Violations So Close to Being Overlooked

Saturday’s editorial (via Cindi Scoppe at The State) bemoans the state of affairs in our state campaign finance system that led to the recent upbraiding of Sen. Jake Knotts.

 

We’ve long known about several ways candidates and donors exploit loopholes in the state’s campaign finance law to defeat its twin purposes of limiting how indebted a candidate could become to any individual donor and giving voters the chance to decide whether even what was allowed was too much.

Donors funnel maximum contributions — $1,000 for legislative candidates, $3,500 for statewide candidates — through multiple limited liability corporations, some established for the sole purpose of evading the law, many with meaningless names.

Donors hold back contributions — or candidates don’t deposit checks — until the blackout period: the final 20 days before an election, when nothing more has to be disclosed until well after the vote.

Donors set up what they claim are independent groups, give them meaningless or misleading names such as South Carolinians for Truth and make helpful (or hurtful) expenditures, allegedly on their own.

Read through campaign finance reports, and you’ll see all of this, although — as has been the case with New York real estate magnate Howie Rich’s attempt to buy himself a nice little Southern legislature — you might not be able to tell who’s who without an extraordinary amount of digging, and you might not find out about it until after the election. But the information is there.

The chilling thing about Sen. Jake Knotts’ litany of campaign law violations is that in many cases, there weren’t even any vague hints in his reports as to who some of his donors were, or to the fact that some of them were giving illegally large donations. He simply didn’t report some donations and expenditures; in other cases he listed names other than the ones on the checks he received.

Worse, this wasn’t discovered because officials were doing the sort of audit that the IRS does on random taxpayers to find out if they’re claiming bogus deductions or leaving off income. It was all discovered quite by accident. If Knotts hadn’t made such a mess of his campaign records, we never would have found out that he was disguising donations of more than $1,000 by reporting that the money came from multiple donors. Never would have had a clue whose names were actually on those checks.

The Senate Ethics Committee staff reviews all the quarterly campaign finance reports that it receives from senators, Senate candidates and former senators and candidates who still have open campaign accounts. But that review “only tells us if they reported a contribution that was over the limit, or gifts that are over the limit,” Ethics Chairman Wes Hayes told me last week. “If they don’t report [donations], or if what they report is wrong, we’re not in a position to know that. We don’t go in and ask for the bank statement.”

In other words, there is no mechanism to detect fraud. Ditto with the other ethics watchdogs.

The only people who normally get caught accepting illegal contributions or spending contributions illegally are those who report doing so — that is, those who either don’t know any better or who made honest mistakes. Those who provide false information are likely to get away with it.

Knotts caught the committee’s attention after he reported more than $3,000 in interest despite reporting only about $3,000 in his campaign account. When the staff asked him about this, he said the interest was from a $40,000 CD into which he had moved donations five years ago. This prompted the staff to ask for copies of his bank accounts, which revealed dozens of violations.

Knotts told the committee that he thought he was acting appropriately by reporting donations based on the donors’ intent rather than the names on the checks. In one example, he reported a $3,000 check as three separate $1,000 donations — one from the corporation whose name was on the check, and one from each of two shareholders who told him the check represented their individual donations as well.

That’s clearly illegal, and for good reason: There’s no way for a candidate to legally document the donors’ intent — or even to know it for sure, if he doesn’t speak to every person alleged to have been giving money; all you can know for certain is where the check came from.

As Hayes explained, “If you went by the intent of the giver, the McNair Law Firm could give $100,000 because they’ve got 100 lawyers.”

I have no idea whether Knotts sincerely believed he was obeying the law or not, and Hayes said the committee didn’t try to figure that out because it didn’t need to in order to find that Knotts violated the law. But he did suggest that this problem might not be limited to Knotts.

“I don’t know that he’s the only one that did not understand that you went by the instrument, not the intent of the giver,” he said.

