Political GPS: When Executives Raise Campaign Cash: Forewarned is Forearmed

With Election Day just a few months away, fundraising season is in full swing. Executives are hosting fundraising events, at their businesses and homes, and are helping candidates fill their war chests in other ways.

While such activities often seem like a personal matter, there are strict rules in this area that if violated can lead to hefty fines and even criminal prosecution. Here’s the concern -- not only are corporations prohibited from contributing to federal candidates, but their facilities, resources, and personnel are also off-limits for supporting federal candidates, subject to limited exceptions. In this area, known as “corporate facilitation,” the FEC and the Justice Department have been eager to flex their enforcement muscle, particularly when companies lack appropriate policies and training.

So what do you and your company need to know this campaign season? Here are a few pointers:

Raising Funds. The corporate facilitation ban means that an executive engaging in fundraising activities cannot use company resources such as postage, envelopes, or delivery services, without reimbursing the company. In addition, advance payment is required for using customer, client or vendor lists. Companies also may not reimburse employees for most expenses associated with attending fundraising events.

Events on Company Premises. Fundraising events may be held at a company’s office, provided someone other than the company pays the fair market value for using the space. The company can also direct employees to plan, organize and carry out the fundraising event and can provide catering and food services, but the company must receive advance payment for the fair market value of these services, including compensation, benefits and overhead with regard to employees’ time. All of these expenses can be paid by permissible sources - the campaign, an individual or group of individuals, a PAC, or any other legal contributor up to the applicable contribution limits.

Home Sweet Home. An executive has fewer concerns when hosting a fundraising event at home. Under FEC regulations, the use of your own home is not considered an in-kind contribution to the candidate. Similarly, the cost of invitations, food, and beverages for an event at home are not treated as contributions, up to certain amounts.

Volunteer Activity. Company employees are free to volunteer their time to campaigns, but there are limits on the amount of time they can devote to such activity during normal business hours. The fewest restrictions exist on employees' use of computers and the Internet. So long as company policy permits, the use of computers is generally permissible. Volunteer fundraisers are generally advised to avoid physically collecting and transmitting checks.

Take Away Point. In the world of political fundraising, there is usually a way to do what you want to do. The key is for executives and their employers to know the rules before engaging in fundraising efforts that implicate the company and that place themselves in legal jeopardy. Our experience in leading the FEC enforcement taught us that appropriate training and policies, and sometimes a call to counsel, could have spared many companies significant civil penalties, large legal bills, and public relations problems.

New House Ethics Panel Named

The House leaders yesterday named eight individuals to the new Office of Congressional Ethics (OCE). This independent board (current House Members cannot serve) will review allegations of misconduct and make recommendations to the House Ethics Committee. OCE does not have authority over ethics issues involving Senators.

The six regular board members are former Representatives David Skaggs, Porter Goss, Yvonne Brathwaite, and Karan English; former House Chief Administrative Officer, Jay Eagen; and our former FEC colleague, Professor Allison Hayward of George Mason Law School. The two board alternates are former Representatives Abner Mikva and Bill Frenzel.

The establishment of this panel marks the first time that either house of Congress has handed authority for the review of allegations of impropriety to persons other than Members. The OCE has the authority to receive allegations about ethical violations by Members and employees of the House, and it can initiate cases at the request of two board members from different parties. Since the House Ethics Committee is barred from receiving a matter from the OCE within 60 days of the election, the committee will not have any ethics complaints to consider from September 5 to Election Day on November 4.

If you have any questions or would like more information, please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429) or Jim (JKahl@wcsr.com, (202) 857-4417).

Political GPS: Never Mind! Congress’s Eleventh-Hour Retreat on the LD-203

On Wednesday, July 16, just two weeks before federal lobbyists and their employers must file a new semi-annual report, Congressional officials changed the rules, narrowing the kinds of contributions and payments that must be reported. These changes supersede guidance published just six weeks ago. And as we reported in the July 3 Political GPS, the semi-annual form itself has only been available to filers since June 30.

This last-minute frenzy is hard to explain: the law the ethics committees are implementing was passed in September 2007. The shifting guidance also adds to the consternation of filers who may need to justify their reports in newly-authorized random audits, and who face civil and criminal penalties for false or misleading statements.

The July 16 changes follow a wave of criticism that earlier instructions strayed far from the text of the law and imposed severe burdens on companies and other organizational filers. The changes are reflected mostly through a long list of hypothetical situations, with little
explanation as to why Congressional officials have attempted to redraw the lines the way they have. Other hypothetical situations that appeared in earlier iterations of the guidance document have simply disappeared.

So what are the takeaways from this latest gyration?

• Fewer contributions have to be reported, but the line is unclear. Filers must report the cost of events (or the cost of attendance at events) where the filer either
  sponsored the event or paid the sponsors directly, and where the filer knew at the time payment was made that covered officials would be receiving an honor or award at the event. Gone is the view that an event “honors” or “recognizes” an official merely because he or she speaks at the event, appears as an honored guest, or is mentioned on an invitation. The guidance cautions, however, that “supplemental facts” could change this
  conclusion.

