Never disclosed until now, the memo details an investigation into alleged misconduct. | AP Photos GOP group snared in money scheme

Since the Republican State Leadership Committee burst into national politics, it’s become one of the most influential outside players on the right: It spent tens of millions of dollars to flip state legislative chambers and redraw the congressional map in Republicans’ favor — and is poised to pump millions more this fall into locking down state capitals for the GOP.

But the group’s swift ascent has not come without controversy — or lingering legal hazard. At the height of its political emergence, the RSLC was implicated in a risky campaign finance scheme that an internal report warned could trigger “possible criminal penalties” and “ultimately threaten the organization’s continued existence,” according to a confidential document POLITICO obtained from a source.


The September 2011 report, prepared by the prominent Washington law firm BakerHostetler, was presented to an RSLC board then helmed by former Republican Party Chairman Ed Gillespie — RSLC’s chief financial rainmaker starting in 2010 and now a candidate for the U.S. Senate.

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Never disclosed until now, the document detailed an investigation into alleged misconduct by multiple RSLC officials during the crucial 2010 election cycle: It charged that national RSLC leaders conspired improperly with the leader of the Alabama Republican Party to use the RSLC as a pass-through for controversial Indian tribe donations, essentially laundering “toxic” money from the gaming industry by routing it out of state and then back into Alabama.

“If these events are made public, the resulting media frenzy will be a political disaster for Alabama Republicans, a disaster with which RSLC will forever be associated,” the report concluded of the alleged plot in Alabama.

The RSLC has faced no legal or criminal consequences in connection with its Alabama activities. But the RSLC report’s conclusions — furiously contested at the time and firmly denied to this day by three officials named in the report — inflamed an explosive internal confrontation at the organization.

The group parted ways with two senior advisers, who have denounced the RSLC probe as a calculated power grab by internal competitors. RSLC leaders approved a severance deal for the group’s former chairman, Tim Barnes, who resigned and inked a confidentiality agreement to keep the arrangement private.

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The confidential report, bearing the logo of BakerHostetler, offers a rare window into the Wild West of unrestricted campaign spending. That sector of the political world has aroused widespread suspicion among campaign finance watchdogs even as powerfully funded outside groups and their leaders have become increasingly part of the political mainstream.

The RSLC is a prime example of the rise of free-spending and largely opaque groups that have taken center stage in national politics over the last few election cycles. Though more than a decade old, the state-oriented political committee broke out in a major way during the conservative wave of 2010 as it helped Republicans seize control of legislatures long held by Democrats, including Alabama’s.

Riding a tide of big-donor money and Beltway acclaim, RSLC leaders have gone on to positions of increasing political prominence: Gillespie, RSLC’s lead fundraiser and later its board chairman, is seeking to oust Democratic Sen. Mark Warner of Virginia in this year’s midterms. Mike Hubbard, who chaired the Alabama Republican Party in 2010, became speaker of the Alabama House.

The RSLC’s current president, Matt Walter, declined to comment on the details of the BakerHostetler report and described it as a “stolen” document. He said the RSLC has a “very detailed and thorough enforcement process” to ensure it operates on the right side of the law.

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“That is an internal report that is now a couple administrations old at the RSLC and was designed to be an internal report,” Walter said. “It appears that a thorough review was done and, again, this is several administrations ago. All of the decision-makers cited in it are no longer employed by the RSLC.”

Walter said the group no longer has a relationship with Hubbard, who remains one of the most powerful Republicans in Alabama. “We have not talked to Mike Hubbard in some time,” he said.

‘The Braden memo’

According to the BakerHostetler report, the questionable campaign finance scheme went something like this: Hubbard would raise Alabama money into the national RSLC account, including from the deep-pocketed Poarch Creek Indian Tribe. In return, the national group would put every dollar Hubbard raised back into Alabama, obscuring the original source of the money.

RSLC raised some $1.1 million from Alabama between January 2009 and March 2011, according to the report. IRS records show the group took in $550,000 from the Poarch Creek tribe during that period: $350,000 during the 2010 election campaign and an additional $200,000 in January 2011.

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During the same time period, RSLC’s Alabama PAC directed some $1.4 million to the Alabama GOP and several other state groups, including multiple PACs controlled by Hubbard. It also sent $100,000 to a group, Citizens for a Better Alabama, that the report describes as “the renamed ‘Citizens Against Legalized Lottery’ (‘CALL’), one of the Christian groups through which Jack Abramoff funneled Choctaw Indian-money.”

