Thursday, September 20, 2007

More Questions About Bundling

The Wall Street Journal is carrying a story about bundling, that is the practice of one person raising funds for a candidate in excess of their personal limits by tapping friends, colleauges, investors and yes even employees, in order to aid a candidate. While there is nothing illegal about this kind of bundling, the practices behind the scenes are a little troubling.

Campaigns run on money, and this presidential election cycle, the money chase is even more important than ever before. Top fundraisers like Norman Hsu, tap over and over again, the same donors and an expanding circle of donors in order to raise the money needed by campaigns. The pressure to raise more and more money leads to some questionable practices. The WSJ talks about one right off the bat:
When Hillary Rodham Clinton held an intimate fund-raising event at her Washington home in late March, Pamela Layton donated $4,600, the maximum allowed by law, to Mrs. Clinton's presidential campaign.

But the 37-year-old Ms. Layton says she and her husband were reimbursed by her husband's boss for the donations. "It wasn't personal money. It was all corporate money," Mrs. Layton said outside her home here. "I don't even like Hillary. I'm a Republican."

The boss is William Danielczyk, founder of a Washington-area private-equity firm and a major fund-raising "bundler" for Mrs. Clinton. Mrs. Layton's gift was one of more than a dozen donations that night from people with Republican ties or no history of political giving. Mr. Danielczyk and his family, employees and friends donated a total of $120,000 to Mrs. Clinton in the days around the fund-raiser.

In an interview, Mr. Danielczyk said he "did not and would not" reimburse employees or others for their political donations. Such reimbursement would be illegal. Mr. Danielczyk said he was a co-host for the event at Mrs. Clinton's home. "Everybody was asked to contribute," he said, "some said yes and some said no." He added, "No arm was twisted."
The problem is that we have a "he said, she said" type of argument and the potential violation, that of making a contribution in the name of another or reimbursing an employee for a contribution is almost impossible to prove and if proven, it is done so far after the fact, indeed usually after the election, that the matter is moot in terms of the candidate.

Add to the matter that the campaign is rarely, if ever, punished for any reimbursement scheme. No candidate is stripped of office or even forced to disgorge the donations because from their perspective, the money was proper, it is that acts before or after the contribution that are the violation. In the case of Layton and Danielczyk, it is likely that there are two possible scenarios at work here, both of which would be improper. Danielczyk leans on his employees to give, which is improper only if one crosses a rather hazy line in the sand. Asking is okay, even begging, but demanding or ordering is not okay. But if your boss asks you to give, there may be an unstated threat and that unstated threat is just the kind of duress that is difficult to prove. The boss can say, "I only asked, she didn't have to give." But the employee may be thinking, "if I don't give, will this affect my job?" The political contributions in question here are not some $25 dollar ticket to a local picnic, but a nearly $10,000 for a husband and wife ($4,600 a piece), so the pressure is intense.

The second scenario is that the employee makes the contribution and then gets some sort of bonus later on. A savvy boss would not reimburse $9,200 dollars, that would be too suspicious, but a $10,000 bonus or a series of smaller bonuses may appear. While obviously the bonus wouldn't say "reimbursement for Hillary Clinton Contribution" on the check, the reimbursement is made--sometimes without even the employee knowing it directly.

I suppose a third scenariou might be possible, that Mrs. Layton's husband said they would be reimbursed and won't be--but that is a marriage problem, not a campaign finance issue.
One person at the event was a Washington-area investor who was considering putting some money in one of Mr. Danielczyk's ventures. The investor, a registered Republican, said he was invited by Mr. Danielczyk and a colleague who were wooing him to invest at least $125,000 in one of their companies.

The investor, who spoke on condition of anonymity, says he didn't donate any money to Mrs. Clinton. Campaign-finance records show that the investor contributed $4,600 on March 30 to Mrs. Clinton. The reason for the discrepancy isn't clear.

Mrs. Layton, who lists her occupation as dental instructor at a wellness center, is a Republican, and her husband, Philip, has supported Democrats in the past. Mr. Layton is the information technology director at Galen Capital, according to the company's Web site.

"I was invited but I didn't want to go," Mrs. Layton said.

Other Republican voters who contributed the maximum amount to Mrs. Clinton at this event included Mr. Danielczyk's mother, sister, personal assistant and a half-dozen employees or their spouses. Most of the donors had never made a political donation before contributing $4,600 to Mrs. Clinton, according to fund-raising records.

Mr. Danielczyk said some of the attendees were Republicans, but "they may vote for her [Mrs. Clinton] now." He added, "It's odd ... You try to get involved in the political process and you come under scrutiny."
Mr. Danielczyk is correct. As I noted before, the problem is not for the campaigns, most of whom would never be punished for these kinds of potential violations and if they did come under scrutiny, they have access to some very good lawyers to help them. The problem lies in the fundraisers and donors, most of whom, like Danielczyk, are new to the game. As novices they may make mistakes and errors, most of which now carry some very signficant penalties, including prison time for willful violations. Some may get into trouble and lack the protection of the campaigns, who will cut and run faster than you can say arraignment, leaving the donor on the hook.

So the fundraiser and a few contributors run afoul of the FEC and the campaign finance system, all because the rules are so arcane that it takes a seasoned lawyer to understand them. the problem could be solved rather easily and make life easier on both the candidates and the donors--unlimited contributions, immediately disclosed using disclosure tools currently available.

A little tweaking to the FEC contribution database would allow for the "red-face" test to be the big test for candidates. Can a candidate accept a large donation, say $100,000 from someone like George Soros or Mr. Danielczyk and not be embarassed?

The simple rule would be, any contribution in excess of $5,000 must be disclosed within 48 hours and any contribution in excess of $10,000 (both indexed for inflation perhaps) would have to disclosed within 24 hours. These contributions would also be augmented by current disclosure reports. With no limits, but full disclosure, you get away from the need for these types of bundlers and some of the shady practices that now dot the landscape.

No comments: