[Federal Register Volume 67, Number 205 (Wednesday, October 23, 2002)]
[Rules and Regulations]
[Pages 65190-65212]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26482]



[[Page 65189]]

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Part II





Federal Election Commission





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11 CFR Parts 100 and 114



FCC Database on Electioneering Communications; Final Rules

  Federal Register / Vol. 67, No. 205 / Wednesday, October 23, 2002 / 
Rules and Regulations  

[[Page 65190]]


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FEDERAL ELECTION COMMISSION

11 CFR Parts 100 and 114

[Notice 2002-20]


Electioneering Communications

AGENCY: Federal Election Commission.

ACTION: Final rules and transmittal of regulations to Congress.

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SUMMARY: The Federal Election Commission promulgates new rules 
regarding electioneering communications, which are certain television 
and radio communications that refer to a clearly identified Federal 
candidate and that are publicly distributed to the relevant electorate 
within 60 days prior to a general election or within 30 days prior to a 
primary election for Federal office. The final rules implement a 
portion of the Bipartisan Campaign Reform Act of 2002 (``BCRA'') that 
adds to the Federal Election Campaign Act (``FECA'') new provisions 
regarding electioneering communications. BCRA defines ``electioneering 
communications,'' exempts certain communications from the definition, 
provides limited authorization to the Commission to promulgate 
additional exemptions, and requires public disclosure of specified 
information regarding who made the electioneering communication and its 
cost. Additionally, BCRA prohibits corporations and labor organizations 
from making electioneering communications, and the final rules also 
implement this prohibition. Further information is provided in the 
Supplementary Information that follows.

EFFECTIVE DATE: November 22, 2002.

FOR FURTHER INFORMATION CONTACT: Ms. Mai T. Dinh, Acting Assistant 
General Counsel, Mr. J. Duane Pugh Jr., Acting Special Assistant 
General Counsel, or Mr. Anthony T. Buckley, Attorney, 999 E Street, 
NW., Washington, DC 20463, (202) 694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION: The Bipartisan Campaign Reform Act of 2002, 
Pub. L. 107-155, 116 Stat. 81 (Mar. 27, 2002), contains extensive and 
detailed amendments to the Federal Election Campaign Act of 1971, as 
amended, 2 U.S.C. 431 et seq. This is one of a series of rulemakings 
the Commission is undertaking to implement the provisions of BCRA.
    Section 402(c)(1) of BCRA establishes a general deadline of 270 
days for the Commission to promulgate regulations to carry out BCRA. 
The President of the United States signed BCRA into law on March 27, 
2002, so the 270-day deadline is December 22, 2002. The final rules 
will take effect on November 6, 2002, which is the day following the 
November 5, 2002 general election, except the final rules do not apply 
to any runoff elections required by the results of the November 2002 
general election. 2 U.S.C. 431 note.
    Because of the brief time period before the deadline for 
promulgating these rules, the Commission received and considered public 
comments expeditiously. The Notice of Proposed Rulemaking (``NPRM'') on 
which these final rules are based was made publicly available on the 
FEC's Website on August 2, 2002 and was published in the Federal 
Register on August 7, 2002. 67 FR 51,131 (Aug. 7, 2002). The written 
comments were due by August 21, 2002 for those who wished to testify or 
by August 29, 2002 for all other commenters. The names of commenters 
and their comments are available at http://www.fec.gov/register.htm 
under ``Electioneering Communications.'' The Commission held a public 
hearing on the NPRM on August 28 and 29, 2002, at which it heard 
testimony from 12 witnesses. Transcripts of the hearing are available 
at http://www.fec.gov/register.htm under ``Electioneering 
Communications.''\1\
    Under the Administrative Procedures Act, 5 U.S.C. 553(d), and the 
Congressional Review of Agency Rulemaking Act, 5 U.S.C. 801(a)(1), 
agencies must submit final rules to the Speaker of the House of 
Representatives and the President of the Senate and publish them in the 
Federal Register at least 30 calendar days before they take effect. The 
final rules on electioneering communications were transmitted to 
Congress on October 11, 2002.
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    \1\ Oral testimony at the Commission's public hearing and 
written comments are both considered ``comments'' in this document.y
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Explanation and Justification

Introduction

    BCRA at 2 U.S.C. 434(f)(3) defines a new term, ``electioneering 
communications.'' This term includes broadcast, cable, or satellite 
communications: (1) That refer to a clearly identified Federal 
candidate; (2) that are transmitted within certain time periods before 
a primary or general election; and (3) that are targeted to the 
relevant electorate, which is the relevant Congressional district or 
State that candidates for the U.S. House of Representatives or the U.S. 
Senate seek to represent. Those paying for electioneering 
communications cannot use funds from national banks, corporations, 
foreign nationals,\2\ or labor organizations to pay for electioneering 
communications. See 2 U.S.C. 441b(b)(2) and 441e(a)(2). They must also 
meet certain disclosure requirements. See 2 U.S.C. 434(f). BCRA's 
sponsors have explained in the legislative debates and in their 
comments on this rulemaking that these new ``electioneering 
communications'' provisions, set out at 2 U.S.C. 434(f) and 441b(b)(2), 
are designed to ensure that such communications are paid for with funds 
subject to the prohibitions and limitations of FECA. According to the 
sponsors, ``putative `issue ads' '' have been used to circumvent FECA's 
prohibition on the use of labor organization and corporate treasury 
funds in connection with Federal elections. See 148 Cong. Rec. S2141 
(daily ed. Mar. 20, 2002) (statement of Sen. McCain). In the sponsors' 
view, this is accomplished by creating and airing advertisements that 
avoid the specific language that the Supreme Court said expressly 
advocates the election or defeat of a candidate. See 148 Cong. Rec. at 
S2140-2141; see also Buckley v. Valeo, 424 U.S. 1, 44 n.52 (1976); 11 
CFR 100.22.\3\
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    \2\ The ban on foreign national funds is being addressed in a 
separate rulemaking. See NPRM on Contribution Limitations and 
Prohibitions, 67 FR 54,366, 54,372-75 and 54,379 (Aug. 22, 2002).
    \3\ ``Express advocacy'' was first defined by the Supreme Court 
as ``communications containing express words of advocacy of election 
or defeat, such as `vote for,' `elect,' `support,' `cast your ballot 
for,' `Smith for Congress,' `vote against,' `defeat,' `reject.''' 
Buckley, 424 U.S. at 44 n.52. The Supreme Court created the express 
advocacy test to save the statutory phrase ``for the purpose of * * 
* influencing''--the ``critical phrase'' within the definitions of 
``expenditure'' and ``contribution'' at 2 U.S.C. 431(8) and (9)--
from unconstitutional vagueness and overbreadth while furthering the 
goal of Congress ``to insure both the reality and the appearance of 
the purity and openness of the federal election process.'' Buckley, 
424 U.S. at 77-78. The Supreme Court's express advocacy test marks 
the dividing line between candidate advocacy regulated by the FECA 
and issue advocacy. Id. at 42, 44, 80.
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    BCRA's principal sponsors cited various studies and investigations 
that they say show that the express advocacy test does not distinguish 
genuine issue ads from campaign ads. 148 Cong. Reg. at S2140-2141 
(statement of Sen. McCain). For example, Senator McCain cited a study 
by the Brennan Center for Justice, Buying Time 2000, that found that 
``97 percent of the electioneering ads reviewed'' did not use the words 
and phrases cited by the Buckley Court, and that more than 99 percent 
of the ``group-sponsored soft money ads'' studied were in fact campaign 
ads. 148 Cong. Rec. at S2141. See also 148 Cong. Rec. S2137 (statement 
of Sen. Snowe referencing Annenberg Public Policy

[[Page 65191]]

Center, Issue Advertising in the 1999-2000 Election Cycle (2001)). 
Senators Snowe and Jeffords stated that, because the electioneering 
communications provisions focus on the key elements of when, how, and 
to whom a communication is made, rather than relying on the express 
advocacy test or the intent of the advertiser, they are a clearer, more 
accurate test of whether an advertisement is campaign-related. Id. at 
S2117-18 (statement of Sen. Jeffords); S2135-37 (statement of Sen. 
Snowe).
    The final rules add a new definition of ``electioneering 
communication,'' located at 11 CFR 100.29. The new definition is added 
to current 11 CFR part 100 because it has general applicability to 
Title 11 of the Code of Federal Regulations. The final rules also amend 
11 CFR 114.2 and 114.10 and create new Sec.  114.14 to address the 
prohibition on corporations and labor organizations directly or 
indirectly disbursing funds for electioneering communications. In 
conjunction with these final rules, the Commission is also issuing 
Interim Final Rules regarding a Federal Communications Commission 
database that can be used to determine whether a communication is an 
electioneering communication.
    Please note that the reporting requirements for electioneering 
communications are not part of the final rules. The Commission intends 
to incorporate the revised proposed rules into a Consolidated Reporting 
NPRM as discussed below in connection with 11 CFR part 104. However, it 
is important to note that the Commission agrees with a commenter who 
observed that BCRA imposes reporting obligations and fund source 
limitations and prohibitions on the person making the electioneering 
communication, not on the broadcaster or satellite or cable system 
operator who publicly distributes it.

I. Definition of ``Electioneering Communication''

A. 11 CFR 100.29(a) Operative Definition of ``Electioneering 
Communication''

    The definition of ``electioneering communication'' at 11 CFR 
100.29(a) largely tracks the definition in BCRA at 2 U.S.C. 434(f)(3). 
Paragraph (a) defines ``electioneering communication'' as any 
broadcast, cable, or satellite communication that: (1) Refers to a 
clearly identified Federal candidate; (2) is publicly distributed 
within certain time periods before an election; and (3) is targeted to 
the relevant electorate, that is, the relevant Congressional district 
or State that candidates for the U.S. House of Representatives or the 
U.S. Senate seek to represent.
    Paragraph (a)(2) refers to the ``public distribution'' of a 
communication, while BCRA refers to the ``making'' of a communication. 
Making a communication could be interpreted to mean any of a number of 
actions in the process of issuing a communication, from the formulation 
of a concept for the communication through the public distribution of a 
communication. The regulation uses a different term than the statute to 
clarify that the operative event is the dissemination of the 
communication, rather than the disbursement of funds related to 
creating a communication. All of the commenters who addressed this 
provision, including the principal Congressional sponsors of BCRA, 
agreed with this clarification.

B. Alternative Definition of ``Electioneering Communication''

    BCRA at 2 U.S.C. 434(f)(3)(A)(ii) provides an alternative 
definition of ``electioneering communication'' that would take effect 
in the event the definition in 2 U.S.C. 434(f)(3)(A)(i) is held to be 
constitutionally insufficient ``by final judicial decision.'' The 
alternative definition of ``electioneering communication'' is ``any 
broadcast, cable, or satellite communication which promotes or supports 
a candidate for that office, or attacks or opposes a candidate for that 
office (regardless of whether the communication expressly advocates a 
vote for or against a candidate) and which also is suggestive of no 
plausible meaning other than an exhortation to vote for or against a 
specific candidate.'' 2 U.S.C. 434(f)(3)(A)(ii). The Commission did not 
propose regulations to implement this alternative statutory definition 
in the NPRM. 67 FR 51,132. The Commission, however, did seek comment as 
to whether it should promulgate an alternative definition as part of 
these final rules. Specifically, the Commission inquired whether such a 
regulation should simply reiterate the wording of the statute, or 
whether it should provide additional guidance as to what types of 
communications promote, support, attack, or oppose a candidate and 
suggest no plausible meaning other than an exhortation to vote for or 
against a candidate.
    Most of the commenters who addressed BCRA's alternative definition 
of ``electioneering communication'' agreed with the Commission's 
proposed approach to promulgate regulations to implement this 
alternative definition only when and if it becomes necessary to do so. 
In the absence of a judicial decision invalidating the existing 
definition, regulations related to the alternative definition would be 
potentially confusing and premature or even entirely unnecessary, 
according to these commenters. Additionally, some argued that any court 
decision regarding 2 U.S.C. 434(f)(3)(A) may provide guidance for the 
appropriate standard that the Commission should use in promulgating 
regulations under the alternative definition. Two commenters advocated 
promulgating regulations now so that the pending litigation could be 
informed by the manner in which the Commission would enforce the 
alternative definition. They also argued that the period between a 
final decision in that litigation and the 2004 elections is likely to 
be too short to permit the Commission to complete a rulemaking in time 
to provide guidance, if the operative definition is invalidated. They 
further argued that the alternative definition's application to the 
entire election cycle, and not just the 30- or 60-day periods to which 
the current definition is limited, exacerbates the timing issue.
    Because promulgating regulations that implement the alternative 
definition is premature and may cause confusion, the Commission does 
not intend to do so unless and until a final judicial decision makes it 
necessary to do so by holding that 2 U.S.C. 434(f)(3)(A)(i) is 
constitutionally insufficient. The Commission notes that if such a 
decision issues, the statutory alternative definition would become 
effective, and the decision may supplement the statute's language to 
provide guidance until the Commission issues implementing regulations.

C. Terms Used in ``Electioneering Communication'' Definition

    Paragraph (b) of 11 CFR 100.29 defines some of the terms used in 
paragraph (a)'s definition of ``electioneering communication.'' It has 
been reorganized from the NPRM so that the terms are defined in the 
order in which they appear in paragraph (a).
1. 11 CFR 100.29(b)(1) Definition of ``Broadcast, Cable, or Satellite 
Communication''
    BCRA's legislative history establishes that electioneering 
communications are limited to television and radio communications, and 
not other media. The electioneering communication provisions originated 
as an amendment to the predecessor of BCRA introduced by Senators Snowe 
and Jeffords in 1998. That amendment, and all of the subsequent 
versions of that amendment prior to the 107th Congress, defined an

[[Page 65192]]

electioneering communication to include ``any broadcast from a 
television or radio broadcast station.'' See 144 Cong. Rec. S938 (daily 
ed. Feb. 24, 1998); see also S.26 (106th Congress), 145 Cong. Rec. S425 
(daily ed. Jan. 19, 1999). Likewise, the floor debates on the 
electioneering communications provision during the 107th Congress 
frequently referred to television and radio ads. See, e.g., 148 Cong. 
Rec. S2117 (daily ed. Mar. 20, 2002) (remarks of Sen. Jeffords). During 
a final explanation of these provisions, Senator Snowe again stated 
that they would apply to ``so-called issue ads run on television and 
radio only.'' 148 Cong. Rec. S2135 (daily ed. Mar. 20, 2002). During an 
early debate on the amendment, Senator Snowe was asked whether the 
definition of electioneering communication would ``apply to the 
Internet.'' She replied, ``No. Television and radio.'' See 144 Cong. 
Rec. S973 and S974 (daily ed. Feb. 25, 1998). Consistent with 
Congressional intent, new 11 CFR 100.29(b)(1) states that a broadcast, 
cable, or satellite communication is a communication that is publicly 
distributed by a television station, radio station, cable television 
system, or satellite system. This definition limits the scope of 
electioneering communications to television and radio. (The exclusion 
of the Internet and other forms of communication is further discussed 
below in connection with 11 CFR 100.29(c)(1).)
    Proposed 11 CFR 100.29(b)(2) would have exempted Low Power FM 
Radio, Low Power Television, and citizens band radio from inclusion in 
broadcast, cable, or satellite communication. NPRM, 67 FR 51,133. The 
commenters were divided on whether these communications media should be 
included or excluded. While many would probably agree with the 
commenter who stated that BCRA was primarily aimed at ``traditional'' 
radio and television, most who specifically mentioned Low Power FM 
Radio, Low Power Television, and citizens band radio believed that BCRA 
provided no authority to exclude these forms of radio and television. 
Among those opposed to the exemption were the six principal 
Congressional sponsors of BCRA. Considering BCRA's unqualified 
language, particularly in light of the comments, the Commission has 
decided not to exclude these forms of radio and television from the 
definition of ``electioneering communications'' in the final rule. In 
doing so, the Commission notes that any communication over these media 
would have to be received by 50,000 persons or more in the relevant 
Congressional district or State before the communication could be 
considered an electioneering communication. Additionally, the costs of 
the communication would have to exceed $10,000 before disclosure 
requirements applied. Finally, to the extent a fee for the public 
distribution of a communication is not charged, the communication is 
excluded from the definition of ``electioneering communication'' 
pursuant to 11 CFR 100.29(b)(3)(i).
2. 11 CFR 100.29(b)(2) Definition of ``Refers to a Clearly Identified 
Candidate''
    Section 100.29(b)(2) defines the phrase ``refers to a clearly 
identified candidate.'' This phrase is already defined in the 
Commission's rules at 11 CFR 100.17, which states that ``clearly 
identified'' means the candidate's name, nickname, photograph, or 
drawing appears, or the identity of the candidate is otherwise apparent 
through an unambiguous reference such as ``the President,'' ``your 
Congressman,'' or ``the incumbent,'' or through an unambiguous 
reference to his or her status as a candidate such as ``the Democratic 
presidential nominee'' or ``the Republican candidate for Senate in the 
State of Georgia.'' The final rule tracks the language of the current 
rule in 11 CFR 100.17. This approach appears to be consistent with 
legislative intent. See 148 Cong. Rec. S2144 (daily ed. Mar. 20, 2002) 
(statement of Sen. Feingold indicating that a communication ``refers to 
a clearly identified candidate'' if it ``mentions, identifies, cites, 
or directs the public to the candidate's name, photograph, drawing or 
otherwise makes an `unambiguous reference' to the candidate's 
identity''). Please note that the definition would not be based on the 
intent or purpose of the person making the communication. Of the six 
commenters who addressed this issue, five supported the Commission's 
proposal, while the sixth found it vague and too broad. Given the well-
established body of law construing this term, the Commission does not 
agree with this latter comment.
3. 11 CFR 100.29(b)(3) Definition of ``Publicly Distributed''
a. 11 CFR 100.29(b)(3)(i) General definition
    Section 100.29(b)(3)(i) defines ``publicly distributed'' as 
``aired, broadcast, cablecast or otherwise disseminated for a fee 
through the facilities of a television station, radio station, cable 
television system, or satellite system.'' Because BCRA applies 
expressly to ``any broadcast, cable, or satellite communication,'' the 
Commission intends this definition to include any technological methods 
of disseminating a communication through the facilities listed above. 
One commenter cautioned that some telephone calls and e-mail messages 
can be transmitted, in part, through the facilities of a television 
station, radio station, cable television system, or satellite system 
and might therefore meet the definition of ``publicly distributed'' as 
proposed in the NPRM. 67 FR 51,145. However, a communication must be 
available to 50,000 or more persons in a particular Congressional 
district or State in order to be an electioneering communication, and 
it is highly unlikely the communications the commenter addressed would 
be so widely disseminated.
b. 11 CFR 100.29(b)(3)(i) ``For a fee''
    The Commission specifically asked in the NPRM if the definition of 
``electioneering communication'' should be limited to paid 
advertisements. See 67 FR 51,136. Much of the legislative history and 
virtually all of the studies cited in legislative history and presented 
to the Commission in the course of this rulemaking focused on paid 
advertisements in considering what should be included within 
electioneering communications. See, e.g., 148 Cong. Rec. S2112, S2114-
16, S2117, S2124, S2135, S2140-41, S2154, and S2155 (daily ed. Mar. 20, 
2002) (remarks of Sens. Schumer, Levin, Cantwell, Jeffords, McConnell, 
Snowe, McCain, Feinstein, and Dodd, respectively); Campaign Finance 
Institute Task Force on Disclosure, Issue Ad Disclosure: 
Recommendations for a New Approach (2001); Annenberg Public Policy 
Center, Issue Advertising in the 1999-2000 Election Cycle (2001); Craig 
B. Holman and Luke P. McLoughlin, Brennan Center for Justice, Buying 
Time 2000: Television Advertising in the 2000 Federal Elections (2001), 
Executive Summary reprinted in 148 Cong. Rec. S2118 (daily ed. Mar. 20, 
2002); and Jonathan S. Krasno and Daniel E. Seltz, Brennan Center for 
Justice, Buying Time: Television Advertising in the 1998 Congressional 
Elections (2000).
    Many commenters who addressed this specific issue agreed that the 
legislative history abundantly documents that paid advertisements were 
the focus of the electioneering communication provisions. One commenter 
suggested that the electioneering communication

