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On April 12, 1988, the U.S. District Court for the Northern District of New York entered an order granting summary judgment to the FEC in United States Defense Committee (USDC) v. FEC (Civil Action No. 84-CV-450).
In a decision of November 7, 1988, the U.S. Court of Appeals for the Second Circuit held that the USDC's complaint against the FEC was not ripe for the court's review. The appeals court therefore remanded the case to the U.S. District Court for the Northern District of New York with instructions for the district court to dismiss the case.
In its suit, the United States Defense Committee (USDC) asked the U.S. District Court to take action with respect to the Commission's Advisory Opinions (AOs) 1983-43, 1984-14, and 1987-7.
In those opinions, the Commission expressed the view that corporate treasury expenditures for certain voter guides which USDC proposed to compile and distribute to the general public were not exempted under Part 114 of FEC regulations. Consequently, the voter guides were prohibited by 2 U.S.C. §441b because, as drafted, the language of the guides suggested an election-influencing purpose. (Taken together, these legal provisions prohibit corporations, labor organizations and incorporated membership organizations from distributing to the general public voter guides that favor one candidate or political party over another.)
In response to the opinions, USDC asked the court to declare that USDC's proposed expenditures were not proscribed by FEC regulations. USDC also raised three constitutional questions concerning its distribution of the voter guides. For example, USDC asked the court to consider whether 441b abridged its First and Fifth Amendment rights by discriminating between incorporated organizations like USDC and the institutional press. (Costs incurred by news media corporations for bona fide coverage of political events are exempt from the election law's broad prohibition on corporate expenditures, provided the news corporation is not owned or controlled by any political party, political committee or candidate.)
In a statement read into the public record, the district court judge presiding in this case held that the court had jurisdiction to review USDC's complaint. While the court acknowledged that the election law did not specifically provide for judicial review of FEC advisory opinions, the court found that its authority to review the complaint had not been "explicitly restricted by statute or by Congress...."
In ruling on the merits of the case, the court rejected USDC's claim that the election law discriminates against USDC by permitting the institutional press to disseminate information on political candidates to the general public while prohibiting USDC from disseminating information in the form of voter guides. The court held that the press exemption had a "valid basis" in that it recognizes the need for informing the public on federal election-related issues. Further, the press is not covered by this exemption when it exceeds its legitimate press function. The court also rejected USDC's argument that the guides were not covered by the 441b prohibition because they did not include an explicit request for the recipients to vote one way or another.
Finally, the court held that the Supreme Court's decision in FEC v. Massachusetts Citizens for Life, Inc. (MCFL), (Civil Action No. 85-701) did not exempt USDC from 441b's prohibition against corporate expenditures in connection with federal elections. To be eligible for the MCFL exception, among other things, a nonprofit corporation must have a policy of not accepting contributions from business corporations or labor organizations. Since USDC had accepted money from its corporate members, the court found that the organization was not eligible for the MCFL exception.
USDC subsequently filed an appeal of the district court's decision with the U.S. Court of Appeals for the Second Circuit.
In deciding that USDC's case was not ripe for judicial review, the appeals court said that nothing in the legislative history indicated that Congress thought advisory opinions were reviewable. Further, the appeals court explained that an FEC advisory opinion was not "final or binding.... " In this regard, the court noted that "if a person proceeded to act contrary to an FEC advisory opinion, [that person] would be entitled to all of the enforcement protections, including conciliation, conference, persuasion and the like, provided under 2 U.S.C. §437g."
The appeals court further noted that AO 1987-7 was "particularly inappropriate for judicial resolution at this time. As a consequence of the Supreme Court's decision in FEC v. Massachusetts Citizens for Life the Commission is engaged in a rulemaking proceeding which could alter the very regulations applied in the opinion."
On remand, the district court dismissed the case.
Source: FEC Record -- July 1988, p. 6.
United States Defense Committee, Inc. v. FEC, No. 84-CV-450 (N.D.N.Y.
April 27, 1988) (unpublished order), vacated and remanded, 861 F.2d 765 (2d
Cir. 1988).
On October 1, 1979, the U.S. Court of Appeals for the Ninth Circuit issued a decision in United States v. International Union of Operating Engineers. Reversing the lower court, the appeals court concluded that "nothing in these provisions [the Federal Election Campaign Act, as amended] suggests...that action by the Department of Justice to prosecute a violation of the Act is conditioned upon prior consideration of the alleged violation by the FEC."
