Federal Register: December 8, 2006 (Volume 71, Number 236)
DOCID: FR Doc E6-20752
FEDERAL ELECTION COMMISSION
Federal Election Commission
CFR Citation: 11 CFR Part 104
DOCUMENT ID: [Notice 2006-21]
NOTICE: PROPOSED RULES
ACTION: Compliance procedures:
DOCUMENT ACTION: Proposed statement of policy.
SUBJECT CATEGORY:
Proposed Statement of Policy Regarding Treasurer's Best Efforts To Obtain, Maintain, and Submit Information as Required by the Federal Election Campaign Act
DATES: Comments must be received on or before January 8, 2007. The Commission intends to issue a final policy statement after the close of the comment period.
DOCUMENT SUMMARY:
The Federal Election Commission (the ``Commission'') seeks comments on a proposal to clarify its enforcement policy with respect to the circumstances under which it intends to consider a political committee and its treasurer to be in compliance with the recordkeeping and reporting requirements of the Federal Election Campaign Act, as amended (``FECA''), based on the ``best efforts'' defense. Section 432(i) of Title 2 provides that when the treasurer of a political committee demonstrates that best efforts were used to obtain, maintain, and submit the information required by FECA, any report or any records of such committee shall be considered in compliance with FECA (and/or chapters 95 and 96 of Title 26). In the past, the Commission has interpreted this section to apply only to a treasurer's efforts to obtain required information from contributors to a political committee, and not to maintaining information or the submission of reports. However, in light of Lovely v. Federal Election Commission, 307 F. Supp. 2d 294 (D. Mass. 2004), the Commission intends to apply Section 432(i) to obtaining, maintaining, and submitting information and records to the Commission for the purpose of complying with FECA's disclosure and reporting requirements. Further information is provided in the supplementary information that follows.
SUMMARY:
Enforcement matters; policy statement,
SUPPLEMENTAL INFORMATION
The Commission's regulation implementing
Section 432(i) is promulgated at 11 CFR 104.7. This proposed policy
statement makes clear that the Commission's intent is to apply this
regulation consistent with the holding of the Federal court in Lovely.
A political committee and its treasurer, regardless of the type of
enforcement action before the Commission (the administrative fines
program excepted, see below), will be considered to be in compliance
with FECA's requirements if the committee or its treasurer can show
that best efforts were made to obtain, maintain, and submit all
information required to be reported to the Commission. With respect to
11 CFR 104.7(a), the Commission intends to consider that best efforts
were made when the treasurer of a political committee demonstrates that
the failure to properly obtain, maintain or submit required information
and reports was beyond the control of the committee. The Commission
intends to generally consider the following: (1) The actions taken, or
systems implemented, by the committee to ensure that required
information is obtained, maintained, and submitted; (2) the cause of the
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failure to obtain, maintain, or submit the information or reports at
issue; and (3) the specific efforts of the committee to obtain,
maintain, and submit the information or reports at issue. Where
appropriate, the Commission may issue additional policy statements or
implement regulations setting forth more specific requirements to govern the best efforts defense in particular contexts.
This policy does not affect or modify the Commission's best efforts standards set forth at 11 CFR 104.7(b) that apply specifically with respect to obtaining the identification (see 11 CFR 100.12) of each person whose contributions aggregate more than $200 in a calendar year. Additionally, this policy does not affect or modify the Commission's current administrative fines program. The Commission will consider the applicability of the best efforts defense in the context of the administrative fines program in a separate rulemaking. Current 11 CFR 111.35 sets forth the defenses available to a respondent in the administrative fines context. Any revisions to those available defenses will be addressed in a separate rulemaking, which will allow the Commission to give due consideration to the special issues raised by the administrative fines program not present in other portions of the Commission's enforcement docket.
The Commission requests comments on all aspects of this proposed policy statement.
I. Statutory and Regulatory Provision
The Commission proposes clarifying its current enforcement practice
with respect to consideration of the best efforts of the treasurer of a
political committee to comply with the recordkeeping and reporting
requirements of FECA, as interpreted by the Lovely court. Pursuant to 2 U.S.C. 432(i), FECA provides that:
When the treasurer of a political committee shows that best efforts
have been used to obtain, maintain, and submit the information
required by this Act for the political committee, any report or any
records of such committee shall be considered in compliance with this Act or chapter 95 or chapter 96 of title 26.
