Democracy 21 and the Campaign Legal Center Sue the FEC for Failure to Enforce the Law and Protect the Integrity of Democracy

Democracy 21 and the Campaign Legal Center filed a lawsuit recently in the U.S. District Court for the District of Columbia against the Federal Election Commission for dismissing five complaints that CLC and D21 filed with the agency.

The dismissed complaints called for FEC investigation into donors who broke disclosure laws by hiding behind personal Limited Liability Companies  to anonymously make contributions to super PACs.

CLC and D21, over the course of several years, filed complaints with the FEC against these donors for violating the “straw donor” provision of Federal Election Campaign Act. These donors’ anonymous contributions ranged from $857,000 to over $12 million, and several of the donors openly admitted in the media that they had used their personal company for the purpose of hiding their identities from the public. Still, the FEC dismissed all five complaints, after the three Republican commissioners voted not to investigate and sanction these donors.

“This clearly is an agency out of control,” said Larry Noble, general counsel for the Campaign Legal Center, who previously served as general counsel for the FEC. “The agency is now sanctioning the intentional undermining of the integrity of campaign finance disclosure.  Each time the FEC fails to pursue a serious violation of the law, it weakens our democracy and the ability of Americans to know who is truly influencing our elections. It also sends a loud and clear message that those who violate campaign finance laws will face no penalties.”

The Supreme Court has repeatedly recognized that disclosure laws play a vital role in providing the electorate with critical information to make informed choices. Prohibiting the use of straw donors to hide the true source of a contribution is essential to the law.

“LLCs are growing vehicles for laundering dark money contributions into federal elections. Anonymous donors are giving contributions to Super PACs through LLCs, and only the LLCs, not the actual donors, are being disclosed to the public by the Super PACs,” said Fred Wertheimer, president of Democracy 21. “Our FEC complaints and lawsuit are designed to bring an end to these ‘secret money’ schemes before they get completely out of hand and to obtain enforcement of the law in cases that we believe involve clear violations.”

The lawsuit states that in dismissing these complaints, the FEC has “undermined FECA’s purposes, including its goal of promoting transparency in elections and providing the electorate with information about who is speaking to it during elections.” CLC and D21, along with the public, “were deprived of timely information about the sources of the contributions made to the super PACs – information to which they are legally entitled to under FECA.”

The lawsuit calls for the court to find that the FEC’s dismissal of the complaints was “arbitrary, capricious, and an abuse of discretion, and otherwise contrary to the law,” and seeks a judicial order demanding the FEC enforce the law within 30 days.

Voting Rights Institute Asks Department of Justice to Investigate Possible Voting Rights Violations in Alabama

The Voting Rights Institute has called on the U.S. Department of Justice to investigate Daphne, Alabama’s City Council’s March 21 decision to reduce the number of polling places in the city from five to two.

The city’s decision forces residents of one of the only districts with a sizable black population to travel more than two and a half miles away from their current polling place, while preserving the polling locations for most of the city’s heavily white districts.

“This is exactly the type of voting change that would have had to have been pre-cleared by the Department of Justice before the Supreme Court’s disastrous ruling in Shelby County v. Holder,” said Harry Baumgarten, Legal Fellow with the Voting Rights Institute. “In gutting a key provision of the Voting Rights Act, the Supreme Court has opened the door for these potentially discriminatory measures to be passed and implemented throughout the country.”

The Voting Rights Institute, a project of the American Constitution Society, Campaign Legal Center and Georgetown University Law Center, sent the letter to the Department of Justice after receiving a complaint from African-American leader and voter in Daphne, Willie Williams. In addition to reducing the number of polling locations, the city also recently passed a new mid-decade redistricting plan whose impact on the black voting age population in each district is at best unclear because the city has not been forthcoming about the racial impact of its new plan.

“We want fair and honest elections, and what the Daphne City Council has done in reducing polling locations is not fair and it’s not honest,” said Willie Williams, Daphne resident. “Voters need convenient polling places and need to be able to vote, and not be confused where to go to vote in their local elections.”

