Representative Doc Hastings, Chairman Representative Howard Berman, Ranking Member Committee on Standards of Official Conduct U.S

June 23, 2006

Representative Doc Hastings, Chairman Representative Howard Berman, Ranking Member Committee on Standards of Official Conduct U.S. House of Representatives HT-2, The Capitol Washington, DC 20515

Dear Chairman Hastings and Ranking Member Berman:

Published reports indicate that serious questions exist about whether Representative John Doolittle (R-CA) has engaged in activities in violation of House ethics rules. Democracy 21 calls on the House Ethics Committee to conduct an investigation of Representative Doolittle’s activities and to determine whether he has violated the ethics rules.

Under House Ethics Committee rules, the Committee has its own authority to initiate and conduct an investigation, regardless of whether a formal complaint has been filed with the Committee. Ethics Committee Rule 18 states, “Notwithstanding the absence of a filed complaint, the Committee may consider any information in its possession indicating that a Member . . . may have committed a violation of the Code of Official Conduct . . . .”

The Ethics Committee recently relied on Rule 18 to open, on its own initiative, three ethics investigations, into the activities of Representatives Robert Ney (R-OH) and William Jefferson (D-LA), and into activities by House members related to former Representative Randy Cunningham (R-CA).

We urge the Committee similarly to open an ethics investigation under Rule 18 into the activities of Representative Doolittle.

Background Information

According to published reports, Representative Doolittle’s wife, Julie Doolittle, is the owner and president of a fundraising company, Sierra Dominion Financial Solutions, which is retained by and serves as a fundraising consultant to Representative Doolittle’s campaign committee and his leadership PAC.

According to a story in the San Diego Union-Tribune, Sierra Dominion was founded in March 2001 and is based at the Doolittles’ home in Oakton, Virginia. 2

According to the story, the company was launched by Representative Doolittle’s wife in March 2001, two months after her husband was named to the Appropriations Committee, and has no phone listing or Web site, and no known employees other than Julie Doolittle.1

Published reports state that Julie Doolittle’s company, Sierra Dominion, receives a 15 percent commission on the contributions that it raises for Representative Doolittle’s political committees. Under this arrangement, Sierra Dominion is paid 15 percent of every campaign contribution made to Representative Doolittle’s authorized campaign committee (the John T. Doolittle for Congress Committee), and to his leadership PAC (the Superior California Federal Leadership Fund), for which Sierra Dominion is involved in the fundraising.

As a story in the Sacramento Bee stated, “By paying her [Julie Doolittle] a commission, 15 percent of every contribution goes into the Doolittles’ household budget.” 2

The Sacramento Bee story states that Doolittle “confirmed” that “his arrangement with his wife’s company is to pay her a flat 15 percent commission on what she brings in for the campaign, even when he is making the actual solicitation calls.”

This means that even when Representative Doolittle is himself making the solicitations and raising contributions for his political committees, a portion of those contributions are being paid as fees to his wife’s company and inuring to Representative Doolittle’s benefit by going into his family income.

According to The Washington Post, “Mrs. Doolittle has received at least $215,000 from Mr. Doolittle’s various campaign committees since 2001. This doesn’t include $6,800 in payments to another of Mrs. Doolittle’s companies, Events Plus, before she started doing his fundraising work. She’s taken in nearly $100,000 during the 2006 campaign alone.”3

The article in the San Diego Union-Tribune (March 19, 2006) states that Julie Doolittle’s company does not serve as a fundraising consultant to any political committees other than those of her husband. According to the article, the only other known clients of the company have been Greenberg Traurig (the lobbying firm that employed Washington lobbyist Jack Abramoff), Abramoff’s Washington restaurant, Signatures, and the Korea-U.S. Exchange Council, a group founded by Ed Buckham, the former chief of staff to former Representative Tom DeLay (R-TX).

1 D. Calbreath, “Congressman Doolittle, wife profited from Cunningham-linked contractor,” The San Diego Union-Tribune (March 19, 2006).

