[Federal Register: September 4, 2003 (Volume 68, Number 171)]
[Proposed Rules]
[Page 52531-52539]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04se03-16]
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FEDERAL ELECTION COMMISSION
11 CFR Parts 110, 113, 9004, and 9034
[Notice 2003-17]
Mailing Lists of Political Committees
AGENCY: Federal Election Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Federal Election Commission requests comments on proposed
additions to its rules covering the sale, rental, and exchange of
political committee mailing lists. The proposed rules address when the
proceeds of a political committee's rental or sale of its mailing list,
or an exchange of its mailing list with another entity, would be
considered a contribution to that committee subject to the limitations
and prohibitions of the Federal Election Campaign Act of 1971. The
proposed rules also address the personal use by a candidate of his or
her authorized committee's mailing list. Finally, the proposed rules
address the sale or rental of a mailing list by an authorized committee
of a publicly funded presidential candidate. The Commission has not
made any final decisions on any of the proposed revisions in this
Notice. Further information is provided in the SUPPLEMENTARY
INFORMATION that follows.
DATES: Comments must be received on or before September 25, 2003. If
the Commission receives sufficient requests to testify, it will hold a
hearing on these proposed rules on October 1, 2003, at 9:30 a.m.
Commenters wishing to testify at the hearing must so indicate in their
written or electronic comments.
ADDRESSES: All comments should be addressed to Ms. Mai T. Dinh, Acting
Assistant General Counsel, and must be submitted in either electronic
or written form. Electronic mail comments should be sent to
mailinglists@fec.gov and must include the full name, electronic mail
address and postal service address of the commenter. Electronic mail
comments that do not contain the full name, electronic mail address and
postal service address of the commenter will not be considered. If the
electronic mail comments include an attachment, the attachment must be
in the Adobe Acrobat (.pdf) or Microsoft Word (.doc) format. Faxed
comments should be sent to (202) 219-3923, with printed copy follow-up
to ensure legibility. Written comments and printed copies of faxed
comments should be sent to the Federal Election Commission, 999 E
Street, NW., Washington, DC 20463. Commenters are strongly encouraged
to submit comments electronically to ensure timely receipt and
consideration. The Commission will make every effort to post public
comments on its Web site within ten business days of the close of the
comment period. The hearing will be held in the Commission's ninth
floor meeting room, 999 E Street NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Ms. Mai T. Dinh, Acting Assistant
General Counsel, or Mr. Jonathan M. Levin, Senior Attorney, 999 E
Street NW., Washington, DC 20463, (202) 694-1650 or (800) 424-9530.
SUPPLEMENTARY INFORMATION: One of the principal assets of many
political committees is their mailing list. Political committees
develop their mailing lists to ensure a high response rate from
potential contributors. Several advisory
[[Page 52532]]
opinions, audits, and enforcement matters have presented a number of
issues concerning the rental, sale, exchange, disposition, and
ownership of political committees' mailing lists.\1\ Central to the
analysis of these issues is whether the proceeds from these
transactions are contributions to the political committees that are
subject to the Federal Election Campaign Act of 1971, as amended
(``FECA'' or ``the Act''), 2 U.S.C. 431, et seq. The Commission is
beginning this rulemaking to adopt formally its historical approach to
these issues, or to modify those approaches as appropriate, and to
provide candidates and political committees with more comprehensive
guidance on commercial transactions involving mailing lists.
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\1\ See Advisory Opinions (``AO'') 2003-16, 2002-14, 1988-12,
1982-41, 1981-53, and 1081-46; Matters Under Review (``MURs'') 4382
and 4401 (Dole for President, Inc.), MUR 3371 (Americans United
Committee), and MUR 1602 (Republican National Independent
Expenditure Committee).
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I. Proposed Addition of 11 CFR 110.21 Committee Rental or Sale of
Mailing Lists to Others
A. Background and Overview
The Act defines the term ``contribution'' to include ``any gift,
subscription, loan, advance, or deposit of money or anything of value
made by any person for the purpose of influencing any election for
Federal office.'' 2 U.S.C. 431(8)(A)(i) (emphasis added); see also 11
CFR 100.52(a). The term ``anything of value'' is defined in the
regulations as ``the provision of any goods or services without charge
or at a charge that is less than the usual and normal charge for such
goods or services.'' 11 CFR 100.52(d)(1). The ``usual and normal
charge'' for goods is defined in 11 CFR 100.52(d)(2) as ``the price of
those goods in the market from which they ordinarily would have been
purchased at the time of the contribution.'' Under 11 CFR 100.52(d)(1),
the provision of goods or services at less than the usual and normal
charge is an in-kind contribution in the amount of the difference
between the usual and normal charge and the amount charged the
political committee. The regulations also provide, however, that the
entire amount paid as the purchase price for a fundraising item sold by
a political committee is a contribution. 11 CFR 100.53.
Proposed 11 CFR 110.21 would state when certain transactions
involving the sale or rental of a mailing list by a political committee
are contributions to that committee and when they are not. Proposed
paragraph (a) would list the conditions that would need to be satisfied
for a mailing list rental payment to not be a contribution by the
person leasing the mailing list. Proposed paragraph (b) would
incorporate similar conditions for the sale of mailing lists. Proposed
paragraph (c) would explain the ramifications of failing to comply with
proposed paragraphs (a) or (b). Reporting would be addressed in
proposed paragraph (d). Transactions between a candidate and his or her
authorized committee would be covered in proposed paragraph (e).
B. 11 CFR 110.21(a)--Rental of Mailing List
Proposed 11 CFR 110.21(a) would affirmatively allow political
committees to rent their mailing lists to other persons, including
other political committees. Further, it states that the rental payments
would not be treated as contributions if certain conditions pertaining
to the rental charge and use of the mailing list are met. These
conditions are explained in detail below.
