[Senate Hearing 113-301]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-301
 
           CURRENT ISSUES IN CAMPAIGN FINANCE LAW ENFORCEMENT 

=======================================================================

                                HEARING

                               before the

                  SUBCOMMITTEE ON CRIME AND TERRORISM

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 9, 2013

                               __________

                          Serial No. J-113-12

                               __________

         Printed for the use of the Committee on the Judiciary


                               ----------

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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
DIANNE FEINSTEIN, California         CHUCK GRASSLEY, Iowa, Ranking 
CHUCK SCHUMER, New York                  Member
DICK DURBIN, Illinois                ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island     JEFF SESSIONS, Alabama
AMY KLOBUCHAR, Minnesota             LINDSEY GRAHAM, South Carolina
AL FRANKEN, Minnesota                JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware       MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
MAZIE HIRONO, Hawaii                 JEFF FLAKE, Arizona
            Bruce A. Cohen, Chief Counsel and Staff Director
                 David Young, Republican Chief of Staff
                                 ------                                

                  Subcommittee on Crime and Terrorism

               SHELDON WHITEHOUSE, Rhode Island, Chairman
DIANNE FEINSTEIN, California         LINDSEY GRAHAM, South Carolina
CHUCK SCHUMER, New York              TED CRUZ, Texas
DICK DURBIN, Illinois                JEFF SESSIONS, Alabama
AMY KLOBUCHAR, Minnesota             MICHAEL S. LEE, Utah
                Stephen Lilly, Democratic Chief Counsel
                Sergio Sarkany, Republican Chief Counsel



                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode 
  Island.........................................................     1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................    34
Cornyn, Hon. John, a U.S. Senator from the State of Texas, 
  prepared statement.............................................    36

                               WITNESSES

Witness List.....................................................    33
Raman, Mythili, Acting Assistant Attorney General, Criminal 
  Division, U.S. Department of Justice, Washington, DC...........     4
    prepared statement...........................................    37
Haynes, Patricia, Deputy Chief, Criminal Investigation, Internal 
  Revenue Service, Washington, DC................................     6
    prepared statement...........................................    42
Noble, Larence M., President and Chief Executive Officer, 
  Americans for Campaign Reform, Washington, DC..................    17
    prepared statement...........................................    48
Colvin, Gregory L., Principal, Adler & Colvin, San Francisco, 
  California.....................................................    19
    prepared statement...........................................    55
Smith, Bradley A., Chairman, Center for Competitive Politics, 
  Josiah H. Blackmore II/Shirley M. Nault, Professor of Law, 
  Capital University Law School, Columbus, Ohio..................    21
    prepared statement...........................................    68

                               QUESTIONS

Questions submitted by Senator Amy Klobuchar for Mythili Raman, 
  Patricia Haynes, Lawrence M. Noble, Gregory L. Colvin, and 
  Bradley A. Smith...............................................    88
Questions submitted by Senator Charles Schumer for Mythili Raman 
  and Patricia Haynes............................................    89

                                ANSWERS

Responses of Mythili Raman to questions submitted by Senators 
  Schumer and Klobuchar..........................................    91
Responses of Patricia Haynes to questions submitted by Senators 
  Schumer and Klobuchar..........................................    96
Responses of Lawrence M. Noble to questions submitted by Senator 
  Klobuchar......................................................    97
Responses of Gregory L. Colvin to questions submitted by Senator 
  Klobuchar......................................................   101
Responses of Bradley A. Smith to questions submitted by Senator 
  Klobuchar......................................................   105

                MISCELLANEOUS SUBMISSIONS FOR THE RECORD

March 22, 2012, lettter to IRS...................................   117
American Civil Liberties Union (ACLU), Laura W. Murphy, Director, 
  Washington Legislative Office, Washington, DC, April 9, 2013, 
  letter.........................................................   121
Democracy 21, Fred Wertheimer, President, Washington, DC, 
  statement......................................................   126

                 ADDITIONAL SUBMISSIONS FOR THE RECORD

Submissions for the record not printed due to voluminous nature, 
  previously printed by an agency of the Federal Government, or 
  other criteria determined by the Committee, list...............   130
Petition for rulemaking on campaign activities by section 
  501(c)(4)......................................................
    http://www.democracy21.org/uploads/
      D21_and_CLC_Petition_to_IRS_7_27_2011.pdf..................   130
    Democracy 21 report: leading presidential-candidate super 
      PACs http://www.democracy21.org/uploads/
      Democracy_21_Super_PAC_Report_1_4_2012.pdf.................   130
    ``The FEC: The Failure to Enforce Commission'' by Fred 
      Wertheimer and Don Simon http://www.acslaw.org/sites/
      default/files/Wertheimer_and_Simon--The Failure to Enforce 
      Commission.pdf.............................................   130


           CURRENT ISSUES IN CAMPAIGN FINANCE LAW ENFORCEMENT

                              ----------                              


                         TUESDAY, APRIL 9, 2013

                                       U.S. Senate,
                       Subcommittee on Crime and Terrorism,
                                Committee on the Judiciary,
                                                     Washington, DC
    The Subcommittee met, pursuant to notice, at 10:02 a.m., in 
Room SD-226, Dirksen Senate Office Building, Hon. Sheldon 
Whitehouse, Chairman of the Subcommittee, presiding.
    Present: Senators Whitehouse, Feinstein, Schumer, Durbin, 
Klobuchar, Graham, Cruz, Sessions, and Lee.

 OPENING STATEMENT OF HON. SHELDON WHITEHOUSE, A U.S. SENATOR 
                 FROM THE STATE OF RHODE ISLAND

    Chairman Whitehouse. Good morning. The hearing will come to 
order. I appreciate the witnesses being here, and the order of 
proceeding will be that any Senators who are present before the 
testimony will be invited to make any opening statement that 
they care to make. We will take the testimony from these 
witnesses and then have a question-and-answer session, and I 
think we will start with seven-minute rounds. It does not 
appear, given everything that is going on in the Senate today, 
that we are going to have a great number of Senators here, so I 
think we can go with seven-minute rounds. And we will switch 
then to the other panel and continue the same way, and we have 
to be done at noon. So I appreciate the witnesses who are here, 
and I will lead with my opening statement.
    In a country of laws, when the laws are made a mockery, it 
is a serious matter. This hearing will explore the mockery our 
campaign finance laws have become, with particular emphasis on 
what appears to be flagrantly false statements made with 
impunity in official documents.
    We note Section 1001 of the U.S. Criminal Code, which makes 
it a criminal offense to make ``any materially false, 
fictitious, or fraudulent statement or representation'' in 
official business with the government, and Section 7206 of the 
Internal Revenue Code, which makes it a crime to willfully make 
a false material statement on a tax document filed under 
penalty of perjury.
    The false statements we look at relate, among other things, 
to Section 501(c)(4) of the Tax Code, which gives nonprofit 
status to entities that are ``operated exclusively to promote 
social welfare.'' This promotion of social welfare is 
specifically forbidden to include direct or indirect 
participation or intervention in political campaigns on behalf 
of or in opposition to any candidate for public office. It 
seems clear enough.
    But after the Supreme Court opened the floodgates to big 
money in elections in its disgraceful Citizens United decision, 
big donors like to use these nonprofit entities to launder 
campaign spending and hide their identities. As the head of one 
such nonprofit admitted, for big donors ``the anonymity was 
appealing.''
    So the tax filings then begin to get creative. There are 
several areas of mischief: discrepancies in reporting to the 
IRS and to the FEC; discrepancies between reported and actual 
political activity; characterizing political TV ads as 
``educational activities'' or ``legislative activities''; 
characterizing as ``nonpolitical'' donations made to other 
groups that then spend it on political advertising; and 
disbanding and reforming under other names before the reporting 
is due for the disbanded organization.
    The responsible federal agencies, primarily the IRS and 
DOJ, appear somewhat complicit in the mockery that is made of 
these tax laws. The DOJ maintains a policy of deference to the 
IRS and does not investigate or prosecute false statements in 
campaign finance tax reporting without a case having been 
brought to it by the IRS. As we will hear from some of the 
witnesses, this creates problems. DOJ maintains this policy 
despite 18 U.S.C. 1001, the well-known law against false 
statements that spans all federal agencies in addition to the 
false statements law specific to tax filings.
    The IRS on its part is an organization as to which, 
according to press reports quoting its own previous Director of 
Nonprofit Organizations, and I quote here, ``Chasing political 
nonprofits isn't the organization's primary function, nor one 
for which it is staffed.'' Thus, from a systems point of view, 
we have DOJ deferring for enforcement to an effectively 
toothless organization, with the predictable result that zero 
cases appear to have been brought. Indeed, as far as I know, 
not one person has been put before an investigative grand jury.
    To make matters worse, the IRS has taken one of the clearer 
statutes passed by Congress and through its regulations has so 
defanged and confused the law as to make it virtually 
unenforceable by the agency. The IRS did this by saying that 
``exclusively''--the word in the statute--meant ``primarily'' 
by then accepting that ``primarily'' meant 51 percent, and 
further by pursuing a policy of conspicuous nonenforcement even 
of that watered-down standard.
    If the IRS has affirmatively wished to defeat this law and 
permit rampant false statements to go unpunished, it could 
hardly have done a better job. As a Notre Dame law professor 
who specializes in this area has said, ``the IRS seems to blink 
if you push them.'' And yet DOJ defers to the IRS.
    The result is that statements that are plainly false by any 
common lay definition of the term ``go unpunished.'' A clear 
congressional statute goes unenforced. An industry that 
launders immense amounts of anonymous money into our elections 
grows like a weed. And in politics, only the big donors and the 
candidates and their intermediaries know who is beholden to 
whom and for how much.
    As Senator McCain and I pointed out in a brief to the 
Supreme Court recently, this latter condition is a prescription 
for corruption. As even the Supreme Court pointed out in 
Citizens United, it is disclosure of donors' identities that 
allows ``citizens to hold corporations and elected officials 
accountable for their positions and supporters'' so that 
citizens can ``see whether elected officials are in the pocket 
of so-called monied interests.''
    And, of course, under this regime, nothing prevents foreign 
interests from influencing American elections if there is no 
investigation and no enforcement of whose money is really 
hiding behind the nondisclosure provisions that gives Section 
501(c)(4) its appeal to big donors.
    The relevant federal IRS form includes Question 15, which 
asks, under penalty of perjury, ``Has the organization spent or 
does it plan to spend any money attempting to influence the 
selection, nomination, election, or appointment of any person 
to any Federal, State, or local public office or to an office 
in any political organization? '' In one investigation, 
ProPublica found 32 organizations that answered no to this 
question and then went out and spent money on political races. 
And that was out of 72 IRS filings they reviewed. Nearly half 
appear to be false. Some organizations had ads running on the 
day they mailed their filings in. Some had run them before. 
Many spent millions on political ads.
    Looked at the other way, in the ProPublica investigation 
they found 104 organizations that told State or federal 
elections officials they had spent money on candidates' 
specific political ads, what the FEC called ``electioneering 
communications.'' Thirty-two of those 104 had told the IRS they 
had spent no money to influence elections.
    Even when information is provided, it may be false. One 
organization said it would spend 50 percent of its effort on a 
Web site and 30 percent on conferences. Investigations showed 
its Web site consistent of one photograph and one paragraph, 
and no sign of any conferences. The same group declared it 
would take contributions from individuals only and then took $2 
million from PhRMA, the pharmaceutical lobby.
    Another declared to the IRS that it spent $5 million on 
political activities, but told the FEC it has spent $19 million 
on political ads. Another pledged its political spending would 
be limited in amount and will not constitute the organizations 
primary purpose, and then went out and spent $70 million on ads 
and robo-calls in one election season.
    And some never even apply. They just start spending and 
file a tax return after the fact, potentially as their last act 
before they disband so they are gone before the mail brings 
their filing to the IRS.
    One never filed at all, even after the fact. No enforcement 
action has been taken as far as I know.
    As Melanie Sloan, executive director of CREW, has said, 
``You can go into business and violate the law and then go out 
of business. And what is ever going to happen about that? There 
is no consequence.''
    Let me close on this issue by reading from an article 
describing the reaction of a State election official: ``When 
ProPublica read the group's description of its activities on 
its IRS application to Ann Ravel, the chairwoman of the 
California Fair Elections Commission, she laughed. `Wow,' she 
said, upon hearing that the group said it would not try to 
influence elections. `That is simply false.' ''
    So this hearing is directed to the mechanisms and 
machinations by which such false statements are allowed to go 
unpunished. During this hearing we will also examine 
enforcement issues pertaining to coordination between 
candidates and outside groups where the FEC has so weakened the 
limitations as to make so-called independent expenditures 
functionally equivalent to campaign contributions, also the use 
of shell corporations to hide donor identities, and the risk of 
foreign money influencing our elections that comes with secret 
fundraising and spending by 501(c)(4)s and other groups.
    I look forward to hearing from the witnesses on these and 
other issues. I see that Senator Cruz has joined us, and I 
invite him to make any opening statement he cares to make at 
this time.
    Senator Cruz. I am happy at this point just to hear from 
the witnesses.
    Chairman Whitehouse. Very good. Let me introduce both 
witnesses.
    Mythili Raman is Acting Assistant Attorney General for the 
Criminal Division of the Department of Justice. In this role, 
Ms. Raman oversees nearly 600 attorneys who prosecute federal 
criminal cases across the country. Previously, Ms. Raman was 
the Principal Deputy Assistant Attorney General for the 
Criminal Division. Ms. Raman has been with the Department since 
1996 and previously served as an Assistant United States 
Attorney in the U.S. Attorney's Office for the District of 
Maryland.
    Patricia J. Haynes is the IRS Deputy Chief of Criminal 
Investigation. In this role, Ms. Haynes directs worldwide 
programs for investigating potential criminal violations of the 
Internal Revenue Code and related financial crimes. Previously, 
Ms. Haynes was the Executive Director of Investigative and 
Enforcement Operations, and before that Director of Field 
Operations for the Southeast Area. She began her career as a 
special agent in Virginia in 1983.
    If I could ask the two witnesses to stand and be sworn, we 
will begin the hearing. Do you affirm that the testimony you 
are about to give before the Committee will be the truth, the 
whole truth, and nothing but the truth, so help you God?
    Ms. Raman. I do.
    Ms. Haynes. I do.
    Chairman Whitehouse. Thank you very much.
    Ms. Raman, welcome. We will begin with you. Thank you very 
much for being here on the part of the Department of Justice.

