January 4, 2006

Senator Charles Grassley Chairman, Senate Finance Committee 219 Dirksen Senate Office Building Washington, DC 20510

Dear Chairman Grassley,

Under your leadership, the Senate Finance Committee has been conducting an ongoing investigation into the activities and abuses of tax-exempt, nonprofit organizations in order to determine whether the tax laws that apply to nonprofit groups need to be strengthened.

In this regard, Democracy 21 is writing to strongly urge that you and the Senate Finance Committee move promptly to investigate the activities of U.S. Family Network (USFN), a tax-exempt, nonprofit 501(c)(4) group organized by Edwin A. Buckham, a close associate and former chief of staff to former House Majority Leader Tom DeLay (R-TX).

Published reports have raised serious questions about whether USFN was misused for political purposes in violation of federal tax laws, including whether the tax-exempt organization was used to funnel secret contributions from foreign nationals to buy influence with a member of Congress.

According to an article in The Washington Post on December 31, 2005, a copy of which is enclosed, U.S. Family Network was ostensibly organized to promote conservative ideas through grass-roots advocacy, but may instead have served primarily as a political operation and a vehicle to buy access and influence in Congress.

According to the Post article, USFN “was funded almost entirely” by corporations linked to lobbyist .

The Post article further states that the former president of USFN was told by Buckham that two Russian oil and gas executives gave $1 million in initial funding to USFN “specifically to influence DeLay’s vote on legislation the International Monetary Fund needed to finance a bailout of the collapsing Russian economy.”

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The Post article lays out a web of connections between the funders of USFN, lobbyist Jack Abramoff, and Representative DeLay.

For example, the Post article states that in addition to receiving $1 million from Russian energy executives, USFN received $500,000 from the owners of textile companies in the Mariana Islands in the Pacific.

According to the Post article, “the textile owners -- with Abramoff's help -- solicited and received DeLay's public commitment to block legislation that would boost their labor costs, according to Abramoff associates, one of the owners and a DeLay speech in 1997.”

In addition, according to the Post, “A quarter of a million dollars was donated [to USFN] over two years by the Mississippi Band of Choctaw Indians, Abramoff's largest lobbying client, which counted DeLay as an ally in fighting legislation allowing the taxation of its gambling revenue.”

The Post article states, “The records, other documents and interviews call into question the very purpose of the U.S. Family Network, which functioned mostly by collecting funds from domestic and foreign businesses whose interests coincided with DeLay’s activities while he was serving as House majority whip from 1995 to 2002, and as majority leader from 2002 until the end of September.”

According to the Post article:

After the group was formed in 1996, its director told the Internal Revenue Service that its goal was to advocate policies favorable for "economic growth and prosperity, social improvement, moral fitness, and the general well-being of the ." DeLay, in a 1999 fundraising letter, called the group "a powerful nationwide organization dedicated to restoring our government to citizen control" by mobilizing grass-roots citizen support.

But the records show that the tiny U.S. Family Network, which never had more than one full-time staff member, spent comparatively little money on public advocacy or education projects. Although established as a nonprofit organization, it paid hundreds of thousands of dollars in fees to Buckham and his lobbying firm, Alexander Strategy Group.

The Post article further states:

Some of the U.S. Family Network's revenue was used to pay for radio ads attacking vulnerable Democratic lawmakers in 1999; other funds were used to finance the cash purchase of a townhouse three blocks from DeLay's congressional office. DeLay's associates at the time called it "the Safe House."

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DeLay made his own fundraising telephone pitches from the townhouse's second- floor master suite every few weeks, according to two former associates. Other rooms in the townhouse were used by Alexander Strategy Group, Buckham's newly formed lobbying firm, and Americans for a Republican Majority (ARMPAC), DeLay's leadership committee.

They paid modest rent to the U.S. Family Network, which occupied a single small room in the back.

As the Post article notes, USFN funds were used to pay for radio ads attacking vulnerable Democratic lawmakers in 1999, a matter that became the subject of an investigation by the Federal Election Commission (FEC).

The FEC concluded that the National Republican Congressional Committee violated the campaign finance laws by transferring $500,000 in soft money to USFN in 1999, which in turn transferred part of those funds to Americans for Economic Growth (AEG), a non-profit entity associated with Jim Ellis, another close DeLay associate. AEG spent the funds on ads attacking Democratic members of Congress.

The NRCC ultimately agreed to pay a civil penalty of $280,000 for its role in this matter. The details of USFN’s involvement in this illegal scheme can be found in the 2003 FEC general counsel’s report on MUR 4953, available at http://eqs.nictusa.com/eqsdocs/00000E4F.pdf

The Post article raises major questions of whether serious abuses of the tax laws applicable to nonprofit groups occurred in the organization and operation of USFN.

Democracy 21 strongly urges you and the Senate Finance Committee to promptly initiate an investigation into the activities of USFN, to report the Committee’s findings to the public, and to make recommendations for any changes in tax law that may be required, including any changes that may be needed to prevent foreign nationals from misusing tax-exempt organizations to secretly influence U.S government policies.

Sincerely,

Fred Wertheimer