1. Usual and Normal Charge
One of the key factors used by the Commission in determining
whether a sale or rental of a mailing list results in a contribution is
whether the amount paid is the usual and normal charge for the mailing
list. See AO 2002-14. The usual and normal charge for a mailing list
allows the Commission to determine whether the sale or rental of a
political committee's mailing list is a transaction for equal value.
A mailing list that is frequently rented on the open market is
likely to be listed and described in a catalogue such as the SRDS
Direct Marketing List Source. For each of thousands of lists, the
catalogue states the number of names on the list, the price per
thousand names, the minimum number of names that must be ordered, fees
for addressing services, the amount of the commission, and credit
policies. If a political committee does not routinely rent out its
mailing list, it might not be listed in such a catalogue. However, even
if a mailing list does not appear in a catalogue, a reasonable rental
price might be ascertainable so long as the valuator is aware of the
significance of various factors in the market (e.g., he or she knows
how lists with comparable characteristics are valued, as well as the
pricing ranges for comparable lists). The price may depend upon such
factors as how recently the names were updated for accurate addresses,
how responsive the individuals on the mailing list have been to other
similar solicitations (particularly recent solicitations), the income
level of the individuals, and the classification according to list
industry sector or other subject matter. The Commission seeks comments
on the ways in which mailing list rentals by political committees are
similar and/or different from mailing list rentals by non-political
entities.
Proposed 11 CFR 110.21(a)(1) would make ascertaining the usual and
normal charge of a mailing list in advance one of the conditions that
must be satisfied for the rental proceeds not to be contributions. This
proposed regulation would not, however, define the factors that a
committee should use to determine the usual and normal charge. Without
any further specificity, the definition of ``usual and normal charge''
at 11 CFR 100.52(d)(2) and 100.111(e)(2) would apply. The Commission
seeks comment on whether the rule in new 11 CFR 110.21 should specify
the appropriate means for determining the usual and normal charge of a
mailing list, and if so, whether this should be done by adding
additional factors or in some other fashion. If the SRDS Direct
Marketing List Source is not dispositive on the fair market value of a
mailing list, are there other appropriate methodologies that can be
used to determine the fair market value of a political committee's list
that takes into account the unique nature of political mailing lists?
The Commission also seeks comment on whether the political
committee that wishes to rent its mailing list should have the burden
of establishing what the usual and normal rental charge is and, if so,
whether it should be required to do so prior to renting the list. In
the alternative, the Commission seeks comment on a proposed rule that
would not specify who has the burden of establishing what the usual and
normal charge is or when that charge must be established, but that
would still require political committees to rent their mailing lists at
the usual and normal charge in order to avoid receiving contributions
from the lessees.
Proposed paragraph (a)(1) would also address the other services
(e.g., labels) provided with the mailing list in the ordinary course of
business because other services appear to be priced separately. The
Commission seeks comment on whether it is necessary to enumerate such
services in paragraph (a)(1), or whether to assume that the usual and
normal rental charge includes such services. Comment is also sought on
whether services other than labels should be specifically mentioned in
considering the usual and normal charge.
[[Page 52533]]
2. Rental at the Usual and Normal Charge With Commercially Reasonable
Contractual Terms
Proposed paragraph (a)(2) of 11 CFR 110.21 would require that the
mailing list (or list portion) be rented at the usual and normal charge
for the contracted use of the list in a bona fide arm's length
transaction with commercially reasonable contractual terms. Proposed
paragraph (a)(2) would also indicate that if there is not a bona fide
arm's length transaction, a rebuttable presumption would be raised that
the exchange is not of equal value.
The Commission has relied on several signposts for ensuring that an
arrangement between a political committee and another person
constitutes a bona fide transaction, rather than serving as a vehicle
for making a contribution to the committee. One of the most important
of these signposts is whether the transaction represented a bargained-
for exchange negotiated at arm's length. For example, the list rentals
at issue in AO 2002-14 were approved on the condition that the lists be
``leased at the usual and normal charge in a bona fide, arm's length
transaction.'' The very concept of ``fair market value,'' which is
virtually identical to the concept of ``usual and normal charge'' as
defined in the Commission's regulations, is defined by Black's Law
Dictionary as ``[t]he price that a seller is willing to accept and a
buyer is willing to pay on the open market and in an arm's length
transaction.'' Black's Law Dictionary 1549 (7th ed. 1999). The
Commission seeks comment on whether a lack of arm's length bargaining
should result in a rebuttable presumption that the exchange is not for
fair market value. Cf. Rybak v. Commissioner, 91 T.C. 524, 536-37 (U.S.
Tax Court 1988) (in tax law, where transactions are frequently examined
for whether they should be disregarded for lack of economic substance,
``[t]he absence of arm's length negotiations is a key indicator that a
transaction lacks economic substance.'')
To provide guidance on what constitutes commercially reasonable
terms, proposed paragraph (a)(2) of new 11 CFR 110.21 would list three
factors, although other factors could be considered as well. These
factors are intended to ensure that the rental agreement provides that
the lessee uses the mailing list in a manner comparable to the use in
normal commercial transactions, thereby preventing transactions where
the lessee attempts to make a contribution in the guise of a rental
payment.
Two factors, in proposed paragraphs (a)(2)(i) and (ii), would
examine whether the rental agreement permits use within a specified
time only and, if so, whether this specified time is a reasonable
period of time. The inclusion of factors in proposed paragraphs
(a)(2)(i), (ii) and (iv) is intended to ensure that actual use would
occur and that delayed use would be based on reasonable business
considerations, such as to avoid competing with a political committee
solicitation to the same group of persons. The Commission seeks comment
on whether it should define what is a ``reasonable'' period of time
and, if so, how it should do so.
