By Chuck Strouse
By Scott Fishman
By Terrence McCoy
By Ryan Yousefi
By Ciara LaVelle, Kat Bein, Carolina Del Busto, and Liz Tracy
By Pepe Billete
By Ryan Yousefi
By Kyle Swenson
In March 2000, after a yearlong investigation, the United States Federal Election Commission (FEC) made public an eighteen-page report on its audit of the Lincoln Diaz-Balart Campaign for Congress. The audit -- only the fifth in three years to target a member of Congress -- covers the 1997-98 election cycle, during which U. S. Rep. Diaz-Balart (R-Fla.) had been re-elected to a fourth term in the House. This past November Diaz-Balart won his fifth term without opposition. He is one of three influential Cuban-American members of Congress and wields considerable power in the U.S.-Cuba policy arena.
The FEC audit of the Diaz-Balart campaign, however, reveals an operation with little regard for federal election laws. The report describes a stunning array of campaign finance violations and stupid mistakes, all discovered largely without the help of an evasive and uncooperative Diaz-Balart staff. Auditors cite dozens of illegal campaign contributions, missing cash, bookkeeping errors amounting to hundreds of thousands of dollars, and failure to report a variety of monetary receipts and expenditures. To top it off, aides never produced all the records and documentation requested by auditors.
Despite its disturbing contents, the audit has never attracted much public attention, and even Diaz-Balart's worst enemies don't deceive themselves into thinking the congressman's campaign finance irregularities will tarnish his bright political prospects. This past May Diaz-Balart agreed to pay a $30,000 fine, to come from his abundant campaign funds. (The FEC did not announce the penalty until July 18.) In February of this year, the campaign paid a $5500 fine for filing late disclosure reports. While the $30,000 fine is considered "steep" compared with other FEC enforcement actions against congressional campaigns, it is far less than the $100,000 to $200,000 some political insiders had been predicting and believed was appropriate -- and which is closer to the scale of the violations cited by the FEC.
The first public mention of Diaz-Balart's trouble with the FEC came seven months after the audit was released, in an October 30, 2000, story by Dan Christensen in the Daily Business Review. The article announced the commission's intention to fine the representative for persistently filing late disclosure reports. Then a Daily Business Review article a week later, the day before Diaz-Balart was re-elected in the 2000 general election, described the audit findings.
Throughout the tumultuous 2000 election cycle, the news media had more immediate issues to cover than Diaz-Balart's campaign finance violations. He faced no opposition for re-election, but he did advertise, almost exclusively in Spanish-language media, and the donations continued to pour in from contributors ranging from business executives and housewives to labor unions and political action committees. Naturally the monetary support fortified Diaz-Balart's stature as an incumbent -- he hasn't faced a serious challenger since he first sought the congressional seat -- and intimidated any prospective opponents. According to one financial disclosure, the campaign's cash-on-hand balance at the end of 2000 was more than a half-million dollars. (Later revelations of more than $100,000 in unreported expenditures and more than $50,000 in unreported contributions would call the amount into question.)
Throughout December 2000 the Daily Business Review followed its initial story about the audit with more details on the plethora of violations uncovered by FEC analysts. The Miami Herald and El Nuevo Herald picked up on the audit news in a December 2000 article that quoted an FEC spokeswoman who called the findings "very significant" and promised the commission would continue its "pursuit of answers."
Ana Carbonell, Diaz-Balart's campaign manager and long-time aide, responded to the coverage with a series of lame excuses. She contended she didn't know the FEC's final audit report had been released in April 2000 (FEC records show it was mailed to Diaz-Balart's office in late March), and then, according to the Daily Business Review: "[Carbonell] also said the FEC's calculations contain errors and simply don't add up." Once, in an effort to prove a disclosure report was filed earlier than the FEC claimed to have received it, Carbonell gave Christensen a FedEx airbill number. FedEx, however, couldn't confirm delivery of the document.
