Kim Westbrook Strach Executive Director North Carolina State Board of Elections VIA ELECTRONIC MAIL 10/29/2016 441 North Harrington St ORIGINAL VIA HAND DELIVERY 10/31/2016 Raleigh, NC 27603 Re: Campaign Finance Violation Dear Ms. Strach: 1am a voter registered in Wake County and serve as the Executive Director of the North Carolina Democratic Party. Pursuant to your authority under section 163-278.22(7) of the North Carolina General Statutes, this letter serves as a formal complaint against the North Carolina Republican Party, the Republican Governors Association, the RGA Right Direction PAC, and the Pat McCrory Committee for their flagrant violations of North Carolina law. Recent campaign finance filings show that the Republican Governors Association has funneled more than $1.5 million in illegal contributions through its federal Super PAC into the coffers of the North Carolina Republican Party. The North Carolina Republican Party, in turn, has used these impermissible funds to try to boost the reelection campaign of Govemnor Pat McCrory. The State Board of Elections must step in to halt this scheme; order the North Carolina Republican Party and the Pat McCrory Committee to disgorge the illegal funds; and fine the offenders the maximum amount permitted by law. 1, Factual Background The Republican Governors Association (“RGA”) is a national organization that accepts contributions from corporations and from individuals in excess of $5,100 per election, A review of the RGA’s third quarter report with the Intemal Revenue Service shows that the RGA accepted more than $7.7 million in corporate contri \s during the period.' It also received more than $4.5 million from individuals whose contributions to the RGA this calendar year exceeded $5,100. It received only $44,240 from individuals whose aggregate contributions to RGA this calendar year are within North Carolina's $5,100 limit. The vast majority of its funds, in other words, are impermissible for a “political committee” to accept under North Carolina law. RGA Right Direction PAC is a federally-registered independent expenditure-only committee (aka a “Super PAC”), permitted to raise unlimited sums of money from corporations, unions, jon, Third Quarter Form 8872 Filing (filed Oct. 17, 2016). ' Republican Governors Associassociations, and individuals.” Its only donor is the RGA.’ Accordingly, its sole source of funding is an organization that accepts contributions from prohibited sources under North Carolina law and from individuals in excess of the limits that govern North Carolina political committees. Notwithstanding the fact that it has only a small reserve of North Carolina- permissible funds in its account, RGA Right Direction PAC contributed $1,590,000 to the North Carolina Republican Party in the third and early fourth quarters of this year." I. Legal Analysis Pursuant to North Carolina law, there are several types of political committees that may spend ‘money to influence candidate elections. North Carolina law recognizes traditional political committees and political party committees. Traditional political committees may accept no more than $5,100 per election from individuals and certain other political committees.* Both traditional political committees and political party committees are strictly prohibited from accepting any contributions from corporations, business entities, labor unions, professional association, or insurance companies.° The North Carolina State Board of Elections sternly advises that “[i]t is unlawful for any corporation, business entity, labor union, professional association, or insurance company to directly or indirectly contribute to a PAC.” Therefore, traditional political committees and political party committees may accept contributions from other committees only if such other committees have not received contributions from any prohibited sources. North Carolina law additionally recognizes independent expenditure-only committees. Such committees, known as “Super PACs,” may accept contributions without limit. However, Super PACs must “certify [to the State Board of Elections] that they will not directly or indirectly make contributions to candidate committees or other committees that make contributions to candidates.“ In other words, pursuant to section 163-278.13(e5) of the North Carolina General * RGA Right Direction PAC, Statement of Organization (filed Oct. 22, 2010); see also Statement of Organization (filed Jun. 8, 2012) (amending name to “RGA Right ction PAC”). *RGA Right Direction PAC, Pre-General Report (filed Oct. 25, 2016). * RGA Right Direction PAC, Pre-General Report (filed Oct. 25, 2016); RGA Right Direction PAC, October Quarterly Report (filed Oct. 14, 2016); N.C. Republican Party 48-Hour Notice (filed Oct. 27, 2016.) * N.C. Gen. Stat. § 163-278.13(a). © Id. § 163-278.1%a); see also id. § 163-278.15(a) (prohibiting a candidate or committee from. accepting a contribution from a corporation, business entity, labor union, professional association, or insurance company). Note that itis also unlawful for “any officer, director, stockholder, attorney, agent or member of any corporation, business entity, labor union, professional association or insurance company to aid, abet, advise or consent to any such. contribution, or for any person or individual to solicit or knowingly receive any such contribution.” Ld. § 163-278.19(a). * North Carolina State Board of Elections, 2014 Campaign Finance Manual, at 62 (emphasis added). “id. at 60.Statutes, in exchange for being allowed to accept contributions that do not comply with North Carolina campaign finance law, these committees are barred from transferring these funds to political party committees and traditional political committees. RGA Right Direction PAC falls in this second category. It is registered with the Federal Election Commission (“FEC”) as an independent expenditure-only committee. It is funded by a single donor ~ the RGA ~ that accepts millions of dollars in corporate contributions and contributions in excess of North Carolina limits for political committees. Therefore, its practice of accepting these funds disqualifies it from making contributions to the North Carolina Republican Party. The State Board of Elections has been explicit that an entity that accepts contributions from prohibited sources may not make contributions to North Carolina political party committees. For example, the State Board provides that “[rlegistered referendum committees that received any contribution from a corporation, labor union, insurance company, business entity, or professional association may not contribute to a political party committee.”” Such a policy is necessary to preserve the cardinal principle under North Carolina law that “[iJt is unlawful for any corporation, business entity, labor union, professional association, or insurance company to directly or indirectly contribute to any political party committee.’*"° The State Board should compel the North Carolina Republican Party and the Pat McCrory Committee to immediately disgorge these funds and should fine RGA, RGA Right Direction PAC, the North Carolina Republican Party, and the Pat McCrory Committee to the maximum extent permitted by law. If this illegal scheme is not halted and reversed before the election, it will eviscerate North Carolina's system of source restrictions and contribution limits. Any entity that wishes to evade such limits will set up a federal Super PAC; solicit large checks from entities funded with corporate and large individual dollars; and then funnel that impermissible ‘money into state parties and candidates. This has never been permitted. And it must be stopped. Given the clear violation of North Carolina campaign finance laws, we request this Board immediately launch an investigation into these claims and take appropriate remedial action against RGA Right Direction PAC, the North Carolina Republican Party, and the Pat McCrory Committee ° Id. at 43-44, '" Jd, at 43 (emphasis added).Sincerely, Kimberly Reynolds Executive Director North Carolina Democratie Party aA AND ani to before me t sa of October, 2016, Notary Public