FEDERAL ELECTION COMMISSION

WASHINGTON. D.C. 20463

CONCURRING OPINION OF COMMISSIONER SCOTT E. THOMAS

Re Advisory Opinion 2001-17

The opinion issued by the Commission to the Democratic National Committee

("DNC") was limited in its scope to address only the reporting issue raised by the

requestor. Several legal issues regarding the proper handling of checks exceeding the

federal contribution limits warrant further explication, in my view.

One issue that should be clarified is the legality of depositing large checks in the

federal account and transferring out the excessive portion to a nonfederal account.. .

Because the parties currently are allowed to accept unrestricted donations to their

nonfederal accounts (so called 'soft money'),1 the Commission for years has sanctioned

the practice of depositing checks exceeding the federal limits in the federal account and

thereafter transferring out the excessive portions to a nonfederal account. The

Commission's regulations expressly contemplate the deposit of such excessive

contributions.2 The primary reason the Commission took this approach was to allow a

committee time to seek written authorization to reattribute, for example, part of the

contribution to a spouse if it so chooses.3 The other practical reason for this approach

1

 Commission regulations permit this approach. Groups that qualify as a federal "political committee" are

allowed to either undertake their federal and nonfederal activity from one account, or to split off their

nonfederal activity into a separate nonfederal account. 11 C.F.R. § 102.5(a)(l). By setting up a separate

nonfederal account such groups can accept donations permitted by whatever state or local law applies.

2

 Pursuant to 11 C.F.R. 103.3(b)(3), "[contributions which on their face exceed the contribution limitations

... may be either deposited into a campaign depository... or returned to the contributor." Further, "[if

any such contribution is deposited, the treasurer may request redesignation [applicable to candidate

committees] or reattribution of the contribution by the contributor ...." Id.

The Commission has prevented abuse of this allowance by requiring that any impermissible amount "shall

not be used for any disbursements by the political committee until the contribution has been determined to

be legal," 11 C.F.R. § 103.3(b)(4), and requiring that either such amounts be put in a separate account or

the committee maintain sufficient funds to make refunds. Id. Further, the committee must make a record

of any impermissible amount deposited and include a statement about such receipt in the applicable report.

11 C.F.R.§ 103.3(b)(5).

Some have noted that 11 C.F.R. § 102.5(a)(l)(i) slates: "Only funds subject to the prohibitions and

limitations of the Act shall be deposited in such separate federal account." The more recent regulatory

language in 11 C.F.R. § 103.3 (It dates from 1987, whereas § 102.5 dates to 1977; AW 52 Fed. Reg. 70S

(Jan. 9, 1987) and II. Doc. 95-44, 95* Cong., lsl Sess. at 44 (Jan. 12. 1977)) clearly was intended 1o modify

this. Moreover, the regulations should be read to make sense together. The only plausible construction is

that once the options to explore the permissibility of questionable contributions are exhausted pursuant to

§ 103.3, the only proper remaining federal account deposits are those that comply with the Act.

J

 .Scv n. 2.
was to streamline and simplify committee accounting and processing procedures so that

convoluted check return and check reissuance steps could be avoided.

The legal authority to transfer the excessive portion to the nonfederal account is

less obvious, but nonetheless sustainable. The regulations contemplate the "refund" of

the excessive portion of a contribution,4 and the Commission has deemed it sufficient to

make a transfer to the nonfederal account and provide written notice to the contributor

that a refund will be made if requested.5 While this approach usually leaves the money in

the hands of the committee, rather than in the pocket of the contributor, the Commission

has accomplished its goal of getting the impermissible funds out of the federal account,

and the contributor is given the right to the funds upon request. Although the

Commission is considering amending the regulations to specify what procedures should

be followed for 'transfers out,'6 the current legal construction is defensible, in my view.

