WASHINGTON – Mayoral candidates are enjoying one last chance to bring in money the old-fashioned way before a reform bill adopted unanimously by the D.C. Council goes into effect Jan. 31.
Although the candidates have known about the new rules since Mayor Vincent Gray signed the reform into law in December,D.C. – along with several states – still allows a campaign financing practice commonly known as the “LLC loophole.”
The practice,banned in the new law,relies on laws that attribute donations to a business set up as a limited liability company or a limited liability partnership and not the person who controls it. Under D.C. law,no person or company may give more than $2,000 per candidate,per race. But if a donor owns multiple companies,he or she can give $2,000 in the name of each company.
“If you have 10 LLCs,and John Doe is the owner of 10 LLCs,it seems to me there could be a pass through for John Doe,” Kenneth Gross,former head of the Federal Election Commission general counsel’s enforcement division,said.
Many LLCs capitalize on this practice,and they are often made up of a small number of people,sometimes only one person.
“When the law takes effect,we’ll take a look at it and we’ll comply with it,” Andrew Kline,a lawyer at Veritas Law,said.
Vertias Law LLC and Veritas Law Licensing & Legislative Affair LLC are two different companies with “slightly different ownership,” he said. Campaign finance records show the two companies,both of which Kline said he is associated with,have given $8,000 to local races in 2014 and have given to both of the leading mayoral candidates,Councilwoman Muriel Bowser,D-Ward 4,and Councilman David Catania,I-at-large.
Under the new law,LLCs will still be able to give to candidates. However,a business will have to certify that,combined with its affiliated businesses,it has not given more than $2,000 to any one candidate.
Former councilwoman Carol Schwartz,I,joins Bowser and Catania on the Nov. 4 ballot. Bowser defeated Gray in the April Democratic primary.
‘So long as they’re lawful’
“Anyone who is interested in the District of Columbia is certainly watching the race closely,” Kline said. The company has given to opposing candidates before,and the decision to give “depends on who the candidates are.”
Campaign records list the names and address of donor LLCs and LLPs,but not the owners’ names. If voters want to find out who the donors are,it’s not easy.
The records are maintained by the Department of Consumer and Regulatory Affairs on an internal computer database but not on the Internet.
When the Scripps Howard Foundation Wire asked for the records,the department said it would charge $50 for a copy of each report. After a reporter went to the department’s office,presented media credentials and asked to see the records,the department provided access without a fee.
The SHFWire examined records for 48 LLCs that made contributions,focusing mostly on those that were listed at the same address as other companies. More than 300 LLCs and LLPs donated to the candidates in 2014.
LLCs and LLPs have given more to Bowser than to the other mayoral candidates. These companies gave 16 percent,or $283,975,of her total campaign funds in 2014,according to the most recent and complete data from D.C. Office of Campaign Finance. That includes contributions for both the primary and general election.
The most recent campaign finance data were submitted Oct. 10,but has not yet been put online for all candidates.
Both Bowser and Catania sponsored the bill that effectively bans the LLC loophole that they continue to benefit from.
Asked if all donations made to her campaign were ethical,Bowser said the donations “comply with all the rules.”
Even excluding money from LLCs,Bowser’s campaign raised twice as much as Catania’s.
Asked if she needed to take the money from LLCs,Bowser said,“We’re running a successful campaign. We’re following the rules.”
“If you’re wondering if it’s ethical or not,the laws are being complied with,” Bowser’s campaign manager Bo Schuff said. “When the laws change and go into effect,you comply with the laws that go into place.”
Part of the money Bowser raised was needed to overcome Gray,who was running for a second term. Campaign integrity was an important topic because the U.S. attorney in Washington has declined to say if Gray remains a target in the investigation of his 2010 campaign.
Several people connected with Gray’s 2010 mayoral campaign have been convicted in a campaign corruption scandal that Gray has maintained he had nothing to do with. In March,businessman Jeffrey Thompson pleaded guilty to supplying $660,000 to a shadow campaign for Gray that was controlled by some of his close associates.
“Obviously,the activity of some of the interest groups has been suspect based on some of the controversies that have come up over Mayor Gray’s last campaign,” Steve Billet,George Washington University Legislative Affairs program director,said.
Catania has raised $37,650 from companies listed as LLCs or LLPs.
“To be honest,we’re running a seven-day-a-week,24-hour operation,” Catania said. He said his treasurer accepts the donations “so long as they’re lawful” and “meet the standard the law requires.”
Catania has said he favors publicly funded elections. “There’s no question we can do better,” he said.
“The more I’m in government the more I see the influence of money,” Catania said last week in a debate with Bowser and Schwartz.
The only person who hasn’t accepted significant amounts of LLC donations is Schwartz.
She has raised $150 from two LLCs. She said she swore off the larger,“corporate LLCs” early in the campaign. She has raised $35,623 since announcing her candidacy.