The other factor, at proposed paragraph (a)(2)(iii), would focus on
the number and types of uses by the person leasing the mailing list to
ensure that the rental agreement represents a bona fide commercial
transaction consistent with industry norms and not a transaction used
to provide something of value to the political committee. The use of
the phrases ``usual and normal practice of the [list] industry'' and
``established procedures and past practice'' are consistent with the
Commission's regulations on extensions of credit in the ordinary course
of business. See 11 CFR 116.3(c). As to the number of uses under
proposed paragraph (a)(2)(iii), the Commission seeks comments as to
whether providing for more than one-time use would be commercially
reasonable under industry practice. Should the rules establish a
rebuttable presumption that multiple uses are not commercially
reasonable?
The Commission seeks comment on the appropriateness of these
factors and what other factors, if any, should be included. The
Commission also seeks comment on whether the presence of a ``bona fide
arm's length transaction'' should be required under the proposed rule,
particularly if mailing lists are rented out at the usual and normal
charge pursuant to commercially reasonable terms. If the Commission
does require the presence of a ``bona fide arm's length transaction,''
should the Commission conclude that this requirement cannot be
satisfied if committees of the same candidate, or party committees of
the same political party, rent mailing lists from each other, or if a
candidate's authorized committee rents a mailing list from an
unauthorized committee such as that candidate's leadership PAC?
In addition, should proposed 11 CFR 110.21(a)(2) include a factor
that considers whether a mailing list is developed over time by the
political committee primarily for the political committee's own use?
Conversely, should the proposed rules state that revenue generated from
a mailing list that is owned by the political committee, but not
developed over time by it for its own use, is not a form of
fundraising, and therefore not a contribution? In AO 1991-34, the
Commission stated that generally the use of a political committee's
asset to generate income through ongoing business or commercial
ventures is fundraising in another form. Consequently the proceeds from
such ventures would be contributions. However, this advisory opinion
also reiterated the Commission's statement in AO 1988-12 that if an
asset such as a mailing list was developed by the political committee
primarily for its own use and not as a fundraising activity, then
income generated from that asset would not be contributions.
Lastly, while proposed paragraph (a)(4) would focus on the rental
agreement, the proposed rule does not include provisions that would
examine the conduct of the person leasing the mailing list once the
rental has occurred, to verify that the person leasing the mailing list
in fact uses the mailing list in accordance with the agreement. The
Commission seeks comment on whether the proposed rules should include
such a provision.
C. 11 CFR 110.21(b)--Committee Sale of the Mailing List
Proposed 11 CFR 110.21(b) would set forth the conditions under
which the proceeds from the sale of a political committee's mailing
list would not be a contribution by the purchaser to the political
committee. Like proposed paragraph (a)(1), proposed paragraph (b)(1)
would require that the political committee ascertain in advance the
usual and normal charge for the sale of the mailing list. The political
committee would also be required to sell the mailing list at that price
under proposed paragraph (b). As in the case of charges for a list
rental, the Commission seeks comment on whether the political committee
that wishes to sell its mailing list should have the burden of
establishing what the sale price is and, if so, whether it should be
required to do so prior to selling the list. In the alternative, the
Commission seeks comment on a proposed rule that would not specify who
has the burden of establishing what the usual and normal charge is or
when that sales price must be established, but that would still require
political committees to sell their mailing lists at the usual and
normal charge in order to avoid receiving contributions from the
purchasers.
[[Page 52534]]
Proposed paragraph (b) would also include the condition contained
in proposed paragraph (a)(2) that the sale agreement be a bona fide
arm's length transaction on commercially reasonable terms, including
terms that address the use of the list by the purchaser. The Commission
again seeks comment on whether the presence of a ``bona fide arm's
length transaction'' should be a separate requirement under the rule.
Comment is also sought as to what factors are appropriate for
determining the commercial reasonability of the sale of a mailing list.
For the reasons discussed above, there would also be a rebuttable
presumption that the exchange is not of equal value if the parties do
not engage in a bona fide arm's length transaction.
The Commission also seeks comment on whether it is usual and
customary in the commercial list marketplace for one entity to provide
raw list data to another entity that updates and enhances the data and
where both entities consequently have access to the list. If so,
comment is sought as to whether such a transaction is a commercially
reasonable exchange of equal value that would not be an in-kind
contribution.
The Commission understands that outright sales of lists are not
common and that the sale price of a usable list would be substantially
greater than a rental price. This is particularly true for political
committees because they depend upon their mailing lists for the
solicitation of funds. In advisory opinions approving the sale (as
opposed to rental) of mailing lists, the Commission considered one
situation involving a terminating committee, and another situation
involving a committee of a Federal officeholder that was selling assets
to his gubernatorial campaign committee. AOs 1989-4 and 1981-53. In
contrast to a terminating committee, an ongoing political committee's
sale of a valuable list in an arm's length transaction, for which it
would normally be paid a price much greater than the rental price,
would be unusual. The Commission seeks comment on whether its
understandings as to the frequency of sales and the differences between
sales prices and rental charges are correct. More specifically, the
Commission also seeks comment as to the likelihood of, and the
circumstances surrounding, an ongoing political committee selling its
mailing list (as opposed to updating its current lists).
Related to comments on actual ongoing practices with respect to
mailing lists, the Commission seeks comment on whether proposed 11 CFR
110.21(b) should contain a condition that the political committee must
be preparing to terminate because the sale of a mailing list by an
ongoing political committee is so unusual that it would be per se
commercially unreasonable. Should the Commission prohibit the sale of
mailing lists other than in certain limited circumstances on the basis
that there is no readily ascertainable market value for such lists? If
not, what sources should the Commission look to in order to determine
an objective value for the sale of mailing lists? Furthermore, if the
Commission decides to adopt a rule that would limit the sale of a
political committee's mailing list to a specified period before it
files a termination report, should the Commission adopt exceptions to
this special rule? For example, does a purchaser of a political
committee's mailing list make a contribution to that committee if the
list has not been updated recently and is of substantially depreciated
value?