One offshoot of the Commission's 'transfer out' policy is that the committee in

question has 60 days to effect the 'transfer out.' Some of my colleagues seemed

perplexed by this concept, but the same regulations that form the basis for allowing the

deposit and 'transfer out' permit the committee 60 days to accomplish this.7 Thus, while

the DNC was willing to effect 'transfers out' on the same day the check was deposited,.

there is no legal requirement to do so.8 In addition, should a committee such as the DNC

take more than a day to effect a transfer, a reporting system like the 'refund/transfer out'

approach set forth in the Commission's opinion might be more appropriate than the

'same day' approach spelled out for same day transfers.9 Another advisory opinion

request may be needed to properly address this remaining reporting issue.

4

 Following the language quoted in n. 2, 11 C.F.R. § 103.3(b)(3) provides: "If a redesignation or

reattribution is not obtained, the treasurer shall, within sixty days of the treasurer's receipt of the

contribution, refund the contribution to the contributor."

5

 This construction of its regulations has been reflected for years in the letters approved by the Commission

for use by the Reports Analysis Division. See, e.g., Memorandum from John Gibson dated Sept. 13,2001

(nonpublic). While two of my colleagues and I argued against this approach when it was first debated at

the agency, we acceded in order to get a majority position in place that would provide adequate safeguards.

The Explanation and Justification for 11 C.F.R. 103.3 stated: "Contributions are 'refunded' when the

recipient committee sends the contributor a check for the amount of the contribution which had been

previously deposited." 52 Fed. Reg. 768 (Jan. 9, 1987). Nonetheless, the agency has sufficient authority to

"formulaic policy" with respect to the Act (see 2 U.S.C. § 437c(b)(l)) using means other than regulations,

and the approval of the Reports Analysis Division letters is one such moans.

6

 Sec Notice of Proposed Rulcmaking, 63 Fed. Reg. 37733 (July 13. 1998). The proposal in the notice

would be more stringent than the Commission's current policy, requiring that a donor provide written

authori/aiion Cor transferring out the excessive portion to the MOM federal account. While the written

aulhori/.ation requirement makes some sense when the money in question will be staying in the federal

election process (e.g., as a result of a redesignalion or a reaitribuiion). there is less need for such a step

when the money is removed from the federal election process via a 'transfer out.'

7

 Sec n. 4.

* At some point, the federal account's ability to earn interest on impermissible funds might become an

issue, but the Commission's current regulations do not address this.

".Vir 11 C.I-'.K. Jj§ l()3.3(h)(5). KM.S(J)l-l).
Aii additional legal issue that warrants some clarification is the permissibility of

retaining the federally permissible amount in the federal account even though the donor

may not have provided some written indication of authorization to do so. While the DNC

has opted to transfer even the federally permissible amounts to the nonfederal account if

no such written authorization is obtained, it is not legally required to do so.10 From the

very earliest days, the Commission specified in its regulations that committees may

deposit contributions without obtaining such written donor authorizations as long as

certain other precautions are taken to assure that the donor intended the funds to be used

for federal purposes. At 11 C.F.R. § 102.5(a)(2), committees are allowed to deposit: "(i)

Contributions designated for the federal account; (ii) Contributions that result from a

solicitation which expressly states that the contribution will be used in connection with a

federal election; and (iii) Contributions from contributors who are informed that all

contributions are subject to the prohibitions and limitations of the Act."1} Clearly, only

the first description suggests some form of authorization provided by the donor. The

second description permits the committee's solicitation materials to satisfy any concerns

about donor intent. The third description permits even a committee's notice after receipt

to suffice as an indication of donor intent.

The DNC, therefore, could permissibly retain any contribution within the limits

that resulted from a solicitation containing the language in the draft donor card provided

with the DNC's request. See 11 C.F.R. § 102.5(a)(2)(ii). It specifies that checks from

individuals and federal PACs would be used in connection with federal elections.

