Today, the Campaign Legal Center, with Democracy 21, will urge the Federal Election Commission (FEC) and Department of Justice (DOJ) to investigate possible violations of campaign finance law by a company that appears to have been created for the purpose of funneling $1 million to a Super PAC operated by former Mitt Romney campaign staffers.

The complaint to the FEC and letter to DOJ ask the agencies to formally investigate the activities of the W Spann LLC for possible violations of the ban on making contributions in the name of another and for failing to organize and register as a political committee.  The activities outlined in media reports paint a picture of a corporation created for no other purpose than to hide the identity of the individual or individuals or corporations seeking to curry favor with a candidate seeking election to the highest office in the land.

“This case deserves a good hard look from the agencies charged with enforcing our nation’s election laws and if violations are found they must be prosecuted vigorously to deter such violations in the future – otherwise ‘straw companies’ will make a mockery of campaign finance disclosure and the specter of foreign campaign contributions will hang over the process,” said Paul S. Ryan, FEC Program Director at the Campaign Legal Center, which took the lead in drafting the FEC complaint and letter to the Justice Department.  “The case should serve as yet another wake up call for Congress to shore up our woefully inadequate disclosure laws in the wake of the Supreme Court’s Citizens United decision before still more scandals emerge, further undermining the country’s faith in representative democracy.”

“If the FEC remains unwilling to enforce the nation’s election laws, we hope the Department of Justice will take up the slack as it did with Pierce O’Donnell, a case resolved yesterday when O’Donnell agreed to serve six months in jail for making ‘straw donor’ contributions to the presidential campaign of John Edwards,” said Ryan.  The Campaign Legal Center and Democracy 21 participated as “friends of the court” in the O’Donnell lawsuit urging prosecution.

“This case involves a stark example of the secret money we can expect to see poured into the 2012 presidential and congressional races in the wake of theCitizens United decision,” said Democracy 21 President Fred Wertheimer.  “In this case, it appears that someone has gone to great lengths to evade the campaign finance disclosure laws in order to hide what they are doing from the American people.  This is unacceptable and potentially illegal conduct and we are calling for an investigation of possible campaign finance violations by the Federal Election Commission and Justice Department,” Wertheimer said.

“If the three Republican Commissioners on the six-member FEC, however, continue to keep blocking enforcement of the campaign finance laws, as they have consistently done, the American people face widespread blatant evasion, circumvention and violation of the campaign finance laws in the 2012 elections,” Wertheimer said.

To read the FEC complaint, click here.  To read the letter to the Department of Justice, click here.

Today the Public Interest Public Airwaves Coalition wrote to Federal Communications Commission (FCC) Chair Julius Genachowski strongly urging the Commission to take action to implement the modernized disclosure recommendations in its recent comprehensive report, The Information Needs of Communities (“INOC”). 

This report, issued earlier this summer, compiles the most up-to-date and comprehensive review of one of the core areas under the Commission’s authority—mass communications—and the Commission’s statutory obligations to ensure that the mass media serve the public interest, convenience and necessity. The groups praised the report’s top recommendation, to “emphasize online disclosure as a pillar of FCC media policy.” 

Members of the PIPA Coalition include:  Benton Foundation, Campaign Legal Center, Common Cause, Free Press, Media Access Project, New America Foundation, and the Office of Communication, Inc. of the United Church of Christ.

"When the Reagan-era FCC deregulated the broadcasting license renewal process, it emphasized that the FCC's enforcement efforts would depend on input from the public," said Andrew Jay Schwartzman, Senior Vice President and Policy Director of Media Access Project.  “These new disclosures will make sure that the system works as intended.”

“Our emphasis here is identifying the core information that members of the public and journalists need to evaluate broadcaster public interest contributions,” said Meredith McGehee, Policy Director of the Campaign Legal Center.  “It’s time to get past arguing about burdens and focus on the needs of the American people.  Hopefully, broadcasters will recognize the  benefits of eliminating the old issues/programs list, and embrace a modernized disclosure system as it is intended–a way to move ahead quickly on a compromise basis.”

“As an advocate for broadcaster accountability and transparency to local communities for more than fifty years, the United Church of Christ sees improved disclosure as central to the relationship between audiences and the stations licensed to serve their needs,” said Andrea Cano, Chair of the United Church of Christ’s media advocacy arm, OC Inc., and a former local television reporter.  “Communities of faith and communities of color, in particular, need a tool to more meaningfully hold broadcasters accountable to their viewers.”

