The Honorable Benjamin L. Cardin As the Ranking member of the Investigative Subcommittee, I want to take this opportunity to supplement the record by underscoring information contained in the special counsel's report. In doing so, I will highlight five specific points which I believe are critical to an understanding of the actions of Rep. Gingrich which violated the rules of the House of Representatives. First, this is not a case of a naive college professor being unaware of an arcane tax law and failing to seek legal assistance. Second, there were numerous instances of commingling of funds between political action committees and tax exempt organizations controlled by Mr. Gingrich. Third, these activities constituted clear violations of tax law. Fourth, Mr. Gingrich should have known that his activities in merging political action committees and tax exempt organizations were of questionable legality, and should have sought proper tax advice before proceeding. And fifth, Mr. Gingrich has engaged in a pattern of providing inaccurate, incomplete, and unreliable information to the Ethics Committee that casts doubt on his intentions. Let me now proceed to develop more fully each of these points. First, we must discard the notion that this case involves a college professor engaged in normal academic classroom activities. The respondent in this case is not Professor Gingrich, but Rep. Gingrich, a Member of Congress, the Minority Whip, then Speaker of the House, who had a vision to launch a political movement to change the country from "a welfare state" to "an opportunity society." Mr. Gingrich set out to achieve this objective by using all the tools at his disposal including GOPAC, the Republican Party, the Friends of Newt Gingrich Campaign Committee, and many other related partisan institutions. It was a comprehensive, all-out assault on the political system, and a campaign to make Mr. Gingrich the Speaker of a Republican-controlled House of Representatives. The objectives of this political movement depended on recruiting activists dedicated to achieving a Republican majority in Congress. The key was communicating the principles of the "Opportunity Society." Toward this end, Mr. Gingrich decided to teach, and did teach, a course which he called Renewing American Civilization (RAC). The idea of teaching the course was to change the political landscape of this country. The dissemination of the materials of the course would be the principal method for communicating the ideas that Mr. Gingrich was convinced would lead to achieving a Republican Congress. As Mr. Gingrich himself said, the course was "the only way actually to develop and send ... out" the message of the political movement. It is crucial to understand that Mr. Gingrich ensured that GOPAC and the course advanced the same message. GOPAC was and is a partisan Republican political action committee (PAC), and was the driving force behind the political movement that Mr. Gingrich headed. It has been argued by some in defending Mr. Gingrich that the course materials of RAC were not partisan in nature. But the essential point, which numerous documents presented by the subcommittee and the special counsel make clear, is that the course was part of the political movement. Mr. Gingrich was the chairman of GOPAC, and was consumed by one overriding goal - to overturn the Democratic majority in the House and to make himself Speaker. There is no question that the college course grew out of this passion, rather than any desire by Mr. Gingrich to give up politics and take up an academic life. There is also no question that the dissemination of the course was a key element in Mr. Gingrich's political strategy. Second, Mr. Gingrich's political ambition had made him a pioneer in the commingling of tax exempt organizations (501(c)(3)'s) and PACs, frequently with troublesome consequences. This course of action was made necessary by GOPAC's recurrent difficulties raising the funds needed to carry out Mr. Gingrich's political vision. In 1993, Rep. Gingrich realized GOPAC could not afford to disseminate RAC, so the task of disseminating the course was paid for by the Kennesaw State College Fund (KSCF) and the Progress and Freedom Foundation (PFF), both of which are 501(c)(3)'s. In funding his political activities through contributions to 501(c)(3)'s, Mr. Gingrich was repeating a course of action he had taken earlier. In 1990, prior to initiating RAC, Mr. Gingrich had begun work, through GOPAC, on a series of television programs to advance similar objectives. That project, the American Opportunity Workshop, reflected GOPAC's partisan objectives. After launching the project, GOPAC was unable to sustain the needed level of funding. Faced with this failure, GOPAC, under the direction of Mr. Gingrich, arranged for the broadcast of these programs to be paid for by the Abraham Lincoln Opportunity Foundation (ALOF), a 501(c)(3) entity. The critical point in each of these instances is that most of the contributions to the 501(c)(3)'s were sources identified by GOPAC or other Republican entities. By this mechanism, donors who either were not allowed, or who were not willing to contribute to a PAC, such as corporations or foundations, were encouraged by Republican operatives to contribute to the 501(c)(3)'s. In addition, the donors received a tax advantage in making the contributions, which would not have been available if the contributions had been made directly to GOPAC. The improper use of tax exempts to attract political donations is clear from the record established by the subcommittee. For example, in February 1992, GOPAC agents contacted R. Randolph Richardson, to urge him to become a GOPAC charter member. It was made clear that a charter membership in GOPAC cost $10,000, and it could be satisfied by contributing to the ALOF. At that time, ALOF owed GOPAC money, but the amount of the indebtednhess may have been exaggerated. Following the suggestion of the GOPAC operatives, Mr. Richardson's foundation wrote a $25,000 check to ALOF. Nine days later, the ALOF wrote a $25,000 check to GOPAC. In March of the same year, Howard "Bo" Callaway, a former Republican Congressman and National Republican Committeeman from Georgia who had initially formed ALOF, made GOPAC an offer. In order to pay for his charter membership in GOPAC, he would either write a check for $10,000 to GOPAC, or he would write a tax deductible check for $20,000 to the ALOF. 2 One week later, Mr. Callaway wrote a $20,000 check to ALOF. On the same day, the ALOF wrote a check for the same $20,000 to GOPAC. A series of these transactions afforded GOPAC an opportunity to receive funds it could not otherwise have raised directly, and provided contributors an opportunity to receive tax advantages not available for legitimate political contributions. In all, $117,000 was transferred from ALOF to GOPAC during this period. A similar pattern of funds transfers characterized GOPAC's interaction with the PFF. The exhibit indicates that many of GOPAC's contributors were the sources of funds for the PFF. Once again, the use of a tax exempt entity improved GOPAC's fundraising prospects. In his testimony, Mr. Gingrich acknowledged that GOPAC was having difficulty raising funds. In 1992, its revenues were $250,000 short of its projected budget. By soliciting funds for the tax exempt entity, it was able to bridge some of this shortfall. In all, almost $1.5 million was spent by these tax exempt organizations, costing the United States Treasury hundreds of thousands of dollars in lost tax revenues that should have been paid. The contributions to those tax exempt entities would not have been tax deductible had they been given directly to GOPAC. By offering donors the opportunity to funnel their political contributions through the 501(c)(3)'s, thereby making them tax deductible, Mr. Gingrich and his operatives were able to attract needed dollars for their political purposes. The upshot was that GOPAC won, and the big dollar contributors won, and Mr. Gingrich won, but the American taxpayers lost. Third, the tax law in this area is clear. Tax exempt organizations know that it is extremely risky to commingle its funds and activities with PACs. Tax exempts understand well that the penalty for doing so can be loss of their tax exempt status. They do not take such action without consulting competent legal counsel. The limits on their activities are clear under the law, and were clearly exceeded in this case. Through the methods described above, there is no doubt that prohibited benefits were conferred upon GOPAC, Mr. Gingrich, and other Republican entities and candidates. In reviewing these questions, the subcommittee enlisted Celia Roady, a leading national authority in this area of tax law to review these issues. As the report of the special counsel states, summarizing Ms. Roady's conclusions, "Mr. Gingrich's activities on behalf of the organizations [the ALOF, KSCF, Reinhardt College, and the PFF] and the activities of others on behalf of the organizations with Mr. Gingrich's knowledge and approval, violated the organizations' status under section 501(c)(3)." In Ms. Roady's view, this was not a close case of violating the tax laws. Let me quote from the transcript of her testimony before the subcommittee. In response to my question about these activities, Ms. Roady responded, "I do not see this case, the facts that we have now... as a close call at all. No, I do not." Let me emphasize that Ms. Roady has no interest in the outcome of this investigation. There was no question, in her expert opinion, and in the opinion of our special counsel, that the tax laws had been violated. Fourth, it is important to understand that even before Mr. Gingrich ever began the GOPAC/RAC connection, he should have known that there was a potential tax problem. Shortly 3 before the events described in the Statement of Alleged Violations (SAV) took place, Mr. Gingrich was involved in the case of American Campaign Academy v. Commissioner of the Internal Revenue Service (ACA.) This landmark 1989 U.S. Tax Court case addresses the extent to which 501(c)(3)'s can interact with political campaign committees. In this case, the tax exempt entity was found to have violated its status. I raise the ACA case to make the critical point that Mr. Gingrich had prior exposure to the tax law difficulties that can arise in this area. Mr. Gingrich, in his testimony before the committee, left no doubt of his familiarity with this case. In response to a question from the special counsel, Mr. Gingrich stated: “I lived through that case. I mean, I was very well aware of what the [ACA case] did, and what the ruling was.” The clear import of Mr. Gingrich's testimony is that prior to undertaking the television program project or the college course, Mr. Gingrich had already seen, at close hand, the workings of the law. In that light, it cannot be credibly argued that Mr. Gingrich, who clearly understood the political interrelationship between GOPAC and RAC, did not realize that there was a potential tax problem. Having once run afoul of the tax law in this area, one would have expected Mr. Gingrich to be especially sensitive to the danger of new violations. Indeed, as a Member of Congress, Rep. Gingrich should, at a minimum, have sought to clarify this point before proceeding as he did. All tax experts who appeared before the committee, including the attorney hired by Mr. Gingrich, agreed that they would have advised him against proceeding with the involvement of 501(c)(3) entities. If Mr. Gingrich had sought and followed the advice, this controversy could have been avoided, and hundreds of thousands of dollars of tax payments legitimately owed to the government would have been collected. In the words of the special counsel, "either Mr. Gingrich did not seek legal advice because he was aware that it would not have permitted him to use a 501(c)(3) organization for his projects," or he was "reckless... in an area ... that was fraught with legal peril." Fifth, and finally, at the heart of the tax questions is a judgment the committee must make as to the level of Mr. Gingrich's knowledge and understanding of his activities. The same is true of the question of whether Mr. Gingrich deliberately misled the committee. The determination of this matter depends on the interpretation we place on three factors. First, a close and careful reading of the statements made by Mr. Gingrich in various submissions to the subcommittee. Second, an analysis of his activities regarding understandings reached with the special counsel. Third, a review of Republican efforts to improperly influence the Ethics process. Mr. Gingrich's letters of December 1994 and March 1995 are critical documents. The letters contain numerous specific statements that are simply wrong about the relationship between GOPAC and RAC. In the December 8, 1994 letter, Rep. Gingrich made the following statements: * [The course] was, by design and application, completely non-partisan. It was • The idea to teach "Renewing American Civilization" arose wholly independent of GOPAC, because the course, unlike the committee, is non-partisan and apolitical. My motivation for teaching these ideas arose not as a politician, but rather as a former educator and concerned American citizen. * The fact is, "Renewing American Civilization” and GOPAC have never had any * GOPAC... is a political organization whose interests are not directly advanced by this non-partisan educational endeavor. * As a political action committee, GOPAC never participated in the administration * Where employees of GOPAC simultaneously assisted the project, they did so a private, civic-minded individuals contributing time and effort to a 501(c)(3) organization. even the the first dollar * Anticipating media or political attempts to link the Course to [GOPAC], "Renewing American Civilization" organizers went out of their way to avoid appearances of improper association with GOPAC. Before we had raised or sent out the first brochure, Course Project Director Jeff Eisenach GOPAC. resigned his position at The following statements were made in Rep. Gingrich's letter to the committee of March 27, 1995: * As Ex. 13 demonstrates, the course solicitation . . . materials are completely non- * GOPAC did not become involved in the Speaker's academic affairs because it is * The "Renewing American Civilization" course and GOPAC have never had any * As noted previously, GOPAC has had absolutely no role in funding, promoting, or administering "Renewing American Civilization." * GOPAC has not been involved in course fundraising and has never contributed any money or services to the course. * Anticipating media or political attempts to link the course to GOPAC, course organizers went out of their way to avoid even the appearance of associating GOPAC. Prior to becoming Course Project Director, Jeffrey Eisenach GOPAC and has not returned. with resigned his position at The special counsel report contains many references to exhibits and testimony that were known by Mr. Gingrich and which directly contradict each of these statements. 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