August 1998 Federal Election Commission Volume 24, Number 8

Table of Contents

Staff

1 FEC Staff Director Resigns

 10 Acting Staff Director Named

Survey

1 Customer Satisfaction Survey to

Begin This Month

Regulations

2 Commission Seeks Comments on

Soft Money NPRM

3 Federal Register

Court Cases

5 Ohio Democratic Party v. FEC

(98-0991); RNC v. FEC (98-1207)

5 FEC v. California Democratic

Party

6 Fulani v. FEC (97-1466)

7 On Appeal?

Compliance

8 MUR 3847

9 MUR 4116

10 Advisory Opinions

10 Index

Staff

FEC Staff Director Resigns

John C. Surina, the FEC’s

longtime staff director, has resigned

from the agency to accept a newly

created position at the Department

of Agriculture. His last day with the

Commission was July 31.

“It took a tremendous opportunity

at Agriculture to lure me away from

the FEC,” Mr. Surina said.

Mr. Surina will head a new office

charged with ensuring that agriculture staffers are trained in standards

of conduct, that all personal financial disclosure reports are filed and

reviewed on a timely basis and that

any needed policies tailored for

specific mission areas are developed

and promulgated. He is scheduled to

begin his new job on August 3.

“I am pleased to keep my career

within the governmental ethics realm,”

said Mr. Surina, who had been the

FEC’s staff director for 15 years.

“[M]any of the functional and technical

approaches we use in regulating

campaign finance transfer nicely to a

large agency ethics program.”

Mr. Surina said that whoever

takes his place at the FEC will soon

discover “a truly unique operating

environment, a controversial but

engaging mission, and an extraordinarily competent and non-partisan

staff.” ✦

Survey

(continued on page 2)

Customer Satisfaction

Survey to Begin This Month

As part of the FEC 1998 budget

process, Congress directed the U.S.

General Accounting Office (GAO)

to oversee a contract with an outside

management consulting firm for a

management review of the FEC’s

business processes and management

systems that support its public

disclosure, compliance, public

financing and election administration programs. The GAO has

contracted with

PricewaterhouseCoopers LLP to

perform this assessment.

As part of its work,

PricewaterhouseCoopers plans to

conduct a telephone survey of

randomly selected congressional

candidate committees, political

party committees and PACs that

have filed reports with the Commission during the 1997-1998 election

cycle. Survey questions will focus

on specific FEC products, services

and processes with the objective of

evaluating FEC effectiveness in

providing information to the regulated community and facilitating

disclosure of campaign finance

information.

This telephone survey should

take no more than 15 minutes. The

PricewaterhouseCoopers representa-

(Staff continued on page 10)
Federal Election Commission RECORD August 1998

2

Federal Election Commission

999 E Street, NW

Washington, DC 20463

800/424-9530

202/694-1100

202/501-3413 (FEC Faxline)

202/219-3336 (TDD for the

 hearing impaired)

800/877-8339 (FIRS)

Joan D. Aikens, Chairman

Scott E. Thomas, Vice Chairman

Lee Ann Elliott, Commissioner

Danny L. McDonald,

 Commissioner

John Warren McGarry,

 Commissioner

James A. Pehrkon, Acting Staff

 Director

Lawrence M. Noble, General

 Counsel

Published by the Information

 Division

Louise D. Wides, Director

Angela Rucker, Editor

http://www.fec.gov

Survey

(continued from page 1) Regulations

Commission Seeks

Comments on Soft Money

NPRM

On July 6, the Commission

approved a Notice of Proposed

Rulemaking (NPRM) that contains

draft regulations that could change

the way party committees raise and

use soft money. Alternatives listed

in the NPRM include leaving the

FEC’s current regulations unchanged, prohibiting national party

committees from receiving and

using soft money and modifying the

way soft money is raised and used

by national and state party committees. The deadline for comments on

this NPRM is September 11, and the

Commission anticipates holding a

public hearing on the issue on

September 23 at 10 a.m. at its

headquarters in Washington, DC.

Soft money (also called

nonfederal funds) refers to contributions received by party committees

that do not comply with the Federal

Election Campaign Act’s (the Act’s)

limits on individual contributions

(section 441a) or the statute’s

prohibition on contributions from

corporate and union general treasuries (section 441b) and federal

contractors (section 441c). Soft

money must be used exclusively for

state and local election activity and

other party activities that do not

influence federal elections.

The overarching objective of the

two petitions that spawned the

NPRM was to find ways to limit the

use of soft money that has an impact

on federal elections. Prompted by

perceived abuses of the federal

campaign finance system, the

petitioners—President Bill Clinton

and five members of Congress—

said that soft money was being used

in ways that were inconsistent with

the purposes of the Act.

Proposals

The Commission received 188

comments in response to its June 12,

1997, Notice of Availability on the

issue of soft money. See the July

1997 Record, p. 1. In response to

those comments, the Commission

has proposed the following modifications to the FEC regulations—at

11 CFR parts 102, 103 and 106.

These proposals do not constitute a

final decision regarding the issue of

soft money.

Option One. The current rules

would remain in effect. National

party committees could use the soft

money raised in their nonfederal

accounts only for nonfederal

election-related purposes.

Nonfederal accounts would continue

to be permitted for building fund

accounts authorized by the Act.

Option Two. The current rules

would be revised to prohibit national party committees from raising

and spending soft money, and would

eliminate all national party committee nonfederal accounts other than

building fund accounts. There are

three variations to this proposal.

