[Federal Register Volume 71, Number 236 (Friday, December 8, 2006)]
[Proposed Rules]
[Pages 71090-71093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20845]


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FEDERAL ELECTION COMMISSION

11 CFR Part 111

[Notice 2006-20]


Proposed Policy Regarding Self-Reporting of Campaign Finance 
Violations; (Sua Sponte Submissions)

AGENCY: Federal Election Commission.

ACTION: Draft statement of policy with request for comments.

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SUMMARY: The Commission is seeking comments on a proposed policy 
statement to clarify and memorialize its approach to enforcement 
actions arising from self-reported violations (also known as sua sponte 
submissions). In order to encourage the self-reporting of violations 
about which the Commission would not otherwise have learned, the 
Commission proposes, in appropriate cases warranting such mitigation, 
to offer significantly lower penalties than the Commission would 
otherwise have sought in complaint-generated matters involving similar 
circumstances. The Commission is also outlining a new expedited 
procedure that it intends to use in a limited number of situations 
through which the Commission may allow individuals and organizations 
that self-report violations and that make a complete report of their 
internal investigation to proceed directly into conciliation prior to 
the Commission determining whether their conduct may have violated 
statutes or regulations within its jurisdiction. The proposed policy 
also addresses various issues that can arise in connection with 
parallel criminal, administrative or civil proceedings. The Commission 
requests comments on this proposed policy.

DATES: All comments must be submitted on or before January 29, 2007.

ADDRESSES: All comments should be addressed to Mark Shonkwiler, 
Assistant General Counsel, or April Sands, Attorney, and must be 
submitted in either electronic or written form. Electronic mail 
comments should be sent to [email protected] and must include 
the full name, electronic mail address and postal service address of 
the commenter. Electronic mail comments that do not contain the full 
name, electronic mail address and postal service address of the 
commenter will not be considered. If the electronic mail comments 
include an attachment, the attachment must be in the Adobe Acrobat 
(.pdf) or Microsoft Word (.doc) format. Faxed comments should be sent 
to (202) 219-3923, with printed copy follow-up to ensure legibility. 
Written comments and printed copies of faxed comments should be sent to 
the Federal Election Commission, 999 E Street, NW., Washington, DC 
20463. Commenters are strongly encouraged to submit comments 
electronically to ensure timely receipt and consideration. The 
Commission will make every effort to post public comments on its Web 
site within ten business days of the close of the comment period.

FOR FURTHER INFORMATION CONTACT: Mark D. Shonkwiler, Assistant General 
Counsel, or April J. Sands, Attorney, Enforcement Division, Federal 
Election Commission, 999 E Street, NW., Washington, DC 20463, (202) 
694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION:

I. Goals and Scope of the Policy

    The Commission periodically receives submissions from persons who 
self-report statutory or regulatory violations of which the Commission 
had no prior knowledge. The Commission considers such self-reports 
(which also are referred to as sua sponte submissions) as information 
ascertained in the normal course of carrying out its supervisory 
responsibilities pursuant to 2 U.S.C. 437g(a)(2), and may investigate 
if it determines there is reason to believe a violation has occurred. 
The Commission also investigates complaints reporting the potentially 
illegal conduct of another, submitted pursuant to 2 U.S.C. 437g(a)(1), 
but which also, by implication, provide a basis for investigating the 
complainant itself.\1\ As a general proposition, self-reported

[[Page 71091]]

matters, when accompanied by full cooperation, may be resolved more 
quickly and on more favorable terms than matters arising by other means 
(e.g., those arising via external complaints, referrals from other 
government agencies, or referrals from the Commission's Audit or 
Reports Analysis Divisions).\2\
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    \1\ If a person who self-reports a violation of the FECA also 
makes specific allegations as to other persons not joining in the 
submission, and particularly where the person making the submission 
seeks to assign primary responsibility for the violations to another 
person (including an organization's former officers or employees), 
the Commission, acting through its Office of General Counsel, may 
advise the self-reporting person that a portion of the relevant 
materials should be re-submitted as a complaint to which other 
persons would be allowed to respond prior to any findings by the 
Commission.
    \2\ When violations are found, FECA requires the Commission to 
attempt to correct or prevent violations through conciliation 
agreements before suit may be filed in Federal district court.
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    The Commission recently has seen an increase in self-reported 
violations, which may be attributable, at least in part, to greater 
attention being placed on compliance programs for areas of potential 
organizational liability, and recognition that addressing a problem 
through self-auditing and self-reporting may help minimize reputational 
harm. The increase in the number of self-reported matters has 
highlighted the need to increase the transparency of Commission 
policies and procedures. Moreover, the Commission seeks to provide 
appropriate incentives for this demonstration of cooperation and 
responsibility.
    This policy provides an overview of the factors that influence the 
Commission's handling and disposition of certain kinds of matters. It 
should be noted that while cooperation in general, and self-reporting 
in particular, will be considered by the Commission as mitigating 
factors, they do not excuse a violation of the Act or end the 
enforcement process. Also, this policy does not confer any rights on 
any person and does not in any way limit the right of the Commission to 
evaluate every case individually on its own facts and circumstances.\3\ 
Nevertheless, as explained below, the Commission may provide 
appropriate consideration to respondents who voluntarily disclose and 
who fully cooperate with the Commission's disposition of the matter.
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    \3\ Some violations, for instance, are subject to a mandatory 
minimum penalty prescribed by statute. See 2 U.S.C. 437g(a)(6)(C).
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II. Self-Reporting of FECA Violations

