FEDERAL ELECTION COMMISSION 

WASHINGTON, DC 20463 

TO: THE GO?MSSIOPi 

STAFF DIRECTOR 

GENEILK COUNSEL 

FROM Mary w Dove 

Acting Secretary of the Commission 

DATE: January 3 1,2000 

SUi3IECT- Statement of Reasons for biUR 4250 

Attached is a copy of the Statement of Reasons for MUR 4250 signed by 

Commissioner Scott E. Thomas and Commissioner Danny E. McDonald. 

This was received in the Commission Secretary’s Office on Friday, 

January 28, 2000, at 521 p.m 

cc Vincent J. Convery, Jr 

Press Ofiice 

Public Information 

Ablic Records 

Attachments 
Bs the Matter of 1 

1 

Republican Natiooal Commitlee and 1 

Haley R Barbour ) 

Nariotraii Policy Forum 1 

asd John Bolton, Presideat 1 

Ales Poitevint, as treasurer 1 MUR 4250 

In MUR 4250, the Federal Elrction Cammission considered whether the 

Republican National Committee (“the RNC‘’) could avoid public discloswe. the 

Commission’s soft money regulations designed to prevent the use of federally 

impermissible funds, as well as the foreign national prohibitions simply by setting up a 

shell organization which it asserled was separate faom the national party. This so-cakd 

“separate” organization, the National Policy Forum, was chaired by the hVC Chairman, 

staffed by RNC staff, and financed by F3IC money. Qbviously, to sanction such a 

charade would give iise to a serious loophole in the Federal Election Campaign Act 

(“FECA” or “the Act”). Certain members of the Commission, however, concluded &at 

the NPF was noi aPfilia!ed with the Republican National Committee, was not subject to 

the Act’s disclosure provisions, and could be used by the RldC lo launder foreign money 

for use in the election process. 

We believe the RNC should no! be able tc do indirectly what it plainly can’t do 

directly. The RNC must follow the requirements of the Commission’s soft money 

regulations and the statute’s disclosure provisions. It should not be allowed to escape 

tilose requirements theough the artifice ofa shell organization. The RNC must asso 

foilow the statutory prohibitions and not accept foreign national money. It should not be 

allowed to circuinvent that prohibi!ion by laundering, and then accepting, foreign national 

money through an entity it set up, financed. and contral!ed. Accordingly, we voted to 

supper! the General Counsel’s legal recommendations to pursue this important matter. 
Laws are effective only whe!i they are enforced. The Commission’s regulations 

limit the use and require the reponing of soft money. In addition, the Act broadly 

prohibits thc use of foreign national money in oyy U.S. elections. By not enforcing the 

law against the Republican National Committee, despite strong and compelling evidence, 

certain members of the Cornmission have shown that they have little interest in enforcing 

the Commission’s sofl money regulations and the prohibitions on the use of foreign 

national money in our country’s elections. 

I. 

The Federal Election Campaign Act (“the Act”) requires that contributions 

accepted and spent to influence any federal election a-e subject to certain limitations md 

prohibitions. 2 U.S.C. §§441a, 441b. 441~. 441e. 4.41fand 4416. Because national party 

committees fi-equently make disbursements which impact on both federal and non-federal 

elections, however, Commission regulations permit national party committees to allocate 

these costs between federal and non-federal accounts. 11 C.F.R. $106.5. The 

Explanation and Justification to these rules recognize that although the national party 

committees’ primary focus is on presidentid md on other Federal candidates md 

elections, the national party committees also do engage in party building activities that 

benefit non-federal candidates, as well. 55 Fed. Reg. 26058,26063 (June 26, 1990). 

To ensure !hat federal election activity is paid for onlv with federallypemissible 

money, the Commission’s regulations provide that national party committee 

disbursements may be made in one of two ways: (I) entirely from funds raised subject to 

the prohibitions and limitations of the Act; or (2) if the party committees have established 

separate Federal and non-federal accounts pursuan: to 1 1 C.F.R. $102.5, they may 

allocate certain disbursements between these accounts according to various foimulas 

found in section 106.5. See 1 I C.F.R. 9 106.5(a).’ In addition, to assure compliance with 

these rules, national party committees are required IO file periodic reports disclosing all 

receipts received, and all disbursements made, by both their Federal and non-federal 

accounts. 2 U.S.C. $434(a)(l); 1 1 C.F.R. §§104.8(a) and (e), and 104.9(a) md (c). 

On August 73. 1495, the Democratic National Committee filed a complaint 

against the Republican Nationa! Committee (“the It””) and the National Policy Forum 

(“the NPF“’) for violations of the Act and Commission regulations. Specifically, the 

cornplainf alleged that “[tlhe National Folicy Forum is a project of the RNC which the 

RNC has disguised as a separate non-profit corporation in order to evade the fundamental 

’ If separate accounfs are used. national prrny cornmitires must pay for shared federal and non-federal 

activity either by establishing an allocation account into which federal and non-federal funds are pz:d 

according lo the proper ratio. or by paying all expcnses out oithc federal account and having the nonfederal accoilnl rrimbursr its share of the costs. 11 C.F.R. $106.5(g)( 1). Section 106.S(b){2) sets out the 

alloc3tion formulas for national party cornnuttees to use in allocating disbursements made for costs such as 

adminisnative expenses and generic voter drives. For a non.presidentiai cycle like 1993-94. the federal 

account of a nmonal parly commlltre like the Republican National Comrmttee had to pay at least 60% of 

the latter cosis. I6 C.F.R. $106.j(b)!?)(ii). 

2 
requirements of the federal law that national parties publicly disclose their contributions 

and disbursements and pay a certain minimum portion oftheir expenses with 

contributions allowable under the law.” complain^ at 1. The complaint further alleged 

that: 

[NPF] was set up by the RNC and is entirely maintained, financed 

and controlled by the RNC. NPF’s activities are indistinguishable 

from those normally conducted by the RNC itself development and 

promotion, through mass communicatilons and meetings, of the 

Party’s official message; providing benefits to RNC donors; and 

showcasing Republican candidates for Federal and other offices. AN 

ofthese aciiviries would cienrly be covered by the Act and Commission 

regirlations r/cotidt~~ed by the RNC itsel/: 

Id. (emphasis added). The complaint concluded that the RNC had failed to disclose the 

NPF’s contributions and expenditures in violation of2 U.S.C. 9434 and 11 C.F.R. 

§$104.8(e) and 104.9. The complaint also charged that the RPJC had failed to allocate the 

WF’s disbursements between federal and non-federal accounts and that, as a result, 

hundreds of thousands of impermissible dollars Rad found their way into the federal 

election process in violation of 2 U.S.C. 4$44la(f) and 441b and 11 C.F.R. $102.5, 

106.5(a) and (b), I10.9(a) and 114.2.‘ 

The Office of General Coiinsd prepared a repofi for Commission consideralion 

that con:ained a facrual and legal analysis ofthe allegations presented in the complaint as 

well as responses from the RNC and the NW. The Office of General Counsel’s review 

focused primzrily upon the complaint’s allegation that the WH; was nothing more than a 

“project” of the RNC. The General Counsel’s Report concluded that “there is evidence 

that the NPF was not in fact a separate entity from the WC, but rather a subordinate 

instrument of the FWC, financed and controlled by the RXC primarily to conduct 

allocable party building activities.” Apnl 2S, 1997 General Counsel’s Report at 31. 

Based upor: this preliminary factual finding, the General Counsel’s Report 

recommended that the Commission find reason to believe that the RNC violated 11 

C.F.R. $5 102.5(a)( I ) and 106.5(g)( 1) by failing to allocate expenses for activities carried 

out through NPF between its Federal and non-federal accounts and by making these 

disbursements from the non- federal account. The General Counsel’s Report also 

recommended that the Commission find reason to believe the RN43 violated 2 U.S.C. 

&I41 a and 441 b by making disbursements for the federal share ofthe NPF activities 

from entirely non-federal funds containing excessive and prohibited contributions. 

Finally, the Report recommended that that the Cornmission find reason to believe that the 

RNC violated 2 U.S.C. 5434(a)( 1) by failing to report the RNC activity conducted 

’ The record would shosv NPF actually spent nullions of dollars and th3K its use of RNC soft money resulted 

in over 3 nullion dol!ars v.onh of soft money bring used for expenses that instead should have been paid for 

with federally pKITNSSibk funds The scale of the violation was enormous 

3 
through the NPF. The General Counsel’s Report also recommended an investigation of 

the matter through interrogatories and requests for production ofdocuments. 

On June 17, 1997, the Commission considered the General Counsel’s Report. 

