BLOGS: Political GPS: Womble Carlyle Political Law

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Friday, May 29, 2009, 11:30 AM

Executive Branch Lobbying Restrictions: A Chance For Common Ground?

The next chapter in the dispute over the President's March 20 memorandum restricting lobbyists' communications with executive branch officials is likely to begin soon when OMB Director Orszag reports to the President after a 60-day study period. The memorandum has received much criticism, and threats of legal action, from both the private sector and public-interest lobbying communities. (See Political GPS, March 27 and April 16, 2009). But, as we discuss below, a frontal assault on the memorandum should not be the lobbyists' only strategy.

It's difficult to argue with the directive's stated goals of making Recovery Act spending more transparent and reducing improper influence. It's just that the directive doesn't accomplish either. Rather than requiring disclosure of all communications with executive branch officials, the memorandum requires only that agencies post on their websites written communications received from registered lobbyists about particular Recovery Act projects and summaries of oral communications with registered lobbyists that relate to Recovery Act policy. The result, so far, has been little agency disclosure at all.

Oral communications between agency officials and registered lobbyists, if they concern particular Recovery Act projects, are simply banned. Curiously, OMB's April 7 interim guidance acknowledges that lobbyists "bring to bear helpful information" that facilitates agencies' evaluation of projects on the merits. That's hardly the best case for a gag order.

As we've noted before, the memorandum is also replete with loopholes that permit non-lobbyists (e.g., a company CEO who has bundled thousands in campaign contributions) and even state-registered lobbyists to have conversations with agency officials about Recovery Act projects. And because only certain communications must be posted on agency websites, many conversations will never see the light of day.

So what should lobbyists do next? The President’s ethics advisor Norm Eisen has already called the memo "right" as a legal and a policy matter. So don't expect a reversal from the White House. Also, a protracted legal battle may not be of much help to lobbyists since the restriction is aimed at short-term stimulus funding.

An alternative approach might be found in the President’s recent suggestion to a college graduation class, where he said that antagonists in another controversy should use "fair-minded words" and "join hands in common effort." In fact, the roadmap for lobbyists might just be found in the Honest Leadership and Open Government Act of 2007, a law that President Obama championed in the Senate. In section 214 of HLOGA, Congress urged lobbying organizations to develop professional standards, provide training, create third-party certification programs, and promote professionalism and disclosure. Other professions under intense scrutiny have found a rigorous self-regulatory system, developed by those who best understand the industry, to be preferable to overly restrictive and often poorly crafted government regulation.

Proceeding down the path of expanded self-regulation would surely be a recognition by the lobbying community, unavoidable we think, that the rules of the road have changed. But such a step forward by the lobbying community might just permit the White House to step back from the restrictive approach of the executive memorandum or at least exercise a gentler touch going forward.


A federal judge last week struck down a Florida law that requires 501(c) groups to register and file reports in the same manner as political committees if they fund communications that refer to or depict a clearly identified candidate for office, or clearly refer to an issue to be voted on at an election. The suit was filed by the National Taxpayers Union and the National Taxpayers Union Foundation, the Broward Coalition, and the University of Florida College Libertarians.

U.S. District Judge Stephan P. Mickle concluded that the Florida law regulates "issue advocacy speech, pure political speech," and as such, failed the Supreme Court's test for regulating political speech in FEC v. Wisc. Right to Life (WRTL II). Judge Mickle held that the electioneering communications provision of the McCain-Feingold law is "the outer bounds of permissible regulation." That law bars corporate funding, and compels disclosure, for broadcast, cable, or satellite communications that refer to a clearly identified federal candidate in the 30 days before a primary and 60 days before a general election. In contrast, the Florida law regulates communications in all media, including the Internet, and, applies to speech that, according to the Florida court, may reasonably be viewed as communicating something other than an appeal to vote or against a candidate.

The Florida ruling is one of a string of recent cases, going back to Wisconsin Right to Life, in which courts have rejected restrictions on issue advocacy groups, even if a group's advertising refers to candidates for public office. We recently wrote in Political GPS about a Wisconsin ruling that struck down a state law that required registration and disclosure by groups attempting to influence ballot initiatives. As we have also discussed, recent FEC rulings have loosened the rules that the Commission applied just a few years ago in obtaining large fines from 527s and other non-profit groups.