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regulations should cover program-length, paid advertisements, known as 
``infomercials,'' as well as the shorter paid advertisements, known as 
commercials. Several other commenters discussed entertainment 
programming, educational programming, or documentaries and argued that 
BCRA was not intended to reach these communications.
    One commenter argued, however, that limiting electioneering 
communications to paid programming would permit corporations that 
operate broadcast, cable, or satellite systems to distribute 
communications that would be electioneering communications but for this 
limitation, and that such a result is plainly inconsistent with BCRA. 
This commenter also cited the $10,000 threshold for reporting 
electioneering communications, which provides partial relief to those 
who distribute advertisements or programming without paying for 
distribution costs.
    Based on the legislative history of BCRA, the Commission has 
determined that electioneering communications should be limited to paid 
programming. The Commission has added an additional element to the 
definition of ``publicly distributed'' in the final rules that was not 
in the definition proposed in the NPRM. The final rule at 11 CFR 
100.29(b)(3)(i) includes the qualifier ``for a fee'' to reflect the 
Commission's determination that electioneering communications should be 
limited to paid programming. By including this qualifier, the 
Commission limits the definition of ``electioneering communications'' 
to those communications for which the operator of a broadcast station, 
cable system, or satellite system seeks or receives payment for the 
public distribution of the communication.\4\ The Commission believes 
the addition of ``for a fee'' to the definition of ``publicly 
distributed'' implements the well-documented Congressional intent 
regarding which communications are included within the definition of 
``electioneering communications.'' As suggested by the question in the 
NPRM, the Commission believes this is best accomplished by 
incorporating the criterion in the definition, rather than creating an 
exemption from the definition.
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    \4\ Thus, the maker of an electioneering communication cannot 
avoid the definition of ``electioneering communications'' by failing 
to pay the distributor's fee.
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    A communication's production costs will not be considered fees for 
this purpose; the fees included in the definition are limited to 
charges for distribution. Therefore, under this criterion both program-
length paid shows, including infomercials, and commercials are subject 
to the electioneering communication requirements.
    The Commission has carefully considered the concern that corporate-
owned broadcast, cable, or satellite systems could evade the 
prohibition on corporate contributions by providing free airtime for 
communications. The Commission notes that a broadcaster, or a cable or 
satellite system operator's judgment to provide free distribution 
services shares some characteristics of the broadcaster or system 
operator's editorial judgments involved in the use of the news story 
exemption, which is recognized in FECA, BCRA, and Commission 
regulations. 2 U.S.C. 431(9)(B); 2 U.S.C. 434(f)(3)(B)(i); and 11 CFR 
100.132. Thus, a broadcaster's decision to provide free airtime for 
communications will not create liability for the person that produced 
the communication.
c. 11 CFR 100.29(b)(3)(ii) Additional Definition for Presidential 
Primaries and Conventions
    BCRA defines electioneering communication to include communications 
that ``in the case of a communication which refers to a candidate for 
an office other than President or Vice President, is targeted to the 
relevant electorate.'' 2 U.S.C. 434(f)(3)(A)(i)(III). BCRA then defines 
``targeting to the relevant electorate,'' referring to Congressional 
candidates only. 2 U.S.C. 434(f)(3)(C). Thus, as discussed in the NPRM, 
a plausible reading of BCRA is that a communication that refers to a 
presidential or vice-presidential candidate does not need to be 
targeted to the relevant electorate to qualify as an electioneering 
communication. 67 FR 51,134. Under this interpretation, a communication 
that refers to a clearly identified presidential or vice-presidential 
candidate and that meets the timing and medium requirements for 
electioneering communications would be considered an electioneering 
communication, without considering the number or geographic locations 
of persons receiving the communication. For example, a television ad 
that clearly identifies a presidential primary candidate that is run 
anywhere in the United States could be considered an electioneering 
communication if the ad aired within 30 days of a primary election 
taking place anywhere in the United States, even if, in the States in 
which the ad actually aired, the primary election were months away or 
had already taken place.
    The Commission expressed concerns regarding this interpretation in 
the NPRM. Such a sweeping impact on communications would be 
insufficiently linked to pending primary elections, may not have been 
contemplated by Congress, and could raise constitutional concerns.\5\ 
So interpreted, the restrictions on electioneering communications would 
take effect even if an ad were aired only in a State that has already 
held its primary, and thus would restrict ads more than 60 days before 
a general election, arguably in contravention of BCRA.
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    \5\ Considering the 2000 calendar, such an interpretation would 
have resulted in nationwide application of the electioneering 
communication rules to communications mentioning a presidential or 
vice-presidential candidate for more than 270 days between late-
December of 1999 to the election in November 2000.
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    The Commission invited comment on three different interpretations 
of BCRA's requirements for an electioneering communication that refers 
to presidential or vice-presidential primary candidates. The Commission 
first proposed two alternative regulatory provisions addressing this 
issue when it defines how a BCRA provision would apply with respect to 
presidential candidates. 67 FR 51,134. One alternative was linked to 
BCRA's definition of ``electioneering communications'' as 
communications ``made within * * * 30 days before a primary * * * 
election.'' 2 U.S.C. 434(f)(3)(A)(i)(II)(bb). In contrast to 2 U.S.C. 
434(f)(3)(A)(i)(III), which is expressly limited to candidates other 
than President or Vice President, section 434(f)(3)(A)(i)(I) refers to 
``candidate[s] for Federal office'' without qualification. Thus, 
candidates for President are included among those contemplated in 
section 434(f)(3)(A)(i)(I) and (II). Consequently, the express language 
of the statute permits the Commission to define when a communication 
that refers to a clearly identified candidate for President is made 
within 30 days before a primary or national nominating convention.
    The Commission proposed that a communication that refers to a 
clearly identified candidate for President would be ``publicly 
distributed within 30 days before a primary election, preference 
election, or convention or caucus of a political party,'' only where 
and when the communication can be received by 50,000 or more persons 
within the State holding such election, convention or caucus. (This 
portion of the ``electioneering communication'' definition was included 
as Alternative 1-B in proposed 11 CFR 100.29(b)(4).)

[[Page 65194]]

    As an alternative means of addressing the concerns about the 
potential sweep of the electioneering communication provisions to 
presidential primary candidates, the Commission proposed that a 
communication would be considered an electioneering communication only 
if it can be received by 50,000 or more persons in either a State in 
which a presidential primary will occur within 30 days, or nationwide 
if within 30 days of the national nominating convention of that 
candidate's party. (This provision appeared in the proposed rules as 
Alternative 1-A in 11 CFR 100.29(a)(1)(iv).)
    Separately, the Commission sought comments on whether BCRA's 
electioneering communications restrictions as applied to communications 
depicting presidential and vice-presidential candidates could not be 
triggered by a primary election, but would be limited to the 30 days 
before a party's national nominating convention and the 60 days before 
the general election. 67 FR 51,135. This interpretation was based on 
the phrasing of BCRA's limitation of electioneering communications to 
those made ``within 30 days before a primary or preference election, or 
a convention or caucus of a political party that has authority to 
nominate a candidate, for the office sought by the candidate.'' 2 
U.S.C. 434(f)(3)(A)(i)(II)(bb) (emphasis added). This interpretation 
viewed the restrictive adjective clause ``that has authority to 
nominate a candidate'' as modifying all the preceding objects: Both ``a 
convention or caucus of a political party'' and ``a primary or 
preference election.'' Because the presidential candidates of the two 
major parties can only be nominated at their party's national 
nominating convention, no State primary or preference election would 
satisfy this aspect of the definition. Thus, the only communications 
that refer to major party presidential candidates that could be 
considered electioneering communications are those within 30 days of 
the convention or 60 days of the general election.
    Many commenters addressed this issue. Three commenters believe that 
any effort by the Commission to make the 50,000 person standard 
applicable to communications that refer to presidential candidates is 
inconsistent with the plain language of the statute. Twelve commenters 
rejected this view, supporting either Alternative 1-A or 1-B. Many of 
the comments discussed the effect of the alternatives on national 
nominating conventions. Most of those who favored Alternative 1-A, the 
addition to the general definition of ``electioneering 
communications,'' stated that they did so because they approved of its 
express application to communications 30 days before the national 
nominating convention. They argued that the national nominating 
conventions are elections with a national effect, so the relevant base 
of viewers or listeners for a communication shortly before a convention 
is nationwide, like the general election. One of those who favored 
Alternative 1-B, the specification of how ``made within 30 days before 
a primary election'' would apply to presidential primaries, suggested 
that the Commission expand the alternative to cover ads 30 days prior 
to the conventions. Another commenter who favored Alternative 1-A also 
stated that Alternative 1-B would be sufficient if expanded to address 
explicitly national nominating conventions. Only one commenter was 
opposed to including national nominating conventions. That commenter 
argued that because only delegates can vote at national nominating 
conventions, it is inappropriate to require that the communication 
reach more than 50,000 persons nationally.
    Commenters who rejected the interpretation that electioneering 
communications cannot be related to presidential primaries because none 
have ``the authority to nominate a candidate'' described the narrow 
interpretation as plainly inconsistent with BCRA.\6\ In doing so, the 
comments argued that the clause ``that has authority to nominate a 
candidate,'' modifies ``a convention or caucus of a political party'' 
only, so that ``a primary or preference election * * * for the office 
sought by the candidate'' is not modified by the ``authority'' clause. 
The enclosure of the ``authority'' clause in a pair of commas supports 
this reading of the provision, according to these commenters. The 
principal Congressional sponsors of BCRA were among those who endorsed 
this interpretation.
---------------------------------------------------------------------------

    \6\ The lone commenter who supported the interpretation 
preferred it because of the more limited result.
---------------------------------------------------------------------------

    The Commission declines to interpret BCRA to exempt presidential 
primaries from the electioneering communication provisions. The 
Commission also rejects the interpretation of BCRA that would lead to a 
nationwide application of the electioneering communication provisions 
with respect to presidential primaries. Instead, the Commission has 
determined that in defining ``publicly distributed,'' the regulation 
will further specify how a communication is publicly distributed within 
30 days of a presidential primary or preference election or a national 
nominating convention. Given the number of states that hold 
presidential primaries over the course of several months using a 
variety of methods to select delegates to the national nominating 
conventions, the Commission is issuing clarifying regulations. 
Similarly, the multiple days over which national nominating conventions 
generally are conducted also call for specificity as to precisely when 
the 30-day period begins and ends. New Sec.  100.29(b)(3)(ii) 
incorporates the language from Alternative 1-A in the NPRM and uses the 
device of Alternative 1-B, which was defining ``publicly distributed'' 
in these circumstances. Thus, under 11 CFR 100.29(b)(3)(ii)(A), in 
order to qualify as an electioneering communication, a broadcast, 
cable, or satellite communication that refers to a clearly identified 
candidate for his or her party's nomination for President or Vice 
President must be publicly distributed within 30 days before a primary 
election in such a way that the communication can be received by 50,000 
or more persons within the State holding the primary election.
    One commenter inquired whether the 30-day period prior to a 
national nominating convention begins 30 days prior to the first or 
last day of the convention. A plain language reading of BCRA leads to 
the conclusion that the period to which the electioneering 
communication provisions apply begins 30 days prior to the first day of 
a convention or caucus and continues to the end of the convention or 
caucus. For each day within this period, at least one day of the 
convention or caucus will be in the subsequent 30 days. The Commission 
specifies in the final rule at Sec.  100.29(b)(3)(ii)(B) that the 
period begins running 30 days before the first day of the national 
nominating convention.
    The Commission notes that a caucus or convention that selects or 
apportions delegates to a national nominating convention or expresses a 
preference for the nomination of presidential candidates would be 
considered a primary election pursuant to 11 CFR 100.2(c)(2), 
100.2(c)(3), and 9032.7. In some States, caucuses or conventions that 
occur prior to the statewide caucus, convention, or primary determine 
the distribution of the statewide delegation to the national nominating 
convention among candidates for President or Vice President. In such 
cases, the Commission would likely consider the

[[Page 65195]]

caucus or convention that selects or apportions delegates to a national 
nominating convention to be the triggering event for purposes of the 
30-day period in 11 CFR 100.29(a)(2). In light of the variations in 
party procedures among the States, and in order to avoid confusion over 
which event in a political party's nominating process in a particular 
State will trigger the 30-day electioneering communication period for 
candidates for President or Vice President who seek that political 
party's nomination, the Commission will publish on its Web site a list 
of the one event for each political party in each State that triggers 
the 30-day period for candidates for President or Vice President who 
seek that political party's nomination.
    The Commission has also determined that a similar clarification for 
the 60 days preceding the general election is unnecessary because the 
date of the general election does not vary across the States. Without 
the ambiguity caused by the multiple dates and jurisdictions of the 
primary elections, BCRA's plain language clearly establishes the time 
period for electioneering communications related to the presidential 
general election. 2 U.S.C. 434(f)(3)(A)(i)(II)(aa).
4. 11 CFR 100.29(b)(4) Clarifying Primary and General Elections
    The Commission's current rules at 11 CFR 100.2 contain definitions 
of ``general election,'' ``primary election,'' ``runoff election,'' 
``caucus or convention,'' and ``special election'' that will be 
applicable to 11 CFR 100.29. Under 11 CFR 100.2(f), a ``special 
election'' can be a primary, general, or runoff election. BCRA, 
however, groups ``special election'' with general and runoff elections 
for purposes of an electioneering communication. In the NPRM, proposed 
Sec.  100.29(a)(2) would have clarified that, for purposes of section 
100.29, ``special elections'' and ``runoff elections'' would be treated 
consistently with 11 CFR 100.2(f); that is, they could be considered 
primary elections, if held to nominate a candidate; and general 
elections, if held to elect a candidate. 67 FR 51,132.
    Several commenters supported proposed Sec.  100.29(a)(2). The 
principal Congressional sponsors of BCRA were among the supporters, and 
they also noted that Title II of BCRA will not apply to any runoff or 
special election resulting from the 2002 general election. See 2 U.S.C. 
431 note (BCRA, Sec.  402(a)(4), 116 Stat. at 112). In order to be 
consistent with section 100.2(f), the final rules incorporate the 
language of proposed Sec.  100.29(a)(2). However, the final rules place 
the provisions pertaining to special or runoff elections in 11 CFR 
100.29(b)(4).
    One commenter found the Commission's definition of these terms, 
both in existing regulations and in the proposed regulations, to be 
problematic. This commenter argued that the definition of ``election'' 
should be restricted to include only elections in which the candidate 
referred to is running, citing another party's primary as an example 
that should be excluded. The Commission agrees, and has added language 
to proposed Sec.  100.29(a)(2) to clarify that a primary, preference 
election, convention or caucus held by a political party (including 
those that constitute a special election or a run-off election) 
triggers a 30-day period that is only applicable to candidates who seek 
the nomination of that political party. Thus, for example, the date on 
which the Libertarian Party's candidate for Senate is nominated would 
have no bearing on communications that refer to a clearly identified 
candidate who seeks the Democratic Party's nomination for the same 
Senate seat, unless a candidate were to seek the nomination of both 
parties for that Senate seat.
    The same commenter also stated that no legitimate purpose is served 
by including elections in which a candidate is unopposed, as required 
by current 11 CFR 100.2(a). The final rules follow the proposed rules 
because nothing in BCRA or its legislative history reflects any 
Congressional intent to distinguish between elections in which a 
candidate has opposition and those in which he or she does not.
    A commenter requested clarification regarding ``preference 
election'' as used in 2 U.S.C. 434(f)(3)(A)(i)(II)(bb) and 11 CFR 
100.29(a)(2). Section 100.2(c)(2) defines a ``preference election'' to 
be a primary election, while, in contrast, BCRA's electioneering 
communication provision refers separately to primary and preference 
elections. However, the Commission believes no substantive difference 
was intended, so the proposed regulation at 11 CFR 100.29(a)(2) follows 
the statute.
    The same commenter also raised the issue of an independent 
candidate's ability to choose when the primary is considered to occur 
pursuant to 11 CFR 100.2(a)(4). The final rule text does not 
specifically state the Commission's intention in this regard, as the 
Commission decided it was not necessary to address the issue at this 
time.
    This commenter also expressed concern that the dates of non-major 
parties nominating conventions may not be widely known among members of 
the public. BCRA's reference to a convention of a political party that 
has authority to nominate a candidate for the office sought by the 
candidate is not limited to major party conventions. Consequently, the 
Commission does not have the authority under BCRA to exclude non-major 
parties by regulation.
    Finally, the commenter questions the application of the timing 
requirements for electioneering communications in States that may have 
precinct, county, district, or regional caucuses or conventions that 
select delegates to the statewide caucus or convention. As the 
commenter points out, the statewide caucus or convention has the 
authority to nominate a candidate, so the statewide caucus or 
convention satisfies Sec.  100.29(a)(2). If none of the earlier 
caucuses or conventions has the authority to nominate a candidate, by 
definition, they would not mark the end of a 30-day period under 
Sec. 100.29(a)(2). This same analysis also answers the commenter's 
concern about States that have caucuses or conventions prior to a 
primary election. For example, Connecticut and Utah have conventions 
prior to primary elections scheduled for the 2002 Congressional races. 
BCRA's limitation on ``conventions and caucuses'' to those ``that 
[have] the authority to nominate a candidate'' addresses this situation 
by excluding convention and caucuses that do not have that authority. 
As noted above in connection with 11 CFR 100.29(b)(4), a caucus or 
convention that selects or apportions delegates to a national 
nominating convention would likely mark the end of a 30-day period of 
electioneering communications; the Commission will provide guidance on 
its web site on a State-by-State, party-by-party basis.
5. 11 CFR 100.29(b)(5) Definition of ``Targeted to the Relevant 
Electorate''
    BCRA defines ``targeted to the relevant electorate'' at 2 U.S.C. 
434(f)(3)(C) as a communication that can be received by 50,000 or more 
persons either in the Congressional district the candidate seeks to 
represent, in the case of a candidate for Representative, Delegate, or 
Resident Commissioner to the U.S. House of Representatives; or in the 
State the candidate seeks to represent, in the case of a candidate for 
the U.S. Senate. The NPRM included proposed Sec.  100.29(b)(3) that 
followed the statutory language, and that proposal is now made final at 
11 CFR 100.29(b)(5). NPRM, 67 FR 51,133. The commenters who addressed 
this provision agreed with tracking the statutory language in the 
regulation and focused their comments on the

