Happy Holidays and a Happy New Year to all of our readers!

Welcome to our last Political GPS for 2008. It’s been a hectic year in the world of political law. We have seen an historic (and seemingly endless) presidential election, and we’ve all had to adjust to significant changes in lobbying and ethics laws on the federal and state levels. Here are our final pointers and predictions as we move toward 2009. Thanks for joining us on our journey through political law this year. We look forward to seeing you again in January.

NO LOBBYIST LEFT BEHIND: KEEPING CURRENT WHEN THE RULES ARE ALWAYS CHANGING

The first half of 2009 is an ideal time to train employees on the rules applying to lobbying, gifts to public officials, and political fundraising. Why? Because a wave of new rules and guidelines are on the way.

Around New Year’s, the Congressional ethics committees plan to issue new guidance for Lobbying Disclosure Act filers. Shortly thereafter, the FEC promises to produce new rules that apply to lobbyists who raise cash for campaigns and political parties. State legislatures will scramble to enact laws in response to recent pay-to-play scandals by banning campaign contributions from state contractors and key employees. And the Supreme Court is poised to whack away (yet again) at the McCain- Feingold rules that restrict television and radio advertising in the run-up to an election.

It’s also a good time to refresh your understanding about Congressional gift rules that under The Honest Leadership and Open Government Act of 2007 are a source of liability not just for Members of Congress, but also for organizations that employ federal lobbyists. Who should receive training? Lobbyists, compliance professionals, PAC administrators, and employees who authorize meals and other “gifts” for public officials, oversee officeholder site visits, and approve use of company facilities for volunteer fundraising.

An effective and ongoing compliance program is essential in the current environment, where the potential risks to companies and their executives include hefty fines, random government audits, and jail time. Training key employees sensitizes them to their obligations and risks, heading off problems before they ripen into problematic audits or investigations. Indeed, the mere fact that a company provides periodic training may convince prosecutors to let the matter go with just a warning or seek lesser sanctions.

Opportunities will abound in the new year for influencing public policy and promoting your agenda. Don’t let violations of lobbying, gift, and campaign finance laws undermine your efforts.

PAY-TO-PLAY LAWS GET A PUSH FROM AN UNLIKELY SOURCE

Readers of Political GPS are aware from earlier posts that an increasing number of states and municipalities are enacting so-called “pay-to-play” laws that prohibit existing and prospective public contractors from contributing to candidates and officeholders. Companies that violate these laws can face stiff fines, lose existing contracts and be banned from future contracts. In what may have been a prophetic stance, Illinois Governor Rod Blagojevich refused this past fall to sign a bill targeting contractors who make campaign contributions in hopes of luring work from the state. Of course, no one anticipated that the Governor would be so enamored of pay-to-play politics that he would allegedly try to trade away the President-elect’s Senate seat for political contributions, appointments, and payoffs.

Governor Blagojevich’s arrest last week is prompting many to call for more states to enact pay-to-play laws and other campaign finance reform measures. In the New Year, we anticipate that more states and municipalities will move to address pay-to-play concerns. Twenty-three states now have pay-to-play laws at the state or local level, and many other states are considering such measures. For example, Coloradans approved a new ban on contractor contributions to state candidates on Election Day, and the City of Pittsburgh is developing a new Internet database of city contracts and campaign contributions from contractors to city candidates.

What isn’t yet known is whether the Blagojevich scandal will prompt the new President to call for federal “pay-to-play” legislation or regulations. Jack Abramoff’s lobbying abuses led to last year’s lobbying reform law – the Honest Leadership and Open Government Act of 2007 – a law the new President championed in the Senate. Might Gov. Blagojevich’s alleged conduct similarly be the impetus for new federal legislation that restricts the ability of senior managers of government contractors to make political contributions? We wouldn’t be a bit surprised.

CALIFORNIA SCHEMIN’

Two recent cases from California are a reminder that violating campaign finance laws can have serious consequences, particularly when the conduct involves laundering political contributions. These cases also underscore the importance of providing appropriate training and adopting policies that inform company employees about the risks of reimbursing others for their contributions.