In the letter, the Coalition urges the FCC to expedite adoption of streamlined online broadcaster program reporting by eliminating paper forms and instead implementing the online public file requirements proposed in the INOC Report.  The Coalition proposes allowing broadcasters, who receive their licenses to use the publicly owned airwaves for free, to vastly reduce the data submitted, but retain its statistically validity by submitting programming data using two “constructed” weeks per quarter selected by the FCC – a method used by academics in their studies -- using a standardized and comparable format in the following programming categories: Local News; Local Civic/Governmental Affairs; Local Electoral Affairs; and Closed Captioning/Emergency Accessibility Complaints. Broadcasters would also have the option of reporting on other types of programming, should they choose to do so, in areas such as emergency programming, religious programming, and national news.

In addition, because coverage of local electoral issues is critical to an informed citizenry, broadcasters would be required to disclose all local electoral affairs programming aired during the peak campaign periods when the lowest unit charge laws are in effect (i.e., 45 days before a primary election and 60 days before a general election).

To read the full text of letter, click here.

Today, the Campaign Legal Center and Democracy 21 filed a petition with the Internal Revenue Service, arguing that existing IRS regulations permit section 501(c)(4) groups to make far more campaign expenditures than is allowed by the Internal Revenue Code and requesting that the IRS issue new regulations that better enforce the law.

Existing IRS regulations authorize section 501(c)(4) organizations to intervene and participate in campaigns as long as such campaign activities do not constitute the “primary” activity of the organization, but Section 501(c)(4) of the Internal Revenue Code establishes tax exempt status only for “[c]ivic leagues or organizations” which are “operated exclusively for the promotion of social welfare. . . .”  (Emphasis added).

According to Paul Seamus Ryan, FEC Program Director & Associate Legal Counsel at the Campaign Legal Center,  “The IRS has a duty to issue a clear set of regulations that state what type and level of campaign activity 501(c)(4) groups may engage in and maintain their tax-exempt status.  What we have seen in recent years is a proliferation of c4 political front groups that abuse their privileged tax exempt status to evade campaign finance disclosure laws.  What was once a small trickle of abuse by these organizations is now a gusher.”

“It would be irresponsible of the IRS not to move promptly to rectify this shortcoming as section 501(c)(4) groups have become the vehicle of choice for anonymous, massively funded political attack ads.  A growing number of these organizations have nothing whatsoever to do with the promotion of ‘social welfare’ and everything to do with the promotion of ‘partisan warfare,’” Ryan stated.

Democracy 21’s President Fred Wertheimer, which took the lead in drafting the petition, said “IRS regulations are improperly permitting 501(c)(4) groups to spend far more money on campaign activity than is allowed by the Internal Revenue Code and by court rulings interpreting the Code.”  

“But even under these flawed IRS regulations, we believe that organizations like Crossroads GPS, the brainchild of Karl Rove and Priorities USA, recently formed by two former Obama White House officials, are still not entitled to 501(c)(4) tax-exempt status. The overriding purpose of these groups is to influence elections, not to engage in ‘social welfare’ activities,” Wertheimer said.

The IRS Petition

According to the IRS petition, “Section 501(c)(4) of the IRC establishes tax-exempt status for “[c]ivic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare. . . .”  (emphasis added).

IRS regulations provide that "the promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office."  Existing IRS regulations, nevertheless, authorize section 501(c)(4) organizations to intervene and participate in campaigns as long as such campaign activities do not constitute the “primary” activity of the organization.  26 C.F.R. § 1.501(c)(4)–1(a)(2)(i).

According to the petition:

The “primary” activity standard established by the IRS regulation is not further defined by the IRS.  Instead, a revenue ruling explains that “all facts and circumstances are taken into account in determining a § 501(c)(4) organization’s primary activity.” Practitioners, however, have interpreted this “primary” activity requirement to mean that section 501(c)(4) organizations can spend up to 49 percent of their total expenditures in a tax year on campaign activities, without such campaign activities constituting the “primary” activity of the organization.

