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Wednesday, April 2, 2014, 5:00 PM

Supreme Court Opens New Political Contribution Opportunities for Big Donors

In a divided 5-4 ruling in McCutcheon v. Federal Election Commission, the Supreme Court today struck down the federal election law’s long-standing “biennial limit” – the aggregate amount that a person can give to federal candidates and other committees in a two-year election cycle. Prior to the Court’s ruling, an individual could contribute no more than $123,200 during 2013 and 2014, with a maximum of $48,600 for candidates and $74,600 to party committees and PACs. Now, individuals are free to contribute to as many candidates and other committees as they please, so long as each contribution is within limits.

Writing for four of the justices, Chief Justice Roberts stated that the only legitimate governmental interest for restricting campaign finances is to prevent corruption or the appearance of it. The aggregate limits, in their view, do not further this interest, but do seriously restrict participation in the democratic process. The plurality opinion observed that the government may no more “restrict how many candidates or causes a donor may support than it may tell a newspaper how many candidates it may endorse.”

The four justices in the plurality did not revisit the different constitutional treatment of political contributions to candidates and expenditures by persons and entities, which allows for greater regulation of contributions. In his concurring opinion, Justice Thomas expressed his view that both per candidate and aggregate contribution limits are unconstitutional.

For the 2014 elections, individuals are still limited to giving $2600 to a candidate for each election ($5200 for the general and primary elections combined). In addition, on an annual basis, an individual can give no more than $32,400 to a national party committee, $10,000 to a state or local committee, and $5000 to any other federal committee or PAC.

The Court’s full decision is available at this link. If you have any questions, you can contact Jim Kahl of Womble Carlyle’s political law group at jkahl@wcsr.com or 202-857-4417.

Monday, March 3, 2014, 1:41 PM

Corporate Political Law Compliance: Top 5 Tips for the 2014 Election Year


For many companies engagement with public officials can be critical to achieving business objectives. At the same time, corporate political activities are governed by a complex set of federal, state and local laws, and missteps can have significant legal and reputational consequences. These risks are magnified in an election year when corporations and their leaders are inundated with requests to support candidates and political parties.  Jim Kahl addresses the Top 5 corporate political law compliance tips in a new Client Alert.

Click here to read the Top Five Corporate Politlcal Law Compliance Tips.

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Monday, December 2, 2013, 4:51 PM

Treasury and IRS Provide Thanksgiving Surprise: Proposed 501(c)(4) Political Activity Rules

As most of America travelled over the river and through the woods to Grandma’s house before the Thanksgiving holiday, the Treasury Department and the IRS delivered their own holiday gift.  On Tuesday, November 26, they released proposed guidance aimed at clarifying which conduct by tax-exempt social welfare organizations – 501(c)(4) entities – qualifies as political campaign activity.

Under existing IRS regulations, the promotion of social welfare does not include direct or indirect participation in political campaigns on behalf of or in opposition to any candidate.  Over the years, the IRS has used a wide-ranging facts and circumstances test to determine whether an organization is engaged in an impermissible level of political campaign activity.  In the aftermath of the recent IRS scandal regarding the review of 501(c)(4) applications, Treasury and the IRS believe that more definitive political activity rules would reduce the need to conduct fact-intensive inquiries when applying the rules for qualification as a social welfare organization.

To accomplish this objective, Treasury and the IRS have coined a new term, “candidate-related political activity.”  This term encompasses existing definitions of political campaign activity from federal tax and campaign finance laws, and includes the following: 

  • Express advocacy communications; 
  • Public communications made within 60 days before a general election or 30 days before a primary election that clearly identify a candidate for public office, as well as any other communications that have to be reported to the FEC (including independent expenditures and electioneering communications); 
  • Monetary and in-kind contributions to or the solicitation of contributions on behalf of campaign, party and other political committees, and other tax-exempt organizations that engage in political activity; and
  • Other election related activities such as voter registration and get-out-the-vote drives, distribution of candidate or political committee materials, and the preparation and distribution of voter guides. 

The proposed rules raise many serious concerns.  For example, candidate-related political activity could include conducting nonpartisan voter registration drives and distributing nonpartisan voter guides.  Moreover, the proposed rules attribute to 501(c)(4) organizations, among other things, political activities conducted by their officers, directors or employees acting in that capacity. Unfortunately, the draft rules do not elaborate on the possible differences between conduct taken in an official capacity and personal political conduct by an officer, director or employee.  Finally, many contributions from a 501(c)(4) to another tax-exempt organization would appear to qualify as candidate-related activity unless the contributor receives a written confirmation that the recipient does not engage in such activity and the contributor restricts the use of the contribution.

The proposed political activity rules also leave many important issues unaddressed.  Under existing rules, 501(c)(4) entities must be “primarily” engaged in activities that promote the common good or social welfare.  The proposed rules provide no guidance on what proportion of an organization’s activities must be dedicated to this purpose to qualify under section 501(c)(4).   The proposed regulations also do not apply to entities that qualify under Section 501(c)(3) (charitable organizations),  Section 501(c)(5) (labor unions),  Section 501(c)(6) (trade associations), or Section 527 (political organizations).  Treasury and the IRS are, however, accepting comments on the advisability of making changes in each of these areas.  Interested persons may submit comments to the IRS by February 27, 2014.

If you have questions about these draft rules, please contact any of the following members of the Womble Carlyle Political Law and Tax Practice Groups:

Jim Kahl – Political Law Practice Group
Ran Bell – Tax Practice Group
Megan Wilson  – Tax Practice Group

Thursday, March 14, 2013, 3:30 PM

Pilfered Funds & The FCC’s Online Political Public File Rule: The Law Of Unintended Consequences

In recent months, a number of media buyers have had funds stolen from their bank accounts. Even after repeatedly opening and closing accounts to stop the theft, tens of thousands of dollars have been diverted to accounts across the country and across the world. Unfortunately, it would appear that the thieves are obtaining the media buyers’ account information from none other than the U.S. government through the FCC’s on-line political files. While we understand that the FCC may soon address this problem, there are steps that broadcasters and media buyers can take to minimize these risks.

First, here’s how the evil-doers are apparently accessing the bank accounts. As nearly every broadcaster knows, last year the FCC concluded its long running effort to have television stations place their local public file on the internet. As a part of the new rules, broadcasters affiliated with the top four national television broadcast networks in the top 50 DMAs are required to upload their political files to an FCC-maintained website. All other TV broadcasters must begin to upload new political files on July 1, 2014.

FCC rules require the following materials to be placed in the political public inspection file, and therefore on the Commission’s website:
 
1.     Requests for broadcast time made by or on behalf of a candidate for public office,
2.     An appropriate notation showing the disposition made by the licensee of the requests and,
3.     The charges made, if any, if the request is granted.

To show the disposition of the request, the file must among other things, include a schedule of the time purchased, the rates charged, and the classes of time purchased.

In the past, many broadcasters complied with these requirements by simply putting copies of the ad buy order and the payment check in their local public file. This minimized the time required for compliance and, in a pre-internet world, presented few risks.

When the new rule was under consideration, many broadcasters feared that they would have to spend precious time and resources inputting information into new electronic forms and performing other new tasks. The Commission assured these broadcasters that they would only have to post online the same materials they had previously maintained in the hard-copy local public file. To facilitate the process, the Commission website allows materials to be uploaded in PDF format without any filter or FCC review.
 
And with that, 20th century practices ran head-long into 21st century technology. Predictably, many broadcasters have taken the Commission at its word, and are uploading exact copies of the bank checks used for payment without any redaction. Thus, bank account numbers, routing numbers, and signatures are freely available online to the unscrupulous.
 
To be clear, the FCC has never taken the position that this type of sensitive financial information must or should be placed in the political file to comply with the Commission’s rule. We understand that the FCC will soon be posting an FAQ on its website highlighting this point. And we hope that the Commission disseminates this information widely among the broadcast community.

As a result of these recent events, we anticipate that broadcasters may see new provisions in their order placements and their agreements with media time buyers prohibiting them from posting buyers’ checks to the public file. Even without a specific request or contractual provision, broadcasters should refrain from including bank information in the political file as a general liability mitigation strategy. While it may require the expenditure of some time, a better practice is for broadcasters to provide a short summary of the information necessary to comply with the Commission’s political file rules.

While the online political file requirements do not apply to radio stations – at least not yet – these events are nonetheless instructive. Since members of the public are entitled to have copies of materials in a radio station’s file, it is good policy for the station to follow the same practice of providing a short summary of the required information and purging the file of copies of the checks used to pay for political advertising.

If you have any questions, please contact Gregg Skall and Jim Kahl of Womble Carlyle’s Broadcast and Political Law Teams.

For further information on political broadcasting requirements, you can download the Womble Carlyle political broadcasting manual at: http://www.wcsr.com/resources/pdfs/politicalbroadcastmanual.pdf

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Wednesday, March 6, 2013, 4:04 PM

Think Globally, Contribute Legally

In today’s globalized world, U.S. subsidiaries of foreign corporations play a significant role in the U.S. economy. And it is common for foreign nationals to have lead roles in both U.S. corporations and the domestic subsidiaries of foreign entities. Companies whose business success requires engagement with federal, state and local lawmakers must understand the restrictions on political activity that apply to foreign national persons and entities. Missteps in this arena can lead to civil and criminal sanctions and damage to your organization’s reputation.

