[Federal Register Volume 72, Number 109 (Thursday, June 7, 2007)]
[Rules and Regulations]
[Pages 31438-31440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-10997]


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FEDERAL ELECTION COMMISSION

11 CFR Part 104

[Notice 2007-13]


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

AGENCY: Federal Election Commission.

ACTION: Statement of Policy.

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SUMMARY: The Federal Election Commission (the ``Commission'') is 
issuing a Policy Statement 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''). Section 432(i) of FECA 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 records of such committee shall be 
considered in compliance with FECA or the statutes governing the public 
financing of Presidential candidates. 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 to submitting reports. However, 
the district court in Lovely v. FEC, 307 F. Supp. 2d 294 (D. Mass. 
2004), held that the Commission should consider whether a treasurer 
used best efforts under FECA with regard to efforts made to submit a 
report in a timely manner. This Policy Statement makes clear that the 
Commission intends to apply FECA's best efforts provision to 
treasurers' and committees' efforts to obtain, maintain, and submit 
information and records to the Commission consistent with the holding 
of the Federal court in Lovely. Further information is provided in the 
supplementary information that follows.

DATES: Effective Date: June 7, 2007.

FOR FURTHER INFORMATION CONTACT: Mr. Ron B. Katwan, 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:

I. Background

A. Statutory and Regulatory Provisions

    FECA states the ``best efforts defense'' in 2 U.S.C. 432(i) as 
follows:

    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.

    The Commission implemented this provision in 11 CFR 104.7(a) with 
regulatory language 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 11 CFR 104.7 specifies the actions that treasurers 
of a political committee must take to demonstrate that they have 
exercised best efforts to obtain and report the ``identification'' 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

[[Page 31439]]

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 (D.C. 
Cir. 1996).
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    Both the language of FECA and the Commission's regulation at 11 CFR 
104.7(a) apply the best efforts defense broadly to efforts by 
treasurers to ``obtain, maintain and submit'' the information required 
to be disclosed by FECA. In past enforcement actions, however, the 
Commission has interpreted this statutory and regulatory language to 
apply only to efforts to ``obtain'' contributor information.\2\ This 
interpretation draws from 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.'' Amendments to 
Federal Election Campaign Act of 1971; Regulations Transmitted to 
Congress, 45 FR 15080, 15086 (Mar. 7, 1980) (emphasis added). 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 the Lovely litigation: ``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.'' FEC 
Supplemental Brief at 1, Lovely (Civil Action No. 02-12496-PBS). 
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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B. The Lovely Decision

    In Lovely, a political committee challenged an administrative fine 
the Commission had assessed for failing to file timely a report. The 
committee argued that it had made best efforts to file the report and 
that this constituted a 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 Fine Program 
(``AFP''), and that it was unclear from the record if the Commission 
had done so.
    In so holding, the court drew on the legislative history of the 
best efforts provision, and specifically noted the 1979 amendments to 
FECA that made the best efforts defense ``applicable to the entirety of 
FECA, rather than merely to one subsection.'' Lovely, 307 F. Supp. 2d 
at 299. The court quoted 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).

    After remand of the Lovely case, the Commission acknowledged in its 
Statement of Reasons that ``[t]he 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.'' Statement of Reasons in Administrative Fines Case 
#549 at 1 (Oct. 4, 2005), available at http://www.fec.gov/law/law--
rulemakings.shtml under the heading ``Best Efforts in Administrative 
Fine Challenges.'' (``Lovely Statement of Reasons''). Upon further 
review, the Commission determined that the committee's treasurer had 
not made best efforts in filing the report in question and assessed a 
civil money penalty. Id. at 5.

C. Proposed Policy Statement

    The Commission sought public comment on a Proposed Statement of 
Policy that would clarify the Commission's current enforcement practice 
to consider whether the treasurer and committee made best efforts to 
obtain, maintain or submit the required information under 11 CFR 
104.7(a). See Proposed Statement of Policy Regarding Treasurer's Best 
Efforts to Obtain, Maintain, and Submit Information as Required by the 
Federal Election Campaign Act, 71 FR 71084 (Dec. 8, 2006). The 
Commission received two comments, which are available at http://
www.fec.gov/law/policy.shtml under the heading ``Best Efforts.'' One 
comment made several recommendations as to how the Commission could 
further clarify the best efforts defense by incorporating the business 
management concept of ``best practices'' regarding corporate operation, 
financial controls, risk prevention and risk assessment. The comment 
also suggested that the Policy Statement provide guidance to political 
committees and treasurers regarding what conduct would qualify under 
the best efforts defense, and not rely solely on examples of conduct 
that would not qualify under the defense. The other comment was not 
relevant to this Policy Statement.