D. 11 CFR 110.21(c)--Rental or Sale Proceeds
Under proposed 11 CFR 110.21(c)(1), a transaction that does not
comply with the conditions set forth in proposed paragraphs (a) or (b)
would be fundraising, and thus would be treated as an in-kind
contribution to the political committee, subject to the applicable
limits and source prohibitions of the Act. The contribution amount
would be the entirety of the rental or sales proceeds (not just the
difference between the usual and normal charge and an amount paid that
exceeds that charge). Treatment of the entire payment for a mailing
list as a contribution would be consistent with 11 CFR 100.53, which
states that ``the entire amount paid as the purchase price for a
fundraising item sold by a political committee is a contribution.''
Nevertheless, the Commission seeks comment on including in proposed
paragraph (c)(1) the opposite approach of setting the amount of the
contribution as the amount paid that exceeds the usual and normal
charge for the sale of the mailing list.
While proposed 11 CFR 110.21(c)(1) would address sale or rental of
mailing lists at an amount that exceeds the usual and normal charge,
proposed paragraph (c)(2) would retain the current rule at 11 CFR
100.52 for situations where a political committee donates or transfers
its mailing list or rents or sells its mailing list at less than the
usual or normal charge.
E. 11 CFR 110.21(d)--Rental or Sale to the Candidate
Proposed 11 CFR 110.21(d) would address situations where an
authorized committee sells or rents its mailing list to the candidate
who formed the authorized committee. The proposed rule would treat the
amount paid by the candidate for the mailing list as a contribution
from the candidate to the authorized committee in that amount. This
provision would recognize that a transaction between these two parties
is not at arm's length.
F. 11 CFR 110.21(e)--Reporting of Proceeds
Proposed 11 CFR 110.21(e) would require that proceeds from the
rental or sale of a mailing list that complies with the provisions of
proposed section 110.21 be reported as ``other receipts.''
G. 11 CFR 110.21(f)--Recordkeeping
Proposed 11 CFR 110.21(f) would set forth the recordkeeping
requirements associated with the sale or rental of a political
committee's mailing list. Proposed paragraph (f)(1) would require that
political committees maintain and make available the sales or rental
agreements. These agreements must be signed and dated. Proposed
paragraph (f)(2) would require documentation of the usual and normal
charge for a political committee's mailing list. For a mailing list
that is listed in the SRDS Direct Marketing List Source, the political
committee would need to retain a copy of the price list for its mailing
list in the SRDS Direct Marketing List Source under propose paragraph
(f)(2)(A). For a mailing list that is not listed in the SRDS Direct
Marketing List Source, the political committee would need to obtain a
written appraisal from an independent entity. The Commission seeks
comment on whether a written appraisal from an independent entity is
the appropriate documentation of the usual and normal charge when a
mailing list is not in the SRDS Direct Marketing List Source. Are there
other ways to document the usual and normal charge? Should the rules
include more specific requirements regarding the independent entities,
such as that they are in the business of appraising the fair market
value of mailing lists? Do such entities exist?
H. Other Issues
1. Allocation of Rental Proceeds
The Commission notes that in some cases a political committee's
mailing list may be developed with non-Federal, as well as Federal
funds, and that, under the proposed rule, the entire amount received
from the rental or sale of the list may be deposited in the Federal
account without being subject to the amount limitations and source
[[Page 52535]]
prohibitions of the Act. The Commission seeks comment on whether
proposed 11 CFR 110.21 should specify that only some allocable portion
of the rental proceeds, rather than all of the rental proceeds, may be
deposited and retained in the committee's Federal account, and that the
remainder should be deposited in the non-Federal account, provided that
the political committee is permitted to have a non-Federal account
under 11 CFR 106.6, 106.7 or part 300.
One possible allocation rule is that the Federal account may only
accept and use the portion of the proceeds that reflects the Federal
portion of the committee's cost in developing the list. Another
possibility is that the Federal account may only accept and use the
amounts corresponding to the Federal share of administrative expenses
applicable to the political committee under 11 CFR 106.6(c) or
106.7(d)(2). This approach recognizes that the list's development may
have been paid for as allocable administrative expenses. If such
splitting of the deposit of the rent proceeds is required, comment is
also sought on whether national party committees would be allowed to
retain the entire amount of proceeds from the rental of lists developed
with mixed funds prior to the effective date of the Bipartisan Campaign
Reform Act of 2002 (``BCRA''), Pub. L. 107-155 (Mar. 27, 2002), in view
of the fact that under BCRA they only have accounts with Federal funds.
2. Scope of Proposed Mailing List Rules
The proposed new rules in 11 CFR 110.21 would apply in the same
manner to both authorized and unauthorized committees, i.e., party
committees, multicandidate committees, and other kinds of political
committees. Nevertheless, the Commission seeks comments as to whether
there are material distinctions between different types of political
committees that should be reflected in the new mailing list provisions.
II. Proposed 11 CFR 110.22 Committee Exchange of Mailing Lists
A. Background
The Commission has, in its advisory opinions, addressed list
exchanges by political committees with other organizations and has
concluded that where the exchange is for equal value, a contribution is
not made to the political committee. AOs 1982-41 and 1981-46; see also
AOs 2003-16 and 2002-14. Such exchanges allow each organization or
political committee to seek new potential donors, and often allow each
organization to add the names of individuals from the other mailing
list to its own list where those individuals responded to that
organization's solicitation. AO 1981-46 noted variations of equal
exchange that went beyond ``a direct exchange of the same number of
names.'' In some cases, one organization may use fewer names more
times, or the exchange may involve different numbers of names where the
names on one mailing list may have a different market value than the
names on the other list, or other variations dependent upon the
frequency of use or the value of the names.
