Election Law Blog Essay

The Coming Storm? Hush Money and the Federal Election Campaign Act

In August 2016, federal law enforcement and intelligence officials were alerted to an unsettling possibility: then-candidate Trump’s personal indiscretions might leave him susceptible to the threat of Russian blackmail. We now know that, as the election drew near, those close to Trump were also fretting about other kompromat — albeit of a more homegrown variety. The threat of one particular disclosure was serious enough that Trump’s personal lawyer Michael Cohen reportedly “arranged a $130,000 payment to a former adult-film star” to procure a non-disclosure agreement, funneling the funds through a hastily formed Delaware LLC to a representative of Stormy Daniels.

But in making such a payment, those involved may have broken the law. The watchdog group Common Cause has alleged as much in an FEC complaint, relying on the same statutory provisions used by federal prosecutors to indict and try former Senator John Edwards. Edwards ultimately beat the criminal charges, thanks in part to defense attorney Abbe Lowell, now counsel to Jared Kushner. But if the reports of a secret pre-election payment to Daniels are accurate—and there are still many important unknowns, which I’ll discuss—key obstacles that thwarted federal prosecutors in 2011 will not be in play.

If nothing else, the extraordinary sequence of events in October 2016 sheds light on how aggressively Trump, or those in his immediate orbit, responded to the threatened release of damaging personal information. This behavior alone is notable and should be of interest to those investigating L’Affaire Russe and Trump’s susceptibility to blackmail. But the recent reports are also unsettling because, in their haste to ensure Daniels’s pre-election silence, Trump’s lawyer and others may have violated the Federal Election Campaign Act of 1971 (FECA). After a year dominated by allegations of collusion between the Trump campaign and Russia, it is collusion between the Trump campaign and a former porn star that may pose the greater legal peril to the presidency.

The Basic Legal Problem

To understand why the reported October 2016 payment may violate FECA—and to appreciate the legal tightrope the Trump campaign was navigating when scrambling to keep Daniels from talking to the press—it helps to start with the case against Senator Edwards. In 2011, federal prosecutors filed a multi-count felony indictment against Edwards alleging that similar payments (there, from wealthy backers to a woman, Rielle Hunter, with whom Edwards had a lengthy affair) qualified as illicit “contributions” to his presidential campaign in 2008. Edwards was charged with one count of conspiring to solicit and accept contributions above FECA’s individual limit (and to file false FEC campaign reports); four counts of having accepted illegally large campaign contributions; and one count of making false statements to conceal the contributions.

The Edwards prosecution turned on the meaning of a “contribution” under FECA: were the secret payments, in fact, “contributions” subject to federal regulation? FECA’s definition of “contribution” in 52 U.S.C. § 30101(8)(A)  includes “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.” Importantly, there is no requirement that a “contribution” be labeled as such or that the money actually pass through a campaign’s coffers: a third-party’s payment of a candidate’s campaign or personal expense qualifies as a “contribution,” except where “the payment would have been made irrespective of the candidacy” (11 C.F.R. § 113.1(g)(6)). Candidates may spend personal funds to support their campaign—and, importantly, these contributions are not subject to the $2,700 per person per election limit applicable to other donors (52 U.S.C. § 30116)—but these contributions still must be disclosed (11 C.F.R. § 104.3(a)(3)(ii)) and properly reported on FEC filings.

At trial, the Government’s case against Edwards faltered because prosecutors were unable to prove that Edwards’s wealthy benefactors, Rachel Mellon and Fred Baron, made the payments “for the purpose of influencing” the 2008 election (as opposed to, say, helping their friend Edwards conceal the affair from his cancer-stricken wife). The timeline was critical: while prosecutors urged jurors to focus on the narrow time period when Edwards was a federal candidate in 2007-08, defense attorneys emphasized how their client “lied about his affair to keep it a secret in 2006, 2007, 2008, 2009 and straight through to the beginning of 2010,” and that Hunter didn’t pocket most of the money until after Edwards had dropped out of the race. When prosecutors suggested that the payments were “hush money” to keep Hunter from speaking with the National Enquirer, Edwards’s attorneys pounced: Where was the proof that Hunter was on the cusp of a disastrous interview with the press?  “They have no proof of that,” Abbe Lowell emphasized in his closing argument. Jurors ended up deadlocking on most of the counts, unable to find beyond a reasonable doubt that the payments were “for the purpose of influencing” the election (and, hence, regulated contributions).

