SOUTH CAROLINA SENATE SELECT COMMITTEE ON ETHICS REPORT AND RECOMMENDATIONS Introduction In June 2013, the President Pro

Tempore, Senator John Courson, established the Senate Select Committee on Ethics (the "Committee") to review the comprehensive ethics reform bill, H. 3945, and to consider any changes that would strengthen ethics enforcement and compliance in South Carolina. Senator Courson also requested that the Committee consider the structure and jurisdiction of the State Ethics Commission and the House and Senate Ethics Committees. Members of the Committee include the following Senators: Luke Rankin, who serves as Chairman, Chip Campsen, Brad Hutto, Darrell Jackson, Wes Hayes, Gerald Malloy, and Shane Massey. The Committee held its first meeting on October 8, 2013, during which public testimony was taken. The Committee met again on November 6, 2013, to discuss the substance of a pending Senate amendment (JUD3945.0078) to H. 3945 and other ethics-related issues. After much deliberation, and taking into account the testimony and written submissions offered at the public hearings, the Committee concludes that meaningful and comprehensive ethics reform is needed in South Carolina to address various weaknesses in the current law. Requiring the disclosure of private income sources, regulating political committees, increasing criminal penalties, and banning Leadership Political Action Committees ("Leadership PACs") are areas where improvements can and should be made. To implement these changes, reform measures and the make-up of the existing State Ethics Commission and the House/Senate Ethics Committees also should be evaluated. The Committee finds that the current level of staffing at the State Ethics Commission is woefully insufficient to audit the approximately 22,000 filings it reviews annually. Should the General Assembly decide to expand the jurisdiction of the State Ethics Commission to include auditing and investigating House and Senate members/staff for alleged ethics violations and compliance matters, the Committee recommends that sufficient funding be appropriated to enable the State Ethics Commission to carry out its charge. The Committee finds this is an essential precursor to reconstituting and empowering the State Ethics Commission. The following report summarizes the issues for consideration regarding ethics reform as the Senate resumes its deliberations. I. Income Disclosure Much attention has been focused on the lack of clear rules defining what sources of income must be disclosed on a Statement of Economic Interests. The Committee believes that reforms in this area will greatly enhance the trust in South Carolina's public officials. With a few limited exceptions, the Senate amendment would require the disclosure of all sources of income on the annual Statement of Economic Interests. Such disclosure now would include all sources of income received by the filer or a member of the filers immediate family, except for income received pursuant to a court order, interest earned on certain savings, checking or brokerage accounts, and income earned from a mutual fund for which the investment is managed by an

investment company. The Senate amendment would require the disclosure of the specific source of income received by a public official, a member of the public officials immediate family, or a business with which the public official or his immediate family is associated if the income is received from: (1) a contractual or financial relationship with a lobbyists principal (including consulting or independent contractor work); (2) a contractual or financial relationship with a state or local governmental entity (including consulting or independent contractor work); or (3) a source regulated by a governmental entity with which the public official serves. The Senate amendment would require a public member to disclose the specific source of income received by the public member, a member of his immediate family, or business with which the public member or his immediate family is associated when the income is derived from a source directly regulated by the governmental regulatory agency on which the public member serves. The Senate amendment would require a member of the General Assembly to disclose on his annual Statement of Economic Interests a listing of fees earned by the member, a member of his immediate family or a business with which he is associated, while representing a client for compensation in a claim brought against a state governmental entity if the funds are paid by or on behalf of a state governmental entity. In such matters, the nature of contacts made with the governmental entity also must be disclosed. II. Rules of Conduct Similarly, much attention has been focused on perceived or alleged conflicts of interest whereby elected officials participate in legislation benefiting individuals or entities for whom the elected official is employed, without full and proper disclosure by the elected official, or recusal. The Committee believes that reform also is greatly needed in this area. The proposed Senate amendment would address a number of issues concerning the conduct of public officials, public members, and public employees. For example, a public official, public member, or public employee would not be allowed to award or participate in any discussions regarding the awarding of a contract with the state or political subdivision for a business or individual with whom the public official, public member, public employee, or a member of his immediate family is associated. The Senate Amendment would clarify that a public official, public member, or public employee may not knowingly engage in a private business for compensation during the hours of employment for the State or a political subdivision thereof. It also would clarify that a public official, public member, or public employee may not knowingly use offices, equipment, materials, or supplies of the State for a private business or private business activities for which he or she is compensated. The Senate amendment also would require that any recusal for a conflict of interest extend to all instances for which the matter is before the body, including study committees and subcommittees. The Senate amendment also would increase the criminal penalties for violations of certain ethics laws and mandate the recovery of the value of anything received in violation of the law.

