduct, it would be political suicide in today’s climate to stockpile millions of dollars without disclosing it until after an official announcement of candidacy.
If, after a period of "testing the waters," an individual subsequently becomes a candidate, all funds received and expended during the candidate’s exploratory phase must be disclosed to the FEC in the first report filed by the candidate’s campaign committee. 11 C.F.R. §§ 100.7(b)(2)(i), 100.8(b)(1)(i) (1999). Thereafter, as a federal candidate, the individual and his or her campaign committee is subject to the full panoply of limitations, prohibitions, and regulations of the FECA. Chapters 21 and 22 discuss in greater detail the contribution and expenditure limitations and prohibitions and disclosure rules of the FECA. Following in this chapter is a discussion of the many issues which involve interaction between federal and state campaign finance activities. Top
II. The Interaction Between Federal and State Campaign Finance Laws
A. Federal Preemption
Where federal and state campaign finance laws overlap, the FECA and FEC regulations preempt state law in two specific areas:
• prohibitions on election-financing activities by foreign nationals, national banks and federally-chartered corporations; and
• laws that pertain to the financing of federal elections.
See 2 U.S.C. §§ 441e, 441b(a), 453 (1999); 11 C.F.R. §§ 108.7, 100.4, 114.2(a) (1999).
1. Prohibitions on Foreign Nationals, National Banks and Federally-Chartered Corporations
a. Foreign Nationals
The ban on political contributions and expenditures by foreign nationals was first enacted in 1966 as part of the amendments to the Foreign Agents Registration Acts ("FARA"). In 1974, the prohibition was incorporated directly into the FECA, giving the FEC jurisdiction over its interpretation and enforcement. Today, the FECA prohibits foreign nationals from directly or indirectly making any contributions or expenditures or expressly or impliedly promising to make such contributions or expenditures in connection with any United States convention, caucus, primary, general, special, or runoff election in connection with any federal, state, or local political office. 2 U.S.C. § 441e(a) (1999); 11 C.F.R. § 110.4(a)(1) (1999). The prohibition is reciprocal and also makes unlawful the solicitation, acceptance, or receipt of any such contribution from a foreign national. 2 U.S.C. § 441e(a) (1999); 11 C.F.R. § 110.4(a)(2) (1999).
A "foreign national" is defined to include individuals who are not United States citizens, immigrants who do not possess a "green card," foreign governments and political parties, and foreign corporations, partnerships or other associations of persons organized under the laws of or having a principal place of business in a foreign country. See 2 U.S.C. § 441e(b)(1)-(2) (1999); 22 U.S.C. § 611(b)(1)-(3) (1998).
i. Domestic Subsidiaries of Foreign Corporations and Domestic Corporations Owned by Foreign Nationals
a. Federal and Non-Federal Political Committee Contributions
A domestic subsidiary of a foreign corporation or a domestic corporation owned by a foreign national may not establish a federal or non-federal political committee (PAC) to make contributions in any election if the foreign parent corporation or its foreign national owner finances the PAC’s activities or if individual foreign nationals serve as officers of the PAC, participate in the operation of the PAC or the selection of persons to operate the PAC, or make decisions regarding PAC contributions or expenditures. 11 C.F.R. § 110.4(a)(3) (1999). See [1976-1990 Transfer Binder] Fed. Election Camp. Fin. Guide (CCH) ¶ 5986 (June 18, 1990) (noting that corporation may operate a PAC even if a majority of its stock is held by foreign nationals only if the foreign nationals play no part in the operation of the PAC).
b. Nonfederal Activity
In addition, a domestic subsidiary of a foreign corporation or a domestic corporation owned by a foreign national may not make contributions in connection with any state or local elections if the contributions are financed by the foreign parent corporation or foreign national owner of the corporation or if individual foreign nationals participate in any activity relative to contributions of non-federal candidates and committees. 11 C.F.R. § 110.4(a)(3) (1999). See FEC Advisory Opinion 1992-16 (June 26, 1992) (detailing regulations mandated for full compliance of U.S. subsidiary of a foreign corporation participating in state and local elections).
