Obama transparency: How about campaign finance?

Accusations are circulating about possible illegal campaign contributions to President Obama’s successful campaign. They are quite serious on their face, but the President could nip the problem in the bud by being as forthright and open as he has promised to be.

Most of the charges are chronicled in an online article at conservative news site Newsmax.com. (Though infused with loaded rhetoric, the piece is well written and an easy read.) The primary allegations are these:

• Acceptance of contributions from obviously fictitious names, in violation of the prohibition against making donations in someone else’s name, or exceeding the $50 limit for anonymous contributions.
  

• Acceptance of contributions from foreign donors. Federal law prohibits political contributions of any amount from foreign nationals unless they are permanent U.S. residents holding green cards.
  

• Acceptance of contributions well in excess of legal limits, often by aggregating multiple contributions of smaller amounts into a total that violated the law.
  

• Hiding all of the above infractions by lumping them and reporting the aggregate amount in the “under $200" category.
  

Here’s my analysis of what this is all about.

Contributions in phony names

Campaign reports filed by the Obama campaign reflect some interesting names. In the final month of the campaign, establishment media icon Newsweek reported that the Federal Election Commission had questioned the Obama campaign about contributions from individuals named Doodad Pro and Good Will. Doodad’s listed address was that of a Nundo, NY liquor store, while the address for Good Will was that of Goodwill Industries in Austin, TX. Newsmax dug deeper and reported that those two “contributors” had made over 1,000 separate serial small donations, and that both had listed their employer as “Loving” and occupation as “You.” The conservative news site also reported, citing a source that requested anonymity, that an official “small donor” Obama fundraising drive tapped donors identifying themselves as Daffy Duck, Bart Simpson, O.J. Simpson, Family Guy and King Kong. The Obama campaign accepted all of their donations.

How do these things happen? The Washington Post reported that the Obama campaign accepted donations from prepaid credit cards that are untraceable. These generic gift cards by American Express, Master Card and Visa have card numbers that act like debit cards, but have no registered owner. They can be bought for cash in most super market check-out lines. Daffy, Bart, O.J., Family Guy and King Kong all used the same untraceable $25 Visa gift card within an hour of one another.

A fundamental verification procedure exists to match the names of contributors using debit and credit cards with the names and addresses of the cardholders. 2007 campaign reports document that the Obama campaign invested more than $2 million in top-of-the-line internet infrastucture. Chase Paymentech, a leading credit card processor, handled his credit card transactions. He had internet-savvy pros on board like Joe Rospars, a veteran of Howard Dean’s trail blazing 2004 campaign. Yet, the National Journal (the independent newspaper that had identified Obama as the most progressive U.S. Senator, with Vice-President Joe Biden rated at Number 3) reported that the campaign didn't implement the verification procedures they had paid for. Newsmax, citing “industry analysts and a confidential informant,” went further, claiming the campaign disabled those features to facilitate the collection of illegal contributions.

Foreign contributions

Obama’s campaign reports list thousands of donations from donors having overseas addresses, including those in Abu Dhabi, Addis Ababa, Beijing, and Fallujah. A foreign address does not necessarily mean the contributor is a foreign national, because some U.S. citizens live abroad; their political contributions are legal. But precautions are necessary for a campaign to distinguish between U.S. citizens and foreign nationals. Hillary Clinton required Americans living abroad to first fax a copy of their passport before accepting a contribution. John McCain’s online donation page required proof of citizenship. But conservative think tank The Heritage Foundation asserts that the Obama campaign took no such precautions until the FEC questioned its foreign-source contributions, and then merely asked for passport numbers, making no effort to verify those numbers with the State Department to see if they were valid.

