SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOCAPPREHENSION OF TAINTED MONEY ACT OF 1997
WEDNESDAY, MAY 14, 1997
House of Representatives,
Subcommittee on Commercial and
The subcommittee met, pursuant to notice, at 9:30 a.m., in room 2226, Rayburn House Office Building, Hon. George W. Gekas (chairman of the subcommittee) presiding.
Present: Representatives George W. Gekas, Bob Inglis, Steve Chabot, Ed Bryant, Jerrold Nadler, Sheila Jackson Lee, Martin T. Meehan, and William D. Delahunt.
Also present: Raymond V. Smietanka, chief counsel; James W. Harper, counsel; Susana Gutierrez, clerk/research assistant; and John Flannery, minority counsel.
OPENING STATEMENT OF CHAIRMAN GEKAS
Mr. GEKAS. The hour of 9:30 having arrived, this subcommittee will come to order; and pursuant to custom and usage in these matters, we declare a recess until the arrival of another Member so we can have a constituted quorum for the purposes of a hearing. The witnesses who are scheduled for the first panel can take their places and breathe easily for awhile. This subcommittee is now in recess.
Page 2 PREV PAGE TOP OF DOC
Mr. GEKAS. The subcommittee will come to order.
Noting the presence of the gentleman from Massachusetts, we now have a hearing quorum as required by the Rules of the House.
The purpose of this hearing is to evaluate the bill that we have introduced which deals with so-called tainted moneys, illegal contributions made to political parties and the disposition of same.
This bill was born in the channels of the mind of the chairman when the first stories began to spread about the Democratic National Committee making a decision that certain contributions were illegal and then making the concomitant decision to return the moneys to the contributors.
That left this chairperson flat in his thinking, because one of the illegal contributions alleged was that of a drug dealer; and I conjured up the picture of an illegal contribution having been made, according to the DNC's own description of it, and then a decision to return it to the drug dealer. For what? I have never gotten that answer. Why should that money be returned to a drug dealer so that it can be returned to the fungibility of dollars in the commerce of the United States with impunity? That troubled me.
Now we have the scenario of an illegal contribution being made; number two, an illegal contribution being received; three, the influence that goes with the contribution makes an impact during the election cycle. After the election is over, that money is returned to the donor.
Page 3 PREV PAGE TOP OF DOC
The donor benefits in two ways: He has--or it, if it is an entity--has influenced the election the way that it was intended with the original contribution, and now the money is returned. So he has gotten free influence in the election cycle and now has the money to do whatever he wants to with that, even if it was illegal in the first place.
So this is a gigantic loophole which I felt--and many others who have joined me in this effort feel--has to be corrected.
I was pleased to see the Democratic National Committee declare its intents here and declare its findings; and then later, when the Republican National Committee did the same with a Hong Kong item, it proves to be a bipartisan, nonpartisan effort on our part. I always intended it as such. Some did not believe that, but I felt that this was something that ought to be corrected in the law and corrected fast.
In the meantime, we want to know whether or not the present mechanisms are adequate to handle this. If they are, we might want to recede from the total effort in backing this legislation. I am not ready to concede that now, but that may be possible. But, at the very least, we ought to recognize the problem, address it and put into place, either by regulation, by establishment of a new methodology or by the statute mandating what we believe ought to be mandated; namely, the escrow holding of such a contribution until an investigation can be launched and completed as to the legality and the eventual disposition of those contributions.
[The bill, H.R. 1494 follows:]
Page 4 PREV PAGE TOP OF DOCINSERT OFFSET RING FOLIOS 1 TO 6 HERE
[The opening statement of Mr. Gekas follows:]
PREPARED STATEMENT OF HON. GEORGE W. GEKAS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA
Good Morning. Today, we hear testimony on the ''Apprehension of Tainted Money Act of 1997.''
This bill was born almost immediately after we learned of the decision by the Democratic National Committee that certain contributions made in the recent presidential election cycle were illegal and that the Committee proposed to return same to the contributors.
Subsequently, the Republican National Committee announced its decision to return what it deemed to be illegal contributions emanating from Hong Kong.
While this tainted money came from foreign sources or from drug dealers, or from other illegal monies, it is sheer folly to return it to its beginnings without a full inquiry as to what laws applied to the contributors, as to the source of the funds, as to the method of delivery to the political entities, and as to the possibility of violation of the civil and criminal laws of the nation.
We should assure the public that tainted money shall not be returned to questionable donors until we have a chance to investigate.
Page 5 PREV PAGE TOP OF DOC
What a scenario:
1) Tainted money was used to illegally influence the 1996 elections;
2) The money is returned;
3) The donors will have influenced the election at no cost;
4) The donors can use that money again with impunity.
This bill is aimed at forever barring such trifling with the election machinery of our country.
Mr. GEKAS. With that, I will yield to the gentleman from New York, Mr. Nadler, the ranking member of the subcommittee, for any opening statement that he might offer.
Mr. NADLER. Thank you very much, Mr. Chairman. I want to thank you for scheduling this hearing today and for focusing attention on the need to ensure that our campaign finance system has enforceable and enforced rules that protect the integrity of our political process.
Unfortunately, the way we finance our elections, through the use of private funds, inevitably means that our elected officials must either be independently wealthy or must seek contributions from individuals with an interest, hopefully of a public spirited nature only, but, given human nature, inevitably often not, in the decisions we make here.
Page 6 PREV PAGE TOP OF DOC
Either way, the private funding of campaigns inevitably gives too much power to the monied interests and too little to the people we were sent here to represent. Either way, all elected officials have two constituencies, in effect: the voters and the contributors. That is true whether the money comes in through a PAC, through the donations of wealthy individuals, through soft money or through any other vehicle you can name. And we can continue to tinker with the restrictions but it doesn't really change the basic equation.
If you want to open up the process so that independent candidates can get their voices heard on an equal footing with incumbents, then you must provide the resources somehow; and if the current system creates an inherent risk of undue influence, then the only way to really reform the process is through public financing. Provide the resources without the strings and make sure the challengers have a chance to be heard.
I realize this is beyond the scope of today's hearings, so I won't speak of it further. It is not even within our subcommittee's jurisdiction. It is certainly not a popular idea; but, ultimately, I believe it is the question that this Congress will have to address if we want to restore confidence in our political system.
Today, we look at an important part of this problem. How can we ensure that our current laws, or any future laws we may enact are obeyed and enforced?
I do have some questions about the legislation before us. It is not clear to me that placing money in escrow, or forcing investigations into even the most mundane transfers, will be the most effective way to police contributions; and, to an extent, the escrow account system would, in essence, treat contributors as presumptively guilty.
Page 7 PREV PAGE TOP OF DOC
It also seems to me that the Department of Justice and the FEC have a great deal of existing authority to impose fines, seize the fruits of criminal ventures and investigate wrongdoing. I believe we should be looking at ways to augment these powers and perhaps increase the penalties for violations of law and perhaps increase the resources available to the law enforcement agencies, including the FEC.
I do think we need to look at the current enforcement system which many have criticized as too cumbersome and too solicitous of those who have violated the law. I am also deeply concerned that the FEC continues to receive inadequate resources to police our laws effectively.
Finally, in view of the work you have done, Mr. Chairman, to highlight the need for effective oversight of the regulatory process, I have some reservations about any short-circuiting of the rulemaking process as this bill calls for.
The publication and public comment provisions of the Administrative Procedure Act are important safeguards to ensure that agency regulations reflect both congressional intent and the concerns of the American people. I would be very reluctant to waive those requirements.
Once again, I thank you for scheduling these important hearings, Mr. Chairman; and I hope they elucidate some conclusions that we can use to improve the process and ensure the honesty of our election process. Thank you, again.
Mr. GEKAS. We thank the gentleman; and we now acknowledge the presence of the gentleman from Massachusetts, Mr. Meehan. If the gentleman has an opening statement, we will be glad to entertain it, so long as it does not exceed 5 minutes.
Page 8 PREV PAGE TOP OF DOC
Mr. MEEHAN. I will make sure that it doesn't exceed a few minutes, Mr. Chairman. I thank you.
I have to say, when I first got on the Subcommittee on Commercial and Administrative Law, I didn't expect that we would be dealing with campaign finance issues. But I think the bill that we are discussing today highlights the problem of what to do when questionable campaign contributions come in the hands of campaign committees. This is certainly a legitimate topic for discussion, and I look forward to examining H.R. 1494 in greater detail.
But no one here should consider that their good government duty discharged by H.R. 1494. The problems we have in the campaign finance system are much greater than illegal contributions. I think it centers upon the role of soft money, in many instances legal soft money contributions, fueling so-called issue ads that don't discuss issues. The campaign system has been polluted with soft money.
I note that a witness today for the majority suggests that soft money contributions would not be covered by H.R. 1494. Whatever the merits of the bill in any other respect, I think this is a critical oversight. It virtually consigns the bill to having little impact on the flaws of the present system.
So, Mr. Chairman, I look forward to discussing this issue. I thank you for bringing the issue forward and am looking forward to a productive hearing.
Mr. GEKAS. We thank the gentleman.
Page 9 PREV PAGE TOP OF DOC
We have invited the first panel to take their places at the witness table. They are:
Robert S. Litt, Deputy Assistant Attorney General in the Criminal Division of the U.S. Department of Justice. From 1978 to 1984, Mr. Litt was an assistant U.S. attorney, prosecuting fraud, racketeering and corruption cases, among others. He was an associate and partner at Williams & Connolly in Washington and served as Special Advisor to the Assistant Secretary of State for European and Canadian Affairs before joining the Justice Department. Mr. Litt graduated from Harvard College and Yale Law School. He clerked for Judge Edward Weinfeld and Justice Potter Stewart.
We welcome Mr. Litt.
Lawrence Noble has served as General Counsel to the Federal Election Commission since October 1987. Mr. Noble's other duties at the Commission have included serving as Acting General Counsel, Deputy General Counsel and Assistant General Counsel for Litigation. Mr. Noble is president-elect and a member of the Steering Committee of the Council on Governmental Ethics Laws. He has also served as vice-chair of the Election Law Committee of the Administrative Law Section of the American Bar Association. Mr. Noble received his bachelor of arts in political science from Syracuse University in 1973 and his juris doctor from the National Law Center at George Washington University in 1976.
We welcome Mr. Noble.
We say in advance that the written statements of the individuals will be accepted for the record in their entirety. We will ask that your testimony be limited to 5 minutes and then we ask that you would be kind enough to respond to some questions from the members of the subcommittee.
Page 10 PREV PAGE TOP OF DOC
With that, we will start with Mr. Litt.
STATEMENT OF ROBERT S. LITT, DEPUTY ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE
Mr. LITT. Good morning, Mr. Chairman and members of the subcommittee. It is a pleasure to appear before you this morning to present the views of the Department of Justice on H.R. 1494, the Apprehension of Tainted Money Act of 1997.
This legislation would effectively freeze large campaign contributions that a political committee decides to refund to a contributor more than 60 days after the contribution had been made, while the Department of Justice and the Federal Election Commission investigate to determine whether fines and penalties are appropriate.
Accountability would be ensured by requiring that the political committee transfer this tainted money to the FEC rather than restoring it to a potential violator of the law. The contribution would be held in an interest-bearing account to be maintained by the FEC. If fines and penalties were imposed against the donor, the Attorney General or the FEC could require that the funds held in the escrow by the FEC be applied against those fines or penalties and toward the cost of the investigation.
The Department of Justice does not object to this legislation in principle, although we would defer to the expertise of the Federal Election Commission in assessing whether or not it will make a useful contribution to the enforcement of the Federal election laws.
Page 11 PREV PAGE TOP OF DOC
However, as I have set forth in my written statement at somewhat greater length, we have concerns about four separate provisions of the bill. Our concerns can, we believe, be alleviated with relatively simple modifications to the bill.
First, we are concerned that proposed subsection 323(d) might require premature disclosure of a criminal investigation. This subsection sets forth three circumstances under which a contribution held in escrow would be returned by the FEC to the donor: first, if the FEC and the Attorney General certify that they are not investigating the making of the contribution or that such an investigation is concluded; second, if the FEC and the Attorney General certify that the funds will not be used to cover fines, penalties or investigative costs or that the amounts required to cover those costs have been withdrawn from the escrow account and subtracted from the funds to be returned; third, and this is the key provision, if for any 120-day period after the date the contribution is deposited in the escrow account neither the FEC nor the Attorney General have pursued an investigation of the making of the contribution.
This last provision is the only one that gives us pause. It seems to assume that the Department of Justice will make public the existence of an investigation relating to a specific contribution. However, it is frequently true that effective law enforcement is better served if the existence of a criminal investigation is not public. Therefore, as I have said in my written statement, we would propose that this provision be amended to require the return of the funds unless the Attorney General or the FEC affirmatively certifies an investigation is in progress. This discretionary certification would allow the Attorney General and the FEC to balance the need for confidentiality in a particular investigation against the desirability of freezing the funds to preserve access.
Page 12 PREV PAGE TOP OF DOC
In many cases, the existence of an investigation will be known to the targets and others and it will thus be possible to make the certification and preserve the funds. But when effective law enforcement requires that an investigation remain confidential, the Attorney General should have the discretion not to make this certification.
Our second concern is with proposed subsection 323(b)(3), which provides that interest accruing on funds in the escrow account shall be used to pay the FEC's costs in establishing and administering the account, with any remainder to be paid into the Treasury. And, again, it is the last part of this provision that is our concern, which is the payment of the remainder above the FEC's costs to the Treasury. We believe that this provision may allow for a taking of the contributor's property without due process of law in violation of the fifth amendment.
In about 1980, the Supreme Court decided a case called Webb's Fabulous Pharmacies v. Beckwith. In that case there was a Florida statute that provided that interest earned on funds deposited into court would be paid to the county although the funds belonged to private parties and were ultimately going to be distributed to them. The Court noted, in holding this statute unconstitutional, that the interest was clearly the private property of the owner of the money and that the State had no justification for confiscating the interest because a separate statute provided for a fee to the clerk of court for the costs of administering the fund.
We believe that the same analysis could well be applied to this provision of this bill, particularly since it applies equally to interest earned on returned contributions which are ultimately not found to be illegal. Accordingly, we suggest that the bill be amended to provide that any sums left over after the payment of fines, penalty and costs of investigation be refunded to the contributor rather than paid over to the Treasury.
Page 13 PREV PAGE TOP OF DOC
Third, as a technical budgetary matter, we recommend that the bill be amended to provide for the transfer of amounts used for the cost of investigation from the escrow account to the Department of Justice and the FEC. This would ensure that the amounts designated for investigative costs in the escrow account would be reported in the budget just like other administrative costs to the Government are. This is an issue that OMB has told me that I have to say this morning.
Finally, we have concerns about section 3 of the bill, which would require implementing regulations to be promulgated within 30 days, notwithstanding any provisions of the Administrative Procedure Act. We are not sure why these particular regulations should be exempt from the requirements of the APA, which, as Representative Nadler noted, provide certain protections to ensure that regulations are appropriate, and we doubt that the final regulations could be drafted and issued within 30 days in any event.
Mr. Chairman, I thank you for the opportunity to comment on this proposed legislation. We would be pleased to work with this subcommittee toward further improvement.
Mr. GEKAS. We thank the gentleman; and we will pose a round of questions, I am sure.
[The prepared statement of Mr. Litt follows:]
PREPARED STATEMENT OF ROBERT S. LITT, DEPUTY ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE
Good morning. It is a pleasure to appear before you this morning to present the views of the Department of Justice on H.R. 1494, the ''Apprehension of Tainted Money Act of 1997.'' The legislation would amend the Federal Election Campaign Act of 1971 by adding a new section 323. It is our understanding that the Federal Election Commission has also been invited to submit views on this bill.
Page 14 PREV PAGE TOP OF DOC
As a general matter, this legislation would impose new duties on the Federal Election Commission with respect to certain contributions that a federal political committee intends to refund voluntarily to a contributor more than 60 days after the contribution was made. The legislation would effectively ''freeze'' large, potentially illegal, campaign contributions while the Department of Justice and the Federal Election Commission investigate to determine whether fines and penalties are appropriate. Accountability would be assured by requiring that the political committee transfer this ''tainted'' money to the Federal Election Commission, rather than restoring it to a potential violator.
The contribution would be held in an interest-bearing escrow account to be maintained by the Federal Election Commission. Under specified circumstances, the Attorney General and the Federal Election Commission could require that the funds be applied towards fines or penalties against the donor. If a fine or penalty were imposed, the funds could also be applied toward the costs of investigations by the Attorney General and the Federal Election Commission.
We have no objection to this legislative proposal, provided that it incorporates modest modifications. Our principal suggestion relates to the provision concerning the return of a contribution after it has been deposited in escrow which, as presently worded, may require us to reveal prematurely the existence of investigations. See subsection 323(d). We believe that a minor modification would alleviate our concern, while preserving the legislation's central objective of preventing the refund of illegal contributions before federal officials have had an opportunity to investigate them.
We also suggest a modification relating to the handling of interest earned on amounts in the escrow account. See subsection 323(b)(3). The legislation provides that interest shall be applied towards administrative costs and that any remaining interest shall be deposited in the general fund of the Treasury. We believe that, as presently drafted, this provision may violate the Takings Clause of the Constitution.
Page 15 PREV PAGE TOP OF DOC
In addition, we have a concern about the advisability and feasibility of the requirement in section 3 regarding the issuance of regulations under the bill. We would like the opportunity to review that provision further before the Subcommittee acts on the bill.
H.R. 1494 would require that the Federal Election Commission establish and maintain an interest-bearing escrow account. A federal political committee would be required to transfer to the Federal Election Commission any contribution that it intends be refunded to the donor if the contribution: 1) equals or exceeds $500; and 2) has not been refunded by the political committee within 60 days of initial receipt by the committee. The Federal Election Commission would deposit such funds to the escrow account. Upon receipt of an intended refund, the Federal Election Commission would be required to notify the Attorney General of the amounts received from the political committee.
