[Federal Register Volume 72, Number 65 (Thursday, April 5, 2007)]
[Rules and Regulations]
[Pages 16695-16699]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-6185]


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FEDERAL ELECTION COMMISSION

11 CFR Part 111

[Notice 2007-8]


Policy Regarding Self-Reporting of Campaign Finance Violations 
(Sua Sponte Submissions)

AGENCY: Federal Election Commission.

ACTION: Statement of Policy.

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SUMMARY: In order to encourage the self-reporting of violations about 
which the Commission would not otherwise have learned, the Commission 
will generally

[[Page 16696]]

offer penalties between 25% and 75% lower than the Commission would 
otherwise have sought in identical matters arising by other means. The 
Commission will also use a new expedited procedure through which the 
Commission may allow individuals and organizations that self-report 
violations and that make a complete report of their internal 
investigation to proceed directly into conciliation prior to the 
Commission determining whether their conduct may have violated statutes 
or regulations within its jurisdiction. This policy also addresses 
various issues that can arise in connection with parallel criminal, 
administrative or civil proceedings.

DATES: Effective April 5, 2007.

FOR FURTHER INFORMATION CONTACT: Mark Shonkwiler, Assistant General 
Counsel, or April J. Sands, Attorney, Enforcement Division, Federal 
Election Commission, 999 E Street, NW., Washington, DC 20463, (202) 
694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION:

I. Goals and Scope of the Policy

    The Commission periodically receives submissions from persons who 
self-report statutory or regulatory violations of which the Commission 
had no prior knowledge. The Commission considers such self-reports 
(which also are referred to as sua sponte submissions) as information 
ascertained in the normal course of carrying out its supervisory 
responsibilities pursuant to 2 U.S.C. 437g(a)(2), and may investigate 
if it determines there is reason to believe a violation has occurred. 
The Commission also investigates complaints reporting the potentially 
illegal conduct of another, submitted pursuant to 2 U.S.C. 437g(a)(1), 
but which also, by implication, provide a basis for investigating the 
complainant itself.\1\ As a general proposition, self-reported matters, 
when accompanied by full cooperation, will be resolved more quickly and 
on more favorable terms than identical matters arising by other means 
(e.g., those arising via external complaints, referrals from other 
government agencies, or referrals from the Commission's Audit or 
Reports Analysis Divisions).\2\
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    \1\ If a person who self-reports a violation of the FECA also 
makes specific allegations as to other persons not joining in the 
submission, and particularly where the person making the submission 
seeks to assign primary responsibility for the violations to another 
person (including an organization's former officers or employees), 
the Commission, acting through its Office of General Counsel, may 
advise the self-reporting person that a portion of the relevant 
materials should be re-submitted as a complaint to which other 
persons would be allowed to respond prior to any findings by the 
Commission.
    \2\ When violations are found, FECA requires the Commission to 
attempt to correct or prevent violations through conciliation 
agreements before suit may be filed in federal district court.
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    The Commission recently has seen an increase in self-reported 
violations, which may be attributable, at least in part, to greater 
attention being placed on compliance programs for areas of potential 
organizational liability, and recognition that addressing a problem 
through self-auditing and self-reporting may help minimize reputational 
harm. The increase in the number of self-reported matters has 
highlighted the need to increase the transparency of Commission 
policies and procedures. Moreover, the Commission seeks to provide 
appropriate incentives for this demonstration of cooperation and 
responsibility.
    On December 8, 2006, the Commission published a proposed policy 
statement on self-reporting of violations. See Proposed Policy 
Regarding Self-Reporting of Campaign Finance Violations (Sua Sponte 
Submissions), 71 FR 71090 (December 8, 2006). The comment period ended 
on January 29, 2007. Two comments were received. One of the comments 
supported the proposed policy and suggested some minor revisions. The 
other comment opposed the proposed policy.
    This policy provides an overview of the factors that influence the 
Commission's handling and disposition of self-reported matters. It 
should be noted that while cooperation in general, and self-reporting 
in particular, will be considered by the Commission as mitigating 
factors, they do not excuse a violation of the Act or end the 
enforcement process. Also, this policy does not confer any rights on 
any person and does not in any way limit the right of the Commission to 
evaluate every case individually on its own facts and circumstances.\3\
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    \3\ Some violations, for instance, are subject to a mandatory 
minimum penalty prescribed by statute. See 2 U.S.C. 437g(a)(6)(C).
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II. Self-Reporting of FECA Violations

