The Federal Election Commission recently held a public hearing to discuss its March 2018 proposed rule aimed at providing voters with more information about who pays for or sponsors online political advertisements. The private sector has adopted a solution to the issue.

On May 22, 2018, the Digital Advertising Alliance (DAA) took the first step to alter the status quo by unveiling a new, industry-wide PoliticalAds transparency initiative designed to bring greater transparency and accountability to the realm of political advertising.

Similar to the DAA’s YourAdChoice program, which provides consumers with easily accessible information via the familiar blue triangle that accompanies interest-based ads, the PoliticalAds initiative will require certain political advertisements to supply information and a comparable purple icon.

Continue Reading Transparency Coming to a Campaign Ad Near You!

The Federal Election Commission (FEC) this week issued a Notice of Proposed Rulemaking, asking for public comment on proposals for requiring “disclaimers” on online ads and fundraising. Under each of two similar proposals, paid Internet ads that expressly advocate for candidates or that solicit political donations must state who paid for the ad and whether it was authorized by a candidate. The rules would impact websites, blast emails, and ads paid for by a political committee, regardless of their content.

The FEC rulemaking responds to mounting concerns about the influence of Russian-linked social media activity during the 2016 presidential election, as well as years of ambiguity about when and how the agency’s rules apply to emerging platforms and technology.

Which Ads Require Political Disclaimers Under Current Law?

Under current law, the FEC requires disclaimers on three types of advertisements:

  • Communications by Political Committees: Disclaimers are required on all “public communications” paid for by a registered political committee, as well as the committee’s own website and blast emails sent to more than 500 recipients.
  • Express Advocacy by Any Person: Regardless of the ad’s sponsor, “public communications” must include a disclaimer if they expressly advocate for or against a candidate.
  • Solicitations by Any Person: Regardless of the ad’s sponsor, “public communications” that solicit a contribution to a registered political committee must include a disclaimer.

A “public communication” includes Internet communications only when one person pays a fee to place the communication on another person’s website. The law does not require disclaimers on communications that do not involve a fee, such as unpromoted or unsponsored tweets, blogs, or Facebook posts.

The FEC has also concluded that certain communications are exempt from disclaimer requirements for practical reasons, such as for SMS text messages and Google’s text ads.

Which New Types of Ads May Be Covered?

The regulations proposed this week do not significantly alter the types of advertisements that would require political disclaimers; however, they would limit the circumstances under which an Internet ad could omit a disclaimer due to size constraints, which would have the effect of expanding the universe of Internet ads that would carry disclaimers.

What Must a Disclaimer Say?

Current law requires disclaimers to include the name of the person who paid for the ad, the person’s telephone number, address, or URL, and a statement indicating whether the communication was authorized by any candidate or a candidate’s committee, where applicable. This would remain unchanged, and Internet ads would include the same information when space permits.

However, the proposed rules would add specificity to how Internet disclaimers may be displayed. One proposal would apply the current requirements for the size, duration, and appearance of television, radio, and print disclaimers to their Internet-based analogs. For example, an ad on a video streaming platform would require a disclaimer to appear in the same way as disclaimers on television ads.

In the event an ad is character-limited, or too short or small to include the full disclaimer, both proposals allow for an “adapted disclaimer”. The proposals do not specify what format this abbreviated disclaimer must take but would permit the use of a hover-over, link, icon, or other feature that would lead the viewer to the full disclaimer.

Next Steps

The FEC has asked for written comments on its proposals and has scheduled a hearing for late June. After the hearing, the Commission will work to find consensus on a final rule, a process which would require unanimity among the four sitting Commissioners, unless the two vacant seats on the Commission are filled in the coming months. Given the timing of the hearing and the challenges of working out an agreement on final language, it is unlikely that final rules will take effect in time for the mid-term elections. But if adopted, they will certainly have an effect on the 2020 elections.

Venable’s Political Law Group is closely monitoring this rulemaking and can assist clients in navigating the rules governing Internet advertising and fundraising.

A little-noticed provision tucked away in the recently enacted Tax Cuts and Jobs Act (TJCA) will have an effect on businesses that lobby at the local level. Under the TJCA, expenses incurred in connection with attempting to influence legislation at the local or municipal level (including Indian tribal governments) will no longer be deductible.

In general, since 1993, the tax code has prohibited businesses from deducting expenses incurred in connection with influencing legislation at the federal and state levels. However, the tax code contained a specific exception for expenses incurred in connection with influencing local legislation. The TJCA eliminates this exception immediately, effective for any such expenditures incurred on or after December 22, 2017.

Businesses will see the impact of this tax in three ways:

  1. Businesses that lobby at the local level will now have to capture staff time, expenses, and outside consultant fees in their nondeductible lobbying spend.
  2. Associations that lobby at the local level will have to include their staff time, expenses, and outside consultant fees in the percentage of their dues that they report to members as being nondeductible. That means that businesses will be able to deduct less of their dues.
  3. Associations that lobby exclusively at the local level (such as local chambers of commerce) will now have to treat a portion of their dues as nondeductible. In the past, business were able to deduct all of their dues to such associations, since all of their lobbying was deductible.

