contained in the provision’s legislative history. See H.R.Rep. No. 96-422 at 14 (1979)
(“One illustration of the application of this [best efforts] test is the current requirement
for a committee to report the occupation and principal place of business of individual
contributors who give in excess of $100.).

i. Administrative Fines Program

Congress authorized the Commission’s administrative fines program in 1999 to
“create[] a simplified procedure for the FEC to administratively handle reporting
violations.”® H.R. Rep. No. 106-295 at 11 (1999). As the Commission explained in its
Final Rule on Administrative Fines, 65 Fed. Reg. 31787 (May 19, 2000),

[p]rior to enactment of the [administrative fines program] amendment to FECA,
the Commission handled failures to file the reports in a timely manner under the
enforcement procedures in 11 CFR part 111. The purpose of the administrative
fines program is to institute streamlined procedures, while preserving the
respondents’ due process rights, to process violations of the reporting
requirements of 2 U.S.C. 434(a) and assess a civil money penalty based on the
schedules for penalties for such violations.

65 Fed. Reg. at 31,787. However, “the Commission has discretion to apply either the
administrative fines procedures or the current enforcement procedures set forth in

§§ 111.9 through 111.19 to violations of the reporting requirements of 2 U.S.C. 434(a).”
Id. at 31,788; 11 CFR 111.31.

Under current Commission regulations, a respondent may challenge a proposed
civil penalty in the administrative fines program for three reasons: “(i) [t]he existence of
factual errors; and/or (ii) [t]he improper calculation of the civil money penalty; and/or
(iii) [t]he existence of extraordinary circumstances that were beyond the control of the
respondent and that were for a duration of at least 48 hours and that prevented the
respondent from filing the report in a timely manner.” 11 CFR 111.35(b)(1). The
regulation limits the scope of circumstances that will be considered “extraordinary” to
exclude negligence, problems with vendors or contractors, illness, inexperience, or

inability to obtain specific information that was supposed to be disclosed, not the failure to file reports on
time.” Jd. at 12-13. The Lovely court summarized the Commission’s argument: “The FEC in its briefing
claims that it limits the reach of the best efforts statute to best efforts to ‘obtain’ contributor information.”
Lovely, 307 F.Supp.2d at 300.

3 See Treasury and General Government Appropriations Act, 2000, Public Law 106-58, § 640, 113 Stat.
430, 476-477 (1999). The program has been reauthorized twice, see Consolidated Appropriations Act,
2004, Public Law 108-199, § 639, 118 Stat. 3, 359 (2004) and 2006 Appropriations Act, Public Law 109-
115, 119 Stat. 2396 (Nov. 2005), and will sunset on December 31, 2008. See Final Rule on Extension of
Administrative Fines Program, 70 Fed. Reg. 75,717 (Dec. 21, 2005).


CFR 104.7(b) does not in any way modify or limit the applicability of section 104.7(a) to
the efforts of treasurers to obtain, maintain and submit information and reports.

The above provides general guidance concerning the applicability of the
Commission’s proposed best efforts defense and announces the general course of action
that the Commission intends to follow. This proposed policy statement sets forth the
Commission's intentions concerning the exercise of its discretion in its enforcement
program. However, the Commission retains that discretion and will exercise it as
appropriate with respect to the facts and circumstances of each matter it considers.
Consequently, this policy statement does not bind the Commission or any member of the
general public. As such, it does not constitute an agency regulation requiring notice of
proposed rulemaking, opportunities for public participation, prior publication, and delay
in effective date under 5 U.S.C. 553 of the Administrative Procedure Act (‘‘APA’’).
The provisions of the Regulatory Flexibility Act, which apply when notice and comment
are required by the APA or another statute, are not applicable. Where appropriate, the
Commission may issue additional policy statements or initiate rulemakings to set forth
more specific requirements to govern the best efforts defense in particular contexts.

Vv. Conclusion.