The proposed Senate amendment would render a member of the General Assembly ineligible for a judicial office for a period of two years after he ends legislative service or fails to file for election to the General Assembly. III. South Carolina Public Integrity Unit South Carolina Attorney General Alan Wilson and his staff have testified numerous times that South Carolina needs to create a mechanism that would enable certain state agencies to share information to aid an ethics investigation. The Senate amendment would create the South Carolina Public Integrity Unit, which would be a voluntary partnership among certain state agencies for the investigation or prosecution of more serious ethics violations. Membership would consist of the Attorney General, the Chief of the South Carolina Law Enforcement Division, the Director of the State Department of Revenue, the Executive Director of the State Ethics Commission, and the Inspector General. The Public Integrity Unit could receive allegations of criminal conduct or complaints against public employees, officers, or officials and would establish protocols for cooperation among the entities during investigations and prosecutions. Without further authorization from the General Assembly, the Public Integrity Unit would sunset after five years following the effective date of the legislation. IV. Lobbying A number of statutory changes have been recommended related to the perceived revolving door between holding elected office and becoming a lobbyist. For example, the Senate amendment would prohibit, for a period of two years, a former public official, public member, or public employee from lobbying or representing clients before the agency or department on which he formerly served in a matter where he directly and substantially participated during his public service or employment. It also would prohibit, for a period of two years, a former public official, public member, or public employee from accepting employment from a person who is regulated by the agency on which the public official or public employee served or was employed and involved a matter where he directly and substantially participated during his service or employment. The Senate amendment would retain a one-year prohibition for lobbying and employment for matters in which the public official, public member, or public employee was not directly and substantially participating during his public service or employment. The Senate Amendment would increase the annual registration fee for lobbyists and lobbyists principals from $100 to $200. These additional registration fees would be retained by the State Ethics Commission for use as a part of its annual operating budget. V. Campaign Finance A major concern of the Committee is the currently unregulated nature of campaign committees in South Carolina due to a recent federal court decision. In 2010, a South Carolina Federal District Court judge struck down South Carolina's statutory definition of committee on grounds that it was unconstitutionally overbroad. (South Carolina Citizens for Life, Inc. vs. Krawcheck) Consequently, since that time, there has been no enforceable contribution limits on the amount of money that a political committee can accept for use in influencing the outcome of an elective office in South Carolina. There also has been no enforceable reporting mechanism to
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identify the contributors to such committees and where the money is spent. The only remaining enforceable restrictions apply to candidates. The Senate amendment would redefine committee such that it is consistent with the requirements specified by the court and thus reestablish campaign contribution limits and reporting requirements for political committees operating in South Carolina. The Senate amendment would establish less-burdensome reporting requirements for those persons that fall outside the definition of a "committee" but make an independent expenditure of more than $500 in a year or make an electioneering communication within 60 days before an election that refers to a candidate. Such persons would be required to file a report with the State Ethics Commission for each expenditure or communication. This report would include the following information: a detailed description of the expenditure or communication; the name, occupation, and contact information of the reporting person; the identification of the CEO if the reporting person is an entity; the name of the candidate or ballot measure that is the target of the independent expenditure or communication; and the identification of the top five donors and any donor who has donated more than $10,000 within the past year. The Senate amendment would define the term independent expenditure-only committee as a committee that only makes expenditures to support or oppose a candidate for elective office independent of a candidate or political party. This is necessary because the United States Supreme Court has held on First Amendment grounds that independent expenditure-only committees are not subject to contribution limits, but they are subject to the reporting requirements like other committees. The Senate amendment would ban Leadership PACs and prohibit campaign funds from being used to pay penalties resulting from criminal prosecutions. The improper use of campaign funds could result in a misdemeanor conviction if the amount misused is $10,000 or less and a felony conviction if the amount misused is over $10,000. VI. State Ethics Commission and Legislative Ethics Committees One of the Committee's tasks was to examine whether ethics investigations of House and Senate members/staff should remain with the respective House or Senate Ethics Committee or be transferred to a reconstituted State Ethics Commission. In its deliberations, the Committee considered the constitutional mandate of Article III, Section 12 of the South Carolina Constitution, which provides, in part, that each legislative body shall punish its members for disorderly behavior. The Committee also reviewed and discussed the Senate amendment's proposal on this issue, which designates authority to a reconstituted State Ethics Commission to make and investigate complaints against House and Senate members/staff but retains the House and Senate Ethics Committees' jurisdiction for adjudicating the final disposition of such complaints. The Committee recognized that additional funds would have to be appropriated not only to enable the State Ethics Commission to address its current responsibilities, but to accommodate the proposed additional audit and investigative jurisdictional duties of House and Senate members/staff. Herb Hayden, Executive Director of the State Ethics Commission, testified at the
