FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

August 22,2014 

MEMORANDUM 

To: The Commission 

Through: Alec Palmer 

Staff Director 

From: Patricia C. Orrock' 

Chief Compliance Officer 

Thomas E. Hintermister*^ 

Assistant Staff Director 

Audit Division 

"VlDoug Kodish 

Audit Manager 

Rhonda Gillingwaten|n 

Lead Auditor ^ 

By: 

Subject: Audit Division Recommendation Memorandum on Canseco for Congress (CFC) 

(All-03) 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit Reports), the 

Audit staff presents its recommendations below and discusses the findings in the attached Draft 

Final Audit Report (DFAR). The Office of General Counsel has reviewed this memorandum and 

concurs with the recommendations. 

Finding 1. Receipt of Apparent Prohibited Contributions 

The Audit staff recommends that the Commission find that CFC accepted prohibited 

contributions from a foreign national corporation in the amount of $100,000, of which 

$44,605 remains unresolved, and amend^ disclosure reports have not been filed.' 

CFC requested an audit hearing before the Commission to dispute that two contributions 

totaling $100,000 were prohibited contributions from a foreign national corporation, 

Inmuebles Caza SA de CV (Caza).^ These contributions consist of $86,000 erroneously 

In response to die Interim Audit Report, Counsel stated that in order to avoid multiple filings of reports, CFC 

would comply with all the recommendations once the Commission had finalized the audit. 

' Inmuebles Caza SA de CV is a Mexican coloration that is a subsidiary of Canseco Investments, LTD., an 

American owned limited liability partnership co-owned by the Candidate and his seven siblings. FMC 

Developers, Inc. is the managing partner of Canseco Investments and according to Counsel, is also 100% 

owned by the Candidate and his siblings. 
reported as a Candidate loan and $14,000 which was not disclosed. Repayments were 

made for $SS,39S; the remaining $44,605 has not yet been repaid. 

At the hearing. Counsel disagreed with the classification of these loans as prohibited 

contributions from a foreign national corporation. Counsel stated that the funds, totaling 

$100,000, represented the Candidate and his sister's personal funds because they were 

drawn from their respective equitable interests in Canseco Investments.^ 

Counsel said that Canseco Investments preferred not to make a personal funds 

distribution to the Candidate and his sister for tax reasons; and fterefore, preferred to 

distribute the funds as a loan. Counsel said that while these loans might not have met the 

technical requirements of 11 CFR §100.83, they were fundamentally different than 

contributions for two reasons. First, the funds were derived from an asset for which the 

Candidate had a legal ownership share or equitable interest. Moreover, that these loans 

were identical to loans where an individual borrows from a retirement plan or whole life 

insurance policy in which the individual has invested funds in those plans. Second, the 

loans were not a "sweetheart" deal because ^y were collateralized by the Candidate's 

equitable interest in Canseco Investments (and therefore less risky tlum other loans), the 

terms were commercially reasonable, and the interest rates charged were above market 

rates. 

Documentation provided to the Audit staff showed only partial repayments of loan 

principle amounts, totaling $55,395; no interest was paid. Payments were made by CFC 

after the loan due dates, and were paid to Caza and not Canseco Investments. Also, CFC 

did not report any interest payments on its disclosure reports. 

Counsel also stated during the audit hearing, that the promissory notes securing the 

$100,000 in loans reflected agreements between the Candidate and Canseco Investments. 

Furthermore, Counsel stated that the Candidate did not know that the funds he loaned to 

CFC were from Caza. However, documents provided to the Audit staff during fieldwork 

showed the following: 

• A promissory note dated January 28,2010, signed by the Candidate for a $30,000 

loan, shows both Caza and Canseco Investments as Ae lenders; 

• A promissory note dated April 12,2010, signed by the Candidate for a $28,000 

loan, shows Caza as the lender; 

• A promissory note dated April 12,2010, from the Candidate's sister for a 

$58,000 loan, shows Caza as the lender; 

• A promissory note dated April 12,2010, signed by the Candidate for a $58,000 

loan, shows the Candidate's sister as the lender; 

• A cashier's check for $86,000 dated April 12,2010, payable to the Candidate and 

deposited in CFC's bank account, shows that the check was remitted by Caza. 

See footnote 2. 
Based on the information above, the Audit staff concludes that Caza, not the Candidate's 

personal funds or Canseco Investments, was the source of the $100,000 that the 

Candidate loaned to CFC. As such, CFC accepted prohibited contributions from a 

foreign national corporation in the amount of $100,000. 

Finding 2. Receipt of Contributions that Exceed Limits 

The Audit staff recommends that the Commission fmd that CFC accepted excessive 

contributions in the amount of $170,343, of which $10,050 remains unresolved, and 

amended disclosure reports have not been filed.^ 

At the audit hearing, Counsel disputed the Audit staffs conclusion that $10,050 remains 

unresolved. Counsel said sufficient documentation had been provided to demonstrate 

that excessive contributions totaling $10,050 were repaid to the original contributors. 

Counsel stated that the Commission was provided a signed affidavit^ by the individual 

contributor who coordinated raising funds to make the loan to the Candidate and that the 

affidavit showed that the contributor repaid the other excessive contributors. In addition. 

Counsel said the Audit staff did not provide an adequate reason in the DFAR for not 

accepting the affidavit in light of no evidence to the contrary showing that the excessive 

contributors were not repaid. Also, Counsel said that the Audit staff should have sought 

additional information directly from the contributors involved. 