Asked how she felt about Bowser and Catania continuing to accept contributions after sponsoring the loophole-closing legislation,she said,“It’s obviously allowed. … But it’s bad judgment to do it once you voted not to do it.
“I’m leading by example,” Schwartz said.
‘A square peg in a round hole’
While D.C. might be cracking down on loopholes,state election laws throughout the country vary from laissez-faire to strict oversight.
Alabama,Oregon,Missouri,Utah,Nebraska and Virginia place no limits on corporate and individual donations,according to 2013 data from the National Conference of State Legislatures.
Arizona,Massachusetts,Minnesota,North Dakota,South Dakota and Wisconsin explicitly ban contributions to candidates from LLCs.
After the new campaign finance law goes into effect in January,D.C. will regulate unincorporated LLC donations more like states such as Kentucky,Michigan,Ohio and West Virginia.
In these states,donations and donation limits are allocated among the company owners.
Some states,such as Alaska,Connecticut,North Carolina and Rhode Island,ban donations to candidates from LLCs without explicitly mentioning them. Others lump LLCs in with corporations; some treat them as individuals and some do not mention them.
“The laws change from one state to another,” Billet said. “In some instances,LLCs simply fall under the category of an individual contribution.”
Kline said he did not have “any position” on the District legislation to reform campaign finance.
Had the seven donors who share an office with Republic Properties Corporation at 1280 Maryland Ave.,SW,Suite 280,given as one entity,they would have been limited to $2,000. But combined,the donors contributed $13,000 to Bowser’s campaign this year.
Six of the seven donations were given in the same amount,on the same day.
The most recent reports filed with the DCRA show Steven Grigg,CEO at Republic Properties Corporation,a real-estate investment and management company,holds positions with at least four of those LLCs. These companies gave $8,000 to Bowser’s campaign. He also gave,in his own name,the maximum allowable donation to mayoral primary candidate Councilman Jack Evans,D-Ward 2,in March.
Grigg said he and the LLCs were following the law and would do so in the future.
“I think people will comply with it,” Grigg said. “Most people are not going to do something wrong,certainly in a business environment,for the glory of making a political contribution.”
One of the drawbacks of limiting LLC contributions is that it could make it a lot harder for non-incumbents to run in the District,Grigg said. “Whoever is running as an outside candidate is going to have trouble raising money,” he said.
When the companies Grigg is affiliated with gave to campaigns,those donations did not count toward Grigg’s maximum personal donation limit. Under the new law,the corporate contributions would be connected to Grigg’s other LLCs and businesses.
Seeing a single person or entity give through multiple LLCs at the same address is common,said Gross,who practices law at the Skadden law firm.
LLCs have given one in every eight dollars to the three main 2014 mayoral candidates,which comes out to more than $320,000 in campaign funds from known companies but often unknown persons.
These donations make up one in every $12 donated in the District to all campaigns this year. Several council seats are on the ballot,and D.C. will elect its first attorney general.
A building directory at 1100 New Jersey Ave. SE lists WC Smith as the only business in Suite 1000. Five companies and one individual listed at that address gave $9,500 to Bowser. Another $2,000 went to a primary candidate who lost.
Four of the companies are LLCs owned by W. Christopher Smith Jr.,chairman and CEO of WC Smith. A receptionist at the company said Smith declined to comment for this article.
Companies owned by Russell Lindner,president of the Forge Company and the deputy chairman of the Federal Reserve Bank of Richmond,often gave to opposing campaigns. Forge operates parking garages and Washington Boat Lines.
Lindner and businesses he owns,has a position in,or that are owned by Forge have given $20,000 to District candidates this year. Lindner did not return calls seeking comment.
The SHFWire called over 20 LLCs and asked to talk about their donations. The owners of two,Kline and Grigg,agreed to talk on the record. Another said he would agree to talk only on background. The others either did not return phone calls or declined to talk.
The blurry distinction between laws regulating individual,corporate and LLC donations has created a disparity between what is allowed at the federal level and what is allowed in each individual state.
Federal laws regulating LLC donations are more straightforward. Large LLCs that register as corporations are treated as corporations and can give to candidates only through political action committees.
“Overwhelmingly,LLCs don’t file as corporations,” Gross,the former FEC lawyer,said. “That’s’ why they’re LLCs in the first place.”
If an LLC is made up of only one person,it may give to a political campaign,but the donation is attributed to the owner.
“This is a hybrid of a corporation and a partnership,” Gross said. “A bit of a square peg in a round hole,because they don’t fall into one category or another.”
Reach reporter Lucas Daprile or 202-408-1490. SHFWire stories are free to any news organization that gives the reporter a byline and credits the SHFWire. Like the Scripps Howard Foundation Wire interns on Facebook and follow us on Twitter.