Federal law prohibits foreign national individuals and corporations from making political contributions to federal, state and local candidates and other political committees, including PACs. With regard to individuals, only U.S. citizens and lawful permanent residents (i.e., “green card holders”) can contribute to candidates and political committees. However, U.S. subsidiaries of foreign corporations can make state and local political contributions, where permitted by state law, provided that the contributions are not financed by the foreign parent and foreign nationals do not participate in decision making regarding the contributions. These U.S. subsidiaries can also establish and support a federally-registered PAC so long as the foreign parent does not finance PAC administration and safeguards are put in place to ensure that foreign nationals do not direct or manage the PAC’s activities.

Since indirect as well as direct contributions by foreign nationals are illegal, any contributions made by foreign nationals through intermediaries – by way of reimbursements, bonuses, or otherwise – will violate federal law. Also, third parties who knowingly solicit or accept foreign national contributions or provide “substantial assistance” in making or accepting foreign national contributions may face civil and criminal sanctions.

Opportunities do, however, exist for foreign nationals to engage in political activities that promote corporate objectives. In addition, to the avenues for corporate support by domestic subsidiaries noted above, the Federal Election Commission has recognized many ways that foreign national individuals can participate legally in the political process. For example, in a series of advisory rulings foreign nationals have been permitted on a voluntary basis to attend political fundraisers and speeches, distribute campaign literature, canvass voters, work on telephone banks, solicit contributions, and even serve as campaign staff members.

The FEC’s regulations in this area are complicated and the advisory rulings are fact specific. As a result, foreign corporations, their U.S. subsidiaries, and foreign national individuals are well advised to seek counsel prior to engaging in any U.S. political activity.

If you have any questions, please contact Jim Kahl or any of the other members of the Womble Carlyle Political Law team.

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Wednesday, February 6, 2013, 12:25 PM

FEC Increases Political Contribution Limits

On January 30, the Federal Election Commission increased the amounts that individuals and certain PACs can contribute in the 2013-14 election cycle. The most significant change is that individuals may now give $2600 per election to each federal candidate. This is an increase from the $2500 per election limit that had been in place for 2011-12. Since primary and general election contests are viewed as separate “elections,” an individual may now contribute a total of $5200 to a federal candidate for the two-year election cycle.

In addition, individuals can now give $32,400 to each national party committee per calendar year (up from $30,800). And the overall two-year limit for contributions by individuals to federal candidates, political parties and PACs, has been increased to $123,200 (up from $117,000). This biennial limit imposes caps of $48,600 on an individual’s contributions to all candidates and $74,600 to all PACs and parties. Individuals are still restricted to giving up to $5000 to a PAC in a calendar year.

The contribution limits for larger PACs are not readjusted each election cycle. As a result, “multicandidate” PACs – those with 51 or more contributors that have supported 5 or more federal candidates – can still contribute $5000 per candidate per election, $15,000 per year to a national party committee, and $5000 per year to other PACs. However, smaller PACs that do not have “multicandidate” status have the same revised limits that apply to individuals’ contributions to candidates and national party committees for the 2013-14 election cycle.

The FEC also adjusted the reporting threshold for candidates, leadership PACs and political parties that receive lobbyist bundled contributions. Now, they must report contributions aggregated by a lobbyist if they exceed $17,100 (up from $16,700) in a semiannual period.

The 2013-14 contribution chart is available at this link. If you have any questions, please contact Jim Kahl or any of the other members of the Womble Carlyle Political Law team.

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Wednesday, November 28, 2012, 3:28 PM

Jim Kahl to Discuss Citizens United’s impact on PACs at Women in Government Relations Conference

WASHINGTON, D.C.—Womble Carlyle Political Law attorney Jim Kahl will participate in a panel discussion on “PAC Balance: How the Balance has Shifted Post Citizens United.” The December 3rd discussion is part of the Annual PACs, Politics & Grassroots Conference sponsored by Women in Government Relations.

Having completed the first Presidential election cycle in the era of Super PACs, the panel will discuss, “How did it go and what does the future hold?” Panelists will discuss how the Super PAC dynamic impacted the 2012 election as well as insights about the shifting balance in political giving and campaigning in America.

The PACs, Politics & Grassroots Conference takes place at the Capital Hilton in Washington, D.C.

Jim Kahl represents clients regarding the regulation of political activity, including counseling on federal and state laws governing campaign finance, government ethics, lobbying laws, and political activity by government employees. With an extensive background working in and practicing before federal agencies, Jim helps clients navigate the complex regulatory maze that impacts federal and state political activity. From 2002 to 2007, Jim served as Deputy General Counsel of the Federal Election Commission. He also served as Deputy Special Counsel at the US Office of Special Counsel.


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Thursday, September 13, 2012, 3:41 PM

Jim Kahl to Provide Political Law Compliance Update at ASAE Annual Association Law Symposium

WASHINGTON, D.C.—Womble Carlyle Political Law attorney Jim Kahl is among the speakers at the ASAE Annual Association Law Symposium. The Law Symposium takes place Oct. 5th at the Walter E. Washington Convention Center in Washington, D.C.

Kahl will provide a Political Law Compliance Update.

The 2012 election season is in full swing, and tax-exempt organizations have played an influential role in both candidate promotion and issue advocacy.

Kahl and attorney Jeffrey Altman of Whiteford, Taylor & Preston LLP will highlight the key political law compliance issues facing associations, advocacy organizations, and political action committees, including new state and FEC campaign finance rules, IRS rules defining and limiting political activities, congressional rules impacting lobbying registration and disclosure, and new political law risks.

Jim Kahl represents clients regarding the regulation of political activity, including counseling on federal and state laws governing campaign finance, government ethics, lobbying laws, and political activity by government employees. With an extensive background working in and practicing before federal agencies, Jim helps clients navigate the complex regulatory maze that impacts federal and state political activity. From 2002 to 2007, Jim served as Deputy General Counsel of the Federal Election Commission. He also served as Deputy Special Counsel at the US Office of Special Counsel.

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Monday, July 2, 2012, 3:09 PM

Top 10 Political Activity Tips for Associations in Election Year 2012

Reprinted with permission, ASAE: The Center for Association Leadership (June 2012), Washington, DC.

In this election season, many associations and their members must be politically active because so much is at stake in Washington, DC, in state capitals, and in cities and counties around the country. Decisions by federal, state, and local officials on a host of issues can mean the difference between success and failure for your industry or organization.

At the same time, the rules governing political activity at the federal and state levels seem to be in a constant state of flux. While the U.S. Supreme Court has expanded corporations' rights to political speech, stricter rules govern a variety of other political activities and can pose traps for the unwary.

Indeed, some political activities once considered a part of doing business can present a high-stakes compliance challenge for any organization.

The following are the top 10 political activity tips that associations and their members need to know in this election year.

1. You Can Sponsor Political Ads, But You May Have to Disclose Donors

In its January 2010 decision in Citizens United v. Federal Election Commission, the Supreme Court ruled that corporations and other incorporated entities cannot be prohibited from sponsoring communications that expressly advocate the election or defeat of political candidates. As a result, corporations, associations, and many tax-exempt organizations are free to fund radio, television, and other communications supporting or opposing the candidates of their choice. However, the Court made clear that since these communications must be "independent," their content, timing, and placement cannot be coordinated with candidates and their campaigns.

It should come as no surprise that relatively few corporations have sponsored communications supporting or opposing candidates. Under federal and state campaign finance laws, the sponsors of such ads must file reports publicly disclosing these expenditures. And for most companies, especially large corporations that sell directly to consumers, such disclosures would not be good for business.

As a result, most corporate independent advocacy has been conducted thorough trade associations and other third-party groups. An association's spending on these communications will appear in publicly available reports. However, federal and state laws vary widely as to whether and when the people or entities funding the association's communications must be disclosed.

Associations contemplating independent political communications should familiarize themselves with relevant federal, state, or local campaign finance rules to determine if they are required to disclose their donors. In some instances, disclosure can be avoided, depending on how funds are requested from members and which association funds are used to finance the communications.

2. Get Ready for Even More Rigorous Disclosure Requirements

In Citizens United, the Supreme Court spoke forcefully about the importance of transparency in corporate political spending, and eight of the justices voted to uphold the federal law's requirements that political ads must identify their sponsors. But many of the current disclosure regimes were enacted before corporate political expenditures were permitted and, thus, often do not encompass the flow of corporate spending through associations and other third parties.

Some states have already addressed this issue, and several pending proposals at the federal level may result in more rigorous disclosure obligations on independent political spending by associations and their members.

For example, in February, Rep. Chris Van Hollen (D-MD) introduced the Disclosure of Information on Spending on Campaigns Leads to Open and Secure Elections Act of 2012—or the DISCLOSE 2012 Act. This bill is a pared-back version of legislation he and Sen. Charles Schumer (D-NY) introduced shortly after Citizens United, and it would impose new disclosure requirements on "covered organizations," a term that encompasses corporations, tax exempt organizations, and political action committees (PACs) that make disbursements for campaign-related ads. Among other things, the proposal would

  • Require the organization to certify that its disbursements are not coordinated with a candidate or a political party and identify its contributors in Federal Election Commission (FEC) reports.
  • Require the head of a covered organization to "stand by the ad"—that is, include a statement in the ad that he or she "approves this message." Ads by the organization would also have to disclose the top five contributors for TV ads or top two contributors for radio ads.

