Arrest of Giuliani associates tied to Ukraine scandal renews scrutiny on campaign finance rules

SOO RIN KIM and KENDALL KARSON

Arrest of Giuliani associates tied to Ukraine scandal renews scrutiny on campaign finance rules originally appeared on abcnews.go.com

The criminal "dark money" case involving two men with ties to President Donald Trump's personal lawyer, Rudy Giuliani, has raised more questions about how the presence of foreign money in U.S. elections can enable nefarious actors to take advantage of a political system powered by cash.

The ultimate goal of Lev Parnas and Igor Fruman, who were charged Thursday with allegedly plotting a complex scheme to circumvent campaign finance laws, by using straw donations to disguise the original source of contributions and exceed donation limits, was "to gain influence with candidates as to policies that would benefit a future business venture," according to the indictment.

"It's very clear that the goal of these contributions was to buy access in order to advance their own personal financial interests and the interests of foreign government officials," Brendan Fischer, federal reform director at the watchdog group Campaign Legal Center, told ABC News. "That is a pretty clear example of the problems with our with our political system -- that in order to have your voice heard by powerful politicians, you have to give them money."

Both Parnas and Fruman have denied wrongdoing. Giuliani told ABC News' Kyra Phillips on Saturday that he has no knowledge he's under investigation and that no one from the Department of Justice had contacted him about Parnas or Fruman.

As foreign actors and governments continue to implement a wide range of tactics to penetrate and hold sway within America's political landscape, these unsealed charges raise questions about the extent to which individuals with foreign allegiances are leveraging political ties to undermine campaign finance safeguards and gain influence, experts said.

(MORE: 2 men with ties to Giuliani arrested on campaign finance charges, bond set at $1M)

"The charges of conspiracy to funnel foreign dollars into U.S. elections against Florida businessmen Lev Parnas and Igor Fruman paint a troubling picture of the free flow of foreign money into our elections due to insufficient safeguards and lax enforcement," Paul S. Ryan, vice president for policy and litigation for Common Cause, another watchdog group, said in a statement. "[Thursday's] indictments, though, likely represent only the tip of the iceberg in terms of foreign meddling."

PHOTO: This Facebook screen shot provided by The Campaign Legal Center, shows President Donald Trump standing with Lev Parnas, top left photo, at the White House in Washington, posted on May 1, 2018. (AP)

"Both men were also heavily involved in the efforts by the White House and President Trump's personal attorney, Rudy Giuliani, to pressure the Ukrainian government to investigate unsubstantiated allegations against Trump's political rival, Joe Biden," he added.

Loopholes in campaign finance law

Parnas and Fruman are not the first to allegedly try to buy political influence, and they likely won't be the last to defy existing rules, experts told ABC News.

But their alleged actions bring new scrutiny on the current campaign finance apparatus and the lawmakers and officials responsible for patrolling it. The entire system operates in relatively new terrain after the blockbuster 2010 Supreme Court decision in Citizens United v. Federal Election Commission. The court's conservative majority in the case ruled unconstitutional a longstanding federal law prohibiting corporate "independent expenditures" supporting or opposing federal candidates under the First Amendment.

(MORE: From a controversial phone call to impeachment calls: A Trump whistleblower timeline)

Ryan said the advent of Citizens United, which fueled the rise of super PACs, political actions committees that can accept unlimited donations, unlike candidate committees and regular PACs that are limited, is the main reason the two Florida residents may have been able to easily conceal their identities while contributing to super PACs.

"It was clear in 2010 that disclosure laws on the books would not prevent the sort of corporate, straw-donor scheme at the heart of the Parnas and Fruman indictment unsealed [Thursday]," he noted.

(MORE: FEC left toothless with three empty seats heading into 2020)

But the alleged actions of Parnas and Fruman, Fischer said, clearly show why concerns over the weakness of campaign finance laws must extend beyond Citizens United.

"There's a history of wealthy donors using LLCs to make political contributions anonymously," Fischer said. "Wealthy donors setting up an LLC, putting money into the LLC, and then donating in the name of the LLC rather than in their own name in at first."

PHOTO: Rep. Pete Sessions, R-Texas, leaves a meeting of the GOP Conference at the Capitol Hill Club on April 17, 2018. (CQ-Roll Call, Inc via Getty Images, FILE)

The problem, Fischer told ABC News, is the FEC's lack of enforcement.

