Van Hollen Lawsuit Challenges FEC Regulations as Contrary to Law and Responsible for Eviscerating Donor Disclosure
Successful Court Challenge by Representative Van Hollen Would Provide Disclosure in Future Elections of Secret Contributions Funding Electioneering Communications
By Non-profit Groups and Others
Representative Chris Van Hollen (D-MD) filed a lawsuit today against the Federal Election Commission challenging as contrary to law an FEC regulation that has improperly allowed nonprofit 501(c)(4) advocacy groups, 501(c)(6) business associations, and others to keep secret the donors whose funds are being used to pay for “electioneering communications” in federal elections.
The Van Hollen lawsuit was filed in federal district court in Washington, DC.
Representative Van Hollen also filed a rulemaking petition at the FEC today requesting that the Commission revise an existing FEC regulation that is contrary to law and has improperly allowed non-profit groups and others to keep secret the donors whose funds are being used to pay for “independent expenditures” in federal elections.
“Electioneering communications” and “independent expenditures” are defined differently under the federal campaign finance laws and have different regulations to implement their disclosure requirements.
The FEC petition calls on the agency to conduct the rulemaking regarding the disclosure of “independent expenditures” on an expedited basis because it is of urgent importance for a lawful regulation to be in place prior to the 2012 presidential and congressional elections so that citizens receive the basic campaign finance information that they are entitled to have by law.
[Representative Van Hollen filed a FEC rulemaking petition on the “independent expenditures” regulation instead of a lawsuit because the statute of limitations requires the FEC to be given an opportunity to change the “independent expenditure” regulation prior to the filing of a lawsuit challenging it. The same is not true of the regulation on “electioneering communications” which was promulgated more recently and can be directly challenged in court.]
“Improper FEC disclosure regulations are the principal reason that more than $135 million in contributions spent to influence the 2010 congressional races were kept secret from the American people,” said Fred Wertheimer, president of Democracy 21.
“The two actions taken today by Representative Van Hollen seek to ensure that nonprofit groups and others making campaign expenditures will not be able to keep the donors funding their activities hidden from citizens and voters in the future,” Wertheimer said.
Wertheimer manages and is a member of the Democracy 21 “Project Supreme Court” legal team representing Representative Van Hollen in the FEC lawsuit and FEC petition.
The explosion of secret money in the 2010 congressional races was triggered by the Supreme Court decision in the Citizens United case that opened the floodgates to unlimited corporate spending in federal elections.
The Citizens United decision, however, made clear by an 8 to 1 majority that requiring disclosure of the sources of funding for the newly authorized corporate campaign expenditures was not only constitutionally permissible but necessary for corporate accountability. The Supreme Court stated:
With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are “‘in the pocket’ of so-called moneyed interests.”
The public overwhelmingly supports disclosure by independent spenders of their campaign expenditures and the sources of these funds, without regard to party affiliation. According to a New York Times/CBS Poll (October 28, 2010) :
92 percent of Americans said that it is important for the law to require campaigns and outside spending groups to disclose how much money they have raised, where the money came from and how it was used.
“Almost all nonprofit groups are incorporated and a number of these groups moved quickly to take advantage of the Supreme Court’s decision and the improper FEC regulations to inject massive amounts of secret contributions into the 2010 House and Senate races,” Wertheimer said.
“History makes clear that secret money in American politics is a formula for scandal and corruption,” Wertheimer stated. “If the FEC had done its job properly, we would not be facing, as we are today, hundreds of millions of dollars in potentially corrupting contributions being secretly poured into the 2012 presidential and congressional elections,” Wertheimer said.
The Democracy 21 “Project Supreme Court” legal team representing Representative Van Hollen has twice in the past filed successful lawsuits against the FEC on behalf of members of Congress that challenged FEC regulations as contrary to law.
The two lawsuits, Shays v Federal Election Commission I and Shays v. Federal Election Commission III, resulted in the courts striking down nineteen FEC regulations that were adopted by the FEC to implement the Bipartisan Campaign Reform Act of 2002.