While there is much we still need to learn about the $130,000 reportedly paid to Daniels, there can be little doubt of its purpose. According to recent reporting, while rumors about Trump and Daniels had circulated for years, Daniels was talking with Slate, Good Morning America, and other media outlets in October 2016. The Trump campaign was still reeling from the Oct. 7, 2016 revelation of the infamous Access Hollywood tape, but by the end of the month, the campaign had turned a corner: Clinton’s sizeable national polling advantage was evaporating. Then, “about a week before the election, Daniels stopped responding to calls and text messages” from the media. According to the Wall Street Journal, the Delaware LLC that transferred the money to Daniels’s representative was formed on October 17, 2016, less than three weeks before the November 8, 2016 election.  At least with respect to the motivation for the payment, the evidence that was lacking in the Edwards case (and which ultimately sunk the prosecution) is abundant in Trump’s case.

Whose Money? And Does It Matter?

The biggest unknown at this point is the original source of the $130,000 that Cohen transferred to Daniels. As explained below, I don’t think it matters ultimately from whose pockets the payment originally came—the $130,000 will still qualify as an undisclosed “contribution” regardless of its source. But it is worth considering the ways in which this case might differ from the Edwards prosecution depending on the source of funds.

At the outset, though, it is staggering that we are forced to speculate who might have orchestrated the $130,000 payment here. While many areas of campaign finance law are controversial, disclosure requirements have regularly withstood legal challenges, even during the Roberts Court. Transparency requirements “not only address[] corruption by shining sunlight on campaign finance dealings, but [also] provides[] information to voters . . . to [better] understand what types of interests are aligned with which candidates and parties . . . .”  Yet on the eve of a presidential election, a still-unknown party appears to have transferred a massive amount of “hush money” to procure the silence of an important critic of a candidate—all off the radar of the FEC and the public. Even without the backdrop of potential Russian interference, such a payment should trouble anyone concerned with the integrity of the electoral process.

That said, let’s take a moment to think through the likely possible sources of the $130,000. One plausible scenario is that, as in the Edwards case, the money came from Cohen or a wealthy supporter of Trump. There’s some precedent for this: according to the Wall Street Journal, Trump’s longtime friend David J. Pecker (Chairman and CEO of American Media) paid $150,000 to Karen McDougal, a former Playboy model who alleged a romantic relationship with Trump in 2006, in exchange for the exclusive rights to her story. According to a “person familiar with the matter,” American Media never intended to publicize McDougal’s account; the agreement was a “catch and kill” intended to quash the story. On behalf of the Trump Campaign, Hope Hicks denied any knowledge of the agreement.

If Cohen and a wealthy backer, concerned about the damage Daniels could do to Trump’s election prospects, organized the payment to Daniels, there would seem to be a strong case that they conspired to make an illegal campaign contribution.

But would this be a problem for Trump? Trump would not face any legal liability if he were truly in the dark—criminal liability attaches only for purposeful violations of FECA—but could face charges (for conspiracy or receipt of illicit contributions), as did Edwards, if he was involved in orchestrating the pay-off.

The legal analysis of whether the payment still constitutes a ‘contribution’ becomes a little trickier if Trump himself turns out to be the source of the funds for Daniels. A candidate can, of course, make “contributions” to his own campaign. For purposes of FECA, the status of money as a “contribution” has nothing to do with the source of the donation: a contribution includes “any . . . deposit of money or anything of value made by any person for the purpose of influencing any election for Federal office,” whether that person is a supporter or the candidate himself. Trump made over $66 million in personal contributions that he disclosed in FEC filings. Thus, if we’re trying to figure out whether this $130,000 constitutes an undisclosed campaign “contribution,” it shouldn’t matter whether it came from Trump’s pocket or someone else’s. As noted earlier, Trump, unlike a supporter,  is not subject to the usual strict per-person contribution limit and could legally make a $130,000 contribution to his own campaign. The failure of Trump to disclose any such “contribution,” however, would make it unlawful.

And this approach to defining “contributions” makes sense. Suppose Candidate and Booster are in a smoky backroom, and Candidate says: “Man, someone really needs to pay off Canary, because Canary’s upcoming speaking tour will certainly influence the forthcoming election.” Booster responds: “I agree, and I too want to ensure the election comes out the right way.” For sport, they decide to flip a coin to determine who pays Canary. Under FECA, it doesn’t matter which way the coin-flip goes, nor should it; such a payment, when made for the purpose of influencing a federal election, is still a “contribution” under the law.