ii. Non-Election and Volunteer Activities by Foreign Nationals
With few exceptions, the value of personal services provided without compensation by any volunteer is not considered a "contribution" for purposes of the FECA. See 2 U.S.C. § 431(8)(B) (1999); 11 C.F.R. § 100.7(b)(3) (1999). In 1987, the FEC applied this contribution exemption to foreign nationals by allowing a foreign national student to provide volunteer services to a Presidential campaign. See [1976-1990 Transfer Binder] Fed. Election Camp. Fin. Guide (CCH) ¶5899 (August 21, 1987). Contrary to the 1987 advisory opinion, however, the FEC issued an advisory opinion in 1981 – which the FEC stated was not superseded by its 1987 advisory – prohibiting a foreign national artist from donating his talents to a senatorial campaign. See [1976-1990 Transfer Binder] Fed. Election Camp. Fin. Guide (CCH) ¶5639 (January 29, 1982).
Practice Tip: Given the difficulty in reconciling the FEC’s 1981 and 1987 advisory opinions, foreign nationals seeking to provide volunteer services as well as candidates and political committees interested in accepting volunteer services from foreign nationals are best advised to seek an advisory opinion addressing the specific facts of the proposed volunteer service.
In addition to volunteer services, the FEC has countenanced foreign nationals engaging in political activity that is not connected with any election to any federal, state, or local political office.
Example: A foreign national may lawfully make contributions solely to influence ballot issues but cannot contribute to a ballot committee that has coordinated efforts with a candidate’s re-election campaign. See[1976-1990 Transfer Binder] Fed. Election Camp. Fin. Guide (CCH) ¶5989 (July 2, 1990)..
b. National Banks and Federally Chartered Corporations
The FECA also prohibits national banks and corporations organized under the laws of Congress from making contributions or expenditures in connection with any election to any political office, including federal state, and local offices, political convention or caucus to select candidates for office. 2 U.S.C. § 441b(a) (1999); 11 C.F.R. 114.2(a) (1999). Unlike foreign nationals, however, national banks and federally chartered corporations may establish PACs for this purpose. See 11 C.F.R. 114.2(a)(2), 11 C.F.R. § 114.5 (1999).
2. Federal Election Laws
The provisions of the FECA and the rules and regulations issued thereunder preempt any provision of state law with respect to the election to federal office. In addition, federal law supersedes state law with respect to: (a) the organization and registration of political committees supporting federal candidates; (b) the disclosure of receipts and expenditures by federal candidates and political committees; and (c) the limitations on contributions and expenditures applicable to federal candidates and political committees. 11 C.F.R. § 108.7 (1999).
B. Activities for Which Federal Law Does Not Preempt State Law
The FECA and applicable rules and regulations do not preempt state law with respect to: (a) the requirements of qualifying as a candidate or political party organization for the ballot; (b) dates and places of elections; (c) voter registration; (d) prohibitions on false registration, voting fraud, theft of ballots and similar offenses; and (e) candidates’ disclosure of their personal finances. 11 C.F.R. § 108.7(c)(1)-(5) (1999). Top
III. Federal and Non-Federal Political Committee Accounts
Political committees that finance activities in both federal and non-federal elections are subject to certain rules designed to ensure that the federal election activity is financed with funds that comply with the limits and prohibitions of federal law. Activities which qualify as "federal election activities" include the following:
contributions and expenditures on behalf of specific federal candidates;
contributions to federally-registered PACs;
transfers of funds and payment made to a federally registered party committee; and
payments for voter drives and other activities that influence federal elections even though they may not promote specific federal candidates.
Political committees, including party committees, active in both federal and non-federal election activities may either establish one account for federal activity and another account for non-federal election activity or conduct both federal and non-federal election activities from one account subject to the limits and prohibitions of federal law. 11 C.F.R. § 102.5(a)(1) (1999).
A. Maintaining Two Accounts for Federal and Non-Federal Election Activities
Where a political organization chooses to maintain two accounts, the federal account must register as a separate federal political committee and, as such, is subject to federal registration, reporting rules, and other requirements. 11 C.F.R. § 102.5(a)(1)(i) (1999). Only funds subject to the limitations and prohibitions of the FECA may be deposited into the federal account and all disbursements, contributions, expenditures and transfers in connection with federal election activities must be transacted out of this account. 11 C.F.R. § 102.5(a)(1)(i) (1999). Further, any administrative expenses associated with conducting the committee’s federal and non-federal activities must be proportionally allocated between the federal account and non-federal account. 11 C.F.R. § 102.5(a)(1)(i) (1999).