2 D. Whitney, “Fundraising group assails the Doolittles,” The Sacramento Bee (April 20, 2006).

3 “The Doolittles’ Rich Deal,” The Washington Post (April 21, 2006).

According to published reports, the practice of fundraisers receiving commissions in the form of a percentage of the funds raised is considered by professional fundraising associations as unethical and is contrary to industry practices and standards.

According to an article in the Sacramento Bee (April 20, 2006):

Rep. John Doolittle’s practice of paying a 15 percent fundraising commission to a company owned by his wife violates the ethical standards of the industry, a national group of fundraising professionals told the congressman this week.

The 27,000-member Association of Fundraising Professionals said in a letter to Doolittle that its long-standing ethics code “explicitly prohibits percentage-based compensation” and urged his campaign to cease doing so with Julie Doolittle’s company, Sierra Dominion Financial Solutions.

The Sacramento Bee article quotes Paulette Maehara, the head of the Association of Fundraising Professionals, as saying of the practice of charging a percentage-based commission for fundraising services, “This is absolutely not the standard in the industry.”4

The Bee article further states that another fundraising professional organization, the American Association of Fundraising Counsel, “similarly regards commission-based fundraising as unethical, according to the organization’s Web site,” which states that “Contracts providing for a contingent fee, a commission, or a fee based on percentage of funds raised are prohibited.”

The San Diego Union-Tribune article (March 19, 2006) also reported that some of the fees paid to Julie Doolittle’s company were based on a percentage of contributions provided by defense contractor Brent Wilkes and his associates and lobbyists to Representative Doolittle’s committees, and that Doolittle helped get $37 million in “earmarked” federal funds for Wilkes’ company. Wilkes was named as a co-conspirator in the bribery case involving former Representative Duke Cunningham (R-CA).

According to the San Diego Union-Tribune (March 19, 2006) article:

Acting as her husband’s campaign consultant, Julie Doolittle charged his campaign and his Superior California Political Action Committee a 15 percent commission on any contribution she helped bring in.

4 The Web site of the Association of Fundraising Professionals contains a “Code of Ethical Principles and Standards of Professional Practice.” Principle 16 states, “Members shall not accept compensation that is based on a percentage of contributions; nor shall they accept finder's fees.” Principle 17 states, “Members may accept performance-based compensation, such as bonuses, provided such bonuses are in accord with prevailing practices within the members' own organizations, and are not based on a percentage of contributions.” See http://www.afpnet.org/ka/ka-3.cfm?content_item_id=1068&folder_id=897. 4

As a member of two key committees in the House—Appropriations and Administration—Doolittle is well-positioned to help contractors gain funding through congressional earmarks. Between 2002 and 2005, Wilkes and his associates and lobbyists gave Doolittle’s campaign and political action committee $118,000, more than they gave any other politician, including Cunningham.

Calculations based on federal and state campaign records suggest that Doolittle’s wife received at least $14,400 of that money in commissions. Meanwhile, Doolittle helped Wilkes get at least $37 million in government contracts.

The article further states regarding Doolittle’s assistance to Wilkes in obtaining earmarks for Wilkes’ company, PerfectWave:

Wilkes had more success with PerfectWave, which offered a technology that could limit the amount of background noise transmitted over electronic communications. Doolittle has publicly admitted that he helped Wilkes get the $37 million in federal contracts for PerfectWave through the “earmark” process, in which legislators pencil in funding for specific projects.

In October 2002, as Doolittle pushed for funding for PerfectWave, Wilkes and his associates donated $7,000 to his campaign and $10,000 to his political action committee. Julie Doolittle made $1,500 from Wilkes’ contributions.

Id.

The article further states that, Wilkes held a fundraising dinner for Doolittle in November 2003 attended by 15 guests who were either employees or business partners of Wilkes. According to the article:

Over the next four months, members of the group gave a total of $50,000 to Doolittle’s political action committee.

Federal and state election records show that Julie Doolittle claimed commissions on most of these contributions, even though there is no evidence that she planned the fundraising dinner or encouraged the contributors to donate to her husband.