STATEMENT OF MYTHILI RAMAN, ACTING ASSISTANT ATTORNEY GENERAL, 
 CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE, WASHINGTON, DC

    Ms. Raman. Chairman Whitehouse and distinguished Members of 
the Subcommittee, thank you for----
    Chairman Whitehouse. Is your microphone on?
    Ms. Raman. Let me start again.
    Chairman Whitehouse. Before you start again, let me just 
make clear that for those who have prepared testimony, your 
entire testimony will be included in the record. We do call on 
our witnesses to restrict their presentations in terms of time 
here, but the full statement becomes a part of the record of 
the proceeding.
    Again, Ms. Raman, thank you.
    Ms. Raman. Thank you very much. Thank you, Chairman 
Whitehouse and distinguished Members of the Subcommittee. Thank 
you for inviting me here today to share the views of the 
Department of Justice on challenges to the criminal enforcement 
of our campaign finance laws posed by the growing activity of 
super PACs and certain 501(c) organizations. I am honored to 
represent the Department at this hearing and to have the 
opportunity to oversee the important work of the Criminal 
Division.
    Protecting the integrity of our elections is one of the 
Department's most important tasks, and enforcement of our 
campaign finance laws is a top priority. There is no question 
that private contributions to political campaigns are a 
fundamental part of the electoral process and that, under the 
Constitution, the ability to make political contributions is a 
protected component of our citizens' political speech. At the 
same time, Congress and the federal courts have long recognized 
the importance of transparency and fairness in campaign finance 
to avoid any individual or entity exercising undue influence 
over our elections or over our elected officials.
    The Justice Department is fully committed to investigating 
and prosecuting those who willfully violate the disclosure 
requirements and the contribution limits established by our 
campaign finance laws. Indeed, since 2010, we have successfully 
prosecuted more than a dozen cases involving campaign finance 
violations.
    In the time since the Supreme Court's decision in Citizens 
United v. FEC, however, the manner in which individuals and 
entities raise and spend money in our elections has changed 
dramatically and continues to change. The two most important 
developments affecting our ability to enforce the campaign 
finance laws are the rise of super PACs and the growing 
political activity of certain types of organizations created 
under 501(c) of the Internal Revenue Code, such as 501(c)(4) 
social welfare groups.
    We face certain investigative and prosecutorial challenges 
as a result of this new landscape. With regard to super PACs, 
the primary challenge we face is establishing illegal 
coordination between a super PAC and a campaign. As described 
more fully in my written testimony, as a result of certain FEC 
advisory opinions, regulations, and matters under review, we 
believe it will be exceedingly difficult for prosecutors to 
prove beyond a reasonable doubt whether and when super PACs and 
campaigns willfully engage in illegal coordination.
    With regard to designated classes of 501(c) organizations, 
we are hampered by the fact that, unlike PACs, super PACs, and 
other political organizations, these 501(c)s are not required 
to publicly disclose their donors to the FEC even though those 
donors' contributions may be used as expenditures to seek to 
influence federal elections. Instead, 501(c) organization 
donors are disclosed only to the IRS as part of their tax 
returns, which can be filed a year or more after an election 
and are subject to the traditional restrictions on public 
disclosure imposed by our tax laws.
    Thus, for example, a donor seeking to bribe a corrupt 
official could potentially use a 501(c) organization to hide 
his identity, and we would be unlikely to ever receive the 
warning signals we would need to investigate further.
    Vigorous enforcement of our campaign finance laws is 
essential to preserving both the integrity of our elections and 
the public's confidence in these elections. The Justice 
Department's prosecutors and federal law enforcement agents 
work tirelessly to uncover, investigate, and prosecute campaign 
finance offenses. But the recent changes in our campaign 
finance laws have made it easier for individuals and entities 
to buy influence over elections and conceal their conduct. And 
our ability to successfully combat these threats is hindered by 
the current law regarding what constitutes coordination between 
super PACs and candidates and by the loss of transparency 
arising from the use of designated 501(c) organizations in 
connection with elections.
    Despite these challenges, we are committed to vigorously 
rooting out corruption and ensuring the fairness of our 
elections through the robust enforcement of our campaign 
finance laws.
    Thank you for the opportunity to appear before you, and I 
am pleased to answer any questions you may have.
    [The prepared statement of Ms. Raman appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you very much.
    Ms. Haynes, welcome, and thank you for being here.