    Self-reporting of violations typically allows respondents to 
resolve their civil liability in a manner which has the potential to: 
(1) Reduce the investigative burden on both the Commission and 
themselves; (2) demonstrate their acceptance of organizational or 
personal responsibility and commitment to internal compliance; and (3) 
conclude their involvement in the Commission's enforcement process on 
an expedited basis. As a result, a person who brings to the 
Commission's attention violations of the FECA and Commission 
regulations and who cooperates with any resulting investigation will 
also generally receive appropriate consideration in the terms of an 
eventual conciliation agreement. For example, the Commission may do one 
or more of the following:
    <bullet> Take no action against particular respondents;
    <bullet> Offer a significantly lower penalty than what the 
Commission otherwise would have sought in a complaint-generated matter 
involving similar circumstances or, where appropriate, no civil 
penalty;
    <bullet> Offer conciliation before a finding of probable cause to 
believe a violation occurred, and in certain cases proceed directly to 
conciliation without the Commission first finding reason to believe 
that a violation occurred;
    <bullet> Refrain from making a formal finding that a violation was 
knowing and willful, even where the available information would 
otherwise support such a finding;
    <bullet> Proceed only as to an organization rather than as to 
various individual agents or, where appropriate, proceed only as to 
individuals rather than organizational respondents;
    <bullet> Include language in the conciliation agreement that 
indicates the level of cooperation provided by respondents and the 
remedial action taken.
    Additionally, in cases where the submission includes privileged or 
sensitive information, the Commission may work with the submitter to 
protect privileged information from public disclosure while still 
allowing the Commission to verify the sufficiency of the submission.

III. Factors Considered in Self-Reported Matters

    The Commission may take into account various factors in considering 
how to proceed regarding self-reported violations. In general, more 
expedited processing and a more favorable outcome will result when the 
self-reporting party can show that upon discovery of the potential 
violations, there was an immediate end to the activity giving rise to 
the violation(s); the respondent made a timely and complete disclosure 
to the Commission and fully cooperated in the disposition of the 
matter; and the respondent implemented appropriate and timely 
corrective measures, including internal safeguards necessary to prevent 
any recurrence. Further detail as to these factors is supplied below.

[[Page 16697]]

Nature of the Violation

    (1) The type of violation: Whether the violation was knowing and 
willful, or resulted from reckless disregard for legal requirements or 
deliberate indifference to indicia of wrongful conduct; negligent; an 
inadvertent mistake; or based on the advice of counsel; \4\
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    \4\ A respondent seeking to defend conduct based on advice of 
counsel may not simultaneously withhold documentary or other 
evidence supporting that assertion based on the attorney-client 
privilege.
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    (2) The magnitude of the violation: Whether the violation resulted 
from a one-time event or an ongoing pattern of conduct repeated over an 
extended period of time (and whether there was a history of similar 
conduct); how many people were involved in or were aware of the 
violation and the relative level of authority of these people within 
the organization; whether individuals were coerced into participating 
in the violation; the amount of money involved either in terms of 
absolute dollar amount or in terms of the percentage of an entity's 
activity; and the impact the violation may have had on any federal 
election;
    (3) The origin of the violation: Whether the conduct was intended 
to advance the organization's interests or to defraud the organization 
for the personal gain of a particular individual; whether there were 
compliance procedures in place to prevent the type of violation now 
uncovered and, if so, why those procedures failed to stop or deter the 
wrongful conduct; and whether the persons with knowledge of the 
violation were high-level officials in the organization.

Extent of Corrective Action and New Self-Governance Measures

    (4) Investigative and corrective actions: Whether the violation 
immediately ceased upon its discovery; how long it took after discovery 
of the violation to take appropriate corrective measures, including 
disciplinary action against persons responsible for any misconduct; 
whether there was a thorough review of the nature, extent, origins, and 
consequences of the conduct and related behavior; whether the 
respondent expeditiously corrected and clarified the public record by 
making appropriate and timely disclosures as to the source and 
recipients of any funds involved in a violation; whether a federal 
political committee promptly made any necessary refunds of excessive or 
prohibited contributions; and whether an organization or individual 
respondent waived its claim to refunds of excessive or prohibited 
contributions and instructed recipients to disgorge such funds to the 
U.S. Treasury;
    (5) Post-discovery compliance measures: Whether there are 
assurances that the conduct is unlikely to recur; whether the 
respondent has adopted and ensured enforcement of more effective 
internal controls and procedures designed to prevent a recurrence of 
the violation; and whether the respondent provided the Commission with 
sufficient information for it to evaluate the measures taken to correct 
the situation and ensure that the conduct does not recur.

