FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 

May 2, 2012 

MEMORANDUM 

TO: Patricia Carmona 

Chief Compliance Officer 

Tom Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Christopher Hughey 

Deputy General Counsel 

Lawrence L. Calvert, 

Associate General C 

General Law and Ai 

Lorenzo Holloway [^^A) J 1 U 

Assistant General Counsel '"n^^ ^ ^ 

Public Finance and Audit Advice 

Margaret J. Forman ooO^ -^-^ 

Attomey ^ 

SUBJECT: Draft Final Audit Report on National Campaign Fund (LRA 847) 

I. INTRODUCTION 

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

Report ("Proposed Report") on The National Campaign Fund ("NCF"), and we concur 

with Finding 1 (Misstatement of Financial Activity) and Finding 2 (Failure to File 

Notices and Properly Disclose Independent Expenditures). We discuss Finding 2 below. 

If you have any questions, please contact Margaret J. Forman, the attomey assigned to 

this audit. 

II. FINDING 2 (FAILURE TO FILE NOTICES AND PROPERLY 

DISCLOSE INDEPENDENT EXPENDITURES) 

In our analysis of the Draft Interim Audit Report ("lAR"), we concluded 

that fundraising letters can be independent expenditures as a matter of law, so 

long as the underlying communication meets the definition of express advocacy. 
Memorandum to Patricia Carmona 

LRA 847 - National Campaign Fund - DFAR Legal Comments 

Page 2 of 4 

We reach the same conclusion here. Contrary to NCF's position, the regulation 

defining express advocacy does not permit an examination of the speaker's intent 

when making the communication. We believe a test that incorporates the 

speaker's subjective intent would not be workable. 

A. BACKGROUND 

NCF made expenditures for direct mail and electronic mail communications that 

included fiindraising requests. Many of these communications included express 

advocacy. On its April 2008 Quarterly Report, NCF originally reported these types of 

expenditures as operating expenditures. NCF, however, amended that report to disclose 

such communications as independent expenditures, and NCF's subsequent reports also 

disclosed such communications as independent expenditures. NCF ultimately disclosed, 

in aggregate, approximately $1.55 million in communications as independent 

expenditures on Schedule E of its reports, and it filed 24/48-hour notices. 

The Audit Division's review determined that many of the communications 

disclosed as independent expenditures in these reports contained express advocacy, and 

indeed should have been disclosed as independent expenditures on Schedule E of NCF's 

reports. It also determined that many of these independent expenditures required 24/48 

hour notices. The Audit Division also determined, however, that communications on 

which NCF spent approximately $290,000 did not, in fact, contain express advocacy, and 

thus were not independent expenditures. The Audit Division's review also revealed that 

for the conununications that were independent expenditures, NCF reported them and 

determined whether 24 or 48 hour notices were required based on when the invoices were 

paid, rather than when the communications were disseminated. 

The lAR recommended that NCF provide evidence demonstrating that the 

disbursements identified by the Audit Division were not independent expenditures and 

therefore would not require 24/48-hour notices. It also recommended that NCF submit 

and implement revised procedures for reporting independent expenditures and tracking 

dissemination dates for independent expenditures to ensure timely filing of 24/48-hour 

notices. 

NCF responded to the lAR by acknowledging that some of the communications 

contained express advocacy. NCF asserts, however, that it "never intended to engage in 

any independent expenditures," that these "communications were all just fundraising 

letters sent to proven donors with no consideration at all to whether the recipient was 

even a voter," that the timing of the letters "had absolutely no reference to the timing of 

primary elections during 2008," and the content of the letters "did not urge the recipient 

audience to vote for any particular candidate." NCF Response, February 27,2012. 

The DFAR states that because a number of the communications meet the 

definition of independent expenditure and the regulation does not exclude direct mail 
Memorandum to Patricia Carmona 

LRA 847 - National Campaign Fund - DFAR Legal Comments 

Page 3 of 4 

fundraising letters firom the definition, the Audit Division believes that NCF's assertion 

that these are not independent expenditures is not supported by the evidence. 