B. 11 CFR 110.22(a)--Exchanges of Equal Value
Proposed 11 CFR 110.22 would describe the conditions under which a
political committee may exchange its mailing list with another
organization without receiving a contribution, donation, or other
reportable receipt. Proposed paragraph (a) would follow, in some
respects, the proposed rules on mailing list rental and sale regarding
the period of time and number of uses of the mailing list. It would
treat the exchange as neither a contribution nor a reportable receipt
if: (1) The usual and normal charge for the mailing list and the
services ordinarily provided in the list exchange is ascertained in
advance; (2) the mailing lists involved in the exchange are of equal
value, as discussed below; and (3) the actual exchange is a bona fide
arm's length transaction with commercially reasonable terms. For the
reasons discussed above, there would also be a rebuttable presumption
that the exchange is not of equal value if the parties do not engage in
a bona fide arm's length transaction. ``Equal value'' would be defined
in proposed paragraph (a)(3)(i) in terms of the usual and normal rental
value of each organization's or political committee's mailing list, or
list portion being exchanged, as well as the agreed upon use by the
organization, and the services provided. Proposed paragraph (a)(3)(ii)
would also address the timing of the use of the exchanged lists,
including delayed use if provided for in the agreement.
The Commission seeks comment on whether, and under what
circumstances, multiple uses of a mailing list would be commercially
reasonable; when delayed use would be reasonable; and whether the rule
should address delayed use. Comment is also sought on how to determine
the usual and normal charge, and whether the proposed rule should
affirmatively mandate that the mailing lists be used in a manner
consistent with the list exchange agreement. The Commission also seeks
comment on whether the proposed rule should require that each party to
the exchange establish the fair market value of its own list in advance
in order to avoid treating the transaction as entailing an in-kind
contribution. The Commission also seeks comment on whether the presence
of a ``bona fide arm's length transaction'' should be required,
particularly if it has been otherwise established that the exchange of
the mailing lists is an exchange of equal value. Moreover, can the
requirement of a ``bona fide arm's length transaction'' be satisfied
even if campaign committees of the same candidate, or party committees
of the same political party, rent mailing lists from each other or if a
candidate's authorized committee rents a mailing list from an
unauthorized committee such as a leadership PAC?
The Commission also seeks comment on whether the political
committee's ability to use the names on the other organization's
mailing list to solicit contributions to the Federal account is
affected by whether funds from the committee's non-Federal account were
used to develop the committee list. (See the discussion above on
allocation in proposed 11 CFR 110.21.)
Another issue raised previously with respect to the sale of mailing
lists may more appropriately relate to the exchange of lists.
Specifically, the Commission seeks comment on whether it is usual and
customary in the commercial list marketplace for one entity to provide
raw list data to another entity that updates and enhances the data and
where both entities consequently have access to the list. If so,
comment is sought as to whether such a transaction is a commercially
reasonable exchange of equal value that would not be treated as an in-
kind contribution.
C. 11 CFR 110.22(b)--Exchanges of Unequal Value
Proposed 11 CFR 110.22(b) would address an exchange of mailing
lists that does not comply with proposed paragraph (a). Where the value
of the mailing list provided by the other person exceeds the value of
the political committee's mailing list, only the excess amount is a
contribution. This is in contrast to proposed 11 CFR 110.21(c), where
the entire amount is a contribution. Also, while proposed 11 CFR 110.21
would treat a sale or rental of a mailing list at a charge that is
greater than the usual or normal charge as a fundraising activity that
is subject
[[Page 52536]]
to 11 CFR 100.53, proposed section 110.22(b) would treat the exchange
of mailing lists of unequal value as a good or service that is provided
at less than the usual and normal charge under 11 CFR 100.52(d)(1).
Consequently, the difference in value between the two mailing lists
exchanged would be an in-kind contribution. 11 CFR 100.52(d)(1). The
Commission seeks comment on whether this characterization of the
exchange of mailing lists of unequal value as an in-kind contribution
is appropriate.
III. Proposed 11 CFR 113.2(d) Conversion of Committee's Mailing List to
Personal Use
Both 2 U.S.C. 439a, and the Commission's regulations at 11 CFR part
113, bar candidates and other persons from converting to personal use
any contributions or donations. This ban is not limited to monetary
contributions. Consequently, the Commission has interpreted the
personal use ban to apply to assets of the principal or authorized
campaign committee, as well as the actual funds in the committee
accounts. See AOs 1994-20, 1990-11, 1984-50, and 1981-11; see also 11
CFR 102.3(a)(2) and 113.2(e)(1)(ii). These assets may have been
purchased through the use of funds from contributions or may have been
donated to the authorized committee during the campaign. One of the
principal assets of a political committee is its mailing list because
it is vital to the committee's ability to solicit funds.
On some occasions, particularly after the end of his or her
campaign, a candidate may wish to market the mailing list for the
rental of names to other organizations and may wish to receive rental
proceeds personally. These situations may raise questions as to whether
the candidate has a personal ownership interest in the list. The
candidate's receipt of proceeds from the rental or sale of the mailing
list squarely presents the issue of whether the restrictions of 2
U.S.C. 439a apply. Proposed 11 CFR 113.2(d) would address this issue by
explicitly banning the conversion to personal use of the mailing list
itself, such as by barring a candidate from retaining the proceeds of a
mailing list rental or sale.
In the alternative, the Commission seeks comment on whether a
candidate's receipt of proceeds from the rental or sale of a mailing
list, or portions thereof, could be permissible under 2 U.S.C. 439a. If
permissibility were based on a candidate's ownership of a list or a
share of the mailing list, how would the candidate obtain such
ownership interest? Could a candidate acquire personal ownership,
through purchase or other consideration, of a mailing list developed by
his or her principal campaign committee? Is the candidate's signature
adequate consideration for candidate ownership of the resulting mailing
list? Is such ownership interest assumed on some other basis? The
Commission seeks comment on whether the determination of ownership of
the mailing list should be premised on who or what entity (i.e., the
candidate as opposed to the committee) incurred the costs for the
development or purchase of the list or the portion of the list being
rented or sold. The Commission also seeks comment on whether a
candidate may acquire personal ownership of a list in other ways. For
example, a candidate may sign a fundraising appeal for an organization
other than his or her principal campaign committee and receive the use
of responsive names, in compliance with Commission regulations. Should
the use of the list be viewed as a property interest of the candidate's
principal campaign committee, the candidate personally, or both? How
significant to that determination are the terms of an agreement
purporting to confer a property interest on the principal campaign
committee, the candidate personally, or both?