Carbonell, a well-known Cuba-issues activist in her own right, wound up taking most of the heat for the fiasco. She prepared many of Diaz-Balart's financial disclosure forms, no doubt at least partly because of the extended illness of former campaign treasurer Ayuban Tomas, who should have known proper reporting and book- and record-keeping procedures. And Carbonell, as Diaz-Balart's principal liaison with the FEC during the audit, has been blamed by her boss for not informing him of the commission scrutiny (even though she claimed to the Herald and the Daily Business Review that she did apprise Diaz-Balart of the FEC inquiries). Carbonell did not return two phone calls seeking comment from New Times.
But the audit and subsequent amendments and corrections tend to raise more questions about what the congressman's bookkeepers were doing over the years. Only one thing is clear: The law-and-order Republican has been filing inaccurate and misleading FEC reports since he first was elected to Congress in 1992. Although a number of violations discovered by the FEC in 1999 were promptly fixed, auditors' repeated attempts to balance the books (including subpoenas of bank records) ultimately proved unsuccessful.
Though the news barely registered with the congressman's constituents, a few political insiders did take note. One, a Miami-based operative who insisted on anonymity, exclaimed, "That's horrible bookkeeping. That's bad stuff. You can't do that in a campaign. These idiots think the law is for someone else."
In February of this year, the FEC followed up on its October 2000 warning and fined Diaz-Balart a total of $5500 for being many months late in filing two disclosure reports. That sanction, the first under new regulations passed by Congress allowing the FEC to fine late filers, is separate from the recent civil penalty assessed in connection with the audit findings. It also has had no discernible effect on Diaz-Balart's career.
"You hate to lose money out of your campaign account, but it means nothing to your constituents," says a source familiar with the FEC investigation. "A Congress member can easily whitewash a problem like this by saying there was a fine, and we paid it, and it's all taken care of." (This past week state Republican Party chairman Al Cardenas asserted through a spokeswoman he knew nothing about any FEC audit of the Diaz-Balart campaign.)
"The whole [campaign finance] episode has been trivialized by the pundits I deal with," says a local political insider. "It's considered to be just dumb stuff on his part." One prominent Democratic consultant says even if he did know anything about Diaz-Balart's problems with the FEC, he wouldn't comment, since the congressman is a long-time friend.
Diaz-Balart, through his attorney, declined to speak with New Times, and repeated phone calls to his Miami and Washington offices failed to elicit any response from staffers.
The son and grandson of prominent politicians in pre-Castro Cuba, Diaz-Balart has made his name as a staunch anti-communist, even being named one of the "fifty most effective" members of Congress (in the foreign-relations area) by Congressional Quarterly magazine. He enjoys an influential relationship with the new Republican White House and retains a high-profile role in keeping U.S.-Cuba policy in Cold War mode, quashing at every turn growing public and political efforts to liberalize relations with the island. Recently he labeled "imbeciles" and "cretins" some Democrats in Congress who favor a conciliatory stance toward Cuba. Compared with such constituent-friendly issues, a few late FEC reports and a pile of illegal donations can be quickly dismissed as accounting missteps and overzealous supporters.
Yet the sheer depth of the mess, or more to the point, the fact the mess was burgeoning into public view, did apparently cause some scurrying for cover within the Diaz-Balart camp. The politician's curt public reaction -- denial of wrongdoing and blaming his staff -- only gives the impression someone is hiding something. Charles Dusseau, Miami-Dade County Democratic Party chairman, doesn't claim to know much about Diaz-Balart's FEC troubles, but he was mystified by the congressman's response to the revelations. "I certainly didn't think Diaz-Balart dealt with this in a very stand-up fashion," Dusseau opines. "He seemed to avoid the issue rather than dealing with it head-on. It certainly seemed like there was a lot more there than was alluded to, but who knows."