The claim that section 501(c)(4) groups can spend up to 49 percent of their total expenditures on campaign activity direct conflicts with court decisions holding that a section 501(c)(4) organization cannot engage in a substantial amount of  a “nonexempt activity,” such as campaign activity, according to the petition.

Court rulings make clear that a section 501(c)(4) organization cannot engage in more than an insubstantial amount of campaign activity and comply with the statutory standard for tax exempt status under section 501(c)(4).  Any “substantial, non-exempt purpose” – such as intervention or participation in political campaigns – will defeat an organization’s tax-exempt status under section 501(c)(4).

The petition calls on the IRS “to expeditiously adopt new regulations to provide that an organization that intervenes or participates in elections is not entitled to obtain or maintain tax- exempt status under section 501(c)(4) if the organization spends more than an insubstantial amount of its total expenditures in a tax year on campaign activity.”

It is a sad commentary that almost one third of the House followed the lead of Rep. Mel Watt (D-MC) and voted to eviscerate the budget of the only functioning element of the House ethics process.  The Office of Congressional Ethics (OCE) should be strengthened, not weakened and no further proof of that is needed than the Ethics Committee’s completely inept handling of the investigation of Representative Maxine Waters.   

The 102 members who supported the amendment offered by Rep. Watt to gut the funding of the OCE have sent a signal to the American people that they see themselves as insulated against any credible questioning of their ethical behavior.

Currently, the House Ethics Committee itself, made up of an equal number of Republican and Democratic members, is under investigation for a series of leaks, allegations of unprofessional conduct, and partisan bickering.

In contrast, the OCE has conducted itself in a professional manner, with almost every public action it has taken, including recommendations for further ethics investigations of both Republicans and Democrats, receiving unanimous bipartisan support from the OCE board, which also has an equal number of Republicans and Democrats.

It is not surprising that those Members who have been the subject of an investigation are unhappy.  But too many Members seem to have no appreciation of how the OCE helps them.  Because the OCE’s actions to date are viewed as publicly credible, fair and professional, investigations conducted by the Office that result in a clean “bill of health” are not perceived as the rigged result from the ‘old boys club’.  Too many Members – at least the102 Members that voted for the Watt amendment – lack the perspective to understand how the OCE is a help and not a threat – unless of course, they have committed a breach of the ethics rules.

With the meltdown at the Ethics Committee, now is time to look at strengthening the OCE, not weakening it.  Once outside counsel Billy Martin finishes his investigation of Rep. Waters and of the Ethics Committee, Speaker Boehner and Minority Leader Pelosi should seriously consider proposals to get the Ethics Committee out of the investigative function altogether and to provide the OCE with subpoena power. 

Today reform groups urged every Member of the House of Representatives to vote down an amendment to the Congressional budget bill that would slash the budget for the Office of Congressional Ethics (OCE) by 40 percent ($619,000).  In a letter the groups praised the work of the OCE and condemned the attempt by Rep. Mel Watt (D-NC) to defund it.

The organizations include the Campaign Legal Center, Common Cause, Citizens for Responsibility and Ethics in Washington, Democracy 21, the League of Women Voters, Public Citizen, and U.S. PIRG.

The full letter follows below.

VOTE NO ON WATT AMENDMENT

July 21, 2011

Our organizations strongly urge you to oppose an amendment by Representative Mel Watt that would gut the Office of Congressional Ethics by reducing the funding for OCE by $619,000 or 40 percent.

The recent dysfunctional performance by the House Ethics Committee has only served to reinforce the critically important role being played by the OCE in the House ethics enforcement process.

The OCE, under bipartisan leadership, has done an outstanding job in carrying out its mission to help protect the integrity of the House. There is absolutely no basis for reducing OCE’s funding.

We strongly urge you to vote no on the Watt amendment.

Campaign Legal Center

Citizens for Responsibility and Ethics in Washington

Common Cause

Democracy 21

League of Women Voters

Public Citizen

U.S PIRG

Today reform groups urged the Chair and Ranking Member of the House Ethics Committee to engage an outside counsel to complete the long-delayed investigation of Representative Maxine Waters (D-CA).  The groups also praised the work of the Office of Congressional Ethics (OCE) and urged an expansion and strengthening of the office.

Enclosed for your information is the letter sent today in the wake of recent press reports indicating severe "partisan dysfunction and accusations of professional misconduct," with respect to the Committee's investigation of Rep. Waters (D-CA).

