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Tuesday, December 8, 2009, 10:10 AM

New Year, New Scrutiny: Act Now To Protect Company From Auditors, The Media, And Others Who Are Reading Your Disclosure Reports

In the rush of year-end deadlines and holiday preparations, it's easy to let next year's lobbying, campaign finance and pay-to-play deadlines wait until – well, next year. A little advance planning, however, can avoid unpleasant questions later in the year from government auditors, the media, watchdog groups and your competitors – all of whom may be scrutinizing your disclosure reports.

Here are some important deadlines that come early in the New Year:

  • Companies that employ one or more federal lobbyists must certify, by January 30, that no one in the organization has made a "gift" on behalf of the company (or been reimbursed for a "gift") to a Member of Congress or congressional staff. This certification should be supported by a survey of office or division heads, periodic training on congressional ethics rules, and appropriate policies and procedures.
  • The January 30 report must also disclose contributions to organizations with ties to Members of Congress or senior executive officials. These include payments for events that honor Members of Congress and covered executive branch officials, and payments to organizations that they finance or control. A comprehensive survey of office heads is essential due diligence for this disclosure requirement.
  • Individual lobbyists must separately certify compliance with gift rules and disclose personal contributions. Do you have a system for pre-approving political contributions and other reportable disbursements by your employee-lobbyists? Bear in mind that these disbursements can reflect on the company, and can trigger questions from the media and other observers.
  • Lobbyist-employers must also file a quarterly report on January 20, disclosing issues and agencies lobbied, and accounting for lobbying expenses. This accounting must include time spent behind-the-scenes by non-lobbyist employees, certain meetings between senior executives and covered government officials, and other disbursements. In addition, once a year, each lobbyist-employer is free to revisit the system it uses to calculate lobbying expenses. This reassessment can have a significant impact on the amount disclosed.
  • Some states with pay-to-play laws require companies that do business with state agencies to report political contributions made by the company, its officers and covered employees. Maryland and Pennsylvania contractors must file detailed reports in February, and New Jersey contractors must file reports in March. Advance planning is critical to ensuring that you collect all required information.
  • A bit of planning can also be helpful in making political contributions. Many state legislatures are in session in the early months of the year, a period when political contributions may be restricted or prohibited.
  • The FEC allows federal PACs to change their reporting schedule once each year. Making a change in January can simplify your PAC’s reporting obligations for the rest of the year.
  • Finally, many state lobbying registrations expire at the end of the year. It is important to review whether appropriate employees are registered and, where appropriate, renew your registration. Note that major changes in lobbying laws go into effect in Illinois and Massachusetts, both of which are discussed below.

New Ethics Rules in the Bay State for 2010

And speaking of the New Year. . . . Massachusetts' new ethics, lobbying and campaign finance reform law takes effect on January 1, 2010. The new law expands the definition of a lobbyist to include persons who are paid for "strategizing, planning, and research" related to communications with government employees. It also lowers the activity time and dollar thresholds that trigger lobbyist registration obligations, and clarifies that lobbyists are banned from giving gifts of any value to government officials or employees. In the area of political advocacy, the new law requires disclosure of expenditures and funding sources for third-party mailings and ads that support or criticize a candidate or campaign.

It's important to note that the Massachusetts law increases penalties for civil and criminal violations of the state's bribery, ethics and lobbying laws. Criminal penalties for bribery can be as high as $100,000 and 10 years in prison, with civil penalties as high as $25,000. A violation of the lobbying and ethics rules can result in a sentence of five years in prison and a penalty of up to $10,000.

Illinois: The Rubik's Cube of Political Regulation

For Illinois lobbyists, state contractors and campaigns, 2009 has been an enormous compliance challenge. The year began with the adoption of one of the country's strictest pay-to-play laws, which prohibits political contributions by certain government contractors and their principals, and requires contractors to file and update registration reports under penalty of perjury. During the year, two state agencies issued rules interpreting the pay-to-play law, an executive order was signed and later rescinded, and the law itself was amended late in the year, with changes to take effect in July 2010. Illinois also overhauled its campaign finance laws, with new limits taking effect in January 2011.

More change is on the way in January 2010, when the state's new lobbying law takes effect. The new law adds compliance burdens for individual lobbyists and the organizations that employ them. The law requires registered lobbyists to:

  • Certify under oath the accuracy of their lobbying reports and pay higher filing fees
  • Itemize all expenditures, no matter how small (eliminating the $100 reporting threshold)
  • File weekly lobbying reports while the legislature is in session, and monthly reports at all other times (Semi-annual filing schedule is eliminated)
  • Take ethics training

The new law also increases the risks to lobbyists and their employers. Lobbyists are subject to a $10,000 fine for each day that a report is late. The Secretary of State Inspector General is also empowered to investigate violations of the lobbying law, pursuant to allegations received from any member of the public.

Pay-to-Play and State Pension Funds: Scrutiny of Placement Agents Continues

In recent weeks, the California Public Employees Retirement System (CalPERS) tightened disclosure rules for "placement agents" – middlemen who help investment managers obtain business from state pension funds and who have been at the center of pay-to-play investigations across the country. The new policy requires the disclosure of a placement agent’s identity and role in securing business, the identities of current or former CalPERS board or staff members who suggested hiring the agent, and the immediate reimbursement of any fees paid to the agent if the policy is violated.

The new disclosure policy did not, however, go as far as CalPERS Chairman, Rob Feckner, or State Treasurer, Bill Lockyer, would have liked. They unsuccessfully backed a proposal to require placement agents to register with the state Fair Political Practices Commission as lobbyists, and be subject to state disclosure and ethics obligations. While they failed to get the support of the 13-member board, Mr. Feckner directed the CalPERS staff to pursue legislation to achieve this goal.

Meanwhile, CalPERS is looking into its dealings with California equity fund, Markstone Capital Partners, whose chairman, Elliot Broidy, pleaded guilty last week to charges that he helped his firm obtain a $250 million investment from New York State’s public pension fund by making $1 million in illegal gifts to state officials.

New Jersey Search Engine Will Spur Enforcement of Pay-to-Play Laws

New Jersey's pay-to-play laws are notoriously complex. Through state law, a series of executive orders and approximately 150 municipal ordinances, bidders and contractors are severely restricted in terms of money they can raise for candidates or contributions they can make. These restrictions can affect state and local contracts, and apply to a company's owners, officers, and senior executives, as well as their family members. New Jersey has not shied from enforcing its law, either. The State has disqualified a number of bids, costing companies tens of millions of dollars in government business.

Last month the state election commission announced that campaign donations to municipal candidates are now in searchable form on the agency's website. There is little doubt that the media and watchdog groups will scour these records to see if any covered person from a bidder or contractor has made a prohibited contribution. We also expect competitors to make increasing use of the database, as evidenced by a recent lawsuit filed by one company to disqualify a competitor for a pay-to-play violation.

Larry Norton Named “Top Lawyer” In Washingtonian Magazine, Will Speak At Conference Sponsored by Women in Government Relations

Larry Norton was named in the December 2009 issue of Washingtonian Magazine as a "top lawyer" in the field of election and ethics law.

Larry is speaking on Friday, December 11, 2009, at the Women in Government Relations "PACs, Politics & Grassroots Conference." The event will be held at the Washington Court Hotel in Washington, D.C. Larry will talk about legal issues involved in lobbying the Obama Administration.

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