In concluding this issue. Counsel stated that amounts considered unresolved by the Audit 

staff were already repaid to the original contributors and that if the Commission 

determines that CFC must repay another $10,050, then double payments will have been 

made with campaign funds in violation of the persorud use regulations at U.S.C. 

§439(b)(l). 

When questioned at the audit hearing about the purported repayments to the original 

contributors and why records were not available to support the repayments to the original 

contributors. Counsel stated that it was his understanding that Mr. Beckelhymer (the 

contributor raising funds and making the loan to the Candidate) was repaid with a 

cashier's check for $28,000^ from the Candidate because Mr. Beckelhymer was 

responsible for the repayment to the other original contributors. Counsel also said he had 

never spoken to the original contributors repaid by Mr. Beckelhymer and did not have 

their personal banking records which made it a challenge to provide adequate 

documentation to the Audit staff. 

Counsel also explained why the original contributors were repaid via Mr. Beckelhymer 

and not CFC. Counsel stated that the excessive contributions were retumed to the 

original contributors in the same manner in which they were received and recorded by 

CFC; that is, the funds were received from the Candidate, recorded and reported as a loan 

from the Candidate; and therefore, refunded to the Candidate. The Candidate then 

refunded Mr. Beckelhymer, who in tum purportedly refunded the remaining original 

contributors. 

* See footnote I. 

' The document submitted was a signed declaration that stated it was made, "under penalty of perjury." 

' A copy of the Cashier's check was provided to the audit staff. 
Based on the lack of bank documentation to show the excessive contributions were repaid 

to the original contributors, the Audit staff concludes $10,050 remains unresolved. 

Finding 3. Misstatement of Financial Activity 

The Audit staff recommends that the Commission find that CFG misstated its financial 

activi^ for calendar years 2009 and 2010, and amended disclosure reports have not been 

filed. ^ 

If this memorandum is approved, a Proposed Final Audit Report will be prepared within 30 days 

of the Commission's vote. Should an objection be received. Directive No. 70 states that the 

Audit Division Recommendation Memorandum will be placed on the next regularly scheduled 

open session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters folder. Should 

you have any questions, please contact Rhonda Gillingwater or Doug Kodish at 694-1200. 

Attachment; 

- Draft Final Audit Report of the Audit Division on Canseco for Congress 

cc: Office of General Counsel 

^ See footnote 1. 
Draft Final Audit Report of the 

Audit Division on 

Canseco for Congress 

{January 1, 2009 - December 31, 2010) 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political committee that is 

required to file reports 

under the Federal 

Election Campaign Act 

(the Act). The 

Commission generally 

conducts such audits 

when a committee 

appears not to have met 

the threshold 

requirements 

substantial cgispiiance 

with the liie audit 

vhether the 

the limitat? 

prohibitions 

disclosure reqi 

of the Act 

Future Actio: 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

reporL 

About the Campaign 

Canseco for Congress is 

Francisco R. Canseco, 

of Representatives 

headquartered in San 

the chart on the Campaii 

ipaign committee for 

idate for the U.S. House 

23"* District, 

lie i^rmafion, see 

Financial Activity (p: 

• Receipts 

o Contribi@^llfen Indivi 

o 

Polii 

o d^di 

Ijts 

Expenditures 

of Candidate Loans 

ibursements 

972,233 

316,035 

321,880 

9,794 

S 1,619,942 

$ 1,481,985 

58,505 

S 1,540,490 

ndings and Recommendations (p. 3) 

• Receipt of Apparent Prohibited Contributions (Finding 1) 

• Receipt of Contributions that Exceed Limits (Finding 2) 

• Misstatement of Financial Activity (Finding 3) 

' 2 U,S.C. §438(b). 
Draft Final Audit Report of the 

Audit Division on 

Canseco for Congress 

(January 1, 2009 - December 31, 2010) 
Table of Contents 

Page 

Parti. Background 

Authority for Audit 

Scope of Audit 

Part II. Overview of Campaign 

Campaign Organization 

Overview of Financial Activity 

Part III. Summaries 

Findings and Recommendations 

Part IV. Findings and Recommendai 

Finding 1. Receipt of Apparent Prohibited Contributions 

Finding 2. Receipt of Contributions that ExcaBBymits 

Finding 3. Misstatement of Financial Aci 
Parti 

Background 

Authority for Audit 

This report is based on an audit of Canseco for Congress (CFC), undertaken by the Audit 

Division of the Federal Election Commission (the Commission) in accordance with the 

Federal Election Campaign Act of 1971, as amended (the Act). The Audit Division 

conducted the audit pursuant to 2 U.S.C. §438(b), vdiich permits the Commission to 

conduct audits and field investigations of any political committee that is required to file a 

report under 2 U.S.C. §434. Prior to conducting any audii 

Commission must perform an internal review of 

determine whether the reports filed by a particular 

requirements for substantial compliance with the Act 2^.8. 

Scope of Audit 

Following Commission-approved procedures, the Audit si 

factors and as a result, this audit examined: 

1. the receipt of excessive contributions and Ipaiiy;' 

2. the receipt of contributions Irom prohibi^ source%^!>, 

3. the disclosure of contributions received; : ' ' A •• 4. the disclosure of individual contribilftors' be 

subsection, the 

committees to 

vj--

various risk 

5. 

6. 

7. 

the disclosure of individual contribiiftpra' 

the consistency between reported ^'gbres and ^ 

the completeness of records; 

other campaign OQeiiLtllpns ngcqStL^-to the review. 

Ltion add'il^e of employer; 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration January 7,2004 . 

• Audit Coverage January Diw^ber 31,2010 

Headquarters San Ant^Hio, Texas^i'-i^V:,. 

Bank Information 4. 