• The first variation would create an

exception allowing national party

committees to raise soft money

only for making direct or earmarked contributions to state and

local candidates.

• The second variation would

modify the regulation to ensure

that hard money transfers to state

or local party committees are spent

according to the allocation ratios

applicable to the national committees rather than the more favorable

allocation ratios used by state and

local committees. National committees would have to earmark

their transfers for specific activities, and state and local committees

would have to finance those

activities entirely with hard

dollars.

• The third variation would require

state and local party committees to

tive will need to speak with the

individual who has the most interaction with the FEC—likely the

committee treasurer.

The questions to be asked are not

sensitive questions. In addition,

individual responses to this survey

will be kept strictly confidential.

Responses will be combined with

the responses of other committees

and reported only in aggregate form.

PricewaterhouseCoopers will

begin contacting selected committees during the week of August 10th

and the study will conclude in late

September. If you are contacted,

please take the time to respond to

the survey. Your responses will

provide the FEC with valuable

information. Questions should be

directed to Bryan Dumont of

PricewaterhouseCoopers at 301/

897-4549 or to the FEC at 800/424-

9530 (press 1) or 202/694-1100. ✦
August 1998 Federal Election Commission RECORD

3

finance mixed federal/nonfederal

activities entirely with hard

dollars.

Early Attempts to Regulate Soft

Money

Since its start in the mid 1970s,

the Commission has struggled with

the fact that many political party

functions have an impact on both

federal and nonfederal elections. To

ensure that prohibited nonfederal

funds are not used to pay for

activities related to federal elections,

the Commission has required party

committees to pay for at least a

portion of these mixed activities

with federally permissible funds, or

hard money.

In 1975, the Commission issued

an advisory opinion (AO 1975-21)

that required a local party committee to use federal funds to pay for a

portion of its administrative expenses and voter registration costs.

The rationale behind this decision

was that these functions had an

indirect effect on federal and

nonfederal elections when they were

being held at the same time. To use

only soft money contributions

would in essence have freed up hard

money to be used for other purposes

that benefited federal candidates.

Thus, the Commission stipulated

that committees involved in federal

and nonfederal activities had to

allocate their administrative expenses between hard and soft money

accounts. In its response to a 1976

advisory opinion request (Re: AOR

1976-72), the Commission concluded that voter registration and

get-out-the-vote (GOTV) drives had

to be paid for entirely with hard

money.

In 1978, however, the tide shifted

somewhat. In AO 1978-10, the

Commission allowed the parties to

allocate their costs for voter registration and GOTV drives, using

corporate/labor contributions to

cover the nonfederal portion of the

expenses. In AO 1979-17, the

Commission concluded that national

party committees could establish

separate accounts to be used exclusively to fund elections of

nonfederal candidates.

The next year, Congress amended

the Act to carve out several “exempt

activities” for state and local party

committees to encourage their

greater participation in federal

elections. Under certain conditions

prescribed by Congress, state and

local committees could spend

unlimited amounts on campaign

materials (such as bumper stickers

and yard signs) used in connection

with volunteer activities on behalf

of party nominees. State and local

committees could also spend

unlimited amounts on voter registration and voter drives on behalf of

their party’s Presidential and Vice

Presidential nominees under certain

circumstances. The House report on

these amendments recognized that,

in some situations, party committees

could allocate the costs of these

activities between their federal and

nonfederal accounts.

Court Recognizes FEC Authority

to Regulate Soft Money

Alleging that the national parties

were using soft money to influence

federal elections, Common Cause,

in 1984, submitted a petition for

rulemaking, asking the Commission

to create new rules governing the

use of soft money.

After the Commission rejected its

petition, Common Cause filed suit

in U.S. District Court, challenging

the denial. The court found that,

while the Act did not prohibit

allocation between federal and

nonfederal accounts, the

Commission’s policy of allowing

allocation “on any reasonable basis”

was contrary to law “since Congress

stated clearly in the FECA that all

monies spent by state committees on

these activities vis-à-vis federal

elections must be paid for ‘from

contributions subject to the limitations and prohibitions of this Act.’”

The court directed the FEC to craft

specific allocation formulas, but it

acknowledged that the FEC could

“conclude that no method of allocation will effectuate the Congressional goal that all moneys spent by

state political committees on those

activities permitted in the 1979

amendments be ‘hard money’ under

the FECA.”

The Commission issued new

rules in 1990 that addressed the

court’s concerns, creating specific

formulas for allocating expenses

that impact on both federal and

nonfederal elections. The formulas

vary depending on the type of

committee and the type of expense.

Disclosure requirements of these

allocated expenses also were

increased. The six national party

committees were required to disclose all receipts of and disbursements from their nonfederal

accounts. The new rules went into

effect on January 1, 1991, and those

same rules are in effect today.

Evidence of Increase in Use of

Soft Money

Prior to 1991, it was difficult to

determine how much soft money

party committees raised or spent

because there were no uniform

guidelines for allocation in expenses

and no systematic disclosure of soft

money on the state level. However,

with the expanded reporting requirements came a renewed perception

that soft money was being used to

influence federal elections. The

Commission made several observations to support this view.

(continued on page 4)

Federal Register

 Federal Register notices are

available from the FEC’s Public

Records Office.

Notice 1998-12

Notice of Proposed Rulemaking:

Prohibited and Excessive

Contributions; “Soft Money” (63

FR 37721, July 13, 1998)
Federal Election Commission RECORD August 1998

4

Regulations

(continued from page 3)

• A dramatic increase in the amount

of soft money raised and spent by

national party committees. At the

end of the 1996 election cycle, the

national party committees had

raised $262.1 million in soft

money, three times as much as the

$86 million they received in 1992.

