FEC Lets Indian Tribes Convert Government Funds to Political Contributions

By Edward Zuckerman, Editor & Publisher, Political Finance & Lobby Reporter
June 14, 2000

Advisory Opinion (2005-05) invites the creation of financial transactions that turns ‘soft money’ into ‘hard money’

A Federal Election Commission ruling that authorizes Indian tribes to use their tribal government funds to make contributions and expenditures in federal elections could send a torrential wave of secret campaign cash into the pool of federally restricted political funds.

The May 15 ruling makes it possible for a tribe, during a two-year election cycle, to convert almost $2.2 million worth of tribal funds into “hard money” contributions to federal candidates, political parties and PACs. Since the federal government presently recognizes 557 Indian tribes, the total amount could approach $1.2 billion.

The FEC’s unanimous opinion provides obvious political advantages to Indian tribes, especially those which reap enormous profits from gaming enterprises. Last year, 200 tribes which own and operate more than 300 casinos in 28 states netted an estimated $6 billion for their tribal governments.

With its economic success, Indian gaming has grown into an industry with its own Washington trade group–the National Indian Gaming Association–which lobbies Congress and executive branch agencies on a broad range of labor, taxation, gaming and other legislative and regulatory subjects. Indian gaming lobbyists, for example, are presently seeking an exemption from legislation that would otherwise prohibit the use of the Internet to facilitate wagers on casino games and sporting events.

Last month’s FEC ruling makes two important concessions by implicitly permitting the use of tribal funds for making “hard money” contributions, and by explicitly exempting Indian tribes from the $25,000 per year aggregate limit on contributions by “individual” donors. This was accomplished by concluding that an Indian tribe is not an “individual” as that term appears in the Federal Election Campaign Act.

Without an overall contribution ceiling to strap them down, the opinion enables an Indian tribe to become a political cash register that can gulp “soft money” from any source and disgorge it as “hard money” contributions or expenditures.

Only a small handful of tribes that operate gambling casinos or collect substantial oil and gas royalties could afford such high stakes.

But, the opinion offers other tribes a unique opportunity to earn transaction fees and commissions by utilizing their tribal accounts to launder “soft money” into a new form of “hard money” that might be called “political wampum.”

The FEC’s opinion may be the first time that the agency has used its interpretive powers to allow money to be used in federal elections that does not originate as an individual’s voluntary contribution. It thusly contradicts one of the Federal Election Campaign Act’s most enduring hallmarks; namely, its insistence that only money that is voluntarily contributed by U.S. citizens can be used in federal elections.

The FEC’s opinion was undermined by an erroneous assumption about tribal sovereignty. Rather than concluding that a tribe is not an “individual,” the FEC might have treated a tribe as a “governmental entity” which is altogether barred from federal lobbying and electioneering activity. The 1988 Indian Gaming Regulatory Act suggests such a result by failing to include lobbying and electioneering among permissible uses of a tribe’s gambling profits.

Also, the ruling ignores a long history of federal court decisions dating back to an 1831 Supreme Court opinion (Cherokee Nation vs. Georgia) which held that an Indian tribe is a “distinct political society…capable of managing its own affairs and governing itself.” Since, courts have consistently allowed Indian tribes to govern social and economic life on reservation lands without interference from state governmental authority, while preserving the federal government’s regulatory authority over Indian tribes.

Although rendered to the Oneida Indian Nation of New York, the opinion immediately applies to all federally-recognized Indian tribes, not just those with prospering businesses but also to poverty-stricken tribes whose reservations are located in some of the country’s most barren and remote locations.

But, for the Oneida Nation and nearly 200 other tribes which operate casinos and related tourist attractions such as luxury hotels, convention facilities and golf courses, the FEC’s opinion could introduce approximately $835 million worth of “political wampum” during a two-year election cycle.

Under the opinion, Indian tribes remain under the same contribution limits which apply to “individuals…and all other persons.” The FEC concluded that although an Indian tribe is not an “individual” for purposes of the $25,000 annual limit on contributions, it remains under the agency’s regulatory definition of “all other persons” for purposes of the law’s limits on contributions to candidates, parties and PACs.

Thus, like “any other person,” an Indian tribe can contribute $20,000 during a calendar year to a national party committee and to each of its affiliated campaign committees, $5,000 per calendar year to a state party committee, $5,000 per year to a PAC, and $1,000 per election to a federal candidate.