Similarly, the Securities and Exchange Commission is considering a rulemaking petition filed by a group of academics that asked the agency to require corporations to disclose political expenditures to shareholders.

Van Hollen also successfully challenged FEC rules dealing with the disclosure of contributors to so-called electioneering communications—radio and TV communications that depict clearly identified candidates in a certain time period before an election but do not expressly advocate for or against them. In March, the U.S. District Court for the District of Columbia agreed with Van Hollen that the FEC's rules were too narrowly drawn, with the result that certain contributors to electioneering communications were not disclosed as required by the McCain Feingold campaign finance law. While the case continues on appeal, the FEC has indicated that it intends to issue interim guidance regarding how contributors to electioneering communications should be reported.

Given the fluidity in this area, associations and their members should follow these developments closely so they are aware of the scope of their disclosure obligations.

3. Understand That Super PACs Are Not Secret PACs

Shortly after the Citizens United decision, the FEC issued two opinions allowing registered PACs to accept unlimited contributions from corporations and individuals, provided that the PACs engage only in independent advocacy. These entities have come to be known as Super PACs.

Associations or other entities contemplating giving to a Super PAC should be aware that their contributions are fully disclosed in FEC reports, despite popular commentary suggesting that these PACs are secretive entities. This likely explains the fact that the vast majority of Super PAC funding has come from wealthy individuals, who may not have the same reputational concerns that associations and corporations do.

4. You Still Need Traditional PACs

While the Supreme Court has opened up new avenues for independent corporate and association political communications, it did not overturn existing prohibitions on corporate political contributions to candidates and political parties. Therefore, under federal law and the laws of many states, associations and corporations still cannot use treasury funds to make political contributions to campaigns or political parties.

As a result, traditional PACs, which solicit contributions from eligible individuals, are as important as ever. In jurisdictions where corporate political contributions are prohibited, PACs remain the best way to support a candidate or political party in a way that is associated with your organization.

While PACs are relatively easy and inexpensive to establish, they are governed by detailed (and sometimes confusing) rules regarding the solicitation and use of funds, the reporting of contributions and disbursements, and the proper management of PAC funds. Nonetheless, PACs are well-established vehicles for political giving, and they serve as a way for an association or corporation to channel its political activities through an entity that presents limited risks.

5. Get Member Assistance for Your PAC

Association PACs need the help of their members if they are to grow, thrive, and serve the association and its members.

How can association members help? The association's corporate members can permit the PAC to solicit the restricted-class employees of the member. The corporate member can even use its payroll-withholding system to collect and forward contributions to the PAC. However, the association must be sure to obtain annual written permission from the member corporation to solicit its employees, and the member corporation can only authorize one trade association to solicit its restricted class per year.

A corporate member also can provide other support for the association PAC. For example, while the corporate member may not generally pay the costs of PAC fundraising events, it may donate funds over and above its membership dues, which may help the association pay for PAC solicitation or fundraising activities. In addition, corporate members may donate raffle items, door prizes, and the like for PAC fundraising events.

6. Be Careful How You Use Your Federal PAC

Associations and their members frequently support both federal and state candidates. So how many PACs are needed to support both federal and state efforts? Can all of the activity be run through the federal PAC? Or do you also need one for each state?

Unfortunately, the answers to these questions vary from state to state. In many cases, federal and state political contributions can be handled by the federal PAC. In some states, the federal PAC only has to file a copy of the federal report reflecting the state contributions, file an abbreviated stale report, or in some instances file nothing at all. In a few states, the federal PAC must file the full range of reports required for state PACs, or may even have to establish an entirely separate PAC with its own bank account.

It is essential to review local campaign finance laws before making a contribution to a state candidate with federal PAC funds. Failure to do so may result in one small state or local political contribution subjecting the federal PAC to rigorous, ongoing state reporting requirements.

7. You May Be Able to Extend Your PAC's Reach

It is well established that associations can solicit contributions to their PACs only from restricted-class members—that is, eligible employees of the association and the association's corporate members and from individual association members. Soliciting contributions from the general public is prohibited: however, voluntary, unsolicited contributions from outside the restricted class can be accepted.

While that remains true, the FEC recently ruled that PACs may reach out beyond the restricted class to help favored candidates. In Utah Bankers Association, the FEC permitted an association PAC to communicate with members of the general public through the PAC's website or by email and request that these individuals directly contribute to specified federal candidates.

Of note, the FEC found that because the solicitations were made through the website and by email, they were exempted from the coordination rules. Therefore, these solicitations to the public would appear to be permissible even if undertaken with full knowledge and approval of the federal candidates who would benefit from the contributions.

8 and 9. Be Alert to Tougher Gift-Giving and Lobbying Restrictions

In Washington, DC, and in states across the country, greater restrictions are being imposed on gift-giving to public officials, and lobbying activities are being subjected to higher levels of regulation.

At the federal level, President Barack Obama signed an executive order during his first week in office that greatly restricted gift-giving by federal lobbyists to his political appointees. More recently, the Office of Government Ethics issued draft regulations that would effectively apply the restrictions more broadly to the career federal work force. Meanwhile, some states have adopted draconian gift restrictions that prohibit legislators from accepting even a cup of coffee from a private party. And it is common to see states imposing more onerous gift restrictions on lobbyists and their employers.

Fortunately, there are exceptions to virtually all gift rules, affording a degree of flexibility to those who follow the rules carefully.

On the lobbying front, many states are expanding the definition of lobbying activity and subjecting a wider range of conduct to registration and reporting requirements. For example, in some jurisdictions, "goodwill lobbying"—activity that entails getting to know a legislator even though no legislation is discussed—triggers lobbying registration obligations. Similarly, a growing number of states and municipalities treat a public contractor's sales professionals as "procurement lobbyists," requiring them to register and file periodic reports.

Associations and their members should be aware that incidental discussions with public officials, and providing them with even token gifts, may give rise to sanctions and adverse publicity. With advance planning in consultation with counsel, organizations can engage effectively with public officials and avoid the risks posed by lobbying and gift rules.

10. Develop a Strong Compliance Effort

An effective and ongoing political law compliance program is essential for politically active associations. PAC, lobbying, and gift-giving activity should be audited periodically. Appropriate policies and procedures should be adopted to guide employees, and employees must know whom to consult when questions arise. Key employees should receive training on federal and state campaign finance, gift, and lobbying rules. And strong record-keeping procedures should be in place whenever reporting is required.

Such attention to compliance can head off problems before they ripen into troublesome external audits or investigations. Indeed, the mere fact that an organization provides periodic training tends to soften a regulator's stance when considering punitive action.

This election year, opportunities will abound to support and engage with public officials to promote the public policy goals of your association. Understanding the rules of the road will ensure that violations of lobbying, gift, and campaign finance laws do not undermine your efforts.

James A. Kahl, a former deputy general counsel at the Federal Election Commission, is an attorney in the Washington, DC, office of Womble Carlyle Sandridge & Rice, LLP, where he advises clients in connection with federal and state campaign finance, lobbying, and government ethics matters. Email: jkahl@wcsr.com

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Monday, June 4, 2012, 2:24 PM

Jim Kahl article on ‘Citizens United, Super PACs, and Corporate Spending on Political Campaigns’ featured in The Federal Lawyer

WASHINGTON, D.C.—Womble Carlyle political law attorney Jim Kahl has written a new article on “Citizens United, Super PACs, and Corporate Spending on Political Campaigns: How Did We Get Here and Where Are We Going?” The article appears in the June 2012 issue of The Federal Lawyer.

Click here to read the full article.

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Thursday, February 16, 2012, 12:09 PM

Webinar, February 23: Political Advertising Considerations for State Broadcasters

Womble Carlyle will host a webinar February 23, 2012, to help state broadcasters prepare for the 2012 election season. The webinar will cover important principles for compliance with political advertising rules, including rate considerations. Womble Carlyle communications attorney and counsel to the Minnesota and Missouri Broadcasters Associations, Gregg Skall, will present the webinar.

Questions about this Webinar? Please contact Katie Tedrow at KaTedrow@wcsr.com or (202) 857-4502.

Register here.

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Federal Election Commission Approves Standlouder.com, An Innovative New Political Advertising Platform

StandLouder.com has obtained approval from the Federal Election Commission for its innovative new political advertising platform. Womble Carlyle attorney Jim Kahl represented StandLouder.com in its bid to allow average citizens and small businesses to sponsor political communications.

In this election cycle, independent political advertising has been dominated by well-funded special interest groups, Super PACs, and advocacy organizations. The goal of StandLouder.com is to provide a venue where ordinary citizens and small businesses can join with others to sponsor user-generated ads about candidates and issues. Website users can donate their dollars to the ads they want to support and can submit their own ads for funding by other users. Once there is broad-based buy-in for an ad, StandLouder.com will place that ad on TV, radio, or distribute through other communications media. To ensure that StandLouder.com remains a platform for average Americans, users cannot coordinate their activities with candidates and political parties, and foreign corporations, foreign individuals, and federal contractors are prohibited from providing content or funding ads.