Subsection 323(d) of the bill provides for three circumstances under which a contribution held in escrow would be returned by the Federal Election Commission to the donor. First, a contribution would be returned if the Commission and the Attorney General certify that the making of the contribution is not under investigation under any of the statutory provisions specified, or that such an investigation has concluded. See subsection 323(d)(1). Second, a contribution would be returned to the donor if the Commission and the Attorney General certify that the contribution would not be used to cover fines, penalties, or investigative costs pursuant to subsection 323(c), or that, if the contribution would be used in part for such purposes, the amounts required have been withdrawn from the escrow account and subtracted from the returnable contribution. See subsection 323(d)(2). Pursuant to subsection 323(c), the determinations by the Commission and the Attorney General of whether to require that escrow funds be applied to fines, penalties, and costs are discretionary. The legislation would not affect the authority of the Attorney General to recover fines and penalties that is otherwise available under current law.
Page 16 PREV PAGE TOP OF DOC
We are concerned about paragraph (3) of subsection (d), which provides that a contribution would be returned to the donor if:
for any 120-day period after the date the contribution is deposited in the escrow account, neither the Commission nor the Attorney General have pursued an investigation of the making of the contribution....
See subsection 323(d)(3) [Emphasis supplied.] This provision apparently is intended to assure that refunds are not unduly delayed in the absence of a specific determination by the Commission or the Attorney General that there is a continuing need to freeze questionable contributions.
The underscored language of subsection 323(d)(3)--''have pursued an investigation''--seems to assume that there would be public awareness of the pendency of investigations and enforcement actions relating to specific contributions. Consistent with the unambiguous purpose of the legislation to facilitate effective enforcement, we note that under some circumstances a public announcement of the pendency or disposition of a criminal investigation would not be appropriate.
We suggest that the Attorney General's ability to preserve the availability of particular funds in the escrow account be achieved by the addition of a provision permitting the Attorney General, in her discretion, to certify that a criminal investigation is pending. Absent such a certification by the Attorney General, the funds could be released from escrow, subject to the Federal Election Commission's responsibilities for review. This would allow the Attorney General to preserve the confidentiality of an investigation where appropriate, and would avoid unfairness to contributors in the event the Attorney General's determination of whether criminal investigation were warranted could not be made within the required time frame. In no event would the Attorney General be required to certify whether a particular contribution held in the escrow account were the subject of a criminal investigation--a statement that could seriously interfere with effective law enforcement, particularly where subsequently obtained evidence provided a basis for additional investigation or criminal prosecution. Accordingly, we urge that subsection 323(d)(3) be amended to read as follows:
Page 17 PREV PAGE TOP OF DOC
(3) for any 120-day period after the date the contribution is deposited in the escrow account, neither the Commission nor the Attorney General certifies that an investigation or prosecution of the making of the contribution under this Act, title 18, United States Code, or chapter 95 or 96 of the Internal Revenue Code of 1986 is ongoing.
In addition, we believe that the legislation raises a constitutional issue with respect to the Takings Clause of the Fifth Amendment. See Webb's Fabulous Pharmacies v. Beckwith, 449 U.S. 115 (1980). As drafted, accrued escrow interest in excess of administrative costs incurred in establishing and administering the account are to be deposited in the general fund of the Treasury. This may amount to a taking of the contributor's property without due process of law. We suggest that this issue be resolved by deleting the last clause of section 323(b)(3)--at lines 18 and 19 of page three of the bill--and by substituting after the final comma:
and any remaining interest shall be applied towards fines, penalties, or costs of investigation as set forth in section (c), or included in the amount refunded to the contributor.
Further, as a technical matter, we recommend that the bill be amended to provide for the transfer of amounts used for the costs of investigations from the escrow account to the Department of Justice and the FEC. This would ensure that amounts designated for investigative costs in the escrow account would be reported in the budget, just like other administrative costs of the government.
Finally, we have concerns about section 3 of the bill, which would require the promulgation of implementing regulations, ''notwithstanding any provision of'' the Administrative Procedure Act (APA), within 30 days of enactment of the bill. As a matter of policy, we question why regulations promulgated under this bill should be exempted from the procedural and other requirements of the APA. Moreover, it seems highly unlikely, as a practical matter, that final regulations could be drafted and issued within the 30-day period called for in the bill.
Page 18 PREV PAGE TOP OF DOC
Thank you for the opportunity to comment on this proposed legislation. We would be pleased to work with the Subcommittee to improve further this legislation.
Mr. GEKAS. Mr. Noble.
STATEMENT OF LAWRENCE M. NOBLE, GENERAL COUNSEL, FEDERAL ELECTION COMMISSION
Mr. NOBLE. Good morning, Mr. Chairman and members of the subcommittee.
I appreciate the opportunity to represent the FEC this morning. As you know, the Commission does not take a position on the ultimate merits of the pending legislation. My goal is to help explain how we presently deal with some of the issues raised by H.R. 1494 and how the bill may impact our present procedures.
At the outset, I want to make clear that the FEC has long considered one of its goals to be the removal of tainted money from the electoral process. In fact, committees are already under an obligation to get rid of impermissible funds.
Under the present rules, if a contribution presents a genuine question as to whether it is illegal, the treasurer of the political committee must try to determine that the contribution is in fact legal, correct the problem or return the contribution to the contributor.
Page 19 PREV PAGE TOP OF DOC While the initial obligation to review a contribution lies with the committee receiving the contribution, the FEC also monitors committee activities through routine review of committee reports, for-cause audits and enforcement actions. The making and receipt of an illegal contribution can result in an enforcement action and civil penalties. The refund of the illegal contribution is already taken into account in deciding whether the FEC will take further action and what remedy, if any, should be pursued.
In some instances, the FEC now seeks to have the illegal contributions disgorged to the U.S. Treasury, rather than returned to the contributor. This is particularly appropriate where the return of the contribution would result in unjust enrichment to somebody.
In this regard, we note that H.R. 1494 mainly focuses on the contributor as opposed to the political committee receiving the contributions.
Of course, in many egregious cases, such as those dealing with large foreign national contributions and contributions in the name of another, which are basically money-laundering schemes, this is the proper focus of enforcement efforts. However, in a significant number of cases, the Commission will focus its enforcements efforts on the recipient committee and take no action against the contributor. This is true where the individual excessive contributions do not present egregious problems. They just may be slightly over the limit. They may be due to mistake.
But, in those instances, the committee's failure to properly deal with a large number of illegal contributions becomes the real problem, not the individual contribution.
Page 20 PREV PAGE TOP OF DOC In most of these instances, it would seem appropriate to allow the direct refund of the amount in excess of the contribution limits to the original contributor who lacked any intent to violate the law. At present, the return of contributions to the committee is done directly and without FEC serving as an intermediary.
Having the FEC serve as a clearinghouse for these contributions will have its cost, both in terms of resources and procedures. In fact, we believe that H.R. 1494 will result in a large number of contributions being returned through the FEC.
During the 19951996 election cycle, there were 25,034 contributions reported refunded, totaling over $17 million. Of these, 8,736 involved refunds in excess of $500, the threshold set by the bill; and those totaled $14,377,829.
While I don't have a breakdown showing how many of these were made after 60 days, I think you can get the idea of the number of contributions that we are in fact talking about that would fall within that $500 threshold.
Many of these contributions result from someone losing track of how much they have given, being unaware of the limits or not making it clear that the contribution they sent in was to be split between a primary election and a general election or was to be attributed to both a husband and a wife.
Thus, it is clear that the requirement that these refunds be deposited with the FEC pending future action will result in additional work for the agency. This is an important consideration for the FEC, which is a relatively small agency with a workload that already far exceeds its resources.
Page 21 PREV PAGE TOP OF DOC
Another consideration is that the Commission's present procedures make it unlikely that the Commission will begin an investigation within 120 days of our receiving a refunded contribution, as contemplated by H.R. 1494, absent some extraordinary circumstances or a rather dramatic change in our present procedures.
For example, in order to effectively manage the review process, our Reports Analysis Division only refers matters for possible investigation according to a predetermined schedule and thresholds, which remain confidential. This gives the committees time to correct problems while allowing the Reports Analysis Division to address matters in an orderly fashion. It also means that the FEC may not address a possibly illegal contribution for some time.
If the same procedures are followed by the FEC under 1494, the receipt and return of potentially illegal contributions may not trigger immediate action as we wait for our normal review procedures, even where the matter is such that an investigation might ultimately be started.
In these instances, a return of a contribution because an investigation has not been commenced within 120 days may result in contributors getting a false sense there was nothing wrong with their contribution.
Again, let me emphasize that the Commission is dedicated to removing illegal contributions from the political process and has been working for years to do so. We make our comments so that whatever additional action Congress deems appropriate is made with a full understanding of the present system.
Page 22 PREV PAGE TOP OF DOC
I hope these comments have been helpful, and I would be glad to answer any questions that you have.
Mr. GEKAS. Yes. We thank you, Mr. Noble.
[The prepared statement of Mr. Noble follows:]
PREPARED STATEMENT OF LAWRENCE M. NOBLE, GENERAL COUNSEL, FEDERAL ELECTION COMMISSION
Mr. Chairman and members of the subcommittee; I am the general counsel of the Federal Election Commission and I appreciate the opportunity to represent the Commission before this subcommittee. As you know, the Commission does not take a position on the merits of pending legislation. Rather, our goal is to help explain how the Commission presently deals with some of the issues raised by H.R. 1494 and how the statute may impact our present procedures.
I want to begin by emphasizing that the Commission shares the concern of this subcommittee that tainted money be removed from the federal election process. In fact, we have long considered it a goal of our review, audit and enforcement process. Thus, I welcome the opportunity to share the experience of the Commission in this area so that any changes in the law produce the desired result without weakening the enforcement mechanisms already in place.
Under the rules the FEC already has in place, a political committee must take reasonable steps to ensure it returns illegal contributions. If a contribution presents a genuine question as to whether it is from a prohibited source, the treasurer of a political committee must return the contribution or attempt to determine that the contribution is legal. If the legality of the contribution cannot be verified within 30 days, it must be returned to the contributor. Likewise, if the committee accepts a contribution that appears legal on its face, but later discovers it to be from an illegal source based on new evidence, the contribution must also be returned.
Page 23 PREV PAGE TOP OF DOC
Contributions which exceed the contribution limits must be returned to the contributor or may be deposited while the committee seeks to have the excessive portion of the contribution redesignated to another election or reattributed to the spouse of a contributor. If the contribution cannot be redesignated or reattributed within 60 days, it must be returned to the contributor.
Thus, committees are already under an obligation to either verify the legality of a questionable contribution or take corrective action to take the potentially tainted money out of the political process. While the initial obligation to review a contribution for possible problems lies with the committee receiving the contribution, the FEC does aid in the process through its Reports Analysis Division (RAD) and Audit Division, as well as with the enforcement process. RAD reviews each report filed by a political committee and will send a committee a Request for Additional Information (RFAI) if a potential problem with a contribution shows up on the face of a report. This could be a problem with a contribution exceeding the limits or being from a prohibited source. The committee is asked to either correct the problem or explain why there is no problem. Likewise, a matter can be brought to the attention of a committee during an audit of its activities. Also, many matters come to the FEC's attention when someone files a complaint alleging that a committee has received an illegal contribution. In all of these cases, if the matter is sufficiently serious, it may result in an enforcement action and civil penalties. As H.R. 1494 contemplates, the refund of the apparently illegal contribution is taken into account by the Commission in deciding whether to take further action against a committee or contributor and in deciding what remedy or civil penalty, if any, should be sought. In cases where enforcement action is taken against a donor who has received a refund, the Commission can require a much higher civil penalty in order to prevent a windfall.
Page 24 PREV PAGE TOP OF DOC
In certain instances, the FEC seeks to have illegal contributions disgorged to the U.S. Treasury, rather than returned to the contributor, such as when the return of the contribution would result in unjust enrichment to an individual or entity. In addition, disgorgement is often required after an audit of a publicly funded presidential campaign. In these audits, the Commission may use sampling techniques to project the total amount of impermissible contributions accepted. Sampling, however, does not identify individual contributions. Therefore, a presidential committee may be asked to make a payment to the United States Treasury in the amount of all illegal contributions, rather than returning the money to the contributors.
As you can see, the Commission has already taken many steps to ensure that tainted money is expunged from the political process. Experience has taught us that changes in some procedures may have an impact on a number of our programs.
First, having the FEC serve as a clearinghouse for returned contributions will not be without cost. H.R. 1494 may result in a large number of contributions being returned through the FEC, most of which will be relatively small. A great many of the excessive contributions identified by both reporting committees and the Commission are in the $500$1,000 range. These are usually from individuals and usually result from such persons having made earlier contributions for the same election. Often one individual gives to a committee several times and loses track of how much he or she has given, or is unaware of the limitations. Our enforcement experience has shown that some elderly contributors have difficulty keeping track of multiple contributions to the same campaign. In other cases, a check is intended to cover both a primary and a general election, but does not say that on its face or in an accompanying document, or it is intended to be a joint contribution by a husband and wife but only one of them signs it.
Page 25 PREV PAGE TOP OF DOC
It has been our experience that in most of these cases, once a committee discovers the problem, whether it be on their own or after notice from the FEC, the committee immediately addresses the situation by means of a refund, reattribution to another contributor or redesignation to the next election. Most committees are very knowledgeable about the requirements of the law and seek to comply as quickly as possible.
Under the present rules, those refunds, regardless of when they are made, do not go through the FEC. Rather, they are tracked as part of the normal review of committee reports. Any requirement that they be deposited with the FEC pending future action will require additional resources to avoid diverting our attention from other statutorily mandated duties. This is an important consideration for the FEC, which is a relatively small agency with a workload that already far exceeds its resources. The FEC, for example, currently has about 1,800 respondents on its enforcement docket and is able to activate only about 30% of its cases.
The method by which the Commission deals with its burgeoning workload, including its procedures for the orderly review of reports and the audit of committees, also impacts on the likelihood that the Commission will begin an investigation within 120 days of receiving a contribution to be returned to the contributor. Given the number of contributions that are now routinely returned to the contributor, it is highly unlikely that the Commission would be able to begin an investigation of a returned contribution in the time frame contemplated by H.R. 1494, absent other extraordinary circumstances or a major change in the way the Commission allocates its resources. For example, RAD currently reviews reports and refers matters, including possible illegal contributions, based on the filing cycles of committees, as provided for by statute. In order to effectively manage the review process, RAD only refers matters for possible investigation according to a predetermined review schedule, even though it may be aware of possible illegal contributions. This gives committees time to correct problems, while allowing RAD to address matters in an orderly fashion.
Page 26 PREV PAGE TOP OF DOC
Likewise, a complaint being filed with the Commission alleging the receipt of illegal contributions does not result in the immediate initiation of an investigation. First, there are requirements for providing notice and an opportunity to respond to the subject of the complaint. After that, the matter is reviewed and rated under our Enforcement Priority System. Depending on numerous factors, including the seriousness of the matter, whether corrective action has been taken and the availability of resources, a matter may not be assigned for a determination as to whether an investigation is warranted for well in excess of 120 days.
If the same RAD and enforcement procedures are followed under H.R. 1494, the receipt and return of potentially illegal contributions may not trigger immediate action, even where the matter is such that an investigation might ultimately be started. In these instances, a return of a contribution to the contributor because an investigation has not been commenced in 120 days would be automatic under H.R. 1494, even though the matter is destined for further action. This does not appear to be in harmony with the intent of the 120 day provision and may result in contributors getting a false sense that there was nothing wrong with their contributions.
It is also important to note that H.R. 1494 appears to focus on investigations of the contributor making the contribution, as opposed to the political committee receiving the contributions. Of course, in many of the more egregious cases, such as those dealing with large foreign national contributions and contributions in the name of another, this is a proper focus of enforcement efforts. This may even be the sole focus of any action in some cases, such as where there was a scheme which made it impossible for the recipient committee to have known of the illegality. In other cases, the facts require the Commission to focus on both the contributor and the recipient committee.
Page 27 PREV PAGE TOP OF DOC
In a significant number of cases, however, the Commission will focus its enforcement efforts on the recipient committee and take no action against the contributor. This is true where the individual excessive contributions do not present egregious cases, but where the committee has not taken timely action to return excessive contributions. In these cases, it is often apparent from the number of excessive contributions received that there is a problem in how the committee is doing business. In most of these instances, even though action may be taken against the committee, it would seem appropriate to allow the direct refund of an excessive contribution to the original contributor who lacked any intent to violate the law.
Finally, there are two additional comments I would like to make. First, H.R. 1494 would require the Commission and Attorney General to cooperate in the administration of the Act. While the Commission takes seriously its independence from the Department of Justice, this should not be a problem as we make every effort to coordinate with the Department of Justice, where possible.
Second, while the bill would relieve the Commission of its obligations under the APA, the Commission's rulemaking timetable is also governed by section 438(d) of FECA. This section directs the Commission to submit all regulations that implement FECA to Congress for a period of 30 legislative days before the agency can prescribe those rules as final. Under H.R. 1494 as presently written, we would continue to be bound by this requirement.
I hope that these comments have been helpful, and I would be glad to try to answer any questions you may have.
Page 28 PREV PAGE TOP OF DOC Mr. GEKAS. The Chair will allot itself 5 minutes in the first round of questioning.
I will begin by asking Mr. Litt, is there anything in the Justice Department now, regulatory or statutory, that can go after the illegal contributors?
Mr. LITT. Well, we obviously have the authority to prosecute illegal contributors. But I take it your question is directed at----
Mr. GEKAS. How do we trace it? The DNC and the Republican Committee declare an illegal amount and return it to the donor. Does that trigger an investigation on the part of the Justice Department?
Mr. LITT. Under ordinary circumstances, we have a memorandum of understanding with the FEC that recognizes that, pursuant to the Federal Election Campaign Act, the FEC has the principal expertise in this area.
Ordinarily, under this memorandum of understanding, unless we, as an initial matter, have evidence of a substantial and significant knowing and willful violation, we would defer to the FEC, which would then investigate the matter. And if they found evidence that suggested to them that a criminal referral would be appropriate, they would refer it over to us. That is the normal process.
Mr. GEKAS. It is a double referral?
Mr. LITT. Well, we have this sort of arrangement with many administrative agencies as well, where they look at it first and they basically weed them out for us. If they find ones that are worthy of criminal prosecution, they will refer it back to us.
Page 29 PREV PAGE TOP OF DOC
Mr. GEKAS. In short, when the DNC made its announcement and then the Republican National Committee made its announcement last week on Hong Kong, that does not trigger any action on the part of the Justice Department but it waits for referral, if any, from the FEC? Is that correct?