On August 13, 1976, the U.S. District Court for the District of Oregon dismissed an indictment brought by the Department of Justice against the union. The district court decided that the Attorney General was required to refer the case to the FEC for an administrative remedy before seeking criminal penalties against the defendant for violations of 2 U.S.C. §§431-455.
The administrative remedy to which the district court was referring was provided for in §437g of the FECA, which said that "any person who believes" a violation of the election law has occurred "may file a complaint with the Commission," and which prescribed a detailed process for the FEC to take action. If the Commission found reason to believe that a violation had occurred, there was a period during which the agency had to attempt to reach a conciliation agreement with the respondent; the agreement could include a civil penalty.1 If the parties were unable to work out a conciliation agreement, the law allowed the FEC to seek relief through the federal courts. The law also provided that the FEC could refer cases of "knowing and willful violation" of the FECA to the Justice Department for criminal prosecution. Furthermore, a completed conciliation agreement with the FEC could be introduced by the respondent as mitigating evidence in any criminal action brought by the Attorney General.
The district court concluded that "the procedural scheme devised by Congress to protect candidates from the adverse effects of groundless or insubstantial charges will be frustrated if the Attorney General has the power to step in and obtain an indictment in a case which was never referred to the FEC."
The Attorney General appealed the district court's decision.
On October 1, 1976, the court of appeals issued an opinion reversing the decision of the district court.
The appeals court observed that the lower court had based its conclusion not on legislative history but on inferences from the language of the Act. Acknowledging that the statute does contain many restrictions designed to minimize the risk that the administrative process might be used unfairly, the appeals court concluded that the restrictions were aimed at complainants and the FEC, but not the Attorney General.
The court cited the legislative history of the FECA to corroborate this conclusion. The Senate's version of the 1974 amendments to the FECA, the judges noted, had included a provision which allowed the Justice Department to take action on civil and criminal violations of the Act "only after the Commission [was] consulted and consent[ed] to such a prosecution." The provision was dropped from the bill by the conferees. The conference report made explicit that Congress intended, in its final version of the 1974 amendments, to grant the FEC primary powers of civil enforcement. The court further pointed out that the 1976 amendments to the Act gave the FEC "exclusive responsibility" for civil enforcement while it preserved the Justice Department's customary jurisdiction over criminal violations.
Finally, the court stated, the Act specifies that if the FEC finds probable cause that a "knowing and willful violation" has occurred, the agency may refer the case to the Justice Department without first attempting a conciliation agreement.
By the time the appeals court issued this decision, the Justice Department and the FEC had entered into a memorandum of understanding which adopted similar principles. The Commission retained exclusive primary authority for the prosecution of civil violations of the Act, while the Justice Department retained independent authority for the prosecution of criminal violations of the Act.
1 The phrase in 2 U.S.C. §437g(a)(2) to which the court was referring, "if it [the Commission] has reason to believe that any person has committed a violation," was deleted in the 1979 amendments to the Act. The current enforcement procedures outlined in §437g would not have altered the outcome of this decision.
Source: United States v. International Union of Operating
Engineers, Local 701, 638 F.2d 1161 (9th Cir. 1979), cert. denied, 444
U.S. 1077 (1980).
On May 18, 1999, the U.S. Court of Appeals for the District of Columbia Circuit reversed a district court decision to dismiss five counts of a six-count criminal indictment charging Maria Hsia, a Democratic fundraiser, with collecting and disguising impermissible contributions in the 1995-96 election cycle.
The five counts of the indictment that were reinstated accuse Ms. Hsia of causing the Clinton/Gore '96 Primary Committee, the Democratic National Committee and The Friends of Patrick J. Kennedy '96 to make false statements in their reports filed with the FEC. The appellate court also denied Ms. Hsia's cross-appeal of the remaining count in the indictment, which accuses her of conspiracy to defraud the FEC and the Immigration and Naturalization Service.
The court remanded the case to the U.S. District Court for the District of Columbia for further proceedings.