Moreover, even without a tie to such solicitation materials, contributions in permissible

amounts could be retained by the DNC in the federal account as long as a follow up

notice alerts the donor that the amount given is subject to the prohibitions and limits in

the Federal Election Campaign Act. See 11 C.F.R. § 102.5(a)(2)(iii). Written

authorization from the individuals or PACs in question is not required in either instance.

While the DNC's apparent policy of forwarding even the federally permissible amount to

the nonfederal account where no written authorization is received is understandable, it is

not legally necessary.

The foregoing approach reflects an understanding by the Commission that (1)

most donors understand when their checks will be subject to the federal rules, (2) most

10

 As the record in MUR 4961 makes clear, the DNC took heat from the media and some donors as a result

of depositing some large checks in its federal account and thereby causing some donors to exceed their

$25,000 per year aggregate federal contribution limit. See 2 U.S.C. § 441a(a)(3). While such contributions

in most of those cases would have been within the donors' 520,000 per year limit on contributing to the

DNC, one can understand, from the DNC's current perspective, wanting to avoid any FEC problems where

the donor has not been crystal clear about the intended use of the contributed amount.

" The Commission has interpreted tin's regulation to permit the deposit of contributions that meet any one

of these descriptions. Advisory Opinion 2000-25. Fed. Elcc. Camp. Fin. Guide (CCH), \ 6342. This is the

only plausible interpretation since some contributions might not be designated by donors for the federal

account, some might be received without any solicitation, and some might be received that are neither

designated nor solicited. The original regulation used disjunctive rather than conjunctive language and.

therefore, was clearer, sec \ 1 C.F.U. § 102.6(b) (ll>77), but the current language is clear enough.

'"' It should be noted that the "designation" language in § 102.5(a)(2)(i) does not require a signed written

statement from the donor as is required for a rcaitribulion or redesignation. Compare with
committees are anxious to try to avoid getting themselves and their donors in trouble with

the FEC because of a lack of understanding, (3) there is no real purpose in imposing

artificial barriers that will be easily avoided where big money is involved, and (4) any

problems with the current system are really traceable to the fact that amounts above the

federal limits may be contributed to committees for nonfederal election activity, subject

only to whatever laws the states or local jurisdictions impose. That said, the Commission

may reconsider this area of law in a rulemaking.13 In the mean time, though, the DNC

and similarly situated committees have more options than that set forth in the DNC's

advisory opinion request.

It would have been better to use the opinion issued to the DNC to lay out the

foregoing concepts. That would have prevented at least some of the erroneous

interpretations of the opinion issued that may result.14 The Commission's advisory

opinion process can and should be an educational vehicle. In the complex and important

area of combined 'hard money* and 'soft money' fundraising and compliance, this would

have been a good opportunity to serve this purpose.

Date Scott E. Thomas

Commissioner

n

 The Commission's Regulations Committee discussed a draft regulation covering the topic of

disgorgement of impermissible funds and 'transfers out' in early 2001. Partly as a result of the

developments in MUR 4961 and similar matters before the agency, it is likely this project will expand to

deal with the language of 11 C.F.R. § 102.5(a). Further, while sidelined due to congressional consideration

of'soft money' legislation, a regulation project dealing with the permissibility of'soft money' deposits and

the use of such, funds has been on the Commission's docket for several years. See 63 Fed. Reg. 37721 (July

13, 1998); FI.-C Agenda Document 00-95, Scpl. 21. 2000.

1-1

 For example, the FliC's most loyal scribe. Ken Doyle, wrote: "The advisory allows the DNC to split

large single-check contributions among its accounts, so long us it has written permission from the donor. If

no word comes from the donor about how the money is to be used, it must all go to the DNC's soil money

account." fJNA Money and Politics Report, Jan. IS. 2002 (emphasis added). Although the Commission's

narrow opinion tried carefully to explain that mclhods other than that proposed by the DNC for handling

big checks might be permissible, even the most knowledgeable can get the erroneous impression that

written permission is required in order to keep federally permissible amounts in the federal account.