EP. 3 — SECRET SLUSH FUNDS

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Weston Wamp:  I'm Weston Wamp and this is Swamp Stories brought to you by Issue One.

The foundations of a lot of our current federal election laws can be traced to Watergate. Watergate very much undermined the confidence of the American people in our election laws and led to the 1974 amendments to the federal election campaign act. Current law isn't exactly the same as those amendments in 1974 but a lot of the major themes and concepts remain, ranging from disclosure to banning the personal use of campaign contributions.

Male Reporter:  Congressman Aaron Schock of Illinois, he said, today he is resigning his seat in the house. There's a scandal over his spending habits grows all around him.

Male Reporter 2:  Representative Duncan Hunter of California and his wife were indicted for using more than $250,000 of campaign money to pad his family's lifestyle. `The charges include using the money to pay for their children's private school tuition trips, and even included airfare for the family's pet rabbit.

Weston Wamp:  The idea is that any elected official who takes money into a campaign account shouldn't use that money for personal use, for their own personal expenditures. Really, there's nothing novel here. Politicians just aren't supposed to misuse money that was given to them for campaign purposes on things like family vacation or groceries or a new pair of shoes, you get the point. That's why from the left to the right, there's no disagreement on this issue. The reason, of course, it's completely clear if any corporate PAC or wealthy individual could just give money to an elected official, it would look an awful lot like bribery.

Today you hear about all kinds of PACs, but the one you almost never hear about also deals directly with personal use. It's called a Leadership PAC. It allows members of Congress to buy suits, to visit five star resorts and play golf all under the guise of “fundraising”. This is that gray area between cash and influence. I spoke with the original creator of leadership PACS to hear the history from the source and when I told him about how they're used today, here's what he said:

Henry Waxman:  “I think that's pretty outrageous. I'm surprised that it…”

Weston Wamp:  So now we're going to wade through one of the swampiness practices in politics. The leadership PAC loophole. This is episode three, Secret Slush Funds.

In the modern era, one man with a very famous name stands alone for his egregious violations over 10 years of almost all campaign finance laws: Jesse Jackson Jr.. Even though he was elected to Congress at 29, in fact, the same year that my father was elected to Congress, the country had been introduced to him previously.

He spoke at the 1988 Democratic National Convention when his father was running for president.

Jesse Jackson Jr.:  To us, he is also our father. Our father has taught us well. From him, we have learned that when confronted with challenge and controversy, we must stand up for the things that we believe in. Because in the final analysis, truth will always prevail. And if we do our best, God will do the rest.

Weston Wamp:  Jesse Jackson, Jr. his rise to power wasn't without controversy, both before he was elected to Congress and after. For example, the best man in his wedding turned out to be a Nigerian drug lord, who was eventually sentenced to 24 years in prison. And once he was elected to Congress, all types of controversies dogged him. He was accused of horse trading within Illinois, Governor Rod Blagojevich for an appointment to the U S Senate. In fact, it was that issue with Blagojevich that led the FBI to take a look at how Jesse Jackson Jr. had been spending money, campaign money, while he'd been in Congress. And this is really when the public perception of a rising star in Democratic politics began to change for good reason.

My memories of Jesse Jackson Jr. were of him practicing martial arts in the house, gym, and just generally being a friendly, really well dressed young member of Congress, a guy who I admired. And once the FBI had completed their investigation, the few things I knew about Jesse Jackson Jr. were proven to be true. He had spent tens of thousands of dollars on Bruce Lee memorabilia, and he was pretty well dressed because he'd been spending campaign money on for coats and Rolex watches. The word of the wise for all of us is that the next time a young member of Congress writes a book called “About the Money: How You Can Get Out of Debt, Build Wealth, and Achieve Your Financial Dreams”, let's all agree to ask some questions at that point.

After many years of living a double life, it all caught up to Jesse Jackson Jr. and that didn't mean slap on the wrist. It meant prison time.

Male Reporter:  Criminal charges were filed today against former Chicago Congressman Jesse Jackson, Jr..

Jesse Jackson Jr.:  It's not a proud day. I'm sorry I let everybody down.

Weston Wamp:  In 2017, Jesse Jackson Jr. was released from federal prison after serving time for outlandish campaign finance violations. And pretty soon after his release, he and his mother started making the rounds on national media, telling the story of his mom, never giving up on her son, and writing him a letter every day while he was in prison.

