NORTH CAROLINA
WAKE COUNTY
BEFORE THE STATE BOARD OF ELECTIONS
COMPLAINT
IN THE MATTER OF NATIONAL 'SOFT MONEY'
AND STATE CAMPAIGN FINANCE ISSUES
DEMOCRACY SOUTH, a North Carolina
non-profit corporation, and PETER MacDOWELL,
individually and as Executive Director of Democracy
South
Petitioners
Democracy South and Peter MacDowell, a registered voter, file this complaint
in accordance with N.C.G.S. 163-278.22, G.S. 163-278.21, and G.S. 150B-21.1
with respect to the inappropriate solicitation, contribution, transfer, and
expenditure of non-federal "soft money" involving North Carolina elections
and, more specifically, with respect to apparent violations set forth herein
involving the operations of four political party committees which handle soft
money. G.S. 163-278.21 charges the State Board of Elections with the responsibility
"for promulgating all regulations for the enforcement and administration
of this Article [the State's campaign finance statutes] and to prevent the
circumvention of the provisions of this Article" (emphasis added).
G.S. 150B-21.1 gives the State Board a crucial mechanism to fulfill this responsibility:
authority to adopt an emergency, temporary rule "to become effective immediately
in order to preserve the integrity of upcoming elections and the election process."
The time is at hand to use this authority.
1. Democracy South is a non-profit corporation organized under the laws of North
Carolina. It is located in Chapel Hill, N.C., and focuses on campaign financing
and other public policy issues affecting the citizens of North Carolina. Peter
MacDowell is Executive Director of Democracy South. He resides in Chapel Hill
and is a registered voter in Orange County.
2. The four committees that are subjects in this complaint are:
· Democratic National Committee Non-Federal North Carolina, Washington,
DC, with ID# 8093000 assigned by the State Board of Elections;
· North Carolina Democratic Party Soft [Money], Raleigh, NC, with ID#
8013000;
· Republican National State Elections Committee-NC Account (also known
as Republican National Committee-NC Soft Money), Washington, DC, with ID# 8193000;
· North Carolina Republican Executive Committee [Soft Money Account],
Raleigh, NC ID# 8113000.
3. Petitioners seek immediate suspension of authority for these committees to
operate in relation to North Carolina elections. Petitioners also seek policies
and enforcement actions that would apply to these committees and all other entities
handling soft money in North Carolina elections.
BACKGROUND
4. In the national context, soft money refers to political contributions raised
by a national party (or its agent) which are not subject to Federal Elections
Commission contribution limits and which are not to be used for the election
or defeat of specific federal candidates. Such contributions, which may come
from individuals, businesses, unions, and other sources, must be deposited in
"non-federal" accounts of the national party because they can not
go to federal candidates but instead can support "party building activities."
5. The federal government leaves it to the states to regulate, not regulate,
or ban the use of non-federal soft money in state elections.
6. During the State Board of Elections' May 1998 investigation of activities
by Republican leaders of the state House, the public learned that (a) state
candidates in 1996 were involved in soliciting substantial soft-money contributions
from North Carolina corporations for the Republican National Committee or its
units, (b) similar amounts of money were later sent by the national Republican
Party to the Randolph County Republican Executive Committee, and (c) the Randolph
GOP committee made donations to specific state candidates for the state House.
No conclusive evidence demonstrated that this sequence of events involving national
soft money was intentionally arranged to evade North Carolina's ban against
corporate money being donated "directly or indirectly" to candidates
or political committees [G.S. 163-278.19]. However, the potential for corruption
and the appearance of impropriety were troubling.
7. At the conclusion of those hearings, the State Board of Elections decided
to issue a ruling to clarify how soft money could be used in North Carolina.
The Board's ruling, issued in final form on June 15, 1998, is titled, "Ruling
and Procedures Pursuant to NCGS 163-278.23 For Non-Federal Money in the State
of North Carolina." It has a number of elements that indicate concern about
the infusion of national soft money into state campaigns and the indirect routing
of corporate money to state candidates. The ruling included provisions requiring
that (1) all soft money involving North Carolina must come from individuals
or PACs, not from corporations, unions or other entities banned from giving
to candidates in N.C.; (2) national and state parties must set up separate accounts
to handle soft money related to North Carolina and none of the money can commingle
with accounts holding corporate soft money; (3) soft money expenditures in North
Carolina "may only be made for party-building activities"; (4) "Non-federal
funds may not be contributed or transferred to any individual candidate, nor
may the funds be transferred to the general funds of the state political party
committee"; and (5) frequent disclosure reports must reveal the true source
of the money and all transactions involving soft money.
SUMMARY OF VIOLATIONS
8. Petitioners on information and belief allege that soft money committees of
the national and state Republican and Democratic parties have violated all five
of the central elements of the 1998 ruling described in the preceding paragraph.
9. As described below, evidence indicates that non-federal soft money destined
for North Carolina (a) is being solicited for one purpose ("party building")
by the national parties in amounts up to $250,000 per donor, but is being deposited
in another account with the purpose of supporting the elections of state candidates
in North Carolina; (b) is commingled with corporate and other non-individual
contributions; (c) is allocated to the North Carolina account based on a centrally
coordinated strategy by the national parties that depends, in large measure,
on the volume of corporate and non-individual soft money received; (d) is sent
directly to candidates or to the state parties where it is being spent to directly
benefit the election of specific candidates; and (e) is not properly disclosed
as to its true source.
10. In addition to violating the Board's 1998 ruling, these practices have the
effect of cir-cumventing and/or violating numerous laws of the State of North
Carolina, including:
G.S. 163-278.19 and G.S. 163-278.15 - the ban against direct or indirect contributions
from for-profit corporations;
G.S. 163-278.13 - the contribution limit of $4,000 per donor per election;
G.S. 163-278.7A - the provision that contributions to candidates from the national
parties executive committees come from federal rather than non-federal committees;
G.S. 163-278.20 - prohibition against misleading donors about the true purpose
of funds;
G.S. 163-278.14 - the ban against donations being given through conduits or
"in the name of another";
G.S. 163-278.14 - the ban against accepting contributions known to come from
a source other than the one disclosed;
REMEDIES REQUESTED
11. Petitioners respectfully petition the State Board of Elections to take immediate
action to enforce its ruling of June 1998; and/or to adopt an emergency temporary
rule or issue a new opinion; and to take any and all other appropriate actions
necessary to stop the corruption of North Carolina's election process and the
evisceration of its campaign-finance regulations caused by the flood of soft
money donations being collected nationally and sent through various channels
to benefit specific state candidates.
12. Petitioners further request that the Board immediately suspend operations
of the four national and state soft money committees identified above because
each committee has violated provisions of the June 1998 ruling and the
ruling itself states, "Failure to comply with the above [provisions] will
result in immediate suspension" of authorization to operate with respect
to North Carolina elections [June 15 Ruling, Section 2(5)]. In addition, petitioners
believe it is imperative that the committees be suspended while the Board determines
more permanent action because the committees are already having a dramatic impact
on the elections and they possess the resources to exert an even greater impact,
yet they are clearly commingling corporate and individual donations and violating
state campaign-finance statutes, irrespective of the Board's 1998 ruling.
13. Finally, petitioners request that any monies found to have been illegally
transferred, contributed or expended be turned over to the State Board of Election,
in accordance with N.C. law.
RESEARCH FINDINGS
14. While petitioners lack the resources to undertake a full investigation of
the operations of the four soft money committees in question, they believe the
following provides a factual description of the committees' operations.
Contributions or transfers TO national soft money accounts
15. ** The National Democratic soft money account for N.C. (ID# 8093000) reports
that it has received $700,000 in contributions as of September 8, 2000. To comply
with the Board's disclosure requirements, it has submitted a listing of the
contributors who supplied the $700,000. However, the donations on the list total
to $4.4 million, making it impossible to know which donors' money actually went
into the National Democratic soft money account for N.C.
16. ** The $4.4 million donor list includes at least one business, The Davis
Companies of Los Angeles, CA, giving $100,000 on May 18, 2000, which is a violation
of the Board's ruling and a violation of the ban on direct or indirect donations
from businesses [G.S. 163-278.19].
