[Federal Register Volume 71, Number 236 (Friday, December 8, 2006)]
[Proposed Rules]
[Pages 71084-71087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20752]


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FEDERAL ELECTION COMMISSION

11 CFR Part 104

[Notice 2006-21]


Proposed Statement of Policy Regarding Treasurer's Best Efforts 
To Obtain, Maintain, and Submit Information as Required by the Federal 
Election Campaign Act

AGENCY: Federal Election Commission.

ACTION: Proposed statement of policy.

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SUMMARY: The Federal Election Commission (the ``Commission'') seeks 
comments on a proposal to clarify its enforcement policy with respect 
to the circumstances under which it intends to consider a political 
committee and its treasurer to be in compliance with the recordkeeping 
and reporting requirements of the Federal Election Campaign Act, as 
amended (``FECA''), based on the ``best efforts'' defense. Section 
432(i) of Title 2 provides that when the treasurer of a political 
committee demonstrates that best efforts were used to obtain, maintain, 
and submit the information required by FECA, any report or any records 
of such committee shall be considered in compliance with FECA (and/or 
chapters 95 and 96 of Title 26). In the past, the Commission has 
interpreted this section to apply only to a treasurer's efforts to 
obtain required information from contributors to a political committee, 
and not to maintaining information or the submission of reports. 
However, in light of Lovely v. Federal Election Commission, 307 F. 
Supp. 2d 294 (D. Mass. 2004), the Commission intends to apply Section 
432(i) to obtaining, maintaining, and submitting information and 
records to the Commission for the purpose of complying with FECA's 
disclosure and reporting requirements. Further information is provided 
in the supplementary information that follows.

DATES: Comments must be received on or before January 8, 2007. The 
Commission intends to issue a final policy statement after the close of 
the comment period.

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 e-mail, facsimile, or paper copy form. Commenters are 
strongly encouraged to submit comments by e-mail or fax to ensure 
timely receipt and consideration. E-mail comments must be sent to 
[email protected]. 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. Mailed comments and paper copy follow-up of faced 
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.

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: The Commission's regulation implementing 
Section 432(i) is promulgated at 11 CFR 104.7. This proposed policy 
statement makes clear that the Commission's intent is to apply this 
regulation consistent with the holding of the Federal court in Lovely. 
A political committee and its treasurer, regardless of the type of 
enforcement action before the Commission (the administrative fines 
program excepted, see below), will be considered to be in compliance 
with FECA's requirements if the committee or its treasurer can show 
that best efforts were made to obtain, maintain, and submit all 
information required to be reported to the Commission. With respect to 
11 CFR 104.7(a), the Commission intends to consider that best efforts 
were made when the treasurer of a political committee demonstrates that 
the failure to properly obtain, maintain or submit required information 
and reports was beyond the control of the committee. The Commission 
intends to generally consider the following: (1) The actions taken, or 
systems implemented, by the committee to ensure that required 
information is obtained, maintained, and submitted; (2) the cause of 
the

[[Page 71085]]

failure to obtain, maintain, or submit the information or reports at 
issue; and (3) the specific efforts of the committee to obtain, 
maintain, and submit the information or reports at issue. Where 
appropriate, the Commission may issue additional policy statements or 
implement regulations setting forth more specific requirements to 
govern the best efforts defense in particular contexts.
    This policy does not affect or modify the Commission's best efforts 
standards set forth at 11 CFR 104.7(b) that apply specifically with 
respect to obtaining the identification (see 11 CFR 100.12) of each 
person whose contributions aggregate more than $200 in a calendar year. 
Additionally, this policy does not affect or modify the Commission's 
current administrative fines program. The Commission will consider the 
applicability of the best efforts defense in the context of the 
administrative fines program in a separate rulemaking. Current 11 CFR 
111.35 sets forth the defenses available to a respondent in the 
administrative fines context. Any revisions to those available defenses 
will be addressed in a separate rulemaking, which will allow the 
Commission to give due consideration to the special issues raised by 
the administrative fines program not present in other portions of the 
Commission's enforcement docket.
    The Commission requests comments on all aspects of this proposed 
policy statement.

