Appeals Court Upholds Hawaii Corporate Disclosure Rules and Pay-to-Play Law

Last week the U.S. Ninth Circuit Court of Appeals upheld key provisions of Hawaii’s campaign finance laws requiring a for-profit company making campaign contributions and expenditures to register as a political committee, and prohibiting government contractors from contributing to state legislators and candidates.

Broad Implications for Companies and Nonprofits Participating in Hawaii Elections

Hawaii requires entities to register and report as noncandidate committees when they have “the purpose of making or receiving contributions, making expenditures, or incurring financial obligations to influence [elections] over $1,000 in the aggregate for an election cycle.”  A-1 A-lectrician, a for-profit corporation that in 2010 contributed over $50,000 to Hawaii candidates and party committees, and spent more than $6,000 on political advertisements, challenged these requirements.  It argued that registration and reporting should only be required of entities with “the primary purpose” of political activity rather than an organization that has “the purpose” to engage in political activity.

The Ninth Circuit rejected A-1’s argument, reasoning that the $1,000 threshold ensures that the reporting and disclosure requirements will not apply to organizations engaged in only “incidental” political activity.  Large organizations, the court noted, may spend only 1% of their funds on political activity and have many other important purposes – but this small percentage may amount to tens or hundreds of thousands of dollars. As the court glosses over, however, there is a big difference between making hundreds of thousands of dollars in contributions and contributing just over $1,000, which is the threshold for registration.

This ruling has broad implications for any company or nonprofit making contributions or expenditures in Hawaii. Although the court left open the possibility that the law may be unconstitutional as applied to an organization engaged in less political activity than A-1, many companies and nonprofits face burdensome state disclosure requirements for relatively modest amounts of political spending. In addition to registering, such companies or nonprofits must file reports disclosing contributions received, contributions made to candidates, political expenditures made, and other financial information.

Hawaii’s Pay-to-Play Law Also Upheld

A-1 also challenged Hawaii’s pay-to-play law on the basis that it prohibits a contractor from contributing to legislators or candidates who will neither award nor oversee state contracts. The court rejected this argument, reasoning that the legislature as a whole deals with procurement matters and that it would be very difficult for a contractor to determine whether a particular officeholder or candidate will become involved in a contract award or oversight process.

This is the second Federal appeals court to uphold contribution restrictions on government contractors, commonly known as pay-to-play laws.  While judicial rulings after Citizens United have tended to loosen restrictions on campaign finance laws, legal challenges to state pay-to-play laws have not fared well.  As such, pay-to-play laws continue to pose compliance challenges for companies that do business with government agencies and for their politically-active officers, directors, and other principals who may also be subject to these laws.

Maryland Changes Rules Again on Political Contribution Disclosure by Government Contractors; Lobbyist-Employers Also Affected

Following a major rewrite last year of its “pay-to-play” disclosure rules, Maryland has made further changes that expand the obligations of state and local government contractors to report their political contributions, and those of their subsidiaries, officers, directors, partners, and PACs. Now, in addition to reporting direct contributions to candidates, contractors will also have to disclose contributions made to independent expenditure groups and political parties that are “for the benefit” of covered candidates. The new law also changes reporting deadlines, and clarifies that companies holding state or local contracts awarded prior to January 1 must file disclosure reports until performance is complete.

The contribution disclosure requirements for lobbyist-employers will also change so that the two disclosure regimes mirror one another.

These new changes take effect on June 1, 2015, just five months after the last round of changes and the rollout of a new online reporting system.

Key features of the new law include…

First Quarter LD-2 Reports Deadline Approaching

deadlineFirst quarter lobbying disclosure reports are due on Monday, April 20. This report, the LD-2, is where organizations report their expenses for federal lobbying efforts. The first quarter of a year is often a good time to evaluate your organization’s recordkeeping and processes for filling out the report and to determine what changes may need to be made. Keep in mind these key aspects of preparing the report:  Continue Reading

Welcoming a New Member of the Team

McConnellWe would like to welcome Julie McConnell to our political law team at Venable. Julie served as Assistant General Counsel in the Enforcement Division of the Federal Election Commission, and most recently in the Inspector General’s office at the Department of Justice. Julie has significant experience with government investigations involving high-level misconduct, bribery and illegal gratuities, and violations of federal ethics and campaign finance laws.

Watch Our New Compliance Webinar

We recently hosted a webinar on political compliance in the new election cycle. With the first criminal prosecution of a coordination case, changes in state ethics laws, and new disclosure requirements, we provided information you need to engage in political activities while staying compliant.

