California’s campaign watchdog agency appears poised to change the way the state’s political parties funnel cash to candidates, a change that stems from accusations of money laundering just days before the November 2002 election.

Staffers at the Fair Political Practices Commission are expected to recommend at this Thursday’s meeting that the commissioners force political parties to change the way they handle money spent to elect (or defeat) legislative candidates.

First, some background. Right before voters went to the polls in November 2002, 21st Century Insurance Group handed out a total of about $1 million dollars, spread among 15 different county Republican committees. Many of the county organizations then handed over the exact same amount they received from 21st Century to GOP candidates in close legislative races. These were often singular contributions in the tens of thousands of dollars. And what it made it even more suspicious was that these were usually GOP candidates who hailed from a different county than the political committee.

A subsequent FPPC investigation determined two big violations. First, the scheme (in some cases) effectively violated the limits on any single donation that a political party can accept for candidate efforts. And second, because 21st Century’s money appeared to be ending up with particular GOP candidates, the money shuffle effectively violated the contribution limit the company would have been held to had it written a check directly to that candidate.

This week’s FPPC staff report says the investigation into the 2002 allegations was hindered, in part, because county political committees often have only one bank account that pays for both candidate and non-candidate expenses.

As a result, the proposed new regulations would force political parties to create an entirely separate “candidate support” bank account, so that money in– and out– can be more closely tracked.

The staff report also recommends that once a political party organization accepts a “non-candidate support” contribution (translation: money to be spent for activities like voter turnout, etc.), then that money can’t become “candidate cash” merely by it being transferred to a different county’s organization.

If nothing else, the 2002 case… and the proposed new regulation… highlight a loophole voters never saw when they approved the campaign finance reform measure, Proposition 34, in 2000.