September 2001 Federal Election Commission Volume 27, Number 9 Table of Contents Regulations Advisory Regulations Compliance 1 Notice of Proposed Rulemaking Opinions on Brokerage Loans and Lines of Notice of Proposed Credit Rulemaking on Brokerage AO 2001-9 Loans and Lines of Credit 1 Advisory Opinions Former Candidate’s Use of The Department of Transporta- Campaign Funds to Pay 3 Federal Register tion and Related Agencies Appro- Consulting Expenses Related priations Act, 2001, amended to Media Inquiries Reports section 431(8)(B) of the Federal 5 Arkansas Special Election Election Campaign Act (the Act) to Former Senator J. Robert Kerrey permit candidates to finance their may use funds from his principal Administrative Fine Program campaigns through loans derived campaign committee, Kerrey for 6 Committees Fined for Nonfiled from advances on their brokerage U.S. Senate (the Committee), to pay and Late Reports accounts, credit cards, home equity the costs of retaining a consulting lines of credit and other lines of firm to respond to media inquiries Electronic Filing credit available to candidates. Public concerning his military service. 7 More Committees File Such payments would not be a Electronically Law 106-346. On July 19, 2001, the Commission approved a Notice of personal use of campaign funds Proposed Rulemaking (NPRM), because the inquiries were a direct Court Cases result of Mr. Kerrey’s activities as a 8 New Litigation which proposed amendments to Commission regulations to conform federal officeholder and federal Alternative Dispute Resolution with the amendment to the Act. candidate. 8 ADR Program Update The NPRM, which was published Background in the July 25, 2001, Federal Publications Mr. Kerry was elected to the Register (66 FR 38576), solicited Senate in 1988 and remained in 9 Results of 2000 Federal Elections comments concerning the regulation Published office until January 3, 2001. He was and reporting of these loans. The also a Presidential candidate in Staff public comment period ended 1992. Until December 1998, when 9 Acting FEC General Counsel August 24, 2001. The Commission he announced he would seek a third Resigns intends to hold a hearing on Septem- Senate term, Mr. Kerrey was 9 Information Division Director ber 19, 2001, at 10 a.m., if there are considered a potential Presidential Resigns sufficient requests to testify. The candidate in 2000. In January 2000, hearing will be held at the however, he announced he would Outreach Commission’s public hearing room 10 Denver Conference for not run for election to any public at 999 E Street, NW., Washington, office. Candidates, Parties and PACs D.C. 10 Public Appearances (continued on page 2) 11 Index (continued on page 3) Federal Election Commission RECORD September 2001 Regulations were the candidate’s spouse, and the Loan Payment and Repayment. (continued from page 1) candidate’s share of collateral One approach to loan repayment Proposed Regulations equaled or exceeded the amount of would allow a candidate’s autho- In the NPRM, the Commission the loan, then the spouse would not rized committee the option of proposes to amend the definitions of be considered a contributor. In the repaying the loan directly to the contribution and expenditure at 11 case of an unsecured loan, the lending institution or to the candi- CFR 100.7 and 100.8, respectively, spouse would not be considered a date. If the repayments were made to specifically exclude brokerage contributor if the candidate used to the candidate, he or she would be loans, credit card advances and only one-half of the available credit required to repay the lending other lines of credit extended to for campaign purposes. The Com- institution within 30 days of receiv- candidates—including bank over- mission sought comments on ing the funds from the committee in drafts. In order to be exempted from whether the regulations should order to avoid converting campaign these definitions, the loan must be allow the candidate to use, for funds to personal use.2 As an obtained: campaign purposes, the full amount alternative approach, the Commis- of the available credit in cases sion is considering requiring that the • In accordance with applicable law; where the loan is in the ordinary payment and repayment of the loan • Under commercially reasonable course of business and the candidate pass through the candidate’s per- terms; and is liable for the entire amount of the sonal account in order to distinguish • By persons who make such loans loan even though the spouse has bank loans made directly to an in the ordinary course of business. endorsed, guaranteed or co-signed authorized committee from loans Endorsed, Guaranteed and Co- for the loan. derived from a candidate’s line of Signed Loans. Under the proposed Loans for Personal Living credit. regulations, an endorser, guarantor Expenses. The proposed regulations Reporting. The