Political GPS: Womble Carlyle Political Law

Super-size That Contribution: New Options for Savvy Corporations, Associations, and Politically-active Executives

2011-11-30T10:00:00.000-05:00

Political giving used to be a lot simpler. Establish a budget, make a list of like-minded candidates, and write checks to their campaigns.

In 2012, savvy corporations, PACs, and politically-active executives have quite a few options. Careful planning can make the difference between a robust and effective government affairs strategy and one that attracts little attention.

So what has changed? While candidate committees and political parties must still abide by the old rules, new types of organizations can operate free of contribution limits and source restrictions. Super PACs are the fresh face on the scene, thanks to a Supreme Court ruling that swept aside a decades-old ban on corporate funding of election ads. Super PACs must register and file disclosure reports with the Federal Election Commission (FEC), but they may accept unlimited sums from corporations and individuals for ads that are not coordinated with a campaign or political party.

Other groups, such as 527s and 501(c)(4)s, do not register with federal or state election authorities or have to comply with election limits. Relying on arcane rules, these groups air ads that focus on a candidate’s position on issues, but do not expressly call for a vote for or against the candidate.

What’s more, not all political spending is subject to the same disclosure rules. The six-member FEC has been unable to agree when contributors must be disclosed by unregistered groups that finance election-related ads. The IRS requires 527s to publicly identify their contributors, but information may be withheld about a particular contributor merely by paying tax on that contribution. 501(c)(4)s, on the other hand, do not have to publicly disclose any of their donors.

Here are some tips for making the most of your political spending while staying in compliance with the law:

Understand what the law allows. What type of organization is this, and does the law permit their planned activities? Do any limits apply – per election, per candidate, per year? Has the contribution been solicited from a permissible source and in a permissible manner? (A federal candidate, for example, may raise money for a friendly Super PAC, but only up to hard money limits.) Has the organization registered and filed reports with the appropriate election board or the IRS?
Know the company you keep. Make sure that associating with the organization and its principals will not embarrass you or your organization. What public statements have the principals made? What causes does the group endorse? Who else has contributed to this group? For 527s and 501(c)(4)s that are not registered with a federal or state election agency, ask to see the annual information return (Form 990) that must be filed with the IRS and made available to anyone who asks.
Determine whether your contribution will be disclosed and whether you have any control over that. Under federal laws and the laws of some states, donations to an organization made for the purpose of funding independent expenditures (i.e., ads that expressly advocate for the election or defeat of a candidate) must be disclosed by the recipient. On the other hand, contributions that are not earmarked for a specific use may not have to be disclosed.
Be aware of state laws requiring donor reports or corporate authorization. A growing number of state laws impose reporting requirements not only on the recipient organization, but also on the contributor. Some states require corporations to obtain board of directors or other authorization before making corporate political contributions.
Ask Super PACs, 527s, and 501(c)(4) organizations to certify, in writing, that they do not coordinate their spending with any candidate, campaign committee, or political party. If such an organization coordinates its ad strategy or spending with a campaign or party, there is no longer a basis for accepting corporate contributions and unlimited sums from individuals. While the government only infrequently launches full-scale investigations of coordination, such investigations can be lengthy and damaging.
Finally, do not forget pay-to-play laws. Under state and local pay-to-play laws, government contracts may be voided (and bids disqualified) if the company, its PAC, or certain company officials makes certain political contributions. For the most part, these laws target direct contributions to candidates and political parties, and in some cases, leadership PACs. Under some state laws, however, contributions to Super PACs – particularly those that support a single candidate or small group of candidates – may also lead to sanctions.

CONTRIBUTING TO CANDIDATE CAMPAIGNS AND POLITICAL PARTIES? HOMEWORK IS REQUIRED THERE, TOO

Contributing to candidates and political parties – while more tried and true – also requires homework to avoid legal problems. For starters, limits on contributions vary considerably from one jurisdiction to another, and they frequently change. Also, some states permit a contribution for a candidate’s primary and general election campaigns, even before the primary is held, while others permit a general election contribution only after the primary.

Many jurisdictions also impose aggregate limits. Under federal law, for example, an individual is subject to a biennial limit of $117,000, $46,200 of which may go to candidates and $70,800 to PACS and political parties. Further complicating the matter, of the $70,800 that may be given to PACs and political parties only $46,200 may be given to PACs and state and local parties.