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public hearing that the State Ethics Commission currently receives approximately 22,000 filings each year and is forced to rely on the electronic system to audit these reports for potential violations. Mr. Hayden noted that "hands-on" auditing is key to identifying potential violations but the State Ethics Commission currently lacks the staffing to perform these types of audits. The State Ethics Commission currently has 10 full-time employees to oversee its jurisdiction over approximately 250,000 persons. The State Ethics Commission has suggested, at a minimum, providing funding for three additional fulltime employees - one investigator and two auditors. The Senate amendment proposes that membership of the State Ethics Commission would consist of eight members, with four appointed by the Governor (no more than two from the appointing Governors political party), two nominated by the President Pro Tempore of the Senate in consultation with the majority and minority party leaders in the Senate, and two nominated by the Speaker of the House in consultation with the majority and minority party leaders in the House. Legislative appointments would be screened and confirmed by the respective House or Senate Ethics Committee. The Senate amendment precludes the following persons from serving on the State Ethics Commission: (1) a member of the General Assembly or a former member within eight years following his service; (2) a family member of either the Governor or a member of the General Assembly; (3) a person who made a campaign contribution within four years to the individual nominating or appointing that person to the Commission; (4) a person registered as a lobbyist within the previous four years; or (5) a person under jurisdiction of State Ethics Commission or the House or Senate Ethics Committees. A members term would be limited to five years. In addition to investigating and adjudicating complaints made against members and employees of the executive branch, constitutional officers, and all other local government officials and employees, the newly constituted State Ethics Commission would investigate ethics complaints made against legislators and legislative staff upon: (1) the filing of a complaint by the Commission upon a vote of a majority of the Commission's membership; (2) the filing of a complaint with the Commission by an individual; or (3) the referral of a complaint by the respective House or Senate Ethics Committee. Upon receipt of a complaint, the State Ethics Commission would determine whether or not the complaint alleged sufficient facts to constitute a violation. If the State Ethics Commission found that the facts were insufficient to constitute a violation, it would forward a report to the appropriate legislative ethics committee, which could either concur with the State Ethics Commissions finding and dismiss the complaint or require the State Ethics Commission to further investigate the matter. If there was a finding of sufficient facts to constitute a violation, the State Ethics Commission would then conduct an investigation. If the State Ethics Commission proceeded with an investigation against a legislative member or a member of his or her staff, it then would make a finding on whether probable cause exists to support the alleged violation. This finding would be submitted to the appropriate House or Senate Ethics Committee. If the State Ethics Commission did not find probable cause, and the respective House or Senate Ethics Committee agreed with the finding, the respective House or Senate Ethics Committee would send a written decision to the complainant and respondent. If the State Ethics Commission found that probable cause exists to support the alleged violation, and the respective House or Senate Ethics Committee agreed with the finding, the respective
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House or Senate Ethics Committee would hold a formal public hearing. The investigator or attorney that handled the investigation for the State Ethics Commission would present the evidence at the hearing before the respective House or Senate Ethics Committee. The Committee also is concerned with the membership transition to the reconstituted State Ethics Commission as currently proposed by the Senate amendment. The current structure provides for nine members, with representation from each congressional district and two at-large seats. The Senate amendment provides for eight members and permits the current Commissioners to continue serving until their successor is appointed. The State Ethics Commission currently has four vacancies, and the remaining five members are serving in "hold-over" status. Consideration also should be given to examine how a provision requiring that the Governor appoint no more than two persons from the Governors political party could be enforced. Furthermore, S.C. Code Ann. Section 1-3-240(C)(1)(c) provides that the Governor can remove a member of the State Ethics Commission for cause, and, thus, it likely will be necessary to amend this statute such that the relevant appointing authority is able to remove its appointee for cause. VII. False Claims Act Finally, the Committee recommends that the Senate consider implementing a False Claims Act or similar Qui Tam statute to further strengthen South Carolina's arsenal of ethics enforcement weapons and serve as a deterrent to potential corruption. This would provide an incentive for individuals to come forward and expose fraud in state and local government. The public testimony revealed uniform support for these much needed improvements.