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03.04.2020, . 09:52

Campaign Financing Laws in the United States

Craig C. Donsanto1

This paper was written for foreign official visitor delegations and will explain the approach Chat the United States has taken to date with respect to the regulation of campaign finance. Copies of the texts of the three main federal laws that will be explained here accompany this paper.

Background

The United States has both federal and state legislative bodies. Under our Constitution, the federal Congress may regulate campaign financing only with respect to federal candidates and federal elections. Historically, the federal government has taken the lead in this field, and it's lead has been followed by most - but not all - of the states. The first federal «campaign financing» statute was enacted in 1907, it forbade corporations from making contributions to certain election campaigns, and it is still on the books today. However, the modern era of comprehensive campaign finance regulation began in 1971 with the adoption of the first Federal Election Campaign Act.

The objective of campaign financing laws is to minimize the corruptive influence of large donations, those given secretively, those originating from sources that have been identified by a body politic as particularly prone to abusive action, and to provide the voters with information concerning the flow of funds to candidates that they need to make informed choices in the voting booth. This memorandum will present and evaluate the principal statutes developed in the United States to address these societal interests. These laws represent almost a century of development, debate and testing. While not perfect, they have served our nation well, and been models for legislation at the state and local levels within the United States.

The adequacy of legislation in this area is very much dependent upon the political system in place in a particular country, the country's legal system and culture, and limitations on the regulation of political activity derived from its constitution or fundamental law. For example, a campaign finance regulatory law that is adequate for a country that employs a parliamentary system and thus has brief and usually irregularly-timed elections would not suffice for a country that employs a presidential system in which elections occur at set intervals and the campaigns leading-up to them are traditionally lengthy. A given legal text may suffice for a country whose legal traditions derive from the Anglo-Saxon common law, but may not have as great a value for one whose legal culture is rooted in the Napoleonic Code. Finally, a campaign finance law that governs a country such as the United States whose fundamental law broadly protects political activity may not be adequate for a nation, whose fundamental law lacks such broad protections2.

Components of campaign financing and disclosure laws

All campaign-financing laws aimed at deterring the corruptive influence of large campaign donations consist of one or more of the following components:3

Mandatory public disclosure of contributions received and expenditures made by candidates seeking political office, and by political committees that participate in the campaign process. The text of those sections of the Federal election Campaign Act dealing with public disclosure - notably Sections 4342, 433 and 434 - have been adopted in one for or another by most of our state governments.

Quantitative limits on contributions to political candidates and to campaign committees. This objective is addressed by Section 441a(a) of the Federal Election Campaign Act, which has in turn been a model for similar legislation.

Outright prohibition on the making or receipt of contributions from funding sources considered presenting particularly acute corruption risks to the society. In the United States, these currently include corporations, unions, government contractors, foreign nationals, banks and donations made in currency, and are embodied in several of the sections of the Federal Election Campaign Act described below.

Public financing of political campaigns, either as a supplement to private funding or as a substitute for it. In the latter instance, candidates accepting public finding are prohibited from receiving privately generated donations. Two models of this component are presented here, one embracing full public financing of political campaigns under the Presidential Election Fund Act, the other presenting partial public funding achieved through matching private donations while limiting overall campaign expenses under the Presidential Primary Matching Payment Act.

Quantitative limitations on amounts that political campaigns may expend. In the United States, these «expenditure» limitations have been held to violate the First Amendment unless a political candidate or organization in exchange for partial or total public funding voluntarily accepts them. Nonetheless, an excellent example of a statutory text applying such expenditure limitations is found in Section 441a(b) of the Federal Election Campaign Act.

Prohibitions against corrupt election practices that rely significantly on monetary factors, principally vote buying and using public offices or benefits as inducements or rewards for political activity. These are embraced in criminal statutes that will be presented below.

A comprehensive enforcement mechanism containing administrative, civil and criminal penalties tailored to fit the varying dimensions and magnitude of offenses to the above laws and enforced through agencies whose political neutrality has the confidence of the body politic. The enforcement provision of a campaign financing law is particularly important, since a regulatory scheme is only as effective as the consequences for violating it. In the' United States, administrative and civil remedies are enforced by the Federal Election Commission or its counterparts at the state level, and criminal ones enforced by the Department of Justice and state law enforcement agencies. The FECA's enforcement mechanism is contained in Section 437g of the Act, and it has proven itself over a 25-year period to be an effective enforcement tool.

Finally, a mechanism whereby those whose conduct potentially falls within the sphere of regulation may obtain formal interpretive advice from a neutral administrative source concerning the reach of the law to their anticipated conduct, thereby promoting compliance and avoiding after-the-fact litigation. This is accomplished through an Advisory Opinion procedure such as the one contained in the Federal Election Campaign Act.