Commission or co-signer of a loan derived from a would clarify that loans obtained by would require a candidate’s princi- candidate’s line of credit would be candidates and used to pay for their pal campaign committee to report considered a contributor for the personal living expenses would not loans derived from an advance on a amount of the loan for which he or be considered contributions and candidate’s brokerage account, she was liable. If, however, the would not need to be reported.1 The credit card or line of credit. The endorser, guarantor or co-signer candidates would, however, have to Commission sought comments on repay the loans wholly from their proposed amendments concerning personal funds. The proposed how such loans should be reported. Federal Election Commission exception would be limited to loans For example, the NPRM sought 999 E Street, NW used solely for personal living comments on whether a candidate’s Washington, DC 20463 expenses. Thus, if part of the loan loan for personal expenses should 800/424-9530 proceeds were used in connection be reported by the committee. The 202/694-1100 with a campaign, the entire loan Commission also considered cases 202/501-3413 (FEC Faxline) would be reported by the committee. where a candidate obtained a loan 202/219-3336 (TDD for the The Commission sought comments from his or her line of credit and hearing impaired) on this proposal and on an alterna- then loaned these funds to the Danny L. McDonald, Chairman tive proposal that would require the committee. The NPRM proposed David M. Mason, Vice Chairman candidate’s committee to report options where the committee would Karl J. Sandstrom, Commissioner loans used exclusively for the be required to report only repay- Bradley Smith, Commissioner candidate’s personal expenses. ments it made to the candidate and Scott E. Thomas, Commissioner The proposed exception would where the committee would report Darryl R. Wold, Commissioner not apply in a case where a third both the committee’s repayments to James A. Pehrkon, Staff Director party endorsed, guaranteed or co- the candidate and the candidate’s Lois G. Lerner, Acting General signed the loan. In that case, the repayments to the lending institu- Counsel third party would make a contribu- tion. tion in the amount for which he or The Commission intends to Published by the Information Division she was liable. design new reporting schedules (C-2 Greg J. Scott, Acting Assistant and C-P-2) for use in reporting loans Staff Director 1 Amy Kort, Editor The Commission is also considering a similar approach for reporting bank 2 See 2 U.S.C. §439a and 11 CFR http://www.fec.gov loans used solely for candidates’ 113.2(d). personal expenses. 2 September 2001 Federal Election Commission RECORD derived from a candidate’s broker- Advisory Opinions definition of personal use at 11 CFR age account, credit card or line of (continued from page 1) 113.1(g).1 11 CFR 113.1(g)(1)(ii). credit. During each of Mr. Kerrey’s Other Issues. The Commission Payments to the Public campaigns for federal office, he Relations Firm also sought comments on issues engaged in public discussions of his surrounding non-purpose credit and Mr. Kerrey’s use of campaign military service. In 1998, while Mr. funds to pay Westhill Partners margin accounts, committees’ debt Kerrey was still a Senate candidate settlement and the termination of would not constitute a personal use under Commission regulations and of campaign funds because the committees with outstanding loans also considered a possible Presiden- derived from lines of credit. media interest that the public tial candidate, a Newsweek reporter relations firm responded to would The full text of the NPRM is began an inquiry into an incident available on the FEC web site at not have occurred if Mr. Kerrey had that occurred during his service in not been a prominent Senator and a http://www.fec.gov/pdf/ the Vietnam War. However, when FR66n143p38576.pdf and from the prominent federal candidate— Mr. Kerrey announced that he particularly one whose campaigns FEC faxline, 202/501-3413, docu- would not seek the Presidency in ✦ entailed a discussion of his military ment number 251. 2000, Newsweek declined to publish —Amy Kort record. Two factors demonstrate the story—a Newsweek editor made that the media attention was a direct clear in April 2000 that Newsweek’s result of Mr. Kerrey’s campaigns publication of the story was contin- and officeholder activities: Federal Register gent upon Kerrey’s plans to run for President in 2000. The reporter 1. The media inquiry began when Federal Register notices are continued to pursue the story. he was still in the Senate, was a available from the FEC’s Public In April 2001, the story became Senate candidate under Commis- Records Office, on the FEC web public through other media venues, sion rules and was generally site at http://www.fec.gov/ and Mr.