• Bank Depositories Two i 

• Bank Accoimts TvroChecl^^Accounts 

Treasurer 

• Treasurer When Audit Was Conducted Randy Blair " 

• Treasurer During Period Covered by Audit rnrnhdr w 

Management Information ^ % 

• Attended Commission Campaign Finance 'i; 

Seminar 

• Who Handled Accoimting and 

Recordkeeping Tasks ; 

PafiiiStafr;/-

Caah-on-hani 

Receipts 

o Contributions 

of Mjiiancial Activity 

dite^^mounts) 

1.2009W 

ividutfs" 

' ':iPolitical 

972.233 

o Contributions from 

Committees 316.035 

o Candidate Loans 321.880 

o Other Receipts 9.794 

Total Receipts $1,619.942 

Disbursements 

o Operating Expenditures 1.481.985 

o Repayment of Candidate Loans 58.505 

Total Disbursements $1,540,490 

Cash-on-hand @ December 31,2010 $ 79,452 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Receipt of Apparent Prohibited Contributions 

During audit fieldwork, the Audit staff identified two contributions totaling $100,000 that 

appear to be prohibited contributions from a foreign national corporation. CFC Counsel 

(Counsel) stated that these transactions were loans &om the candidate; however, the 

funds appear to have originated from the account of a forei^; r]ab1^aI.f^iFbration. 

Counsel later stated these funds represent draws from pqiln^hip r" 

candidate and his sister. 

li^ accounts of the 

In response to the Interim Audit Report, Counsel disput<^;|h|i? finding and'^w^eed with 

the classification of these loans as contributions from a f^^gn^i^onal cor^tdfibn. 

However, on May 1,2013, CFC issued a check for $SS,39S t^j^rolmd the contribution 

received from the foreign national corporation. The remaining is a prohibited 

contribution that has not been resolved. (For nio;^4'it%l> P- ^0 

Finding 2. Receipt of Cent: 

During audit fieldwork, the Audit staffjflji 

were loans from the candidate. Ho 

contributions from four individ 

excess of the individual cpntribufid 

In response toithe Interim" , 

that $160,293 was refunded t&$d^ 

Howeve^'ibe documentation ^ 

tio£s ffli^lE^eeed Limits 

tra^^ons that Counsel stated 

appear to be excessive 

funds. The total amount in 

it is 5170,3 

[ provided documentation demonstrating 

r contributors in an untimely manner. 

sufficient to demonstrate that CFC had repaid the 

„._-^J,050 to the approptiSte contributors ($170,343 - $160,293= $10,050). The 

Audit sta^x^j^^ the remaii^g $10,050 to be excessive contributions from two 

individuals tl^'^jiot resolve^^' (For more detail, see p. 9.) 

• .-if 

Finding 3. M^t»t:ement of Financial Activity 

During audit fieldworki'"'^ comparison of CFC's reported financial activity with its bank 

records revealed misstatements of beginning and ending cash-on-hand, as well as, 

misstatements of receipts and disbursements for calendar years 2009 and 2010. For 

2009, CFC overstated beginning cash-on-hand by $32,344, understated receipts by 

$13,161, understated disbursements by $31,048, and overstated ending cash-on-h^ by 

$50,231. For 2010, CFC overstated beginning cash-on-hand by $50,231, overstated 

receipts by $324,404, overstated disbursements by $313,123, and overstated ending cashon-hand by $61,512. 

In response to the Interim Audit Report, Counsel stated that, in order to avoid multiple 

filings of amendments, CFC would comply with all the recommendations once the 

Commission had finalized the audit. (For more detail, see p. 12.) 
Part IV 

Findings and Recommendations 

Finding 1. Receipt of Apparent Prohibited Contributions 

Summary 

During audit fieldwork, the Audit staff identified two contributions totaling $100,000 that 

appear to be prohibited contributions iiom a foreign national corporation. CFC Counsel 

(Counsel) stated that these transactions were loans from the candidate; however, the 

frinds appear to have originated from the account of a foreig^^nati^nal ra^oration. 

Counsel later stated these frinds represent draws from pu^^jiip '^i^' accounts of the 

candidate and his sister. 

In response to the Interim Audit Report, Counsel dispu^^ti^ij^lfrnding with 

the classification of these loans as contributions from a ^^^.^ational coi^i^j^on. 

However, on May 1,2013, CFC issued a check for $5S«^S t^^&nd the contribution 

received from the foreign national corporation. The remaining'isi|^OS is,a prohibited 

contribution that has not been resolved. .. •• •'••ir,-/ Jl-:-

Legal Standard -

A. Receipt of Prohibited Contribution^. - i^heraif Pr^pljl^n. Candidates and 

committees may not accept contributipi|i^f(in the fdm of mbray, in-kind contributions, or 

• In the name of another; 

• From the trea^myrfu^ of theVfb^Jpwing sources: 

o Ci^oration^l^b.. any iriiebipprated organization, including a non-stock 

.. . Corporation, ^'igpp^rated^iimbership organization, and an 

incorporated co'o^^tive); ' 

.o Labor Organizatic^, and 

Q-v^ational Banks; 

• From-^Fpic^l Governm^ Contractors (including partnerships, individuals, and 

sole prbprll^rs who have contracts with the federd government); or 

• From ForSi^;;^ti9qr&s (including individuals who are not U.S. citizens and not 

lawfully adn^^'for permanent residence; foreign governments and foreign 

political partieis; and groups organized under the laws of a foreign country or 

groups whose principal place of business is in a foreign country, as defined in 

22 U.S.C. §611(b)). 2 U.S.C. §§441b, 441c, 441e, and 441f. 

B. Contribution. A gift, subscription, loan (except a loan made in accordance with 11 

CFR §§100.82 and 100.83), advance, or deposit of money or anything of value made by 

any person for the purpose of influencing any election for federal office is a contribution. 