Soft money disbursements for the

1996 election cycle totaled $271.5

million, up from $79.1 million

spent in 1992.

• An increase in the number of

contributions made to national

party committees’ soft money

accounts that would have been

prohibited in their hard money

accounts. In 1996, nearly 1,000

individuals made contributions of

more than $20,000 to national

party committees’ soft money

accounts. In 1992, the same

category included only 381 people.

The number of contributions from

prohibited sources—such as

corporations and unions—totaled

approximately 27,000 in 1996, up

from about 11,000 such contributors in 1992.

• An increase in soft money following promulgation of allocation

rules. Two of the six national party

committees that did not have

nonfederal accounts prior to 1991

established such accounts and

began raising soft money after the

new rules went into effect. Another

national party committee, which

already had a nonfederal account

before 1991, reportedly increased

its soft money from $3.7 million in

the 1984 Presidential election year

to $23.5 million in the 1992

election year, and $66.2 million in

1996.

• An increase in national party

committee transfers to state and

local party committees. National

party committees apparently have

interpreted the rules to allow them

to shift some federal/nonfederal

activities to state and local committees, which generally operate

under more favorable allocation

ratios. The upshot of this is

significant savings of hard money

for the national committees’

federal accounts.

• Allegations that the national party

committees have transferred soft

money to nonprofit organizations,

which, in turn, conduct voter

registration drives and GOTV

drives to influence federal elections. Many nonprofits are not

political committees under the Act

and therefore are generally not

subject to the allocation rules.

Consequently, these organizations

can often pay for these activities

entirely with soft money.

• Allegations that federal candidates

and officeholders have taken a

more active role in raising soft

money than in the past. Personal

solicitations by federal officeholders may lead contributors to

believe that their contributions will

be used for federal elections when,

in fact, soft money can only be

used for nonfederal elections.

The evidence suggests that the

use of soft money has expanded far

beyond what the Commission

anticipated when it drafted the 1991

allocation rules, especially where

national party committees are

concerned.

The NPRM acknowledges that

only a small percentage of elected

positions in the United States are

federal, that national party committees may have an inherent interest in

the outcome of both federal and

nonfederal elections and that the

national committees sometimes

promote issues that fall outside the

purview of the Act. Nevertheless,

states the NPRM, “by allowing

national party committees to pay a

portion of their mixed activities

costs with soft dollars, the allocation

rules appear to be allowing the

national party committees to use

large soft money contributions in

ways that unavoidably influence

federal elections, even though they

are ostensibly raised for nonfederal

election activity. This is inconsistent

with the policy goals of the FECA,

which seeks to limit corruption and

the appearance of corruption that is

created when large individual

contributions and corporate, labor

organization and federal contractor

funds are used to influence federal

elections.”

Comments

The NPRM provides greater

detail about each of the options

listed above. It is available from the

Public Records Office at 800/424-

9530 (press 3); through the FEC’s

Faxline at 202/501-3413 (request

document 230); and at the FEC’s

web site—http://www.fec.gov. The

NPRM also is published in the July

13 Federal Register (63 FR 37721).

Public comments must be submitted in either written or electronic

form to Susan E. Propper, Assistant

General Counsel. Written comments

should be mailed to the Federal

Election Commission, 999 E St.,

NW, Washington, DC 20463. Faxed

comments should be transmitted to

202/219-3923, with a copy mailed

to the preceding address to ensure

legibility.

Comments also may be sent by email to softmoneynpr@fec.gov. In

order to be considered with the other

comments, electronic submissions

must include the commenter’s full

name, e-mail address and postal

mail address. ✦

Need FEC Material

in a Hurry?

 Use FEC Faxline to obtain FEC

material fast. It operates 24 hours

a day. More than 300 FEC

documents—reporting forms,

brochures, FEC regulations—can

be faxed almost immediately.

 Use a touch tone phone to dial

202/501-3413 and follow the

instructions. To order a complete

menu of Faxline documents, enter

document number 411 at the

prompt.
August 1998 Federal Election Commission RECORD

5

Court Cases

Ohio Democratic Party v.

FEC (98-0991)

RNC v. FEC (98-1207)

On June 25, the U.S. District

Court for the District of Columbia

denied motions by the Ohio Democratic Party (ODP) and the Republican National Committee (RNC) for

a preliminary injunction to prevent

the FEC from enforcing its allocation regulation found at 11 CFR

106.5 and interpreted in AO 1995-

25. The regulation and advisory

opinion require the plaintiffs to pay

a portion of their federal electionrelated advertisement costs with

hard money, or funds that comply

with the law’s contribution limits

and prohibitions. Both committees

filed suits this year charging that

application of the allocation regulation to issue advocacy advertisements was unconstitutional. The two

suits were subsequently consolidated.

The ODP and RNC charge that

the FEC’s allocation regulation

violates the First and Fifth Amendments to the Constitution, and that

the FEC lacks the authority to

promulgate rules such as this. The

ODP and RNC further allege that

the allocation regulation exceeds the

FEC’s authority because it regulates

issue advocacy communications, not

merely communications that expressly advocate the election or

defeat of a federal candidate. The

plaintiffs told the court that they

would suffer irreparable harm if the

injunction was not granted. See the

June 1998 Record, pp. 1 and 2.