Model texts

Laws in effect in the United States currently embrace not all of the components listed above. Where that is the case, it is a result of constitutional issues that arise mainly from the First Amendment, and Chat is unique to the United States. However, as summarized above, there four areas of law that address the subject of campaign finance, and which together incorporate most of these components. These texts are presented as appendices to this memorandum, and they consist of the following:

- The Federal Election Campaign Act4

This law regulates the flow of money into and out of federal election campaigns, and provides for a comprehensive system for the public disclosure of financial contributions to, and expenditures by, all candidates for federal office and the political organizations that financially support them5.

The current law began as the Corrupt Practices Act in 1925, which was a primitive statute with many loopholes and little substantive coverage. The first FECA was enacted in 1972; it replaced the CPA and represented the first truly comprehensive reporting and public disclosure law enacted in our history. It was improved through amendments in 1974 which created an politically independent Federal Election Commission to interpret and enforce the Act, and to bring laws limiting and regulating contributions themselves within the framework of the Act; again in 1976 to reconstitute the Commission and effect changes required by the landmark Supreme Court decision of Buckley v. Valeo. 424 U.S. 1, ('976); and finally in 1979 to close loopholes in the Act's coverage of both disclosure and campaign contribution regulation that had been identified during the 1976 and 1978 federal elections. In the 15 years since it's last amendment, lapses in coverage and changes in the way political campaigns are financed have given rise to a need for further reform legislation. These issues were most recently presented to the 104th Congress, which could not find common partisan ground to resolve them.

The current FECA has the following important features:6

1) Section 431 is a definitional section that contains detailed definitions of all critical terms used in substantive sections of the Act. References to things «federal» in these definitions are driven by the limitations on Congress' power to act concerning election-related matters that are based in our Constitution. They can probably be dropped from any adaptation of this statute to use in a foreign country that does not follow the United States' federal system. The definitions of the terms «contribution» and «expenditure» in Sections 431(8) and 431(9) are particularly important because all of the substantive commands, acts, duties and prohibitions codified elsewhere in the Act are phrased in terms of the making, receiving and reporting of «contributions» and «expenditures.» Please note that both terms have been carefully drafted to include loans, but to exclude donations of and disbursements for mundane political activities that pose little threat of corruption and whose regulation would detract from the overall enforcement of the Act.

2) Sections 432 and 433 establish a legal process by which political committees come into being, register with the FEC, and maintain internal records. Particularly noteworthy here are the requirement in Section 433 that all candidates for office designate an official «principal campaign committee,» the provision in Section 432 that makes a candidate an agent of his/her own campaign committee, the provision of Section 432 that requires all political committees to have formally appointed «treasurers,» and the provision in Section 432 that requires al persons who raise and accept funds on behalf of a political committee or its candidate to account for those funds to the Committee's treasurer within a given period of time. These latter provisions prevent candidates from escaping the Act's coverage by accepting funds personally, protect against embezzlement and unauthorized use, and ensure that the Treasurer possesses centralized control over funds that is necessary to enable him/her to comply with the Act's disclosure requirements.

3) Section 434 contains detailed - and in our experience effective - public disclosure obligations for campaign committees and candidates. They are self-explanatory. It is important to note that the duty to report is placed squarely on the head of an identified person, who has been appointed pursuant to Section 432 to serve as Treasurer. The centralization of the reporting and accounting activities of a campaign on the shoulders of a specific de jure political committee officer is a critical feature of the FECA's disclosure mechanisms.

4) Section 439 prevents candidates from converting their campaign funds to personal use. This statute, which has been hotly debated over a 20-year period by the Congress, closes a corruption loophole by preventing corruptive forces from getting money into the hands of candidates by giving them initially as political donations, with the expectation that the candidate will thereafter put them to his/her personal use.

5) Sections 441a, 441b, 441c, 441e and 441g either limit or prohibit contributions to candidates from certain sources and in certain means that have been identified as particularly prone to corrupt abuse in the United States. Specifically: Section 441a(a) provides quantitative limits for individual donations to candidates, political committees authorized by candidates, political parties, and «multi-party political committees» that are not directly affiliated with a specific candidate's campaign. Section 441b(a) prohibits corporations, labor organizations and banking institutions from making donations to political campaigns7. Section 441c prohibits contributions by any person or entity that has a contract with the government. Section 441e prohibits contributions from persons who are not United States citizens or lawfully admitted permanent resident (i.e.. «Green Carder»). Section 441g prohibits donations of more than $100 that are made in the form of currency, which is impossible to track.

6) Section 44 If prohibits one person or entity from making a contributions in the names of others (i.e.. «Conduit» or «laundered» contributions). This feature closes an obvious loophole that would otherwise exist in both the disclosure and the source prohibitions of the FECA were contributors allowed to make anonymous donations, or illegal ones, and disguise them by posing them as the act's of straw donors.

7) Section 441a(b) provides text for the limitation of campaign expenditures. Limiting campaign spending is one of the simplest means of keeping campaign costs down, and thereby minimizing the need for large and potentially corruptive donations. However, this subsection has been held to offend the First Amendment to the United States Constitution dealing with free speech, except in those situations where a political campaign or candidate was given and voluntarily accepted public funding. Other nations that do not have this feature in their fundamental law will find the text of Section 441a(b) useful in drafting effective expenditure limitations.

8) Sections 437c, 437d and 438 establish and empower a truly independent government entity - the Federal Election Commission - to interpret and enforce most offenses arising under the Act. The members of this Commission most represent all viable political parties and a super-majority of four of the six commissioners must approve regulations and enforcement initiatives. While this super-majority and political pluralistic composition has at times stymied the Commission from taking action in some instances, it has ensured that the Commission's actions are politically neutral in reality as well as perception. Political neutrality of the principal enforcement agency for campaign reporting and financing laws is essential to their effectiveness.

9) Section 437f gives the FEC. authority to issue binding «advisory opinions» interpreting the Act's substantive terms, and applying them to specific facts that requestors within the regulated community wish to engage in. This Advisory Opinion mechanism works from the premise - which in our experience has been a valid one - that most persons and entities subject to campaign financing and disclosure laws want to comply with them, and will do so in areas where the application of the law to their factual situations is less than clear if they are told what the law is. Since pre-act prevention is better than post-act enforcement, this advisory opinion power has proven to be a particularly valuable feature of the FECA.

10) Finally, Section 437g provides administrative, civil and criminal penalties for violations of the Act, tailors these various remedies to the degree of anti-social intent and factual aggravation presented by each specific offense, and provides for procedures whereby the noncriminal remedies are to be applied by the FEC. A fair, flexible yet workable enforcement process is the core of any law's effectiveness. This is particularly true with the characteristically complicated laws that govern the volatile subject of political campaign fundraising. Our experience with the enforcement process specified in Section 437g dates back to its enactment in 1976, and it has been a good one. Most violations of the FECA are committed out of ignorance or mistake. Those offenses are customarily pursued by the FEC administratively, with the usual penalty being that the offending transaction is «backed-out,» the missing information added to the public record, and the parties to the transgression required to pay a small monetary penalty and agree to mend their ways. On the other hand, purposefully and financially large violations of the Act are prosecuted as crimes in the normal way8.

Presidential Election Fund Act99

Providing public funding for political campaigns is a particularly useful way of eliminating the corrupting influence of private donations. When a candidate's campaign is financed from the public treasury, private donations can be severely limited or even prohibited altogether. Many states have adopted this method for financing the campaigns of significant state offices such as governor. In the federal system, it is currently only used in the general election campaigns of candidates seeking the presidency through the Presidential Election Fund Act, which was enacted in 1976.

This statute provides a large federal grant to each major party nominee for the presidency. Once (s)he secures his/her party's nomination, a candidate may chose to accept this grant, or reject it. If the grant is accepted, the candidate and his/her campaign organization are forbidden from soliciting, accepting or receiving contributions from private sources; they are held to expenditure limitations as well as to strict conditions on the permissible use of the public funds; and their campaigns are subject to financial audit by the Federal Election Commission, which can - and usually does - order inappropriately spent funds to be returned to the treasury. On the other hand, if a presidential candidate rejects the grant, (s) may receive unlimited private funds. In both cases, the law requires the usual public disclosure of campaign financial activities pursuant to 2 U.S.C. § 434 described above.

A critical feature of this public financing law is the triggering mechanism that determines which candidates are entitled to receive the presidential campaign grant. Those representing «major parties» are entitled to receive the full grant. A «major party» is one whose candidate amassed at least 20% of the general election vote in the last preceding presidential election. A «minor party» candidate is entitled to receive a portion of the grant up-front, but is free to raise private contributions. When those reach a certain level, the candidate is entitled to receive additional grant funds.

The Act is administered by the Federal election Commission.

Finally, the Act contains a specific criminal provision (section 9012) that imposes severe felony penalties on any person who attempts to defraud the process by which this particular grant program operates. These penalties are in addition to those otherwise available for fraud offenses under the law.

The Presidential Primary Matching Payment Act10

Like the Presidential Election Fund Act, the Presidential Primary Matching Payment Act was enacted in 1976 and has applied to every presidential election since then. In the United States, it applies to the financing of presidential primary campaigns, while the Presidential Election Fund Act applies to general election campaigns. The two statutes differ significantly in the way they seek to regulate campaign financing through public funding.