    Self-reporting of violations typically allows respondents to 
resolve their civil liability in a manner which has the potential to: 
(1) Reduce the investigative burden on both the Commission and 
themselves; (2) demonstrate their acceptance of organizational or 
personal responsibility and commitment to internal compliance; and (3) 
conclude their involvement in the Commission's enforcement process on 
an expedited basis. A person who brings to the Commission's attention 
violations of the FECA and Commission regulations and who cooperates 
with the resulting investigation may also receive appropriate 
consideration in the terms of an eventual conciliation agreement. For 
example, the Commission may do one or more of the following:
     Take no action against particular respondents;
     Offer a significantly lower penalty than what the 
Commission otherwise would have sought in a complaint-generated matter 
involving similar circumstances or, where appropriate, no civil 
penalty;
     Offer conciliation before a finding of probable cause to 
believe a violation occurred, and in certain cases proceed directly to 
conciliation without the Commission first finding reason to believe 
that a violation occurred (see discussion below);
     Refrain from making a formal finding that a violation was 
knowing and willful, even where the available information would 
otherwise support such a finding;
     Proceed only as to an organization, rather than as to 
various individual agents or, where appropriate, proceed only as to 
individuals rather than organizational respondents;
     Include language in the conciliation agreement that 
indicates the level of cooperation provided by respondents and the 
remedial action taken by the persons.

III. Factors Considered in Self-Reported Matters

    The Commission may take into account various factors in considering 
how to proceed regarding self-reported violations. In general, more 
expedited processing and a more favorable outcome will be possible when 
the self-reporting party can show that upon discovery of the potential 
violations, there was an immediate end to the activity giving rise to 
the violation(s); the Respondent made a timely and complete disclosure 
to the Commission and fully cooperated in the disposition of the 
matter; and the Respondent implemented appropriate and timely 
corrective measures, including internal safeguards necessary to prevent 
any recurrence. Further detail as to these factors is supplied below.

Nature of the Violation

    (1) The type of violation: Whether the violation was (a) Knowing 
and willful, or resulted from reckless disregard for legal requirements 
or deliberate indifference to indicia of wrongful conduct; (b) 
negligent; (c) an inadvertent mistake; or (d) based on the advice of 
counsel; \4\
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    \4\ A respondent seeking to defend conduct based on advice of 
counsel may not simultaneously withhold documentary or other 
evidence supporting that assertion based on the attorney-client 
privilege.
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    (2) The magnitude of the violation: Whether the violation resulted 
from a one-time event or an ongoing pattern of conduct repeated over an 
extended period of time (and whether there was a history of similar 
conduct); how many people were involved in or were aware of the 
violation and the relative level of authority of these people within 
the organization; whether individuals were coerced into participating 
in the violation; the amount of money involved either in terms of 
absolute dollar amount or in terms of the percentage of an entity's 
activity; and the impact the violation may have had on any Federal 
election;
    (3) How the violation arose: Whether the conduct was intended to 
advance the organization's interests or to defraud the organization for 
the personal gain of a particular individual; whether there were 
compliance procedures in place to prevent the type of violation now 
uncovered and, if so, why those procedures failed to stop or deter the 
wrongful conduct; and whether the persons with knowledge of the 
violation were high-level officials in the organization.