Read more...

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Wednesday, November 30, 2011, 10:00 AM

Super-size That Contribution: New Options for Savvy Corporations, Associations, and Politically-active Executives

Political giving used to be a lot simpler. Establish a budget, make a list of like-minded candidates, and write checks to their campaigns.

In 2012, savvy corporations, PACs, and politically-active executives have quite a few options. Careful planning can make the difference between a robust and effective government affairs strategy and one that attracts little attention.

So what has changed? While candidate committees and political parties must still abide by the old rules, new types of organizations can operate free of contribution limits and source restrictions. Super PACs are the fresh face on the scene, thanks to a Supreme Court ruling that swept aside a decades-old ban on corporate funding of election ads. Super PACs must register and file disclosure reports with the Federal Election Commission (FEC), but they may accept unlimited sums from corporations and individuals for ads that are not coordinated with a campaign or political party.

Other groups, such as 527s and 501(c)(4)s, do not register with federal or state election authorities or have to comply with election limits. Relying on arcane rules, these groups air ads that focus on a candidate’s position on issues, but do not expressly call for a vote for or against the candidate.

What’s more, not all political spending is subject to the same disclosure rules. The six-member FEC has been unable to agree when contributors must be disclosed by unregistered groups that finance election-related ads. The IRS requires 527s to publicly identify their contributors, but information may be withheld about a particular contributor merely by paying tax on that contribution. 501(c)(4)s, on the other hand, do not have to publicly disclose any of their donors.

Here are some tips for making the most of your political spending while staying in compliance with the law:

  • Understand what the law allows. What type of organization is this, and does the law permit their planned activities? Do any limits apply – per election, per candidate, per year? Has the contribution been solicited from a permissible source and in a permissible manner? (A federal candidate, for example, may raise money for a friendly Super PAC, but only up to hard money limits.) Has the organization registered and filed reports with the appropriate election board or the IRS?
  • Know the company you keep. Make sure that associating with the organization and its principals will not embarrass you or your organization. What public statements have the principals made? What causes does the group endorse? Who else has contributed to this group? For 527s and 501(c)(4)s that are not registered with a federal or state election agency, ask to see the annual information return (Form 990) that must be filed with the IRS and made available to anyone who asks.
  • Determine whether your contribution will be disclosed and whether you have any control over that. Under federal laws and the laws of some states, donations to an organization made for the purpose of funding independent expenditures (i.e., ads that expressly advocate for the election or defeat of a candidate) must be disclosed by the recipient. On the other hand, contributions that are not earmarked for a specific use may not have to be disclosed.
  • Be aware of state laws requiring donor reports or corporate authorization. A growing number of state laws impose reporting requirements not only on the recipient organization, but also on the contributor. Some states require corporations to obtain board of directors or other authorization before making corporate political contributions.
  • Ask Super PACs, 527s, and 501(c)(4) organizations to certify, in writing, that they do not coordinate their spending with any candidate, campaign committee, or political party. If such an organization coordinates its ad strategy or spending with a campaign or party, there is no longer a basis for accepting corporate contributions and unlimited sums from individuals. While the government only infrequently launches full-scale investigations of coordination, such investigations can be lengthy and damaging.
  • Finally, do not forget pay-to-play laws. Under state and local pay-to-play laws, government contracts may be voided (and bids disqualified) if the company, its PAC, or certain company officials makes certain political contributions. For the most part, these laws target direct contributions to candidates and political parties, and in some cases, leadership PACs. Under some state laws, however, contributions to Super PACs – particularly those that support a single candidate or small group of candidates – may also lead to sanctions.

CONTRIBUTING TO CANDIDATE CAMPAIGNS AND POLITICAL PARTIES? HOMEWORK IS REQUIRED THERE, TOO

Contributing to candidates and political parties – while more tried and true – also requires homework to avoid legal problems. For starters, limits on contributions vary considerably from one jurisdiction to another, and they frequently change. Also, some states permit a contribution for a candidate’s primary and general election campaigns, even before the primary is held, while others permit a general election contribution only after the primary.

Many jurisdictions also impose aggregate limits. Under federal law, for example, an individual is subject to a biennial limit of $117,000, $46,200 of which may go to candidates and $70,800 to PACS and political parties. Further complicating the matter, of the $70,800 that may be given to PACs and political parties only $46,200 may be given to PACs and state and local parties.

Also keep in mind that spouses have their own contribution limits, even if only one spouse has an income. However, when couples make a contribution through a single check drawn from a joint checking account, the entire contribution will be attributed only to the party signing the check. If the couple wants the contribution allocated between them, both of them must sign the check or the check must be accompanied by a letter, note, or donor card specifying their wishes.

Be careful when contributing to a “joint fundraising committee,” which is a popular vehicle for federal campaign fundraising, especially in a Presidential election year. A joint fundraising committee is a legal entity registered with the FEC that channels contributions, through a pre-arranged formula, to one or more candidates and political party committees. A contributor who has previously made contributions in the same federal election cycle should investigate how his or her contribution will be allocated. Otherwise a contribution to a joint fundraising committee may inadvertently exceed that individual’s limit for a particular candidate or the aggregate limits.

Finally, as discussed above, contributions by the company or its PAC, and personal contributions by certain company officials may result in the loss of contracts and the disqualification of bids. Some of these so-called “pay-to-play” laws also restrict contributions by the spouses of company officials. If you do business with the government, it is essential to have a compliance program that protects against this risk.

NEW GIFT RULES PROPOSED FOR FEDERAL EXECUTIVE BRANCH

The U.S. Office of Government Ethics (“OGE”) has proposed tighter rules on gifts to federal employees from lobbyists and organizations that employ them. Comments on the proposed rules must be submitted to the agency by December 14, 2011.

Under current rules, a federal employee may not accept a gift from a prohibited source (generally, an entity with interests that may be affected by the employee’s agency) or a gift given because of an employee’s official position. A number of exceptions apply, such as gifts from family members and friends, and gifts of free attendance at widely-attended gatherings. Shortly after President Obama took office, he issued an executive order barring political appointees from accepting gifts from lobbyists and their employers, regardless of whether they are prohibited sources or are giving the gift because of an employee’s official position. Only a handful of exceptions apply under the White House order. OGE is now poised to codify this executive order.

The proposed rules go even further, however, by preventing career employees from taking advantage of some of the usual gift rule exceptions when a prohibited source -- or a person giving a gift because of an employee’s official position – also happens to be a registered lobbyist or lobbyist employer. From such contributors, a career employee may not accept a gift valued at $20 per occasion and $50 per year, nor may the employee accept free attendance at widely-attended gathering, unless the employee is speaking or presenting with agency approval.

If the OGE rules are adopted, they would affect common gift-giving situations such as holiday parties and invitations to conferences attended by a large number of people from an industry or profession.

Notably, the proposed rules would not apply to organizations that merely hire outside lobbyists. The rules would also would not apply to 501(c)(3) organizations, public and non-profit institutions of higher education, and media organizations, if the gift is made in connection with the organization’s information gathering or dissemination activities.

Many of the gift rule exceptions are very detailed. Any company or trade association contemplating making a gift under federal ethics rules should look carefully at the facts and circumstances of each particular situation.

Monday, September 12, 2011, 3:42 PM

Womble Carlyle to Present WMACCA Program on Political Contributions, Lobbying and Gifts

Washington, D.C.—When engaging with public officials or candidates for public office either to develop business or for political purposes, it is essential to understand and comply with the complex array of applicable federal, state and local rules that can put your organization at risk. On September 15, 2011, Larry Norton and Jim Kahl of Womble Carlyle’s Political Law Team will present a luncheon program to the Washington Metro-area Corporate Counsel Association (WMACCA) entitled, “Strategies for Political Law Compliance: Political Contributions, Lobbying, and Gifts.”

During the presentation, Larry and Jim will outline steps your organization can take now to minimize the risks presented by political activity, including:

  • How can personal fundraising and other volunteer political activities by executives and other employees pose risks to your organization, and what training or other practices should you institute to assure compliance?
  • What types of internal controls can reduce the compliance risks for PACs?
  • What are the best practices for collecting information and monitoring compliance with federal lobbying laws so that you are prepared in the event of a random audit by the Comptroller General?
  • How can an organization protect its bids and contracts from disqualification under widely varying state and local pay-to-play laws?
  • What new tools are available to companies and non-profits in the wake of last year’s Supreme Court ruling, and how can they be used in a way that avoids legal risks and adverse publicity?

Larry Norton and Jim Kahl served as General Counsel and Deputy General Counsel, respectively, of the Federal Election Commission, spanning the period from September 2001 to March 2007. They currently lead the Political Law Practice at Womble Carlyle Sandridge & Rice, PLLC, and advise clients in connection with campaign finance, lobbying and government ethics matters. Larry and Jim submitted a brief to the Supreme Court in Citizens United v. FEC, in support of the prevailing party.

Joining the panel is Margaret Cassidy of PricewaterhouseCoopers, who serves as Government Ethics & Compliance Director and oversees the firm's compliance with campaign finance, lobbying and other government ethics matters.