As a reminder, the rules on deductibility of lobbying are completely unrelated to lobbying disclosure rules. Many states require registration and reporting at the state level for local lobbying (such as New York). In addition, many localities have their own lobbying registration systems (such as New York City, to name just one of many).

With an election year just weeks away, there are steps you can take now to boost the effectiveness of your government affairs program, and help your organization and its principals avoid legal trouble. This is a particularly good time to fill the coffers of your PAC, develop a political contribution plan for next year, evaluate lobbying registrations and renewals, and begin preparing for the many campaign and lobbying reports due in January.

The start of an election year is also an ideal time for a compliance audit. If you have not conducted a compliance audit in some time, you may no longer be in compliance with major changes in campaign finance and lobbying laws at the federal and state levels.

Here are a few things to consider:

Maximize Fundraising. The contribution limit for federal PACs, which is $5,000 per calendar year, resets on January 1, 2018. As such, there is a short window remaining to encourage your largest donors to max out for 2017, while retaining the ability to solicit those donors for another $5,000 next year.

Finalize 2017 Contributions. A number of states, such as Illinois and California, also reset contribution limits or reporting thresholds on January 1, 2018. PACs and other organizations hoping to maximize contributions to state candidates or committees should act as soon as possible to ensure contributions are received by the recipient committees before the end of the year. Additionally, many jurisdictions bar contributions at the beginning of legislative sessions. The next several weeks may be your last opportunity to contribute to certain candidates until well into next year.

Create a Political Contribution Plan. Consider creating a political contribution plan and timeline for making contributions. This will help you comply with contribution limits and legislative session blackouts. State and local government contractors should also be mindful of pay-to-play laws, which bar contractors, as well as their officers, directors, and key employees, from making certain political contributions, and impose reporting requirements. Our 2017 blog post on pay-to-play laws provides more detail about these requirements.

Evaluate Lobbying Registrations. Lobbyist and lobbyist employer registrations will expire in a number of jurisdictions at the end of the year. Renewal and first-time registration requirements vary by state, and careful consideration should be paid to the legal and political implications associated with your decision to either renew your registration or allow it to lapse. Companies and nonprofits also need to ask themselves the question, “Is this considered lobbying?” States and localities treat a wide range of activities as “lobbying,” including procurement activity, grassroots communications, and efforts to cultivate goodwill.

Check for Changes in Laws. State campaign finance and lobbying laws change frequently, and a number of state election boards are in the process of rewriting regulations. Be alert for changes in jurisdictions where you are or plan to be active.

Consider Reporting Options for your Federal PAC. In an election year, federal PAC filers may choose to file reports either monthly or quarterly. This election may only be changed once over the course of the year. For active PACs, monthly reporting can help make recordkeeping and reconciliation easier, and allow for PACs to spot and promptly correct errors. Monthly filers also are relieved of the obligation to file “pre-primary” reports that fill in the gaps between the close of books on the quarterly reports and 20 days before the relevant primary. Because primary dates vary from state to state, a PAC that contributes to candidates in multiple states may have to monitor and file several pre-primary reports.

Begin Compiling Information for Year-End Reports. January is a busy month for filing lobbying and campaign finance reports. Most states require year-end or fourth quarter disclosure reports for PACs and lobbying organizations, and some states require donor reports. For example, in California, major donor reports must be filed by individuals or entities that have contributed more than $10,000 to candidates and committees.

Taking advantage of these next few weeks will help your organization start the year on the right foot. If you need assistance filing reports or better understanding laws applicable to you and your organization, the Venable Political Law Practice can be of assistance.

The Federal Election Commission has fined a federal contractor for making $200,000 in contributions to a Super PAC that supported a candidate in the 2016 presidential election. This is the first time the FEC has fined a government contractor for contributing to a Super PAC.

Federal contractors are prohibited from making contributions to federal candidates and PACs, though there has been debate since the Supreme Court ruling in Citizens United as to whether government contractors have the same constitutional right as other corporations to make independent expenditures – or to contribute to Super PACs that do the same.

According to settlement documents released last week, a Boston-based construction company made two $100,000 contributions to a pro-Hillary Clinton Super PAC in June and December of 2015, which the Super PAC refunded in June 2016. The refunds were made after a press report disclosed that the company’s portfolio included federal government facilities and that the company had been awarded more than $168 million in federal contracts since 2008. In paying a $34,000 fine, the company acknowledged that at the time it made the Super PAC contributions, it had a contract with the U.S. Army Corps of Engineers. The FEC found no reason to believe that the Super PAC knowingly solicited the contributions at issue.

The fine is a departure from the gridlock that has plagued the six-member Commission in recent years on a number of major issues. It is particularly surprising given the constitutional uncertainty over the right of federal contractors to make Super PAC contributions. Nonetheless, the fine does not settle the constitutional question, which can only be resolved by the courts.