The term loan includes a guarantee, endorsement, and any other form of security. A loan 

that exceeds the contribution limitations of 2 U.S.C. §441a and 11 CFR part 110 shall be 

unlawful vdiether or not it is repaid. A loan is a contribution at the time it is made and is 

a contribution to the extent that it remains unpaid. The aggregate amount loaned to a 

candidate or committee by a contributor, when added to ofrier contributions from that 
individual to that candidate or committee, shall not exceed the contribution limitations set 

forth at 11 CFR part 110 and 11 CFR § 100.S2(a) and (b). 

C. Authorized Committee Limits. An authorized committee may not receive more than 

a total of S2,400 per election from any one person or $S,000 per election finm a 

multicandidate political committee. 2 U.S.C. §441a(a)(l)(A), (2)(A) and (f); 11 CFR 

§§110.1(a)and(b)andll0.9(a). 

D. Partnership Contributions. In addition to counting against the partnnship's limits, a 

contribution fi^m a partnership must be attributed to individual partners: 

• According to each partner's share of the partnership's profits; or 

• On another basis agreed to by the partners. Vj^ y 

If the partnership attributed contributions on the basis o^ptlo'd 2 ^^^ye, it must reduce 

only the contributing partners' profits (or increase theii;i|osses) ai^%i;;j^fits must be 

reduced in proportion to the contribution attributed to t^;p«umer. Un^^^th options 

listed above, the portion attributed to each partner must'iio^^hen aggreg4t^;wi^ other 

contributions from that person, exceed his or her contribu^w^m^t. 11 CFR^|lf^'0.1(e). 

E. Questionable. Contributions. If a committee receives a conl^il^^on.lhat appears to 

be prohibited (a questionable contribution), it must i^low tiie proc^|^s below: 

• Within 10 days afier the treasurer receives the^i^stioii^le.cdntribution, the 

committee must either: 

o Return the contribution J^>]lhe'cbntrlj3utor wmptit depositing it; or 

o Deposit the contributioiri^ folloW-Ae s^s below). 

11 CFR§103.3(b) 

• If the committM deposi^ti^^stionable contribution, it may not spend the 

funds and ,m|^:]b^^^||riBd td^i^^ it. Therefore sufficient funds to make the 

refunds-iiiu^ be iiM^^j|ed or a"si|^||te account in a campaign depository must 

be ^blished for pos^|^^illegal c^tributions. 11 CFR §103.3(b)(4). 

• piiii committee must ke^^written^ record noting the basis for the appearance of 

iije^ity, and it must incl^ this information when reporting the receipt of the 

' contn^titjon. 11 CFR§l;Ol^^^ 

• Withih^b days of the tmasurer's receipt of the questionable contribution, the 

commitiee iiiust makcv'&t least one written or oral request for evidence that the 

contribution 's .l^k^ Evidence of legality includes, for example, a written 

statement froih^W contributor explaining why the contribution is legal or an oral 

explanation that is recorded by the conunittee in a memorandum. 

11 CFR § 103.3(b)(1). 

• Within the 30-day period, the committee must either: 

o Confirm the legality of the contribution; or 

o Refund the contribution to the contributor and note the refund on the 

report covering the period in which the refund was made. 

11 CFR § 103.3(b)(1). (5). 

F. Personal Funds. Personal funds of a candidate consist of assets, income, or jointly 

owned spousal assets. Assets are amounts derived from any asset that, under applicable 

state law, at the time the individual became a candidate, the candidate had legal right of 

access to or control over, and with respect to which the candidate had legal and rightful 
title or an equitable interest. Personal funds may also be income received during the 

cunent election cycle of the candidate, includii^ salary and other eamed income &om 

bona fide employment and income fixim stocks or investments, including interest, 

dividends or proceeds from the sale of such stocks or investments. 11 CFR §100.33. 

G. Expenditures by Candidates. Candidates for Federal office may make unlimited 

expenditures from personal funds as defined in the paragraph above. 11 CFR §110.10. 

H. Reporting Loans. All loans received by a committee must be itemized and 

continuously reported until repaid. All repayments made on a loan must also be itemized. 

11 CFR §§104.3(a)(4Xiv), (bX4)(iii) and 104.11. 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff identified two 

(S 14,000 + $86,000), which Counsel stated were loans 

source of these funds appears to be prohibited contril 

corporation and not the candidate's personal funds 

Prohibited Contribution-^ 14,900 ' 

On January 29,2010, $14,000 was transferr^Jnto 

vms not disclosed on CFC's reports (Sep.jFmffi|ig 3-

Loans Not Reported). Counsel stated^i^t this aniQuht 

his partnership. In support of this^^t^ent, Co 

loan was mdde to the candidate frbb^jamuebles Ci 

totalir" 

madei^pc. The 

foreign national 

^account. This transaction 

it of Financial Activity, 

to the candidate from 

ded a letter statine that the 

;A.de C.V C'Caza").^ Caza is 99 

percent owned by Q^ecpInyestm^%;Ltd. C'Canseco Investments"), while 1 percent is 

owned by Jorge Ca^ecora;ib^t^r of mej^didate. In addition, the candidate is a 

limited partner of Canseco fny^^ents.^ 1i|puhsel also provided several e-mails between 

other pa^^s and from the presj^^t of Ca^ which taken together explain that this 

amou^t^^^boirowed from Cazar,£ased on the candidate's capital account in the 

partnership^ ji^e Audit staff didihpt review bank documentation relating to the source of 

these funds'%^)i^ it came froi^^ account that was not owned by CFC. CFC did not 

make any repai^^t^. on this l^an prior to the audit. 