Mr. LITT. Mr. Chairman, as you know, we have pending criminal investigations going; and I don't think it is appropriate for me to be commenting about what we do or don't do on these cases.
Mr. NADLER. As a matter of procedure, in such a case, hypothetically, why don't you answer the chairman's question?
Mr. LITT. As a general matter , if a committee----
Mr. GEKAS. I have a parliamentarian here.
Mr. LITT. In circumstances where a committee does return a contribution, that doesn't necessarily trigger a criminal investigation. It could. But, by and large, in most cases, the FEC goes first.
Mr. GEKAS. All right. Now, Mr. Noble, the FEC learns of the DNC's announcement and the Republican National Committee's announcement. Does that trigger an investigation on the part of the FEC?
Page 30 PREV PAGE TOP OF DOC Mr. NOBLE. Again, speaking hypothetically, since I am not at liberty to discuss specific cases, it may. We monitor the refund of contributions, and there are instances where our Reports Analysis Division will see something that may very well ultimately trigger referral for possible investigation.
Also, we deal with matters through a complaint process; and often publicity about a matter result in complaints being filed with the FEC, and the FEC will then deal with the matter.
Mr. GEKAS. That denotes to me that the money can be returned and be used for other purposes back to the doorstep of the contributor and then months later the FEC might determine whether or not to investigate. Is that correct?
Mr. NOBLE. That is correct.
But let me make a point about the type of refunds being made. I understand the committee is concerned with the refunds of large illegal contributions that may come from foreign nationals or other obviously illegal sources.
The vast majority of the refunds that we deal with come from people who, frankly, made a mistake. They get confused about the limits. They get solicited so often they don't remember who they contributed to last, and they find that they have bumped up against the limits or gone over the limits. They may have filled out the check wrong. These are the ones we deal with on a day-to-day basis.
While in some instances you may take the refund of a contribution into account in terms of showing that the contributor thinks the contribution may be illegal, there are a number of instances where we take the refund of the contribution into account in deciding not to pursue the matter. What it shows is that they corrected the matter as soon as they found out themselves; and in many instances the refund of the contribution is considered a mitigating factor to the Commission.
Page 31 PREV PAGE TOP OF DOC
We look at when it was refunded, whether it was refunded in response to a complaint being filed or whether they did it on their own. But depending on the specific facts of the case, the refund may have two different meanings.
Mr. GEKAS. Mr. Litt, on the question of the constitutionality of confiscation of the contributor's monies, et cetera, the case in Florida, if I recall, had to do with a finding that the money had to be returned; that the private owners of this property were entitled to have this property returned to them. Therefore, confiscation of the interest was what was found to be unconstitutional.
There is nothing unconstitutional about confiscation of illegal properties is there? In that case, I thought that the property was deemed not to be illegal. That is what I am saying.
Mr. LITT. As I understand your bill, it provides that an illegal contribution, when returned, is held in escrow and can be used for the payment of fines and penalties.
If we hypothesize a $1,000 contribution that is held in escrow and earns however much interest that would earn, and a fine and penalty and investigative costs are imposed at the end of the investigation totaling $500, the question is, what happens to the rest of the money? We have determined that the appropriate fine for this matter and the investigative costs are $500. I think there would be a problem at that point with confiscating the remainder.
The issue is, what happens to the sums above and beyond the amount necessary to cover fines, penalties and costs?
Page 32 PREV PAGE TOP OF DOC
Mr. GEKAS. My intent, I want you to know and we will take your comments into account when we redraft this, is to return the excess to the contributor.
Mr. LITT. OK. And that would not cause us a problem.
Mr. GEKAS. The first round for the chairman has elapsed.
I yield 5 minutes to the gentleman from New York.
Mr. NADLER. Thank you.
First, just a quick thing on this to follow up on the chairman's point here. The bill, as drafted, says that even if it is found ultimately not to be an illegal contribution, the interest earned on the escrow account is taken out of the money. That is obviously a violation of the takings clause?
Mr. LITT. I am not sure whether it says that the costs of the investigation are taken out or simply that the interest is forfeited at that point.
Mr. NADLER. Either/or.
Mr. LITT. We would think that that money would have to be returned to the contributor.
Page 33 PREV PAGE TOP OF DOC Mr. NADLER. In effect, if the guy is innocent and you are forcing him to make an interest-free loan to the Government of the money for the time in which it was held in escrow and he is found innocent, that would be a taking and would be unconstitutional, correct?
Mr. LITT. I don't want to express a definitive opinion----
Mr. NADLER. You would think so.
Mr. LITT [continuing]. But I do think there would be a substantial problem with that.
Mr. GEKAS. Would the gentleman yield for a moment on that?
Mr. NADLER. Yes.
Mr. GEKAS. But that donor is not hurt because he----
Mr. NADLER. He loses the interest.
Mr. GEKAS. But, wait. He turned that contribution over forever. He never expected to get it back. He never thought it was illegal, et cetera.
Mr. NADLER. I don't think that solves the problem----
Reclaiming my time. I don't think that deals with the constitutional problem.
Page 34 PREV PAGE TOP OF DOC
Mr. GEKAS. No, no. I understand.
Mr. NADLER. I think you could clean it up by simply saying that you take the interest and the costs of the investigation only if there is a finding of guilt. If there is a finding of innocence, you have to give it back with the interest.
Mr. GEKAS. I don't have any objection to that.
Mr. NADLER. That wasn't the main thing I wanted to pursue.
The main problem the bill seeks to address--and I am speaking to Mr. Noble--the main problem the bill seeks to address is that we want to enforce the law. And when you see that someone gave a $500,000 illegal contribution, and it was investigated, and 6 years after Senator X was elected with the aid of that $500,000 illegal contribution he is fined $10,000, but meanwhile he is a U.S. Senator because of it, that strikes people as somewhat unjust.
So the problem is, number one, the speed and, No. 2, the penalty. And my real question for Mr. Noble, from the FEC, is whether this bill an effective or a necessary means of advancing the goal of enforcing the law or are there better things that we could do, such as, for example, but don't limit yourself to this, increasing the size of the fines that can be levied, giving more resources to the FEC to increase the speed of the investigations and the quantity of the investigations?
In other words, are the real problems that you should have heavier penalties and more resources so you can do this faster and better? Or is there a separate problem that we must address by a bill like this?
Page 35 PREV PAGE TOP OF DOC Mr. NOBLE. Well, I think this bill doesn't look like it was intended to address those problems. I think there is definitely a problem with resources for the agency. I think the speed of our enforcement is directly related to the resources we have and our ability to enforce. At this point we are activating about 30 percent of our caseload. So I think that is a separate problem.
Mr. NADLER. Let me just say, talking about 30 percent of your caseload, about a week ago I remember seeing in one of the papers about a U.S. Senator, who will remain unnamed, both for reasons of propriety and because I can't remember, his campaign committee was fined either $20,000 or $55,000 for a 1992 election violation.
Mr. NOBLE. That type of delay is a great concern of ours also. We have, over the years, implemented a number of procedures to try to speed the process up.
But resources are not the only problem. The problem also is, to a certain extent, the procedures we have to follow as mandated by statute.
And there is another concern I have, which may be somewhat off topic, but I think there are some unrealistic expectations about how long investigations should take. I know Kenneth Starr recently made this comment, that in dealing with what are essentially white-collar-type crimes it is not realistic to expect that they can all be resolved in a short period of time.
These investigations often take years; and, given the lack of resources, and the small staff with which we are working, I don't think it is at all unusual that some of these investigations take longer than we would like them to.
Page 36 PREV PAGE TOP OF DOC
But even if we had all the resources we needed, some of these are complicated enough that they would take a long time.
One of the things that we have done to address that problem is to look at who we are, in fact, going to focus on in an action; and that is why, in many of the routine instances, we don't focus on the contributor.
Mr. NADLER. Would this bill redirect your investigatory resources from what you might consider high-priority to low-priority cases?
Mr. NOBLE. Well, I think we would have to consider, if this bill is enacted as it is, what we would do with our present procedures, which basically use thresholds and schedules to look at committees and refunds to decide when we are going to go forward.
This would seem to put in place for us a standard of 120 days. So if a contribution is refunded, even though our normal procedures would not have us taking any action for quite awhile, we would have to decide pretty quickly whether it is one that would fall within the 120-day requirement and that would require us to review all of our procedures and may, in fact, have us refocus our efforts or where we put our resources.
Mr. NADLER. Mr. Chairman, if I may I have one further question.
Mr. GEKAS. I'll yield another minute.
Page 37 PREV PAGE TOP OF DOC Mr. NADLER. Does the escrow account procedure suggested by this bill, in your opinion, whoever wants to answer this, create a presumption of guilt as opposed to a presumption of innocence against the contributor or penalize the contributor?
In the absence of a finding of guilt, should this process be triggered even if the donation is being returned for reasons other than a possible violation of law?
Mr. NOBLE. I will start. I think that is an interesting question about what the agency would do when committees return contributions, not because it is a violation of the law but because they feel it is a violation of good taste or public policy.
Again, in many of these instances where we see the refunded contributions, the agency is not concerned at that point about what the contributor did. It may look like it was totally inadvertent on the part of the contributor. And this may add to the idea that all those contributors who are at least being looked at at this point are subject to some type of further action.
As always in these situations, everybody is rightfully concerned about the big cases, about the cases that make the press. But the reality is that of the refunds we see involve very routine matters. And, in those cases, you would be having us hold the contributions for 120 days and deciding what to do about them. I assume in most of those, unless we drastically redid our procedures, they would end up being returned to the contributor, because we would not have started anything within 120 days.
Mr. NADLER. Thank you, Mr. Chairman.
Page 38 PREV PAGE TOP OF DOC
Mr. GEKAS. The Chair recognizes the attendance of the gentleman from Tennessee, Mr. Bryant, but now yields to the gentleman from Massachusetts, Mr. Meehan, for a round of questioning limited to 5 minutes.
Mr. MEEHAN. Thank you, Mr. Chairman.
On your point, Mr. Noble, the cases that get in the press obviously are the cases that everyone is interested in, and if we have criminal investigations that are conducted and are public, or at least if the fact that investigations are being conducted by the Justice Department is public, you can rest assured that you will have a lot of priority cases. Because when the Justice Department is investigating anything at any time and it is public, then you now have a priority case.
I am greatly concerned that requiring the FEC to serve as a clearinghouse for returned contributions amounts to a serious unfunded mandate. The fact is that getting the Congress to properly fund the FEC's investigative activities has been like pulling teeth.
In fact, just this week the supplemental appropriations bill provides $1.7 million for the FEC but allows none of it to be used for enforcement.
Now, as I understand H.R. 1494, contributions routed to the FEC must be returned within 120 days to the contributor if the FEC or the Attorney General have not pursued an investigation.
Page 39 PREV PAGE TOP OF DOC Does the FEC have the resources to initiate such investigations in 120 days? In fact, does any investigative agency that I have ever been familiar with have the resources to conduct an investigation and get it all done within 120 days? If not, does this mean that even illegal contributions will be returned to contributors, at least until a civil or criminal action is commenced?
Mr. NOBLE. Yes. I think that the result of this will be that there will be a number of contributions refunded because we will not be able to start an investigation within 120 days, where those contributions will ultimately be the subject of some type of investigation.
With regard to the resource issue, again, we are, in our view, greatly understaffed and underfunded. We right now can't handle all the cases we would like to handle. We do not have the resources to handle a lot of the big cases that we should be handling.
While we haven't fully analyzed how we would have to do it, this would require us to track all these contributions and make decisions about these individual contributions.
So, yes, it would take additional resources; and without additional funding they would have to come from somewhere else.
Mr. MEEHAN. In fact, what is the percentage of cases that you have for which you are actually able to conduct full investigations?
Mr. NOBLE. Between approximately 30 and 33 percent of our in-house cases are now activated and being worked on.
Page 40 PREV PAGE TOP OF DOC
Mr. MEEHAN. So that leaves another 70 percent?
Mr. NOBLE. You have to keep in mind that there are also thousands of matters that the Reports Analysis Division sees that involves refunded contributions that will never make it for enforcement because of thresholds, because of various other considerations, that now we would have to take a look at under this.
Mr. MEEHAN. Deputy Attorney General Litt, according to section 2(d) of H.R. 1494, contributions held in escrow by the FEC must be returned within 120 days of deposit and held in escrow if the Attorney General has not pursued an investigation.
In your testimony, you indicated that public announcement of whether or not the Attorney General is pursuing an investigation might not be appropriate. Can you elaborate on that?
In other words, what are the ramifications of requiring in every instance where the Attorney General is conducting an investigation that there be public knowledge of that ongoing investigation? I was wondering if you could elaborate on that.
Is the issue how it would affect the investigation--potentially some defendant could flee or something like that? Or is it the fact that, as I indicated earlier, any case that becomes public that the Justice Department is handling becomes a priority case. That is how we have priority cases. So I wonder if you could elaborate on that.
Page 41 PREV PAGE TOP OF DOC Mr. LITT. There are two principal considerations that counsel us to try to keep our investigations secret. I suppose there are three. There is also the requirement of grand jury secrecy that is imposed by rule 6(e) of the Federal Rules of Criminal Procedure. But even apart from the legal requirement, we frequently do not wish to make criminal investigations public.
One of these is to protect the investigation. As you know, people may flee. Witnesses may get together and get their story together. Documents may be destroyed. It is frequently better for us to be able to conduct an investigation in secret when we can.
The other purpose is for the protection of the subjects of the investigation. It is frequently inappropriate to make public the fact that someone is the subject of an investigation because he or she may ultimately be exonerated. As everybody in this room knows, the damage to a person's reputation simply from being identified as the subject of a criminal investigation can be substantial.
So for both of those reasons it is frequently preferable that we not publicize the existence of a criminal investigation.
Mr. MEEHAN. Thank you.
Mr. GEKAS. The gentleman from Tennessee.
Mr. BRYANT. Thank you, Mr. Chairman.
I also want to thank you for holding these hearings.
Page 42 PREV PAGE TOP OF DOC
I have just a couple of questions for you with respect to some testimony that may come from the second panel. I wanted your opinions on these issues, and I apologize to you, but I was in another subcommittee meeting giving testimony there.
I have read your testimony, and would simply ask you if either of you has an opinion in terms of a view that I think I could attach myself to. In those instances where there are determined to be illegal contributions, do you support actually forfeiting that money over and above what money may be set off against fines and so forth. In other words, any balance left over, costs and so forth would be forfeited to the Government rather than returned to the illegal contributor, so to speak?
If you could answer that quickly, I have another question, one other question, I would like to ask you.
Mr. NOBLE. I think it is an important principle, and right now in the appropriate cases we do try to get disgorgement of the money to the U.S. Treasury.
I think civil penalties and the remedy of disgorgement are really two different things. Often, disgorgement is to get the money out of the process and then, on top of that, you may have a civil penalty to punish and deter future illegal activity.
There are cases now, and they have mainly dealt with contributions in the name of another, where we have asked--we can't impose anything; we can settle a matter or take it to court--but where we have asked for the refund of the money or the return of the money to the U.S. Treasury, in order to get the money out of the process and ensure there is no unjust enrichment.
Page 43 PREV PAGE TOP OF DOC
I think it is a powerful tool. It is something that the Commission could use and in the appropriate circumstance gets the proper message across.
I also think, though, you have to be careful about the cases you apply it to. Again, when you have a person who exceeded the limits because they were confused about the contribution limit or happened to receive 10 solicitations over the year and didn't keep track and contributed too much money, in that case it may not be an appropriate remedy to require that the money be disgorged to the Treasury, as opposed to being given back to the person.
Mr. GEKAS. Would the gentleman yield on that point for a moment?
Mr. BRYANT. Yes.
Mr. GEKAS. In other words, these millions of dollars in so-called illegal contributions go back to their origin under the present system. You may decide disgorgement would be an appropriate remedy, but nowhere in sight is the money to be disgorged because it is back where it started, is that correct?
Mr. NOBLE. In some instances it is back where it started. In some instances, they have not refunded the money. But in the appropriate instance you may be going after both the contributor and the recipient committee.
Sometimes you do it through a rise in the civil penalty. There are times when the civil penalty is made high enough to cover also getting the money out of the process.
Page 44 PREV PAGE TOP OF DOC
There are a number of ways we can do it, and maybe we can use more tools along those lines in terms of our powers to get disgorgement, but right now we do do it in a limited number of cases.
But, again, keep in mind that most of the cases we deal with involve the individual sitting at home writing too many checks. That is just the practical side of what we are dealing with.
But, in the big cases, disgorgement is a very valid concern. Getting the money out of the process is a very valid concern.
One other concern that occurred to me is that I am not sure we will be in a position to decide if the giver was involved in drug dealing, the activity that you mentioned, or what type of activity they were involved in. So what we tend to look at is the scheme itself that gave rise to the illegal FECA activity, not other conduct that that person may have been involved in.
But if it is a money-laundering scheme, if it is a foreign national scheme, it may be appropriate to get the money out of the process. But we don't often look at how that person made that money because I think it is basically outside of our bailiwick to do that.
Mr. GEKAS. I denote resignation in your comments to the current system: we might be lucky to be able to get a disgorgement of illegal contributions.
We are talking about, I believe, of a gigantic loophole. We see this money going back to illegal contributors and starting the process all over. I am worried about that; and the present system, notwithstanding the minimal chance that innocents are going to be harmed, does not count the possibility of these massive dollars of illegal contributions.
Page 45 PREV PAGE TOP OF DOC
Mr. NOBLE. It is not resignation. It is trying to deal with the fact that, again, the vast majority of the ones we see are not the type you are talking about.
I think that the Commission can look at and should look at, disgorgement and Congress may want to give the Commission additional tools in specific types of cases to get disgorgement. But just keep in mind that if you do apply it across the board you will be dealing with a number of people who are not fitting into the framework that I think that you are imagining in terms of the large contributions.
Mr. GEKAS. We stole some time from the gentleman from Tennessee. We regrant him such time as he might consume.
Mr. BRYANT. I won't need much longer, but I did have a second question.
Mr. Noble, again, you may have an opinion on it. Attorney General Litt, if you want to chime in, please feel free. One question is a yes or no and then with an explanation.
