[Federal Register Volume 71, Number 236 (Friday, December 8, 2006)]
[Proposed Rules]
[Pages 71093-71096]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20735]


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FEDERAL ELECTION COMMISSION

11 CFR Part 111

[Notice 2006-22]


Best Efforts in Administrative Fines Challenges

AGENCY: Federal Election Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Election Commission seeks public comment on 
proposed revisions to its regulations regarding the Commission's 
administrative fines program. The administrative fines program is a 
streamlined process through which the Commission finds and penalizes 
violations of 2 U.S.C. 434(a), which requires committees registered 
with the Commission to file periodic reports. Current Commission 
regulations set forth several grounds upon which a respondent may base 
a challenge to an administrative fine. The proposed regulations replace 
the current ``extraordinary circumstances'' defense with a ``best 
efforts'' defense. The proposed regulations would also provide for 
Commission statements of reasons on administrative fines final 
determinations. The Commission has made no final decision on the issues 
presented in this rulemaking. Further information is provided in the 
supplementary information that follows.

DATES: Comments must be received on or before January 8, 2007.

ADDRESSES: All comments must be in writing, must be addressed to Mr. J. 
Duane Pugh Jr., Acting Assistant General Counsel, and must be submitted 
in either e-mail, facsimile, or paper copy form. Commenters are 
strongly encouraged to submit comments by e-mail to ensure timely 
receipt and consideration. E-mail comments must be sent to either 
[email protected] or submitted through the Federal eRegulations 
Portal at http://www.regulations.gov. If e-mail comments include an 
attachment, the attachment must be in either Adobe Acrobat (.pdf) or 
Microsoft Word (.doc) format. Faxed comments must be sent to (202) 219-
3923, with paper copy follow-up. Paper comments and paper copy follow-
up of faxed comments must be sent to the Federal Election Commission, 
999 E Street, NW., Washington, DC 20463. All comments must include the 
full name and postal service address of the commenter or they will not 
be considered. The Commission will post comments on its Web site after 
the comment period ends.

FOR FURTHER INFORMATION CONTACT: Mr. J. Duane Pugh Jr., Acting 
Assistant General Counsel, or Ms. Margaret G. Perl, Attorney, 999 E 
Street, NW., Washington, DC 20463, (202) 694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION: Under the administrative fines program, the 
Commission may assess a civil money penalty for a violation of the 
reporting requirements of 2 U.S.C. 434(a) (such as not filing or filing 
late) without using the traditional enforcement procedures. 2 U.S.C. 
437g(a)(4)(C). Congress intended the Commission to process these 
straightforward violations through a ``simplified procedure'' that 
would ease the enforcement burden on the Commission. H.R. Rep. No. 106-
295 at 11 (1999). In the final rules establishing and governing the 
administrative fines program, the Commission created a streamlined 
procedure that balances the respondent's rights to notice and 
opportunity to be heard with the Congressional intent that the 
administrative fines program work in an expeditious manner to resolve 
these reporting violations without additional administrative burden. 
Final Rule on Administrative Fines, 65 FR 31787-88 (May 19, 2000).
    The Federal Election Campaign Act (``FECA'') provides that ``[w]hen 
the treasurer of a political committee shows

[[Page 71094]]

that best efforts have been used to obtain, maintain, and submit the 
information required by this Act for the political committee, any 
report or any records of such committee shall be considered in 
compliance with [FECA].'' 2 U.S.C. 432(i).\1\ The current 
administrative fines regulations enumerate grounds upon which a 
respondent may challenge a Commission determination that an 
administrative fine should be imposed, but a best efforts defense is 
not explicitly listed among these grounds.
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    \1\ The Commission has long interpreted the ``best efforts'' 
provision as a statutory safe harbor limited to political 
committees' obligation to report certain substantive information 
that may be beyond the control of the committees to obtain. 11 CFR 
104.7 (defining ``best efforts'' for purposes of obtaining and 
submitting contributor information).
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    In Lovely v. FEC, 307 F. Supp. 2d 294 (D. Mass. 2004), the court 
addressed a political committee's challenge to an administrative fine 
assessed by the Commission for the committee's failure to timely file a 
report. The committee argued that it had made best efforts to file the 
report and that this constituted a valid and complete defense to the 
fine. The court concluded that the plain language of the Act requires 
the Commission to entertain a best efforts defense in the 
administrative fines context, and that it was unclear from the record 
in the Lovely case whether the Commission had considered the best 
efforts defense raised by the committee. The court remanded the case to 
the Commission for further proceedings.\2\ On remand, the Commission 
determined that the committee had failed to show best efforts and left 
the administrative fine in place. Commission's Statement of Reasons in 
Administrative Fines Case #549 on Remand From the United States 
District Court for the District of Massachusetts, Oct. 4, 2005, 
available at http://www.fec.gov/members/toner/sor/soraf549.pdf.
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    \2\ The Lovely case did not involve a challenge to the validity 
of the administrative fines program rules, and those rules have 
continued in full force and effect since the district court order. 
However, the court stated that the Commission could ``refine by 
regulation what best efforts means in the context of submitting a 
report.'' Lovely, 307 F. Supp. 2d at 300.
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    The proposed regulations would explicitly incorporate a best 
efforts defense into the process for challenging an administrative 
fine, would clarify the scope of the ``factual errors'' defense, and 
would provide for statements of reasons for administrative fines final 
determinations. These proposed changes are intended to address the 
concerns raised by the Lovely court as well as to provide greater 
clarity regarding permissible grounds for challenging administrative 
fines.