The Commission also seeks comment on situations where the candidate
owns a mailing list. If the authorized committee uses the mailing list,
has it accepted a contribution from the candidate? How should the use
be valued? Should the valuation be based on the sale or rental price
for the mailing list? Additionally, how should this transaction be
reported?
IV. Proposed 11 CFR 9004.9(d)(2)(i) and 9034.5(c)(2)(i)--Rental, Sale,
and Valuation of Mailing Lists by Publicly Financed Campaigns
The proposed rules at 11 CFR 9004.9(d)(2)(i) and 9034.5(c)(2)(i)
would include the mailing lists of an authorized committee of publicly
financed presidential candidates as assets on the candidates'
statements of net outstanding campaign obligations (``NOCO'') for the
primaries and on the candidates' statements of net outstanding
qualified campaign expenses (``NOQCE'') for the general election, under
certain circumstances. Thus, the proposed rules would recognize a
presidential campaign committee's use of its mailing list as an income
producing asset and would provide that a committee may only rent or
sell the mailing list if the list is included as an asset in the NOCO
or NOQCE statements. However, the proposed rules at 11 CFR
9004.9(d)(2)(i) and 9034.5(c)(2)(i) would not require the publicly
funded committee to include the list as an asset on the NOCO or NOQCE
statements if it does not rent or sell the list.
Since 1976, the Commission has not required as a per se matter, the
inclusion of a mailing list as an asset in NOCO and NOQCE statements,
even though a political committee's mailing list is almost invariably
one of the most important assets of a political committee. Some
presidential campaign committees have indeed rented their lists, or
portions thereof, to other political committees or organizations and
therefore have received proceeds, which may show up on a NOCO or NOQCE
statement as cash.
The current rules list ``capital assets'' and ``other assets'' as
types of assets listed on the NOCO and NOQCE statements. Unlike ``other
assets,'' capital assets have special valuation rules accounting for
depreciation. A mailing list developed by a political committee is
usually a unique asset developed for the special needs of the
committee, and the proposed rules would add mailing lists as a special
category of assets. The proposed rules would not subject mailing lists
to the depreciation rules for ``capital assets.'' The proposed rules at
11 CFR 9004.9(d)(3)(i) and 9034.5(c)(3)(i) explain that the list would
be considered an ``other asset;'' therefore, it would be valued at
``fair market value'' without depreciation factored in. The proposed
rules would give specific guidance as to the fair market value of a
mailing list (discussed below).
As indicated above, the proposed rules in 11 CFR 9004.9(d)(3)(ii)
and 9034.5(c)(3)(ii) would specify that the mailing list may be rented
or sold only if its fair market value is listed on the NOCO and NOQCE
statements. These proposed rules also would require that any such
rental or sale be in compliance with the conditions of the proposed
rule at 11 CFR 110.21, which describes when a committee may rent or
sell a mailing list to others without the proceeds becoming
contributions. Transfer of a mailing list from a candidate's primary
committee to his or her general election committee would not require
the principal campaign committee to include a value for its mailing
list on its NOCO statement. However, the donation or transfer of the
mailing list to another entity (including the candidate's general
election committee, the candidate's general election legal and
accounting compliance fund (GELAC) or a leadership PAC) would be
[[Page 52537]]
subject to proposed 11 CFR 110.21(c)(2), which would apply 11 CFR
100.52 to such transaction. The Commission also seeks comment on
whether donations or transfers that are not sales or rentals should
trigger the requirement to include a value for a mailing list on the
NOCO or NOQCE statements even if the donation or transfer is to the
presidential candidate's GELAC or other authorized committees.
Finally, the proposed rules at 11 CFR 9004.9(d)(3)(iii) and 11 CFR
9034.5(c)(3)(iii) would explain how fair market value would be
determined for purposes of the NOCO and NOQCE statements. The proposed
rule would allow the presidential campaign committee renting or selling
its list to have two choices. For primary candidates, the list would be
valued at either: (1) the usual and normal rental revenue that the
committee would receive if it rented the list to others over an 18
month period beginning on the date of ineligibility (``DOI''); or (2)
the usual and normal sale price at DOI. For general election
candidates, the list would be valued at either: (1) the usual and
normal rental revenue over the 12-month period beginning on the date of
the general election; or (2) the usual and normal sale price as of the
date of the election.
Under these proposed rules, Presidential campaign committees would
need to estimate the usual and normal rental revenue. This in turn
would involve estimates as to how often the committee will rent out the
mailing list over the applicable period, as well as the rental value of
the list (e.g., $X per 1,000 names). The value may depend upon the
rental price of comparable mailing lists and, if comparability is not
easily ascertainable, such factors as how recently the names were
updated for accurate addresses, how responsive the individuals on the
list have been to other similar solicitations (particularly recent
solicitations), the income level of the individuals on the list, and
the classification according to the list industry or other subject
matter. (See the discussion above of proposed 11 CFR 110.21(a)(1).)
Estimates of the sale price would be based on similar information. The
Commission seeks comment on whether the presidential campaign committee
should have the burden of establishing the usual and normal rental
value and, if so, whether it must establish this value before the
mailing list is rented. See the request for comments with respect to
proposed 11 CFR 110.21.
