State Democratic Party to Return $40,000 Donation

The California Democratic Party is returning an illegal $40,000 campaign contribution it received from a company incorporated in Canada but headed by a former Texas governor.

State party officials said Monday that in returning the money to American Eco Corp., they were following the lead of the Democratic National Committee, which earlier this year announced that it planned to return $10,000 to the foreign company.

The $40,000 contribution to the California party was made in October at the suggestion of the national party, said Doug Ackman, the state party’s director of accounting and political reporting.

However, federal law bars foreign contributions that might benefit candidates for local, state or federal office.

American Eco executives as well as party officials contend that the contributions were simply a mistake. They say that, if the checks had been written by any of the company’s U.S. subsidiaries, the payments would have been legal.

Former Texas Gov. Mark White, chairman of the board of American Eco, attributed the problem to a clerical error. He said as soon as the state and national parties returned the money, he would send them new checks, but this time written against the account of a subsidiary.

One of those subsidiaries is Separation and Recovery Systems, based in Irvine, which produces equipment designed to prevent and clean up oil spills.

Ackman said the $40,000 was the only money that the state party was returning in the aftermath of a campaign finance scandal that has rocked the DNC. The national party has promised to return $3 million in questionable contributions, including substantial sums from non-U.S. residents and foreign companies. FBI and congressional investigators are examining the Democratic fund-raising efforts, including contributions to elected officials in California.

A review of campaign finance records shows that those touched by the national fund-raising controversy have contributed close to $400,000 to election committees in the state, including $112,000 to the state Democratic committee.

The fund-raising storm, however, also has touched a prominent California Republican. Last week, state Treasurer Matt Fong returned contributions totaling $100,000 to an Indonesian businessman and a family-held company because of reports that the money may have originated in the People’s Republic of China.

Saying that the California contribution from American Eco to the state Democratic central committee was “an exception to the rule,” Ackman said the check had simply slipped through the state party’s verification system.

The Democratic National Committee had directed the company to make a contribution in California, Ackman said, noting that this was a common practice when big contributors asked the DNC how they could do more to help the party.

The money was used “to assist the overall Democratic ticket--for voter registration, that sort of thing,” he said. “At face value, [American Eco] looks like a Texas company. It looks completely legitimate.”

American Eco is an unusual company. Although four out of seven members of its board of directors are Canadians, most of its executives work out of the company’s headquarters in Houston and are U.S. citizens, including its chief executive, Michael E. McGinnis. Only a third of the stockholders are Canadians, and 85% of the company’s business is in the U.S., said board vice chairman John C. Pennie. Seven of the group’s nine operating divisions are based in the United States, he said.

Pennie said that 1992 marked the beginning of an aggressive expansion, beginning with the acquisition of Houston-based Eco Environmental. The company that was bringing in $1 million a year five years ago today boasts combined revenues of $250 million a year.

White, who served as Texas governor from 1983 until 1987, said he wanted the firm to make a contribution to the Democratic party last year. “My old friend Bill Clinton was running for reelection and I was trying to help him,” he said. In June, Clinton appeared at a $1,000-a-plate fund-raiser for the national party at a Houston hotel. “He was coming to Houston, and we thought we’d better get down there and do our part,” White said.

As a candidate for state office, “I was always asking for money,” White said. But because corporate contributions were prohibited in Texas, he never had to consider whether a company was domestic or incorporated in another country. He said he first learned that his company’s checks might be improper after calls from The Times.

Following stories in The Times and other publications about sizable foreign contributions, the national party hired an accounting firm to review all payments of $10,000 or more from donors who did not have a history with the DNC.

The accounting firm discovered that American Eco was a Canadian company and not permitted to contribute. But the party concluded that the violation occurred because “the donors did not understand the rules,” said one DNC official, who asked not to be identified. “We noted it was inadvertent and unintentional on their part.”

Times staff writer Alan C. Miller contributed to this story.