[[Page 65196]]

interpretative questions posed in the NPRM.\7\
---------------------------------------------------------------------------

    \7\ One commenter claimed that BCRA's targeting definition is 
backward. This commenter argued that targeting should be limited to 
ads crafted specifically for a particular district or State. Such a 
focus would ensure that the ad's purpose was to influence the 
election in a manner objectively discernible, and it would 
distinguish an electioneering communication from an issue ad, which 
presumably would seek a broader audience. However, even this 
commenter recognized at the Commission's hearing that the Commission 
must use BCRA's targeting definition.
---------------------------------------------------------------------------

    The definition of ``targeted to the relevant electorate'' includes 
communications that can be received beyond the relevant geographical 
area. A communication that can be received by large numbers of persons 
outside the relevant district or State is nonetheless a targeted 
communication, as long as 50,000 persons in the relevant area can also 
receive it. Conversely, an electioneering communication would not 
include a communication that reaches fewer than 50,000 persons in the 
State or district where the clearly identified candidate is running, 
even if at the same time it also reaches 50,000 or more persons in a 
State or district where the clearly identified candidate is not 
running. The Commission noted this interpretation in the NPRM, and most 
of the commenters who addressed it supported the interpretation. One 
commenter suggested that the Commission address in the final rule what 
it deemed an adjoining market problem. The commenter thought an ad that 
is broadcast on stations intended for an audience in one State might 
reach more than 50,000 persons in another State, for example, because 
media markets may extend beyond State lines. The commenter posited the 
example of an ad broadcast on Massachusetts television stations that is 
intended to influence a Member of Congress from Massachusetts with 
respect to a bill that is supported by the President. Such an ad might 
be broadcast more than 30 days before the Massachusetts primary, so it 
would not be an electioneering communication, even if it clearly 
identified the Member who is seeking reelection. However, because 
several Massachusetts television stations' broadcast signals reach a 
large audience in New Hampshire, if the ad also clearly identifies a 
President seeking reelection, it would constitute an electioneering 
communication if it is broadcast within 30 days of the New Hampshire 
presidential primary election. However, BCRA is clear: If a 
communication can be received in a State or district by 50,000 or more 
persons, and if it meets the timing, content, and medium requirements 
related to electioneering communications, the communication is an 
electioneering communication, regardless of how many potential audience 
members or what percentage of the total potential audience reside in 
another State or district. Therefore, the final rule at Sec.  
100.29(b)(5) does not reflect the commenter's suggestion.

D. The Federal Communications Commission and Determining the Size of a 
Potential Audience

    The subsidiary definitions proposed in the NPRM included a 
provision at 11 CFR 100.29(b)(5) that addresses how to obtain 
information about a communication's potential audience. 67 FR 51,134. 
The proposed provision explained that the Federal Communications 
Commission's web site would provide information about the number of 
individuals in Congressional districts or States that can receive a 
communication publicly distributed by a television station, radio 
station, cable television system, or satellite system. Based on this 
proposal and the comments received on the issues raised by it, the 
Commission is promulgating an Interim Final Rule in a separate 
rulemaking.

E. Exemptions From Definition of ``Electioneering Communication'' in 
BCRA

    BCRA generally defines ``electioneering communications'' at 2 
U.S.C. 434(f)(3)(A) and provides three exceptions to the definition in 
section 434(f)(3)(B)(i) through (iii). BCRA also provides the 
Commission with authority to promulgate regulations that exempt 
additional communications from the definition of ``electioneering 
communications.'' 2 U.S.C. 434(f)(3)(B)(iv). BCRA also imposes a 
significant limitation on this authority: the Commission may exempt 
only communications that do not promote, support, attack, or oppose a 
Federal candidate. Id.
    In the Commission's regulations, 11 CFR 100.29(a) and (b) define 
``electioneering communications,'' and Sec.  100.29(c) provides for 
exceptions to the definition. The exceptions in 11 CFR 100.29(c)(1) 
through (4) are based on the express language of BCRA. The Commission 
proposed a number of additional exemptions in the NPRM. After carefully 
considering the extensive written comments and testimony, which 
highlighted the difficulties involved in crafting permissible 
exemptions, the Commission has decided to promulgate two exemptions: 
one for State and local candidates, 11 CFR 100.29(c)(5), and another 
for certain nonprofit organizations operating under 26 U.S.C. 
501(c)(3). The Commission has also decided not to promulgate any 
further exemptions.
1. 11 CFR 100.29(c)(1) Communications Other Than Broadcast, Cable or 
Satellite
    BCRA expressly limits electioneering communications to broadcast, 
cable, or satellite communications. As discussed above in connection 
with 11 CFR 100.29(b)(1), the legislative history establishes that 
BCRA's focus was on radio and television ads. Based on the statutory 
language and the legislative history, the final rule at 11 CFR 
100.29(c)(1) provides examples of communications that are not included 
in the definition of electioneering communication. The list of 
exemptions includes communications appearing in print media, including 
a newspaper or magazine, handbills, brochures, bumper stickers, yard 
signs, posters, billboards, and other written materials, including 
mailings; communications over the Internet, including electronic mail; 
and telephone communications.
    Most of the comments received on proposed 11 CFR 100.29(c)(1) 
discussed the exemption for the Internet. Those who did comment on the 
remainder of the paragraph, including the principal Congressional 
sponsors of BCRA, agreed that it conformed to BCRA.
    The Internet is included in the list of exceptions in the final 
rules in section 100.29(c)(1) because, in most instances, it is not a 
broadcast, cable, or satellite communication. BCRA's legislative 
history, which is discussed above in connection with 11 CFR 
100.29(b)(1), establishes Congress's intent to exclude communications 
over the Internet from the electioneering communication provisions. The 
Commission concludes that Congress did not seek to regulate the 
Internet in subtitle A of Title II of BCRA. The relatively few 
commenters who opposed the Internet exemption did not disagree with 
this conclusion; rather, they argued that as the Internet develops, 
aspects of it might come to be used in a manner like radio or 
television. To these commenters, this potential evolution of the 
Internet calls for a more precise approach and makes the exemption as 
proposed too broad a treatment of this issue. The Commission has 
decided to include the exemption in the final rules, rather than 
attempt to craft a regulation that responds to unknown, future 
developments.
    The NPRM noted that ``webcasts'' or other communications that are 
distributed only over the Internet would be excluded from the 
definition of electioneering communications, but television or radio 
communications that

[[Page 65197]]

are simultaneously ``webcast'' over the Internet or archived for 
viewing or listening over the Internet would be included in the 
definition of electioneering communications. 67 FR 51,133. Some 
comments on the definition of ``broadcast, cable, or satellite 
communication'' in proposed Sec.  100.29(b)(1) and the exemption in 
proposed Sec.  100.29(c)(1) suggest that a clarification is in order. 
The discussion in the NPRM was intended to make clear that if a 
communication meets the content, timing, media, and potential audience 
criteria for an electioneering communication, webcasting that 
communication, or archiving it for later viewing via the Internet, will 
not remove the television or radio aspect of the communication from the 
definition of ``electioneering communication.'' Thus, the exemption for 
communications on the Internet is not so broad that it could inoculate 
a television and radio communication that otherwise satisfies the 
electioneering communication criteria from the electioneering 
communication rules, merely because the communications is also webcast 
or archived for later viewing or listening over the Internet. The 
Internet aspect of the communication, including the number of potential 
recipients, will not be considered in determining whether a 
communication meets the definition of an ``electioneering 
communication.''
    The NPRM also asked how WebTV should be treated. 67 FR 51,133. One 
commenter stated that WebTV is an alternative means of accessing the 
Internet, so it would be subject to the Internet exemption in Sec.  
100.29(c)(1). Another commenter argued that the regulation should 
explain that the Internet exemption applies no matter what equipment is 
used to access the Internet. The Commission agrees that accessing the 
Internet with WebTV or any other technology is included within the 
Internet exemption. Because the exemption is not limited to any 
particular technology to access the Internet, the text of the final 
rule follows the proposed rule.
    Some argued that the exemption in proposed 11 CFR 100.29(c)(1) 
should be expanded to include public access television and radio 
channels and digital audio radio satellite. Others argued that because 
those services are undeniably television, radio, and satellite, any 
exemption for them would be contrary to the plain language of BCRA. The 
Commission agrees with the latter viewpoint, so no specific exemption 
of this nature is included in the final rules.
2. 11 CFR 100.29(c)(2) Exemption for a News Story, Commentary or 
Editorial
    The exemption for a news story, commentary or editorial in 11 CFR 
100.29(c)(2) closely follows the statutory language from 2 U.S.C. 
434(f)(3)(B)(i), which exempts such communications from the definition 
of ``electioneering communication,'' unless the facilities distributing 
the communication are owned or controlled by any political party or 
committee, or a candidate. The final rule adds that communications 
distributed by such facilities are exempt from the electioneering 
communication definition if the communications meet the requirements of 
11 CFR 100.132(a) and (b).
    The commenters supported a rule that refers to the existing media 
exemption. The commenters also supported the regulation's inclusion of 
broadcast, cable, and satellite communications, in place of the 
statute's reference to broadcast communications. The legislative 
history gives no reason to narrow this particular aspect of 
electioneering communications, and the commenters, including the 
principal Congressional sponsors of BCRA, agreed with the consistent 
use of the broader phrase.
    Some of the comments suggested additional exemptions for 
documentaries, educational programming, or entertainment, which 
apparently reflects a concern that this exemption would be narrowly 
interpreted. The Commission interprets ``news story commentary, or 
editorial'' to include documentaries and educational programming in 
this context. Entertainment programming is not mentioned in BCRA, so 
the final regulation does not include it either. Please note, however, 
that the limitation of the definition of ``electioneering 
communications'' to those in which a fee is charged or paid for a 
public distribution will likely exempt from the definition of 
``electioneering communications'' nearly all of the entertainment 
programming discussed by the commenters.
3. 11 CFR 100.29(c)(3) Exemption for Expenditures and Independent 
Expenditures
    Title II, subtitle A of BCRA also specifically provides an 
exemption for communications that constitute expenditures or 
independent expenditures under the Federal Election Campaign Act. 2 
U.S.C. 437(f)(3)(B)(ii). In the NPRM, two alternatives were proposed to 
implement this provision. 67 FR 51,135-36. The first alternative 
reiterated the statutory exemption as proposed in Sec.  100.29(c)(3). 
Under this alternative, any expenditure of a Federal political 
committee and any independent expenditure would not be subject to the 
electioneering communication reporting requirements, but would remain 
subject to FECA's other reporting requirements and its prohibitions and 
limitations on funding sources. The comments from BCRA's principal 
sponsors explained that the electioneering communication provisions 
were ``mainly concerned with election-related disbursements that 
avoided regulation under FECA.'' They stated that because expenditures 
and independent expenditures are subject to regulation under FECA, the 
statutory exemption from Title II, subtitle A of BCRA ensures that 
BCRA's Title II, subtitle A applies to disbursements that are not 
subject to FECA's other requirements, prohibitions, and limitations. 
The exemption's purpose, the sponsors therefore argue, is to avoid 
requiring political committees to report the same expenditures twice.
    Most who commented on this issue urged the Commission to implement 
Alternative 2-A, which repeats the statutory language. Only one 
commenter preferred Alternative 2-B, which would have limited the 
exemption to ``candidate-specific expenditures'' that are reportable as 
an in-kind contribution or a party committee coordinated expenditure, 
or an independent expenditure. This commenter preferred what it 
characterized as duplicative reporting required under that alternative 
to a reporting scheme it considered incomplete. The commenter agreed, 
however, that the purpose of the exemption for expenditures was to 
avoid duplicative and potentially conflicting reporting requirements. 
Because Alternative 2-B would lead to duplicative reporting and because 
Alternative 2-A includes BCRA's language, the Commission has decided 
that the final rule will include Alternative 2-A's language, with one 
modification.
    It is possible that a group could pay for an ad and claim that the 
payment is an expenditure because it was for the purpose of influencing 
a Federal election, as expenditure is defined in 2 U.S.C. 431(9). As 
such, the group could claim that the ad was exempt from the definition 
of ``electioneering communication'' as an expenditure pursuant to 2 
U.S.C. 437(f)(3)(B)(ii). However, the group could simultaneously claim 
that it does not meet the major purpose test, and therefore it is not 
required to register as a political committee or to report its 
expenditures. Thus, the group running

[[Page 65198]]

an ad could invoke the BCRA exemption for expenditures, which prevents 
double reporting, and simultaneously claim the expenditure is not 
subject to FECA reporting requirements because the group is not a 
political committee under FECA. To prevent such a situation, the 
Commission has clarified the final rule at 11 CFR 100.29(c)(3) to limit 
the exemption to expenditures and independent expenditures that are 
required to be reported as such under the Act and the Commission's 
regulations. This clarification follows suggestions from several 
commenters, including the principal Congressional sponsors of BCRA. 
Under this regulation, the campaign committees of Federal candidates 
and the national party committees will be totally exempt from the 
electioneering communications provisions.
4. 11 CFR 100.29(c)(4) Exemption for Candidate Debates or Forums
    BCRA includes an exemption at 2 U.S.C. 434(f)(3)(B)(iii) for a 
communication that ``constitutes a candidate debate or forum conducted 
pursuant to regulations adopted by the Commission, or which solely 
promotes such a debate or forum and is made by or on behalf of the 
person sponsoring the debate or forum.'' The final rules in 11 CFR 
100.29(c)(4) implement this provision and refer to 11 CFR 110.13, which 
contains the Commission's current regulation on candidate debates. All 
of the commenters that addressed this issue agreed with the proposed 
rules in 11 CFR 100.29(c)(4), except that one commenter argued that the 
requirements of Sec.  110.13 should not apply in this context to limit 
the exemption from the electioneering communication definition. 
However, BCRA expressly refers to regulations adopted by the Commission 
in this regard, and 11 CFR 110.13 applies to candidate debates. The 
Commission finds no reason to adopt a different standard in the 
electioneering communication exemption. Additionally, pursuant to the 
operation of Sec. Sec.  110.13 and Sec.  114.4(f),\8\ if the conduct of 
a debate does not meet the requirements of Sec.  110.13, any corporate 
or labor organization funding for such a debate would constitute a 
prohibited contribution or expenditure.\9\
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    \8\ Nonprofit corporations are permitted by 11 CFR 114.4(f) to 
use their funds and funds donated by corporations or labor 
organizations to stage debates in accordance with 11 CFR 110.13. 11 
CFR 114.1(a)(2)(x) exempts any activity specifically permitted by 11 
CFR part 114 from the definition of ``contribution and 
expenditure.''
    \9\ The Commission received a Petition for Rulemaking from a 
number of corporations owning and operating news organizations, 
television stations, newspapers, cable channels, and other media 
ventures, as well as media trade associations. The petition asked 
the Commission to amend its regulation on sponsorship of candidate 
debates to ``make clear that it does not apply to the sponsorship of 
a candidate debate by a news organization or a trade organization 
composed of, or representing, members of the press.'' The petition 
asserts that any regulation of the sponsorship of debates by news 
organizations or related trade associations is contrary to the clear 
intent of the U.S. Congress, irreconcilable with other FEC 
decisions, in conflict with the regulatory decisions of the Federal 
Communications Commission, and unconstitutional. A Notice of 
Availability for the petition was published on May 9, 2002. 65 FR 
31,164. Two comments were received by the end of the public comment 
period, on June 10, 2002. Some commenters on the Electioneering 
Communications rulemaking urged the Commission to accelerate 
consideration of the petition. However, the Commission intends to 
defer consideration of whether to issue a Notice of Proposed 
Rulemaking until after the statutorily required BCRA rulemakings are 
completed by the end of the year. In the meantime, the Commission's 
debate regulations remain in effect.
---------------------------------------------------------------------------

