Maryland Pay-to-Play Report Deadline Approaching as New Rules Take Effect

Maryland has had a pay-to-play law for many years, which requires government contractors to register and file reports concerning political contributions to state and local candidates. Since 2015, the law has been in a state of flux as legislators and regulators have written and re-written the requirements, creating a complex reporting system.

The law is triggered when a business receives a contract from a Maryland state or local government body with a total value of $200,000 or more. The parent company of the business holding the contract must register with the State Board of Elections, and then keep the registration up to date with new contracts it and its subsidiaries receive. Every six months, the parent company must disclose certain contributions made by it and each of its subsidiaries, as well as contributions by each of those entities’ officers, directors, and partners. In addition, it must disclose contributions made by other individuals, such as employees and lobbyists, if they make contributions at the “direction or suggestion” of these officers, directors, or partners.

With the next report due Wednesday, November 30, covering the period from May 1 through October 31, it is a good time to review some of the most recent changes.

Extended Registration Deadlines

The State Board of Elections has extended the deadline for a filer to update its registration statement to include a new contract.

  • Contracts with the same jurisdictions: If any additional contracts are awarded from a jurisdiction with which a filer already has a registered contract, the filer has 30 business days to update the registration statement to include the new contract. 
  • Contracts with new jurisdictions: If a contract is awarded by a jurisdiction in which the filer does not hold a registered contract, the registration must be updated within 15 business days of the award to reflect the new contract. Additionally, the filer must submit an “initial report” within 15 business days of updating the registration, disclosing contributions made to (or “for the benefit of”) officials and candidates for office in that jurisdiction in the preceding 24 months.

Suggesting that Someone Make a Contribution

Under the new regulations, a communication to an employee, agent, or other affiliated person is considered a “suggestion” for a contribution if a reasonable person would understand it that way. The Board of Elections provides the following examples to help guide that determination:

  • If the filer, or an officer, director, or partner of the filer, forwards an email containing a fundraising solicitation to an employee or agent (e.g., a state lobbyist), a contribution that results from this “suggestion” must be reported by the filer.
  • An expression of public support – on social media, for example – is not, by itself, considered a “suggestion” for a contribution, and thus contributions made in response to such postings do not have to be reported.

Thus, officers and directors must be very careful about fundraising from employees, company lobbyists, and others. Simply forwarding an email containing a fundraising invitation can significantly expand the number of reportable contributions.

CEO’s Duty to Request Information from Covered Persons

In order to complete the report, the law requires a filer’s CEO, or his or her designee, to ask covered persons if they have made any covered contributions during each reporting period and obtain information about the date and amount of the contributions. Although the law does not impose a specific date by which the request for information must be sent, covered persons must provide information to the filer within 5 business days after a reporting period ends. For the upcoming report, the CEO or designee must request that covered persons provide the necessary information by November 7, 2016 (covering the period from May 1 – Oct 31).

If a filer requires that covered persons must preclear contributions through a corporate legal or compliance department, no separate notice is required. The preclearance policy must be in writing and annually reviewed by covered personnel.

A filer may also dispense with notice to officers, directors, partners, or employees of a subsidiary if (1) the subsidiary does not hold contracts in Maryland; (2) the subsidiary has “a written and well-publicized policy” prohibiting contributions in Maryland, which is annually reviewed by covered personnel; and (3) the filer annually submits the policy and related information to the Board of Elections. This written policy will be available to the public, but the Board of Elections has not yet determined whether it will be posted online.

If you need any assistance determining your obligations under these rules or filing reports, the Venable Political Law Practice can be of assistance. For more information on developments in federal and state campaign finance, lobbying, and ethics laws, please visit Venable’s Political Law blog at www.PoliticalLawBriefing.com.

An Audit of the Justice Department’s FARA Program: Increased focus on registration likely, but what about criminal prosecutions?

The Department of Justice Inspector General’s (IG) office recently released a highly critical audit of DOJ’s Foreign Agents Registration Act of 1938 (FARA) enforcement program. The audit, combined with recent news stories potentially involving FARA, may foreshadow an increased awareness of this sometimes overlooked registration requirement. But increased attention likely does not mean an increase in prosecutions, at least based on DOJ’s initial response to the audit.

Background on FARA

FARA is a federal criminal statute requiring certain persons acting on behalf of foreign principals to register and file periodic reports with the Department of Justice. The law requires any agent of a foreign principal to register with DOJ within ten days of engaging in political or quasi-political activities. These include activities such as lobbying, public relations, and direct or indirect political activities. FARA also requires foreign agents to file copies of informational material disseminated on behalf of a foreign principal to two or more persons with DOJ within 48 hours of their dissemination.

