BLOGS: Political GPS: Womble Carlyle Political Law

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Tuesday, September 30, 2008, 5:11 PM

Larry Norton & Jim Kahl to Speak at North Carolina Professional Lobbyist Association Annual Meeting - October 6-7

Larry Norton and Jim Kahl will address the membership of the North Carolina Professional Lobbyist Association at the organization's annual meeting. Held on October 6-7 in New Bern, North Carolina, the meeting will include an Ethics Overview presentation by Norton and Kahl. They will discuss lobbying regulation and rules governing to gifts to public officials.

Monday, September 22, 2008, 4:19 PM

Political GPS: On a Swift Boat, Without a Paddle: Should You Contribute to a 527 or other Independent Group?

"I served with John Kerry. John Kerry has not been honest about what happened in Vietnam."
From "Any Questions?," an ad aired in 2004 by Swift Boat Veterans for Truth

In 2004, the Swift Boat Veterans for Truth, MoveOn.org, and other so-called 527 organizations poured millions of dollars into hard-hitting, often controversial ads that dominated news coverage in the Presidential election. This year, with donors uneasy about how law enforcers will deal with these groups and the two leading candidates suggesting that such help is unwelcome, 527s have been much less of a factor. At least so far.

With polls showing razor-thin margins in Presidential battleground states and tight Senate races around the country, there is growing evidence that sidelined independent groups are ready to charge on the field. The question is: Should donors follow them?

Before answering that question, donors should be aware of the risks in contributing to independent groups:

  1. In the FEC's world, it makes no difference whether a group is organized under section 527 of the Internal Revenue Code or section 501(c)(4) – so-called “social welfare organizations – or is a for-profit entity. The issue of whether an organization must register as a political committee and comply with contribution restrictions boils down to how it raises and spends its money.

  2. Look carefully at the solicitation materials. After the 2004 elections, the FEC adopted rules to rein in independent organizations by focusing on how they raise money. Under these rules, if a solicitation indicates that any portion of the funds raised will be used to support or oppose a clearly identified federal candidate, then funds provided in response to the solicitation are “contributions” under federal campaign finance law. Raise more than $1000 this way, and you’re a political committee under federal law. Respond to such a solicitation by contributing funds from the corporate treasury and you’ve violated the federal prohibition on corporate contributions.

  3. While fundraising solicitations are now subject to scrutiny, there is much greater latitude this election on the spending side. Last year, the Supreme Court dealt a blow to the McCain-Feingold law by eliminating a blackout on ads broadcast on television, cable, or satellite in the 30 days before a primary, 60 days before the general – if they are financed by a corporation and merely refer to a candidate. Under the Court's ruling, corporations may now finance such ads so long as they can be read some way other than as an appeal to vote for or against a federal candidate. ("Call Senator X. Tell him to stop supporting unconditional bailouts for Wall Street.") And financing ads that can reasonably be viewed as “issue ads” will not, in and of itself, make a group a federal political committee.

  4. It's difficult to know whether law enforcement agencies will pursue donors for violating funding restrictions on independent groups. In 2004, the FEC tagged a number of groups with six-figure penalties, but left the donors alone - even large contributors like George Soros and T. Boone Pickens. This time around, however, the FEC may feel that the groundwork has been laid to pursue donors, especially if an independent group has little money on hand to pay a substantial fine.

The bottom line on independent groups? Exercise caution and look carefully at fundraising materials. If an independent group says it’s targeting candidates, who are named or identified in the fundraising materials, then donors should steer clear. On the other hand, if the appeal for funds avoids naming candidates, there is plenty of room this year for corporations – including business groups and trade associations – to finance hard-hitting "issue ad" campaigns, even ads that implicitly praise or criticize a named candidate.

Bundle of Joy? FEC Expects to Deliver New Fundraising Regulations

Last week, the FEC held hearings on the requirement in the 2007 ethics reform law that political contributions bundled by lobbyists must be reported to the FEC. At first blush, the new law seems straightforward: campaigns, party committees, and leadership PACs must report to the FEC aggregate contributions "bundled" by a registered lobbyist, if the contributions exceed $15,000 over a six month period.

