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Legacy Content / ONLINE EXCLUSIVE

FEC Rules Leave Loopholes For Online Donation Data

Reports Of Irregularities In Donations Under $200 Raise Questions Of Who Bears The Burden Of Filtering Out Improper Money

October 24, 2008

The increasing use of online financial tools, debit cards and prepaid credit cards to make political contributions has created technological loopholes in federal and public oversight of campaign donations.

The result has been a recent spate of news stories raising questions about apparently implausible or suspicious donations to the presidential campaigns. Right-of-center activists also claim that Barack Obama's campaign has collected tens of millions of dollars from suspect overseas donors. Their complaints spurred the Republican National Committee on Oct. 6 to ask the Federal Election Commission for an investigation of the Obama donations.

To test the campaigns' practices, this author bought two pre-paid American Express gift cards worth $25 each to donate to the Obama and McCain campaigns online. As required by law, the campaigns' Web sites asked for, and National Journal provided, the donor's correct name, location and employment. The cards were purchased with cash at a Washington, D.C., drugstore, and the campaigns' Web sites were accessed through a public computer at a library in Fairfax County, Virginia.

 

The Obama campaign's Web site accepted the $25 donation, but the McCain campaign's Web site rejected it.

Rebecca Donatelli, president of Campaign Solutions of Alexandria, Va., which processes donations for John McCain, said her system rejected the donation because American Express could not verify that the donor lived at the address given with the online contribution.

The McCain campaign does accept normal credit card donations because staffers can easily check whether the owner of the credit card shares the same billing address as the listed donor, she said. That address-check process costs the campaign about 12 cents, she said.

"We could lower our standards and accept more money... but this is John McCain's campaign, and he wants to root out fraud in fundraising and have everything open and as honest as possible," said Donatelli.

Obama campaign spokesman Nick Shapiro said, "We review our contributions to ensure that the information donors provide is complete and verifiable. We would only accept a contribution from a pre-paid credit card if the donor provides complete and verifiable information, consistent with FEC guidelines."

FEC spokesman Robert Biersack said, "The committees are responsible for providing accurate information about the identifying characteristics of their donors.... The precise mechanisms of that are not necessarily written into the regulations."

Donors must provide, and campaigns must send to the FEC, the donor's name, employer and home city. But if a campaign has incomplete information on a donor, it is safe from sanctions if the campaign sends a letter to the donor's address asking for more information, Biersack said. A copy of a passport is also sufficient to validate an overseas donor's eligibility, he said.

Campaign funding experts say that real-world difficulties present a significant barrier to anyone trying to make surreptitious direct donations. For example, National Journal's $25 donation would have to be quadrupled to $100, and then repeated 10,000 times, to deliver $1 million to the Obama campaign, which has collected more than $600 million from at least 3.1 million donors.

Federal law bars individuals from donating more than $2,300 to a presidential campaign (and a similar amount to a primary campaign), and also requires campaigns to make a public disclosure to the FEC of the names of all donors who contribute more than $200 in one or more transactions.

That is how Pamela Geller, an advocate of limited government who runs the blog Atlas Shrugs, discovered invalid donations to the Obama campaign from such fictitious or prohibited donors as Doodad Pro, Hbkjb jkbkj, and a pair of Palestinian brothers in the Gaza Strip who donated $24,321 by July. Since early October, Newsweek, the New York Times and other established publications have described some of Geller's discoveries. But by ignoring these donations until last week, "the media has abdicated its role as public servant," she said.

Kenneth Timmerman, a right-of-center author based in Bethesda, Md., followed up on Geller's work. In an Oct. 19 article for the news Web site Newsmax, Timmerman argued that the FEC database lists up to 37,000 foreign contributors to Obama. These unverified donors made 60,000 contributions, worth a total of up to $63 million, he said. Donations ending with odd numbers of cents, such as $55.32, he said, suggest that the donations were made in a foreign currency before being converted to dollars.

