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But, there are a lot of ways to improve PAC fundraising.

A Florida-based trade association voluntarily came forward to the FEC to disclose that it had reimbursed travel expenses for PAC contributors and was fined $9,000. The FEC found that the group developed a schedule for reimbursing travel expenses based on the amount given or pledged to the PAC. Under that system, the association reimbursed approximately $55,000 in travel expenses over the course of four years. Because of those travel reimbursements, the FEC concluded that the association had, in effect, reimbursed the PAC contributions. As such, it made impermissible corporate contributions and contributions in the name of another.

The reimbursement formula depended on the amount given or pledged to the PAC. Those who gave $1,000 per year, would get $750 in travel for each of two meetings, or a total of $1,500 per year. $100 contributors got $150 per meeting, or $300 total. If the association had reimbursed all directors for travel regardless of PAC contributions, that would have been fine. The problem was that the reimbursements were tied to the PAC contributions.

The FEC has said that the method for reimbursement does not matter. Bonuses, expense reimbursement, etc. are all impermissible. There are, however, permissible ways to incentivize PAC giving:

  1. The organization may do a charitable match program where it contributes dollar-for-dollar to a charity of it or the donor’s choosing. As long as no one takes a tax deduction and no one receives a tangible benefit from the charity, this is permissible.
  2. The organization may hold a drawing to award prizes. The value of the prizes given may not exceed one-third the value of the funds raised. For example, if 20 people contribute $500, then the organization could give away $3,333.33 in prizes ($10,000/3). The prizes may be paid for by the connected corporation; in the case of a trade association, corporate members may donate the prizes.
  3. The organization may give gifts to each donor as long as the value of the gift does not exceed one-third of the value of the contribution. In the case of the Florida association, it could have given prizes to all contributors, but only up to the one-third limit. A $1,000 contributor could receive a two nights in a hotel valued at $333, for example (not the $1,500 the organization gave). Typically, such prizes are much lower in value than one-third (pens, mugs, etc.).
  4. The organization may host a reception or dinner for all PAC donors. The one-third rule does not apply to food and beverage. It does apply to entertainment, so the cost of a band or a sporting ticket would have to fit within the one-third rule. Companies often reward PAC contributors with receptions with senior management.
  5. There are many ways to encourage PAC giving, but they must comply with the FEC’s rules and not cause the organization to reimburse the contributions. Unless an incentive fits into the one-third rule or other exemption, any financial or tangible benefit given by an organization to its members, employees, or others in exchange for making a PAC contribution will likely be viewed as an unlawful reimbursement of that contribution.

Given how carefully these rules are followed, this enforcement case is a good example of why periodic compliance audits are a good idea. The “off year” before an election is often a good time to do that.

executive orderAt the National Prayer Breakfast earlier this year, President Trump vowed: “I will get rid of and totally destroy the Johnson Amendment.” The Johnson Amendment, named after former President Lyndon Johnson, refers to language in the Internal Revenue Code Section 501(c)(3) that prohibits charities, including religious organizations, from participating in campaigns on behalf of or in opposition to a candidate for public office.

The president took official action on May 4 through an Executive Order, titled “Promoting Free Speech and Religious Liberty,” that exhorts federal agencies to respect and protect “religious and political speech.” However, notwithstanding the controversy surrounding the announcement, including one organization’s threat to file a lawsuit the same day, the Order will have little practical effect, and the threat of a lawsuit was withdrawn.

Continue Reading Trump Asks IRS to Keep Hands Off Religious Nonprofits: Will It Have Any Effect?

register nowLast month the Chicago Board of Ethics made headlines when it fined former Obama administration official David Plouffe $90,000 for failing to register as a lobbyist after communicating with city officials by email.

But the story did not end there. According to the Chicago Tribune, the city’s ethics board is now looking into potential lobbying registration violations by dozens of individuals and companies. As with the Plouffe matter, these potential violations trace back to messages sent to Mayor Rahm Emanuel’s personal email accounts, which were released in response to a pair of open records lawsuits.

These developments in Chicago serve as a potent reminder of the penalties and reputational risks from ignoring state and local lobbying registration laws.

Continue Reading Chicago Crackdown on Unregistered Lobbying May Expand to Dozens of Individuals, Companies

Overview

Pay-to-play laws restrict or prohibit businesses, as well as their owners, officers, and in some cases, their employees, from making political contributions (the “pay”) if they have been awarded or are trying to obtain government contracts (the “play”). These laws, which are found at the federal, state and local levels, are an outgrowth of government contracting scandals and can strike at a company’s bottom line by disqualifying bids and voiding contracts. Violations also can result in fines, damaging publicity, and even jail.

Government contractors should have a pay-to-play compliance plan that takes into account the jurisdictions where covered owners, officers, and employees are located, and where the company does or seeks to obtain business with government agencies. In addition, contractors should have a process for training covered employees, a mechanism for pre-clearing contributions, and protocols for meeting registration and ongoing reporting requirements.

Here are a few questions to help determine whether pay-to-play laws pose a risk to your business:

  • Do pay-to-play laws apply to my business activities?
  • If so, which affiliated individuals and entities are subject to the law?
  • What are the consequences for covered individuals and entities (prohibitions, reduced contributions limits, reporting, other)?
  • What are the penalties for violating applicable pay-to-play laws?

Continue Reading Pay-to-Play Law Update: Political Activity Can Put Government Contracts at Risk

Since the Bipartisan Campaign Reform Act was passed in 2002, the Federal Election Commission (FEC) indexes contribution limits based on inflation every two years. For the first time, the FEC did not increase the individual (and non-multicandidate PAC) limit to candidates because inflation was running so low. Individuals are still allowed to give $2,700 per election to candidates. Some of the other higher limits to party committees from individuals (and non-multicandidate PACs) were adjusted slightly:

  • Individual contributions to national party committees were increased $500 from $33,400 per year to $33,900 per year.
  • Individual contributions to party accounts for presidential nominating conventions, legal and election recount expenses, and building funds were increased by $1,500 from $100,200 to $101,700 per year.

For a detailed chart of the contribution limits for the 2017 – 2018 cycle, the FEC reporting deadlines for 2017, and the federal lobbying reporting deadlines for 2017, please click here.

On January 28, 2017, President Trump signed an Executive Order that imposes an extra layer of ethics obligations on presidentially appointed members of the White House and Executive Branch.

Overall, President Trump’s Executive Order takes a somewhat different approach than the “Ethics Pledge” issued by the Obama administration, expanding some restrictions and loosening others. In general, under the Trump Pledge, the restrictions imposed on the revolving door out of the government are stricter, while the restrictions on the way in are more flexible and not as rigorous.

On the way in, President Trump’s Ethics Pledge permits lobbyists to seek and accept jobs at an agency that they have lobbied within the last two years, subject to certain recusal obligations. Other front-end changes include:

  • Waivers of the Ethics Pledge are not public, as they were in the Obama administration; and
  • Waivers are granted by President Trump himself (or his designee), not by the Director of the Office of Management and Budget, as was the case under President Obama.

On the post-employment side, President Trump’s Pledge seeks to plug a loophole in the Obama Pledge that had been widely criticized — that only “lobbying” as defined under the Lobbying Disclosure Act, was prohibited, while behind-the-scenes activity known as “shadow lobbying” was permitted. Other post-employment restrictions include:

  • The post-employment revolving door ban applies to more than just lobbying contacts; it also applies to lobbying activities, which includes research, planning, and other behind-the-scenes activities that support lobbying contacts;
  • The post-employment revolving door ban has been expanded to prohibit former officials from representing a foreign government or political party, as those terms are used in the Foreign Agents Registration Act of 1938 (this ban was also in place under President Bill Clinton);
  • Former officials are banned for a period of five years from engaging in lobbying activities related to the former official’s agency; and
  • Former officials may not engage in lobbying activities with respect to any covered executive branch official (or non-career Senior Executive Service) in the entire executive branch for the remainder of the administration.

One thing that both Obama’s and Trump’s Ethics Pledges contain is a prohibition on gifts from lobbyists — the Executive Order bars appointees from accepting gifts from registered lobbyists and organizations that employ them.

For a full comparison of both ethics pledges, please click here.

Practical Effects

What are the practical effects for individuals going into the Administration, and for their former and future employers?

Understand what Happens if a Lobbyist from your Company or Organization goes into the Administration: If a former government relations professional for your organization, or even a hired lobbyist, is appointed to a position in the Trump administration, your company or organization may be affected. For example, if your lobbyist on environmental issues receives an appointment to an EPA post, he or she may be barred from reviewing matters in which you were represented (or even entire issues that he or she lobbied on). Under the Obama administration, this was not an issue because lobbyist were banned from serving in certain capacities. But now, you may need to develop alternate strategies to accommodate the presence of former lobbyists in the administration.

Understand the Scope of the Ban in the Future: Because the five-year post-employment ban applies to behind-the-scenes activities in support of lobbying, the employment prospects for administration officials will be significantly more limited than in the past. The Pledge appears to prevent hiring a former Trump political appointee to serve as a strategic advisor for government affairs, even if that person operates in a manner that does not require registering as a lobbyist. The five-year post-employment ban also appears to bar other types of behind-the-scenes work in support of lobbying, such as research, drafting leave-behind documents, and creating issue scorecards.

Whether your organization has a seasoned government affairs program or is newly considering the opportunities presented by a change in administration, Venable’s Political Law Practice Group can help you navigate gift rules and other ethics issues that arise along the way.

gift-1420830_640With a new administration coming into office, there will be many changes in Washington. One less noticed change comes from the U.S. Office of Government Ethics (OGE) and will affect how you interact with new executive branch appointees and those career employees who stay on from the prior administration.

OGE recently published amendments to the executive branch gift rules, which took effect on January 1, 2017. The amendments affect some of the most common ways in which individuals and organizations engage with federal officials and employees, including receptions, widely attended gatherings, and gifts based on a family or personal relationship.

Here are some of the most significant changes:

Continue Reading Major Changes in Gift Rules Greet Trump Administration

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.

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.

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.

Continue Reading California Cracking Down on Lobbyist Registrations