A federal judge in Los Angeles sentenced Gladwin Gill, the owner of a hospice, to one year in prison and imposed a $200,000 fine, stemming from campaign contributions made from 2003 to 2005. Mr. Gill arranged for friends and employees to contribute to various federal candidates, which he then reimbursed with corporate funds. The evidence in the case suggested that Mr. Gill, who previously served time for real estate investment fraud, knew that the contributions were illegal.

In a similar state case, the California Fair Political Practices Commission approved a penalty of $150,000 against an auto dealer, Mark Leggio, who admitted reimbursing friends for contributions they made at his urging over a four year period. Mr. Leggio is still facing criminal charges, which could result in a sentence of up to six years in prison.

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).

‘TWAS TWO DAYS BEFORE CHRISTMAS: A YULETIDE PREDICTION ABOUT FEC ENFORCEMENT (IN VERSE, OF COURSE)

The FEC has announced action on only 38 enforcement cases this year, compared to an average of 100 in each of the previous years, according to BNA Money & Politics.

No doubt Commissioners have labored to work through a backlog built up over the first six months of 2008, a period during which the Senate was deadlocked over new appointments and the FEC lacked a quorum. Under the FEC’s unusual procedural rules, four or more Commissioners on the six-member panel must formally authorize an investigation before the staff may pose even a question to a potential witness. More in line with other agencies, settlements and suit authorization also require four votes. We’re sure, too, that Commissioners have revisited decisions made by their predecessors – which they have every right to do.

At the same time, we suspect that a bunch of cases will come tumbling out of Santa’s bag, just in time for Christmas – lots and lots of routine matters, but buried within, a case or two that on an ordinary day would raise eyebrows. "Christmas communications" they're called by election law insiders – announcements that refer to clearly identified FEC cases, issued in the week before Christmas. These tend to melt away quietly like December snow, as rendered in this holiday verse:

‘Twas two days before Christmas at the Federal Election Commission,
When the press office issued a quiet transmission.

Whispers of cases backed up for weeks,
The docket shakes loose, with hardly a squeak.

Big news and small news all mixed in the batter,
No reporters in town to see what is the matter.

No watchdogs! No Congress! Off to Dulles they’ve fled!
With visions of Obama dancing ‘round in their heads.

It’s tradition in Washington, so forgive them their sleight,
Happy Holidays to all, and to all a good-night!

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: FEC Audit Exposes Major Violations By Trade Association PAC

When did your PAC last undergo a legal compliance audit? As a major trade association PAC learned last week, it's far better to audit your own PAC than reach a point where the Federal Election Commission does it for you.

The FEC's audit of the American Resort Owners Coalition PAC exposed a host of compliance lapses: contributions from prohibited sources (corporations and foreign nationals), solicitations that lacked required disclosure statements, and misreporting on publicly filed reports. The PAC’s problems reportedly included soliciting small amounts from numerous timeshare owners, who were not advised that PAC contributions are voluntary.

Where did this PAC go wrong? In the last couple of years, the FEC has suggested internal controls for handling PAC funds and ensuring accurate reporting. It is doubtful that such controls were in place. At a minimum, the PAC's reporting errors would likely have been discovered by reconciling bank statements with filed reports, and through separation of managerial functions. Based on the FEC auditors' findings, the PAC also lacked even rudimentary measures for screening contributions from foreign billing addresses or from contributors with corporate names. And the FEC's audit staff urged that required notices appear on the PAC's website, newsletters, and association bulletins.

Don't let this happen to you. PACs should be audited at least every two years. Experienced FEC counsel can help you examine your compliance systems and written policies, review your PAC solicitations and your solicitations for officeholder appearances, and talk to key personnel to review how the PAC is managed. Even if the PAC later trips over a legal requirement, this kind of attention to compliance will generally mitigate the fine or other sanction.

THE FEC BREAKS ITS DEADLOCK OVER ISSUE ADS, BUT WHAT WAS THE POINT?

In the October 28 edition of Political GPS, we discussed the 3-3 split among FEC Commissioners over whether a non-profit corporation, the National Right to Life Committee, could finance radio ads critical of then-Senator Obama. The advisory opinion request was the first test of FEC rules designed to determine when political ads are the "functional equivalent of express advocacy," which may not be financed with corporate or labor funds in the run-up to an election. In our prior writing, we expressed hope that the FEC would work toward a resolution.

