CLC Investigation Leads To Criminal Charges Over A Straw Donor Scheme

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gavel and money

Following a Campaign Legal Center (CLC) investigation, the federal government has indicted three men in a scheme to cover up illegal campaign contributions through a shell company.

The February 10 indictment of Martin Kao, Clifford Chen and Lawrence "Kahele" Lum Kee is a win for transparency and accountability that also illustrates appalling shortcomings in our campaign finance system.

The Department of Justice (DOJ) is charging the three with conspiracy, making contributions in the name of another and violating the ban on contributions by government contractors. Kao was also charged with two counts of making false statements in reports to the Federal Election Commission (FEC).

The men could face up to five years in prison and $250,000 in fines for each individual count.

In February 2020, CLC researchers spotted a mysterious $150,000 contribution from a “Society of Young Women Scientists and Engineers LLC” to 1820 PAC, a super PAC supporting Sen. Susan Collins (R-ME). SYWSE LLC was created just five weeks prior to the donation.

Nothing in public records indicated how this LLC could have raised so much in such a short period of time. The money had to have come from elsewhere.

CLC filed a complaint with the FEC alleging that the contribution violated federal law's "straw donor ban," which prevents donors from covering up the true source of their funding by routing the donation through another person or entity – in this case, by creating a puppet company to make the donation instead.

A subsequent investigation by the FBI found much more than just a straw donor scheme.

According to the FBI, the true source of the money was Navatek – a military technology company now known as Martin Defense Group – which, as a federal contractor, is prohibited by law from making contributions in federal elections.

What's more, Navatek's CEO, Martin Kao, had emailed officials at 1820 PAC about the scheme. "I just received confirmation from our bank that the new account for the Society of Young Women Scientists and Engineers will be up and ready to go by early next week," Kao wrote in December, according to the FBI. "I will be in touch next week re getting 1820 a check by year end."  

It is illegal for super PACs to knowingly accept straw donations.

The indictment also alleges that Navatek officials laundered an additional $52,000 in donations directly to Collins' campaign through family members, then reimbursed themselves with company funds.

The DOJ isn't alleging that Collins, or her campaign, knew about the scheme.

So why was Hawaii-based Navatek interested in donating to the reelection of a senator from Maine? In 2019, Navatek secured an $8 million contract from the U.S. Navy to develop new ship hulls and propulsion systems with Front Street Shipyards, in Belfast, Maine. Collins, a senior member of the Defense Appropriations Subcommittee, said she had "strongly advocated for the funding."

The Navatek case has broad implications for U.S. campaign finance laws.

As a result of the Supreme Court's 2010 ruling in Citizens United v. FEC, super PACs like 1820 PAC can accept unlimited contributions from wealthy donors, including corporations.

In part, the Court found that these donations should be legal because super PACs cannot coordinate with candidates' campaigns, preventing "quid pro quo" corruption in which a donor makes contributions to earn special favors from a politician.

This scheme, and others CLC has uncovered, illustrates critical flaws in that reasoning. In the decade since Citizens United, the power of wealthy special interest money in our politics has only grown, with federal prosecutors in this case arguing that a key purpose of Navatek's conspiracy was to "attempt to gain favor...by making unlawful, excessive campaign contributions," including to the super PAC.

Voters have a right to know which wealthy special interests are spending big money to secretly influence our vote and rig the political system in their favor. Straw donor schemes like Navatek's are designed to deliberately mislead voters, and CLC applauds the DOJ for taking action in this case.  

Roger is a senior researcher/investigator at CLC.
Protecting Voters' Right to Know by Stopping Straw Donor Schemes