Extent of Corrective Action and New Self-Governance Measures

    (4) Have all needed investigative and corrective actions been 
taken: Whether the violation immediately ceased upon its discovery; how 
long it took after discovery of the violation to take appropriate 
corrective measures, including disciplinary action against persons 
responsible for any misconduct; whether there was a thorough review of 
the nature, extent, origins, and consequences of the conduct and 
related behavior; whether the respondent expeditiously corrected and 
clarified the public record by making appropriate and timely 
disclosures as to the source and recipients of any funds involved in a 
violation; whether a Federal political committee promptly made any 
necessary refunds of excessive or prohibited contributions; and whether 
an organization or individual respondent waived its claim to refunds of 
excessive or prohibited contributions and instructed recipients to 
disgorge such funds to the U.S. Treasury.
    (5) Have more effective compliance measures been implemented: 
Whether there are assurances that the conduct is unlikely to recur; 
whether the

[[Page 71092]]

respondent has adopted and ensured enforcement of more effective 
internal controls and procedures designed to prevent a recurrence of 
the violation; and whether the respondent provided the Commission with 
sufficient information for it to evaluate the measures taken to correct 
the situation and ensure that the conduct does not recur.

Disclosure and Cooperation

    (6) Was the violation fully disclosed to the Commission: Whether 
steps were taken upon learning of the violation; whether the disclosure 
was voluntary or made in recognition that the violation had been or was 
about to be discovered, or in recognition that a complaint was filed, 
or was about to be filed, by someone else; and whether a comprehensive 
and detailed disclosure of the results of its internal review was 
provided to the Commission in a timely fashion;
    (7) Was there full cooperation with the Commission: Whether the 
respondent promptly made relevant records and witnesses available to 
the Commission, and made all reasonable efforts to secure the 
cooperation of relevant employees, volunteers, vendors, donors and 
other staff without requiring compulsory process; whether the 
respondent agreed to waive or toll the statute of limitations for 
activity that previously had been concealed or not disclosed in a 
timely fashion.
    The Commission recognizes that all of the above-listed factors will 
not be relevant in every instance of self-reporting of potential FECA 
violations, nor is the Commission required to take all such factors 
into account. In addition, these factors should not be viewed as an 
exhaustive list. The Commission will continue to resolve matters based 
on the facts and circumstances of each case.
    The Commission seeks to encourage the self-reporting of violations. 
To that end, the Commission will consider reducing opening civil 
penalty offers \5\ by up to 75%. The amount of the reduction depends on 
the facts and circumstances of a particular case. The Commission will 
consider the factors set forth above. In order to provide more concrete 
guidance, the Commission may establish a policy setting forth the 
weight it will give to some of the facts and circumstances.
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    \5\ The Commission normally applies standard civil penalty 
calculations and then adjusts the figure for aggravating or 
mitigating circumstances. For example, if the standard civil penalty 
calculation were $20,000 it might be raised for an aggravating 
factor, such as failure to timely file an election sensitive report. 
Once the initial calculation is reached, respondents normally 
receive a 25% discount off of this penalty for settling during the 
pre-probable cause conciliation stage. Any discounts pursuant to 
this policy will be applied after this reduction.
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    The Commission is considering adopting a policy of granting a civil 
penalty reduction of up to 50% to respondents who meet the following 
criteria:
     Respondents alert the Commission to potential violations 
before the violation had been or was about to be discovered by any 
outside party, including the FEC;
     Respondents amend reports or disclosures to correct past 
errors, if applicable;
     Any appropriate refunds, transfers, and disgorgements are 
made and/or waived;
     The violation immediately ceased upon discovery; and
     Respondents fully cooperate with the Commission in 
ensuring that the sua sponte submission is complete and accurate and in 
taking corrective measures.
    The Commission is considering adopting a policy of granting a civil 
penalty reduction of up to 75% to respondents who meet the above 
criteria plus the following criteria:
     Respondents hired independent experts to conduct a 
thorough review, investigation, or audit;
     Respondents provide the Commission with all documentation 
of the experts' review, investigation, or audit; and
     Respondents took appropriate corrective action(s) such as 
disciplinary action against any persons responsible for misconduct and 
made changes to internal procedures to prevent a recurrence of the 
violation.
    Alternatively, the Commission is considering adopting a policy of 
generally granting a civil penalty reduction of 50% to respondents that 
voluntarily self-report violations to the Commission, and of raising or 
lowering that discount depending on the aggravating and mitigating 
factors outlined above. The discount could be as high as 75% or as low 
as 25%, depending on the facts of the case in question.

    The Commission will be the sole arbiter of whether the facts of 
each case warrant a particular reduction in the penalty. The 
Commission will generally not give a respondent the benefit of this 
policy if the respondent is the subject of a criminal or other 
government investigation. In considering appropriate penalties, the 
Commission will also consider the presence of aggravating factors, 
such as knowing and willful conduct or involvement by senior 
officials of an entity. The Commission may also consider other 
factors not enumerated in this policy for the purposes of applying 
or withholding a possible discount.