Rules for Preliminary Injunction

A preliminary injunction may be

granted when:

• There is a substantial likelihood

that the plaintiffs will succeed on

the merits of the case;

• The plaintiffs will suffer irreparable harm if an injunction is not

issued;

1

 Cityfed Fin. Corp. v. Office of Thrift

Supervision, 58 F.3d 738, 746 (D.C.

Cir. 1995).

• An injunction will not substantially injure others; and

• An injunction will serve the public

interest.1

District Court Decision

In denying the motion for a

preliminary injunction, the court

stated that the ODP and RNC were

not likely to prevail on the merits of

their claims and that the plaintiffs

would not suffer irreparable injury if

the injunction was not issued.

First Amendment Challenge. The

plaintiffs argued that no compelling

interest supported the FEC’s allocation regulations, but the court

recognized that the regulation

prevents the appearance of corruption that could result if soft money

was spent to influence federal

elections. As the court explained:

“The FEC is not seeking a spending

cap on advertisements that influence

federal campaigns, but rather is

attempting to ensure that political

parties do not facilitate any impression that wealth can buy access to

our important federal decision

makers.”

Fifth Amendment Challenge. The

ODP argued that it and other party

committees are being treated

differently than other types of

organizations since they must fund

issue advertising with a mix of hard

and soft money. Organizations that

are not political committees, such as

corporate and labor organizations,

may fund issue advertising completely with nonfederal funds. The

court recognized the party committees’ “unique burden,” but noted

that party committees also have

“special benefits” under the Act.

The court concluded that the FEC

should be given the opportunity to

develop evidence of “special

corruption problems” associated

with the parties’ use of soft money

to finance ads that influence federal

elections.

Regulatory Powers. The plaintiffs

also argued that the FEC lacked the

authority to promulgate the allocation rules. The court, however,

pointed out that Congress gave the

Commission extensive rulemaking

and enforcement powers. Further,

the court noted that the Commission

had submitted the regulation in

question to Congress for review, and

neither chamber had disapproved it.

The court dismissed the plaintiffs’ claims that they would suffer

irreparable injury if the injunction

was not granted. The court stated

that: “Instead, it is the public who

would be harmed if the FEC was

enjoined from enforcing (its allocation regulations). If the public were

to conceive that each

Congressperson elected in the 1998

elections were improperly influenced by large donations to their

political parties which were later

funneled into issue advertisements

with a clear electioneering message,

public confidence in our system of

government is likely to be further

eroded.”

The ODP and RNC are appealing

the decision to the U.S. Court of

Appeals for the District of Columbia

Circuit.

U.S. District Court for the

District of Columbia, 98-0991 and

98-1207. ✦

FEC v. California

Democratic Party

On June 11, the U.S. District

Court for the Eastern District of

California denied the California

Democratic Party’s (CDP’s) motion

to dismiss a complaint filed against

it by the FEC. The FEC alleged that

the CDP violated the Federal

Election Campaign Act (the Act)

when it used only nonfederal funds

to pay for a voter registration drive

conducted by a ballot measure

committee instead of allocating the

costs between its federal and

nonfederal accounts.

(continued on page 6)
Federal Election Commission RECORD August 1998

6

Court Cases

(continued from page 5)

Fulani v. FEC (97-1466)

On June 23, the U.S. Court of

Appeals for the District of Columbia

Circuit denied a petition from Dr.

Lenora B. Fulani and the Lenora B.

Fulani for President Committee to

review the FEC’s final repayment

determination for the committee’s

financial transactions during the

1992 Presidential campaign. The

FEC had determined that Dr. Fulani

and her committee had to repay the

U.S. Treasury $117,269 in public

matching funds.

Dr. Fulani received about $2

million for the 1992 campaign,

under the Presidential Primary

Matching Payment Account Act.

Under the Matching Payment Act,

eligible candidates can use matching

funds only for qualified campaign

expenses. Committees that receive

such funds are also subject to an

audit by the FEC and the requirement to make repayments to the

Background

Taxpayers Against Deception-No

on 165 (No on 165) was a state

political committee organized to

defeat a California ballot initiative

of the same name. Proposition 165

was designed to reduce state spending on welfare and other social

programs and was supported by the

state’s Republican governor, Pete

Wilson. No on 165’s strategy was to

register prospective voters who

supported its efforts to defeat the

initiative, and who would likely

support Democratic candidates who

also were on the ballot during the

same election—including federal

candidates. The CDP ultimately

spent $719,000 from its nonfederal

account to aid No on 165 in its

registration effort, with most of that

money being used to register

Democratic voters. The CDP did not

report the disbursement to the FEC.

The FEC alleged that the CDP

used prohibited funds in connection

with a federal election, failed to

allocate voter registration payments

between its federal and nonfederal

accounts and failed to report the

amounts that should have been

allocated. 11 CFR 102.5(a)(1)(i),

104.10(b)(4) and 106.5(d) and 2

U.S.C. §441b(a). See the July 1997

Record, p. 5.

District Court Decision

The court rejected the CDP’s

arguments for dismissing the case.

The CDP first argued that, since

it did not conduct the voter drive,

the money it gave to No on 165 was

not subject to the allocation regulations. The Commission argued that

the CDP’s contributions were

subject to the regulation because the

situation as presented was no

different than if the CDP had

conducted the voter registration

drive itself or hired someone to do

so. The court pointed out that the

FEC had claimed that the CDP

knew that No on 165 would use the

money to register Democrats who

ostensibly would vote in the general

election for both state and federal

candidates. Further, the FEC had

alleged that No on 165 provided the

CDP with weekly updates on the

success of the voter drive, with

success being measured by the

number of Democrats registered.