But overseas donations are perfectly legal, provided they are made by U.S. citizens or residents. For example, Pawan Kumar Goenka is the chief operating officer of a multibillion-dollar company, Mahindra & Mahindra, based in Mumbai, India. His April donation of $4,600 to Obama is legal because he's an American citizen, according to a company statement. But other donations, such as the $25 contributions made in May, June, July and August by Lutfur Chowdhury, a resident of the United Kingdom, are suspect. That FEC data base shows the donor's workplace as the SNAX 24 gas station in Hounslow, in West London, but he could not be contacted by National Journal.

Following the spate of blog stories, the Obama campaign barred foreign contributions unless the donation was accompanied by a passport number. The McCain campaign has always asked overseas donors for passport numbers, said Donatelli.

However, the campaigns declined to say how they ensured that proffered passport numbers are actually valid. "We do not share passport information with campaigns," said Noel Clay, a spokesman for the State Department.

Both campaigns say they have staffers calling donors to verify information, such as employers' names, that donors failed to include with their donation.

"Our focus is making sure we comply with campaign finance requirements," mostly through twice-daily computer-aided review of online donations, said Robert Bauer, general counsel for the Obama campaign. A software program checks incoming donations and then flags instances where a single person is using multiple credit cards, instances of suspicious addresses, strange words, business affiliations, or donations that exceed federal limits, said Bauer. Suspect donations are then reviewed by compliance staff , and invalid donations are returned to the donor's credit cards, he said. In September, for example, the Obama campaign's system flagged about 1.5 percent of its $150 million in donations as questionable and inadequately verified, and officials decided to return $353,000 in donations. "We do a very strong job, both with the technology we use and with this very heavy commitment to comprehensive back-end review," he said.

Both campaigns return donations that exceed the legal limit. For example, the Obama campaign returned $2,300 to Goenka after he sent in $2,300 above the legal limit, and the Washington Post reported on Oct. 21 that $174,800 was returned to a Missouri couple after their credit card number was used to make more than 70 donations in one day to the Obama campaign.

Timmerman and other critics said the Obama campaign has been slow in returning donations that exceed the legal limit. "It's fairly clear that the Obama campaign has allowed certain donations to stand for certain periods of time that are dubious," said Stephen Weissman, policy director at the nonpartisan D.C.-based Campaign Finance Institute. The institute is funded by foundations, including the left-of-center Joyce Foundation of Chicago.

The McCain campaign uses software that automatically rejects donations in excess of the legal limits, said Donatelli.

Public records have exposed questionable donations to McCain's campaign. In August, the campaign announced it would return roughly $50,000 from American residents that were bundled by Mustafa Abu Naba'a, who is a dual citizen of Jordan and the Dominican Republic. McCain's donations, which can be viewed at the FEC or at his Web site, also show more than 650 donors with no identifying information.

Both candidates also receive embarrassing donations. "Jesus II" in Las Vegas donated $851 to McCain, and Obama received $250 from "Mujahid Abdullah," a name that means "Holy Warrior, Servant of Allah." The only clue in the FEC report to Abdullah's location is an incomplete U.S. Navy Post Office ZIP code, but the McCain team confirmed that "Jesus II' used a credit card with a billing address that matches his claimed address, said Donatelli. The credit card companies don't verify donor's names for their clients, only card-holders' associated numbers, such as street numbers, she said. "You're a number to them," she said.

The outside scrutiny of the donations does not usually extend to small-scale donors. That's because campaigns are not obliged to reveal donors who give less than $200. However, McCain's campaign does show all of its donors' names, as well as their home cities and states. Yet in at least 650 cases, including many who donated less than $50, or even less than $1, the donors were listed as anonymous. McCain's campaign web site does not reveal donors' employers, hindering outside oversight. The employers are not revealed to shield donors from solicitations and harassment, Donatelli said.

The FEC Web site also offers a database of 13,176 unverified or overseas donors to the Obama campaign that includes 141 anonymous donors, but the FEC does not have records on any of the Obama campaign's sub-$200 donors.