Effective as of the date that a final Policy Statement is published in the Federal
Register, the Commission intends to apply the best efforts standard to all matters
currently before the Commission in which a respondent has asserted such a defense, and
that come before the Commission in the future involving information and reports that
must be obtained, maintained, and submitted by the treasurers of political committees,
although the Commission will consider the application of the best efforts defense to the
administrative fines program in a separate rulemaking. The Commission intends to
consider that “best efforts” were made when the treasurer of a political committee
demonstrates that the failure to properly obtain, maintain or submit required information
and reports was beyond the control of the committee. When treasurers are able to show
that a committee made best efforts to comply with the Act’s requirements to obtain,
maintain, and submit information, the Commission intends that the treasurers or
committees shall be considered in compliance with FECA and no civil penalties or other
remedial measures shall be imposed.

Michael E. Toner
Chairman
Federal Election Commission

DATED
BILLING CODE: 6715-01-U


plaintiff had violated 2 U.S.C. § 434(a), but also voted to decrease the civil penalty to
$1,800. Lovely at 296-297.

In its lawsuit, the plaintiff argued that the Commission’s imposition of a fine was
contrary to FECA’s best efforts provision. /d. at 296. The Commission argued that “it
limits the reach of the best efforts statute to best efforts to ‘obtain’ contributor
information.” Lovely at 300. The Court concluded that “the FEC’s argument that the
phrase does not apply to the submission of reports conflicts with the plain statutory
language. While the Commission can refine by regulation what best efforts means in the
context of submitting a report, it cannot define it away by providing that submission of
reports is governed by a ‘strict liability’ standard.” Jd. Thus, the court rejected the
Commission’s primary rationale for limiting respondents’ potential defenses to late- or
non-reporting in the administrative fines program, holding that the submission of reports
is not governed by a strict liability standard. Rather, the fault-based standard of the best
efforts defense must apply.

The court also drew on the legislative history of the best efforts provision. As
noted, the 1979 amendments to FECA specifically amended the best efforts provision to
make it “applicable to the entirety of FECA, rather than merely to one subsection.”
Lovely at 299. The court cited the provision’s legislative history:

The best efforts test is specifically made applicable to recordkeeping and
reporting requirements in both Title 2 and Title 26. The test of whether a
committee has complied with the statutory requirements is whether its treasurer
has exercised his or her best efforts to obtain, maintain, and submit the
information required by the Act. If the treasurer has exercised his or her best
efforts, the committee is in compliance. Accordingly, the application of the best
efforts test is central to the enforcement of the recordkeeping and reporting
provisions of the Act. It is the opinion of the Committee that the Commission has
not adequately incorporated the best efforts test into its administration procedures,
such as the systematic review of reports.

H.R.Rep. No. 96-422, at 14 (1979), U.S. Code Cong. & Admin. News 1979, 2860, 2873
(emphasis added) (cited in Lovely at 299).

As the Commission stated in its Statement of Reasons after remand of the Lovely
case, “the Court held that FECA’s ‘best efforts’ provision . . . requires the Commission to
consider whether a committee’s treasurer exercised best efforts to submit timely
disclosure reports.” Commission's Statement of Reasons in Administrative Fines Case
#549 on Remand From the United States District Court for the District of Massachusetts,
Oct. 4, 2005, at 1. On remand, the Commission indicated its intention to “pursue its view
that 2 U.S.C. 432(i) does not require the Commission to recognize a ‘best efforts’ defense
as part of the administrative fines program,” and decided that the court had not
“construe[d] Section 432(i) beyond requiring its application in this instance.” Jd. at 1-2.
The Commission determined that the committee’s treasurer had not put forth best efforts
in filing the report in question. Jd. at 5.


unavailability of staff, computer failures (except failures of the Commission’s
computers), and other similar circumstances. 11 CFR 111.35(b)(4).

