Federal Election Commission Main Page
FEDERAL ELECTION COMMISSION
Washington, DC 20463
March 14, 2005
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 2005-01
C. Bryant Rogers, Esq.
Roth, VanAmberg, Rogers, Ortiz & Yepa, LLP.
P.O. Box 1447
Santa Fe, NM 87504-1447
Dear Mr. Rogers:
We are responding to your advisory opinion request
regarding the possible Federal contractor status of the
Mississippi Band of Choctaw Indians ("the Tribe"), a
Federally recognized Indian tribe, under the Federal
Election Campaign Act of 1971, as amended ("the Act"), and
Commission regulations. The Tribe owns and controls IKBI,
Inc. ("IKBI"), a Tribal corporation that intends to become a
Federal contractor.
The facts indicate that IKBI can be treated as a
separate entity from the Tribe and that the commercial
activity of IKBI as a Federal contractor can be separated
from the Tribe's political activities. IKBI's status as a
Federal contractor will not make the Tribe a Federal
contractor for purposes of the Act, and will not affect the
Tribe's ability to make contributions to Federal candidates,
political parties and political committees.
BACKGROUND
The facts of this opinion are presented in your letter
dated January 6, 2005.
The Tribe is a non-corporate entity organized in
accordance with a constitution approved in 1975 by the
Secretary of the Interior pursuant to 25 U.S.C. 476. See
Advisory Opinion 1993-12. The Tribal constitution
authorizes the creation of "organizations, including public
and private corporations, for any lawful purpose, which may
be non-profit or profit making, and to regulate the
activities of such organizations by ordinance." Tribal
Constitution, Article VIII, section 1(j).
The Tribe established and chartered IKBI in June 2004
as a for-profit Tribal "separate corporation." The Tribe
provided approximately $ 468,000 in initial and supplemental
capitalization to IKBI. The purpose of IKBI is to "compete
for and perform construction contracts and any other lawful
purpose consistent with [its] charter." IKBI Charter,
Article VII, section A.
IKBI is governed by its board of directors, which is
elected by its sole shareholder, the Choctaw Development
Enterprise ("CDE"), acting on behalf of the Tribe. Id. at
section B. CDE, in turn, is operated and managed by its
five-member enterprise board, which is appointed by the
Tribal Council with Tribal Chief and the Tribal Secretary -
Treasurer serving as the enterprise board's Chairman and
Treasurer, respectively.1
IKBI's board of directors manages the business and
affairs of the corporation; however, the Tribal Council
retains the authority to issue shares of the IKBI stock.
Id. at section C(9). Board members must be members of the
Tribe, but no member of the Tribal Council may serve on the
board. Id. at section(C)(1). The board has the authority to
waive the sovereign immunity of the corporation, but not the
sovereign immunity of the Tribe or any other Tribal entity
or enterprise. Id. at section C(9). The board elects and
removes officers of the corporation and authorizes the
officers to enter into contracts on the corporation's
behalf. Id. at sections D(1) and (3) and section F.
IKBI has its own tax identification number separate
from that of the Tribe. It maintains office space and
records separate from the Tribe and has its own bank account
separate from the Tribe. You state that IKBI leases or owns
its own property. It has its own corporate employees and
personnel policies, and it provides employee benefits
separate from the Tribe. Finally, IKBI has separate legal
counsel.
IKBI is a construction company and most of its planned
work consists of construction projects for the U. S.
Government or Federal agencies. IKBI intends to seek both
sole source and competitive bid contracts with various
Federal agencies, including the General Services
Administration and the Federal Aviation Administration.
These contracts will be funded with Federally appropriated
funds.
For all its construction projects, both Federal and non-
Federal, the owner/purchaser will require IKBI to obtain a
standard performance bond from a reputable bonding company
and, in some instances, a bid bond and payment bond as well.
As a condition for issuing the bonds, the bonding agent will
require the Tribe, (through CDE as the sole stockholder of
IKBI), to sign an "agreement of indemnity." This obligates
the Tribe (through CDE) to act as co-indemnitor (along with
IKBI) for any losses and liabilities on the bonds. As a
startup company, IKBI has neither sufficient in-house
financial resources nor a sufficient proven construction
track record to enable it to obtain the requisite bonds on
its own.
Question Presented
Will the Tribe's relationship to IKBI, including its
role as co-indemnitor on bonds related to Federal contracts,
make it a Federal contractor for purposes of the Act and
Commission regulations?
Legal Analysis and Conclusion
No, because of IKBI's distinct and separate identity
from the Tribe, the status of IKBI as a Federal contractor,
even within the context of the indemnification agreement,
does not make the Tribe a Federal contractor.