Despite the plain and obvious evidence a! this preliminary stage that the RNC had 

established, financed, maintained and controlled the WPF, only Commissioners 

McDonald, McGarry and Thomas voted to find reason to believe there were violations of 

the Act and the Commission’s Regulations and authcflze an investigation. Commissioner 

Elliott voted against these findings. Commissioner Alkens recused herself from 

considerdtiori of the matter, and there was one vacaiicy on the (Sonmission. Because the 

General Counsel’s recommendations failed to receive the four affirmative votes necessary 

lo proceed, set- 2 U.S.C. $437g(a)(2), this aspect of the matter was closed. 

Meanwhile, on May i 3, 1997, the DNC filed an mended complaint alleging that 

the Republican National Committee also used “the National Policy Fom as a means to 

hide foreign contributions to the RNC.” May 13, 1997 Amended Complaint at 2. 

Reviewing these allegations, the General Counsel’s Office recommended that the 

CDminission find reason to be!ieve that the RNC violated the foreign national 

prohibitions found at 2 U.S.C. $@le. On June 17, 1997, the same date referred to in the 

previous paragaph, the Commission voted to find reason to believe the WC violated 

section 4Jle and authorized an investigation. On June 2, 1998, the Commission voted to 

find reason to believe Haley Rarbour violated 2 U.S.C. 444le. 

The General Counsel’s investigation revealed that in 1993, the RNC’s chairman, 

Haley Barbour, established the WF as a supposedly independent, issue-oriented 

organization. From its inception. though, the RNC was the primary financial backer of 

the NPF. Over the course ofthe 1994 election cycle, the RldC provided the NPF with 

nearly S2.4 million, mostly in the fom of loans. By the summer cf the 1994 election 

ycar, the NPF owed approximately $2. I million to the RFIC, but there was !Me prospect 

of repayment. These loans to the NPF were approved by Mr. Barbour an his role as RN6: 

Chairman. Because these funds were now badly needed by the WC for the 1994 

elections, the FWC armnged the security necessary for the NPF to get a bank loan and, in 

tuni, to repay at least a portion ofthe outstanding balance. The investigation indicated 

that the RNC knowingly obtained security for the loan from a foreign national-Young 

Erothers Development Company, Ltd.-Hone Kong (“YBD-Hong Kong”’). As part of 

the arrangement, the WF earmarked and transferred approximately $1.6 million of the 

$2. I million bank loan proceeds to the RNC’s non-federal account in late October 1994- 

in time for use in the 1994 elections. 

After conductins its investigation and a thorough review of the materials 

submitted by respondents, the Office of General Counsel prepared a repoa for 

Commission consideration analyzing the pertinent factual and legal issues. The Offc of 

General Counsel recommended that the Commission find probable cause to believe the 

RNC solicited and accepted a 51.6 millior, contribution from a fc:eign national in 

knowing and willful violation of section 14Ie. The General Counsel fudher 
L 

I 

recommended the Commission find probable cause to believe that Haiey Barbour 

solicited and accepted, on behalf of the RNC. a SI .6 million contribution from a foreign 

national source, in knowing and willful violation of2 U.S.C. $44!e. 

A vote regarding the General Counsel’s recommendations failed to secure the four 

affirmative votes necessary to make even probable cause to believe deteminations, let 

alone knowing and willful findings. 2 U.S.C. 9437g(a)(4). Commissioners McDnnald, 

Sandstrom and Thoinas voted to find probable cause to believe the RNC and Mr. Barbour 

solicited and accepted a $1.6 million contribution horn a foreign nati~nal.~ 

Commissioners Elliott, Mason and Wold dissented aid opposed the General Counsel’s 

recommendations in fo[o. On November 30, i 939, the Commission voted to close the 

file.‘ 

With respect to the original complaint filed in this matter, there is no question that 

the activities engaged in by the NPF are exactly the sort ofactivities which a national 

party committee must allocate and report under the Act and Commission regulations. 

The RNC conceded this very point in its response to the complaint: “The DJC 

aclcnowledges that if it were to conduct activities similar to WF, under FEC regulations 

found at 11 C.F.R.. 9 106.5(a), as a national party committee it would be required to 

allocate those administrative expense;.” KNC September 20, 1995 Response at 3.’ The 

RNC argued, however, that the “NPF is separate and distinct from WE,” id. at 2, and 

that its activities are not subject to the RNC’s allocation and reporting requirements. 

’ At the time of the vote. Commissioner McDonald was not prepared to make a knowing and willful finding 

against the respondents. 

Appeals for the District ofColumbia Circuit has not ruled on the application ofthe StJmte of limitations at 

28 U.S.C. $2462 to the Act. Other courts have ruled, howev8cr, that civil actions for the enforcement ofany 

civil fine. penalty. or forfeiture under the Act are subject to the five year statute of limitations set forth at 

$2462. See. e.g.. FECv IVilliarns. 104 F.3d 237 (9* Cir. 1996), cerr. denied, 522 U.S. 101.5 (1997); 

FECI*. Clirtsfian Coalifion, 965 FSupp. 66. 70 (D.D.C. 1997); and FEC v. National Republican Senalorial 

Conirrrrrrer. 877 F.Supp. 15. 20-21 (D.D.C. 1995). It IS our sense, however. that even if $2462 were found 

to be applicable. it would not preclude a disgorgement. equal to the amount ofthr loan proceeds, by 

respondrnts in this mner. See, e.g.. UnitedS/ores Y Bonk, 115 F.3d 916, 919 (1 lb’ Cir. 1997)(seclion 

2462 does not bar the government from seeking equitable relief); FEC v. Chrisrian Coalifion. supra at 71- 

72 (section 2462 does not bar FEC from seeking equitable relief for activity for which legal relief had been 

barred bccause it “has the authority to seek injunctive relief wholly separate and apart from its authority to 

seek a legal remedy” tinder 2 U.S.C. $437g(a)(6)). By voting not to proceed in MIJR 4250, our colleagues 

b!ockcd any Commission effort to even get the KNC to disgorge its ill-gotten gain of over SI .5 million. ’ According to press repons. the Internal Revenue Service concluded that the National Policy Forum “was 

not entitled lo (501(c)(4)] r3x-esempt status because its activities were considered too partisan.” 

k”ris/tingrori Posr, May 13. 1997. The IRS ruled rhat the NPF was “a paitisan, issues-oriented orpanization” 

rhat was “des:gnrd 10 promote rhs Republican Party.” kVuskingfon Posf, July 25, 1997 (quotes in the 

orig:nal). 

The Act does not contain its own internal staNte of limitations. To date. the United States Court of 

5 
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Even at the preliminary reason to believe stage and with the necessarily limited 

record before us, we think the evidence is overwhelming that the NPF was not separate 

and distinct from the RNC. Indeed, it appears that the IdPF was nothing but another 

operating account for the WC from top to bottom. The NPF was an organization set up 

by the national party to do national party business. As such, the w\JC should not be able 

to treat national pany activities as non-allocable or exempt from public disclosure simply 

because they were run through the artifice of an allegedly separate organization. 

The most obvious evidence that the NPF was an arm ofthe WNC is the overlap in 

leadership and staff between the NPF and the RNC. For example, from the creation of 

NPF in 1993 through the end of 1996 Haley Barbour served as both Chairman of the 

RNC aid chairman of the NPF. As chairman of€he NPF, Mr. Barbour exercised the 

ultimate decision making authority. According to the Bylaws, Mr. Barbour had sole 

discretion in appointing the NPF’s Board of Direcrors who, in turn, were responsible for 

the appointment of other officers and the governice ofthe NPF. NPF Bylaws at -Article 

TV, Section 2. Wi1.h the authority of the leadiilg WPF official resting in the hands of the 

RNC Chairman, it is clear that NPF was not an independent operation. Rather, it is 

apparent that its operations were directed and dictated by the Republican National 

Committee. 

Nor only did the same person simuftanea.tsly direct the operations of both the 

RNC and the NDF, but important NPF figures at the time of its inception were also WC 

officials on the RNC payroll. For exrmple, Michael A. Hess, one of WF’s incorporators, 

also served as KNC Chief Counsel at the time of WF’s incorporation. First General 

Counsel’s Report at 23-24 (April 28, 1997). Similarly, the NPF’s Articles of 

Incorporation list Donald Fierce as one of the three original directors. At this time 

Mr. Fierce was .ILO a salaried employee of the RNC and in 1995 served as the Strategic 

Planning and Congressional Affairs Director at the RNC. Id. Additionally, there is 

evidence in the record of JWF officials leaving NPF for jobs at the RNC and the National 

Republican Senatonal Committee, as well as individuals receiving paymects from the 

RNC while apparently working for the NPF, and an additional staffer who was apparently 

employed concurrently by the RNC and the NPF. Id. at 22-23. 