Do you interpret this bill as affecting only what I would call the nonsoft money, there is hard money. And if you do believe that it does not affect soft money, what is your opinion in terms of maybe expanding this bill and how would you cast the net out in a broad enough fashion to pick up the soft money?
Mr. NOBLE. I would like to give a nonbinding answer to whether it does deal with soft money. It does not appear that it necessarily deals with soft money, because it talks in terms of contributions.
Page 46 PREV PAGE TOP OF DOC
I think if you wanted to deal with soft money, you would have to keep in mind that our jurisdiction is limited in terms of what we can do with soft money at this point. One of the areas we definitely deal with in terms of what is traditionally called soft money is with foreign national contributions. There we do have jurisdiction over local and State elections, as well as Federal elections.
You could do something to make it clear that this bill covers that type of activity, even though I think it may very well now on its face.
Covering other soft money donations, it is always a problem of the definition of what is soft money. The term is bandied about a lot by the press, and it is not always clear that everybody is talking about the same thing in terms of soft money.
Right now, the national party committees report soft money to the FEC. So that is one way we get to see it, and we now get to see the return of soft money contributions by the national party committees. We don't get to see it otherwise; and, right now don't have the ability to monitor that type of activity. So the statute would have to be broadened to make it clear that you are covering all soft money.
Mr. GEKAS. We will indulge in a second round of questioning, and the Chair will pose a question.
The illegal contributions that were reported by the press by the DNC, which were millions of dollars, had to be soft money, did they not?
Page 47 PREV PAGE TOP OF DOC
Mr. NOBLE. Again, because we have a confidentiality provision I am not really at liberty to discuss any possible ongoing cases or any possible specific situations.
Generally, a lot of what you see in these situations is soft money.
Mr. GEKAS. Yes. If it has to do with millions of dollars, hundreds of thousands of dollars, it has to be over and above the specific limits that are placed in the election laws; isn't that correct?
Mr. NOBLE. Yes.
Mr. GEKAS. So if our bill is lacking in the description of what is an illegal contribution, to cover those situations which are now deemed soft money, that would be a giant step forward in your acceptance of this bill, would it not?
Mr. NOBLE. Well, there you are moving into a whole different area about the FEC's jurisdiction over soft money, which is a very controversial area. To bring all soft money in with regard to this bill would raise all sorts of questions about how far the FEC's jurisdiction would extend at that point.
As I said, the agency is not really taking a position on the merits of it. We just want to point out certain issues that arise in the bill in terms of how the bill would have to be implemented.
Page 48 PREV PAGE TOP OF DOC Mr. GEKAS. I just want to cover the situation where illegal contributions are made and then disgorged or however announced to be returned, and these illegal contributors clap their hands and go about spending the money any way they want to after influencing an election. That is all I want. And I seem to be getting, oh, it is a procedural problem, et cetera.
I need recommendations. I am asking the FEC to give us recommendations on how to reach those illegal contributions.
Mr. NOBLE. Again, one of the things we do now and the authority of the FEC to do this can be strengthened and made clear is to have the contribution disgorged. In the case of a clearly illegal contribution, the type that you are talking about, a foreign national contribution, the FEC will often take action against the contributor. In fact, in some of those instances the focus of the FEC action is against the contributor and not the committee if it is clear that the committee had no idea that the actual source of the money was illegal.
In those instances, the FEC could, if Congress wished, put more emphasis on getting the money disgorged; that is on top of a civil penalty demanding that the actual amount of the contributed money be given from the contributor to the treasurer.
Mr. GEKAS. But this is after the money has been returned under the present system.
Mr. NOBLE. Yes. Under the present system, it would be after the money is returned.
Mr. GEKAS. So we will have our investigators in Hong Kong looking for the contributors, is that it?
Page 49 PREV PAGE TOP OF DOC
Mr. NOBLE. In some instances, that would be required.
Mr. GEKAS. That is why the escrow matter is being considered by this subcommittee at this point.
The gentleman from New York.
Mr. NADLER. Thank you, Mr. Chairman.
Understanding the jurisdiction, you are saying, Mr. Noble, that if we want to cover soft money in this--in something like this, it really raises the whole question which is not before this committee's jurisdiction, of whether and to what extent the jurisdiction of the FEC should be broadened to cover soft money generally, correct?
Mr. NOBLE. Correct.
Mr. NADLER. So in other words, if we were to consider soft money in this bill, it would have to come after or as part of a general process in another committee of considering the question of FEC jurisdiction over soft money?
Mr. NOBLE. No, you can do it. You can do it specifically in a specific instance. You can decide in this type of bill that you are going to give jurisdiction over the FEC in terms of soft money.
Page 50 PREV PAGE TOP OF DOC Mr. GEKAS. Yes, we can.
Mr. NADLER. We could decide in this bill that we want to give jurisdiction to the FEC over soft money?
Mr. GEKAS. Yes.
Mr. NOBLE. Yes. Without seeing how it would be done and without thinking about how it would be done, it may raise all sorts of questions about how far it goes, about definitional terms, et cetera, but yes.
Mr. NADLER. The second question, the real question is, from what you are saying, to what extent is the FEC now able or unable to reclaim illegal funds or to collect fines? And disgorgement in particular, in other words, disgorgement meaning giving the money to the Treasury.
Let me put it this way: One of the problems I have with this bill right now, that you have highlighted, is that most illegal contributions are inadvertent, innocent and small.
Mr. NOBLE. Correct.
Mr. NADLER. Do you think that the result of this bill, as drafted, would be to redirect the energies of the FEC from large cases to trivial cases?
Mr. NOBLE. That is one possibility. The other possibility is that what the FEC would do in those smaller cases is just let the 120 days pass and then return the contribution. I think that would solve the problem.
Page 51 PREV PAGE TOP OF DOC
Mr. NADLER. So that would simply increase the accounting fees for no purpose at all for those smaller ones?
Mr. NOBLE. We would look at those smaller contributions and decide that we are not doing anything about them and return them or decide that we are not going to make the decision to do anything about them for some time because of other procedures we have in effect at that point.
Mr. NADLER. Which would mean that you would simply have the expense of keeping the money and then returning it?
Mr. NOBLE. Well, we would have to put in a procedure for keeping the money and returning it.
Mr. NADLER. OK. That would be in a large number of small cases?
Mr. NOBLE. Yes.
Mr. NADLER. So the real question then is: Do you now lack authority for large cases, either for disgorgement or for investigations or for fines? And, if you do, is it necessary to set up an elaborate system for holding money first in order to solve that problem?
Mr. NOBLE. I think the problems we have right now in terms of getting large fines and getting disgorgement or quicker enforcement are not really necessarily related to this bill. I think this bill is aimed at serving a different purpose.
Page 52 PREV PAGE TOP OF DOC
We do have problems sometimes getting refunds of civil penalties for a number of reasons. Sometimes by the time the election is over the committee is no longer in existence, it has no money, and we often have to deal with----
Mr. NADLER. This bill wouldn't affect that?
Mr. NOBLE. This bill would not affect that. The money has been spent, and then we are dealing with a committee that claims it has no money to pay a civil penalty.
Sometimes it is hard to find the contributor to go after, and that becomes an issue.
Also, in going after contributors and these committees, it is a resource question of how much we need to do.
Mr. NADLER. Let me ask you a different question, and I am trying to focus in on this: Do you have a hard time finding people, as a general rule? I mean, to what extent is it a problem that where there ought to be fines or disgorgement you can't find the people--you can't find them? In other words, where this bill might help.
Mr. NOBLE. It happens. I can't give you a statistic on it. It happens.
Mr. NADLER. Does it happen often? Is it rare? Or is it a major problem?
Mr. NOBLE. In the cases it happens in, it is a major problem.
Page 53 PREV PAGE TOP OF DOC
Mr. NADLER. Well, yes, but is----
Mr. NOBLE. It doesn't seem to be a vast majority of our cases. I think probably the bigger problem we face is the committee is defunct, is no longer there, when we have an enforcement action.
You have to remember that, under our present procedures, we don't go after a lot of contributors. And the big numbers I gave you in terms of the excessive contributions, the prohibited contributions, in most of those cases, for a variety of reasons, we are not focusing on the contributors.
Mr. NADLER. But do you lack the authority--forget the little contributor who writes 10 checks for $125 each and the total is $1,250 or something, instead of a thousand.
For the large, egregious contributor who knows perfectly well what he is doing and is trying to buy influence, without attributing any onus, on behalf of General Motors or the Republic of China, and he is trying to do it illegally with large sums of money, do you have a problem? And, if so, what are they? Are they related--would they be solved or affected by this bill?
Mr. NOBLE. The problems we have, if we have problems, are resource related at this point, not necessarily authority related. We have authority to subpoena people. We have the authority to do investigations, to try to find people.
Mr. NADLER. Do you have authority to levy large fines?
Page 54 PREV PAGE TOP OF DOC
Mr. NOBLE. We can only negotiate fines or ask a court to levy a fine. The fines are set in the statute. Some believe that they are too low; some believe they are not.
Mr. NADLER. OK. Do you have authority to seek disgorgement?
Mr. NOBLE. I believe that we do, in the appropriate case, have general equitable authority to seek disgorgement. It could be made clearer in the statute.
Mr. NADLER. And one last question, with the indulgence of the chairman.
In the event, because the chairman mentioned this before, if the source of the funds--and I think I should ask Mr. Litt this rather than Mr. Noble. If the source of the funds were criminal activity such as--well, not the scheme itself, like money laundering is part of the campaign but--if that was done properly--not properly but legally--but the source of the funds were drug money or murder-for-hire or some other illegal activity, doesn't the general criminal law give authority for forfeiture of the assets now so that disgorgement is not necessary in that sense?
Mr. LITT. Not necessarily. It depends upon the nature of the underlying offense and whether we can secure a conviction and establish that the funds were forfeitable proceeds under the existing law; and, as Mr. Noble pointed out, that is entirely independent of the use of the funds to make a campaign contribution.
Mr. NADLER. Even under civil asset forfeiture, you need a conviction?
Page 55 PREV PAGE TOP OF DOC
Mr. LITT. You don't need a conviction for a civil asset forfeiture, but civil asset forfeiture cannot be had for every kind of offense. It depends upon the particular offenses.
Mr. NADLER. But it would be for drug crimes, for instance?
Mr. LITT. Drug proceeds are forfeitable.
Mr. NADLER. Thank you.
Mr. BRYANT [presiding]. The gentleman from Massachusetts.
Mr. MEEHAN. Thank you.
Mr. Noble, following up on what Mr. Nadler has said, let me also again make the comment to look at the FEC's budget, particularly the budget for investigations. And to see you going through this questioning. I don't know how in the world the FEC is going to possibly begin to fully enforce the laws that are presently on the books until the Congress provides the money to do it.
That having been said, obviously the gentleman from Pennsylvania has introduced H.R. 1494 because he is concerned that illegal contributions are being refunded to contributors; and he feels it says to a contributor, you make an illegal contribution, you influence an election, you either get it back or get away with it, one way or the other.
Page 56 PREV PAGE TOP OF DOC But, as I understand it, and Mr. Nadler has gone into this a little bit, the FEC has the authority to assess civil penalties against an illegal contributor of an amount of at least equal to his or her contribution and potentially as much as 200 percent of his or her contribution. Indeed, if a criminal violation is involved, fines may be assessed up to 300 percent of an illegal contribution.
Finally, the FEC, it has been pointed out, has the authority to require the political committees to disgorge illegal contributions to the Treasury where the refund would result in an unjust enrichment of some contributor.
So isn't it fair to say, under the current system, if the FEC finds a contribution to be illegal, any windfall enjoyed by the person to whom the large contribution is refunded is likely to be swept away by either large civil penalties or large criminal penalties?
Mr. NOBLE. I think we have the authority right now to attempt to do that. As I said earlier, the problem of this point is more not having the resources to do that.
I would note, though, that we are concerned that when you are dealing with an enforcement action regarding a prohibited contribution or an excessive contribution, that the civil penalty doesn't just become a tax on top of the contribution. So it is important to get the contribution out of the process and then have a civil penalty on top of it. I think we have a number of tools to do that right now.
I think what this would do is attempt to have us take a closer look at individual contributions that are being returned. That will take resources. How that will otherwise impact on this system would remain to be seen.
Page 57 PREV PAGE TOP OF DOC
But, again, right now, we do have a number of tools that, if we had the resources to use them, would allow us to get the money out of the process.
Mr. MEEHAN. And Assistant Attorney General Litt, a couple of weeks ago this subcommittee held a hearing on the Congressional Review Act, which requires proposed regulations to be submitted to Congress prior to their taking effect. This supposedly enables Congress to prevent poorly conceived regulation from becoming law. Many of the members of the subcommittee were gushing over the fact that we had passed the Congressional Review Act.
Now, I see that in H.R. 1494, the FEC implementation regulations would be exempt from the typical notice and comment procedures. Why would it be desirable to short-circuit public input in this instance, particularly given our apparent enthusiasm for widespread participation in rulemaking? Any comment on why this would be different?
Mr. LITT. As I said in my statement, this is one of the areas that we have concerns with the bill. We think, by and large, that it is better to follow the appropriate rulemaking process unless there is a particular emergency that requires us to short-circuit the process in that particular situation.
Mr. MEEHAN. Thank you, Mr. Chairman. I yield back the balance of my time.
Mr. BRYANT. Thank you.
Thank you, gentlemen, for testifying today.
Page 58 PREV PAGE TOP OF DOC
At this point, I would invite the next panel to come forward.
Gentlemen, let me, on behalf of the subcommittee, welcome you and thank you for coming to testify today. I will introduce you in the order that is in my book here:
Mr. William B. Canfield is an attorney who practices in the administrative and legislative law area. He joined Williams & Jensen as a partner in February 1997. Prior to that, he was a partner at Holland & Knight from 1993 to 1997. He has served as counsel and staff director to the secretary of the Republican Conference to the U.S. Senate, as general counsel to the National Republican Senatorial Committee, and as Republican chief counsel for the Committee on Rules and Administration of the U.S. Senate. Mr. Canfield earned his B.A. from Denison University and his J.D. from Michigan State University-Detroit College of Law.
Mr. Kenneth A. Gross advises clients of Skadden & Arps on matters relating to the regulation of political activities. As Associate General Counsel of the FEC, he headed the Enforcement Division in the Office of the General Counsel. Mr. Gross is the vice chairman of the American Bar Association Committee on Election Law in the Administrative Law Section and formerly chaired the Election Law Committee for the Federal Bar Association. Mr. Gross obtained his bachelor of arts from the University of Bridgeport and his juris doctor degree from Emory University School of Law.
Larry Klayman is chairman, general counsel and founder of Judicial Watch, a not-for-profit public interest group headquartered in Washington, DC. He also heads his own international law firm, Klayman & Associates. He was born in Philadelphia, PA, and is a member of many bars, including the Pennsylvania bar and the bar of the Pennsylvania Supreme Court. He has been a litigator for 20 years and served in the Justice Department with the Antitrust Division. Mr. Klayman got his A.B. degree from Duke University and his juris doctor from Emory University School of Law.
Page 59 PREV PAGE TOP OF DOC
Again, gentlemen, welcome. I will start in no particular order--I guess with Mr. Canfield, since I introduced you first; and we will just go from my right to left.
Thank you, Mr. Canfield.
STATEMENT OF WILLIAM B. CANFIELD III, ESQ., WILLIAMS & JENSEN
Mr. CANFIELD. Thank you, sir, and members of the subcommittee.
I appear before you today to discuss my personal observations concerning H.R. 1494, a bill introduced by Chairman Gekas earlier this month.
Let me say at the outset of my remarks that I applaud the effort of the chairman in addressing one of the great anomalies of Federal election law, the inexplicable end result of a Federal Election Commission regulation in the statutory that a political committee return to the original donor any illegal or improper campaign contribution made to a political committee.
In the 20-plus years in which I have practiced in the area of Federal election law, I have had ample opportunity, particularly since joining my firm Williams & Jensen several months ago, to marvel at how a statute can turn common sense on its head.
For example, although the Federal Election Campaign Act has many strange and inexplicable provisions, surely one of the most troubling is the provision found at 2 U.S.C. 441a(f). That provision requires that a treasurer of a political committee, having discovered that the committee is in receipt of an illegal or excessive contribution, must return or refund the illegal or excessive contribution to the original donor.
Page 60 PREV PAGE TOP OF DOC
The unintended consequence of this provision is obvious. A donor who has illegally contributed money to a political committee is thereafter made whole when the illegality is discovered and the contribution is returned to that donor by the political committee. In other words, if you seek to illegally contribute to a presidential or congressional campaign, you either get away with it because the illegal contribution is never discovered or, if it is discovered, you get your illegal contribution back.
H.R. 1494 seeks to remedy that classic anomaly. Such a change in the Campaign Act is long overdue, and I applaud the chairman's initiative in this area. The bill adopts the common-sense rule that illegal campaign donors should not get their money back and that Federal law should affirmatively discourage illegal contributions by diverting such contributions to the U.S. Treasury. Such an approach makes, in my view, imminent good sense.
As I understand the proposal, the bill would direct that a political or candidate committee, when faced with refunding an illegal or improper campaign contribution in an amount greater than $500, during the period beginning 60 days after its initial receipt, to transfer that illegal contribution to the Federal Election Commission for subsequent deposit into an interest bearing escrow account at the U.S. Treasury.
Thereafter, the Commission or Attorney General could use any of the funds so transferred or deposited into the escrow account to, one, offset any fine or civil penalty imposed upon the original contributor for initiating the illegal or improper contribution and, two, offset any costs incurred by the Federal Government in investigating such a contribution.
Page 61 PREV PAGE TOP OF DOC I also understand that the bill contains safeguards which will provide that where a contribution is transferred and deposited into the escrow account but an investigation by the Commission or the Department of Justice is either not undertaken at all or not undertaken in a timely manner or where it is determined that the contribution will not be applied to a fine or penalty, the contribution will be returned to the original donor.
While I strongly support the thrust of this proposal, I would offer the following observations for the subcommittee's consideration:
In my view, the bill need not provide any additional authority to the Federal Election Commission in order to prevent the return of illegal contributions to the original donor. In fact, I believe that the preferred practice would be for this legislation to authorize the Treasury Department to create and administer such an escrow account, with the Commission solely responsible for initiating any investigation and levying any resulting civil fine or penalty.
