Scam PACs and COVID-19: Defending against allegations and prosecutions (Part 2)

April 30, 2020

ballot boxBy Andrea Moseley

Two weeks ago, I published the first installment in this blog series. This series focuses on parallels and differences between issues surrounding political fraud and COVID-19 fundraising fraud. In this series, I will continue to explore DoJ policies against campaign finance fraud, the history and development of PACs, DoJ focus on COVID-19 fraud, defending targets of these investigations, and sentencing guidelines issues relating to these types of fraud. This week, I break from our daily dose of COVID-19 news and focus on campaign finance fraud, in particular, so-called “Scam PACs.”

What is campaign finance fraud and why talk about it now?

This topic is especially relevant because we are in a presidential election year. Voter interest and participation is far greater in presidential years. In addition, the United States Census Bureau has confirmed that in any given presidential election, the number of reported voters typically increases relative to the previous presidential election. As you might expect, this is largely as a product of increases in the size of the citizen voting-age population. For example, in 2016, there were about 4.6 million more reported voters than in 2012. A majority of these additional voters (3.7 million) were 65 years and older. Ostensibly, with the increase in voting-age population comes an increase in potential donors. Therefore, we expect to see an increase in targets of fraud and the concomitant investigations and prosecutions for the same in the 2020 election cycle.

Four types of election crimes

The United States Supreme Court upheld federal convictions for ballot box stuffing in 1974. In Anderson v. United States, 417 U.S. 211, 227 (1974), the Supreme Court stated that “[e]very voter in a federal primary election, whether he votes for a candidate with little chance of winning or for one with little chance of losing, has a right under the Constitution to have his vote fairly counted, without its being distorted by fraudulently cast votes.” Ballot box stuffing is the quintessential example of “election” fraud. However, there are many more ways in which the democratic process can be corrupted. The first broad category of election fraud includes obtaining and marking ballots, counting and certification of election results and/or issues relating to the registration of voters.

DoJ refers to the next category of election crimes as “patronage” crimes. DoJ uses this term to describe the doctrine of “to the victor go the spoils.”

Aside: The expression “to the victor go the spoils” originated in America in the year 1832. William Marcy, a senator from New York, said They see nothing wrong in the rule that to the victor belongs the spoils of victory. He was making a political statement against the Democratic Party and reportedly in defense of Andrew Jackson.

These crimes usually go hand in hand with other forms of corruption (such as bribery, honest services fraud, etc.) and are characterized by aggressive favoritism toward the administration/political party that currently dominates political power.

Civil rights” crimes are another distinct category of election crime that involve schemes to deprive minorities of the right to vote. These are federal crimes under the Voting Rights Act of 1965, as amended, 52 U.S.C. § 10308. Discrimination based on a potential voter’s race, or on ethnic factors or minority language, may also be redressed under such criminal statutes as 18 U.S.C. §§ 241 and 242. These prosecutions are handled by the Criminal Section of the Civil Rights Division of DoJ.

The last category of election crime is the one that this series explores: “campaign financing” crime. Scam PACs fall into this category. The Federal Election Campaign Act of 1971 (FECA) is the main act of Congress through which political campaign finance is regulated in the United States. Federal campaign financing laws are found in 52 U.S.C. §§ 30101–30146, as amended (most significantly in 1974, 1976, 1979, and 2002). FECA, originally passed during the Nixon administration, aimed to consolidate earlier attempts at reforming campaign finance under one law. FECA introduced more strict disclosure requirements for political parties, federal candidates and political action committees. However, FECA did not establish a central authority responsible for enforcing it, and was subsequently amended in 1974 to create the Federal Election Commission as well as new limits on political campaign contributions by individuals, political action committees and political parties.

As amended, FECA applies to virtually all financial transactions that impact upon, directly or indirectly, the election of candidates for federal office. FECA contains its own criminal sanctions, which provide that, to be a crime, a FECA violation must have been committed knowingly and willfully and must have involved at least $2,000 in a calendar year. 52 U.S.C. § 30109(d). FECA crimes aggregating $25,000 or more are five-year felonies, and those that involve illegal conduit contributions and aggregate over $10,000 are two-year felonies. 52 U.S.C. § 30109(d)(1)(A), (D). Moreover, all criminal violations of FECA are subject to U.S. Sentencing Guideline § 2C1.8, that the United States Sentencing Commission promulgated in response to a specific Congressional directive.
DoJ takes the position that the federal prosecutor’s role is the area of election fraud is not primarily preventative but instead focused on prosecuting individuals who commit federal crimes in connection with an election. This is, in part, because of a desire to avoid impacting elections themselves. The mere fact of an investigation of election fraud could become a factor in an election. Therefore, DoJ’s general policy is to not conduct overt (visible and obvious) investigations until after the outcome of the election allegedly affected by fraud. This includes not interviewing individual voters until after an election has come and gone. Based on this, we can expect that, at least overt investigations, will wait until after the November 2020 elections And, our role in defending against those accused of improper campaign finance conduct will likely be delayed into 2021.

How do Scam PACs get investigated and prosecuted?

My experience is that these investigations take a very long time to come to fruition. Remember that Scam PACs come in two forms. One involves the individual who pretends to raise money on behalf of a political cause or candidate but instead, has no such intentions. This type of scam is not necessarily difficult to prosecute; it is straightforward fraud by false pretenses. The other type of so-called Scam PAC is far more complex. With that complexity comes greater potential for defenses against accusation.

This second type of “scam” PAC involves situations where the PAC is in fact raising money for a candidate or a political party but spends little to no money on the cause. In an upcoming article, I will present case studies that illustrate specific PAC conduct that has drawn the attention of DoJ. There are holes in federal law that make it very difficult to prosecute the second type of political fundraising fraud. In part, it is difficult to prosecute because it is difficult to define. There is significant room for interpretation and legal confusion for both PACs and donors with this second type of donor fraud. In fact, the second type, as I have defined it, may not even be illegal under certain circumstances. I will refer to the second type of fraud as “proportionality” fraud. Proportionality fraud is totally in the eye of the beholder. The beholder is as various as the number of decision makers at DoJ.

How much can a PAC keep for itself before it becomes a “Scam PAC”?

There is no rule about this. Herein lies the problem for the government and the nub of defenses to prosecutions of proportionality fraud. If my CEO PAC client truthfully raises money for a political candidate or cause, but has extremely high overhead, does that cross the line? What if the overhead mostly benefits him or her? There is no clear guidance in federal law on this issue which makes these prosecutions a challenge from DoJ’s side. In fact, federal law gives considerable leeway in how PACs use their funds. In a 2016 memo on this very issue, FEC commissioners made this very point. In 2018, the FEC commission wrote to Congress that “[t]hese committees solicit contributions with promises of supporting candidates, but then disclose minimal or no candidate support activities while engaging in significant and continuous fundraising, which predominantly funds personal compensation for the committees’ organizers.” Notwithstanding the pleas from the FEC to address the lack of oversight, there are no new anti-self-dealing provisions that prohibit a PAC from high overhead or from personal profit.

Up next in this series, what is happening in the real world of investigating and prosecuting in this abyss of federal legislation surrounding proportionality fraud.

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