F. Regulatory Exemptions From Definition of ``Electioneering 
Communication''

    In addition to the exemptions expressly created by BCRA, the 
statute also provides that ``to ensure the appropriate implementation'' 
of the electioneering communication provisions, the Commission may 
promulgate regulations exempting other communications from the 
``electioneering communications'' definition. 2 U.S.C. 
434(f)(3)(B)(iv). However, the statutory authorization to exempt 
communications is expressly limited in two ways. The exemption must be 
promulgated consistent with the requirements of the new electioneering 
communication provision, and the exempted communication must not be a 
``public communication'' that refers to a clearly identified candidate 
for Federal office and that promotes or supports a candidate for that 
office, or attacks or opposes a candidate for that office. 2 U.S.C. 
434(f)(3)(B)(iv) (referencing 2 U.S.C. 431(20)(A)(iii)).
    Some of the commenters argued that the exemption authority provided 
to the Commission is extremely limited. Relying upon legislative 
history, the principal Congressional sponsors of BCRA explained the 
exemption authority would ``allow the Commission to exempt 
communications that `plainly and unquestionably' are `wholly unrelated' 
to an election and do not `in any way' support or oppose a candidate. 
In addition, any exemption that applies to entities other than parties 
and candidates must preserve the `bright line' quality of the original 
provision.'' See 148 Cong. Rec. H410-411 (daily ed. Feb. 13, 2002) 
(statement of Rep. Shays).
    In its consideration of potential exemptions, the Commission has 
used the express language of the statute as its guide for the extent of 
its exemption authority. Thus, the Commission acknowledges that the 
statute limits its exemption authority by providing that the Commission 
may not exempt communications that promote, support, attack or oppose a 
candidate. The Commission's exemption authority is also limited by 
BCRA's use of ``bright line'' distinctions between electioneering 
communications and other communications.
    In the NPRM, the Commission proposed regulatory text for three 
exemptions in addition to the statutory exemptions. Proposed 11 CFR 
100.29(c)(5) through (7). Among these was a proposed exemption 
available to State and local candidates. See NPRM, proposed 11 CFR 
100.29(c)(7), 67 FR 51,145. Additionally, several commenters suggested 
an exemption for any communication made by a tax-exempt organization 
described in 26 U.S.C. 501(c)(3). As described in detail below, the 
Commission adopted only these two exemptions, one for communications 
paid for by State or local candidates that is similar to the exemption 
at proposed 11 CFR 100.29(c)(7), and the other for communications paid 
for by certain nonprofit organizations operating under 26 U.S.C. 
501(c)(3).
1. 11 CFR 100.29(c)(5) Exemption for State and Local Candidates
    The Commission proposed an exemption in the NPRM that would cover 
communications by State and local candidates and officeholders that 
refer to a clearly identified Federal candidate, provided that mention 
of a Federal candidate is merely incidental to the candidacy of one or 
more individuals for State or local office. 67 FR 51,136. For example, 
under this approach, an ad for a State or local candidate that featured 
such candidate's views on education would not have been rendered an 
electioneering communication if the ad were to indicate whether the 
candidate supported or opposed the President's education policy.
    Four commenters thought the Commission's formulation of such an 
exemption was vague, subject to abuse, not supported by BCRA, and 
therefore beyond the Commission's exemption authority. Nonetheless, 
these same commenters supported an alternative

[[Page 65199]]

formulation that exempts communications by State or local candidates or 
State or local political parties that refer to clearly identified 
Federal candidates, provided the communications do not promote, 
support, attack or oppose a Federal candidate. By using that standard, 
the commenters believed the exemption would also serve to harmonize the 
operation of Title I and subtitle A of Title II of BCRA as they apply 
to State and local parties and their candidates.
    Title I of BCRA permits State, district, or local party committees, 
organizations, or their candidates to use non-Federal funds for 
communications that clearly identify a Federal candidate, but do not 
promote, support, attack, or oppose any Federal candidate. See 2 U.S.C. 
431(20)(A)(iii) and 11 CFR 100.24(b)(3) (defining Federal election 
activity to include only those public communications that promote, 
support, attack or oppose a clearly identified Federal candidate); 2 
U.S.C. 441i(b)(1) and 11 CFR 300.32(a)(1) (association of State office 
candidates or incumbents required to use Federal funds for Federal 
election activity); 2 U.S.C. 441i(b)(1) and 11 CFR 300.32(a)(2) (same 
for State, district, and local party committees); 2 U.S.C. 441i(f)(1) 
and 11 CFR 300.71 (State and local candidates required to use Federal 
funds for a communication that does promote, support, attack or oppose 
a Federal candidate). Therefore, according to these commenters, absent 
an exemption, if a State, district, or local party committee, 
organization, or a State or local candidate creates and distributes a 
radio or television communication that refers to a clearly identified 
Federal candidate, but does not promote, support, attack or oppose any 
Federal candidate, and is not otherwise a contribution or expenditure, 
Title I of BCRA would permit the use of non-Federal funds to pay for 
that communication. However, if the same communication were publicly 
distributed and met the timing and targeting requirements of subtitle A 
of Title II, then the communication would also be an electioneering 
communication, so the use of corporate or labor organization funds to 
pay for it would be prohibited by subtitle A of Title II. According to 
these commenters, this inconsistent result is contrary to the intention 
of Title I in permitting the use of non-Federal funds for these 
purposes. Additionally, the principal Congressional sponsors argue that 
``effectively tak[ing] state candidates and parties out of the Title II 
prohibitions and reporting requirements * * * is consistent with the 
purposes of BCRA.''
    The Commission agrees that an exemption for State and local 
candidates that is within the parameters of 2 U.S.C. 434(f)(3)(B)(iv) 
is appropriate in order to harmonize Title I and subtitle A of Title II 
of BCRA. Accordingly, the final rules include an exemption from the 
definition of ``electioneering communication'' for communications that 
are not described in 2 U.S.C. 431(20)(A)(iii) and that are paid for by 
State or local candidates in connection with an election to State or 
local office. See 11 CFR 100.29(c)(5). Thus, this exemption covers 
public communications by State and local candidates that do not 
promote, support, attack, or oppose federal candidates. See new 11 CFR 
300.72 exempting these communications from certain requirements of 
Title I of BCRA.
    In contrast, however, State and local candidates making public 
communications that satisfy the description set forth in 2 U.S.C. 
431(20)(A)(iii) (i.e. public communications by State and local 
candidates that promote, support, attack, or oppose Federal 
candidates), are governed by Title I of BCRA and not by subtitle A of 
Title II of BCRA. Thus, under 2 U.S.C. 441i(f), 11 CFR 100.5(a), and 11 
CFR 300.71, these communications must be paid for with Federal funds 
meeting the limits, prohibitions, and reporting requirements of the 
Act, including the contribution limits set forth at 2 U.S.C. 
441a(a)(1)(C) applicable to political committees that are not the 
authorized campaign committees of Federal candidates. The reporting 
obligations of State and local candidates making communications 
promoting, supporting, attacking, or opposing federal candidates are 
governed by a number of provisions depending on the exact nature of the 
communications and the persons making them. See, e.g., 11 CFR 
300.36(a)(associations and groups of State and local candidates that 
are not political committees), 11 CFR 300.36(b)(associations and groups 
of State and local candidates that are political committees), 11 CFR 
300.71(individuals who are State or local candidates), and 2 U.S.C. 
434(g)(any person who makes an independent expenditure).
2. 11 CFR 100.29(c)(6) Exemption for 501(c)(3) Organizations
    The Commission received comment from members of the non-profit 
community expressing concern that subtitle A of Title II of BCRA could 
inadvertently stifle the ability of charitable organizations to carry 
out their core functions by limiting or prohibiting their advertising 
on television and radio. One commenter wrote that a broad reading of 
BCRA could mean that ``[c]harities would be prohibited from 
broadcasting fundraising appeals or public service announcements that 
feature people who are candidates if the appeals run within 30 days of 
a primary or 60 days of a general election. Documentaries and other 
educational programming featuring individuals who are candidates would 
also be banned.''
    Several commenters requested that the Commission exercise its 
authority to craft exemptions for communications that do not promote, 
support, attack, or oppose a candidate for federal office when made by 
corporations organized under 26 U.S.C. 501(c)(3). These commenters 
pointed out that the tax code expressly prohibits organizations 
described in section 501(c)(3) from ``participat[ing] in, or 
interven[ing] in * * * any political campaign on behalf of (or in 
opposition to) any candidate for public office.'' 26 U.S.C. 501(c)(3). 
As such, noted another commenter, because ``501(c)(3) organizations are 
absolutely prohibited by the [Internal Revenue Code] from engaging in 
or funding any activity that even insinuates support or opposition to a 
candidate for public office, they are held to a demonstrably higher 
regulatory standard than other corporations.'' Therefore, the commenter 
concluded, ``BCRA's application to 501(c)(3)s [would] prohibit[ ] 
activity that is already forbidden,'' and the activities the Internal 
Revenue Service permits 501(c)(3) organizations to engage in are 
activities ``that BCRA was not intended to reach.''
    Many commenters noted that the penalties for violating the Internal 
Revenue Code prohibitions are severe, viz., ``revocation of tax-exempt 
status [and] other potential penalties * * * including substantial 
taxes on the electioneering activity and penalties that personally 
apply to managers of an organization that knowingly violate the 
prohibition.''
    Some supporters of BCRA submitted comments discouraging the 
creation of a categorical exemption for 501(c)(3) organizations. Many 
such commenters referred to statements made by Representative Shays, a 
chief sponsor of the BCRA legislation, as definitive evidence that 
Congress did not intend BCRA to give the Commission authority to create 
such an exemption. See 148 Cong. Rec. H411 (daily ed. Feb. 13, 2002) 
(Statement of Rep. Shays). In written comments to the Commission,

[[Page 65200]]

however, the congressional sponsors, including Representative Shays, 
drew a distinction between Congress' decision not to include a 
statutory exemption and the Commission's discretion to create a 
regulatory exemption, based upon the Commission's understanding of the 
needs of these organizations balanced against the past practices of 
non-profits in this area. ``(W)hile the issues of Public Service 
Announcements and ads created by 501(c)(3) charities were raised during 
the drafting of Title II, Congress did not create statutory exemptions 
for these types of ads. Before doing so, the Commission must be 
convinced that such ads have been run in the past during the pre-
election windows and that exempting them will not create opportunities 
for evasion of the statute.''
    Testimony on these issues was elicited in a public hearing, 
specifically, as to whether there is a history of ads run by 501(c)(3) 
organizations close to elections and whether theses organizations tend 
to violate the Internal Revenue Service prohibitions against political 
activity. Witnesses agreed that this activity was rare, but also that 
501(c)(3) corporations make extraordinary efforts to avoid Internal 
Revenue Service prohibitions against political activity when ads are 
run. The representative of one non-profit organization testified that 
``(t)here's no demonstrated record of abuse by public charities in 
terms of electioneering. That's not the group that the campaign finance 
laws were meant to address. * * *.'' The Commission also notes that all 
of the examples mentioned in testimony as the type of ads that Congress 
meant to limit were based on ads run by 501(c)(4) or other types of 
organizations, not 501(c)(3) organizations.
    More compelling, however, was the testimony of one non-profit 
organization as to the effect on charitable organizations that could 
arise should the Commission fail to provide an exemption. One witness 
testified that, ``already the tax rules are complicated enough. If you 
throw in election law on top of that, there are many groups that will 
just throw up their hands and say we're not going to get involved (in 
grassroots lobbying activity), it's just too risky, it's too much to 
take on.''
    Second, many commenters expressed concern that investigations under 
BCRA, even when a complaint is without merit, could have a disastrous 
effect on a charitable organization. One witness stated, ``(w)e've 
already seen some evidence of people on different sides of issues 
reporting the groups that have opposed them on the issues to various 
authorities looking for an investigation, and even if a non-profit had 
in no way violated campaign finance laws, especially if it were a 
public charity, just being investigated by the FEC would have a 
devastating effect on the organization.'' The same witness also noted 
that the Commission's advisory opinion process would not be a 
satisfactory alternative, as too many organizations would fear that any 
request they direct to the Commission would only raise with the 
Internal Revenue Service the issue of whether they are contemplating 
electoral activity. Other non-profit organizations testified that they 
did not have the financial resources to retain legal counsel and seek 
an advisory opinion from the Commission, although legal counsel is not 
required to seek an advisory opinion. The Commission also notes that 
the rationale for exempting 501(c)(3) organizations applies to all such 
organizations, which makes a regulatory exemption more appropriate than 
an exemption granted in an advisory opinion, which is necessarily 
limited to the particular facts and circumstances of the request and is 
granted on a case-by-case basis.
    Section 501(c)(3) of the Internal Revenue Code exempts from 
taxation certain trusts and corporations organized and operated 
exclusively for religious, charitable, scientific, testing for public 
safety, literary, or educational purposes, or to foster national or 
international amateur sports competition, or for the prevention of 
cruelty to children or animals. It is the communications of these 
organizations that the Commission exempts from Title II, subtitle A of 
BCRA at 11 CFR 100.29(c)(6).
    Section 501(c)(3) organizations are barred as a matter of law from 
being involved in partisan political activity. The Commission believes 
the purpose of BCRA is not served by discouraging such charitable 
organizations from participating in what the public considers highly 
desirable and beneficial activity, simply to foreclose a theoretical 
threat from organizations that has not been manifested, and which such 
organizations, by their very nature, do not do.
    In exempting 501(c)(3) organizations from Title II, subtitle A of 
BCRA, the Commission is not delegating enforcement of the 
electioneering communication provisions to the Internal Revenue 
Service. Rather the Commission anticipates that the Internal Revenue 
Service will continue to review the activities of 501(c)(3) 
organizations to make sure those organizations comply with the tax 
code, without reference to Title II of BCRA. Should the Internal 
Revenue Service determine, under its own standards for enforcing the 
tax code, that an organization has acted outside its 501(c)(3) status, 
the organization would be open to complaints that it has violated or is 
violating Title II of BCRA. Additionally, under 2 U.S.C. 438(f), the 
Commission and the Internal Revenue Service must work together to 
promulgate rules that are mutually consistent. The final rules, 
including new 11 CFR 100.29(c)(6), therefore, do not permit any 
activity that is prohibited under the Internal Revenue Code and 
regulations prescribed thereunder.

