Obama camp labors to return bad cash--By Kenneth P. Vogel

More than eight months after President Barack Obama won the White House, the remnants of his campaign organization is struggling to deal with some unfinished business: returning about $669,000 in tainted or illegal campaign contributions to a motley assortment of donors, among them a convicted murderer, Washington lobbyists and a number of foreign nationals, including his own aunt.

But the 11 Chicago-based staff members still on the campaign’s payroll are finding it was a lot easier to rake in a record-shattering $750 million than to identify and return donations that ran afoul of federal election laws or Obama’s own strict fundraising standards.

Their intensive effort to refund problem contributions has involved detailed research into lobbying records and passport information, an elaborate accounting system that cancels and reissues stale-dated refund checks and phone calls and letters urging donors to cash their refunds. The effort is unprecedented in modern politics, according to election law compliance experts, and underscores both the logistical challenges of processing so much contribution data and the Obama team’s hypersensitivity to anything that could sully the president’s carefully honed image as a crusader against special interests and a champion of ethics and transparency.

Obama’s oft-repeated commitment to those ideals has been a favorite target for critics. During the campaign, they assailed him for breaking a promise to participate in a government financing program intended to reduce the role of fundraising and for lax screening of prohibited contributions from foreign nationals. Since taking office, he’s come under fire for backtracking on his pledge to keep his administration free of lobbyists, whom he vilified during the campaign, and for lending his fundraising clout to groups that usually don’t adhere to the same strict no-lobbyist-cash standard that he imposed on his campaign and on the Democratic National Committee.

A POLITICO analysis of Obama’s most recent finance report showed that between the beginning of April and the end of June, the campaign sent out more than 800 refunds.

It’s not clear from the report which refunds were successfully processed, nor the motivation for every refund. POLITICO’s analysis identified at least 50 refunds totaling more than $27,000 to lobbyists, 40 refunds totaling nearly $28,000 to foreign donors and at least 13 refunds totaling nearly $115,000 to donors who gave more than the $4,600 maximum. The latter group included Robert Hormats, a Goldman Sachs director whom Obama recently nominated to be an undersecretary of state and who had his $2,300 donation returned because the campaign discovered he had already maxed out on how much he could give.

Most of the refunds are likely over the limit, foreign or lobbyist donations, or some combination thereof, but the campaign also continues to keep an eye out for individual donors whose notoriety could be used by critics against Obama — someone like Phil Spector. The award-winning record producer and songwriter gave a series of contributions to Obama, totaling the maximum $4,600, while facing murder charges — and even wore an Obama pin during his trial. But about one week after the case went to the jury in late March, the Obama campaign refunded $4,350 to Spector. (It had refunded the other $250 in the weeks after Election Day.) A week later, Spector was convicted of second-degree murder, and he’s now serving 19 years to life.

Though Spector and Hormats were mailed refund checks for the first time in the second quarter of 2009, an overwhelming majority of the refunds in the report were reissues of refund checks that donors did not cash the first time, for a variety of reasons.

Some recipients of second-time refunds told POLITICO they never received the first checks, while others speculated they may have mistaken them for direct-mail solicitations and thrown them out. One business lobbyist who is a longtime Democrat told POLITICO he “tore up the check” Obama sent refunding a $200 contribution “because I felt it was not really fair.”

Obama announced to great fanfare during the campaign that he wouldn’t accept contributions from lobbyists or political action committees, because he wanted to decrease the power of special interests in Washington. And the second-quarter report lists refunds to lobbyists representing organizations ranging from the National Council of La Raza and the National Coalition for Women With Heart Disease to huge energy and hospital companies that oppose Obama’s cap-and-trade and health care reform plans, respectively.

The business lobbyist who tore up his first refund subsequently cashed a reissued check sent in the second quarter but said, “People wear two hats, and there were a number of lobbyists who genuinely liked the candidate and wanted to contribute to him.”

Unlike lobbyists, foreign nationals are legally barred from contributing to federal campaigns. But some foreign donors whose checks were returned apparently did not receive or cash them. Obama’s second-quarter report showed reissued refunds to 40 donors with foreign addresses from Argentina to Turkey or foreign nationals living in the United States.

That group includes Obama’s Kenyan aunt, Zeituni Onyango, who has lived illegally in the U.S. for years and is facing deportation. In May 2008, she donated $265 to her nephew’s campaign, listing an address in Boston. The campaign tried to refund her contribution in the final days before the election — on the same day The Associated Press revealed her illegal residency. Obama’s recent report shows the refund was reissued in May, and it’s not clear whether it was cashed.

A White House aide who worked on the Obama campaign said, “We constantly screened our donors for any issues during the campaign and refunded or donated contributions when issues arose,” adding the campaign plans to continue monitoring its donor rolls for new or returning issues for the foreseeable future. “We maintained a fully operational compliance department.”

Most presidential campaigns continue to exist for months or even years after Election Day to handle the myriad issues that come with processing so many transactions in a relatively short time frame, from raising cash to paying off debts to fielding late-arriving invoices to dispensing with over-the-limit contributions.

Campaigns are allowed to donate over-the-limit and other illegal contributions to the U.S. Treasury if they’re not able to find the donors and refund their cash, an option that many candidates choose to exercise after Election Day. Additionally, politicians often give to charity legal contributions from disgraced donors. Former Massachusetts Gov. Mitt Romney has asked the Federal Election Commission to also allow his failed 2008 campaign for the GOP presidential nomination to donate to charity over-the-limit contributions for which refund attempts were unsuccessful.

Obama, who — unlike most presidential candidates — finished the campaign with millions in the bank, “is going to great lengths” to refund contributions, said Jason Torchinsky, who worked on President George W. Bush’s bid for reelection and was the top lawyer in former New York Mayor Rudy Giuliani’s unsuccessful campaign for the 2008 Republican presidential nomination. “It would be a lot easier for the Obama campaign to give illegal money that they can’t seem to return to the donor to the U.S. Treasury, which is the route taken by most campaigns,” he said.

In some cases, the Obama campaign has decided to keep contributions it previously tried to return, including a $1,250 contribution from former lobbyist Ann Kolker. The Ovarian Cancer National Alliance, for which Kolker had been registered to lobby, filed an amended report days after Obama’s victory making clear that Kolker hadn’t lobbied since 2004, and that may have assuaged the campaign’s concerns.

Nick Nyhart, president of Public Campaign, a nonprofit group that advocates for public financing of campaigns as a way to reduce special-interest influence, said the Obama campaign should be commended for “making a strong effort and doing a lot of due diligence. It’s an unusually high standard, and I think they wanted to make good on their word on this. And, in my mind, they are.”

Ironically, Nyhart and another Public Campaign employee are registered lobbyists whose contributions to Obama (Nyhart gave $250, while Susan Anderson gave $33.68) were refunded for a second time recently, according to the campaign’s second-quarter report.