On Thursday, authors on right-of-center blogs swapped stories from mostly unnamed McCain supporters claiming to have made pseudonymous online donations to the Obama campaign. Erika Franzi, a mother of four in Weaverville, N.C., told National Journal on Friday that she used a phony name, address and ZIP code, and had $15 transferred from her bank account to the Obama campaign, which then sent a thank-you e-mail. She made the pseudonymous donation after reading about other masked donations on right-of-center blogs, such as "The Corner" at National Review Online, she said. "I really don't know what's going on, but I think there is enough evidence [of problems] there that people should be questioning it," she said.

The lack of information about Obama's many small donors has prompted complaints by right-of-center activists, such as Frank Gaffney, founder of the D.C.-based Center for Security Policy. He recently authored an article in the Washington Times arguing that up to $100 million in foreign money may have been smuggled is small donations into the Obama campaign. When asked by National Journal to explain this high estimate, Gaffney responded that he had read it somewhere else.

Such worries about foreign influence on candidates and the election are usually overblown, said Richard Viguerie, a legendary fund-raiser for the conservative organizations. In campaigns, "when you're dealing with that many donors, there will be mistakes -- people who are making donations they shouldn't, people who go over the limits," said Viguerie. "You can't check it all because it's a crazy-time during the election."

But the Obama campaign's failure to verify donors' identities or addresses is suspicious, he said. All campaigns collect that data to verify donors and to persuade donors to work as volunteers. If the verification checks are disabled, "there's no limit on how much a relatively small number of people could donate to the campaign on credit cards," he said.

If they're not checking the donors, he said, "they're thumbing their nose at the law." There's no downside because the establishment media will go easy on them before the election, and they can easily raise funds to pay fines once they're in power, he said.

When asked about the possibility that a single person could use fake names to mask many donations sent via a few credit cards, Bauer responded that "both campaigns seem to be in a similar position."

Unverified small donations aren't much of an issue because they make up only a small portion of donations, said Weissman. Moreover, he said, donors who wish to hide their identity can deliver more money, at less risk, by writing checks to friendly tax-exempt groups that are not legally required to disclose the names of donors. "The real need for disclosure is to identify people who might be seeking favors from a candidate" by making large donations, he said.

The root cause of the weak regulation can be found in Congress, whose members set the rules for overseeing donations, said Weissman. "What you have in back of this are politicians who don't want a strong FEC" that has the staff and authority to closely oversee political donations. The rules are so lax, said Timmerman, that campaign staffers don't have to fear legal sanctions. "At worst, the [campaign] will get a monumental fine two years after the election," he said.

Congress needs to address the campaigns' internal checks on online donations, said Fred Wertheimer, president of Democracy 21, which seeks to reduce the impact of big-money donations on politics. "This is going to be very important," he said, because legislators -- including Obama -- are planning a 2009 overhaul of the presidential campaign funding- and donation-matching system that would provide a 4-to-1 match of small-dollar donations with public funds. "We are going to have to revisit the system of checks and accounting" for online donations, he said.

Regulators should ensure donors can't use false names to make multiple small donations on the same credit card, said Dennis Lormel, managing director for anti-money-laundering programs at IPSA International, a consulting firm based in New York. Campaign staffers can easily detect such fraud, but they can also choose not to look for it, said Lormel, former chief of the financial crimes section in the FBI. In the past, he said, campaign staffers avoided penalties by ignoring problems and putting the blame on donors, he said.

Currently, there is no requirement to track donations by credit card numbers, said Biersack.

"The campaign does not store credit card information for verification purposes because it can subject individual accounts to being compromised," Shapiro said in an e-mail. "We track contribution history by an individual's name, address, and other information provided," he said. The McCain campaign did not say whether it stores credit card numbers.

Storing complete credit card information could present a significant security issue that may allow a hacker to access personal financial information from millions of Americans, according to Bauer.

Pending congressional changes, Weissman said, FEC officials should pressure campaigns to publish more information about donors, and to return excess donations faster. "We need institutions to enforce the law [because] we can't rely on bloggers."

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