Talk about chutzpah! As we reported 4 years ago, the Obama 2008 campaign intentionally disabled standard security checks meant to prevent illegal online campaign donations. And despite this flagrant disregard for campaign finance law, the media (with very few exceptions) took only muted interest in the topic – and this reaction came only after this blog and others raised the alarm bells. Unfortunately, it looks like this story is at risk of repeating itself. Before we cover this deja vu story with refreshed vigor, we would like to draw your attention to these new stories from bloggers (who else?).
More to come, much more….
Mike @ April 2, 2012
A new article by Kenneth Vogel at Politico.com explains why Obama will most likely avoid an FEC audit, despite legitimate complaints and documentation of fraud. While the article doesn’t satisfactorily cover the background of why Obama is in hot water over this (namely turning off online fraud checks), it does provide an excellent write-up on the process by which the FEC determines an audit:
The Federal Election Commission is unlikely to conduct a potentially embarrassing audit of how Barack Obama raised and spent his presidential campaign’s record-shattering windfall, despite allegations of questionable donations and accounting that had the McCain campaign crying foul.
Adding insult to injury for Republicans: The FEC is obligated to complete a rigorous audit of McCain’s campaign coffers, which will take months, if not years, and cost McCain millions of dollars to defend.
Obama is expected to escape that level of scrutiny mostly because he declined an $84 million public grant for his campaign that automatically triggers an audit and because the sheer volume of cash he raised and spent minimizes the significance of his errors. Another factor: The FEC, which would have to vote to launch an audit, is prone to deadlocking on issues that inordinately impact one party or the other – like approving a messy and high-profile probe of a sitting president.
So, by declining public funding, Obama decreased the odds of an audit. And the FEC may not investigate due to political party affiliations of the FEC commission members.
Seizing on Obama’s reversal on a pledge to accept public financing if his Republican opponent agreed to do the same, as well as his campaign’s refusal to voluntarily release the names, addresses and employers of donors who gave less than $200 each – a group that accounted for about half of the more than $600 million that the campaign had raised through the end of September – the RNC asked the FEC “to immediately conduct a full audit” of all of Obama’s contributions.
It’s very rare for a complaint to trigger an audit, campaign finance insiders say.
And ironically, the historic volume of Obama’s small contributions, which may have made it tough for the campaign to weed out problem donations, may also help spare Obama an audit.
That’s because the byzantine formula the FEC staff uses to determine whether a campaign has engaged in “substantial” violations of federal election rules – the trigger to recommend an audit to commissioners – takes into account the size of the campaign’s coffers, according to David Mason, who served as a Republican appointee to the FEC until this year.
“So if a House campaign makes a $100,000 error, that’s huge and they’re likely to get audited,” he said. “If a campaign the size of the Obama campaign has a $100,000 error, then maybe not. It would depend on what the error is, obviously,” he said, explaining that mere accounting snafus are unlikely to prompt an audit. More serious and systemic problems, such as illegal contributions, result in campaigns getting tagged with more “audit points,” Mason explained. “If you get enough audit points, you get audited,” he said, adding “nobody outside the commission would know how many audit points the Obama campaign has.”
Mary Brandenberger, an FEC spokeswoman, declined to comment on the likelihood of an Obama audit. But she explained that if campaigns adequately answer the agency’s requests for information, it’s less likely they’ll be recommended for an audit.
Even if Obama’s campaign reached the audit recommendation trigger point, it’d be tough to muster the majority commission vote necessary to initiate the audit. That’s because the FEC is comprised of three Democratic commissioners and three Republicans and, as such, is prone to deadlock on partisan issues.
So this leads to several questions for the FEC that we, as members of the public, deserve to have answers to:
- What questions did the FEC ask the Obama campaign?
- How many “audit points” did the Obama campaign earn and why?
- How did the 6 commissioners (3 Democrats, 3 Republicans) of the FEC vote on the audit? And why?
- What is the “byzantine formula” that the FEC uses to determine audits? Did the Obama campaign know the formula and find a way to exploit it?
We will remain on the case and if it requires Freedom of Informaiton Act requests to get the answers, then that’s what we’ll pursue.
Hat tip: Thanks to reader Jim “the scrutinator” for the referral.
Mike @ November 11, 2008
Now that the election is over, we still hope to affect some change as it relates to shedding more light on Obama’s unethical fundraising practices as well online campaign financing as a whole. Here are a few of the things we plan on pursuing:
- Report on issues that will press Obama to release the donor list which he refuses to make available to the public eye. In this spirit, we will deliver this site’s online petition with signatures. We are determining whether or not to send the signed petition to the so-called “Office of the President Elect” or elsewhere.