     STATEMENT OF PATRICIA HAYNES, DEPUTY CHIEF, CRIMINAL 
    INVESTIGATION, INTERNAL REVENUE SERVICE, WASHINGTON, DC

    Ms. Haynes. Thank you, Chairman Whitehouse and Members of 
the Subcommittee. My name is Patricia Haynes, and I am the 
Deputy Chief of IRS Criminal Investigation. Thank you for the 
opportunity to testify at this hearing on the criminal 
enforcement of our campaign finance laws.
    My purpose here today is not to discuss the campaign 
finance laws themselves or how violations of those laws are 
prosecuted, which is not my area of expertise. Rather, I am 
here to explain how IRS Criminal Investigation helps to enforce 
the tax laws of the United States and specifically Internal 
Revenue Code Section 7206.
    The mission of Criminal Investigation is to foster 
compliance in our tax system and compliance with the tax laws 
by investigating potential criminal violations of the Internal 
Revenue Code and related financial crimes. Criminal 
Investigation consists of approximately 2,400 special agents 
worldwide who investigate violations of the Tax Code as well as 
statutes related to money laundering and the Bank Secrecy Act. 
Criminal Investigation works closely with the Department of 
Justice and the United States Attorneys' Offices around the 
country to bring criminal offenders to justice. The work being 
done by our special agents is a critical component of the IRS' 
overall effort to encourage voluntary tax compliance.
    Criminal tax enforcement is a crucial component of the 
IRS's overall effort to encourage voluntary compliance. Under 
IRS Code Section 7206, it is a felony to make false or 
fraudulent statements to the IRS or to file false or fraudulent 
returns or other documents with the IRS. The most common 
prosecutions under this code section involve the underreporting 
of income or the fraudulent inflation of deductions on federal 
tax returns. But violations of 7206 may also be charged in 
cases involving other types of false statements made to the IRS 
on an array of IRS forms, applications, and schedules.
    The government must prove four key elements in order for a 
return or statement to be deemed in violation of Section 7206: 
that the defendant making the statement declared it to be true; 
that the statement was materially false; that the defendant 
signed the statement willfully and with the knowledge that it 
was false; and that the statement was accompanied by a written 
declaration that it was made under the penalty of perjury.
    Let me turn now to an explanation of how Criminal 
Investigation investigates potential tax law violations. In 
general, Criminal Investigation conducts two types of 
investigations. The first type, known as an administrative 
investigation, is worked outside of the grand jury process. An 
administrative investigation can be initiated when Criminal 
Investigation receives or develops information indicating 
possible violations of laws related to tax, money laundering, 
or bank secrecy. If a special agent determines that the 
information supports the potential for criminal prosecution, 
the special agent will launch an investigation to gather 
evidence, with the special agent involved using the broad 
spectrum of techniques available to him or her.
    The second type of investigation arises when Criminal 
Investigation submits a request to the Justice Department to 
initiate a grand jury investigation either before, during, or 
after an administrative investigation. This type of 
investigation is initiated when the use of a grand jury would 
be more efficient or would strengthen the potential for 
prosecution.
    At the conclusion of an administrative or grand jury 
investigation, IRS criminal tax counsel evaluates the evidence 
gathered and provides advice on whether to recommend 
prosecution by the Department of Justice.
    Criminal Investigation also works with other law 
enforcement agencies that investigate campaign finance-related 
offenses. In the past, such cases have involved allegations of 
public corruption, improper use of campaign contributions, and 
the concealment of conduit or straw contributions.
    Mr. Chairman, that concludes my testimony. Thank you again 
for the opportunity to appear before the Subcommittee and 
describe the role that IRS Criminal Investigation plays in 
helping enforce tax laws and campaign finance laws. I would be 
happy to answer any questions.
    [The prepared statement of Ms. Haynes appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you very much.
    Let me begin first by thanking Ms. Raman and highlighting 
the point that she makes in her testimony that the current 
state of affairs impedes investigation into political 
corruption. That is a point that the Supreme Court has simply 
failed to address, both in Citizens United and in cases that 
followed. And it is a point that Senator McCain and I made in 
our brief to the U.S. Supreme Court, and it is an area where I 
think they need to provide some attention.
    But what I would like to focus on in my questions are some 
very specific acts that appear to be happening fairly 
frequently and that appear to be happening with impunity. The 
first is a violation of the false statements laws and 
specifically in response to this question on the IRS form: Has 
the organization spent or does it plan to spend any money 
attempting to influence the selection, nomination, election, or 
appointment of any person to any federal, State, or local 
public office? So that is one sort of fact pattern that I think 
is quite clear and relatively simple. We have numerous 
instances where the answer to that question was a plain no, and 
then very significant political activity was then accomplished 
by the entity that said that it would not do that. So that is 
one.
    The second is the--I will just describe it. A super PAC has 
no ability to shield the identity of its donors. In fact, 
disclosure is part of the reason that there is a super PAC. And 
yet we often see--here we go--individuals or corporations, some 
anonymous entity, making a donation to what appears to be a 
completely shell corporation designed just for the purpose of 
laundering money into a super PAC and violating the law that 
would require disclosure of the true identity, which would seem 
to be a pretty clear 441(f) violation, making a contribution in 
the name of another. And I am wondering why it is that the 
Justice Department does not appear to bring any of those cases, 
and I think the immediate answer to that question--you can 
correct me if I am wrong--but I think the immediate answer to 
that question is that it is because you defer to the IRS to 
bring those cases to the Department, because they come out of 
the tax world, and I do not know why particularly the false 
statements--let me focus on that because that comes off the IRS 
report.
    I can see why the Department of Justice would want to defer 
to the IRS on criminal prosecutions involving complex tax 
matters. Making a false statement is something the Department 
prosecutes all the time. It does not take particular tax 
expertise to recognize a false statement when you see one or to 
prosecute one when you see one. What are the inhibiting factors 
that prevent DOJ from going forward? Are you rethinking 
deferring so much to the IRS in these matters where it is not a 
tax-specific underlying issue and is something as simple as 
making a false statement? And are you satisfied with the state 
of play right now with the lack of prosecution in this area?
    Ms. Raman. Thank you, Senator Whitehouse, for asking those 
questions. I should start by saying 18 U.S.C. 1001 is a bread-
and-butter statute that we use in our corruption cases and our 
fraud cases. It is an important statute. It is one of the best 
ways for us to get to the heart of cases involving people who 
are trying to defraud the United States or lie to an agency of 
the United States. So we fully embrace and understand the 
importance of robust enforcement of 1001 in appropriate 
circumstances.
    Chairman Whitehouse. But I am correct that no 1001 cases 
have been brought about Question 15 and the answers to it that 
appear to be false?
    Ms. Raman. And you have highlighted, I think, some of the 
problems that we have encountered, particularly in the last 
several years, regarding how to get to the bottom of some of 
the activities in the flow of money that goes through 
501(c)(4)s and super PACs.
    One of your charts described a scenario in which an 
anonymous donor provides money to a shell company and then 
contributes to a super PAC. That is, in fact, something we 
could and would prosecute under 441(f).
    Chairman Whitehouse. But have not.
    Ms. Raman. Not yet. Without discussing ongoing 
investigations, we can assure you that we are incredibly 
vigilant about the use of these organizations as an end run 
around contribution limits.
    Chairman Whitehouse. Well, I fully respect the constraints, 
particularly if a grand jury will succeed, that you cannot 
discuss ongoing investigations and you cannot discuss matters 
that are before a grand jury. But I believe it is perfectly 
legitimate to say whether a category of offense is being 
prosecuted or not anywhere in the Department and whether or not 
the Department has grand jury investigations addressing a 
category of offense underway without going into the details of 
who or where. And as I understand it, there is no activity at 
this point within the Department of Justice either on false 
statements made in response to Question 15 or under 441(f) for 
the shell identity laundering into a super PAC.
    Ms. Raman. Well, I actually cannot comment on any ongoing 
grand jury matters, but setting that aside, I do want to assure 
you, Senator Whitehouse, that----
    Chairman Whitehouse. Can I infer from that that there 
actually is a grand jury matter that might be going on? Or can 
you not even say that?
    Ms. Raman. I would not want to tell you that.
    Chairman Whitehouse. OK. So as far as I can know, there is 
zero activity.
    Ms. Raman. And I do want to assure you, Senator Whitehouse, 
that our Public Integrity Section within the Criminal Division 
and the 94 U.S. Attorneys' Offices are focused on these kinds 
of activities.
    441(f) is a statute that our Public Integrity Section has 
used repeatedly over the last several years. We used it prior 
to Citizens United, 441(f), in the context of conduit 
contributions where essentially people were using shell donors 
or straw donors to funnel money to candidates. Post-Citizens 
United, those people do not need to use those kinds of conduit 
schemes anymore. They simply donate directly to a super PAC 
because there are no limits on independent expenditures. So----
    Chairman Whitehouse. Unless they want to hide their 
identity, and then they do the shell corporation thing. And if 
that is a 441(f) case, I would think that that is something 
that could be brought. There is nothing that would legally 
inhibit bringing a 441(f) prosecution in a fact pattern in 
which a donor creates a shell corporation exclusively for the 
purpose of hiding their identity and then has the shell 
corporation, which they control and which is for the exclusive 
purpose of hiding their identity, make their contribution in 
its name to a super PAC. Correct?
    Ms. Raman. I absolutely agree.
    Chairman Whitehouse. Okay. Senator Cruz.
    Senator Cruz. Thank you, Mr. Chairman. I want to thank both 
of the witnesses for joining us this morning.
    In my view, whenever Congress acts in the area of political 
speech, the touchstone for everything we do should be the First 
Amendment to the Constitution. And I think that the public 
should be particularly skeptical when you have elected 
politicians of either party enacting rules limiting the ability 
of public citizens to criticize the behavior of their elected 
officials.
    In my view, the First Amendment was created precisely to 
ensure that the citizens could speak without the men and women 
who sit in this body restricting what they say. And I think 
there are few areas that are more dangerous to have the 
government engaged in prior restraint or punishment after the 
fact for private citizens who would choose to speak out on 
politics.
    Indeed, of all the areas of speech--we have long lines of 
cases extending free speech protections to all sorts of 
questionable activities, including things like nude dancing--
and that is a well-established line of cases from the Supreme 
Court. But of every possible area of speech, I think there is 
none more central to the core purposes of the First Amendment 
than political speech, than the ability of every American to 
speak up and express his or her views on the direction of this 
country.
    And I would point out that in saying this, I am not 
unfamiliar with the downsides. In Texas, I just came through a 
campaign where I was on the receiving end of $35 million in 
attack ads and was outspent 3:1. And let me say those who chose 
to put resources into launching attacks against me had a First 
Amendment right to do so, and God bless them for speaking out 
and being involved in politics. And I think we should all be 
concerned about those who are elected to office and immediately 
want to prevent anyone from speaking and being engaged in the 
political process or saying something they do not like.
    Now, Ms. Raman, I would like to ask you a few questions 
about your testimony. The first thing I would like to ask is: 
In the Department of Justice's opinion, what is the government 
interest in regulating the independent expenditures of private 
citizens?
    Ms. Raman. Well, we obviously understand----
    Chairman Whitehouse. I think your microphone need to come 
on.
    Ms. Raman. I am sorry. We understand fully the holdings of 
the Supreme Court in this area, and we are not suggesting 
regulation of independent expenditures. Our challenge as 
corruption prosecutors is something altogether different. Our 
challenge as corruption prosecutors is to be able to understand 
when those independent expenditures really are not independent, 
where there is the kind of illegal coordination such that the 
expenditures become contributions and become an end run around 
the contribution limits that have long been recognized by both 
Congress and courts around the country. And that is our 
concern. We want to be able to have the tools that we have 
always had to be able to follow the trail of money, to be able 
to follow the paper trail, to be able to determine whether 
there are bad actors who are illegally trying to influence our 
elected officials by providing donations to the PACs that are 
illegally coordinating with the campaign. And that is our 
challenge now. It is simply a different challenge post-Citizens 
United.
    Senator Cruz. Ms. Raman, I want to make sure I understand 
your answer. If I understood you correctly, you said that the 
government interest was in investigating and/or prosecuting 
expenditures that were not independent, that were coordinated 
directly with a candidate or a campaign. Is it fair, then, to 
infer that the answer to the question I asked about does the 
Justice Department--is there a government interest in 
regulating independent expenditures, in other words, those 
expenditures that are not coordinated, is it fair to infer that 
your statement is there is not a government interest? Or is 
there a government interest? I do not want to put words in your 
mouth, so I would like to know what the Department's view is.
    Ms. Raman. Well, I am not going to speak holistically for 
every circumstance in which there may be some law or regulation 
passed that may be viewed as affecting independent 
expenditures. But I am here to tell you that our primary 
purpose is to ensure that our campaign contribution limits are 
robustly enforced, and we are hampered from doing that now 
given that we simply do not have the tools that we used to have 
to determine whether or not super PACs are illegally 
coordinating with campaigns.
    Senator Cruz. But today the Justice Department is not 
articulating any government interest in regulating independent 
expenditures of private citizens. Is that correct?
    Ms. Raman. Today I am here to tell you that our interest is 
twofold: One, we want clear and common-sense understanding of 
what coordination is so that we can do our job as robustly as 
we have been able to; and, number two, we need transparency in 
the way our campaign finance system works, so that if a donor 
is, in fact, using an organization like a 501(c)(4) to hide his 
identity, that we somehow be able to get that information.
    Senator Cruz. Let me focus on the second part of your 
answer there. You said that the Department has an interest in 
transparency. Does the Department have a view on whether the 
First Amendment protects a right to anonymous speech?
    Ms. Raman. Again, I cannot get into every hypothetical in 
which we might have some interest in talking about anonymous 
speech. And I am certainly not here to suggest that our goal is 
to impede a lawful ability of individuals to speak on behalf 
of----
    Senator Cruz. Ms. Raman, I am asking what I think should be 
a fairly straightforward question. The Department is testifying 
today in support of legislation forcing disclosure of political 
speech, and my question is: Does the Department believe the 
First Amendment protects a right to anonymous speech? That is a 
question that goes right to the heart of your testimony.
    Ms. Raman. I think, Senator Cruz, more important than what 
the Justice Department thinks, Citizens United, the Supreme 
Court upheld a disclosure regime and found it fully consistent 
with the First Amendment. And we believe that the kind of 
disclosure regime that the Supreme Court upheld in Citizens 
United is critical to our ability to continue to understand----
    Senator Cruz. Does the Department think it would be 
permissible under the Constitution for the Federal Government 
to require the NAACP to disclose a list of all of its members?
