CLC Seeks to Fix Federal Election Commission Regulations on Refunding Illegal Contributions

Wheatland Tube Company building
Zekelman Industries. [Public Domain]

Federal campaign finance laws are designed to increase transparency, curtail corruption and the appearance of corruption, and prevent foreign electoral influence.

To accomplish these goals, the Federal Election Campaign Act (FECA) prohibits certain types of political contributions, including contributions from foreign nationals and federal contractors, as well as contributions made through straw donor schemes that conceal the true sources of election spending and thereby deny voters’ right to know who is spending to influence their vote.

While FECA makes clear that committees can’t accept contributions that violate these prohibitions, it doesn’t specifically tell political committees what they should do if they receive contributions that turn out to be illegal. 

But the Federal Election Commission (FEC), the independent agency responsible for interpreting and enforcing laws regarding money in politics, implemented regulations to address this issue. These regulations provide that when a committee receives a contribution that is later determined to be illegal, it “shall refund” the contribution 

Refunding an illegal contribution “unwinds” the illegal transaction, which could remove the funds from our political system before they can be used to influence elections or officeholders.  

But it often also rewards the contributors by returning the instrument of their illicit activity — the money they used to try and influence elections despite federal laws barring them from doing so.  

Even if the FEC enforces the law — and it often does not — and requires the contributor to pay a civil penalty (a monetary fine), it’s almost always less than the illegal contribution, which means that when the contribution is refunded, the violator is in the black even after paying the penalty.  

This encourages bad actors by sending the public a problematic message that breaking the law offers big rewards with little risk, and any potential penalties are merely a cost of doing business. 

For example, the FEC recently found that Barry Zekelman, a foreign national and the CEO of a Canadian steel company, illegally directed his company to make a $1.75 million contribution to a super PAC supporting then-President Donald Trump’s 2020 reelection campaign — a key part of Zekelman’s effort to influence Trump regarding U.S. steel tariffs linked to his company’s business.  

Consequently, the FEC required Zekelman to pay a $975,000 civil penalty, the third largest in FEC history.  

Yet the FEC left the door open for the super PAC to refund the $1.75 million contribution despite Zekelman’s blatantly corrupt and illegal conduct, which it did, resulting in a clear miscarriage of justice. 

This wasn’t an isolated instance. Federal contractors are routinely refunded their illegal contributions almost as soon as an administrative complaint is filed with the FEC, most likely because committees can cross-reference federal contracting records and campaign finance records, all of which are publicly available.  

Even if the FEC finds a violation and requires the federal contractor to pay a civil penalty, the violator gets back most of its money

For years, the FEC has recognized that it has the implicit power to pursue another remedy that avoids this kind of unjust outcome: requiring that the recipient committee disgorge the illegal contribution — surrender or forfeit the proceeds of illegal activity — to the U.S. Treasury.  

That way, if a contributor is found to have violated the law, they pay a penalty, but they also forfeit the original “investment” with which they attempted to illegally influence our elections. 

But disgorgement is not explicitly mentioned in either FECA or the FEC’s regulations; it’s an “equitable” remedy, which derives not from the law as written but from governmental authority to pursue solutions that avoid manifestly unjust outcomes.  

Thus, certain FEC Commissioners have opined that they don’t think the FEC can require committees to disgorge illegal contributions because the regulation refers only to refunds. 

It’s long past time for the FEC to fix the regulation by explicitly including disgorgement not only as an option for committees but as a remedy that the agency can require when a refund would be unjust. 

Campaign Legal Center (CLC) has filed a petition for rulemaking with the FEC, urging the agency to amend or clarify its regulations to accomplish that goal.  

The FEC should make clear that committees can disgorge illegal contributions instead of returning them to the contributor that violated the law and that it will require disgorgement to promote the enforcement of campaign finance laws and avoid unjust results. 

The unchecked power of wealthy special interest money in our politics threatens the rights of everyday Americans to have their voices heard.

To deter illegal election spending, uphold the enforcement interests of federal campaign finance law and maintain the integrity of our elections, the FEC needs to act now to explicitly incorporate disgorgement into its regulations. 

Saurav is the Director, Federal Campaign Finance Reform at CLC.
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