Id.

An article in The Washington Post reported on the same events:

In the latest example of . . . backstage dealings, Rep. John T. Doolittle (R- CA) told The Washington Post that he helped steer defense funding, totaling $37 million, to a California company, whose officials and 5

lobbyists helped raise at least $85,000 for Doolittle and his leadership political action committee from 2002 to 2005.5

According to the Post article, Wilkes retained the Alexander Strategy Group in 2002 to lobby for defense funds for PerfectWave. The Alexander Strategy Group was a lobbying firm headed by Ed Buckham, a former aide to former House Majority Leader Tom DeLay (R-TX). The Post article states:

Doolittle and his leadership PAC received at least $85,000 from 2002 to 2005 from Wilkes, PerfectWave associates and their wives, and from Alexander Strategy lobbyists Edwin A. Buckham and Tony C. Rudy and their wives.

Wilkes was successful. Congress approved the first earmark for PerfectWave as part of the fiscal 2003 defense bill, which was passed in October 2002. That $1 million earmark was followed by an installment of $18 million in 2003 and another $18 million in 2004. Doolittle, whose district is in Northern California, was a guest at a fundraising dinner at Wilkes’ office in San Diego in the fall of 2003.

Id.

Potential violations of House ethics rules

There are three areas of potential ethics violations by Representative Doolittle that should be investigated by the House Ethics Committee.

1. Conduct that fails to “reflect creditably” on the House

House Members and staff are subject to the “broad ethical standards” articulated in the Code of Official Conduct. House Ethics Manual (1992 ed.) at 12. These standards provide that Members shall conduct themselves “at all times in a manner which shall reflect creditably on the House of Representatives” (Rule 23, cl. 1).

This ethics standard—“the most comprehensive provision of the code,” id.—has been cited and relied on by the Committee in numerous prior cases involving findings of unethical conduct.

The House Ethics Manual cites seven prior instances in which the Committee has invoked this provision in investigating or disciplining Members. These prior matters include a Member’s failure to report campaign contributions and making false statements in connection with the Korean Influence Investigation; inflating the salaries of congressional employees in order to enable them to pay the Member’s personal, political or congressional expenses; accepting gifts from persons with an interest in legislation pending before the House; and writing a misleading memorandum that could have

5 J. Weisman and C. Babcock, “K Street’s New Ways Spawn More Pork,” The Washington Post (Jan. 27, 2006). 6

influenced a personal associate’s probation as well as arranging for improper dismissal of parking tickets. Id.

In this matter, Representative Doolittle’s campaign committee and his leadership PAC have entered into an agreement to pay a company owned by Representative Doolittle’s wife a flat percentage of each campaign contribution raised by the company for the Doolittle campaign committee and leadership PAC.

These flat percentage payments end up going into “the Doolittles’ household budget,” in the words of the Sacramento Bee. 6

According to two professional fundraising associations, the percentage-based commission fees on campaign contributions that Representative Doolittle’s campaign committee and leadership PAC are paying to a company owned by Doolittle’s wife violate the ethical standards of the fundraising profession and are contrary to the standards of professional practice in the fundraising industry.

As noted above, according to an article in the Sacramento Bee (April 20, 2006):

As further noted earlier, the American Association of Fundraising Counsel, “similarly regards commission-based fundraising as unethical, according to the organization’s Web site,” which states that “Contracts providing for a contingent fee, a commission, or a fee based on percentage of funds raised are prohibited.”

These percentage-based commissions, furthermore, are inuring directly to the personal enrichment of Representative Doolittle and his family, with donors potentially knowing that the larger the contributions they give to Doolittle’s campaign committee and leadership PAC, the greater the amount of money that will go directly to Representative Doolittle’s benefit in the form of family income.

All of this raises serious questions that need to be investigated regarding whether Representative Doolittle’s practice of paying percentage-based fees to his wife’s company, based on contributions raised for Doolittle’s political committees, which inure to the personal financial benefit of Doolittle and his family, violate the “broad ethical standards” of the House and the requirement of Rule 23, cl. 1 that a Member’s conduct shall “reflect creditably” on the House.