This provision of FECA was implemented by the Commission at 11 CFR
104.7. Paragraph (a) of this section is virtually identical to the statutory provision:
When the treasurer of a political committee shows that best efforts
have been used to obtain, maintain, and submit the information
required by the Act for the political committee, any report of such committee shall be considered in compliance with the Act.
Paragraph (b) of section 104.7 provides standards for a treasurer
of a political committee to satisfy in obtaining and reporting ``the
identification as defined at 11 CFR 100.12 of each person whose
contribution(s) to the political committee and its affiliated political
committees aggregate in excess of $200 in a calendar year (or in an
election cycle in the case of an authorized committee).'' \1\
``Identification'' includes the person's full name, mailing address, occupation, and name of employer. See 11 CFR 100.12.
\1\ The U.S. Court of Appeals for the District of Columbia
Circuit referred to 11 CFR 104.7(b) as a ``Commission regulation
interpreting what political committees must do under [FECA] to
demonstrate that they have exercised their 'best efforts' to
encourage donors to disclose certain personally identifying
information.'' Republican Nat'l Comm. v. FEC, 76 F.3d 400, 403 (DC Cir. 1996).
The language of FECA, and the Commission's regulation at section 104.7(a), applies the best efforts defense broadly to efforts by treasurers to ``obtain, maintain and submit'' the information required to be disclosed by FECA. However, the Commission has in past enforcement actions interpreted the statutory language to apply only to efforts to ``obtain'' contributor information.\2\ This interpretation is based on an example contained in the provision's legislative history. See H.R. Rep. No. 96422, at 14 (1979) (``One illustration of the application of this [best efforts] test is the current requirement for a committee to report the occupation and principal place of business of individual contributors who give in excess of $100). \2\ In 1980, the Commission explained that ``[i]n determining whether or not a committee has exercised `best efforts,' the Commission's primary focus will be on the system established by the committee for obtaining disclosure information'' (emphasis added). 45 FR 15080, 15086 (Mar. 7, 1980). In 1993, the Commission referred to ``the requirement of [FECA] that treasurers of political committees exercise best efforts to obtain, maintain and report the complete identification of each contributor whose contributions aggregate more than $200 per calendar year.'' Final Rule on Recordkeeping and Reporting by Political Committees: Best Efforts, 58 FR 57725, 57725 (Oct. 27, 1993). And in 1997, the Commission stated that ``[t]reasurers of political committees must be able to show they have exercised their best efforts to obtain, maintain and report [contributor identification information].'' Final Rule on Recordkeeping and Reporting by Political Committees: Best Efforts, 62 FR 23335, 23335 (Apr. 30, 1997). In 2003, the Commission asserted in its Supplemental Brief in the Lovely litigation that ``the Commission has long interpreted the best efforts provision as creating a limited safe harbor regarding committees' obligations to report substantive information that may be beyond their ability to obtain.'' Commission's Supplemental Brief in Lovely v. FEC at 1. Furthermore, ``when Congress originally enacted the 'best efforts'' provision, it could not have been more clear that it was creating a limited defense regarding the inability to obtain specific information that was supposed to be disclosed, not the failure to file reports on time.'' Id. at 1213. The Lovely court summarized the Commission's argument: ``The FEC in its briefing claims that it limits the reach of the best efforts statute to best efforts to 'obtain' contributor information.'' Lovely, 307 F. Supp. 2d at 300. II. Administrative Fines Program
Congress authorized the Commission's administrative fines program
in 1999 to ``create[] a simplified procedure for the FEC to
administratively handle reporting violations.'' \3\ H.R. Rep. No. 106
295, at 11 (1999). As the Commission explained in its Final Rule on Administrative Fines, 65 FR 31787 (May 19, 2000),
\3\ See Treasury and General Government Appropriations Act,
2000, Public Law 10658, section 640, 113 Stat. 430, 47677 (1999). The program has been reauthorized twice, see Consolidated
Appropriations Act, 2004, Public Law 108199, section 639, 118 Stat.
3, 359 (2004) and Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and
Independent Agencies Appropriations Act, 2006, Public Law 109115,
section 721, 119 Stat. 2396, 249394 (2005), and will sunset on December 31, 2008. See also Final Rule on Extension of
Administrative Fines Program, 70 FR 75717 (Dec. 21, 2005).