"The reason that Fruman and Parnas may have felt comfortable using an LLC to launder their political contributions," Fischer said, "is because they figured the FEC wouldn't do anything about it."

The FEC has long faced criticism that it has been unable to act on important matters because of partisanship and frequent deadlocks. Concerns over the Federal Election Commission further intensified last month when one of the four remaining commissioners resigned, leaving the agency one vote short of the quorum required to act on any substantial matter.

But efforts to conceal foreign sources of political contributions haven't always gone unnoticed.

(MORE: Warren shifts stance on big money fundraisers in general election)

Last year, federal prosecutors indicted a veteran Republican lobbyist, Sam Patten, in a foreign lobbying and campaign finance case referred by special counsel Robert Mueller, leading to a guilty plea and cooperation from the operative, who illegally purchased tickets to Trump's inauguration on behalf of a foreign client. In April, Patten was sentenced to three years probation, a $5,000 fine and 500 hours of community service.

2 men tied to Ukraine scandal rankle GOP

The indictment of Parnas and Fruman details a "foreign national donor scheme" alleging how the two men and other associates funneled "$1-2 million" from a foreign donor with "Russian roots" into the U.S. political system between June 2018 and April 2019 to boost the donor's recreational marijuana business while concealing the origin of their money.

The indictment also alleges the defendants made a series of illegal straw donations that included $325,000 to the pro-Trump super PAC America First Action. Prosecutors allege that the two suspects violated the law by falsely reporting the origin of those funds under the name of "Global Energy Producers."

PHOTO: In this June 9, 2019, file photo, Democratic presidential candidate Steve Bullock speaks during the Iowa Democratic Party's Hall of Fame Celebration in Cedar Rapids, Iowa. (Charlie Neibergall/AP, FILE)

The indictment outlines Parnas and Fruman's alleged scheme to raise $20,000 for a "then-sitting U.S. Congressman" who "had also been the beneficiary of approximately $3 million" from America First Action during the 2018 midterm cycle. According to the indictment, Parnas allegedly met with the congressman and sought his "assistance in causing the U.S. government to remove or recall the then-U.S. Ambassador to Ukraine," Marie Yovanovitch.

The indictment doesn't name the congressman, but it appears to be former Rep. Pete Sessions, who is seeking a return to Congress in 2020, ABC News reported.

Sessions, in a statement on Thursday, stopped short of confirming that he is "Congressman-1" in the indictment, but added that if he is indeed the congressman in question, he would not have any knowledge of the alleged campaign finance scheme.

Another Republican member of Congress entangled in the scandal is House Minority Leader Kevin McCarthy, after it was revealed an $11,000 donation from Parnas to McCarthy's joint fundraising committee with the National Republican Campaign Committee, Protect the House, also was part of the defendants' straw-donation scheme, the indictment showed.

But a McCarthy spokesperson said Thursday he is giving any donations from Parnas and Fruman to a local charity, adding, "The deception documented in [Thursday's] indictment has no place in our country."

Sessions, late Friday, similarly said he'd be donating what he'd received to charity, as reported by USA TODAY.

2020 Democrats map out campaign finance reforms

The allegations of illicit contributions from Parnas and Fruman to multiple Republicans, all the way up to a Trump-blessed PAC, come as many Democratic 2020 candidates have implemented some form of self-imposed limits on campaign fundraising -- a move that highlights the significance of the party's promise to get money out of politics.

Two top-tier candidates, Vermont Sen. Bernie Sanders and Massachusetts Sen. Elizabeth Warren, have been leading the charge in swearing off closed-door, high-dollar fundraisers through the general election, and other 2020 candidates also have been vocal in criticizing Citizens United.

While the presidential hopefuls are perhaps churning out more detailed policies to reform campaign finance in the primary, Fischer argues that to prevent foreign cash from slipping through, candidates should go farther than just talking about big-picture ideas related to corporate donations or overturning Citizens United, an unlikely outcome given the current makeup of the Supreme Court.

Warren has also said she would only nominate commissioners who would rigorously enforce campaign finance laws, , Sanders has put out a proposal to restructure the FEC, and Montana Gov. Steve Bullock has made an effort to rid the political system of "dark money" and curbing foreign influence in elections a cornerstone of his campaign.

"Assuming that gridlock is going to be the norm for the next several years in Congress," Fischer said, "short of the FEC reform legislation passing, something the next president could absolutely do is to commit to nominating FEC commissioners who are committed to the mission of the agency, and who will actually enforce the law."