B. FUNDRAISING COMMUNICATIONS AS INDEPENDENT 

EXPENDITURES 

The Commission has found that fiindraising solicitations containing express 

advocacy should be reported as independent expenditures. In MUR 5809, the Christian 

Voter Project ("CVP") failed to file independent expenditure notices for the costs of 

fundraising letters that expressly advocated the election/defeat of candidates. The 

Commission found reason to believe that CVP's failure to file independent expenditure 

notices violated the Act, and accepted a conciliation agreement wi ^ the committee based 

on that violation. In MUR 5518 (Hawaii Democratic Party), a party communication 

contained at least three messages: an invitation to precinct meetings, express advocacy of 

the defeat of a clearly identified Federal candidate, and a fimdraising appeal. The Office 

of General Counsel concluded the communication should have been reported either as an 

independent expenditure or as federal election activity, and recommended that the 

Commission find reason to believe. The Commission rejected our recommendation, not 

on grounds that solicitations could not be independent expenditures but on grounds that 

invitations to precinct meetings permitted treatment as a federal/non-federal allocated 

administrative expense under the exception to the definition of federal election activity 

for costs of local political conventions, 2 U.S.C. § 431(20)(B)(iii). In particular, 

Commissioners von Spakovsky and Weintraub stated in their Statement of Reasons that 

"had this invitation been mailed more broadly than it was, and in sufficient numbers to 

raise questions about whether it was a bona fide invitation, or if it was really just a 

fundraising or advocacy piece masquerading as an invitation, this would be a different 

case." MUR 5518 (Hawaii Democratic Party), Statement of Reasons of Commissioners 

Hans A. von Spakovsky and Ellen L. Weintraub, at 3 (Feb. 23, 2007); cf MURs 5511 

and 5525 (Swift Boat Veterans for Truth) (fimdraising solicitations containing express 

advocacy were expenditures that counted towards organization's threshold for political 

committee status).' 

C. AUDIT DIVISION SHOULD FOLLOW COMMISSION 

APPROACH IN PENDING AUDIT 

We previously have analyzed Finding 2 (Failure to File Notices and Properly 

Disclose Independent Expenditures) in legal comments on the lAR dated June 17,2011, 

and supplemental legal conunents on the lAR, dated November 10,2011. The same 

issue is pending in another audit, which is currently before the Commission. NCF here 

has made essentially the same argument as another committee made in response to the 

lAR in that other audit, even using in a number of instances the same phrases. The only 

' Some Commissioners have expressed concerns, in other pending matters, about the extent to 

which fundraising letters necessarily constitute express advocacy. 
Memorandum to Patricia Carmona 

LRA 847 - National Campaign Fund - DFAR Legal Comments 

Page 4 of 4 

substantive difference is that NCF adds that the conununications were not independent 

expenditures because the communications "in no way [advocated] the election or defeat 

of a clearly identified candidate." Notwithstanding ttiat argument, we note that a number 

of the communications contained phrases, either in their principal text or on their 

envelopes, that contained phrases such as "Now is the time to elect John McCain 

President of the United States." 

Essentially, NCF's argument as we understand it is this: fiindraising 

communications should never be considered independent expenditures, even if the 

communications contain express advocacy under 11 C.F.R. § 100.22(a) (for example, 

"Vote for Jones"), so long as the communicator's subjective intent was not to make an 

independent expenditure. We addressed that argument at greater length in our comments 

to the draft DFAR in the other audit, and we refer you to those comments. The principal 

points we made there were that fundraising communications can be independent 

expenditures if they contain express advocacy, and that express advocacy analysis, for a 

number of reasons, does not provide for consideration of the speaker's subjective intent. 

However, we note that the Audit Division Recommendation Memorandum in that 

other audit is anticipated to be considered by the Commission in the very near fiiture. 

Assuming that the Commission completes action on that audit as soon as we anticipate, 

and assuming that the Commission is able to resolve this issue in that other audit by a 

four-vote majority, we would recommend that the Audit Division then make any 

revisions to the DFAR in this audit that might be necessary to be consistent with the 

approach taken by the Commission in that other audit.