The term "person" as defined in the Act includes an
individual, partnership, committee, association,
corporation, labor organization, or any other organization
or group of persons, but such term does not include the
Federal Government or any authority of the Federal
Government. 2 U.S.C. 431(11). The Tribe, which is an
unincorporated entity, is a " person" under the Act. See
Advisory Opinion 1993-12. As a corporation, IKBI is also a
"person" under the Act. 2 U.S.C. 431(11).
Under 2 U.S.C. 441c, it is unlawful for any person who
is a Federal contractor "directly or indirectly to make any
contribution of money or other things of value, or to
promise expressly or impliedly to make any such contribution
to any political party, committee, or candidate for public
office." See also 11 CFR 115.2(a). This prohibition
extends from the commencement of the contract negotiations
until the completion of the contract performance or the
termination of negotiations. 11 CFR 115.1(b), 115.2(b).
Under 2 U.S.C. 441c(a)(1) and Commission regulations at
11 CFR 115.1(a), a "Federal contractor" is a person who:
(1) Enters into any contract with the United States or
any department or agency
thereof either for-
(i) The rendition of personal services; or
(ii) Furnishing any material, supplies, or
equipment; or
(iii) Selling any land or buildings;
(2) If the payment for the performance of the contract
or payment for the material,
supplies, equipment, land, or building is to be
made in whole or in part from
funds appropriated by the Congress.
Under 11 CFR 115.1(c), the term "contract" includes:
(1) A sole source, negotiated, or advertised
procurement conducted by the United
States or any of its agencies;
(2) A written (except as otherwise authorized)
contract, between any person and the United States or
any of its departments or agencies, for the furnishing
of personal property, real property, or personal
services; and
(3) Any modification of a contract.
The request describes IKBI's proposed transactions with
the Federal governments as "contracts." For purposes of
this advisory opinion the Commission assumes, therefore,
that these are the type of agreements described in 11 CFR
115.1(c). When IKBI qualifies as a Federal contractor, 2
U.S.C. 441c and 11 CFR 115.2 will prohibit it from making
contributions. This advisory opinion considers whether that
prohibition extends to the Tribe as well.
In two advisory opinions the Commission has considered
whether the Federal contractor status of subordinate tribal
enterprises limits the ability of Indian tribes to make
contributions. See Advisory Opinions 1999-32 and 1993-12.
The Commission concluded that if circumstances demonstrate
that the tribal enterprise has a distinct and separate
identity from the Indian tribe itself, then the Act does not
prohibit a tribe from making contributions because of the
Federal contractor status of the tribal enterprise. See
Advisory Opinion 1999-32.
The facts in this request are substantially similar to
the facts considered in Advisory Opinion 1999-32. As in
Advisory Opinion 1999-32, circumstances indicate that IKBI
is a separate and distinct entity from the Tribe. These
include the separate incorporation of IKBI, the separate
leasing and ownership of property, the fact that no member
of the Tribal council may serve on the IKBI board, and that
IBKI has a separate legal counsel, bank account, tax
identification number and separate employees, personnel and
benefit policies from the Tribe. Further, as in Advisory
Opinion 1999-32, funds from the Tribal enterprise that is a
Federal contractor are not intermingled with other Tribal
funds. The Commission notes that revenues from IKBI may not
be used to make contributions to Federal candidates or
political committees.
Accordingly, when IKBI qualifies as a Federal
contractor, its status as Federal contractor does not confer
Federal contractor status on the Tribe and therefore will
not affect the Tribe's political activities under 2 U.S.C.
441c. The Tribe may continue to make contributions as a
"person" under the Act subject to the condition that
revenues from IKBI may not be used to fund these
contributions. See Advisory Opinion 1999-32.
This response constitutes an advisory opinion
concerning the application of the Act and Commission
regulations to the specific transaction or activity set
forth in your request. See 2 U.S.C. 437f. The Commission
emphasizes that if there is a change in any of the facts or
assumptions presented, and such facts or assumptions are
material to a
conclusion presented in this advisory opinion, then the
requestor may not rely on that conclusion as support for its
proposed activity.
Sincerely,
(signed)
Scott E. Thomas
Chairman
Enclosures (Advisory Opinions 1999-32 and 1993-12)
ADVISORY OPINION 2005-01
DISSENTING OPINION OF VICE CHAIRMAN MICHAEL E. TONER
AND COMMISSIONER DAVID M. MASON
Advisory Opinion ("AO") 2005-01 arises from a request
by the Mississippi Band of Choctaw Indians ("Tribe"), which
owns and controls IKBI, Inc., a Tribal entity seeking to be
a federal contractor. AO 2005-01 at 1. The issue is
whether the Tribe's relationship to IKBI will make the Tribe
itself a federal contractor under the Federal Election
Campaign Act ("FECA") and Federal Election Commission
("Commission") regulations. Id. at 4; see 2 U.S.C. 441c
(1980); see also 11 C.F.R. 115 (1976).