B. Maintaining One Account for Federal and Non-Federal Election Activities
A political organization may alternatively choose to maintain only one account for both federal and non-federal election activities. 11 C.F.R. § 102.5(a)(1)(ii) (1999). The single account shall receive only contributions subject to the limitations and prohibitions of the FECA regardless of whether such contributions are for use in connection with federal or non-federal elections. 11 C.F.R. § 102.5(a)(1)(ii) (1999). The account must register as a political committee and all receipts and disbursements, including those that concern non-federal election activity, must be reported in accordance with the FECA. 11 C.F.R. § 102.5 (a)(1)(ii) (1999). Top
IV. Unregistered Political Organizations
Organizations which make contributions or expenditures for federal political activity but do not qualify as "political committees" for FECA purposes must nonetheless use permissible funds to support their activities. In order to ensure the use of permissible funds, the unregistered organization must establish a separate account into which only funds subject to FECA limitations and prohibitions are deposited or demonstrate through a "reasonable accounting method" that it has received sufficient funds subject to the limitations and prohibitions of the FECA to cover each federal contribution, expenditure or payment made. 11 C.F.R. § 102.5(b)(1)(i)-(ii) (1999). Top
V. Transfers of Funds and Refunds Between Federal and Non-Federal Candidates and Committees
A. Transfers and Refunds Between Candidate Committees Established by the Same Candidate
1. Transfers
A candidate’s federal campaign committee may not accept funds or assets transferred from a committee established by the same candidate for a non-federal election campaign. 11 C.F.R. § 110.3(d) (1999). FEC advisory opinions have recognized two exceptions to this prohibition. First, where the two committees share facilities and personnel, the non-federal committee may transfer funds to the federal committee to pay its portion of the shared expenses. See FEC Advisory Opinion 1994-37 (January 13, 1995). Second, in instances where the non-federal committee purchases assets from the federal committee, it may transfer funds to the federal committee as payment for the assets. See [1976-1990 Transfer Binder] Fed. Election Camp. Fin. Guide (CCH) ¶ 5955 (May 26, 1989).
2. Refunds
FEC regulations also allow the non-federal committee, at its own option, to refund contributions and coordinate efforts with the candidate’s federal committee to solicit contributions from the same contributors to the candidate’s federal committee. 11 C.F.R. § 110.3(d) (1999). The costs associated with such a solicitation after refund are borne solely by the federal committee. 11 C.F.R. § 110.3(d) (1999).
B. Transfers Between Affiliated Political Committees
The FEC authorizes the transfer of funds from a non-federal PAC to an affiliated federal committee. 11 C.F.R. § 102.6(a)(1)(i) (1999). The transferred funds will be considered contributions which, depending on the amount, may trigger registration and reporting requirements for the non-federal committee. 11 C.F.R. § 102.6(a)(2) (1999).
An "affiliated committee" includes all authorized committees of the same candidate for the same federal election and all committees organized, established, financed and controlled by the same person or organization. 11 C.F.R. § 100.5(g) (1999).
C. Transfers Between Federal and Non-Federal Accounts of the Same Political Organization
The FEC allows the transfer of funds from a political organization’s federal account to its state account. The transfer of funds from an organization’s state account to its federal account, however, is prohibited except in the following circumstances:
1. Non-Federal Account Acting Solely as Collecting Agent
A "collecting agent" is an organization or committee that collects and transmits contributions to a separate segregated fund to which the collecting agent is related. 11 C.F.R. § 102.6 (b)(1) (1999). Where non-federal committees serve solely as collecting agents and do not engage in any other election activities, the non-federal committees may make transfers to the federal account without having to register and report as a political committee. 11 C.F.R. § 102.6(b)(2) (1999).