I. 11 CFR 111.35--Grounds for Challenging an Administrative Fines 
Reason To Believe Finding

    Under the administrative fines regulations, if the Commission 
determines that it has reason to believe (``RTB'') that a committee has 
failed to timely file a required report, it notifies the respondent of 
this finding and of the proposed civil penalty. 11 CFR 111.32. The 
Commission makes RTB findings based on an internal process that 
identifies late filers. The amount of the penalty is determined using 
the schedules at 11 CFR 111.43. Following an RTB finding, a respondent 
has forty days to challenge the alleged violation. 11 CFR 111.35. 
Challenges are reviewed by Commission staff and ultimately decided by 
the Commission. 11 CFR 111.36, 111.37.
    The current regulations set forth three permissible grounds upon 
which to challenge an administrative fines RTB finding. Respondents are 
permitted to challenge administrative fines on the basis of ``factual 
errors,'' the improper calculation of a penalty, or ``extraordinary 
circumstances that were beyond the control of the respondent and that 
were for a duration of at least 48 hours and that prevented the 
respondent from filing the report in a timely manner.'' 11 CFR 
111.35(b)(1). The regulations also provide examples of situations that 
will not be considered ``extraordinary circumstances,'' including 
negligence, problems with vendors or contractors, illness, 
inexperience, or unavailability of staff, and computer failures (except 
failures of the Commission's computers). 11 CFR 111.35(b)(4).
    This NPRM proposes a revision of 11 CFR 111.35 that clarifies the 
scope of the regulation's ``factual errors'' defense and also replaces 
the ``extraordinary circumstances'' defense with a best efforts 
defense.

A. 11 CFR 111.35(b)(1)(i)--Changes to the ``Factual Errors'' Defense

    The proposed regulation retains a ``factual errors'' defense, 
currently at 11 CFR 111.35(b)(1)(i), but clarifies the boundaries of 
this defense by stating that the facts alleged to be in error must be 
facts upon which the Commission relied in its RTB finding. Proposed 11 
CFR 111.35(b)(1). The proposed regulation also provides two examples of 
such factual errors: that the respondent was not required to file the 
report in question, and that the respondent did in fact timely file as 
described in 11 CFR 100.19. Id. For instance, a paper filer that has 
``timely filed'' a report under the definition in 11 CFR 100.19 would 
be considered to have timely filed for purposes of the administrative 
fines program. This would be true even if the Commission does not 
ultimately receive the filing, due, for instance, to errors by the 
overnight delivery service or in the handling of the mail. The 
Commission seeks comment on this approach. Should other types of 
factual errors be allowed as grounds for challenge to the finding of a 
violation? Should the regulation include additional examples of 
qualifying factual errors?

B. 11 CFR 111.35(b)(1)(iii)--Replacing the ``Extraordinary 
Circumstances'' Defense With a Best Efforts Defense

    The proposed regulation replaces the ``extraordinary 
circumstances'' defense currently at 11 CFR 111.35(b)(1)(iii) with a 
best efforts defense. The proposed regulation makes clear that a 
respondent may base a challenge to an administrative fine on a showing 
that respondent made best efforts to timely file the report in 
question. To show that it made best efforts to timely file, a 
respondent would be required to demonstrate that both (i) Respondent 
was prevented from filing in a timely manner because of unforeseen 
circumstances that were beyond the control of the respondent, and (ii) 
respondent filed the report in question within 24 hours of the 
respondent's no longer being prevented from filing. Proposed 11 CFR 
111.35(b)(3). The proposed regulation gives two examples of unforeseen 
circumstances that were beyond the control of the respondent: a failure 
of Commission computers, Commission software, or the internet; and 
severe weather or other disaster-related incident. Proposed 11 CFR 
111.35(c). The proposed regulation also gives examples of circumstances 
that will not be considered unforeseen and beyond the control of the 
respondent, including negligence; delays caused by committee vendors or 
contractors; illness, inexperience, or unavailability of the treasurer 
or other staff; committee computer or software failures; a committee's 
failure to know filing dates; or a committee's failure to use FEC 
filing software properly. Proposed 11 CFR 111.35(d). Like the current 
regulations, the proposed regulations would require a respondent to 
explain the factual basis supporting the respondent's challenge. 
Proposed 11 CFR 111.35(e).
    The best efforts defense set forth in the proposed regulation would 
serve as a proxy for a full factual investigation of a respondent 
committee's internal

[[Page 71095]]

practices regarding filing of reports and an analysis of whether such 
practices were sufficient to constitute best efforts. Such an 
investigation would be particularly burdensome in the context of the 
administrative fines program, which is meant to be a ``streamlined 
procedure.'' Final Rule on Administrative Fines, 65 FR at 31787.
    The Commission seeks comment on the proposed best efforts defense. 
Will the proposed test serve as a sufficient proxy for a full best 
efforts investigation? Are there other circumstances not contemplated 
by the proposed regulations that could prevent a respondent from timely 
filing, notwithstanding the respondent having taken best efforts to 
ensure that the report would be timely filed? Should the Commission 
apply a ``but for'' test, a ``contributing factor'' test, or some other 
test for determining whether a respondent was prevented from timely 
filing by particular circumstances? Should the Commission retain an 
extraordinary circumstances defense? Should the Commission entertain 
defenses based on extreme financial hardship? Should the regulations be 
more specific as to what constitutes computer or Internet failures, or 
severe weather or disaster? Should the list of circumstances that will 
not be considered unforeseen and beyond the control of the respondent 
be expanded or contracted, and if so by which elements? Should the 24 
hour period be longer or shorter, or should committees be required to 
file as soon as would be practicable? What sort of supporting evidence 
should a respondent be required to provide? Are there other important 
factors that the Commission should incorporate into a best efforts 
defense? Alternatively, should the Commission refrain from adding a 
specific best efforts defense to the administrative fines regulation? 
Does Lovely preclude this approach?

II. 11 CFR 111.37--Commission Action on Administrative Fines Challenges

    Section 111.37 of the Commission's rules guides Commission 
decisions regarding the final determination of administrative fines 
challenges. The proposed regulations direct the Commission to conclude 
that no violation has occurred if the Commission based its RTB finding 
on a factual error or if the respondent made best efforts to timely 
file. Proposed 11 CFR 111.37(b). The proposed regulations also include 
a new section 111.37(d), which makes clear that the staff 
recommendation regarding the challenge, including any changes made by 
the Commission, will serve as the Commission's statement of reasons 
regarding the administrative fine at issue. This change is intended to 
satisfy the Lovely court's concern that, in that case, the Commission 
had issued no opinion or statement of reasons along with its final 
determination. Lovely, 307 F. Supp. 2d at 301. Finally, the proposed 
regulations amend section 111.37(d) to eliminate reference to the 
``extraordinary circumstances'' defense, which would no longer be 
applicable.
    The Commission seeks comment on these changes. Are there additional 
conforming amendments required to implement the proposed best efforts 
defense?

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

    The Commission certifies that the attached proposed rules would 
not, if promulgated, have a significant economic impact on a 
substantial number of small entities. The basis for this certification 
is that any individuals and not-for-profit entities that would be 
affected by these proposed rules are not ``small entities'' under 5 
U.S.C. 601. The definition of ``small entity'' does not include 
individuals, but classifies a not-for-profit enterprise as a ``small 
organization'' if it is independently owned and operated and not 
dominant in its field. 5 U.S.C. 601(4). State political party 
committees are not independently owned and operated because they are 
not financed and controlled by a small identifiable group of 
individuals, and they are affiliated with the larger national political 
party organizations. In addition, the State political party committees 
representing the Democratic and Republican parties have a major 
controlling influence within the political arena of their State and are 
thus dominant in their field. District and local party committees are 
generally considered affiliated with the State committees and need not 
be considered separately. To the extent that any State party committees 
representing minor political parties or any other political committees 
might be considered ``small organizations,'' the number that would be 
affected by this proposed rule is not substantial.
    Furthermore, any separate segregated funds that would be affected 
by these proposed rules are not-for-profit political committees that do 
not meet the definition of ``small organization'' because they are 
financed by a combination of individual contributions and financial 
support for certain expenses from corporations, labor organizations, 
membership organizations, or trade associations, and therefore are not 
independently owned and operated. Most of the other political 
committees that would be affected by these proposed rules are not-for-
profit committees that do not meet the definition of ``small 
organization.'' Most political committees are not independently owned 
and operated because they are not financed by a small identifiable 
group of individuals. In addition, most political committees rely on 
contributions from a large number of individuals to fund the 
committees' operations and activities.
    The proposed rules also would not impose any additional 
restrictions or increase the costs of compliance for respondents within 
the administrative fines program. Instead, the proposed rules would 
provide additional defenses available to respondents in the 
administrative fines program, thereby and potentially increasing the 
situations in which the Commission imposes no civil money penalty. 
Moreover, the proposed rules would apply only in the administrative 
fines program, where penalties are proportionate to the amount of a 
political committee's financial activity. Any political committee 
meeting the definition of ``small entity'' would be subject to lower 
fines than larger committees with more financial activity. Therefore, 
the attached proposed rules, if promulgated, would not have a 
significant economic impact on a substantial number of small entities.