• Buying tickets might not trigger a reporting obligation. But for filers who purchase “enough” tickets or tables for an event - that’s Congress’s word, not ours - you may be viewed as paying the costs of the event and therefore more than just a
  ticket-buyer. In these circumstances, the payments must be reported.

• “Designation” redefined, sort of. For a contribution to be “designated” by an official, the official must do more than offer a “statement of support or solicitation.” But what
  more is required? Two examples are provided: a covered official directs a charitable contribution in lieu of honoraria or directs the contribution to an entity for which the official is a member of the board.

• Some relief for lobbyists who manage PACs. Lobbyists who are also PAC treasurers or sit on PAC boards need not list on their own reports all the contributions made by the PAC, so long as the PAC is “connected” to the organization that employs the lobbyist. But the lobbyist must “note” on the LD-203 that he or she is a PAC treasurer or board member.

As noted above, questions obviously still abound, and many areas, such as how to identify a certifying official for the organization, have not been addressed. Nonetheless, the latest (and probably last) word from Congress before the July 30 filing represents a relaxing of some of the more extreme reporting burdens.

Larry Norton Provides Insider FEC Advice at Upcoming Audioconference
Larry Norton is a speaker at an upcoming audio-conference on July 29th from 2:00-3:00 p.m. (EDT) titled, "Get Insider Advice on Leveraging Campaign Funds: Plus, ask your specific questions to FEC experts." Sponsored by Lobbyist.info, an on-line service of Columbia Books, this program will address leveraging funds for political advertising and other activities, as
well as using PACs beyond traditional "contribution" roles. The panel is composed of former FEC professionals who will provide insider advice to mitigate confusion over campaign finance rules, and provide real-world tips to avoid legal or PR hits. This 90-minute session is sure to help maximize effective spending leading up to election day. For more information, click here.

If you have any questions or would like more information, please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429) or Jim (JKahl@wcsr.com, (202) 857-4417).

Political GPS: New Semi-Annual Lobbying Report: Could There Be Changes Before July 30?

With less than three weeks to go, Congressional officials are considering changes to the semi-annual lobbying report - the guidance, the instructions, even the report itself - according to yesterday's BNA Money & Politics Report.

The semi-annual report must be filed by every organization that employs federal lobbyists and separately by each individual lobbyist.

Each report must include a Sarbanes-Oxley type certification, attesting to the organization's (or individual's) understanding of the Congressional ethics rules, and certifying that the organization (or individual filer) made no gift to a Member of Congress or staffer in violation of these rules. Moreover, the report must disclose certain political contributions, as well as previously undisclosed donations and payments related to lawmakers.

On June 30, just one month before the report has to be filed, Congressional officials released forms and instructions for filing that reportedly are the product of “months of work and testing,” according to BNA. Unfortunately, the new forms and guidance are frequently out of sync with the law and raise numerous questions. One of the biggest problems concerns the requirement that filers disclose payments for events that “honor or recognize” a covered official. Interpretive guidance from the ethics committees is breathtakingly broad, requiring filers to disclose the costs associated with every event at which a lawmaker spoke or whose mere attendance was announced in the invitation to the event.

Our July 9th webinar on the semi-annual report, addressing this and other issues, will soon be available on our website at www.wcsr.com/politicallaw.

Back to Work . . . FEC Faces Many Issues
Suppose your boss told you to take a six-month vacation, but while you were gone no one did any of your work. What would you do first when you returned? Five new Commissioners at the Federal Election Commission are about to find out what that’s like. Since the waning days of 2007, the FEC has lacked a quorum while U.S. Senators wrangled over new appointments.
This week, five new Commissioners began work: Democrats Cynthia Bauerly and Steven Walther, and Republicans Donald McGahn, Caroline Hunter, and Matthew Petersen. They join holdover Democratic Commissioner Ellen Weintraub, who has served since 2002.

In addition to a backlog of enforcement matters and advisory opinion requests, here are just a few of the many matters needing attention:

• Public Financing: The FEC must decide whether to certify public financing payments – approximately $85 million -- to Senator McCain for the general election. Senator Obama has announced he will forgo public financing.
• Bundling regulations: The FEC is expected to complete action on rules to implement a key part of last year’s lobbying reform law. This law requires campaigns and leadership PACs to disclose “bundled” contributions received from lobbyists. And the law cannot take effect until rules are written by the FEC. With just a few months until the election, it seems unlikely that bundling rules will be in place this election cycle.
• Hybrid Ads: The FEC is also slated to complete rules on the ability of candidates and political parties to split the cost of so-called “hybrid ads” – ads that mention a candidate, but generally refer to the candidate’s party. If permitted, publicly-funded presidential candidates (who cannot receive private contributions), could benefit from ads whose costs are partially paid for by the party.
• Coordination: The District of Columbia Court of Appeals recently struck down key parts of the FEC’s regulations regarding coordination between campaigns and independent groups. The FEC has to decide whether to pursue the matter further in the courts or re-write its regulations.
• Millionaire’s Amendment: In addition, the Supreme Court struck down the “Millionaire’s Amendment,” which provides for increased contribution limits for candidates facing opponents who pour significant personal funds into their campaigns. Left up in the air is the ability of campaigns to use funds that were raised under the higher limits, but have not yet been spent.