Just as important as the role of RMC officials in creating and running the NPF, 

was the role of RplC money in fueling the WF’s operations. From its inception, the WPF 

was dependent upon the RNC for its finances. Two days after the formation ofhe hTF, 

the RNC loaned the NPF $100,000 in seed money from its non-federal account. Id. at 

Attachment 8, page 2. Nor did the money trail from the RNC to the ’MPF stop there. It 

appears that a substantial portion of the NPF’s activities were financed by the RNC 

through soft dollar loans from its non-federal account. For example, from the WPF’s 

inception in mid-1993 through August, 1994, the HudC made a total ofapproximately 

52,345,000 in loans to the NPF. By September, 1994, the NPF had repaid only $200,QOO 

of the loan amount. Id. Obviously, without RNC funding there would not have been an 

NPF. The predominant role played by the FWC as a source of funds for the NPF is yet 

armher indication ?hat the NPF was nothing more !han a vehicle for RNC aciivities. 

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Any doubt the NPF was simply a subsidiary of the FUdC is erased by statements 

made by the RNC itself--both by its leadership publicly and by the organization in its 

written materials. Shortly after formation of the NPF, Mr. Barbour as RNC Chairman 

distributed a June 10, 1993 mernoranduni to RFIC major donors (“Team 100”) 

introduckg the NPF to these donors. In this memorandum, Mr. Barbour informs the 

Team 100 members that “[tlhe RNC is creofisig the National Policy Forum as an issue 

development sirbsidkzy.” See First General Counsel’s Report at Attachment 1, page 2 

(April 28, i997)(emphasis added). The facr ihat the Chairman ofboth the RNC and the 

NPF describes the NPF as a “subsidiary” of the RNC is persuasive evidence that, indeed, 

the NPF was a subsidiary of the RNC.’ 

Press accounts further detailed the control which Chaiman Barbour exercised 

over the WF. In particular, one repon indicates that Michael Earoody, President of-WF, 

may have resigned his post partly as a result of his lack of authority and power to curtail 

“Mr. Barbour’s ‘fascination’ with forcign sources of funding.” Tim, June 23, 1997 a$ 

22.’ in a memorandum to Mr. Barbour, Mr. Baraody complains that the hPF was 

“operated like a division” of the Republican National Committee. 1’. Mr. Baroody cited 

examples of RNC intervention in NPF activiiies Io emphasize his “concern that 

sepora[io>: betweerr [the forumj urid ?he RNC ~sfic~ion.’’ Id. (emphasis added). 

The above material indicates that the RNC was intimately involved in the 

operations ofthe WF. RNC official; incorporated and ran the NPF; IPMC money funded 

NPF operations; accoiding to RWC and NPF officials, the NPF was a “subsidiary” of the 

RNC and the NPF “was operated like a division” of the WC; and finally, the financial 

transaciions between the RNC and the NPF involving foreign money suggest that the 

NPF was run like an operating account of the WC--not a separate and distinct 

organization. Because there is strong evidence that “the WPF was not in fact a separate 

eritity from the RNC, but rather a subordinate instrument of the WC, financed and 

controlled by the RNC,” First General Counsel’s Report at 31 (April 26, i997). we agreed 

with the General Counsel’s recommendations to find reason to believe that the RNC 

violated both the Act and Commission regulations. 

Despite the overwhelming evidence to the contrary, Commissioner Elliott insists 

that the National Policy Forum is an independent organization, separate and distinct from 

the Republican National Committee. She asserfs there is inadequate evidence to suggest 

the NPF may be an arm of the RNC under the statute’s reason to believe standard. 

Moreover, she warns thar if the Commission pursues the NPF, it must also pursue groups 

The Barbour menlorandun1 to RNC donors gors on to place the NPF on the HNC organizational char? 

alongside the RNC Platform Cornminer. all the while cautioning that the WPF would not actually 

“supersede” bu! only “supplcmcni” rhe Platform Cornminee: “It is not the intention ofNPF to rewrite or 

amend [hi. 1992 Republican Platform. and KPF does not have the authority to do so. NPF’s work is onb 

mpplrnte~irol ro rhrp/or/on~i and does not in any way supersede it.” Id. (emphasis added). 

’ Even though the Tim= article was dared Junr 23. 1997, it was published before that date. In fact. the 

anicle was specifically quoted from and discussed at the June 17, 1997. Commission meeting at which 

Commissioner Elliott !ater voted against the General Counsel’s reason to believe recommendations. 

7 
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which she asserts are in identical circumstances as the NPF such as the Democratic 

Leadership Council (DLC). As best as we can tell, it was on this basis hat she voted 

against the General Counsel’s reason to believe recommendations and blocked any 

investigation into this matter.’ 

We disagree with Commissioner Elliott and believe that there certainly was more 

t}lan enough evidence to meet the reason to believe standard. At the outset, the 

Commission has rcriariinioic;ly acknowledged that il “reason to believe” finding is a very 

low threshold: 

Under the present statute, the Commission is required to malle a 

finding that there is ”reason to believe a violation has occurred” 

before it may investigate. Only then may the Commission reqques: 

specific infomation from a respondent to determine whether, in 

fact, a violation has occurred. The statutory phrase “reason to believe” 

is misleading and does a disservice to both the Commission and the 

respondent. It implies that the Commission has evaluated the evidence 

and concluded that the respondent has violated the Act. In fact, however, 

a ”reusoii to be1ieve”jnding siniply meam !he Conimissaoil believes 

a violation tnaj* have occurred gthe facts as described in 6he complaint 

are [me. An irivestigatiorr permits the Coixnzission PO evrahate the 

validity oJthefacts as alleged. 

1996 Federat Election Commission Annual Report at 57 (emphasis added). Given this 

low standard and the amount of evidence available (as highlighted above ad detailed 

more fully in the General Counsel’s Report), it is difficult to understand how one could 

not reach at least a reason to believe finding. Yet, there were not four votes at the Federal 

Election Commission to conduct even the most preliminary investigation in:o whcther the 

FlPF was separate and distinct from the WC. 

During the Commission’s discussion of this matter, Commissioner Elliott also 

speculated that ifthe Comniission pursued the NPF it would have :o pursue the 

Democratic Leadership Council. First, of course, the DLC is not a listed respondent in 

this matter. Second, if the DLC were established, financed and controlled by the DNC as 

the NPF is by the RNC, we wouid also recommend finding reason to believe and 

investigating that matter. From what we generally hiow ofthe DLC, however, it does 

not appear IO be analogous to the NPF. Unlike the NPF, the DLC was not set up and 

established by the Chairman of the DNC; nor were its officials all appointed by the 

Chairman of the DNC; nor did it receive millions ofdollars in funding from the DNC; 

It appears that Commissioner Elliott also rnay have been arguing that. even ifNPF was a pan ofthe RNC, 

it w3s somehow no! covered by the Commission’s allocaiion reyulauions. Yet, even the RNC concedes that 

if NPF was a pan of the RNC. its activitiej would be covered by 1 i C.F.R. $106.5(a). 

We cannot know Comrmssioner Elliott‘s reasoning for sure, since rn date she has not submined a 

Statement of Reasons. See n. 19. Iyh We base our understanding ofher logic on the Commission 

meeting discussions. 

8 
nor did its officials state that it ws a "subsidiary" of the DNC and that the selpaafion 

between it and the national party was a mere "fiction."' 

In light of the low threshold for a reason to believe finding and the irrelevance of 

the DLC to this matter, Commissioner Elliott's vote must be considered arbitrary and 

capricious. Even at this preliminary stage, the evidence is extensive that the WF was a 

tool of the INC. Mr. Barbour was the head of both organizations; he solicited o:fficers of 

NPF; he caused the RNC to fund NPF; and, as we will show below, he was the hrce 

behind the whole transaction to route foreign money back to the RWC through NPF. 