Also keep in mind that spouses have their own contribution limits, even if only one spouse has an income. However, when couples make a contribution through a single check drawn from a joint checking account, the entire contribution will be attributed only to the party signing the check. If the couple wants the contribution allocated between them, both of them must sign the check or the check must be accompanied by a letter, note, or donor card specifying their wishes.

Be careful when contributing to a “joint fundraising committee,” which is a popular vehicle for federal campaign fundraising, especially in a Presidential election year. A joint fundraising committee is a legal entity registered with the FEC that channels contributions, through a pre-arranged formula, to one or more candidates and political party committees. A contributor who has previously made contributions in the same federal election cycle should investigate how his or her contribution will be allocated. Otherwise a contribution to a joint fundraising committee may inadvertently exceed that individual’s limit for a particular candidate or the aggregate limits.

Finally, as discussed above, contributions by the company or its PAC, and personal contributions by certain company officials may result in the loss of contracts and the disqualification of bids. Some of these so-called “pay-to-play” laws also restrict contributions by the spouses of company officials. If you do business with the government, it is essential to have a compliance program that protects against this risk.

NEW GIFT RULES PROPOSED FOR FEDERAL EXECUTIVE BRANCH

The U.S. Office of Government Ethics (“OGE”) has proposed tighter rules on gifts to federal employees from lobbyists and organizations that employ them. Comments on the proposed rules must be submitted to the agency by December 14, 2011.

Under current rules, a federal employee may not accept a gift from a prohibited source (generally, an entity with interests that may be affected by the employee’s agency) or a gift given because of an employee’s official position. A number of exceptions apply, such as gifts from family members and friends, and gifts of free attendance at widely-attended gatherings. Shortly after President Obama took office, he issued an executive order barring political appointees from accepting gifts from lobbyists and their employers, regardless of whether they are prohibited sources or are giving the gift because of an employee’s official position. Only a handful of exceptions apply under the White House order. OGE is now poised to codify this executive order.

The proposed rules go even further, however, by preventing career employees from taking advantage of some of the usual gift rule exceptions when a prohibited source -- or a person giving a gift because of an employee’s official position – also happens to be a registered lobbyist or lobbyist employer. From such contributors, a career employee may not accept a gift valued at $20 per occasion and $50 per year, nor may the employee accept free attendance at widely-attended gathering, unless the employee is speaking or presenting with agency approval.

If the OGE rules are adopted, they would affect common gift-giving situations such as holiday parties and invitations to conferences attended by a large number of people from an industry or profession.

Notably, the proposed rules would not apply to organizations that merely hire outside lobbyists. The rules would also would not apply to 501(c)(3) organizations, public and non-profit institutions of higher education, and media organizations, if the gift is made in connection with the organization’s information gathering or dissemination activities.

Many of the gift rule exceptions are very detailed. Any company or trade association contemplating making a gift under federal ethics rules should look carefully at the facts and circumstances of each particular situation.

Womble Carlyle to Present WMACCA Program on Political Contributions, Lobbying and Gifts

2011-09-12T15:42:00.002-04:00

Washington, D.C.—When engaging with public officials or candidates for public office either to develop business or for political purposes, it is essential to understand and comply with the complex array of applicable federal, state and local rules that can put your organization at risk. On September 15, 2011, Larry Norton and Jim Kahl of Womble Carlyle’s Political Law Team will present a luncheon program to the Washington Metro-area Corporate Counsel Association (WMACCA) entitled, “Strategies for Political Law Compliance: Political Contributions, Lobbying, and Gifts.”

During the presentation, Larry and Jim will outline steps your organization can take now to minimize the risks presented by political activity, including:

How can personal fundraising and other volunteer political activities by executives and other employees pose risks to your organization, and what training or other practices should you institute to assure compliance?
What types of internal controls can reduce the compliance risks for PACs?
What are the best practices for collecting information and monitoring compliance with federal lobbying laws so that you are prepared in the event of a random audit by the Comptroller General?
How can an organization protect its bids and contracts from disqualification under widely varying state and local pay-to-play laws?
What new tools are available to companies and non-profits in the wake of last year’s Supreme Court ruling, and how can they be used in a way that avoids legal risks and adverse publicity?

