A New Era Of Cooperation in Washington? Federal Election Commission Didn’t Get The Memo

A deepening paralysis at the Federal Election Commission may prompt President Obama to replace half the members of the election panel soon after their terms expire late this Spring, or join forces with his former rival, Senator John McCain, to scrap the agency and start over.

Partisan acrimony on the six-member panel is hardly new, but current divisions run much deeper. When the Commission deadlocked over a proposed settlement with a 527 group, two of the Democratic Commissioners charged their Republican colleagues with failing to enforce the law. "Enough is enough," the Republicans shot back in a statement issued Friday, charging the Commission with using its enforcement powers to intimidate and expand restrictions on political speech. With these battle lines drawn, the resolution of cases has slowed and recent monetary penalties are hardly eye-catching.


The rulemaking process has been affected, too. When the Commission approved new bundling rules at the end of 2008, it promised to produce a written explanation in a couple of weeks – a necessary step for the rules to take effect. But then a vote planned for January 15 was abruptly postponed. While a document will probably emerge soon, the last-minute delay suggests that when the Commission voted to approve the bundling rules, there was no common understanding about what the rules actually mean.

Other projects appear stalled. Last June a federal appeals court struck down most of the FEC's rules on coordination, but there has been no move to replace them – even though these rules were called for by the 2002 McCain-Feingold law.

As terms for three Commissioners expire this Spring, the agency itself may be in some peril. Senator McCain hardly needs prodding. He has long supported legislation to replace the FEC with a more vigorous three-member body. The President’s position on the FEC is less known, though campaign finance reform appears to fit with his good-government agenda. Recent events at the FEC may well forge an alliance between former rivals.

The Department of Justice Stepping Into the Breach?

Court documents reveal that a former official of the U.S. Department of Housing and Urban Development has pleaded guilty to illegally reimbursing campaign donors, according to a report last week in the D.C. Examiner. The official faces up to a year in prison and $50,000 in fines, according to sentencing guidelines.

The lesson in this matter? The FEC may be at war with itself, but the Department of Justice isn't hesitating to assert its overlapping jurisdiction. Indeed, the Department recently took the unprecedented step of publicly urging the FEC to refer more election cases for criminal investigation. Also, it's essential that companies have clear policies against reimbursing employees for campaign contributions. Companies should never use bonuses, salary increases, or other artifice to cover campaign contributions made by their employees.

New Executive Order On Ethics: Who Wins?

President Obama came to office promising to minimize the influence of lobbyists on the federal government. On his first full day, the new President took steps to deliver on that promise.

On January 21, President Obama signed an Executive Order concerning ethical standards for new non-career government appointees. What did it do? New government appointees must sign a "pledge" that commits them to abide by certain standards. First, they cannot accept gifts from registered lobbyists. While there are some exceptions to the gift ban, a number of customary exceptions for government employees (such as the ability to accept gifts under $20 and go to widely-attended events) are now off limits. In addition, registered lobbyists cannot seek or accept employment with an agency that the individual has lobbied within the prior two years. Finally, appointees who decide to leave government are prohibited from lobbying any executive branch agency for the duration of the Administration. If that's not enough, appointees who violate the "pledge" can have their lobbying freeze-out extended for up to an additional five years.

The day after its issuance, the Administration had to waive the new Executive Order so a defense industry lobbyist could fill the number two job at the Defense Department. We're told such waivers will be "limited." But waivers and exceptions aside, the Executive Order contains significant new restrictions on federal lobbyists. For many of them the inability to serve the government and return to lobbying in the private sector is simply too big of a price to pay. Undoubtedly, the President is no fan of the "revolving door." But with significant challenges facing the country, who really benefits from expertise that is never brought to the table?

Federal Contribution Limits Raised for 2009-2010 Election Cycle

The Federal Election Commission has increased the contributions that individual donors can give to federal candidates to $2400 per election, or $4800 for a primary and general. This is up from the $2300 limit during the last election cycle. Individuals may also give $30,400 to national parties, up from the $28,500 they could give last cycle.