Because the RNC controiied the MPF, the operations of the WF were subject to the same 

statutory and regulatory requirements as the RNC." Even, "[tlhe Rs\IC acknowledges 

that if it were to conduct activities similar to WPF, under FEC regulations found ilt 

1 I C.F.R. g106.5(a), as a national party conunittee it would be required to allocate those 

administrative expenses." RNC September 20, 1995 Response at 3. To concludc that the 

WF was separate and distinct from the WC in-the face ofthis evidence, and tha.t it was 

Indeed, some have even obseived that the binh of the DLC was anything but a welcome event to the 

national pany. The DLC was described as "an organization of moderate to conservative Democratic 

officeholders. most ofthem from the South and the West, making a point ofseffing flzernselves upurlfiorn 

rh Democratic Natioiial Cot~iiiirt~t.e. . . [he DLC \vas intended to be a counteweigiir. . .KO he DK. . (DNC 

ChaiimnJ Kirk was not happy about [the DLC]. 'The lusr thing thepary nee& is u separate en?,iy.' he 

said at one point." Germoiid and Witcover. IVlrosr Sroad Sfripe$ and Erighf Sfars at 39-40 

(1993)(emphasis added); seealso Na!ionra/Joirrnal. March 9, 1985 at 516 (the DLC was established 

"outside of the DNC")(ernphasis added). 

"'This case is somewhat similar to MUR 4246 where the issue was whether certain national parr)' 

comminee activities. carried out through an in-house division of the national party. were allocabk. In MLJ 

42.16. ironically. the RNC filed a complaint with the Commission cllarglng that the DNC had used ROOfederal funds deposited into a non-federal National Wealth Care account to exclusively sponsor D'NC 

"National Health Care" program. Originally. the DNC had established a separate corporation known as the 

"iiational Health Care Campaign"(NHCC) to undertake gmssroots lobbying for President Clinton's health 

care reiom. NHCC received a $100,000 loan from the DNC as "seed money" to help establish dhe 

organization. However. a barrage of negative newspaper articles criticized the organhrion for hiding its 

ttes to the DNC and for operating as a '"separate'' organization not subject to public disclosure or receipts 

and disbursements. One week after launching th: NHCC. the decision was made to operate the hHCC as a 

projeci of the DNC rather than a separate organization. Then DNC Chairman David Wilhelm was quoted 

as saying: 

The whole goal was to create a non-panism or bi?anisan umbrella organization. 

sornerhing WK could kick offd then let go and emerge on irs own. But thjs was 

being consrmed as a front group of sons for the DNC So since we could not 

achieve the benefit we hoped from its being independent, it might as well be 

a pan of the DNC. 

Asrocmrrd Press. June 6, 1993. Thus. the only difference between MUR 4246 and the present MUR is that 

thc DNC activily was formally done tn-hou,se as pan of the DNC. 'The DNC achowledged NHCC for what 

it was and publicly dwlosrd its receipts and disbursemenrs. in the only vote on the merits in MlJR 4246. 

the Conmussion voted unanimously (Comrmssioner Elliott included! to find reason to believe tihe DNC 

v~olatcd the allocation rules. See Statement of Reasons of Commissioners McGarry and Thomas in MUR 

4246 at 3 (Junc 12. 1997). Perhaps the lesson to be learned by the DNC is that it should have continued to 

run the NHCC as a "separate" organization. funded it with bogus loans, and used foreign money to pay off 

the loans as the RNC did wirh its counterpart. the NPF. 

9 
not even necessary to ask any questions in this important matter, simply defies logic and 

common sense. 

We also believe there was probable cause Lo believe the RNC solicited and 

accepted a S 1.6 million contribution feom a foreign national in vioiation of2 u.!S.c. 

444 le. Under the Act and Commission regulations, foreign nationals are prohib’ited from 

making contributions, directly or J/lroUgh any person, in connection with any election to 

any political office. 2 U.S.C. 4441e; 11 C.F.R. 0 li 10..l(a). Unlike most of the other 

provisions ofthe Act, $+$le applies to any election for my political offke, iiicluding 

state and locai offices as well as Federal offices. See UnitedStares v. Kanchanalak, 192 

F.3d 1037 (D.C.Cir. 1999)(coufl concluded that 544le prohibits foreign contribuiions of 

soft money as well as hard money). In addition,.it is ~tnlawful for any person to solicit, 

accept, or receive any such contribution From a foreign national. 2 U.S.C. §441t:(a); 

1 I C.F.R. $1 10.4(a)(l) and (2). For purposes of $44le, acontribution includes imy loan, 

and a loan is defined KO include a guarantee, endorsement and any other form of security. 

2 U.S.C. $431(8)(A)(i); 11 C.F.R. §100.7(a)( l)(i). Moreover, the term “person” includes 

both individuals and commitlees such as a national party committee. 2 U.S.C. $431(11). 

We believe there is probable cause lo believe the IWC and its Chairman, Haley Barbour, 

devised a plan to circumvent this law. 

This is not a difficul! case. The facts are relatively straighrfobnvard. As with the 

disclosure and soft money violation discussed above, the 0 44le violations arise out of 

the RNC attempting to do indirectly what it couldn’t do directly. The factual record in 

this matter plainly shows that the RNC used the WF to launder and accept prohibited 

foreign national money. Because we view the WF as a direct extension of the FWC, we 

view the NPF’s acceptance ofa foreigr! national loan guarantee as acceptance &y the WNC 

irself in violation oftj441e. Even if the NPF is viewed as “separate and distinct” from the 

RNC, however, the WC and Chairman Barbour still violated 5441e which prohibits the 

solicitation or acceptance of “any such contribution fiom a foreign national” either 

“directly or ~lrroicglr mrj~ orher yersorr.” 2 [J.S.C. $441e (emphasis added). 

A. 

The Chairman of the Republican National committee, Haley Barbour, established 

the Naiional Policy Foruni on May 24, 1993. From the beginning, Mr. Barbour presided 

as Chairman ofboth the RNC and the NPF. During this time, the RI\IC was the principal 

financial supponei of the NPF and its activities. From May 26, 1993 through August 12, 

1994. thc RNC made approximately S2.335.000 in loans to the WF. During this period, 

thr NPF repaid only S200,OOO of the loan amouni. Th.!s, at the end of summer, 1994, the 

NPF owed a 62,145,000 debt to the WC. 

10 
c 

With the November, 1994 congressional elections fast approaching, the RNC 

decided to seek repayment of the NPF debt in time to use for the elections. There was a 

problem, though. The NPF did not have the money lo repay its outsitaiiding debt to the 

RNC before ihe 1994 elections. In addition, the NF’F did not have the credit worthiness 

to obtain on its own a commercial loan with which to repay its massive debt to the RNC. 

The RNC needed this money from the NPF for the 1994 elections, however, and 

was not to be deterred. From approximately May to September of 1994, the RNC 

solicited a foreign national, a wealthy Hong Kong businessman rimed Ambrous Tung 

Young, to provide the collateral necessary for the IPF to obtain a commercial bank lorn 

to repay its debt to the RNC. The express purpose of the loan transaction, and the 

solicited collateral, was to allow the RNC !o regain the money it had previously loaned to 

the NPF SQ that these funds would be available to the WC in time for the 1994 

congressional elections. See the detailed analysis provided in Geaeral Counsel’s Probable 

Cause Brief to the RNC (“Probable Cause Brief:) at 9-20 (December 23, 1998). For 

example, in discussing the loan parantee requested of him, Mr. Young wrote Chaiman 

Barbour fhat, “we are willing to consider rhe support of%2. I million which is ehe omo?tni 

poll have expressed to me is rtrgeiidy needed and directly related to the ibrovembta 

election. ” General Counsel’s Repoil at Attachment 3 (April 23, 1998f(letter kom 

Young to Chairman Barbour, September 9, 1994)(emphasis added). 

In eariy September, 1994, Mr. Young agreed lo provide $2,100,000 in collateral to 

guaranlee a commercial loan to the WF. This commitment put intci motion a chain of 

financial events which culminated wi!h 51,SCO,OOO being deposited into WC coffers 

before the I994 elections. On October I 1, 1994, YBD-Hang Kong wire transferred 

S2,100,000 to YBD-USA. On October 13, 1994, YBD-USA wire-transferred the 

S2,100,000 received from YBD-Nong Kong to Signel: Bank Virginia. On October 13, 

1994, Signet Bark Virginia completed a loan agreement with the WF for s $Z,IOO,OOO 

loan, using the YBD-Hong Kong funds as co!!ateral. The toan agreement explicitly 

earmarked S i.600.000 of the loan proceeds for repayment of the FlkF’s debt to the IRMC. 

On October 17, 1994, Signet Bank Virginia disbursed the loan proceeds to the 

NPF. On October 20, 1994, one day after the deadline for discloskg receipts in the 

RNC’s 1994 12 Day Pse-General Election Report, the NPF transferred $1,6fX?,OOO of the 

loan proceeds to ihe RNC. Indeed, it appears that Steven S. Walker, the WF’s 

Comptroller at the time, wrote Signet Bank explaining that the ILNC did not desire 

payment until Ocrober 20, I993 and specifically asked that the deposit of the $1.6 million 

in repayment funds to the RNC be held until October 20. Probable Cause Briefat 23. On 

this date the RNC deposited these funds into the RNC state elections account. 