As an attorney actively engaged in practicing before the Commission, it is my experience that giving additional authorities to the Commission in this area will only lead to the adoption of more bureaucratic rules and regulations by the Commission with respect to how that escrow fund will be utilized and administered.
No. 2, in my opinion, any funds retained in the escrow account after a violation has been determined by the Commission should be forfeited to the Treasury for application to reduction of the national debt.
The bill as drafted would allow such escrow funds to be used to either offset a fine or penalty and/or the Government's cost in conducting an investigation into the illegality of the original contribution. I believe that once an illegal contribution has been determined by the Commission, the funds in the escrow account representing that contribution should be forfeited and a fine or penalty should be exacted against the contributor as well.
Page 62 PREV PAGE TOP OF DOC
Illegal contributions should cost the contributor in two ways: The escrowed amount representing the original contribution should be forfeited and the contributor should be fined.
The bill would amend the Campaign Act by adding a new section which would authorize the transfer of contributions which were intended to be returned by a political or candidate committee instead to be transferred to the Commission for retention in an escrow account. As the subcommittee knows, the word ''contribution'' is a term which is defined in the act and generally means any ''gift or deposit of funds made by any person for the purpose of influencing any election for Federal office.''
This rather narrow definition of the term ''contribution'' has led to yet another of the unintended consequences which Congress instilled in the Campaign Act in 1974. Distinguishing between those contributions which were defined and limited by the act and those contributions which were not so defined, the national party committees have received, since 1974, two different kinds of contributions; i.e., those that were intended to influence a Federal election--so-called hard money--and those which were not intended to influence a Federal election--so-called soft money.
Because the term ''soft money'' is not defined in the Campaign Act, the term ''contribution'' as used in the bill is limited by definition to Federal political contributions and, as such, would not appear to include contributions to the so-called nonFederal accounts of the national party committees or leadership political committees.
Since one of the apparent motivations underlying the drafting of the bill was to specifically address the so-called soft money fundraising excesses of the DNC during the 19951996 cycle, I would urge the subcommittee to consider broadening the scope of the term ''contribution'' as presently used in the bill to cover so-called non-Federal funds.
Page 63 PREV PAGE TOP OF DOC
Mr. Chairman, I would like to thank you for the opportunity to testify before the subcommittee this morning. Your effort in this area was long overdue, and I commend you for initiating the legislation. I would be happy to answer any questions you might have.
Mr. BRYANT. Thank you, Mr. Canfield.
[The prepared statement of Mr. Canfield follows:]
PREPARED STATEMENT OF WILLIAM B. CANFIELD II, ESQ., WILLIAMS & JENSEN
Mr. Chairman and members of the subcommittee, I appear before you today to discuss my observations concerning H.R. 1494 (''The Apprehension of Tainted Money Act of 1997''), a bill introduced by Chairman Gekas earlier this month. Let me say at the outset of my remarks that I applaud the effort of the Chairman in addressing one of the great anomalies of federal election law ... the inexplicable end result of a Federal Election Commission requirement that a political committee return to the original donor any illegal or improper campaign contribution made to that political committee.
In the twenty plus years in which I have practiced in the area of federal election law, I have had ample opportunity, particularly during my tenure as a partner in the Washington law firm of Williams & Jensen, to marvel at how a statute can turn common sense on its head. For example, although the Federal Election Campaign Act of 1974 (the ''FECA'') has many strange and inexplicable provisions, surely one of the most troubling is the provision found at 2 U.S.C. 441a(f) and 11 C.F.R. paragraphs 103.3(b)(1)-(b)(5) These provisions require that the treasurer of a political committee, having discovered that the committee is in receipt of an illegal or excessive contribution, must return or refund the illegal or excessive contribution to the donor. The unintended consequence of this provision is obvious. A donor who has illegally contributed money to a political committee is thereafter made whole when the illegality is discovered and the contribution is returned to that donor by the political committee. In other words, if you seek to illegally contribute to a Presidential or Congressional campaign, you either get away with it, because the illegal contribution is never discovered, or, if it is discovered, you get your illegal contribution back!
Page 64 PREV PAGE TOP OF DOC
H.R. 1494 seeks to remedy that classic anomaly. Such a change to the FECA is long overdue and I applaud the Chairman's initiative in this area. H.R. 1494 adopts the common sense rule that illegal campaign donors should not get their money back and that federal law should affirmatively discourage illegal contributions by diverting such contributions to the U.S. Treasury! Such an approach makes eminent good sense.
As I understand this proposal, H.R. 1494 would direct that a political or candidate committee, when faced with refunding an illegal or improper campaign contribution in an amount greater than $500.00, during the period beginning sixty days after its initial receipt, to transfer the illegal contribution to the Federal Election Commission (the ''Commission'') for subsequent deposit into an interest bearing escrow account at the U.S. Treasury. Thereafter, the Commission or the Attorney General could use any or all of the funds so transferred and deposited into the escrow account to (1) offset any fine or civil penalty imposed upon the original contributor for initiating the illegal or improper contribution and (2) offset any costs incurred by the federal government in instigating such contribution. I also understand that H.R. 1494 contains internal safeguards which will provide that where a contribution is transferred and deposited into the escrow account, but an investigation by the Commission or the Department of Justice is either not undertaken at all, not undertaken in a timely manner, or where it is determined that the contribution will not be applied to a fine or penalty, the contribution will be returned to the original donor.
While I strongly support thrust of this proposal, I would offer the following observations for the Subcommittee's consideration:
Page 65 PREV PAGE TOP OF DOC (1) In my view, the bill need not provide any additional authority to the Federal Election Commission in order for prevent the return of illegal contributions to the original donor. In fact, I believe that the preferred practice would be for this legislation to authorize the Treasury Department to create and administer such an escrow account, with the Commission solely responsible for initiating any investigation and levying any resulting fine or civil penalty, authorities the Commission currently possesses under the FECA. As an attorney actively engaged in practicing before the Commission, it is my experience that giving additional authority to the Commission in this area will only lead to the adoption of bureaucratic rules and regulations by the Commission with respect to how the escrow fund will be utilized and administered.
(2) In my opinion, any funds retained in the escrow account after a violation has been determined by the Commission should be forfeited to the U.S. Treasury for application in the reduction of the national debt. The bill as drafted would allow such escrow funds to be used to offset either a fine or penalty and/or the government's cost in conducting an investigation into the illegality of the original contribution. I believe that once an illegal contribution has been determined by the Commission, the funds in the escrow account representing that contribution should be forfeited and a fine or penalty should be exacted against the contributor as well. Illegal contributions should cost the contributor in two ways, the escrowed amount representing the original contribution should be forfeited and the contributor should be fined.
(3) The bill would amend the FECA by adding a new section which would authorize the transfer of contributions which were intended to be returned by a political or candidate committee, instead to be transferred to the Commission for retention in an escrow account. As the Subcommittee knows, the word ''contribution'' is a term which is defined in the FECA at 2 U.S.C. 431(8)(A) and 441b(b)(2) and generally means any gift or deposit of money ''made by any person for the purpose of influencing any election for Federal office'' (emphasis added). This rather narrow definition of contribution has led to yet another of the unintended consequences which Congress instilled in the FECA in 1974. Distinguishing between those contributions which were defined and limited by the FECA and those contributions which were not so defined, the national party committees have received, since 1974, two different kinds of contributions, i.e. those that were intended to influence a federal election (so-called ''hard money'') and those that were not intended to influence elections at the federal level (so-called ''soft money'').
Page 66 PREV PAGE TOP OF DOC
Because the term ''soft money'' is not defined in the FECA, the term contribution as used in H.R. 1494 is limited to federal political contributions, and, as such, would not appear to include a contribution to the so-called non-federal account of a national party committee or ''leadership'' political committee. Since one of the apparent motivations underlying the drafting of H.R. 1494 was to specifically address the so-called ''soft money'' fundraising excesses of the Democratic National Committee during the 19951996 election cycle, I would urge the Subcommittee to consider broadening the scope of the term ''contribution'' as presently used in H.R. 1494 to cover so-called ''non-federal'' funds. While the FECA does not define the terms ''soft money'' or ''non-federal'' funds, those who have attempted, by legislation, to restrict the use of so-called ''soft money'' have done so by requiring that all funds deposited into any account maintained by a national party committee or ''leadership'' political committee must be raised exclusively from the sources set forth in the FECA and may not be raised from so-called prohibited sources, as outlined at 2. U.S.C. 441b.
Mr. Chairman, I would like to thank you for the opportunity to testify before the Subcommittee this morning. Your effort in this area is long overdue and I commend you for initiating this legislation. I would be happy to answer any questions which you might have with respect to any of my observations.
Mr. BRYANT. Mr. Gross.
STATEMENT OF KENNETH A. GROSS, ESQ., SKADDEN, ARPS, SLATE, MEAGHER & FLOM
Page 67 PREV PAGE TOP OF DOC Mr. GROSS. Thank you, Mr. Chairman and members of the subcommittee.
I am here to address some of the concerns that I have with H.R. 1494 or what is, I guess, referred to as the ATM bill, which doesn't dispense money but attempts to dispense with illegal money. And the concerns that I guess I have from the perspective of donors, which is how I view the bill, many of whom I have represented over the years, none of whom, for the record, have violated the law but still have sensitivity for that perspective.
This bill intends to address, I think, some major highly publicized contributions that are in the press now but what, in reality, is going to get ensnared with thousands and thousands of inadvertent excessive or perhaps mom-and-pop corporate contributions.
If John and Mary Doe write a check on a joint checking account and John Doe signs it thinking that this is a contribution from John and Mary Doe for $2,000, that is a violation of law because both John Doe and Mary Doe have to sign the check. And if that doesn't get picked up within the 60-day timeframe, this couple will be subjected to a Federal investigation.
It happens quite frequently among large donors that they go over the $25,000 limit because of a simple misunderstanding of the law. If I write a thousand dollar contribution this year, in 1997, to a candidate who is up next year, which all the candidates are up, it counts against my annual limit for 1998, not 1997. This is a counterintuitive rule that people just misunderstand. This does not get picked up by the candidate, because the candidate doesn't know that it is impermissible.
This is a donor problem. And a donor, being conscientious, may hire me to say, look, I want you to check through my contributions, see if I have gone over the limit. I have made a lot. I think I have kept track of it. And I have said, well, you have but you miscalculated this somewhat arcane application of the law between election cycle and the year in which you give it.
Page 68 PREV PAGE TOP OF DOC
And what do we do now? Chances are it is several months down the road. Do we get a refund?
Well, I have to explain to you, Mr. Client, if we get a refund, you are going to be subjected to a Federal investigation. Not only that, you are going to be on the radar screen of the Department of Justice. I am not saying that they are going to open up a case, but they have to also get into the act and certify this refund. And suddenly the evaluation for self-policing and self-corrective conduct in those situations becomes different--the equation changes dramatically at that point.
So what do we do? A donor says to me, I don't want to mess with it. It chills the first amendment concerns of donors when it comes to making political contributions; and what they end up doing is either don't make the contributions or, ironically, they just go to soft money. Because that money is unregulated. It is legal.
There was a presumption, I think, earlier that soft money could come within the ambit of this because it is illegal. Well, soft money is legal. It just goes to a non-Federal account.
Also, a candidate who is in a position of having to refund a contribution through this procedure may avoid refunds altogether by just transferring the money out to a soft money account.
So at both ends, on the contributor's side and the recipient's side, I think we are going to see some of the pressing of the balloon manifesting itself in more soft money in the process, ironically.
Page 69 PREV PAGE TOP OF DOC
Another concern that I have is a lot of refunded contributions are legal. Candidates impose rules that they don't want PAC contributions. They don't want--or party committees don't want contributions from U.S. subsidiaries that are owned by foreign corporations or PAC's maintained by those entities or certain ideological groups that they would rather not take contributions from. This has happened repeatedly in the process.
These contributions get refunded, perfectly legal but, again, is subjected to this process and an aspersion is cast upon the donor that they have been subjected to this investigation. And that is of real concern.
And some of the contributions that come out are very difficult to detect within 60 days. You get a contribution from John Smith, John E. Smith, John Smith, Jr., J.E. Smith. It may be one person. It may be three persons. It may be two persons. When aggregating those contributions it is a difficult undertaking; and if a committee happens to be dilatory in that process, the donor is subjected to an investigation.
If they do it efficiently within 60 days, no problem. But if it is dilatory or it takes awhile to detect it, somewhat arbitrarily, totally outside the control of the donor, you are subjected to an investigation.
So those are the real concerns that I have on behalf of the average contributor. The big soft money contributions that are going into the process are simply untouched by this because they are perfectly legal, and this is just essentially the tail wagging the dog in a case like this.
Page 70 PREV PAGE TOP OF DOC
Mr. BRYANT. Thank you, Mr. Gross.
[The prepared statement of Mr. Gross follows:]
PREPARED STATEMENT OF KENNETH A. GROSS, ESQ., SKADDEN, ARPS, SLATE, MEAGHER & Flom
This testimony describes H.R. 1494 (the ''Bill'') and the detrimental impact it would have on the political system if it becomes law. Specifically, under the Bill, if a political committee intends to refund a contribution that is equal to or greater than $500 but does not do so within sixty days of receipt, the committee must transfer that contribution to the Federal Election Commission (''FEC'' or ''Commission'') so that the Commission may return the contribution to the donor. The Commission in turn must initiate an investigation to determine if that contribution violates the Federal Election Campaign Act of 1971, as amended, (''FECA'') and notify the Attorney General of that contribution. The contribution may be returned only after the Commission and the Attorney General have certified that the contribution is not the subject of any civil or criminal investigation.
Thus, this Bill triggers an automatic investigation of possible civil violations under FECA as well as a review by the Attorney General to the extent necessary to make the required certification merely because a contribution is not refunded within sixty days. Consequently, as a practical matter, the possibility of a criminal investigation, even of valid contributions, is made much more likely as a result of this process. Such a law would unduly and unfairly chill individuals from exercising their First Amendment right to engage in free political speech by making contributions, a right which is the foundation of our political system. At the same time, the Bill would not achieve its purpose of ferreting out violations of the campaign finance laws.
Page 71 PREV PAGE TOP OF DOC
THE BILL UNDULY AND UNFAIRLY CHILLS VALID CONTRIBUTIONS BY INDIVIDUALS
The Bill could discourage individuals from making even valid contributions for fear of becoming subject to a criminal inquiry for an inadvertent mistake. Given the technical nature of FECA, inadvertent violations of the contribution limits on individuals frequently occur. For example, a common mistake relates to FECA's aggregate contribution limit of $25,000 for all Federal contributions that an individual may make during a calendar year. Many individuals do not know that his or her contribution to a candidate's campaign counts toward this aggregate limit for the year in which the candidate's election occurs and not the year in which the contribution is made.
When a contributor realizes such error, he or she usually requests a refund from the campaign to rectify the error. These errors are often not discovered within sixty days because they are not apparent to the recipient campaign or political committee. If the Bill is passed, such contributor would automatically trigger a civil investigation and at least a review by the Attorney General, which could lead to a more serious criminal investigation, if the contribution is not refunded within sixty days. With the specter of such severe civil and possibly criminal law enforcement mechanisms lurking behind each contribution that an individual makes, that individual could be chilled from making even valid contributions. It is also inherently unfair that a contributor may become subject to such civil and criminal review because of the dilatory actions of the political committee in returning his or her contribution, actions over which the contributor has no control.
Also, contributions are returned even though they do not necessarily violate the law. Some candidates and political committees, for political reasons, do not accept PAC money, funds from U.S. corporations owned by foreign entities, funds from certain industry groups, or funds from sources that have ideological differences with the campaign or committee. In these cases, if the contributions are not returned within sixty days, it would subject perfectly legal contributions to governmental inquiry, a further chilling factor.
Page 72 PREV PAGE TOP OF DOC
To avoid such chilling of legitimate individual contributions, inadvertent violations of FECA should be left to the present civil enforcement mechanism. Indeed, an overwhelming percentage of FECA violations are enforced civilly by the Commission. The FECA limits criminal prosecution to violations that are knowing and willful and involve at least $2,000. 2 U.S.C. 437g(d). In addition, in a Memorandum of Understanding between the Department of Justice and the FEC, they recognized that even knowing and willful violations of FECA must be ''significant and substantial and ... aggravated in the intent ... or the monetary value'' to warrant a ''criminal prosecution review'' by the Department of Justice.
THE BILL DOES NOT ACHIEVE ITS PURPOSE
One of the purposes of the Bill appears to be to ferret out criminal violations of FECA. However, the length of time it takes for a political committee to refund a contribution (i.e., within sixty days) is not indicative in any way of whether there was a criminal, knowing and willful violation of FECA. Delays in refunds may occur because of a variety of non-criminal reasons including a delay in the contributor's request for a refund or an administrative delay by the political committee in processing the refund.
As for ferreting out civil violations of FECA, the Commission already has effective rules in place regarding refunds. Under those rules, the treasurer of a political committee must within ten days of receipt either deposit a contribution into the committee's depository or return a contribution to the donor if there are genuine issues of the contribution's legality. 11 C.F.R. 103.3(a), (b)(1). If such contribution is deposited into the committee's depository, the treasurer has thirty days to investigate its legality and refund the contribution if he or she discovers it is not legal. Id. Also, the Commission has issued advisory opinions on how a campaign or political committee must treat tainted contributions and when a campaign or committee has sufficient basis to be on notice that it may have received an illegal contribution. See, e.g., AO 199139, Fed. Elec. Camp. Fin. Guide (CCH) 6042 (February 7, 1992); AO 198452, Fed. Elec. Camp. Fin. Guide (CCH) 5797 (November 30, 1984).
Page 73 PREV PAGE TOP OF DOC
Considering the harmful effects that the Bill would have on the political system and the lack of any real benefits, the Bill should not be passed.
Mr. BRYANT. Mr. Klayman.
STATEMENT OF LARRY KLAYMAN, ESQ., CHAIRMAN AND GENERAL COUNSEL, JUDICIAL WATCH
Mr. KLAYMAN. Thank you.
My name is Larry Klayman. I am chairman and general counsel of Judicial Watch, a nonprofit group headquartered in Washington. I appreciate the opportunity to testify before the committee on the issue of tainted money and politics.
