Veasey: The ‘Delaware Way’ can become a worthy label again
(This is the full speech as written by former Delaware Supreme Court Chief E. Norman Veasey that was delivered to The Rotary Club of Wilmington April 10, 2014.)
Let me begin on an optimistic note: There seems to be a will among Delaware public officials in both parties to address the reforms needed to solve some of the problems identified in our investigative report released late last year.
Let me say preliminarily that I do not intend today to evaluate, critique, or comment in any way on the various bills that have been introduced in the General Assembly dealing with Campaign Finance Reform. The details of those bills and any future amendments to them will be hashed out in the legislative process, as is the prerogative of the members of the General Assembly.
What I would like to do today is to identify the problems with campaign finance and public integrity that we identified in our report and to mention in broad outline the remedies we have proposed. Also, my hope is to be brief and leave ample time for your questions.
It is well known how my team and I were thrust into this tempestand it was certainly not a “tempest in a tea pot.” Federal agents and prosecutors entered into a plea agreement with Christopher Tigani, then the head of N.K.S. Distributors, for violations of federal campaign and other federal laws. In pursuing their investigation of Tigani, federal authorities uncovered some evidence of possible violations of Delaware State laws that they proposed to turn over to the Delaware Attorney General, Beau Biden. Attorney General Biden recused himself and appointed me as Independent Counsel and Special Deputy Attorney General.
I was fortunate in being able to assemble a terrific team, beginning with my then-law firm colleagues, Christie Di Guglielmo, who was also commissioned as a Special Deputy Attorney General, and Steve Tyrrell, former Chief of the Fraud Section of the U.S. Department of Justice. Thanks to the vision and generosity of the Superintendent of the State Police, we also engaged a crackerjack team of Delaware State Police investigators, including Sgt. Susan Jones and Agent Raymond Hancock. Our team was enhanced with outstanding prosecutors, including Deputy Attorneys General Paul Wallace (now a Superior Court Judge), Sean Lugg and Sonia Augusthy. Present today are four members of the team: Christie Di Guglielmo, Sgt. Jones, Agent Hancock, and Deputy Attorney General Sonia Augusthy.
The details of the investigation and recommendations for reform are laid out in our 101-page report, which I know many of you have read. It is available on-line at the Delaware Department of Justice and the News Journal. I have a few hard copies here for anyone present who would like to have one. If we run out of the copies we have here, please just leave your business card or send me an email and I will be happy to send you one. There is also, at each table here, a copy of an excellent article by our Honorary Rotarian Vic Battaglia setting forth a succinct summary of the Report. I am very thankful to Vic for that article and for being here today.
I am not going to spend much time today on the investigation itself and the prosecutions, but I shall be glad to answer your questions. In a minute I plan to turn to the main topic todaylaw and culture reform.
First, I shall begin with our mission, as noted in the Report, which has been to (i) investigate evidence of possible violations of Delaware campaign finance and other relevant laws; (ii) vindicate the compelling state interests in bringing to justice Tigani, N.K.S., and any others found to have violated those laws; (iii) determine if there is credible evidence that any candidate for state or local office in Delaware or the agents of any such candidates who received improper contributions had knowledge that such contributions were tainted, or knowingly participated with Tigani, N.K.S., or any other person in an illegal scheme; (iv) determine if there were other violations of the state campaign finance or related laws that should be prosecuted, and (v) make recommendations for legal and cultural reform.
Our investigation showed that Tigani was guilty of a massive, felonious reimbursement scheme. The crime is set forth in Section 8006(b) of Title 15:
No person shall make, and no candidate, treasurer or other person acting on behalf of a candidate or political committee shall knowingly accept a contribution made in a fictitious name or in the name of another person. No person shall make, and no candidate, treasurer or other person acting on behalf of a candidate or political committee shall knowingly accept a contribution whose donor’s true name and address is not made known to the political committee that receives it.
This statute and another (§ 8043) provide that, by reimbursing others who purported to contribute to a candidate, the person doing the reimbursing and the person being reimbursed as well as any campaign official who knowingly accepted a contribution in another’s name is guilty of a felony.
Tigani, while in federal prison, was prosecuted by our Team, entered a guilty plea, and was sentenced under Delaware law to a fine and judgment of $128,000, probation, and community service. We also pursued N.K.S., his company at the time of the crimes, and reached a non-prosecution agreement with N.K.S., whereby the company paid the State a penalty of $500,000 and agreed to the corporate governance reforms we required as part of the agreement.