The Department of Justice (DOJ), which filed this suit, alleged that Ms. Hsia and the International Buddhist Progress Society (IBPS), an incorporated, tax-exempt religious organization in California, funneled money through straw donors to various campaigns. The indictment alleged that Ms. Hsia and IBPS asked nuns, monks and others with ties to IBPS to make contributions to Democratic campaigns, and later reimbursed them with IBPS funds. Ms. Hsia was also accused of using straw donors to funnel money from two clients of her Los Angeles immigration consultant business to Democratic campaigns.
The Federal Election Campaign Act (the Act) prohibits corporations from making contributions in connection with any federal election. 2 U.S.C. §441b(a). The Act also prohibits any person from making a contribution in the name of another. 2 U.S.C. §441f. Additionally, the U.S. tax code bars certain organizations, such as IBPS, from participating in any political campaigns. 26 U.S.C. §501(c)(3). Finally, under 18 U.S.C. §§2 and 1001, it is unlawful to willfully cause an offense by another person against the United States.
The appeals court first addressed the willful nature of Ms. Hsia's alleged conduct. The district court had concluded that Ms. Hsia's actions were not willful because the DOJ failed to show that she knew her conduct was unlawful. The appellate court, however, stated that the government need not prove that Ms. Hsia knew that her conduct was unlawful; only that she knew that the information provided to the political committees regarding the sources of contributions was false and that she intentionally caused false statements to be made by another.
The appeals court also rejected the district court's finding that the causal link between Ms. Hsia's conduct and the false statements in the political committees' reports was too "attenuated." In fact, the appeals court concluded the conduit scheme together with the names on the checks caused false statements to be made by the political committees. The appellate court pointed to several cases where the courts previously upheld applying the "false statement prohibition" to conduit contribution schemes. In those cases, defendants used straw donors to conceal their own contributions. Here, Ms. Hsia did not funnel her own money to straw donors: instead, the money belonged to immigration clients or to IBPS. Hsia, however, arranged for the conduits to do their part. The distinction of whose money was used is irrelevant to this situation, the appeals court found. FEC regulations state that a contribution made by check should be reported as a contribution by the last person signing it. 11 CFR 104.8(c). "The simple interposition of conduits to sign the checks is certainly enough to 'cause' a committee to make false statements in its report," the appeals court wrote in its decision.
The appeals court also rejected the lower court's finding that the contributor information filed with the Commission by the three committees was "literally true." The district court had reasoned that, because the indictment did not allege that the committees' treasurers had any wrongful knowledge about the true contributors, the statements in their reports had to be considered in compliance with the Act, and therefore not false.
This reasoning assumes that the safe harbor provision protecting treasurers of political committees who use "best efforts" to report all required information, 11 CFR 104.7, modifies the substantive reporting requirements of the Act. However, the court added, "it would make no sense for Congress to allow treasurers to rely on the provision of information by others while at the same time giving others a virtual carte blanche to provide inaccurate information."
Source: FEC Record -- July
1999 [PDF].
USA v. Hsia, 176 F.3d 517 (D.C. Cir. 1999).
On October 8, 1999, the U.S. Court of Appeals for the District of Columbia Circuit reversed a district court decision to dismiss charges against Pornpimol Kanchanalak and Duangnet Kronenberg for illegally using conduits to disguise donations from foreign nationals and corporations. The Department of Justice originally filed suit against Ms. Kanchanalak and Ms. Kronenberg for willfully causing the Democratic National Committee (DNC) and other committees to file false reports of hard money contributions and soft money donations with the Federal Election Commission (FEC), in violation of 18 U.S.C. §§2(b), 1001.1 The defendants were allegedly involved in a scheme in which permanent U.S. residents signed checks for both hard and soft money when the actual source of the funds was a foreign corporation, Ban Chang International (USA), Inc. The U.S. District Court for the District of Columbia dismissed the charges against Ms. Kanchanalak and Ms. Kronenberg. In regard to the hard money counts, the district court concluded that the government had failed to prove that the defendants had directly caused the making of false reports to the FEC. With regard to the soft money counts, the court determined that neither the Federal Election Campaign Act (the Act) nor Commission regulations require political committees to report the sources of soft money donations. The Court of Appeals reversed on each of these matters.