The law firm of WilmerHale, led by partner Roger Witten, is heading the legal team for the Van Hollen lawsuit. Lawyers from Democracy 21 and from the Campaign Legal Center are also members of the pro bono legal team for the lawsuit and for the Van Hollen FEC rulemaking petition, which was prepared by Don Simon, outside Counsel for Democracy 21. Former FEC Republican Chairman Trevor Potter, president of the Campaign Legal Center, is also a member of the legal team.
“In 2007, the FEC gutted McCain-Feingold disclosure requirements in a little-noticed rulemaking,” according to J. Gerry Hebert, Executive Director of the Campaign Legal Center and also a member of the legal team. “The flood of corporate political spending unleashed by the Supreme Court’s 2010 ruling in Citizens United made clear the impact of 2007 FEC regulation changes as untold millions of corporate dollars were funneled through the Chamber of Commerce and other groups to avoid disclosure of the source of the funds,” Hebert stated.
“Without effective action to close the disclosure loophole opened by the FEC, the American people will continue to remain in the dark about tens of millions of dollars being provided by corporations and others to buy influence over government decisions,” Hebert said.
Van Hollen Lawsuit Filed Today
The Van Hollen lawsuit filed today challenges as contrary to law an FEC regulation issued to implement a contribution disclosure requirement enacted as part of the Bipartisan Campaign Reform Act of 2002 (BCRA).
In BCRA, Congress required any entity which makes expenditures for a broadcast ad that refers to a federal candidate in the period 60 days before a general election or 30 days before a primary election to file campaign finance disclosure reports with the FEC. Such expenditures are known as “electioneering communications.”
Congress provided in BCRA two alternative options for such spenders to disclose the donors funding their “electioneering communications.”
If the independent spender pays for the electioneering communications out of a segregated bank account consisting of funds contributed by individuals, the spender can disclose each donor of $1,000 or more to the bank account.
If the independent spender chooses not to pay for the electioneering communications from such a segregated bank account, the spender must disclose “the names and addresses of all contributors who contributed an aggregate amount of $1,000 or more” to the spender during a specified period.
“The FEC regulation to implement the contribution disclosure requirements establishes a different approach that is found nowhere in the statute, is contrary to law and has eviscerated the contribution disclosure provision in the statute,” Wertheimer stated.
“The regulation resulted in almost no disclosure of the contributions used to finance ‘electioneering communications’ in the 2010 congressional races,” Wertheimer said.
“It is this FEC regulation that is being challenged by the Van Hollen lawsuit,” Wertheimer said.
The FEC regulation challenged by the lawsuit requires corporations and labor unions that make “electioneering communications” to disclose donations of $1,000 or more only when the donation to the spender “was made for the purpose of furthering electioneering communications.”
Rather than requiring disclosure by an independent spender of all donors of $1,000 or more to a segregated bank account maintained by the spender or disclosure of “all contributors” of $1,000 or more to the spender, as the BCRA statute requires, the FEC regulation requires a spender to disclose only those contributors of $1,000 or more who have manifested a particular state of mind or “purpose” for their donation.
Congress, however, did not include a “state of mind” or “purpose” condition tied to “furthering” electioneering communications in the BCRA contribution disclosure requirement, according to the lawsuit. The FEC, by adding this requirement in its regulation has contravened the plain language and meaning of the statute, the lawsuit charges. And as the record shows, the FEC regulation has all but eliminated contribution disclosure for “electioneering communications.”
According to the Van Hollen lawsuit complaint:
The FEC lacked statutory authority to add the “purpose” element to Congress’s statutory disclosure regime for those who fund corporate or union “electioneering communications,” and the FEC’s regulation adding the “purpose” element is, accordingly, arbitrary, capricious, and contrary to law. Further, the FEC’s stated rationale for engrafting a “purpose” requirement is itself irrational, arbitrary, and capricious, rendering it contrary to law.
The lawsuit complaint further states:
Not only is 11 C.F.R. 104.20(c)(9) inconsistent with the plain language of the statute, it is also manifestly contrary to Congressional intent and has created the opportunity for gross abuse. Congress sought to require more, not less, disclosure of those whose donations fund “electioneering communications.” The FEC’s unlawful regulation produces a result that frustrates Congress’s objective.