As we kept digging in our investigation, we found sufficient evidence within the statute of limitations to charge two other individuals and the business owned by one of them with smaller-scale reimbursement schemes, but illegal conduct nonetheless. One individual was indicted, pleaded guilty, and was sentenced to a fine, probation, and community service. The other individual and his business entered into a non-prosecution agreement, paid a penalty and agreed to corporate governance reforms. Those actions resulted in an additional $36,000 in fines and penalties due to the State. When added to the Tigani and N.K.S. fines, judgment, and penalties, we recovered for the State over $650,000.
We also pursued other investigative avenues through over 80 interviews of over 60 witnesses, production of thousands of paper and electronic documents, and hard-nosed police work. We searched diligently for any evidence of knowledge or complicity in the part of the public officials and their staffs in reimbursement schemes, bribery, or other offenses. We did not find evidence that we could prove beyond a reasonable doubt of any such crimes that might have been within the statutes of limitations.
Also we did uncover some violations which, although no prosecutable, are nonetheless troubling. These findings, all detailed in the Report, accomplished two goals: (1) elevating public knowledge of improper conduct to act as a deterrent for the future; and (2) highlighting areas of legal and cultural reform to which I shall now turn.
Recommended Campaign Finance and Public Integrity Reforms
Our investigative findings have very usefully informed some much-needed legal and cultural reforms in both the campaign finance and public integrity areas. In the Report, we have recommended six campaign finance reforms. We also address the very important need to enhance and strengthen the laws relating to public integrity to address concerns about the pay-to-play culture in some areas.
1. Disclosure of Contributor’s Employer and Occupation
The law currently requires that political committees must report some information, such as name, address, amounts contributed, but does not require employer or occupation information. The Model Campaign Disclosure Law, which we considered in recommending several reforms, lists that information as one of its ten most important disclosure provisions for a “healthy campaign reporting program,” as it would facilitate enforcement and provide public access to sources of candidate support. We agree that this reform is important and should be implemented.
This information would have helped our investigation and would assist any future investigations into similar issues. For example, many of the contributors in the Tigani/N.K.S. reimbursement scheme were employees who were arguably “of limited means” and their ability to make large political contributions might have been questionable if employer and occupation information had been reported. And disclosure of employer information would have aided investigators in identifying potentially associated contributions, such as where related entities are involved, and would have assisted the analysis of contribution patterns in looking for suspicious activity that warranted further investigation.
2. Ban Entity Contributions
One of the most vexing problem areas we discovered was the useindeed the misuseof limited liability companies (LLCs) associated with contributors who wished to “game the system,” either on their own or when encouraged by a campaign. In fact, this topic represents a major thrust of our investigation (covering almost 20% of our Report), and a number of violations were revealed. We were unable to seek indictments for these violations because we did not have credible evidence of criminal intent and, in any event, the three-year statute of limitations for this Class A misdemeanor had run by November 2011, long before these facts became known to investigators.
Here is the problem with entity contributions: Section 8010(a) of Title 15 sets forth the dollar limits of $1200 for individuals or entities contributing to statewide candidates and $600 to candidates for local office or representative or senatorial districts. Section 8012(e), however, presents enforcement problems and opportunities for contributors to “game the system.” Here is what Sections 8010(a) and 8012(e)) provided at the relevant times in question:
No person (other than a political party) shall make, and no candidate, treasurer or anyone acting on behalf of any candidate or candidate committee shall accept, any contribution which will cause the total amount of such person’s contributions to or in support of such candidate to exceed, with respect to a statewide election, $1,200 during an election period, or with respect to any election that is not statewide, $600 during an election period.
A corporation, partnership or other entity (other than a political committee) which makes a contribution to a political committee shall notify such political committee in writing of the names and addresses of all persons who, directly or otherwise, own a legal or equitable interest of 50 percent or greater … in such corporation, partnership or other entity, or that no such persons exist. The political committee may rely on such notification, and should the notification provided by the representative of the entity be inaccurate or misleading, the person or persons responsible for the notification, and not the political committee which received the contribution, shall be liable therefor. A ratable portion of the contribution by the corporation, partnership or other entity shall be deemed to be a contribution under this chapter to the political committee by each such person who owns a 50 percent or greater interest in the entity, shall be included within the limit imposed by this section on individual contributions, and shall be so included in the reports filed by the candidate committee with the commission under §of this title. (Emphasis added)
The Report painstakingly analyses from page 53 to page 66 the details of how certain contributors used LLCs in which they had interests of 50% or more, resulting in those contributors’ donations far exceeding the $1,200 limit for statewide candidates. To be sure, the statutory language setting forth the 50% ownership rule may be difficult for contributors, political committees, regulators, and law enforcement officers to interpret and apply, particularly in the context of alternative entity structures such as LLCs.