Larry Norton and Jim Kahl served as General Counsel and Deputy General Counsel, respectively, of the Federal Election Commission, spanning the period from September 2001 to March 2007. They currently lead the Political Law Practice at Womble Carlyle Sandridge & Rice, PLLC, and advise clients in connection with campaign finance, lobbying and government ethics matters. Larry and Jim submitted a brief to the Supreme Court in Citizens United v. FEC, in support of the prevailing party.

Joining the panel is Margaret Cassidy of PricewaterhouseCoopers, who serves as Government Ethics & Compliance Director and oversees the firm's compliance with campaign finance, lobbying and other government ethics matters.

This program will be held at Womble Carlyle’s Washington, DC office from 12:00-2:00 p.m. and will be offered live and via webcast. Lunch will be provided on-site and 1.5 hours of General Virginia CLE credit are pending for the presentation.

For more information and to register, please click here.

White House Proposes Mandatory Disclosure of Political Contributions for Federal Contrators

2011-05-11T13:16:00.012-04:00

A proposed Obama Administration executive order would require all federal contractors to disclose political contributions and expenditures made by their principals and related entities during the two years prior to submitting a bid.

As a condition for receiving an award, contractors would be required to disclose the following contributions, if the annual aggregate amount of such contributions exceeds $5,000 to a given recipient:

Contributions made to federal candidates or political parties by the bidding entity, its directors or officers, or any affiliates or subsidiaries within its control; and

Contributions made to third party entities with the intention or reasonable expectation that the contributions will be used to make independent expenditures or electioneering communications

A growing number of states and localities have “pay-to-play” laws that compel disclosure by bidders and contractors, and even restrict or prohibit contributions by certain individuals and entities associated with the bidder or contractor. But in states and municipalities where disclosure is required, it is generally limited to direct contributions from corporate officials and PACs (political action committees). The draft executive order goes farther by requiring federal contractors to investigate whether contributions to trade associations and other groups will be used in connection with federal elections. If such use is intended, the contractor will have to weigh whether making the contribution could give an appearance of undue influence, thus jeopardizing a future bid.

It is important to note that the Administration’s draft order only addresses disclosure. It does not restrict or prohibit any political contributions. Under current law, federal contractors may not make political contributions, but their PACs individual owners, officers, and employees are free to make contributions subject to generally applicable limits.

Several important issues remain to be worked out through implementing regulations. For example, since contract award is conditioned on the disclosure of political contributions, it is not clear what sanctions, if any, may result from errors or omissions discovered after contract performance has commenced. In addition, while the order is not intended to create any right enforceable against the federal government, the order would seem to allow a contract bidder to try to oust a competing bidder based on an inaccurate or incomplete disclosure.

As currently drafted, the new requirements will apply to contracts resulting from solicitations issued on or after the effective date of implementing rules, which must be issued by the Federal Acquisition Regulatory (FAR) Council by the end of the year.

LOS ANGELES ADOPTS PAY-TO-PLAY LAW, RESTRICTS CAMPAIGN CONTRIBUTIONS, FUNDRAISING BY CITY CONTRACTORS

2011-03-11T11:03:00.002-05:00

Los Angeles voters approved on March 8 a measure that prohibits political contributions and fundraising by bidders on City contracts. Violators are subject to debarment for a minimum of one year for the first violation and longer periods for subsequent violations.

Under this new “pay-to-play” law, if a contractor bids on or submits a proposal in response to a contract solicitation that has an anticipated value of $100,000, the contractor is prohibited from:

Making a campaign contribution to any elected City official or candidate for City office if the contract requires approval by the City Council
Making a campaign contribution to the Mayor, the City Attorney, the Controller, a City Council member, or a candidate for any of those elected City offices, if the elected official who receives the contribution (or candidate for that office) must approve the contract
Fundraising on behalf of any of these candidates or officials

Also subject to the contribution ban are the contractor’s Chairman of the Board, President, CEO, COO, any person who holds an ownership interest of 20% or more in the bidding entity, and any person who is authorized by the bid or proposal to represent the contractor before the City.

In an unusual provision, the ban even extends to subcontractors and their principals, if a subcontractor stands to receive at least $100,000 from performance under the contract.

The contribution ban applies from the time a bid or proposal is submitted until the earliest date that any of the following occurs: the contract is signed, the bid or proposal is withdrawn, or the City rejects all proposals for the contract. For successful bidders, their subcontractors, and each of their principals, the ban continues for 12 months after the contract is signed.

The new law also prohibits incumbent city revenue bond underwriters from contributing to city officials, and firms that have made certain contributions and gifts may not receive a no-bid contract for underwriting services.