This past November, Diaz-Balart hired a new campaign treasurer, Coral Gables accountant José Riesco. The following month he retained the services of Washington, D.C., attorney Trevor Potter, a former FEC commissioner. Those moves probably saved the congressman tens of thousands of dollars in fines and perhaps even scrutiny from the U.S. Department of Justice. The Justice Department occasionally prosecutes campaign finance violations if they are criminal in nature, but it is not currently conducting an investigation of the Diaz-Balart campaign, according to a DOJ spokeswoman. Potter, at the insistence of his client, declined to comment or answer any questions concerning Diaz-Balart's campaign finances.
Early this year the campaign submitted eight years' worth of amendments to its original financial disclosures. In a January 12, 2001, letter to the FEC, Potter informed the Reports Analysis Division it was about to receive a stack of amended disclosure reports covering 1993 through 2000, as well as the campaign's 2000 year-end report, "submitted early," Potter points out. In some cases the disclosure reports have been amended twice, and government analysts continue to request corrections to already revised reports. Some of the records and documents declared to be missing during the audit have turned up, after all, in Diaz-Balart's offices.
On the same day Potter wrote the FEC, Diaz-Balart penned his own letter to the commission, a disingenuous attempt to mollify the feds after his office spent almost two years avoiding, stonewalling, and misleading auditors. "On November 6, 2000, I first became aware by a press report that my campaign committee ... had been the subject of an [FEC] audit report," Diaz-Balart began. "At no time was I informed nor was I aware that the committee was engaged in an ongoing audit process, or that an audit report had been issued in March of 2000.... I deeply regret the failure of my staff to keep me informed regarding the FEC's inquiries, and my staff's difficulties in responding to those inquiries." Diaz-Balart concedes in closing that his staff committed arithmetical errors and "failed to maintain financial records in the necessary detail and form." But nothing, he instructs the commission, reveals "any illegal activity or misappropriation of funds."
It's hard to imagine how the congressman could have remained oblivious to the FEC audit long after its conclusion. And wouldn't his brother and district director tell him they'd been subpoenaed midway through the audit? "On July 27, 1999, when no records were forthcoming and LDC [Diaz-Balart campaign] representatives ceased communicating with the audit staff, the commission approved subpoenas to Ana Carbonell; Rafael J. Diaz-Balart, LDC custodian of records; and banks known to have been utilized by LDC," the audit recounts.
In December 1999, the narrative continues, the FEC tried to contact Diaz-Balart himself via letter. There was no reply, whereupon "... several attempts were made by the audit staff to contact the congressman's office to inquire about the lack of any response to the letter. On January 6  the audit staff was able to speak with Stephen D. Vermillion, the congressman's chief of staff. He indicated that the letter had been received and that the matter had been referred to Ms. Carbonell. Further Ms. Carbonell advised him that she had discussed the matter with the congressman."
That conversation elicited no helpful information from either Diaz-Balart or his staff, so the FEC issued an interim audit report on January 10. It recommended the campaign correct the numerous bookkeeping and reporting errors discovered by auditors, refund illegal contributions, and explain in writing why the campaign had consistently overstated its cash-on-hand balance by about $114,000. Auditors had been stymied from the beginning by this discrepancy, which existed from the beginning of the audit period and was never clarified, even after scrutiny of subpoenaed bank records.
In the final audit report released in April 2000, the FEC noted that the Diaz-Balart office had responded to the interim audit with amended financial reports. Analysts had not, however, been able to verify all the "corrected" figures cited in the amendments, because the documents submitted as backup were incomplete. Further the campaign still couldn't fully account for the $114,000 discrepancy. "LDC did not provide needed documentation (such as canceled checks and appropriate bank statements).... At best LDC's response only explains about $20,000 of the $114,000 cash balance overstatement," auditors complained.
And there was the strange refund check snafu: In February 2000, in response to findings in the interim audit report, Diaz-Balart's office told the FEC it had refunded almost $30,000 in illegal contributions and provided copies of the fronts of 45 non-negotiated checks. That didn't impress auditors, who noted two months later they still had not received "copies (front and back) of negotiated refund checks."