- Continue to investigate why and how the Obama campaign did (or didn’t) manage online fundraising fraud. Blue State Digital needs to be asked questions and we intend to press for answers.
- Press Washington, in a non-partisan manner, to close loopholes that prevent unethical online fundraising practives such as those most recently put to use by the Obama campaign. Online fundraising is here to stay and will only grow. We need to prevent campaigns and their online enablers, such as Blue State Digital, from violating the letter and spirit of the law.
What was so remarkable about the Obama fundraising story is how little interest the media displayed. And when the media did cover the story, they completely missed the real issue – that the Obama campaign went around standard fraud prevention techniques and enabled more fraud. We attributed this poor media coverage to ideological bias, but this doesn’t help explain why outlets like Fox News essentially passed on this story as well. Ultimately, we believe it was a combination of media bias and laziness that accounted for the lack of coverage.
With the exception of The National Journal, we can’t rely on the media to follow up on this story. So we’ll continue to stay on top of the Obama fundraising scandal story (wherever it takes us and however long it takes) and we will also be taking ourselves in a more non-partisan direction. We will keep tabs not only on the Obama story, but will keep our readers informed on how, if at all, the FEC and our representatives intend to prevent such severe violations of campaign finance laws from happening again.
A final note: Some readers have let us know that we shouldn’t distract ourselves with other matters, such as referring to Obama’s transition office as the “Office of the President Elect”, or using the Great Seal of the United States on a blatanlty partisan site with a .gov domain name. We think that this story helps illustrate a larger point and that is that Obama seems to have a disturbing level of comfort violating the spirit, if not necessarily the letter, of the law.
Mike @ November 9, 2008
Since it is apparently too much effort for the mainstream media (National Journal excepted) to be bothered to investigate what is potentially one of the largest campaign finance fraud scandals ever, we thought we’d set the table for them. Here’s a “Cheat Sheet” if you will on how the story broke and what the important issues are:
- In early 2007, Obama tells Silicon Valley mogul, Marc Andreeson, to “watch how I run my campaign – you’ll see my leadership skills in action”. Which makes the following account all the more concerning. Can we expect more of the same should Obama assume the seat in the White House?
- Rumors begin to circulate that the Obama campaign is accepting foreign and other illegal contributions. Atlas Shrugs blog breaks the story on July 23 and confirms the rumors.
- On October 22, a citizen does his own investigative work and gives an online donation to the Obama campaign with a the fake name of John Galt along with a fake address. Several bloggers quickly follow up on this story with their own investigative work and find that they too can donate to the Obama campaign with fake names and addresses. Most disturbingly, foreign citizens were also able to donate using their foreign issued credit cards with fake foreign addresses.
- By now, it has become common knowledge that the Obama campaign is the ONLY campaign to NOT disclose their “under $200” campaign donor list. No substantive reasons are given by the Obama campaign.
- On October 24, it is confirmed by the National Journal that the Obama campaign has turned off address verification on their website. This is highly irregular – in fact, it’s quite unheard of. Essentially, turning off address verification (known as AVS) enables donors to fake addresses and circumvent donor limits. This means foreigners can give illegal donations and motivated Obama supporters can exceed the $2300 campaign limit! As Internet and e-commerce professionals, we launch this blog to raise the issue of how highly irregular and potentially unethical it is to turn off online credit card address verification.
- In light of the aforementioned and in light of the record $150 million haul Obama brought in during the month of September from over 600 thousand new, mostly unidentified, donors, this blog attempts to size the problem. We calculated that over $181 million of Obama’s donations fall into the “potentially fraudulent” category.
- On October 29, the Obama campaign is quoted favorably in the Washington Post as checking for fraud on the “back-end”. The Obama campaign did not elaborate on what this means and the Washington Post didn’t bother to ask.
- Since the Obama campaign turned off the easiest and most obvious way to stop campaign finance fraud, this blog and the National Journal proceeded to explore other ways in which the Obama campaign could prevent campaign finance fraud. We determined that the Obama camp could use IP addresses (unique identifiers for computers with geographic information) and BIN numbers (unique identifiers of credit cards with geographic information) to prevent fraudulent and foreign donations on the “back-end”. Unfortunately, all records indicate that the Obama campaign does NOT use these simple and cheap methods to prevent illegal donations.