G. Other Exemptions Considered

    In the NPRM, the Commission proposed for an exemption related to 
the popular name of legislation. Proposed 11 CFR 100.29(c)(5). Four 
alternatives, designated Alternative 3-A through 3-D, were included for 
another exemption related to grass-roots lobbying. 11 CFR 100.29(c)(6). 
Additionally, the Commission sought comment on several other potential 
exemptions. 67 FR 51,136. As described in detail below, the Commission 
has concluded that none of these exemptions is consistent with the 
limited authority provided to the Commission by the statute to make 
exemptions for communications that do not promote, support, attack or 
oppose a Federal candidate. Consequently, the Commission is not 
promulgating any of the other exemptions to the definition of 
``electioneering communication'' proposed in the NPRM.
1. Proposed 11 CFR 100.29(c)(5) Popular Name of Legislation
    In the NPRM, the Commission proposed an exemption at 11 CFR 
100.29(c)(5) that would have exempted a communication that refers to a 
bill or law by its popular name where that name happens to include the 
name of a Federal candidate, if the popular name is the sole reference 
made to a Federal candidate. 67 FR 51,136. Many commenters were opposed 
to this exemption.
    The argument most frequently cited in opposition to this exemption 
is the absence of an objective standard for the popular name of a bill 
or law. This lack of an objective standard would make the proposed 
exemption an easy means of evading the electioneering communication 
provisions, because a constructed popular name could be used to link a 
candidate to a popular or unpopular position. In the view of these 
commenters, such communications could easily promote, support, attack 
or

[[Page 65201]]

oppose a Federal candidate, which would make an exemption for these 
communications beyond the Commission's authority.
    Even some of the supporters of this exemption acknowledged the 
problem of the lack of an objective standard as to what constitutes a 
popular name of a bill or law. Three supporters proposed responses: one 
suggested that the Commission limit its exemption to only the original 
sponsors of the legislation, which would exclude co-sponsors. Another 
suggested that the Commission limit the exemption to ``the unique name 
generally used by the media.'' A third suggested that the exemption be 
limited to communications publicly distributed nationwide. According to 
this commenter, if such communications use a candidate's name as the 
popular name of a bill, the nationwide audience would demonstrate the 
purpose of the communication is truly related to the legislation, and 
not the particular candidate's election because only a small portion of 
the audience for a nationwide communication could vote for or against 
the candidate. This rationale for this proposal applies only to non-
presidential candidates.
    Opponents of this proposed exemption also argued it was 
unnecessary. They observed that speakers who wished to communicate 
about a bill or legislation could use the candidate's name and simply 
avoid that candidate's particular State or Congressional district 
during the narrow time period covered by the definition of 
``electioneering communication.'' Additionally, even during that time 
and in that district, the commenters pointed out that the legislation 
could be discussed without mentioning the particular candidate. Thus, 
to these commenters, the absence of the exemption would have a limited 
impact on speakers, but the presence of an exemption would provide the 
opportunity for significant abuse.
    The Commission is persuaded by the examples cited by the commenters 
and other examples from its own history of enforcement actions that 
communications that mention a candidate's name only as part of a 
popular name of a bill can nevertheless be crafted in a manner that 
could reasonably be understood to promote, support, attack or oppose a 
candidate. Furthermore, this type of exemption is not necessary because 
communications can easily discuss proposed or pending legislation 
without including a Federal candidate's name by using a variety of 
other means of identifying the legislation. In addition, the Commission 
recognizes that there are valid concerns as to which names to include 
in a bill's popular name, which are not necessarily resolved by the 
mechanical use of the name of only the original sponsors. Nor would 
this approach adequately address the names of the sponsors of 
amendments to the legislation. Consequently, the final rules do not 
include an exemption for such communications.
2. Proposed 11 CFR 100.29(c)(6) Exemption for Lobbying Communications
    The Commission proposed four alternatives designated Alternatives 
3-A through 3-D in the NPRM that would exempt communications that are 
devoted to urging support for or opposition to particular pending 
legislation or other matters, where the communications request 
recipients to contact various categories of public officials regarding 
the issue. 67 FR 51,136.
    Alternative 3-A would have excluded any communication devoted 
exclusively to urging support for or opposition to particular pending 
legislation or executive matters, where the communication only requests 
recipients to contact an official without promoting, supporting, 
attacking, or opposing a candidate or indicating the candidate's 
position on the legislation in question. Alternative 3-B would have 
excluded any communication concerning only a pending legislative or 
executive matter, in which the only reference to a Federal candidate is 
a brief suggestion that the candidate be contacted and urged to take a 
particular position, and no reference to a candidate's record, 
position, statement, character, qualifications, or fitness for an 
office or to an election, candidacy, or voting is included. Alternative 
3-C would have excluded any communication that does not include express 
advocacy, and that refers either to a specific piece of legislation or 
to a general public policy issue and contains contact information for 
the person whom the communication urges the audience to contact. 
Alternative 3-D would have excluded any communication that urges 
support of or opposition to any legislation or policy proposal and only 
refers to contacting a clearly identified incumbent candidate to urge 
the legislator to support or oppose the matter, without referring to 
any of the legislator's past or present positions.
    A wide range of commenters addressed these alternatives, and none 
of the alternatives was favorably received. The most frequently 
expressed comments were that each of the alternatives could be easily 
evaded so that a communication that met the requirements for an 
exemption nonetheless would also promote, support, attack, or oppose a 
Federal candidate. Each of the alternatives included terms that 
commenters found vague. The ``promote, support, attack, or oppose'' 
standard was considered inappropriate by some for this context, which 
will apply to entities other than candidates and political party 
committees. Alternative 3-C's exemption of all communications was 
singled out by some commenters who argued it would completely undermine 
BCRA's requirement because it would exempt virtually all of the ads 
that led Congress to enact the electioneering communication provisions; 
however, this alternative was also supported by other commenters who 
found it the least objectionable of the four alternatives. Several 
commenters argued that the apparent distinction between incumbent 
legislators and all other candidates in Alternative 3-D could raise 
constitutional issues.
    Some commenters urged the Commission to promulgate another proposal 
that shares most of the elements of Alternative 3-B. With disagreement 
about only one issue, these commenters proposed an exemption for 
communications that contain the following elements: (A) The 
communication is devoted exclusively to a pending legislative or 
executive branch matter and (B) its only reference to a clearly 
identified Federal candidate is a statement urging the public to 
contact the Federal candidate or a reference that asks the candidate to 
take a particular position on the pending legislative or executive 
branch matter. The proposed formulation of the exemption advocated by 
these commenters would not extend to any communication that included 
any reference to any of the following: any political party, the 
candidate's record or position on any issue, or the candidate's 
character, qualifications or fitness for office or to the candidate's 
election or candidacy. Other commenters went further than this proposal 
and also required that the candidate not be named or appear in the 
communication; the candidate could only be identified as ``Your 
Congressman'' or a similar reference that does not include the 
candidate's name.
    The Commission concludes that communications exempted under any of 
the alternatives for this proposal could well be understood to promote, 
support, attack, or oppose a Federal candidate. Although some 
communications that are devoted exclusively to pending public

[[Page 65202]]

policy issues before Congress or the Executive Branch may not be 
intended to influence a Federal election, the Commission believes that 
such communications could be reasonably perceived to promote, support, 
attack, or oppose a candidate in some manner. The Commission has 
determined that all of the alternatives for this proposed exemption, 
including those proposed by the commenters, do not meet this statutory 
requirement.
3. Exemption for Business Advertisements
    In the NPRM, the Commission invited suggestions on whether to 
promulgate an exemption for communications that refer to a clearly 
identified candidate in the context of promoting a candidate's 
business, including a professional practice, for example. 67 FR 51,136. 
However, no draft exemption was included in the proposed rules.
    The commenters who addressed this issue urged the Commission to 
adopt an exemption for such advertisements, arguing that candidates who 
use television or radio to promote their commercial interests have an 
interest in continuing to do so during the relevant periods before 
elections. One commenter suggested that a narrowly drawn exemption 
would be appropriate and that it should be limited to ads that promote 
the business's product or service and that identify the candidate only 
by stating his or her name as part of the name of the business. This 
commenter believed that if the candidate appeared or spoke in such ads, 
they would constitute electioneering communications.
    The Commission has determined that a narrow exemption for such ads 
is not appropriate and cannot be promulgated consistent with the 
Commission's authority under 2 U.S.C. 434(f)(3)(B)(iv). Based on past 
experience, the Commission believes that it is likely that, if run 
during the period before an election, such communications could well be 
considered to promote or support the clearly identified candidate, even 
if they also serve a business purpose unrelated to the election.
4. Ballot Initiatives and Referenda
    In the NPRM, the Commission invited specific suggestions on whether 
communications that promote a ballot initiative or referendum should be 
exempt from the definition of ``electioneering communications.'' 67 FR 
51,136. The NPRM did not, however, include regulatory language for this 
potential exemption.
    The comments received on this issue were divided. Supporters of 
this exemption argued that the subject matters of these communications 
and the purpose of those who sponsor these ads make them an unlikely 
vehicle to be used to promote, support, attack, or oppose a Federal 
candidate. One of the commenters argued that disbursements promoting or 
opposing a ballot initiative or referendum represent ``the type of 
speech indispensable to decisionmaking in a democracy'' and are 
therefore entitled to the highest degree of First Amendment protection. 
See First National Bank of Boston v. Bellotti, 435 U.S. 765, 777 
(1978). Opponents of the exemption argued that such an exemption would 
be subject to abuse because communications that promote, support, 
attack, or oppose a Federal candidate could be tailored easily to 
qualify for any such exemption. In fact, one commenter directly 
challenged the argument that communications about ballot initiatives or 
referenda are unlikely to relate to Federal candidates. This commenter 
stated: ``Increasingly, political consultants have been putting 
initiatives * * * on the ballot specifically to [affect] candidate 
races. It is too easy to imagine an initiative designed to provoke a 
backlash against a targeted candidate for the House or Senate.'' This 
commenter distinguished Bellotti's protections as applying to 
communications about referenda, but not necessarily communications that 
clearly identify a Federal candidate.
    No such exemption is included in the final rules. The Commission 
believes that communications qualifying for a ballot initiative or 
referendum exemption could well be understood to promote, support, 
attack, or oppose Federal candidates. As ballot initiatives or 
referenda become increasingly linked with the public officials who 
support or oppose them, communications can use the initiative or 
referenda as a proxy for the candidate, and in promoting or opposing 
the initiative or referendum, can promote or oppose the candidate. 
Consequently, it would be quite difficult to exempt such communications 
without violating the limited exemption authority provided to the 
Commission by BCRA in 2 U.S.C. 434(f)(3)(B)(iv).
5. Public Service Announcements
    The NPRM asked whether public service announcements should be 
exempted. Generally speaking, public service announcements (or 
``PSAs'') can be communications for which the broadcaster or satellite 
or cable system operator does not charge a fee for publicly 
distributing. 67 FR 51,136. As such, these communications would not 
meet the definition of ``electioneering communications'' pursuant to 
the operation of 11 CFR 100.29(b)(3)(i). However, broadcasters, and 
satellite and cable system operators do sometimes charge fees for 
publicly distributing other communications commonly known as PSAs and 
either the person who produced the PSA or some third party pays for its 
public distribution. Because of this fee, these PSAs would be subject 
to the definition of ``electioneering communications,'' unless 
exempted. In support of an exemption for all PSAs, several commenters 
pointed to the many worthy causes that use PSAs to accomplish their 
missions and not to influence Federal elections. Other commenters, 
however, did not dispute the existence of PSAs that are not related to 
Federal elections, but instead pointed to the possibility that such an 
exemption could be easily abused by using a PSA to associate a Federal 
candidate with a public-spirited endeavor in an effort to promote or 
support that candidate. Other commenters explained that historically 
PSAs have been used for ``electorally related purposes'' and that such 
communications are ``at the very heart of what the statute is trying to 
get to.''
    While the Commission acknowledges that many worthy causes use PSAs 
for purposes wholly unrelated to Federal elections, the Commission 
nonetheless concludes that television and radio communications that 
include clearly identified candidates and that are distributed to a 
large audience in the candidate's State or district for a fee are 
appropriately subject to the electioneering communications provisions 
in BCRA. Even without such an exemption, an enormous array of 
communications could still promote PSA subject matters during the 
periods before elections, so long as Federal candidates are not clearly 
identified. Consequently, a PSA exemption is not included in the final 
rules.
6. Local Tourism
    The NPRM asked if communications that use Federal candidates to 
encourage local tourism should be exempted from the ``electioneering 
communications'' definition. 67 FR 51,136. Only a few commenters 
addressed this issue, and they supported such an exemption. However, 
the Commission believes that these communications could serve two 
purposes: promoting local tourism, but doing so in a way that also 
could be reasonably perceived to promote or support the Federal 
candidate appearing in the communication. Because such an exemption may 
encompass communications that could be viewed to promote, support, 
attack, or oppose a

[[Page 65203]]

Federal candidate, the Commission has decided not to include such an 
exemption in the final rules.

II. Ban on the Use of Corporate and Labor Organization Funds

    BCRA amends 2 U.S.C. 441b by extending the prohibition on the use 
of corporate and labor organization treasury funds to the financing, 
directly or indirectly, of electioneering communications. The NPRM 
proposed to implement this restriction in several ways: through the 
amendment of 11 CFR 114.2 to reflect the stated restriction; through 
the amendment of 11 CFR 114.10 to allow qualified non-profit 
corporations (``QNCs'') to make not only independent expenditures, but 
also electioneering communications; and through the creation of 11 CFR 
114.14 to restrict the indirect use of corporate and labor organization 
treasury funds to finance electioneering communications.

A. 11 CFR 114.2 Prohibitions on Contributions and Expenditures by 
Corporations and Labor Organizations.

    In the NPRM, the Commission proposed to revise 11 CFR 114.2(b) by 
restructuring the current provisions into paragraphs (b)(1) and 
(b)(2)(i) and (ii). The proposed rule would also add a new paragraph 
(b)(2)(iii) that would address electioneering communications by 
corporations and labor organizations. For the reasons stated below, the 
Commission has adopted the language of proposed section 114.2(b) in the 
final rules. Therefore, paragraph (b)(1) states the general prohibition 
on corporations and labor organizations making contributions; paragraph 
(b)(2)(i) provides for the corresponding prohibitions on corporate and 
labor organization expenditures; paragraph (b)(2)(ii) restricts express 
advocacy by corporations and labor organizations to those outside the 
restricted class; and paragraph (b)(2)(iii) prohibits electioneering 
communications by corporations and labor organizations to those outside 
the restricted class. Additionally, paragraph (b)(2)(iii) does not 
apply to State party committees and State candidate committees that 
incorporate under 26 U.S.C. 527(e)(1) and are not political committees. 
The additional language to this paragraph is to ensure that these 
incorporated State party and candidate committees are permitted to 
engage in electioneering communications in the same manner as 
unincorporated State party committees and candidate committees that are 
not political committees. The prohibitions in paragraph (b)(2) do not 
apply to qualified nonprofit corporations (``QNCs'') as described in 11 
CFR 114.10.
1. Qualified Nonprofit Corporations
    Several commenters addressed the application of 11 CFR part 114 to 
QNCs. The Commission received three comments regarding the overall 
revisions to section 114.2, one of which was from the sponsors of BCRA. 
All three sets of comments agreed with the revisions that implement 
BCRA's changes to 2 U.S.C. 441b, and specifically agreed with the 
proposed rules permitting QNCs to make electioneering communications. 
Several other commenters addressed only the provision that allows QNCs 
to make electioneering communications. These commenters supported the 
proposal, viewing this as a correct application of the Supreme Court's 
decision in FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238 
(1986) (``MCFL'').
    Two commenters responded in favor of a proposal in the NPRM that 
the Wellstone amendment, which establishes rules for ``targeted 
communications,'' should not be read to apply to communications that 
refer to a clearly identified candidate for President or Vice 
President. See 2 U.S.C. 441b(c)(6). Under this interpretation, 
incorporated 501(c)(4) organizations that do not qualify as QNCs, and 
incorporated section 527 organizations that are not political 
committees registered with and reporting to the Commission, would be 
able to make electioneering communications that refer to a clearly 
identified candidate for President or Vice President, as long as they 
did not use impermissible funds, because such communications are not 
``targeted.'' These commenters both argued that this interpretation can 
be supported by the language of the statute and that it would mitigate 
constitutional concerns about the statute's application.
    Two other commenters argued specifically against this view, one of 
whom noted that this is an incorrect interpretation of 2 U.S.C. 
441b(c)(6) and that this section is properly interpreted to cover all 
communications that mention candidates for President or Vice President. 
The second commenter stated that, to the extent that the Commission 
proposes to construe presidential primary elections to be subject to a 
targeting requirement for purposes of the definition of 
``electioneering communication,'' it should also construe the Wellstone 
amendment to apply to such targeted communications. A third commenter 
argued that the Wellstone provision is directly contrary to MCFL, and 
that, as a result, this commenter supported in principle the 
application of the QNC exception.
    Three commenters argued that the ban on corporate expenditures is 
unconstitutional under the MCFL ruling. According to one of these 
commenters, Congress was aware of the MCFL ruling when it passed BCRA, 
and could have made an exemption for MCFL corporations if it had wanted 
to. Because Congress did not create such an exemption, the Commission 
has no legal ability to do so, according to this commenter. This 
commenter also stated that the Commission should ``follow a policy of 
non-enforcement with regard to qualified non-profits.'' The other 
commenters presented similar arguments. They argued that it was clear 
that ``the purpose of the provision was to close a `loophole' that 
would allow all `interest groups,' regardless of their status, to run 
`sham issue ads.''' See, e.g., 147 Cong. Rec. S2846 (daily ed. Mar. 26, 
2001) (statement of Sen. Wellstone). These commenters further argued 
that, ``even supporters of BCRA recognized that the Wellstone amendment 
would present constitutional problems in the wake of the Supreme 
Court's decision in MCFL. See, e.g., 147 Cong. Rec. S2883 (Mar. 26, 
2001) (statement of Sen. Edwards).'' According to these commenters, it 
is undeniable from the text of BCRA that Congress intended to ban even 
MCFL corporations from making expenditures for electioneering 
communications, and the Commission cannot save the statute from facial 
invalidity by promulgating contradictory regulations.
    With respect to the argument that the Commission cannot allow QNCs 
to make electioneering communications because to do so would violate 
BCRA, the Commission notes that, during the final passage of BCRA, 
additional statements were made regarding the prohibition on corporate 
expenditures. At that time, one of the principal sponsors of BCRA 
stated that, ``[t]he legislation does not purport in any way, shape or 
form to overrule or change the Supreme Court's construction of the 
Federal Election Campaign Act in MCFL. Just as an MCFL-type 
corporation, under the Supreme Court's ruling, is exempt from the 
current prohibition on the use of corporate funds for expenditures 
containing `express advocacy,' so too is an MCFL-type corporation 
exempt from the prohibition in the Snowe-Jeffords amendment on the use 
of its treasury funds to pay for `electioneering communications.' 
Nothing in the bill purports to change MCFL.'' 148 Cong. Rec. S2141 
(daily ed. Mar. 20, 2002) (statement of Sen. McCain).