6 D. Whitney, “Fundraising group assails the Doolittles,” The Sacramento Bee (April 20, 2006).

The receipt as income by Representative Doolittle’s family of a percentage of the campaign contributions received by Representative Doolittle, based on a fundraising practice being used by Representative Doolittle and his wife that violates the ethical standards of the fundraising industry, raises the serious question of whether Representative Doolittle’s actions fail to “reflect creditably” on the House.

These ethics issues exist, furthermore, regardless of whether the campaign finance laws allow such payments to be made, a question which we are not addressing at this time. The House ethics rules set forth standards to govern the conduct of Members in order to ensure that the conduct is ethical, regardless of whether the conduct is prohibited by law.

For example, while it may be legal under the campaign finance laws for a Member to receive a campaign contribution, the contribution may nevertheless violate House ethics rules in certain circumstances.

The House Ethics Manual, for example, states, “Caution should always be exercised to avoid the appearance that solicitations of campaign contributions from constituents are connected in any way with a legislator’s official advocacy.” House Ethics Manual (1992 ed.) at 257.

The House Manual also states that House Members “should be aware of the appearance of impropriety that could arise from championing the causes of contributors and take care not to show favoritism to them over other constituents.” Id. at 251.

Thus, the issue of whether Representative Doolittle has engaged in conduct in violation of House ethics rules in this matter is separate and independent from any questions about whether the campaign finance laws have been violated in the matter.

2. Conversion of campaign funds to personal use

Clause 6(b) of Rule 23 of the House Rules provides that a Member “may not convert campaign funds to personal use in excess of an amount representing reimbursement for legitimate and verifiable campaign expenditures . . . .” Clause 2 of Rule 23 provides that a Member “shall adhere to the spirit and the letter” of the Rules.

Here again, the issue for the House Ethics Committee to consider is whether the House ethics rules have been violated by Representative Doolittle’s practice of paying a percentage of campaign contributions raised for his political committees as fees to the company of Doolittle’s wife, regardless of whether these payments violate the federal campaign finance laws.

The ethics rules exist on their own terms and are intended to govern the conduct of Members, apart from any questions about whether Members have violated any laws.

The Ethics Committee’s Campaign Booklet notes, regarding the prohibition on the conversion of campaign funds to personal use, that the Committee has taken the position that Members “must observe these provisions strictly.” Campaign Booklet at 39. 8

The Committee notes:

In several disciplinary cases, the Standards Committee found that a Member violated the House Rules on proper use of campaign funds. One case involved, among other things, transfers from the Member’s campaign account that were made to repay personal loans of the Member and to cover outstanding obligations against his personal checking account. That case resulted in a censure of the Member by the House.

Id. at 40 citing In the Matter of Rep. Charles H. Wilson, H.Rep. 96-930, 96th Cong. 2d Sess. (1980).

Similarly, the Committee has found a violation of the anti-conversion rule by a Member where “expenditures of his campaign funds . . . were made to, or otherwise benefited, businesses that were owned and controlled by the Member and members of his family.” Id. at 41 citing In the Matter of Representative Earl F. Hilliard, H.Rep. 107- 130, 107th Cong. 1st Sess. (2001).

The Campaign Booklet notes that “questions in this area have arisen most frequently regarding certain kinds of campaign outlays,” including inter alia, “expenditures for the purchase of goods or services . . . from the Member or a member of his or her family. . . ” Id. (emphasis added). The Campaign Booklet further states:

As to outlays [from a campaign] for travel or meals—as well as outlays for the acquisition of goods or services from themselves or their family members—Members must exercise great care, because such outlays by their nature raise a concern of personal use.

Id.

With specific regard to the purchase of campaign services from a relative of the Member, the Campaign Booklet further states:

[A]t times a family member of a Member wishes to sell certain goods or services to the Member’s campaign.

