FEC lets Indian tribes convert government funds to political contributions - Advisory Opinion (2005-05) invites the creation of financial transactions that turns 'soft money' into 'hard money'

 

 

June 14, 2000

By Edward Zuckerman

Editor & Publisher, Political Finance

ez@editorsweb.org

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A Federal Election Commission (FEC) ruling -- that authorizes Indian tribes to use their tribal government funds to make contributions and expenditures in federal elections -- could send a torrential wave of secret campaign cash into the pool of federally restricted political funds.

The May 15 ruling makes it possible for a tribe, during a two-year election cycle, to convert almost $2.2 million worth of tribal funds into "hard money" contributions to federal candidates, political parties and Political Action Committees (PACs).

Since the federal government presently recognizes 557 Indian tribes, the total amount could approach $1.2 billion.

The FEC's unanimous opinion -- Advisory Opinion 2000-05, http://herndon3.sdrdc.com/ao/ao/200005.html [see below article] -- provides obvious political advantages to Indian tribes, especially those [that] reap enormous profits from gaming enterprises.

Last year, 200 tribes [that] own and operate more than 300 casinos in 28 states netted an estimated $6 billion for their tribal governments.

With its economic success, Indian gaming has grown into an industry with its own Washington trade group -- the National Indian Gaming Association -- which lobbies Congress and executive branch agencies on a broad range of labor, taxation, gaming and other legislative and regulatory subjects.

Indian gaming lobbyists, for example, are presently seeking an exemption from legislation that would otherwise prohibit the use of the Internet to facilitate wagers on casino games and sporting events.

Last month's FEC ruling makes two important concessions by implicitly permitting the use of tribal funds for making "hard money" contributions, and by explicitly exempting Indian tribes from the $25,000 per year aggregate limit on contributions by "individual" donors.

This was accomplished by concluding that an Indian tribe is not an "individual" as that term appears in the Federal Election Campaign Act.

Without an overall contribution ceiling to strap them down, the opinion enables an Indian tribe to become a political cash register that can gulp "soft money" from any source -- and disgorge it as "hard money" contributions or expenditures.

Only a small handful of tribes -- that operate gambling casinos or collect substantial oil and gas royalties -- could afford such high stakes.

But, the opinion offers other tribes a unique opportunity to earn transaction fees and commissions by utilizing their tribal accounts to launder "soft money" into a new form of "hard money" that might be called "political wampum."

The FEC's opinion may be the first time that the agency has used its interpretive powers to allow money to be used in federal elections that does not originate as an individual's voluntary contribution.

It thusly contradicts one of the Federal Election Campaign Act's most enduring hallmarks -- namely, its insistence that only money that is voluntarily contributed by U.S. citizens can be used in federal elections.

The FEC's opinion was undermined by an erroneous assumption about tribal sovereignty.

Rather than concluding that a tribe is not an "individual," the FEC might have treated a tribe as a "governmental entity" -- which is altogether barred from federal lobbying and electioneering activity.

The 1988 Indian Gaming Regulatory Act suggests such a result by failing to include lobbying and electioneering among permissible uses of a tribe's gambling profits.

Also, the ruling ignores a long history of federal court decisions dating back to an 1831 Supreme Court opinion (Cherokee Nation vs. Georgia), which held that an Indian tribe is a "distinct political society ... capable of managing its own affairs and governing itself."

Since [then], courts have consistently allowed Indian tribes to govern social and economic life on reservation lands without interference from state governmental authority, while preserving the federal government's regulatory authority over Indian tribes.

Although rendered to the Oneida Indian Nation of New York, the opinion immediately applies to all federally-recognized Indian tribes, not just those with prospering businesses but also to poverty-stricken tribes whose reservations are located in some of the country's most barren and remote locations.

...[F]or the Oneida Nation and nearly 200 other tribes [that] operate casinos and related tourist attractions such as luxury hotels, convention facilities and golf courses, the FEC's opinion could introduce approximately $835 million worth of "political wampum" during a two-year election cycle.

