In the matter of:

Senator Maria Cantwell;

Maria Cantwell for Senate; and

U.S. Bank National Association

Respondents

The primary purpose of the National Legal and Policy Center, a charitable and educational organization described in section 501(c)(3) of the Internal Revenue Code, is to foster and promote ethics in government.  In furtherance of that purpose, National Legal and Policy Center educates the public about the "Code of Ethics for Government Service," as adopted by a Joint Resolution of Congress on July 11, 1958; and it endeavors to ensure compliance by government officials with provisions of the Code and the laws of the United States. The apparent violations alleged herein represent a serious lack of compliance with the law by an elected official, her campaign committee and a bank which lent money to her during her campaign for the U.S. Senate.

MARIA CANTWELL FOR SENATE, P.O. Box 12740, Seattle, WA 98111, (hereinafter "the Committee") is a political committee established to support the Senate candidacy of Maria Cantwell.

U.S. BANK NATIONAL ASSOCIATION, 10800 NE 8th Street, Bellevue, WA, 98004, (hereinafter "the Bank") is a lending institution which lent money to Maria Cantwell during her Senate campaign.

All facts relevant to this Complaint are to be found in documents readily available to the public.  A copy of the Associated Press article ("Loans to Cantwell come into question; Borrowed funds' collateral at issue," Washington Times, April 15, 2001, page A3) outlining the background facts which support the complaint is attached to this complaint as Exhibit A.

Central to this Complaint are several large personal loans made to Maria Cantwell during 2000 when she was a candidate for the U.S. Senate.

As reported by Associated Press:

• Cantwell pledged as collateral a $375,000 home to set up a $600,000 line of credit despite FEC rules requiring collateral for a campaign loan to be at least as much as the loan.

• On a second loan, a $4,000,000 line of credit on which Cantwell ended up borrowing $3.2 million, Cantwell pledged as collateral RealNetworks stock which was then worth $5.6 million.  Both loans were from U.S. Bank and on both Cantwell received the lender's prime rate, "potentially saving her tens of thousands of dollars" according to the Associated Press article.  The article went on to state, "FEC rules prohibit candidates from receiving a more favorable rate than another bank customer for the same type of loan."

• While Cantwell had a legal obligation to disclose both loans by mid-October in her committee's report to the FEC, she failed to make any disclosure until January 31, 2001, and then only after receiving two letters from the Federal Election Commission.  After illegally failing to disclose the large loans during the campaign, Cantwell was elected by a mere 2,229 votes.

 

The gravamen of this complaint is quite simple: Cantwell violated federal election law by securing an under-collateralized loan and by using the proceeds of two loans secured at rates below those available to the general public to finance her campaign.  The appearance of impropriety is further underscored by the fact that Cantwell's committee kept the illegal loans secret by failing to properly disclose the loan terms in a timely manner as strictly required by federal election law.

It is beyond dispute that a candidate for the U.S. Senate who secures a loan or line of credit to benefit her campaign and who provides collateral for that transaction must provide collateral which is worth at least the loan amount.

Specifically, FEC regulations require that "the fair market value of the collateral is equal to or greater than the loan amount and any senior liens as determined on the date of the loan." 11 C.F.R. § 100.7(b)(11)(i)(A)(1).
 
In this case, Cantwell used an asset worth $375,000 as collateral for a $600,000 line of credit which she used to subsidize her campaign.  On its face, the collateral's fair market value was significantly less than the value of the line of credit and therefore the transaction violated FEC regulations and federal election law.

FEC regulations require that candidates borrowing money for their campaigns file a specific form (Schedule C-1) which discloses pertinent information regarding the loan.  The form requires the signature of a representative of the lending institution acknowledging the requirements of the FEC regulations, including the requirement cited above that collateral be worth at least as much as the loan.  The Schedule C-1 provided by the Committee was signed by Carla S. Haddow, a Vice President of U.S. Bank on January 25, 2001, many months after the loan was granted. (see Exhibit B)  Ironically, the statement affirmed by Ms. Haddow included an assurance that the loan "must be made on a basis that assures repayment."  Contrast that hollow post-election assurance with the fact that the Associated Press account of this story states that when Cantwell's committee's loan came due last month, "she was unable to pay and had to renegotiate the terms."

Put simply, Cantwell borrowed money for her campaign at a below-market rate and with insufficient collateral.  She then failed to disclose the credit terms as required by federal election law and only disclosed them after being twice contacted by the FEC.  Her banker signed a Schedule C-1 falsely attesting that all requirements of FEC regulations had been met when they clearly had not.  Shortly afterward, Cantwell was unable to repay the loan and had to renegotiate the terms.

While candidates for federal office are permitted to provide unlimited personal funds to their own campaign, federal election law and FEC regulations strictly require that any loan to the candidate bear the bank's usual and customary interest rate.  Any favoritism or below-market interest rate is tantamount to an illegal corporate loan to subsidize a race for federal office.

In the Cantwell case, the two loans cited in the Associated Press story both carried extremely favorable interest rates. As the Committee's belatedly filed Schedule C-1 attests, Cantwell listed the interest she was being charged as "Lender's Prime Rate."

The Federal Election Commission's Campaign Guide for Congressional Candidates and Committees (1999) summarizes FEC regulations with respect to bank loans as follows:
 

1.  Bank Loans

Conditions

A candidate or his or her committee may obtain a loan, including a line of credit, from a bank, provided that the loan:

• Bears the bank's usual and customary interest rate for the category of loan involved; and

• Is evidenced by a written instrument; and

• Is subject to a due date or amortization schedule; and

• Is made on a basis that assures repayment.

100.7(b)(11)

If a loan fails to meet any of these conditions, then a prohibited contribution from the lending institution results.

The Associated Press story noted the fact that Cantwell received the lender's prime rate on both loans "potentially saving her tens of thousands of dollars."  To the extent those savings materialized through an interest rate demonstrably lower than the bank's usual and customary rate, those funds constitute an illegal corporate contribution to the candidate.

As has already been noted, Cantwell's committee had a legal obligation to disclose the questionable loans in the reports filed with the Federal Election Commission in mid-October.  The necessary disclosure made in the FEC Schedule C-1 was not made until January 31, 2001 and only after two letters from the FEC to the Committee prodding them on the issue.  Violations of law are often accompanied by cover-ups by those violating the law.  In this case, Cantwell denied the public the right to know important details as to how she was financing her campaign.  Only after she won election by a paper-thin margin of 2,229 votes was the proper disclosure made.

It would be difficult to imagine a more compelling example of abuse of election laws than one in which the outcome of an election was affected by both multiple violations of election law followed by a failure to disclose information which is clearly required to be disclosed.

 None of the essential facts set forth in this complaint are in dispute.

 Nor are the legal questions difficult to answer.

 Put simply:
 

• Is a line of credit for $600,000 fully collateralized when it is secured by an asset worth just $375,000?  Of course not.  The law requires that the asset  used as collateral be equal to or great than the amount of the loan or credit at the time the transaction takes place.

• Is lender's prime rate as the interest on the two loans in this case the bank's usual and customary interest rate?  Of course not and any examination of six-figure loans provided by the bank in question last year would easily demonstrate that this was a very favorable and unusual rate.

• Is a filing of a Schedule C-1 by a campaign on January 31, 2001 a timely filing when FEC regulations clearly require the filing in mid-October? Of course not.

Given the compelling fact pattern and the very real possibility that the violations of law alleged in this complaint may well have affected the outcome of a Senate race and potentially the balance of power in the Senate itself, the public is entitled to a full and prompt investigation of this matter.  Anything less would make a mockery of federal election law.

A  Loans to Cantwell Come into Question: Borrowed Funds' Collateral at Issue, WASH. TIMES, Apr. 15, 2001, at A3.
 

B Maria Cantwell for Senate (Committee No. C00349506), FEC Form 3,  Amendment to Pre-General Report, Jan. 30, 2001, at 119.
 

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