GEORGIA CONCLUDES THAT ANY EMPLOYEE CAN TRIGGER LOBBYING LAWS, EXEMPTS MOST VOLUNTEER WORK FOR TRADE ASSOCIATIONS

Georgia regulators have concluded that any officer or employee who meets with public officials and expresses an opinion on actual or potential legislation that may affect the company must register as a lobbyist. An opinion issued by the Georgia Government Transparency and Campaign Finance Commission (formerly the State Ethics Commission) rejected the argument that lobbying laws are triggered only when an individual has an employment agreement which states that his or her duties include lobbying.

The opinion notes that members of trade associations who meet with legislators as part of a “day at the Capitol” are generally exempt from state lobbying laws because they participate as volunteers who are promoting their industry, not in the capacity of employees. However, the opinion warns that such individuals may have to register if they are required to belong to a trade association as part of their employment.

In a related matter, Georgia ethics officials are considering a request to clarify what kinds of sales activities require registration under the state’s procurement lobbying law. The request asks the ethics commission to address whether an employee is lobbying when he or she provides a public official with informational materials, submits a bid or response to a request for proposals, or participates in a bid conference. We will continue to monitor this request and provide further information as soon as it is available.

New Federal Contribution Limits for 2011-2012 (And a Few Traps for the Unwary)

2011-02-14T13:53:00.009-05:00

Last week, the Federal Election Commission announced changes in contribution limits for 2010-2011, including a change in the combined amount an individual may give over the next two years to all federal candidates, political parties and PACs. (Click here for a one-page PDF chart with the new contribution limits)

The changes suggest that a little planning may be in order. For instance, the combined limit on individual contributions over a two-year period (referred to as the “biennial limit”) can affect many active contributors, not just high net worth individuals. If during 2011, an individual contributes the maximum amount to just five federal candidates ($2500 to the primary and $2500 for the general), that individual will be more than halfway to the two-year limit of $46,200 by the end of 2010. For those who want to retain flexibility in the Presidential election year, it is important to keep these limits in mind right now.

Likewise, contributions to “joint fundraising committees” can cause contributors to unexpectedly “max out” on their biennial limit or inadvertently make an excessive contribution to a specific candidate. How can this happen? Joint fundraising committees can raise tens of thousands of dollars from a single contributor – money that is distributed among multiple candidates, or among candidates and party committees. A contributor who overlooks the small print may believe that he or she has made a contribution to a single committee, when in fact the contributor has made multiple contributions, each of which is reflected in FEC records as a contribution to the ultimate recipient.

MAY CORPORATIONS RAISE MONEY FOR FEDERAL CANDIDATES? THREE FEC COMMISSIONERS THINK SO

In the landmark Supreme Court ruling of Citizens United v. FEC, the Court struck down prohibitions on independent political advertising by corporations and incorporated non-profits. But the federal ban on corporate fundraising remains in place. Or does it?

Last week, the three Republican FEC Commissioners issued a statement concluding that corporate fundraising, when done independently of federal candidates and political parties, is more like independent political speech, which corporations are constitutionally entitled to make, than to corporate contributions, which are barred. The statement was issued in regard to a complaint filed against an incorporated non-profit group that sent an email blast urging members to contribute to a federal candidate.

While the Republicans' statement does not appear to represent the majority view on the six-member FEC, the three Commissioners can be expected to block any enforcement action based on corporate use of staff time, funds, or other resources devoted to independent fundraising. The statement leaves open how other types of corporate fundraising, known as “corporate facilitation,” might be treated, such as collecting and forwarding contribution checks or hosting fundraisers for candidates. However, in the view of the Republican Commissioners, "the continuing viability of the Commission's [corporate] facilitation regulation is at best suspect."

So how should corporations and incorporated non-profits proceed? We advise caution. Under current FEC rules, a corporation may direct subordinates to plan fundraising activities with corporate resources, but only if the corporation receives advance payment from a permissible source (e.g., a campaign committee, an individual) for the employees' time and company overhead. Advance payment must also be received for the use of corporate mailing lists and the provision of catering services. In other words, the FEC’s corporate facilitation rule is still "on the books." Moreover, a change in the make-up of the Commission – as of April 30, five of the six will be holding over beyond the single term to which they can be appointed – could shift the agency’s position. And it is important to remember that the Justice Department can criminally prosecute knowing and willful violations of FEC rules, which it has done before in cases of corporate facilitation. Finally, the Republican Commissioners explicitly distinguished their analysis from situations where corporate fundraising is coordinated with candidates and parties – the use of corporate staff or resources for coordinated fundraising is a prohibited in-kind contribution.