Under the opinion, Indian tribes remain under the same contribution limits [that] apply to "individuals ... and all other persons." The FEC concluded that, although an Indian tribe is not an "individual" for purposes of the $25,000 annual limit on contributions, it remains under the agency's regulatory definition of "all other persons" for purposes of the law's limits on contributions to candidates, parties and PACs.

Thus, like "any other person," an Indian tribe can contribute $20,000 during a calendar year to a national party committee and to each of its affiliated campaign committees, $5,000 per calendar year to a state party committee, $5,000 per year to a PAC, and $1,000 per election to a federal candidate.

Without the $25,000 annual limit on total contributions, though, an Indian tribe can now contribute $240,000 during a two-year election cycle to the Democratic and Republican national parties and their affiliated House and Senate campaign committees -- up to $1 million during an election cycle to the 50 Democratic and Republican state party committees -- and distribute as much as $1,872,000 among every Democratic and Republican candidate for election to the House and Senate.

Moreover, if each of the 200 casino-owning tribes establishes a PAC, then all of the tribes could exchange maximum $5,000 per year contributions -- resulting in $2 million for each PAC during a two-year election cycle.

Thus for the 200 casino-owning tribes, a single election cycle could yield $48 million for the national parties and their affiliated campaign committees, $200 million for the state party committees, $400 million for their own PACs, and $374.4 million for federal candidates -- a grand total that exceeds $1 billion!

The FEC's opinion includes a feeble warning against using funds [that] are derived from an Indian tribe's corporate enterprises. 

[This warning] is essentially meaningless, because the FEC lacks authority to audit an Indian tribe's financial records, and the FEC has never suggested that an "individual...or other person" can't make political contributions with money that was earned while working for a corporation.

The FEC's advisory opinion process began in late April with an apparently routine question from McGuiness & Holch, a Washington law firm that lobbies for the Oneida Indian Nation.

In recent years the Oneida tribe, which owns and operates the highly lucrative Turning Stone Casino in Oneida, New York, had become increasingly more active in campaign finance affairs.

In the last two years, the tribe made $130,000 worth of "soft money" contributions to various Democratic and Republican party "non-federal" accounts.

[T]ribe chief Keller George made personal contributions to several lawmakers and PACs during the same period.

(Among George's gifts were $1,000 to Rep. J.D. Hayworth (R-Ariz.) and $1,000 to Hayworth's TEAM PAC. Hayworth and his PAC became magnets for contributions from Indian tribes and tribal leaders after [Hayworth] defeated an effort by House Ways and Means [Committee] chairman Bill Archer (R-Tex.) to expose Indian casino profits to federal taxation.)

At the end of March, a week after making a $10,000 contribution to the Democratic Congressional Campaign Committee, thereby making a serious gash against its "hard money" limit, the tribe wondered if it really was required to observe the $25,000 annual limit.

In the past, the tribe's lawyers said in their letter to the FEC, the tribe "has voluntarily abided" by the overall annual limit.

But, they went on, because the law "only applies to individuals, the Nation is considering making contributions this calendar year that would exceed this limitation...(B)efore moving forward, the Nation hereby requests an advisory opinion to confirm the Nation's interpretation of the Federal Election Campaign Act, that the limitation does not apply to the Nation because the Nation is not an 'individual.'"

Initially, the FEC's legal staff drafted an opinion that would have contained a strong warning against converting casino and other corporate profits to federal election contributions and expenditures.

It included instructions to maintain separate accounts to assure that corporate-derived monies don't leak into the "hard money" stream, and suggested that the tribe-owned enterprise -- which also owns a luxury hotel, a motel, a convention facility and two golf courses -- establish a PAC to collect voluntary contributions from its executives and 3,000 non-union employees.

But this proposed opinion drew a quarrelsome response from the Arizona-based Gila River Indian Community, which, through its lobbyists at Akin Gump Strauss Hauer & Feld, complained that the FEC was exceeding its own policies of limiting its opinions to questions that are raised and refraining from offering advice for hypothetical situations.

Here, the Akin Gump lawyers protested, the FEC legal staff "introduces presumptive facts not presented by the requester, then applies the corporate contribution prohibition to those hypothetical facts."

The Oneida tribe, they said, only asked the FEC to decide whether or not it was an "individual."

