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Full text of Soft Money Complaint





DEMOCRACY SOUTH, a North Carolina
non-profit corporation, and PETER MacDOWELL,
individually and as Executive Director of Democracy


Democracy South and Peter MacDowell, a registered voter, file this complaint in accordance with N.C.G.S. 163-278.22, G.S. 163-278.21, and G.S. 150B-21.1 with respect to the inappropriate solicitation, contribution, transfer, and expenditure of non-federal “soft money” involving North Carolina elections and, more specifically, with respect to apparent violations set forth herein involving the operations of four political party committees which handle soft money. G.S. 163-278.21 charges the State Board of Elections with the responsibility “for promulgating all regulations for the enforcement and administration of this Article [the State’s campaign finance statutes] and to prevent the circumvention of the provisions of this Article” (emphasis added). G.S. 150B-21.1 gives the State Board a crucial mechanism to fulfill this responsibility: authority to adopt an emergency, temporary rule “to become effective immediately in order to preserve the integrity of upcoming elections and the election process.” The time is at hand to use this authority.

1. Democracy South is a non-profit corporation organized under the laws of North Carolina. It is located in Chapel Hill, N.C., and focuses on campaign financing and other public policy issues affecting the citizens of North Carolina. Peter MacDowell is Executive Director of Democracy South. He resides in Chapel Hill and is a registered voter in Orange County.

2. The four committees that are subjects in this complaint are:

· Democratic National Committee Non-Federal North Carolina, Washington, DC, with ID# 8093000 assigned by the State Board of Elections;
· North Carolina Democratic Party Soft [Money], Raleigh, NC, with ID# 8013000;
· Republican National State Elections Committee-NC Account (also known as Republican National Committee-NC Soft Money), Washington, DC, with ID# 8193000;
· North Carolina Republican Executive Committee [Soft Money Account], Raleigh, NC ID# 8113000.

3. Petitioners seek immediate suspension of authority for these committees to operate in relation to North Carolina elections. Petitioners also seek policies and enforcement actions that would apply to these committees and all other entities handling soft money in North Carolina elections.


4. In the national context, soft money refers to political contributions raised by a national party (or its agent) which are not subject to Federal Elections Commission contribution limits and which are not to be used for the election or defeat of specific federal candidates. Such contributions, which may come from individuals, businesses, unions, and other sources, must be deposited in “non-federal” accounts of the national party because they can not go to federal candidates but instead can support “party building activities.”

5. The federal government leaves it to the states to regulate, not regulate, or ban the use of non-federal soft money in state elections.

6. During the State Board of Elections’ May 1998 investigation of activities by Republican leaders of the state House, the public learned that (a) state candidates in 1996 were involved in soliciting substantial soft-money contributions from North Carolina corporations for the Republican National Committee or its units, (b) similar amounts of money were later sent by the national Republican Party to the Randolph County Republican Executive Committee, and (c) the Randolph GOP committee made donations to specific state candidates for the state House. No conclusive evidence demonstrated that this sequence of events involving national soft money was intentionally arranged to evade North Carolina’s ban against corporate money being donated “directly or indirectly” to candidates or political committees [G.S. 163-278.19]. However, the potential for corruption and the appearance of impropriety were troubling.

7. At the conclusion of those hearings, the State Board of Elections decided to issue a ruling to clarify how soft money could be used in North Carolina. The Board’s ruling, issued in final form on June 15, 1998, is titled, “Ruling and Procedures Pursuant to NCGS 163-278.23 For Non-Federal Money in the State of North Carolina.” It has a number of elements that indicate concern about the infusion of national soft money into state campaigns and the indirect routing of corporate money to state candidates. The ruling included provisions requiring that (1) all soft money involving North Carolina must come from individuals or PACs, not from corporations, unions or other entities banned from giving to candidates in N.C.; (2) national and state parties must set up separate accounts to handle soft money related to North Carolina and none of the money can commingle with accounts holding corporate soft money; (3) soft money expenditures in North Carolina “may only be made for party-building activities”; (4) “Non-federal funds may not be contributed or transferred to any individual candidate, nor may the funds be transferred to the general funds of the state political party committee”; and (5) frequent disclosure reports must reveal the true source of the money and all transactions involving soft money.


