Trouble by the bundle

As Norman Hsu-Berkeley/Wharton alum, food and fashion impresario, and bail-jumping felon-lay in a Colorado hospital recovering from the stress of fugitive flight, Hillary Clinton turned his sudden infamy into political gain. Hsu, wanted for grand theft in California in connection with a $1 million pyramid scheme involving latex gloves, is also suspected of raising illegal cash for Democrats. On Sept. 11, Clinton announced that her campaign would return some $850,000 in donations Hsu had hauled in as one of Clinton's top "bundlers." The campaign also declared new vetting procedures for its bundlers, including unprecedented criminal background checks.

Clinton's splashy move may put pressure on other candidates-some less able than Clinton to afford it-to return Hsu-tainted cash. More troubling, though, is a widening call to regulate the activities of bundlers in general, a move some say is redundant at best, and at worst, could encroach on freedom of association rights guaranteed under the First Amendment.

In the big-bucks world of campaign finance, a bundler is to money as a congressional whip is to votes: A bundler rounds up small contributions from individual donors into one large contribution, hoping to achieve a desired outcome-a voting victory. Bundling is completely legal so long as all donors are making their own decisions with their own money and sticking to defined contribution limits, currently $2,300 per individual, per candidate, per election cycle. The technique helps big political machines raise funds more efficiently and also enables grassroots groups to gain clout: One large cash injection channeled through a single group speaks much more loudly than hundreds of small, individual donations trickling over a candidate's transom. Certain groups, such as the pro-abortion EMILY's List, have successfully used bundling for years.

"Bundling, as long as individual contributions adhere to legal limits, is no different than a PAC," said John C. Eastman, dean of Chapman University Law School. "People get together and pool their resources in order to have a bigger impact. It's a form of freedom of association protected under the Constitution."

But reform legislation already awaiting President Bush's signature would require political campaigns to disclose the names of lobbyist-bundlers and the amounts they raise in excess of $15,000 in any six-month period. And on Sept. 6, in the throes of the Hsu implosion, senator and presidential candidate Barack Obama went a step further, introducing a bill that would require similar disclosure of any bundler working for a congressional candidate. Obama's bill would also require presidential campaigns to report any bundler who raised at least $50,000 during the two years preceding a presidential election.

The idea behind such measures is to shed sunshine on the connections between bundlers and donors. For example, Hsu is said to have ties to a California family that donated a combined $200,000 to Democratic candidates, but that lacked the apparent financial means to do so. In addition, The New York Times reported, a company Hsu owned appears to have reimbursed at least nine donors who contributed to candidates, including Clinton.

But John Samples, director of the Cato Institute's Center for Representative Government, notes that such activities are already federal felonies. He called the bundling dust-up a "classic campaign finance distortion"-that is, using the activities of Hsu to justify further regulation of that singularly irregular beast, politics.

Hsu "brings up echoes of the old Clinton administration, of the Asian fundraising scandals in the mid-90s," Samples said. "All of these things he's been accused of are serious . . . and all of these come together to create a sense that, well, there ought to be something done about this. But it's not clear that Hsu is representative and it's not clear that bundling in general is a problem."

In addition, existing campaign-finance regulations already require bundling disclosure, said George Mason University assistant law professor Allison Hayward. Any person who acts as a "conduit" for the donations of others is supposed to submit a letter to the campaign, and to the Federal Election Commission, declaring the same. There is an exception: Any person holding a designated position with a campaign, such as "regional fundraising chairperson," need not submit a conduit letter.

"The whole purpose behind the conduit letter system is to show connections between one fundraiser and a whole bunch of different donors," Hayward said. Connections like Hsu's, for example.

The original intent of the campaign-position exception was to keep professional fundraisers hired by campaigns from having to generate stacks of self-evident paperwork averring to the FEC that they are, well, raising funds. But the exception has now swallowed the rule, Hayward said: "What volunteer bundlers have been doing is getting themselves designated as members of a campaign. With those titles, they assert, they don't need to report as conduits or intermediaries. That is a correct reading of the law, but nobody expected it would be used to this extent."

Are campaigns intentionally leveraging the loophole to conceal unethical fundraising?

Hayward doubts it: "When people do figure out that something's amiss, it's incredibly embarrassing and expensive for the campaign." Campaigns are likely to return more donations than they actually received in order to disinfect the candidate of the barest residue of scandal. More likely, Hayward said, campaigns today are skirting the conduit requirement in order to attract well-connected fundraisers who want to help their candidate, but with a low profile and without the regulatory hassle.

Federal Election Commission spokesman Bob Biersack agrees. "In the cases we have seen in the past, it has turned out for the most part that the candidate who was receiving the funds was unaware of the actions of those illegally giving contributions," said Biersack, who has been with the FEC since 1981. "It is fair to say that it can be difficult for campaigns to identify cases where [illegalities] might happen."

Such was the case with Michigan attorney Geoffrey Fieger who last month pleaded not guilty to raising $127,000 in illegal contributions for John Edwards' 2004 presidential campaign. According to an indictment, Fieger (who also famously defended death-doctor Jack Kevorkian) used straw donors, including law firm employees and their children, to make $2,000 contributions to Edwards' campaign, then issued checks reimbursing individuals for their contributions. In addition, Fieger allegedly solicited donations from contractors, then disguised reimbursements as fees for services.

The Edwards campaign has cooperated fully in the investigation, according to the FEC. But a Sept. 2 Washington Post editorial noted that Edwards in 2004 refused to identify his bundlers. The newspaper called for legislation requiring disclosure of all bundles. But Allison Hayward points out that Fieger's donor connections would already have surfaced had the Edwards campaign been following the existing conduit-letter rule. Meanwhile, she said, new layers of regulation would hurt grassroots groups and fresh political faces more than veterans whose political machines can easily absorb the additional costs of compliance in money and manpower.

Chapman University's John Eastman argues that, as with immigration reform, America doesn't need new rules just because it isn't following the old ones. He compared further regulation of bundling to the carnival midway game in which plastic gophers pop up from different holes while players try to smash them back down with a mallet. Such reform "doesn't address the problem at the root, which is the extent to which government ought to be in the business of telling people how much political speech they can engage in," Eastman said. "As long as government keeps trying to hammer political speech down, it will keep popping back up in other forms. There is no way you can limit political speech in a democracy."