The proposed rules would provide for a limited time period for the
measurement of the rental revenue, i.e., the 18-month and 12-month
periods. This recognizes that these campaign committees are in the
process of winding down their activities. The 18-month and 12-month
periods generally fall within the winding down periods and may very
well expire before the end of such periods. Please note that continued
or frequent renting out of the mailing list to raise funds beyond what
is necessary to pay off debts would be inconsistent with the winding
down of campaign activities. The Commission seeks comment on whether
mailing list rentals or sales by presidential campaigns should be
limited by the amount necessary to pay off the authorized committee's
debts.
In the case of either rental or sale, the NOCO and the NOQCE
statement would be adjusted subsequently by the actual rental or sale
price for the mailing list, similar to the practice of revising those
statements to replace estimated winding down costs with actual cost
figures. In the case of list rental, the final NOCO or NOQCE statement
(which will most likely be filed after the expiration of the 18-month
or one year period) would not reflect the anticipated rental figure.
Instead, the actual rental proceeds would replace the estimated figure
of the value of the mailing list. In the case of a sale, the estimated
list sale amount would be replaced with the actual sale proceeds.
The Commission seeks comment on whether the value of mailing lists
should be accounted for on the NOCO or NOQCE statements regardless of
any subsequent use by the authorized committee. In the alternative,
should they not be recognized on NOCO and NOQCE statements under any
circumstances? The Commission also seeks comments on the
appropriateness of the methods proposed for determining fair market
value. Are the proposed 12-month and 18-month time periods for
measuring rental value too long? Would they encourage activity by
presidential campaign committees that is not consistent with winding
down activities? In the alternative, should the time periods be
different for some other reason? Should presidential campaigns be
permitted to rent or sell their mailing lists regardless of whether
such activity is related to winding down the campaign?
The Commission also seeks comment on whether the use of the sale
price as of DOI is inappropriate if a list is not updated and is sold
many months after DOI. Comment is also sought on what other valuation
method should be applied to mailing lists for purposes of the NOCO and
NOQCE statements.
Certification of No Effect Pursuant to 5 U.S.C. 605(b)
[Regulatory Flexibility Act]
The attached proposed rules, if promulgated, would not have a
significant economic impact on a substantial number of small entities.
The basis for this certification is that few, if any, small entities
would be affected by these proposals, which apply only to Federal
candidates, their campaign committees, party committees, and other
political committees. Federal candidates, their committees, and party
committees are not small entities under 5 U.S.C. 601 because they are
not small businesses, small organizations, or small governmental
jurisdictions. These rules are largely intended to adopt past
Commission practice by clarifying the application of various provisions
of the Act and presidential public financing statutes to mailing list
transactions involving political committees and Federal candidates.
Because the proposed rules would not significantly change current
practice, those few proposals that might increase the cost of
compliance by small entities would not do so in such an amount as to
cause a significant economic impact.
List of Subjects
11 CFR Part 110
Campaign funds, Political committees and parties.
11 CFR Part 113
Campaign funds.
11 CFR Part 9004
Campaign funds.
11 CFR Part 9034
Campaign funds, Reporting and recordkeeping requirements.
For the reasons set out in the preamble, the Federal Election
Commission proposes to amend subchapters A, E, and F of chapter 1 of
title 11 of the Code of Federal Regulations as follows:
PART 110--CONTRIBUTION AND EXPENDITURE LIMITATIONS AND PROHIBITIONS
1. The authority citation for part 110 would continue to read as
follows:
Authority: 2 U.S.C. 431(8), 431(9), 432(c)(2), 437d, 438(a)(8),
441a, 441b, 441d, 441e, 441f, 441g, 441h and 441k.
2. Sections 110.21 and 110.22 would be added to read as follows:
[[Page 52538]]
Sec. 110.21 Committee rental or sale of mailing lists to others.
(a) Rental of mailing list. A political committee may rent a
mailing list, or portions of such list, that it owns to any other
person. Rental payments are not contributions if:
(1) Prior to the rental, the political committee ascertains the
usual and normal rental charge for the mailing list (or the portion of
the mailing list) rented, and other services provided in the ordinary
course of business of the rental of such mailing lists (e.g., labels);
and
(2) The mailing list or the portion of the list (along with the
services provided in the ordinary course of business) is rented at the
usual and normal charge, as defined in 11 CFR 100.52(d)(2), for the
agreed upon use of the mailing list, including the frequency and
duration of the use, in a bona fide arm's length transaction with
commercially reasonable terms. If the political committee and the
person renting the list do not engage in a bona fide arm's length
transaction, there is a rebuttable presumption that the exchange is not
of equal value. To determine whether the terms of the rental agreement
are commercially reasonable, the Commission will consider factors that
include, but are not limited to:
(i) Whether the person leasing the mailing list is permitted to use
the list within a reasonable period of time only;
(ii) Whether any delayed use by the person leasing the mailing
list, provided for in the agreement, is based on reasonable business
considerations;
(iii) Whether the agreed upon use by the person leasing the mailing
list, including the duration of the rental or number of uses, comports
with the usual and normal practice of the list industry and the
lessee's established procedures and past practice; and
(iv) Whether the person leasing the mailing list actually uses the
list.
(b) Sale of mailing list. A political committee may sell a mailing
list, or portions of a mailing list, that it owns to any other person.
Proceeds from the sale are not contributions if prior to the sale, the
political committee ascertains the usual and normal charge for the sale
of the mailing list, and sells the mailing list at the usual and normal
charge, as defined in 11 CFR 100.52(d)(2), in a bona fide arm's length
transaction with commercially reasonable terms. If the political
committee and the person buying the list do not engage in a bona fide
arm's length transaction, there is a rebuttable presumption that the
exchange is not of equal value.
(c) Rental or sale proceeds as contributions. (1) Except as
provided in paragraph (c)(2) of this section, a sale or rental of a
mailing list that does not comply with the conditions set forth in
paragraphs (a) or (b) of this section is a fundraising item under 11
CFR 100.53 and all proceeds from such sale or rental are contributions
from the person buying or renting the mailing list to the political
committee in their full amount.