Crafting workable regulations will not be as easy as you might think. Here are a few thorny issues that the FEC will need to work through:

Which contributions are bundled by the lobbyist? Certainly, recipients will have to report contributions when they’re able to credit a lobbyist for collecting checks or arranging for others to send contributions directly to the campaign. The FEC is also trying to determine whether to call for disclosure when contributions are bundled by the lobbyist’s agents – people such as assistants, co-workers and other who are not themselves lobbyists, but may be employed by the person registered under the Lobbying Disclosure Act.

What about company executives? If you attribute other employees' contributions to the company’s lobbyist, should that include contributions bundled by the corporate CEO and other high-level executives? If the answer is yes, the FEC will need to help committees figure out when an executive is acting on his own initiative to bundle contributions for his favorite candidate, and when she is bundling in concert with the company’s lobbyist. To further complicate things, since the recipient has the disclosure obligation, how would that committee be able to determine if the lobbyist and executive are acting separately or in a coordinated manner? That could be a burdensome undertaking for a busy campaign.

How do you allocate contributions? It's not too much of a stretch to imagine that lobbyists would band together to raise funds for their favorite candidate or party. If so, how should those bundled contributions be reported to the FEC? Will the public filings be more accurate if all of the funds raised are attributed to each of the lobbyists or if they are allocated among the lobbyists? If it’s the latter, then it’s easy to foresee a fundraising effort where each lobbyist raises $14,999 in a six month period – just $1 under the minimum reporting threshold.

These are all tough questions. And the FEC will have to sort it out by January 1 in order to meet its goal of having rules in place for the next election cycle. Whatever reporting system the Commission develops, more record keeping – and transparency – is in store for fundraisers and recipients. Because the FEC's database will be scrutinized by competitors, good government groups, and the press, it will be essential for recipients as well as donors to keep good records as to "who contributed what." Political GPS will keep you up to speed as the FEC finalizes the bundling regulations.

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).

Monday, September 15, 2008, 7:04 PM

Political GPS: A Little Help From Your Executive Assistant Can Expose You and Your Company to Liability

At the highest levels of business, there is no job too big, and none too small, for the executive assistant. So it’s not surprising when CEOs and other top execs ask their assistants to help them plan and organize a campaign fundraising event.

The problem is that this kind of help can land the company in trouble with the Federal Election Commission, leading to six and seven figure fines, intrusive government investigations, and unwelcome headlines. Under federal law, corporate officials are barred from ordering or directing support staff to plan, organize or carry out a fundraising event as part of their work responsibilities, unless the corporation receives advance payment for the costs of the employees’ salary, benefits and overhead.

The latest evidence that the FEC likes to flex its muscle in this area came last week in a settlement with CarePlus Medical Centers, Inc. and CarePlus Health Plans, Inc. The two companies and their Chief Operating Officer paid over $130,000 in fines and admitted violations of federal law. In recent years, the FEC has pursued a string of similar cases against corporations and their executives, with fines ranging as high as $3.8 million.

According to publicly-released documents, CarePlus CEO Miguel Fernandes hosted a fundraiser for a U.S. Senate candidate in Florida. At his request, his assistant helped prepare invitations; maintain spreadsheets to keep track of contributions pledged and received; and type letters and address labels. None of the assistant’s work was reimbursed by the campaign or other permissible source, such as the company’s PAC. Making matters worse, executives received an e-mail from the Vice President and Chief Operating Officer, advising that they were “expected to donate” to the Senate campaign.

As this campaign season reaches full throttle, it’s essential that politically active executives and other employees receive appropriate guidance about the rules in this area, and that company policies specifically address volunteer political activity.

FEC Clarifies Election Cycle Contribution Limits

Last Thursday the FEC issued an Advisory Opinion that clarified how contributions earmarked to future campaigns count toward biennial and calendar-year contribution limits.