Prohibited Com £00 

On April 13,2010, a check for $86,000 was deposited into a CFC bank account. This 

transaction was disclosed as a loan from the candidate on CFC's reports. A copy of the 

deposit documentation shows that this was a cashier's check remitt^ by Caza. Counsel 

provided two signed promissory notes showing that $38,000 was a loan to the candidate 

from his sister, and $28,000 as a loan to the candidate from Canseco Investments. The 

e-mails described in the preceding paragraph also explain that these amounts represent 

the balance of each partner's capital account in Caza. 

' Caza is a foreign national corporation registered in Mexico. 

' According to its filings with The Texas Secretary of State, Canseco Investments, Ltd. is a domestic 

limited partnership with FMC Developers, Inc., a coiporation, as its general partner. 
CFC reported repayments totaling $44,605 to the candidate on its disclosure reports. 

However, Counsel did not provide documentation demonstrating that these payments 

were paid to either the candidate or Gaza. Additionally, the Audit staff could not trace 

payments, as reported, to CFC's bank account. 

The Audit staff concludes that the amounts of $14,000 and $86,000 represent apparent 

prohibited contributions from a foreign national corporation. Counsel maintains that 

these amounts represent personal investments in the partnership/ however. Counsel did 

not provide documentation to support that these were distributions to partners from 

Canseco Investments. Furthermore, the business registration of Canseco Investments 

does not indicate whether any of these individuals are partners; the only listed partner is a 

corporation. 3 

B. Interim Audit Report & Audit Division Recomniendation 

At the exit conference, the Audit staff presented these E^|p^reii^:prohii^^!;^ntributions 

to CFC. Counsel said that CFC would take another look'a^^S matter. 

The Interim Audit Report recommended that CFC demdiistrateiSiat the sources of funds 

for the amounts deposited were made with the candidate's persi 

permissible funds. Absent such a demonstratiormif . 

the $14,000 apparent prohibited contribution arid tfe;^L;395' 

apparent prohibited contribution. Additionally, the A'udij^it^Q^^ecommended that CFC 

amend its reports to correctly disclose ^e.souice pfthese ':^!^. 

C. Committee Response to the 

In response to the Interim Audit 

these loans as prohi|^ited;i%^trib{ 

that the loans jepiwerif 

Investments; arid, therefore, i 

Js.or other 

CFC refund 

ling of the $86,000 

Audit] ^ 

^Counsel with the classification of 

m a foreign national corporation. Counsel said 

|ii|tbr's equitable interest in Canseco. 

[It their ip^bnal funds. Furthermore, Counsel said 

that Carisppb Investments acts il^j^^olding'company for its only investment, Caza, and 

Canseco .^vestments relies on Ci^ to provide for its banking needs. All transactions for 

Canseco Iriig^tments are proces^^ by Caza and through Caza's accounts. Specifically, 

Counsel said ^t (l) "all of the:ekpenses and payments on behalf of Canseco Investments 

are made direcfix!by...Caza in ordinary course of business; (2) Caza pays dividends 

directly to the own^^^Cariseco Investments, which are treated for tax purposes as 

dividends from Cans^ iliivestments and not Caza; and (3) tax payments and expenses 

incurred by Canseco Investments are paid for by Caza." Counsel said the loans made to 

the candidate and his sister were paid by Caza, akin to other expenses paid on behalf of 

Canseco Investments. Moreover, the loans represent the candi^te's and his sister's 

* If the liinds received fh>m Caza are deemed petmissible and not prohibited contributions fiom a foreign 

national corporation, the amount of ftinds from the candidate's sister'and/or the partnership tiuy be 

considered an excessive contribution. 

^ Information provided by Counsel in response to the Interim Audit Report showed that a S30,000 

repayment and two repayments totaling $14,600 were erroneously applied to the $86,000 foe CTC reported 

as a candidate loan. The $30,000, was in fact a repayment of excessive contributions fiom individuals 

noted in Finding 2. Repayments totaling $ 14,600 have not been applied to the prohibited contribution 

amounts in either finding because Counsel has not provided documentation to verify receipt by the 

appropriate pt^. 
proportional interests in the assets of Canseco Investments, less an estimated tax 

liability.®-' 

Counsel stated that, "while these loans may not meet the technical requirements set forth 

in 11 CFR § 100.83, they are fundamentally different than a contribution for two key 

reasons." First, Counsel considered the loans derived from an asset for which the 

candidate had a legal ownership share and an equitable interest. He compared the loans 

to borrowing against a retirement plan or a life insurance policy. Second, Counsel stated 

that the interest rates charged by Caza on these loans to the candidate and his sister were 

above commercially available lending rates; hence, the candidate was not given an unfair 

lending advantage or a "sweetheart deal." 

While CFC's explanation expanded on previous statem^is fnlde '^Mhg fieldwork, the 

information does not establish that the funds at issue cq^titute th^^^^te's personal 

ftmds (11 CFR § 100.33(b)). Funds originating from C^ a fojieign corporation, 

do not lose their character merely because the company'^^-lilset held by^|^§^|imited 

partnership, i.e., Canseco Investments. The Audit staff cpii|i^<^ that Caza-^ 

source of ftmds for the candidate's $100,000 loan to i 

Subsequently, on May 1,2013, Counsel submittfd j^mnentation'dil^bnstratingthat 

CFC made untimely repayments of the loan tq Caza'^^ng $55,395^ CFC has not filed 

amended reports to correctly disclose the loaii indicatiii§^je.sqm^ of the loan as Caza. 