Nevertheless, this statutory regime was repeatedly violated by certain campaigns and certain contributors. But it is clear that these violations were not prosecutable for two reasons: (1) intent and guilty knowledge on the part of the actors (both donors and recipients) could not be proved beyond a reasonable doubt; and (2) in any event, the three-year statute of limitations for these Class A misdemeanors had run over two years agolong before investigators could have discovered the facts.
So, what should be the remedy? There may be other remedies that the General Assembly is or will be considering, but we believe that a total ban on corporate and alternate entity contributions is the best and cleanest remedy. The present system is fraught with ambiguities and complexities that not only make it a trap for the unwary but also present an opportunity to exploit those ambiguities and complexities to probe for loopholes to game the system.
Moreover, I think a ban on contributions by corporations and alternate entities such as LLCs is constitutional. Federal law bars contributions by corporations, and that prohibition has been upheld by the courts. Barring corporate and other entity contributions by state law would be consistent with the rationale of the U.S. Supreme Court in the Citizens United decision and the recent McCuthcheon decision.
Although some have editorialized that no campaign dollar limits can survive the next Supreme Court challenge, I am not so sure. The Supreme Court has stood firm that such individual contribution limits, if reasonable, are consistent with the Court’s review standards that dollar limits can survive on the basis that they are legitimate guards against quid pro quo and circumvention considerations and appearances.
So, we propose that the Delaware General Assembly amend the statute to prohibit all campaign contributions from corporations and other entities. If such contributions are not to be prohibited, as we urge, then our Report recommends that the General Assembly amend the statute to set forth more clearly and specifically the circumstances under which entity contributions must be attributed to a control person and provide for a transparent reporting system.
3. Address Attribution of Contributions from Joint Accounts
Individual dollar limits on statewide campaign contributions permit a husband and wife each to donate $1200 to each candidate in each election cycle. But Delaware candidates regularly seem to have been automatically reattributing to each spouse contributions of $1,200 when the campaign receives one check for $2400 from a joint account, signed by only one account holder without showing any communication with the non-signing account holder. This practice is not authorized by Delaware law, which does not provide for such reattribution at all. The General Assembly should amend the statute or the Commission should issue regulations to address this issue.
4. Mandate that All Reportable Information is on File Before Depositing a Contribution
This is a simple fix consistent with the Model Campaign Finance Law. Our investigators concluded that campaigns made insufficient efforts, before depositing a contribution, to obtain information regarding the ownership of entities that made contributions, despite the requirements that (i) contributing entities must notify the campaign regarding persons owning a 50% or greater interest in the entity or that no such person exists, and (ii) campaigns must attribute such contributions to such owners in proportion to their ownership and report the contributions accordingly.
5. Amend Safe Harbor provisions of Section 8043(h)
Some candidate committees disgorged illegal contributions associated with Tigani or other contributors by donating amounts equivalent to such contributions to charitable organizations rather than returning them to Tigani or other malefactor. The statute (§ 8043(h)) in effect at the time provided:
A candidate or a treasurer who receives a prohibited contribution …. without any intention to violate [the Delaware campaign finance law], but who returns the contribution … within 7 days after learning that the contribution … was prohibited, shall not be liable for any violation of this chapter.
We devoted several pages of the Report (pp. 66-71) to an analysis of this problem and concluded that a charitable donation rather than returning the tainted contribution to the wrongdoer was appropriate. Although it is not a statutory violation to refuse to return the illegal contribution to the donor, that is the only expressly-stated safe harbor in the statute.
The literal language of the statute does not expressly establish a charitable donation as a basis for a campaign to divest itself of unintentional acceptance of a prohibited contribution. But the statute also does not exclude means other than a return to a perpetrator, including a charitable donation, as potential lawful approaches to dealing with tainted funds. Nor does the statute provide that failing to return a contribution that the campaign received without knowing that the contribution was prohibited is a basis for criminal liability. In our view, it would be irrational and absurd to interpret Section 8043(h) to require as the only safe harbor a return of tainted contributions to Tigani or any other person who engaged in an illegal reimbursement scheme. Section 8043(h) simply provides for return to a contributor as one safe harbor.
Obviously, this statute needs correction. We recommend an amendment providing that the funds may be donated to the State or a state-sponsored entity, such as the Delaware Special Law Enforcement Assistance Fund (SLEAF).
6. Anonymous Reporting of Violations and Protection from Retaliation
Reimbursement schemes and other campaign-finance violations can be difficult to identify and, therefore, to enforce. Disclosure rules that improve transparency enhance enforceability. The best sources of information about campaign finance violations, however, are people who participate in, are asked to get involved in, or otherwise observe or become aware of the violations.