The RSLC board report, dated Sept. 14, 2011, and authored by BakerHostetler election attorney Mark Braden and two other lawyers, warned that the path of the Alabama money could trip over a state law that bans “making or accepting a contribution by one person in the name of another.” Violation of that law would be a misdemeanor.

“It is … common knowledge and wisdom in Alabama that taking a contribution directly from the tribe is political suicide for a Republican candidate or public official,” the report stated. “Here RSLC appears to have served as both a recipient of the funds in question and as a donor of the funds back to Alabama, thereby permitting Mike Hubbard to do indirectly that which he could not do directly.”

The report continued: “RSLC-AL [the group’s Alabama PAC] would mail contributions directly to Hubbard at his office, and he would personally deliver these contributions. It would appear, then, to an outside observer that Hubbard was raising money for RSLC that was either politically toxic or in excess of Alabama contribution limits, and then channeling that money through RSLC back to himself in order to get around the governing Alabama campaign finance laws.”

The document, referred to casually as the “Braden memo” by several Republicans involved with RSLC, said that one senior RSLC official — the group’s former president, Scott Ward — confirmed the existence of a “one-for-one deal, under which Hubbard would raise money for RSLC in return for which RSLC would contribute the same amount of money back into Alabama.”

Ward denies that he offered any such confirmation and called the report a “[Chris] Jankowski political document” — referring to the strategist who took over as the RSLC’s president in 2011 — “intended to smear Mike Hubbard and Tim Barnes.”

“I deny the conclusions of the report and stand behind what we did in Alabama. And the statements attributed to me in the report are false,” said Ward, who no longer has a relationship with RSLC.

According to the BakerHostetler report and several RSLC officials with direct knowledge of the internal investigation, the probe began after multiple botched donations in Alabama came to light in the spring of 2011. Running afoul of a newly enacted state law barring so-called PAC-to-PAC donations, RSLC transferred $150,000 to a pair of political entities supporting Republican candidates in the state. Both donations were returned amid a spate of negative publicity.

Adamant denials

RSLC leaders directly named in the BakerHostetler report to the group’s board denied at the time — and continue to deny now — that there was anything inappropriate or even legally risky about their activities in Alabama. In a phone interview, Hubbard acknowledged raising money for RSLC and soliciting its help but dismissed the notion that there was anything remotely questionable about the arrangement.

“There was no deal. There was no understanding, other than — I told them that we had a need to have some support from them because we were a state that was ripe for the picking,” said Hubbard. “The agreement was that if I raised money for them, they would look favorably on Alabama.”

He explained: “They could take unlimited corporate money. We said [to potential donors], look, if you are comfortable giving money to the RSLC, I provided them with a packet of information.”

If the BakerHostetler report viewed RSLC’s Alabama activities with suspicion, and warned in an abundance of caution about hypothetical legal and political consequences, attorneys on the other side of the intra-RSLC fight chalked that up as baseless speculation.

Barnes, who declined to be interviewed for this story, retained the firm McDermott Will & Emery to represent him before the RSLC board; in a 16-page memo of his own, Republican super-lawyer Bobby Burchfield called the charges against his client “legally and factually suspect.”

RSLC, he observed, spent nearly 30 percent more money in Alabama during the 2010 elections than it raised from the state, casting doubt on the notion of a “one-for-one” fundraising deal. The memo questioned whether Poarch Creek donations would really have been so politically problematic for Alabama Republicans, given that the tribe contributed to 34 candidates outside Alabama during the 2010 cycle and there’s “no record that any of the contributions were returned for being ‘politically toxic.’”

Moreover, Burchfield wrote, the timing of the Poarch Creek donations and RSLC’s Alabama contributions did not line up closely enough to sustain the theory of a deliberate work-around scheme.

The Poarch Creek donations were reported to the IRS on July 15, 2010, Oct. 9, 2010, and Jan. 14, 2011, according to records reviewed by POLITICO. RSLC’s disbursements to the Alabama GOP and other Hubbard-linked groups occurred throughout the 2010 cycle, starting in March and running through late October. Barnes’ attorney contended there was nothing to indicate a more than coincidental correlation between the receipts and disbursements.

“More specifically, all the donations were perfectly legal; none violated source or amount restrictions under Alabama law,” Burchfield wrote on Barnes’ behalf. “[T]he purported ‘politically toxic’ donations do not correlate at all to RSLC Alabama PAC’s donation to Alabama political committees. The Poarch Creek Indian Tribe donations are, except for one coincidental instance in July 2010, insufficient in amount and too separated in time from the donations that allegedly derived from them.”