This program will be held at Womble Carlyle’s Washington, DC office from 12:00-2:00 p.m. and will be offered live and via webcast. Lunch will be provided on-site and 1.5 hours of General Virginia CLE credit are pending for the presentation.

For more information and to register, please click here.

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Wednesday, May 11, 2011, 1:16 PM

White House Proposes Mandatory Disclosure of Political Contributions for Federal Contrators

A proposed Obama Administration executive order would require all federal contractors to disclose political contributions and expenditures made by their principals and related entities during the two years prior to submitting a bid.

As a condition for receiving an award, contractors would be required to disclose the following contributions, if the annual aggregate amount of such contributions exceeds $5,000 to a given recipient:

Contributions made to federal candidates or political parties by the bidding entity, its directors or officers, or any affiliates or subsidiaries within its control; and

Contributions made to third party entities with the intention or reasonable expectation that the contributions will be used to make independent expenditures or electioneering communications

A growing number of states and localities have “pay-to-play” laws that compel disclosure by bidders and contractors, and even restrict or prohibit contributions by certain individuals and entities associated with the bidder or contractor. But in states and municipalities where disclosure is required, it is generally limited to direct contributions from corporate officials and PACs (political action committees). The draft executive order goes farther by requiring federal contractors to investigate whether contributions to trade associations and other groups will be used in connection with federal elections. If such use is intended, the contractor will have to weigh whether making the contribution could give an appearance of undue influence, thus jeopardizing a future bid.

It is important to note that the Administration’s draft order only addresses disclosure. It does not restrict or prohibit any political contributions. Under current law, federal contractors may not make political contributions, but their PACs individual owners, officers, and employees are free to make contributions subject to generally applicable limits.

Several important issues remain to be worked out through implementing regulations. For example, since contract award is conditioned on the disclosure of political contributions, it is not clear what sanctions, if any, may result from errors or omissions discovered after contract performance has commenced. In addition, while the order is not intended to create any right enforceable against the federal government, the order would seem to allow a contract bidder to try to oust a competing bidder based on an inaccurate or incomplete disclosure.

As currently drafted, the new requirements will apply to contracts resulting from solicitations issued on or after the effective date of implementing rules, which must be issued by the Federal Acquisition Regulatory (FAR) Council by the end of the year.

Friday, March 11, 2011, 11:03 AM

LOS ANGELES ADOPTS PAY-TO-PLAY LAW, RESTRICTS CAMPAIGN CONTRIBUTIONS, FUNDRAISING BY CITY CONTRACTORS

Los Angeles voters approved on March 8 a measure that prohibits political contributions and fundraising by bidders on City contracts. Violators are subject to debarment for a minimum of one year for the first violation and longer periods for subsequent violations.

Under this new “pay-to-play” law, if a contractor bids on or submits a proposal in response to a contract solicitation that has an anticipated value of $100,000, the contractor is prohibited from:

  • Making a campaign contribution to any elected City official or candidate for City office if the contract requires approval by the City Council
  • Making a campaign contribution to the Mayor, the City Attorney, the Controller, a City Council member, or a candidate for any of those elected City offices, if the elected official who receives the contribution (or candidate for that office) must approve the contract
  • Fundraising on behalf of any of these candidates or officials

Also subject to the contribution ban are the contractor’s Chairman of the Board, President, CEO, COO, any person who holds an ownership interest of 20% or more in the bidding entity, and any person who is authorized by the bid or proposal to represent the contractor before the City.

In an unusual provision, the ban even extends to subcontractors and their principals, if a subcontractor stands to receive at least $100,000 from performance under the contract.

The contribution ban applies from the time a bid or proposal is submitted until the earliest date that any of the following occurs: the contract is signed, the bid or proposal is withdrawn, or the City rejects all proposals for the contract. For successful bidders, their subcontractors, and each of their principals, the ban continues for 12 months after the contract is signed.

The new law also prohibits incumbent city revenue bond underwriters from contributing to city officials, and firms that have made certain contributions and gifts may not receive a no-bid contract for underwriting services.

GEORGIA CONCLUDES THAT ANY EMPLOYEE CAN TRIGGER LOBBYING LAWS, EXEMPTS MOST VOLUNTEER WORK FOR TRADE ASSOCIATIONS

Georgia regulators have concluded that any officer or employee who meets with public officials and expresses an opinion on actual or potential legislation that may affect the company must register as a lobbyist. An opinion issued by the Georgia Government Transparency and Campaign Finance Commission (formerly the State Ethics Commission) rejected the argument that lobbying laws are triggered only when an individual has an employment agreement which states that his or her duties include lobbying.

The opinion notes that members of trade associations who meet with legislators as part of a “day at the Capitol” are generally exempt from state lobbying laws because they participate as volunteers who are promoting their industry, not in the capacity of employees. However, the opinion warns that such individuals may have to register if they are required to belong to a trade association as part of their employment.

In a related matter, Georgia ethics officials are considering a request to clarify what kinds of sales activities require registration under the state’s procurement lobbying law. The request asks the ethics commission to address whether an employee is lobbying when he or she provides a public official with informational materials, submits a bid or response to a request for proposals, or participates in a bid conference. We will continue to monitor this request and provide further information as soon as it is available.

Monday, February 14, 2011, 1:53 PM

New Federal Contribution Limits for 2011-2012 (And a Few Traps for the Unwary)

Last week, the Federal Election Commission announced changes in contribution limits for 2010-2011, including a change in the combined amount an individual may give over the next two years to all federal candidates, political parties and PACs. (Click here for a one-page PDF chart with the new contribution limits)

The changes suggest that a little planning may be in order. For instance, the combined limit on individual contributions over a two-year period (referred to as the “biennial limit”) can affect many active contributors, not just high net worth individuals. If during 2011, an individual contributes the maximum amount to just five federal candidates ($2500 to the primary and $2500 for the general), that individual will be more than halfway to the two-year limit of $46,200 by the end of 2010. For those who want to retain flexibility in the Presidential election year, it is important to keep these limits in mind right now.

Likewise, contributions to “joint fundraising committees” can cause contributors to unexpectedly “max out” on their biennial limit or inadvertently make an excessive contribution to a specific candidate. How can this happen? Joint fundraising committees can raise tens of thousands of dollars from a single contributor – money that is distributed among multiple candidates, or among candidates and party committees. A contributor who overlooks the small print may believe that he or she has made a contribution to a single committee, when in fact the contributor has made multiple contributions, each of which is reflected in FEC records as a contribution to the ultimate recipient.

MAY CORPORATIONS RAISE MONEY FOR FEDERAL CANDIDATES? THREE FEC COMMISSIONERS THINK SO

In the landmark Supreme Court ruling of Citizens United v. FEC, the Court struck down prohibitions on independent political advertising by corporations and incorporated non-profits. But the federal ban on corporate fundraising remains in place. Or does it?

Last week, the three Republican FEC Commissioners issued a statement concluding that corporate fundraising, when done independently of federal candidates and political parties, is more like independent political speech, which corporations are constitutionally entitled to make, than to corporate contributions, which are barred. The statement was issued in regard to a complaint filed against an incorporated non-profit group that sent an email blast urging members to contribute to a federal candidate.

While the Republicans' statement does not appear to represent the majority view on the six-member FEC, the three Commissioners can be expected to block any enforcement action based on corporate use of staff time, funds, or other resources devoted to independent fundraising. The statement leaves open how other types of corporate fundraising, known as “corporate facilitation,” might be treated, such as collecting and forwarding contribution checks or hosting fundraisers for candidates. However, in the view of the Republican Commissioners, "the continuing viability of the Commission's [corporate] facilitation regulation is at best suspect."

So how should corporations and incorporated non-profits proceed? We advise caution. Under current FEC rules, a corporation may direct subordinates to plan fundraising activities with corporate resources, but only if the corporation receives advance payment from a permissible source (e.g., a campaign committee, an individual) for the employees' time and company overhead. Advance payment must also be received for the use of corporate mailing lists and the provision of catering services. In other words, the FEC’s corporate facilitation rule is still "on the books." Moreover, a change in the make-up of the Commission – as of April 30, five of the six will be holding over beyond the single term to which they can be appointed – could shift the agency’s position. And it is important to remember that the Justice Department can criminally prosecute knowing and willful violations of FEC rules, which it has done before in cases of corporate facilitation. Finally, the Republican Commissioners explicitly distinguished their analysis from situations where corporate fundraising is coordinated with candidates and parties – the use of corporate staff or resources for coordinated fundraising is a prohibited in-kind contribution.

It is doubtful that the FEC will resolve these issues anytime soon. In a public meeting last month, the Commission considered issuing a Notice of Proposed Rulemaking on the impact of Citizens United – a first step in the rulemaking process that would merely offer proposals for public comment. The vote to issue proposed rules failed on a 3-3 vote.

PAY-TO-PLAY UPDATE

Important Pay-to-Play Deadlines

New Jersey: Companies that receive state or local contracts in New Jersey valued at $50,000 or more in the aggregate, must file an annual disclosure statement by March 30, 2011 listing state and local contributions made in calendar year 2010 by the business entity, and by its officers, directors, their spouses, and controlled PACs. A report must be filed even if no reportable contributions have been made.