II. Policy Regarding the Best Efforts Defense

    Although the court decision in Lovely only concerned permissible 
defenses within the AFP, the Commission has decided to adopt the 
court's interpretation of the best efforts defense with regard to other 
enforcement matters. While the Commission's enforcement practices 
formerly reflected the view that the best efforts defense was limited 
to obtaining certain contributor identification information (see note 2 
above) the Commission recognizes that this narrow application of the 
defense in previous enforcement matters derives from a single example 
of the defense's application in its 1979 legislative history.\3\ In 
light of these considerations, the Commission hereby notifies the 
public and the regulated community through this 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, not only to efforts made to 
obtain contributor information as currently set forth in section 
104.7(b),\4\ but also to

[[Page 31440]]

efforts made to obtain other information, to maintain all information 
required by the statute, and to submit required information on 
disclosure reports.
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    \3\ 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.
    \4\ As stated above, the standards for determining whether the 
best efforts defense is applicable in the context of obtaining 
specific contributor information are set forth at current 11 CFR 
104.7(b). This Policy Statement does not affect or modify those 
standards.
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    This Policy Statement does not affect the Commission's AFP, but 
applies only to matters in the Commission's traditional enforcement and 
audit programs, and in the Alternative Dispute Resolution program 
(``ADR''). The Commission recently completed a rulemaking adding a best 
efforts defense to the enumerated defenses available in the AFP. See 
Final Rules for Best Efforts in Administrative Fines Challenges, 72 FR 
14662 (Mar. 29, 2007). In that rulemaking, the Commission incorporated 
the statutory best efforts standard, while taking into account the 
unique streamlined nature of the AFP. See id. at 14666.
    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.

    With respect to 11 CFR 104.7(a), the Commission intends to consider 
a committee's affirmative steps to keep adequate records and make 
accurate reports, as well as the reasons for its failure to obtain, 
maintain, or submit information properly. The Commission generally 
intends to 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. This general policy does 
not modify other guidance and policy standards issued by the Commission 
addressing specific circumstances, such as the Internal Controls for 
Political Committees, and Policy Statement Regarding Safe Harbor for 
Misreporting Due to Embezzlement, 72 FR 16695 (Apr. 5, 2007), both 
available at http://www.fec.gov/law/policy.shtml.
    The Commission will generally conclude that a committee has shown 
best efforts if the committee establishes the following:
     At the time of its failure, the committee took relevant 
precautions such as double checking recordkeeping entries, regular 
reconciliation of committee records with bank statements, and regular 
backup of all electronic files;
     The committee had trained staff responsible for obtaining, 
maintaining, and submitting campaign finance information in the 
requirements of the Act as well as the committee's procedures, 
recordkeeping systems, and filing systems;
     The failure was a result of reasonably unforeseen 
circumstances beyond the control of the committee, such as a failure of 
Commission computers or Commission-provided software; severe weather or 
other disaster-related incidents; a widespread disruption of 
information transmission over the Internet not caused by any failure of 
the committee's computer systems or Internet service provider; or 
delivery failures caused by mail/courier services such as U.S. Postal 
Service or Federal Express; and
     Upon discovering the failure, the committee promptly took 
all reasonable additional steps to expeditiously file any unfiled 
reports and correct any inaccurate reports.
    In contrast, the Commission will generally conclude that a 
committee has not met the best efforts standard if the committee's 
failure to obtain, maintain, or submit information or reports is due to 
any of the following:
     Unavailability, inexperience, illness, negligence or error 
of committee staff, agents, counsel or connected organization(s);
     The failure of a committee's computer system;
     Delays caused by committee vendors or contractors;
     A committee's failure to know or understand the 
recordkeeping and filing requirements of the Act, or the Act's filing 
dates; or
     A committee's failure to use Commission-or vendor-provided 
software properly.
    Under this policy, 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 traditional enforcement docket (Matters Under 
Review), audits, or the ADR Program. The best efforts standard is an 
affirmative defense and the burden rests with the political committee 
and its treasurer to present evidence sufficient to demonstrate that 
best efforts were made. The Commission does not intend to consider the 
best efforts defense in any enforcement or ADR matter, or in an audit 
unless a respondent or audited committee asserts the facts that form 
the basis of that defense.
    Effective as of this date, the Commission intends to apply the best 
efforts standard to all matters currently before the Commission in 
which a respondent has already asserted such a defense, and any matters 
in the future involving treasurers' and political committees' 
obligation to obtain, maintain, and submit information or reports. When 
treasurers make a sufficient showing of best efforts, the treasurers or 
committees shall be considered in compliance with FECA.
    The above provides general guidance concerning the applicability of 
the Commission's best efforts defense and announces the general course 
of action that the Commission intends to follow. This Policy Statement 
sets forth the Commission's intentions concerning the exercise of its 
discretion in its enforcement and audit programs. However, the 
Commission retains that discretion and will exercise it as appropriate 
with respect to the facts and circumstances of each matter or audit 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.

     Dated: June 1, 2007.
Robert D. Lenhard,
Chairman, Federal Election Commission.
 FR Doc. E7-10997 Filed 6-6-07; 8:45 am]
BILLING CODE 6715-01-P