Barnes resigned from RSLC due to the hostile leadership environment there and received a severance agreement, according to his lawyer. Multiple sources involved in the negotiations confirmed that confidentiality agreements were signed in an effort to keep the slash-and-burn internal battle from breaking into public view. For nearly three years, the arrangement worked.

Gillespie’s role

Presiding over the RSLC board at the time of the divisive showdown was Gillespie, the former George W. Bush adviser now seeking to oust Warner in his 2014 reelection bid. Gillespie’s Senate campaign represents the boldest attempt yet for a candidate to cross over from the world of heavy-spending outside groups into holding actual elected office.

Widely credited with ushering the RLSC into a period of electoral dominance, Gillespie was announced in January 2010 as the group’s national chairman. The title appears to have been an informal designation: Gillespie was not legally listed as the RSLC chairman until February 2011, when the RSLC filed updated documents with the IRS removing Barnes from the job and installing Gillespie in his place.

Gillespie did not respond to an email seeking comment, and his campaign referred inquiries about his role in the RSLC probe to the committee. Officials with the group said Gillespie had no contemporaneous knowledge of any questionable Alabama activities. He is not named in the BakerHostetler report.

For the entire period covered in the report, Gillespie was the group’s top financial wizard; starting in January 2010, he began collecting monthly consulting fees that added up to $200,000 in that year alone. From the time he was publicly named as the group’s chairman until January of this year, the RSLC paid Gillespie some $654,000 for his work as a consultant, fundraiser and board chairman, IRS documents show.

Despite his public prominence as an RSLC leader during the 2010 elections, officials who worked with him at the group say the Alabama spending was outside Gillespie’s purview. When he formally assumed the board chairmanship in 2011, they say he acted to clean things up.

Jankowski, the former RSLC leader who took over as the group’s president when Gillespie became chairman, said the “new RSLC leadership was not aware of any of these transactions when it formally took over in early 2011.” He said he notified Gillespie of a concerning situation in Alabama after the “PAC-to-PAC” donations that year were returned.

“In July of 2011, when press reports appeared from Alabama on this issue, I gathered what information I could and briefed the chairman, who requested that we bring in outside counsel to conduct an internal investigation. The matter took its course from there,” Jankowski said.

Walter, who succeeded Jankowski as RSLC’s president after another leadership shakeup earlier this year, said that Gillespie “as chairman did what any organization of any size or duration would do when there is concern that some individuals may have made some inappropriate decisions.”

“He immediately sought oversight and a thorough investigation into the matter to ensure that there was no pervasive wrongdoing and ensure that new procedures were put into place, to ensure that no similar aspersions were raised in the future,” Walter said.

Walter declined to comment on whether he believed any wrongdoing occurred or to specify what new procedures may have been implemented in the aftermath of the RSLC’s internal investigation.

RSLC today

Since the 2011 leadership turnover, RSLC has only cemented itself further as one of the core groups funding Republican gains across the country. The legal consequences speculated about in the BakerHostetler report never came to pass; while there has been scattered local media attention to RSLC’s engagement in Alabama, there is no indication that law enforcement has ever probed the group’s activities there.

Once a relatively obscure committee focused on legislatures and down-ballot offices like lieutenant governor and secretary of state, RSLC now operates in the same league as the federal Republican campaign committees and the Republican Governors Association. When those groups announced a plan last month to register new Republican voters using the Internet, RSLC was listed alongside the other “sister committees” as a pillar of the GOP’s electoral infrastructure.

The group was buffeted by fresh internal divisions, however, when Gillespie departed to run for Senate. Jankowski, his lieutenant at the group, also departed. Around the same time, the Republican Attorneys General Association — an RSLC subsidiary — notified the board that it was effectively seceding from the organization and incorporating itself as a separate entity.

But the umbrella group targeting state offices continues to pump money into down-ballot elections and announced in a mid-July press briefing that it hoped to add 16 legislative chambers to the 60 already controlled by the GOP. The Republican Legislative Campaign Committee, an RSLC subsidiary, has announced raising $20 million this year.

Walter expressed confidence that the committee operates well within the strictures of state and federal campaign finance law.

“While the report itself is ancient history, certainly in political terms, the RSLC is well-poised to take advantage of a favorable political environment, having just completed a record fundraising second quarter and the largest meeting of legislative leaders in history,” Walter said.

He added, “We are very confident that we have a thorough and detailed compliance enforcement oversight mechanism here at the RSLC.”