MURs 5403 and 5466: Prohibited funds used to pay federal expenses and failure to allocate and report shared expenses

On August 29, 2007, the Commission announced a settlement with America Coming Together (ACT) regarding violations of the Federal Election Campaign Act (FECA) during the 2004 Presidential election. ACT agreed to pay $775,000 to settle charges that it used funds raised outside federal limits and prohibitions to pay expenses that should have been paid with federal funds. This settlement represents the third largest civil penalty in an enforcement matter in the Commission’s thirty-three year history.

Background

ACT is a federal political action committee (PAC) that also has a nonfederal account registered under section 527 of the Internal Revenue Code. Under FECA, PACs may maintain separate federal and nonfederal accounts in order to fund both federal and nonfederal activity. Contributions to a PAC’s federal account must be within federal limits and prohibitions, while donations to the nonfederal account may be raised outside of the federal amount limits and source prohibitions.

Under FEC regulations in place for the 2003-2004 cycle, a nonconnected PAC such as ACT could pay its “administrative expenses” with an allocated mixture of federal and nonfederal funds based on a ratio that reflects the relative proportion of its federal and nonfederal activities. However, expenses incurred on behalf of, or attributable to, federal candidates must be paid for with federal funds. For most of the 2004 election cycle, ACT used an allocation ratio of two percent federal funds and 98 percent nonfederal funds for its administrative expenses and generic voter drives. In October 2004, ACT changed this allocation ratio to 12 percent federal funds and 88 percent nonfederal funds.

Conciliation Agreement

ACT raised approximately $137 million in connection with the 2004 elections—approximately $33.5 million in federal funds and $103.5 million in nonfederal funds. The FEC concluded that approximately $70 million in disbursements characterized by ACT as “administrative expenses” for door-to-door canvassing, direct mail and telemarketing were actually attributable to clearly identified federal candidates and were required either to be paid with 100 percent federal funds or to be allocated between federal and nonfederal candidates based on the time or space devoted to each candidate. Under either method, ACT was required to use a substantially higher proportion of federal funds than that reflected in either the estimated or adjusted funds expended allocation ratio for administrative expenses used by ACT in 2003-2004.

The Commission also concluded that, even for the approximately $30 million in disbursements that could properly be characterized as administrative and generic voter drive expenses, ACT should have used at least 90 percent federal and 10 percent nonfederal funds. Therefore, ACT should have used approximately $27 million in federal funds and approximately $3 million in nonfederal funds to pay for these expenses.

The conciliation agreement sets forth that ACT:

• Failed to properly attribute and report expenditures attributable to specific candidates;
• Failed to properly allocate and report joint administrative activities; and
• Used nonfederal funds to pay the federal share of allocated administrative expenses.

ACT agreed to pay the civil penalty and to cease and desist from further violating the law and Commission regulations.