Judicial Watch, which does not receive Federal funds and is, in fact, a volunteer organization primarily, has been in the forefront of the public's effort to disclose the terrible fact that much of the money coming into our political system is illegal and tainted and the ultimate result is that our Government is for sale to the highest bidder.
We have been the group which uncovered John Huang and the current money scandal with regard to our case at the Commerce Department, which has now blown up into a full-fledged, governmentwide investigation; and we take a special interest in your proposed bill, which we consider to be extremely important.
Page 74 PREV PAGE TOP OF DOC Congress is right to take action to assure that our political parties do not become holding tanks for tainted political contributions which can be used during the election cycle to boost cash flow and attract other donations. An unscrupulous campaign can crow about the size of its war chest and then, after the election is over, send the money back on the slow boat to China, so to speak, or whatever, and still claim that it was an innocent victim.
In the case of the Democratic National Committee, despite promises to do so, most of the foreign contributions have not been returned to date. The committee, in effect, claims that it is now bankrupt.
In other words, the present system of permitting political campaigns to wash their hands of ill-gotten cash by claiming, in effect, that they were simply duped and then mailing the check back with regrets to a crooked donor is a travesty. While this ploy is a relatively new development, unless legislation is passed it is likely to become commonplace in the future.
This is why we firmly believe that your legislation is on the right track. It recognizes the need for a mechanism to impound money suspected of being illegal, at least long enough for an investigation to be conducted; and it contains other useful ideas.
We suggest that the bill can be strengthened in a number of different ways. First, we do not think that it is realistic for the Federal Election Commission to have anything to do with the money. We firmly believe that the Commission is too inept, too inefficient and too political to be given any new task concerning the protection of our elections, much less the important tasks envisioned by this legislation.
Page 75 PREV PAGE TOP OF DOC And I might point out the frustration which perhaps I viewed through the chairman this morning with regard to the Federal Election Commission. It seemed that both the Commission and the Justice Department were looking at each other for ways to try to enforce illegal contributions. This type of what I view as double talk is, in fact, the problem with regard to getting at the heart of the issue. We need an agency which does a real, effective investigation and that would be with regard to any administration, Democrat or Republican.
As an alternative to the mere trust function specified for the Commission, the legislation could provide for the appointment of an independent U.S. Commissioner or even the Federal district court clerk to hold the money pending fulfillment of the statutory terms for its return to an innocent donor.
More important, the act, as drafted, does not require either the Commission or the Attorney General to do anything except sit on their hands and wait for the prescribed period to pass and allow the money to be returned.
Again, whether we have a Democrat administration or Republican administration, it is extremely difficult for either the Department of Justice or the FEC to conduct an investigation, and let me give you an example.
We have been taking depositions in our case against the Commerce Department. We have not seen, thus far, any Justice Department activity at the Commerce Department even questioning John Huang's secretary with regard to this campaign finance scandal. Witnesses have left the country. Witnesses are refusing to testify. This inactivity, whether innocent or not, points out the problem in getting a strong enforcement mechanism.
Page 76 PREV PAGE TOP OF DOC
We have seen similar inactivities with regard to political investigations under Republican administrations, so I don't mean this to be a partisan issue, but it is a reality.
I doubt that the FEC and the Attorney General would conduct an investigation--and this is what I am saying--that embarrasses high public officials unless they are required to do so by a very specific mandate from Congress.
Judicial Watch suggests that the bill be changed to require, to require, the Attorney General to issue a public report within 90 days after the money is placed in escrow by a political campaign and to answer written questions under oath from Congress within 10 days after issuing the report before the money can be returned.
We would also suggest that citizens be permitted to file public interest suits to overturn the findings of the Attorney General, either for or against the return of the money, within 30 days after the Attorney General issues a final report.
Let me interject on this, as a public interest group, Judicial Watch, as effective as I hope we have been, has very limited standing abilities to bring lawsuits. We have not been able to force the Attorney General to look into issues with regard to the President's legal defense fund, with regard to issues involving Republicans, with regard to other types of things, because, unless the Attorney General in any given administration wants to do an investigation, it isn't going to happen. And that is why public interest groups should be given that ability to allow the people to speak when, in fact, the politicians will not.
Page 77 PREV PAGE TOP OF DOC The statute should permit such citizens who prevail to be rewarded with payments from the escrowed funds, at least for their attorney's fees and costs. Permitting citizen suits would be an important safeguard to prevent the kind of abuse of discretion possible in an Attorney General's unreviewable refusal to appoint an independent counsel to investigate, for instance, campaign finance violations.
In the absence of a requirement that the Attorney General actually issue a report, the contents of which should be carefully specified by Congress before permitting the return of contributions, a practice of using the bill's provisions to ''vaccinate'' even the most odious of campaign contributions, is likely to become commonplace.
All the Attorney General need do is sit back in silence and allow the time to run out, and both the donor and the recipient of the tainted contributions can claim that they have been officially cleared. This will surely be the principal, unintended consequence of this legislation as it is presently drafted.
We would also support adding provisions to the bill which would protect innocent donors, and that is something that Mr. Gross spoke about, who might otherwise be victimized by careless or incompetent campaign committees. I do not think that we have reached the stage where any public-spirited citizen need consult experts before making a contribution--sorry, Ken--but an innocent citizen who wants to help a candidate or a cause should not lose his or her hard-earned money into the Federal maw simply because they are victims, not truly guilty parties.
As the bill is drafted, the only safe harbor for innocent givers is that the money that they have contributed under a misleading or mistaken impression--for instance, John Huang may have lied to donors about the legalities of his contributions or what he was suggesting--can continue to be returned directly to them within 60 days of its receipt.
Page 78 PREV PAGE TOP OF DOC
It might actually be better for the legislation to be more specific and more limited and more critical, and this is exactly what we have in mind. I think that focusing on really important criteria for requiring an escrow deposit might prevent an enforcement mechanism from becoming bogged down in a sheer number of cases.
For example, as I understand the process of bundling contributions, checks from hundreds of donors might be presented to a campaign committee by a single person or entity. If that person or entity later came under suspicion, that does not mean that all of the contributions in the bundle should go into the escrow account. Maybe that is a good idea, maybe it is not, but it is something which should be considered.
I realize that I am exceeding my time, and if anyone would like to cut me off, I will be brief; but, otherwise, I will continue.
Mr. BRYANT. How much more do you have?
Mr. KLAYMAN. I have another half of a page.
Mr. BRYANT. That will be fine.
Mr. KLAYMAN. I also think that we should go further in dealing what I think is the real lesson of the current scandal, which I consider to be one of the greatest moral and ethical crises ever to confront this country, the likely emergence of foreign powers as eager secret players in our political process.
Page 79 PREV PAGE TOP OF DOC
Please don't misunderstand me. I myself am a free trader. I believe in foreign trade, good relations with countries that warrant it and a healthy place in our society for legal immigrants. What is threatening is the evidence that foreign interests now understand how to buy influence here by paving the trail to some of our politicians' doors with cash; and, I might add, domestic contributors have also understood that for a great deal of time.
In the end, that is why I think that this legislation, as artfully crafted as it is, is just a beginning. I urge that the bill include a provision permanently denying entry visas to any foreigner found to be in violation of our election laws.
To be frank, unscrupulous foreign donors see the illegal campaign contributions as just part of the cost of doing business. They do not expect to get the money back, and certainly they should not get the money back. But they should also be prevented from coming to our country if they have knowingly violated the law.
In closing, I would say this. Judicial Watch is a conservative organization. We are nonpartisan, but we call it as we see it. And whether it is Democrat or Republican violations, this is something which needs to be addressed.
Currently, our system, as we have seen here this morning, does not have a Justice Department which feels that it has the power to investigate, nor has it shown a willingness to investigate. The same is true of the Federal Election Commission.
We need to go far beyond just simply impounding the money and enacting laws which require our law enforcement agencies to do their job.
Page 80 PREV PAGE TOP OF DOC
Mr. BRYANT. Thank you, Mr. Klayman.
[The prepared statement of Mr. Klayman follows:]
PREPARED STATEMENT OF LARRY KLAYMAN, ESQ., CHAIRMAN AND GENERAL COUNSEL, JUDICIAL WATCH
I am Larry Klayman, Chairman and General Counsel of Judicial Watch, a not-for-profit public interest group headquartered in Washington, D.C. I appreciate being invited to testify on the problem of tainted money in politics: Judicial Watch, which does not receive federal funds, has been in the forefront of efforts to focus public attention on the terrible future our country will face if elections--and our government--are for sale to the highest bidder, particularly if those bidders are the agents of hostile foreign powers. Judicial Watch has been involved in pro bono public interest litigation which discovered John Huang and his money trail.
Public-spirited citizens will applaud the objective of Representative Gekas' legislation. Congress is right to take quick action to assure that our political parties do not become holding tanks for tainted political contributions which can be used during an election cycle to boost cash flow and attract other donations. An unscrupulous campaign can crow about the size of its war chest, and then after the election is over send the money back, on a ''slow boat to China,'' or whatever, and still claim that it was an innocent victim. In the case of the Democratic National Committee, the Committee, despite promises to do so, still has not even returned foreign illegal contributions; in effect, claiming that it is now ''bankrupt.''
Page 81 PREV PAGE TOP OF DOC
In other words, the present system of permitting political campaigns to wash their hands of their ill-gotten cash by claiming, in effect, that they were duped and then simply mailing a check with regrets to a crooked donor is a travesty. While this ploy is a relatively new development, unless this legislation is passed, it is likely to become commonplace.
That is why we think that this legislation is one the right track. It recognizes the need for a mechanism to impound monies suspected of being illegal at least long enough for an investigation to be conducted, and it contains other useful ideas.
But we suggest that the bill can be strengthened in different ways.
First, we do not think that it is realistic for the Federal Election Commission to have anything to do with the money. We think that the Commission is simply too inept, too inefficient, and too political to be given any new tasks concerning the protection of our elections, much less the important tasks envisioned by this legislation. As an alternative to the mere ''trust'' function specified for the Commission, the legislation could provide for the appointment of an independent United States Commissioner, or even the federal district court clerk, to hold the money, pending fulfillment of the statutory terms for its return to an innocent donor.
More important, the Act as drafted does not require either the Commission or the Attorney General to do anything, except sit on their hands and wait for the prescribed time to pass and allow the money to be returned. I doubt that the FEC and the Attorney General would conduct an investigation that embarrasses high public officials unless they are required to do so by a very specific mandate from Congress.
Page 82 PREV PAGE TOP OF DOC
Judicial Watch suggests that the bill be changed to require the Attorney General to issue a public report within ninety (90) days after the money is placed in escrow by a political campaign, and to answer written questions under oath from the Congress, within ten (10) days after issuing the report, before the money can be returned. We would also suggest that citizens be permitted to file public interest suits to overturn the findings of the Attorney General either for or against the return of the money within thirty (30) days after the Attorney General issues a final report. The statute should permit such citizens who prevail to be rewarded with payments from the escrowed funds, at least for their attorney's fees and costs. Permitting citizen suits would be an important safeguard to prevent the kind of abuse-of-discretion possible in an Attorney General's unreviewable refusal to appoint an independent counsel to investigate campaign finance violations. In the absence of a requirement that the Attorney General actually issue a report (the contents of which should be carefully specified by Congress) before permitting the return of contributions, a practice of using the bill's provisions to ''vaccinate'' even the most odious of campaign contributions is likely to become commonplace. All the Attorney General need do is sit back in silence and allow the time to run out, and both the donor and the recipient of the tainted contributions can claim that they have been officially ''cleared.'' This will surely be the principal unintended consequence of this legislation as it is presently drafted.
We also would support adding provisions to the bill which will protect innocent donors, who might otherwise be victimized by careless or incompetent campaign committees. I do not think that we have reached the stage where any public-spirited citizen need consult experts before making a contribution, but an innocent citizen who wants to help a candidate or a cause should not lose his or her hard-earned money into the federal maw simply because they are victims, and not truly guilty parties. As the bill is drafted, the only safe harbor for innocent givers is that the money they have contributed under a misleading or mistaken impression (i.e. John Huang may have lied to some donors about the legality of their contributions) can continue to be returned directly to them within sixty (60) days of its receipt. It might actually be better for the legislation to specify more limited--and more critical--circumstances when the escrow provision should be triggered. I think that focusing on really important criteria for requiring an escrow deposit might prevent an enforcement mechanism from becoming bogged-down in a sheer number of cases. For example, as I understand the process of ''bundling'' contributions, checks from hundreds of donors might be presented to a campaign committee by a single person or entity. If that person or entity later came under suspicion does that mean that all of the contributions in the ''bundle'' go into the escrow? Maybe that is a good idea, maybe it is not. As drafted, the proposed legislation should address issues like this. Judicial Watch suggests that the bill include other provisions to protect innocent donors.
Page 83 PREV PAGE TOP OF DOC
I also think that we should go further in dealing with what I think is the real lesson of the current scandal, which I consider to be one of the greatest moral crises ever to confront our country: the likely emergence of foreign powers as eager, secret players in our political process. Please do not misunderstand me: I think that foreign trade, good relations with all countries, and a healthy place in our society for legal immigrants is a very good thing for our country. What is very threatening is the evidence that foreign interests now understand how to buy influence here by paving a trail to some of our politicians doors with cash.
In the end, that is why I think that this legislation, as artfully crafted as it is just a beginning. I urge that the bill include a provision permanently denying entry visas to any person found in an administrative or judicial proceeding to have violated our election laws. To be frank, unscrupulous foreign donors see their illegal campaign contributions as just a part of the cost of doing business here: they do not expect to get the money back when they first give it, and they do not care if it is taken from them after it has passed through campaign coffers. The visa weapon is likely to be a much more powerful tool in fighting this scourge, and I urge you to include such a provision in this legislation.
Judicial Watch appreciates being asked to give its views on this important legislation, and I appreciate the opportunity to testify before the Committee.
Mr. BRYANT. At this time, the Chair would yield time to the ranking member, the gentleman from New York.
Page 84 PREV PAGE TOP OF DOC
Mr. NADLER. Thank you.
Let me ask a question for Mr. Klayman, a couple of questions for Mr. Klayman first.
You are saying that we should have a private Attorney General provision, in effect; that if the Attorney General declines to prosecute, we should let any member of the public do so, correct?
Mr. KLAYMAN. Not exactly. What I am suggesting is that we should have a mechanism where a public interest group can file a complaint and a petition for writ of mandamus to force Federal Government agencies to do their job.
We confronted this issue, for instance----
Mr. NADLER. Wait a minute. A writ of mandamus against the Attorney General or the public entity? Not the illegal donor--not the alleged illegal donor?
Mr. KLAYMAN. If you are willing to go that far, we wouldn't mind that, either.
Mr. NADLER. But the illegal donor would have an interest in this, presumably.
My concern is, if you go down this route, let's assume you have an unscrupulous candidate who won the election, who has got a lot of money; and he wants to make an example that nobody should run against him next time. He uses this mechanism to initiate legal proceedings to bankrupt his former opponent to chill the process of anybody else running against him in the future. Why is that not a possible scenario into what you are suggesting?
Page 85 PREV PAGE TOP OF DOC
Mr. KLAYMAN. Well, I don't see--you are saying that the public interest group or a citizen would bring an action for an improper purpose?
Mr. NADLER. Well, the public interest is a front--yes, it is a front for this public official.
Mr. KLAYMAN. If it is an improper purpose, the court, in theory--we can get into the issue of whether or not courts do their job in this regard, which would be a very long hearing; but they have the authority to impose attorney's fees and costs for filing frivolous lawsuits.
Mr. NADLER. Yes, after you have cost the other guy hundreds of thousands of--millions of dollars in legal fees and you come to a conclusion.
Mr. KLAYMAN. Not necessarily. A judge, who is a strong judge, can certainly take action and rule on it immediately.
Mr. NADLER. But not all judges are strong judges.
Mr. KLAYMAN. Well, we can get into judicial selection. We think we have a serious problem there as well.
Mr. NADLER. Let me ask you a different question, just a general question; and then I want to go on to Mr. Gross.
Page 86 PREV PAGE TOP OF DOC Do you think it is immoral and improper for a foreign government to seek influence in American elections?
Mr. KLAYMAN. Through bribing public officials, yes.
Mr. NADLER. Not through bribing but through campaigning contributions, through illegal campaign contributions.
Mr. KLAYMAN. Illegal campaign contributions, in all due respect, are just another word for bribery.
Mr. NADLER. That may be, but I am asking a question. Is it immoral and improper for a foreign government, through illegal campaign contributions, to seek to influence an American election?
Mr. KLAYMAN. Yes.
Mr. NADLER. Good. The U.S. Government has done that repeatedly. The CIA contributes hundreds of thousands of dollars, millions of the dollars, to candidates in elections all around the world to foreign political parties--this is not a secret anymore; it has been admitted--for elections years ago. Do you think this is immoral and improper? Should we change the law and remove the ability of the CIA to contribute to foreign elections, which is always against the law of those countries?
Mr. KLAYMAN. Well, I am a firm believer in the Morgenthau theory of international relations in that nothing is perfect in this world. We cannot control what goes on overseas.
Page 87 PREV PAGE TOP OF DOC
Mr. NADLER. We can control what we do overseas.
Mr. KLAYMAN. I do not condone that, but what I am saying is, let's put our own house in order first and then worry about what the CIA does.
Mr. NADLER. The CIA is not our own house?
Mr. KLAYMAN. If you are willing to do it, that is fine with me; and I applaud it.
Mr. NADLER. Fine, thank you.
Mr. Gross, you testified on the chilling effect of some of the provisions in this bill on campaign contributors; and I think it is a very valid point. Let me just ask you a different question.
Assuming that the problem that the bill seeks to address is a real problem, that large illegal contributions were made, that it offends one's sense of justice that the only--that perhaps the only penalty is that you get your money back after you have accomplished its purpose or may have accomplished its purpose, it is a riskless enterprise to try it, and it is especially odious when the money is coming from China or Russia or Brazil or England or some other foreign place, either because their Government wants it to or just individuals in those foreign places want it.
Would it be possible to take care of that problem without bringing on all of the problems which you have seen with this bill and others have seen with this bill simply by doing two or three things such as increasing the resources available to the FEC to pursue large cases, as opposed to the trivial cases, by increasing the latitude of the FEC to have fines and/or disgorgement as a penalty, and to deal with the foreign situation by saying that, after some preliminary proceeding, to show that this money may have been improper to prevent the removal of the money in question abroad----
Page 88 PREV PAGE TOP OF DOC
Mr. GROSS. Yes. I think----
Mr. NADLER [continuing]. During the pendency of proceedings?