(2) For the donation or transfer of mailing lists or the sale or
rental of mailing lists at less than the usual and normal charge, see
11 CFR 100.52.
(d) Rental or sale to the candidate. If a candidate rents or buys a
mailing list from his or her authorized committee, the amount paid by
the candidate is a contribution to the authorized committee.
(e) Reporting of proceeds. The proceeds from the rental or sale of
a mailing list that complies with the conditions set forth in
paragraphs (a) or (b) of this section must be reported as ``other
receipts.''
(f) Recordkeeping. A political committee shall maintain and make
available upon request the documentation described in paragraph (f)(1)
and (2) of this section.
(1) All sales and rental agreements or contracts of its mailing
list(s). The agreements must be signed and dated.
(2) Documentation of the usual or normal charge for its mailing
lists in the following manner:
(i) If its mailing list is included in the SRDS Direct Marketing
List Source, a copy of the price list in the SRDS Direct Marketing List
Source; or
(ii) If its mailing list is not included in the SRDS Direct
Marketing List Source, a written appraisal of the mailing list from an
independent entity that is not directly or indirectly associated with
the political committee (including subcontractors of such entities).
Sec. 110.22 Committee exchange of mailing lists.
(a) Exchange of equal value. A political committee may exchange the
use of a mailing list or portions of a mailing list with another person
for a specific period of time or a specific number of uses. The
exchange is not a contribution, donation, or other reportable receipt
to the political committee if:
(1) The political committee ascertains in advance the usual and
normal charge for the mailing lists, or the portions of the mailing
lists, being exchanged and other services provided in the ordinary
course of business for the exchange of the mailing lists (e.g.,
labels); and
(2) The exchange of the mailing lists is a bona fide arm's length
transaction with commercially reasonable terms that results in an
exchange of equal value between the political committee and the other
person. If the political committee and the other person in the exchange
do not engage in a bona fide arm's length transaction, there is a
rebuttable presumption that the exchange is not of equal value.
(3) An exchange of equal value takes place when:
(i) The usual and normal rental value for each mailing list, or
portion of the mailing list being exchanged, and the agreed upon use
for each mailing list, and the services provided in the ordinary course
of business are of equal value; and
(ii) The agreement between the political committee and the other
person provides that they each use the mailing list they receive within
a commercially reasonable period of time. If the agreement provides for
a future use by the political committee or the other person, the delay
in the use of the mailing list must be based upon reasonable business
considerations.
(b) Exchange of unequal value. An exchange of mailing lists that
does not comply with the conditions set forth in paragraph (a) of this
section is a contribution to the extent that the value provided by the
other person exceeds the value provided by the political committee.
PART 113--USE OF CAMPAIGN ACCOUNTS FOR NON-CAMPAIGN PURPOSES (2
U.S.C. 439a)
3. The authority citation for part 113 would continue to read as
follows:
Authority: 2 U.S.C. 432(h), 438(a)(8), 439a, and 441a.
4. In Sec. 113.2, paragraph (d) would be added to read as follows:
Sec. 113.2 Permissible non-campaign uses of funds (2 U.S.C. 439a).
* * * * *
(d) Conversion of committee's mailing list to personal use. The
mailing list of a principal campaign committee or authorized committee
of a candidate, or any proceeds from the rental or sale of any names on
the mailing list, may not be converted to the personal use of the
candidate or any other person.
* * * * *
PART 9004--ENTITLEMENT OF ELIGIBLE CANDIDATES TO PAYMENTS; USE OF
PAYMENTS
5. The authority citation for part 9004 would continue to read as
follows:
[[Page 52539]]
Authority: 26 U.S.C. 9004 and 9009(b).
6. In Sec. 9004.9, new paragraph (d)(3) would be added to read as
follows:
Sec. 9004.9 Net outstanding qualified campaign expenses
* * * * *
(d) * * *
(3) Mailing lists. (i) The term other asset, as defined in
paragraph (d)(2) of this section, includes an authorized committee's
mailing list if the mailing list is sold or rented under paragraph
(d)(3)(ii) of this section.
(ii) An authorized committee may sell or rent its mailing list only
if--
(A) The fair market value of the mailing list is included on the
candidate's statement of net outstanding qualified campaign expenses;
and
(B) The sale or rental of the mailing list complies with 11 CFR
110.21.
(iii) The fair market value of an authorized committee's mailing
list is either:
(A) The usual and normal rental revenue that the authorized
committee would receive if it rented the list to others over the 12-
month period beginning on the date of the general election; or
(B) The usual and normal sale price for the list as of the date of
the general election.
* * * * *
PART 9034--ENTITLEMENTS
7. The authority citation for part 9034 would continue to read as
follows:
Authority: 26 U.S.C. 9034 and 9039(b).
8. In section 9034.5, new paragraph (c)(3) would be added to read
as follows:
Sec. 9034.5 Net outstanding campaign obligations.
* * * * *
(c) * * *
(3) Mailing lists. (i) The term other asset, as defined in
paragraph (c)(2) of this section, includes an authorized committee's
mailing list if the mailing list is sold or rented under paragraph
(c)(3)(ii) of this section.
(ii) An authorized committee may sell or rent its mailing list only
if--
(A) The fair market value of the mailing list is included on the
candidate's statement of net outstanding campaign obligations; and
(B) The sale or rental of the mailing list complies with 11 CFR
110.21.
(iii) The fair market value of an authorized committee's mailing
list is either:
(A) The usual and normal rental revenue that the authorized
committee would receive if it rented the list to others over the 18-
month period beginning on the date of ineligibility; or
(B) The usual and normal sale price for the list as of the date of
ineligibility.
* * * * *
Dated: August 29, 2003.
Ellen L. Weintraub,
Chair, Federal Election Commission.
[FR Doc. 03-22530 Filed 9-3-03; 8:45 am]
BILLING CODE 6715-01-P