Millions From Maxed-Out Clinton Donors Flowed Through Loophole

By Bill AllisonBill Allison
August 26, 2016

When the Democratic National Committee announced its $32 million fundraising haul last month, it touted the result as evidence of “energy and excitement” for Hillary Clinton’s nomination for the White House and other races down the ballot. The influx of money, however, also owes in part to an unprecedented workaround of political spending limits that lets the party tap into millions of dollars more from Clinton’s wealthiest donors.

At least $7.3 million of the DNC’s July total originated with payments from hundreds of major donors who had already contributed the maximum $33,400 to the national committee, a review of Federal Election Commission filings shows. The contributions, many of which were made months earlier, were first bundled by the Hillary Victory Fund and then transferred to the state Democratic parties, which effectively stripped the donors’ names and sent the money to the DNC as a lump sum.

Of the transfers that state parties made to the DNC for which donor information was available, an overwhelming proportion came from contributions from maxed-out donors:

On average, 83 percent of the money that was sent from the state committees to the DNC in July originated with a donor who had already given the maximum $33,400 to the national party.

July transfers from state commmittees to DNC
Percent from maxed-out donors
Wyoming
Missouri
Montana
West Virginia
Indiana
Utah
Rhode Island
Idaho
Georgia

The Hillary Victory Fund was formed almost a year ago to combine the fundraising power of Clinton’s campaign and 33 state Democratic parties. Campaign finance watchdogs have questioned whether the arrangement is proper, and news reports have shown that the state parties have been paying most of the money they receive back to the national party.

The committees haven’t been accused of any wrongdoing, and election lawyers say the practice doesn’t appear to violate campaign finance law. It’s unclear whether the donors are aware of the transfers.

“I’m not aware of any case law or regulations that would prohibit a state party from transferring to a national party committee funds raised through a joint fundraising committee,” Robert Kelner, an election law expert at Covington & Burling said. “But as a practical matter, it does appear that the DNC may be using Hillary Victory Fund as a mechanism for allowing donors to give more to the DNC indirectly than would otherwise be permitted directly.”

Josh Schwerin, a spokesman for the campaign, said in an e-mail that “Hillary Clinton has fought for campaign finance reform her entire career and, as President, will make it a priority to overturn Citizens United and restore the role of everyday voters in elections.”

“These funds help strengthen our Democratic Party infrastructure in critical areas such as data, analytics, research and communications,” DNC spokesman Mark Paustenbach said about the transfers to the DNC, “and these improvements help each and every state party as well as candidates up and down the ballot.”

The Hillary Victory Fund has raised $141.5 million since its inception by soliciting large amounts of money -- up to $366,400 from the biggest donors -- which it then parcels out in appropriate increments to the Clinton campaign (maximum $2,700), the DNC (maximum $33,400) and a variety of state parties (each with a limit of $10,000).

Here’s an example of how the some top donors’ money finds its way back to DNC’s coffers:

On March 25, 2016, hedge fund manager S. Donald Sussman gave $343,400 to the Hillary Victory Fund.

In April, it transferred $33,400 to the DNC in Sussman's name, maxing him out of giving any more money to that group in this election.

S. Donald Sussman

HVF
DNC

On April 25, the Hillary Victory Fund included $10,000 of Sussman's money in a $179,000 transfer made to the Democratic Party of South Carolina.

That same day, South Carolina transferred the full $179,000, to the DNC, except now without reference to the original donors. (The state party isn't required by law to disclose the source of funds.)

HVF
SC
DNC

Sussman’s original contribution to Hillary Victory Fund has been similarly allocated to at least 10 other states, and each time has been passed on to the DNC on the same day. That makes his total effective contribution to the DNC about $133,400. (Sussman is Clinton’s biggest donor this election, having given more than $11 million to support her bid, mainly through super-PACs.)

And the handling of Sussman’s donation isn’t unique. Overall in 2016, funds from 410 maxed-out donors have been routed to the DNC through state parties, totaling $9.3 million. The fund has transferred $220,000 of contributions from media mogul Haim Saban and his wife Cheryl to the DNC via state parties, the same amount from billionaires J.B. and Mary Pritzker, and $110,000 from Chicago publishing tycoon Fred Eychaner. All are among the top ten donors supporting Clinton.

The Pritzkers declined to comment. Sussman, the Sabans and Eychaner didn’t respond to requests for comment.

There’s no sign that the Republicans are following the same strategy. Donald Trump’s joint fundraising committee has yet to transfer any money to the 11 state Republican parties that are part of the arrangement.

While election law limits how much an individual can give to any one party, the state and national committees are allowed to transfer unlimited amounts between one another. That ability, together with a 2014 Supreme Court decision that eliminated an aggregate limit on how much a person could give to all parties, opens the door for sophisticated fundraising operations to in effect get around donation limits.

Generally, the Hillary Victory Fund has been transferring money to states that don’t have tight races that are unlikely to attract the attention of major donors: Wyoming, Indiana, Massachusetts and West Virginia. By channeling that money back to the national party, the DNC can freely direct how and where to spend the money, including in battleground states like Pennsylvania, North Carolina, Florida, Nevada and Ohio.

The amount of money from maxed-out donors could be higher. Four state parties that received $2.8 million in transfers from the Hillary Victory Fund in July didn’t disclose the names of the donors who were the source of the funds, as FEC regulations require. In each case, the identical amount of incoming money was sent to the DNC the same day it was received.

Parties and politicians have long used transfers to get around limits on political spending. Before the 2002 McCain-Feingold Campaign Reform Act, national parties would shuffle big corporate donations to their states affiliates that weren’t restricted on how they could use soft money. In exchange, the states would send back hard dollars -- contributions from individuals that didn’t exceed FEC limits -- that they could use however they saw fit.

Lawrence Noble, general counsel of the money-in-politics watchdog Campaign Legal Center, said that while money has always changed hands between state and national party committees, the practice has taken off this election.

“The amounts of money are unprecedented,” Noble said of the Hillary Victory Fund’s transfers to states and on to the DNC. “It’s a way to get around the contribution limits; it’s a major loophole in the law.”