It appears that this “urgently needed” and indirectly received money had a very 

red and direct impact on the 1994 eleciions: 

The S 1.6 million accounted for 67 percent of the money transferred 

from the RNC’s main soft-money account to state GOP committees 

11 
2; 

f 3 

z.i 

between Oct. 20 and election day on NW. 8, FEC records show. The 

state committees used that money to bolster Republican candidates in 

tigh! races throughout the country, according to interviews. 

“We would have been lost without it,” said one Repubiica Party 

official in Iowa, where the party defeated a senior House Democrat. 

Congressional Quarterly at 1354 (June 14, 1997 j. 

Moreover, from the beginning it was clear that the hwc planned to use the 

money, secured by a foreign natioilal ioan guarantee, fer the purpose ofinfluencing 

elections. hdeed, in a deposition before the Senate Committee On Governmental Affairs, 

Fred Yolcansek, a prominent Republican businessman and fudiaising consultant for 

NPF, was asked if he “had any general understanding as to how they fthe RNCJ were 

going to use the money” received from the loan sepayment. Deposition of Fred 

Volcansek at 84 (July 21, 1997). Mr. Volcansek answered: 

My general understanding of how they were going to use Phe money 

\vas in the ‘94 election process in which there were rwnerous races 

they [the WC] thought they had an oppofiwnity for <anand they needed 

the money back from the NPF that had been lent to the WF. 

Id. Mr. Yolcansek further indicated that he flew to I-long Kong in order to explain to 

Mr. Young the NIT debt situation and ihe need for a loan guarantee to help the FWC 

secure funds for the 1994 elections: 

I explained to Mr. Young about the National Policy Forum. I talked to 

him about the concept of the structure of what was needed to be done 

and the fact that the WF needed to repay a ioan and that a gumtee 

that he might provide would facilitate the process ofthe WF making a 

loan with a bank in Washington. And that his peranfee would aUow 

/or that ioan to be mude ad that fbm stie Notional Po+ FOYU~ 

would be allowed to be 111 a positioiz to repy the NNC and Ihe EWC 

would be able to use hat moriqv IPI tile ‘94 

eiecrrori cycle. 

Id. at 92 (emphasis added). 

Similarly, former RNC Chairman Richard Richards testified before the 

Committee on Senate Governmental Affairs regarding Chairman Barbour’s interest in 

securing a loan repayment from the NPF in order to influence the 1994 elections. In 

panicular, Mr. Richards recalled a phone call Re received from Chairman Barbour in or 

around August, 1994: 

12 
Chairman Barbour spoke to me on the phone and told me that he felt 

like the Republican Party had an opportunity to gain control of the 

House of Representatives for the first time in decades, and public 

opinicn surveys showed him that that was a realistic goal. Frankly, I 

never thought I would see the time in my lifetime that Republicans 

won the House majority. %ut he told me that was the case and said: 

We have a problem, we at the National Committee have loaned the 

forum $3 million, $3.3 miiiion, some amounr in excess of33 million, 

of money that we can use in the campaign, but we have got a problem: 

we need to be able to take it oiit qf~ke fori4nt for o~~rpurposes, and we 

can't take it our unless H;e replace it with something because the forum 

has overhead and other expenses. And I understand you represent a 

well-to-do Chinese jellow in Mong Korig who has previou!;, been a 

beireficiary to the Repi~rblicati Parry. Would you be willing to talk lo 

iliir;l nboitt loaning 11s S3 million for rhnf purpose? 

Committee on Senate Governmental Affairs, Vol. 10 at 69 (testimony of 

R. Richards)(emphasis added). Later, Mr. Richards was asked: 

QIJESTION: Can you tell me whether Mr. Barbour expressed to you any sense 

of importance that this loan guarantee take place sooner rather 

than later? 

RICHARDS: it was an urgent thing 

QUESTION: 

RICHARDS : 

Did he elaborate on why this was an urgent matter? 

Ye.s. tliai he rieeded io wirhdra:v nionies, RNC inorlies front 

the Forum to be imd 111 the campaign. So, obviously, it had to take 

place before the election or have some assurance it was going to 

be available shortly thereaftei. 

QUESTION: . . , Did Mr. Barbour elaborate as to why it was particularly 

urgent at that time or in and around August of' 1994 for this loan 

guarantee lo go forward? 

RICHARDS: Well, he said thepirrpoje IIWS lo assist in the electiori of 60 

poloilia/ nekr. corrgresstneti. and obviously, I assume that means 

you got 60 days or something like that to do it. 

Id. ai 106-107 (emphasis added)." After his initial conversation with Chairman 

Barbour, Mr. Richards "started talking directly with Fred Volcansek and other people 

,.IS 3 frirnd. ally. and confidanlr of Chaimian Barbour; hlr. Richards' testimony appears particularly 

___. 

I/ 

iniomativr and credible. In a Ieircr to Anibrous Youn~. Ctiairnlan Barbour described Mr. Richards this 

13 
rather than directly with the chairman.” Id. at 108. See also Sept. 17, 1996 letter from 

Mr. Richards to Haley Barbour (“Jus! prior to rhe elections of 1994, I was asked by Fred 

Volcansek to help facilitate a loan in excess of 52 inillion to assist you in replacing hard 

money at the Forum with soft money so that the hard dollars could be used to help pick 

up 60 targfted House seats.”).” 

B. 

We believe the RNC and its Chairman, Haley Barbour, violated $441~ by directly 

soliciting collateral, for the purpose of influencing an election, from an individual they 

.hew to be a foreign national, Ambrous Tung Young. Under that provision, it is not snly 

unlawful to accept a contribution from a foreign national, but it also unlawful to solicit a 

contribution from a foreign national. The evidence clearly shows that respondents were 

informed that Mr. Young was a foreign national and that the solicited collateral would be 

provided by a foreign national corporation, YBD-Hong Kong, through irs domestic 

subsidiary YBD-USA. Finding that Mr. Bvbour had “direct and extensive involvement 

in all aspects of the loan guarantee transaction, from procuring the guarantee to reaching 

settlement with the guarantor after default,” General Counsel’s Probable Cause Brief to 

Haley Barboue at 32 (December 21, 1998). the General Counsel’s Office described 

”evidence show[ing] that Mr. Barbour was explicitly informed ofthe foreign souxce of 

the collateral on at least four separate occasions.” Id. at 33. Indeed, Mr. Volcpmsek, who 

had been a fdndraising consultant for the NPF, testified in a deposition that he had 

informed Chainnan Barbour and ntbtr Republican oficials about the foreign 

national/Hong Kong origin of the money for the loan guarantee before the loan was made. 

way: “Dick is B champ and a real ally. I how he is a crusted associate of yours, but I want you lo bow he 

is also a higli(i. raspecrcrlparrj’ leader t~~lrosc cowisel I benef:tfiot?i vey ofje..” General Counsel’s Report 

at Anachmeni4 (April 23, 1998)(Lcner from Chainnan Barbour to Young, September 19, 1994)(emphasis 

added). 

I’ While the “hard money” and “soft money” usually refer to money permissibly used forfed@ral 

elcctions versus money prohibited for use infrrlerul elections, Mr. Richards’ comntS seem to refcr to 

“hard money” as money that could be used forjrrlrrol or non-federal elections and to “soft money” as 

funds that could not. Foreign funds would fall in !he laner category. Apparently, Mr. Richards mderstood 

that ttlK return of loancd funds to the RNC xould assist federal races, perhaps because the use of nonfedrral account funds to pay for a share ofparty-btii;ding activjty indirrctlyhelps the federal races too. For 

example. transferring 5 I50.000 in non-fedcral account funds to a state party with a 75% non-fedemV25% 

federal allocation allowance nught enabie the statc pxty IO undertake 5200,000 worth ofgeneric get-ourthe-vote activiry on election day. 

It is irnponant to note that the Commission is not required to trace deposited foreign national funds to 

exprndirurcs for a specific election, le1 alone a specific federal election, in order to find a violation of 

Z U.S.C. $J4le. The fact that foreign na~ional funds were deposited by the IWC into the RNC state 

KlKtlOrIS account is adrqmte to establish that the funds were “in connection with an election to any political 

ofice.” 2 1J.S.C. 5441s. Indeed. the Commission has never required such a tracing of funds in order to 

c.st3blish a violation of $441~. Sei,. cg. MUR 4:98 (Comrmssion found reason to believe that a foreign 

national contributor and recipient cornmitrees violated $44 le without a showing of how the contributed 

funds u.ere ultin?atcly spent by thc recipient comnitrcrs); MUR 4884 (Commission found reason 10 believe 

that contributions by 3 foreign n3tional and his conoration to a party cormnittee‘s nun-federal account 

viol~ted $44 le without a shoumg of how the contribuied funds were ultimately spent). 
.. 