I. Statutory and Regulatory Provision

    The Commission proposes clarifying its current enforcement practice 
with respect to consideration of the best efforts of the treasurer of a 
political committee to comply with the recordkeeping and reporting 
requirements of FECA, as interpreted by the Lovely court. Pursuant to 2 
U.S.C. 432(i), FECA provides that:

When the treasurer of a political committee shows that best efforts 
have been used to obtain, maintain, and submit the information 
required by this Act for the political committee, any report or any 
records of such committee shall be considered in compliance with 
this Act or chapter 95 or chapter 96 of title 26.

    This provision of FECA was implemented by the Commission at 11 CFR 
104.7. Paragraph (a) of this section is virtually identical to the 
statutory provision:

When the treasurer of a political committee shows that best efforts 
have been used to obtain, maintain, and submit the information 
required by the Act for the political committee, any report of such 
committee shall be considered in compliance with the Act.

    Paragraph (b) of section 104.7 provides standards for a treasurer 
of a political committee to satisfy in obtaining and reporting ``the 
identification as defined at 11 CFR 100.12 of each person whose 
contribution(s) to the political committee and its affiliated political 
committees aggregate in excess of $200 in a calendar year (or in an 
election cycle in the case of an authorized committee).'' \1\ 
``Identification'' includes the person's full name, mailing address, 
occupation, and name of employer. See 11 CFR 100.12.
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    \1\ The U.S. Court of Appeals for the District of Columbia 
Circuit referred to 11 CFR 104.7(b) as a ``Commission regulation 
interpreting what political committees must do under [FECA] to 
demonstrate that they have exercised their 'best efforts' to 
encourage donors to disclose certain personally identifying 
information.'' Republican Nat'l Comm. v. FEC, 76 F.3d 400, 403 (DC 
Cir. 1996).
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    The language of FECA, and the Commission's regulation at section 
104.7(a), applies the best efforts defense broadly to efforts by 
treasurers to ``obtain, maintain and submit'' the information required 
to be disclosed by FECA. However, the Commission has in past 
enforcement actions interpreted the statutory language to apply only to 
efforts to ``obtain'' contributor information.\2\ This interpretation 
is based on an example contained in the provision's legislative 
history. See H.R. Rep. No. 96-422, at 14 (1979) (``One illustration of 
the application of this [best efforts] test is the current requirement 
for a committee to report the occupation and principal place of 
business of individual contributors who give in excess of $100).
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    \2\ In 1980, the Commission explained that ``[i]n determining 
whether or not a committee has exercised `best efforts,' the 
Commission's primary focus will be on the system established by the 
committee for obtaining disclosure information'' (emphasis added). 
45 FR 15080, 15086 (Mar. 7, 1980). In 1993, the Commission referred 
to ``the requirement of [FECA] that treasurers of political 
committees exercise best efforts to obtain, maintain and report the 
complete identification of each contributor whose contributions 
aggregate more than $200 per calendar year.'' Final Rule on 
Recordkeeping and Reporting by Political Committees: Best Efforts, 
58 FR 57725, 57725 (Oct. 27, 1993). And in 1997, the Commission 
stated that ``[t]reasurers of political committees must be able to 
show they have exercised their best efforts to obtain, maintain and 
report [contributor identification information].'' Final Rule on 
Recordkeeping and Reporting by Political Committees: Best Efforts, 
62 FR 23335, 23335 (Apr. 30, 1997). In 2003, the Commission asserted 
in its Supplemental Brief in the Lovely litigation that ``the 
Commission has long interpreted the best efforts provision as 
creating a limited safe harbor regarding committees' obligations to 
report substantive information that may be beyond their ability to 
obtain.'' Commission's Supplemental Brief in Lovely v. FEC at 1. 
Furthermore, ``when Congress originally enacted the 'best efforts'' 
provision, it could not have been more clear that it was creating a 
limited defense regarding the inability to obtain specific 
information that was supposed to be disclosed, not the failure to 
file reports on time.'' Id. at 12-13. The Lovely court summarized 
the Commission's argument: ``The FEC in its briefing claims that it 
limits the reach of the best efforts statute to best efforts to 
'obtain' contributor information.'' Lovely, 307 F. Supp. 2d at 300.
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II. Administrative Fines Program