2. Allocating Shared Expenses
Where a political organization supporting both federal and non-federal candidates incurs expenses, funds may be transferred from the organization’s non-federal account to its federal account for purposes of covering the non-federal portion of the shared expenses. 11 C.F.R. § 102.5(a)(1)(i) (1999). Top
VI. "Soft Money" and Party Committee Transfers
As discussed in more detail in Chapters 21 and 22, the FECA regulates campaign financing by imposing limits and prohibitions on money spent "in connection with" federal candidates. The term "federal money" or "hard money" refers to funds that are permissible under the FECA because they come from permissible sources and do not exceed contribution limits. Conversely, "soft money" or "non-federal money" refers to funds that are prohibited under the FECA either because they come from a prohibited source, such as a corporation, labor union, or federal contractor, or because they exceed FECA contribution limits.
Certain state campaign finance laws are more lenient, allowing sources prohibited under the FECA to make contributions to state and local candidates and also permitting individuals to make contributions in excess of the limits imposed by the FECA. Most party committees receive some contributions which are permissible under the FECA and others that are not. Those contributions that are not permissible under the FECA must be used exclusively for state and local campaign activity or other party activities that do not influence federal elections.
Most party committees take advantage of the dual accounting system described above and segregate federal or hard money contributions from non-federal or soft money contributions into federal and non-federal accounts. It is relatively easy for a committee to determine whether or not a contribution is permissible under the FECA and thus capable of deposit into the federal account. Distinguishing between a party committee’s federal and non-federal expenditures, however, is often more difficult since many committee activities benefit both federal and non-federal candidates. For example, get-out-the-vote drives urging people to support a party and voter registration activities presumably increase the turnout of voters who support party candidates in both federal and non-federal elections. As a result, the exclusive use of soft money for such party-building activities – which indirectly benefits federal candidates – is violative of the FECA’s contribution limitations and source prohibitions.
FEC regulations and advisory opinions have attempted to address the impact of soft money on federal elections by requiring party committees to pay a portion of the costs associated with party-building activities with federal or hard money. In the early 1980s, FEC regulations required party committees to allocate expenses between federal and non-federal accounts on a vague "reasonable basis" standard.
In 1984, Common Cause submitted a rulemaking petition seeking stricter rules governing allocation and the use of soft money in federal elections. After conducting public hearings, the FEC concluded that there was insufficient evidence that soft money was being misused in federal elections and decided against any proposed changes. Common Cause responded by filing suit against the FEC in the U.S. District Court for the District of Columbia alleging that the FEC had acted contrary to law by its rulemaking petition. The district court upheld the FEC’s refusal to initiate proposed rulemaking but nonetheless ordered the FEC to replace its "reasonable basis" standard with a more specific, workable allocation structure. See Common Cause v. Federal Election Commission, 692 F. Supp. 1391, 1396 (D.D.C. 1987).
Pursuant to the court’s order, in June, 1990, the FEC promulgated soft money regulations designed to ensure that federally permissible funds pay for the federal share of activities that affect both federal and non-federal elections. The rules also sought to ensure that a non-federal account does not advance the federal share of such expenses, however briefly. The new rules incorporate a series of formulas that party committees must employ to calculate the amount of federal funds that must be spent on activities that benefit both federal and non-federal candidates. In addition, the regulations, which became effective January 1, 1991, require disclosure by national party committees of all receipts and disbursements of their non-federal accounts and further establish a presumption that funds solicited from activities that make reference to a federal candidate or a federal election are to be considered federal funds. Each of these changes is described below:
A. Allocation Formulas for National Party Committees
The method to be applied to allocate costs of activities that affect both federal and non-federal elections depends on the type of committee incurring the expense and the type of activity for which the expense is incurred.
National party committees (DNC, RNC, DSCC, NRSC, DCCC and NRCC) are required to allocate a minimum of 60% of their administrative expenses and costs of generic voter drives to their federal accounts each year. 11 C.F.R. § 106.5(b)(2)(ii) (1999). In presidential election years, the allocable percentage shall be a minimum of 65%. 11 C.F.R. § 106.5(b)(2)(i) (1999).