. .. 

.!’ q 

At his deposition before the Senate Committee on Governmental Affairs, the following 

colloquy took place: 

QUESTION: Prior to October 13, 1994, did you make Haley Barbour aware 

that Mr. Young would be transferring monies from Hong Kong 

that would be used to support the collateral used in the loan 

guarantee made to ihe National Policy Forum? 

VOLCANSEK: Yes. I did. 

QUESTION: Do you recall when you made iMr. Barbour aware? 

VQLCANSEK: No, I do not. 

QUESTION: Do you recall the context in which you made Mr. Barbour aware 

of that? 

VOLCANSEK: I believe it was in a meeting that 1 was with Mr. Fierce and 

Mr. Barbour and Mr. Denning” discussing the issue. 

QUESTION: Do you recal! where that meeting took piace? 

VOLCANSEK: At the Republican National Committee Weadquariers. 

Gepositioii of Fred Volcaiisek at 108- lo7 (July 2 1, 1997)(emphasis added). 

Additionally, it appears that Chairman Barbour and Mr. Young met for dinner to 

discuss the loan guarantee on August 27, 1994. At this dinner, Mr. Young direc’ily 

informed Chairman Barbour that the requested collateral would be coming kom %‘ED-- 

Hong Kong when he requested further infomatiova from Chairman Barbour to present to 

the Hong Kong Board of Directors for its approval. In his deposition testimony, 

Mr. Young recalled the discussion at dinner this way: 

The discussion basically was iMr. Haley Barbour requested me to 

consider for the loan of three and a half million dollars and assured me 

of the safe return of the loan, but as a result of that I could not commit 

nor have the power to commit but requested him to gix rJs more 

itrforniotioii so Ihor tire cmi presejil i: lo YBD Hang Kong boord of 

directors for further consideration. 

Exercising his controi of the NPF. Chaimn Barbour “nand picked” Mr. Denning in Jailuary 1954 io be 

the NPF’s ChicfOperxing Officer. Probable Cause Brief at 10. Upon being hired. “Mr. Denning 

informed Mr. Baroody [the NPF Presidsnt] that he had been specifically asked by Mr. Barbour to explore 

foreign funding for the NPF.“ ftl. 

Ii 

15 
Senate Committee on Governmental .4ffairs, Deposition of Ambrous Young at 35 

(June 24, l997j(emphasis added)." Three weeks after this dinner, Chairman Barbour 

wrote Mr. Young thanking him for subsequently agreeing to the loan guarantee proposa!. 

The letter was addressed to Mr. Young as "President, Managing Director of Young 

Brothers Development Co., Ltd." and listed "23rd Floor, Dah Sing Financial Center, 108 

Gloucesrer Road, Wong Kong" as the mailing address. General Counsel's Report at 

Attachment 4 (April 23, 1998)(Letter from Chairman Barbour to Young, September E?, 

1994). 

Similarly, in his Senate testimony, Mr. Richards also recalled telling Chairman 

Barbour of the foreign national source of the loan guarantee: 

QUESTION: 

RICHARDS: 

QUESTION: 

RICHARDS: 

QUESTION: 

RICHARDS: 

Did ycu advise Mr, Barbour at this time in the course of describing 

the transaction where the ultimate source of the money would come 

from what would be posted as collateral with the bank? 

Well, the on!v htig /[oh/ him is the i?loney would be Wansferrred 

from YOlOJg Brorliers (Hong Kongl to Youtig Brothers (USA) for 

thal pirrpose. 

This was after Mr. Young had agreed that he would support what 

was being asked of him, at least to the tune of $2.1 million; 

Correct'? 

That's correci. 

And this is ill 1994. prior to the consummation ofdl the 

papentvork ir wo~rld take IO cony out rhe loan rarraiigeinent? 

That is correct. 

Committee on Senate Governmental Affairs, Vol. 10 at 73 (testimony of 

17. Richards)(emphasis added). Based on the evidence discussed above, as well as the 

other evidence discussed more fully in the General Counsel's Probable Cause Brief, 

pages 9-20. and the General Counsel's September 8. 1999 Probable Cause Report, pages 

4-1 1. it appears that Chairman Barbour was directly informed of the foreign national 

source of the collateral for the NPF loan repayment. Certainly, as Chairnian ofthc 

Republican National Committee, Mr. Barbour knew, or should have knoavn, ihat the 

solicitation and acceptance of fore@ national fun'ds was prohibited. 

By accepting the proceeds of a loan it knew to be guaranteed with foreign nztional 

funds, the RNC violated 2 U.S.C. $441 e. Under the Act, a contribution includes any 

Mr. Soung was later 3rkrd why thr 3mount rrqurstrd was changed from S5.5 million !o 52.1 million 

Mr. Soung simply replied. "Th~t mrssage IS given IO me. 1 don't recail from who, but they told me no 

longcr Ihc 3.5 but 2. I" /I:. a[ 39. 

Id 

16 
"loan." 2 U.S.C. $431 (8)(A)(i). Furthermore, the Commission's Regulations define the 

tern] loan to Include "a guarantee, endorsement, and any other form ofsecuriry." 

11 C.F.R. ;5 100.7(a)( ])(I). Because YRD-Mong Kong provided collateral for the full 

amount ofthe loan, the collateral constitutes a contribution for the full mount of the loan 

proceeds transferred to the RNC--S 1 ,600,000.'5 

This is a very compelling case. Obviously, the KNC itself could nor receive a 

bank loan guaranieed with foreign national money or directly receive money from a 

foreign national. To overcome this, the RNC developed a carefully thought out series of 

transactions designed to deposit additional money into its accounts. Structured through a 

loan repayment, the RNC used a shell organization it had established as the vehicle to 

route "urgently needed" foreign funds into the United States election process. We 

strongly believe this activity was prohibited by $44le, and that the important prohib:" rllons 

found at $441 e should not be so easily evaded. 

Our colleagues disagree. Without challenging any of the factual analysis ofthe 

General Counsel, they argue that because the funds paid to the RFC were a loan 

repayment from NPF, the circumstances underlying that repayment are inrele*>.3nt. 

This approach is willfully blind to the reality ofwhat occurred in this case, and 

leaves an easy path for party committees (or candidates) to accept unlimited foreign hds 

in the form of relief on bad loans. it is apparent that in the heat ofthe 1994 election 

cycle. the prospect of getting repayment of the 52.1 million in outstanding loms to the 

NPF was remote at best. The RNC was the only reliable source of NPF funding, it seems, 

and NPF's repayment history shows it was not able or inclined to make good on its "loan" 

obligations." Thus, the whole idea of tapping a foreign corporation's assets to fill the 

RNC's coffers was based on the idea of cieating a series of transactions leading to a 

repayment of the RNC's loan that would not have occurred otherwise. The argument that 

this arrangement was nothing more than an innocent loan repayment by WlF misses the 

essential part of the case. Allowing a committee to resuscitate a dead loan and have a 

prohibiied source make the loan repayment would legitimize clearly sham transactions. 

This case is plainly different from the typical situation where an entity owing 

funds to a conitnittee goes about raising funds in the ordinary course ofbusiness to make 

good on the debt. ln such cases, the persons providing funds to the debtor don't even 

know what the debtor will do with the funds, and ceriainly don't primarily intend to help 

rhough the cited staturory and regularory provisions are couched in term of"influencing federal 15. 

dections." the D.C. Circuit's decision in L'rtifed Sfofcx Y. Kurtclranuluk, I92 F.3d 1037 (D.C.Cir. 1999). 

rmkes clear that the foreign national prohibi(iori 31 $44 le reaches ii?fluencing non-federal elections as well. 

Tlir general provisions elsewherc in the Act and reguhtions, in essence, should be read to apply 60 $441 e 

anJlysis whether dealing with ftdcral or non-federal activity. 

'' Bec~use NPF.5 activity escaped d~sclosi~re. I: is not clear how much it was able IO raise independently. 

Crminly. the fact that the NPF had 10 get further 10~15 from the RNC after the 1994 elections. General 

Counsel's Probnble Cause Brief at 23-24. and eventually defaulted on the bank loan to the tune of 

Sl.554,398.22 in 1996. id. at 26, suggests that there was no basis for expecting repayment in 1994 when I~K 

tr;lfisact~ons 31 issue arose. 