The six-member Commission concluded unanimously that a credit card contribution charged in June 2008 is considered “made” in 2008, even though the contributor earmarked it for the 2010 Democratic candidate for the U.S. Senate in Arizona. The contributor, who charged his contribution through an organization that solicits contributions for Democratic candidates and party committees, requested that if there is no Democratic candidate in 2010, the funds should be forwarded to the Democratic Senatorial Campaign Committee.

Because the contributor incurred an obligation to pay when he presented his credit card number to the intermediary organization, that’s when the contribution was made. His contribution is therefore subject to the inflation-adjusted biennial limit for 2007-2008 of $108,200. Within that limit, he may make contributions to candidates and their authorized committees totaling no more than an inflation-adjusted limit of $42,700. Also, his contributions to national party committees are subject to an inflation-adjusted annual limit, which for 2008 is $28,500.

Bundling: FEC Puts the Pedal to the Metal

A key part of last year’s ethics and lobbying reform – the Honest Leadership and Open Government Act of 2007 (HLOGA) – was a provision requiring the disclosure of contributions bundled by lobbyists if they exceed $15,000 in a six-month period. Enforcement of this provision was left to the Federal Election Commission, which issued a notice of proposed rulemaking and received comments on the new requirement last November. However, the Senate standoff over FEC Commissioner appointments (see July 11 Political GPS), left the rulemaking proceeding dormant for months. With new FEC Commissioners taking office just a couple of months ago, new FEC Chairman Donald McGahan acknowledged that it was simply too late to finalize bundling rules for the 2008 election – especially because under the new law FEC rules will not even take effect until three months after the FEC votes on them.

Well that made some sense, but then came a surprise. On September 8, the FEC announced that it would hold a hearing on the draft rules nine days later – September 17 – and only those persons who submitted comments ten months ago could testify at the hearing.

Since the bundling rules won’t impact this election, we’re left wondering what the rush is all about and why comments on the proposed rules have to be frozen as of last November. HLOGA is a complicated law, as underscored by the difficulty that Congressional ethics staff had in trying to develop rules for filing reports and abiding by gift restrictions. Moreover, whatever the FEC decides to do, it only makes sense to account for the intervening guidance from House and Senate staff. After a ten-month break, the rulemaking process would benefit from some fresh perspectives. We’ll follow FEC’s actions and keep you up-to-date.

And you thought politics in Washington was nasty. . . Illinois pay-to-play revisited

We reported in the July 2 Political GPS that pay-to-play legislation passed the Illinois legislature and was sent to Governor Rod Blagojevich for signature. Claiming the legislation did not go far enough, the Governor used his “amendatory veto” authority to strip the bill of the pay-to-play provisions, implemented them by executive order instead, and inserted provisions that impact legislators’ pay and curbed the ability of legislators to hold non-elected government jobs. Last week, by a vote of 110-3, the Illinois House overrode the Governor’s veto and rejected his ethics rewrite, leaving the Senate with 15 calendar days to decide whether to take similar action.

Meanwhile, the new pay-to-play executive order is set to take effect on January 1, 2009. The order prohibits businesses holding or seeking contracts exceeding $50,000 from making contributions to elected state officials from the time a bid is issued until two years after contract performance has ended. The contribution ban also applies to parent and subsidiary corporations, commonly-owned entities, the company’s PAC, persons owning 7.5% or more of the company, company executives, and the spouse and minor children of covered persons. A violation of the contribution restriction can result in a termination of the contract, and three violations will result in all contracts being voided and debarment from state contracting for three years.

If past is prologue, the pay-to-play saga in Illinois has several more chapters to be written. Political GPS will follow these developments and keep you up-to-date.

Jim Kahl to Speak at ASAE’s 2008 Annual Association Law Symposium

Jim Kahl will be a panelist addressing “Lobbying, Ethics & Campaign Finance Reform: Challenges & Opportunities in an Election Year,” as a part of the Annual Association Law Symposium sponsored by ASAE & The Center for Association Leadership. The event will be held on Friday, September 19, 2008, at the Ronald Reagan Building & International Trade Center in Washington, D.C. from 8 AM to 5:30 PM. You can see Jim’s panel at 10:45 AM. 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).
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