In addition, national party committees must allocate the costs of combined federal and non-federal fundraising programs and events based on the ratio of funds received into their federal account to their total receipts from each fundraising event or program. 11 C.F.R. § 106.5(f) (1999). For pre-program and event costs, the ratio must be estimated based on the party committee’s reasonable prediction of its federal and non-federal revenue from the program or event.
The 1991 regulations also impose additional reporting requirements to increase the FEC’s ability to monitor allocations of soft money for federal and non-federal candidates. National party committees are required to report their allocations of administrative expenses, voter drive costs and fundraising costs. 11 C.F.R. § 106.5(b)(1)-(2) (1999). They must also itemize transfers of funds from their non-federal to federal accounts as well as disclose all financial activities of their non-federal accounts. 11 C.F.R. §§ 104.3, 106.5(g)(3) (1999).
B. Disclosure by National Party Committees
1. Contributions
National party committees must report information about each individual, committee, corporation, labor organization or other entity that donates an aggregate amount in excess of $200 in a calendar year to the committee’s non-federal account. 11 C.F.R. § 104.8(e) (1999). National party committees must also disclose information about each individual or entity that donates over $200 in a calendar year to the committee’s building fund account for the construction or purchase of office facilities for the political committee. 11 C.F.R. § 104.8(f) (1999). Among the information required to be disclosed is the donating individual or entity’s name, mailing address, occupation or type of business and date of receipt and amount of any donation.
2. Disbursements
Similarly, national party committees must report information about each individual or entity to whom a disbursement in an aggregate amount or value in excess of $200 within the calendar year is made from the committee’s non-federal account and building fund account. 11 C.F.R. § 104.9(c)-(d) (1999). In addition, national party committees must report each transfer from their non-federal account to the non-federal account of a state or local party committee. 11 C.F.R. § 104.9(e) (1999).
Disclosure of contributions and disbursements to non-federal accounts or building funds of state party committees are governed by the applicable state’s campaign finance laws.
C. Solicitation of Soft Money – Presumption of Federal Funds
If a party committee solicitation "makes reference to a federal candidate or a federal election," it will be presumed that the solicitation is for federal election purposes and all contributions resulting from that solicitation will be subject to federal limits and prohibitions. 11 C.F.R. § 102.5(a)(3) (1999). This presumption can only be rebutted by demonstrating that the funds were solicited with express notice that they would not be used for federal election purposes. 11 C.F.R. § 102.5(a)(3) (1999).
D. Current Status of "Soft Money" Regulations
On May 20, 1997, a bipartisan delegation of five Members of Congress, including Congressman Marty Meehan of Massachusetts, petitioned the FEC to modify its rules to lessen the influence of soft money in federal elections. On June 5, 1997, President Clinton petitioned the FEC to use its rulemaking powers to ban soft money and adopt new rules requiring that candidates for federal office and national parties be permitted to raise and spend only hard dollars. In response to these petitions, the FEC sought comment on proposed rules relating to the receipt and use of soft money by national, state, and local party committees. 63 Fed. Reg. 37,722 (1998).
The FEC invited comment on two different proposals for addressing soft money in the regulations. The first proposal was to make no changes to the current rules. 63 Fed. Reg. 37,728 (1998). Under this option, national parties would continue to be prohibited from receiving and using soft money in connection with federal elections. Soft money raised for non-federal related elections would be permitted.
The second option was to make revisions to the current rule and included a core proposal with three variations on that proposal. 63 Fed. Reg. 37,728 (1998). The core proposal would prohibit the receipt and use of soft money by national party committees and would eliminate all national party non-federal accounts except for building fund accounts. The three variations to the core proposal included modifications to:
allow national party committees to raise soft money for the limited purpose of making direct contributions to state and local candidates;
ensure that hard money transferred from a national party committee to a state or local party committee is spent in accordance with federal rules rather than more favorable state or local rules; and
require state and local party committees to finance their mixed federal and non-federal activities with hard dollars.
