FEDERAL ELECTION COMMISSION 

WASHINGTON, O.C. 20463 

JUL 0 7 2016 

MEMORANDUM 

TO: Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staffi Director 

Audit Division 

FROM: Adav Noti 

Acting Associate General Counsel 

Policy Division 

Lorenzo Holloway 

Assistant General Counsel 

Compliance Advice 

Margaret J. Forman A* /A 

Attorney 

SUBJECT: Proposed Interim Audit Report on the Hawaii Democratic Party (LRA 1024) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the proposed Interim Audit Report 

("proposed lAR") on the Hawaii Democratic Patty ("HDP or Committee"). The proposed lAR 

contains seven findings: Misstatement of Financial Activity (Finding 1), Receipt of Contributions 

that Exceed Limits (Finding 2), Receipt of Impermissible Funds (Finding 3), Rqjorting of Debts 

and Obligations (Finding 4), Recordkeeping for Employees (Finding S), Failure to File Reports 

and Properly Disclose Independent Expenditures (Finding 6), and Allocation of Ex^ditures 

(Finding?).' We generally concur with the findings and comment on Finding 3 and Finding 6. If 

you have any questions, please contact Margaret J. Forman, the attorney assigned to this audit. 

' We recommend that the Commission consider this document in Executive Session because the Commission 

may evcnhially decide to pursue an investigation of matters contained in the proposed lAR. 11 C.F.R. §§ 2.4(a) and 

(bX6). 
LRA 1024 Hawaii DeAiocratic Party 

lAR Legal Comments 

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II. FINDINGS: TO BE RECEIPTS FROM IMPERMISSIBLE FUNDS, THE 

TRANSACTIONS MUST BE IN MADE CONNECTION WITH A FEDERAL 

ELECTION 

The proposed lAR concludes that 75 receipts, totaling SI69,586, were deposited into 

HOP'S federal account and appeared to be from impermissible sources, including from labor 

unions, corporations, limited liability companies and organizations not registered with the Federal 

Election Commission. Some of these receipts from those entities were contributions ($96,420) 

from impermissible sources. But some of Ae receipts were for state party committee convention 

fees registration and convention booth fees, totaling SI 5,085), and for Democratic National 

Convention credentials ($58,000). 

We concur with the conclusion of the Audit Division regarding the $96,420 in 

contributions from impennissible sources. In particular, we understand from the Audit Division 

that some of the convention fees were for delegate expenses, and therefore concur that they may 

not be paid from impermissible sources. We also conclude that the receipts for convention fees 

and DNC credentials, to the extent that these receipts were in connection with a convention that 

nominates candidates for federal office, may not be from impermissible sources. 

52 U.S.C. § 30118; 11 C.F.R. §§ 100.2(e) (defining nominating convention as 

"election"), 110.14(c); see 11 C.F.R. parts 110,114 and 115; see also Advisory Opinion 1980-64 

(NBA) (Labor organization prohibited from paying member's delegate expenses); Advisory 

Opinion 1979-07 (New Jersey Democratic State Committee) (since the end to be served by the 

delegate selection process is the nomination of a party's candidate for President, the State 

Committee's expenses incident to such activity are clearly part of the 1980 Fedend election process 

and may not be paid from contributions to the State Committee by corporations, labor 

organizations or national banks unless made from a separate segregated fund. See 2 U.S.C. § 441b 

[now 52 U.S.C. §30118]). 

Some of the receipts, however, are not clear as to whether they were in connection with a 

federal nominating convention. For example, one of the receipts was from a non-federal 

conunittee for a convention booth—we do not know the nature of the converition at which this 

booth was rented. 