IV. Fast-Track Resolution

    The Commission will generally not make a reason-to-believe finding 
or open a formal investigation for respondents that self-report 
violations, if: (1) All potential respondents in a matter have joined 
in a self-reporting submission that acknowledges their respective 
violations of the FECA; (2) those violations do not appear to be 
knowing and willful; and (3) the disclosure is substantially complete 
and the submission reasonably addresses the significant questions or 
issues related to the violation. Accordingly, the Commission is 
modifying its current practice to allow for an expedited Fast-Track 
Resolution (``FTR'') for a limited number of matters involving self-
reported violations. This procedure would be available at the 
Commission's discretion, but may be requested by respondents.
    Respondents eligible for the FTR process will meet with the Office 
of General Counsel to negotiate a proposed conciliation agreement 
before the Commission makes any formal findings in the matter. Although 
the Commission is always free to reject or seek modifications to a 
proposed conciliation agreement, it is expected that this process will 
allow for more expedited processing of certain types of violations 
where factual and legal issues are reasonably clear. It also will allow 
respondents to resolve certain matters short of the Commission finding 
that there is reason to believe that a violation has occurred. Examples 
of matters that might be eligible for such treatment include:
     Matters in which an individual contributor discovers that 
he or she inadvertently violated the individual aggregate election 
cycle contribution limit contained in 2 U.S.C. 441a(a)(3);
     Matters in which a political committee seeks to disclose 
and correct relatively straightforward reporting violations;
     Matters in which a contributor and a political committee 
jointly seek to resolve their liability for a simple and clearly 
inadvertent excessive or prohibited contribution; and
     Matters in which the initial self-reporting submission by 
the respondents is so thorough that only very limited follow-up by the 
Office of the General Counsel is necessary to complete the factual 
record.

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V. Parallel Proceedings

    The Commission recognizes that persons self-reporting to the 
Commission may face special concerns in connection with parallel 
criminal investigations, State administrative proceedings, and/or civil 
litigation. The Commission expects that persons who self-report to the 
Commission will inform the Commission of any existing parallel 
proceedings. The Commission encourages persons who self-report to the 
Commission also to self-report related violations to any law 
enforcement agency with jurisdiction over the activity. This will 
assist the Commission, where appropriate and possible, in working with 
other Federal, State, and local agencies to facilitate a global and/or 
contemporaneous resolution of related violations by a self-reporting 
person. The possibility of such a resolution is enhanced when the self-
reporting person expresses a willingness to engage other government 
agencies that may have jurisdiction over the conduct and to cooperate 
with joint discovery and disclosure of facts and settlement positions 
with respect to the different agencies.
    In situations where contemporaneous resolution of parallel matters 
is not feasible, the Commission will consider whether terms contained 
in a conciliation agreement with the Commission may affect potential 
liability the same respondent realistically faces from another agency. 
In appropriate cases, where there has been self-reporting and full 
cooperation, the Commission may agree to enter into conciliation 
without requiring respondents to admit that their conduct was ``knowing 
and willful,'' even where there is evidence that may be viewed as 
supporting this conclusion. (The civil penalty, however, may be based 
on ``knowing and willful'' conduct.) The Commission has followed this 
practice in several self-reported matters where the organizational 
respondents promptly self-reported and took comprehensive and immediate 
corrective action that included the dismissal of all individual 
corporate officers whose actions formed the basis for the 
organization's potential ``knowing and willful'' violation.
    The Commission, which has the statutory authority to refer 
``knowing and willful'' violations of the FECA to the Department of 
Justice for potential criminal prosecution, 2 U.S.C. 437g(a)(5)(C), and 
to report information regarding violations of law not within its 
jurisdiction to appropriate law enforcement authorities, 2 U.S.C. 
437d(a)(9), will not negotiate whether it refers, reports, or otherwise 
discusses information with other law enforcement agencies. Although the 
Commission cannot disclose information regarding an investigation to 
the public, it can and does share information on a confidential basis 
with other law enforcement agencies.

VI. Conclusion

    In light of the considerations explained above, the Commission is 
considering issuing a policy statement to clarify how it exercises its 
discretion in enforcement matters involving self-reported violations of 
the FECA. The Commission invites comments on any aspect of the proposed 
policy statement, including:
    (A) Whether and to what extent the Commission should consider the 
various factors described above, and/or other factors, in resolving 
self-reported violations of the FEC; and
    (B) Whether and how to apply the new proposed Fast Track Resolution 
process in resolving self-reported violations of the FECA.

    Dated: December 1, 2006.
Michael E. Toner,
Chairman, Federal Election Commission.
[FR Doc. E6-20845 Filed 12-7-06; 8:45 am]
BILLING CODE 6715-01-P