- With public pressure mounting on the Obama campaign to disclose his donor list (despite the apathy from the New York Times and Washington Post), Charlie Gibson of ABC News asks Obama why he won’t disclose his donor list. Obama said it would be too difficult to process. RED FLAG! Isn’t this the internet generation candidate? Shouldn’t it be easy for computers to process these records?
- It turns out that the answer is “Yes!”. The liberal online publication, Slate, proves how easy it is to process the donor list. The National Journal also proves how easy it is by talking to the bank that houses the Obama campaign records.
In summary, the Obama campaign is the FIRST and ONLY presidential campaign to turn off online address verification when raising money online.
The Obama campaign also chooses to not to use free or cheap tools that allow them to screen foreign IP address and foreign credit cards.
Finally, unlike the Clinton and McCain campaigns, the Obama campaign refuses to disclose their donor list.
It’s up to the reader to decide whether or not there is something unethical going on here. But if you’d like to help create more transparency and have the Obama donor list see the light of day, please do sign the petition.
Mike @ November 3, 2008
While Obama insists that tracking and disclosing his donor database is too difficult, the respected National Journal demonstrates that this simply isn’t the case in a new article entitled, Common Web Tools Make Tracking Donors Doable.
According to Bank of America, one of the two banks processing Obama’s online donations:
A five-minute phone call to Bank of America’s merchant-services department showed how a campaign could sort transactions to identify the credit cards used in donations.
The campaign could download transaction data from the bank’s Web site and transfer the file into a database, such as Excel, said the Bank of America employee. “Then highlight all your transactions and click your sort button,” the employee said.
The implication is that the Obama campaign could use this reporting to discover those multiple donations conducted by individuals faking names and addresses.
In addition, it was discovered that the Obama campaign does in fact track the IP addresses of donors:
Software code on Obama’s online donations page indicates that the site recognizes the IP address of everyone who gives money. It can be viewed by selecting page source from the “view” menu on most Web browsers. The code for donate.barackobama.com includes an “ip_addr” field, which records the visitor’s IP address.
So we now know that the Obama campaign tracks IP addresses. Which, of course, begs the question on how foreign donations are getting through. And since the front-end AVS fraud filters are turned off why wouldn’t the Obama campaign use the IP information it already collects to help prevent inappropriate foreign donations? Isn’t this supposed to be the internet generations’s candidate and campaign?!
What else is behind the curtain of the Obama donation website? Perhaps the good folks at Blue State Digital can shed some light. BSD provides the Obama campaign with its online fundraising tools and apparently offers online fundraising consulting advice to the campaign as well. We’d like to know how Blue State Digital advised the Obama campaign on AVS checks, IP filtering and other fraud prevention methods. Did they recommend AVS fraud be turned off? Did they recommend best practices and the Obama campaign ignored them? Unfortunately, Blue State Digital declined to respond to questions from this blog.
Mike @ October 31, 2008
In a previous post, we quoted Obama as stating that disclosing his donor database would essentially be too difficult. This morning, Slate.com has a headline story that explains how in just a few short hours, they were able to process a similarly sized database.
Barack Obama refuses to release the names of the 2 million-plus people who have given his campaign less than $200. According to campaign officials, it would be too difficult and time-consuming to extract this information from its database.
So how come we were able to do it in a couple hours?
Mike @ October 31, 2008
While the Obama campaign continues to invite fraud by allowing transactions from outside the US or with credit cards issued from international banks, some readers have asked how easy it would be to prevent these kinds of problems. The answer is “extremely easy”.
There are two basic approaches to preventing foreign contributions: 1) Preventing transactions on foreign credit cards and 2) preventing transactions from foreign countries
Preventing transactions using a foreign card
This is straightforward, but requires the use of Address Verification System (AVS). As described elsewhere on this blog, the AVS system returns a series of codes that the merchant can use when deciding to accept a transaction or not. In addition to verifying the address, the AVS also lets the merchant know if the transaction is international or domestic. For example a “Code G” signifies that the credit card issuing bank is of non-U.S. origin and does not support AVS. Recognizing codes like this is standard functionality of most e-commerce solutions.
Alternatively, the Obama campaign could query the BIN number of the credit cards to determine where the cards were issued. The BIN# or IIN# is used to identify the institution that issued the card. BIN lists are freely available, even on Wikipedia.
The Obama campaign could argue that by implementing these controls, they might be disenfranchising American citizens living abroad, but this is simply not the case. The Obama campaign has a separate site to handle contributions from Americans living abroad, which requires a passport number to donate. They could simply adjust the AVS or BIN # criteria for donors on this site to allow for international cards, while blocking them from the domestic donation site.
Preventing transactions from a foreign country
The second approach, preventing transactions from a foreign country, is also fairly simple to implement. Companies like MaxMind offer services that provide merchants with a list of known IP addresses in the US, and only allow complying addresses to enter the site. This software is not perfect, but it has gained fairly broad acceptance and is frequently used in the entertainment industry to protect content from international distribution. Configuring an Apache web server to support GeoIP filtering is extremely straightforward, and can be implemented with some minor coding on Microsoft servers. Given the high quality of the Obama site, I imagine implementing this software would not be a challenge for their web team.
It seems to me, that the Obama campaign could use IP filtering to ensure that only American IP addresses can access the domestic donation site, and direct foreign donors to the Americans living abroad site. This might be a good question for a journalist to ask the Obama campaign – are they using any IP filtering? It’s easy to set up, it’s cheap, and it’s great at flagging foreign transactions. If the Obama campaign is not using IP filtering, why not? Anyone care to ask the Obama camp? Will the Washington Post? Will the New York Times? Anyone?
John @ October 30, 2008
Charlie Gibson of ABC just interviewed Obama and asked him why he won’t disclose his donor list. Obama proceeds to dissemble by claiming that the donor list would be too difficult to process and that the campaign is technically following the letter of the law, never mind the spirit of it:
GIBSON: You’re going to have a half an hour broadcast tonight on a number of the networks. And the expense is not inconsiderable to buy that much time.
GIBSON: Aren’t you able to buy it only because you broke a promise on campaign financing?
OBAMA: Well, look, there is no doubt that the amount of money that we’ve raised in this campaign has been extraordinary and surprised me as much as anybody — maybe more than anybody. What I would simply point to is that the way we have raised this money has been by expanding the pool of small donors in this country in an unprecedented way.
GIBSON: But you haven’t released their names.
OBAMA: We’ve got…
GIBSON: We don’t know who they are.
OBAMA: Well, look, the — a whole bunch of them were out here today. I mean, you’re looking the people who are giving 5, 10, $25. Ordinary folks who have gotten impassioned about this campaign in a way that is unprecedented. And that, really, is…
GIBSON: Shouldn’t we know the names of that list?
OBAMA: Look, you know, 3.1 million donors would be a pretty hard thing for us to be able to process. And we have done everything that’s been asked of us under the FEC guidelines. These are small donors. They’re ordinary folks. And the idea behind all campaign finance reform is to make sure that the public official is not bought and sold; that that public official is accountable to the public, that they are not subject to undue influence by big special interests in Washington and lobbyists…
Raising money from small donors in an unprecedented way? That’s an understatement.
Mike @ October 30, 2008
How big of an impact could the Obama campaign credit card donation loophole have in this election? Let’s do some math. Follow along…
The Open Secrets website is a great place to start and allows us to determine the total dollars raised by each campaign as well as the amounts attributed to donations over and under $200. According to the site, the Obama campaign has raised an astounding $639 million dollars. $364 million of these dollars came from donations over $200. The remainder of the donations can be attributed to donations under $200 and is calculated to be ($600M – $364M) = $275M. So that’s $275 million dollars worth of donations that the Obama campaign is choosing not to disclose.
We also know that two thirds of Obama’s donations have been made online. Now, we take the total number of all donations under $200 (remember, this totals $275 million) and multiply this by two-thirds to calculate the number of undisclosed donations that are highly susceptible to online fraud. This equates to $181 million dollars worth of online donations that the Obama campaign has deliberately put at risk by turning off online address verification. That’s also $181 million dollars worth of donations that the Obama campaign has chosen not to disclose.
To give you a sense of scale, this amounts to almost 50% of the total funds the McCain campaign has raised this election cycle!
Mike @ October 29, 2008
A Canadian reader of this site recently donated to the Obama campaign and the donation was accepted. The credit card was issued in Canada and the donation was submitted using a Canadian address on a computer in Canada. Will the Obama campaign refuse this most obvious of foreign donations? Keep in mind, because this donation used a Canadian address, it doesn’t test the theory of what happens when a foreigner gives a credit card donation with a fake U.S. address. Stay tuned…
Below is a screenshot from their online banking account showing the donation to Obama for America. Obama has now taken that money and is free to spend it at will. Of course, their “back-end verification” may eventually identify this as an illegal contribution and return it, but in the mean time they are receiving an interest free loan from a foreigner that Obama can use on advertising, travel and GOTV expenses.
If there are any other non-U.S. citizens who have successfully given to the Obama campaign, please let us know so we can report on it. Send your reports to email@example.com
UPDATE: Morgen at Verum Serum has some interesting findings related to foreign web support for Obama.
Mike @ October 29, 2008
Fox News had Scott Johnson from Powerline, who broke the story on this scandal, was interviewed on Fox News this morning where he gave an excellent assessment of the problem with the Obama campaign’s treatment of credit card contributions and the utter lack of fraud prevention tools to stop these unlawful contributions.
UPDATE: A reader informed us that it was actually Pamela Geller at Atlas Shrugged who broke the story.
If you are as outraged about this as we are, please sign the petition!
John @ October 29, 2008
It looks like the MSM is starting to pick up on the credit card problems inside the Obama campaign. The Washington Post’s Matthew Mosk wrote a story about Obama Accepting Untraceable Donations that appeared on page A02 of the paper today. In addition to the credit card problems, Mosk points out that the Obama campaign is also accepting completely untraceable Visa and Mastercard gift cards – something the McCain campaign and the RNC were astonished to hear.
Senator Obama collected nearly $100 million in Internet contributions in September, and with no security and clearly inadequate identity checks, it is even more important that his complete list of donors be released so they can be looked at more carefully. Don’t let Obama buy this election with questionable money! Sign the petition today!
John @ October 29, 2008
While the mainstream press continues to ignore the audacious decision by the Obama campaign to allow false names and addresses to be submitted with web credit card donations, the San Antonio Express has chimed in with a fair and balanced editorial.
…But the amounts are now so large and the contributions so numerous that even campaigns committed to abiding by finance laws are hard pressed to do so. Anyone intent on circumventing the law can — at least for a while — do so successfully.The game changer has been the Internet. The revolution in Internet fundraising makes it easier for more people to contribute. The historic number of small donors who have given to Barack Obama and John McCain in 2008 reflects this fact.
Obama, in particular, has capitalized on a huge network of online donors, according to media reports.
The Internet also makes it easier for people to game campaign finance regulations. Federal law requires the disclosure of donor information for contributions in excess of $200, capped at $2,300 per candidate for the primary and general election. But if you can make a series of smaller donations under false names, you could potentially donate an unlimited amount and avoid scrutiny.
About half of Obama’s more than $600 million in contributions are less than $200 and do not have to be identified under the law, the Associated Press reported. McCain’s Web site is listing all contributors, including those who gave less than $200, the wire service noted.
There is much that is unprecedented here. According to the AP, $300 Million of the money Obama has raised does not need to be disclosed to the public because these donations fall under the $200 threshold. The Obama campaign refuses to disclose this list (unlike the McCain and Clinton campaigns which have offered full disclosure on below $200 donors). And, from what we know, Obama is also the first and only Presidential candidate to turn off fraud checks on his website, thereby creating all sorts of loopholes for campaign finance fraud. While Obama may be techically obeying the letter of the law, he is certainly violating the spirit of the law. Why???
Mike @ October 28, 2008
Greg at Greg’s Weblog has done some online investigation revealing more evidence that the Obama campaign deliberately disabled address verification on their website for nefarious purposes:
How long ago was that? The information I can find says
MasterCard offers AVS at no additional charge to all merchants who accept U.S. – issued cards.
Then there’s this
A Non-Qualified rate fee is the worst rate possible for processing a credit card. A merchant is charged a non-qualified rate for transactions that the merchant account provider (i.e. the bank) feels are high risk.
A merchant is charged a non-qualified rate for credit cards that are processed without Address Verification. A merchant may also experience a non-qualified rate for transactions from foreign countries.
In short, Obama paid more to get AVS turned off.
Additional research found this:
Address Verification System (AVS): $0 – $0.05 per transaction
The AVS service checks to see that the billing address given by the customer matches the credit card. If you opt not to use AVS, VISA and MasterCard will not support your transactions and will charge you an additional 0.17% to 1.25% on those sales. Most merchant accounts do have an AVS charge, even if it’s bundled with your transaction fee. The AVS service works only with US credit card holders. Currently, there is no AVS service in place for non-US credit card holders.
Let’s assume Obama got the 0.17% rate increase. His average donation in September was $86. He paid an extra 15 cents on each order, to “save” 5 cents. By disabling AVS, best case is he lost money on every donation > $30.
Big deal? Well, 0.17% of $150 million (his take last month) is $255,000. Having AVS on would have cost, at most, a third of that.
You don’t lose hundreds of thousands of dollars on an “innocent mistake” that you had to work hard to get done.
Mike @ October 28, 2008