The court said, “it is conceivable

that these facts, if proven, could

show that the voter registration

drive was conducted on behalf of

the CDP.”

The CDP also argued that it was

not subject to the FEC’s allocation

rules because the voter drive did not

urge the support of or opposition to

federal candidates. The court

rejected this argument because the

FEC’s regulation at 11 CFR

106.5(a)(2)(iv) explicitly states the

opposite, namely that party committees must allocate generic voter

drive costs “that urge the general

public to register [to vote] ...

without mentioning a specific

candidate.” The court pointed out

that the allocation rules expressly

state that no candidate need be

mentioned, and that the FEC’s

interpretation of this rule is entitled

to deference.

The CDP also maintained that the

FEC did not have the authority to

promulgate allocation rules. The

court pointed out, however, that the

Act’s legislative history demonstrates that Congress anticipated the

allocation of federal and nonfederal

funds when it enacted the 1979

statutory provisions on voter

registration activities.

The CDP argued that the allocation regulations as applied are

unconstitutional because they

restrict the CDP’s ability to engage

in issue advocacy and curtail its

freedom to associate with people

with whom it shares the same

political leanings. The court stated

that the CDP had engaged in activity

that went beyond issue advocacy

when it contributed money to

register Democrats to vote in a

federal election. Consequently, the

court concluded, the CDP had not

shown that the allegations limit its

right to engage in issue advocacy.

The court also rejected the CDP’s

assertion that the regulation impermissibly infringes its freedom of

association rights. It stated: “The

Supreme Court has made clear that

associational rights may

be...overborne by the interests

Congress has sought to protect in

enacting 441b,” the provision

prohibiting corporate/labor activity.

The court added that the regulation

is tailored to restrict only funds that

would be illegal under 2 U.S.C.

§441b.

The court also dismissed former

CDP treasurer Gary Paul as a

defendant in this case. Mr. Paul was

not the committee’s treasurer at the

time of the alleged violations, and is

not currently the treasurer of the

CDP.

U.S. District Court for the

Eastern District of California, 97-

0891. ✦
August 1998 Federal Election Commission RECORD

7

On Appeal?

DSCC v. FEC (97-5160 and 97-

5161)

The U.S. Court of Appeals for the

District of Columbia Circuit denied

the FEC’s petition for a rehearing in

these two cases. In April, the court

remanded both lawsuits to the district

court after determining that the

Democratic Senatorial Campaign

Committee had not demonstrated that

it has standing to sue the FEC. See

the June 1998 Record, p. 4. ✦

U.S. Treasury if the audit reveals

that they made nonqualified campaign expenses or received payments in excess of their entitlement.

Commission regulations allow a

candidate to contest the initial

repayment determination by submitting written materials and by

requesting an oral hearing before the

Commission issues a final repayment determination. The regulations

further state that, if the candidate

does not contest an initial repayment

determination, it becomes final 30

days after a candidate is served

written notice of the determination.

Dr. Fulani did not contest the

Commission’s initial repayment

determination, which concluded that

Dr. Fulani owed the Treasury

$1,394. Dr. Fulani had already

repaid this amount. The Commission, however, held its final determination in abeyance after a former

Fulani campaign worker came

forward to challenge the accuracy of

some of the documentation on

which the FEC had based its initial

repayment determination. The FEC

continued to investigate—though

hampered by a lack of cooperation

from committee staff and vendors—

and issued a second initial repayment determination, this time, in the

amount of $612,557. Dr. Fulani

contested this determination, and, in

its final repayment determination,

the Commission reduced the amount

to $117,269. Dr. Fulani asked for a

rehearing, which was denied by the

Commission, and then brought the

matter before the appellate court.

Dr. Fulani challenged the FEC’s

authority to issue a second repayment determination and, in the

alternative, argued that the

Commission’s findings that she and

her committee owed $18,768 in

nonqualified disbursements to a

vendor and $73,750 in unsubstantiated payments to individuals by

check were unreasonable. See the

October 1997 Record, p. 2.

Dr. Fulani and the committee first

argued that the Matching Payment

Act contemplates only one repayment determination and that the FEC

had no authority to make a second

one in their case. Commission

regulations, however, allow additional repayment determinations after

a final determination has been made

“where there exist facts not used as

the basis for a previous final determination.” 11 CFR 9038.2(f). The court

agreed with the Commission that the

statute is silent on this matter and the

agency’s regulation is a reasonable

construction of the Act.

Dr. Fulani also argued that the

FEC had no authority to hold its

first repayment determination in

abeyance because the determination

became final when Dr. Fulani did

not object to it within the designated

30-day period. The court agreed

with the Commission that it makes

no difference whether the first initial

repayment determination had

become final or had been suspended

because the FEC’s own regulation

explicitly authorizes it to make

additional repayment determinations

on the basis of new facts.

Dr. Fulani also argued that, even

if the Commission is authorized to

make a second repayment determination, it did not issue that determination within the three-year period

the statute requires. Although the

Commission, in fact, did issue the

second initial determination just

before the three-year period ended,

Dr. Fulani stated that the determination figure ($612,557) was drawn up

just to meet the deadline and was

not the product of a thorough

examination and audit. But the court

found that the obstacles the Commission encountered in investigating

the committee understandably led it

to draw all inferences against the

committee. “When a candidate seeks

to frustrate and delay a government

investigation, it can hardly be heard

to complain that the product is

insufficiently thorough,” the court

stated.