[p]rior to enactment of the [administrative fines program] amendment
to the FECA, the Commission handled failures to file the reports in
a timely manner under the enforcement procedures in 11 CFR part 111.
The purpose of the administrative fines program is to institute
streamlined 0procedures, while preserving the respondents' due
process rights, to process violations of the reporting requirements
of 2 U.S.C. 434(a) and assess a civil money penalty based on the schedules of penalties for such violations.
65 FR at 31787. However, ``the Commission has discretion to apply
either the administrative fines procedures or the current enforcement
procedures set forth in Sec. Sec. 111.9 through 111.19 to violations
of the reporting requirements of 2 U.S.C. 434(a).'' Id. at 31788; see also 11 CFR 111.31.
Under current Commission regulations, a respondent may challenge a
proposed civil penalty in the administrative fines program for three
reasons: ``(i) [t]he existence of factual errors; and/or (ii) [t]he
improper calculation of the civil money penalty; and/or (iii) [t]he
existence of extraordinary circumstances that were beyond the control
of the respondent and that were for a duration of at least 48 hours and
that prevented the respondent from filing the report in a timely
manner.'' 11 CFR 111.35(b)(1). The regulation limits the scope of
circumstances that will be considered ``extraordinary'' to exclude
negligence, problems with vendors or contractors, illness, inexperience, or unavailability
[[Page 71086]]
of staff, computer failures (except failures of the Commission's
computers), and other similar circumstances. 11 CFR 111.35(b)(4).
The Commission deemed this limitation of defenses to be an
appropriate component of the administrative fines program, and asserted that it had
sound policy reasons for limiting the respondents' defenses beyond
streamlining the administrative process. A key cornerstone of
campaign finance law is the full and timely disclosure of the
political committee's financial activity. Such disclosure is
essential to providing the public with accurate and complete
information regarding the financing of federal candidates and
political campaigns. Thus, violations of the reporting requirements
of 2 U.S.C. 434(a) are strict liability offenses * * *ensp . Absent
extraordinary circumstances beyond the committees' control, the
Commission sees no reason why committees cannot file their reports
by the deadline. The rationale behind the `48hour extraordinary
circumstances' exception is that the Commission recognizes there may
be instances such as natural disasters where a committee's office is
located in the disaster area and the committee cannot timely file a
report because of lack of electricity or flooding or destruction of committee records.
65 FR at 3178990.
In light of these considerations, this proposed policy statement shall not affect the Commission's current administrative fines program. Rather, the Commission's position will be reevaluated in the context of a separate rulemaking concerning the application of the best efforts defense in the administrative fines program.
III. The Lovely Decision
In Lovely v. FEC, 307 F. Supp. 2d 294 (D. Mass. 2004), a congressional candidate's political committee and its treasurer brought an action against the Commission challenging the imposition of an administrative fine for allegedly late filing of a required report. On the day of the filing deadline, the committee's treasurer experienced difficulty electronically filing the committee's report via the Internet. Upon advice of Commission staff, the treasurer mailed a paper copy of the committee's report, along with a copy on computer diskette, to the Commission. The diskette was improperly formatted, and rejected by the Commission, but the paper copy was made public and posted to the Commission's Web site. The committee filed a properly formatted report 27 days after the filing deadline. Pursuant to the Commission's administrative fines program, the Commission's Office of Administrative Review recommended a $3,100 civil penalty, based on the number of days the report was late, the committee's lack of prior violations, and the fact that the treasurer had not raised any of the three defenses permitted by 11 CFR 111.35(b) to contest the imposition of a civil penalty. The Commission found reason to believe that the committee and the treasurer violated FECA with the late filing. Subsequently, the Commission made a final determination that plaintiff had violated 2 U.S.C. 434(a), but also voted to decrease the civil penalty to $1,800. Lovely at 29697.
In its lawsuit, the plaintiff argued that the Commission's imposition of a fine was contrary to FECA's best efforts provision. Id. at 296. The Commission argued that ``it limits the reach of the best efforts statute to best efforts to `obtain' contributor information.'' Lovely at 300. The Court concluded that ``the FEC's argument that the phrase does not apply to the submission of reports conflicts with the plain statutory language. While the Commission can refine by regulation what best efforts means in the context of submitting a report, it cannot define it away by providing that submission of reports is governed by a `strict liability' standard.'' Id. Thus, the court rejected the Commission's primary rationale for limiting respondents' potential defenses to late or nonreporting in the administrative fines program, holding that the submission of reports is not governed by a strict liability standard. Rather, the faultbased standard of the best efforts defense must apply.
