Hiding Funds Sparks Dissent

Times Staff Writers

A Republican lawmaker on Thursday criticized a major insurance company and his own party for hiding nearly $1 million in company donations in last year's election, and said he believed the transactions amounted to political money laundering.

"If the allegations are true, it could constitute money laundering and ought to be investigated," said Sen. Tom McClintock (R-Thousand Oaks). "I disagree with those who say this is only shady, not illegal. I think it is both."

Shawn Steel, who was state Republican Party chairman last year when the donations were made, distanced himself from the way they were handled. Some other Republicans said they were troubled by the secrecy surrounding it.

On the Democratic side, Atty. Gen. Bill Lockyer said the state Department of Justice is evaluating information on the transfers, and Senate President Pro Tem John Burton (D-San Francisco) said he would seek legislation that would require more prompt reporting of such donations. As it was, the contributions did not have to be reported until this year, well after votes were counted in the fall elections.

Gov. Gray Davis said he would support a bill such as Burton is proposing, and called disclosure "absolutely critical at the close of a race" so voters can determine who is helping to finance candidates.

In this case, "the Republican Party wanted the benefit of $1 million from one insurance company without the burden of disclosing it," Davis said in a brief interview. "They used a rather Byzantine approach to funnel the money to targeted candidates. The law needs to be tightened up, and I will work with the Legislature to do that."

The company at the center of the controversy, 21st Century Insurance Group of Woodland Hills, gave $950,000 on Oct. 21 to the California Republican Party and 15 county GOP committees.

Over the next several days, those entities doled out the money to candidates, helping give Republicans their first legislative gains since 1994. Using a little-noticed provision of the law, the company and Republican Party kept the source of the donations secret until Jan. 31.

"It was neither shady nor illegal," GOP spokesman Rob Stutzman said, dismissing McClintock's characterization. "It was perfectly legal."

Fiona Hutton, a spokeswoman for 21st Century, agreed. The company's contributions, she said, were "in total legal compliance with all state laws."

If 21st Century had given money directly to the candidates, it would have been reported to the secretary of state within 24 hours. Also under California campaign finance law, the company could not have given more than $3,000 to individual candidates.

Those provisions do not apply to the political parties, however, so the GOP and its county committees were able to make much larger donations, in one case giving a $38,000 check to Shirley Horton, then an Assembly candidate from San Diego and now a member of that body.

The largest overall recipient of state and county party money in the campaign's closing weeks was Jeff Denham (R-Salinas), who defeated Rusty Areias in a closely contested state Senate race last fall. He got more than $128,000 from Republican organizations in five California counties. Denham said Thursday that he knew nothing about the contributions or the insurance company's involvement. "It is a state party issue," he said.

The insurance company, a relatively modest donor in past years, spent $1.9 million on state races in 2002, most in the days before the Nov. 5 election.

The company became heavily involved in part because executives were angry that lawmakers approved a bill in 2000 extending the time for property owners to file claims stemming from the 1994 Northridge earthquake. The firm has estimated that the extra claims cost it an additional $50 million.

McClintock, whose district was hit hard by the quake, broke with fellow Republicans and was one of the measure's champions. He remains adamant that the legislation was necessary, saying Thursday that 21st Century "attempted to cheat my constituents out of millions of dollars."

In his 2002 campaign for state controller, McClintock received little money from the state Republican Party, even though polls showed he was involved in a close race in a year when most Republican statewide candidates were being soundly defeated.

Democrats ended up sweeping every statewide office, but McClintock was the Republican who came closest to winning; he lost by fewer than 17,000 votes out of 7.7 million cast.

In the wake of Wednesday's disclosures about the contributions, another top state Republican said he too had questions about the handling of the money.

Steel, the former state party chairman, issued a statement saying he and the Republican Party board of directors never reviewed the 21st Century donations, and noted that the GOP doesn't "ever want to give the appearance of financial improprieties."

Though Steel stressed that he did not authorize the donations, he suggested that others had a more direct hand in them. Namely, Senate Republican leader Jim Brulte of Rancho Cucamonga and Republican donor Gerald Parsky, a friend of President Bush, were aware of the deal, Steel said. Steel has competed against Parsky and Brulte for control of the state party.

"When Gerry Parsky and Sen. Jim Brulte insisted on reforming the party last year," Steel wrote, "they promised accountability, transparency and professional conduct for the CRP.

"If the charges of circuitous money transfers are accurate," Steel added, "this obviously raises serious legal and ethical questions."

Sen. Roy Ashburn (R-Bakersfield) would not comment directly on the 21st Century donations. But though some Republicans have said operating stealthily was in the party's interests -- Stutzman, for instance, said it helped keep rival Democrats in the dark -- Ashburn said openness was preferable.

"The public and organizations have the right to contribute as long as there is full and complete disclosure," he said.

Stutzman has refused to say who arranged the donations. Brulte has declined to discuss the matter, and Parsky also would not comment. But Brulte and his counterpart in the Assembly, GOP leader Dave Cox of Fair Oaks, took the lead last year in raising money for Republican candidates.

In an internal party memo dated Sunday, Brulte boasted of having strengthened the county committees, and vowed to continue the effort in coming years. County committees must "become more effective and efficient voter delivery systems," he said. Brulte, writing to the party's board of directors, called for more fund-raising, particularly by the state party apparatus.

"Given the fact that 2006 statewide races in addition to legislative races must be funded by the California Republican Party," Brulte said in his note to fellow party members, "it is extremely important that our leadership always have fund-raising at the top of the agenda.

"Dave Cox and I spend the vast amount of our nonlegislative time on this activity. Our leadership should too."

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