New York Governor David A. Paterson announced a sweeping ethics proposal that would replace the 13-person Public Integrity Commission with a five-member Government Ethics Commission. Appointments to the Commission would be made by a new 10-member Government Ethics Designating Commission, whose members would be appointed by the Governor, the four Legislative Leaders, the Attorney General, and the Comptroller.

The new Ethics Commission would take over enforcement of the state's campaign finance laws, currently the province of the State Board of Elections, and would oversee the Legislative branch, in addition to the Executive Branch and lobbyists. Since the Governor's proposal requires pension fund "placement agents" to register as lobbyists, they too would be subject to regulation by the new Commission.

The current Public Integrity Commission has been stung by charges from the State IG that the panel had improperly disclosed confidential information about investigations into the Spitzer administration. Nonetheless, the Governor's proposal is likely to meet resistance in the state legislature.


A Virginia man pled guilty this week to federal charges that he made $17,000 in "conduit" contributions in 2003 to a candidate seeking federal office. Jerry Pierce-Santos, a former Bush (41) official and a major Republican fundraiser, engaged in a scheme in which he reimbursed political contributions made by ten individuals to the federal candidate. Seven persons were reimbursed for $2000 contributions and three others were reimbursed for $1000 contributions. At sentencing, Mr. Pierce-Santos faces up to two years in prison, three years supervised release, and a statutorily mandated $50,000 fine.

Thursday, May 21, 2009, 2:17 PM

3-3 Votes On The FEC: Why So Frequent? What Do They Mean?

The Federal Election Commission has become the place where complaints go to die. In 2006 and 2007, FEC fines were skyrocketing, with several prominent 527 groups paying six-figure penalties and Freddie Mac paying a whopping $3.8 million for deploying corporate resources in support of fundraising activity. In the last year or so, most of the high-profile announcements have been dismissals. Even the investigations are few and far between, with the six-member panel repeatedly voting 3 to 3 on whether to authorize the staff to look into complaints.

What is going on and what does it mean?

Historically, the media and watchdog groups have cited 3-3 votes as evidence of Commission dysfunction. FEC statistics are a bit misleading on this point, but until recently such splits were quite uncommon. And while one could not discount partisanship as an influence in some of these cases, often the votes reflected genuine differences in ideology or disputes about whether the Commission was handling comparable cases in a consistent fashion. It should also be noted that while 3-3 votes have been justly criticized as creating uncertainty for the political community, such votes actually do resolve the immediate question before the Commission. Any time there are fewer than four votes to investigate, settle, or file suit, an enforcement action is terminated and the matter is dismissed.

On the other hand, Commissioners have sometimes made too much about the infrequency of 3-3 votes. Sure, most cases enjoy majority, if not unanimous support. But in a number of high-profile cases, the only way to lure a fourth vote to support going forward has been to allow the swing voter to establish the price tag on the case. In other words, the Commission will find a violation, but the penalty is so dramatically reduced that the pain is hardly felt.

So is anything different now? Yes and no. The current crop of 3-3 votes, while split along party lines, certainly cannot be characterized as protecting party members and loyalists. The three Democrats are repeatedly voting to proceed in these cases, while the three Republicans are voting to shut each matter down. In the current Commission, votes are cast regardless of whose ox is being gored.

But certain things are quite different now. Many of the stalemates depart from recent precedent in a wide range of important issues, such as regulation of political activity by 501(c) and 527 organizations, rules for candidates' testing the waters, coercion of campaign contributions, and liability for false reports stemming from embezzlement. In fact, statements issued recently by the Republican Commissioners give little deference to the FEC's determinations in prior enforcement matters and in many instances reflect a profound unease with using the Commission's investigative powers. There's also been a much sharper tone in statements released by both the Democratic and Republican sides that reveal a growing sense of frustration.

After a while, this kind of dynamic becomes self-sustaining. But roles can change, especially on a six-member body that can only function if there is compromise, or at least common ground. With three Commissioners currently "holding over" on expired terms, the President will probably make new appointments this year, and a new dynamic is likely to emerge. It would not surprise us to see a "new" Commission find agreement on a range of issues that are vexing the current body.


The Carlyle Group, a major private equity firm, agreed last week to pay $20 million and broadly reform its practices, ending an investigation of alleged "pay-to-play" practices and undisclosed conflicts of interest regarding New York’s public pension fund.