Mr. GROSS. I think it can be done through the regulatory vehicle. The FEC, as was noted, has the ability to not only assess penalties against the recipient and the donor for contributions which could include the amount of the refund but also has, as a matter of practice and it could be bolstered through regulation, requires disgorgement so there isn't this enrichment back to the donor; and I think it can be done through that mechanism.
There will be that case which, by the way, is not addressed by this law as long as you do it within 60 days, where some large donation is refunded to somebody who is in China and you can't get jurisdiction over them. But those are the rare, rare cases.
Even if you exclude my routine violation, which was, I think the counsel said there were 8,000 excessive contributions in excess of $500 in the last cycle, even if you took those routine ones out and you went to the extraordinary ones, it would be a rare case where you could not obtain jurisdiction over the donor; and I don't think it is cured by any statutory change.
So to answer your question, yes, I think it can be done through the regulatory vehicle, with the present authority.
Mr. NADLER. Thank you.
Page 89 PREV PAGE TOP OF DOC Mr. BRYANT. Thank you.
The Chair recognizes the gentlelady from Texas.
Ms. JACKSON LEE. I thank the chairman very much, and my first response is to thank the Chair for holding these very important hearings.
Might I have unanimous consent to have my opening statement submitted for the record, Mr. Chairman?
Mr. BRYANT. So granted.
[The prepared statement of Ms. Jackson Lee follows:]
PREPARED STATEMENT OF HON. SHEILA JACKSON LEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Thank you, Mr. Chairman, for convening this hearing on the, ''Apprehension of Tainted Money Act.'' Much has been said during the 105th Congress about alleged illegality in federal campaign fundraising and giving. Numerous illegal and improper contributions have been returned, and additional return of contributions has been pledged. The Federal Election Campaign Act (FECA) prohibits certain types of contributions, including contributions by foreign nationals and contributions given in the name of another. Under current law and regulation, illegal contributions are returned to the individuals who made them. I am glad that this legislation would deprive wrongdoers regardless of party. While I welcome the concept that when a political action committee intends to return a contribution of more than $500 dollars, it must transfer the contribution to the Commission and ask the Commission to return it into an escrow account, I do have some concerns. First, I think we must examine the motivation behind this legislation. This legislation should not seek to address the ills or alleged irregularities within the Democratic party, but in both parties. It also appears that this bill triggers an automatic investigation of possible civil violations under FECA as well as a review by the Attorney General to the extent necessary to make the required certification merely because a contribution in not refunded within sixty days. Consequently as a practical matter, the possibility of a criminal investigation, even of valid contributions, is made more likely as a result of this process. The law as it is currently written, would unfairly chill individuals from exercising their right to engage in free political speech by making contributions. Given the technical nature of FECA, inadvertent violations of the contribution limits on individuals frequently occur. It is absolutely imperative that this legislation be implemented justly and fairly, and when additions are made to the Administrative Procedure Act, that they do not cause an undue burden to the American public.
Page 90 PREV PAGE TOP OF DOC
Ms. JACKSON LEE. Let me apologize to the panelists. I was dealing with tainted block grant medicaid money on the floor of the House and, therefore, was not able to be at much of the testimony that was given.
Let me offer a few thoughts and commit myself to intense study of this legislation.
First of all, I think it is extremely important that we deter individuals from taking money that has a negative impact on domestic or foreign policy in this country. I certainly think it is important that we continue to raise the issue of free speech, political speech, that is so vital to this process; and certainly the Supreme Court has indicated, though many may disagree, that campaign contributions are a part of free speech.
I would raise concern and would like some comment on this blanket opinion, and I believe maybe Mr. Gross and Mr. Canfield, I am not sure--yes, Mr. Gross and Mr. Canfield may have commented on it--to totally blanket all those who may have foreign connections with negative intentions when monies are contributed--and certainly I know that there is laws against foreign citizens giving monies. But, in any event, I would be concerned about that implication. I think it is important to recognize that the blanket assessment is not always an accurate assessment.
I also am concerned about any suggestions that those of us in public life are so easily bribed. I certainly take great issue with that. I am insulted by it.
I know that there are laws already in place for those who misuse and abuse their office, and sometimes I am indignant about those advocates of campaign finance reform, which I am a strong advocate of, but those who are outside this body who want to castigate and accuse many of us--and I am certainly opposed to the runaway hearings being held by the oversight committee right now inasmuch as there is limited balance.
Page 91 PREV PAGE TOP OF DOC
I would ask Mr. Canfield and Mr. Gross to respond to some of the concerns that I have just expressed and whether or not this legislation answers the fairness question.
Mr. CANFIELD. Let me begin by saying that I spent almost 18 years working on Capitol Hill, 2 years in the House--actually in this building--when I started my career in Washington in 1975, with the majority of my time in the Senate. And I worked for Democrats and Republicans over those 18 years and probably 10 different Members of Congress in that period of time, and never once did I ever witness or even have a suggestion that a Member of Congress that I worked for had ever done anything that even smacked of a ''quid pro quo'' for a campaign contribution.
This notion of Common Cause and other good government groups that everybody is for sale up here and that the reason that people contribute to Federal political campaigns is to buy access to Members is, I think, largely an overblown myth.
While there, of course, are some isolated illustrations where Members of Congress over the last 200 years have been suborned through the acceptance of campaign contributions, that is such a small, infinitesimally minute percentage of all the Members of Congress who have ever served in the institution; and to use that as a blanket condemnation of the process and the Congress I think is certainly--it is really counterintuitive and destructive of democracy in many ways.
Ms. JACKSON LEE. Would you comment--and Mr. Gross can as well--do you think we would get a higher sense of compliance if you begin to criminalize moving from the administrative assessment fines and all and then move more to criminalization of these particular acts?
Page 92 PREV PAGE TOP OF DOC
Mr. CANFIELD. It has been my experience, representing private clients before the Federal Election Commission for 4 or 5 years now, that most people really take very seriously their obligations to comply with the statute. It is the exception to the rule where there is some unintended consequence of a campaign contribution.
As Larry Noble, the General Counsel of the Commission, was saying this morning, most of the Commission's efforts in enforcement seems to me--and Ken can answer this question better than I because he was the Assistant General Counsel for Enforcement for a number of years--but it seems to me, as a person who practices before the Commission, most of the Commission's enforcement actions tend to be on the small donors who make sheer mistakes of--without any illegal intent behind them; and that is where the focus of the Commission's enforcement action has been over the years.
Mr. KLAYMAN. May I respond to that?
Ms. JACKSON LEE. I have no--Mr. Chairman, would you yield me an additional minute so I can have both Mr. Gross and Mr. Klayman answer my question?
Mr. BRYANT. One minute.
Ms. JACKSON LEE. Thank you. Maybe I should ask for an additional 2 minutes, unanimous consent. If that would be allowed, I would appreciate it.
Mr. BRYANT. Fine.
Page 93 PREV PAGE TOP OF DOC
Ms. JACKSON LEE. Mr. Klayman.
Mr. KLAYMAN. Thank you. I wanted to respond to that comment.
I think that really boiled down the problem that we have with regard to the enforcement mechanism, and let me use our case as a case example. We brought a lawsuit at the Commerce Department about 3 1/2 years ago. We had a suspicion that trade missions may have been awarded on the basis of political campaign contributions.
When we obtained evidence that, in fact, that was occurring, that political connections were a major criteria, we filed a complaint with the FEC. To date, we have never heard from the FEC. It has gone into this huge morass.
Why is it, you have to ask yourself the question, that they are concerning themselves with minutia when there is this large issue that was looming in front of them, which was documented, including documents from the Commerce Department itself, and it took John Huang coming along and running from U.S. marshals last fall and the public spectacle that that caused to get them to focus on the issue and to start a Justice Department investigation and congressional investigations?
There is something wrong in our system when they are bogged down in minutia. We don't mean to say that every Congressman and Senator takes illegal campaign contributions to be influenced. Most of them are very honest, decent people. But there are those who do, in fact, do that; and we need a system that gets to the root of the issue. I might add, just not Congressmen but people in the executive branch as well.
Page 94 PREV PAGE TOP OF DOC
Ms. JACKSON LEE. I appreciate that. I want Mr. Gross--I stand with you, Mr. Klayman, on those issues; and I want investigations that need to be investigated investigated to the very nth degree, if you will. The Republicans--just as a comment, we are supporting money for the FEC, Democrats, regarding--and I think it is bipartisan--an investigatory portion of the funding; and that was eliminated out of the legislation we have on the floor today.
Mr. GROSS. Yes. Addressing the blanket issues, firstly, an illegal contribution is not a bribe necessarily. It could be, but the idea that if you have an illegal contribution that it is suddenly a bribe and this activity should be criminalized is very troublesome to me. There are certainly those cases that should be handled in a criminal fashion, but they are limited.
Our experience under this law--and we have had campaign laws in this country since the beginning of the century. Corporate contributions have been illegal since 1907. We had the Federal Corrupt Practices Act from 1925 through Watergate, which was simply a criminal law. There were no prosecutions under that law, virtually none, because it was a criminal law. Because the average, run-of-the-mill violation is not a criminal violation. It is properly addressed through the civil procedure. And only in those extraordinary cases would it be appropriate to invoke criminal remedies.
Ms. JACKSON LEE. I think that is an appropriate distinction, and I think that is where we need to go. I am concerned about bribery generating out of an illegal contribution, and if this legislation points to that I think we have some good way to go to work on it.
Page 95 PREV PAGE TOP OF DOC
I thank the chairman for his indulgence. Let me conclude by simply saying that, Mr. Klayman, I do think the FEC needs to be strengthened. It is certainly appalling that any data that you had, filings that you had, were delayed to that extent.
We can strengthen it. I don't know how we get benefit from criminalizing individuals who are innocent in intent, criminalizing their activities.
Thank you, Mr. Chairman.
Mr. BRYANT. Thank you.
Mr. Canfield, a large purpose, I think, of this legislation would be to deal with the issue of soft money. You were present in the hearing room when the prior witnesses testified. I think at least on the FEC's behalf there was some legitimate question, I was brought up even in your written testimony, as to whether this law would apply to soft money.
How would you better write this law? What would you use in lieu of contributions or how would you clarify it as it relates to soft money?
Mr. CANFIELD. As I said in my testimony, the creation by Congress of the Campaign Act in 1974 gave birth to what is known as soft money now, but soft money has always existed in the system forever, for 200-and-some-odd years.
In 1974, you had a distinction because Congress defined the term ''contribution'' in a way--you had a distinction between some kinds of contributions and other kinds of contributions.
Page 96 PREV PAGE TOP OF DOC Soft money has become the focus of a lot of media attention; but I don't think people really understand what soft money is, in reality and in practice. Soft money is simply all other forms of contributions which aren't directed at the Federal system, which aren't contributions to the national party committees or Federal candidates or Federal political action committees for the purpose of influencing Federal elections.
So it is all other money. It is all money that is regulated by the States, all other money outside the Federal Election Campaign Act.
So in terms of expanding the scope of the--of H.R. 1494 to include soft money, you have to further define the term ''contribution'' as it is used in the bill. Because the contribution definition in the bill is that contribution definition that is found the Campaign Act, which is only limited to Federal money. So you have to expand that beyond Federal money.
The Shays-Meehan bill in the House and the McCain-Feingold bill in the Senate, both principal campaign finance reform proposals, attempt to do that by talking about contributions made to national party committees for any purpose, be it to influence a Federal election or be it to influence a local or State election. That is one way to do it. That is sort of--it is a difficult contribution definition to come up with, but that is the way you would have to do it, I think.
Mr. BRYANT. Let me switch to another question here, because I think there are other issues that are important beyond that. The concept that this bill attempts to create of escrowing money does create potentially a number of problems. I think Mr. Gross pointed out some problems in terms of any time under this bill, as I read it, a candidate returns a contribution, it does not go directly back to the contributor, it goes to the FEC into this escrow.
Page 97 PREV PAGE TOP OF DOC
Mr. CANFIELD. After 60 days.
Mr. BRYANT. Right, I am sorry. Any time beyond the normal time.
Mr. GROSS. And triggers an investigation.
Mr. BRYANT. Right, and potentially would trigger an investigation. I am wondering how we could remake this--and maybe, Mr. Klayman, you have suggested some things--but a higher threshold, or maybe something else? Because I do like that concept of an escrow because of the situation where the money sometimes disappears, campaigns go bankrupt and things like that. Whether it is triple damages or whatever, if there is nothing there it doesn't matter.
But is there a better way to improve that?
Mr. CANFIELD. The Commission already determines or makes determinations between those violations of the statute that are knowing and willful, which become much more important in the minds of the Commission and suffer much more of a consequence to the donor, including large civil penalties and that kind of thing, and the sort of normal, regular, everyday kind of violations of the statute which are unintended, nonwillful, which Ken was talking about. So that would be one way to do it.
Mr. GROSS. I suppose, if there is an initial finding in a case of illegality, that those contributions under the present regulatory scheme could be escrowed until a determination is made of illegality; and, at the end of the road, it could be disgorged to the Treasury, which I think in large part would accomplish most of what you are looking for here.
Page 98 PREV PAGE TOP OF DOC
Mr. BRYANT. But is that not the investigation, in effect, when you have to make that determination?
Mr. GROSS. Well, the difference would be is that it would come up in the ordinary course of an investigation. If a complaint is filed under the present thresholds for generating internal violations--not every $600 contribution that mom and pop didn't sign the check right or misallocated--to really force the hand of the regulators to have to investigate that under the statute, let it come up under the ordinary regulatory scheme that we have right now and in those--I mean, I think every one of these egregious situations we are talking about are probably under investigation as we speak; and the ones that I have been talking about, some of them, unfortunately, are as well.
But we don't want to open up 8,000 files, which is what we are talking about.
I think there is the irony of what we have discussed before, that the large soft money contributions, the millions and millions of dollars of issue advocacy money and soft money, is perfectly legal under the present system, and none of that is going to be refunded.
So, from that perspective, you know, some may argue we are rearranging the deck chairs on the Titanic here.
Mr. KLAYMAN. Let me, Mr. Bryant, if I can, respond to that.
I think Ken's observation is technically correct if soft money were legally donated, but we have a situation where much of the soft money in the current scandal obviously was not soft money. It was being applied to reelect the President and Vice President of the United States in their own reelection effort. That is our view. And that is not soft money.
Page 99 PREV PAGE TOP OF DOC
That, therefore, becomes regulable and subject to this type of enforcement mechanism. We think this enforcement mechanism is very important, and we also firmly believe that there are not necessarily on both sides of the aisle serious investigations under way right now with regard to this campaign finance scandal.
We don't think it is happening at the Justice Department. And I have got 27 public depositions where we ask every Commerce Department witness whether they have been even approached by the Attorney General's Office or anybody at Justice or the FBI, and the answer is no. John Huang's secretary, a person who was over at the SBA where classified national security satellite documents were removed from the Commerce Department and deposited in a safe, not even questioned by the Justice Department or FBI.
You cannot rely on government agencies which are run by political interests to do the job in and of itself, unless we have some kind of mechanism to enforce their will to do the job. And we have seen that total breakdown with this current scandal, and that is what we think it is all about.
That is why we applaud this legislation. Because at least if you hold the money hostage somebody is going to do something.
And we are not asking that it be unconstitutionally taken. If someone is cleared of wrongdoing, the money should be returned to them with interest.
Mr. BRYANT. There is certainly interest on our part for a second round of questioning. Is everyone OK there?
Page 100 PREV PAGE TOP OF DOC
Mr. KLAYMAN. Yes.
Mr. BRYANT. I would yield time to Mr. Nadler from New York.
Mr. NADLER. Thank you.
Mr. Canfield, I was just astonished by something you said. I am not sure it really bears on this legislation, but I do want to explore it a moment.
I think you said that it is simply not true that political contributions buy access, and that that is simply not correct.
Mr. CANFIELD. That is my experience, sir, from working here for 18 years.
Mr. NADLER. OK. You did say that.
Let me ask you the following: I mean, it is interesting we have two extremes here. Mr. Klayman says every contribution is a bribe, and you say it never buys access.
Mr. KLAYMAN. I didn't say that. I didn't say that.
Mr. NADLER. Fine.
Mr. GROSS. I am glad I am sitting in the middle.
Page 101 PREV PAGE TOP OF DOC
Mr. NADLER. I don't want to debate that now. I have only got 5 minutes.
Yes. It was reported and, in fact, confirmed by the people who did it, so I am not accusing anybody of anything, that the leadership of the House, Mr. Gingrich, Mr. Armey, Mr. DeLay, they all announced that they had met with various PAC directors and told them twice in 1994, and again in 1995, ''that if you don't shape up and give enough contributions to our party and if you give too many contributions to the other party, if we take over the House, committee chairmen's doors are going to be closed to you.''
They said that. They admitted saying it. Fine. Forgetting whether that is a good or bad thing, isn't that saying that is access?
Mr. CANFIELD. Well, one has to differentiate, I think, between what people say as a device by which they raise funds from political action committees, what they say to those people who are potential donors----
Mr. NADLER. So you are saying it is not true?
Mr. CANFIELD [continuing]. And what the realities of life are.
I mean, the general perception by Common Cause and other good government types is that when you have a list of 25 phone calls that you have to return every day from people who have called in, you have to make a differentiation between those calls you return.
Page 102 PREV PAGE TOP OF DOC Mr. NADLER. You don't think the fellow who has raised $10,000 for you will get the phone call returned before someone you have never heard of?
Mr. CANFIELD. I am just telling you, Mr. Nadler, in the 18 years I worked here, including 16 in the U.S. Senate with some of the principal Members of the Senate, Democrats and Republicans, I never saw that happen, never.
Mr. NADLER. I would like to know what the names of those saints were.
Mr. CANFIELD. I would be glad to give them to you.
Mr. KLAYMAN. Forrest Gump.
Mr. NADLER. I would like to know the names of those saints.
