FEC Declines to Investigate in Reimbursement Case

Posted October 25, 2005 at 6:16pm

In an enforcement action considered perplexing by some campaign finance watchdogs, the Federal Election Commission declined to do their own investigation in a recent case despite finding reason to believe that a company had “knowingly and willfully” engaged in a scheme to reimburse employees for donations to federal candidates.

Although the case included several mitigating circumstances — most importantly a five-year statute of limitations — the decision still struck some FEC observers as unusual given the severity of the violation.

AMEC Construction Management Inc. approached the FEC in October 2003 with the revelation that its predecessor organizations had engaged in a 15-year contribution reimbursement scheme totaling perhaps $67,000 in donations to federal candidates.

In its $85,000 settlement, the FEC “decided to forgo seeking civil penalties that it otherwise may have sought” from the six mid- to senior-level employees involved, five of whom admitted receiving at least one reimbursement for their contributions to Congressional candidates.

While the FEC indicated in the conciliation agreement released last week that it had found “reason to believe” that ACMI and the employees involved “knowingly and willfully” violated federal campaign law, the agency decided to forgo an investigation and, accordingly, “neither considered nor made a finding as to whether there is probable cause to believe that the violations in this matter were committee knowingly and willfully.”

In FEC parlance, “probable cause” is the next step after the “reason to believe” stage and the last step before the FEC takes legal action. The agency can decide to close a case at any point, and in this case it did so before an investigation had determined whether the company’s actions reached the level of probable cause.

“Obviously, what the FEC gave up was actually finding out what happened here — how extensive it was,” said Larry Noble, a former general counsel to the agency and now executive director of the Center for Responsive Politics. “That’s a little unusual in a ‘knowing and willful’ situation.

“What’s disturbing about it is [that] contributions in the names of another are money-laundering schemes,” Noble added. “Generally, the FEC tries to come down hard on these cases, and there’s a question of how hard” the agency came down on this violation. Usually the FEC would attempt to assess civil penalties for individuals involved, Noble said. “It’s definitely a curious situation because normally you’d want to get penalties from the people who actually did this.”

The “global” settlement with the FEC closes the civil portion of the violation. The Justice Department could choose to investigate the company or the employees involved.

According to documents submitted by ACMI, all of the employees involved in the scheme were fired, demoted or left the company prior to the October 2003 disclosure of the violations. ACMI provided information indicating which employees received reimbursements for federal campaign contributions from October 1998 to December 1999. The total amount reimbursed during this period was just under $17,000.

The contributions prior to October 1998 would fall outside the statute of limitations. The law allows the agency to seek up to 200 percent of any reimbursed contributions within a five-year window of the company’s admission.

Although ACMI acknowledged employees made contributions to federal political committees prior to that period, the company “did not attempt to reach a definitive conclusion concerning reimbursements for contributions prior to that date,” according to the conciliation agreement. The FEC’s brief review of employee contributions indicated at least $67,000 of such donations going back to 1987.

Beginning in the late 1980s, management at Morse/Diesel Inc., a predecessor company of ACMI, reimbursed some employees’ contributions to federal political committees though its expense account system. The practice continued after the creation of Morse Diesel International in 1990. It was unclear to the FEC from documents submitted by ACMI whether employees openly described on their reimbursement request forms that the expenses at issue were contributions to federal candidates. After Morse/Diesel was acquired by ACMI, the parent company reimbursed some of these types of contributions by paying special bonuses through its payroll system.

Later, ACMI even went as far as to calculate the amount of the bonus to ensure that the post-tax bonus equaled the amount of the contribution. The company claimed in its submissions to the FEC that accounting firm KPMG provided advice to ACMI on how to handle such reimbursements. According to submissions, the “grossed up” amount of the bonus, after taxes, equaled the amount of the contribution. On some occasions, a spouse of an employee made the contributions for which the employee was reimbursed the “grossed up” amount. The individuals involved maintained to the FEC that they did not understand that such reimbursement practices violated federal law.

A spokesman for ACMI said the company “welcomed” the conclusion to the case.

“This is something through an internal review that we uncovered,” said ACMI spokesman Michael Golliffe. “We took immediate action. We did an internal review. We voluntarily disclosed the information to the FEC … and put measures in place so it absolutely does not happen again.”

Not all experts were surprised by the commission’s course. Jan Baran, a Republican campaign finance attorney, said the FEC acted properly. “The company went to the FEC and turned themselves in,” Baran said. “The FEC is trying to encourage that type of disclosure and basically not punish people as harshly as they would otherwise.

“There’s nothing to prevent the DOJ from looking at this case now that it’s closed,” Baran added.

But Democracy 21 President Fred Wertheimer, a longtime critic of the agency, still finds the settlement “beyond bizarre.”

The FEC is “saying informally here that they have found probable cause,” Wertheimer said. “Either they were or were not willful and knowing violations. This kind of violation is a very serious violation.” The way the agency dealt with it, he said, was “bureaucratic games.”

“This appears to be an example of the wrong way to handle an enforcement matter,” Wertheimer said.