17. ** The $4.4 million list of donations suggests that either this account
has far more than $700,000 or the account is, for all practical purposes, part
of a larger soft money account which exceeds $4 million. The second situation
also raises the question of what other monies are in the larger account which
commingle with those designated for North Carolina's use. As evidenced by the
contribution from The Davis Companies, the larger account clearly contains a
mixture of individual and business contributions.
18. ** The Republican National soft money account for N.C. (ID# 8193000) reports
receiving $5.6 million as of September 8, 2000. The list of its donors includes
a donation of $130,000 on June 29, 2000 from the "National Republican Senatorial
Committee" (NRSC). Where did that money come from? NRSC receives donations
from both business entities and individuals, which is evident from the "attached
itemization" of the source of its $130,000 donation. The list of donors
includes Indian tribes (the Seminole Tribe of Florida and Morongo Band of Mission
Indians in California), an accounting firm, and at least two partnerships. In
other words, the Republican National soft money account for N.C. has violated
the Board's ruling against commingling of funds and the prohibition in GS 163-278.19
against direct or indirect contributions from businesses and sources other than
personal funds.
19. ** The National Republican Senatorial Committee (NRSC) also made an earlier
donation of $119,000 on February 9, 2000. However, no documentation is provided
for the true source of these funds. A national Republican Party official confirms
that the NRSC contains a mixture of corporate and non-corporate soft-money funds,
which is further evidence that donations to the Republican National soft money
account for N.C. are made possible through a commingling of business, individual
and other donations.
20. ** Based on conversations with various party officials, it is apparent that
the amount of money placed in the N.C. soft money accounts of both national
parties depends on the total soft-money donations available, corporate and non-corporate.
Checks written to the national party are typically routed to a particular account
based on a number of factors, including the total funds available and strategic
importance of a particular state. Funds are also transferred between accounts
as factors change. For example, soft-money donations are often deposited in
the "operating account" of the party's non-federal committee, which
contains a mixture of donations, and then a check is written from this account
to another (e.g., the "non-federal individual account") and ultimately
to the separate North Carolina account. It's all coordinated by the same financial
personnel, which means the wall between corporate and non-corporate soft money
is more symbolic than real. One national party official told petitioners the
movement of money was like "a shell game," with funds jumping from
one account to another accounts, all under one central management. "The
chief financial officer - Finance - and Political, they make the decisions as
to what pots of money things are transferred from." In short, the donations
in the N.C. accounts are dependent on a system of transfers determined by the
volume and make-up of a commingled pool of donations. That situation, by its
very nature, violates North Carolina's ban on indirect corporate donations [see
G.S. 163-278(a1)], and poses an intolerable, constant threat for specific violations
involving money swaps (corporate for non-corporate) - yet the State has no way
to monitor these movements or know the details of violations.
21. ** As illustrated in the examples above, the public's right to full disclosure
and accountability of exactly who is giving what money to whom is seriously
compromised under the scheme of trade-offs, transfers, and swaps involved in
soft money. Money attributed to individuals who have no knowledge of the recipient
of their contributions makes a mockery of disclosure rules. People think they
are giving to one entity for one reason ("party building"), but the
money shows up in another committee and gets sent to a specific candidate. Interviews
by the Charlotte Observer with donors to the Republican National soft money
account for N.C. make it plain that the donors are unaware that their money
is being used to finance candidates in North Carolina. The whole system of meaningful
disclosure breaks down under the contorted movements endemic with soft money,
as does the State's ban against "giving in the name of others" [G.S.
163-278.14]. Under these conditions, the State Board of Elections can not fulfill
its responsibilities to assure the public that they can know whose money is
supporting which candidate or committee.
22. ** Petitioners offer another example of the contortions that are occurring,
in violation of the Board's 1998 ruling, as confirmed by Republican state legislators.
It apparently involves a match-and-swap scheme or a form of "money trading."
