The U.S. Supreme Court this week left in place a lower court ruling that expands donor disclosure for advocacy groups that fund independent expenditures. While the full effect of the ruling may not be known for some time, groups in the throes of an election season suddenly have to reconsider their electoral spending plans and fundraising practices, and donors to politically active 501(c)(4) social welfare organizations or 501(c)(6) business leagues have to account for an increased risk that their donations will be publicly disclosed.

What Does the Ruling Do?

Groups that are not registered with the Federal Election Commission (FEC) as campaign committees, party committees, or PACs are nonetheless required to file reports if they make an expenditure of more than $250 that expressly supports or opposes a federal candidate. These “independent expenditure” reports must itemize disbursements to each vendor involved in the creation and distribution of an ad (or other public communication), and identify the election involved and whether the organization supports or opposes the featured candidate.

In addition, a long-standing FEC rule requires that these reports identify donors who gave more than $200 to the organization in the calendar year for the purpose of funding the particular ad that is being reported. As a practical matter, donors seldom know that their funds will be used to pay for a specific ad, and thus donors have rarely been disclosed.

The district court struck down the FEC donor-disclosure rule, concluding that it applied the statutory disclosure requirement too narrowly. The court concluded that independent expenditure reports filed by groups that are not registered political committees must identify all donors who (1) give to the organization for the purpose of influencing a federal election, or (2) give for the purpose of funding the group’s independent expenditures, whether tied to a specific ad or not. The court stressed, however, that contributors to an organization’s “general programs” need not be identified.

The court deferred the effective date of the ruling for 45 days, giving the FEC time to adopt a new donor disclosure rule. That period came and went with no new rule or interpretive guidance. Crossroads GPS, which intervened in the case, has appealed the ruling to the D.C. Circuit.

Continue Reading U.S. Supreme Court Allows Expanded Donor Disclosure Rules to Take Effect

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.

By White House/Chuck Kennedy (White House (P090612CK-0875)) [Public domain], via Wikimedia Commons
Thinking about sponsoring or hosting an event at the presidential nominating conventions in Cleveland and Philadelphia?  Or considering giving free items to attendees?

Venable’s client alert summarizes recent guidance on convention events from the House and Senate ethics committees, and discusses both new and old ways that the national parties and the host cities are raising money to pay for the conventions.

Our Political Law Group has extensive experience advising companies, trade associations, and nonprofits in navigating the gift rules that apply to convention events, and making political contributions.

 

Interested in what it takes to set up a federal Super PAC? Take a look at Venable’s recently released white paper summarizing the key rules of the road, including:

  • Steps for creating a federal Super PAC
  • Avoiding illegal coordination with candidates
  • FEC and IRS reporting obligations
  • Advertising disclaimers

For those interested in Maryland elections, please also see our white paper summarizing the rules of the road for setting up and operating Maryland Super PACs.

With extensive experience advising federal, state, and local Super PACs and their donors, Venable’s Political Law Practice Group is ready to assist with all of your Super PAC legal needs in the 2016 election cycle and beyond.

Some candidates have a cozy relationship with super PACs that support them (as close as they can, given rules about coordination). Others are surprised and excited when a super PAC shows up to help out. But sometimes a super PAC raises money using a candidate’s name or picture, but doesn’t do much to help the candidate. In those cases, the candidate may be concerned the super PAC is taking donations that might otherwise go directly to the campaign or to super PACs that are actively supporting the candidate. 2013 Virginia gubernatorial candidate Ken Cuccinelli faced such a situation and decided to sue over it.

The lawsuit, which was filed in federal court, was not based on any campaign finance laws, but on the federal Lanham Act, which is a false advertising statute, and state law claims of false advertising, breach of contract, and unauthorized use of Mr. Cuccinelli’s name and picture. Mr. Cuccinelli sued not only the super PAC, but also all of the individuals associated with the super PAC. The case settled on interesting terms.

First, the Super PAC and its principals agreed to pay Mr. Cuccinelli $85,000. They also agreed to turn over their solicitation lists to Mr. Cuccinelli so he can use them either to raise money for future campaigns or to rent the lists to others. The Super PAC and the company that ran it will also undertake certain “best practices” in future campaigns. These include honoring a request from a candidate to stop using the candidate’s name or picture and maintaining contact information on their website. These terms make clear they apply to other PACs that are clients of the defendant’s company.  In this respect, Mr. Cuccinelli may have helped future candidates that find themselves in his spot.  Continue Reading Super PAC or Super Fraud: What to do when a super PAC raises money off a candidate’s name but doesn’t actually do anything to support the candidate

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

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.”

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

mynameisThe Washington Examiner recently wrote about the art of naming a PAC, pointing out that the name must “balance patriotic with practical considerations.” The Examiner talked about making sure the name is not too long if the PAC will have to include “paid for by” statements on its ads. But there are some other legal considerations as well. Let’s look at some of the FEC’s naming rules.

If the PAC is a connected PAC, meaning it is supported by a company, union, nonprofit, or trade or professional association, then it must include the full name of the connected organization. We have seen registrations rejected by the FEC for failing to include “Inc.” or “Company” if that full legal name of the entity includes those signifiers. Thus, Widget Manufacturing Company of Our Town, Inc. must include all of those words in the name of the PAC. That name must appear in all legal disclaimers.

Continue Reading Naming Your PAC