Counsel stated that, in order to avoid nj^l^ple filings of rd^^i CFC would comply with 

all the recommendations, once the audit'ii^ been ^alized! &elow are details explaining 

the resolution of these repayment^....-. ; ' 

itribiitioii;$14.dbO' 

On May 1,20|L^:;''CFC' t^l^,'!ei;^eck to i^paying what Counsel had said was a 

S14,000 lo wJ' Tlie Audit st^$on§iders thi^^ount a repayment of a prohibited 

contribution that was resolved in'^ untimely manner. 

Prohibityi^-j^ntributions-$86,p00 

On May 1,20;f^CFC issued a^^eck to Caza repaying $41,395 of what was disclosed by 

CFC as an $86,^filqan. Thqj^udit staff considers this amount a prohibited contribution 

that was resolved in j^vun^ely manner. 

On June S, 2013, Cotmsel stated that a portion ($30,000) of the $44,605 reported as a 

repayment to the candidate was attributable to another candidate loan (See Finding 2). 

The Audit staff requested documentation to substantiate that the remaining $44,605 was 

repaid to the candidate or Caza. Counsel has not provided this documentation. As such, 

the Audit staff considers the remaining $44,605 to be a prohibited contribution that has 

not been resolved. 

' Counsel provided a redacted K-1 for the candidate showing his partnership interest in Canseco 

Investments. Counsel also stated that the funds were loaned to the candidate and not distributed due to 

various, tax concerns. 

^ Counsel asserted that the bonrowers' percentage of ownership interest is at risk for non-payment of loans 

that are secured by their ownership interest in Canseco Investments. 
Finding 2. Receipt of Contributions that Exceed Limits 

Summary 

During audit fieldwork, the Audit staff identified three transactions that Counsel stated 

were loans fiom the candidate. However, these transactions iqipear to be excessive 

contributions from four individuals who loaned the candidate fUnds. The total amount in 

excess of the individual contribution limit is $170,343. 

In response to the Interim Audit Report, Counsel provided documentation demonstrating 

that $160,293 was refunded to the appropriate contributors in an untimely manner. 

However, the documentation was not sufficient to demonstrate that CFC had repaid the 

remaining $ 10,050 to the appropriate contributors ($ 170,3.4|i:.^^ $ 10,050). The 

Audit staff considers the remaining $10,050 to be exce^ive c6ntrt^]^]^ns fixim two 

individuals that are not resolved. ^ 

Legal Standard 

A. Contribution Limits. During the 2009-2010 cycle, jno l^j^dual or group pother than 

a multicandidate committee) was permitted to contribute more'iS^a total of $2,400 per 

election to a federal candidate' >'s campaign • (the — campaign mcludesl|ipifiaif^date • > . and his 

or her agents and authorized committees) ;ommittees). 2 U.S:C:^p4Ja (a)(l)(A|y-' 

B. Contribution. A gift, subscription, loan (except a loan m^e in accordance with 11 

CFR §§ 100.72 and 100.73), advance, ordeposit of money.br anything of value made by 

any person for the purpose of influencing any election,federal office is a contribution. 

The term loan includes a guarante^lj^pdorsement, and ahy other form of security. A loan 

that exceeds the con^^tu^gn limitauoi^pf 2 U.S.C. §^la and 11 CFR ^ 110 shall be 

unlawful wheth»,0n'^jt;4^^p.aid. is a rantribution at the time it is made and is 

a contributiopit^Me extenf-^i^^^maiiisM^afci^ The aggregate amount loaned to a 

candidate pfi^mmittee by a cSj^^utor, v^l^n added to other contributions from that 

individu^p that candidate or cbr^ittee, shall not exceed the contribution limitations set 

foi%aH3j;El?R parts 110.11 C]^Sl00.52(a) and (b). 

-.f 

C. Handling Gpijitt^lbutions Tbbt Appear Excessive. If a corrunittee receives a 

contribution that ia^ps^s to bb excessive, the committee must either: 

• Return the qiui^pilible contribution to the donor; or 

• Deposit the cop^ution into a campaign depository and keep enough money on 

account to cover all potential refund until the legality of the contribution is 

established. 11 CFR § 103.3(b)(3) and (4). 

D. Personal Funds. Personal funds include salary and other earned income fiom bona 

fide employment and income from stocks or investments, including interest, dividends or 

proceeds fiom the sale of such stocks or investments. 11 CFR § 100.33(b). 

E. Reporting Loans. All loans received by a committee must be itemized and 

continuously reported until repaid. All repayments made on a loan must also be itemized. 

11 CFR §§104.3(a)(4)(iv), (b)(4)(iii) and 104.11. 
10 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff identified three transactions that Counsel stated 

were loans from the candidate; however, they appear, to be excessive contributions fix)m 

four individuals. The total amount that exceeds the individual contribution limit is 

$170,343. 

Excessive Contribution-$lS0.000 

On April 27,2010, a deposit of $150,000 was made to the CFG bank account. The 

deposit documentation shows that this was a check from an individual written to the 

candidate, but deposited directly into CFC's bank account. . , 

The $150,000 transaction was disclosed as a loan from ]he candidiat^^ja. CFC's reports. 

The Audit staff requested documentation showing that this loan,^^ tf^^i>with dm 

candidate's person^ funds. Counsel responded that the'^ds were deriv^;&pn^^e sale 

of the candidate's stock. Later, Counsel stated that this y^|^^sonal loaffi|fii||^''to the 

candidate from an individual and provided a copy of a sign^^ipissory note. 