In July, 2000, several incumbent Republican legislators sent money to the Republican
National State Election Committee in accordance with an arrangement that their
money would be matched by various soft-money funds and sent back to North Carolina
for use in the campaigns of state legislative candidates. Indeed, the July disclosure
reports show that House GOP leader Richard Morgan gave $100,000 from his campaign
fund to the Republican National soft money account for N.C., which transferred
$200,000 to the N.C. Republican Party soft money account, which then gave $200,000
to the Republican House Majority Committee within the N.C. Republican Party.
Similarly, seven GOP state senators sent $80,000 to Washington and $113,750
came back to the N.C. Republican soft money account, which then gave $113,700
to the Senate Fund within the N.C. Republican Party. This kind of leveraging
of one kind of money for another illustrates the fluidity and intermingling
of different kinds of contributions, whether soft or hard, corporate or non-corporate.
Expenditures FROM the soft money accounts
23 ** The most glaring violations of the Board's ruling involve two contributions
from the Republican National soft money account for N.C. to the Vinroot For
Governor Campaign: one check for $250,000 on July 21, 2000 and one for $150,000
on August 9, 2000. These contributions totaling $400,000 bypass the state party
account and directly benefit a state candidate, two violations of the Board's
ruling.
24. ** It is noteworthy that in the press reports about the contributions, the
Vinroot campaign has repeatedly said the $400,000 contributions came from the
Republican Governors' Association (RGA), which is a different committee than
the one reporting to the State. So we have a situation where neither the recipient,
nor the individual donors identified as the source of the contribution, can
explain the transaction. It is also worth noting that the Republican Governors'
Association is a soft-money account that primarily holds corporate contributions.
Its stated involvement raises more questions about the commingling of corporate
and non-corporate funds.
25. ** According to disclosure reports, the $400,000 in contributions to a state
candidate comes from soft-money donors who gave as much as $250,000 each and
thereby circumvents the state's $4,000 contribution limit for what an individual
can contribute to a state candidate [G.S. 163-278.13(a)]. By making direct donations
to candidates, the Republican National soft money account is essentially laundering
unlimited soft-money donations into hard-money contributions and helping individuals
evade the $4,000 contribution limit. The integrity of the election process is
seriously compromised if the State tolerates a proliferation of out-of-state
channels that help individual donors evade the contribution limit, that convert
soft money into hard-money, candidate-specific contributions, and that provide
confusing disclosure at best.
26. ** State law sets forth a specific procedure for a national party executive
committee to make contributions to state candidates in G.S. 163-278.7A. The
statute only permits national party contributions to state candidates from "a
federal political committee," i.e., from the party committees that receive
hard money donations given to help candidates and that are subject to regulations
by the Federal Elections Commission (FEC). In passing this statute in 1996,
the General Assembly faced the issue of how national committees should be allowed
to contribute to state candidates. Lawmakers chose to give permission for contributions
from federal committees as the only route for a national executive committees
to use, thus excluded a party's non-federal or soft-money committees from contributing
to state candidates. The $400,000 donation is therefore not permitted by N.C.
statute.
27. ** The N.C. Republican Party's soft money account (ID# 8113000) shows numerous
disbursements to other accounts within the NC Republican Executive Committee
and to committees that make donations to state House and Senate candidates.
Disbursements include at least $76,000 to the NCGOP-State Account, $100,000
to the NCGOP-Federal Account, $200,000 to the NCGOP-House Majority Committee,
$113,750 to the NCGOP-Senate Fund. These disbursements violate the June 1998
ruling, which says, "Non-federal funds may not be contributed or transferred
to any individual candidate, nor may the funds be transferred to the general
funds of the state political party committee" [Section 2(2)].
28. ** The N.C. Democratic Party's soft money account (ID# 8013000) also shows
disbursements that violate the same section of the ruling. These disbursements
include at least $250,000 to the NC Democratic Party-Federal Account and $3,400
to the NC Democratic Party-Non-Federal Account. Funds are also being used to
pay the salaries of party employees who are campaign managers for state legislative
candidates.