The organizations include the Campaign Legal Center, Common Cause, Citizens for Responsibility and Ethics in Washington, Democracy 21, the League of Women Voters, Public Citizen, and U.S. PIRG.

The letter states:

Recent press reports that indicate severe “partisan dysfunction and accusations of professional misconduct” with respect to the investigation of Representative Maxine Waters (D-CA) by the House Ethics Committee are not only troubling for this case, they are seriously damaging to the credibility of the  House Ethics Committee enforcement process.

Our organizations believe the Ethics Committee’s continued pattern of dysfunction requires House Speaker Boehner and House Democratic Leader Pelosi to establish a process to determine what happened in the House Ethics Committee and what steps are necessary to further strengthen the House ethics enforcement process.  In this context, we believe that the Office of Congressional Ethics has done an outstanding job in carrying out its assigned responsibilities and that OCE’s role in the House ethics enforcement process should be strengthened and expanded.

The letter continues:

In the meantime the Waters ethics investigation must be pursued and completed.

We strongly urge the Ethics Committee to promptly engage an outside counsel to continue and complete the Waters investigation. The Committee should also establish a reasonable timetable for the resolution of this longstanding matter.

The investigation and resolution of the Waters case needs to be dealt with separately from addressing the issues facing the performance of the Ethics Committee and the key to doing this rests with the appointment of an outside counsel to complete the investigation of the Waters case.

The letter concludes:

We reject calls for the Waters case to be dismissed.  Serious questions have been raised in the Waters case about potential violations of House ethics rules. These ethics questions merit a professional investigation and adjudication.

The full letter follows below.

July 20, 2011
The Honorable Jo Bonner, Chairman
House Committee on Standards of Official Conduct
1015 Longworth House Office Building
Washington, DC  20515

The Honorable Linda T. Sánchez, Ranking Member
House Committee on Standards of Official Conduct
1015 Longworth House Office Building
Washington, DC  20515

Dear Chairman Bonner and Ranking Member Sánchez:

Recent press reports that indicate severe “partisan dysfunction and accusations of professional misconduct” with respect to the investigation of Representative Maxine Waters (D-CA) by the House Ethics Committee are not only troubling for this case, they are seriously damaging to the credibility of the  House Ethics Committee enforcement process.  

Our organizations believe the Ethics Committee’s continued pattern of dysfunction requires House Speaker Boehner and House Democratic Leader Pelosi to establish a process to determine what happened in the House Ethics Committee and what steps are necessary to further strengthen the House ethics enforcement process.  In this context, we believe that the Office of Congressional Ethics has done an outstanding job in carrying out its assigned responsibilities and that OCE’s role in the House ethics enforcement process should be strengthened and expanded.

Our organizations include the Campaign Legal Center, Common Cause, Citizens for Responsibility and Ethics in Washington, Democracy 21, the League of Women Voters, Public Citizen and U.S. PIRG.

In the meantime the Waters ethics investigation must be pursued and completed.

We strongly urge the Ethics Committee to promptly engage an outside counsel to continue and complete the Waters investigation. The Committee should also establish a reasonable timetable for the resolution of this longstanding matter.

The investigation and resolution of the Waters case needs to be dealt with separately from addressing the issues facing the performance of the Ethics Committee and the key to doing this rests with the appointment of an outside counsel to complete the investigation of the Waters case.

A letter from our groups earlier this month raised concerns about the lack of action on the Waters matter and requested the Committee to issue a public statement about the status of the case and its intended steps to pursue the matter.  The recent news reports, however, reveal very serious problems in the Committee’s investigatory process.  

The way to provide public credibility for the resolution of the Waters case is to bring in an outside counsel that is not tainted by the current controversy.  While we recognize that new staff was hired in May, we do not believe there is a sufficient separation between the staff, the Committee and the current controversy to ensure a publicly credible investigation of the Waters case.  Outside counsel has been used successfully by the House Ethics Committee in the past to work on high-profile and polarized cases.

We reject calls for the Waters case to be dismissed.  Serious questions have been raised in the Waters case about potential violations of House ethics rules. These ethics questions merit a professional investigation and adjudication.  


