Practice Taints Election Process, Is Hard to Clean Up

If there is one illegal act involving campaign financing that is most often committed in Los Angeles city elections, it is political money laundering.

No other violation of city ethics laws has produced so many cases or so much in fines.

Since 1993, when the Los Angeles Ethics Commission began enforcing new campaign finance laws, 106 individuals and businesses have been fined $1,657,000 for political money laundering.

“The voters created the Ethics Commission to help restore public trust in government,” said LeeAnn Pelham, the panel’s executive director. “Political money laundering strikes at the heart of the democratic process because it drastically undermines that trust.”

Political money laundering has been in the news lately as the commission exposed three widespread schemes.

Question: What is meant by money laundering?

Answer: The term “laundering” is defined by Webster’s New World Dictionary as exchanging or investing money in a way that conceals that it came from an illegal or improper source. It is sometimes used to describe the way criminals clean money of any trace of its original source. An example would be a drug dealer who cannot deposit $1 million in receipts in the bank without attracting the attention of authorities, so he runs the money through a legitimate business, such as a casino, and it comes out as usable income. The cases investigated by the Ethics Commission have not involved the cleaning of criminally gotten money.

Q: What is political money laundering?

A: Normally, it works like this: Person A writes a check to a candidate and then is reimbursed by Person B -- the real source of the contribution. Or, the launderer might give $1,000 each to 10 people and have them write checks in their names to the candidate.

In some cases, one person might reimburse a dozen or more employees or relatives for contributions they make to the launderer’s favored candidate.

Q: Why do people engage in money laundering?

A: A political money launderer is circumventing campaign finance rules. City laws limit the amount a person can contribute to a candidate for mayor or other citywide office to $1,000. A political money launderer may give $1,000 under his own name and an additional $10,000 in the names of 10 other people he reimburses.

Laundering contributions also allows donors to disguise to the public the true source of financial backing for candidates.

The names of the reimbursed people are disclosed in public reports, but the person who reimbursed them may never be known to the public.

Although city ethics investigations have never concluded that a candidate knew contributions were being laundered, the act of laundering still can give the perpetrator undue influence. The launderer often collects the checks written by the people he reimbursed and turns them all in as a bundle to the candidate to show that he was involved in raising all of the money.

Q: How does the amount laundered compare with the total amount raised by candidates?

A: Investigations say laundered contributions represent a fraction of the total amount raised. Recent cases have identified laundering from the 2001 mayoral election in the tens of thousands of dollars, when the mayoral candidates that year raised a combined $20 million.

This year, all candidates for city office raised $19 million, including $13.9 million raised by candidates for mayor.

Q: How does the Ethics Commission identify laundering?

A: Pelham said many laundering cases are identified during routine audits the panel conducts of every election campaign. Auditors and investigators look for certain patterns that might indicate contributions were laundered.

In one case, a commission staff member noticed several $1,000 contributions from unemployed students living outside the city who were related to business executives who were supporting a candidate. The assumption proved correct that the unemployed students who did not live in Los Angeles would not have the means or interest to contribute $1,000 to Los Angeles candidates, and investigators later found through interviews that the contributions had been reimbursed by others.

In another case, subcontractors outside L.A., as well as their secretaries, painters, drywall workers and others, contributed $1,000 each to a few candidates favored by a development firm for which they all worked.

The Los Angeles County district attorney recently opened an inquiry into whether contributions from employees and associates of two Florida firms were laundered to the campaign of Mayor Antonio Villaraigosa. Investigators became suspicious when some of the contributors could not explain to reporters why they had donated or could not recall writing a check.

Q: What are the penalties for political money laundering?

A: The City Charter allows for administrative fines of up to $5,000 per violation or three times the amount of laundered contributions, whichever is greater. Because laundered contributions often exceed the $1,000-per-contributor limit, many cases also involve fines for excess contributions.

Political money laundering can also result in criminal charges, although prosecutors have not been as successful in winning cases.

Q: What are the biggest cases in terms of fines paid?

A: The largest fine for one entity was $447,000 paid to the city in August 1993 by Evergreen America Corp., the U.S. arm of a Taiwan-based container ship operator. The firm also paid the same amount to the state after investigators uncovered an elaborate scheme that funneled more than $170,000 in illegal donations to California politicians, including Los Angeles City Council members.

The firm agreed to pay the fines, the largest of their kind in U.S. history, and admitted that an executive authorized the reimbursement of dozens of contributions by employees, relatives, friends and others.

The second-largest city case was settled in February, when Westside developer Mark Alan Abrams was fined $270,000, a record for an individual in the city.

The Ethics Commission found that Abrams hatched a scheme that resulted in 48 violations of campaign finance laws involving $90,000 in political contributions to benefit former Mayor James K. Hahn’s 2001 campaign, as well as the candidacies of two Hahn allies.

The violations included charges that Abrams reimbursed $28,500 in contributions made in the names of employees, associates and others.

Q: What is the record on prosecuting political money launderers in criminal court?

A: Mixed. Abrams pleaded not guilty in May to felony and misdemeanor counts alleging conspiracy and making illegal donations. His attorney has indicated, though, that Abrams would take responsibility for his actions.

The district attorney has had a harder time prosecuting Los Angeles attorney Pierce O’Donnell, who is alleged to have laundered more than $25,000 in political contributions to Hahn’s 2001 mayoral campaign.

The cases of six people charged with being reimbursed by O’Donnell were thrown out of court by a judge, and O’Donnell has appealed his case to the California Supreme Court, arguing that the statute of limitations had expired on charging him under city law and that prosecutors cannot charge him under state law because the contributions were made in a city election.