Persons required to register must provide DOJ with information on the nature of their relationship with the foreign principal, the work to be performed for the foreign principal, and, on a semi-annual basis, a report of the activities performed on behalf of the foreign principal and funds received from, or disbursed on behalf of, the foreign principal. Penalties for failing to comply with FARA can include a fine of $10,000 or imprisonment for up to five years.

Key points from the audit

The IG’s audit was especially critical of DOJ’s failure to prosecute FARA cases. In particular, the audit focused on the high proportion of new registrants who fail to file within the required ten-day period. In its review, the audit found that only 23% of new registrants filed timely registrations. In addition, materials disseminated on behalf of foreign principals were filed within the required period only 39% of the time, and almost half lacked a proper disclaimer (explaining that the agent is disseminating the information on behalf of a foreign principal).

The IG audit called on DOJ to improve its controls and oversight of FARA registration. Does this mean that a crackdown is in the works? Probably not. In response to the IG’s findings, DOJ pointed to several reasons why stricter enforcement is neither likely nor warranted:

  1. There is no penalty for late filings;
  2. At least half of the filings that were considered late (beyond ten days) were filed within 30 days (it appears even DOJ has a grace period); and
  3. According to DOJ, “the primary means of achieving FARA’s main purpose of transparency is through voluntary disclosure in compliance with the Act.”

Takeaways

Criminal enforcement of FARA, except in the case of a willful violation, will probably continue to be rare. However, DOJ appears to be developing tools to monitor more effectively whether the public is complying with FARA. For example, DOJ is expanding its efforts to identify potentially non-compliant registrants. The Audit confirmed that DOJ had limited itself to web searches or research on LexisNexis, but that it now is reaching out to other government agencies to obtain information about potential non-filers. DOJ also indicated that it will seek to make its FARA advisory opinions available to the public, perhaps as early as March 2017.  These opinions will provide further insight into how DOJ is approaching FARA registration.

With renewed focus on FARA, and DOJ’s indication it will expand its voluntary compliance efforts, we expect to see an uptick in the FARA Registration Unit’s activities, including more letters to violators seeking voluntary compliance.

The best way to avoid being caught in a Justice Department audit is by taking FARA seriously and implementing a compliance program. Here are three best practices:

  1. Know who pays your bills — FARA covers direct and indirect activity by foreign principals, so be sure to perform adequate due diligence before you engage in political or quasi-political activity.
  2. Take advantage of the Lobbying Disclosure Act exemption — If you lobby on behalf of a foreign private sector principal and are registered under the LDA, you are exempt from FARA requirements. Not only are the registration and reporting requirements under the LDA easier to comply with, it’s also cheaper to register under the LDA (no fee) compared with FARA ($305 for each foreign principal). Note that this exemption does not apply to agents of a foreign government (or a foreign government-controlled entity) or to a foreign political party.
  3. Seek guidance — For now, DOJ’s FARA advisory opinions are not readily accessible, and the law is arcane and unclear in many respects. To avoid getting into hot water, seek legal guidance on the front end of your engagements with foreign principals or foreign-controlled entities.

California Cracking Down on Lobbyist Registrations

United States and California flagsThe Fair Political Practices Commission – the agency responsible for administering and enforcing California’s campaign finance and lobbying laws – has unanimously approved a rule change intended to force more consultants to register as lobbyists and strengthen the agency’s hand in enforcing state lobbying laws. The rule will take effect September 16, 2016.

FPPC chair Jodi Remke has called this the “first step” in cracking down on “shadow lobbying,” and has indicated that the agency intends to focus on lobbying compliance in the coming year.

California lobbying law recognizes two types of lobbyists: in-house lobbyists, who lobby on behalf of their employer, and contract lobbyists, who lobby for a client. This change affects only contract lobbyists.

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New York’s Campaign Finance and Lobbying Reforms Become Law

new-york-1590175_640New York Governor Andrew Cuomo finally signed his administration’s signature political law reform bill last week, on August 24, 2016. The bill passed out of the New York legislature earlier this year and will have a significant impact on state-level Super PACs, nonprofit organizations involved in lobbying efforts in New York, and political consultants, in particular.