Let me simply say, and we will talk about this legislation, I think that with the most honest saint in the world--and the normal percentage of saints in any congressional body is probably the same as in the population at large, fairly small, and the normal percentage of evil people the same, fairly small, the normal bell curve of distribution in between--I don't think Congress or any other body is composed of saints or devils exclusively or even primarily; but, assuming the best will in the world, I cannot see how a person who is trying to--a political candidate or former candidate looking for the next election or even--who is a public official, who knows he might run again, cannot at least help in the back of his mind thinking--trying to repress the thought maybe I better return that phone call first because maybe he can raise a lot of money should I need it in the future. The thought has got to occur. It has got to have an influence, even if you try to repress it.
Page 103 PREV PAGE TOP OF DOC
Mr. CANFIELD. Sure, thoughts are going to occur. And let's assume you take all private money out of the system and have all congressional races funded entirely by the taxpayer----
Mr. NADLER. I am going to introduce such a bill, but go ahead.
Mr. CANFIELD [continuing]. So you get a check from the Treasury instead of all these special interests who are out there pleading for your time. So then the phone calls you return are phone calls you get from your next-door neighbor, who you happen to know for no other reason than he is your next-door neighbor, who happens to have an interest in an appointment of his child to the Coast Guard Academy. You are going to return that phone call because he happens to be your next-door neighbor.
Mr. NADLER. What you are saying is other things are going to influence you, obviously.
Mr. CANFIELD. You are influenced by a thousand things every day, one of which may be campaign contributions, but that is not exclusively it.
Mr. NADLER. Agreed.
Let me ask Mr. Gross, and perhaps Mr. Canfield, if the bill were passed as presently written, do you think that the effect of the bill or one effect of the bill would be massively to shift the attention and the resources of the FEC from major--what they might consider major violations or major violators to trivia?
Page 104 PREV PAGE TOP OF DOC
Mr. GROSS. Yes, I do. I think that it would take an inordinate amount of resources to comply with this bill; and those resources would, by definition, be devoted to the inadvertent smaller cases.
Mr. NADLER. Secondly, I asked Mr. Klayman a question a little earlier about the chilling effect--or not the chilling effect but the abusive effect that private prosecution, in effect, such as you suggested, private initiation of actions, could have in the hands of people with less than perfect motivations. Perhaps they want to chill other political candidates or even opponents of theirs. How realistic do you think that fear would be if you had a private initiative system such as Mr. Klayman suggested?
Mr. GROSS. I think it would be very realistic. It would just be another arrow in the quiver of arsenal that a wealthy individual could impose upon a candidate--bring legal actions, put them on the defense, consume funds defending themselves.
Mr. NADLER. Or get the----
Mr. GROSS. And the press.
Mr. NADLER [continuing]. Attorney General on the defensive as to why he is not bringing legal action against this person.
Mr. GROSS. That is right.
Page 105 PREV PAGE TOP OF DOC Mr. NADLER. Thank you.
Mr. GEKAS. I recognize the gentlelady from Texas for a second round.
Ms. JACKSON LEE. I thank the chairman very much.
Does anyone have any knowledge of the cost of the recent election in England? I raise this point because the Labor Party won more than a majority. We have a new prime minister. I would think that is one of the major world elections; and I would like to know, Mr. Klayman, do you have any knowledge of the cost that that whole election might have cost?
Mr. KLAYMAN. Not specifically. I do know that it cost a great deal less, and obviously they limit the period of time that you can campaign prior to elections. We think that is a good idea and something that perhaps other legislation should look at in the future.
Ms. JACKSON LEE. I absolutely agree with you; and I guess the point that I am trying to make is that I think that, albeit the good intentions of legislation like this--and I have made a commitment that I want to review this further--when you begin to look at what the real core problem is, it is time frame; it is the amount of money required to win an election; it is the 550,000 people that Members of Congress represent; and certainly senators represent larger amounts; but it is elections without caps.
Those voluntary efforts, I think, certainly would go a much further way in directing ourselves away from the potential of what you are opposed to and certainly the intrusion of taint into the process. Free TV is one that I think would help us.
Page 106 PREV PAGE TOP OF DOC
And so, with that backdrop, let me proceed with some questions that raise a concern for me.
I would be interested in--and this would probably be a taking, but I would be interested in the modification of this bill where the money stayed with the FEC and some other positive use be established, maybe to bring down the deficit or some other good use.
But I am concerned, Mr. Gross, if you can respond to the implications under section 323, where I read at the very end, the violation of this act, title 18, U.S.C., comes into play, which I perceive is a criminal provision. My question to you is, how chilling or how detrimental is the turning of maybe a mistake or an error into the potential of being reviewed under a criminal provision?
Let me give you an example. I was in a room of individuals, fine upstanding citizens; and it happened to be--we were there trying to explain to them, give money here, how you give money here, really trying to provide information, charts and cross-lines drawn if you gave this amount. And we thought we had really set these highly intelligent people on the right path.
And someone stood at the end and said, what are you asking us to do? Have I given--am I over the limit?
It is mind-boggling. That is a well-intentioned person. That is an educated person. That person will leave the room and be no more informed than when they went in, but there were good representative--elected people trying to do the right thing.
Page 107 PREV PAGE TOP OF DOC
There may be an elderly rich person or an elderly well-intentioned person who losses count on what they gave yesterday, today, last year; and are you telling me that those individuals of good intentions would possibly come under this particular provision? Section 323, are you looking at that and can you give me a sense of that?
Mr. GROSS. Yes. The way this works is, even the well-intentioned, inadvertent violation, if it is over $500 and it is not, for whatever reason, refunded within 500 days--I mean 60 days----
Ms. JACKSON LEE. Maybe 500 that might give us a little bit more time.
Mr. GROSS. Those contributions--and, again, they don't always get detected, so it is not unusual that it wouldn't come up within the 60-day period--would be subjected to civil investigation.
Also, there needs to be, as you have pointed out, a certification by the Attorney General. The Attorney General wouldn't actually have to launch an investigation, but it gets on the radar screen. It puts it before them. They have to check all dockets to see whether there is any title 18 investigation involving this person.
You start explaining this to a contributor and they go, you know, I really don't want to be subjected to that. It may be something inadvertent, or maybe even it is a legal contribution, as I have pointed out. There are those instances where contributions get refunded for political reasons. They are still, ironically, subjected to this same process and could get caught up in it.
Page 108 PREV PAGE TOP OF DOC
Even some of the reimbursement cases, which are considered the more serious cases, and there are a few criminal cases pending around the country where a company will reimburse an official for a contribution, those cases run the gamut. Some of them are very innocent cases involving people that they just did not realize that it was against the law. They put down right on the expense voucher that it was a political contribution. There was no attribute of concealment or scheming. And that gets before the Attorney General and maybe gets their interest and criminalizes a case that would be appropriately handled as a civil matter.
Ms. JACKSON LEE. Mr. Chairman, may I have an additional 30 seconds to just make a point here?
Mr. BRYANT. Without objection.
Ms. JACKSON LEE. This is not to say this is happening; but, Mr. Klayman, I think if you listen to my line of reasoning here I want to see solutions but I am concerned about intimidation. I am also concerned about an uneven playing field.
Who has the press attention? The oversight hearings in particular, where you have a Republican chairman suggesting that one party are the bad guys, whether it is true or not, whether this is happening or not, just suppose that momentum catapults itself into people saying, forget it, I am going to give to this party over here and I am not going to give this party because they are in the limelight and I am going to get in the limelight. That creates an uneven playing field just because someone has made accusations which are inaccurate.
Page 109 PREV PAGE TOP OF DOC And so the saying comes about with potential review, criminally or civilly, when anybody sees IRS, the same kind of chilling effect comes not to the big guys that we may be trying to get or people who are patently trying to do the wrong thing but the folk who want to express themselves under the first amendment to give to those who they believe represent them.
Mr. KLAYMAN. First of all, I agree with you in principal. We shouldn't use either legislative or executive branch agencies to intimidate people, and we shouldn't grandstand, and we shouldn't make accusations which are not true. That is unethical, that is inappropriate, regardless of which political party does it, and it is incorrect. That is without any regard to any House Government Reform and Oversight.
I have a different view on what they are trying to accomplish right now than you do, respectfully. In their regard, they haven't even had their subpoenas responded to by the White House. I don't think they are able to do their investigation. So I don't know what they are doing that is an overreaching. They haven't really received the data.
But your principle is correct. Now, the fact that a matter gets referred to the Attorney General does not mean that a criminal investigation will ensue. It simply means that there is a referral, and we are asking that you report out her findings on that referral. And that is going to be without regard to whether one is a Republican, Democrat, or independent. Everybody is going to be treated the same. So we don't see that that would have a chilling effect.
Our concern is that, whatever party is in power, the Attorney General always has a hesitancy to investigate interests which are in allegiance to his or her political party. That is always going to be the case. It was true in the Nixon administration, and we believe it is true now in this administration.
Page 110 PREV PAGE TOP OF DOC We need some kind of independent enforcement mechanism, if we don't have it, outside of the executive branch.
And to answer Congressman Nadler's concerns, that is why we suggested that citizens be able to bring complaints for injunctive relief or for mandamus to force the Government to do their job. We don't have that right now.
We have a situation where, if the Attorney General decides that he or she doesn't want to do something, there is nothing you can do about it; and the public interest goes unprotected. This is a serious gap in our system; and it has been true for decades, not just now.
Mr. BRYANT. Thank you.
The gentleman from Massachusetts.
Mr. MEEHAN. Thank you, Mr. Chairman.
Mr. Gross, you raise an interesting point, noting that not every donor to whom a contribution is refunded has necessarily broken the law.
For example, I don't take PAC contributions; and, oftentimes, a PAC will send me a contribution. Sometimes it won't be clear from the check that it is a PAC contribution. It is submitted to my campaign, and maybe the committee holds it for a period of time.
If my campaign, for some reason, fails to discover the problem or return the contribution within 60 days, the contribution must, under H.R. 1494, be forwarded to the FEC and held in escrow; and a civil investigation would automatically be triggered.
Page 111 PREV PAGE TOP OF DOC
Now we have perennial resource problems at the FEC just trying to deal with the cases that we have now. I also might add that the FEC has requested a $1.7 million appropriation to fund their investigations; and the latest I hear, the Rules Committee last night unilaterally took it out. So given the resource problems, doesn't this make this totally unworkable, in your view?
Mr. GROSS. Yes. It is totally unworkable under the way it is written, when you consider that there is 8,000-some-odd contributions in the category that you have described that are illegal, potentially, and then hundreds, perhaps more, that are perfectly legal but are returned for ideological, political or other reasons.
Mr. MEEHAN. Mr. Canfield, I see from your testimony that you strongly support the bill because it prevents individuals who made illegal contributions from getting their money back, at least initially. However, it is my understanding that illegal contributions wouldn't have to be transferred up front to the FEC if, for example, they were returned to the contributor within 60 days of receipt by a campaign or if they were less than $500 or, at least according to my reading of the bill, if they were soft money contributions.
Don't these loopholes allow certain individuals who made illegal contributions to get their money back initially, despite the intent of this bill?
Mr. CANFIELD. Sure. I think that is absolutely true. If I were drafting the bill, I wouldn't have the 60-day period in there; but that is part of the statute in the regulations of the Commission right now. So I think the drafters at Legislative Counsel probably took that into account when they drafted the bill.
Page 112 PREV PAGE TOP OF DOC
I think the preferred practice would actually be if once you learned, as a campaign treasurer, for example, that your campaign had inadvertently received an illegal contribution that you have, you know, the next day to turn the contribution back or to notify the Commission of the fact that you have inadvertently received it.
In answer to the question you propounded to Ken, within 60 days if you have determined--you are the treasurer--that you have received a PAC contribution but it is against your principles to take PAC contributions, you could refund the contribution back to the PAC and the statute--this provision wouldn't be implicated.
You have a fairly long period of time, your treasurer, I think, under the bill to make amends when, in fact, you have reached a determination that you are not going to accept a contribution for whatever reason, other than the statutory limitations.
Mr. GROSS. I don't see that. This requires you to send it to the Federal Election Commission, for them to scrub it down.
Mr. CANFIELD. But within the 60 days.
Mr. GROSS. But, as Congressman Meehan noted, it could be after that for whatever reason.
Mr. CANFIELD. I am talking about within 60 days if, in fact, your treasurer has learned that you have accepted inadvertently a PAC contribution and it is against your principles to take PAC money, then you have that 60 days.
Page 113 PREV PAGE TOP OF DOC
Mr. GROSS. If you detect it.
Mr. CANFIELD. I would think you would have a good treasurer who could do that.
Mr. MEEHAN. Most committees, to be honest with you, don't have full-time treasurers who work on this. Usually, they are volunteers who are committing an hour a week and get upset because----
Mr. GROSS. That is right. All of these PAC's don't say ''PAC'' on them. They have all kinds of names, and you can't tell that they are actually PAC's or they are other types of contributions that maybe you decided you didn't want.
It happened in the last Presidential campaign where there were ideological issues, and contributions were sent back.
Mr. MEEHAN. My point, Mr. Canfield, is that there are all kinds of reasons why Members of Congress send literally thousands of contributions back. I used one example with PAC's, but there are other examples where individuals send in an individual contribution.
And to suggest that the FEC is going to be able to monitor all of this, when I am embarrassed by the fact that we are about to deal with an appropriations bill from which they have taken out the FEC appropriation, $1.7 million. It is an outrage that they are taking it out of it at a time when everyone in America is talking about campaign finance reform, and we are rushing to have these hearings and rushing to have all this publicity, and we are taking the money away from the FEC.
Page 114 PREV PAGE TOP OF DOC
It is a joke, and my concern is that we are just making it a worse joke if we don't deal with some of these problems that are inherent in the bill.
Mr. CANFIELD. My testimony was that I didn't think we needed to give the Commission any more authority than it already has. So my suggestion for the drafters of the bill was to delete that provision that gives the Commission the authority to create this escrow account and give that authority directly to the Treasury, which I think is where it belongs in the first place, not the Commission.
Because I agree with you. The Commission spends way too much of its time enforcing the minutia of the statute and never gets around to the bigger issues.
Mr. MEEHAN. Thank you, Mr. Chairman.
Mr. BRYANT. Let me close this hearing with a couple of comments. I have not asked my second round of questions here.
This issue of--I think it has been thrown around a little bit, that if there is an illegal contribution that is returned after 60 days, this bill would require it to go to the escrow and an automatic investigation would be started.
As I read the bill, that is not the case. There is no such thing as an automatic investigation. Certainly, the bill provides for an investigation; but after the passage of, in a dormant fashion, 120 days with or without an investigation, the money would be automatically returned.
Page 115 PREV PAGE TOP OF DOC
The other issue in terms of expense, I am just wondering, Mr. Canfield, if there is any possibility that there would be sufficient revenue generated from the interest on these accounts to offset some of the costs at the FEC?
Mr. CANFIELD. You know, the question----
Mr. BRYANT. Are we talking about that large a number?
With my campaign, I don't think we are talking about many that weren't returned over 60 days.
Mr. CANFIELD. Right, exactly. I think the issue of how much it costs the Commission to enforce these provisions is, one, impossible to note or quantify, I think, largely, but I think it is probably a smaller number than you think. I think the suggestion would probably be that they would spend all of their time on enforcing this provision and have very little time left over to do anything else, and I don't think that is really the case.
The Commission tries, as best it can, to differentiate administratively between those violations in the statute which are big or important and have some focus or probability for enforcement and those provisions or those violations that don't.
That internal decisionmaking by the General Counsel's Office needs to be reinforced in a way to reflect the normal way that prosecutors look at cases, and that is to spend their time on those things that make some difference and not spend any time on those things that don't.
Page 116 PREV PAGE TOP OF DOC
Mr. BRYANT. Thank you. We certainly have had a good exchange of information today and we appreciate that. Thank you.
This hearing is adjourned.
[Whereupon, at 11:45 a.m., the subcommittee adjourned.]
APPREHENSION OF TAINTED MONEY ACT OF 1997
COMMERCIAL AND ADMINISTRATIVE LAW
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
Page 117 PREV PAGE TOP OF DOC
APPREHENSION OF TAINTED MONEY ACT OF 1997
MAY 14, 1997
Serial No. 16
Printed for the use of the Committee on the Judiciary
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
Page 118 PREV PAGE TOP OF DOCLAMAR SMITH, Texas
STEVEN SCHIFF, New Mexico
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
SONNY BONO, California
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRISTOPHER B. CANNON, Utah
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
Page 119 PREV PAGE TOP OF DOCMAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN ROTHMAN, New Jersey
THOMAS E. MOONEY, Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Staff Director
Subcommittee on Commercial and Administrative Law
GEORGE W. GEKAS, Pennsylvania, Chairman
STEVEN SCHIFF, New Mexico
LAMAR SMITH, Texas
BOB INGLIS, South Carolina
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
JERROLD NADLER, New York
SHEILA JACKSON LEE, Texas
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
RAYMOND V. SMIETANKA, Chief Counsel
CHARLES E. KERN II, Counsel
JAMES W. HARPER, Counsel
Page 120 PREV PAGE TOP OF DOC
C O N T E N T S
May 14, 1997
TEXT OF BILL
Gekas, Hon. George W., a Representative in Congress from the State of Pennsylvania, and chairman, Subcommittee on Commercial and Administrative Law
Canfield, William B., III, Esq., Williams & Jensen
Gross, Kenneth A., Esq., Skadden, Arps, Slate, Meagher & Flom
Klayman, Larry, Esq., chairman and general counsel, Judicial Watch
Litt, Robert S., Deputy Assistant Attorney General, Criminal Division, Department of Justice
Noble, Lawrence M., General Counsel, Federal Election Commission
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Canfield, William B., III, Esq., Williams & Jensen: Prepared statement
Gekas, Hon. George W., a Representative in Congress from the State of Pennsylvania, and chairman, Subcommittee on Commercial and Administrative Law: Opening statement
Gross, Kenneth A., Esq., Skadden, Arps, Slate, Meagher & Flom: Prepared statement
Page 121 PREV PAGE TOP OF DOC Jackson Lee, Hon. Sheila, a Representative in Congress from the State of Texas
Klayman, Larry, Esq., chairman and general counsel, Judicial Watch: Prepared statement
Litt, Robert S., Deputy Assistant Attorney General, Criminal Division, Department of Justice: Prepared statement
Noble, Lawrence M., General Counsel, Federal Election Commission: Prepared statement