And in fact none of the checks was ever negotiated. According to the Daily Business Review, Diaz-Balart staffers conveniently discovered all 45 checks, all uncashed, in the campaign office after the November 2000 elections. Thus the money, like any other legal contributions, had been available to pay for expenses leading up to the election. Treasurer Riesco, who had just been hired, told the Daily Business Review the checks had been returned by the post office because they hadn't been addressed properly. In November new refund checks were written and mailed, and this time donors received and cashed them. Among the Diaz-Balart supporters who had contributed more than the $1000 per election max allowable by law was Dexter Lehtinen, husband of U.S. Rep. Ileana Ros-Lehtinen, South Florida's other Republican Cuban-American member of Congress. Many individuals and their relatives routinely make large contributions to multiple candidates and political action committees, and it's often understandable that they might lose track of the total amounts spent on each election. But the FEC also made the Diaz-Balart campaign return more than $10,000 donated by 23 corporations, an amount most knowledgeable observers consider unusually high. Corporations aren't allowed to contribute to political candidates, although they can form PACs to do that. In this case a number of individuals made contributions both in their names and in their companies' names; several offenders were members of Miami's prominent Milton family, who are builders and developers. How could the Diaz-Balart campaign not spot so many illegal checks from corporate donors?
Perhaps more troublesome, though, were the tens of thousands of dollars in both receipts and expenditures not reported to the FEC. As recently as this past January, Riesco informed the commission of $40,300 in contributions received during 1997-98 that were never revealed to the FEC auditors. (This alone exceeds the amount of the July 18 FEC fine.)
The auditors did find $35,720 in unreported interest income during that period. These earnings came from certificates of deposit at Hamilton Bank, NationsBank, and Bank of America. None of the CDs had been disclosed until discovered by auditors. Commission analysts told Diaz-Balart's staff to correct the public record by filing the appropriate forms listing the interest earnings. This was done, though the amounts and terms of the CDs weren't included.
Aside from the fact that the campaign failed to report thousands of dollars of interest income -- not only during the audit period but in succeeding years until the omissions were corrected in 1999 -- there's no indication Diaz-Balart paid the required federal income taxes on more than $75,000 interest accrued on CDs from 1996 through 2000. Contributions to political campaigns aren't taxed, according to an Internal Revenue Service spokeswoman, but earnings such as interest income are taxable if more than $100. Riesco did not return calls to his office seeking clarification of questions about Diaz-Balart's finance reports.
The newly revealed existence of Diaz-Balart's Hamilton Bank CD raises a few questions about Cristina Diaz-Balart's role in her husband's campaign financing. In 1997, when the Hamilton certificate (probably for about $100,000) appears to have been opened, Cristina, an economist, worked at that institution. Hamilton had built an impressive reputation as a specialist in international trade and for years was a darling of banking analysts. Interestingly in a 1994 article headlined "Bank's Success Due Almost Entirely To Trade," the Miami Herald's Larry Birger wrote: "Hamilton Bank is no ordinary bank. If you're in the market for an auto or boat loan, don't bother applying. Ditto for a home mortgage. Forget about finding favorable interest rates on certificates of deposit. But, wow, can Hamilton finance international trade."
Thus some might question the choice of Hamilton for a sizable CD. The Diaz-Balart campaign also maintained an operating account there. If Cristina Diaz-Balart received any bonus or incentive for investing her husband's campaign funds there, or if the CD earned a more favorable interest rate than usual, that might be construed as an alleged illegal campaign contribution. Regardless why didn't Diaz-Balart report the CDs until the FEC auditors found them?
In any event bad loans in Latin America resulted in big losses for Hamilton Bank beginning in 1998, prompting a series of stockholder lawsuits and problems with regulators and rating agencies. Cristina Diaz-Balart left Hamilton sometime in 1999 (the FEC audit began that spring) and started working at Miramar Securities, a Columbus, Georgia-based investment brokerage. She is listed with the Florida Secretary of State as the firm's registered agent. The Diaz-Verson family in Columbus, key players at Miramar, have been generous donors to Diaz-Balart throughout his career; Salvador Diaz-Verson, in fact, was one of the individuals who overcontributed to the 1998 and 2000 campaigns.