The court also affirmed the

Commission’s determination on the

merits and its denial of Dr. Fulani’s

petition for a rehearing. In regard to

the payments to the vendor, the

court stated that Dr. Fulani failed to

offer a timely explanation of the

payments. In regard to the Fulani

committee’s payments by check to

individuals, the court deferred to the

Commission’s construction of its

own regulations even when it found

that the “FEC’s reading of its

regulation admittedly is not obvious.”

U.S. Court of Appeals for the

District of Columbia Circuit, 97-

1466. ✦

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Record Available on

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Federal Election Commission RECORD August 1998

8

Compliance

MUR 3847

Excessive Contributions

Among Campaign Finance

Violations That Net

Committee Civil Penalty

Friends of Steve Stockman, the

principal campaign committee of

Stephen E. Stockman, has agreed to

pay a $40,000 civil penalty for

various violations of the Federal

Election Campaign Act (the Act)

that occurred in connection with his

federal campaigns during the 1994

and 1996 election cycles.

Specifically, the committee

accepted excessive in-kind contributions from two newspapers and

failed to report the contributions to

the FEC; included no disclaimers or

improper disclaimers on express

advocacy communications and

solicitations; and failed to adequately report various disbursements and contributions.

Newspaper Stories as In-kind

Contributions

The Southeast Texas Times, a

newspaper distributed in Mr.

Stockman’s district in 1993, produced nine issues containing articles

related to Mr. Stockman’s campaign. The Stockman committee

controlled the newspaper, and the

paper did not contain balanced

campaign-related news accounts

about all opposing candidates.

The Act limits a person’s contribution to a federal candidate to

$1,000 per election. The term

contribution includes expenditures

made by any person in cooperation

with the candidate or his authorized

committee, including payments to

finance the dissemination and

distribution of written campaign

materials prepared by the campaign.

The Act exempts, however, costs

associated with the production of

news stories, commentaries or

editorials distributed through

newspapers and other periodicals as

long as the media entity is not

owned or controlled by a political

committee or candidate. 2 U.S.C.

§431(9)(B)(i); 11 CFR 100.7(b)(2)

and 100.8(b)(2). If the newspaper is

owned or controlled by a candidate

or political committee, such costs

may still be exempt if the news

story represents a bona fide news

account appearing in a general

circulation publication and is part of

a general pattern of campaignrelated news that gives reasonable

coverage to all opposing candidates

in the circulation area. 11 CFR

100.7(b)(2) and 100.8(b)(2).

The Commission concluded that,

in this case, the newspaper was not

an activity separate from Mr.

Stockman’s campaign for federal

office, but rather a component of the

overall effort. Thus, the $14,336 in

expenditures associated with the

newspaper’s production resulted in

$13,336 in excessive in-kind

contributions to the Stockman

campaign, which the campaign

accepted but did not report.

In 1995, a similar newspaper

controlled by the Stockman committee called the Southeast Texas

Statesman was published in a

similar manner to the 1993 publication. Expenditures associated with

the production of this newspaper

totaled at least $3,200, resulting in

at least $2,200 in excessive in-kind

contributions to the committee.

Again the Stockman committee

accepted these contributions, but did

not report them.

Disclaimer Notices

The Act also requires any person

who pays for an express advocacy

communication or a solicitation

through a newspaper (or other form

of public advertising) to include a

disclaimer saying who paid for and

who authorized the communication.

2 U.S.C. §441d(a). The disclaimer

must be placed in a clear and

conspicuous manner. A communication will be considered to contain

express advocacy when such

phrases as “vote for” and “support”

are used, or when campaign slogans

appear which, in context, can have

no other reasonable meaning than to

urge the election or defeat of one or

more clearly identified candidates.

11 CFR 100.22(a).

The Southeast Texas Times

carried advertising aimed at the

general public that solicited contributions for the Stockman committee, but included no disclaimers.

The Stockman campaign produced other communications—

formatted to resemble a

newspaper—in 1994. One such

communication, called “Chronicle

of Our Times,” contained express

advocacy statements. The communication included this disclaimer:

“Paid for by the National Republican Congressional Committee,

Authorized by Friends of Steve

Stockman.” The communication

was not, however, paid for entirely

by the National Republican Congressional Committee (NRCC).

Thus, the communication failed to

contain an accurate disclaimer.

Inaccurate Reporting

Political Won Stop (PWS), a

consulting firm with close ties to the

Stockman campaign, worked on Mr.

Stockman’s campaign and was paid

$470,000. PWS, in turn, disbursed

the funds to third party vendors. The

Act requires that committees

identify persons to whom expenditures are made and disclose the

“purpose” of those expenditures—a

brief description of why the disbursement was made. Statements

such as “expenses,” “miscellaneous”

and “outside service” are not

sufficient.

In AO 1983-25, the Commission

determined that payments to a

media consulting firm by a campaign committee could be reported

without identifying the ultimate

payee based on the facts that the

firm had a separate legal existence,

its principals did not hold any staff

position with the committee, and the
August 1998 Federal Election Commission RECORD

9

MUR 4116

Coordination with

Candidates Nets Seniors

Group Civil Penalty

The National Council of Senior

Citizens (NCSC) and its separate

segregated fund, the National

Council of Senior Citizens Political

Action Committee (NCSC-PAC),

have agreed to pay a $12,000 civil

penalty to the FEC for a series of

committee had arm’s length negotiations with the firm and planned to

enter a formal contract. None of

these factors existed in the relationship between the Stockman committee and PWS, yet the committee did

not report the ultimate payees of its

payments to PWS. Additionally, the

committee reported virtually all of

its payments to PWS as “consulting,” “consulting fees,” “consulting

services” or “fundraising services”—inadequate descriptions of

the underlying purpose of the

disbursements as required by the

Act and AO 1983-25.