AUTHORITY FOR ACTION
29. Petitioners request immediate action by the State Board of Elections to
clear up possible confusion about the enforcement of its 1998 ruling in the
face of two more recent developments. These developments - a 1999 amendment
to GS 163-278.13 and an April 2000 letter from State Board staff to a GOP official
- have been used by the Richard Vinroot campaign as justification for accepting
$400,000 in contributions from the Republican National soft money account. This
seems to petitioners as misguided at best.
30. First, the 1999 General Assembly added the word "national" to
the list of political party executive committees which are exempt from the $4,000
contribution limit [GS 163-278.13(e)]. This section - G.S. 163-278.13 - only
addresses limits in the amount of a legal contribution; it does not change any
law which may restrict the recipient or the source of a legal contribution.
It does not, for example, give the national party's executive committee new
authority to use corporate money in making a legal contribution, nor does it
give it authority to give to entities it could not give to before the amendment
was added. (See discussion of G.S. 163-278.7A in paragraph 26 above.) The amendment
only addresses the amount that may be received or given for a legal contribution.
In practice, the national parties have long enjoyed the privilege of making
unlimited contributions to state parties, and the amendment's author, Rep. Phil
Baddour of Goldsboro, confirms that he did not intend for the amendment to do
anything more than conform the statute to current practice. There was no legislative
debate about the impact of the amendment on soft-money donations going to candidates.
In fact, Rep. Baddour, legislative staff and other insiders say there was no
debate at all of the added word. It is simply wrong to interpret the amendment
as gutting the State Board's ability to regulate the flow of soft money into
North Carolina.
31. The second development involves an exchange of letters between Kenneth Paul
Jones, associate counsel at the Republican National Committee, and Gary Bartlett,
Executive Secretary-Director of the State Board of Elections. In an April 4,
2000 letter, Jones asks Bartlett to verify that the 1999 amendment adding "national"
to GS 163-278.13(e), in Jones words, "appears to permit the Republican
National State Elections Committee (RNSEC) North Carolina Account to make and
receive unlimited contributions, provided that corporate money is not utilized.
Additionally, the Republican National Committee is permitted to make unlimited
contributions to individual non-federal candidates as well as to the state party.
In short, the RNC is no longer subject to the $4,000 dollar [stet] contribution
limitation. Based on our conversation, it is my understanding that the above
statements accurately reflect the current status of the law. The favor of your
reply would be appreciated. . . ."
32. Please note that Jones does not ask if RNSEC-NC can make contributions to
non-federal (state) candidates. That is something the RNC can do, using its
federal committee with hard money and following procedures set forth in GS 163-278.7A.
But RNSEC-NC is a non-federal committee holding soft money. Jones appears to
recognize this distinction by restricting the issue of contributions to candidate
to his question about what the RNC can give. Please also note that Jones does
not ask for a formal ruling or opinion from Bartlett, only a written verification
of their conversation.
33. In Bartlett's response, sent to Jones on April 18, he says, "you are
correct that the Republican National State Elections Committee (RNSEC) North
Carolina Account is permitted to make and receive unlimited contributions, provided
that corporate money is not utilized. You also state your understanding that
the RNC is no longer subject to the $4,000 contribution limit. The RNC is not
now, nor was it previously, subject to the $4,000 contribution limit."
Without making an official opinion, Bartlett states the obvious - that the RNC
is not, and has not been, limited to making only $4,000 contributions. But,
again, please note that the sentence about RNSEC does not authorize any new
recipient, nor any new source, for its unlimited contributions. The amendment
merely clarifies that it can give unlimited legal contributions - which can
only go to a state political party soft-money account for party-building activities.
The issue of WHO can receive RNSEC's money was not raised; only the question
of HOW MUCH.
34. Contrary to the view that the 1999 General Assembly wanted to loosen regulations
on soft money, petitioners point out three other statutes that were modified
that year to strengthen the Board of Elections' authority and ability to regulate
the flow national soft money. The first amended G.S. 163-278.19, the ban on
"direct or indirect" corporate contributions. The 1999 amendment added
new language to define "indirect" to mean a contribution or expenditure
that was given or made "with the intent or purpose of being exchanged in
whole or in part for any other funds . . . or to offset any other funds"
G.S. 163-278-19(a1) In other words, if a corporation made a legal soft money
contribution to a national party but that contribution is part of a scheme for
the party to then make a donation (using individual soft money) to a North Carolina
committee, then the corporate contribution would be considered an illegal indirect
contribution, which would make the party's donation illegal since it depends,
at least in part, on an indirect corporate contribution.