If the information is available, we recommend that the Audit Division revise the proposed 

lAR to analyze the transactions to determine whether the receipts were in connection with a 

nominating convention that nominated candidates for federal office. 52 U.S.C. § 30118; 

11 C.F.R. § 110.14(c). If the information is not available, we recommend that the Audit Division 

revise the proposed lAR to request this information from HDP. 
LRA 1024 Hawaii Democratic Party 

lAR Legal Comments 

Page 3 of4 

ni. FINDING 6: DISCUSSION OF ADVERTISEMENTS INVOLVING 

INDEPENDENT EXPENDITURES 

A. EXPLANATION NEEDED AS TO WHY HDP MUST DEMONSTRATE THAT 

RADIO ADS WERE COORDINATED, AS REPORTED 

The proposed lAR concludes that HDP made 18 apparent independent expenditures 

totaling $30,148. Of these, $17,802.82 was for 16 radio advertisements. HDP disclosed the radio 

advertisements as coordinated expenditures on Schedule F of its report. The Audit Division 

maintains that the Committee should have disclosed these expenditures as independent 

expenditures because the Committee failed to produce documentation demonstrating that the 

conduct prong for coordination was met. See 11 C.F.R. § 109.21(d); proposed Report at 17, note 

7, and 18. 

I We, therefore, recommend that the 

Audit Division explain why it required HDP to derhonstrate that the spending was coordinated, 

and to note how the Audit Division would expect the HDP to make such a demonstration if the 

conduct prong was not memorialized. See 11 C.F.R. § 109.21(e) (noting that conduct prong does 

not require "[ajgreement or formal collaboration" but only "a mutual understanding or meeting of 

the minds on all or any part of the material aspects of the communication or its dissemination"). 

B. TV AD IS INDEPENDENT EXPENDITURE, BUT 24-HOUR REPORTING 

MUST BE BASED ON DATE THE AD WAS DISSEMINATED 

The proposed lAR also concludes that HDP made an apparent independent expenditure, 

totaling $ 11,922, for the production and design of a television advertisement. We agree that this 

disbursement is an independent expenditure because it contains express advocacy under 

11 C.F.R. § 100.22(a), but we recommend that the Audit Division include more of an explanation 

as to why this television advertisement constitutes express advocacy. "Express advocacy means 

any communication that -(a) [u]scs phrases such as... "vote against Old Hickory," "defeat" 

accompanied by a picture of one or more candidate(s), "reject the incumbent" or communications 

of campaign slogan(s) or individual word(s), which in context can have no other reasonable 

meaning than to urge the election or defeat of one or more clearly identified candidate(s)...." 

11 C.F.R. § 100.22(a). Here, the television advertisement depicts the Hawaii Senatorial candidate, 

Linda Lingle, making a speech at the 2008 Republican National Convention, endorsing the 

nomination of McCain/Palin for President/Vice President. While this depiction continues, the 

narrator states that the candidate "Linda Lingle was wrong then [i.e., during the 2008 election 

when she endorsed McCain/Palin] about a lot of things, and she's wrong for Hawaii now." The 

phrase "she's wrong for Hawaii" is express advocacy because it has the same meaning as "'defeat,' 

accompanied by a picture of one or more candidate(s), 'reject the incumbent,' or communications 

of campaign slogan(s) or individual word(s), which in context can have no other reasonable 
LRA 1024 Hawaii Democratic Party 

lAR LepI Comments 

Page 4 of4 

meaning than to urge the election or defeat of one more clearly identified candidate(s)." 11 C.F.R. 

§ 100.22(a). 

The proposed lAR also concludes that the HDP fiuled to file 24-hour reports for 

independent expenditures, including this television advertisement. While we agree that the HDP is 

required to file 24-hour reports for independent expenditures consistent with the Comniission's 

relations, we note that the trigger for this 24-hbur reporting requirement is "the day folloynng 

the date on which a communication that constitutes an independent expenditure is publicly 

distributed or otherwise publicly disseminated." 11 C.F.R. § 104.S(g)(2) (emphasis added). Here, 

the Audit Division states that the independent expenditure associated with the television 

advertisement was for the production and design of the advertisement. 

The Audit Division, however, did not explain how it determined the distribution or 

dissemination date for this independent expenditure. Since the information that we reviewed 

relates to the production and design cost related to the advertisement, we are not sure if the Audit 

Division has the information that would show the distribution or dissemination date. We, 

therefore, recommend that the Audit Division revise the report to explain how it determined the 

date of distribution or dissemination.