Further, the committee failed to

report disbursements totaling

approximately $17,000; failed to

report $2,800 in contributions from

the NRCC; incorrectly reported

approximately $3,700 in disbursements; cumulated disbursements to

a vendor within one reporting

period; and failed to report some

disbursements under $200 regardless of the aggregate amount

disbursed to the person within a

calendar year.

After finding probable cause to

believe that the committee violated

the Act, the FEC entered into a

conciliation agreement with it.1 ✦

1

 The Commission also found probable

cause to believe that, along with his

campaign committee, Stephen E.

Stockman controlled the newspaper in

this matter and violated the Act by

accepting the newspapers’ excessive

contributions and failing to timely file a

Statement of Candidacy.

violations of the Federal Election

Campaign Act (the Act), including

excessive contributions in the form

of communications coordinated with

candidates, prohibited corporate

contributions, failure to use disclaimers on public political advertisements and failure to adequately

report contributions and expenditures. The violations occurred in

connection with the campaigns of

Charles Robb and Harris Wofford,

Senate candidates in Virginia and

Pennsylvania, respectively.

NCSC is a nonprofit membership

corporation. In 1994, NCSC and

NCSC-PAC participated in a press

conference with Mr. Robb and held

a press conference for Mr. Wofford

that he attended. Within a few days

after each press conference, NCSCPAC began purchasing radio ads

supporting each man in his election.

The NCSC-PAC spent about

$18,800 on behalf of Mr. Robb and

about $12,440 on behalf of Mr.

Wofford.

NCSC-PAC reported disbursements for both of the ads as independent expenditures (i.e.,

expenditures that are made for a

communication that expressly

advocates the election or defeat of a

clearly identified candidate and that

are made without cooperation or

consultation with any candidate (or

candidate’s committee) and that are

not made in concert with or at the

request or suggestion of any candidate). 2 U.S.C. §431(17). Commission regulations explain that the

independence is negated by any

“arrangement, coordination, or

direction by the candidate or his or

her agent prior to the publication,

distribution, display, or broadcast of

the communication.” 11 CFR

109.1(b)(4)(i). Further, the regulations presume that expenditures are

coordinated if they are based on

information about the candidate’s

plans, projects or needs that is

provided by the campaign to the

person making the expenditure, with

a view toward having an expenditure made. 11 CFR

109.1(b)(4)(i)(A).

In both of these cases, the press

conferences and the communications between NCSC and the

campaigns concerning the press

conferences, involved an exchange

of information and called into

question the independence of the

NCSC-PAC’s expenditures. The

Commission thus found that the

expenditures in the Virginia and

Pennsylvania campaigns were not

made independently of the candidates’ committees and, therefore,

constituted in-kind contributions,

which exceeded the limits set out in

the Federal Election Campaign Act

(the Act). While independent

expenditures are not limited by the

Act, contributions are. A

multicandidate PAC may make

contributions up to $5,000 per

election, per candidate. 2 U.S.C.

§431(17) and §441a(a)(2)(A).

NCSC-PAC contended that it did

not communicate with the Robb or

Wofford campaigns about its

decision to run the ads, or about

their content or placement.

During the same campaign,

NCSC staffers, on company time,

worked on NCSC-PAC projects

related to press conferences, radio

ads, flyers and press releases that

expressly advocated the election or

defeat of federal candidates. Some

of these projects, because they were

coordinated with federal candidates,

constituted in-kind contributions

from NCSC-PAC to the candidate.

To avoid making a contribution,

NCSC-PAC should have paid in

advance for the staff time expenses

($12,334). It did not, however,

reimburse its corporate sponsor until

more than a month after the elections. Thus, the $12,334 in NCSC

staff time constituted an impermissible corporate contribution. 2

U.S.C. §441b(a).

Additionally, NCSC distributed

flyers during this same election

campaign that expressly advocated

(continued on page 10)
Federal Election Commission RECORD August 1998

10

Compliance

(continued from page 9)

Mr. Robb’s reelection. However, the

flyers did not contain a disclaimer as

to who paid for and who authorized

the communications, as is required

by law. 2 U.S.C. §441d(a).

In addition to the civil penalty

paid by NCSC and NCSC-PAC, the

two must institute procedures to

ensure that none of the violations

that occurred in 1994 reoccur, and

the PAC must file amendments to its

reports disclosing the true nature of

the its expenditures. The Commission entered into a conciliation

agreement with NCSC and NCSCPAC prior to finding probable cause

to believe that a violation of the Act

had occurred.1 ✦

Index

The first number in each citation

refers to the “number” (month) of

the 1998 Record issue in which the

article appeared. The second

number, following the colon,

indicates the page number in that

issue. For example, “1:4” means

that the article is in the January

issue on page 4.

Advisory Opinions

1997-18: Status of committee as

local party committee, 1:14

1997-21: Refund to candidate who

had made contribution to own

campaign, 6:5

1997-22: Communicating membership corporation’s endorsements

of federal candidates to members

and their restricted classes, 1:14

1997-25: Affiliation of corporate

SSFs after reorganization, 3:5

1997-26: Establishment of

nonconnected PAC by individuals

affiliated with trade association, 3:7

1997-27: Use of campaign funds to

1

 The Commission also found probable

cause to believe that Robb for the

Senate, the principal campaign

committee of Charles Robb, violated

the Act by accepting excessive contributions, failing to report contributions

and accepting corporate contributions.