Bear in mind that individuals are also subject to a biennial limit on total contributions to federal candidates, party committees, and PACs. The current two-year period began on January 1, 2009. Under this limit, a single donor may contribute a total of $115,500, of which $46,500 may be donated to federal candidates and $69,900 to federal PACs and political parties.

2008 Election Postscript

On January 22, the FEC released the official 2008 Presidential general election results. (NOTE: you have to use the general search engine on the FEC website to find this.) For those who like numbers, here's the final tally:

Obama: 69,456,897 (52.92%) and 365 electoral votes

McCain: 59,934,814 (45.66%) and 173 electoral votes

Political GPS: Want Contracts Under The Federal Stimulus Plan? Better Prepare Now For State and Local Pay-to-Play Laws

Federal stimulus money will start flowing soon, and a lot of it will be distributed through state and local governments. Any company seeking a piece of this action – IT, energy, construction firms and more – should prepare now for a confusing array of “pay-to-play" laws. These laws, found in a growing number of states, counties, and municipalities, prohibit campaign contributions from anyone doing business with a governmental agency, including the companies themselves, executives, and in some places, executives’ spouses and children. Some laws also impose registration and reporting obligations.

Just a small campaign contribution by a covered executive or spouse can cause a company to forfeit millions of dollars in contracts. These bans also apply to prospective contractors - one prohibited campaign contribution can disqualify a company from a contract award.

This week, we highlight news concerning two of the strictest pay-to-play laws in the country: New Jersey and Illinois.

New Jersey Supreme Court Upholds Pay-to-Play Law

The New Jersey Supreme Court last week rejected a constitutional challenge to the state’s pay-to-play law and upheld the disqualification of a state contractor. The ruling is notable for its narrow view of a provision that allows persons who make prohibited contributions to cure their violations by obtaining a refund.

In a nutshell, New Jersey prohibits businesses with government contacts in excess of $17,500 from contributing amounts to covered officials or committees in excess of $300. The bar also applies to subsidiaries, PACs, 10% owners or shareholders, and, where an individual is the business entity, the individual’s spouses and minor children. In addition, businesses that receive state and local contracts exceeding $50,000 in a calendar year must file an annual disclosure report, listing their political contributions.

The New Jersey ruling involved a contractor who submitted the lowest bid ($6.2 million) on a highway construction project, but was disqualified when it was discovered he had made a $1500 campaign contribution to a county party committee. The contractor had actually discovered the violation on his own and asked for a refund within the 30-day statutory period for remedying a violation. But he didn’t get his money back until 41 days after making the contribution – 11 days too late in the view of the Court.

Illinois Contractors and Bidders Face January 31, 2009 Deadline

A new Illinois pay-to-play law and companion executive order became effective on January 1. The new law prohibits existing and prospective state contractors whose bids and/or contracts total more than $50,000/year from making campaign contributions to officeholders and candidates for statewide and legislative offices. The contribution ban applies not just to the contractor, but also to its affiliates, principal owners, PACs, company executives (broadly defined), and executives' spouses and minor children.

Violations of the contribution ban – even if they are not intentional or material – give agency procurement officers discretion to void a state contract. Multiple violations will automatically void all of a company’s state contracts and disqualify it from bidding or contracting with the State for three years.

A major deadline looms on January 31, 2009. By that date, contractors must register with the Illinois State Board of Elections and disclose the identity of “affiliated persons” (executives and others) and “affiliated entities” (parents, subs, etc.). Within short deadlines, the contractor must then give copies of its registration certificate to all persons and entities named on the registration, and to the relevant procurement officer. In addition, affiliated persons and entities must notify PACs and other political committees to which they contribute of their affiliation with the state contractor. State contractors’ failure to register or update registrations can result in fines.

FEC’s New Bundling Rules: Bound Loosely, It Turns Out

When the Federal Election Commission approved new bundling rules at the end of 2008, the Commission promised to have a written explanation of the regulations in a couple of weeks – a necessary step for the rules to take effect. The Commission scheduled a vote on the explanation for its January 15 meeting – but a day before the scheduled vote, the Commission announced that the document wasn’t ready. It may take until the end of January, the Chairman has suggested.