Whoopi Goldberg:  Please welcome Jacqulyn and Congressman Jesse L. Jackson Jr..

Jesse Jackson Jr.:  Having to turn to your mother and tell her that you're going to prison has got to be close to the worst process possible.

Weston Wamp:  Jesse's story is just one example of how absurd campaign finance corruption can get. And it's at this point that I should also tell you that I asked Jesse Jackson Jr. to be interviewed for this podcast, and at first he was interested, but then I could tell his perspective began to change after I told him the punchline, “It's coming for you also,” and to give you some idea of how significant it is, he was worried that it could interfere with the narrative that he's going to share in an upcoming book. The last thing he texted me was, “I need to wait until my manuscript is picked up. I don't want to show up in the press on this subject at this time.”

It was the leadership PAC loophole that caused Jackson to hedge. As Jackson's story shows, he and his wife figured out how to live a lavish lifestyle with campaign cash, but it caught up to them. So by now you're wondering what exactly this has to do with leadership PACs. Just years after the major political reforms that came in the wake of Watergate in 1974, a former California state legislator who had gotten elected to Congress, Henry Waxman, made an unusual request to the Federal Election Commission.

He basically said, “I want to support other like-minded candidates, but I don't want to do it through my campaign committee. So can I have another committee, a PAC, that would be used exclusively for supporting other candidates?” Little did he know leadership paths would come to exemplify the Washington swamp and be abused big time.

Henry Waxman is not the villain. We're not going in that direction. In fact, you're going to hear from him in just a moment. But there were unintended consequences to what he did in 1978.

Stick with us, we’re going to take just a short break.

All right, let's get back to it. Now. I'm going to connect Jesse Jackson Jr., rolexes, and leadership PACs together for you.

There are a lot of opinions out there on leadership PACs, why they exist and why they should be allowed to continue. So I emailed Henry Waxman, the powerful 40 year Democratic Congressman from Los Angeles and asked if he'd be willing to go on the record.

Henry Waxman:  Hold on one second. Yeah. I went and put my earphones into the iPhone. Hold on a second.

Weston Wamp:  He could not have been more accommodating, especially if you consider it was a 32 year old Republican from Tennessee making the interview request. Until this point, I was relying on scant news reports and word of mouth to know how leadership PACs really came to be.

Henry Waxman:  I came from California, where I was in the legislature, and one of the things that we did because we were in the minority, was to ask incumbent Democrats to contribute to the candidates who had a good chance to win so that we can get the majority back. In fact, we pooled some of our money that we didn't need for our own campaigns and for the good of the Democratic Caucus to get a majority. When I came to Washington, I wanted to continue to give money to candidates who needed it for election or reelection.

Weston Wamp:  Waxman explained to me that one of his motivations is that he would be able to give much more money to the candidates that he supported through a PAC then he could, through his campaign account.

Henry Waxman:  I went to the FCC and said, “well, I want to organize a PAC.” Now the leaders had PACs: Speaker, the Majority leader. The leadership had PACs, and this was a PAC that got dubbed a ‘Leadership PAC’ even though I was not a leader. I was one of the first 8eaders to organize this PAC solely so I could help other Democrats who needed financial health for their campaign.

Weston Wamp:  Now we've heard it straight from the horse's mouth and it all checks out. Henry Waxman had been trying to create a leadership PAC for pretty benign and straightforward purposes.

Henry Waxman:  I did that and help Democrats that I knew were in trouble by giving them the maximum I could if I had the money in the PAC. And I can also, in addition to that, give them a a thousand dollars for each, the primary and the general from my campaign committee. And that's what I did. And I noticed that everybody started organizing PACs. I didn't think I was setting myself up as an example, but I did it. And I think that other members decided they could help influence the elections to get people of like-mindedness into Congress by giving them a donation for their campaign.

Weston Wamp:  As a point of clarification, there are a lot of different types of PACs. We're not going to get into the academic exercise of explaining what each type of PAC is and isn't, but for the purposes of understanding what Mr. Waxman is talking about, and one of Washington's most extreme loopholes, no, that the campaign committee that any member of Congress were candidate for office has, is governed by a certain set of rules.

PACS, political action committees, are governed by a different set of rules, with different limits as to how much different entities can contribute. I grew up the son of a senior appropriator, a pretty prolific fundraiser, and a powerful member of Congress, and he never felt the need to have a leadership PAC, so don't buy the argument that everybody has to have a leadership PAC. That's simply not true.

