FEC Asks Congress for Authority to Battle Shady PACs

Daily Report for Executives provides in-depth coverage of unfolding legislative, regulatory, and judicial news from the nation’s capital, the states, and around the world. This daily news service...

By Kenneth P. Doyle

Dec. 1 — The Federal Election Commission is asking Congress for new legal authority to battle shady groups, often called scam PACs: political action committees that pretend to support candidates but funnel contributions they collect to PAC organizers and vendors.

A new legislative recommendation adopted unanimously by the FEC commissioners Dec. 1 said it “believes that Congress should give the commission the authority to protect contributors from committees that defraud their contributors.”

The scam PAC proposal was advanced as part of a package of 13 legislative recommendations approved by the FEC at an open meeting of the commissioners.

The FEC’s recommendation regarding scam PACs—titled “Prohibiting Fraudulent PAC Practices"—said that Congress should amend federal campaign finance laws to extend a current prohibition on fraudulent solicitation of campaign money to include “false claims of candidate endorsement.”

The recommended change also would bar use of a PAC “as an artifice to defraud contributors solely to enrich committee organizers” and would allow the FEC to consider complaints from aggrieved candidates and contributors.

Deadlock on Government Contractor Advisory

In other action at the Dec. 1 FEC meeting, the commissioners deadlocked over an advisory opinion request (AO 2016-20) dealing with restrictions on campaign contributions from government contractors. The request came from an individual, Christoph Mlinarchik, who does contract work for the government but has set up a single-person limited liability company to facilitate his contract work.

The FEC’s three Republican commissioners voted for a draft ruling that would allow Mlinarchik to make personal campaign contributions despite the contractor contribution ban. FEC Chairman Matthew Petersen, a Republican, said Mlinarchik’s LLC had a “separate legal existence” from Mlinarchik himself, and thus shouldn’t prevent him from being able to given campaign money.

Democratic FEC Commissioner Ellen Weintraub said that Petersen’s argument was “elevating form over substance” and that it was “silly” to allow Mlinarchik to escape restrictions on his contributions by using and LLC.

“This is an anti-corruption statute,” Weintraub said, noting that the contractor contribution ban was approved by Congress decades ago to prevent contractors from being able to receive government contracts by giving campaign money to government officials. The contractor contribution ban has been challenged in court in recent years, but it was upheld by a unanimous decision of the full U.S. Court of Appeals for the District of Columbia Circuit in 2015.

Other Legislative Recommendations Approved

In addition to the new proposal for dealing with fraudulent PAC solicitation, the FEC reiterated another proposal it has made in previous years to help prevent diversion of PAC funds for personal use.

A current personal-use prohibition for campaign funds applies to candidates’ campaign committees but not to PACs. Although the Justice Department has in the past prosecuted individuals for embezzling PAC funds, the FEC recommendation said there continues to be “a substantial number of instances” where people with access to PAC funds have used the money to make unauthorized payments to cover personal expenses.

Most of the other recommendations included in the FEC’s legislative package were items the commission has proposed before—sometimes for many years—but which have not been acted upon by Congress. These include a requirement that Senate candidates—like House and presidential candidates and other political committees—file their campaign finance disclosure reports electronically. The FEC also reiterated a proposal to deal with longstanding problems filling top agency staff positions by changing an outdated salary structure.

FEC: Some PACs Give Little or No Candidate Support

The FEC legislative recommendations package said the new proposal on fraudulent PAC practices was prompted by instances in which PACs soliciting contributions with promises to support candidates have subsequently disclosed “minimal or no candidate support activities” in reports filed with the FEC. Instead, these PACs have reported “engaging in significant and continuous fundraising, which predominantly funds personal compensation for the committees’ organizers.”

In many cases, the FEC recommendation said, money raised by these PACs goes to primarily to fundraising operations, direct mail vendors and consulting firms, in which the PACs’ officers appear to have a personal financial stake.

The FEC currently has limited statutory authority to regulate PACs other than to require them to register and report the money they raise and spend.

One of the agency’s few rules in this area—a restriction on a PACs ability to use the name of a candidate as the title of a website or social media platform—was struck down in a recent court decision.

A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled last August that restrictions on a super PAC’s use of a 2016 presidential candidate’s name was an unconstitutional restriction on speech, not a disclosure requirement, as the FEC had contended. The case involved a super PAC that said it want to create a website and other platforms including the name of former Arkansas Gov. Mike Huckabee.

To contact the reporter on this story: Kenneth P. Doyle in Washington at kdoyle@bna.com

To contact the editor responsible for this story: Paul Hendrie at phendrie@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

Try Daily Report for Executives