The Commission deemed this limitation of defenses to be an appropriate
component of the administrative fines program, and asserted that it had

sound policy reasons for limiting the respondents’ defenses beyond streamlining
the administrative process. A key cornerstone of campaign finance law is the full
and timely disclosure of the political committee’s financial activity. Such
disclosure is essential to providing the public with accurate and complete
information regarding the financing of federal candidates and political campaigns.
Thus, violations of the reporting requirements of 2 U.S.C. 434(a) are strict
liability offenses .. .. Absent extraordinary circumstances beyond the
committees’ control, the Commission sees no reason why committees cannot file
their reports by the deadline. The rationale behind the ’48-hour extraordinary
circumstances’ exception is that the Commission recognizes there may be
instances such as natural disasters where a committee’s office is located in a
disaster area and the committee cannot timely file a report because of lack of
electricity or flooding or destruction of committee records.

65 Fed. Reg. at 31,789-90.

In light of these considerations, this proposed policy statement shall not affect the
Commission’s current administrative fines program. Rather, the Commission’s position
will be re-evaluated in the context of a separate rulemaking concerning the application of
the best efforts defense in the administrative fines program.

Il. The Lovely Decision

In Lovely v. Federal Election Commission, 307 F.Supp.2d 294 (D. Mass. 2004), a
congressional candidate’s political committee and its treasurer brought an action against
the Commission challenging the imposition of an administrative fine for allegedly late
filing of a required report. On the day of the filing deadline, the committee’s treasurer
experienced difficulty electronically filing the committee’s report via the Internet. Upon
advice of Commission staff, the treasurer mailed a paper copy of the committee’s report,
along with a copy on computer diskette, to the Commission. The diskette was improperly
formatted, and rejected by the Commission, but the paper copy was made public and
posted to the Commission’s website. The committee filed a properly formatted report 27
days after the filing deadline. Pursuant to the Commission’s administrative fines
program, the Commission’s Office of Administrative Review recommended a $3,100
civil penalty, based on the number of days the report was late, the committee’s lack of
prior violations, and the fact that the treasurer had not raised any of the three defenses
permitted by 11 CFR 111.35(b) to contest the imposition of a civil penalty. The
Commission found reason to believe that the committee and the treasurer violated FECA
with the late filing. Subsequently, the Commission made a final determination that


© Delivery failures caused by mail/courier services such as U.S. Postal Service,
Federal Express, UPS, DHL, etc.; or
e Unforeseen circumstances beyond the control of the respondent.

The above-listed reasons, along with any other defenses presented, may be
considered by the Commission in light of all the facts and circumstances relevant to the
committee’s obtaining and maintenance of information and efforts to submit reports (or
other information) in a timely fashion in determining the applicability of the best efforts
defense.

If a failure to obtain, maintain, or submit information or reports is due to
committee staff unavailability, inexperience, illness, negligence or error; the committee’s
computer or software failure; delays caused by committee vendors or contractors; a
committee’s failure to know filing dates; or a committee’s failure to use Commission
software properly, then the Commission intends to conclude that the best efforts standard
has not been met.

Under the proposed policy, if presented with information sufficient to form a best
efforts defense, the Commission intends to consider the best efforts of a committee under
Section 432(i) when reviewing all violations of the record keeping and reporting
requirements of FECA, whether arising in its normal enforcement docket (Matters Under
Review) or the Alternative Dispute Resolution Program. The “best efforts” standard is an
affirmative defense and the burden rests with the political committee and its treasurer to
present facts that demonstrate that “best efforts” were made. The Commission does not
intend to consider the best efforts defense in any enforcement matter unless the facts that
form the basis of that defense are asserted by a respondent.