It is doubtful that the FEC will resolve these issues anytime soon. In a public meeting last month, the Commission considered issuing a Notice of Proposed Rulemaking on the impact of Citizens United – a first step in the rulemaking process that would merely offer proposals for public comment. The vote to issue proposed rules failed on a 3-3 vote.

PAY-TO-PLAY UPDATE

Important Pay-to-Play Deadlines

New Jersey: Companies that receive state or local contracts in New Jersey valued at $50,000 or more in the aggregate, must file an annual disclosure statement by March 30, 2011 listing state and local contributions made in calendar year 2010 by the business entity, and by its officers, directors, their spouses, and controlled PACs. A report must be filed even if no reportable contributions have been made.

SEC: We have had several prior posts discussing new SEC rule 206(4)-5 that restricts political contributions by investment advisers that seek business from public pension funds and similar government investment accounts. Investment advisers subject to the new SEC pay-to-play rule must be in compliance by March 14, 2011.

Pay-to-Play in Trenton. . . Ooh, Ooh Damage Done

Our clients regularly tell us they never want to see their company’s name and the words “pay-to-play” together in a news story. At that point, as the Neil Young song reminds us, the damage is done.

A prominent New Jersey law firm, which was awarded a contract from the city of Trenton, is learning this the hard way. The firm was accused of violating Trenton’s pay-to-play ordinance when it made a $7,200 pre-bid contribution to a PAC, and a contribution in the same amount was made a few days later by the PAC to the Mayor’s campaign. The firm claimed that it did not violate the law, and that it obtained a refund of the contribution. The city attorney was not persuaded and determined that the firm’s contract should be voided under the city’s pay-to-play law. The Mayor saw things differently and reinstated the contract, but the final decision will be made by the city council. To complicate things, the council had voted three times previously not to award the contract to the firm, before approving the contract on a 4-3 vote with the Mayor's backing.

To no one’s surprise, these events have received plenty of coverage by local media outlets, and both the Mayor and the firm have received their share of unwanted attention. So, even if the firm is exonerated and retains its city contract, this saga serves as a cautionary tale of the risks posed by pay-to-play laws.

Texas Mulls Pay-to-Play

Texas is considering a pay-to-play law that would prohibit an owner, officer, board member or the PAC of a prospective bidder on state contracts from contributing to a candidate for statewide office or a committee established to support or oppose a candidate. If enacted, the law would go into effect next September.

Webinar: Political Contributions, Lobbying, and Gifts to Public Officials - A New Year’s Compliance Tune-Up

2011-01-19T16:31:00.005-05:00

When: Thursday, February 17, 2011
12:00 p.m. – 1:00 p.m. (EST)
Presentation and Q&A

Cost:There is no charge to attend, but space is limited.

Click here to register.

NOTE: Registrants will receive an email containing all log-in information prior to the program.

Event Description:

The start of a new year and a new election cycle is the ideal time to assess the risks to your organization and key executives as a result of PAC activity and other political contributions, lobbying, and gifts to public officials.

If you have not taken stock of your compliance efforts in a while, then there’s no time to spare. The political law landscape has been literally transformed in recent years. To name just a few legal developments that may impact your organization:

New federal laws and Obama executive orders have tightened rules on gifts to public officials and expanded disclosure obligations. Lobbying disclosure reports are subject to random audit, and a violation of federal lobbying and gift rules can lead to criminal prosecution.

States and localities across the country have tightened their lobbying and gift laws, which can limit your ability to invite public officials to tour a new plant or attend a charity event, or restrict your lobbyists’ ability to hold fundraisers for candidates.
Over 20 states and hundreds of localities have adopted “pay-to-play” laws, which can cause companies to lose their public contracts if they or their employees make prohibited political contributions. New federal pay-to-play rules also limit contributions by investment advisers who work for public pension funds.
Last year the Supreme Court vastly expanded the right of corporations and non-profits to participate in elections. But certain restrictions and public disclosure obligations present a range of risks. Understanding these new rights and risks is critical to politically active organizations.

Why should you attend this webinar?