But there's a dirty secret about the way leadership PACs work that people in Washington don't want you to know. Do you remember the Federal Election Campaign Act that I mentioned at the very beginning of the episode? Well, the amendments to it in 1974 established a lot of the basis for our campaign finance law and created specific statutory language to prevent campaign dollars from being spent on personal expenses.

But in 1974 there weren't leadership PACs, Those came in 1978. The 1974 bill was focused on candidate campaign committees because that's where money was flowing, and that's where they wanted to prevent the perception of corruption coming out of Watergate by disallowing members of Congress to use campaign money on stuff for themselves. So you see the loophole?

Leadership PACs are just another PAC. You could have one or your neighborhood association could start one. The bottom line is this leadership PACs, which can receive contributions larger than campaign committees from the exact same donors. The donors can even give twice to the campaign committee and to the leadership PAC. Those leadership PACs don't have a prohibition of any kind on personal use.

So back to Jesse Jackson Jr. The reason he didn't want to be interviewed by me is because he realized in our phone conversations that he might have never served a day in prison had he simply made some of his inappropriate purchases on a credit card connected to a leadership PAC instead of his campaign committee. Even by Washington standards of giant loopholes, this is pretty hard to believe. The fact that the same exact behavior that can get you thrown in federal prison could be conducted just through a different bank account with money from the same exact donors that is swampy.

This is the kind of thing that gets a little technical. For those of us without law degrees or even those of us who might have law degrees but haven't studied campaign finance law.

Tyler Cole:  I'm Tyler Cole. I'm the Legislative Director and Counsel here at Issue One. Before I started this position, I went to law school, and before that actually spent five years working on political campaigns in the fundraising department. So I know a little bit about this issue from both sides.

Weston Wamp:  Tyler is one of the few wiz kid's in the country on the specifics of leadership PACs.

Tyler Cole:  So the actual statute about personal use says a campaign contribution excepted by a candidate can't be converted to personal use. Now to me, and to many other lawyers and people in the reform community, leadership PAC contribution is still a contribution accepted by a candidate. That's what makes it that a leadership PAC, is that a elected official, controls the leadership. Otherwise it's just a regular PAC.

Elected officials in this country. We know you run for office every two years in the house, so you're pretty much always a candidate.

Weston Wamp:  Tyler says that the reason that this can't be easily fixed by the FEC is that when the Federal Election Commission has looked at the issue, they effectively say, "Congress didn't know that leadership PACs would exist when they wrote the Federal Election Campaign Act. So the personal use ban doesn't apply to them."

Tyler Cole:  I don't think that's good reasoning, but it's the position the FEC took for years. The best we've been able to do is essentially gridlock the FEC on this issue where we've convinced some commissioners that they have the underlying authority, but not a majority. So the FEC is kind of in this gray area now. The practical reality is that to get it done, you need a statutory change because we can't convince the Federal Election Commission to act on their own.

Weston Wamp:  What would happen, in your opinion, if a member of Congress bought a Rolex with his leadership PAC. And then let's say even when told his buddies in Congress what he'd done.

Tyler Cole:  Right now, it's not clear that anything would happen. There's no explicit rule against it according to the Federal Election Commission. The criminal prosecution of these matters is handled by the DOJ [Department of Justice] , but typically they pay some deference to how the Federal Election Commission interprets the statute. If there is no explicit rule against it, and no government agencies willing to argue that it's under their authority to make a rule against it. There's simply no rule against doing it; nothing would happen.

Weston Wamp:  That's what this episode is all about. Play that clip from Tyler again.

Tyler Cole:  If there's no explicit rule against it and no government agencies willing to argue that it's under their authority to make a rule against it, there's simply no rule against doing it.

Weston Wamp:  If you use campaign committee cash from political donors for personal use, it's a criminal offense. That's the story I told about Jesse Jackson, that's the reason I told it. But if you use a different bank account, one connected to a so-called leadership PAC, it's not criminal. It's not against the law. You're basically in legal, no man's land.

So this clear consensus that we've always had across party lines, across levels of government, that political money can't be used for personal use is basically irrelevant. Henry Waxman sums it up best.

Henry Waxman:  Well that sounds like a loophole.

Weston Wamp:  A giant loophole. In talking to Henry Waxman, it occurred to me, he doesn't realize there's any controversy whatsoever.