The bill’s provisions affecting Super PACs will be effective 30 days after the signature date, meaning that the new law will now be in place for the November general elections and many of the new lobbying-related disclosures will take effect before the next legislative session. It remains to be seen, though, how quickly the New York state agencies tasked with enforcing and implementing the new law will develop the forms for the registrations and reporting now required under the law for New York Super PACs, political consultants, and nonprofit organizations.

Interestingly, before it was signed, the bill drew criticism over the donor disclosure requirements that it imposes on nonprofit organizations such as 501(c)(4) social welfare organizations and 501(c)(3) charities that are engaged in lobbying and other issue advocacy in New York. These provisions could be the subject of a lawsuit on constitutional grounds, which would further delay their impact.

For more details on the major changes under the new law, please see our earlier coverage of the bill.

 

 

 

When the Convention Parties Are Over: How Public Charities Can Be Involved in the 2016 Elections and Talk about the Issues

Many issues important to public charities are addressed in the platforms adopted by the political parties. As Republican, Democratic, and Libertarian parties wrap up their conventions and the Green Party meets this week, charities are asking how they can talk about the issues raised in the platforms. Charities can advance their position on the issues that they had been advocating before the platforms were adopted; however, they should consider carefully whether to opine specifically on the positions of candidates and the political parties.

Section 501(c)(3) of the federal tax code strictly prohibits all charities from engaging in activities to support or oppose candidates for public office. However, public charities, in particular, can advance public policy goals—many involving specific legislative solutions that are in the platforms.

The Internal Revenue Service (IRS) and, ultimately, the courts evaluate whether a charity improperly engages in candidate campaigns by considering the context. Could the charity’s statements about policy and candidates or political parties reasonably lead an audience to believe the organization has an opinion on the candidate or party? Facts and circumstances are considered in the context of the statement and the issue.

In considering the statement:

  • Does it identify one or more candidates or parties or express approval or disapproval for positions of a political party platform or candidate?
  • Is it delivered close in time to the election or make reference to voting or the election?
  • Is the timing of the statement instead linked to a specific legislative action by an officeholder who happens to be a candidate?

In considering the issue addressed in the statement:

  • Has the position on the issue been raised to distinguish between parties or candidates?
  • Is the issue part of an ongoing series of communications by the charity on the same issue without regard to the election?

There is a safe zone for a charity that has previously advocated for a policy position that later becomes a political party platform issue or the subject of a candidate’s position.

A charity can:

  • Use earned and paid media to advocate for the charity’s position on an issue;
  • Call for all candidates and parties to support the charity’s position without calling out particular parties or candidates or mentioning the positions they’ve already taken;
  • Send materials to all candidates and party leaders to educate them about the charity’s issues;
  • Invite all candidates in a race to meet with charity leaders to discuss the issue and visit the charity’s facilities or work projects; and
  • Ask its members or the public to educate all candidates on the charity’s issues.

Charities should take care when:

  • Inviting a current officeholder who is also a candidate to a public event of the charity;
  • Naming an officeholder in paid advertising who is up for election, because of federal and state election laws that regulate campaign speech and may be triggered, requiring disclosure and other requirements close in time to the election;
  • Holding panel discussions or debates with candidates; or
  • Providing an “open forum” on social media about issues without careful monitoring or control of comments posted.

Charities should avoid:

  • Publicizing the positions of political parties and candidates on issues on which the charity has taken a position; and
  • Holding debates or developing voter guides limited to a small set of issues, such as environmental topics, on which the charity has taken a position.

Planning and Executing Activities Involving the Candidates, Parties, and Their Positions

Many activities—such as debates, voter guides, and voter registration—can also be considered by a charity on a broad range of issues of interest to the public. The key is to remember that these activities must be nonpartisan, and not favor one candidate over another. In addition, charities should consider their underlying mission and determine whether activities like general voter education are reasonably part of the chartered purpose of the charity.

Unfortunately, the line between prohibited and permissible activities for a 501(c)(3) organization is murky and can easily be crossed if not properly managed. Careful planning, clear communication about the limitations of all involved, and control in executing the activity are critical. Now might be a good time to review the rules that will help your charity stay on the right side of the line while involved in the process.

If done correctly, 501(c)(3) organizations can:

  • Help register voters;
  • Conduct get-out-the-vote activities;
  • Publish voter guides on a broad range of issues of interest to the public;
  • Create candidate questionnaires on a broad range of issues of interest to the public;
  • Host candidate appearances that are not debates;
  • Host debates on a broad range of issues of interest to the public;
  • Conduct issue advocacy;
  • Allow leadership and staff (on their own time) to be politically active; and
  • Create an affiliated organization to engage in political activities that they cannot.