This delay appears to be further evidence that the six-member panel - three of whom joined the agency in July - are struggling to achieve the required four or more votes on key issues. It’s especially troubling here. The inability to produce an explanation that at least four Commissioners can agree on reveals that when the Commission voted to approve the bundling rules, there was no common understanding about what the rules actually mean.

As a practical matter, this delay means that new bundling rules won't be effective until late May 2009. The Honest Leadership and Open Government Act of 2007, which directed the FEC to adopt bundling rules, provides that the rules will take effect three months after final Commission action.

Political GPS: Federal Prosecutors Look to Expand Role Over Election Activity

The FEC recently requested comments from the public on its enforcement procedures and policies – an exercise of interest to campaign finance lawyers, but otherwise little noticed by the public. One comment was received from an unexpected source – the U.S. Department of Justice – and serves as a timely reminder of the potentially serious consequences that can stem from federal campaign finance law violations.

The three-page letter from the Justice Department takes the FEC to task for failing to refer more election cases to criminal prosecutors. The Department wants the first crack at all cases where there is any hint of evidence that the potential violation was “knowing and willful.” More than that, the Justice Department wants the FEC to stand down in all such cases until a prosecutor authorizes them to proceed, and then submit proposed settlements of civil charges for a prosecutor’s approval. Under the McCain-Feingold law, “knowing and willful” violations of campaign finance laws can be prosecuted as felonies, which the Department argues reflects the desire of Congress to see more criminal prosecutions in this area.

We have strong disagreements with the Department’s submission, both as to their reading of Congressional intent and approach to shared jurisdiction. But Political GPS readers would be wise to take note of the Department’s message. With fresh political scandals in the headlines and a new Administration touting reform, the Department appears to see an opening to assert the enhanced enforcement capabilities it was given in McCain-Feingold.

The potential implications are significant. “Knowing and willful” violations of federal campaign finance laws are punishable by imprisonment up to five years, with a minimum sentence of 15 months. And, of course, the mere fact of a criminal investigation can be tremendously damaging and disruptive.

The Justice Department’s comments also serve as a valuable reminder of the importance of a compliance program that effectively manages civil, criminal and reputational risks.

MSRB Calls for More Pay-to-Play Rules in the Municipal Financial Markets

The Municipal Securities Rulemaking Board (MSRB) late last week called for the incoming Administration to limit political contributions by unregulated participants in the municipal securities markets – just as MSRB rules now restrict contributions by banking and underwriting professionals.

The MSRB’s announcement comes amid a federal probe that derailed New Mexico Governor Bill Richardson’s appointment to Secretary of Commerce. Federal investigators are looking at "pay-to-play" practices in the state and municipal bond markets and, in particular, allegations that CDR Financial Products received financial services contracts worth millions of dollars after making contributions to political organizations affiliated with Gov. Richardson.

The MSRB was established in 1975 by Congress to develop rules regulating securities firms and banks involved in underwriting, trading, and selling municipal securities. The Board’s Rule G-37, instituted in the 1990’s, severely limits the ability of professionals in these areas to make state and local political contributions.

Readers of Political GPS know that we have written a lot about state and local pay-to-play laws. As we begin the year, we expect that these laws will continue to proliferate. Businesses will have to be careful that political contributions, including those by covered employees, do not jeopardize government contracts or expose the business to other liability.

Major Changes in Louisiana Lobbying Reports

On January 1, 2009, Louisiana lobbyists and their employers face major changes in their reporting obligations. Lobbying reports must now be filed monthly, in electronic form, with the first report due on February 15. Filers must disclose business relationships with public officials and their spouses, and well as disbursements made for the benefit of officials’ spouses and minor children.