Reform efforts should address existing avenues for receiving reports of campaign finance violations, encourage more reporting, ensure that state employees are trained concerning where to direct callers who are attempting to report violations, and ensure that effective mechanisms for anonymous reporting (as well as appropriate review and follow through) are in place. This is consistent with modern efforts generally to encourage and protect whistleblowers. We recommend that the existing Delaware Whistleblowers’ Protection Act be amended to clarify that whistleblowers alerting officials to campaign finance violations are to be encouraged and protected.
Public Integrity Enhancement
Finally, I turn to a very important need for reformin addition campaign finance reform. We found that certain public officers received valuable gifts from Tigani and others, and that the gifts were not reported to the Public Integrity Commission (PIC) as required by law. That law (§§ 5813 and 5815 of Title 29) provides that every public officer must file a report with the Commission disclosing any gift with a value in excess of $250. A public officer, such as a State Senator, who “wilfully fails to file” the report or “knowingly files” a false report is guilty of a Class B misdemeanor.
We found several instances of failures to report valuable gifts, including Tigani’s 2007 financing of an expensive charter flight to Quebec with Governor Minner, when he was attempting to curry favor with her. More recently we uncovered evidence of valuable gifts of alcohol and event tickets from Tigani to some State Senators. Those gifts were made at a time and under circumstances where Tigani was seeking favor from the executive branch (the Quebec trip) and favorable legislation in the General Assembly (e.g., passage of Sunday liquor sales and non-passage of an excise tax).
These violations were not prosecutable, however. In the case of Tigani’s charter flight to Quebec with Governor Minner, the statute of limitations ran well before this investigation began. In the case of the gifts to incumbent State Senators there was no credible evidence of the Senators’ willfulness and the requisite knowledge of the value of the gifts.
But those gifts are nevertheless a sad commentary on our State’s culture. They do not constitute bribery because there is no credible proof of a quid pro quo – that is the requisite statutory element of bribery that there must be credible proof of an “agreement or understanding,” linking the gift to the public officer’s action or inaction. Specifically, the relevant statute, Section 1201(1) of Title 11 provides, in part, that bribery occurs when a:
person offers, confers or agrees to confer a personal benefit upon a public servant upon an agreement or understanding that the public servant’s vote, opinion, judgment, action, decision or exercise of discretion as a public servant will thereby be influenced. (Emphasis added)
We did not have credible proof of such “agreement or understanding.” For example, we did not have evidence that a State Senator agreed with Tigani that the Senator would vote for Sunday sales or against an excise tax on alcohol if Tigani would give him the gift of a case of vodka, even though the gift and the Senator’s favorable vote on Sunday sales or against the excise tax occurred in the same time frame.
Nevertheless, these kinds of gifts under any circumstances, particularly when juxtaposed with important legislative action or inaction is a form of “pay-to-play.” That culture has been cynically called the “Delaware Way.” But, as we say in the Report, pay-to-play should not be thought of as the Delaware Way, a term which should stand for the good Delaware practice of seeking a “civilized, bipartisan approach for finding solutions to the State’s business and political problems.”
Our Report is very complimentary of the Governor and General Assembly for the 2012 amendments to the lobbying laws. These amendments improved the reporting requirements and transparency. It is to be noted that there are rigorous requirements to report any gift from a lobbyist over $50 and disclosure of communications with the executive and legislative branches. The reporting required of lobbyists is under the auspices of the Public Integrity Commission, which is under-funded, under-staffed, and over-tasked.
In our view, the best way to address and correct the pernicious pay-to-play culture is either to create an office of Inspector General or to strengthen the Public Integrity Commission to enable it to deal with it effectively. We have consulted the Model Inspector General law and some jurisdictions have such an office, as noted in the Report. But creating another taxpayer-funded office in our small state would seem to be a non-starter.
The PIC’s resources are inadequate, in our view, for the Commission to undertake any serious inquiry or investigation into potential wrongdoing. So, the best remedy for Delaware is to strengthen the Public Integrity Commission. The PIC budget for FY 2014, the current fiscal year, is only $192,000, with only $30,600 remaining after salaries and benefits for two staffers. The Governor’s budget proposal for FY 2015 now before the General Assembly shows a reduction in the Commission’s resources. In fact, over the past five years there has been a continuing decrease in the PIC budget. This is going in the wrong direction.