Continue reading for more information on prohibited intervention and permissible activities.

A Tale of Two Vice Presidents: Pay-to-Play and the Running Mates

dollar signIt was the best of times, it was the worst of times. For investment advisers and others subject to the pay-to-play rules, that is. Although both vice presidential picks have gubernatorial experience, because Mike Pence is a sitting governor and Tim Kaine is a former governor, there are certain pay-to-play rules that apply to contributions to Trump/Pence that do not apply to Clinton/Kaine. Thus, the Pence pick has important implications for many companies and firms engaged in the financial services industry.

As reported by various news outlets, Governor Pence’s role with the Indiana Public Retirement System subjects contributions to the Trump/Pence ticket to the SEC’s and other pay-to-play rules. Violations of these rules can carry significant penalties. And the shadow of the pay-to-play fundraising restrictions has even caused some to speculate that Pence should resign as governor.

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Copyright Tips for Political Campaigns and Their Consultants

No CopyrightsWhat do the campaigns of Sarah Palin, John McCain, Ted Cruz, Donald Trump, Newt Gingrich, Rand Paul, Ralph Nader, Ronald Reagan, Mike Huckabee, Barack Obama, and Mitt Romney all have in common? They have all faced claims of copyright infringement for their use of music or other works of art.

Candidates—and outside groups supporting or opposing them—often do not pay much attention to the copyright laws that apply to their activities, and sometimes use other people’s copyrighted works without obtaining the necessary licenses. For example, candidates use popular songs at rallies and campaign events and in YouTube videos and other online advertisements, without getting the required consent or license from the musician, songwriter, or performing rights societies. And sometimes they will use photographs or artwork and incorporate them into TV ads, digital ads, mailers, and emails, without obtaining, or making sure their contractors have obtained, the necessary permissions, consents, or licenses from the artists whose work they are using.

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The FEC Levels Fines on Nonprofits over Donor Disclosure

The question of when a politically-active, nonprofit 501(c)(4) group must publicly disclose its donors has been on the front burner in various states—most, like New York and California, have called for greater regulation, while others like Arizona have loosened the reins. At the federal level, silence has been the norm because the statute is generally read as only requiring disclosure by a 501(c)(4) (or other nonprofit such as a 501(c)(6)) if a donor contributes for the purposes of funding a particular ad. The FEC has consistently deadlocked on complaints alleging either that a donor gave for the purpose of supporting an ad or that a 501(c)(4) should be treated as a political committee and disclose all of its donors.

Last week, however, details were released from an FEC enforcement matter that met this stringent test and, as a result, the Commission levied fines totaling $233,000 against three nonprofit groups for failing to identify donors behind specific advertisements. These three settlement agreements, released as a group, provide significant guidance to nonprofit 501(c)(4)s and other actors as to what type of conduct will trigger donor disclosure at the federal level.

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New Mandatory IRS Notification Process for 501(c)(4) Nonprofit Organizations Finally Announced

tax forms and notesA substantial number of organizations exempt under Internal Revenue Code (Code) § 501(c)(4), and their individual officers and directors, may be subject to financial penalties if they do not file a Form 8976, Notice of Intent to Operate Under Section 501(c)(4), with the Internal Revenue Service (Service or IRS) on or before September 6, 2016.

On July 8, 2016 the IRS released a revenue procedure for implementing new statutory requirements for certain organizations that operate under section 501(c)(4) of the Internal Revenue Code. This requirement comes on the heels of the December 2015 enactment of the Protecting Americans from Tax Hikes (PATH) Act of 2015.

The recently released Revenue Procedure 2016-41 contains temporary regulations implementing the 501(c)(4) provisions of the PATH Act and describes the new Form 8976 and the related rules for filing it.

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Revisions to the Lobbying Disclosure Act Guidance: What These Changes Mean for You

The Lobbying Disclosure Act Guidance (Guidance) issued by the Clerk of the House of Representatives and the Secretary of the Senate was updated on June 15. The updates clarify currently existing provisions of the LDA, add additional examples, replace references to the LDA with hyperlinked citations to the U.S. Code, and remove references to Line numbers (the online reporting platform does not have Line numbers for drafting reports, but the final version of the reports available on the House and Senate websites still have Line numbers).  The Guidance is available here. A brief discussion of the changes to the Guidance is below:

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