FEC Cases Show Value of Cooperating

Posted May 3, 2005 at 6:34pm

When Frederick Rowan invited several top employees and their wives to attend a 2002 fundraiser for then-Georgia Senate hopeful Saxby Chambliss (R), the chairman and chief executive officer of baby-products manufacturer Carter’s Inc. thought the event would provide an “excellent” team-building opportunity for his colleagues.

But Rowan got more than he bargained for.

The $2,000-per-couple dinner, which featured a speech by President Bush, provided Rowan and his colleagues with a pesky lesson in campaign finance law.

According to a recently released Federal Election Commission case file, the Atlanta-based company discovered during a routine audit in 2004 that the employees mistakenly sought reimbursement for their tickets from the company. The company voluntarily alerted the FEC and Justice Department.

“The Carter’s officials involved in making those contributions, which totaled $8,000, did not understand that the payments to attend the event represented campaign contributions, or that federal law barred company reimbursement of the amounts paid for those tickets,” lawyers for Carter’s Inc. and its officials explained in a 2004 letter to FEC and Justice officials.

Several of the company’s executives, in fact, were first-time political contributors who claimed they were unfamiliar with the laws.

“I can see now that the check for the event was made out to ‘Chambliss for Senate,’ and Mr. Chambliss did speak at the dinner, yet those facts did not at that time cause me to think of the event as a political fundraiser,” one Carter’s official, Michael Casey, explained in an affidavit.

“I also did not understand that corporations could not make political contributions or that they could not reimburse their employees for making such contributions,” Casey said in his sworn statement. “Similarly, I did not then recall that the Company had a 1991 policy against getting reimbursed for political contributions.”

The FEC closed its case on the matter in March, with instructions that the Chambliss for Senate campaign “disgorge” the unlawful $8,000 from its coffers and Carter’s Inc. and its employees pay an $8,000 civil penalty. Each employee had already repaid Carter’s the $2,000 expense reimbursement they had received.

Campaign finance experts pointed out that the Carter’s case demonstrates just how much weight the FEC places on one’s intent in enforcement. While even unintentional violations of law will be pursued by the campaign watchdog, more egregious violations — where the commission finds “reason to believe” that someone has “knowingly and willfully” violated the law — are apparently being dealt with more harshly.

A second case involving an Illinois health care company elucidates that contrast.

Last Thursday, the FEC announced that it had levied a fine of $275,000 against Wheaton, Ill. -based APEX Healthcare Inc. and its president, James Chao, for using corporate funds to reimburse $69,500 in campaign contributions made by others to Democratic Senate candidate Daniel Hynes in 2003.

At the time, Hynes was running against now-Sen. Barack Obama (D-Ill.) in a Democratic primary. Hynes lost to Obama.

But the APEX matter, unlike the Carter’s case, led FEC officials to believe that Chao’s violations were “knowing and willful” — an important distinction, especially since the passage of the Bipartisan Campaign Reform Act of 2002, which implemented strict new fines for purposeful evasions of the law.

In fact, the agreement in the APEX case marks the first FEC conciliation agreement approved by the agency that involved “knowing and willful” violations committed after BCRA’s enactment.

BCRA imposed a new minimum civil penalty equal to 300 percent of the amount in violation and a new maximum civil penalty equal to 1,000 percent of the amount in violation in cases where the FEC believes a knowing and willful violation was committed.

The pre-BCRA civil penalty for knowing and willful violations was not subject to a statutorily mandated minimum, and the maximum penalty that could be sought was equal to 200 percent of the amount in violation.

Some campaign finance observers said they suspect the FEC’s public release of the Carter’s case on April 26 and the APEX case two days later to be more than just coincidental.

“I think by releasing these two enforcement cases together, the FEC is deliberately sending a very clear message: If you make an innocent mistake and cooperate, you’ll be treated with leniency,” said Brett Kappel, a campaign finance lawyer who advises corporations and corporate PACs. “If you knowingly break the law, we’ll use the full extent of our powers under BCRA to penalize you.”

Chao, who cooperated in the FEC’s probe and resolution of the matter, admitted breaking the law but neither admitted nor denied that his violations were “knowing and willful,” according to an FEC press release.

While the FEC also “admonished” the Hynes campaign for failing to report a $1,500 in-kind donation from Chao for furniture and other items, the Hynes campaign has denied any wrongdoing.

“We maintained from the beginning that we had no involvement in the matter, and the FEC rules to that effect,” Hynes campaign spokeswoman Chris Mather recently told The Associated Press.