17 
the debtor’s creditor. Nor is the original creditor in charge of arranging the raising of 

funds for the debtor and deciding whether the debtor will use the funds to make the 

repayment. By contrast, here the foreign national (YBD-Hong Kong) and the original 

creditor (RNC) hew of and controlled all the arrangements leading to the repayment of 

the domiant debt. This series of transactions was frilly intended to route prohibited 

foreign funds back to the IWC, and the so-called loan repayment would not have 

occurred but for the conscious and active efforts of the RNC and the foreign national. 

Thus, even if some loan repayment arrangements might escape FEC interest, this 5ne 

surely should not. 

Perhaps nothing evidences the intent and causation elements better than the 

transaction that almost incurred instead. According to the record, it appears hat 

Mr. Young initially wanted to make a direct contribution to the WC but was instead 

asked to make a loan guarantee. AAer meeting with, and later receiving a letter from 

Chairman Barbour, Mr. Young wrote the Chairman from Hong Kong. Waving described 

his interest in supporting the Republican Party, Mr. Young expiained that he preferred to 

make a direct contribution to the Republican Pa.rty. ‘‘qw?possible,’’ Mr Young 

continued, he would be “willing to consider the support of $2.1 million [the total amount 

of the NPF debt to the RNC] which is the amount you have expressed to me that is 

urgently needed and directly related to the November election.” First General Counsel’s 

Report at Attachment 3 (April 23, 1938)(Letter from Young lo Chairman Barbour, 

September 9, 1994). Eventually, Mr. Young was dissuaded &om m&hg B direct 

contribution and, instead, persuaded :o support the Republican Pzqy through the loan 

guarantee scheme as a means of funneiing suppor? to the WC. By Mr. Young’s own 

admission. he was trying to provide suppor! he was told was “urgently needed” for the 

“November election.” 

Our colleagues might wish to argue the Commission’s regulations state that a loan 

repayment is not a contribution and therefore, the payment to the I%NC is expressly 

permissible. Indeed, the regulations at I I C.F.R. 4100.7(a)(l)(i)(E) stale: “If a political 

committee makes a loan to any person, . . . [rlepayment of the principal amount of such 

loan to such political committee shall not be a contribution by the debtor to the lender 

committee.” However, the crucial Commission policy on loan repayments specifies that 

“[sluch repayment shall be made with funds which are subject to the prohibitions of 

1 1 C.F.R. $1 10.4 and part 1 14.” ld. This is a strict rule that requires the repaying entity 

io make sure it uses “clean” funds 10 make repayment. Thus, if anything, the 

Commission’s regulations clarify that a loan repayment cannot be made using prohibited 

sources-precisely what happened in [his case.” 

The cited reglation technically applies only 10 loans by a “political comnGnee,” which in the coniext of I7 

party committees that farm federal and nonfedrral accounts arguably means the federal account. Even if 

loan reprpents to a parry committee‘s rionfederal account technically arc not covered by the regulation, 

certainly the regulation’s logic should apply where loan repayments consist of bids prohibited for the 

nonfederal account. A nonfcderal account that cannot accept foreign national hds. see UnifedSrotes v. 

Kanchnndnk. siipra. should nor be able to loan funds not tainted by foreign national sources to a shell 

organization and then anange to have foreign national funds put up to make the repayment. 

18 
i 

There are a number of other faults with our colleagues’ decision to dismiss this 

important matter on the assenion that this was a simple loan repayment by NPF. Most 

significantly, they ignore the plain language of the statute. Under (jLMle, foreign 

nationals are prohibited from making contributions “directly or through atzy other 

person.” 2 U.S.C. 5441e (emphasis added). On its face, $#le is carefully designed to 

prohibit the very sori of “indirect” transaction or arrangement our colleagues have 

endorsed in this matter. By adding the “or through any other person” language, Congress 

indicated thar the statute should be enforced in a common sense fashion so that it could 

not be easily circumvented by routing funds through intermediary sources. Faithhi 

application of the statute means the KNC cannot receive money from a foreign national 

directly or “through any other person” such as NPF or any other shell organization. 

Not only do Commissioners Elliott, Mason and Wold ignore the plain language of 

544 1 e, bul they also disregard Commission precedent on this very point. The 

Commission has long emphasized that the use of a domestic subsicfiary-in this case, 

YBD-USA-does not “cleanse” or launder the foreign source offunds. See, eg., 

Advisory Opinions 1989-20, 1985-3, and 1981-36 at Fed. Elec. Camp. Fin. Guide (CCX) 

73 5970, 5809, and 5632, eespectively. For example, in Advisory Opinion 1989-20. the 

Cornmission was asked whefher the political action committee ofa domestic subsidiary 

of a foreign corporation could make Folirical contributions. Finding that it could not, the 

Commission specifically held that: 

Section 441e . . . prohibits contributions by a foreigm national through 

any other person. Because [the foreign national parent] is &e 

predominant source of funds for [the domestic subsidiary], it would 

essentially be making contributions to the comrni::ee through[the 

domestic subsidiaryJ. Such contributims to a committee supporting 

state and local candidates would be contrary to the Act md regulations. 

In addition, became die conmii[tee will accept most andperhaps ull of 

i~.~~fiiids from such a source. if WOMM be acting as a vehicie through 

whiciijitids Ii’ere sell/ fo 51aw wid local cmdidales. Coninbutions by 

the committee to such candidates would, therefore, be prohibited. 

Advisory Opinion 1959-20 (emphasis added). Consistent with Commission precedent, 

we believe YBD-USA and the National Policy Forum couid not act as a vehicle through 

which foreign funds could be indirectly routed and accepted by ?he WC. 

19 
... 

. -3 

:: , . .. 

Moreover, by ignoring the circumstances under which a person ha5 received funds 

for making a contribution, our colleagues adopt an approach which is contrary to 

longstanding Commission enforcement precedent. With respect to 2 U.S.C. $441 f 

(prohibits the making of contributions “in the name of another person”) cases, for 

example, the Commission rou!inely examines the circumstances and the source from 

which a contributor has received funds. Thus, the Commission has found an employer 

who gives a “bonus” to an employee so that an employee can make a contribution to a 

political committee is in violation of5441 f. See MUR 4884 (Cornmission found 

corporation and its officers in violation of $441 f by providing employee bonuses and 

other forms of salary compensation with the intent of reimbursing employee 

contributicns); MUR. 2893 (Commission found corporation in violation of $441 fby 

providing false expense reimbursements to its employees as a means for reimbursing 

employee political contributions). In these cases, the Commission did not excuse a 

reimbursed contribution because the payment of the bonus and the making ofthe 

contribution could be seen as separate and legitimate transactions-the argument our 

colleagues now seem tc be making in the instant matter. Commissioners cannot make up 

the rules as they go along to suit themselves. Just as the Commission pursued the above 

cases, it should have pursued MUR 4250. 

Similarly, in other contexts, the Commission has argued that the circumstances 

under which funds have been received may indicate an election influencing purpose even 

though, considered separately, the transactions may appear proper. In Federal Ekcrion 

Con~missiorr I,. Cullfornia Democruric P(1rr.v (“Calrfornia Dmocrms *’), Civil Action Xo. 

CJV-S-97-89i GEB PAN (ED. Cal. October 13, 1999), the Commission argued, and the 

court agreed, that the California Democratic Party violated the Conimission’s allocation 

regu!ations by making soft money payments to a state initiative drive with the intent of 

increasing the number of Democratic Party voters in the upcoming elections and, hence, 

increasing support of federal Democratic candidates. h California Democrats, the court 

agreed with the Commission that the source md circumstmces under which funding was 

providcd was legally significant. Under our colleagues’ theory of MUR 4250, however, 

there would have been no violation in Cullfortiia Democrats since the making of 

payments to the state initiative drivc and ihe spending of those funds by the initiative 

drive were arguably legal as separate and legitimate transactions. Yet, in C‘anlifornia 

Democrats, our colieagues considered important the source ofthe funding for the state 

initiative drive, pieced together the transactions, and recognized what was indirectly 

attempted in that case. Because Commissioners Elliott, Mason and Wold were willing to 
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pursue the California Democratic Party, they likewise should have been willing to pursue 

the Republican National Committee and Haky Barbour. We can find no way to reconcile 

their different approaches to these two matters.18 

Our colleagues simply resort to gymnastics when they attempt to get around the 

statutory language and Commission precedent by asserting that this case only involves the 

simple repayment of a legitimate loan. Mr. Young, YBD-Hong Kong, and YBD-USA 

were not repaying a loan. They did not owe any money to either the RNC or the NPF. 

In fact, the evidence shows that Mr. Young, YBD-Wong Kong, and YBD-USA had 

absolutely no financiali interest in the initial loan made between the RNC and the NPF. 