Where the Presidential Election Fund Act provides complete public funding and bans private financing entirely, the Matching Payment Act provides only partial federal funding, it allows private funding, but it limits its corruptive effect. It does this by 1) providing federal matching payments on a one-for-one dollar basis, but only for small individual donations; 2) by holding campaigns that participate in the program to overall expenditure limitations; 3) by limiting the purposes to which all campaign funds may be used; and 4) by providing for audits by the FEC and recoupment of inappropriately matched or expended revenues.

This statute provides an excellent example of a triggering mechanism to ensure that only serious candidates qualify to receive matching funds, and to weed out candidates with little support and those who might chose to run for office only to obtain the federal funding. This mechanism is contained in Sections 9033 and 9034 of the Act, and requires a candidates campaign to raise a floor amount of small contributions from a broad geographic base before qualifying to participate in the program. This mechanism is in most respect the financial equivalent of ballot access laws that require candidates to obtain a certain number of petition signatures from voters in certain areas collected during a specified window of time.

Importantly, as with the Election Fund Act, the Matching Payment Act contains a comprehensive criminal penalty that provides for felony penalties for any person who submits false information that bears on the execution of the Act, or which is directed at defrauding the program. This penalty is contained in Section 9042.

Laws dealing with vote buying11

Many illicit campaign transactions are aimed at obtaining funds to engage in corrupt election practices, or are the result of misuse of government power. In the United States, these issues are the subjects of criminal statutes prohibiting the practice itself. These include:

- Laws forbidding vote buying, a common purpose for illicit cash contributions. All of our states, and the federal government, have laws that criminalize this activity. These fall into two groups: 1) those that prohibit the «bribery» of voters, and 2) those that more broadly forbid the «payment of voters for voting.» Bribery statutes generally require proof that the voter was specifically paid to vote for a particular candidates. «Payment for voting» laws require only that there be a causal connection between a payment and the voting act. The federal law follows the broader «payment for voting» formulation, and it is attached.

- Laws requiring payments for election-day work to be made by check. Vote buying occurs when the payment goes directly to a voter - usually on Election Day while the polls are open. However, political campaigns commonly have legitimate needs to make disbursements for campaign activities on election day to workers who do such thins as watch the polls, serve as election officers, distribute campaign literature and help voters get to and from polling sites. An effective method of allowing the latter while diminishing the former is to require all transactions made by political campaign on election day to be made by check. The federal law contains no such requirement. However, a good example of a useful text in this regard in contained in the Election Code of Louisiana, a copy of which is attached.

Concluding comments

The statutory texts presented and explained here represent the best that our country has to offer in the area of campaign contribution regulation. These laws have developed over a long and changing period of our democratic development, and although not perfect they have been vetted by time and have been found to serve our nation well. For the most part, these texts led the way in the United States in the areas they address, and they have been used extensively as models for legislation at other levels of government.

These texts, and the commentaries on them contained in this memorandum, should provide a valuable framework for our Hemispheric


1 Director, Election Crimes Branch, Public Integrity Section, Criminal Division, United States Department of Justice.
The views expressed in this paper are solely those of its author, and do not necessarily reflect the policy of the United States Department of Justice on the issues addressed. This paper creates no procedural or substantive rights for private parties, and cannot be relied upon by those whose circumstance may fall within the discussion herein

2 For example, the United States, Canada and Mexico all have laws on this subject. Yet none of these laws, or the political systems they exist within, resembles the others sufficiently to serve as a useful general model

3 Many, but not all, of these components are contained in United States laws on this subject. Textual examples of those that have will follow.

4 Tab «A»

5 This law was enacted by the United States Congress, which under our Constitution has authority to legislate only with respect to the election process for federal offices. However, this statute has served as a model for similar legislation that has been enacted by the states during the 25 years that it has been on the books.

6 All section references are to Title 2 of the United States Code.

7 Subsection 441b(b) excludes from this general prohibition various subsets of communications, most of which are driven by the United States Constitution's protections of expression and associational rights. Foreign countries whose fundamental law does not incorporate these limitations on government action can probably disregard Subsection 441b(b).

8 A «memorandum of understand» between the FEC and the Justice Department was negotiated shortly after this bifurcated enforcement

9 The current federal statute on this subject is attached at Tab «B,» and mechanism was added to the law, and it ensures that aggravated matters get sent to the prosecutors while inadvertent ones are handled by the FEC is codified at 26 U.S.C. Section 9001 through 9012.

10 This statute is attached at Tab «C,» and is codified at 26 U.S.C. section 9031 through 9042.

11 The statutory texts references below are attached at Tab «D. «







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