The Commission considers “best efforts” to be “a standard that has diligence as
its essence.” E. Allan Famsworth, On Trying to Keep One's Promises: The Duty of Best
Efforts in Contract Law, 46 U. Pitt. L. Rev. 1,7 (1984). As the Commission explained in
its Statement of Reasons in Administrative Fines Case #549 at 2,

Section 432(i) creates a safe harbor for treasurers who “show[] that best efforts”
have been made to report the information required to be reported by the Act.
“Best” is an adjective of the superlative degree. “Best efforts” must therefore
require more than “some” or “good” efforts. Congress’s choice of a “best efforts”
standard, rather than a “good faith” standard, suggests that a treasurer cannot rely
upon his or her earnestness or state of mind to gain the shelter of Section 432(i)’s
safe harbor. Rather, a treasurer has the burden of showing that the actions taken —
the efforts he or she made to comply with applicable reporting deadlines ~ meet
the statute’s demanding benchmark.

As explained above, the Commission does not intend to apply 11 CFR 104.7(b) as
limiting the applicability of the best efforts defense of 2 USC § 432(i) and 11 CFR
104.7(a) only to efforts made to obtain certain specific information from contributors. 11


AGENDA DOCUMENT NO. 06-76

“SCHVES
_ ELECTION

FEDERAL ELECTION COMMISSION
i" Washington, DC 20463

20 NOV 22 A103

AGENDA ITEW
For Meeting of:_//-30-0G

MEMORANDUM

TO: The Commission

FROM: Commissioner Hans A. von Spakovsky
SUBJECT: Best Efforts Policy Statement

Attached please find a proposed draft of the subject policy statement. We
respectfully request the draft be placed on the agenda for November 30, 2006.

Thank you.



IV. Application of the Court’s Holding

Upon further consideration, the Commission has determined that despite the
limited breadth of Lovely, implementation of the Lovely court’s interpretation of the best
efforts defense best reflects the language of FECA and the intent of Congress. While the
Commission’s enforcement practices formerly reflected the view that the best efforts
defense was limited to obtaining certain contributor identification information, see supra
footnote 2, the Commission recognizes that its application of the defense in previous
enforcement matters derives from a single example of the defense’s application in its
1979 legislative history.’ In light of these considerations, the Commission hereby
notifies the public and the regulated community through this proposed policy statement
that henceforth it intends to apply the best efforts defense of 2 U.S.C. 432(i), as
promulgated at 11 CFR 104.7, with respect to obtaining contributor information as
currently set forth at 11 CFR 104.7(b), and also to obtaining other information,
maintaining any and all information required by the statute, and submitting said
information in the form of disclosure reports.

The standards for determining whether the best efforts defense is applicable in the
context of obtaining specific contributor information is set forth at current 11 CFR
104.7(b). This proposed policy statement does not affect or modify those standards.

With respect to 11 CFR 104.7(a), which applies to obtaining, maintaining and
submitting information and reports, the Commission intends to consider that best efforts
were made when the treasurer of a political committee demonstrates that the failure to
properly obtain, maintain or submit required information and reports to the Commission
was beyond the control of the committee. The Commission intends to generally consider
the following: (1) the actions taken, or systems implemented, by the committee to ensure
that required information is obtained, maintained, and submitted; (2) the cause of the
failure to obtain, maintain, or submit the information or reports at issue; and (3) the
specific efforts of the committee to obtain, maintain, and submit the information or
reports at issue.

Under this proposed policy, the following list sets forth possible reasons for a
committee’s failure to obtain, maintain or submit information or reports that the
Commission may consider to be indicative that the best efforts defense is applicable:

e A failure of Commission computers or Commission-provided software;

« Severe weather or other disaster-related incidents;

e Electronic filing problems caused by widespread and reported problems with the
Internet;

© Utilization of the Commission’s three approved filing methods (via Internet,
direct modem, and mailing an electronic copy);

+ A respondent's assertion in an enforcement matter that best efforts were made to maintain and/or submit
required information was formerly considered by the Commission to be a mitigating factor, but not an
outright defense to an alleged violation of the record keeping and reporting requirements.


with the record keeping and reporting requirements of FECA, as interpreted by the Lovely
court. Pursuant to 2 U.S.C. § 432(i), FECA provides that:

When the treasurer of a political committee shows that best efforts have been used
to obtain, maintain, and submit the information required by this Act for the
political committee, any report or any records of such committee shall be
considered in compliance with this Act or chapter 95 or chapter 96 of title 26.