This webinar will focus on steps your organization can take now to minimize the risks presented by political activity, including the following:

How can personal fundraising and other volunteer political activity pose risks to your organization, and what should you do about it?
What types of internal controls can reduce the compliance risks for PACs?
What are the best practices for collecting information and monitoring compliance with federal lobbying laws so that you are prepared in the event of a random audit by the Comptroller General?
How can an organization protect its bids and contracts from disqualification under widely varying state and local pay-to-play laws?
How often should a company conduct a legal compliance audit and what should be covered?
What training should be provided regarding political activity, lobbying, and gifts, and who needs to receive such training?
What new tools are available to companies and non-profits in the wake of last year’s Supreme Court ruling, and how can they be used in a way that avoids legal risks and adverse publicity?

About the Speakers:

They co-author a blog on political law issues called Political GPS. Larry and Jim filed a brief in the landmark Supreme Court ruling in Citizens United v. FEC.

Questions about this Webinar?

Please contact Katie Tedrow at KaTedrow@wcsr.com or (202) 857-4502.

PACs, LOBBYING, AND GIFTS TO PUBLIC OFFICIALS: When Is The Last Time You Had A Compliance Audit?

2011-01-03T12:53:00.005-05:00

The start of a new year and a new election cycle is the ideal time to review your internal processes for political activity, including PACs and direct corporate contributions, lobbying registration and reporting, board oversight and disclosure of political spending, and policies and practices for giving “gifts” to public officials. Periodic compliance audits by experienced political law counsel can identify major risk areas and provide your best defense in the event of an inadvertent violation.

We recommend a compliance audit every two years. If it has been two years or more since you audited your political activity, a compliance assessment is especially important to keep pace with major changes in federal, state and local laws. For example, in 2010, the Supreme Court issued a landmark ruling (Citizens United v. FEC) that has prompted the FEC and many states to rewrite the rules for corporate participation in elections. Transformative change has also occurred in the regulation of lobbying and gifts to public officials, including tougher restrictions on companies and trade associations that employ or hire federal lobbyists. The Obama Administration has also tightened rules on gifts that may be accepted by political appointees. On the state and local levels, there have been many recent changes in the laws regulating political activity, including “pay-to-play” laws that restrict political contributions by officers and executives of companies that do business with government agencies.

Some key areas for a compliance audit include:

PACs – Review PAC bylaws and other foundational documents; review fundraising solicitations and other communications; ensure that all those solicited are in the “restricted class” and evaluate whether changes are appropriate; consider fundraising incentives, such as charitable matching programs; determine whether practices for safeguarding PAC funds qualify for the FEC’s safe harbor; review compliance with state registration and reporting requirements; review record-keeping policies.
Company-sponsored Events and Use of Corporate Facilities – Review policies and procedures for officeholder and candidate appearances before executives or larger groups of employees; use of corporate staff, facilities and work hours in connection with volunteer fundraising; impact of new FEC bundling rules.
State Lobbying and Gift Laws – Review policies and procedures for determining whether employees must register as "lobbyists" and file periodic reports; review policies and procedures on site visits and tours by public officials, offers of tickets to sports and entertainment events, and invitations to public officials to attend charitable functions.
Pay-to-play laws and procurement lobbying – For companies that seek or do business with state and local government agencies, as well as public colleges and universities, pay-to-play and procurement lobbying laws pose serious risks. Under pay-to-play laws, political contributions by companies, their PACs, and their officers and senior executives can disqualify bids and void existing contracts. Bidders and contractors may also have to register and file reports disclosing PAC and personal political contributions. Under procurement lobbying laws, a salesperson who interacts with government officials and employees may be required to register and file periodic reports in the same manner as a traditional lobbyist.

NOW IS ALSO THE PERFECT TIME FOR POLITICAL LAW TRAINING

In addition to a compliance audit, the New Year is also the perfect time for politically active companies and associations to provide training on key issues for employees who interact with public officials or oversee such activity. Your government relations team, government sales professionals, PAC managers, legal and compliance staff, and certain company executives should be aware of the most recent developments affecting their interactions with legislative and executive officials, and other political activites. A training session is also an excellent occasion for disseminating and explaining new political activity policies and procedures.

PAY-TO-PLAY LOOMS LARGE IN 2011

Federal, state and local pay-to-play laws and rules continued to proliferate in 2010. These restrictions on political contributions by public contractors present complex compliance challenges, especially for companies that are active in multiple jurisdictions. In the last months of 2010, there were several important new pay-to-play developments, and new laws and rules are planned for 2011.

