PAC Exposes Loopholes in Election Law : Politics: Fund-raising group founded by Rep. Dannemeyer illustrates how politicians can beat ban on corporate funding with little risk of FEC censure. All it did was create debt.

In the canon of federal election law, there is no commandment as solemn as the one that bars gifts of corporate money to politicians.

Dating to the early 20th Century, the ban was born of the widespread belief that allowing businesses to directly contribute money to political campaigns fundamentally corrupts the system.

But as the 21st Century approaches, the historic ban has become harder and harder to enforce. The Federal Election Commission, created in 1975, is increasingly hard-pressed to monitor the explosion of political fund-raising organizations and ensure that politicians comply with the thicket of campaign finance regulations.

“We don’t feel we have enough staff and resources to adequately do the job,” said FEC spokesman Scott Moxley. As of May 1, the agency’s 18 lawyers were tracking 2,535 respondents in 341 cases.

In addition, the agency has no actual enforcement powers. If the FEC finds the law has been broken, it must negotiate penalties with those it has found guilty. If they disagree, the dispute goes to court.

The unusual story of one fund-raising organization, a little political action committee from Fullerton, illustrates the daunting task that faces the FEC. And it shows how politicians can take advantage of election law loopholes to help them achieve their political goals.

The story begins in northern Orange County nearly seven years ago, with the organization of the Traditional Family Values Political Action Committee by Republican Rep. William E. Dannemeyer of Fullerton. A jut-jawed conservative with a reputation as a religious crusader, Dannemeyer retired in January, after serving seven terms in the House.

In the last 15 years, political action committees have become the major mechanism for financing congressional campaigns, and Dannemeyer said he hoped to harness the power of the PAC to promote his vision of old-fashioned values to American government. He said he organized the Traditional Family Values PAC in 1986 to help elect other congressional candidates who shared his views.

While federal law bars corporations or labor unions from giving money to political candidates or committees, it allows individuals to contribute up to $1,000 per election to federal candidates and $5,000 a year to political action committees. PACs, in turn, can contribute an unlimited amount to federal candidates as long as they give only $5,000 a year to any particular one.

A PAC can be organized by corporate employees or shareholders, or members of a labor union. Or it can reflect the political objectives of a special interest group, such as chiropractors, snack food manufacturers, anti-abortion activists or homosexuals.

Dannemeyer recalls that he was the prime mover behind the Traditional Values PAC. But the committee’s treasurer, accountant John C. Poortinga, said in a recent interview that the Rev. Louis Sheldon, head of the Anaheim-based Coalition for Traditional Values, also was an organizer. Through a spokesman, Sheldon said he has no recollection of any involvement with the Dannemeyer committee.

That part of the story is likely to remain hazy. Under current FEC rules, only the committee treasurer is required to list his name on the group’s statement of organization.

To help get the new organization off the ground, Dannemeyer’s political campaign committee, Dannemeyer for Congress, kicked in a substantial contribution--$1,000--as did several of Dannemeyer’s longtime political supporters. In the end, Dannemeyer’s congressional committee contributed more than $6,000 of the $18,300 raised by the Traditional Family Values PAC, and Dannemeyer supporters gave at least another $3,000.

The PAC sent out just one mailing. In the jargon of direct-mail, it was a “prospecting” effort, intended to identify a large number of donors who would respond to the additional appeals for money. But the effort failed.

“To the best of my knowledge, it was a one-shot deal that didn’t turn out the way anybody wanted it to turn out,” Poortinga said.

In fact, the committee never raised enough money to make even a single contribution to any political candidate. All the committee did was create debt.

According to records filed with the Federal Election Commission, the mailing cost slightly more than $21,000. But by the end of December, 1986, the committee had collected less than $12,000 from its fund-raising efforts.

“Basically, we did a 25,000 test (mailing), as I can recall,” said Bruce W. Eberle, whose companies handled the mail campaign. “If we got a 1% response, we got back 250 donors. You can’t raise money out of 250 donors. . . . That’s the problem.”

After the Traditional Family Values PAC abandoned its short-lived fund-raising effort, Dannemeyer’s congressional committee began to pay off the PAC’s debts with gifts totaling more than $5,100 in December, 1987, and January, 1988.

Nevertheless, nearly $8,000 in debts stayed on the books until the end of 1989. Then, after nearly three years of inactivity, the Family Values committee told the FEC that six companies, five owned by Eberle, had decided to forgive the money still owed to them.

That attracted attention at the FEC.

The commission’s major concern is ensuring that a vendor’s decision to forgive a debt to a political organization does not become, with a wink and a nod, a corporate contribution. To prevent that, the FEC insists that debt settlements conform to standard commercial practice. That means that a vendor must take all reasonable steps to collect a debt from a politician, and the politician must take all reasonable steps to pay it off.

So the commission asked the Traditional Values committee to prepare a formal settlement, in which it was required to certify that it had done everything it could raise the money to pay off its debts, and that its creditors had done everything they could to collect.

The settlement was filed in May, 1992, and approved by the FEC last October. In FEC documents, Eberle five times asserted that all “normal business steps were taken to collect the debt” owed to his companies.

But in an interview, Eberle suggested that Dannemeyer could have done more to pay off the debt. For example, Dannemeyer could have offered to rent his House campaign organization’s mailing list to the Traditional Values PAC to help raise money. But he didn’t. “I would have liked that,” Eberle said.

In the meantime, Dannemeyer hired Eberle for another project--the congressman’s unsuccessful campaign to win the 1992 Republican nomination for the U.S. Senate.

Between Jan. 1, 1991, and the end of 1992, Dannemeyer’s Senate campaign organization sent more than $500,000 in business to Eberle & Associates and another Eberle company, Omega Lists. By the end of last year, the Dannemeyer Senate committee had paid the Eberle companies nearly $269,000. Unlike the Traditional Family Values PAC, the Dannemeyer Senate organization remains in business, raising more money, to pay off the rest of its debts.

Both Dannemeyer and Eberle deny that granting Eberle the contract on the Senate work was intended as back-door compensation for the Traditional Family Values PAC’s unpaid bills.

“Nothing like that,” Dannemeyer said.

But Eberle concedes that he did not insist on getting the full amount that was owed him.

“I’ll tell you why: Because this is really a small community,” Eberle said. “If you go out there and you make one person mad, they tell 900 other people, and then you can’t recruit clients. . . . That’s just what happens.”

Did Eberle and Dannemeyer circumvent the law regarding corporate contributions? According to sources at the Federal Election Commission, the agency never had enough information to decide.

When the FEC agreed to allow the Family Values committee to settle its debts with corporate vendors, it was operating in the dark. The commission had no idea that Dannemeyer and Eberle had other business dealings. In fact, FEC attorneys did not even know that Dannemeyer was behind the Traditional Family Values PAC.

“We have within the regulations exactly what the vendor is supposed to have done--meaning everything commercially reasonable to obtain the outstanding balance,” said the FEC’s Moxely. “When both the committee and the vendor come before the commission and sign a statement saying, ‘We’ve done everything we can,’ we look at those statements . . . and draw a conclusion. . . . We’re kind of stuck relying on what people tell us.”