The Audit staff concludes that, in accordance wift^:jRS.C. §43 

considered to have received the personal loaix^as the 

further explanation and documentation, this t^nsactidn^t^^ts iii 

contribution of $147,600* from the indiyiduiio .r' 

e candidate is 

Therefore, absent 

excessive 

CFC disclosed a repayment of $l(^0i)0 to the candji^teph April 28,2010 in connection 

with the reported $150,000 loan. -Hp^^yer, CFC h^'h^t provided sufficient 

documentation to substs^tiat;; that Ad^^s were repaid to the original contributor. 

Although CFC.pisbfo^bti'ihiB^^ymenf'f^^ on a report to the Commission, the 

only docun^nit^provided Auo^sjl^ was a'b^ statement showing a $10,000 check. No 

documentt^on was provided tbildj^tify tiie 'payee. 

ExcMsiviejCffntributiol 

On Deceml^^fO/^and 18,2009,{1^,000 and $8,000, respectively, wen transferred into 

CFC's bank BcCoiititirom the^ndidate's personal bank account. The $22,000 was 

incorrectly disclos(^.|^p.jCFC'^s reports as a loan; the $8,000 loan was not reported. Cfhe 

misreporting of theslb-ib^' are included in Finding 3, Misstatement of Financial Activity, 

under Loans Not Repod^ of $15,330.) Counsel stat^ that these amounts 

represented loans fixith the candidate. However, additional documentation provided by 

CFC showed that the funds used to make these transfers did not come fiom the 

candidate's personal flmds. The funds were personal loans from different individuals 

made to the candidate and deposited into the candidate's personal account. Since these 

funds were used for campaign activity, the personal loans resulted in contributions to 

CFC. The Audit staff performed a cash balance analysis on the candidate's personal 

account and determined that the funds transferred to CFC ($22,000 and $8,000) could 

only have come from three individuals. Absent further documentation and explanation, 

' This amount was derived by subtracting S2,400, the contribution limit for an individual, from the 

the contribution amount, SI50,000. 
Vi'C . . •. .. 

11 

CFC's receipt of these funds results in contributions by three individuals that exceed 

contribution limits by $22,743.' 

B. Interim Audit Report & Audit Division Recommendation 

During an interim fieldwork meeting, the Audit staff requested further information to 

support that the contributions described above were permissible. At the exit conference, 

Counsel stated that the candidate had already repaid some of the contributions that 

comprised the $22,000 and $8,000 contributions, "nie Audit staff commented that CFG 

may need to make further reflmds. CFG has not reported repayments to these individuals 

and the Audit staff has not received documentation to support the repayments. 

The Interim Audit Report recommended that CFG demons^e^that the ^ntributions 

were not excessive or that they originated from the cand^di^s^'^e^i^ funds. Absent 

such a demonstration, the Audit staff recoirunended th§(t GFC refu^^^e excessive 

contributions, $147,600 and $22,743, to the original co^Mbutqi^ or ] 

documentation showii^ that reftmds had already been i— 

were negotiated. Furthermore, the Audit staff recommei^edij^t CFG ameMiti'reports 

to correctly disclose the source of funds for these loans. 

C. Committee Response to thelnterim Audit:Riep^i;! 

In response to the Interim Audit Report, Counsei siibmi^ documentation demonstrating 

that GFC made repayments totaling $160,293ras oudin^:belpw. CFG did not file 

amended reports. Counsel stated that, in.fi!rd^ 'to avoid miiltiplb filings of reports, CFG 

would comply with all the recommen^tibns once:l£he Goinmission had finalized Ae 

In a subsequent mqetinj^, 

issuance of thqjlhw&i'Ail 

repayment of%e two excessl' 

submitted^y the intermediaiy 

docuineiiii^jipn and that CFG s 

Counsel moU^t this might be 

MegsiyfiCoiito discuss report changes made since the 

d6i^|p|;i^pressed concern regarding the 

itributio|y^for $ 10,050. Counsel felt that an affidavit 

supporang the repayment should be sufficient 

not have to make a second repayment. In addition, 

iue GFC would want to raise with the Commission. 

On May 1,2013, CFd{iss]ueda check" to the contributor for $147,600 to repay the 

excessive contriWon^bunt. The Audit staff considers the $147,600 an excessive 

contribution that wa^ refunded untimely. 

Excessive Contributions-$30.000 

Counsel submitted documentation showing that GFC issued a cashier's check for $28,000 

on September 22,2010, to one of the individuals who made an excessive contribution. 

According to an email from Counsel, GFC made a payment to one contributor vriio then 

' The excessive amount reflects contributions of S1S,093, S7,IS7, and $7,693, minus a $2,400 

contribution limit for three individuals ($7,200). 

The Audit staff was provided a copy of the canceled check and the corresponding bank statement that 

supported the contributor's rqiayment. 
12 

paid other individuals who had loaned die candidate funds or whom CFC owed interest 

on their loans. Counsel did not provide sufficient documentation to demonstrate 

repayment to the other two contributors who made excessive contributions. The Audit 

st^ considers $12,693 to one of the three contributors as an excessive contribution that 

was refunded in an untimely maimer and the remaining SI 0,0S0 finm two contributors to 

be excessive contributions that CFC has not refunded. 