As part of the settlement, the Carlyle Group agreed to adopt a "Public Pension Fund Reform Code of Conduct," which is a model proposed by the New York Attorney General for interactions between investment firms and public pension funds. The Code limits campaign contributions to $300 from the investment firm, its principals and employees, and their families to candidates involved in pension fund oversight. Gifts to such officials are also prohibited, unless they are of only nominal value. The Code also prohibits the use of placement agents, lobbyists, or other intermediaries to interact with public pension funds to obtain investments.

The settlement may increase pressure on the Securities and Exchange Commission, which recently announced that it is considering rules to restrict campaign contributions by investment firms. The SEC proposal could come as soon as July.


Kentucky: Violating campaign finance laws can be a risky proposition for individuals and their employers. The Kentucky Attorney General's office recently released investigative records to the Courier-Journal of Louisville regarding a Kentucky man who pled guilty in early 2008 to engaging in a straw donor scheme. Philip Dufour, an employee of road-building company, Elmo Greer & Sons, gave cash reimbursements to his daughter, her friend, and six other individuals for contributions he requested they make to Democratic and Republican candidates for Governor. In addition to Mr. Dufour's felony plea, his employer had to pay the $250,000 cost of the AG's investigation.

Illinois: The recent proposals from the Illinois Reform Commission (see May 8 Political GPS) are making their way through the General Assembly. While some of the commission's proposals – such as limits on the time legislators can serve in leadership roles – are likely to fall by the wayside, consensus seems to be building to enact ethics and campaign finance reform this session. High on the list for reformers are proposed campaign contribution limits similar to those in federal races. In addition, a Joint Committee on Reform established by Senate President John Cullerton and House Speaker Mike Madigan is expected to propose reforms to augment the Reform Commission proposals. But time is running short, with this session scheduled to adjourn at the end of the month.

Tennessee: The Tennessee Ethics Commission has voted against penalizing lobbyists found to have violated the state's registration and reporting laws during random audits conducted in 2008. In conjunction with the vote, the commission released an internal memorandum from its General Counsel that argued against an "aggressive approach to regulation." The violations at issue included failure to register in a timely fashion and failure to accurately report lobbying compensation. While there was an adequate legal basis to seek a civil penalty, the GC felt that such actions would make "influential people mad" and ultimately lead to a weaker law.

By the Womble Carlyle Political Law Team

Friday, May 15, 2009, 11:38 AM

First Lobbyist Bundling Reports Due
May 20

The rubber is about to hit the road for the new FEC lobbyist bundling rules. Leadership PACs, presidential campaigns, and political party committees, which report monthly, have until May 20 to file the new Form 3L. (Congressional committees will not have to report bundled contributions until quarterly reports are due in July.) The May 20 submissions will be the first bundling reports to be filed since the new rules were finalized earlier this year.

Under the rules, the recipient committees must consult the Congressional lobbying disclosure websites and the FEC's database to determine whether contributions were bundled by lobbyists, registrants, or the PACs they control. Reporting committees are well-advised to print out computer screenshots from these databases and maintain them in their records. Committees may rely on the disclosure databases, unless they have knowledge that a fundraiser should be registered as a lobbyist or that a PAC is controlled or established by a lobbyist.

It is also wise for lobbyists who may have bundled contributions during the period to confirm the reporting obligation with the recipient committees. A written confirmation will help ensure that the committee gives fundraising credit to the appropriate person and that the amount attributed is correct. As we have previously written in Political GPS, it is far better for bundled contributions to be attributed to an individual lobbyist or PAC, rather than a corporation. In the event the recipient committee fails to disclose reportable contributions, a confirmatory letter also helps establish that the bundler did not participate or acquiesce in the committee’s failure to file a form 3L.

These new reports are sure to generate attention, so lobbyists should do all they can to ensure that their efforts are portrayed accurately in the FEC filings.


In keeping with the recent series of 3-3 splits in FEC enforcement matters (see May 8 Political GPS), this week we have another pair of dueling statements from FEC Commissioners concerning yet another tie vote. Apart from the notable fact of a Commission deadlock, the dismissal serves as a reminder that taking prompt remedial steps after discovering apparent violations can mitigate enforcement action or, as in this case, get the entire case dismissed.

This matter centered on allegations that in the run-up to the 2008 election, Wal-Mart and some of its management employees advocated the election of certain federal candidates. At issue were oral presentations and written materials provided to hourly-wage supervisors about the potential impact on Wal-Mart of the Employee Free Choice Act, and the increased likelihood of the bill's passage if Democrats won the White House and obtained a large majority in the Senate. A series of Wall Street Journal articles, which formed the basis for the complaints to the FEC, quoted employees who said that at the meetings with supervisors they were told how to vote.

The three Republican Commissioners voted to adopt the staff’s recommendation and close the case. The staff noted that the written materials provided to employees did not expressly advocate the election or defeat of a candidate, and therefore could be shared outside of the company’s restricted class. The staff recommendation was also influenced by the company’s efforts to clarify any misimpression about alleged meetings with employees. In the initial Wall Street Journal story, a company spokesperson said that any direction to employees as to how to vote was unauthorized, and the company immediately followed with an e-mail to managers reminding them that such statements are contrary to company policy. The three Democrats, however, thought the allegations concerning the oral statements merited investigation. Following the tie vote, the Commission voted to close the matter.

This case marks the second time in just the past few months that the Democratic Commissioners have been on the losing end of a vote to investigate allegations of coercion. More importantly, the case underscores the value of prompt corrective measures in mitigating FEC action.


The SEC is expected to propose new rules that would bar investment advisors from managing state pension funds if the advisors or certain of their employees make campaign contributions to officials or candidates for public office. The new pay-to-play rule, which was previously considered but not adopted in 1999, could be proposed as soon as July.

The SEC rules, if adopted, would extend to investment advisors the principles of MSRB Rule G-37, which restricts campaign contributions by broker-dealers engaged in the municipal securities business. Key features of the 1999 proposal were:

  • Two-Year Time Out - This core provision prohibits investment advisors from providing or seeking work for two years if the advisor makes a campaign contribution to officials responsible for, or having influence over, the selection of an investment advisor, or to candidates for such offices. It would also be a violation to solicit such contributions from a third-party.
  • Two-Year "Look-Back" – An investor can be disqualified based on contributions made in a two-year period before a contract is awarded. The SEC suggested that this anti-circumvention measure would prompt advisors to inquire about prior contributions by potential partners and executive officers.
  • Covered Employees - The contribution prohibition would apply to the advisor's partners, executive officers, solicitors, or a PAC controlled by any of the above.
  • Registered and Unregistered Advisors – The proposed rule would apply both to SEC-registered advisors and those exempt from registration. Accordingly, the proposal would cover hedge funds, venture capital funds, and other private investment companies.
  • Recordkeeping, but no reporting – The lack of reporting obligations would distinguish the proposal from G-37. However, the required records could be reviewed by the SEC staff in the course of an investigation or examination.

Friday, May 8, 2009, 1:41 PM

FEC Stalemate Continues; New Commissioner Nominated

The Federal Election Commission remains deeply divided – a situation that is unlikely to change until new Commissioners are appointed and confirmed. That may happen soon, as President Obama announced last week an "intent to nominate" John J. Sullivan as FEC Commissioner. Sullivan is a lawyer with the Service Employees International Union (SEIU), and has worked on election administration issues.

The split on the six-member panel has been most visible in enforcement matters. In a string of cases, the three Democratic Commissioners have voted to authorize the staff to look into allegations of wrongdoing, while the three Republican Commissioners have voted to dismiss, concluding that no investigation is warranted. To open an investigation, four or more Commissioners must vote to find "reason to believe" that a violation has occurred.

One recent case involved charges of coercion based on communications between an organization's CEO and employees who had stopped making payroll deductions to an associated PAC. According to the complaint, the CEO expressed disappointment with employees and questioned their commitment to the organization. The complaint also alleged that managers held one-on-one meetings with subordinate employees to press them to resume making contributions. In a published statement, the two Democratic Commissioners stressed that the right to decline to contribute to a political cause deserves as much protection as the right to contribute to a political cause of one's choice. The two Commissioners decry the decision to drop the matter and strongly imply (correctly, we think) that in prior years the complaint would have been investigated.

The FEC also continues to deadlock over whether to investigate activity by 501(c) organizations. In two recent cases involving 501(c)(4) groups, American Future Fund and Protect Colorado Jobs, Commissioners split along party lines over whether to investigate allegations of corporate spending in congressional races.