Watchdog Groups file FEC Complaints Against Shell Companies Hiding Super PAC Donors

Democracy 21 joined the Campaign Legal Center recently in filing two complaints with the Federal Election Commission, calling on the agency to investigate campaign donors who are skirting disclosure laws by hiding behind corporations to anonymously fund elections.

The first complaint asks the FEC to investigate whether DE First Holdings, which came into existence just one day before it gave $1 million to the liberal Super PAC Coalition for Progress, and the person who was the true source of the funds, violated the Federal Election Campaign Act. Based on a report by Politico New Jersey, it appears this company was set up for the purpose of laundering money to a political committee while hiding the true source of the funds.

The second complaint asks the FEC to investigate Andrew Duncan and IGX, LLC for also violating the same sections of the FECA that prohibit the use of straw donors. Duncan admitted in an AP story that he had used the company, IGX, to make a secret donation of $500,000 to the Super PAC supporting Marco Rubio, Conservative Solutions PAC.

“The law is clear that conduits cannot be used by donors to mask the true source of funds given to Super PACs or other political committees,” said Donald Simon, counsel for Democracy 21. “Yet that appears to be precisely what happened here. The FEC should ensure that reporting requirements are met and that citizens know who is behind the money being spent to influence their votes.”

Appeals Court Panel Overturns Van Hollen v. FEC, Reopening Disclosure Loophole for 2016 Cycle

Recently in Van Hollen v. FEC, the Court of Appeals for the D.C. Circuit again upheld an FEC rule that voting rights advocacy groups say “severely” limits federal disclosure requirements connected to “electioneering communications.”

The appellate panel overturned a district court decision holding the rule “arbitrary, capricious, and contrary to law” for improperly narrowing the scope of the McCain-Feingold law’s disclosure requirements and allowing nonprofit 501(c)(4) advocacy groups, 501(c)(6) business associations, and others to spend millions on “electioneering communications” without disclosing their donors.

“(The) decision is deeply disappointing,” said Tara Malloy, Campaign Legal Center deputy executive director. “And all but guarantees that there will be no disclosure of the donors funding the vast sums already being spent on political advertising by 501(c)(4) and other groups in the 2016 election cycle. Once again, the Court of Appeals has effectively sanctioned the wholesale evasion of federal disclosure laws. Neither Supreme Court precedent nor the underlying statute provided any justification for the FEC to adopt a rule narrowing disclosure.”

The Van Hollen case is a long-running challenge to a 2007 FEC regulation providing that only donors that specifically earmark their contributions for election ads are subject to disclosure. The district court first ruled in favor of Van Hollen in 2012, holding that the FEC regulation was contrary to the clear language of the federal campaign finance statue it purported to implement.

The D.C. Circuit Court of Appeals also overturned the first lower court decision, disagreeing that the federal statute was unambiguous and holding that the district court should have instead analyzed whether the rule was a reasonable interpretation of the statute under a more deferential mode of judicial review. The case was remanded back to the district court, which found that the rule promulgated by the FEC was “arbitrary, capricious, and contrary to law” and an “unreasonable interpretation” of the McCain-Feingold law.

The Campaign Legal Center is part of the legal team representing Van Hollen in this case, which is led by Catherine Carroll of WilmerHale. The legal team also includes lawyers from WilmerHale, Democracy 21 and Public Citizen.

To read the opinion, click here.

To read the brief filed by Van Hollen’s legal team, click here.

Reform Groups to IRS: End Misuse of Nonprofits to Launder Secret Contributions into Federal Elections

In a letter sent recently to IRS Commissioner John Koskinen, reform groups called on the IRS to end the misuse use of nonprofit groups to launder secret contributions into federal elections.

The reform groups included the Campaign Legal Center, Common Cause, Demand Progress, Democracy 21, League of Women Voters, People For the American Way, Public Citizen, and Sunlight Foundation.

According to the letter, IRS regulations governing the eligibility of groups for tax status as section 501(c)(4) “social welfare” fail to comply with the tax laws.