Finding 3. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of CFC's reported fin^cial ^tivity with its bank 

records revealed misstatements of beginning and ending well as, 

misstatements of receipts and disbursements for calendtf years 2C^9;;^ 2010. For 

2009, CFC overstated beginning cash-on-hand by $32,3^^^, undw^t^^j^ipts by 

$13,161, understated disbursements by $31,048, and ov^i^j^'ending d^^n-|^d by 

$50,231. For 2010, CFC overstated beginning cash-on-h^d^y $50,231, ov^t^ 

receipts by $324,404, overstated disbursements by $313^23}^|loverstated ending cashon-hand by $61,512. 

In response to the Interim Audit Report, Coun^l sti^j%at, in ord^i^ avoid multiple 

filings of amendments, CFC would comply i^th all tiie i^ ions once the 

Commission had finalized the audit. 

Legal Standard 

Contents of Reports. Each rep9.rt':^St disclose: 

• The amoug|:9fj^i^7^rhW and end of the reporting period; 

• The totalwimfmf f^^m^risporting period and for the election cycle; 

• ThepM amount of afi^^^ursemcn^'fbr the reporting period and for the election 

• ^^e^n transactions that iMuire itenuzation on Schedule A (Itemized Receipts) or 

S'^edule B (Itemized Di^sements). 2 U.S.C. §434(b)(l), (2), (3), (4) and (5). , 

:i:-

Facts and 

. i'-

A. Facts 

During audit fieldwork, the Audit staff reconciled CFC's reported financial activity witii 

its bank records for cidendar years 2009 and 2010. The follounng chart outlines tiie 

discrepancies for the beginning cash balance, receipts, disbursements, and ending cash 

balance for 2009. Succeeding paragraphs address the reasons for the misstatements. 

" CFC should provide documentation for the remaining $10,030 to support that the two other contributors 

received refunds. 
13 

2009 Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

©January 1,2009 

S 32,344 $ 0 $ 32,344 

Overstated 

Receipts $160,551 $173,712 $ 13,161 

Understated 

Disbursements $101,630 $132,678 $ 31,048 

Understated 

Ending Cash Balance 

@ December 31,2009 

$ 91,265 $ 41,034 $ 50,231 

Overstated 

The beginning cash balance on January 1,2009, was b^|32;344. The'Audit 

staffs analysis could not explain this overstatement but^t likely r^lj^ from prior 

period discrepancies. i 

The understatement of receipts resulted from the followihlsji '' •; 

• Receipts not reported ' $1,000 

• Loans received by CFC not reported or incorrecHy repd^^ (Net) 

• Reported contributions from individuals not,supported by 

deposits 

• Unexplained difference f' 

. Net Understatement of Receipts ' " ^ 

The understatement of disbursemerits 

• Disbursements not report^:'\} 

15,330 

(2,025) 

(1,144) 

ma 

• Reported disbi^ements not Si^ported by a check 

or debit . 

•• • • • '.fi* • y ' • •• Net Undierstatem 

$41,912 

flQ.8641 

disbursements mm • i". 

CFC ovjBi^ted the ending cash'^j^^ce oh December 31,2009, by $50,231 as a result of 

the mis^^hpnts described abo^'"^ 

•i-'-i/irV-, 

2010 Activity"'^^. 

^ : 

r 

Reported Bank Records Discrepancy 

Beginning Cash Balatif^." 

©January 1,2009 

$ 91,265 

1 

$41,034 $ 50,231 

Overstated 

Receipts $1,770,634 $1,446,230 $ 324,404 

Overstated 

Disbursements $1,720,935 $1,407,812 $ 313,123 

Overstated 

Ending Cash Balance 

@ December 31,2009 

$ 140,964 $ 79,452 $ 61,512 

Overstated 
'.H-l- . ... 

14 

The overstatement of receipts resulted from the following: 

• Receipts not reported 

• Return deposit items reported as loans 

• Loans received by CFC not reported 

• Duplicate reporting of contributions 

• Unexplained difference 

Net Overstatement of Receipts 

The overstatement of disbursements resulted from the following: 

• Disbursements not reported 

• Return deposit items reported as loan repayments 

• Reported disbursements not supported by a check^pti^^if V,, 

• Unexplained different 

Net Overstatement of Disbursements 

$ 1,676 

(305,000) 

14,000 

(22,121) 

(12.959) 

$ 36,250 

(305,000) 

(44,369) 

( 4} 

• i>-. 

.-r:. 

As a result of the above discrepancies, CFC overstated the imding cash balah^ oii 

December 31,2010, by $61,512. -r 

B. Interim Audit Report & Audit Division Recqj^inendation'^^'/ ~ 

At the exit conference, the Audit staff provide^:C3ul^J; With a list bfrdiscrepancies and 

report adjustments. Counsel acicnowledged tte adju^h^te. T^e Audit staff informed 

Counsel that it would recommend these ^juSfoentidn thb^|it^m Audit Report. 

The Interim Audit Report recomm^dira that CFGJsfto^^mend its FEC filings to 

correct misstatements and amend-ija^st recently^^^^^ort to correct its cash-on-hand 

balance. The Audit s;^.also recbi^ended that CFC reconcile the cash balance of its 

most recent report ^lidc^^:^-any subsH^iij^t discrepancies that might affect its 

adjustments...-

C. Committee Response to thej^erim Audit Report 

In respofi%:to.the Interim Audit |^^rt, CFC did not file amended reports. Counsel 

stated thati in'order to avoid mi^ple filings of reports, CFC would comply with all the 

recommendatioi^-^^ce the Co^thission had finalized the audit. 

" Some of the adjustments changed based on subsequent information received fiom CFC and the Audit 

staffs determination of the proper handling of these misstatements. CFC was subsequently notified of 

these adjustments and informed that the changes would be incorporated in the Draft Final Audit Report.