[[Page 65204]]

    Although Senator McCain referred to ``Snowe-Jeffords'' without 
mentioning the Wellstone amendment, he clearly explained that under the 
proposed legislation, an MCFL corporation would be allowed to use its 
treasury funds to pay for electioneering communications. He 
specifically referred to that part of the Snowe-Jeffords amendment that 
prohibits the ``use of (a corporation's) treasury funds to pay for 
`electioneering communications,' '' the main provision of this 
amendment that remains unaltered by the passage of the Wellstone 
amendment. See id.
    In addition, the original Snowe-Jeffords amendment applied to all 
section 501(c)(4) and 527 corporations, not just MCFL corporations. 
Senator McCain's statement thus recognizes that MCFL will have the same 
effect under BCRA for electioneering communications as it did under the 
FECA for independent expenditures, which must contain express advocacy.
    Further, the original Snowe-Jeffords amendment would not have 
allowed the use of treasury funds that came from corporations and labor 
organizations; rather, entities that accept corporate and labor 
organization funds would have been required to pay for electioneering 
communications exclusively with funds provided by individuals who are 
United States citizens or nationals or lawfully admitted for permanent 
residence, 2 U.S.C. 441b(c)(2), and unless a section 501(c)(4) 
corporation deposited these funds into a separate account, the statute 
would have considered that 501(c)(4) corporation to have paid for the 
electioneering communication with impermissible corporate or labor 
organization funds. 2 U.S.C. 441b(c)(3)(B). Senator McCain's reference 
to treasury funds, therefore, manifests an understanding that the MCFL 
protections are built into the Snowe-Jeffords and Wellstone amendments.
    Thus, the Commission concludes that the legislative history 
indicates that the intent of BCRA was to treat electioneering 
communications in a similar manner as independent expenditures. Part of 
that treatment is the application of MCFL to electioneering 
communications made by these QNCs.
2. Affiliation of Entities Permitted To Make Electioneering 
Communications With Those Entities That Are Not Permitted; Effect of 
Prior Incorporation
    The Commission sought comments on whether an entity prohibited from 
making an electioneering communication, i.e. a labor organization or a 
corporation that is not a QNC, may be affiliated with an entity that is 
permitted to make electioneering communications, provided that the 
entity permitted to make such communications received no prohibited 
funds from the entity prohibited from doing so.
    Several commenters offered interpretations of section 
441b(c)(3)(A), which treats an electioneering communication as made by 
a prohibited entity if the prohibited entity ``directly or indirectly 
disburses any amount'' for the cost of the communication. One commenter 
interpreted this to mean that a permitted entity may not receive any 
funds or financial support from a prohibited entity if the permitted 
entity intends to make electioneering communications. Another commenter 
stated that Congress expressly determined that corporate and union 
funds may not be used by any person to make electioneering 
communications, but that Congress stopped short of prohibiting 
``affiliated'' organizations from using funds from individuals to make 
electioneering communications. That commenter also stated that it would 
be inappropriate for the Commission to consider unilaterally imposing 
restrictions that are not required by statutory language, particularly 
when Congress expressly included provisions addressing closely related 
entities elsewhere. See, e.g. 2 U.S.C. 323(d).
    Other commenters, including BCRA's sponsors, did not specifically 
refer to the affiliation question, but stated that corporations and 
labor organizations must be prohibited from setting up, operating, or 
controlling unincorporated accounts that are not federal political 
committees. However, BCRA's sponsors and other commenters agreed that 
BCRA does not prohibit corporations or labor organizations from using 
their separate segregated funds to pay for electioneering 
communications, even though corporate treasury funds may be used for 
the establishment, administration, and solicitation of contributions to 
these separate segregated funds. See 11 CFR 114.5(b). BCRA's sponsors 
noted that this situation was specifically discussed during the Senate 
debate concerning BCRA. See, e.g., 148 Cong. Rec. S2141 (daily ed. Mar. 
20, 2002) (statement of Sen. McCain) (``Under the bill, corporations 
and labor unions could no longer spend soft money on broadcast, cable 
or satellite communications that refer to a clearly identified 
candidate for federal office during the 60 days before a general 
election and the 30 days before a primary, and that are targeted to the 
candidate's electorate. These entities could, however, use their PACs 
to finance such ads. This will ensure that corporate and labor campaign 
ads proximate to Federal elections, like other campaign ads, are paid 
for with limited contributions from individuals and that such spending 
is fully disclosed.'')
    Several commenters argued that nothing in BCRA prevents an 
organization that is prohibited from making an electioneering 
communication from affiliating with an organization that can. One 
pointed out that organizations that are not permitted to make 
electioneering communications may be affiliated with a QNC, which is 
expressly permitted to make electioneering communications.
    One commenter supporting this position argued that, on at least one 
occasion, the Supreme Court has ``allowed Congress to restrict 
constitutionally protected speech while noting that the organization 
subject to the restriction was permitted to create an affiliate 
organization that was not subject to the restriction,'' citing Regan v. 
Taxation With Representation, 461 U.S. 540 (1983) (where the Supreme 
Court upheld statutory limits on lobbying by charitable organizations, 
but noted that such organizations had the option of creating an 
affiliated section 501(c)(4) organization to engage in unlimited 
lobbying). This commenter also argued that MCFL demonstrated the 
Supreme Court's ``reluctance to burden protected speech, and, at the 
very least, suggests that the Court would reject any restriction on 
organizations affiliating to expand the scope of permissible 
communications.''
    The Commission has concluded that section 441b(c)(3)(A) and its 
legislative history support the determination that the general treasury 
funds of a corporation or labor organization may not be used to 
establish, administer, or solicit funds for, an affiliated organization 
that would accept funds from individuals to pay for electioneering 
communications. This is because the establishment, administration, or 
solicitation of funds for, the affiliate would result in the indirect 
payment of impermissible funds for electioneering communications. 
Senator McCain's statement above reflects Congressional intent that 
communications meeting the timing, content and audience elements of an 
electioneering communication must be financed with permissible funds 
contributed by individuals to separate segregated funds, and not with 
corporate or labor organization funds. Such communications are 
considered expenditures, not electioneering

[[Page 65205]]

communications. See 11 CFR 100.29(c)(3). As expenditures, they are paid 
for by an entity, the SSF, which is permitted under section 441b of the 
FECA to use corporate or labor organization funds for its 
establishment, administration, and for the solicitation of 
contributions. However, BCRA provides no comparable opportunity for a 
corporation or labor organization to establish, administer, or solicit 
for an entity that makes electioneering communications.
    The Commission does not, however, see any statutory basis for 
creating restrictions on electioneering communications by a permitted 
entity whose affiliation with a prohibited entity is based on non-
financial factors (e.g., overlapping officers or members). See 11 CFR 
100.5(g). So long as such entities maintain separate finances, the 
permitted entity's electioneering communications would not be treated 
as having been made by the prohibited entity, because there would be no 
direct or indirect disbursement by the prohibited entity. Likewise, the 
Commission does not see any basis for restricting individuals who work 
for entities barred from making electioneering communications from 
pooling their own funds to finance electioneering communications, 
provided no corporate or labor organization funds are used.
    The Commission also sought comment on whether a 501(c)(4) 
organization or a 527 organization that was previously incorporated and 
has changed its status to become a limited liability company or similar 
type of entity under State law would be permitted to pay for 
electioneering communications with funds that were donated by 
individuals to the organization during the time it was incorporated. 
One commenter who addressed this question argued that these funds 
should be considered corporate funds that cannot be used to pay for 
electioneering communications. The Commission agrees.

B. 11 CFR 114.10 Exemption for Qualified Nonprofit Corporations

    MCFL's exemption for QNCs to make independent expenditures is 
codified in 11 CFR 114.10.\10\ In the NPRM, the Commission proposed 
revising 11 CFR 114.10 to set out standards for establishing QNC status 
for those section 501(c)(4) corporations wishing to make electioneering 
communications as well as independent expenditures. For the reasons 
stated below, the Commission has decided to incorporate the language of 
the proposed rules, with certain modifications for filing certification 
of QNC status, into the final rules. Therefore, the title of Sec.  
114.10 is redrafted to reflect its application to electioneering 
communications, as is the discussion of the scope of Sec.  114.10 found 
in paragraph (a). The title of Sec.  114.10 is slightly different from 
what was proposed in the NPRM. There are no changes to paragraphs (b) 
and (c). Paragraph (d) is redesignated as ``Permitted corporate 
independent expenditures and electioneering communications.'' Paragraph 
(d)(1) remains unchanged substantively, but contains a correction to 
the citation of the definition of ``independent expenditure.'' 
Paragraph (d)(2) tracks the language of paragraph (d)(1), except that 
it substitutes ``electioneering communication'' for ``independent 
expenditure,'' and it references the definition of ``electioneering 
communication'' at 11 CFR 100.29. Former paragraph (d)(2) is 
redesignated as paragraph (d)(3), with an additional reference to 
paragraph (d)(2).
---------------------------------------------------------------------------

    \10\ In filing for QNC status, a corporation certifies that it 
meets five qualifications: (1) That it is a social welfare 
organization as described in 26 U.S.C. 501(c)(4); (2) that its only 
purpose is issue advocacy, election influencing activity or 
research, training or educational activities tied to the 
corporation's political goals; (3) that the corporation does not 
engage in business activities; (4) that the corporation has no 
shareholders or persons, other than employees and creditors, who 
either have an equitable or similar interest in the corporation or 
who receive a benefit that they lose if they end their affiliation; 
and (5) that the corporation was not established by a corporation or 
labor organization, does not accept direct or indirect donations 
from such organizations and, if unable to demonstrate that it has 
not accepted such donations, has a written policy against accepting 
donations from them. See 11 CFR 114.10(c)(1) through (5).
---------------------------------------------------------------------------

1. Certifying QNC Status
    The NPRM also proposed that the procedures for the certification of 
qualified nonprofit corporation status be revised to provide separate 
procedures for those making electioneering communications. The 
Commission has decided to adopt the proposed rules pertaining to these 
procedures. Thus, the procedures for corporations making independent 
expenditures, which were found at 11 CFR 114.10(e)(1)(i) and (ii), are 
now redesignated as 11 CFR 114.10(e)(1)(i)(A) and (B). Paragraphs 
(e)(1)(ii)(A) and (B) are added to describe the procedures for 
demonstrating qualified nonprofit corporation status when making 
electioneering communications. These provisions are similar to the 
provisions for qualified nonprofit corporations making independent 
expenditures, except that the threshold for certification is $10,000. 
Further, corporations are not required to submit certifications prior 
to making independent expenditures or electioneering communications. 
The pre-BCRA rules are being modified to permit corporations that have 
received a favorable judicial ruling concerning their QNC status, in 
litigation in which the same corporation was a party, to certify that 
application of that ruling to the corporation's activities in 
subsequent years confers QNC status. Advance certifications are not 
necessary given that the Commission anticipates that reporting will be 
tied to the date that the independent expenditure is publicly 
disseminated or the electioneering communication is publicly 
distributed. The Explanation and Justification for the Commission's 
decision to adopt the proposed revisions to 11 CFR 114.10 are discussed 
in further detail below.
    Several commenters asserted that the threshold for certifying QNC 
status should be lower, and they specifically mentioned setting it at 
the same level as that for QNCs that wish to make independent 
expenditures. One commenter argued that setting the level at $10,000 
would only make sense if a corporation could only spend $10,000 of its 
treasury funds on electioneering communications before encountering the 
2 U.S.C. 441b prohibition. Another commenter stated that the level for 
certifying should be set at $250 for the QNC ``to establish its right 
to spend any corporate funds on electioneering communications,'' and 
that ``an MCFL corporation can spend its funds on electioneering 
communications only if it establishes it is qualified to do so, even if 
its spending never reaches the $10,000 threshold amount.'' The sponsors 
of BCRA also argued that the threshold for certifying QNC status should 
be $250, using the same reasoning as above.
    Certain commenters suggested that the Commission should establish a 
different QNC standard for corporations that wish to make 
electioneering communications than the standard for those that wish to 
make independent expenditures, noting, in one instance, that ``the MCFL 
exemption must be expanded * * * in response to the greater speech 
burden at issue in the context of `electioneering communications' 
versus express advocacy.'' According to this commenter, ``[w]ith 
respect to express advocacy, the Government's regulatory interest 
(however weak) is at its zenith, and the category of speech that is 
burdened is strictly defined. `Electioneering communications,' however, 
constitute a much larger

[[Page 65206]]

category of political expression that is further removed from 
advocating for a particular candidate; the Government's regulatory 
interest is therefore even more attenuated and the burden upon 
political speakers' expression is heightened.'' Another commenter 
argued that ``the regulatory regime managing any exemption from 
coverage should be tailored to reflect the much weaker interests at 
stake.'' This commenter also stated that, under the proposed 
regulations, groups can never know in advance whether their QNC 
certification will be accepted, thus leaving them to ``speak at their 
peril.''
    Several commenters, as noted above, argued that the Commission 
could not create an exception for MCFL corporations. By extension, 
these commenters opposed the certification procedure at 11 CFR 114.10.
    The Commission concludes that the proposed rule is better left 
intact in the final rules. Several reasons lead to this conclusion. 
First, the Commission is aware of nothing suggesting that Congress 
intended a threshold lower than $10,000 for filing the certification, 
and setting the certification threshold at the level that first 
triggers reporting under the statute minimizes the burden on QNCs. In 
this respect, the certification threshold for electioneering 
communications is comparable to the certification threshold for 
independent expenditures. Further, as noted above, the Commission has 
concluded that statements of electioneering communications need not be 
filed until the communication is publicly distributed, because until 
such time as the communication can be received by 50,000 persons, it is 
not an ``electioneering communication.'' Likewise, until a person makes 
an electioneering communication, the Commission has no reason to seek 
certification of QNC status. Further, the threshold provides a clear 
rule that is easy to follow.
    Moreover, while one commenter argued that ``an MCFL corporation can 
spend its funds on electioneering communications only if it establishes 
it is qualified to do so,'' this misconstrues the certification of QNC 
status. Corporations may spend funds for electioneering communications 
as long as they meet the requirements of qualified non-profit 
corporation status. If they spend $10,000 or more, they must certify to 
the Commission that they meet this status. However, they need not 
obtain prospective approval of QNC status prior to making 
electioneering communications or, for that matter, independent 
expenditures.\11\ Further, if a corporation does not qualify for QNC 
status, it is not permitted to use any general treasury funds for 
electioneering communications, and there was nothing in the proposed 
rules, nor is there anything in the final rules, to suggest otherwise.
---------------------------------------------------------------------------

    \11\ Of course, corporations are free to file for QNC status 
before making electioneering communications if they are concerned 
about ``speaking at their peril.''
---------------------------------------------------------------------------

    Further, the commenters advancing the argument that the Commission 
should create an entirely different standard for QNC status with 
respect to electioneering communications, than the standard for QNC 
status with respect to independent expenditures, miss a central point 
that concerned the sponsors of BCRA: that certain communications that 
do not necessarily expressly advocate for a candidate's election or 
defeat, may nevertheless have an impact on an election. There is no 
indication that Congress intended the MCFL exception to apply 
differently to groups making electioneering communications than to 
those making independent expenditures. The qualifications for QNC 
status in pre-BCRA 11 CFR 114.10(c) are objective qualifications that 
would be apparent to any corporation contemplating whether to make an 
electioneering communication.
    Nevertheless, the Commission recognizes that certain courts have 
held that organizations incorporated under 26 U.S.C. 501(c)(4) that do 
not meet all of the strictures contained in the Commission's 
regulations at 11 CFR 114.10(c)(1) through (c)(5) may still make 
independent expenditures without violating the prohibition at 2 U.S.C. 
441b(a). It is appropriate for the Commission to allow the prevailing 
organization to certify its status based on the court ruling. 
Accordingly, the Commission is modifying pre-BCRA 11 CFR 114.10(e)(1) 
(new Sec.  114.10(e)(1)(i)(B)), to allow organizations that prevail in 
litigation to certify their QNC status based on the favorable ruling. 
This modification to the rules does not require any modification to the 
current certification on the Commission's Form 5 for independent 
expenditures, and on the new form the Commission intends to create for 
electioneering communications, Form 9. On Form 5, that certification 
reads, in relevant parts: ``(I)f the independent expenditures are 
reported herein were made by a corporation, I certify that the 
corporation is a (QNC) under the Commission's regulations.'' This 
statement would remain true regardless of the reason for QNC status: 
either compliance with the Commission's standards in Sec.  114.10(c) of 
the regulations, or pursuant to judicial decision, as contemplated by 
new paragraph (e)(1)(i)(B) of Sec.  114.10. Because paragraph 
(e)(1)(i)(B) is referenced by the paragraph that addresses 
certification for QNCs making electioneering communications, paragraph 
(e)(1)(ii)(B), this holds equally for electioneering communications.
2. Disclaimers
    Section 11 CFR 114.10(g) is revised to require qualified nonprofit 
corporations to comply with the requirements of 11 CFR 110.11 regarding 
non-authorization notices (``disclaimers'') when making electioneering 
communications. The final rule mirrors the proposed rule. BCRA amended 
2 U.S.C. 441d to require disclaimers for electioneering communications. 
No comments were received regarding this provision.
3. Segregated Bank Account
    Identical in substance to the proposed rule, Sec.  114.10(h) states 
that qualified nonprofit corporations may establish a segregated bank 
account for the purpose of depositing funds to be used to pay for 
electioneering communications, as identified in 11 CFR part 104. The 
one revision is a change to correct the citation to where the rules 
address the segregated bank account. This proposal met with general 
approval by the commenters.
    Proposed Sec.  114.10(i) would track the language in 2 U.S.C. 
441b(c)(5), which states that nothing in 2 U.S.C. 441b(c) shall be 
construed to authorize an organization exempt from taxation under 26 
U.S.C. 501(a) to carry out any activity that is prohibited under the 
Internal Revenue Code. No comments were received regarding this 
paragraph; this paragraph appears in the final rules.
4. ``De Minimis'' Standard
    The Commission also sought comment on whether a provision should be 
added to the rules incorporating a de minimis standard for QNCs, in 
light of court decisions such as Minnesota Citizens Concerned for Life, 
Inc. v. FEC, 936 F. Supp. 633 (D. Minn. 1996), aff'd, 113 F.3d 129 (8th 
Cir. 1997) (``MCCL''). MCCL allowed QNCs to engage in a certain amount 
of business activity, accept a de minimis amount of funds from 
corporations and labor organizations, and still qualify for QNC status. 
In making this ruling, the court of appeals relied on its previous 
ruling in Day v. Holahan, 34 F.3d 1356 (8th

[[Page 65207]]