It was Cristina, according to Diaz-Balart's January 2001 letter to the FEC, who helped Riesco and "committee representatives" correct eight years of financial report forms, working throughout November and December 2000 and early 2001. It is not clear what records Cristina Diaz-Balart used to correct the disclosure reports, which included the 1997-98 reports that had already been amended once during the audit process. FEC accountants state in the audit they weren't able to verify 50 percent of the financial information submitted by the campaign because documentation, such as receipts or invoices, was missing. "In order to adequately address these apparent errors, the audit staff would require bank statements for all accounts (including certificates of deposit) and LDC workpapers showing the derivation of its reported figures," the audit notes.
Were the missing bank statements and workpapers available to Cristina Diaz-Balart as she corrected the campaign's books? If so, why didn't the auditors see them? If not, what makes the corrections more correct than in the former reports? Riesco's most recent memoranda to the FEC do mention that some previously lost records were later located.
Also recently discovered were about $26,000 worth of checks made out to vendors who provided services to the campaign during a five-year period through 2000. Though the checks had been reported to the FEC as disbursements, for unknown reasons they had never been cashed. After the checks were unearthed late last year during the preparation of the 1994-2000 amendments, they were voided, changing the campaign's cash balances yet again.
"This sounds in general like a level of error and records mismanagement that is certainly far beyond the norm," remarks professor Anthony Corrado, a campaign finance expert at Colby College in Maine, who has not read the audit. "Given the scope of the amounts of the discrepancies, it's an anomaly that's going to raise a red flag at the Federal Election Commission."
The campaign currently is responding to methodical FEC questioning of the most recently submitted amendments as well as the 2000 annual disclosure report. In the meantime a Miami PAC that has contributed to Diaz-Balart's re-election efforts has come into the FEC sights. This past January the commission threatened the Free Cuba PAC with an audit and enforcement action, after repeated warnings about late disclosure-report filings. Free Cuba, which lists its address at the medical offices of Cuban American National Foundation director Dr. Alberto Hernandez, gave an uncharacteristically large (for this PAC) donation of $5000 to Diaz-Balart's 2000 re-election effort. Nothing wrong with that. But there are several apparent fabrications and omissions on Free Cuba's disbursement forms. Among the contributions never reported by the PAC is a $5000 donation in February 2000 to Pete's PAC, the committee founded by U.S. Sen. Pete Domenici (R-N.Mex.) to raise money for Hispanic Republicans. Pete's did report the $5000 and the following month contributed $1000 each to Diaz-Balart, Ileana Ros-Lehtinen, and Texas Rep. Henry Bonilla. Ros-Lehtinen and Bonilla promptly reported the donations; Diaz-Balart waited three months to do so. Could Free Cuba and/or Diaz-Balart have been trying to avoid a direct contribution from Free Cuba to Diaz-Balart, thinking an extra $1000 would exceed limits (even though PACs may give $5000 per primary per candidate and then $5000 per general election)? Even on an amended April 2000 quarterly report ordered by the FEC, the Free Cuba PAC didn't note its $5000 to Pete's. Was Free Cuba trying to hide that contribution because it actually was intended to go indirectly to Diaz-Balart and the other two lawmakers? (That type of conduit contribution is illegal.)
These and other unanswered questions linger, and it's unclear whether they'll be resolved after the conclusion of the FEC audit investigation. The party faithful in South Florida, both Democrat and Republican, have other pressing concerns. "We're certainly aware of it and interested," says state Democratic Party chairman Bob Poe. "But we don't have the authority to do anything, and we'll have to wait until it gets closer to election time. This may help draw out a good [opponent to Diaz-Balart] willing to make an issue out of it. Then it's fair game. We have lots of time."