This provision of FECA was implemented by the Commission at 11 CFR
104.7. Paragraph (a) of this section is virtually identical to the statutory
provision:

When the treasurer of a political committee shows that best efforts have been used
to obtain, maintain, and submit the information required by the Act for the
political committee, any report of such committee shall be considered in
compliance with the Act.

Paragraph (b) of section 104.7 provides standards for a treasurer of a political
committee to satisfy in obtaining and reporting “the identification as defined at 11 CFR
100.12 of each person whose contribution(s) to the political committee and its affiliated
political committees aggregate in excess of $200 in a calendar year (or in an election
cycle in the case of an authorized committee).”' “Identification” includes the person’s
full name, mailing address, occupation, and name of employer. See 11 CFR 100.12.

The language of FECA, and the Commission’s regulation at section 104.7(a),
applies the best efforts defense broadly to efforts by treasurers to “obtain, maintain and
submit” the information required to be disclosed by FECA. However, the Commission
has in past enforcement actions interpreted the statutory language to apply only to efforts
to “obtain” contributor information.” This interpretation is based on an example

' The Court of Appeals for the District of Columbia Circuit referred to 11 CFR 104.7(b) as a “Commission
regulation interpreting what political committees must do under [FECA] to demonstrate that they have
exercised their ‘best efforts’ to encourage donors to disclose certain personally identifying information.”
Republican National Committee v. FEC, 76 F.3d 400, 403 (DC Cir. 1996).

2 In 1980, the Commission explained that “[i]n determining whether or not a committee has exercised ‘best
efforts,’ the Commission’s primary focus will be on the system established by the committee for obtaining
disclosure information” (emphasis added). 45 FR 15080, 15086 (March 7, 1980). In 1993, the
Commission referred to “the requirement of [FECA] that treasurers of political committees exercise best
efforts to obtain, maintain and report the complete identification of each contributor whose contributions
aggregate more than $200 per calendar year.” Final Rule on Recording Keeping and Reporting by Political
Committees: Best Efforts, 58 FR 57725 (Oct. 27, 1993). And in 1997, the Commission stated that
“[t]reasurers of political committees must be able to show they have exercised their best efforts to obtain,
maintain and report [contributor identification information].” Final Rule on Recording Keeping and
Reporting by Political Committees: Best Efforts, 62 FR 23335 (April 30, 1997). In 2003, the Commission
asserted in its Supplemental Brief in the Lovely litigation that “the Commission has long interpreted the
best efforts provision as creating a limited safe harbor regarding committees’ obligations to report
substantive information that may be beyond their ability to obtain.” Commission’s Supplemental Brief in
Lovely v. Federal Election Committee at 1. Furthermore, “when Congress originally enacted the ‘best
efforts’ provision, it could not have been more clear that it was creating a limited defense regarding the


maintain, and submit the information or reports at issue. Where appropriate, the
Commission may issue additional policy statements or implement regulations setting
forth more specific requirements to govern the best efforts defense in particular contexts.

This policy does not affect or modify the Commission’s best efforts standards set
forth at 11 CFR 104.7(b) that apply specifically with respect to obtaining the
identification (see 11 CFR 100.12) of each person whose contributions aggregate more
than $200 in a calendar year. Additionally, this policy does not affect or modify the
Commission’s current administrative fine program. The Commission will consider the
applicability of the best efforts defense in the context of the administrative fines program
in a separate rulemaking. Current 11 CFR 111.35 sets forth the defenses available to a
respondent in the administrative fines context. Any revisions to those available defenses
will be addressed in a separate rulemaking, which will allow the Commission to give due
consideration to the special issues raised by the administrative fines program not present
in other portions of the Commission’s enforcement docket.

The Commission requests comments on all aspects of this proposed policy
statement.