So much for August at the beach for the Commissioners.

If you have any questions or would like more information, please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429) or Jim (JKahl@wcsr.com, (202) 857-4417).

Political GPS: What to Make of the New Semi-Annual Lobbying Report Form

Only in our nation’s capital could the release of a form be the subject of such breathless anticipation. On Monday, June 30, 2008, the Congressional ethics committees released the new semi-annual reporting form, which under the new lobbying law must be filed by every organization that employs federal lobbyists and by individual lobbyists.

The obligation to file applies not only to individuals who currently lobby, but also to anyone who was listed on an organization’s previous disclosure report and who did not terminate as a lobbyist before January 1, 2008. The form requires disclosure of an array of political, charitable, and other payments and donations, as well as a sworn certification of compliance with Congressional gift rules.

The release of the form was accompanied by a 67-page user’s manual and online instructional tutorials. In our initial analysis of these materials, here are just a few things that stand out:

• Anyone who last lobbied in 2007 or earlier, but who lingered in active status into 2008, must file a semi-annual report. In other words, if a lobbyist’s employer did not affirmatively terminate an individual lobbyist in its 2007 year-end filing (or an earlier filing), then the individual lobbyist must file a semi-annual report, certifying familiarity and compliance with Congressional ethics rules, and reporting certain donations and payments over the first six months of this year.
• The same goes for individuals who were listed as a lobbyist on a prior report filed by their employer, but who are no longer employed with the organization. A lobbyist who remained in active status into 2008 must file the semi-annual report. The catch is that unless the lobbyist is still employed as such, he or she will only receive filing instructions if the former employer enters a new email address into the new system created for this report or if the lobbyist contacts the Hill directly.
  
• The form is confusing in regard to the certification required of an organization because the language is written entirely in the first person. This makes it appear as if the certifying official is attesting only to his or her own familiarity with Congressional ethics rules, and his or her own compliance. This does not mirror the requirement stated in the law.
  
• The form itself sheds little light on which contributions and payments must be disclosed. However, guidance previously published by the ethics committees explains that the new law's disclosure obligation is interpreted broadly and offers helpful examples.
  
• There is an optional section on the semi-annual report for comments. No suggestion is offered as to what kind of comments the ethics committees have in mind.
  

Strict New Jersey Pay-to-Play Law Survives First Judicial Test
On June 30, 2008, a New Jersey appellate court upheld the state's pay-to-play law against a number of First Amendment challenges and narrowly interpreted a provision allowing contributors to "cure" violations by obtaining a refund.

The case involved the president of a highway contractor, who bought three tickets for a total of $1500 to a cocktail party sponsored by the Monmouth County Republican Committee. Based on these contributions, the State Department of Treasury notified the contractor that it was disqualified from the award of a highway contract.

The company president argued that he had requested and received a refund of the contribution, and therefore the violation was cured under New Jersey law. The court rejected the argument. While New Jersey allows a contributor to cure a violation by obtaining a refund within 30 days, in this case the refund was requested within a 30 day period, but was not received by the contractor's president until 41 days after the date of the contribution.

Meanwhile. . . Waiting and Watching in the Land of Lincoln
While New Jersey contractors are immersed in pay-to-play compliance (or at least should be), Illinois is deciding whether to take the plunge.

On June 30, the General Assembly sent its version of "pay-to-play," HB 824, to Governor Blagojevich. The law would prohibit companies that have or seek state contracts in excess of $50,000 from making political contributions to the incumbent Governor, Lieutenant Governor, Attorney General, Secretary of State, and Treasurer, and in some instances their challengers. Further, the law covers contributions by individuals affiliated with the contractor or prospective contractor, such as owners, executives, and their spouse and minor children. Violations can result in contract cancellation; multiple violations could bar a contractor from receiving a state contract for three years.

Governor Blagojevich, who has 60 days in which to sign or veto the bill, has previously expressed reservations. But the pressure on the Governor from reform groups to sign the bill has been intense, and the Governor's administration has itself been plagued by investigations into contract irregularities and payoffs. So Illinois may soon join the growing list of state that have "pay-to-play" legislation.

If you have any questions or would like more information, please feel free to contact Larry (LNorton@wcsr.com, (202) 857-4429) or Jim (JKahl@wcsr.com, (202) 857-4417).