The court also drew on the legislative history of the best efforts
provision. As noted, the 1979 amendments to FECA specifically amended
the best efforts provision to make it ``applicable to the entirety of
FECA, rather than merely to one subsection.'' Lovely at 299. The court cited the provision's legislative history:
The best efforts test is specifically made applicable to
recordkeeping and reporting requirements in both Title 2 and Title
26. The test of whether a committee has complied with the statutory
requirements is whether its treasurer has exercised his or her best
efforts to obtain, maintain, and submit the information required by
the Act. If the treasurer has exercised his or her best efforts, the
committee is in compliance. Accordingly, the application of the best
efforts test is central to the enforcement of the recordkeeping and
reporting provisions of the Act. It is the opinion of the Committee
that the Commission has not adequately incorporated the best efforts
test into its administration procedures, such as the systematic review of reports.
Id. (emphasis added) (quoting H.R. Rep. No. 96422, at 14 (1979), reprinted in 1979 U.S.C.C.A.N. 2860, 2873).
As the Commission stated in its Statement of Reasons after remand of the Lovely case, ``the Court held that FECA's `best efforts' provision * * * requires the Commission to consider whether a committee's treasurer exercised best efforts to submit timely disclosure reports.'' Commission's Statement of Reasons in Administrative Fines Case #549 on Remand From the United States District Court for the District of Massachusetts, at 1 (Oct. 4, 2005) (``Lovely Statement of Reasons''). On remand, the Commission indicated its intention to ``pursue its view that 2 U.S.C. 432(i) does not require the Commission to recognize a `best efforts' defense as part of the administrative fines program,'' and decided that the court had not ``construe[d] Section 432(i) beyond requiring its application in this instance.'' Id. at 12. The Commission determined that the committee's treasurer had not put forth best efforts in filing the report in question. Id. at 5.
IV. Application of the Court's Holding
Upon further consideration, the Commission has determined that
despite the limited breadth of Lovely, implementation of the Lovely
court's interpretation of the best efforts defense best reflects the
language of FECA and the intent of Congress. While the Commission's
enforcement practices formerly reflected the view that the best efforts
defense was limited to obtaining certain contributor identification
information, see supra footnote 2, the Commission recognizes that its
application of the defense in previous enforcement matters derives from
a single example of the defense's application in its 1979 legislative
history.\4\ In light of these considerations, the Commission hereby
notifies the public and the regulated community through this proposed
policy statement that henceforth it intends to apply the best efforts
defense of 2 U.S.C. 432(i), as promulgated at 11 CFR 104.7, with
respect to obtaining contributor information as currently set forth at
11 CFR 104.7(b), and also to obtaining other information, maintaining any and all information required by the statute,
[[Page 71087]]
and submitting said information in the form of disclosure reports.
\4\ A respondent's assertion in an enforcement matter that best
efforts were made to maintain and/or submit required information was
formerly considered by the Commission to be a mitigating factor, but
not an outright defense to an alleged violation of the recordkeeping and reporting requirements.
The standards for determining whether the best efforts defense is applicable in the context of obtaining specific contributor information is set forth at current 11 CFR 104.7(b). This proposed policy statement does not affect or modify those standards.
With respect to 11 CFR 104.7(a), which applies to obtaining, maintaining and submitting information and reports, the Commission intends to consider that best efforts were made when the treasurer of a political committee demonstrates that the failure to properly obtain, maintain or submit required information and reports to the Commission was beyond the control of the committee. The Commission intends to generally consider the following: (1) The actions taken, or systems implemented, by the committee to ensure that required information is obtained, maintained, and submitted; (2) the cause of the failure to obtain, maintain, or submit the information or reports at issue; and (3) the specific efforts of the committee to obtain, maintain, and submit the information or reports at issue.
Under this proposed policy, the following list sets forth possible
reasons for a committee's failure to obtain, maintain or submit
information or reports that the Commission may consider to be indicative that the best efforts defense is applicable:
The abovelisted reasons, along with any other defenses presented, may be considered by the Commission in light of all the facts and circumstances relevant to the committee's obtaining and maintenance of information and efforts to submit reports (or other information) in a timely fashion in determining the applicability of the best efforts defense.