    Congress authorized the Commission's administrative fines program 
in 1999 to ``create[] a simplified procedure for the FEC to 
administratively handle reporting violations.'' \3\ H.R. Rep. No. 106-
295, at 11 (1999). As the Commission explained in its Final Rule on 
Administrative Fines, 65 FR 31787 (May 19, 2000),
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    \3\ See Treasury and General Government Appropriations Act, 
2000, Public Law 106-58, section 640, 113 Stat. 430, 476-77 (1999). 
The program has been reauthorized twice, see Consolidated 
Appropriations Act, 2004, Public Law 108-199, section 639, 118 Stat. 
3, 359 (2004) and Transportation, Treasury, Housing and Urban 
Development, the Judiciary, the District of Columbia, and 
Independent Agencies Appropriations Act, 2006, Public Law 109-115, 
section 721, 119 Stat. 2396, 2493-94 (2005), and will sunset on 
December 31, 2008. See also Final Rule on Extension of 
Administrative Fines Program, 70 FR 75717 (Dec. 21, 2005).

[p]rior to enactment of the [administrative fines program] amendment 
to the FECA, the Commission handled failures to file the reports in 
a timely manner under the enforcement procedures in 11 CFR part 111. 
The purpose of the administrative fines program is to institute 
streamlined 0procedures, while preserving the respondents' due 
process rights, to process violations of the reporting requirements 
of 2 U.S.C. 434(a) and assess a civil money penalty based on the 
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schedules of penalties for such violations.

65 FR at 31787. However, ``the Commission has discretion to apply 
either the administrative fines procedures or the current enforcement 
procedures set forth in Sec. Sec.  111.9 through 111.19 to violations 
of the reporting requirements of 2 U.S.C. 434(a).'' Id. at 31788; see 
also 11 CFR 111.31.
    Under current Commission regulations, a respondent may challenge a 
proposed civil penalty in the administrative fines program for three 
reasons: ``(i) [t]he existence of factual errors; and/or (ii) [t]he 
improper calculation of the civil money penalty; and/or (iii) [t]he 
existence of extraordinary circumstances that were beyond the control 
of the respondent and that were for a duration of at least 48 hours and 
that prevented the respondent from filing the report in a timely 
manner.'' 11 CFR 111.35(b)(1). The regulation limits the scope of 
circumstances that will be considered ``extraordinary'' to exclude 
negligence, problems with vendors or contractors, illness, 
inexperience, or unavailability

[[Page 71086]]

of staff, computer failures (except failures of the Commission's 
computers), and other similar circumstances. 11 CFR 111.35(b)(4).
    The Commission deemed this limitation of defenses to be an 
appropriate component of the administrative fines program, and asserted 
that it had

sound policy reasons for limiting the respondents' defenses beyond 
streamlining the administrative process. A key cornerstone of 
campaign finance law is the full and timely disclosure of the 
political committee's financial activity. Such disclosure is 
essential to providing the public with accurate and complete 
information regarding the financing of federal candidates and 
political campaigns. Thus, violations of the reporting requirements 
of 2 U.S.C. 434(a) are strict liability offenses * * *ensp . Absent 
extraordinary circumstances beyond the committees' control, the 
Commission sees no reason why committees cannot file their reports 
by the deadline. The rationale behind the `48-hour extraordinary 
circumstances' exception is that the Commission recognizes there may 
be instances such as natural disasters where a committee's office is 
located in the disaster area and the committee cannot timely file a 
report because of lack of electricity or flooding or destruction of 
committee records.