The letter stated that the IRS, for years, has informally acceded to an interpretation of the regulation, without any written explanation or justification, that allows section 501(c)(4) groups to spend up to 49 percent of their expenditures on political intervention, or campaign activities. IRS Commissioner Koskinen also reportedly took this position in recent testimony before the Senate Judiciary Committee.

According to the letter, however, this position “is not legally sustainable because the existing IRS regulations contradict the nation’s tax laws and court decisions interpreting these laws”:

The fact is the IRS for many years has misinterpreted and failed to properly enforce the eligibility standards for obtaining section 501(c)(4) tax-exempt status under the Internal Revenue Code.

The letter stated that in order for IRS regulations to comply with the tax laws and applicable court decisions, the agency must “limit the campaign-related expenditures by a “social welfare” group to an “insubstantial” amount:

The requirement to limit a section 501(c)(4) organization to an “insubstantial” amount of campaign activities means, in our view, that an organization can engage in only a limited amount of campaign-related expenditures, such as no more than 5 or 10 percent of total annual expenditures.

According to the letter:

Under the language of the statute and the applicable court decisions, there is simply no way, consistent with the law, to interpret the “insubstantial” test to allow a social welfare organization to spend up to 49 percent of its expenditures on non-social welfare activities, like campaign activities.

The letter stated:

This is contrary to the framework set up by Congress to govern non-profit organizations and contrary to court decisions interpreting that framework.

The tax laws require the IRS to change the regulation.

The letter stated:

The need for you and the IRS to move expeditiously to interpret the tax laws properly is all the more important in light of the great damage that the IRS’s misinterpretation of the tax laws has done to the integrity of our political system and the interests of the American people.

The failure of the IRS to properly interpret the eligibility requirements for section 501(c)(4) tax-exempt status has resulted in hundreds of millions of dollars in secret contributions being laundered into federal elections.

Secret money in American politics is the most dangerous kind of influence-buying money. It provides widespread opportunities for government corruption that remains unknown to the American people and for which neither public officials nor those seeking to influence them can be held accountable.

It is simply wrong and unfair to the American people for the IRS to fail to address this problem when the problem is being caused by the IRS’s legally erroneous interpretation of the tax laws.

The letter concluded:

The IRS has an obligation not only to ensure that the tax laws are properly interpreted and enforced, but also to avoid improperly condoning activities that misuse the tax laws and, in doing so, undermine the integrity and transparency of the nation’s elections.

If the IRS does not end the current practices, the agency will continue to provide license for hundreds of millions of additional dollars in secret contributions to be laundered into federal elections, in contravention of the tax laws.

Our organizations strongly urge you and the IRS to use the ongoing rulemaking process to conform the IRS regulations to the statute and to applicable court decisions that require social welfare organizations to spend no more than an “insubstantial” amount on campaign activities.

We also strongly urge you to make clear that the requirement for section 501(c)(4) organizations to engage in no more than an “insubstantial” amount of non-social welfare expenditures means that a social welfare organization can only spend a small percentage of its total annual expenditures on campaign activities, such as no more than 5 or 10 percent, in order to be eligible for section 501(c)(4) tax status.

To read the letter, click here.

Watchdogs to FCC: Enforce, Improve Broadcaster Public File Accessibility Rules

The Campaign Legal Center this week joined by Common Cause and the Sunlight Foundation, urged the Federal Communications Commission to strengthen the way the agency collects and discloses information to the public and to enforce its existing rules.  In a filing made in response to the agency’s request for comment on local public inspection files and political files, the groups, represented by the Institute for Public Representation of the Georgetown University Law Center, proposed changes to enhance the quality, utility and clarity of the information the FCC collects.

“These public files can be a great resource to the public.  But if broadcasters do not comply with the requirement and the FCC does not enforce the rules — despite receiving complaints detailing clear violations — then the public is kept in the dark,” said Meredith McGehee, Campaign Legal Center Policy director. “These are not arduous requirements.  It is past time to get these public files into the standardized, searchable, sortable format that is the agency’s professed goal and for the FCC to ensure broadcasters comply with them.”