It is Time to Nip Corruption in the Bud
The headlines across the nation like those in the Wall Street Journal for March 28th, lament recent scandals and scream for a war against public corruption:
PUBLIC-CORRUPTION CASES SOAR
In Charlotte, an undercover agent cultivated a relationship with an up-and-coming city councilman who became mayor, and allegedly gave him a briefcase filled with $20,000 in cash as a bribe. In New York, lawmakers caught up in investigations wore wires in an effort to catch their colleagues talking about corruption.
Those moves follow a series of other high-profile indictments of public officials, including former Republican Virginia Gov. Bob McDonnell, whom prosecutors charged with accepting gifts in return for using his position to promote a dietary supplement.
“There’s a real need for federal resources because of the structural difficulty of having state prosecutors pursue state officials,” said Daniel Stein, the former head of the public-corruption unit in the U.S. Attorney’s office for the Southern District of New York. “Federal prosecutors bring a degree of independence that can sometimes help make those cases.”
We are surrounded by large states that have their troubles with various kinds of corruption. In our neighboring Commonwealth of Pennsylvania, historically no sanctuary from corruption at various levels, comes recent news of an undercover sting that allegedly “ensnared at least five Democratic officials from Philadelphia accepting money and gifts.” But the elected Democratic Attorney General of Pennsylvania squashed the sting and the prosecution as flawed and racist, according to a series of recent Philadelphia Inquirer articles.
Fortunately, Delaware is no longer part of Pennsylvania, as it once was before June 15, 1776, when the Delaware General Assembly declared “Separation Day,” with Delaware becoming a separate state, named Delaware consisting of “New Castle, Kent, and Sussex on Delaware.” Thank the Lord for the foresight of our State’s Founding Fathers in escaping from that environment!
But Pennsylvania is not our only nearby state with corruption issues. The mayors of Trenton, Secaucus and Hoboken in New Jersey have been convicted of bribery and money laundering. In the Maryland/DC area, there have been election finance scandals, such as reimbursement of political contributions, some of which went to a Delaware candidate.
A Philadelphia Daily News headline of March 30th screamed:
SOME GIFT-GIVING ADVICE: KNOCK IT OFF.
We would be happy if all gifts to public officers would be bannedincluding dinners, drinks, golf outings, and cash, of course. In fact, the Pennsylvania State Senate has taken a step in that direction, as of yesterday unanimously passing a bill that taking a cash gift above $250 a felony and a cash gift up to that amount a misdemeanor. Current law in Pennsylvania, like Delaware, required only reporting of gifts over $250.
Apparently the Pennsylvania Senate bill would cover lobbyists and others seeking to “influence the legislative process.” I don’t know if that is an element of the crime that a prosecutor must prove. I just read about this bill in the News Journal and Philadelphia Inquirer this morning as many of you may have, and I haven’t read the bill. But I haven’t seen where it covers other gifts of the kind we found in our investigationalcohol, plane trips, event tickets, etc. The Associated Press account in today’s News Journal says that the policy of allowing non-cash gifts of any value would not be changed. The sponsor of the bill said that more work on reform is needed. Let’s hope so!
In my opinion, it would be great if our General Assembly were to get out ahead of Pennsylvania and bar cash and all other gifts, and require public officers affirmatively to file a report under oath each year that they have not accepted any gifts. Failing that, we need to increase the penalties for not reporting and strengthen the Public Service Commission.
Corruption comes in different forms and sizes. There is outright bribery, which requires proof of a quid pro quo and then there is “soft corruption,” which is what we have here. Our investigation revealed a practice of unreported gifts, such as Tigani’s Quebec charter flight with Governor Minner, and Tigani’s plying Senators with cases of booze and event tickets. These transgressions could not be prosecuted by our special prosecution team because of lack of proof of intent or knowledge and/or the statutes of limitations.
These gifts may be “small potatoes,” compared with some of the examples in other states cited above. Although we found no proof of a quid pro quo, there is, nevertheless, some corruption smoke, suggesting that a fire may be smoldering in Delaware. We did not find prosecutable evidence of candidates’ knowledge of reimbursement, hard-core bribery or similar crimes in our investigation, although we searched diligently for that evidence
Over these two years-plus, we invested nearly 8,000 hours of State Police and law firm investigative efforts and case preparation by prosecutors. All of this is detailed in the Report which we urge all Delawareans to read.
Now the Governor and General Assembly have before them the Report that we completed late last year after two years of seeking evidence to find the “fire” where there was some smoke of soft corruption and to recommend certain reforms.
Now we need campaign finance reform, and it is great that the General Assembly is considering that. Moreover, we need to strengthen the Public Integrity Commission to be liberated from soft corruption, stamp out even small-dollar forms of pay-to-play, and restore the “Delaware Way” to the proper practices to which we aspire.
(Orginally posted on Delaware Online)