65 FR at 31789-90.

    In light of these considerations, this proposed policy statement 
shall not affect the Commission's current administrative fines program. 
Rather, the Commission's position will be re-evaluated in the context 
of a separate rulemaking concerning the application of the best efforts 
defense in the administrative fines program.

III. The Lovely Decision

    In Lovely v. FEC, 307 F. Supp. 2d 294 (D. Mass. 2004), a 
congressional candidate's political committee and its treasurer brought 
an action against the Commission challenging the imposition of an 
administrative fine for allegedly late filing of a required report. On 
the day of the filing deadline, the committee's treasurer experienced 
difficulty electronically filing the committee's report via the 
Internet. Upon advice of Commission staff, the treasurer mailed a paper 
copy of the committee's report, along with a copy on computer diskette, 
to the Commission. The diskette was improperly formatted, and rejected 
by the Commission, but the paper copy was made public and posted to the 
Commission's Web site. The committee filed a properly formatted report 
27 days after the filing deadline. Pursuant to the Commission's 
administrative fines program, the Commission's Office of Administrative 
Review recommended a $3,100 civil penalty, based on the number of days 
the report was late, the committee's lack of prior violations, and the 
fact that the treasurer had not raised any of the three defenses 
permitted by 11 CFR 111.35(b) to contest the imposition of a civil 
penalty. The Commission found reason to believe that the committee and 
the treasurer violated FECA with the late filing. Subsequently, the 
Commission made a final determination that plaintiff had violated 2 
U.S.C. 434(a), but also voted to decrease the civil penalty to $1,800. 
Lovely at 296-97.
    In its lawsuit, the plaintiff argued that the Commission's 
imposition of a fine was contrary to FECA's best efforts provision. Id. 
at 296. The Commission argued that ``it limits the reach of the best 
efforts statute to best efforts to `obtain' contributor information.'' 
Lovely at 300. The Court concluded that ``the FEC's argument that the 
phrase does not apply to the submission of reports conflicts with the 
plain statutory language. While the Commission can refine by regulation 
what best efforts means in the context of submitting a report, it 
cannot define it away by providing that submission of reports is 
governed by a `strict liability' standard.'' Id. Thus, the court 
rejected the Commission's primary rationale for limiting respondents' 
potential defenses to late- or non-reporting in the administrative 
fines program, holding that the submission of reports is not governed 
by a strict liability standard. Rather, the fault-based standard of the 
best efforts defense must apply.
    The court also drew on the legislative history of the best efforts 
provision. As noted, the 1979 amendments to FECA specifically amended 
the best efforts provision to make it ``applicable to the entirety of 
FECA, rather than merely to one subsection.'' Lovely at 299. The court 
cited the provision's legislative history:

The best efforts test is specifically made applicable to 
recordkeeping and reporting requirements in both Title 2 and Title 
26. The test of whether a committee has complied with the statutory 
requirements is whether its treasurer has exercised his or her best 
efforts to obtain, maintain, and submit the information required by 
the Act. If the treasurer has exercised his or her best efforts, the 
committee is in compliance. Accordingly, the application of the best 
efforts test is central to the enforcement of the recordkeeping and 
reporting provisions of the Act. It is the opinion of the Committee 
that the Commission has not adequately incorporated the best efforts 
test into its administration procedures, such as the systematic 
review of reports.

Id. (emphasis added) (quoting H.R. Rep. No. 96-422, at 14 (1979), 
reprinted in 1979 U.S.C.C.A.N. 2860, 2873).

    As the Commission stated in its Statement of Reasons after remand 
of the Lovely case, ``the Court held that FECA's `best efforts' 
provision * * * requires the Commission to consider whether a 
committee's treasurer exercised best efforts to submit timely 
disclosure reports.'' Commission's Statement of Reasons in 
Administrative Fines Case #549 on Remand From the United States 
District Court for the District of Massachusetts, at 1 (Oct. 4, 2005) 
(``Lovely Statement of Reasons''). On remand, the Commission indicated 
its intention to ``pursue its view that 2 U.S.C. 432(i) does not 
require the Commission to recognize a `best efforts' defense as part of 
the administrative fines program,'' and decided that the court had not 
``construe[d] Section 432(i) beyond requiring its application in this 
instance.'' Id. at 1-2. The Commission determined that the committee's 
treasurer had not put forth best efforts in filing the report in 
question. Id. at 5.

IV. Application of the Court's Holding

    Upon further consideration, the Commission has determined that 
despite the limited breadth of Lovely, implementation of the Lovely 
court's interpretation of the best efforts defense best reflects the 
language of FECA and the intent of Congress. While the Commission's 
enforcement practices formerly reflected the view that the best efforts 
defense was limited to obtaining certain contributor identification 
information, see supra footnote 2, the Commission recognizes that its 
application of the defense in previous enforcement matters derives from 
a single example of the defense's application in its 1979 legislative 
history.\4\ In light of these considerations, the Commission hereby 
notifies the public and the regulated community through this proposed 
policy statement that henceforth it intends to apply the best efforts 
defense of 2 U.S.C. 432(i), as promulgated at 11 CFR 104.7, with 
respect to obtaining contributor information as currently set forth at 
11 CFR 104.7(b), and also to obtaining other information, maintaining 
any and all information required by the statute,

[[Page 71087]]

and submitting said information in the form of disclosure reports.
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    \4\ A respondent's assertion in an enforcement matter that best 
efforts were made to maintain and/or submit required information was 
formerly considered by the Commission to be a mitigating factor, but 
not an outright defense to an alleged violation of the recordkeeping 
and reporting requirements.
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    The standards for determining whether the best efforts defense is 
applicable in the context of obtaining specific contributor information 
is set forth at current 11 CFR 104.7(b). This proposed policy statement 
does not affect or modify those standards.
    With respect to 11 CFR 104.7(a), which applies to obtaining, 
maintaining and submitting information and reports, the Commission 
intends to consider that best efforts were made when the treasurer of a 
political committee demonstrates that the failure to properly obtain, 
maintain or submit required information and reports to the Commission 
was beyond the control of the committee. The Commission intends to 
generally consider the following: (1) The actions taken, or systems 
implemented, by the committee to ensure that required information is 
obtained, maintained, and submitted; (2) the cause of the failure to 
obtain, maintain, or submit the information or reports at issue; and 
(3) the specific efforts of the committee to obtain, maintain, and 
submit the information or reports at issue.
    Under this proposed policy, the following list sets forth possible 
reasons for a committee's failure to obtain, maintain or submit 
information or reports that the Commission may consider to be 
indicative that the best efforts defense is applicable:
     A failure of Commission computers or Commission-provided 
software;
     Severe weather or other disaster-related incidents;
     Electronic filing problems caused by widespread and 
reported problems with the Internet;
     Utilization of the Commission's three approved filing 
methods (via Internet, direct modem, and mailing an electronic copy);
     Delivery failures caused by mail/courier services such as 
U.S. Postal Service, Federal Express, UPS, DHL, etc.; or
     Unforeseen circumstances beyond the control of the 
respondent.
    The above-listed reasons, along with any other defenses presented, 
may be considered by the Commission in light of all the facts and 
circumstances relevant to the committee's obtaining and maintenance of 
information and efforts to submit reports (or other information) in a 
timely fashion in determining the applicability of the best efforts 
defense.
    If a failure to obtain, maintain, or submit information or reports 
is due to committee staff unavailability, inexperience, illness, 
negligence or error; the committee's computer or software failure; 
delays caused by committee vendors or contractors; a committee's 
failure to know filing dates; or a committee's failure to use 
Commission software properly; then the Commission intends to conclude 
that the best efforts standard has not been met.
    Under the proposed policy, if presented with information sufficient 
to form a best efforts defense, the Commission intends to consider the 
best efforts of a committee under Section 432(i) when reviewing all 
violations of the recordkeeping and reporting requirements of FECA, 
whether arising in its normal enforcement docket (Matters Under Review) 
or the Alternative Dispute Resolution Program. The ``best efforts'' 
standard is an affirmative defense and the burden rests with the 
political committee and its treasurer to present facts that demonstrate 
that ``best efforts'' were made. The Commission does not intend to 
consider the best efforts defense in any enforcement matter unless the 
facts that form the basis of that defense are asserted by a respondent.
    The Commission considers ``best efforts'' to be ``a standard that 
has diligence as its essence.'' E. Allan Farnsworth, On Trying to Keep 
One's Promises: The Duty of Best Efforts in Contract Law, 46 U. Pitt. 
L. Rev. 1, 8 (1984). As the Commission explained in its Lovely 
Statement of Reasons at 2,