8. Petitioners on information and belief allege that soft money committees of the national and state Republican and Democratic parties have violated all five of the central elements of the 1998 ruling described in the preceding paragraph.

9. As described below, evidence indicates that non-federal soft money destined for North Carolina (a) is being solicited for one purpose (“party building”) by the national parties in amounts up to $250,000 per donor, but is being deposited in another account with the purpose of supporting the elections of state candidates in North Carolina; (b) is commingled with corporate and other non-individual contributions; (c) is allocated to the North Carolina account based on a centrally coordinated strategy by the national parties that depends, in large measure, on the volume of corporate and non-individual soft money received; (d) is sent directly to candidates or to the state parties where it is being spent to directly benefit the election of specific candidates; and (e) is not properly disclosed as to its true source.

10. In addition to violating the Board’s 1998 ruling, these practices have the effect of cir-cumventing and/or violating numerous laws of the State of North Carolina, including:
G.S. 163-278.19 and G.S. 163-278.15 – the ban against direct or indirect contributions from for-profit corporations;
G.S. 163-278.13 – the contribution limit of $4,000 per donor per election;
G.S. 163-278.7A – the provision that contributions to candidates from the national parties executive committees come from federal rather than non-federal committees;
G.S. 163-278.20 – prohibition against misleading donors about the true purpose of funds;
G.S. 163-278.14 – the ban against donations being given through conduits or “in the name of another”;
G.S. 163-278.14 – the ban against accepting contributions known to come from a source other than the one disclosed;


11. Petitioners respectfully petition the State Board of Elections to take immediate action to enforce its ruling of June 1998; and/or to adopt an emergency temporary rule or issue a new opinion; and to take any and all other appropriate actions necessary to stop the corruption of North Carolina’s election process and the evisceration of its campaign-finance regulations caused by the flood of soft money donations being collected nationally and sent through various channels to benefit specific state candidates.

12. Petitioners further request that the Board immediately suspend operations of the four national and state soft money committees identified above because each committee has violated provisions of the June 1998 ruling and the ruling itself states, “Failure to comply with the above [provisions] will result in immediate suspension” of authorization to operate with respect to North Carolina elections [June 15 Ruling, Section 2(5)]. In addition, petitioners believe it is imperative that the committees be suspended while the Board determines more permanent action because the committees are already having a dramatic impact on the elections and they possess the resources to exert an even greater impact, yet they are clearly commingling corporate and individual donations and violating state campaign-finance statutes, irrespective of the Board’s 1998 ruling.

13. Finally, petitioners request that any monies found to have been illegally transferred, contributed or expended be turned over to the State Board of Election, in accordance with N.C. law.


14. While petitioners lack the resources to undertake a full investigation of the operations of the four soft money committees in question, they believe the following provides a factual description of the committees’ operations.

Contributions or transfers TO national soft money accounts

15. ** The National Democratic soft money account for N.C. (ID# 8093000) reports that it has received $700,000 in contributions as of September 8, 2000. To comply with the Board’s disclosure requirements, it has submitted a listing of the contributors who supplied the $700,000. However, the donations on the list total to $4.4 million, making it impossible to know which donors’ money actually went into the National Democratic soft money account for N.C.

16. ** The $4.4 million donor list includes at least one business, The Davis Companies of Los Angeles, CA, giving $100,000 on May 18, 2000, which is a violation of the Board’s ruling and a violation of the ban on direct or indirect donations from businesses [G.S. 163-278.19].

