FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 

February 7, 2013 

MEMORANDUM 

TO: Thomas Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson 

Deputy General Counsel - Law 

Lorenzo Holloway 

Assistant General CounssF^ 

Compliance Advice 

Danita C. Alberico 

Attorney 

SUBJECT: Draft Final Audit Report - Canseco for Congress 

(LRA 878) 

I. INTRODUCTION 

The Office of the General Counsel reviewed the proposed Draft Final Audit Report 

("DFAR") on Canseco for Congress ("Committee") as well as the response to the Interim Audit 

Report ("lAR") submitted by the Committee. We concur with any findings not discussed herein. 

In this memorandum, we address the receipt of apparent prohibited contributions issue 

(Finding 1) and concur with the Audit Division. If you have any questions, please contact 

Danita C. Alberico, the attorney assigned to this audit. 

II. THE SOURCE OF FUNDS FOR LOANS TO THE COMMITTEE WAS NOT THE 

CANDIDATE'S PERSONAL FUNDS 

A. Legal and Factual Background 

The DFAR examines two transactions totaling SI00,000. The immediate apparent source 

of the funds is Inmuebles Caza, S.A., de C.V., ("Caza"), a foreign national corporation registered 

in Mexico. The funds were deposited in the Committee's bank account in two installments. One 
Memorandum to Thomas Hintermister 

Draft Final Audit Report - Canseco for Congress 

(LRA 878) 

Page 2 

deposit totaling SI4,000 was made by an electronic funds transfer from a Caza account to the 

Committee's account on January 29,2010. The Candidate made the second deposit to the 

Committee's account, totaling $86,000, using a cashier's check remitted by Caza and payable to 

the Candidate. The DFAR concludes that the transactions are contributions from a foreign 

national and therefore prohibited by 2 U.S.C. § 441e. 

The Committee contends that the $100,000 deposited in the Committee's account 

consisted of loans made by the Candidate to the Committee from his personal funds. The 

Committee states that $42,000 of that sum represents the Candidate's "equitable share of assets 

held by Canseco Investments, Ltd. ("Canseco, Ltd."), less tax liability, which was advanced to 

him by the company [Canseco, Ltd., presumably]." Letter from Chris K. Gober, Counsel, 

Canseco for Congress, to T[o]m Hintermister dated September 12,2012 ("Committee 

Response"). The Committee also indicates that the remaining $58,000 represents the proceeds of 

a personal loan that the Candidate received from his sister. The Committee asserts that the funds 

lent to him by his sister represented her share of assets held by Canseco, Ltd. and that she 

received the loan against her equitable interest in Canseco, Ltd. under the same conditions as the 

Candidate. Id. at 3-4. The Committee represents that the Candidate and his sister own Canseco, 

Ltd. along with their other siblings. Id. at 2. Canseco, Ltd. is registered in Texas as a domestic 

limited partnership. The Committee explains that Canseco, Ltd. owns Caza but that because 

Canseco Ltd. "does not maintain funds in its own bank account... all of the expenses and 

payments on behalf of Canseco [Ltd.] are made directly by Caza in the ordinary course of 

business." Id. 

The Committee states that the partners in Canseco, Ltd. intended "to provide the 

Candidate with access to his equitable share of Canseco [Ltd.'s] assets less the company's 

projected tax liability upon distribution." Committee Response at 2. The Committee asserts, 

however, that "due to various tax concerns, the company ultimately made two separate loans to 

the Candidate with funds maintained in Caza's bank account." Id. at 3. The Committee 

contends that "the funds 'derive from' an asset over which the Candidate had a legal ownership 

share and equitable interest in [and therefore] they should be treated as personal funds." Id. The 

Committee stated that the loans the Candidate received were secured by his ownership interest in 

Canseco, Ltd. and that Canseco, Ltd. earned "10-14 [percent] on funds that they otherwise could 

not distribute." Id. The Committee submitted an Internal Revenue Service Schedule K-1 

(Partner's Share of Income, Deductions, Credits, etc.) which identified the Candidate as a partner 

of Canseco, Ltd., listed his ownership percentage and reflected his ending capital balance in 

Canseco, Ltd. totaling $56,772. Id. at Attachment A. The K-I line item ordinarily reflecting a 

distribution was redacted, and thus we are unable to determine whether Canseco, Ltd. made any 

distributions to the Candidate. Id. 