If a failure to obtain, maintain, or submit information or reports is due to committee staff unavailability, inexperience, illness, negligence or error; the committee's computer or software failure; delays caused by committee vendors or contractors; a committee's failure to know filing dates; or a committee's failure to use Commission software properly; then the Commission intends to conclude that the best efforts standard has not been met.
Under the proposed policy, if presented with information sufficient to form a best efforts defense, the Commission intends to consider the best efforts of a committee under Section 432(i) when reviewing all violations of the recordkeeping and reporting requirements of FECA, whether arising in its normal enforcement docket (Matters Under Review) or the Alternative Dispute Resolution Program. The ``best efforts'' standard is an affirmative defense and the burden rests with the political committee and its treasurer to present facts that demonstrate that ``best efforts'' were made. The Commission does not intend to consider the best efforts defense in any enforcement matter unless the facts that form the basis of that defense are asserted by a respondent.
The Commission considers ``best efforts'' to be ``a standard that
has diligence as its essence.'' E. Allan Farnsworth, On Trying to Keep
One's Promises: The Duty of Best Efforts in Contract Law, 46 U. Pitt.
L. Rev. 1, 8 (1984). As the Commission explained in its Lovely Statement of Reasons at 2,
Section 432(i) creates a safe harbor for treasurers who ``show[]
that best efforts'' have been made to report the information
required to be reported by the Act. ``Best'' is an adjective of the
superlative degree. ``Best efforts'' must therefore require more
than ``some'' or ``good'' efforts. Congress's choice of a ``best
efforts'' standard, rather than a ``good faith'' standard, suggests
that a treasurer cannot rely upon his or her earnestness or state of
mind to gain the shelter of Section 432(i)'s safe harbor. Rather, a
treasurer has the burden of showing that the actions takenthe
efforts he or she made to comply with applicable reporting deadlinesmeet the statute's demanding benchmark.
As explained above, the Commission does not intend to apply 11 CFR 104.7(b) as limiting the applicability of the best efforts defense of 2 U.S.C. 432(i) and 11 CFR 104.7(a) only to efforts made to obtain certain specific information from contributors. 11 CFR 104.7(b) does not in any way modify or limit the applicability of section 104.7(a) to the efforts of treasurers to obtain, maintain and submit information and reports.
The above provides general guidance concerning the applicability of the Commission's proposed best efforts defense and announces the general course of action that the Commission intends to follow. This proposed policy statement sets forth the Commission's intentions concerning the exercise of its discretion in its enforcement program. However, the Commission retains that discretion and will exercise it as appropriate with respect to the facts and circumstances of each matter it considers. Consequently, this policy statement does not bind the Commission or any member of the general public. As such, it does not constitute an agency regulation requiring notice of proposed rulemaking, opportunities for public participation, prior publication, and delay in effective date under 5 U.S.C. 553 of the Administrative Procedure Act (``APA''). The provisions of the Regulatory Flexibility Act, which apply when notice and comment are required by the APA or another statute, are not applicable. Where appropriate, the Commission may issue additional policy statements or initiate rulemakings to set forth more specific requirements to govern the best efforts defense in particular contexts.
V. Conclusion.
Effective as of the date that a final Policy Statement is published
in the Federal Register, the Commission intends to apply the best
efforts standard to all matters currently before the Commission in
which a respondent has asserted such a defense, and that come before
the Commission in the future involving information and reports that
must be obtained, maintained, and submitted by the treasurers of
political committees, although the Commission will consider the
application of the best efforts defense to the administrative fines
program in a separate rulemaking. The Commission intends to consider
that ``best efforts'' were made when the treasurer of a political
committee demonstrates that the failure to properly obtain, maintain or
submit required information and reports was beyond the control of the
committee. When treasurers are able to show that a committee made best
efforts to comply with the Act's requirements to obtain, maintain, and
submit information, the Commission intends that the treasurers or
committees shall be considered in compliance with FECA and no civil penalties or other remedial measures shall be imposed.
Dated: November 30, 2006.
Michael E. Toner,
Chairman, Federal Election Commission.
[FR Doc. E620752 Filed 12706; 8:45 am]
BILLING CODE 671501P