Cir. 1994), in which the court addressed a Minnesota statute that had 
been based on the Supreme Court's MCFL ruling, and which was similar to 
the Commission's rules at 11 CFR 114.10. In Day, the court noted that 
the key issue was ``the amount of for-profit corporate funding a 
nonprofit receives, rather than the establishment of a policy not to 
accept significant amounts. . . . (T)he facts before us in this case 
present no risk of `the corrosive and distorting effects of immense 
aggregations of wealth that are accumulated with the help of the 
corporate form and that have little or no correlation to the public's 
support for the corporation's political ideas.' The state, far from 
having shown that MCCL is amassing great wealth as a result of 
corporate donations, implicitly concedes that MCCL has not received any 
significant contributions from for-profit corporations.'' Day, 34 F.3d 
at 1364 (citation omitted).
    Several commenters opposed a de minimis exception. One of these 
commenters cited the Supreme Court's language in MCFL regarding the 
policy of the organization against accepting contributions from 
corporations or labor organizations. The second commenter argued that 
the Commission does not have the authority to write a de minimis 
standard, suggesting it could only do so if BCRA is unconstitutional, 
and further asserting that only the courts may pass on the 
constitutionality of legislation passed by Congress. This commenter 
further argued that there has been no court case that has addressed 
whether a de minimis standard is required for electioneering 
communications. Further, this commenter stated that MCFL did not 
contemplate such an exception. BCRA's principal sponsors also argued 
that no section 501(c)(4) organization that accepts even a de minimis 
amount of corporate or labor organization funds can meet the definition 
of a QNC. They argue that this position is consistent with MCFL, and 
nothing in the legislative history of BCRA suggests a contrary intent.
    Other commenters supported a de minimis exception. One commenter 
argued that the Commission should apply the MCCL standards. This 
commenter maintained that MCCL expands the reach of MCFL, but is 
constitutionally consistent with it. The commenter further argued that, 
without such an allowance, organizations that accept a small amount of 
corporate or labor organization funding would face uncertainty about 
their status as QNCs and their ability to make electioneering 
communications.
    Another commenter also supported allowing corporations that accept 
``a modest or incidental or de minimis amount'' of corporate or labor 
organization funds to qualify for QNC status, stating that many 
organizations that accept such funds remain overwhelmingly supported by 
individual members and contributors who subscribe to the views and 
advocacy of the organization. Other commenters argued that the failure 
to adopt such a provision would result in a failure to cure the 
unconstitutionality of the electioneering communications provisions. 
Another commenter argued that the consensus view of the courts of 
appeals that have considered the question is that there should be a de 
minimis standard. This commenter further argued that the Commission 
should adopt the standard articulated in North Carolina Right to Life 
v. Bartlett, 168 F.3d 705 (4th Cir. 1999) (where the court determined 
that the acceptance of up to eight percent of overall revenues did not 
preclude North Carolina Right to Life from qualifying for a state MCFL 
exemption because the corporate funds were ``but a fraction of its 
overall revenue'' and were not ``of the traditional form'').
    The final rules maintain the prohibition against QNCs accepting any 
funds from corporations or labor organizations and do not allow them to 
accept a de minimis amount. The Commission has previously considered 
the issue of whether to allow QNCs to accept a de minimis amount of 
corporate or labor organization funding. See Explanation and 
Justification for Regulations on Express Advocacy; Independent 
Expenditures; Corporate and Labor Organization Expenditures, 60 FR 
35,292 (July 6, 1995). At that time, the Commission noted that ``(t)he 
MCFL Court was concerned that business corporations and labor 
organizations could improperly influence qualified nonprofit 
corporations and use them as conduits to engage in political 
spending,'' and that ``the Court saw MCFL's policy of not accepting 
business corporation or labor organization donations as the way to 
address these concerns.'' 60 FR at 35,301. Further, the Commission 
cited the Supreme Court's decision in Austin v. Michigan Chamber of 
Commerce, 494 U.S. 652 (1990), to support a complete ban on the 
acceptance of corporate or labor organization funds, noting the Court's 
concerns that ``the danger of `unfair deployment of wealth for 
political purposes' exists whenever a business corporation or labor 
organization is able to funnel donations through a qualified nonprofit 
corporation.'' 60 FR at 35,301. Accordingly, the Commission determined 
that qualified nonprofit corporations should not be allowed to accept 
any funds from corporations or labor organizations.
    The Commission recognizes that certain courts of appeals have 
recognized a de minimis exception permitting the acceptance by QNCs of 
corporate and labor organization funds. These circuit courts, however, 
have not defined the exception in the same terms, and therefore, two 
circuits would not necessarily apply the de minimis exception to the 
same set of circumstances. Compare MCCL, 936 F. Supp 633 (D. Minn. 
1996) (MCFL-corporation status allowed where organization has not 
received ``any significant contributions from for-profit 
corporations'') with NCRL, 168 F.3d 705 (4th Cir. 1999) (MCFL-
corporation status allowed where up to eight percent of the 
organization unspecified overall revenues came from corporations, where 
such corporate payments were ``not of the traditional form''). Although 
the Commission does not believe it is appropriate to establish a de 
minimis exception at this time, the Commission retains the discretion 
to revisit this issue in a subsequent rulemaking proceeding or 
otherwise. See 62 FR 65,040 (Dec. 10, 1997) (pending MCFL Petition for 
Rulemaking). Court rulings regarding the effect of de minimis corporate 
funding on QNC certifications for specific organizations are discussed, 
above, and are addressed in the final rules at 11 CFR 
114.10(e)(1)(i)(B).

C. 11 CFR 114.14 Further Restrictions on the Use of Corporate and Labor 
Organization Funds for Electioneering Communications

    In the NPRM, the Commission proposed a new rule, 11 CFR 114.14, to 
implement the provisions in 2 U.S.C. 441b(b)(2), (c)(1) and (c)(3) 
prohibiting corporations and labor organizations from directly or 
indirectly disbursing any amount from general treasury funds for any of 
the costs of an electioneering communication. Proposed 11 CFR 114.14(a) 
would have contained the prohibition that applies to corporations and 
labor organizations generally. The rule is meant to eliminate any 
instance of a corporation or labor organization providing funds out of 
their general treasury funds to pay for an electioneering 
communication, including through a non-Federal account. This met with 
general approval from the commenters and remains in the final rule as 
paragraph (a)(1). As noted in the NPRM, the Commission does not view 
BCRA as in any way prohibiting or restricting payments for 
electioneering

[[Page 65208]]

communications from otherwise lawful funds raised and spent by the 
Federal account of a separate segregated fund.
1. Contributor Liability by Corporations and Labor Organizations
    The NPRM also sought comments on the standards to be employed to 
determine liability of the corporation or labor organization providing 
the funds. One commenter stated that the standard should be whether the 
corporation or labor organization intends that the person to whom it 
supplies the funds will use them for an electioneering communication, 
or whether it knows or should know that the funds will be used for an 
electioneering communication. Another commenter suggested that, if the 
funds are provided for another purpose, that should, absent evidence to 
the contrary, lead to the conclusion that this regulation has not been 
violated. Further, if the funds are provided subject to a prohibition 
against their use to pay for electioneering communications, that 
should, absent evidence to the contrary, lead to the same conclusion. 
Another commenter suggests that a corporation or labor organization 
should be liable if it ``specifically directs'' or ``suggests'' that 
the funds be used for electioneering communications, or if it knows or 
should know that the funds will be used for electioneering 
communications. The sponsors of BCRA also suggested this latter 
standard.
    Paragraph (a)(2) sets forth the standards to be applied in 
determining whether the knowledge requirement exists by providing three 
alternative ways, any one of which would establish that a corporation 
or labor organization has knowingly given, disbursed, donated, or 
otherwise provided, funds used to pay for an electioneering 
communication.
    The first knowledge standard is that of actual knowledge. The 
second standard requires awareness on the part of the corporation or 
labor organization of certain facts that would lead a reasonable person 
to conclude that there is a substantial probability funds will be used 
to pay for an electioneering communication. This second standard is in 
effect a ``reason to know'' standard, and is different from a ``should 
have known'' standard. Restatement (Second) of Agency, sec. 9, cmts. d 
and e (1958). The third standard addresses situations in which the 
corporation or labor organization is or becomes aware of facts that 
should have led any reasonable person to inquire about the intent of 
the person receiving the funds for their use, however, the corporation 
or labor organization failed to so inquire. This third alternative is 
in effect a willful blindness standard covering situations in which a 
known fact may not equal a substantial probability of illegality but at 
least should prompt an inquiry.
    The final rules at new 11 CFR 114.14(b), like the proposed rule, 
prohibit any person who accepts corporate or labor organization funds 
from using those funds to pay for an electioneering communication, or 
to provide those funds to any other person who would subsequently use 
those funds to pay for all or part of the costs of an electioneering 
communication. The rule is intended to effectuate BCRA's treatment of 
an electioneering communication as being made by a corporation or labor 
organization if such an entity indirectly disburses any amount for the 
cost of the communication from their general treasury funds. 2 U.S.C. 
441b(c)(3)(A). No commenter addressed this rule.
    Proposed paragraph (c) of 11 CFR 114.14 would have provided certain 
limited exceptions to allow corporations or labor organizations to 
provide funds that might subsequently be used for electioneering 
communications. These exceptions are salary, royalties, or other income 
earned from bona fide employment or other contractual arrangements, 
including pension or other retirement income; interest earnings, stock 
or other dividends, or proceeds from the sale of the person's stocks or 
other investments; or receipt of payment representing fair market value 
for goods or services rendered to a corporation or labor organization. 
No commenter suggested any other instances of corporate or labor 
organization general treasury funds that might properly be used to pay 
for electioneering communications other than those listed at paragraphs 
(c)(1) through (3), and the proposed exceptions received general 
support from the commenters. These exceptions are being included in the 
final rules.
2. Accounting of Funds To Ensure That No Funds Received From 
Corporations or Labor Organizations Are Used for Electioneering 
Communications
    Section 114.14(d)(1), like the proposed rules, requires persons who 
receive funds from a corporation or a labor organization that do not 
meet the exceptions of paragraph (c) to demonstrate through a 
reasonable accounting method that no such funds were used to pay for 
any portion of an electioneering communication. The Commission sought 
comment on whether a specific accounting method should be required, 
such as first-in-first-out, last-in-first-out, or any other method. 
Several commenters did not propose specific methods, but urged the 
Commission to require ``a more specific and stringent accounting 
method,'' or ``a higher standard of accounting than `reasonable' 
methods.'' The principal sponsors of BCRA stated that the Commission 
``should insist on a high level of certainty in any accounting method 
used to make this demonstration.''
    Further, commenting on the special account available to QNCs at 11 
CFR 114.10(h), several commenters suggested that this option be 
available to all persons who make electioneering communications. One 
commenter stated that it interpreted paragraph (h) to permit non-QNC 
entities to set up such an account. Likewise, the sponsors of BCRA 
noted that QNCs are not the only entities that might want to set up 
such accounts.
    While the Commission did not intend to exclude non-QNCs from 
establishing segregated bank accounts similar to those described at 
paragraph (h), the proposed rules were not explicit that non-QNCs may 
do so. Moreover, as Sec.  114.10 applies only to QNCs, some non-QNCs 
may not realize that such an account would be available to them.
    Accordingly, the Commission has added a provision to 11 CFR 
114.14(d) that specifically allows any person who wishes to make 
electioneering communications to establish a separate bank account from 
which it pays for electioneering communications. 11 CFR 114.14(d)(2). 
This account must only contain funds contributed directly to it by 
individuals who are United States citizens or nationals or lawfully 
admitted for permanent residence. If persons use only funds from such 
an account to pay for an electioneering communication, then they will 
have demonstrated against any charge to the contrary that they did not 
use funds from a corporation or labor organization to pay for the 
communication, and their disclosure of their contributors will be 
limited to the names and addresses of those persons who donated or 
otherwise provided funds to the account. However, if a person uses any 
other funds from outside of this account to pay for the electioneering 
communication, then it will have to disclose the names and addresses of 
all persons who contributed to the entity, as required by 11 CFR 
104.171(c)(8), and will have to provide a more detailed accounting to 
demonstrate that the funds used did not come from a corporation or 
labor organization. The ability to establish this segregated bank 
account is also intended to address, in

[[Page 65209]]

part, the concerns of those commenters who objected to disclosing their 
entire donor base.

III. Reporting Requirements

    In the NPRM, the Commission stated that one of the other BCRA-
related rulemaking projects is reporting. 67 FR 51,131. This reporting 
rulemaking is intended to consolidate all of the proposed amendments to 
11 CFR part 104 included in the various BCRA-related NPRMs into one 
NPRM. Because public disclosure is one of the most important aspects of 
the FECA, the Commission concluded that a consolidated rulemaking on 
reporting would allow the public, especially those required to file 
reports and statements under the FECA and BCRA, to review, understand, 
and comment on the new and revised reporting requirements as the result 
of BCRA in a comprehensive manner.
    Consequently, the final rules on electioneering communications do 
not include the changes to 11 CFR 100.19, 104.19, and 105.2 that were 
part of the proposed rules. Rather, a brief discussion of the major 
issues and comments relating to the reporting of electioneering 
communications is included in this Explanation and Justification. See 
below. The Consolidated Reporting NPRM will include revised proposed 
rules for electioneering communications reporting that will take into 
consideration the comments that the Commission received in response to 
the Electioneering Communications NPRM.

A. Disclosure Date

    BCRA requires persons who make electioneering communications to 
file disclosure statements with the FEC within 24 hours of the 
disclosure date. 2 U.S.C. 434(f)(1). In the previously published NPRM, 
proposed Sec.  104.19(a)(1)(i) and (ii) would define ``disclosure 
date'' as the date on which ``a person has made one or more 
disbursements, or has executed one or more contracts to make 
disbursements, for the direct costs of producing or airing 
electioneering communications aggregating in excess of $10,000.'' NPRM, 
67 FR at 51,145. The NPRM, however, sought comment on whether the 
disclosure date should be the date on which the electioneering 
communications are publicly distributed. Thus, under this scenario, an 
organization could make disbursements or enter into a contract to make 
disbursements that exceed $10,000 but would not be required to disclose 
the disbursements or contract until the electioneering communication is 
aired, broadcast or otherwise disseminated by television, radio, cable, 
or satellite.
    All nine commenters who addressed this issue disagreed with the 
proposed rule and advocated adopting a final rule that would define 
``disclosure date'' as the date of the airing of the electioneering 
communication. They argued that there is no electioneering 
communication, and therefore no reporting requirement, until the 
communication is actually aired or otherwise publicly distributed. One 
witness at the hearing did acknowledge that in some cases it may be 
difficult to ascertain when an electioneering communication airs for 
purposes of triggering the 24-hour reporting period because some 
contracts may not specify a time that the communication will be aired 
or because in some instances the broadcaster may fail to air the 
communication during the block of time specified in the contract. This 
issue will be further explored in the consolidated reporting NPRM.

B. Direction or Control

    The previously published NPRM included two proposed alternatives, 
identified as Alternative 4-A and Alternative 4-B, to implement the 
BCRA requirement to disclose ``any person sharing or exercising 
direction or control over the activities'' of the person making the 
disbursement for electioneering communications. See 2 U.S.C. 
434(f)(2)(A); 67 FR 51,146 (Aug. 7, 2002). Many of the commenters 
expressed the belief that both alternatives are vague and could 
encompass a large number of people, especially if the communications 
are made by membership organizations. Some of the commenters were also 
concerned that disclosing this information may reveal sensitive or 
confidential information and the decision-making process of 
organizations, especially non-profit organizations, thereby placing 
them at a competitive disadvantage. For these reasons, these commenters 
argued that the Commission should require limited, if any, disclosure 
of persons who share or exercise direction or control over the person 
who makes disbursements for electioneering communications or the 
activities involved in making electioneering communications.
    In contrast, several commenters, including the Congressional 
sponsors of BCRA, disagreed with both alternatives, arguing that 
neither would disclose sufficiently the information required by BCRA. 
See id. They argued that the purpose of this disclosure requirement in 
2 U.S.C. 434(f)(2)(A) is to reveal not only those who have direction or 
control over the electioneering communications but also those who have 
direction or control over the organization that makes the 
electioneering communications.
    This issue will be further explored in the consolidated reporting 
NPRM.

C. Identification of Candidates and Elections

    Under 2 U.S.C. 434(f)(2)(D), candidates clearly identified in the 
electioneering communications, and the elections to which the 
electioneering communications pertain, must be disclosed in 24-hour 
statements filed with the Commission. The previously published NPRM 
provided two alternatives to proposed 11 CFR 104.19(b)(5), identified 
as Alternative 5-A and Alternative 5-B, that would implement this 
statutory provision. 67 FR 51,146. Both alternatives would require 
disclosure of the election and each clearly identified candidate that 
would be referred to in the electioneering communication, but contain 
different language. Commenters preferred the language of Alternative 5-
B because it would be easier to read and would be more consistent with 
2 U.S.C. 434(f)(2)(D). This will be further explored in the 
consolidated reporting NPRM to follow.