SEC: We have had several prior posts discussing new SEC rule 206(4)-5 that restricts political contributions by investment advisers that seek business from public pension funds and similar government investment accounts. Investment advisers subject to the new SEC pay-to-play rule must be in compliance by March 14, 2011.

Pay-to-Play in Trenton. . . Ooh, Ooh Damage Done

Our clients regularly tell us they never want to see their company’s name and the words “pay-to-play” together in a news story. At that point, as the Neil Young song reminds us, the damage is done.

A prominent New Jersey law firm, which was awarded a contract from the city of Trenton, is learning this the hard way. The firm was accused of violating Trenton’s pay-to-play ordinance when it made a $7,200 pre-bid contribution to a PAC, and a contribution in the same amount was made a few days later by the PAC to the Mayor’s campaign. The firm claimed that it did not violate the law, and that it obtained a refund of the contribution. The city attorney was not persuaded and determined that the firm’s contract should be voided under the city’s pay-to-play law. The Mayor saw things differently and reinstated the contract, but the final decision will be made by the city council. To complicate things, the council had voted three times previously not to award the contract to the firm, before approving the contract on a 4-3 vote with the Mayor's backing.

To no one’s surprise, these events have received plenty of coverage by local media outlets, and both the Mayor and the firm have received their share of unwanted attention. So, even if the firm is exonerated and retains its city contract, this saga serves as a cautionary tale of the risks posed by pay-to-play laws.

Texas Mulls Pay-to-Play

Texas is considering a pay-to-play law that would prohibit an owner, officer, board member or the PAC of a prospective bidder on state contracts from contributing to a candidate for statewide office or a committee established to support or oppose a candidate. If enacted, the law would go into effect next September.

Wednesday, January 19, 2011, 4:31 PM

Webinar: Political Contributions, Lobbying, and Gifts to Public Officials - A New Year’s Compliance Tune-Up

When: Thursday, February 17, 2011
12:00 p.m. – 1:00 p.m. (EST)
Presentation and Q&A

Cost:There is no charge to attend, but space is limited.

Click here to register.

NOTE: Registrants will receive an email containing all log-in information prior to the program.

Event Description:

The start of a new year and a new election cycle is the ideal time to assess the risks to your organization and key executives as a result of PAC activity and other political contributions, lobbying, and gifts to public officials.

If you have not taken stock of your compliance efforts in a while, then there’s no time to spare. The political law landscape has been literally transformed in recent years. To name just a few legal developments that may impact your organization:

New federal laws and Obama executive orders have tightened rules on gifts to public officials and expanded disclosure obligations. Lobbying disclosure reports are subject to random audit, and a violation of federal lobbying and gift rules can lead to criminal prosecution.

  • States and localities across the country have tightened their lobbying and gift laws, which can limit your ability to invite public officials to tour a new plant or attend a charity event, or restrict your lobbyists’ ability to hold fundraisers for candidates.
  • Over 20 states and hundreds of localities have adopted “pay-to-play” laws, which can cause companies to lose their public contracts if they or their employees make prohibited political contributions. New federal pay-to-play rules also limit contributions by investment advisers who work for public pension funds.
  • Last year the Supreme Court vastly expanded the right of corporations and non-profits to participate in elections. But certain restrictions and public disclosure obligations present a range of risks. Understanding these new rights and risks is critical to politically active organizations.

Why should you attend this webinar?

This webinar will focus on steps your organization can take now to minimize the risks presented by political activity, including the following:

  • How can personal fundraising and other volunteer political activity pose risks to your organization, and what should you do about it?
  • What types of internal controls can reduce the compliance risks for PACs?
  • What are the best practices for collecting information and monitoring compliance with federal lobbying laws so that you are prepared in the event of a random audit by the Comptroller General?
  • How can an organization protect its bids and contracts from disqualification under widely varying state and local pay-to-play laws?
  • How often should a company conduct a legal compliance audit and what should be covered?
  • What training should be provided regarding political activity, lobbying, and gifts, and who needs to receive such training?
  • What new tools are available to companies and non-profits in the wake of last year’s Supreme Court ruling, and how can they be used in a way that avoids legal risks and adverse publicity?
About the Speakers:

Larry Norton and Jim Kahl head Womble Carlyle's Political Law Practice. They represent corporations, trade associations, non-profit organizations, and others in connection with campaign finance, lobbying, and gift laws. Prior to joining Womble Carlyle, Larry and Jim served as General Counsel and Deputy General Counsel, respectively, of the Federal Election Commission from 2001-2007.

They co-author a blog on political law issues called Political GPS. Larry and Jim filed a brief in the landmark Supreme Court ruling in Citizens United v. FEC.

Questions about this Webinar?

Please contact Katie Tedrow at KaTedrow@wcsr.com or (202) 857-4502.

Monday, January 3, 2011, 12:53 PM

PACs, LOBBYING, AND GIFTS TO PUBLIC OFFICIALS: When Is The Last Time You Had A Compliance Audit?

The start of a new year and a new election cycle is the ideal time to review your internal processes for political activity, including PACs and direct corporate contributions, lobbying registration and reporting, board oversight and disclosure of political spending, and policies and practices for giving “gifts” to public officials. Periodic compliance audits by experienced political law counsel can identify major risk areas and provide your best defense in the event of an inadvertent violation.

We recommend a compliance audit every two years. If it has been two years or more since you audited your political activity, a compliance assessment is especially important to keep pace with major changes in federal, state and local laws. For example, in 2010, the Supreme Court issued a landmark ruling (Citizens United v. FEC) that has prompted the FEC and many states to rewrite the rules for corporate participation in elections. Transformative change has also occurred in the regulation of lobbying and gifts to public officials, including tougher restrictions on companies and trade associations that employ or hire federal lobbyists. The Obama Administration has also tightened rules on gifts that may be accepted by political appointees. On the state and local levels, there have been many recent changes in the laws regulating political activity, including “pay-to-play” laws that restrict political contributions by officers and executives of companies that do business with government agencies.

Some key areas for a compliance audit include:

  • PACs – Review PAC bylaws and other foundational documents; review fundraising solicitations and other communications; ensure that all those solicited are in the “restricted class” and evaluate whether changes are appropriate; consider fundraising incentives, such as charitable matching programs; determine whether practices for safeguarding PAC funds qualify for the FEC’s safe harbor; review compliance with state registration and reporting requirements; review record-keeping policies.
  • Company-sponsored Events and Use of Corporate Facilities – Review policies and procedures for officeholder and candidate appearances before executives or larger groups of employees; use of corporate staff, facilities and work hours in connection with volunteer fundraising; impact of new FEC bundling rules.
  • State Lobbying and Gift Laws – Review policies and procedures for determining whether employees must register as "lobbyists" and file periodic reports; review policies and procedures on site visits and tours by public officials, offers of tickets to sports and entertainment events, and invitations to public officials to attend charitable functions.
  • Pay-to-play laws and procurement lobbying – For companies that seek or do business with state and local government agencies, as well as public colleges and universities, pay-to-play and procurement lobbying laws pose serious risks. Under pay-to-play laws, political contributions by companies, their PACs, and their officers and senior executives can disqualify bids and void existing contracts. Bidders and contractors may also have to register and file reports disclosing PAC and personal political contributions. Under procurement lobbying laws, a salesperson who interacts with government officials and employees may be required to register and file periodic reports in the same manner as a traditional lobbyist.

NOW IS ALSO THE PERFECT TIME FOR POLITICAL LAW TRAINING

In addition to a compliance audit, the New Year is also the perfect time for politically active companies and associations to provide training on key issues for employees who interact with public officials or oversee such activity. Your government relations team, government sales professionals, PAC managers, legal and compliance staff, and certain company executives should be aware of the most recent developments affecting their interactions with legislative and executive officials, and other political activites. A training session is also an excellent occasion for disseminating and explaining new political activity policies and procedures.

PAY-TO-PLAY LOOMS LARGE IN 2011

Federal, state and local pay-to-play laws and rules continued to proliferate in 2010. These restrictions on political contributions by public contractors present complex compliance challenges, especially for companies that are active in multiple jurisdictions. In the last months of 2010, there were several important new pay-to-play developments, and new laws and rules are planned for 2011.

Investment Advisers Face March Deadline in New SEC Pay-to-Play Rule

Starting on March 14, 2011, investment advisers (including hedge funds and private equity funds) will be barred for two years from receiving compensation for investment advisory services from a state or local government client, if the adviser, its PAC, or a “covered associate” makes a political contribution to, or engages in fundraising for, a public official or candidate who is in a position to influence the award of advisory business. Covered associates include any general partner, managing member, executive officer, any employee who solicits government business, and any person who supervises such an employee.

The March 14 deadline is part of a “pay-to-play” rule adopted by the Securities and Exchange Commission in September 2010. The SEC chose to phase in various requirements of the rule to allow time for investment advisers to implement compliance programs. Our comprehensive summary of the rule is available here.

All investment advisers should act now to ensure compliance with this SEC rule. Investment advisers should prepare and disseminate written policies and procedures for monitoring contributions by PACs and covered associates, and vetting contributions by potential hires. The rule also mandates strict record-keeping requirements that will allow the SEC to monitor compliance with the contribution restrictions.