Advisory

Opinions

Advisory Opinion Requests

Advisory opinion requests are

available for review and comment in

the Public Records Office.

AOR 1998-14

Acceptance of contributions from

residents of Pacific Island nations

covered under the Compact of Free

Association (Eugene F. Douglass

for U.S. Senate Campaign Committee, June 23, 1998; 1 page plus 4-

page attachment)

AOR 1998-15

Contribution limits of limited

liability company in Illinois

Alternative Disposition of

Advisory Opinion Request

AOR 1998-10

The requester withdrew this request

for an advisory opinion. The request, submitted on May 6, sought

the Commission’s opinion on the

restricted class of American Oncology Resources, Inc., a physician

practice management corporation. ✦

(Fitzgerald for Senate, Inc., June 30,

1998; 2 pages)

AOR 1998-16

Corporate payment of security for

executive conducting activity on

behalf of nonconnected committee

(Restoring the American Dream,

July 9, 1998; 3 pages. ✦

Staff

(continued from page 1)

Acting Staff Director Named

James A. Pehrkon has been appointed by the Commission as Acting Staff

Director of the FEC. Mr. Pehrkon, who has been with the agency almost

since its inception, begins his new duties on August 1.

Mr. Pehrkon started with the FEC in November 1975, setting up the data

processing department. He then established and became director of the

agency’s Data Systems Development Division. In 1980, he became Deputy

Staff Director taking on a broad range of management responsibilities for

budget, administration and computer systems.

As the Acting Staff Director, Mr. Pehrkon will oversee the Commission’s

public disclosure activities, outreach efforts, reports processing and audit

program, in addition to the administration of the agency. Mr. Pehrkon

replaces former Staff Director John Surina, who accepted a new position at

the Department of Agriculture.

A native of Austin, TX, Mr. Pehrkon received an undergraduate degree in

economics from Harvard University, and did graduate work in foreign affairs

at Georgetown University. ✦
August 1998 Federal Election Commission RECORD

11

Do you want to file your FEC reports electronically? The FEC will

mail you a copy of its new, free electronic filing software—FECFile.

Mail or fax this form to the address/number below. Currently, FECFile

operates on Windows95 and WindowsNT platforms.

FEC Identification Number

Committee Name

Electronic Filing Contact Name

Address: Street 1

Address: Street 2

City

State

Zip Code

Phone Number

Fax Number

E-mail Address

Federal Election Commission

Data Division—Room 431

999 E Street, NW

Washington, DC 20463

Fax: 202/219-0674

✃

FECFile Order Form

pay legal expenses, 4:7

1997-28: Reinstatement of terminated candidate committee to

retire debt to candidate, 4:8

1997-29: Status as state committee

of political party, 4:8

1998-1: Use of campaign funds to

pay legal expenses, 4:8

1998-2: Status as national committee of political party; status of

affiliated state parties as state

committees of political party, 4:10

1998-3: Status as state committee of

political party, 4:11

1998-4: Use of contributor lists

from FEC reports for marketing

“data mining” technologies, 6:5

1998-7: Exemption for party office

building fund and construction of

state party office facilities and

parking lot, 7:8

1998-8: Preemption of Iowa law

prohibiting corporate contributions to party building fund, 7:9

1998-9: Generic party expenditures

made in connection with special

election, 7:9

Court Cases

FEC v. _____

– Al Salvi for Senate Committee, 4:4

– California Democratic Party, 8:5

– Charles Woods for U.S. Senate, 3:3

– National Medical Political Action

Committee, 1:3; 7:5

– Williams, 1:3

_____ v. FEC

– Akins, 7:1

– Clifton, 4:5; 7:4

– DSCC (97-5160 and 97-5161),

6:4; 8:7

– Fulani, (97-1466), 8:6

– Gottlieb, 7:4

– Hollenbeck, 4:4

– Judd, 6:5

– Judicial Watch, Inc., 4:4

– National Committee of the Reform

Party, 1:2; 4:4

– Natural Law Party (98-1025), 6:3

– Ohio Democratic Party (98-0991),

6:2; 8:5

– Perot ’96, Inc., (97-2554), 6:3

– Perot ’96, Inc., (98-1022), 6:3

– RNC (97-1552), 6:4

– RNC (98-1207 (WBB)), 6:1; 8:5

– Right to Life of Dutchess County,

Inc., 7:3

– Stockman, 5:3

Reports

Electronic filing, 4:1; 4:2

On FEC web site, 2:1; 4:2; 6:1

Pre-Election Reporting Dates: 1998

Primary and Runoff Elections, 1:8

Reports, Alabama Runoff, 2:1

Reports due in 1998, 1:6; 1:11

Reports due in April, 4:2

Reports due in July, 7:11

Special Elections, California, 1:12;

3:9

Special Election, New Mexico, 5:3

Special Election, New York, 2:4

Special Election, Pennsylvania, 1:13

Surveying potential for electronic

filing, 2:2
FEDERAL ELECTION COMMISSION

999 E Street, NW

Washington, DC 20463

Official Business

Penalty for Private Use, $300

Bulk Rate Mail

Postage and Fees Paid

Federal Election Commission

Permit Number G-31

Printed on recycled paper

Federal Election Commission RECORD August 1998

GAO asking political committees to evaluate FEC services

and products. For story, see page 1.