Last week, Democratic Commissioner, Cynthia Bauerly, broke the impasse by joining with the three Republican Commissioners. By a 4-2 vote, the Commission ruled that one of the two proposed radio ads is not the functional equivalent of express advocacy and therefore may be financed by a non-profit corporation. But while the four were able to agree on a result, they could not agree on an explanation – literally not even a word – as to why they ruled as they did. As to the second proposed radio ad, the FEC is irretrievably deadlocked.

So where does that leave things? The NRLC has finally obtained the Commission's blessing for one of its radio ads, though it comes more than three weeks after the Presidential election. Not much help there. For other political advertisers looking for guidance, there is no way to know which facts or assumptions are material to the conclusion presented in this advisory opinion, and therefore no basis for determining when this opinion can be relied upon. In short, advertisers and their counsel must determine how FEC rules should be applied when the Commission itself, when faced with its first test of those rules, could not produce an explanation.

To be fair to the FEC, its rules stem from a Supreme Court test that had only the shaky support of five Justices (a bare majority), all but one of whom expressed doubts about how well the test would hold up in application. With last week's FEC ruling, it appears these doubts were well-founded.

THINKING OF DONATING TO THE INAUGURAL COMMITTEE? OBAMA MAY NOT BE ACCEPTING YOUR MONEY

Inaugurations are expensive propositions, financed by a combination of public and private funds. President-elect Obama’s inaugural committee has announced that it will not accept funds from corporations, PACs, registered federal lobbyists, and foreign nationals. Individual donors are limited to $50,000. This is a change from the practice of previous inaugural committees, which accepted much higher dollar amounts - up to $150,000 in the case of George W. Bush - and even larger sums from corporations.

Obama supporters formed a separate committee - a 501(c)(4) – that is soliciting and accepting donations for the inauguration. The donations do not count against federal contribution limits, but they must be disclosed in public reports filed by the recipient committee. Donations to the inaugural fund, like contributions to candidates, are not tax-deductible.

PARTY LIKE IT'S 1999. . . OR 2009 ANYWAY

The House ethics committee (officially known as the Committee on Standards of Official Conduct) has advised Members that they may use their campaign funds to pay the costs of swearing-in receptions as well as Inauguration Day receptions for constituents. But lobbying firms and other private entities that employ or retain lobbyists may not pay these costs, which would constitute prohibited gifts under the House rules. In addition, any lobbying firm or private entity that offers free attendance to Members at inaugural events must do so in compliance with the House gift rules. As a result, some events hosted by private entities will be permissible under the gift rule exceptions covering "widely attended" events and receptions at which food and beverages of nominal value are served.

On the other hand, departing Members – who are likely to be in less of a partying mood – may not participate in a CODEL or privately-funded fact-finding travel, but they may conduct official travel to and from their districts. They are also permitted to use their campaign funds to cover moving expenses and to cover office wind-down expenses.

NOTE TO NEW APPOINTEES – DON'T THROW OUT THOSE OLD RECORDS

If you're thinking about landing a senior job in the new administration, you better hope you can find your old documents in the attic. The questionnaire that the incoming administration uses to vet prospective appointees has 63 questions, many with multiple sub-parts. Mostly, the questionnaire covers predictable issues – financial information, employment history, business relationships, and tax or other legal entanglements.

But a few of the questions will put you through your paces. One question asks for a description of the most controversial matters you have been involved in during your career. For some candidates, that would be a book in itself. Then there is the question about whether you have ever sent an e-mail that could "suggest a conflict of interest" or be a possible source of "embarrassment" for the new President. No definition of "embarrassment" is offered. You also need to identify the donor and value of any gift you have received over $50 from someone other than a relative or close friend. And, you have to provide information about your guns and your medical treatments, and copies of all of your resumes, speeches and writings.

Got all that? Not done yet. Assuming you make it through this screening process, there are financial disclosure forms that have to be given to federal ethics officials, who will determine if any conflicts of interest exist. If so, you may need to sever ties with existing business and entities, obtain ethics waivers, or set up qualified trusts to manage your investments. Quite a daunting process, but the Obama team has heeded the lessons learned the hard way by prior administrations that it is better to ask the tough questions upfront, than to explain embarrassing situations to the press after an appointment has been made.

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).