Without the $25,000 annual limit on total contributions, though, an Indian tribe can now contribute $240,000 during a two-year election cycle to the Democratic and Republican national parties and their affiliated House and Senate campaign committees, up to $1 million during an election cycle to the 50 Democratic and Republican state party committees, and distribute as much as $1,872,000 among every Democratic and Republican candidate for election to the House and Senate.

Moreover, if each of the 200 casino-owning tribes establishes a PAC, then all of the tribes could exchange maximum $5,000 per year contributions, resulting in $2 million for each PAC during a two-year election cycle.

Thus for the 200 casino-owning tribes, a single election cycle could yield $48 million for the national parties and their affiliated campaign committees, $200 million for the state party committees, $400 million for their own PACs, and $374.4 million for federal candidates-a grand total that exceeds $1 billion!

The FEC’s opinion includes a feeble warning against using funds which are derived from an Indian tribe’s corporate enterprises. It is essentially meaningless because the FEC lacks authority to audit an Indian tribe’s financial records, and the FEC has never suggested that an “individual…or other person” can’t make political contributions with money that was earned while working for a corporation.

The FEC’s advisory opinion process began in late April with an apparently routine question from McGuiness & Holch, a Washington law firm that lobbies for the Oneida Indian Nation.

In recent years, the Oneida tribe, which owns and operates the highly lucrative Turning Stone Casino in Oneida, N.Y., had become increasingly more active in campaign finance affairs. In the last two years, the tribe made $130,000 worth of “soft money” contributions to various Democratic and Republican party “non-federal” accounts. And tribe chief Keller George made personal contributions to several lawmakers and PACs during the same period.

(Among George’s gifts were $1,000 to Rep. J.D. Hayworth (R-Ariz.) and $1,000 to Hayworth’s TEAM PAC. Hayworth and his PAC became magnets for contributions from Indian tribes and tribal leaders after he defeated an effort by House Ways and Means chairman Bill Archer (R-Tex.) to expose Indian casino profits to federal taxation.)

At the end of March, a week after making a $10,000 contribution to the Democratic Congressional Campaign Committee, thereby making a serious gash against its “hard money” limit, the tribe wondered if it really was required to observe the $25,000 annual limit.

In the past, the tribe’s lawyers said in their letter to the FEC, the tribe “has voluntarily abided” by the overall annual limit. But, they went on, because the law “only applies to individuals, the Nation is considering making contributions this calendar year that would exceed this limitation…(B)efore moving forward, the Nation hereby requests an advisory opinion to confirm the Nation’s interpretation of the Federal Election Campaign Act, that the limitation does not apply to the Nation because the Nation is not an ‘individual.'”

Initially, the FEC’s legal staff drafted an opinion that would have contained a strong warning against converting casino and other corporate profits to federal election contributions and expenditures. It included instructions to maintain separate accounts to assure that corporate-derived monies don’t leak into the “hard money” stream, and suggested that the tribe-owned enterprise (which also owns a luxury hotel, a motel, a convention facility and two golf courses) establish a PAC to collect voluntary contributions from its executives and 3,000 non-union employees.

But this proposed opinion drew a quarrelsome response from the Arizona-based Gila River Indian Community which, through its lobbyists at Akin Gump Strauss Hauer & Feld, complained that the FEC was exceeding its own policies of limiting its opinions to questions that are raised and refraining from offering advice for hypothetical situations.

Here, the Akin Gump lawyers protested, the FEC legal staff “introduces presumptive facts not presented by the requester, then applies the corporate contribution prohibition to those hypothetical facts.” The Oneida tribe, they said, only asked the FEC to decide whether or not it was an “individual.”

The FEC compromised, deleting the offending commentary from the final draft. As a replacement, the FEC incorporated language from a letter which the Oneida tribe’s lawyers sent as a clarification of its request. In that letter which was copied into the FEC’s opinion, the tribe’s lawyers said “the Nation’s political contributions are made from its general treasury funds…(and) are not made, either directly or indirectly, from any incorporated entity.”

It was a legalistic non sequitor. It simply means that the Oneida Nation’s “hard money” contributions won’t flow directly from its corporate enterprises, but that the money would come instead from the tribe’s general treasury which collects the profits from its corporations.