Such a transaction is permissible under the House Rules only if (1) there is a bona fide campaign need for the goods, services or space, and (2) the campaign does not pay more than fair market value in the transaction. Whenever a Member’s campaign is considering entering into a transaction with either the Member or one of his or her family members, it would be advisable for the Member to seek a written advisory opinion on the transaction from the Standards Committee.

If a Member’s campaign does enter into such a transaction with the Member or a member of his or her family, the campaign’s records must include information that establishes both the campaign’s need for and 9

actual use of the particular goods, services or space, and the efforts made to establish fair market value for the transaction.

Id. at 44.

The Campaign Booklet notes that although Members have “wide discretion” in determining what constitutes a bona fide campaign expenditure, they “have no discretion whatsoever to convert campaign funds to personal use.” Id. at 46 (emphasis in original).

The Doolittle case raises serious questions about whether Representative Doolittle has converted campaign funds to personal use in violation of House ethics rules.

Representative Doolittle’s campaign committee and leadership PAC reportedly have paid his wife’s company more than $200,000 since 2001 in percentage-based commissions, and these funds have inured to the personal financial benefit of the Doolittle family.

The arrangement between Representative Doolittle’s campaign committee and leadership PAC, and his wife’s company, calls for payments to the company of a fifteen percent commission on each contribution raised by the company for Doolittle’s committees.

This arrangement can only be justified, if at all, under House rules prohibiting the conversion of campaign funds, if “fair market value” is being paid for the services being received, and if the services are actually being performed.

The position taken by two major professional fundraising associations make clear that the form of payment being made here by Representative Doolittle to his wife’s company—a flat percentage of each contribution raised—violates the ethical standards of the fundraising industry. See Sacramento Bee (April 20, 2006), supra.

Under these circumstances, payments which violate the ethical standards of the industry involved by definition cannot meet the test of providing “fair market value” in return for services rendered. “Fair market value” means that the payments at issue here would similarly be made and received by others in the same circumstances. That cannot be the case here since the payments involved violate the basic ethical standards of the industry in which such payments would occur.

As noted above, Members have “no discretion” under House rules to convert campaign contributions to personal use. The fundraising arrangement between Representative Doolittle’s political committees and his wife’s company appears to be a clear case of converting campaign funds to personal use in violation of House ethics rules.

Published reports also indicate that payments may have been made by Representative Doolittle’s committees and received by his wife’s company in cases in which no services were provided for the payments received.

An article in the San Diego Union-Tribune (March 19, 2006), for example, states that Brent Wilkes held a fundraising dinner for Representative Doolittle at his corporate headquarters, and that invitees to the dinner, all partners or employees of Wilkes, contributed a total of $50,000 to Doolittle’s leadership PAC.

According to the story, “Federal and state election records show that Julie Doolittle claimed commissions on most of those contributions, even though there is no evidence that she planned the fundraising dinner or encouraged the contributors to donate to her husband.”

An article in the Sacramento Bee (April 20, 2006) reports that Representative Doolittle “confirmed” that “his arrangement with his wife’s company is to pay her a flat 15 percent commission on what she brings in for the campaign, even when he is making the actual solicitation calls.”

The House Ethics Manual states that “[o]n occasion, the Committee has looked into allegations that spouses were not earning their income, but rather that their salaries and benefits were provided as indirect gifts to the Members.” In one case where the Committee found alleged violations, the Committee concluded that there was no evidence “the spouse had provided identifiable services or work products to the employer in return for her salary . . . . Thus, the Committee imputed the money and benefits to the Member, since circumstances indicated that they were not provided wholly independent of her relationship to him.” Ethics Manual at 130-31 citing Statement in the Matter of Representative James C. Wright, 101st Cong., 1st Sess. (1989).

If Representative Doolittle’s wife has received payments from his political committees where no services were provided for the payments, this would constitute a violation of the House ethics rules.

In light of the published reports cited above, the Ethics Committee needs to investigate the actual services that were provided by Representative Doolittle’s wife’s company for the more than $200,000 in payments that the company reportedly received from Doolittle’s political committees, and determine whether actual services were provided for all of the payments that were received.

