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Posted December 18, 2008 by Paul S. Ryan

Bundling Disclosure Provisions Undermined by New FEC Rules?

After much discussion of the difficulty of crafting a compromise and a bit of self-congratulation, the FEC today unanimously adopted rules to implement the bundling disclosure requirements in the Honest Leadership and Open Government Act of 2007—the important ethics and lobbying reform law passed by Congress in 2007.  Unfortunately, the rules adopted by the FEC today may seriously undermine the purposes of the law and the intent of the law’s principal sponsors—including President-elect Obama and Sen. Feingold—as expressed on the floor of the Senate.  It’s worth noting at the outset that the rules were made available to the public literally one minute before the start of this morning’s meeting and the rule was not accompanied by the “Explanation & Justification” (E&J) that the Commission must approve and publish before the rules take effect.  The Commission anticipates publishing the E&J by mid-January.  For these reasons, the following are preliminary thoughts regarding the most significant issues in the rulemaking.

The Campaign Legal Center filed written comments in the rulemaking, together with Democracy 21, Common Cause, the League of Women Voters and U.S. PIRG, and also participated in the rulemaking hearing.

In our comments and testimony, we pointed to two issues in the rulemaking of great importance to the effectiveness of the law.  First, the manner in which the Commission defined “bundled contribution” is of critical importance to the effectiveness of the law.  The statute defines a “bundled contribution” as one, inter alia, where the recipient candidate or committee “credits” the funds to the registrant “through records, designations, or other means of recognizing” that a certain amount of money has been raised by the registrant.  One question in the rulemaking was how broadly the Commission would interpret the phrase “or other means of recognizing.”  Would the Commission include within the definition only written, formal means of recognizing bundled contributions, or would the Commission interpret “recognizing” in a broader, literal way based on the root of the word “recognizing”—cognoscere, the Latin verb “to know.”  We advocated the latter approach, i.e., disclosure is required any time a candidate knows that a lobbyist has bundled contributions for the candidate.

To illustrate the importance of this issue to bundling disclosure, consider the following hypothetical scenario.  A lobbyist walks up to a Senator and tells the Senator: “I’ve raised $100,000 for you from friends at my country club.  You’ll be seeing the checks in your mail any day now.”  The Senator replies, “Thank you very much.  I really do appreciate it.”

It’s difficult to imagine the mindset wherein this scenario isn’t considered lobbyist bundling.  Yet, in the absence of a written record, this scenario would not likely be covered by the FEC’s newly-adopted definition of bundling.  Instead, under the FEC’s new rule, reportable bundling only occurs where the candidate bestows some tangible benefit on the lobbyist, such as title or an autographed photo, or where the candidate has a formal tracking system for bundled contributions.  Knowledge on the part of a candidate that a lobbyist has bundled contributions is not enough under the new FEC rule to trigger reporting requirements.  Instead, in the absence of a written record, knowledge plus a tangible benefit to the lobbyist is required to trigger the reporting requirements.

The simple fact that the hypothetical example given above does not constitute reportable lobbyist bundling under the FEC’s new rule is a grave disappointment, but it’s not our only disappointment with the new rule.

Our second significant disappointment with the new rule is related to fundraising events jointly hosted by multiple lobbyists—a common practice here in DC.  Here’s what the principal Senate sponsors of the legislation, President-elect Obama and Sen. Feingold, had to say on the floor of the Senate about jointly-hosted fundraising events.

Mr. Obama.  … In a situation where a fundraising event is cohosted by a number of different lobbyists, I am concerned that some might want to avoid reporting bundled contributions by dividing up the total receipts of a fundraising event among many sponsors or cohosts of the event.  Certainly, that was not our intention.  Does my friend from Wisconsin agree with me?

 

Mr. Feingold.  Yes, the purpose of the bundling reporting provision is to get as much disclosure as possible of bundling by lobbyists. … When two or more lobbyists are jointly involved in providing the same bundled contributions—as, for instance, in the case of a fundraising event co-hosted by two or more lobbyists—then each lobbyist is responsible for and should be treated as providing the total amount raised at the event, for purposes of applying the applicable threshold to the funds raised by that lobbyist, and for purposes of reporting by the committee of the “aggregate amount” of bundling contributions “provided by each” registered lobbyist “during the covered period.”

 

…  [A] campaign should not be able to avoid disclosing, for example, that three lobbyists raised $30,000 in a single fundraiser by claiming that each lobbyist has been credited with only one-third of the total amount.  If this evasion were allowed, reporting for any fundraising event could be avoided simply by adding enough lobbyist cohosts for the event so that all of the lobbyists fall below the threshold.  We certainly did not intent that result.

153 Cong. Rec. at S10699 (emphasis added).

We advocated a position consistent with that of President-elect Obama and Sen. Feingold in our comments and testimony.  Lobbyist bundling disclosure would be severely undermined if disclosure could be avoided through simple expedient of adding additional lobbyist co-hosts to a fundraising event, in order to keep each lobbyist under the $15,000 reporting threshold.  Yet this is precisely what the rules adopted today by the FEC allow.

I’ll use another hypothetical example to illustrate this point.  Consider the case where a candidate plans a fundraiser where she anticipates raising $150,000, having lobbyists co-hosting the event and raising the money.  Under the reporting regime envisioned by President-elect Obama and Sen. Feingold, and advocated by us in the rulemaking, each lobbyist co-host would be reported as having bundled $150,000, with the reporting forms designed in such a way as to prevent over-counting.

However, under the rules adopted by the FEC today, candidates and lobbyists can avoid disclosure in precisely the manner envisioned by President-elect Obama and Sen. Feingold.  One would think the FEC would have learned—in the wake of the two Shays lawsuits where the agency was found to have violated the Administrative Procedures Act—not to adopt rules that are clearly contrary to law, but apparently not.  Using the hypothetical example above, the candidate could simply make sure that at least 11 lobbyists were co-hosting event in order to attribute less than the $15,000 reporting threshold to each lobbyist co-host (e.g., $150,000 / 11 = $13,636).

The Commission assured the public at its meeting this morning that it would approve an E&J for the new rules no later than January 15, 2009.  It is possible that the E&J will make clear that Commission interprets its rules approved today as preventing these problems we envision—but I’m not holding my breath.  Stay tuned.

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