Investment Advisers Face March Deadline in New SEC Pay-to-Play Rule

Starting on March 14, 2011, investment advisers (including hedge funds and private equity funds) will be barred for two years from receiving compensation for investment advisory services from a state or local government client, if the adviser, its PAC, or a “covered associate” makes a political contribution to, or engages in fundraising for, a public official or candidate who is in a position to influence the award of advisory business. Covered associates include any general partner, managing member, executive officer, any employee who solicits government business, and any person who supervises such an employee.

The March 14 deadline is part of a “pay-to-play” rule adopted by the Securities and Exchange Commission in September 2010. The SEC chose to phase in various requirements of the rule to allow time for investment advisers to implement compliance programs. Our comprehensive summary of the rule is available here.

All investment advisers should act now to ensure compliance with this SEC rule. Investment advisers should prepare and disseminate written policies and procedures for monitoring contributions by PACs and covered associates, and vetting contributions by potential hires. The rule also mandates strict record-keeping requirements that will allow the SEC to monitor compliance with the contribution restrictions.

MSRB Guidance on Dealer-Affiliated PACs Takes Effect

As discussed in prior Political GPS posts, Municipal Securities Rulemaking Board (MSRB) Rule G-37 restricts campaign contributions to elected officials by municipal securities dealers. Certain political contributions by a dealer or a controlled PAC can prohibit a dealer from engaging in municipal securities business with issuers of municipal bonds for a period of two years from the date of any triggering contribution.

New MSRB guidance, which took effect December 12, 2010, outlines factors that may result in the PAC of an affiliated company, such as a bank, being viewed as controlled by the dealer itself or one of its municipal finance professional employees (MFPs). In a nutshell, the guidance requires a thorough examination of all facts and circumstances related to the creation, management, funding and operational control of the PAC to ascertain if it is controlled by the dealer. The guidance is clear that control can exist in the absence of “majority control” of a PAC board. For example, a PAC may be viewed as dealer controlled if the dealer has just one vote on a multi-member PAC governing board or if a majority of the PACs funds come from the dealer’s MFPs.

Even if a PAC is determined not to be dealer controlled, the dealer must still consider whether any payment made by the dealer or its MFPs to the PAC could be viewed as an “indirect” conduit contribution made in violation of the Rule G-37’s anti-circumvention provisions. The MSRB has previously recommended that dealers establish “supervisory procedures” to avoid such indirect rule violations, including "information screens" between the dealer (and its MFPs) and the PAC of the affiliated company.

MSRB. . . But There’s More

The MSRB’s Board of Directors agreed in December to issue a request for comment on new pay-to-play rules that would restrict municipal advisors from engaging in or soliciting business from municipal entities when an advisor has made certain political contributions to officials responsible for awarding that business. The MSRB’s authority to issue new rules derives from the Dodd-Frank financial reform law, enacted in July 2010, which expanded the MSRB’s jurisdiction to regulate municipal advisors, in addition to dealers.

CFTC Requests Comment on Pay-to-Play Rule Aimed at Banks and Others in Derivatives Business

The Commodity Futures Trading Commission (CFTC) has also proposed its own pay-to-play rule for banks and other institutions that enter into derivative trades, known as “swaps,” with states, municipalities and public pensions. Like the SEC rule, the CFTC proposes a two-year time out from engaging in swaps business when a dealer or any of its covered associates makes a campaign contribution to a person in a position to influence the award of government business.

The CFTC's pay-to-play proposal is also part of a broader implementation of the Dodd-Frank financial overhaul law. Additional CFTC proposals aim to curb fraud and manipulation in the derivatives market.

Written comments on the CFTC’s proposal may be submitted up until February 22, 2011.

Kentucky Pay-to-Play Interpretation

The Kentucky Registry of Election Finance recently offered much needed guidance to companies subject to the state’s broad pay-to-play law. As written, the law prohibits a company from receiving a non-bid state or local contract if company officers, employees or spouses knowingly contribute or raise funds, in an aggregate amount of $5000 or more, for an elected official with responsibility for the affairs of the contracting agency. Many companies that pursue Kentucky public contracts have fretted about the impracticality and intrusiveness of tracking political contributions in state elections by all employees and their spouses.