Suspicions of illegal foreign donations were stoked in part by a June, 2008 speech from Libyan leader Moammar Gaddafi, in which he bragged that “people in the Arab and Islamic world and in Africa” were engaged in political contribution campaigns “to enable Obama to win the American presidency.” While much of Gaddafi’s bravado is to be taken with a big block of salt, other circumstances tend to confirm the suspicions. Nigerian press reports described a series of Obama fundraisers sponsored by the head of Nigeria’s stock market that raised nearly a million dollars from Nigerian businessmen. It is unclear whether any of it was traceable to Obama’s campaign.

Another red flag for likely foreign contributions is the large number of monetary (not in-kind) contributions in odd amounts. Unless there is a specific promotion using an odd amount as a gimmick (e.g., $20.08), nearly all political contributions are made in round even-dollar amounts. Newsmax reported that the contributions of 37,265 unique donors to the Obama campaign (more than 10 percent of the names the Obama campaign had disclosed) were odd amounts. One explanation for odd-amount contributions, especially those made by credit card, is foreign currency conversion. The Obama campaign responds by attributing the odd amounts to purchases of campaign paraphernalia. I suspect there are a lot of both.

Many of these accusations play right into the hands of anti-Obama fear mongers. The case of those who spread the fear that Obama, even if not a Muslim personally, would favor Muslim interests over our own (or Israel’s) would be validated to an extent if Obama’s campaign turned out to be funded by Arab oil cartels and other Middle East financiers, whose contributions are illegal for multiple reasons (foreign source, excessive amount, and perhaps corporate source). If the accusations are false, why not come clean and put the whispering campaign to rest?

Excessive contributions

Even fully identified U.S. citizens were only allowed to donate up to $2,300 per person per election in 2008. (The limit increased to $2,400 this year.) Obama’s own reports disclosed lots of contributors whose aggregate donations exceeded the limits. Phony “co-workers” Doodad Pro ($19,500 according to Newsmax) and Good Will (over $11,000 according to Newsweek) were among them.

Federal law requires a campaign that receives over-the-limit contributions either to refund them or “redesignate” them to a different election (with notice of redesignation to the donors), and to do so within 60 days. Newsmax contacted several contributors identified in Obama campaign reports who had made significant over-the-limit contributions, and reported that many had not received either refund or notice of redesignation. Campaign reports confirmed the tardiness of refunds, including to Good and Doodad. Obama officials claimed to be in the process of refunding the over-the-limits portions (but not the rest) of their contributions to the credit cards listed with their donations.

But in the case of donations from those untraceable debit gift cards, how does one do that? It reminds me of the joke about the dying millionaire who told gave his lawyer a large amount of cash and instructions to put it in his casket so he could “take it with him,” and the lawyer complied by placing his personal check in the casket!

The “under $200" cover-up

Federal law only requires reporting the identities of those donors who contribute (in the aggregate) more than $200 per person per election. This policy protects the privacy of small donors whose financial support for a campaign could harm them socially, financially or even physically if their participation were known by employers or others of opposing political persuasion. But it also provides an opportunity for unscrupulous campaigns to hide their “dirty” money by simply lying about it.

This is the potential ruse where all of the earlier problems come together. A rogue campaign can hide illegal campaign contributions by simply misreporting them as having been received by donors contributing an aggregate of $200 or less. Then the bottom line on the reports matches the bottom line in the bank. A campaign that, say, receives a $25,000 check from A (well over the legal limit), a $1,000 check from a federal contractor, a $1,000 check from a corporation, a $1,000 check from a union, $1,000 from a tax-exempt charity and a $1,000 check from a foreign national can conceal all of those illegal contributions by simply reporting them all as $30,000 from donors contributing an aggregate of $200 or less. The legal but embarrassing contribution (from, say, Rod Blagojevich, Bernard Madoff or Jack Abramoff) can be hidden the same way. Such misreporting itself is illegal, but with no reporting, who knows? It would only turn up in an audit.

But while a publicly financed campaign like McCain’s is subject to automatic audit, a privately financed campaign like Obama’s is not.