The Ethics Committee also needs to determine if Representative Doolittle has violated House Rule 25, cl. 1, which prohibits a Member from receiving “outside earned income” in excess of 15 percent of level II of the Executive Schedule.

If Representative Doolittle has converted campaign contributions to personal use in violation of Clause 6(b) of Rule 23 of the House Rules, then these funds may also violate the House ethics rules that limit the total amount of outside earned income a Member may receive in any given year.

The Committee needs to investigate and determine whether Representative Doolittle has violated the House ethics rule that limits the amount of outside earned income for a Member. 11

3. Taking official action, or creating the appearance of taking such action, in return for financial benefits

The House Ethics Manual states that a Member “should not . . . receive money or things of value (other than congressional salary) in return for or because of official help.” House Ethics Manual (1992 ed.) at 239. The Manual further states, “Caution should always be exercised to avoid the appearance that solicitations of campaign contributions from constituents are connected in any way with a legislator’s official advocacy.” Id. at 257.

The Committee reiterated these principles in a “Memorandum for All Members, Officers and Employees,” dated May 11, 1999 and entitled “Prohibition Against Linking Official Actions to Partisan or Political Considerations, or Personal Gain.” The Committee there sought to “remind” Members of “one of the fundamental rules of ethics for government service”:

That rule is that government officials, including House Members and staff, are prohibited from taking or withholding any official action on the basis of the partisan affiliation or the campaign contributions or support of the involved individuals, or the prospect of personal gain either for oneself or anyone else.

Memorandum at 1

Although the Memorandum notes that these principles arise “most frequently on the matter of casework,” the Committee said “these rules apply generally to all official actions taken by a Member or his or her congressional office, and not merely to casework matters . . . .” Id. at 1.

House Members, as noted above, are also subject to the “broad ethical standards” articulated in the Code of Official Conduct. Id. at 12. These standards provide that Members shall conduct themselves “at all times in a manner which shall reflect creditably on the House of Representatives.” Rule 23, cl. 1.

As noted earlier, according to published reports, Representative Doolittle has stated he helped Brent Wilkes and his company, PerfectWave, receive “earmarked” federal funds totaling $37 million.

According to The Washington Post (January 27, 2006), “Congress approved the first earmark for PerfectWave as part of the fiscal 2003 defense bill, which was passed in October 2002. That $1 million earmark was followed by an installment of $18 million in 2003 and another $18 million in 2004.”

Published reports also indicate that “between 2002 and 2005, Wilkes and his associates and lobbyists gave Doolittle’s campaign and political action committee $118,000, more than they gave any other politician ….” (San Diego Union-Tribune, March 19, 2006)

The San Diego Union-Tribune report states that Representative Doolittle’s wife received at least $14,400 of those funds in commissions.

These reports raise the issue of whether the personal income received by the Doolittle family as a result of the contributions made by Brent Wilkes and his associates and lobbyists to Representative Doolittle’s political committees is linked to, or appears to be linked to, official action taken by Representative Doolittle to help obtain earmarks for Wilkes’ company.

The House Ethics Committee needs to investigate and determine whether Representative Doolittle’s official actions to help provide Brent Wilkes’ company with $37 million in “earmarked” federal funds were undertaken in connection with, or created the appearance that they were undertaken in connection with, fees that personally benefited Representative Doolittle and his wife, paid in the form of commissions on campaign contributions made to Doolittle’s political committees by Brent Wilkes and his associates and lobbyists.

Conclusion

Democracy 21 calls on the House Ethics Committee to undertake an immediate and comprehensive investigation under Ethics Committee Rule 18 into Representative Doolittle’s activities, as detailed above, to determine whether Representative Doolittle has violated the House ethics rules and to take appropriate action with regard to any violations that may have occurred.

Sincerely,

Fred Wertheimer President

Copy to:

Members, Committee on Standards of Official Conduct

William V. O’Reilly, Chief Counsel