Thompson Uses Loophole to Avoid Reporting Fundraising

July 15, 2007 — -- Former Sen. Fred Thompson, R-Tenn., has avoided revealing his fundraising figures by exploiting a legal loophole whereby he says he is simply "testing the waters" for a campaign — even as his supporters build an infrastructure for his all-but-official run.

But supporters of campaign finance reform, as well as Thompson's opponents, say that he is violating at least the spirit of the law, despite his past support for openness in government and the McCain-Feingold campaign finance reform law.

With the help of a former FEC chairman on Thompson's payroll, the ex-Tennessee senator is evading, at least for now, the requirements of the campaign finance system that he helped reform. In the words of an attorney associated with another campaign, Thompson is "playing footsie" with the campaign rules.

Federal election law allows prospective clients to raise limited funds to test the waters and determine whether they will be viable candidates without declaring their candidacy or being required to disclose their contributors and expenditures.

However, the statute provides that a candidate is no longer "testing the waters" if he raises funds in excess of amounts reasonably required for exploratory activity, or amasses funds to be used after candidacy is established.

The "testing the waters" funds must be limited to those amounts needed to determine whether to make a run, such as conducting public opinion polls, traveling and making phone calls.

If a candidate raises more than $5,000, "once the individual decides to run for office," the candidate is no longer "testing the waters" and must file with the FEC to declare himself a candidate.

In short, once you have decided to make a run and begin building a campaign operation, you are no longer testing.

Thompson appears to have gone well beyond the limits imposed by federal law.  His supporters boast that he is raising millions of dollars and has hired a campaign manager and staff in national and regional positions.

His campaign operatives have explained his delayed entry into the race by telling the press that additional time is needed to gear up their operations and meet the high expectations about his candidacy. For example, Bob Novak reported that Thompson sources stated "they want to put all arrangements in place before formally announcing his candidacy."

Last week, the Washington Post reported how Thompson campaign aide Mary Matalin explained that "the announcement will be made when the campaign infrastructure is ready to make the most of the surge in interest she believes will follow."

The Post quoted Matalin as saying, "He has made up his mind. And one can appreciate that planning the announcement of what's on his mind needs to take place in a deliberative fashion."

Moreover, in an interview with Sean Hannity last week Thompson himself declared that he had already made his decision whether to run, and added, "But, I'm not gonna tell you right now."

Thompson spokesman Mark Corallo declined to address whether Thompson's own statements have taken him beyond "testing the waters," but insisted "the testing the waters committee is well within the letter and spirit of the law."

Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington — a nonprofit organization which promotes ethics and accountability in government — disagreed. "You don't need to hire a policy director and other operational staff just to test the waters. In addition, he appears to have raised far more money than necessary to prove he has national support," she said.

"At this point he's abusing the testing the waters exception to avoid having to disclose his contributors."

Paul Ryan, FEC program director and associate legal counsel of the Campaign Legal Center — a nonprofit organization that works in the areas of campaign finance and government ethics — noted that Thompson has 15 days to file declaration of his candidacy from the time he decides to become candidate. But if he does not, according to Ryan, "to the extent he has decided he is a candidate but has not registered as a federal campaign committee or disclosed his funds, at the very least, he has violated the spirit, if not the actual letter, of the law."

Thompson sponsored and worked alongside Sen. John McCain as one of the few Republicans who pushed for passage of campaign finance reform in 2001. At the time the bill was passed, Thompson issued a press release declaring, ""The McCain-Feingold bill will restore a campaign finance system that has become more loophole than law."

When President Bush signed the bill, Thompson declared, "I want to applaud President Bush for showing both foresight and courage in signing a bill that will help to restore confidence in our electoral system and reduce cynicism among the American people. This is a major step toward changing the way we do business here in Washington."

Opposition campaigns are sure to seize on Thompson's current strategy as a departure from his earlier support of a transparent campaign finance system.

An aide from a rival campaign commented, "You just can't help marvel at the utter hypocrisy of the situation. This is, after all, the same guy who stood on a soapbox as the champion of transparency and disclosure while campaigning for McCain-Feingold-Thompson."

Thompson, in his efforts, is aided by legal counsel Michael Toner, former FEC chairman, who certainly knows the ins and outs of campaign finance reform.

From experience, they know the legal risk to Thompson is low because the FEC investigative process can take years, and the amount of fines are often very minimal.

For example, under Toner's chairmanship, the FEC investigated and reached a settlement with Al Sharpton in 2003 based on declarations in Sharpton's book that he was a candidate in October 2002 while Sharpton claimed to only be "testing the waters."

By the time any legal complaint concerning Thompson might be filed and resolved, the next president most likely will have been sworn in.

The Thompson camp, in an article in Politico.com on Saturday, suggested that they might "take the wind out of the sails" of those complaining about his strategy by filing a different document, IRS form 8872, on July 31, which would reveal his expenditures and contributions in the month of June.

Filing this form would maintain Thompson's campaign's tax exempt status without conceding he has become an actual candidate. Legal experts suggest this may have been his strategy all along, noting that in June, when he filed a form indicating his intent to set up a "testing the waters" committee, he indicated he would file the IRS form on July 31. If Thompson opts for this legal maneuver and maintains his position that he is not a real candidate, he will be banking that the legal risks are low and his opponents will be loathe to complain about his prolonged water testing.

By doing this, he also will avoid — at least until October 15 — filing the detailed financial disclosure form for actual candidates, which would include items like cash on hand and campaign debt.

As a non-candidate he can also continue to duck candidate debate appearances with his more practiced opponents.

Moreover, by delaying an official announcement of his candidacy, Thompson will avoid triggering the "equal time" FEC requirements which are expected to eventually force his lucrative television series "Law and Order" off the air and, thereby, halt residual payments to Thompson.

An NBC spokesman was quoted in the Washington Post on Sunday that the network will stop scheduling further reruns only when Thompson "formally announces" his candidacy.