These changes are part of a sweeping overhaul of Louisiana’s lobbying and ethics laws, which was led by Governor Bobby Jindal shortly after taking office in 2008. Other parts of the law which have already taken effect bar lobbyists and their employers from giving free tickets to elected officials, and impose a $50 per event limit on food and beverages provided to public officials by lobbyists, and those seeking state contracts.

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

Political GPS: New Life for 527s? FEC Deadlocks Over Chamber of Commerce Spin-Off

The FEC’s decision to reject a settlement negotiated between its staff and a 527 group funded by the U.S. Chamber of Commerce has triggered accusations that the Commission is backpedaling on its approach to these independent groups and is generally unwilling to enforce campaign finance laws.

The controversy stems from a 3-3 vote, along party lines, causing the FEC to drop the case against the November Fund, a group accused of failing to register and report as a political committee, and accepting an illegal corporate contribution of $500,000 from the Chamber of Commerce. The complaint, filed by Citizens for Responsibility and Ethics in Washington (“CREW”) alleged that the group openly targeted Democratic Vice-Presidential nominee, John Edwards in the 2004 election. (Disclaimer: We served as General Counsel and Deputy General Counsel at the FEC and oversaw early action on this matter. A public statement indicates that the Commission authorized settlement negotiations about nine months after we resigned and joined Womble Carlyle.)

Democratic Commissioners Cynthia L. Bauerly and Ellen L. Weintraub reacted to this rare decision to reject a signed settlement agreement by issuing a sharply-worded statement, saying: “Our colleagues’ refusal to accept the signed conciliation agreement with The November Fund amounts to a refusal to enforce the law.” Notably, the statement was not signed by Chairman Steven Walther, who may have decided that publicly rebuking three colleagues would not be the best way to begin his year as Chairman.

Is this a case of the usual tensions among Commissioners spilling into public view, or does it signify a major shift at the FEC? It may be some of both. It’s difficult to make the case for the three Commissioners whose action has drawn such ire, principally because they have yet to issue a statement of their own. That will happen because it must: when the Commission disposes of a matter by rejecting a staff recommendation, it is required to provide a written explanation. We would also note that signing a settlement agreement with the FEC is not necessarily an acknowledgment of liability, as the two Democratic Commissioners suggest. And the Commission always has the authority to reject a settlement negotiated by its staff.

On the other hand, there is a line of settled 527 cases that are entitled to respect. And while some of the reasons for rejecting this settlement may not be relevant to the conduct of future 527s, it weakens confidence in enforcement when the Commission departs from a consistent approach taken in a number of similar cases, some of which involved the highest fines ever collected by the agency.

Finally, it is impossible to ignore the broader impact of such deep divisions at the FEC, as reflected in the disposition of this and other matters. As we have said before, these differences appear more ideological than partisan, reflecting differing views about how aggressively to enforce campaign finance laws. Whatever the reasons for the division, a number of seemingly settled issues at the FEC are suddenly up for grabs.

FEC Delivers Its Bundle of Joy Just in Time for the Holidays

A key provision of the 2007 federal lobbying reforms requires disclosure of campaign contributions bundled by lobbyists. Congress directed the Federal Election Commission to write rules implementing this change in the law, though a long standoff over appointments to the Commission left the rulemaking in limbo.

In one of its final actions of 2008, the FEC approved new bundling regulations, with a written explanation scheduled to follow in a couple of weeks. If the rules are finalized at that time, they will go into effect around mid-April.

At first blush the 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. But at least until the FEC provides its explanation, the new rules raise some interesting questions about how bundling disclosure will actually work. These include:

What’s a bundled contribution?

Like the law it implements, the new rules require disclosure of contributions that lobbyists forward to a campaign, PAC, or party and those contributions that a committee receives from a contributor which are “credited” to the lobbyist. The FEC says that for contributions that are not directly handed to the committee by the lobbyist, disclosure is required if there is some written evidence of the lobbyist’s role in steering the contribution to the committee or the lobbyist receives a benefit from the campaign, such as a title, access to events, or mementos. But what if a committee does not maintain any written verification of contributions raised by the lobbyists and no “benefits” are provided to the lobbyists? Must those contributions be disclosed? On this point, the new rules are not clear.