63 Fed. Reg. 37,729 (1998).
A public hearing on the proposed soft money rules was conducted in Washington, D.C. on November 18, 1998. At the time of publication, the FEC was continuing its review of the public comments and hearing testimony and to date has not promulgated new soft money regulations. Top
VII. Federal Criminal Liability
The predecessor statute to the FECA, the Corrupt Practices Act of 1925, carried only criminal penalties for enforcement of its provisions. Because many violations of the former Act were unintentional and did not warrant criminal prosecution, few violations were pursued criminally. The drafters of the FECA sought to increase enforcement of campaign finance violations by providing for both civil and criminal penalties. As described more fully in Chapter 23, the FEC enforces civil violations of the FECA. The Department of Justice, by and through local U.S. Attorneys, enforces criminal violations of the FECA. While most violations of the FECA continue appropriately to be addressed with non-criminal sanctions, the Department of Justice has been aggressive in recent years in bringing indictments for violations of the FECA’s contribution limitations and disclosure laws.
A. Criminal Violations of the FECA
Any person who "knowingly and willfully" violates any provision of the FECA concerning the contribution or expenditure aggregating $2,000 or more during a calendar year is subject to a misdemeanor prosecution with potential penalties of one year imprisonment, a fine not to exceed $25,000 or 300 percent of the subject contribution or expenditure or both. 2 U.S.C. § 437g(d)(1)(A) (1999).
To satisfy the "knowing and willful" element of the statute, the government must prove that the individual: (1) knew of the FECA’s contribution and expenditure requirements; and (2) purposefully disobeyed the law with intent on violating those requirements. See Ratzlaf v. United States, 510 U.S. 135, 141 (1994). See also United States v. Curran, 20 F.3d 560, 568-69 (3d Cir. 1994) (implying that Ratzlaf standard applies to FECA violations).
Even if an individual has "knowingly and willfully" violated the FECA, however, it is Department of Justice ("DOJ") policy to prosecute individuals only where the violations are "significant and substantial," either in terms of aggravated intent or in the monetary amount involved. See 43 Fed. Reg. 5441 (1978) (Memorandum of Understanding between FEC and DOJ concerning discharge of their respective responsibilities under the FECA). Among the factors considered by the DOJ in determining whether a violation is substantial enough to warrant prosecution are the following:
the repetitive nature of the acts;
the existence of a practice or pattern;
prior notice; and
the extent of the conduct in terms of geographic area, persons and monetary amounts.
43 Fed. Reg. 5441 (1978).
Many of these factors exist in conduit or "straw donor" cases where individuals or entities employ others to make contributions which, because of contribution limitations and source prohibitions, would be otherwise prohibited under the FECA.
In United States v. Crop Growers Corp., 954 F.Supp. 335, 340 (D.D.C. 1997), an agricultural cooperative association was charged with violating the FECA by funneling over $46,000 in corporate post-election campaign contributions over a three-year period to the brother of former Agriculture Secretary Michael Espy. See also United States v. Ferrouillet, Crim. A. 96-198, 1997 WL 266627 (E.D. La. 1997) (individual defendants convicted of scheme to funnel illegal $20,000 corporate campaign contribution to Henry Espy’s debt retirement from his failed congressional campaign). In United States v. Simon Fireman, 20 F. Supp.2d 229, 230 (D. Mass. 1998), the U.S. Attorney’s Office for the District of Massachusetts prosecuted an individual for using his employees as conduits for purposes of exceeding FECA contribution limits. Fireman pleaded guilty to violations of 2 U.S.C. §§ 437 and 441 and was sentenced to one year probation, the first six months of which was to be served in home detention, and a $1,000,000 fine. Fireman’s company, Aqua Leisure, also pleaded guilty to FECA violations and was ordered to pay a $5,000,000 fine.
B. Prosecution Based on Non-FECA Criminal Statutes
In addition to direct violations of the FECA contribution, expenditure and disclosure rules, the Department of Justice may bring charges for FECA violations under other criminal statutes such as the general conspiracy, fraud, and false statement statutes. Among the reasons for charging conduct under statutes rather than the FECA may be to avoid the heightened "knowing and willful" intent requirement of the FECA; to get around the three-year statute of limitations of the FECA; or to charge a felony with the possibility of a prison sentence.