The appeals court reinstated the hard money counts against the defendants based on its previous decision in United States v. Hsia,2 which established that the Act requires political committees to report the true source of the federal funds they receive. 2 U.S.C. §441f. The appellate court ruled that the defendants' scheme of illegally utilizing conduits caused the DNC and other committees to report the conduits rather than the true sources of the contributions on FEC forms. Because the defendants' actions "caused false statements to be made to a government agency," the appeals court summarily reversed the district court's decision on these counts.
The court of appeals also reversed the district court's ruling regarding the soft money reporting regulation. The appellate court did not question the lower court's determination that nothing in the Act requires soft money reporting, but pointed to the Commission's regulation at 11 CFR 104.8(e), which requires disclosure about any entity that "donates an aggregate amount in excess of $200 in a calendar year to the committee's nonfederal account(s)." In upholding the FEC's interpretation of its regulation to require the disclosure of the true sources of soft money, the opinion noted the appeals court's long history of deferring to agencies' interpretations of their own regulations, and quoted a Supreme Court opinion which stated '"that the [Federal Election] Commission is precisely the type of agency to which deference should presumptively be afforded.'"3
In reversing the district court's judgment with regard to the soft money counts, the appeals court found that the FEC had reasonably interpreted the Act to forbid soft money donations by foreign nationals. While the defendants had argued that the prohibition applied only to federal elections, the appellate court ruled that it extends to state and local elections as well. The opinion cited 2 U.S.C.441e, which states that "it shall be unlawful for a foreign national directly or through any other person to make any contribution...in connection with an election to any political office." While the defendants had focused on the fact that "contribution" is defined to include "any gift...made by any person for the purpose of influencing any election for Federal office" (2 U.S.C.§431(8)(A)(i)), the appeals court emphasized the use of the term "any political office." The appeals court compared §441e to §441b, which differentiates between contributions in connection with elections to federal office and those in connection with election to "any political office." The opinion noted that, "[b]y distinguishing federal offices from 'any political office,' Congress plainly intended to reach certain contributions made to state and local offices." In this regard, the appellate court again relied on the FEC's interpretation of the law, which has consistently been that nonfederal offices are included in the foreign national prohibition.
1 The court of appeals stated that "hard money"
refers to funds that have been deposited by the Committee into a "federal
account" and are used to finance federal election campaigns, whereas "soft
money" refers to funds that are deposited into a "nonfederal" account and
are supposed to be used for, among other things, state and local campaigns.
2 United States v. Hsia, 176 F.3d
517 (D.C. Cir. 1999).
3 FEC
v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 37 (1981).
Source: FEC Record --
January 2000 [PDF].
192 F. 3d 1037 (D.C. 1999)
On January 10, 2007, Unity ‘08 and individual members of its Board of Directors (the plaintiffs) filed a complaint in the U.S. District Court for the District of Columbia, challenging the FEC’s recent Advisory Opinion that concluded that the group’s proposed activities would require it to register as a political committee. The plaintiffs ask the court to rule that this conclusion was “arbitrary” and in violation of the First Amendment. The plaintiffs also seek to enjoin the FEC from enforcing the Act’s reporting provisions and contribution limitations against Unity ‘08.
Unity ‘08 describes itself as a
political movement of voters who
seek to nominate candidates for a
“Unity Ticket” in the 2008 Presidential
election through an online
nominating convention over the
Internet. Unity ‘08 plans to organize
a group of voters to support the
candidates selected in this online
convention. Currently, Unity ‘08
maintains a web site that focuses on
issue content and describes its plans
to nominate candidates via the online
convention and to qualify for a
place on the ballot in the November
2008 general election.
In Advisory Opinion (AO) 2006-20, the Commission concluded
that the ballot access expenditures
and activities that Unity ‘08 will
conduct, combined with its stated
goal of nominating and electing
presidential and vice-presidential
candidates, would cause it to
qualify as a “political committee”
under the Act. As such, it would
be subject to the Act’s contribution
limitations and registration and
reporting requirements.
The plaintiffs contend that the FEC’s conclusion in AO 2006-20 was:
As well as alleging a violation of
the Administrative Procedure Act
(APA), the plaintiffs also contend,
among other things, that the Commission’s
determination was vague
and overbroad, thus violating the
First Amendment.
The plaintiffs ask the court to preliminarily and permanently enjoin the FEC from enforcing its ruling in AO 2006-20. The plaintiffs also ask the court to:
Source: FEC Record -- November 2006 [PDF]; February 2007 [PDF].