17. ** The $4.4 million list of donations suggests that either this account has far more than $700,000 or the account is, for all practical purposes, part of a larger soft money account which exceeds $4 million. The second situation also raises the question of what other monies are in the larger account which commingle with those designated for North Carolina’s use. As evidenced by the contribution from The Davis Companies, the larger account clearly contains a mixture of individual and business contributions.

18. ** The Republican National soft money account for N.C. (ID# 8193000) reports receiving $5.6 million as of September 8, 2000. The list of its donors includes a donation of $130,000 on June 29, 2000 from the “National Republican Senatorial Committee” (NRSC). Where did that money come from? NRSC receives donations from both business entities and individuals, which is evident from the “attached itemization” of the source of its $130,000 donation. The list of donors includes Indian tribes (the Seminole Tribe of Florida and Morongo Band of Mission Indians in California), an accounting firm, and at least two partnerships. In other words, the Republican National soft money account for N.C. has violated the Board’s ruling against commingling of funds and the prohibition in GS 163-278.19 against direct or indirect contributions from businesses and sources other than personal funds.

19. ** The National Republican Senatorial Committee (NRSC) also made an earlier donation of $119,000 on February 9, 2000. However, no documentation is provided for the true source of these funds. A national Republican Party official confirms that the NRSC contains a mixture of corporate and non-corporate soft-money funds, which is further evidence that donations to the Republican National soft money account for N.C. are made possible through a commingling of business, individual and other donations.

20. ** Based on conversations with various party officials, it is apparent that the amount of money placed in the N.C. soft money accounts of both national parties depends on the total soft-money donations available, corporate and non-corporate. Checks written to the national party are typically routed to a particular account based on a number of factors, including the total funds available and strategic importance of a particular state. Funds are also transferred between accounts as factors change. For example, soft-money donations are often deposited in the “operating account” of the party’s non-federal committee, which contains a mixture of donations, and then a check is written from this account to another (e.g., the “non-federal individual account”) and ultimately to the separate North Carolina account. It’s all coordinated by the same financial personnel, which means the wall between corporate and non-corporate soft money is more symbolic than real. One national party official told petitioners the movement of money was like “a shell game,” with funds jumping from one account to another accounts, all under one central management. “The chief financial officer – Finance – and Political, they make the decisions as to what pots of money things are transferred from.” In short, the donations in the N.C. accounts are dependent on a system of transfers determined by the volume and make-up of a commingled pool of donations. That situation, by its very nature, violates North Carolina’s ban on indirect corporate donations [see G.S. 163-278(a1)], and poses an intolerable, constant threat for specific violations involving money swaps (corporate for non-corporate) – yet the State has no way to monitor these movements or know the details of violations.

21. ** As illustrated in the examples above, the public’s right to full disclosure and accountability of exactly who is giving what money to whom is seriously compromised under the scheme of trade-offs, transfers, and swaps involved in soft money. Money attributed to individuals who have no knowledge of the recipient of their contributions makes a mockery of disclosure rules. People think they are giving to one entity for one reason (“party building”), but the money shows up in another committee and gets sent to a specific candidate. Interviews by the Charlotte Observer with donors to the Republican National soft money account for N.C. make it plain that the donors are unaware that their money is being used to finance candidates in North Carolina. The whole system of meaningful disclosure breaks down under the contorted movements endemic with soft money, as does the State’s ban against “giving in the name of others” [G.S. 163-278.14]. Under these conditions, the State Board of Elections can not fulfill its responsibilities to assure the public that they can know whose money is supporting which candidate or committee.

