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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

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.

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.

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

By EFF (Own work) [CC BY 3.0], via Wikimedia Commons
This week, the U.S. Court of Appeals for the D.C. Circuit upheld the Federal Election Campaign Act’s long-standing ban on contributions from federal government contractors to federal candidates and parties. We have followed the case since the District Court’s decision in 2012.

The ban has been in a place since 1940. Pointing to a history of federal and state corruption scandals involving government contracts, the court ruled that the ban continues to further the government’s interest in preventing quid pro quo corruption and removes political pressure on government employees. Some of the most important things about the ruling for government contractors are:  Continue Reading Federal Appeals Court Upholds Contribution Ban on Government Contractors

Earlier this month, Virginia Governor Terry McAuliffe signed into law a new bill making significant changes to Virginia’s lobbying and gift laws. The critical changes made by this bill, Senate Bill No. 1424, will become effective on January 1, 2016. Many of the revisions focus on gift reform, but the bill also contains important changes affecting lobbying as well as pay-to-play compliance.  Continue Reading Virginia Tightens the Reins: Major Lobbying and Gift Law Changes to Take Effect in 2016

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.

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

SpiderWebAs we have discussed, Maryland amended its pay-to-play rules to impose new reporting requirements on entities that do business with state or local governments. The first report under the new system is due on February 5, and if the roundtable hosted yesterday by the State Board of Elections is any indication, confusion abounds regarding the law’s core requirements.

This post highlights a few of the issues discussed at that roundtable.   Continue Reading Oh What a Tangled Web Maryland Weaves: Updates on the Pay-to-Play Disclosure Process Before February 5 Report is Due

Please join us for a webinar on January 16, 2014, at 1:00pm EST, which will provide a tune-up on government affairs compliance and examine recent trends. We will cover all the major topics you need to be thinking about as you ramp up for lobbying the new Congress and state legislatures and prepare for the mid-term elections:

  • Forming and operating a PAC or Super PAC
  • Federal and state lobbying compliance
  • Gifts to public officials and employees
  • Pay-to-play laws and doing business with state and local governments 
  • Legislating transparency by 501(c) organizations and public companies
  • Enforcement trends 

To register, click here.

A final ruling on the constitutionality of the long-standing ban on contributions by federal government contractors met a significant setback last week when the D.C. Circuit remanded the case to the trial court. In an opinion issued on May 31, 2013, about two weeks after oral arguments, a three judge panel of the D.C. Circuit concluded that the case, Wagner v. Federal Election Commission, must be heard en banc by the full panel of judges of the D.C. Circuit. 

The appellate court relied on an older provision of the Federal Election Campaign Act (“FECA”), section 437h, which states that the national committee of any political party, the Federal Election Commission (“FEC”), or any voter in a Presidential election “may” file a claim that a portion of the FECA is unconstitutional in a district court, and the district court “immediately shall” certify the constitutional questions to a circuit court, which must then hear the matter en banc. Last fall, a lower federal court heard the case and upheld the contractor ban, finding that it does not violate the First and Fifth Amendment rights of government contractors and concluding in two sentences that section 437h did not require certification of the constitutional questions. 

Despite arguments from both the FEC and the plaintiffs that the three judge panel could hear the case, the court stated that section 437h is a mandatory procedure for this type of claim, based on its reading of the language, and that an en banc hearing was required. The court cited the legislative history behind the section as support for its reading, including the need to have questions about the constitutionality of FECA provisions resolved quickly by circuit courts to enable these questions to reach the Supreme Court as soon as possible.    

The court’s decision, however, will actually result in considerable delays in Wagner’s path to the Supreme Court, as it imposes a new set of procedural hurdles. The district court must first identify and certify the constitutional questions in the case, thereby sending the case back to the D.C. Circuit. Scheduling and holding additional oral arguments on the merits of the case in front of the en banc D.C. Circuit may take several weeks or even months, and the issuance of an opinion on the constitutionality of the ban could be some time after that. A possible appeal to the Supreme Court, at this point, may not be completed until after the 2014 midterm elections.