35. Petitioners point out such schemes are routinely part of the decisions made
by the national parties in deciding how national soft money gets transferred
to state parties, in what amounts, when, and for what purpose. Investigative
reports about such schemes have repeatedly appeared in newspapers and journals.
Party officials readily admit that funds are shuffled from one account to another.
The entire system of soft money transfers is riddled with intricate matching
schemes, swaps and conversions that arise because of the super-large, yet use-restricted
corporate and union donations made available to the parties. Sometimes the goal
is to turn large soft-money donations into hard money that can be used in candidate
campaigns. Sometimes the goal is to trade or offset individual soft money with
corporate soft money. Whatever the goal, the movement of money is all coordinated
by the party's central management. They maneuver the pieces with a view to what's
available in the party's entire pool of resources, which means corporate contributions
are inextricably involved in national soft money accounts designated for North
Carolina's use.
36. Given G.S. 163-278.19 and the 1999 amendment about indirect corporate/union
contributions, and given the evidence of commingled funds in the Democratic
and Republican national soft money committees, the State Board of Elections
has every reason to suspend their operations and stop them from impacting North
Carolina elections.
37. In a second strengthening amendment passed in 1999, the General Assembly
essentially directed the Board of Election to intensify, not relax, its oversight
of campaign finance practices. G.S. 163-278.21 system authorizes, indeed requires,
the State Board to take "responsibility . . . for promulgating all regulations
necessary for the enforcement and administration of this Article [the campaign
finance statutes]." The 1999 amendment goes further by adding the obligation
that the State Board shall also "prevent the circumvention of the provisions
of this Article." State lawmakers are obviously aware that the public -
and law-abiding candidates, political committees, etc. - suffer when laws are
evaded or circumvented. Petitioners urge the Board to recognize the consequences
of not enforcing its 1998 ruling. Vast sums of money of unclear origin will
move through a plethora of channels interconnected with corporate donations
to impact the election of targeted candidates, with misleading public disclosure
at best and such confusion that neither the original donors, nor the ultimate
recipients understand what is happening. This is madness: A loophole allowing
national soft money contributions to state candidates will turn a campaign finance
system that promotes accountability into a free-for-all riddled with undisclosed
money-trading. It corrupts the political process, encourages circumvention of
the law, and promotes distrust of North Carolina's election. The integrity of
the election process is clearly at stake.
38. The third strengthening amendment passed in 1999 gave the State Board of
Elections unusually broad authority to adopt temporary rules. The General Assembly
debated this matter at length and concluded that the Board should have unusual
powers for an agency covered by the Administrative Procedure Act. In G.S. 150B-21.1,
lawmakers added a special provision granting the Board authority to adopt an
emergency or temporary rule "to implement any provision of state or federal
[campaign finance] law" OR to adopt a rule "to become effective immediately
in order to preserve the integrity of upcoming elections and the elections process."
39. Petitioners respectfully ask the Board to adopt a temporary rule banning
non-federal soft money from North Carolina "in order to preserve the integrity
of upcoming elections and the elections process."
Respectfully submitted, this 13th day of September, 2000.
___________________________________
Peter MacDowell, Individually and on behalf of Democracy South, a
North Carolina non-profit corporation.
PETITIONERS
605-A Highway 54 West, Chapel Hill, NC 27516 (919) 967-9942
Peter MacDowell, being duly sworn, hereby deposes and says:
I am a Petitioner in the above entitled action. I am a resident and registered
voter in Orange County. I have read the foregoing Complaint and believe it to
be true to the best of my knowledge.
____________________________________
Peter MacDowell
Sworn to and Subscribed before me,
this 13th day of September, 2000
___________________________________
Notary Public My commission expires: