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Hsu Scandal Reveals How Campaigns Gamble

Revelations that one of Sen. Hillary Rodham Clinton’s biggest presidential fundraisers was a fugitive led many to question the veteran Democrat’s vetting system. “Shouldn’t someone have caught this?” went the refrain.

But vetting top fundraisers isn’t as easy as it seems; it’s more like a day at the dog track, where campaign staffers work to gather enough data to make a good bet, say those familiar with the process.

“What people need to appreciate is how much contradictory information is being given,” said Democratic campaign finance lawyer Joe Birkenstock.

“You have to get comfortable with the fact that you are not going to catch everybody.”

Some problems predate the age of the Internet, as in the case of Clinton backer Norman Hsu’s 15-year-old legal problems.

Overly aggressive searches could put off donors even if they come up clean. And the fast-growing community of volunteer fundraisers can stress campaign vetting resources.

A canvass of the presidential campaigns by Politico produced plenty of assurances that they are doing a better job of vetting donors and fundraisers than Clinton but uncovered scant details about how their systems actually operate.

Arizona Sen. John McCain’s camp was most specific.

Everyone from endorsers and state campaign leaders to special guests at rallies and people McCain visits on the trail get a thorough going-over, said spokesman Brian Rogers.

A former White House personnel researcher uses a combination of Internet and database searches that include news stories and criminal, tax and other court records, he said.

Democrat John Edwards’ campaign said criminal background checks were added to its vetting efforts after the Hsu story broke.

Republicans Rudy Giuliani and Fred Thompson and Democratic Sen. Barack Obama did little more than acknowledge that they do some kind of backstopping.

The Clinton campaign did not respond to requests for comment.

Republican Mitt Romney’s spokesman, Kevin Madden, wouldn’t describe how his camp’s vetting works except to say it would have caught Hsu.

Even if a campaign builds an expensive and extensive backgrounding operation, it’s still not completely immune from trouble, experts say.

Claims that other vetting systems would have picked up Hsu are “baloney,” said election law attorney Kenneth Gross, who has helped five campaigns implement vetting systems.

“The authorities didn’t pick this sucker up. They had a warrant out on him. I think it’s very cavalier and self-serving for any campaign to say they would have picked him up,” Gross said.

Hsu “was a bit of a perfect storm, because there was nothing easily attainable about him,” and his arrest predated widespread Internet use, Gross said.

Hsu raised $850,000 for Clinton’s presidential campaign before the press broke the story that he was wanted in California for defrauding investors of more than $1 million.

He had agreed to serve up to three years in jail but skipped town before his 1992 sentencing.

As the bad headlines mounted, Clinton returned the money to donors. Meanwhile, Hsu’s legal troubles worsened. He failed to show up for a September court date and was arrested in Colorado.

Federal prosecutors then charged Hsu with mail fraud, wire fraud and violating federal election laws.

Authorities believe that Hsu pressured investors into making campaign contributions to raise his profile and that he illegally reimbursed some of the people who made donations, according to a federal criminal complaint unsealed in September.

At a time when Clinton’s presidential campaign was surging, the saga dredged up memories of illegal foreign donations made to the Democratic Party during the 1996 reelection campaign of Clinton’s husband, former President Bill Clinton.

Derrick Wetherell, whhas helped set up a vetting system for a former Republican Senate leadership PAC, said, “I don’t know what could have prevented the Hsu incident, because it wasn’t a sincere bundling operation. … It was fraud.”

Still, that hasn’t kept rivals from throwing stones.

“Anyone who is raising that kind of money for you, you know where their kids go to school, where they vacation and what kind of breakfast cereal they like. They were either not doing their due diligence or they were turning a blind eye,” said a Republican presidential campaign official.

Gross, who is not working with a presidential campaign, recommends a vetting system with three levels where red flags move up the chain.

Level one is a simple Google search and maybe a corporate review. Level two checks legal and news databases.

And level three could require pulling off-line public records, doing criminal background checks and hiring a private investigator, he said.

All that information should be acted on by a committee of volunteers who understand ethics rules, campaign finance law and have relationships in the donor community, Gross said.

But decisions about how to act on background information are often difficult, said Birkenstock, who worked at the Democratic National Committee after the 1996 Clinton fundraising scandals.

Sometimes the background check would mean a donor could give money but couldn’t host an event at his home.

Or the campaign would take the money a donor raises but wouldn’t put her name on the dinner invitation, said Birkenstock, who is not working with a presidential campaign.

Completely rejecting someone’s help because of his background is unusual and is “a pretty hostile message to be sending,” he said.

Scott Reed is familiar with the problems rogue donors can cause.

He managed former Republican Sen. Bob Dole’s presidential campaign, which saw a vice chairman sentenced to six months of home confinement and a $6 million fine for making $120,000 in illegal political contributions.

Reed said he expected more problems this cycle.

“It surprises me there aren’t more Hsus out there, because these numbers that these candidates are pushing themselves to raise [are] astronomical. When you figure how many checks these campaigns are processing every week, it’s like a branch of Citibank.”