MSRB Guidance on Dealer-Affiliated PACs Takes Effect

As discussed in prior Political GPS posts, Municipal Securities Rulemaking Board (MSRB) Rule G-37 restricts campaign contributions to elected officials by municipal securities dealers. Certain political contributions by a dealer or a controlled PAC can prohibit a dealer from engaging in municipal securities business with issuers of municipal bonds for a period of two years from the date of any triggering contribution.

New MSRB guidance, which took effect December 12, 2010, outlines factors that may result in the PAC of an affiliated company, such as a bank, being viewed as controlled by the dealer itself or one of its municipal finance professional employees (MFPs). In a nutshell, the guidance requires a thorough examination of all facts and circumstances related to the creation, management, funding and operational control of the PAC to ascertain if it is controlled by the dealer. The guidance is clear that control can exist in the absence of “majority control” of a PAC board. For example, a PAC may be viewed as dealer controlled if the dealer has just one vote on a multi-member PAC governing board or if a majority of the PACs funds come from the dealer’s MFPs.

Even if a PAC is determined not to be dealer controlled, the dealer must still consider whether any payment made by the dealer or its MFPs to the PAC could be viewed as an “indirect” conduit contribution made in violation of the Rule G-37’s anti-circumvention provisions. The MSRB has previously recommended that dealers establish “supervisory procedures” to avoid such indirect rule violations, including "information screens" between the dealer (and its MFPs) and the PAC of the affiliated company.

MSRB. . . But There’s More

The MSRB’s Board of Directors agreed in December to issue a request for comment on new pay-to-play rules that would restrict municipal advisors from engaging in or soliciting business from municipal entities when an advisor has made certain political contributions to officials responsible for awarding that business. The MSRB’s authority to issue new rules derives from the Dodd-Frank financial reform law, enacted in July 2010, which expanded the MSRB’s jurisdiction to regulate municipal advisors, in addition to dealers.

CFTC Requests Comment on Pay-to-Play Rule Aimed at Banks and Others in Derivatives Business

The Commodity Futures Trading Commission (CFTC) has also proposed its own pay-to-play rule for banks and other institutions that enter into derivative trades, known as “swaps,” with states, municipalities and public pensions. Like the SEC rule, the CFTC proposes a two-year time out from engaging in swaps business when a dealer or any of its covered associates makes a campaign contribution to a person in a position to influence the award of government business.

The CFTC's pay-to-play proposal is also part of a broader implementation of the Dodd-Frank financial overhaul law. Additional CFTC proposals aim to curb fraud and manipulation in the derivatives market.

Written comments on the CFTC’s proposal may be submitted up until February 22, 2011.

Kentucky Pay-to-Play Interpretation

The Kentucky Registry of Election Finance recently offered much needed guidance to companies subject to the state’s broad pay-to-play law. As written, the law prohibits a company from receiving a non-bid state or local contract if company officers, employees or spouses knowingly contribute or raise funds, in an aggregate amount of $5000 or more, for an elected official with responsibility for the affairs of the contracting agency. Many companies that pursue Kentucky public contracts have fretted about the impracticality and intrusiveness of tracking political contributions in state elections by all employees and their spouses.

A company recently asked the Registry whether it was obligated to undertake an investigation to determine if its officers, employees, or spouses contributed or engaged in fundraising in excess of the monetary limits. The Registry stated in an advisory opinion that the law does not contemplate such an investigation. Rather, the “relevant inquiry” is whether a company’s officers, directors, shareholders or employees “purposefully made or encouraged” other employees to contribute to the candidate with” knowledge or expectation” that the candidate’s election would result in preferential treatment of the company with respect to state contracts.

In light of this guidance, it seems unlikely that isolated contributions, especially by lower level employees or employees unconnected with public contracts, would result in violations of the law. It is still advisable, however, to implement some screening procedure for political contributions by certain key officers and employees if a company intends to pursue non-bid contracts in Kentucky.

Pay-to-Play in LA

A new pay-to-play measure – Charter Amendment H – will be on the March 8, 2011, ballot in the City of Los Angeles. The new measure would prohibit companies that bid on city contracts from giving campaign donations to city candidates. Companies that violate the ban would be barred from receiving a city contract for one to four years.

Monday, November 22, 2010, 2:53 PM

Larry Norton Named to Campaign Finance Review Panel in Maryland

BALTIMORE—Womble Carlyle political law attorney Larry Norton has been named to a bipartisan blue ribbon panel charged with examining and recommending changes in Maryland’s campaign finance laws.

The 12-member task force was appointed by Maryland Attorney General Douglas F. Gansler. The panel is expected to deliver a report by the end of the year.

In addition to Norton, other panel members are State Senators Jamie Raskin and Allan Kittleman; State Delegates Ronald A. George and Jay Walker; Carville Collins of DLA Piper U.S. LLP; Robert B. Ostrum, counsel for the Republican State Central Committee; Bruce Marcus, counsel for the Democratic State Central Committee; Ross Goldstein, deputy administrator of the Maryland Board of Elections; Jared DeMarinis, director of the Candidacy and Campaign Finance Division of the Maryland Board of Elections; Chief Deputy Attorney General Katherine Winfree; and Deputy Attorney General John B. Howard Jr.

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Thursday, August 19, 2010, 12:17 PM

Jim Kahl to Speak at ASAE Annual Association Law Symposium - September 24

WASHINGTON, D.C.—Womble Carlyle political law attorney, Jim Kahl, is among the speakers at the ASAE 2010 Annual Association Law Symposium in Washington, D.C. The symposium will address pressing issues in association and nonprofit law.

Kahl will be speaking on "Political Activity after Citizens United: Understanding the Opportunities and the Risks." The symposium will be held Friday, September 24th at the Ronald Reagan Building and International Trade Center in Washington, D.C.

The ASAE (American Society of Association Executives) is the membership organization and voice of the association profession. Founded in 1920, ASAE now has more than 22,000 association CEOs, staff professionals, industry partners, and consultant members.

Jim Kahl represents clients regarding the regulation of political activity, including counseling on federal and state campaign finance laws, government ethics laws, and lobbying laws. With an extensive background working in and practicing before federal agencies, Kahl helps clients navigate the complex regulatory maze that impacts political activity.

Jim Kahl to Present at Upcoming ASAE Annual Meeting

LOS ANGELES, CA – Womble Carlyle Political Law attorney Jim Kahl will speak at the Annual meeting of ASAE & the Center for Association Leadership at the Los Angeles Convention Center on August 22, 2010. Jim will provide attendees an update on political law developments, in a session entitled, “Maximize Your Effectiveness and Keep Your Association Safe in an Election Year.”

Jim will discuss the new opportunities for associations and their members to engage in political activities in the aftermath of the Supreme Court’s landmark Citizens United ruling. He will also address the pitfalls presented by state and local pay-to-play laws, which limit public contractors’ ability to contribute to candidates, and by new federal and state regulations impacting lobbyists.

James A. Kahl is a member of Womble Carlyle’s Political Law Team and served as Deputy General Counsel of the Federal Election Commission from 2002-2007. Jim advises clients in connection with campaign finance, lobbying and government ethics matters. Womble Carlyle’s Political Law team submitted a brief to the Supreme Court in support of the prevailing party in Citizens United v. FEC.

Wednesday, August 4, 2010, 12:17 PM

Summer’s Top Stories: SEC Adopts Pay-to-Play Rule, Good/Bad News for CT Contractors & Lobbyists, FEC Reacts to Citizens United, And More

PAY-TO-PLAY UPDATE

  • SEC Adopts Pay-to-Play Rules for Investment Advisers

After almost a year of deliberations, on June 30 the SEC approved a tough "pay-to-play" rule for investment advisers that seek business from public pension funds and similar government investment accounts. The SEC rule, which was proposed last August (See GPS August 6, 2009), has its origins in draft regulations dating back to 1999.

New rule 206(4)-5 prohibits investment advisers from providing compensated services to state or local government clients for two years if the adviser, key executives and employees, or the corporate PAC of the adviser make political contributions to public officials in a position to influence the award of advisory business. The rule contemplates that if this time out is triggered, the adviser may provide uncompensated advice for a reasonable time to allow the government client to replace the adviser. The law also prohibits investment advisers from “bundling” contributions for covered officials, and from funneling contributions through others, such as spouses, lawyers or affiliated companies.

The two-year ban may be triggered by contributions made under “look-back” and “look-forward” provisions. When an adviser hires a new covered employee, the rule requires the adviser to “look back” at the employee’s contributions for a two-year period. A prohibited contribution by the new employee will disqualify the adviser from receiving compensation for providing advisory services to the relevant governmental entity for two years from the date of the contribution. The “look-back” period is only six months for employees who are covered by the new rule but are not engaged in soliciting business for the adviser. Prohibited contributions by these employees disqualify the adviser for six months from the date of the contribution.

The “look forward” provision applies to contributions by covered employees who leave the adviser or cease to work in a covered status. The SEC also included de minimis exceptions for contributions up to $350 if the contributor is entitled to vote for the candidate, and up to $150 if the contributor is not entitled to vote for the candidate, such as an out of state candidate.