22. ** Petitioners offer another example of the contortions that are occurring, in violation of the Board’s 1998 ruling, as confirmed by Republican state legislators. It apparently involves a match-and-swap scheme or a form of “money trading.” In July, 2000, several incumbent Republican legislators sent money to the Republican National State Election Committee in accordance with an arrangement that their money would be matched by various soft-money funds and sent back to North Carolina for use in the campaigns of state legislative candidates. Indeed, the July disclosure reports show that House GOP leader Richard Morgan gave $100,000 from his campaign fund to the Republican National soft money account for N.C., which transferred $200,000 to the N.C. Republican Party soft money account, which then gave $200,000 to the Republican House Majority Committee within the N.C. Republican Party. Similarly, seven GOP state senators sent $80,000 to Washington and $113,750 came back to the N.C. Republican soft money account, which then gave $113,700 to the Senate Fund within the N.C. Republican Party. This kind of leveraging of one kind of money for another illustrates the fluidity and intermingling of different kinds of contributions, whether soft or hard, corporate or non-corporate.

Expenditures FROM the soft money accounts

23 ** The most glaring violations of the Board’s ruling involve two contributions from the Republican National soft money account for N.C. to the Vinroot For Governor Campaign: one check for $250,000 on July 21, 2000 and one for $150,000 on August 9, 2000. These contributions totaling $400,000 bypass the state party account and directly benefit a state candidate, two violations of the Board’s ruling.

24. ** It is noteworthy that in the press reports about the contributions, the Vinroot campaign has repeatedly said the $400,000 contributions came from the Republican Governors’ Association (RGA), which is a different committee than the one reporting to the State. So we have a situation where neither the recipient, nor the individual donors identified as the source of the contribution, can explain the transaction. It is also worth noting that the Republican Governors’ Association is a soft-money account that primarily holds corporate contributions. Its stated involvement raises more questions about the commingling of corporate and non-corporate funds.

25. ** According to disclosure reports, the $400,000 in contributions to a state candidate comes from soft-money donors who gave as much as $250,000 each and thereby circumvents the state’s $4,000 contribution limit for what an individual can contribute to a state candidate [G.S. 163-278.13(a)]. By making direct donations to candidates, the Republican National soft money account is essentially laundering unlimited soft-money donations into hard-money contributions and helping individuals evade the $4,000 contribution limit. The integrity of the election process is seriously compromised if the State tolerates a proliferation of out-of-state channels that help individual donors evade the contribution limit, that convert soft money into hard-money, candidate-specific contributions, and that provide confusing disclosure at best.

26. ** State law sets forth a specific procedure for a national party executive committee to make contributions to state candidates in G.S. 163-278.7A. The statute only permits national party contributions to state candidates from “a federal political committee,” i.e., from the party committees that receive hard money donations given to help candidates and that are subject to regulations by the Federal Elections Commission (FEC). In passing this statute in 1996, the General Assembly faced the issue of how national committees should be allowed to contribute to state candidates. Lawmakers chose to give permission for contributions from federal committees as the only route for a national executive committees to use, thus excluded a party’s non-federal or soft-money committees from contributing to state candidates. The $400,000 donation is therefore not permitted by N.C. statute.

27. ** The N.C. Republican Party’s soft money account (ID# 8113000) shows numerous disbursements to other accounts within the NC Republican Executive Committee and to committees that make donations to state House and Senate candidates. Disbursements include at least $76,000 to the NCGOP-State Account, $100,000 to the NCGOP-Federal Account, $200,000 to the NCGOP-House Majority Committee, $113,750 to the NCGOP-Senate Fund. These disbursements violate the June 1998 ruling, which says, “Non-federal funds may not be contributed or transferred to any individual candidate, nor may the funds be transferred to the general funds of the state political party committee” [Section 2(2)].

28. ** The N.C. Democratic Party’s soft money account (ID# 8013000) also shows disbursements that violate the same section of the ruling. These disbursements include at least $250,000 to the NC Democratic Party-Federal Account and $3,400 to the NC Democratic Party-Non-Federal Account. Funds are also being used to pay the salaries of party employees who are campaign managers for state legislative candidates.