Yet, it was their foreign national money which made the loan repayment and subsequent 

infusion of funds into the 1994 elections possible. This involvement arose only after they 

were solicited by the RNC and Chairman Barbour. 

By sanctioning such an obvioxs ruse. the approach taken by Commissioners 

Elliott, Mason and Wold in this mafter threatens to turn the 4441e foreign national 

prohibitions ],to a nullity. See FEC I,. Fii,-galciz, 807 F.2d 857, 862 (9lh Cir. 1!%7)(cOUrtS 

“must be . . .careful to ensure that [the Act’s] purposes are fully carried out, that they are 

not cleverly circumvented. or thwarted by a rigid construction of the terns ofthe Act.”), 

ceri. denied. 484 U.S. 850 (1 987). In their view, if a contribution from a prohibited 

source goes through an othenvise viable source, it is effectively “laundered” or cleansed. 

Under their approach, could a candid.ile ask a foreign national company to give 

“bonuses” so that its American employees could ~dre “uagen!ly needed” contributions 

for the November election? Or, suppose a candidate made a large deposit on vendor 

services, but the vendor could not refilnd the deposit because of cash flow problems. 

Could the candidate solicit foreign nationals to give money to the vendor so the vendor 

could return the deposit to the candidate? By ignoring the words “or through any other 

Our colleagues may rely on two prior FEC enforcemen! cases for the proposition that the Commission la 

will not exanune the connections bcnveen several otherwise legiuimte transactions IO determine if a 

siolation i‘sists. In MURs 4000 and 4314. rhe Comssion dercrmined there was no reason to believe that 

donors being asked to retire debt of one comnutlec were in fact making indirect excessive contributions to a 

din‘crenr cornnee. First. of course. neither of those MURs involved 2 U.S.C. 544le and its explicit 

starurory prohibition against the use of ”any other person” to lirnnel foreign funds into US. elections. 

Moreover. in neither of these cases were the donors niade aware that their own donations would be uscd to 

route fmds IO rhe orher cornnunee. At most. in MUR 4000, the donors were advised that ifthey contributed 

toward one conminee‘s debt retirement. the candidate seeking funds would make his own matching 

contribution to rhe other cornnunee. (The General Counsel’s Repon of Srpt. 8. 1999, at footnote 25 on 

page 19. rmssrated 11ie MUR 4000 evidence when it indicated the donors were nnde aware the debt they 

\we retiring was owed to rhc candidate and rhat the candidate would in rum use such fiinds to make 

conrributions to the other commitrce.) Clearly. this is a far cry from the present case whcre the foreign 

riation31 (YBD-tlong Kong)and the ulrimrr. beneficiary (RNC) were fully apprised ofthe routing of the 

foreign national’s own furids IO the 1anc.r. In addirion, the FEC more recentiy indicaied it will look 

through related transiicti~ns to assurc rhs Act is properly applied when in Advisory Opinion 1996-33, Fed. 

Elec. Camp. Fin. Guide [CCH) 3!6? 13. it niled that a candidate could not escape the asnsfer ban at 

I1 C.F.R. 2 110.3(d) by routins funds Ihr:iu:h othcr persons in ways that orhenvise look perndssible. 

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person“ in $44 1 e. we fear that our colleagues are inviting these md other evasions of &he 

$431e foreign national prohibitions. 

The factual record demonstrates that the purpose ofthe transactions at issue was 

io fund the RNC’s 1994 election efforts and thal the loan repayment to the RhK would 

not have been made by WF without the financial assistance ofa foreign national who 

had no pre-existing obligation to either the RNC or the NPF. The purpose of444le is to 

prevent United States officeholders and candidates from becoming beholden to foreign 

influence and interests through the solicitation and acceptance of foreign money. 

Whether an obligation to a foreign national arises out of a direct contribution or indirectly 

from a loan guarantee through a third party makes little difference. Under either method, 

an obligation has been incurred to a foreign national. In order to prevent such obligations 

From arising. effect must be given to the statutory language “or through any other person” 

found in $341 e. Our colleagues’ failure to do so in MUR 4250 was clearly contrary to 

la\V. 

HV. 

We recognize that judicial review of the Commission’s dismissal. ofa complaint, 

where there have not been four votes to take action, has been deferectial. But deference 

has its bounds. It is not a license for Commissioners to disregard massive violations of 

rhe statute in he face of overwhelming evidence. 

In MUR 4250, the Republican National Committee established, financed and 

controlled the National Policy Forum. The RNC concedes that the NPF engaged in 

activities which. if done directly by the FdC, should have been publicly disclosed and 

subjected to the statute and the Commission’s soft money regulations. En carrying out 

these activities, the NPF raised and spent millions ofdollars--money that was never 

publicly disclosed or allocated, simply because the BVC claimed the WF was a “separate 

and distinct” organization. 

In addition. the RNC used, this shell organization to flout the prohibitions of 

2 U.S.C. $44 1 e. Because of loan guarantees provided though foreign nationals and 

solicited by the RNC, the NPF was able to make oiheavisL xiattainable Ioai repayments 

to the RNC. As a result, the RNC \vas able to add SI.6 million to its committee accounts 

in the month before the 1994 congressional elections. These transactions were carried 

out--and approved by three members of this Commission--despite the clear language of 

$44 I e which prohibits foreign national contributions which are made “directly or throcgh 

any other person.” 2 U.S.C. $#le. 

The Federal Election Canipaign Act means very little if it can be so easily evaded. 

‘4 national party cornmitres should no: be able to get around public disclosure 

requirements and fund allccablz activiiies entirely with soA money merely by setting up a 
u 

straw organization. A national party should not be able to evade the prohibitions on the 

use of foreign national money through such a ciiarade and, thus, be able to do indirecaly 

what it can’t do directly. By approving such trickery, our colleagues’ decisions in this 

matter are plainly contrary to both the plain language of the statute md the Commission’s 

regulations.“ 

, 

Date ‘ 

Date 

Scott E. Thomas 

Commissioner 

Idmyyee McDonald 

Commissioner 

Along these lines. it is iniponant ro flow that as of January 28.2000. Commissioner Ellion hid not filed J. 19 

Statement of keasons explaining her June 17, 1997 vote against the General Counsel’s recomwndantiorn to 

find reason to believe regarding the original complaint. Likewise, as ofJmuary 28,2000, Coc~ssioncrs 

Elliott. Mason and Wold still had nor filed a Statement of Reasons explaining their vote against the Genem1 

Coqmsel’s 944le recommendation. This delay has occurred even though the file in this matter vms clowd 

on Novernkr 30. 1999. 

The D.C. Circuit has explicitly required that the “dcclining-to-g3-ahead Commissioners” file Statem& 

of Reasons explaining their votes. Conirnon Cause 1’. FEC. 842 F.2d 436.45 1 (D.C.Cir. 1988); see &o 

DCCC I‘. FEC. 63 1 F.2d 113 I (D.C.Cii. 1987). Reflecting this judicial command, the Commission’s 

regulations explicifly require that these Statements “will be mde available no later than 30 days Prom the 

d3k on which a rrspondcnt is notified that the Commission has voted to take no further action and to close 

such an enforcement file.” I I C.F.R. 55.4(~)(4). 

responsible illiltuxr places complainants in an unienable situatioil. in decidiq whether to exercise their 

statutory righis undrr 2 U.S.C. §437g(a)(8). Complainants have no way ofhowing the reasoning of &e 

“diclining-to-go-ahead Commissioners” and thus. whether their faiiure IO proceed is contrary to law. 

tinfonunxcly. disregard of the Commission’s regulations at SS.ii(aI(4) is becornin; commonplace. See. 

e.g , MUR 4305 (Commissioners Sandsirom Elliott. Mason and Wold voted not to proceed on December 8, 

1995 but did not tile a Statement of Reasons until over a half a year later, May 26, 1999); MUR 4689 

(Conlrmssionm Sandstsom. Ellion. Mason. and Wold voted no: to proceed on August 24, 1999 and &d not 

filr Starernrnt of Reasons wrtlim 30 days): and MUR 4378 (Commissioners Ellion. Mason and Wold 

voted not to proceed (Conmussloner Sandsrrom abstained) on June 22, 1999, and never filed a Statement 

of 2easons explaining their Inaction). By itself, our colleagues’ failure to file 3 tidy Statement of 

Reasons. desplie a clear judicial 3nd regulatory mandate to do so. would appear to justify a default fwding 

that their inaction in MUR 4250 was contrary to Inw. 

The failure ofComnissioners Elliott. Mason and Wold 10 file their Statements of Reasons in a