Douglas Dziak is Senior Counsel in the Washington D.C. office
Political Action Committees (PACs), in an increasingly competitive fundraising environment, are always searching for innovative and creative ways to fundraise. Raffles, auctions – silent or otherwise – and games of chance are just some of the methods creative PAC fundraising has relied on. But as one State Central Committee (Committee) learned, just because the fundraising method employed is unique or different from traditional fundraising doesn't mean the federal campaign finance rules aren't applicable.
To make this point clear, the U.S. Federal Elections Commission (FEC) fined the Committee $500,000 for violations of federal election laws, one of the largest election violations ever assessed against a committee and the largest fine since 2007.
The fine, which was the result of the Committee's own disclosure to the FEC, was related to bingo games that have been used for fundraising since the 1980s. While the bingo games ended in 2014, the FEC has sent a strong enforcement message related to these alternative fundraising mechanisms that involve complicated record-keeping issues. Specifically, if your PAC is engaged in alternative fundraising methods, you must ensure that it is complying with federal campaign finance laws as well as state and local laws related to such fundraising methods.
The Committee had been operating weekly bingo games that resulted in net contributions of up to $2 million per year. Players paid cash to purchase bingo cards and lottery tickets. Due to concerns that capturing players' identifying information could reduce attendance and revenue, the Committee failed to record any of the players' information even though such information would be required to accurately account for the players' contributions to the Committee. As a result of failing to capture such information, the FEC stated that the Committee understated its bingo related disbursements and receipts in various ways, concluding that these were errors of roughly $4.4 million in understated contributions. The lack of record-keeping also resulted in $3.9 million in understated disbursements. Finally, according to the FEC, the Committee also created false contributor lists that were used to generate reports to the FEC, rather than capturing the information about the actual players. The FEC found at least 12,490 falsified contributions totaling roughly $4.5 million within the 5-year statute of limitations.
Alternative fundraising mechanisms, such as raffles, games of chance, and auctions offer innovative methods to engage potentials donors. But they also present significant compliance issues. Moreover, the legality of such events vary significantly by state and local laws and regulations. What is permissible in one location may be illegal or severely restricted in another.
Before your PAC uses one of these alternative fundraising methods, the PAC leaders should undertake a legal review as to the permissibility of the planned method of fundraising, as well as developing a compliance plan to ensure that all federal, state, and local regulations are met.
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