The K-1 did not include any information on Caza. The Committee submitted an affidavit 

from the President of Caza, Jorge Canseco (the Candidate's brother). The affidavit states that the 

Candidate owns 12.125% of Canseco Ltd. and that Canseco Ltd. owns 99% of Caza. Affidavit of 

Jorge Canseco dated September 25,2012 ("Affidavit"). The Affidavit also states that "loan 

proceeds were paid [to the Candidate] from Caza's bank account because Canseco [Ltd.] did not 

maintain the funds in its own bank account." Affidavit at 1. Jorge Canseco attests that the 
Memorandum to Thomas Hintermister 

Draft Final Audit Report - Canseco for Congress 

(LRA 878) 

Page 3 

Candidate was obligated to repay the loan and if he did not do so he would "forfeit his ownership 

interest in Canseco [Ltd.]." Id. at 2. The Affidavit said that Caza made a similar loan payout to 

the Candidate's sister on behalf of Canseco, Ltd. Id. 

The issue presented here is whether the actual source of the loan irom the Candidate and 

his sister to the Committee is the Candidate's personal funds when the funds were paid directly 

by a foreign national corporation, Caza, an asset of a U.S. limited partnership (Canseco, Ltd.) of 

which the Candidate and his sister are partners. We conclude that the SI00,000 in funds was not 

a loan from the Candidate to the Committee using his personal funds. Rather, the funds are 

either foreign national contributions or partnership contributions. 

A candidate for Federal office may make unlimited expenditures from personal funds. 

11 C.F.R. § 110.10. Personal funds of a candidate consist of assets, income, or jointly owned 

spousal assets. 11 C.F.R. § 100.33. Assets are "[a]mounts 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 (1) [l]egal and rightful 

title; or (2) [a]n equitable interest." 11 C.F.R. § 100.33(a). Personal funds may also consist of 

income received by the Candidate during the current election cycle and includes, among other 

things, income from the candidate's stocks or other investments including interest, dividends, or 

proceeds from the sale or liquidation of such stocks or investments. 11 C.F.R. § 100.33(b)(2). 

It is unlawful, however, for a foreign national, directly or indirectly, to make a 

contribution or donation of money or other value, or to make an express or implied promise to 

make a contribution or donation, in connection with a Federal, State or local election. 2 U.S.C. 

§ 441e(a)(l)(A); 11 C.F.R. § 110.20(b). It is also unlawful for a person to solicit, accept, or 

receive a contribution or donation from a foreign national. 2 U.S.C. § 441e(b). The term 

"person" includes a corporation or a committee. 2 U.S.C. § 431(11). The term "foreign 

national" includes a "foreign principal" as defined by 22 U.S.C. § 611(b). See 2 U.S.C. 

§ 441e(b)(l). Section 611(b) defines a "foreign principal" to include a partnership, association, 

corporation, organization, or other combination of persons organized under the laws of or having 

its principal place of business in a foreign country. Id. 

A partnership may contribute to a political committee, but a contribution by a partnership 

shall not exceed the limitations on contributions. 11 C.F.R. § 110.1(e). A contribution by a 

partnership shall be attributed to the partnership and to each partner in direct proportion to his or 

her share of the partnership profits, according to instructions which shall be provided by the 

partnership to the political committee or candidate or by agreement of the partners. 11 C.F.R. 