List of Subjects in 11 CFR Part 111

    Administrative practice and procedures, Elections, Law enforcement.

    For the reasons set out in the preamble, the Federal Election 
Commission proposes to amend Subchapter A of Chapter I of Title 11 of 
the Code of Federal Regulations as follows:

PART 111--COMPLIANCE PROCEDURE (2 U.S.C. 437g, 437d(a))

    1. The authority citation for part 111 is revised to read as 
follows:

    Authority: 2 U.S.C. 432(i), 437g, 437d(a), 438(a)(8); 28 U.S.C. 
2461 nt.

    2. Section 111.35 is revised to read as follows:


Sec.  111.35  If the respondent decides to challenge the alleged 
violation or proposed civil money penalty, what should the respondent 
do?

    (a) To challenge a reason to believe finding or proposed civil 
money penalty, the respondent must submit a written response to the 
Commission within forty days of the Commission's reason to believe 
finding.

[[Page 71096]]

    (b) The respondent's written response must establish at least one 
of the following grounds for challenging the reason to believe finding 
and/or civil money penalty:
    (1) The Commission's reason to believe finding is based on a 
factual error. Examples of a factual error include, but are not limited 
to, that the committee was not required to file or that the committee 
timely filed as described in 11 CFR 100.19 (such as by timely 
depositing a paper filing with an overnight delivery service);
    (2) The Commission improperly calculated the civil money penalty; 
or
    (3) The respondent made best efforts to file in a timely manner in 
that:
    (i) The respondent was prevented from filing in a timely manner 
because of unforeseen circumstances that were beyond the control of the 
respondent; and
    (ii) The respondent filed within 24 hours thereafter.
    (c) Circumstances that will be considered unforeseen and beyond the 
control of respondent include, but are not limited to, a failure of 
Commission computers, Commission-provided software, or the Internet, 
and severe weather or other disaster-related incident.
    (d) Circumstances that will not be considered unforeseen and beyond 
the control of respondent include, but are not limited to, negligence; 
delays caused by committee vendors or contractors; illness, 
inexperience, or unavailability of the treasurer or other staff; 
committee computer or software failures; a committee's failure to know 
filing dates; or a committee's failure to use filing software properly.
    (e) Respondent's written response must detail the factual basis 
supporting the grounds and include any supporting documentation.
    3. In Sec.  111.37, paragraphs (b) and (d) are revised to read as 
follows:


Sec.  111.37  What will the Commission do once it receives the 
respondent's written response and the reviewing officer's 
recommendation?

* * * * *
    (b) If the Commission, after reviewing the reason to believe 
finding, the respondent's written response, and the reviewing officer's 
written recommendation, determines by an affirmative vote of at least 
four (4) of its members, that no violation has occurred (either because 
the Commission had based its reason to believe finding on a factual 
error or because the respondent made best efforts to file in a timely 
manner) or otherwise terminates its proceedings, the Commission shall 
authorize the reviewing officer to notify the respondent by letter of 
its final determination.
* * * * *
    (d) When the Commission makes a final determination under this 
section, the statement of reasons for the Commission action consists of 
the reasons provided in the reviewing officer's recommendation, if 
adopted by the Commission, subject to any Commission amendments, 
additions, substitutions, or statements of reasons.

    Dated: November 30, 2006.
Michael E. Toner,
Chairman, Federal Election Commission.
[FR Doc. E6-20735 Filed 12-7-06; 8:45 am]
BILLING CODE 6715-01-P