The argument that defendants should be prosecuted under the FECA as opposed to other criminal statutes with greater penalties is without merit. The law is well-settled that when an act violates more than one criminal statute, the government may prosecute under either statute as long as Congress did not clearly intend for one statute to supplant another. There is no indication in FECA itself or its legislative history that Congress intended it to supplant the general criminal statutes contained within Title 18 of the United States Code. See United States v. Curran, 20 F.3d 560, 566 (3d Cir. 1994) (FECA not intended to preempt general criminal provisions of 18 U.S.C. §§ 2, 371 or 1001); United States v. Trie, 21 F. Supp.2d 7, 19 (D.D.C. 1998) (criminal provisions of FECA do not preempt conspiracy, mail and wire fraud and false statements provisions of criminal code).
1. Conspiracy/False Statements/Fraud
In United States v. Hsia, 24 F. Supp.2d 14, 20 (D.D.C. 1998), the government charged the defendant with conspiring to defraud the United States in violation of 18 U.S.C. § 371 and making false statements to the FEC in violation of 18 U.S.C. §§ 2 and 1001. As to the conspiracy charge, the government alleged that Hsia solicited a tax-exempt religious organization doing business as the Hsi Lai Temple to make unlawful campaign through straw donors as well as in Hsia’s own name knowing that the Temple would reimburse her. This conduct, argued the government, impaired, obstructed, impeded and defeated the lawful functions and duties of the FEC in enforcing the FECA. With respect to the false statement charges, the government alleged that Hsia knowingly and willfully caused political committees to submit material false statements to the FEC in violation of FECA’s disclosure rules by concealing the identity of the true source of the contributions from the committees which, in turn, relayed false information to the FEC.
In United States v. Trie, 21 F.Supp. 2d at 7, the defendant, Yah Lin "Charlie" Trie, was charged with conspiring to defraud the United States by impairing and impeding the lawful functions of the FEC in violation of 18 U.S.C. § 371; using the mail, faxes and telephones to conceal the source of contributions made to the DNC in violation of 18 U.S.C. §§ 1341 and 1343; aiding and abetting the making of false statements to the FEC in violation of 18 U.S.C. §§ 2 and 1001; and conspiring to obstruct justice and tamper with witnesses in connection with a Senate investigations of illegal and improper campaign contributions during the 1996 federal elections and in connection with the grand jury which returned his indictment. At the core of Trie’s indictment, the government charged that he allegedly made contributions from his personal account for which he was reimbursed by foreign sources otherwise unable to contribute to federal elections. In addition, Trie allegedly made contributions through various corporations and used "straw" donors to make contributions which were reimbursed by foreign sources.
The defendants in both Hsia and Trie filed motions to dismiss their indictments on various grounds. See United States v. Hsia, 24 F.Supp.2d 33 (D.D.C. 1998); United States v. Trie, 23 F.Supp.2d 55 (D.D.C. 1998). Both motions were heard and decided by district court judge Paul Friedman in the District of Columbia. As to the false statements counts in both cases, the defendants were alleged to have knowingly and willfully caused the submission of material false statements to the FEC by causing the DNC to file reports with the FEC that listed certain individuals as "contributors" when the defendants knew that the individuals named in the reports were not the actual contributors. Judge Friedman found that it was nearly impossible to find conduct alleged in the indictments that could constitute any of the elements of 18 U.S.C. §§ 2 and 1001. For example, the indictments failed to allege with sufficient specificity what roles Hsia and Trie had in "causing" false statements to be made to the FEC and remained silent as to how they "knowingly and willfully" caused the Treasurer of the DNA to submit false reports to the FEC. These infirmities, coupled with the sensitivity to First Amendment concerns which pervades campaign finance laws, justified dismissing the false statement charges against Hsia and Trie. See United States v. Hsia, 24 F.Supp.2d at 54-63; United States v. Trie, 23 F.Supp.2d at 62-63.
C. Solicitation in a Federal Building
Title 18 also includes the independent crime of soliciting contributions in a federal building. Specifically, 18 U.S.C. § 607 makes it unlawful for a person to solicit or receive any contribution "in any room or building occupied in the discharge of official duties" by any officer or employee of the United States or any of its departments or agencies. This prohibition does not extend to contributions that are mailed or delivered to congressional offices as long as the contributions have not been solicited in the federal building and provided that such contributions are transferred within 7 days of receipt to a political committee. Top