Politicos beware: Court ruling could prompt more transparent campaign spending

Introduction

May 14, 2018: This story has been updated.

The Federal Election Commission could begin demanding more information about the vendors and consultants political committees pay, thanks to a federal appeals court decision Friday.

The impact of the decision — which could have implications for how precisely political committees such as President Donald Trump’s re-election campaign and the Democratic National Committee have to detail their spending — will rest on how the FEC chooses to apply it, several campaign finance experts said.

“This could help the FEC be more aggressive about requiring specific and actual reporting of the use of campaign funds and limiting the use of subvendors,” said Larry Noble, general counsel of the Campaign Legal Center and a former FEC general counsel. “However, the FEC could also look at this and say it’s a unique situation involving a clear scheme to hide the use of the funds.”

FEC Chairwoman Caroline Hunter, a Republican, could not immediately be reached for comment on the impact of the decision.

The decision Friday involved three staffers from the 2012 presidential campaign of Ron Paul, R-Texas. The Paul staff members — Jesse Benton, John Tate and Demetrios Kesari — were convicted in 2016 of charges connected to $73,000 in payments to an Iowa state senator who, in exchange for the money, switched his Republican presidential primary endorsement from former Rep. Michele Bachmann, R-Minn., to Paul shortly before the Iowa caucuses.

The three men made the payments to the state senator, Kent Sorenson, via a third-party video production company. The court said the video production company payment was really a ruse designed to hide the fact that the campaign money was destined for Sorenson, who last year began serving prison time stemming from his bribe acceptance.

Lawyers for Benton, Tate and Kesari argued that the law, and FEC precedents, don’t prohibit a campaign paying a vendor who then pays a subcontractor, even if campaign finance reports only show the name of the original vendor. Prosecutors said it was illegal to hide the purpose of the payments, which were described as “audio/visual expenses,” when they were really made in exchange for Sorenson’s endorsement, and the circuit court’s opinion said that was a factor.

A three-judge panel of the 8th U.S. Circuit Court of Appeals in St. Louis upheld the district court, saying there was “ample evidentiary support” to do so.

Brett Kappel, a political law specialist at the law firm Akerman, said the decision was striking because it affirms prosecutors’ ability to use the statute prohibiting falsification of records in campaign finance cases, and that law carries longer sentences.

He called it “a powerful new tool for their toolbox. The Justice Department may also be more inclined to pursue these type of FEC prosecutions if the longer sentences will have a deterrent effect.”

Political committees — including campaigns — are required to itemize disbursements and publicly disclose vendors and the purpose of expenses. Previous FEC opinions have said campaigns don’t have to list subvendors. But government and political watchdogs, including the nonpartisan Campaign Legal Center, have said that should change.

The 2016 presidential campaigns have been criticized for opaque spending. The circumstances aren’t all analogous to the 8th Circuit case, but experts said the decision could inform how those complaints are handled.

Democratic nominee Hillary Clinton’s campaign helped fund an infamous dossier on Trump — the campaign paid law firm Perkins Coie, which then hired a research firm, Fusion GPS, to conduct research on Trump. The Campaign Legal Center accused both Clinton’s campaign and the Democratic National Committee of failing to file accurate campaign finance reports and has a complaint pending at the FEC against both entities.

“If I’m Perkins Coie, right now I’m a bit nervous about the reporting of payments to Fusion GPS,” said Brad Smith, a former FEC chairman and current chairman of the Institute for Free Speech.

(Update, May 14, 2018, 2:52 p.m.: “That statement reflects a gross misreading of the decision here, which considered circumstances where a third party, with no relationship to the ultimate recipient of the funds, was used specifically to conceal a transaction a campaign wished to hide from the public,” Perkins Coie said in a statement. “This decision does not impact the fundamental principal that payments by political committees’ vendors to bona fide sub-vendors are permissible and are not required to be reported. ”)

The Campaign Legal Center’s Noble said the DNC/Fusion GPS situation isn’t the same as in the 8th Circuit case because “there is a distinction between creating a false trail to hide the purpose of the documents versus using an umbrella vendor and having an umbrella vendor doing specific things that should be individually reported but aren’t.”

Nonetheless, he said, the Campaign Legal Center complaint over the Fusion GPS payments gives the FEC an opportunity to show “whether it takes the idea of reporting expenditures seriously” in light of the court decision.

Trump, meanwhile, is under scrutiny over $130,000 his private lawyer, Michael Cohen, paid adult film star Stormy Daniels shortly before the 2016 presidential election. In exchange, Daniels, whose real name is Stephanie Clifford, agreed not to publicly discuss an alleged sexual relationship with Trump, who has denied an affair.

The Trump campaign’s chief operating officer, Michael Glassner, and Perkins Coie lawyer Marc Elias could not immediately be reached for comment by the Center for Public Integrity.

Watchdogs say the payment was meant to influence the election, and Trump’s campaign should have reported the expenditure as a campaign expense instead of treating it as a personal one.

Paul S. Ryan, vice president of policy and litigation at Common Cause, said the decision has bearing on the Trump matter.

Common Cause has filed complaints with the DOJ and FEC alleging that “violations by Trump, Cohen … and others of the same statutes violated in the criminal convictions upheld by the Eighth Circuit in this case,” he said in an email.

Ryan added: “The 8th Circuit’s decision makes clear that when you lie to the federal government about election spending, you can be prosecuted and convicted not only for violating campaign finance law reporting requirements, but also multiple other federal criminal statutes that prohibit making false statements and filing false paperwork with the government.”