Allocation of Contributions

The rules also do not provide any guidance on how to allocate contributions received as a result of fundraising efforts sponsored by more than one lobbyist. Watchdog groups had argued that the total of such bundled contributions should be allocated in full to each participating lobbyist. But the new rules are silent on this point. This may mean that a reporting committee can allocate contributions to the participating lobbyists through some reasonable method, and those falling below the $15,000 reporting threshold may not need to be disclosed. Again, the regulations are not clear.

Political GPS will follow this issue and report on the Explanation and Justification for the new rules as soon as it is approved by the FEC. In the meantime, candidates, leadership PACs and party committees will have new compliance obligations in the new year: they will have to determine if contributions are raised by a lobbyist (or a PAC controlled by a lobbyist), report those contributions, and maintain records of bundled lobbyist contributions for three years.

Lobbyists who bundle contributions would also be wise to keep accurate records of the contributions they raise. Reporting committees are likely to request this information, and lobbyists will want to ensure that the information disclosed about their fundraising activities are accurate.

Connecticut Pay-to-Play Law Upheld: Will More States Follow?

A Connecticut federal judge has upheld one of the nation’s toughest “pay-to-play” laws, in a 98-page ruling issued on December 19. The controversial Connecticut law bans government contractors and lobbyists from contributing to candidates for covered state offices, and raising money for such candidates. Violators face fines, loss of government contracts, and debarment.

Even the more far-reaching provisions of the law survived the court’s constitutional review. One provision that seemed particularly vulnerable on First Amendment grounds – a ban on contributions by immediate family members of lobbyists and contractors – was upheld as a reasonable anti-circumvention measure. The court also upheld the application of the ban to a broad range of individuals associated with state contractors, including directors, executive VPs, shareholders with 5% stakes or greater, and employees who negotiate state contracts. The court concluded that because all exercise some degree of control over a contractor, their campaign contributions could be seen as an effort to obtain a benefit for the contractor.

This ruling will likely be appealed. In the meantime, it may serve as the legal brief for reform advocates who have been clamoring for the enactment of pay-to-play laws in other states and municipalities. Campaign finance reformers already have quite a head of steam. Indeed, they have a poster boy - embattled Illinois Gov. Rod Blagojevich – and soon a new President, who has decried pay-to-play politics and refused contributions from lobbyists. And what’s more, New Mexico Governor Richardson has now become the latest pay-to-play casualty. This past weekend he withdrew himself from consideration as the next Commerce Secretary while a federal grand jury investigates whether a company received over $1.4 million in work from the State of New Mexico after making contributions to political action committees associated with the governor.

About 20 states have already adopted some form of pay-to-play law at the state or local level. Look for others to follow suit. When the stars align like this, major campaign finance reform is tough for government officials to resist.

January Filing Dates – Federal Lobbying and Campaign Finance Reports

• January 20, 2009 – Quarterly Activity Report (LD-2) for LDA Registrants (Filers are reminded that once per calendar year they are entitled to change the method used for reporting lobbying expenses. Our December webinar addressed some of the key considerations in selecting among the available options. Also remember that under the new federal lobbying law, this report may be subject to a random audit.)
• January 30, 2009 – Semi-Annual Report (LD-203) for LDA Registrants and individual federal lobbyists (This report is also subject to random audit and was discussed in our December webinar. In this report, filers must certify their familiarity and compliance with Congressional ethics rules, and disclose various political and charitable contributions.)
• January 31, 2009 – Year-end Report for Federal Political Committees

If you would like to arrange for a consultation concerning any of these disclosure reports or arrange for a pre-filing review, please click here.

On the Horizon at the FEC

Keep in mind that many of the federal political contribution limitations will soon be adjusted for inflation for the 2009-2010 election cycle. The FEC typically publishes the new limitations within the first couple of months of the new year. We will report those new limits as soon as they are available from the FEC.

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).