DATES: Comments must be received on or before [INSERT DATE 30 DAYS AFTER
DATE OF PUBLICATION IN FEDERAL REGISTER]. The Commission intends to
issue a final policy statement after the close of the comment period.

ADDRESSES: All comments must be in writing, must be addressed to Mr. J. Duane
Pugh Jr., Acting Assistant General Counsel, and must be submitted in e-mail, facsimile,
or paper copy form. Commenters are strongly encouraged to submit comments by e-mail
or fax to ensure timely receipt and consideration. E-mail comments must be sent to
bepolicy@fec.gov. If e-mail comments include an attachment, the attachment must be in
either Adobe Acrobat (.pdf) or Microsoft Word (.doc) format. Faxed comments must be
sent to (202) 219-3923, with paper copy follow-up. Mailed comments and paper copy
follow-up of faced comments must be sent to the Federal Election Commission, 999 E
Street, NW., Washington, DC 20463. All comments must include the full name and
postal service address of the commenter or they will not be considered. The Commission
will post comments on its website after the comment period ends.

FOR FURTHER INFORMATION CONTACT: Mr. J. Duane Pugh Jr., Acting
Assistant General Counsel, or Ms. Margaret G. Perl, Attorney, 999 E Street, NW.,
Washington, DC 20463, (202) 694-1650 or (800) 424-9530.
SUPPLEMENTARY INFORMATION:

1 Statutory and Regulatory Provision

The Commission proposes clarifying its current enforcement practice with respect
to consideration of the best efforts of the treasurer of a political committee to comply


FEDERAL ELECTION COMMISSION
11 CFR 104.7
[Notice 2006-??]

Proposed Statement of Policy Regarding Treasurer’s Best Efforts to Obtain,
Maintain, and Submit Information as Required by the Federal Election Campaign
Act

AGENCY: _ Federal Election Commission
ACTION: Proposed Statement of Policy

SUMMARY: The Federal Election Commission (the “Commission”) seeks comments
on a proposal to clarify its enforcement policy with respect to the circumstances under
which it intends to consider a political committee and its treasurer to be in compliance
with the record keeping and reporting requirements of the Federal Election Campaign
Act, as amended (“FECA”), based on the “best efforts” defense. Section 432(i) of FECA
provides that when the treasurer of a political committee demonstrates that best efforts
were used to obtain, maintain, and submit the information required by FECA, any report
or any records of such committee shall be considered in compliance with FECA (and/or
chapters 95 and 96 of Title 26). In the past, the Commission has interpreted this section
to apply only to a treasurer’s efforts to obtain required information from contributors to a
political committee, and not to maintaining information or the submission of reports.
However, in light of Lovely v. Federal Election Commission, 307 F.Supp.2d 294
(D.Mass. 2004), the Commission intends to apply Section 432(i) to obtaining,
maintaining, and submitting information and records to the Commission for the purpose
of complying with FECA’s disclosure and reporting requirements.

The Commission’s regulation implementing Section 432(i) is promulgated at 11
CFR 104.7. This proposed policy statement makes clear that the Commission’s intent is
to apply this regulation consistent with the holding of the federal court in Lovely. A
political committee and its treasurer, regardless of the type of enforcement action before
the Commission (the administrative fines program excepted, see below), will be
considered to be in compliance with FECA’s requirements if the committee or its
treasurer can show that best efforts were made to obtain, maintain, and submit all
information required to be reported to the Commission. With respect to 11 CFR
104.7(a), the Commission intends to consider that best efforts were made when the
treasurer of a political committee demonstrates that the committee took all reasonable
steps to properly obtain, maintain or submit information and reports to the Commission
as required by FECA, and that the failure to properly obtain, maintain or submit required
information and reports was beyond the control of the committee. The Commission
intends to generally consider the following: (1) the actions taken, or systems
implemented, by the committee to ensure that required information is obtained,
maintained, and submitted; (2) the cause of the failure to obtain, maintain, or submit the
information or reports at issue; and (3) the specific efforts of the committee to obtain,