The lawsuit notes that in the 2010 elections, corporations “exploited the enormous loophole created” by the FEC’s regulation. The complaint states that according to information on the website of the Center for Responsive Politics:
In 2010, persons making “electioneering communications” disclosed the sources of less than 10 percent of their $79.9 million in “electioneering communication” spending. The ten “persons” that reported spending the most on “electioneering communications” (all of them corporations) disclosed the sources of a mere five percent of the money spent. Of these ten corporations, only three disclosed any information about their funders.
“Not surprisingly, as a result of the regulation, the public record reflects little or no disclosure of the numerous contributors to non-profit corporations that made substantial electioneering communications in the 2010 congressional races,” according to the complaint.
The lawsuit complaint states that according to information on the website of the Center for Responsive Politics the following section 501(c) corporations made “electioneering communications” in the 2010 election and disclosed none of their contributors:
|
501 (c) Corporation |
Amount Spent on Electioneering Communications in 2010 Elections |
Disclosure of Contributors Funding Electioneering Communications in 2010 |
|
U.S. Chamber of Commerce |
$32.9 Million |
None |
|
American Action Network |
$20.4 Million |
None |
|
Americans for Job Security |
$4.6 Million |
None |
|
Center for Individual Freedom |
$2.5 Million |
None |
|
American Future Fund |
$2.2 Million |
None |
|
CSS Action Fund |
$1.4 Million |
None |
|
Americans for Prosperity |
$1.3 Million |
None |
|
Arkansans for Change |
$1.3 Million |
None |
|
Crossroads GPS |
$1.1 Million |
None |
The Center’s website lists an additional 15 section 501(c) corporations that made “electioneering communications” in the 2010 congressional elections but disclosed none of their contributors.
The Van Hollen lawsuit requests the court to declare the FEC regulation invalid and contrary to law, and to remand the regulation back to the agency to promulgate a new rule that conforms to the statute and provides for the contribution disclosure that Congress clearly intended.
In light of the failure of the FEC in the past to comply with court orders on a timely basis, the complaint also asks the court to retain jurisdiction over the case “to monitor the FEC’s timely and full compliance with this Court’s judgment.”
FEC Petition
The FEC rulemaking petition filed today by Representative Van Hollen asks the FEC to conduct a rulemaking proceeding on an expedited basis and adopt a new regulation that properly requires the disclosure of donors to entities that make “independent expenditures.”
“Independent expenditures” are expenditures made for the purpose of influencing federal elections that contain “express advocacy” or its functional equivalent. These expenditures, unlike “electioneering communications” are not limited to any specific time period and are not limited to just broadcast ads.
Representative Van Hollen has filed an FEC petition regarding the “independent expenditures” regulation, as opposed to bringing an immediate lawsuit, because the six-year statute of limitations has run on a court challenge to the regulation. By filing a petition for a new rulemaking and giving the FEC the opportunity to consider whether to issue a new regulation, a new six year statute of limitation is triggered if the FEC does not act. The same is not true with regard to the “electioneering communications” regulation which was promulgated less than six years ago and is thus still within the statute of limitations for a direct challenge in court.
“If the FEC rejects the Van Hollen petition for a new regulation on disclosure of “independent expenditures” or fails to act on the petition after a reasonable period of time, Representative Van Hollen would then be able to file a second lawsuit against the FEC,” according to Wertheimer.
“The lawsuit could challenge as contrary to law the FEC disclosure regulation applicable to independent expenditures, just as Representative Van Hollen’s lawsuit today is challenging the FEC contribution disclosure regulation applicable to electioneering communications,” Wertheimer said.
The FEC petition filed by Representative Van Hollen states that statutory disclosure provisions require any entity that make independent expenditures to disclose the identity of “each person . . who makes a contribution” to the entity of more than $200, and, in a second overlapping disclosure provision requires the entity to disclose the identity of “each person who made a contribution in excess of $200 . . . for the purpose of furthering an independent expenditure.”
The FEC’s regulation implementing these statutory provisions, however, requires disclosure of contributors of more than $200 to the person making the independent expenditure, only where the contribution “was made for the purpose of furthering the reported independent expenditure” (emphasis added).