Henry Waxman:  I think that's pretty outrageous. I'm surprised that I wasn't aware of it, although I occasionally hear what people do and think they can get away with and then find out that they can. I'd never thought of my campaign committee or my campaign PAC as a vehicle for personal expenses. I thought, well, the prohibition was pretty clear that campaign money could not be used for anything you just wanted, it had to be used for specific campaign related purposes.

Weston Wamp:  If the man who created the leadership PAC doesn't realize that there are accusations that dozens, if not hundreds of members of Congress are misusing leadership PACs to pay for junkets, steak dinners, and country club memberships, no wonder the American public doesn't know and isn't more outraged about it.

Henry Waxman:  I think that if that's happening, it's a loophole that ought to be closed.

Weston Wamp:  So on this podcast, we've laid out the purpose for personal use bans, demonstrated that there's a very dangerous loophole that's being used often, and educated, the person responsible for having these types of PACs created, and hearing him say, on the record, that it all should be fixed.

So just like we end every one of these episodes, the question before us is this: how do we fix it? Can we fix it? So I went back to Tyler Cole at Issue One with that question.

Tyler Cole:  The criminal standard for violating federal election law is knowing and willful. So you essentially have to know the law, you know, you're breaking the law and say, "I'm going to do it anyways." And then obviously to convict anyone of a criminal charge, you have to prove that beyond a reasonable doubt. That's a really, really high standard, which is why the vast majority of campaign finance law enforcement happens at the civil level to the Federal Election Commission where they impose fines and penalties, and it just kind of keeps everyone on the straight and narrow because between the fines and the bad publicity, it's usually not worth it.

So that leaves a huge gap. If the FEC is not doing anything, even if you were trying to rely on just the criminal penalties alone, there are cases where it's not clear. So if you have a political event and you pay for it out of your leadership PAC funds and you fly your family along with you and they spend the weekend in Cabo or something?

Weston Wamp:  Sure.

Tyler Cole:  Are you knowing and willfully breaking the law? Probably not, because we haven't made the clear determination as a country that that's actually a violation of the law. So to to police this stuff, you really need a federal enforcement agency. You need the FEC to make it clear and to have teeth.

Weston Wamp:  I don't want to mislead you by using the Jesse Jackson Jr. example. This is not a theoretical problem. We've got a mountain of evidence that members of Congress, on an ongoing basis, have figured out how to use leadership PACs as slush funds. Just in the fourth quarter of 2018 alone, members of Congress spent $113,000 at a five star luxury resort on the coast of Georgia. $82,000 on private jets. Over $10,000 at multiple restaurants within blocks of the Capitol. It is commonplace that members of Congress know there's nobody that's going to come after them for using their leadership PAC money on their own personal fun.

What we've got here are donors who have an opportunity, because leadership PACs aren't tightly regulated, to subsidize the income of members of Congress, and it's not 20 or 30 members of Congress who have these leadership PACs, more than 90% do.

Now there's light at the end of the tunnel. As promised, there's always a solution, but in this case, it's actually the easiest one that I've found.

Tyler Cole:  From a statutory perspective, they literally have to add a comma and three words or political committee three different times in the statute. That's what it all it would take to make it clear that the personal use restrictions applied to leadership PACs and other political committees. It is incredibly simple. One of the few things in the federal law that is very simple.

Weston Wamp:  As wild as the leadership PAC scandal is, the solution is every bit is simple. All you gotta do is add the same personal use prohibition, the same line of statutory language that already applies to campaign committees specifically apply it to leadership PACs. It's like seeing the check engine light in your car. Come on, and then you realize you just left the gas cap open. That's how easy this would be to fix.

The question is, does Washington have the willpower to do it? Now we can't have a podcast about money and politics without talking about Citizens United. And even if you're familiar with the term, in the next episode, I'll tell you about how two comedians understood, much better than Washington insiders, what a farce the Supreme court decision really was.

Thanks for listening to Swamp Stories presented by Issue One. The country's leading political reform organization that unites Republicans, Democrats, and independence to fix our broken political system, please subscribe to the podcast and share it with your friends. Even better rate and review it on iTunes to help us reach more listeners. You can find out more at swampstories.org. I'm your host, Weston Wamp. Thank you to executive producer, Ethan Rome, producer William Gray and editor Parker tan from parkerpodcasting.com.

Swamp Stories was recorded in Tennessee, edited in Texas, and can be found wherever you listen to podcasts.

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