Section 432(i) creates a safe harbor for treasurers who ``show[] 
that best efforts'' have been made to report the information 
required to be reported by the Act. ``Best'' is an adjective of the 
superlative degree. ``Best efforts'' must therefore require more 
than ``some'' or ``good'' efforts. Congress's choice of a ``best 
efforts'' standard, rather than a ``good faith'' standard, suggests 
that a treasurer cannot rely upon his or her earnestness or state of 
mind to gain the shelter of Section 432(i)'s safe harbor. Rather, a 
treasurer has the burden of showing that the actions taken--the 
efforts he or she made to comply with applicable reporting 
deadlines--meet the statute's demanding benchmark.

    As explained above, the Commission does not intend to apply 11 CFR 
104.7(b) as limiting the applicability of the best efforts defense of 2 
U.S.C. 432(i) and 11 CFR 104.7(a) only to efforts made to obtain 
certain specific information from contributors. 11 CFR 104.7(b) does 
not in any way modify or limit the applicability of section 104.7(a) to 
the efforts of treasurers to obtain, maintain and submit information 
and reports.
    The above provides general guidance concerning the applicability of 
the Commission's proposed best efforts defense and announces the 
general course of action that the Commission intends to follow. This 
proposed policy statement sets forth the Commission's intentions 
concerning the exercise of its discretion in its enforcement program. 
However, the Commission retains that discretion and will exercise it as 
appropriate with respect to the facts and circumstances of each matter 
it considers. Consequently, this policy statement does not bind the 
Commission or any member of the general public. As such, it does not 
constitute an agency regulation requiring notice of proposed 
rulemaking, opportunities for public participation, prior publication, 
and delay in effective date under 5 U.S.C. 553 of the Administrative 
Procedure Act (``APA''). The provisions of the Regulatory Flexibility 
Act, which apply when notice and comment are required by the APA or 
another statute, are not applicable. Where appropriate, the Commission 
may issue additional policy statements or initiate rulemakings to set 
forth more specific requirements to govern the best efforts defense in 
particular contexts.

V. Conclusion.

    Effective as of the date that a final Policy Statement is published 
in the Federal Register, the Commission intends to apply the best 
efforts standard to all matters currently before the Commission in 
which a respondent has asserted such a defense, and that come before 
the Commission in the future involving information and reports that 
must be obtained, maintained, and submitted by the treasurers of 
political committees, although the Commission will consider the 
application of the best efforts defense to the administrative fines 
program in a separate rulemaking. The Commission intends to consider 
that ``best efforts'' were made when the treasurer of a political 
committee demonstrates that the failure to properly obtain, maintain or 
submit required information and reports was beyond the control of the 
committee. When treasurers are able to show that a committee made best 
efforts to comply with the Act's requirements to obtain, maintain, and 
submit information, the Commission intends that the treasurers or 
committees shall be considered in compliance with FECA and no civil 
penalties or other remedial measures shall be imposed.

    Dated: November 30, 2006.
Michael E. Toner,
Chairman, Federal Election Commission.
 [FR Doc. E6-20752 Filed 12-7-06; 8:45 am]
BILLING CODE 6715-01-P