One of the thorniest issues during the rulemaking process concerned investment advisers’ use of third-party placement agents to solicit government business. The August 2009 proposal completely banned investment advisers from retaining such agents – an unpopular proposal with many in the advisory community. In a nod to smaller funds that are more dependent on placement agents, the final rule allows advisers to hire such agents so long as they are regulated entities subject to similar pay-to-play restrictions.

An effective compliance program is essential. Under the SEC rule, an adviser’s code of ethics must require compliance with the pay-to-play provisions, the adviser must adopt policies and procedures designed to prevent violation of the rule, and the adviser must maintain records regarding its political contributions, covered employees, government clients, and placement agents retained by the adviser. Moreover, while the SEC says that it “designed the rule to reduce its impact, investment advisers are best positioned to protect [their] clients by developing and enforcing robust compliance programs designed to prevent contributions from triggering the two-year time out.”

The SEC rule becomes effective on September 12, 2010, which is 60 days after the rule was published in the Federal Register (July 14, 2010). The placement agent ban will not take effect for a year, which will allow time for the Financial Industry Regulatory Authority (FINRA), a self-regulatory agency for all securities firms doing business in the U.S., to draft pay-to-play rules of its own.

  • Court Hands Down Mixed Ruling on Connecticut’s Pay-to-Play Law

A three-judge federal court has upheld Connecticut’s ban on contributions by state bidders and contractors, their principals, and the spouses and dependent children of those individuals. But the court struck down the state’s ban on contributions by lobbyists and their families, and a prohibition on fundraising by contractors and lobbyists for candidates running for state office.

Connecticut’s pay-to-play law bans contributions by bidders and contractors, as well as by individuals associated with these entities: members of the board of directors; individuals who own more than 5% of the bidding or contracting entity; the president, treasurer and executive vice-president of the entity; and any officer or employee who has managerial or discretionary responsibilities with respect to a state contract.

The panel noted that the ban on contributions by individuals associated with a contractor “strikes us as bordering on overbroad,” but concluded that the legislature was entitled to leeway in attempting to curb corruption evidenced by the state’s recent corruption scandals. Similarly, the Court noted that “the record in support of the ban on contributions by contractors’ spouses and dependent children is by no means overwhelming,” but characterized such a ban as a reasonable anti-circumvention measure.

But not all provisions of the state law survived the court’s constitutional doubts.

The court overturned a ban on fundraising for state candidates by contractors and lobbyists, concluding that the law was not narrowly tailored to address a legitimate threat of corruption. The court wrote: “A state contractor, for instance, is prohibited under the [law] from advising his mother about whether she should contribute to a particular gubernatorial candidate.”

The panel also invalidated the state’s ban on contributions by lobbyists, noting that the state’s recent corruption scandals had nothing to do with lobbyists.

In response to the ruling, the Connecticut General Assembly on July 30 passed a bill that limits lobbyist contributions to $100 and prohibits state contractors (and their principals) from knowingly soliciting contributions from the contractor’s employees or from a subcontractor or principals of the subcontractor. On August 2, Gov. Rell vetoed the bill, not because of any complaint with the new provisions relating to lobbyists and contractors, but instead because of major increases the bill provides for public funding of gubernatorial elections.

  • Yes Virginia. . . there is a Pay-to-Play Law

As of July 1, the Old Dominion joined the ranks of pay-to-play states. Under the new Virginia law, bidders and offerors for state contracts of $5 million and up are prohibited from providing a contribution or a gift greater than $50 to the Governor, his political action committee, or a Cabinet Secretary responsible for the contracting agency. The contribution and gift ban applies from the date of bid submission to the award of the contract, but it does not apply to contracts awarded through competitive bidding. Individuals and organizations that violate the law are subject to penalties up to two times the amount of the gift or contribution.

For further information about the SEC pay-to-play rule, click here to see our client alert.

FEC ALLOWS “INDEPENDENT EXPENDITURE” COMMITTEES TO RAISE FUNDS WITHOUT LIMITS

In two recent advisory opinions, the FEC ruled that registered PACs that only intend to make independent expenditures may raise funds in unlimited amounts from individuals and corporations, provided they adhere to disclosure and notice rules and do not contribute to federal candidates or coordinate regarding their communications. The FEC opinions follow on the heels of the Supreme Court’s Citizens United ruling, which held that corporations may spend unlimited funds on independent ads that urge the election or defeat of candidates for public office.

In one opinion (AO 2010-09), the FEC ruled that the Club for Growth may register a new committee with the FEC which will collect unlimited contributions from the general public to fund independent expenditures, but will not accept contributions from corporations, unions, candidates, political committees, government contractors or foreign nationals. The Club for Growth intends to cover the new committee’s administrative and solicitation costs, and the committee’s treasurer will also serve as treasurer of the Club’s pre-existing PAC. In the other opinion (AO 2010-11), the FEC concluded that a new non-connected committee – the Commonsense Ten – may accept unlimited contributions from individuals, political committees, corporations, and unions for the purpose of funding independent expenditures.

These ruling may prove to be highly beneficial to tax-exempt organizations, such as trade associations and advocacy groups. Historically, the IRS has not attributed the political activities of separate committees, such as PACs, to their sponsoring organizations, an approach that has preserved such organizations’ tax-exempt status. Under the FEC rulings, PACs affiliated with tax-exempts may accept contributions in unlimited amounts and solicit funds from outside their membership base.

The FEC noted that it may revise its registration and reporting requirements, and its forms, in an upcoming rulemaking proceeding to implement the Citizens United case. In the interim, committees should include a letter with their Statements of Organization stating their intent to accept unlimited contributions for the purpose of making independent expenditures. A sample letter is attached to the FEC opinions.

COURT REINSTATES CRIMINAL CHARGES FOR REIMBURSING CONTRIBUTIONS

The Ninth Circuit Court of Appeals has reinstated criminal charges against attorney, Pierce O’Donnell, who was indicted on charges that he reimbursed employees of his law firm (and others) who had contributed $26,000 to a presidential campaign. A federal district court judge had dismissed the charges, concluding that the law prohibiting “a contribution in the name of another person” applied only to the use of false names, and not a conduit or reimbursement scheme as was alleged here. The appeals court held this reading was too narrow.

Judge Raymond C. Fisher, writing for the three-judge appeals panel, wrote: “We hold that this law prohibits a person from providing money to others to donate to a candidate for federal office in their own names, when in reality they are merely ‘straw donors.’”

With the election season in full swing, this ruling should serve as a reminder that reimbursing friends or employees for making campaign contributions can lead to indictments and jail. The FEC has also imposed large fines when employers use bonuses or other compensation to reimburse employees for making campaign contributions.

HOUSE PASSES BILL AIMED AT TOUGHER ENFORCEMENT OF FEDERAL LOBBYING LAWS

The House of Representatives on July 28 passed the “Lobbying Disclosure Enhancement Act,” which the bill’s sponsor hopes will ramp up enforcement of federal lobbying laws.

The bill requires the U.S. Attorney General to establish a task force, which would have primary responsibility for investigating and prosecuting violations of lobbying registration and disclosure requirements.

The bill’s sponsor, Rep. Mary Jo Kilroy (D-Ohio), says that the task force “will go after lobbyists who engage in shoddy reporting practices and hide behind ignorance of the law.”

Provisions of the bill that would have imposed an annual filing fee of $50 and assessed a $500 penalty against late filers were dropped during debate.

In sharp contrast to the intense media coverage concerning the DISCLOSE Act, a bill which seeks to blunt the effect of the Supreme Court ruling allowing for corporate funding of campaign ads, the lobbying bill moved to passage quickly and with little fanfare. Indeed, it came to the House floor just two weeks after it was introduced. There is no indication at this time as to the bill’s prospects in the Senate.

LOBBYISTS BARRED FROM FEDERAL ADVISORY BOARDS . . . AND THIS TIME WE REALLY MEAN IT!

In a June 18 memorandum, the President barred the heads of executive departments and agencies from appointing federally registered lobbyists to advisory committees and other boards and commissions. The new policy does not require the removal of currently-serving lobbyists, but it does prohibit their reappointment when their terms expire if they continue to be registered federal lobbyists. This new policy follows the President’s aspirational announcement last September that federal agencies' should try to keep their advisory boards free of federally registered lobbyists. The Director of OMB will issue proposed guidance to implement this new policy within 90 days, which will become final after public comment.

PAC POINTER – WHO CAN BE ASKED TO CONTRIBUTE?

Corporate PAC administrators may be able to find a few more potential contributors thanks to a recent FEC Advisory Opinion (AO 2010-4,Wawa, Inc.). According to the FEC, corporate managers who supervise hourly employees may qualify as “executive and administrative personnel” and be solicited by the corporate PAC.

FEC regulations currently prohibit corporations from soliciting “salaried foreman and other salaried lower level supervisors” who supervise hourly employees. The FEC found that the managers – Payroll Manager, the Retail Accounting Manager, and the Retail Accounting Assistant Manager – oversee departments or sections that have permanent status and function in Wawa’s corporate hierarchy and that in many organizations are managed by salaried executive employees. As such, the Wawa managers qualify as “executive and administrative personnel” and may be solicited for PAC contributions.

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