The Commission's Conclusion
In considering whether the Tribe's relationship to
IKBI will make the Tribe itself a federal contractor, the
Commission cites AO 1993-12 and AO 1999-32, which considered
federal-contractor status and Indian tribes. The Commission
states that if the federal-contractor tribal enterprise -
here, IKBI - is separate and distinct from the tribe itself,
then the tribe itself is not a federal contractor and may
make contributions. See AO 2005-01 at 5 (citing AO 1999-
32). The Commission concludes that IKBI is separate and
distinct from the Tribe, because:
ú IKBI is separately incorporated.
ú It separately leases and owns property.
ú No Tribal council member may be on the IKBI board.
ú IKBI has a separate legal counsel, bank account, tax-
identification number, plus separate employees, personnel
policies, and benefit policies, and
ú IKBI money does not intermingle with other Tribal
money.
Id. at 5-6. Accordingly, the Commission concludes the Tribe
is not a federal contractor. Therefore, it may make
contributions, id. at 6 (citing 2 U.S.C. 441c), as long as
it does not use IKBI revenues. Id. (citing AO 1999-32).
The Tribe as a Federal Contractor
Because the Commission's conclusion is mistaken, we
respectfully dissent.
AO 1999-32 also considered federal-contractor status
and Indian tribes, and concluded that a tribe was not a
federal contractor. But AO 1999-32 is different from AO
2005-01, and the Commission should reach a different result.
First, the Commission should not overlook the
background or the recent developments in the news. The
tribe at issue in AO 1999-32 provided utility services to
the federal Bureau of Indian Affairs ("BIA") and Indian
Health Services ("IHS") offices on the tribe's reservation.
While there is no scandal of which we are aware involving
that tribe, recent developments in the news concern tribal
political activity, including contributions by tribes. Most
recently, for example, the Michigan Saginaws received a
congressional appropriation for a school, and made
contributions at about the same time Congress was
considering the appropriations bill. See Susan Schmidt,
Tribal Grant Is Being Questioned, Wash. Post, March 1, 2005,
at A3. While many entities frequently make similarly timed
contributions, one purpose of campaign-contribution limits
in general and the federal contractor prohibition in
particular is to reduce the opportunity for quid pro quo
transactions. The reason is that if contributions are
small enough, then the harm that comes from them can be
reduced. See, e.g., Buckley v. Valeo, 424 U.S. 1, 26-29
(1976) (discussing contribution limits). Given these news
reports - plus the recent ones involving Jack Abramoff -
tribal contributions, and the political role tribes play,
have become a major and controversial issue that the
Commission should not set aside in setting policy.
That is not to say, of course, that the Commission
should punish the Mississippi Choctaws for the alleged sins
of the Michigan Saginaws or of Mr. Abramoff. Nevertheless,
one aspect of AOs is that while the Commission issues them
to particular requestors, they apply to other similarly
situated parties. See 2 U.S.C. 437f (1986). Thus, it is
appropriate to note that political activity of many tribes
has been the subject of controversy. Moreover, the
connection between contributions and the appropriations
process has raised substantial questions.2 The Commission
should not ignore this background by referring generally to
policy or historical reasons for liberal construction of
statutes applied to tribes.3 Rather, the Commission has
compelling reason to tread carefully when construing
statutes designed to limit inappropriate political activity
as applied to Indian tribes, particularly those that enter
into government contracts with the federal government.
Second, AO 1999-32 involved the establishment of
utilities for the reservation itself. Although on-
reservation BIA and IHS offices received utility services,
that was incidental to the tribe's purpose in establishing
an electric utility. While one court decision seemed to
conclude that electric companies providing electricity to
federal agencies were federal contractors, and thus were
bound by civil-rights laws, there was no threat that the AO
1999-32 tribe's federal-contractor status would represent an
incentive for the tribe to make, or politicians to seek,
political contributions.
By contrast, in AO 2005-01, the Tribal ownership of the
corporation is absolutely essential to its business, which
may operate exclusively as a government contractor. IKBI
maintains it is qualified as a "small" and "disadvantaged"
business under the federal Small Business Administration
("SBA"). If the Tribe did not own IKBI, IKBI could not make
that claim. As a result of its status, IKBI will compete
for business throughout the country. Thus, the Tribal
relationship is essential to the corporation's business
plan, and the corporation will carry out its business plan
far outside the reservation, far outside its immediate
confines, and in ways having nothing to do with the welfare
- other than economic development - of Tribe members.
The IKBI-Choctaw business plan bears directly on the
reason for the federal-contractor ban, namely that Congress
did not want federal contractors to take money from those
contracts and plow it back into the political system to get
even more federal contracts. Cf. 2 U.S.C. 441c(a). Yet
protecting and expanding its federal-contracting
opportunities will be one of the primary interests behind
Tribal contributions once IKBI becomes a federal contractor.
AO 1993-12 also bears on the main reason for the ban on
federal-contractor contributions. AO 1993-12 considered
three agreements between the federal government and,
coincidentally, the Mississippi Band of Choctaw Indians, the
same Tribe before the Commission in AO 2005-01. The
Commission held that the first and second agreements were
not contracts under 2 U.S.C. 441c(a), but the third
agreement was. Under the third, the Tribe itself provided
posters and prints to the BIA. Had the Commission held that
the Tribe was not a federal contractor, it could have taken
money from its federal contracts and plowed it back into the
political system to get even more federal contracts. Cf. 2
U.S.C. 441c(a).
Finally, in finding that the contractor ban did not
apply to the requesting tribe in AO 1999-32, the Commission
held as an essential element of its analysis the absence of
financial links between the Tribe and the Tribal Utility
Authority. Here, the Choctaws' indemnification agreement
represents a material linkage between the tribe and the
corporation. Thus, in its desire to accommodate this
request, the Commission is not following its prior AOs, but
departing from them.
PAC Option
The law does allow federal contractors to establish
separate segregated funds, see 2 U.S.C. 441c(b), also
known as political action committees ("PACs"). More
importantly, there is a material difference between going to
owners or executives - whether they are Tribal members or
IKBI employees - and asking them to take money out of their
own pockets and contribute it to a PAC, and taking the money
out of the federal contractor's revenues and using it to
make contributions. The former is legal, see, e.g., id.
441c(b), while the latter is not. See id. 441c(a).
Having a PAC, or even having two PACs - one for IKBI and one
for the Tribe - would allow the Tribe to continue to play a
role in the political process, yet the Tribe would not be
able to fund its political activities out of the fisc of the
contractor.
While the Commission does provide that the Tribe may
not make contributions using IKBI revenue, see AO 2005-01 at
6, that separation may prove illusory because money is
fungible. When IKBI profits go back to the Tribe, it will
be able to use IKBI money for such items as schools and
roads, which is commendable, but then the Tribe will be able
to use money it otherwise would have used for schools and
roads to make political contributions. The accounting
separation will not have a material effect.
Business and Politics, Native Americans, and Consistency
Other Members of the Commission assert that the Tribe
should not have to choose between being a business entity
and being in the political arena. The Tribe need not choose
between being a business entity and being in the political
arena. However, it must choose between being a federal
contractor and making federal contributions. See 2 U.S.C.
441c(a). The issue in this AO is whether the Tribe as a
business entity is a federal contractor. See AO 2005-01 at
4. As a federal contractor, it may not make contributions,
see 2 U.S.C. 441c(a), yet IKBI may establish a PAC, see
id. (b), through which others may make contributions.
See, e.g., id. 441b(b)(4).
Finally, one Member of the Commission is correct in
urging the Commission to be sensitive to the fact that, by
holding that the Tribe is a federal contractor, the
Commission would reach a different result than it reached in
AO 1999-32, and would reach a result more like the one in AO
1993-12. However, different facts can legitimately lead to
different conclusions. Here they do. For the foregoing
reasons, the Commission should distinguish AO 2005-01 from
AO 1999-32 and hold that the Tribe will be a federal
contractor under FECA.
______________________________
__________(signed)________________
Date Michael E. Toner, Vice
Chairman
_____________________________________________(signed)_______
___________ Date David M. Mason,
Commissioner
_______________________________
1 CDE was created in November 1997, to engage in
residential, commercial and institutional construction. CDE
is not a "separate legal entity" but is an "arm of the
Tribe." See Tribal ordinance No. 56.
2 That the Mississippi Choctaws or other tribes are
represented as victims in certain other controversies is no
reason to restrict the application of statutes designed to
prohibit inappropriate contributions. Similar to the
Municipal Securities Rulemaking Board (and state) "pay-to-
play" prohibitions, the federal-contractor prohibition
serves as much to insulate contractors from inappropriate
requests for contributions as to limit offers by contractors
to politicians.
3 The requestor asserts that the "Supreme Court has
repeatedly articulated a principle for resolving issues in
such circumstances: statutes are to be construed liberally
in favor of the Indians, with ambiguous provisions
interpreted to their benefit." Letter of Bryant Rogers,
Counsel for the Requestors, to Rosemary Smith, Associate
General Counsel, at 5 (March 8, 2005) (citations omitted).