If Obama’s campaign did indeed hide illegal contributions by improperly lumping them together with contributions from donors giving $200 or less, those contributions would logically comprise a much larger proportion of total contributions than other comparable campaigns. According to the Center for Responsive Politics (and noted in an analysis by Bloomberg.com), in other comparable campaigns (McCain 2008, Bush 2004 and Kerry 2004), this category accounted for a consistently narrow range of 31% - 34% of their totals. In Obama’s campaign, this category jumped to nearly half. This is suspicious. Obama supporters say the surge in small donations is the natural consequence of his unprecedented national appeal, but skeptics believe that the discrepancy is better explained by an influx of illegal contributions that the Obama campaign knowingly accepted and concealed.

Several independent watchdog groups, including the Center for Responsive Politics, asked the Obama campaign for more information about its under-$200 donors, but the campaign never responded.

In contrast, the McCain campaign itemized every contribution, no matter how small. Personally, I dislike that practice, because it “outs” the small donors whose participation could harm them in the manner I discussed earlier. But McCain’s policy does serve to disprove the notion that disclosing everybody is impossible.

What the President should do

I broach this subject with mixed emotions. Barack Obama is pro-choice, pro-union, pro-gay rights, pro-gun-control, pro-civil liberties and anti-war; in short, a huge improvement over George W. Bush and a better choice than John McCain. I am glad he is president. But true progressives are just as concerned about the fairness of the process as the bottom-line results.

I hate it when elections are won and lost based upon the amount of money available to the candidates. I support public financing of campaigns, and I was deeply disappointed when Obama, after having pledged to run a publicly financed general election campaign (subject to all of its limitations), reneged and instead ran a campaign bankrolled by a record amount of cash. No previous major party candidate - not even Ronald Reagan or George W. Bush - had ever done that. Compared to the prior election (the old record), Obama’s fundraising made Bush look like a piker, and he more than doubled what fellow Democrat John Kerry had raised. Obama’s victory is due in no small part to his outspending his legally constrained opponent in every battleground state during the crucial final weeks of the campaign. Even Obama’s fantastic grassroots and GOTV efforts were tainted by his inflated financial ability to hire more people and open more field offices. That’s not how elections are supposed to be won, even when the result happens to be good.

More importantly, as observed by Bloomberg.com the day after the election, an unfortunate byproduct of Obama’s success is the likely death of the entire concept of public funding.

I am also aware of the risk that the ultimate result of investigating the President’s fundraising might be findings of intentional wrongdoing. I and the rest of the public would have to cope with the realization that our president had won by cheating. This would be reminiscent of how I felt, not that long ago, when the euphoria I had experienced witnessing Cardinal slugger Mark McGwire’s home run record became tainted by the realization that he too had apparently cheated.

I believe that it is unlikely that Obama had any personal knowledge of or control over any of his campaign’s fundraising indiscretions, so he would not suffer any personal consequences, unless he acts to cover it up. Recall that former President Richard Nixon had no known role in the Watergate break-in itself, but his subsequent obstruction of justice in trying to cover it up cost him his presidency. Obama must not make the same mistake.

The Heritage Foundation has formally demanded an FEC "for cause" audit of the Obama campaign. However, Heritage also speculates that, even though the career FEC staff can be expected to recommend such an audit to the commissioners if they follow the ordinary regulatory model of investigations, the three Democratic commissioners will be under enormous pressure to vote no, because “some members of their party may make it clear that their professional and political careers in Washington will be finished if they vote to approve such an audit.” Since it takes four votes for the FEC to take any action, at least one of those Democratic commissioners would have to join with the three Republicans to approve an audit. Democratic stonewalling would be dreadfully harmful to public confidence in both the Obama Administration and our entire political system.

The President could take a huge step towards restoring public confidence in government by keeping his pledge of openness and transparency and voluntarily subjecting his campaign to such an audit. An FEC audit would be performed by career professionals, and the privacy of small donors would be preserved. Be honest, and let the chips fall where they may.

That would be truly transformational.