Campaign Legal Center         Democracy 21    
Common Cause                      League of Women Voters          
Citizens for Responsibility     Public Citizen
and Ethics in Washington       U.S. PIRG

Today, a coalition of reform groups urged the House ethics committee to resume work on the long-pending investigation of Rep. Maxine Waters (D-CA) and to provide a public accounting of the status of the case. 

No public notice of the status of the case has been provided since the abrupt and unexplained cancellation of a scheduled hearing in November. The case has been pending for more than two years and the letter stressed that the unexplained delay undermines confidence in the ethics process and is unfair to all parties involved in the case.

The organizations signing the letter include the Campaign Legal Center, Common Cause, CREW, Democracy 21, League of Women Voters, and Public Citizen.

The full text of the letter follows below.

 July 8, 2011

The Hon. Jo Bonner, Chairman
The Hon. Linda T. Sanchez, Ranking Member
House Committee on Ethics
U.S. House of Representatives
Washington, DC 20515

Dear Chairman Bonner and Ranking Member Sanchez:

The investigation of Representative Maxine Waters (D-CA.) has been pending for approximately two years.

In March, we wrote to you regarding the status of this investigation. Now that the Committee has announced the hiring of several new staff positions, including Staff Director, we are writing again to ask for public information on when the Committee plans to resume its work and adjudicate the case.

Your Committee set up an investigatory subcommittee last October, but outside of the abrupt cancellation of a hearing, there has been no mention of the case.  Still no hearings have been held, and, despite published reports of infighting among the Committee leaders, there is no indication about how or when the Committee plans to resolve this case.  Such delays undermine confidence in the House ethics process and are unfair to all parties involved in the case.

We renew our request that the Committee issue a public statement regarding whether it has resumed work on this case or, if not, when it intends to do so, and when the Committee anticipates completing its adjudication of this case.

Thank you for your attention to this matter.

Sincerely,

Campaign Legal Center

Citizens for Responsibility and Ethics in Washington

Common Cause

Democracy 21

League of Women Voters

Public Citizen

Last Friday, Representative Chris Van Hollen (D-MD) filed a summary judgment brief in his ongoing legal challenge to a FEC regulation that has improperly narrowed the scope of the McCain-Feingold law’s disclosure requirements and allowed nonprofit 501(c)(4) advocacy groups, 501(c)(6) business associations and others to spend millions on “electioneering communications” while keeping secret the donors who funded these ads. 

“In 2007, the FEC adopted a little-noticed regulation that gutted the McCain-Feingold disclosure requirements,” stated Tara Malloy, Campaign Legal Center Associate Counsel.  “The 2010 congressional elections made painfully clear exactly how damaging this new FEC rule was to political transparency.  In 2010, groups making electioneering communications disclosed the funders of less than10 percent of the $79.9 million spent on electioneering communications.”

As the summary judgment brief recounts, the McCain-Feingold Act requires persons, including corporations and other groups, that pay for “electioneering communications” to disclose “all contributors … of $1,000 or more,” or alternatively, to use a segregated account and to disclose all “all contributors … of $1,000 or more to that account.”  (Emphasis added.)  The challenged FEC rule, by contrast, requires corporations and labor organizations to disclose only those contributors who have affirmatively indicated that their contributions are “for the purpose of furthering electioneering communications.”  Because few contributors specifically designate their contributions for electioneering communications few, if any, contributors are subject to disclosure.  The regulation thus runs counter to the clear language and purpose of the statute, effectively allowing corporations and labor organizations to run “electioneering communications” without disclosing their contributors. 

Van Hollen challenges this FEC regulation as arbitrary, capricious and contrary to law under the Administrative Procedures Act.

“The disclosure loophole opened by the FEC has already allowed millions of secret dollars to influence our elections and the anonymous spending is only likely to increase in 2012.” Ms. Malloy said.  “But the American people deserve to have disclosure about the sources of the money being spent by corporations and other special interest groups to buy influence over government decisions.  We hope the court rules quickly in favor of Representative Van Hollen so that the McCain-Feingold disclosure requirements can be restored.”

The Campaign Legal Center is part of Representative Van Hollen’s pro bono legal team, led by Roger Witten of the law firm WilmerHale and Fred Wertheimer of Democracy 21.

To read the summary judgment brief and original complaint, click here.

To read further Legal Center commentary on the disclosure problems in the 2010 elections, click here.