The FEC compromised, deleting the offending commentary from the final draft.

As a replacement, the FEC incorporated language from a letter which the Oneida tribe's lawyers sent as a clarification of its request.

In that letter -- which was copied into the FEC's [Advisory] opinion -- the tribe's lawyers said "the Nation's political contributions are made from its general treasury funds...(and) are not made, either directly or indirectly, from any incorporated entity."

It was a legalistic non sequitur.

It simply mean[t] that the Oneida Nation's "hard money" contributions wo[uldn]'t flow directly from its corporate enterprises, but that the money would come instead from the tribe's general treasury -- which collects the profits from its corporations.

 

From the final report of the National Gambling Impact Study Commission (1999):

Under the U.S. Constitution and subsequent U.S. law and treaties with Indian nations, native Americans enjoy a unique form of sovereignty.

Chief Justice John Marshall, who was instrumental in defining the constitutional status of Indians, described the legal relationship between the federal government and the tribes as "unlike that of any other two people in existence.

Two centuries of often contradictory court decisions and congressional legislation have ensured that the definition and boundaries of tribal sovereignty remain in flux. Differing perspectives on the nature and extent of that sovereignty -- in particular, the relationship of Indian tribes to the state governments in which they reside -- lie at the heart of the many disputes about Indian gambling.

The authority for tribal government gambling lies in the sweep of U.S. history and the U.S. Constitution. [???]

The "commerce clause" of the U.S. Constitution recognizes native American tribes as separate nations.

The Supreme Court so held in the early years of the Nation's history. In Cherokee Nation vs. Georgia (1831), the Court held that an Indian tribe is a "distinct political society ... capable of managing its own affairs
and governing itself."

A year later in Worcester vs. Georgia (1832), Chief Justice Marshall, writing for the Court, held that Indian tribes are distinct, independent political communities
"having territorial boundaries, within which their authority (of self-government) is exclusive ... By entering into treaties, the Court held, Indian tribes did not "surrender (their) independence, (their) right to self government..."

These principles of federal law have been repeatedly reaffirmed by the Supreme Court. Thus, it is broadly understood that "(t)he sovereignty retained by tribes includes 'the power of regulating their internal and social relations' and that this
authority includes the 'power to make their own substantive law in internal matters...and to enforce that law in their own forums.'" And under settled law these rights include the right to engage in economic activity on the reservation (see New Mexico vs. Mescalero Apache Tribe, 1983), through means that specifically include the right to conduct gambling on reservation lands (see California vs. Cabazon Band of Indians, 1987).

Copyright 2000, Political Finance & Lobby Reporter

 

http://www.politicalfinance.com/Articles/061400.html

 

Additional recommended reading:

 

Federal Election Commission Advisory Opinion Number 2000-5

Back to Federal Election Commission Advisory Opinions Search Page: http://herndon3.sdrdc.com/ao

Federal Election Commission Main Page: http://www.fec.gov/

May 15, 2000

CERTIFIED MAIL - RETURN RECEIPT REQUESTED
 

ADVISORY OPINION 2000-05

Markham C. Erickson
McGuiness & Holch
400 North Capitol Street, NW
Suite 585
Washington, D.C. 20001

Dear Mr. Erickson:
 

This responds to your letter dated March 30, 2000, on behalf of the Oneida Nation of New York ("the Nation"), requesting an advisory opinion concerning the application of the Federal Election Campaign Act of 1971, as amended ("the Act"), and Commission regulations to contributions by the Nation totaling more than $25,000 annually.

The Nation is a Federally-recognized Indian tribe located in central New York State. It is a non-corporate entity which has been recognized by the United States on a government-to-government basis. See 65 FR 13298, 13300 (March 13, 2000).1 The Nation has previously contributed to Federal candidates, following the $1,000 limit at 2 U.S.C. 441a(a)(1)(A) for contributions by a person to the authorized committees of a Federal candidate. The Nation has also voluntarily limited the total of its contributions to Federal political committees during a calendar year to $25,000, which is the limit prescribed at 2 U.S.C. 441a(a)(3).