A third matter involved allegations that a 501(c)(6) organization, Americans for Job Security, Inc., spent over $17 million dollars on a political ad campaign. Complaints filed with the Commission charged that this group failed to register and report as a political committee, and accepted contributions in excess of federal limits and from prohibited sources. In a written statement that may reflect some of the ire felt over these issues, Republican Commissioners questioned the truthfulness of the public interest group that complained about this matter and chided their own lawyers for failing to acknowledge the "checkered history" of the Commission’s regulation concerning express advocacy. These recent dismissals appear to expand the opportunities for non-profits to operate outside of the FEC's jurisdiction, and they depart significantly from principles applied by the Commission in aggressively pursuing 527 groups after the 2004 campaign.

It is by no means certain that new FEC Commissioners will be confirmed anytime soon, even if the President announces additional appointments. When new Commissioners do come on board, however, it will be interesting to see what weight they give to some of these recent rulings and whether the regulated community is safe in relying on them.


In the immediate aftermath of the arrest of former Illinois Governor Rod Blagojevich, then Lt. Governor (and now current Governor) Pat Quinn established a Reform Commission that was given 100 days to propose changes to the state's ethics and election laws. At the end of April, the Commission issued its report, which called for comprehensive changes in the areas of campaign finance and procurement law, as well as more transparency and tougher enforcement mechanisms.

The report was highly critical of the state's "disclosure-only" campaign finance system, which now requires only semiannual reporting of campaign contributions and imposes no limits on individual or corporate contributions. If enacted, the recommendations would represent a significant departure from Illinois' freewheeling political ways. Among the recommended campaign finance reforms are:

  • Limit political contributions from individuals to $2400 per candidate, and from corporations, unions or PACs to $5000 per candidate.
  • Ban political contributions from lobbyists, and extend the state's pay-to-play law to cover contributions to legislators.
  • Mandatory "real time" reporting of political contributions exceeding $1000 to statewide candidates within five days of receipt.
  • Mandatory reporting of bundled contributions exceeding $16,000 and disclosure of the identity of the bundler.
  • Mandatory disclosure of independent expenditures exceeding $5000 that are made in support of a candidate
  • Establish a pilot program for public financing of judicial elections in 2010, as a possible precursor to expanding the program to statewide and legislative elections.

Consideration of these measures now moves to the General Assembly. It remains to be seen whether the state legislature will enact these or similar recommendations, or try to dodge the bullet altogether. But given that one former Illinois governor is currently in prison and his successor was impeached and is under federal indictment, the time for change may have come to the Land of Lincoln.


The Pennsylvania Supreme Court on April 30 invalidated a ban on campaign contributions by persons associated with the licensed gaming industry. The court found that the state's ban on all contributions whatsoever by gaming industry licensees, applicants, and their owners, officers, and directors was not narrowly tailored to achieve the legislature's stated objective of eliminating corruption (and its appearance) as a result of large campaign contributions. The court strongly implied that lower limits on gaming interests would have survived a constitutional challenge.

The case is significant for a couple of reasons. One, the Court acknowledged the authority of the state legislature to limit contributions based on concerns about corruption and the appearance of corruption. Pennsylvania is one of just a few states that imposes no limits on individual contributions. Two, the ruling suggests that laws in other states that ban or restrict contributions by public contractors (so-called "pay-to-play" laws) may be constitutionally vulnerable if the restriction on campaign contributions goes beyond the asserted governmental interest.


In the midst of the gloomy economic news, it seems that spending is not trending down in all areas. The FEC has reported that in the 2007-08 election cycle, PACs raised $1.2 billion, an increase of more than 10% over the prior election cycle, and contributed $412.8 million to federal candidates, an increase of 11%. But those increases were dwarfed by the spike in independent expenditures by PACs in support of federal candidates. In 2007-08, PACs made $135.2 million in such expenditures, a 250% increase over 2005-06 and a 100% increase over the last Presidential cycle (2003-04).

With PAC coffers on the rise, it is no coincidence that the FEC also recently reminded PACs of the importance of adopting internal controls to insulate themselves from liability in the event of a misappropriation of funds. PACs that operate within the "safe harbor" created by the FEC - which include practical safeguards such as mandating in PAC bylaws that two signatures are required on all PAC checks over $1000 - will not be subject to civil penalties for filing incorrect reports due to the embezzlement of committee funds. PACs would be wise to take stock of their financial controls now and ensure that they satisfy the FEC's safe harbor provisions.

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