Disclosure and Cooperation

    (6) Full disclosure of the violation to the Commission: Whether 
steps were taken upon learning of the violation; whether the disclosure 
was voluntary or made in recognition that the violation had been or was 
about to be discovered, or in recognition that a complaint was filed, 
or was about to be filed, by someone else; and whether a comprehensive 
and detailed disclosure of the results of its internal review was 
provided to the Commission in a timely fashion;
    (7) Full cooperation with the Commission: Whether the respondent 
promptly made relevant records and witnesses available to the 
Commission, and made all reasonable efforts to secure the cooperation 
of relevant employees, volunteers, vendors, donors and other staff 
without requiring compulsory process; whether the respondent agreed to 
waive or toll the statute of limitations for activity that previously 
had been concealed or not disclosed in a timely fashion.
    The Commission recognizes that all of the above-listed factors will 
not be relevant in every instance of self-reporting of potential FECA 
violations, nor is the Commission required to take all such factors 
into account. In addition, these factors should not be viewed as an 
exhaustive list.

IV. Reduction in Penalties for Self-Reporting Matters

    The Commission will generally reduce opening civil penalty offers 
by between 25% and 75% compared with identical matters arising from a 
complaint or by other means. The amount of the reduction depends on the 
facts and circumstances of a particular case. The Commission will 
consider the factors set forth above.
    Absent unusual circumstances, the Commission will grant a civil 
penalty reduction of 50% to respondents who meet the following 
criteria:
    <bullet> Respondents alert the Commission to potential violations 
before the violation had been or was about to be discovered by any 
outside party, including the Commission;
    <bullet> The violation immediately ceased and was promptly reported 
to the Commission upon discovery;
    <bullet> Respondents take appropriate and prompt corrective 
action(s) (e.g., changes to internal procedures to prevent a recurrence 
of the violation; increased training; disciplinary action where 
appropriate);
    <bullet> Respondents amend reports or disclosures to correct past 
errors, if applicable;
    <bullet> Any appropriate refunds, transfers, and disgorgements are 
made and/or waived; and
    <bullet> Respondents fully cooperate with the Commission in 
ensuring that the sua sponte submission is complete and accurate.
    In addition, the Commission may grant a civil penalty reduction of 
up to 75% to respondents for violations in sua sponte submissions based 
on other factors such as submissions that were uncovered as a result of 
independent experts that were hired by respondents to conduct a 
thorough review, investigation or audit, or an equally comprehensive 
internal review, investigation or audit. In order to receive this 
reduction, respondents must also meet the above criteria for a 50% 
reduction and provide the Commission with all documentation of the 
experts' review, investigation, or audit.\5\
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    \5\ As discussed above, the Commission will, where appropriate, 
work with the submitter to protect privileged information from 
public disclosure.
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    The required scope of the review, investigation or audit will 
depend on the circumstances. For example, if an organization discovers 
that an employee, stockholder or member may have reimbursed political 
contributions with organization funds, the Commission would consider a 
thorough review to include: Identification of all political 
contributions made by the suspect employee subsequent to and for at 
least three years prior to the suspected reimbursement (and extending 
further if additional suspect contributions are found); a review of 
contributions by anyone associated with the organization (including, 
but not limited to, relatives and subordinates) corresponding in time 
or recipient to the suspected reimbursed contributions; a review of the 
organization's compensation (especially bonus) and expense 
reimbursement policies and

[[Page 16698]]

practices for the relevant periods to identify potential contribution 
reimbursements. Similarly, if an organization discovers it has 
misstated financial information on its reports, the Commission would 
consider a through review to include: An audit reconciling bank and 
internal financial records with FEC reports for the period in which the 
error was discovered, any subsequent reporting periods, and prior 
reporting periods for at least a year prior to the error (and extending 
further if additional errors are found); a review addressing internal 
controls and reporting procedures and identifying weaknesses 
contributing to the errors and remedies for those weaknesses.
    The Commission will be the sole arbiter of whether the facts of 
each case warrant a particular reduction in the penalty. The Commission 
will generally not give a respondent the benefit of this policy if the 
respondent is the subject of a criminal or other government 
investigation. In considering appropriate penalties, the Commission 
will also consider the presence of aggravating factors, such as knowing 
and willful conduct or involvement by senior officials of an entity.