§ 110.1(e). Only the profits of the partners to whom the contribution is attributed are reduced (or 

losses increased), and these partners' profits are reduced (or losses increased) in proportion to die 

contribution attributed to each of them. No portion of such a contribution may be made from the 

profits of a corporation that is a partner. 11 C.F.R. § 110.1 (e). 
Memorandum to Thomas Hintermister 

Draft Final Audit Report - Canseco for Congress 

(LRA 878) 

Page 4 

B. The Candidate's Personal Funds Were Not the Source of the S100,000 

Contribution to the Committee 

The lAR sought information from the Committee showing that all or a portion of the 

$ 100,000 deposited in the Committee's account was composed of the Candidate's personal funds 

consistent with 11 C.F.R. § 100.33. Specifically^ the lAR sought evidence such as acrounting 

and/or bank records demonstrating that the true source of the funds was the Candidate's capital 

account in Canseco, Ltd. and that under applicable law and the partnership agreement the 

Candidate's capital account met the definition of an "asset" in 11 C.F.R. § 100.33(a). 

Alternatively, the lAR sought evidence demonstrating that the funds paid to the Candidate 

represented interest, dividends, a profit-sharing distribution, or proceeds from the sale or 

liquidation of the Candidate's assets or other information demonstrating that the funds at issue 

were the Candidate's personal funds. 

The Committee's response describes the flow of funds enabling the Candidate to make 

the $100,000 loan to the Committee. The Committee's response also shows that Canseco, Ltd. 

owns Caza. The Committee's information, however, does not establish that the funds at issue 

constituted the Candidate's personal funds. The Committee provided a copy of the Candidate's 

K-1 but did not submit any evidence showing that the payments to the Candidate were drawn 

from funds in his capital account at Canseco, Ltd., or that the payments represented interest, 

dividends, a profit-sharing distribution, or proceeds from the sale or liquidation of the 

Candidate's assets. 11 C.F.R. § 100.33(b)(2). 

Rather, the Committee's response and Jorge Canseco's affidavit emphasized that the 

funds provided to the Candidate were loans. Indeed, the. Committee attached promissory notes to 

its response, reflecting the nature of these funds as loans to the Candidate. Attachment B-E to 

Committee Response. A loan made by any person, including a partnership or corporation, for 

the purpose of influencing any election for Federal office is a contribution. 11 C.F.R. 

§ l00.S2(a). A loan is a contribution at the time it is made and is a contribution to the extent that 

it remains unpaid. 11 C.F.R. § 100.S2(b)(2). Since the $100,000 in funds that the Candidate 

received was a loan fhim either Canseco, Ltd. or Caza, it constitutes a contribution from one of 

those two entities. Consequently, the funds cannot be considered the Candidate's personal funds 

within the meaning of 11 C.F.R. § 100.33.' 

' With respect to the funds the Candidate received from his sister, if it could be established that SS8,000 

loaned to the Candidate ftom his sister constituted her personal funds, rather than the funds of one of the two 

entities, our analysis might lead us to conclude that the Committee received an excessive contribution from the 

Candidate's sister. Although the sister's loan was structured as a personal debt owed by the Candidate to his sister, 

the funds were deposited directly to the Comminee's account after being endorsed by the Candidate. Any candidate 

who receives a loan for use in connection with his or her campaign is deemed, by operation of law, to do so as an 

agent of the authorized committee. 2 U.S.C. § 432(e)(2). Accordingly, even if the Commission accepted that the 

transaction was a loan from the Candidate's sister, the Candidate would have received the loan as the Committee's 

agent. The loaned funds were directly deposited in the Committee's account and used in connection with the 

Candidate's election campaign. The iimds, therefore, could not be considered the Candidate's personal funds but 

rather would be an excessive contribution from his sister. -
Memorandum to Thomas Hintermister 

Draft Final Audit Report - Canseco for Congress 

(LRA 878) 

Page 5 

C. Caza, A Foreign National Corporation, Is the Prohibited Source of the 

Candidate's S100,000 Contribution to the Committee 

We conclude that Caza is the source of the Candidate's $100,000 loan to the Committee 

because the funds were, in fact, paid directly from Caza's bank account and Caza is listed as the 

lender (or co-lender) on the underlying promissory noles.^ The Committee claims that the funds 

paid out of Caza's account are actually Canseco, Ltd. funds because: (1) Canseco, Ltd. owns 

99% of Caza; and (2) Caza transacts financial business for Canseco, Ltd. because the partnership 

does not "maintain funds" in its bank account. The percentage of ownership by an American 

parent company of a foreign subsidiary and where the companies maiiitain their funds are not 

factors in determining foreign national status. See 2 U.S.C. § 441e(b)(l) and 22 U.S.C. §6il(b). 