29. Petitioners request immediate action by the State Board of Elections to clear up possible confusion about the enforcement of its 1998 ruling in the face of two more recent developments. These developments – a 1999 amendment to GS 163-278.13 and an April 2000 letter from State Board staff to a GOP official – have been used by the Richard Vinroot campaign as justification for accepting $400,000 in contributions from the Republican National soft money account. This seems to petitioners as misguided at best.

30. First, the 1999 General Assembly added the word “national” to the list of political party executive committees which are exempt from the $4,000 contribution limit [GS 163-278.13(e)]. This section – G.S. 163-278.13 – only addresses limits in the amount of a legal contribution; it does not change any law which may restrict the recipient or the source of a legal contribution. It does not, for example, give the national party’s executive committee new authority to use corporate money in making a legal contribution, nor does it give it authority to give to entities it could not give to before the amendment was added. (See discussion of G.S. 163-278.7A in paragraph 26 above.) The amendment only addresses the amount that may be received or given for a legal contribution. In practice, the national parties have long enjoyed the privilege of making unlimited contributions to state parties, and the amendment’s author, Rep. Phil Baddour of Goldsboro, confirms that he did not intend for the amendment to do anything more than conform the statute to current practice. There was no legislative debate about the impact of the amendment on soft-money donations going to candidates. In fact, Rep. Baddour, legislative staff and other insiders say there was no debate at all of the added word. It is simply wrong to interpret the amendment as gutting the State Board’s ability to regulate the flow of soft money into North Carolina.

31. The second development involves an exchange of letters between Kenneth Paul Jones, associate counsel at the Republican National Committee, and Gary Bartlett, Executive Secretary-Director of the State Board of Elections. In an April 4, 2000 letter, Jones asks Bartlett to verify that the 1999 amendment adding “national” to GS 163-278.13(e), in Jones words, “appears to permit the Republican National State Elections Committee (RNSEC) North Carolina Account to make and receive unlimited contributions, provided that corporate money is not utilized. Additionally, the Republican National Committee is permitted to make unlimited contributions to individual non-federal candidates as well as to the state party. In short, the RNC is no longer subject to the $4,000 dollar [stet] contribution limitation. Based on our conversation, it is my understanding that the above statements accurately reflect the current status of the law. The favor of your reply would be appreciated. . . .”

32. Please note that Jones does not ask if RNSEC-NC can make contributions to non-federal (state) candidates. That is something the RNC can do, using its federal committee with hard money and following procedures set forth in GS 163-278.7A. But RNSEC-NC is a non-federal committee holding soft money. Jones appears to recognize this distinction by restricting the issue of contributions to candidate to his question about what the RNC can give. Please also note that Jones does not ask for a formal ruling or opinion from Bartlett, only a written verification of their conversation.

33. In Bartlett’s response, sent to Jones on April 18, he says, “you are correct that the Republican National State Elections Committee (RNSEC) North Carolina Account is permitted to make and receive unlimited contributions, provided that corporate money is not utilized. You also state your understanding that the RNC is no longer subject to the $4,000 contribution limit. The RNC is not now, nor was it previously, subject to the $4,000 contribution limit.” Without making an official opinion, Bartlett states the obvious – that the RNC is not, and has not been, limited to making only $4,000 contributions. But, again, please note that the sentence about RNSEC does not authorize any new recipient, nor any new source, for its unlimited contributions. The amendment merely clarifies that it can give unlimited legal contributions – which can only go to a state political party soft-money account for party-building activities. The issue of WHO can receive RNSEC’s money was not raised; only the question of HOW MUCH.

34. Contrary to the view that the 1999 General Assembly wanted to loosen regulations on soft money, petitioners point out three other statutes that were modified that year to strengthen the Board of Elections’ authority and ability to regulate the flow national soft money. The first amended G.S. 163-278.19, the ban on “direct or indirect” corporate contributions. The 1999 amendment added new language to define “indirect” to mean a contribution or expenditure that was given or made “with the intent or purpose of being exchanged in whole or in part for any other funds . . . or to offset any other funds” G.S. 163-278-19(a1) In other words, if a corporation made a legal soft money contribution to a national party but that contribution is part of a scheme for the party to then make a donation (using individual soft money) to a North Carolina committee, then the corporate contribution would be considered an illegal indirect contribution, which would make the party’s donation illegal since it depends, at least in part, on an indirect corporate contribution.