    Ms. Raman. I am certainly not here to suggest that that is 
what we are asking for.
    Senator Cruz. I mean, as you know, the Supreme Court held 
that cannot be required.
    Ms. Raman. And, Senator Cruz, I am certainly not here to 
suggest otherwise. What I am suggesting is that there is a risk 
that we have seen of bad actors using the anonymity that is 
given to them when they donate to 501(c)(4)s to hide the true 
purpose of their donation. And we need to be vigilant about 
that. We need to be able to determine when those donors are 
acting with bad intent and, frankly, when a campaign or an 
elected official may be knowingly allowing that kind of 
donation to occur intending to be influenced in some corrupt 
way. That is our job. We need to ensure that we are robustly 
and vigorously enforcing Title 2, the campaign finance laws, 
but also that we vigorously enforce our corruption laws. And it 
is not--it has certainly been the case that we have had several 
cases in which campaign contributions are, in fact, part of the 
quid pro quo that goes to the heart of a bribery case.
    Senator Cruz. Okay. Thank you very much. I appreciate your 
being here this morning.
    Ms. Raman. Thank you.
    Chairman Whitehouse. Well, first, let me thank my friend 
Senator Cruz for bringing new dancing into what was a very dry 
and technical hearing.
    [Laughter.]
    Chairman Whitehouse. That is going to raise the profile of 
this hearing quite a lot.
    I wanted to just follow up. There is nothing in the First 
Amendment that would protect threatening or corrupt speech, 
even if it is anonymous.
    Ms. Raman. That is right.
    Chairman Whitehouse. And there is nothing in the First 
Amendment that protects false statements and the prosecution of 
false statements when provided under penalty of perjury.
    Ms. Raman. Of course not.
    Chairman Whitehouse. And there is nothing in the First 
Amendment that protects anybody's right to violate disclosure 
laws through a shell corporation.
    Ms. Raman. No.
    Chairman Whitehouse. And that so far has been the focus. 
Let me ask Ms. Haynes a question. This is an issue where there 
is obviously often partisan disagreement, but we have some 
interesting partisan agreement among the witnesses who will 
follow, which is that, as professional as your organization is, 
you are not well suited to doing this particular work. Mr. 
Noble says it does not appear there is any effort to target 
donors to super PACs who use front organizations; there appears 
to be little effort being given to making sure politically 
active groups claiming 501(c)(4) status are complying with the 
law; it appears that the agency rarely challenges a group's 
501(c)(4) designation based on political activity; and 
ultimately it does not appear that the law is being enforced.
    Mr. Smith says that this is a mission for which the IRS 
lacks knowledge and expertise and which is tangential to its 
core responsibilities, the Service has long been particularly 
prickly about being dragged into political wars, and the 
agency, ``is not equipped or structured to do the job it was 
asked to do.''
    Let me ask both of you: Does it make sense to have the IRS 
right now get from the Department of Justice the deference that 
it does with respect to those two narrow particular kinds of 
cases--the false statement case under Question 15, or the 
441(f) case in which you have a clear shell corporation 
manufactured for the purpose of violating a disclosure law? I 
do not believe--I asked Ms. Raman this question--that the 
Department of Justice has ever made a case or is even 
investigating any case in either of those areas. I do not know 
if the IRS is either. If you are not, is that a signal that 
maybe DOJ's policy of deference to the IRS in this particular 
set of areas, which are not tax-law specific, have nothing to 
do with understanding the Tax Code, and are all about false 
statement and shell corporation behavior, which is, as Ms. 
Raman pointed out, frequent in many areas of criminal behavior, 
whether that should be rethought and whether you are confident 
that the IRS is doing a good enough job on its own and making 
adequate referrals?
    Ms. Haynes. Well, Senator, I can say that the IRS Criminal 
Investigation has been involved in violations of campaign 
finance laws using the statutes that we have. In fact, one of 
the cases that we were involved in was mentioned in Ms. Raman's 
written testimony out of New Jersey.
    Chairman Whitehouse. A straw donor case.
    Ms. Haynes. Pardon me?
    Chairman Whitehouse. A straw donor case.
    Ms. Haynes. Yes. Yes, it was.
    Chairman Whitehouse. But not one of these shell corporation 
to super PAC cases. There has never been one of those done.
    Ms. Haynes. I do not have any information that I can share 
on any case like that.
    Chairman Whitehouse. Nor a false statement in answer to the 
no on Question 15 and then subsequent immense political 
activity.
    Ms. Haynes. I do not have any information I can share on a 
501(c)(4)-related false statement case, you are correct. But 
IRS is still engaged in these types of investigations.
    In the course of a criminal investigation, the special 
agents gather all the facts and circumstances and make a 
recommendation based on what they feel has the strongest 
likelihood of prosecution, whether that is a 7206 charge or a 
7212(a) charge, as was in the prior case that I mentioned. That 
recommendation is reviewed by our criminal tax counsel and then 
ultimately when it is referred to the Department of Justice, 
the discretion lies with the prosecutor on what violations to 
charge.
    So IRS is involved in these types of cases. It is just that 
we have not had one that I can speak of with that particular 
charge.
    Chairman Whitehouse. Well, I guess under the circumstance 
of the testimony that we have from the subsequent panel on what 
we have today, I would urge that the Department and the Service 
get together and rethink whether in these two specific areas, 
which I think bear little resemblance to traditional tax 
violations and are, in fact, very, as I think you used the 
words, ``plain vanilla'' criminal cases, whether or not that 
deference to the IRS is actually serving the public interest at 
this point, or whether the Department could not proceed to 
investigate, empanel grand juries, bring people before them, 
generate evidence, and put together a criminal case showing a 
fairly straightforward false statement or a fairly 
straightforward shell corporation disclosure violation. And I 
do not need you to answer that right now because I know that 
question is going to be answered, if it is answered at all, by 
people above you in both organizations. But I would ask you to 
take that away from this hearing.
    Ms. Haynes. Sure, Senator.
    Chairman Whitehouse. I had another round. Senator Cruz, you 
are welcome to another round.
    Senator Cruz. Thank you, Mr. Chairman.
    Ms. Haynes, does the IRS have any position on whether 
additional campaign finance legislation should be passed by 
Congress?
    Ms. Haynes. Senator, I do not have an official position on 
that matter. I leave those decisions up to our criminal tax 
counsel or our tax counsel in the Department of Treasury to 
establish those types of regulations or improvements.
    Senator Cruz. Thank you.
    Ms. Raman, I would like to go back to the conversation we 
were having a few minutes ago and understand, as best I can, 
the Department's position with regard to the constitutional 
protections on independent expenditures by private citizens.
    As I understood our discussion, the principal basis you 
were pointing to additional disclosure requirements on private 
political activity is that that transparency would aid in 
discovering if there is corruption or bribery. Am I 
understanding you correctly?
    Ms. Raman. Corruption and bribery, and if there are other 
violations of our campaign contribution limits.
    Senator Cruz. Now, you would certainly agree that there are 
limits--and I would think significant limits--to the theory 
that additional government information would be helpful for 
discovering crime, that that is a theory that has the potential 
to require government disclosure of virtually everything. And I 
am sure you would agree there are limits to that theory.
    Ms. Raman. Of course, and we obviously just want a 
reasonable disclosure regime that balances the need for people 
to speak freely and have their voices heard in the political 
arena while still assuring us that we are able to combat both 
corruption and the appearance of corruption.
    Senator Cruz. Now, when I asked about a constitutional 
right to anonymous speech, you made reference to Supreme Court 
decisions. Does the Department of Justice maintain that the 
Supreme Court has been wrong in concluding that there is a 
First Amendment right to anonymous speech?
    Ms. Raman. It is not the government's position to second-
guess the Supreme Court. I am here, however, to clearly 
describe what some of our challenges are in light of Citizens 
United. Obviously, the government took a particular position 
before the Supreme Court in Citizens United, but now we have a 
law, and we intend to follow it.
    That having been said, there are real challenges. There are 
real challenges to our ability to enforce the campaign 
contribution laws, and there are real challenges to our ability 
to determine when and whether there is the type of corruption 
that is rooted in campaign contributions in exchange for 
official acts.
    Senator Cruz. Well, and I think everyone on both sides of 
the aisle would agree that preventing corruption and preventing 
bribery is an important governmental interest and deserves 
serious focus. You mentioned, though, in your prepared 
testimony that you were concerned also not just about 
corruption and bribery but what you characterized as ``undue 
influence.'' And I guess I have a little bit of difficulty 
understanding what ``undue influence'' means, because if it is 
not corruption or bribery, which is a very different thing, it 
strikes me that the citizens are due all the influence they can 
get in a democratic process.
    So I am curious what you mean by ``undue influence,'' if it 
is any different from corruption or bribery.
    Ms. Raman. I do not think I intend to suggest that it is 
something different from illegal acts such as corruption or 
bribery or extortion by officials. What it does--what it is 
that--I am focusing, however, on the fact that undue influence 
often translates into those kinds of activities. I think it is 
axiomatic that contributions lead to influence, and the larger 
the contribution, the larger the influence. And we have seen in 
certain of our corruption cases that public officials succumb 
to that influence and agree to take official acts in exchange 
for campaign contributions. And we just want to be vigilant 
about ensuring that we can get to the heart of those kinds of 
cases when and if we encounter them.
    Senator Cruz. Well, but the Supreme Court has certainly 
recognized a distinction between contributions and independent 
expenditures, and there are a great many organizations on the 
left and on the right that devote real resources to try to 
convince their fellow citizens that they are right on 
particular issues of public importance.
    I assume it is not, for example, the Department of 
Justice's position that a group like the Sierra Club exercises 
undue influence. Am I right in that?
    Ms. Raman. And, again, Senator Cruz, I want to be 
absolutely clear. My concern is not about any one particular 
group or about undue influence in and of itself. What I am 
concerned about is that, given the rise of super PACs, our 
ability to understand when there is the type of coordination 
that causes an expenditure to become a contribution and that 
contribution is over the contribution limits that have long 
been established by Congress, that we want to be able to get to 
that, get to the bottom of that.
    Senator Cruz. So is it right, then, that to get to the 
bottom of it the Department would like to know every political 
contribution made to every private group? Again, I do not want 
to put words in your mouth, so I am trying to understand what 
your testimony is.
    Ms. Raman. There are two things that would aid us as 
prosecutors: greater transparency in general, and we are happy 
to work with Congress or your staffs to talk further about the 
particulars; number two, a more common-sense understanding and 
definition about what constitutes coordination. And those two 
things would assist us as prosecutors in being able to continue 
to do the jobs that we have always done in terms of rooting out 
corruption.
    Senator Cruz. You know, we have seen in recent news reports 
instances of bribery and corruption of public officials 
receiving bribes. I think one, it was alleged, received a bribe 
in a box of Cheerios. Another public official recently was 
alleged to have kept a bribe in his freezer. So corruption is a 
real problem. But I think it is qualitatively different from 
regulating the efforts of private citizens to speak out in the 
political process. And I will make clear at least my views. I 
asked about the Sierra Club, and I can happily say, no, I do 
not think they exercise undue influence. I do not think Planned 
Parenthood exercises undue influence. I do not think the unions 
exercise undue influence. I do not think the NRA exercises 
undue influence. I think every one of them has a constitutional 
right to speak out in a democracy. I think their members care 
passionately about the values they are espousing, and that is 
the way our system is supposed to work. And I think we should 
be very cautious about the Federal Government restricting the 
ability of private citizens to express their views on the 
direction of our country.
    Thank you.
    Chairman Whitehouse. If I might add, because I think 
Senator Cruz makes a very good point, and I would want the 
record of the hearing to reflect that I think we have agreement 
amongst everyone that it is never the government's position or 
proper role to determine based on the amount of influence that 
a political group or interest or individual has that they have 
too much. That is a role, I think, for the voters to determine. 
And in that regard, I think it is important that the record of 
the hearing reflect that it is not just corruption and bribery 
that are of concern in this area, but as the Supreme Court has 
clearly established, making sure that citizens are informed is 
an important public goal, as the Supreme Court said, to hold 
corporations and elected officials accountable for their 
positions and supporters so citizens can see whether elected 
officials are ``in the pocket of so-called monied interests.'' 
And to the extent that there are laws that provide that 
disclosure, I think the government then does have an interest, 
if it not to be made a mockery, in enforcing the laws that we 
have created for that disclosure. And clearly there are 
appropriate limits on that, but I think that disclosure is an 
important element in this discussion.
    And, with that, I will release these two witnesses. Let me 
thank you both for the work you do on behalf of the people of 
the United States. I spent four years as a United States 
Attorney and had great pride and satisfaction in working with 
people at the Department of Justice and Main Justice and with 
the IRS criminal investigative agents. You do great work, and I 
am glad you came here today, and I thank you.
    Ms. Raman. Thank you.
    Ms. Haynes. Thank you.
    Chairman Whitehouse. We will take about a two- or three-
minute break while the room gets reset for the second panel of 
witnesses and come back into session in just a moment.
    [Pause.]
    Chairman Whitehouse. If the witnesses are present, can I 
ask them to take their seats and we can proceed with the 
remainder of the hearing?
    Well, we are awaiting the arrival of Mr. Colvin, who I 
understand has been seen and must be nearby, so we will have 
him here in a moment. Indeed, here comes somebody with a 
determined approach to the chair. There we go. Thank you very 
much.
    Let me introduce the witnesses and then have them sworn and 
then ask you each to make your statements.
    First, on our left, on the witnesses' right, is Lawrence M. 
Noble. He is the president and CEO of Americans for Campaign 
Reform, which is a nonpartisan organization supporting public 
funding for federal election. He is also an adjunct professor 
at the George Washington University Law School, where he 
teaches campaign finance law. Previously, Mr. Noble served for 
13 years as the general counsel for the Federal Election 
Commission.
    Our second witness, front and center, is Gregory L. Colvin. 
He is chairman of the board of Adler & Colvin, a San Francisco 
law firm that specializes in representing nonprofit 
organizations and their donors. Mr. Colvin has written widely 
on the political activities of tax-exempt organizations. From 
1991 to 2009, he served as co-chair of the Subcommittee on 
Political and Lobbying Organizations and Activities of the 
Exempt Organizations Committee of the ABA Tax Section.
    And furthest to my right is Bradley A. Smith, a professor 
of law at Capital University Law School in Columbus, Ohio, and 
founder and chairman of the Center for Competitive Politics. 
Mr. Smith served as a Commissioner on the Federal Election 
Commission from 2000 to 2005, including service as its Chairman 
in 2004.
    I welcome all the witnesses and ask if you would please 
stand and be sworn. Do you affirm that the testimony you are 
about to give before the Committee will be the truth, the whole 
truth, and nothing but the truth, so help you God?
    Mr. Noble. I do.
    Mr. Colvin. I do.
    Mr. Smith. I do.
    Chairman Whitehouse. Thank you very much, and please be 
seated.
    Mr. Noble, we begin with you. Thank you very much for being 
here.

 STATEMENT OF LAWRENCE M. NOBLE, PRESIDENT AND CHIEF EXECUTIVE 
     OFFICER, AMERICANS FOR CAMPAIGN REFORM, WASHINGTON, DC

    Mr. Noble. Thank you. Chairman Whitehouse, Senator Cruz, I 
want to thank you for inviting me to testify at this Committee 
on this very important issue of the enforcement of the campaign 
finance laws.
    It is estimated that over $6 billion, well over $6 billion, 
was spent on the last elections, with so-called independent 
groups--that is the super PACs, the 501(c)(4) organizations, 
and the others--spending somewhere around $1 billion, or at 
least that was what was reported. We also know that a 
tremendous amount of the money was not reported.
    So we have a situation here now where our elections are 
being funded by these independent groups, which is 
constitutional, but there are also laws surrounding how those 
groups should operate, and those are not being followed.
    Many point to the Supreme Court's decision in Citizens 
United and other decisions as saying it has hampered the 
ability of the Department of Justice, the Federal Election 
Commission, and the IRS to enforce the laws. And that is true. 
In some ways it has. The Supreme Court has recognized the 
constitutional right to make independent expenditures by 
individuals and corporations.
    But that overstates the case, because those who say that 
often say that, well, there is no point in trying to do 
anything, there is no point trying to do any reform because the 
power of corporations, unions, wealthy individuals cannot be 
effective under what the Supreme Court has said.
    But the reality is that the FEC--the Federal Election 
Commission--the IRS, and the Department of Justice are not 
enforcing the laws on the books. And if they would enforce the 
laws on the books, a number of the issues that we have would go 
away or at least would be more manageable.
    First of all, super PACs are required to report their 
donors, as has been discussed. They are political action 
committees. It seems logical that if they are required to 
report their donors, they should actually report the person who 
really gives to them. And, therefore, you should have a law, it 
would seem, that would prevent somebody from giving through a 
straw donor to a super PAC to hide their identity. That is 
logic. And, fortunately, there is such a law, and that is 2 
U.S.C. Section 441(f), which allows the government to prosecute 
the giver, the intermediary organization, and the super PAC if 
they knowingly give money. Through that intermediary 
organization, the super PAC knows about it for the purpose of 
hiding the identity of the donor. That is illegal right now. 
That is not being prosecuted.
    Even beyond super PACs, 501(c)(4) organizations do not have 
to report their donors. That is absolutely true. But if they 
make independent expenditures, they do have to report. And they 
have to report anybody who gives over $200 for the purpose of 
furthering an independent expenditure. That would sound like if 
I gave to a 501(c)(4) organization and said, ``Here is money to 
make independent expenditures,'' my name would be reported. It 
is not happening. Why? Because FEC Commissioners have 
determined or some have determined that unless you give for a 
specific ad, you do not have to be disclosed. It is very 
difficult to prove anybody has given for a specific ad.
    Beyond that, any organization, whether it is a 501(c)(4) or 
a 501(c)(3), any organization or any group of persons that 
makes expenditures over $1,000 and has as its major purpose 
political activity, federal election activity, has to report as 
a political committee, report all of its donors. That is the 
current law.
    Given the statements made by many of the 501(c)(4) 
organizations, given what we know about their funding, it is 
hard to see how there is at least not an investigation as into 
why some of these are not political committees. But the Federal 
Election Commission has basically given up on trying to define 
what is a political committee because of a dispute on the 
Commission or enforcing any group to report as a political 
committee if it decides not to.
    As to the coordination issue, this is an area where reality 
and the law have separated. Under the law, these expenditures 
are allowed because they are independent. The Supreme Court 
said very explicitly, the constitutional right for an 
independent expenditure comes from the fact that, because it is 
independent, it could hurt the candidate as well as help the 
candidate, and there is virtually no chance of a quid pro quo 
or any potential corruption because of that separation.
    Put that statement up against what we saw in the last 
election, where candidates have their own super PACs, raise 
funds for their own super PACs, call them their super PACs. 
Their staff, their former staff go to work on those super PACs, 
and it is not surprising that neither the candidates, the 
public, or anybody else seems to think that these are truly 
independent organizations. So they are not independent 
organizations.
    Why is this happening? Because the FEC, the Federal 
Election Commission, is not enforcing the law on the books; the 
Department of Justice is not independently enforcing the law on 
the books; and as was discussed in the previous panel, the IRS 
is not taking a serious look at what these 501(c)(4) 
organizations are doing.
    Thank you.
    [The prepared statement of Mr. Noble appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you very much, Mr. Noble.
    Mr. Colvin, welcome. Please proceed. You need to turn on 
your microphone, sir.