In the last few years, the FEC and the courts have grappled with the federal contractor ban in other contexts. In 2014, the Commission dodged the issue of whether a federal contractor may contribute to a Super PAC by finding that federal contractor status was not attributable to a corporate parent that had made a Super PAC contribution merely because one of its subsidiaries was a government contractor. A federal appeals court in June 2015 upheld the federal contractor ban in a case filed by individual government contractors but did not comment on whether federal contractors may give to Super PACs.

What lessons does this settlement offer for government contractors?

  • Conduct training, and implement policies and procedures. The FEC settlement notes that after discovering the violations, the company implemented new internal controls, policies, and procedures. To avoid similar problems, government contractors should conduct regular training for key personnel, and implement appropriate policies and procedures regarding political activities, including employees’ use of work hours, corporate facilities, and mailing lists in connection with volunteer work on behalf of a campaign. Such training should also cover gifts to public officials and lobbying registration laws.
  • Vet contributions through experienced campaign finance counsel. The FEC settlement also notes that the construction company is now vetting certain political contributions with outside counsel. This is something all corporations should be doing. Even in states and localities that permit corporate contributions, a wide range of special rules may apply, including rules governing which political committees may accept corporate contributions; blackout periods during legislative sessions; restrictions on contributions by lobbying entities and on assistance from individual lobbyists in delivering or suggesting contributions; contribution thresholds for registering the corporation as a political committee; and in a few states, a requirement of board approval. Experienced counsel can also help flag recipient committees that may present reputational problems for the company and identify risks that can accompany the earmarking of a contribution for a particular use.
  • Beware of state and local pay-to-play laws. The risks are even greater for government contractors. Many states and municipalities have pay-to-play laws that prohibit government contractors, as well as their principal owners, officers, and certain employees from making political contributions. Other states require contractors to register and file disclosure reports with state election boards. Violations of pay-to-play laws strike at the bottom line by disqualifying bids and voiding contracts and can cause significant reputational harm.
  • Consider ways to contribute that do not violate the contractor ban. While state and local laws may restrict political contributions from a contractor’s owners, officers, and employees, the executives of a corporate contractor (though not an individual consultant doing work for the federal government) may make personal contributions to federal candidates. A corporate contractor may also form a federal PAC, which may be funded by donations from employees.

Sound political law and pay-to-play compliance policies are essential for government contractors to avoid serious risks. The starting place is a baseline assessment to help identify major risk areas and develop a compliance plan tailored to the company’s objectives and needs. When violations are discovered, it is critical to assess whether the conduct is isolated or systemic, and consider taking prompt, corrective measures to mitigate possible penalties and help reduce reputational harm.

The rise of politically-active nonprofits – deemed “dark money” groups by their critics – has been a hot-button issue in the last few election cycles. Election laws generally do not require groups operating under section 501(c)(4) of the tax code, commonly referred to as social welfare organizations, to register as political committees or disclose their donors – even when they spend large amounts on election ads. Critics complain that current laws should be applied (or, if necessary, rewritten) to force these groups to be more transparent about their election-related activities, and charge that 501(c)(4)s have sometimes been used as conduits for donors who want to contribute anonymously to PACs and ballot committees.

In the last few years, some states have strengthened their disclosure laws to reach political activity by 501(c)(4) groups and others have ramped up enforcement. The latest effort comes from Massachusetts, where the election board recently settled charges with Families for Excellent Schools (FESA), alleging that the group donated millions of dollars in contributions to a registered political committee advocating for passage of a referendum on charter schools without disclosing the source of its funding. FESA paid a fine of over $425,000, agreed to dissolve, and publicly disclosed its donors. FESA’s charitable arm, a 501(c)(3), also agreed not to fundraise or participate in any Massachusetts referendum or other election-related activity for four years.

The state’s case arose from a review of the Massachusetts ballot committee’s records. In investigating FESA’s own records, auditors allegedly found a pattern of large contributions to FESA, closely followed by contributions in similar amounts from FESA to the ballot committee. The settlement also noted that contributions to FESA spiked in the run-up to the election, which the board argued showed that FESA was soliciting contributions with the intent to pass them on to the ballot committee. FESA accepted these allegations for purposes of settlement, but contended that it complied with state law, and did not earmark or take direction from donors concerning the way it would use a specific donation.

This settlement should serve as a potent warning to politically-active nonprofits and their donors, and is similar to others we have written about in California and Washington. We expect that auditors and investigators will continue to look for contribution patterns that suggest a 501(c)(4) is being used as a conduit to make contributions to Super PACs and ballot committees in a way that should require the 501(c)(4) to disclose its contributors. Couching donations as “unrestricted” or “general purpose” grants may not be enough to avoid penalties and other sanctions, or to shield the names of campaign donors from the public.

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:

Continue Reading Don’t Reimburse Contributions. Period.

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