Caza is organized under the laws of Mexico, and it provided $100,000 to the Candidate and his 

sister in connection with the Candidate's U.S. Congressional election campaign. Since Section 

44 le prohibits contributions by a foreign national through any other person, and since Caza is 

both a person, 2 U.S.C. § 431(11), and a foreign national by application of 22 U.S.C. 

§ 611(b)(3), it follows that funds loaned by Caza to the Candidate and his sister, directly or 

indirectly, constituted an impermissible contribution in connection with a Federal election. We 

conclude that the $100,000 in funds originating from Caza and deposited in the Committee's 

account did not lose their character as foreign national contributions merely because Caza is an 

asset held by a U.S. limited partnership. Therefore, we concur with the Audit Division that 

Caza, as a foreign national company, made a $100,000 contribution to the Committee in 

violation of 2 U.S.C. § 441e. 

The Committee's response, however, contends that the source of the $100,000 was loans 

made to the Candidate and his sister from their partnership - Canseco, Ltd - and not Caza. Even 

if we accept as true that the funds constituted loans from Canseco, Ltd., we would conclude that 

the partnership made a prohibited excessive contribution to the Committee, as discussed in 

Section D, below. 

D. If Canseco, Ltd. Funded the Loans then the Partnership Made an Apparent 

Excessive Contribution to the Committee 

As discussed in Section B, above, a contribution is defined to include a loan and a loan is 

a contribution at the time it is made. See 2 U.S.C. § 431(8)(A)(1) and 11 C.F.R. § 100.52(b)(2). 

The Commission has consistently treated a contribution by a business owner that is funded by a 

loan from the business as a contribution by the business. In MUR 3191 (Christmas Farm, Inc., et 

a/.), the Commission determined that there was probable cause to believe that a candidate's 

contribution to his campaign of $209,000 that he withdrew from a corporation, of which he was a 

50% shareholder, constituted contributions by the corporation because the draws were against his 

^ Canseco Ltd. and Caza are listed as co-lenders on a S30,000 promissory note issued to the Candidate dated 

January 28,2010. Att. B to Committee Response. Caza is listed as the sole lender on a S28,000 note to the 

Candidate dated April 12,2010. and on a SS8,000 note to the Candidate's sister also dated April 12,2010. An. C-D 

to Comminee Response. The sister, in turn, is listed as the lender on a SS8,000 note from the sister to the Candidate 

dated April 12,2010. An. E to Comminee Response. 
Memorandum to Thomas Hintermister 

Draft Final Audit Report - Canseco for Congress 

(LRA 878) 

Page 6 

personal equity in the corporation (indicating that his equity served as collateral for a loan) rather 

than a reduction of his equity interest (which would have constituted a withdrawal of his own 

funds). The withdrawal thereby had the effect of a loan from a repayable drawing account and, 

indeed, the corporation recorded the transaction as a loan. See Factual and Legal Analysis, MUR 

3191 (Christmas Farm, Inc., et al.)-, see also MUR 3119 (Edmar Corp.) (finding probable cause 

to believe that corporation contributed to a candidate, a shareholder of the corporation, by 

loaning the shareholder/candidate S266,000 that the candidate then contributed to his 

campaign).^ 

The Committee characterizes the funds provided to the Candidate and his sister as loans 

from Canseco, Ltd. to be repaid with interest. The Committee admits that the sums were not 

distributions and that the Candidate's and his sister's ownership interest in Canseco, Ltd. were 

merely held as security against the loans in the event of default. In fact, Jorge Canseco said that 

"the amount of the loan was determined by the company's accountants (Canseco, Ltd., 

presumably) to ensure that the value of the loan did not exceed the cash value of [the 

Candidate's] ownership interest in [Canseco, Ltd.], less the amount of taxes the company would 

owe were it to make a distribution of the funds maintained in Caza 's bank account." Affidavit at 

2. (Emphasis added). Thus, even if we accept as true that the source of the loans was Canseco, 

Ltd., rather than Caza, based on the Commission precedent discussed above, we would 

nevertheless conclude that Canseco, Ltd. made an excessive contribution to the Committee in 

violation of 11 C.F.R. §§ 110.1(b)(1) and 110.1(e).' 