V. Fast-Track Resolution

    The Commission will generally not make a reason-to-believe finding 
or open a formal investigation for respondents that self-report 
violations, if: (1) All potential respondents in a matter have joined 
in a self-reporting submission that acknowledges their respective 
violations of the FECA; (2) those violations do not appear to be 
knowing and willful; (3) the submission is substantially complete and 
reasonably addresses the significant questions or issues related to the 
violation; and (4) the factual and legal issues are reasonably clear. 
Accordingly, the Commission is modifying its current practice to allow 
for an expedited Fast-Track Resolution (``FTR'') for a limited number 
of matters involving self-reported violations. This procedure is 
available at the Commission's discretion, but may be requested by 
respondents.
    Respondents eligible for the FTR process will meet with the Office 
of General Counsel to negotiate a proposed conciliation agreement 
before the Commission makes any formal findings in the matter. Although 
the Commission is always free to reject or seek modifications to a 
proposed conciliation agreement, it is expected that this process will 
allow for more expedited processing of certain types of violations 
where factual and legal issues are reasonably clear. It also will allow 
respondents to resolve certain matters short of the Commission finding 
that there is reason to believe that a violation has occurred. Examples 
of matters that might be eligible for such treatment include:
    <bullet> Matters in which an individual contributor discovers that 
he or she inadvertently violated the individual aggregate election 
cycle contribution limit contained in 2 U.S.C. 441a(a)(3);
    <bullet> Matters in which a political committee seeks to disclose 
and correct relatively straightforward reporting violations;
    <bullet> Matters in which a contributor and a political committee 
jointly seek to resolve their liability for a simple and inadvertent 
excessive or prohibited contribution; and
    <bullet> Matters in which the initial self-reporting submission by 
the respondents is sufficiently thorough that only very limited, if 
any, follow-up by the Office of the General Counsel is necessary to 
complete the factual record.

VI. Parallel Proceedings

    The Commission recognizes that persons self-reporting to the 
Commission may face special concerns in connection with parallel 
criminal investigations, State administrative proceedings, and/or civil 
litigation. The Commission expects that persons who self-report to the 
Commission will inform the Commission of any existing parallel 
proceedings. The Commission encourages persons who self-report to the 
Commission also to self-report related violations to any law 
enforcement agency with jurisdiction over the activity. This will 
assist the Commission, where appropriate and possible, in working with 
other federal, state, and local agencies to facilitate a global and/or 
contemporaneous resolution of related violations by a self-reporting 
person. The possibility of such a resolution is enhanced when the self-
reporting person expresses a willingness to engage other government 
agencies that may have jurisdiction over the conduct and to cooperate 
with joint discovery and disclosure of facts and settlement positions 
with respect to the different agencies.
    In situations where contemporaneous resolution of parallel matters 
is not feasible, the Commission will consider whether terms contained 
in a conciliation agreement with the Commission may affect potential 
liability the same respondent realistically faces from another agency. 
In appropriate cases, where there has been self-reporting and full 
cooperation, the Commission may agree to enter into conciliation 
without requiring respondents to admit that their conduct was knowing 
and willful, even where there is evidence that may be viewed as 
supporting this conclusion. The Commission has followed this practice 
in several self-reported matters where the organizational respondents 
promptly self-reported and took comprehensive and immediate corrective 
action that included the dismissal of all individual corporate officers 
whose actions formed the basis for the organization's potential knowing 
and willful violation.
    The Commission has the statutory authority to refer knowing and 
willful violations of the FECA to the Department of Justice for 
potential criminal prosecution, 2 U.S.C. 437g(a)(5)(C), and to report 
information regarding violations of law not within its jurisdiction to 
appropriate law enforcement authorities. 2 U.S.C. 437d(a)(9). The 
Commission will take into consideration the fact of self-reporting in 
deciding whether to refer a matter. However, the Commission will not 
negotiate whether it refers, reports, or otherwise discusses 
information with other law enforcement agencies. Although the 
Commission cannot disclose information regarding an investigation to 
the public, it can and does share information on a confidential basis 
with other law enforcement agencies.

VII. Conclusion

    The Commission seeks to encourage the self-reporting of violations. 
To that end, the Commission has adopted this policy that explains that 
sua sponte submissions will, in general, receive more expedited 
processing and more favorable outcomes than identical matters arising 
by other means.
    This notice represents a general statement of policy announcing the 
general course of action that the Commission intends to follow. This 
policy statement 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 Procedures Act (``APA''). As such, it does not bind 
the Commission or any member of the general public. The provisions of 
the Regulatory Flexibility Act, 5 U.S.C. 605(b), which apply when 
notice and comment are required by the APA or another statute, are not 
applicable.


[[Page 16699]]


    Dated: March 27, 2007.
Robert D. Lenhard,
Chairman, Federal Election Commission.
[FR Doc. E7-6185 Filed 4-4-07; 8:45 am]
BILLING CODE 6715-01-P