Tuesday, January 6, 2009, 11:57 AM

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).

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