' The Commission has also consistently applied these principles in its advisory opinions. 1'he Commission 

has evaluated in each case whether a proposed transaction constituted a loan from a business to the contributor to 

make a contribution, in which case the request was denied, or whether the proposed transaction constituted the 

routine and irreversible payment of income to the contributor, in which case the request was approved. See. e.g.. 

Advisory Op. 200S-20 (Pillsbury, Winthrop, Shaw, Pittman, LLP) at 3 & n.3 (systematic monthly distributions of 

actual or anticipated partner profits to partners based on their assigned share of the profits become the personal 

assets of the partners and, if used for contributions, would not constitute contributions by the partnership); Advisory 

Op. 1997-09 (Chicago Board of Trade) (no prohibited corporate contributions or contributions in the name of 

another if traders used their personal trading account to make contributions so long as the trader's firm did not 

extend credit or advance funds to the trader "and thus make the contribution itself); Advisory Op. 1984-10 (Arnold 

& Porter LLP) (Commission denied request by law firm to pay for contributions made in the name of its partners 

that would subsequently be deducted from the partners' quarterly income distribution). 

* If the S100,000 is treated as a partnership contribution, the amount attributable to the Candidate in 

accordance with Section 110.1(e) would not be excessive because a candidate can make unlimited expenditures 

from personal fiinds under Section 110.10. However, the amount attributable to the partnership itself would be 

excessive, and the amounts attributable to the other individual partners in Canseco, Ltd. would potentially be 

excessive depending on the total number of non-corporate partners, their respective share of the partnership profits 

and any other contributions they previously made, respectively, affecting their contributions limits for the Candidate. 

See 11 C.F.R. §§ 110.1(e) and 110.1(b). 
FEDERAL ELECTION COMMISSION 

WASHINGTON, ac. 20463 

November 25, 2013 

MEMORANDUM 

TO: Thomas Hinterroister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson if> 

Deputy General Counsel - Law 

Lorenzo Holloway ^ 

Assistant General Counsel 

Compliance Advice 

Danita C. Alberico ^ ^ 

Attorney 

SUBJECT: Audit Division Resubmission of the Draft Final Audit Rqmrt on Canseco for 

Congress (LRA 878) 

The Office of the General Counsel ("OGC") reviewed the resubmitted Draft Final Audit 

Report C'DFAR") on Canseco for Congress ("Committee")i the Committee's response to the 

Interim Audit Report ("lAR"), and additional documentation and information that the Committee 

submitted subsequent to its lAR response. The resubmitted DFAR contains the same three 

findings as the original DFAR: Receipt of Apparent Prohibited Contributions (Finding 1); 

Receipt of Apparent Excessive Contributions (Finding 2); and Misstatement of Financial 

Activity (Finding 3). 

The Audit Division resubmitted the DFAR to OGC because the Committee's additional 

documentation and information caused the Audit Division to make significant changes to the 

amounts at issue in each of the findings as well as to the classification of some of the items at 

issue. The Coimnittee did not raise any new or additional legal arguments in its subsequent 

submission of additional documentation and information and, despite the extent of the Audit 

Division's changes to the DFAR, the changes do not present any new or additional legal issues. 

Thus, we incorporate herein our legal analysis of February 7,2013 on the original DFAR and 

concur with the resubmitted DFAR. We recommend that the Audit Division attach and forward 

to the Commission and the Committee this memorandum along with our prior legal analysis. If 

you have any questions, please contact Danita C. Alberico, the attorney assigned to this audit.