The slides are also available, and the following publications may be of help as well:

The Big No: Reimbursing Contributions

moneyhandsOver the last few years, the courts have loosened campaign finance laws and the agency charged with enforcing them is frequently gridlocked. However, one campaign finance violation that can still get you in big trouble is reimbursing contributions, particularly when the reimbursing is done by a corporation.

In settling a recent enforcement matter involving the Fiesta Bowl, the Federal Election Commission (FEC) obtained fines of nearly $100,000 from the corporation and the CEO and restitution by the CEO of over $60,000. A parallel criminal case resulted in guilty pleas that landed the former CEO in jail for eight months, community service for one executive, and two years of probation for another (who would have also faced a $15,000 penalty from the FEC, but she was able to demonstrate an inability to pay).

The case is not really new – the settlements occurred in 2012 and 2013 – and the FEC has yet to release the documents on its website, but the organization that filed the complaint with the FEC made them available to the public. The documents show a scheme that the FEC says included:

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Please Join Us: WEBINAR – Ramping up for the 2016 Cycle: Make Compliance a Priority for Lobbying and Political Activity

Ramping Up for the 2016 Cycle Make Compliance a Priority for LobbyingThursday, March 26, 2015
1:30 p.m. – 2:30 p.m. ET – Webinar

The Justice Department recently announced its first criminal prosecution for coordination. States like Virginia are revamping their ethics laws and California recently imposed new restrictions on lobbyists. Although the IRS has yet to issue regulations for 501(c)(4)s, many states have created new disclosure requirements for politically active nonprofit groups. Maryland has imposed tough new disclosure requirements on state contractors that make campaign contributions.  Continue Reading

Back to the Future: FEC issues regulations for Citizens United

b2tfIn January 2010 –  as almost everyone already knows by now – the Supreme Court struck down major portions of campaign finance laws, allowing corporations to make independent expenditures in support of, or opposition to, candidates for federal office. Super PACs that could accept unlimited individual and corporate contributions soon followed based on lower court decisions.

Interestingly, the FEC never changed its rules to implement the Court’s decision. Pick up the Code of Federal Regulations from 2011, 2012, 2013, or 2014 and you will find very clear statements that corporations may not make independent expenditures or electioneering communications.

At long last, in October of last year, the FEC got around to making some changes to its regulations to account for Citizens United. They became effective on January 27, 2015, but the FEC just released the notice setting the effective date. You can now read in the regulations something that has been true for five years: “A corporation or labor organization may make independent expenditures or electioneering communications.”

Not Homeward Bound: California Lobbyists Barred from Hosting Fundraisers in their Homes

California’s ethics watchdog, the Fair Political Practices Commission, adopted a new rule that prohibits lobbyists from hosting fundraisers in their homes. This rule implements legislation passed after a lobbyist was fined for hosting what the LA Times called “lavish fundraisers” featuring “wine, liquor, and cigars,” in his home. Lobbyists in California are prohibited from making campaign contributions, but the statute previously exempted from the definition of a “contribution” the use of one’s home for a campaign event, along with$500 for food and drink. The legislation eliminated this exemption, providing that any “payment made by a lobbyist or a cohabitant of a lobbyist for costs related to a fundraising event held at the home of the lobbyist, including the value of the use of the home as a fundraising event venue,” is now a contribution.

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Justice Department Brings First Criminal Case for Campaign, Super PAC Coordination

HandcuffsThe U.S. Department of Justice has announced the first criminal prosecution for a violation of federal laws prohibiting outside groups from coordinating their activities with the candidates and campaigns they support.

The six-member Federal Election Commission, which is primarily responsible for interpreting and enforcing federal campaign finance laws, has deadlocked repeatedly over whether to investigate complaints of coordination. But with this announcement, the Justice Department, which may pursue knowing and willful violations of the same laws, has stepped into the breach.

In the plea agreement, a Virginia-based political consultant admitted serving as campaign manager for a U.S. candidate for Congress, while at the same time operating a Super PAC that spent $325,000 on ads attacking that candidate’s opponent. No one else has been charged in the case. Interestingly, there is no indication in the charging documents that the candidate knew about the work the consultant was doing for the Super PAC. However, the coordination rules apply not just to candidates, but also to their staff, and in some circumstances, their volunteers.  Violations may be established even if the candidate is unaware of a representative’s unlawful activity.  Continue Reading

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