On the other hand, it does seem somewhat harder to prove that the payment is a campaign “contribution” if its original source was Trump’s own personal funds, but for reasons that are more atmospheric than legal: it strikes me as harder to convince a jury that such an expense is fundamentally about the election (rather than about personal, reputational harm) when the candidate himself ponies up the cash, even if the timing is suspicious. Consider the following. A follicly-challenged candidate, who (in his private life) takes great pride in his baldness, has learned from his advisors that he will gain ten points in the polls if he undergoes a painful hair-replacement surgery. The candidate’s desire to be elected eventually overcomes his affinity for his baldness, and though he never would have dreamed of such a thing before his candidacy, he assents to the $5,000 operation. On the most basic, legalistic level, it shouldn’t matter whether the candidate or a supporter pays for the $5,000 operation: the payment is a “contribution” to the campaign. But if such a case were ever to go to trial, it would seem much easier to mount a defense that this payment was “personal” in some basic way if the candidate himself paid for it.

A Counter-Argument. And What Should Trump Have Done?

One plausible counter-argument to the point I’ve been advancing—that the $130,000 payment to Daniels likely counts as an undisclosed, and (depending on its source) unlawfully large, “contribution” under FECA—is that that the payment could not have been a contribution because federal law would have prohibited the expenditure of official campaign funds for the same purpose. In addition to regulating campaign contributions, FECA regulates campaign expenditures, and it prohibits the expenditure of campaign funds “accepted by a candidate” for “personal use.” “Personal use” is defined in 52 U.S.C. § 30114(b)(2) as the use of campaign funds “to fulfill any commitment, obligation, or expense of a person that would exist irrespective of the candidate’s election campaign.” Certain categories of expenses are per se “personal use” expenditures—campaign funds can never be used for a candidate’s clothing; a country club membership; tuition payments—but the statutory list is merely illustrative.

First, let’s assume that, under this part of FECA, the use of campaign funds for a payment like the one to Daniels is prohibited. The argument that the payment would therefore not qualify as a “contribution” is still misplaced. Suppose Booster sends a $100 check to Candidate’s campaign, and in the memo line, he writes, “Use this donation for a night at the opera for Candidate! It’ll help him win this November!” Booster has plainly made a contribution to the campaign within the meaning of § 30101(8)(A) (defining “contribution”), but it would be an unlawful expenditure if Candidate actually used campaign funds for a night out at the opera: sporting events and theater tickets are another one of the per se “personal use” categories (11 C.F.R. 113.1(g)(1)(i)(F)). In other words, although contributions and expenditures are related concepts under FECA, they are not coextensive, and it would be a mistake to answer the question “Is this a contribution?” by asking “Does another part of the statute independently prohibit the expenditure of already-accepted campaign funds in a particular way?”

But there is a decent argument that federal law would allow the use of campaign funds for the type of payment to Daniels we’re discussing here, and I want to explore this point in some detail.  Under § 30114(b)(1)-(2), a “contribution that has been accepted by a candidate” cannot be “converted to personal use,” which means that funds cannot be used “to fulfill any commitment, obligation, or expense of a person that would exist irrespective of the candidate’s election campaign.” Using campaign funds to quietly settle a pre-existing legal claim (say, for example, the Trump University class action lawsuit settlement) would clearly qualify as conversion: that legal liability exists whether or not Trump is a candidate. And the fact that a candidate or officeholder might subjectively care about a legal problem (say, a DWI arrest, a messy divorce, or a conviction for lewd conduct in an airport bathroom) solely because of the candidate’s campaign aspirations is immaterial. In a recent case involving disgraced former Senator Larry Craig, the D.C. Circuit Court of Appeals explained that when it comes to legal fees, expenditures are generally “personal” unless the substantive allegations “arise[] directly from campaign activity” (e.g., legal fees to defend a candidate accused of stealing yard signs from an opponent). The D.C. Circuit termed this the “allegations standard”: if the substantive allegations themselves “would exist irrespective of the candidate’s election campaign,” then the legal fees responding to these allegations “would exist irrespective of the candidate’s election campaign”; thus, campaign expenditures for such legal fees count as the (unlawful) “personal use” of campaign funds.

But the payment to Daniels was not a “legal fee”—it was an effort to deal with bad publicity on the cusp of an election. The D.C. Circuit acknowledged that the “allegations standard” is not the approach the FEC applies for campaign expenditures arising from a candidate’s desire to counter negative publicity. In such scenarios, when we’re asking whether campaign funds are being used “to fulfill any commitment, obligation, or expense of a person that would exist irrespective of the candidate’s election campaign,” we’re really asking something more like, “Absent the campaign, would the candidate have incurred the expense?” For example, in 2001, former Senator Bob Kerrey had left political life for academia when the New York Times and 60 Minutes reported his possible involvement in a massacre of civilians during the Vietnam War. He retained a PR firm and sought an Opinion Letter from the FEC on whether he could pay a $59,554.48 invoice using leftover campaign funds from his time in the U.S. Senate. His argument, in sum, was that the bad publicity “would never have arisen if it were not for the fact that he was a Federal candidate and Federal officeholder.” The FEC agreed, advising that such an expenditure would not constitute “conversion” because “the recent publicity would not have occurred if Mr. Kerrey had not been a prominent Senator and prominent Federal candidate.” In other words, but-for his high-profile candidacy and office-holding, the alleged misbehavior would never have come to light; thus, the publicity expenses did not exist “irrespective of the candidate’s election campaign” and campaign funds could be used.

Similarly, in connection with a 2010 U.S. Senate race, the FEC issued an Opinion Letter advising that campaign funds could be used to support a federal candidate’s litigation against a newspaper to keep his old public employment records sealed. In that case, Senate candidate Joe Miller unsuccessfully fought to block an Alaska newspaper’s efforts to obtain his (presumably embarrassing) old employment records from a state agency; Miller incurred an $85,000 judgment against him for his efforts. Even though the embarrassing records pre-dated the campaign, the FEC advised that campaign funds could be used in Miller’s efforts to prevent their disclosure. The use of campaign funds was appropriate there “because the lawsuit would not have existed irrespective of [the candidate’s] campaign.”

To recap where we are: The FEC’s approach for assessing whether “legal fees” can be paid with campaign funds is the “allegations standard” (such expenditures are impermissible “personal use” payments if the substantive legal allegations would have existed irrespective of the candidacy). But, in other contexts, the FEC adopts a more flexible approach to the use of campaign funds. When it comes to campaigns’ efforts to counter bad publicity (including efforts to prevent the disclosure of potentially embarrassing information), the FEC looks to the “inquirer’s motive” to determine whether campaign funds can be used: but-for the campaign, the FEC asks, would the candidate have received the heightened scrutiny (and incurred the resulting expenses) necessitating the public relations expenditures?

Following the Kerrey and Miller Opinions, a payment to Daniels might be justifiable as a campaign expense. It is hard to imagine Trump (or anyone) paying Daniels $130,000 if he were not running for office, so the expense is not one that would “have existed irrespective of the candidate’s election campaign.” If costs incurred to rebut allegations of war crimes and to prevent the disclosure of embarrassing employment records are valid non-personal campaign expenses, which can be paid for using campaign funds, Trump’s efforts to head-off the PR disaster that would have been Daniels’s press tour might count as a valid use of campaign resources, too.

Why do we care? Because, if the foregoing is misplaced—if a hypothetical payment to Daniels using Trump campaign funds would have qualified as a “personal use” of campaign funds, and hence been unlawful—one could argue that Trump was in an impossible bind: soliciting non-campaign funds (or using his own personal funds) to procure a non-disclosure agreement with Daniels would violate the law’s prohibition on campaign “contributions,” and using campaign funds to do so would violate the law’s prohibition on conversion of funds for personal use. One could argue that such an absurd result must inform our interpretation of the statute (and lead reasonable minds to the conclusion that the $130,000 was not a campaign “contribution”).

I don’t think so. Candidates incur all sorts of restrictions and limitations when they run for federal office, and perhaps this is one of them. Perhaps it is a virtue, not a flaw, of our campaign finance system that it is extraordinarily difficult (and maybe impossible) for a candidate with the “purpose of influencing an election” to buy someone’s silence.    

What Could Come Next?

There is a way in which the revelations about Cohen and Daniels seem out of place in 2018; while undeniably a can’t-make-this-up artifact of the Trump Era, the story feels like a nostalgic throwback to a simpler time when political scandals consisted of (alleged) sexual peccadillos rather than (alleged) collusion with foreign powers.

But in light of the extraordinary investigation into the 2016 election, the Daniels story is important. If the overarching purpose of Special Counsel Mueller’s investigation is, on some basic level, to ensure the integrity of the electoral process and to assess the President’s alleged susceptibility to blackmail, the circumstances surrounding an alleged six-figure “hush money” payment made by Trump or someone close to him on the eve of the election ought to figure into that inquiry.

If not, given the prima facie case that a federal crime may have occurred, it would ordinarily fall to the Attorney General to determine whether the appointment of a new special counsel would be warranted. However, on March 2, 2017, Attorney General Sessions recused himself from such decisions:

I have met with the relevant senior career [Justice] Department officials to discuss whether I should recuse myself from any matters arising from the campaigns for President of the United States. Having concluded those meetings today, I have decided to recuse myself from any existing or future investigations of any matters related in any way to the campaigns for President of the United States.

Assuming that the foregoing has not independently “arise[n] directly from the investigation” currently being led by Mueller, it falls to Deputy Attorney General Rod Rosenstein to weigh appropriate next steps.