35. Petitioners point out such schemes are routinely part of the decisions made by the national parties in deciding how national soft money gets transferred to state parties, in what amounts, when, and for what purpose. Investigative reports about such schemes have repeatedly appeared in newspapers and journals. Party officials readily admit that funds are shuffled from one account to another. The entire system of soft money transfers is riddled with intricate matching schemes, swaps and conversions that arise because of the super-large, yet use-restricted corporate and union donations made available to the parties. Sometimes the goal is to turn large soft-money donations into hard money that can be used in candidate campaigns. Sometimes the goal is to trade or offset individual soft money with corporate soft money. Whatever the goal, the movement of money is all coordinated by the party’s central management. They maneuver the pieces with a view to what’s available in the party’s entire pool of resources, which means corporate contributions are inextricably involved in national soft money accounts designated for North Carolina’s use.

36. Given G.S. 163-278.19 and the 1999 amendment about indirect corporate/union contributions, and given the evidence of commingled funds in the Democratic and Republican national soft money committees, the State Board of Elections has every reason to suspend their operations and stop them from impacting North Carolina elections.

37. In a second strengthening amendment passed in 1999, the General Assembly essentially directed the Board of Election to intensify, not relax, its oversight of campaign finance practices. G.S. 163-278.21 system authorizes, indeed requires, the State Board to take “responsibility . . . for promulgating all regulations necessary for the enforcement and administration of this Article [the campaign finance statutes].” The 1999 amendment goes further by adding the obligation that the State Board shall also “prevent the circumvention of the provisions of this Article.” State lawmakers are obviously aware that the public – and law-abiding candidates, political committees, etc. – suffer when laws are evaded or circumvented. Petitioners urge the Board to recognize the consequences of not enforcing its 1998 ruling. Vast sums of money of unclear origin will move through a plethora of channels interconnected with corporate donations to impact the election of targeted candidates, with misleading public disclosure at best and such confusion that neither the original donors, nor the ultimate recipients understand what is happening. This is madness: A loophole allowing national soft money contributions to state candidates will turn a campaign finance system that promotes accountability into a free-for-all riddled with undisclosed money-trading. It corrupts the political process, encourages circumvention of the law, and promotes distrust of North Carolina’s election. The integrity of the election process is clearly at stake.

38. The third strengthening amendment passed in 1999 gave the State Board of Elections unusually broad authority to adopt temporary rules. The General Assembly debated this matter at length and concluded that the Board should have unusual powers for an agency covered by the Administrative Procedure Act. In G.S. 150B-21.1, lawmakers added a special provision granting the Board authority to adopt an emergency or temporary rule “to implement any provision of state or federal [campaign finance] law” OR to adopt a rule “to become effective immediately in order to preserve the integrity of upcoming elections and the elections process.”

39. Petitioners respectfully ask the Board to adopt a temporary rule banning non-federal soft money from North Carolina “in order to preserve the integrity of upcoming elections and the elections process.”


Respectfully submitted, this 13th day of September, 2000.

Peter MacDowell, Individually and on behalf of Democracy South, a
North Carolina non-profit corporation.
605-A Highway 54 West, Chapel Hill, NC 27516 (919) 967-9942

Peter MacDowell, being duly sworn, hereby deposes and says:
I am a Petitioner in the above entitled action. I am a resident and registered voter in Orange County. I have read the foregoing Complaint and believe it to be true to the best of my knowledge.

Peter MacDowell

Sworn to and Subscribed before me,
this 13th day of September, 2000

Notary Public My commission expires: