By Matthew Mosk
Washington Post Staff Writer
Sunday, October 26, 2008
Sen. Barack Obama's record-breaking $150 million fundraising performance in September has for the first time prompted questions about whether presidential candidates should be permitted to collect huge sums of money through faceless credit card transactions over the Internet.
Lawyers for both the Republican and Democratic parties have asked the Federal Election Commission to examine the issue, pointing to dozens of examples of what they say are lax screening procedures by the presidential campaigns that permitted donors using false names or stolen credit cards to make contributions.
"There is so much money coming in and yet very little ability to say with certainty that you know who is giving it," said Sean Cairncross, the Republican National Committee's chief counsel.
While the potentially fraudulent or excessive contributions represent about 1 percent of Obama's staggering haul, the security challenge is one of several major campaign-finance-related questions raised by the Democrat's fundraising juggernaut.
Concerns about anonymous donations seeping into the campaign began to surface last month, mainly on conservative blogs. Some bloggers described their own attempts to display the flaws in Obama's fundraising program, donating under such obviously phony names as Osama bin Laden and Saddam Hussein, and reported that the credit card transactions were permitted.
Obama officials said it should be obvious that it is as much in their campaign's interest as it is in the public's interest for fake contributions to be turned back, and said they have taken pains to establish a barrier to prevent them. Over the course of the campaign, they said, a number of additional safeguards have been added to bulk up the security of their system.
In a paper outlining those safeguards, provided to The Washington Post, the campaign said it runs twice-daily sweeps of new donations, looking for irregularities. Flagged contributions are manually reviewed by a team of lawyers, then cleared or refunded. Reports of misused credit cards lead to immediate refunds.
In September, according to the campaign, $1.8 million in online contributions was flagged, and $353,000 was refunded. Of the contributions flagged because a foreign address or bank account was involved, 94.1 percent were found to be proper. One-tenth of one percent were marked for refund, and 5.77 percent are still being vetted.
But clearly invented names have been used often enough to provoke an outcry from Republican critics. Donors to the Obama campaign using false names such as Doodad Pro and Good Will gave $17,375 through 1,000 separate donations, with no sign that they immediately tripped alarms at the campaign. Of more concern, Cairncross said, are reports that the campaign permitted money from 123 foreign nationals to enter its accounts.
Obama officials said they have identified similar irregularities in the finance records of their Republican rival, Sen. John McCain. "Every campaign faces these challenges -- John McCain's campaign has refunded more than $1.2 million in contributions from anonymous, excessive and fraudulent contributors -- and we have reviewed and strengthened our procedures to ensure that the contributions the campaign accepts are appropriate," said Ben LaBolt, an Obama spokesman.
McCain's contributor database shows at least 201 donations from individuals listing themselves as "anonymous" or "anonymous anonymous," according to Obama's campaign. In one particularly embarrassing episode, the McCain campaign mistakenly sent a fundraising solicitation to the Russian ambassador to the United Nations.
Rather than relying primarily on a network of wealthy and well-connected bundlers -- as candidates have since President Bush pioneered that technique in 2000 -- Obama also tapped a list of 3 million ordinary donors, many of whom who gave in increments of $25 and $50.
Obama's success with these kitchen-table contributors has set up one of the most lopsided financial advantages in modern presidential campaigning. During the first two weeks of October, Obama spent four times more than McCain, including for an unprecedented $82 million saturation-advertising campaign that blanketed the airwaves in key battleground states.
Campaign finance experts have already classified this contest as one of the transformational elections that will dramatically change the way politicians pay for campaigns in coming cycles.
"It's the model of the future," said Rick Hasen, an election law specialist at Loyola Law School. "Gone will be the $2,300-a-plate dinner. That will be replaced by the $30,000-a-plate dinner, the kind of select event Obama had hosted by folks like Warren Buffett. And the rest will be the micro-donors -- entirely Internet-based."
Hasen said the 2008 campaign is a mirror of other races that led to major shifts in fundraising. The Watergate scandal of 1972 led Congress to create a public financing system for presidential bids. Ronald Reagan harnessed the power of direct-mail solicitation in 1980. In 1996, political parties opened the door to runaway donations in the form of unregulated "soft money."
One immediate result of Obama's fundraising showing this fall is that it may render obsolete the current system of public financing for presidential campaigns. Because McCain opted into the system, he was limited to spending the $84.1 million provided to his campaign by the Treasury once he claimed the GOP nomination. Obama, who chose to remain outside the system after initially suggesting that he would participate in it, is expected to raise and spend at least three times that amount in the general election campaign.
Obama's advantage, said FEC Chairman Donald F. McGahn II, makes it likely that Congress will rethink whether the program still makes sense.
To many, Obama's fundraising success is good news -- it shows that a White House bid can be financed largely without donors who have ulterior motives or agendas, and diminishes the role of the special interests and large institutional givers that were once the backbone of presidential fundraising.
"When you have that many contributors," McGahn said, "it does in a weird way cleanse the system."
Bradley A. Smith, a former FEC chairman, in an essay in today's Outlook section of The Post, agreed that Obama's effort would "put to rest all the shibboleths about campaign finance reform -- that it is needed to prevent corruption, that it equalizes the playing field, or that tax subsidies are needed to prevent corruption."
There are already signs that runaway fundraising efforts built on small donors have the potential to create an entirely new set of problems.
Scott Thomas, another former FEC chairman, said the potential for these types of security breaches has been looming for more than a decade, since the commission first allowed donors to use a credit card when making a contribution.
"The problem itself has been lurking," Thomas said. "What's changed is the sheer volume of donations. At some point that causes enough of a clog that campaigns cannot do all of the vetting and research that would be necessary to figure out if they're looking at a real name."
How the FEC might attempt to tackle these problems is unclear. Both parties have filed formal complaints calling on the agency to investigate their rival. Only McCain will automatically be subjected to an audit, because his campaign accepted funds from the Treasury. There is no requirement that Obama's books be audited, and FEC-watchers predicted that it could be tough to find the four votes needed to approve an audit, given that the panel comprises three Republican and three Democratic appointees.
Under current law, there is also very little policing of small-dollar contributions. The false donations uncovered by news outlets or by rival campaigns have all involved more than $200, because those contributions must be disclosed in published reports. The campaigns are not required to share any information about donors who give less than $200. And they are not required to even keep records of donors who give less than $50 -- they can even give cash.
"Maybe the answer is to revisit [those disclosure thresholds], given that the levels were put in in the '70s, long before the Internet," McGahn said. "This may bring it to the fore."