July 16, 1998

The Honorable Robert Smith, Chairman
The Honorable Harry Reid, Ranking Minority Member
Select Committee on Ethics
United States Senate
220 Hart Senate Office Building
Washington, DC 20510

RE: Ethics Complaint and Request for Investigation of Senator Carol Moseley-Braun

This letter constitutes a formal ethics complaint against U.S. Senator Carol Moseley-Braun (D-IL), and a request for an investigation into whether she illegally converted campaign funds to personal use, violated criminal laws regarding the payment of taxes to the Internal Revenue Service (IRS), and violated Senate Rules.

This complaint is filed pursuant to Senate Resolution 338, which authorizes the Senate Select Committee on Ethics ("Ethics Committee") to "receive complaints and investigate allegations of improper conduct which may reflect upon the Senate, violations of law, violations of the Senate Code of Official Conduct, and violations of rules and regulations of the Senate...and to make appropriate findings of fact and conclusions with respect thereto..."⁽¹⁾

A: Request for Investigation into Whether Senator Moseley-Braun Illegally Converted Campaign Funds to Personal Use

On July 12, 1998, WBBM/TV-News aired a report suggesting that Senator Moseley-Braun may have converted campaign funds to personal use, and failed to pay taxes on those funds. According to the transcript of that report,

News 2 Chicago has learned that after 15 months of investigation in 1995, top Administrators of the IRS told the Tax Division of the Justice Department "we believe there are sufficient indications that tax crimes may have been committed" to warrant further investigation. And there are "allegations that Ms. Braun converted campaign funds to her own use that she did not report as income."

For instance, in 1992 and 1993, according to documents obtained by News 2 Chicago, the IRS determined Braun and [Kgosie] Mathews spent nearly $70,000 in campaign money for clothes, mostly designed wear by Giorgio Armani, almost $64,000 in travel including trips to Hawaii, Europe and Africa, $18,000 in jewelry, $25,000 for 2 jeeps and $12,000 in stereo equipment.

In all over $281,000 in campaign funds allegedly diverted to personal use.⁽²⁾

Congressional candidates are prohibited from converting campaign funds to personal use. Federal law states that:

Amounts received by a candidate as contributions that are in excess of any amount necessary to defray his expenditures....[may not be] converted by any person to any personal use, other than to defray any ordinary and necessary expenses incurred in connection with his or her duties as a holder of Federal office.⁽³⁾

The IRS has ruled that conversion of campaign funds to personal use may transform the funds into taxable personal income.

Political funds are not taxable to the political candidate by or for whom they are collected if they are used for expenses of a political campaign or some similar purpose. However, any amount diverted from the channel of campaign activity and used by the political candidate for any personal purpose is income taxable to such candidate for the year in which the funds are so diverted.⁽⁴⁾

If Senator Moseley-Braun converted campaign funds to personal use, but failed to pay taxes on that income, she may have run afoul of the federal statute prohibiting tax evasion, which states that:

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall...be guilty of a felony...⁽⁵⁾

Federal law also prohibits making false statements on a tax return.

Any person who . . . willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter...shall be guilty of a felony...⁽⁶⁾

No contribution (as defined in section 301(e) of the Federal Election Campaign Act of 1971 (2 U.S.C. 431)) shall be converted to the personal use of any Member or any former Member. For the purposes of this rule "personal use" does not include reimbursement of expenses incurred by a Member in connection with his official duties.⁽⁷⁾

But that in no way resolves the tax issues involved here. Even if some of Senator Moseley-Braun's expenditures were merely a species of "mixed use" -- part personal use and part legitimate campaign use -- at some point they would likely, at least in part, be taxable income, and the IRS would likely impute them as such to Senator Moseley-Braun.

B: Request for Ethics Committee Review of Other Sections of News Reports

On July 12,WBBM/TV-News reported that:

The IRS told Justice a grand jury was needed to explore allegations going all the way back to Moseley-Braun's tenure as Cook County Recorder of Deeds, the allegations relating to possible bank fraud, bribery and other federal crimes.

Without a grand jury, said the IRS, certain documents, certain witnesses were out of their reach.

On June 20, 1995, the Tax Division of Justice, headed by Loretta Argrett said no, a grand jury was "not warranted."

Months later, top Administrators at the IRS made a 2^nd federal grand jury request and again the Justice Department said no, arguing the IRS's facts were quote "insufficient to support a grand jury."⁽⁹⁾

Consequently, we request that the Ethics Committee review this portion of the WBBM/TV-News report, and the facts underlying it, to determine whether Senator Moseley-Braun has violated any federal law, Senate Rule, or applicable code of conduct.

C: Conclusion

The American people rely on the Senate Select Committee on Ethics to uphold the integrity of the Senate. The Ethics Committee must carry out its responsibilities with vigor and thoroughness to determine whether Senator Moseley-Braun has violated federal laws regarding the conversion of campaign funds to personal use, federal tax laws, and Senate Rules. The Ethics Committee's responsibilities in this matter are heightened given the refusal by the Justice Department to authorize a grand jury to investigate whether Senator Moseley-Braun illegally converted campaign funds to personal use, and violated criminal tax laws. This refusal has been called into question by former Justice Department officials and renowned tax experts.

The Ethics Committee bears a heavy burden with respect to this matter. We hope that it will meet the challenge, and fulfill its responsibilities to the American people.

Sincerely,
 

Gary Ruskin
Director 

1. S. Res. 338, Sec. 2(a)(1).

2. Carol Marin, transcript of news broadcast. WBBM/TV-News, 12 July 1998. Attachment #1 also includes Carol Marin, transcript of news broadcast. WBBM/TV-News, 13 July 1998. Mary Jacoby, "FEC Questioned Personal Expenses from 1992 Campaign." Roll Call, 16 July 1998. Mike Dorning and Marla Donato, "Federal Prosecutors Rejected IRS Probe of Moseley-Braun in '95." Chicago Tribune, 13 July 1998. Lynn Sweet, "IRS Request for Probe of Senator Was Denied." Chicago Sun-Times, 13 July 1998. "Sen. Carol Moseley-Braun Learns of 1995 IRS Investigation." Associated Press, 13 July 1998.

3. 2 U.S.C. § 439a.

4. Rev. Proc. 68-19, 1968-1 C.B. 810, Section 2. See also Rev. Rul. 74-23, 1974-1 C.B. 17.

5. 26 U.S.C. § 7201.

6. 26 U.S.C. § 7206.

7. Senate Rule 38.2.

8. Effective April 5, 1995, the Federal Election Commission promulgated new regulations regarding the personal use of campaign funds which implemented and clarified portions of the statute regarding personal use. See 11 C.F.R. Parts 100, 104 and 113. 60 F.R. 17193.

9. Carol Marin, transcript of news broadcast. WBBM/TV-News, 12 July 1998.

10. Damon Chappie and Mary Jacoby, "Justice Department Rulings Questioned." Roll Call, 16 July 1998. See Attachment #2. See also Carol Marin, transcript of news broadcast. WBBM/TV-News, 12 July 1998.