The FCC and the public use the information from the public files to help evaluate broadcast stations’ performance, to ensure the stations address issues of concern to the communities they serve, and to ensure that stations comply the Commission’s policies.

In the comments filed at the FCC, CLC and the groups outlined two ways to improve the political file information collection.  First, the groups urged the FCC to improve enforcement. The Commission has never acted on complaints filed against TV stations that have failed to abide by the online file requirements, even though the agency has received proof of violations from CLC et al.

Second, the groups urged the Commission to require that data be reported according to a standard database format. Currently, TV stations submit PDFs of paper documents, even though the stations themselves keep the information in digital format. As a result of using PDFs, the current FCC database is difficult to navigate and impossible to accurately understand the information in the political file.  The FCC itself noted that a “structured and database-friendly format that can be aggregated, manipulated and more easily analyzed” is the Commission’s goal.  Using such a format is also less burdensome to TV stations that currently take data from a computer, print it out and then upload it to the FCC database.

Also, the Campaign Legal Center and the groups urged the Commission to extend the online public filing to other media and to require stations to file shared services agreements (SSAs), which give a station substantial influence over the operations of one or more stations in the same television market. SSAs have been used to circumvent current limitations on the number of media outlets that can be owned in a media market.

The request for comments was part of the Commission’s on-going compliance with information collection under the Paperwork Reduction Act.

Over the past several years, the groups pushed successfully to get the FCC to enact rules requiring broadcast stations to put their political files online in an FCC database, which took effect for all television stations July 1, 2014.  In a separate proceeding, the groups are also currently urging the Commission to extend the requirements to cable, satellite and radio.

Campaign Legal Center: Overturn Ruling Allowing State Republican Party to Run Super PAC, Take Unlimited Contributions

The Campaign Legal Center filed late last week filed an amicus brief in Colorado Republican Party v. Williams urging the Colorado Court of Appeals to overturn a Colorado District Court ruling that would allow CRP to accept unlimited contributions for a Super PAC it created and controls despite state limits on contributions to party committees.

“The Supreme Court has been very clear that party contribution limits are a valid means of preventing the corruption that can arise when large contributions are made to a political party, regardless of how the party uses that money,” said Megan P. McAllen, Campaign Legal Center associate counsel. “The Colorado Republican Party is trying to resurrect the soft-money abuses that plagued the federal campaign finance system for decades and that the Supreme Court found ultimately undermined the contribution limits and prohibitions.”

In 2003 in McConnell v. FEC, the U.S. Supreme Court upheld the federal ban on unlimited “soft money” contributions to political parties in a challenge to the Bipartisan Campaign Reform Act of 2002.

BCRA (commonly referred to as McCain-Feingold) closed a loophole created by the Federal Election Commission that allowed the national party committees to accept unlimited contributions to spend on certain activities.

In McConnell, the Court found that “the close relationship between federal officeholders and the national parties, as well as the means by which parties have traded on that relationship, that have made all large soft-money contributions to national parties suspect.”

In May 2014, the Colorado Republican Party filed suit against the state seeking an order declaring that its Super PAC, whose officers are appointed as often as annually by the state party chairman, was not subject to the regular limits on what could be contributed to a political party. The State’s Republican Secretary of State and Attorney General chose not to defend the application of the state limits.

However, Colorado Ethics Watch joined the suit as an intervenor-defendant in order to argue that the state contribution limits prohibited CRP from accepting unlimited contributions to fund its Super PAC.

In September, the Colorado District Court ruled in favor of CRP, and Colorado Ethics Watch appealed that decision. The Campaign Legal Center filed in support of that appeal.

The Legal Center was assisted in the filing of the amici brief by Steven K. Imig and Teresa M. Abel of Lewis, Bess, Williams & Weese P.C.

To read the amici brief filed today by the Campaign Legal Center, click here.