What this reminds us is that the entire ethics law is based on the assumption that people who run for office are honest. I actually think that most of them are. But it wouldn’t hurt to institute some of those random IRS-style audits, and greatly increase the potential penalties for failing them, to give us a better chance of catching those who aren’t so honest — or frightening them into acting like they are.

 

Donors funnel maximum contributions — $1,000 for legislative candidates, $3,500 for statewide candidates — through multiple limited liability corporations, some established for the sole purpose of evading the law, many with meaningless names.

Donors hold back contributions — or candidates don’t deposit checks — until the blackout period: the final 20 days before an election, when nothing more has to be disclosed until well after the vote.

Donors set up what they claim are independent groups, give them meaningless or misleading names such as South Carolinians for Truth and make helpful (or hurtful) expenditures, allegedly on their own.

Read through campaign finance reports, and you’ll see all of this, although — as has been the case with New York real estate magnate Howie Rich’s attempt to buy himself a nice little Southern legislature — you might not be able to tell who’s who without an extraordinary amount of digging, and you might not find out about it until after the election. But the information is there.

The chilling thing about Sen. Jake Knotts’ litany of campaign law violations is that in many cases, there weren’t even any vague hints in his reports as to who some of his donors were, or to the fact that some of them were giving illegally large donations. He simply didn’t report some donations and expenditures; in other cases he listed names other than the ones on the checks he received.

Worse, this wasn’t discovered because officials were doing the sort of audit that the IRS does on random taxpayers to find out if they’re claiming bogus deductions or leaving off income. It was all discovered quite by accident. If Knotts hadn’t made such a mess of his campaign records, we never would have found out that he was disguising donations of more than $1,000 by reporting that the money came from multiple donors. Never would have had a clue whose names were actually on those checks.

The Senate Ethics Committee staff reviews all the quarterly campaign finance reports that it receives from senators, Senate candidates and former senators and candidates who still have open campaign accounts. But that review “only tells us if they reported a contribution that was over the limit, or gifts that are over the limit,” Ethics Chairman Wes Hayes told me last week. “If they don’t report [donations], or if what they report is wrong, we’re not in a position to know that. We don’t go in and ask for the bank statement.”

In other words, there is no mechanism to detect fraud. Ditto with the other ethics watchdogs.

The only people who normally get caught accepting illegal contributions or spending contributions illegally are those who report doing so — that is, those who either don’t know any better or who made honest mistakes. Those who provide false information are likely to get away with it.

Knotts caught the committee’s attention after he reported more than $3,000 in interest despite reporting only about $3,000 in his campaign account. When the staff asked him about this, he said the interest was from a $40,000 CD into which he had moved donations five years ago. This prompted the staff to ask for copies of his bank accounts, which revealed dozens of violations.

Knotts told the committee that he thought he was acting appropriately by reporting donations based on the donors’ intent rather than the names on the checks. In one example, he reported a $3,000 check as three separate $1,000 donations — one from the corporation whose name was on the check, and one from each of two shareholders who told him the check represented their individual donations as well.

That’s clearly illegal, and for good reason: There’s no way for a candidate to legally document the donors’ intent — or even to know it for sure, if he doesn’t speak to every person alleged to have been giving money; all you can know for certain is where the check came from.

As Hayes explained, “If you went by the intent of the giver, the McNair Law Firm could give $100,000 because they’ve got 100 lawyers.”

I have no idea whether Knotts sincerely believed he was obeying the law or not, and Hayes said the committee didn’t try to figure that out because it didn’t need to in order to find that Knotts violated the law. But he did suggest that this problem might not be limited to Knotts.

“I don’t know that he’s the only one that did not understand that you went by the instrument, not the intent of the giver,” he said.

What this reminds us is that the entire ethics law is based on the assumption that people who run for office are honest. I actually think that most of them are. But it wouldn’t hurt to institute some of those random IRS-style audits, and greatly increase the potential penalties for failing them, to give us a better chance of catching those who aren’t so honest — or frightening them into acting like they are.