D. Disclosure of Contributors and Donors

    BCRA requires persons who make electioneering communications and 
who establish segregated bank accounts for electioneering 
communications to disclose the names and addresses of contributors who 
contribute an aggregate of $1,000 or more to that segregated bank 
account. 2 U.S.C. 434(f)(2)(E).\12\ If the organization that makes 
electioneering communications does not use a segregated bank account, 
then BCRA requires it to disclose the names and addresses of all 
contributors who contribute an aggregate of $1,000 or more to that 
organization from the beginning of the preceding year through the 
disclosure date. 2 U.S.C. 434(f)(2)(F). In reading these two sections 
of BCRA together with 2 U.S.C. 441b(c)(3)(B), the Commission stated in 
the NPRM that these disclosure requirements for segregated bank 
accounts appear to apply only to qualified nonprofit corporations 
organized under 26 U.S.C. 501(c)(4). See 67 FR 51,143. Therefore,

[[Page 65210]]

previously proposed 11 CFR 104.19(b)(6) would have required only QNCs 
to disclose their contributors for purposes of electioneering 
communications.
---------------------------------------------------------------------------

    \12\ Please note that this discussion uses the terms 
``contributors'' and ``contribute.'' However, in certain 
circumstances, it may be more appropriate to refer to ``donors'' and 
``donations.'' This distinction will be addressed in more detail in 
the consolidated reporting NPRM to follow.
---------------------------------------------------------------------------

    The NPRM explained that proposed section 104.19(b)(7) would clearly 
state that all persons who are permitted to make electioneering 
communications under BCRA, including QNCs that do not use segregated 
bank accounts, would be required to disclose their contributors who 
contribute an aggregate of over $1,000 during the given time period. 67 
FR 51,143. Nevertheless, some commenters interpreted proposed Sec.  
104.19(b)(7) to apply only to QNCs and objected to limiting the 
disclosure requirements to only QNCs. They argued that BCRA does not 
limit the requirements of 2 U.S.C. 434(f)(2)(E) and (F) to just QNCs. 
Consequently, they recommended that all persons who may make 
electioneering communications should be required to disclose their 
contributors under proposed Sec.  104.19(b)(7), and that the option for 
segregated bank accounts in proposed Sec.  104.19(b)(6) should be 
extended to all persons who may make electioneering communications. 
This topic will also be addressed in the consolidated reporting NPRM to 
be published shortly.
    One commenter argued that the members of the organizations it 
represented could be subject to negative consequences if their names 
are disclosed in connection with an electioneering communication. As a 
preliminary matter, the Commission notes that any group may opt to use 
a separate bank account under 11 CFR 114.14(d)(2), which would provide 
limited disclosure. The FECA provides for an advisory opinion process 
concerning the application of any of the statutes within the 
Commission's jurisdiction or any regulations promulgated by the 
Commission, and such a group could also seek an advisory opinion from 
the Commission to determine if the group would be entitled to an 
exemption from disclosure that would be analogous to the exemption 
provided to the Socialist Workers Party in Advisory Opinions 1990-13 
and 1996-46 (both of which allowed the Socialist Workers Party to 
withhold the identities of its contributors and persons to whom it had 
disbursed funds because of a reasonable probability that the compelled 
disclosure of the party's contributors' names would subject them to 
threats, harassment, or reprisals from either government officials or 
private parties). BCRA's legislative history recognizes the need for 
limited exceptions in these circumstances. See 148 Cong. Rec. S2136 
(daily ed. Mar. 20, 2002) (remarks of Sen. Snowe).

E. NPRM on Consolidated Reporting

    As stated above, the Consolidated Reporting NPRM will include 
revised proposed rules for reporting electioneering communications. The 
Commission appreciates the comments that it received and anticipates 
that they will prove useful in revising the proposed rules. The 
Commission encourages the commenters, as well as others who did not 
comment on the initial proposed rules, to review the revised proposed 
rule that will be part of the Consolidated Reporting NPRM and to submit 
comments at the appropriate time.

Certification of No Effect Pursuant to 5 U.S.C. 605(b) (Regulatory 
Flexibility Act)

    The Commission certifies that the attached final rules do not have 
a significant economic impact on a substantial number of small 
entities. The bases of this certification are several. First, the only 
burden the final rules impose is on persons who make electioneering 
communications, and that burden is a minimal one, requiring persons who 
make such communications to provide the names and addresses of those 
who made donations to that person, when the costs of the electioneering 
communication exceed $10,000. If that person is a corporation that 
qualifies as a QNC, then it must also certify that it meets that 
status. The number of small entities affected by the final rules is not 
substantial.
    The Commission has adopted several rules that seek to reduce any 
burden that might accrue to persons who must file reports. First, the 
Commission has interpreted the reporting requirement such that no 
reporting is required until after an electioneering communication is 
publicly distributed. In many cases, this will only require that person 
to file one report with the Commission. Also, the Commission has 
allowed all persons paying for electioneering communications to 
establish segregated bank accounts, and to report the names and 
addresses of only those persons who contributed to those accounts. 
Further, the Commission has interpreted the statute to not require that 
a certification of QNC status be filed until the person is also 
required to file a disclosure report. These are significant steps the 
Commission has taken to reduce the burden on those who would make 
electioneering communications. The overall burden on the small entities 
affected by the final rules will not amount to $100 million on an 
annual basis.
    Furthermore, because the Commission has interpreted BCRA to mean 
that political committees do not, by definition, make disbursements for 
electioneering communications, neither BCRA nor the final rules require 
any additional reports by any type of Federal political committee. 
Moreover, the requirements of these final rules are no more than what 
is strictly necessary to comply with the new statute enacted by 
Congress.

List of Subjects

11 CFR Part 100

    Elections.

11 CFR Part 114

    Business and industry, Elections, Labor.

    For the reasons set out in the preamble, subchapter A of chapter I 
of title 11 of the Code of Federal Regulations is amended as follows:

PART 100--SCOPE AND DEFINITIONS (2 U.S.C. 431)

    1. The authority citation for 11 CFR part 100 is revised to read as 
follows:

    Authority: 2 U.S.C. 431, 434, 438(a)(8).


    2. New Sec.  100.29 is added to read as follows:


Sec.  100.29  Electioneering communication (2 U.S.C. 434(f)(3)).

    (a) Electioneering communication means any broadcast, cable, or 
satellite communication that:
    (1) Refers to a clearly identified candidate for Federal office;
    (2) Is publicly distributed within 60 days before a general 
election for the office sought by the candidate; or within 30 days 
before a primary or preference election, or a convention or caucus of a 
political party that has authority to nominate a candidate, for the 
office sought by the candidate, and the candidate referenced is seeking 
the nomination of that political party; and
    (3) Is targeted to the relevant electorate, in the case of a 
candidate for Senate or the House of Representatives.
    (b) For purposes of this section--
    (1) Broadcast, cable, or satellite communication means a 
communication that is publicly distributed by a television station, 
radio station, cable television system, or satellite system.
    (2) Refers to a clearly identified candidate means that the 
candidate's name, nickname, photograph, or drawing appears, or the 
identity of the

[[Page 65211]]

candidate is otherwise apparent through an unambiguous reference such 
as ``the President,'' ``your Congressman,'' or ``the incumbent,'' or 
through an unambiguous reference to his or her status as a candidate 
such as ``the Democratic presidential nominee'' or ``the Republican 
candidate for Senate in the State of Georgia.''
    (3)(i) Publicly distributed means aired, broadcast, cablecast or 
otherwise disseminated for a fee through the facilities of a television 
station, radio station, cable television system, or satellite system.
    (ii) In the case of a candidate for nomination for President or 
Vice President, publicly distributed means the requirements of 
paragraph (b)(3)(i) of this section are met and the communication:
    (A) Can be received by 50,000 or more persons in a State where a 
primary election, as defined in 11 CFR 9032.7, is being held within 30 
days; or
    (B) Can be received by 50,000 or more persons anywhere in the 
United States within the period between 30 days before the first day of 
the national nominating convention and the conclusion of the 
convention.
    (4) A special election or a runoff election is a primary election 
if held to nominate a candidate. A special election or a runoff 
election is a general election if held to elect a candidate.
    (5) Targeted to the relevant electorate means the communication can 
be received by 50,000 or more persons--(i) In the district the 
candidate seeks to represent, in the case of a candidate for 
Representative in or Delegate or Resident Commissioner to, the 
Congress; or
    (ii) In the State the candidate seeks to represent, in the case of 
a candidate for Senator.
    (c) Electioneering communication does not include any communication 
that:
    (1) Is publicly disseminated through a means of communication other 
than a broadcast, cable, or satellite television or radio station. For 
example, electioneering communication does not include communications 
appearing in print media, including a newspaper or magazine, handbill, 
brochure, bumper sticker, yard sign, poster, billboard, and other 
written materials, including mailings; communications over the 
Internet, including electronic mail; or telephone communications;
    (2) Appears in a news story, commentary, or editorial distributed 
through the facilities of any broadcast, cable, or satellite television 
or radio station, unless such facilities are owned or controlled by any 
political party, political committee, or candidate. A news story 
distributed through a broadcast, cable, or satellite television or 
radio station owned or controlled by any political party, political 
committee, or candidate is nevertheless exempt if the news story meets 
the requirements described in 11 CFR 100.132(a) and (b);
    (3) Constitutes an expenditure or independent expenditure provided 
that the expenditure or independent expenditure is required to be 
reported under the Act or Commission regulations;
    (4) Constitutes a candidate debate or forum conducted pursuant to 
11 CFR 110.13, or that solely promotes such a debate or forum and is 
made by or on behalf of the person sponsoring the debate or forum;
    (5) Is not described in 2 U.S.C. 431(20)(A)(iii) and is paid for by 
a candidate for State or local office in connection with an election to 
State or local office; or
    (6) Is paid for by any organization operating under section 
501(c)(3) of the Internal Revenue Code of 1986. Nothing in this section 
shall be deemed to supersede the requirements of the Internal Revenue 
Code for securing or maintaining 501(c)(3) status.

PART 114--CORPORATE AND LABOR ORGANIZATION ACTIVITY

    3. The authority citation for part 114 is revised to read as 
follows:

    Authority: 2 U.S.C. 431(8)(B), 431(9)(B), 432, 434, 437d(a)(8), 
438(a)(8), 441b.


    4. In Sec.  114.2, paragraph (b) is revised to read as follows:


Sec.  114.2  Prohibitions on contributions and expenditures.

* * * * *
    (b)(1) Any corporation whatever or any labor organization is 
prohibited from making a contribution as defined in 11 CFR 100.7(a). 
Any corporation whatever or any labor organization is prohibited from 
making a contribution as defined in 11 CFR 114.1(a) in connection with 
any Federal election.
    (2) Except as provided at 11 CFR 114.10, corporations and labor 
organizations are prohibited from:
    (i) Making expenditures as defined in 11 CFR 100.8(a);
    (ii) Making expenditures with respect to a Federal election (as 
defined in 11 CFR 114.1(a)), for communications to those outside the 
restricted class that expressly advocate the election or defeat of one 
or more clearly identified candidate(s) or the candidates of a clearly 
identified political party; or
    (iii) Making payments for an electioneering communication to those 
outside the restricted class. However, this paragraph (b)(2)(iii) shall 
not apply to State party committees and State candidate committees that 
incorporate under 26 U.S.C. 527(e)(1), provided that:
    (A) The committee is not a political committee as defined in 11 CFR 
100.5;
    (B) The committee incorporated for liability purposes only;
    (C) The committee does not use any funds donated by corporations or 
labor organizations to make electioneering communications; and
    (D) The committee complies with the reporting requirements for 
electioneering communications at 11 CFR part 104.
* * * * *

    5. In Sec.  114.10, the section heading and paragraphs (a), (d), 
(e) and (g) are revised and paragraphs (h) and (i) are added to read as 
follows:


Sec.  114.10  Nonprofit corporations exempt from the prohibitions on 
making independent expenditures and electioneering communications.

    (a) Scope. This section describes those nonprofit corporations that 
qualify for an exemption in 11 CFR 114.2. It sets out the procedures 
for demonstrating qualified nonprofit corporation status, for reporting 
independent expenditures and electioneering communications, and for 
disclosing the potential use of donations for political purposes.
* * * * *
    (d) Permitted corporate independent expenditures and electioneering 
communications. (1) A qualified nonprofit corporation may make 
independent expenditures, as defined in 11 CFR 100.16, without 
violating the prohibitions against corporate expenditures contained in 
11 CFR part 114.
    (2) A qualified nonprofit corporation may make electioneering 
communications, as defined in 11 CFR 100.29, without violating the 
prohibitions against corporate expenditures contained in 11 CFR part 
114.
    (3) Except as provided in paragraphs (d)(1) and (d)(2) of this 
section, qualified nonprofit corporations remain subject to the 
requirements and limitations of 11 CFR part 114, including those 
provisions prohibiting corporate contributions, whether monetary or in-
kind.
    (e) Qualified nonprofit corporations; reporting requirements.--(1) 
Procedures for demonstrating qualified nonprofit corporation status. 
(i) If a corporation makes independent expenditures under paragraph 
(d)(1) of this section that aggregate in excess of $250 in a calendar 
year, the corporation shall certify, in

[[Page 65212]]

accordance with paragraph (e)(1)(i)(B) of this section, that it is 
eligible for an exemption from the prohibitions against corporate 
expenditures contained in 11 CFR part 114.
    (A) This certification is due no later than the due date of the 
first independent expenditure report required under paragraph (e)(2)(i) 
of this section.
    (B) This certification may be made either as part of filing FEC 
Form 5 (independent expenditure form) or, if the corporation is not 
required to file electronically under 11 CFR 104.18, by submitting a 
letter in lieu of the form. The letter shall contain the name and 
address of the corporation and the signature and printed name of the 
individual filing the qualifying statement. The letter shall also 
certify that the corporation has the characteristics set forth in 
paragraphs (c)(1) through (c)(5) of this section. A corporation that 
does not have all of the characteristics set forth in paragraphs (c)(1) 
through (c)(5) of this section, but has been deemed entitled to 
qualified nonprofit corporation status by a court of competent 
jurisdiction in a case in which the same corporation was a party, may 
certify that application of the court's ruling to the corporation's 
activities in a subsequent year entitles the corporation to qualified 
nonprofit corporation status. Such certification shall be included in 
the letter submitted in lieu of the FEC form.
    (ii) If a corporation makes electioneering communications under 
paragraph (d)(2) of this section that aggregate in excess of $10,000 in 
a calendar year, the corporation shall certify, in accordance with 
paragraph (e)(1)(ii)(B) of this section, that it is eligible for an 
exemption from the prohibitions against corporate expenditures 
contained in 11 CFR part 114.
    (A) This certification is due no later than the due date of the 
first electioneering communication statement required under paragraph 
(e)(2)(ii) of this section.
    (B) This certification must be made as part of filing FEC Form 9 
(electioneering communication form).
    (2) Reporting independent expenditures and electioneering 
communications. (i) Qualified nonprofit corporations that make 
independent expenditures aggregating in excess of $250 in a calendar 
year shall file reports as required by 11 CFR part 104.
    (ii) Qualified nonprofit corporations that make electioneering 
communications aggregating in excess of $10,000 in a calendar year 
shall file statements as required by 11 CFR 104.14.
* * * * *
    (g) Non-authorization notice. Qualified nonprofit corporations 
making independent expenditures or electioneering communications under 
this section shall comply with the requirements of 11 CFR 110.11.
    (h) Segregated bank account. A qualified nonprofit corporation may, 
but is not required to, establish a segregated bank account into which 
it deposits only funds donated or otherwise provided by individuals, as 
described in 11 CFR part 104, from which it makes disbursements for 
electioneering communications.
    (i) Activities prohibited by the Internal Revenue Code. Nothing in 
this section shall be construed to authorize any organization exempt 
from taxation under 26 U.S.C. 501(a), including any qualified nonprofit 
corporation, to carry out any activity that it is prohibited from 
undertaking by the Internal Revenue Code, 26 U.S.C. 501, et seq.

    6. Section 114.14 is added to read as follows:


Sec.  114.14  Further restrictions on the use of corporate and labor 
organization funds for electioneering communications.

    (a)(1) Corporations and labor organizations shall not give, 
disburse, donate or otherwise provide funds, the purpose of which is to 
pay for an electioneering communication, to any other person.
    (2) A corporation or labor organization shall be deemed to have 
given, disbursed, donated, or otherwise provided funds under paragraph 
(a)(1) of this section if the corporation or labor organization knows, 
has reason to know, or willfully blinds itself to the fact, that the 
person to whom the funds are given, disbursed, donated, or otherwise 
provided, intended to use them to pay for an electioneering 
communication.
    (b) Persons who accept funds given, disbursed, donated or otherwise 
provided by a corporation or labor organization shall not:
    (1) Use those funds to pay for any electioneering communication; or
    (2) Provide any portion of those funds to any person, for the 
purpose of defraying any of the costs of an electioneering 
communication.
    (c) The prohibitions at paragraphs (a) and (b) of this section 
shall not apply to funds disbursed by a corporation or labor 
organization, or received by a person, that constitute--
    (1) Salary, royalties, or other income earned from bona fide 
employment or other contractual arrangements, including pension or 
other retirement income;
    (2) Interest earnings, stock or other dividends, or proceeds from 
the sale of the person's stocks or other investments; or
    (3) Receipt of payments representing fair market value for goods 
provided or services rendered to a corporation or labor organization.
    (d)(1) Persons who receive funds from a corporation or a labor 
organization that do not meet the exceptions of paragraph (c) of this 
section must be able to demonstrate through a reasonable accounting 
method that no such funds were used to pay any portion of an 
electioneering communication.
    (2) Any person who wishes to pay for electioneering communications 
may, but is not required to, establish a segregated bank account into 
which it deposits only funds donated or otherwise provided by 
individuals, as described in 11 CFR part 104. Use of funds exclusively 
from such an account to pay for an electioneering communications shall 
satisfy paragraph (d)(1) of this section. Persons who use funds 
exclusively from such a segregated bank account to pay for an 
electioneering communication shall be required to only report the names 
and addresses of those individuals who donated or otherwise provided an 
amount aggregating $1,000 or more to the segregated bank account, 
aggregating since the first day of the preceding calendar year.

    Dated: October 11, 2002.
David M. Mason,
Chairman, Federal Election Commission.
[FR Doc. 02-26482 Filed 10-22-02; 8:45 am]
BILLING CODE 6715-01-P