According to the FEC petition:
The regulation is manifestly inconsistent with the statute. Whereas the statute requires the disclosure of “each…person…who makes a contribution” of more than $200 to the person making the independent expenditures, 2 U.S.C. 434(b)(3)(A); see id. 434(c)(1), the regulation requires disclosure only of those contributors who made a contribution “for the purpose of furthering the reported independent expenditure.” 11 C.F.R. 109.10(e)(1)(vi). Thus, the regulation requires far less disclosure than the statute requires. Whereas the statute requires disclosure of all contributors of more than $200 to the person making independent expenditures, the regulation requires disclosure only of those contributors who state a specific intent to fund a specific independent expenditure. Conversely, under the regulation, all contributions to the person making independent expenditures that were not given for the specific purpose of furthering the specific reported independent expenditure are not required to be disclosed. This is in direct contradiction to the language and purpose of the statute.
The FEC petition further states:
The Commission’s regulation is thus contrary to the language of the statute and frustrates Congress’s intent to require disclosure of the sources of funds used by persons making independent expenditures. The Commission’s regulation permits a corporation or labor organization that makes independent expenditures to avoid disclosing its contributors-even contributors who gave money specifically for the purpose of furthering the corporation’s or labor organization’s independent expenditures. The regulation enables a corporation or labor organization to take the position that the because persons who made contributions to it did not express a specific intent to further the specific independent expenditure that is being reported, no disclosure of such persons is required. As a practical matter, the regulation enables corporations that do not wish to abide by Congress’s disclosure requirements to evade them entirely, without fear of sanction.
The petition states that “[n]ot surprisingly, as a result of the regulation, the public record reflects little or no disclosure of the numerous contributors to non-profit corporations that made substantial independent expenditures in the 2010 congressional races.”
The petition cites as evidence that according to information on the website of the Center for Responsive Politics the following section 501(c) corporations made “independent expenditures” in the 2010 election and disclosed none of their contributors:
|
501 (c) Corporation |
Amount Spent on Independent Expenditures in 2010 Elections |
Disclosure of Contributors Funding Independent Expenditures in 2010 |
|
Crossroads GPS |
$16 Million |
None |
|
American Future Fund |
$7.4 Million |
None |
|
60 Plus Association |
$6.7 Million |
None |
|
American Action Network |
$5.6 Million |
None |
|
Americans for Job Security |
$4.4 Million |
None |
|
Americans for Tax Reform |
$4.1 Million |
None |
|
Revere America |
$2.5 Million |
None |
Although Section 109.10 was promulgated in its current form in 2003, 68 Fed.Reg. 404 et seq. (Jan. 3, 2003), the insufficiency of the current regulation has been heightened by the Citizens United decision. Prior to Citizens United, the bulk of independent spending was done by political committees, including party committees, which are required to disclose all of their donors of more than $200 to the FEC, or by 527 groups, which are required to disclose all of their donors of more than $200 to the IRS, or by individual spenders, for whom the donor disclosure issue is largely inapplicable. Thus, prior to Citizens United, there generally was comprehensive disclosure of donors to groups making independent expenditures. According to the FEC petition, the CRP website lists an additional twenty-four 501(c) corporations that made independent expenditures in the 2010 congressional elections and disclosed none of their contributors. Id. In addition, the CRP website lists the League of Conservation Voters as a section 527 organization that spent $3.9 million on independent expenditures n the 2010 elections and disclosed none of its contributors.
The FEC petition states that the Supreme Court’s decision in Citizens United to allow corporations to make expenditures in federal elections has opened the door to the use of non-profit corporations as vehicles to hide donors whose funds are used to pay for independent expenditures. The petition states:
Post-Citizens United, however, corporations, including non-profit corporations, and labor organizations are now able to use their treasury funds to make independent expenditures and to contribute funds to other corporations that make independent expenditures. This has created a new universe of independent spenders who can raise and spend contributions from other persons (including from corporations and labor organizations) to finance their independent expenditures. And that development has in turn highlighted the insufficiency and illegality of the Commission’s existing regulation on disclosure of contributors to corporations and labor organizations that make independent expenditures.
The petition requests the FEC to amend the existing regulation to require disclosure of all contributions over $200 made to entities that make independent expenditures, as required by existing law.