You state that, because 2 U.S.C. 441a(a)(3) applies only to "individuals," the Nation is considering making contributions this year that would total in excess of $25,000. You ask the Commission to confirm that this $25,000 limitation does not apply to the Nation.

The Act defines the term "person" as including an "individual, partnership, committee, association, corporation, labor organization, or any other organization
or group of persons, but such term does not include the Federal Government or any authority of the Federal Government." 2 U.S.C. 431(11); see also 11 CFR 100.10. The Act also provides that no "person" may contribute in excess of $1,000 to any Federal candidate and his authorized political committees with respect to any election. 2 U.S.C. 5441a(a)(1)(A). In addressing annual contribution totals, however, the Act and Commission regulations provide that no "individual" may make contributions aggregating more than $25,000 per calendar year. 2 U.S.C. 441a(a)(3); 11 CFR 110.5(b).2

As you indicate, the Commission has long interpreted the Act's definition of "person" to include unincorporated Indian tribes, and thus their contributions to Federal candidates were subject to the $1,000 per election, per candidate limits.3 Advisory Opinion 1978-51; see also Advisory Opinions 1999-32 and 1993-12 (where the Commission stated that, as "persons," unincorporated Indian tribes were subject to the prohibition on contributions by persons with Federal contracts if they are engaged in such contracts). Although the Nation is a person under the Act, it is not an individual and is therefore not subject to the $25,000 limit on its annual total of contributions.4 The Nation may make contributions that are otherwise lawful under the Act and Commission regulations.

The Commission notes your letter of April 26, 2000, commenting on the General Counsel's proposed draft of this opinion, Agenda Document No. 00-48. Your April 26 letter explains that "the Nation's political contributions are made from its general treasury funds ...[and] are not made, either directly or indirectly, from any incorporated entity." The letter further states: "While the Nation does own several incorporated businesses, it has sufficient funds in its general treasury to make all of its political contributions, subject, of course, to the limitations and prohibitions of the Act." Since you have not requested an advisory opinion on the sources of funds that may be lawfully used by the Nation in making its contributions in Federal elections, the Commission does not issue an opinion at this time on that issue.

The Commission does not express any views concerning the possible application of other statutes, including the Indian Gaming Regulatory Act, to political contributions made by the Nation, since those issues, if any, are not within the Commission's jurisdiction.

This response constitutes an advisory opinion concerning the application of the Act and Commission regulations to the specific transaction or activity set forth in your request. See 2 U.S.C. 437f.

Sincerely,

(signed)

Darryl R. Wold
Chairman

Enclosures (AOs 1999-32, 1999-7, 1993-12, 1982-26, 1978-51, and 1977-32)

1 This Federal Register document is from the U.S. Bureau of Indian Affairs ("BIA") and lists the Nation, along with numerous other Indian entities, that are "recognized and eligible for funding and services from [BIA] by virtue of their status as Indian tribes." 65 FR at 13298. The "listed entities are acknowledged to have the immunities and privileges available to other federally acknowledged Indian tribes by virtue of their government-to-government relationship with the United States as well as the responsibilities, powers, limitations and obligations of such tribes." 65 FR at 13299.

2 The Act and Commission regulations clarify this restriction by adding that, for the purposes of this limit, any contribution made in a non-election year to a candidate or his authorized committee with respect to a particular election shall be considered as made during the calendar year in which such election is held.

2 U.S.C. 441a(a)(3); 11 CFR 110.5(c)(2); see also 11 CFR 110.5(c) (3) and (d).

3 The status of an Indian tribe or community as a "government" making a contribution has not been explicitly addressed in previous advisory opinions. As indicated by the language of 2 U.S.C. 431(11), the only government that is specifically construed not to be a person, and therefore not subject to the limitations and prohibitions of the Act, is the Federal Government. For example, the Commission has made clear that State governments and municipal corporations are persons under the Act and are subject to its contribution provisions. Advisory Opinions 1999-7, 1982-26, and 1977-32.

4 As indicated in Advisory Opinion 1999-32, the Nation would more precisely fall into the category of "any other organization or group of persons."

 

http://herndon3.sdrdc.com/ao/ao/200005.html