STATEMENT OF GREGORY L. COLVIN, PRINCIPAL, ADLER & COLVIN, SAN 
                     FRANCISCO, CALIFORNIA

    Mr. Colvin. Good morning, Senators. I appreciate the chance 
to come before you and address the question why we have seen so 
little enforcement--civil or criminal--of the federal tax laws 
that apply to political activities of 501(c)(4) organizations.
    My law firm represents a broad range of nonprofits and 
their donors. For 35 years, I have formed tax-exempt 
organizations, including (c)(4)s, and advised them on their 
political activities.
    Why is the IRS in the business of enforcing political 
rules? You see, every person, every entity, in the country has 
a federal tax life. It must pay tax on its income unless it is 
exempt by statute. The only entity allowed to have a primary 
political purpose is a 527 organization; it has a partial tax 
exemption and must disclose its donors over $200. All other 
tax-exempts must have a primary purpose that does not include 
politics. Therefore, the IRS cannot avoid the law enforcement 
duty to, one, qualitatively define political activity and, two, 
quantitatively determine what is too much to keep your 
exemption.
    The annual Form 990 has a question under penalty of 
perjury: ``Did the organization engage in direct or indirect 
political campaign activities on behalf of or in opposition to 
candidates for public office? '' If you answer yes, you must 
report the amount spent, the number of volunteer hours, and 
describe what you did.
    There is, though, a fundamental problem affecting 
enforcement on 501(c)(4) nonprofits. The tax rules are vague, 
unpredictable, and unevenly applied. Only the most flagrant 
violations could be knowing, willful, or deliberate and subject 
to criminal prosecution.
    What is political intervention? The IRS interpretation must 
be gleaned from a few old cases and rulings, internal training 
materials, and a few bursts of guidance from the last decade. 
The IRS insists on using an open-ended ``facts and 
circumstances'' approach rather than drawing bright lines. 
Political intervention under tax law is more than express 
advocacy under election law, we are told, but what is it? 
Reasonable minds could differ, and they do.
    How much political intervention is too much for a tax-
exempt (c)(4)? Its primary operations must promote social 
welfare--``the common good'' of the community. The IRS, 
therefore, deduces that non-qualifying activities must be 
``less than primary.''
    While the Service has never pinned this down to an annual 
level of expenditures, it has tacitly accepted 49 percent as a 
defensible figure. Yet because of the IRS ``facts and 
circumstances'' approach, we can never be sure. So,the speech 
of some (c)(4) groups is chilled. They avoid the risk and stay 
far below the 49 percent level, while their adversaries may go 
right up to the edge.
    Two things I want to say about the focus of this hearing on 
(c)(4)s: First of all, there are well over 100,000 registered 
with the IRS. They include well-known organizations such as 
Rotary, Kiwanis, and the Disabled American Veterans, as well as 
Sierra Club and the NRA. Most are highly reputable and do very 
little or no political activity. They do not present a law 
enforcement problem.
    Second, enforcing these tax laws is not limited to the 
(c)(4) class. The vagueness of these rules affects (c)(3) 
charities, (c)(5) unions, and (c)(6) trade associations that 
have the same primary purpose rule.
    Here is the most difficult political tax law enforcement 
problem: What is the difference between a political campaign ad 
and an issue ad that names a candidate, says something good or 
bad about them, and tells the viewer to contact the candidate 
about the issue?
    BCRA in 2002 required disclosure to the FEC of spending on 
``electioneering communications,'' defined basically as paid 
advertising that names a candidate and is broadcast within 30 
or 60 days before an election. The IRS went in a different 
direction. It issued Revenue Ruling 2004-6, listing a series of 
six bad factors and five good factors by which to judge 
``advocacy communications.'' Then three years later, it issued 
Ruling 2007-41, with a seven-factor test on issue advocacy. The 
two multifactor tests are not the same. Neither of them applies 
directly to the key question in this hearing: What political 
speech by a (c)(4) would count against its exemption?
    So how can a lawyer advise his or her client, how can a 
prosecutor evaluate a case, in which a (c)(4) denies it will 
engage in candidate politics on its federal tax form, and on 
the same day in March it broadcasts a TV ad praising a Senator 
who is up for re-election in November?
    Under the seven-factor IRS test, three factors look bad: It 
names a candidate, expresses approval, and is not connected to 
an event such as a vote on legislation. But three factors look 
good: The election is still eight months away, the ad makes no 
reference to the election or voting, and it mentions no 
``wedge'' issues separating the candidates. What if the ad is 
targeted to a battleground State? Targeting is a factor in one 
ruling but not the other.
    With this kind of vague, uncertain, multifactor approach, 
the (c)(4) can find a reputable lawyer to advise that the ad is 
not political intervention under the IRS tests. Therefore, an 
officer of the (c)(4) entity can sign a tax return believing 
that it is true and correct.
    I want to conclude by suggesting that the IRS itself can 
solve both the qualitative and quantitative problems.
    The IRS and Treasury could establish a regulatory project 
to define bright lines for political intervention. I chair a 
drafting committee of the Bright Lines Project, sponsored by 
Public Citizen, which is attempting to do exactly that.
    Finally, the IRS could reconsider its position on the 
``less than primary'' ceiling for (c)(4)s, (5)s, and (6)s. It 
could establish a percentage, at 10 percent, as an 
insubstantial level of political activity.
    These reforms would go a long way toward restoring public 
confidence in the tax-exempt universe.
    Thank you.
    [The prepared statement of Mr. Colvin appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you, Mr. Colvin.
    And now we--I do not know if it is appropriate to call you 
``Commissioner Smith'' still? Does the title stick with you 
after you are gone. ``Mr. Smith,'' in any event. We will go 
that way. Mr. Smith, welcome.

STATEMENT OF BRADLEY A. SMITH, CHAIRMAN, CENTER FOR COMPETITIVE 
POLITICS, JOSIAH H. BLACKMORE II/SHIRLEY M. NAULT PROFESSOR OF 
       LAW, CAPITAL UNIVERSITY LAW SCHOOL, COLUMBUS, OHIO

    Mr. Smith. Thank you, Chairman Whitehouse and Senator Cruz. 
Thank you for inviting me to testify today.
    I want to actually be the one who challenges some of the 
assumptions that have underlaid this hearing. For example, it 
was said at the beginning that there are massive amounts of 
money flooding into the system because of Citizens United. It 
is true, for example, that spending in 2012 was up about 37, 35 
percent from 2008. But between 2008 and 2004, spending rose by 
about 30 percent. Spending has gone up in every Presidential 
election in my lifetime, usually by a substantial amount. And 
to suggest that this is the consequence of one decision I think 
is incorrect.
    In fact, when we look at the numbers, it appears that at an 
absolute maximum, about five percent of the spending came from 
corporations, for-profit corporations, and we get there only by 
suggesting that everything nonprofits spent, (c)(4)s spent, was 
from corporations. And we know that that is not true. We know 
that much of that came from unions, and much of it came from 
other individuals and so on.
    Second, I do not agree that there is a huge crisis of 
enforcement here. For example, we talk about the disclosure 
aspect. That has gotten a lot of attention today. In fact, it 
appears that about five percent of political spending in the 
last election went ``undisclosed.'' Okay? Now, $380 million 
sounds like a lot; five percent does not sound like maybe it is 
such a dominant problem in American politics. And even that 
overstates it. Much of that spending was, in fact, done 
directly by groups that are well known to the public. If we are 
trying to inform the public, I think most people know what the 
agenda of the Chamber of Commerce is, or most people know what 
the agenda of most of the types of groups that were giving 
happen to be.
    We have talked some about shell corporations. You know, 
people go over these super PAC contribution lists and in great 
detail. That is what CREW exists to do and so do some of these 
other groups. And to my knowledge--I may have missed one or 
two, but to my knowledge there have been two recorded episodes 
of ``shell corporations.'' In both cases, it was revealed 
within a matter of hours, if not days at the most, who was the 
spender behind those shell corporations. And as has been 
pointed out, that activity is probably already illegal, 
although the people did not seem to recognize it because so 
many people have been going around suggesting that, in fact, 
you could use shell corporations in this way.
    Next I want to address the issue of shifting enforcement to 
other agencies than the FEC, which has been the big creature 
here in the room. It kind of surprised me to hear all this talk 
about should the IRS be enforcing campaign finance laws and so 
on. Much of what is talked about and complained about with the 
FEC is not a bug. It truly is a feature. People complain all 
the time: ``Well, the FEC is prone to gridlock. It is 3-3.'' 
Actually, it does not deadlock very much 3-3. When it does, 
that usually decides the issue. But beyond that, it is designed 
that way intentionally so that one party cannot take over the 
political system and ram things through on a 3-2 vote of 
Commissioners. That is precisely what Congress said we were not 
going to have, and I do not think there is any Member of this 
chamber who would be willing to stand on the floor and say, ``I 
am willing to give the opposition party the ability to decide 
who speaks when on politics without input from my party.'' I do 
not think any Member of this chamber would do that.
    We need to recognize as well, for example, on coordination, 
the rules are complex and it is hard to prove coordination. But 
that is as well a design, because coordination investigations 
are extremely sensitive. I can guarantee--well, I cannot 
guarantee, but I am pretty sure--that at some point in the next 
30 days, you know, all the Senators here are likely to meet 
with somebody who is from a super PAC, an interest group, a 
union, a trade association, right? At this point, if it is a 
coordination investigation, we should then be able to 
investigate that meeting. Who knows what they talked about? 
Maybe if that trade association or union did any election 
expenditures, maybe it was coordinated. And this is what we 
find with these coordinated hearings. They are extremely 
intrusive into political strategy, into political tactics, and 
into the ongoing goals and efforts that folks made.
    So I want to conclude by suggesting that we need to be very 
careful about trying to get aggressive enforcement out of 
Justice. We have seen that in the past. We have seen that at 
the IRS in the past. The IRS for many years, under pretty much 
every President up through Richard Nixon, of both parties, was 
used for political purposes. And for that reason it has sought 
hard to stay out of politics, and now Congress is trying to 
drag it back in as a campaign enforcement mechanism because it 
is unhappy with the fact that the FEC is set up to guarantee a 
bipartisan regime.
    I am going to suggest here that if you really want to 
shatter confidence in government, if you really want to build 
this trust, if you want to create the appearance of corruption, 
then what you ought to do is use a straight party-line 
political vote, either in this Congress or at the 
administrative agencies that have party-line majorities, and 
use that vote to attack the other side politically with no 
bipartisan support. I can think of nothing more that would 
shatter public confidence in government and the impartiality of 
the government agencies, including Justice and the IRS, than 
taking that approach.
    Thank you very much.
    [The prepared statement of Mr. Smith appears as a 
submission for the record.]
    Chairman Whitehouse. Would that apply to the Supreme Court 
and the 5-4 decision with the Republican judges all holding 
with no support from the minority?
    Mr. Smith. I am not sure how that actually relates to the 
question, but I guess I would say that, no, I do not think that 
holds there at all. I do not think the judges are sitting in 
partisan roles, and they are not running for election, and they 
are not worried about who is going to be the next Speaker.
    Chairman Whitehouse. Well, they are not running for 
election, anyway.
    Mr. Noble, I wanted to ask you, I am one who believes that 
the FEC is logjammed. I am one who believes it is deliberately 
logjammed by outside forces that have come to bear on the 
Commission itself to stop actions that interfere with practices 
that are useful in the political world but may actually be 
unlawful if the FEC would act. And in that regard, we spend, I 
do not know, close to $70 million on this Commission. Would it 
be useful to and will you recommend establishing a private 
right of action for a candidate or campaign that believes it 
has had the law violated against it, cannot get an answer from 
the FEC, and now has the right to go to the traditional 
constitutional locus for adjudication in the American system of 
government, which is a jury, and have that heard? And perhaps 
if there was that alternative, then the satisfaction of 
blockading the FEC would dissipate, and it would become more of 
an active and responsive body again.
    Mr. Noble. I think a private right of action is important. 
There is one right now in the FEC. There are cases certain 
complainants can bring if the FEC does not act. Now, there are 
a lot of hoops you have to go through, but----
    Chairman Whitehouse. It is very rarely done, is it?
    Mr. Noble. It is very rarely done, and there are 
constitutional reasons, including standing concerns about 
whether people can actually sue another party.
    While I think it is an important factor, I would hate to 
rely on it too much because that is only available to major 
players, the people who can afford lawyers. The party 
committees can. It is not available to the average citizen who 
cannot afford to sue the agency.
    And I agree with Commissioner Smith on something which is 
very important, that I think the Department of Justice needs to 
do much more, but I do agree that a locus should be at the FEC. 
I think the problem is the FEC is not enforcing the law, and it 
is deteriorated tremendously since Commissioner Smith was 
there. And there have been always been differences on the 
Commission, but right now what you see are true ideological 
differences, where you have three Commissioners who just do not 
believe much of the law.
    And I appreciate Commissioner Smith saying that these are 
not bugs, these are features. I do think it is a bug that, as 
of the end of this April, all six seats on the Commission will 
have expired, and no appointments have been made to the 
Commission. I do think that is a bug. I think it is a bug that 
since 2010, when Citizens United came out, the FEC has been 
trying--actually, it has given up--to come up with regulations 
to explain how Citizens United affects the law. It has been 
unable to do that.
    It is kind of like saying when I had a sports car that ran 
half the time that that was actually a feature stopping me from 
using gas. No, it was a bug, and it is not acceptable.
    The FEC is broken. It does not work, and something has to 
be done about that. And I agree with Commissioner Smith you 
have to be concerned about the political ramifications. But I 
think that if you had an effective FEC, a lot of these issues 
would go away. Obviously, there would always be issues that 
exist, but I do think a private action is part of it, but you 
have to address the FEC.
    Chairman Whitehouse. Mr. Colvin, in your testimony you 
addressed the Vision Service Plan case and the insubstantiality 
standard. Could you elaborate a little bit further on the 
insubstantial standard as it came through Vision Service and 
how that conforms or does not conform with the political 
activity standard, and whether that should conform? I think you 
reached the conclusion that it should conform. Could you 
explain your argument there and describe Vision Service Plan a 
little bit more?
    Mr. Colvin. Certainly. The Vision Service Plan did not 
involve political activity. It involved a health insurance plan 
that had, in the IRS' view, too much private benefit to certain 
members of the plan. The test that it used to determine what 
was too much was an insubstantial test. ``Insubstantial'' does 
not have a precise----
    Chairman Whitehouse. ``Insubstantial,'' in quotes.
    Mr. Colvin. That is right.
    Chairman Whitehouse. Yes.
    Mr. Colvin. It does not have a precise percentage to it, 
but there have been cases in other areas of tax law affecting 
both political and lobbying activity that have said somewhere 
around five or 10 percent would be considered insubstantial.
    The legal precedent for this is that when the IRS 
interprets words like ``exclusively'' and ``primarily,'' it 
means all but insubstantial.
    So the presence of one activity or one purpose, if it is 
substantial, destroys the tax exemption. However, the IRS has 
not taken that stance clearly in the case of political activity 
and, instead, in Revenue Ruling 81-95, provided that a 
501(c)(4) organization can engage in political activity, so 
long as it is less than primary. And in the absence of any 
percentage, many have interpreted that to be 49 percent.
    So, really, the IRS, for that matter, if it were to pursue 
a case of political activity under 501(c)(4), (c)(5), or 
(c)(6), and the Department of Justice got hold of that case, 
could very well determine that the same standard ought to apply 
as in the Vision Service Plan, private benefit, insubstantial, 
5-10 percent, and no more.
    Chairman Whitehouse. And they are both articulating the 
statutory requirement of 501(c)(4) that these entities be 
operated exclusively to promote social welfare. So in the case 
of Vision Service Plan, they said it was not exclusively to 
promote social welfare because there was a more than 
insubstantial amount of private benefit being taken out of the 
organization, and your hypothesis is that you could take that 
same standard that you used for private benefit and apply it to 
the political side, the political benefit, and apply the 
insubstantial standard.
    Mr. Colvin. Absolutely. That is correct. And Miriam Galston 
is here, who has written an article arguing exactly that point, 
and I agree with it.
    Chairman Whitehouse. Great.
    Let me ask Mr. Smith a question. I think we have agreement 
so far in this hearing that with respect to the First 
Amendment, which clearly is a significant consideration in all 
of this discussion, that--two things. One, false statements 
under oath do not enjoy First Amendment protection. And, 
second, where there is a constitutional requirement, not a 
requirement in the Constitution but one that meets 
constitutional muster, by law that fraudulent use of a shell 
corporation to defeat that law is also not protected by the 
First Amendment.
    Would you agree with both of those hypotheses?
    Mr. Smith. Certainly I would agree with the first. The 
second I'm not quite sure what you are talking about. If you 
are saying is it illegal to make a contribution in the name of 
another, you know, yes, I think that can withstand----
    Chairman Whitehouse. And despite the fact that making a 
contribution is political speech that is protected by the First 
Amendment, making it in the name of another is not protected by 
the First Amendment and can be prosecuted properly?
    Mr. Smith. I think the Court would uphold that. But it is 
important for us to recognize that generally, as I have heard 
the discussion about disclosure in this case, people kind of 
say, well, the Court has endorsed disclosure in Citizens 
United. It did, but remember, the Court has not endorsed 
anything called ``disclosure.'' It has, in fact, placed huge 
limits on disclosure. Even in Buckley v. Valeo, it struck down 
more of the Federal Election Campaign Act's disclosure regime 
than it upheld. And there is a long line of cases suggesting 
that you have to be very sensitive in that area.
    So you have raised what, again, I think is a very minor 
problem. We do not really see many examples of it. People are 
combing these things----
    Chairman Whitehouse. But you do not have----
    Mr. Smith. I think it is fine----
    Chairman Whitehouse [continuing]. Any dispute that a 
contribution in the name of another that is fraudulently done, 
not innocently----
    Mr. Smith. Well, you know, if you put the circumstance that 
you have, which is that it is in the name of another and it is 
fraudulently done--and those are the questions that will often 
come up in investigations.
    Chairman Whitehouse. Yes, and ditto, false statements under 
oath enjoy no First Amendment protection.
    Mr. Smith. Well, I do not think they do. I tell you, under 
the Stolen Valor case, maybe even there they might have some. 
But I think the ``under oath'' would probably take that away.
    Chairman Whitehouse. Yes, it would seem that way. It would 
be a novel theory if it were not.
    Senator Cruz.
    Senator Cruz. Thank you, Mr. Chairman, and I would like to 
thank all three witnesses for being here today.
    Commissioner Smith, I would like to ask several questions. 
As we sit here today, Organizing for America, which is 
President Obama's 501(c)(4)--indeed, their Web site is 
barackobama.com. They are currently today running online ads 
criticizing me.
    Now, Commissioner Smith, would you agree that that is their 
First Amendment right to do so that should be entirely 
protected under the Bill of Rights?
    Mr. Smith. I think it is a terrible thing to run ads 
criticizing you, Senator Cruz.
    [Laughter.]
    Mr. Smith. But I probably would agree that it is protected 
by the First Amendment.
    Senator Cruz. And that standard should obviously apply 
across the board, regardless of the partisan affiliation of the 
speaker or the person being praised or criticized.
    Mr. Smith. I would apply that to criticism of Chairman 
Whitehouse as well, yes.
    Senator Cruz. Very good.
    One of the things, Commissioner Smith, you talked about was 
the structure of the Federal Election Commission, in particular 
that you have got three Democrat Commissioners, three 
Republican Commissioners, and the role that plays as a check on 
partisan excesses. And you mentioned that there has been a long 
history when campaign activities have been located purely in 
the executive branch, located in, say, the IRS. There has been 
a long history of abuse, and abuse on both sides of the aisle. 
There were allegations of abuse under President Nixon. There 
were allegations of abuse under President Johnson.
    Can you share your views on the importance of the 
structural check of the FEC's organization to limit either 
party abusing the executive branch to punish their political 
enemies?
    Mr. Smith. Well, I think obviously it is very, very 
important, you know, and the history, I have outlined some of 
it in my prepared remarks. We see cases like the very first 
prosecution brought under the Federal Election Campaign Act was 
brought against a group of people, ordinary citizens, 
basically, kind of upper-middle class folks who had a little 
bit of money to pool, some professors and so on, who ran an ad 
in the New York Times criticizing Richard Nixon and calling for 
him to be impeached. This was before Watergate. And the Nixon 
folks said, well, if somebody is convinced we ought to be 
impeached, maybe they will be convinced not to vote for me, we 
ought to be able to go after these folks.
    And so I really know that it is very important--you know, 
long history under both parties, that that is why Congress set 
up a bipartisan agency--not bipartisan like many agencies, 3-2 
majority or something, but a true 3-3.
    The Commission has historically deadlocked, as people say, 
gone 3-3 on about one to four percent of its votes. In recent 
years, that has spiked up to about 10 percent of its votes. One 
thing I'd point out is that typically resolves the issue, and 
it is important to note that that spike may be precisely due to 
the fact that over the last couple years we have seen, I think, 
strong attempts by partisans to use disclosure in the campaign 
finance rules in that way.
    You know, Media Matters, a very liberal group, has, for 
example, said that its goal is to attack corporations that 
might make political contributions of any kind, which would 
include contributions to a trade association that makes 
political expenditures. And then use its allies to then attack 
that same corporation for the damage done to its reputation, 
which is created by Media Matters itself.
    Candace Nichols, an opponent of Proposition 8 out in 
California, made the comment afterwards that they were 
blacklisting and boycotting a number of folks, and she said, 
``Years ago''--they used the campaign finance regulations 
disclosure to get that. She said, ``Years ago, we would have 
never been able to get a blacklist out that fast and quickly.'' 
Apparently this is considered progress since the McCarthy era. 
We are now much more efficient at creating blacklists.
    There is a group called Accountable America that sent 
letters to thousands of conservative donors threatening to dig 
through their lives if they continued to do that. As the New 
York Times reported, it was ``hoping to create a chilling 
effect that will dry up contribution.''
    There are groups such as Huffington Post and eight maps 
that put maps to donors' homes right on the Web. What is the 
purpose of that?
    I am straying a bit from your question, but what I am 
saying is when you are in this kind of environment, it is 
really important that you have some degree of bipartisan 
support before acting.
    Senator Cruz. Well, and I think the examples you gave about 
the potential for partisan retribution are particularly 
chilling. And they are most dangerous, it seems to me, for 
those who would have the temerity to criticize those in power; 
that a system that requires full disclosure of any citizen's 
activity in the political sphere enables those in power to very 
directly exact punishment for any who dare criticize them.
    Mr. Smith. Well, the purpose of disclosure laws, as I have 
always seen them, is to inform citizens about their government, 
but not to inform the government about their citizens.
    Now, those are often two sides of the same coin, so it is 
hard to tease them apart. But I do think when we look at, you 
know, organizations that are not working with candidates, for 
example, that we need to start thinking about being careful 
about what it is that we are doing. When we are talking about 
direct contributions to candidates or parties, that is 
historically where we have allowed more disclosure, and that is 
where the Supreme Court upheld it in Buckley. Remember, in 
Buckley, the Supreme Court struck down most of the disclosure 
regime that otherwise existed. It was a very broad disclosure 
regime that would have taken in almost anybody who spoke about 
politics at all, whether they were giving to a candidate or 
not. And the Court struck most of that down.
    Senator Cruz. And I guess the threat of retribution for 
political speech, as you just described, is not hypothetical. 
We have seen it for donors who supported Proposition 8 in 
California and lost their job because they engaged in political 
speech.
    I guess we recently saw with respect to another 
constitutional right in New York a number of gun owners being 
publicly identified in the newspaper and potentially subject to 
retribution for exercising their Second Amendment right to keep 
and bear arms.
    Would you agree that part of the reason the First Amendment 
protects the right to anonymous speech is precisely to prevent 
retribution for citizens engaging in speech? And, indeed, that 
was much of the reason why perhaps the most famous example of 
anonymous political speech in history was the Federalist 
Papers, published under the pseudonym Publius.
    Mr. Smith. Right. Well, as the Supreme Court said in the 
NAACP case that you mentioned earlier, Senator, ``It is hardly 
a novel perception that compelled disclosure of affiliation 
with groups engaged in advocacy may constitute . . . effective 
. . . restraint on freedom of association . . . .'' I think it 
is very definitely something--I have said sometimes imagine if 
the government said we are going to make sure that terrorists 
are not infiltrating our government or foreigners are not 
infiltrating our government, we are going to require you to 
report your political activity to the government, and they are 
going to keep it in a big data base, and it will be made 
available to creditors, mortgage lenders, potential employers, 
your nosy neighbor, Halliburton, whoever wants it, right? Most 
people I know get very, very upset. And then I point out to 
them that that is exactly what the Federal Election Campaign 
Act does, and we are talking about doing more of it.
    And I want to emphasize that we already have broader 
disclosure in America now than we have had any time in our 
Nation's history. We are in the greatest disclosure age of our 
history. And I think when we look, we do not see that it is 
really achieving its goals, and I wonder if the real solution 
is to say we have got to have more and crack down more if it is 
really to change the idea and try to create different 
incentives for people to participate.
    Senator Cruz. Thank you very much, Commissioner, and thank 
you to all of you.
    Chairman Whitehouse. Let me ask one additional question, 
and that is, your opinion--let me start with you, Mr. Noble. 
You have made the observation that there is conspicuous non-
enforcement of a variety of laws in situations in which the 
enforcement of the law actually would be reasonably 
straightforward. A false statement case is not a complicated 
thing to make, and the 441(f) shell corporation, you know, use 
of shell corporations to violate the law occurs in all sorts of 
areas of the law. So why the non-enforcement?
    And let me add an asterisk to that. I know that DOJ will 
say, ``Well, why the non-enforcement is because we have not 
been referred cases by the IRS.'' But that really begs the 
question, because the Attorney General and the Secretary of the 
Treasury and the Commissioner of the Internal Revenue Service 
all work for the same person, and the Attorney General could 
perfectly well say to his colleague, ``Look, these are laws 
that I am supposed to enforce. We prosecute false statements 
all across the board. Why aren't you referring these to us? 
What is going on with your regulations that makes this 
difficult? '' And you might then see some of the progress that 
Mr. Colvin has suggested toward the IRS redoing the 
regulations, to the extent that that is described as the 
problem.
    So that is really, I think--when that is the answer to the 
question, that is really just another way of asking the 
question. So I wanted to make sure that you looked at it that 
way. Why the non-enforcement? And if the reason is because the 
IRS does not make referrals and has adopted confusing and 
different regulations, why are they satisfied with that as the 
status quo?
    Mr. Colvin. I think there are several reasons, and I have 
to say up front, I have tremendous respect for the staff of 
federal agencies, of the IRS and the Department of Justice. I 
think they try very hard to do what the right thing is.
    I think there is a certain amount of fear. There is a fear 
of getting involved in politics. There is a fear of being 
accused of being partisan when you are not being partisan, when 
you are calling it as you see it, but people are going to say, 
``You did that just for partisan reasons.''
    I think as you move up the chain, I think then you get into 
a power issue. Frankly, the current system helps those in 
power. The current system, the lack of enforcement, favors 
those who are writing the laws right now, who are enforcing the 
laws right now. It favors this administration to keep a system 
by which they won in place. They do not want, frankly, any more 
disclosure. They are not calling--this is a great 
disappointment, but this administration right now is not 
calling to redo the FEC, not calling for much stricter 
enforcement of these laws, not calling for a crackdown on OFA, 
Organizing for America. They are not doing that either. Why? 
Because I think the problem we face is that we are 
fundamentally dealing about a power issue here and about the 
right of voters.
    There is a very critical First Amendment issue, no doubt 
about that. It is paramount in this area, and everything we do 
in this area involves the First Amendment. But there is also an 
issue about democracy, about our right to know what the 
government is doing, about our right to know where Members of 
Congress or Senators are getting their funding, who they may be 
beholden to. And these are the issues the Supreme Court has 
upheld. These are the things the Supreme Court has said the 
government has a compelling interest in. And when it says ``the 
government,'' it means the people have a compelling interest in 
knowing who are funding the campaigns.
    And when the Supreme Court says these expenditures have to 
be independent or that 501(c)(4) organizations that do not get 
involved in political activity do not have to disclose, there 
are caveats that go along with that. That means that they are 
not involved in political activity. And we are not talking 
about every issue. We are not talking about arguing about gun 
control. There are very specific--the Court is limited to very 
specific types of ads: express advocacy ads, electioneering 
communication ads, or things that are done in coordination with 
a candidate. These are very, very specific issues, very 
specific areas where the public has a right to know; the public 
has the right to have the law enforced as it is; and, yes, the 
public has a right to be protected.
    But just to quote the First Amendment and say that that bar 
is doing anything, I think, is really to present the public 
with a false option. You can have the strongest First Amendment 
and a very strong representative democracy that actually is 
responsible to the people, and the people understand and make 
the decisions about what they feel about where the 
contributions are going or who is supporting whom.
    So I think it is fear, and I think it is politics and 
power.
    Chairman Whitehouse. Senator Cruz.
    [No response.]
    Chairman Whitehouse. All right. Let me thank the witnesses 
for coming. I really appreciate the effort that went into the 
testimony. I think that each one of you provided very 
thoughtful and extensive testimony. Mr. Smith, I thought some 
of the historical examples that you brought out were 
particularly instructive and helpful. And I am delighted that 
you all shared your time with us. I know you are very busy 
people.
    Senator Leahy has a statement for the record, our Chairman, 
that, without objection, I will add to the record of these 
proceedings.
    [The prepared statement of Chairman Leahy appears as a 
submission for the record.]
    Chairman Whitehouse. And I want to thank Senator Cruz for 
attending. He brings a very valuable and well-honed 
perspective. But I do think that there has emerged an area of 
agreement that really translates across all of the participants 
in this hearing, and that is that a traditional prosecutable 
false statement under oath is not protected by the First 
Amendment, and that the use of shell corporations fraudulently 
to violate the law is not protected by the First Amendment. And 
yet those specific things within the much larger context of 
campaign finance reform, those specific things seem to be 
happening a lot, and that neither the Department of Justice nor 
the Internal Revenue Service could identify a single case they 
had ever made either in the circumstance of a false statement 
made to the famous Question 15 or in the case of a shell 
corporation used to obscure the origin, unlawfully, of a 
contribution to a super PAC that would otherwise have to be 
disclosed. Those seem like very straightforward cases.
    And it appears--I will now venture into my own personal 
opinion at this point. It appears to me that the deference of 
the Department of Justice to the tax authorities with respect 
to those specific matters is not merited. They are not the kind 
of case that a prosecutor looks at and says, ``Oh, my gosh, I 
better bring the tax guys in on this one. This is a complicated 
question of tax law.'' No. A false statement is a false 
statement, and if you take people into a grand jury, you can 
pretty well find out very quickly what the intent was and prove 
the materiality and move on.
    So it appears to me that if there is at least one flaw in 
what we are doing right now, it is, with respect to those 
matters, the willingness of the Department of Justice to allow 
itself to be constrained by this policy of deference, which is 
its own policy, to the Internal Revenue Service, which I think 
all of the witnesses--many of the witnesses, at least--agree is 
not particularly well suited, is not particularly well staffed, 
and is not particularly well disposed toward this sort of a 
matter.
    So I will close the hearing with my personal commentary and 
look forward to continuing to work on this issue with all of 
the witnesses and all of the Members of the Subcommittee. 
Again, my gratitude to Senator Cruz for his helpful 
participation in this hearing.
    Thank you, and we are--the record will be open for one week 
for any additional matter anybody wants to add to the hearing, 
and with that, we are adjourned.
    [Whereupon, at 11:43 a.m., the Subcommittee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]
    [Additional material is being retained in the Committee 
Files; see Contents.]



                            A P P E N D I X

              Additional Material Submitted for the Record

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Prepared Statement of Chairman Patrick Leahy

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

               Prepared Statement of Senator John Cornyn

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

 Prepared Statement of Mythili Raman, Assistant Attorney General, U.S. 
                         Department of Justice

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

 Prepared Statement of Patricia Haynes, Deputy Chief, Internal Revenue 
                    Service, Criminal Investigation

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

 Prepared Statement of Lawrence M. Noble, President and CEO, Americans 
                          for Campaign Reform

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Prepared Statement of Gregory L. Colvin, Principal, Adler & Colvin, San 
                         Francisco, California

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

 Supplemental Prepared Statement of Gregory L. Colvin, Adler & Colvin, 
                       San Francisco, California

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

     Prepared Statement of Bradley A. Smith, Chairman, Center for 
    Competitive Politics, Josiah H. Blackmore II/Shirley M. Nault, 
    Professor of Law, Capital University Law School, Columbus, Ohio

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Questions submitted by Senator Amy Klobuchar for Mythili Raman, 
 Patricia Haynes, Lawrence M. Noble, Gregory L. Colvin, and Bradley A. 
                                 Smith

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

 Questions submitted by Senator Charles Schumer for Mythili Raman and 
                            Patricia Haynes

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

 Responses of Mythili Raman to questions submitted by Senators Schumer 
                             and Klobuchar

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

   Responses of Lawrence M. Noble to questions submitted by Senator 
                               Klobuchar

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

   Responses of Gregory L. Colvin to questions submitted by Senator 
                               Klobuchar

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Responses of Bradley A. Smith to questions submitted by Senator 
                               Klobuchar

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                Miscellaneous Submissions for the Record

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                 Additional Submissions for the Record

    Submissions for the record not printed due to voluminous 
nature, previously printed by an agency of the Federal 
Government, or other criteria determined by the Committee, list
    Petition for rulemaking on campaign activities by section 
501(c)(4)
        http://www.democracy21.org/uploads/
        D21_and_CLC_Petition_to_IRS_7_27_2011.pdf

        Democracy 21 report: leading presidential-candidate 
        super PACs http://www.democracy21.org/uploads/
        Democracy_21_Super_PAC_Report_1_4_2012.pdf

        ``The FEC: The Failure to Enforce Commission'' by Fred 
        Wertheimer and Don Simon http://www.acslaw.org/sites/
        default/files/Wertheimer_and_Simon--The Failure to 
        Enforce Commission.pdf

                                   


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