A company recently asked the Registry whether it was obligated to undertake an investigation to determine if its officers, employees, or spouses contributed or engaged in fundraising in excess of the monetary limits. The Registry stated in an advisory opinion that the law does not contemplate such an investigation. Rather, the “relevant inquiry” is whether a company’s officers, directors, shareholders or employees “purposefully made or encouraged” other employees to contribute to the candidate with” knowledge or expectation” that the candidate’s election would result in preferential treatment of the company with respect to state contracts.

In light of this guidance, it seems unlikely that isolated contributions, especially by lower level employees or employees unconnected with public contracts, would result in violations of the law. It is still advisable, however, to implement some screening procedure for political contributions by certain key officers and employees if a company intends to pursue non-bid contracts in Kentucky.

Pay-to-Play in LA

A new pay-to-play measure – Charter Amendment H – will be on the March 8, 2011, ballot in the City of Los Angeles. The new measure would prohibit companies that bid on city contracts from giving campaign donations to city candidates. Companies that violate the ban would be barred from receiving a city contract for one to four years.

Larry Norton Named to Campaign Finance Review Panel in Maryland

2010-11-22T14:53:00.001-05:00

BALTIMORE—Womble Carlyle political law attorney Larry Norton has been named to a bipartisan blue ribbon panel charged with examining and recommending changes in Maryland’s campaign finance laws.

The 12-member task force was appointed by Maryland Attorney General Douglas F. Gansler. The panel is expected to deliver a report by the end of the year.

In addition to Norton, other panel members are State Senators Jamie Raskin and Allan Kittleman; State Delegates Ronald A. George and Jay Walker; Carville Collins of DLA Piper U.S. LLP; Robert B. Ostrum, counsel for the Republican State Central Committee; Bruce Marcus, counsel for the Democratic State Central Committee; Ross Goldstein, deputy administrator of the Maryland Board of Elections; Jared DeMarinis, director of the Candidacy and Campaign Finance Division of the Maryland Board of Elections; Chief Deputy Attorney General Katherine Winfree; and Deputy Attorney General John B. Howard Jr.

Jim Kahl to Speak at ASAE Annual Association Law Symposium - September 24

2010-08-19T12:17:00.004-04:00

WASHINGTON, D.C.—Womble Carlyle political law attorney, Jim Kahl, is among the speakers at the ASAE 2010 Annual Association Law Symposium in Washington, D.C. The symposium will address pressing issues in association and nonprofit law.

Kahl will be speaking on "Political Activity after Citizens United: Understanding the Opportunities and the Risks." The symposium will be held Friday, September 24th at the Ronald Reagan Building and International Trade Center in Washington, D.C.

The ASAE (American Society of Association Executives) is the membership organization and voice of the association profession. Founded in 1920, ASAE now has more than 22,000 association CEOs, staff professionals, industry partners, and consultant members.

Jim Kahl represents clients regarding the regulation of political activity, including counseling on federal and state campaign finance laws, government ethics laws, and lobbying laws. With an extensive background working in and practicing before federal agencies, Kahl helps clients navigate the complex regulatory maze that impacts political activity.

Jim Kahl to Present at Upcoming ASAE Annual Meeting

2010-08-19T12:14:00.001-04:00

LOS ANGELES, CA – Womble Carlyle Political Law attorney Jim Kahl will speak at the Annual meeting of ASAE & the Center for Association Leadership at the Los Angeles Convention Center on August 22, 2010. Jim will provide attendees an update on political law developments, in a session entitled, “Maximize Your Effectiveness and Keep Your Association Safe in an Election Year.”

Jim will discuss the new opportunities for associations and their members to engage in political activities in the aftermath of the Supreme Court’s landmark Citizens United ruling. He will also address the pitfalls presented by state and local pay-to-play laws, which limit public contractors’ ability to contribute to candidates, and by new federal and state regulations impacting lobbyists.

James A. Kahl is a member of Womble Carlyle’s Political Law Team and served as Deputy General Counsel of the Federal Election Commission from 2002-2007. Jim advises clients in connection with campaign finance, lobbying and government ethics matters. Womble Carlyle’s Political Law team submitted a brief to the Supreme Court in support of the prevailing party in Citizens United v. FEC.

Summer’s Top Stories: SEC Adopts Pay-to-Play Rule, Good/Bad News for CT Contractors & Lobbyists, FEC Reacts to Citizens United, And More

2010-08-04T12:17:00.018-04:00

PAY-TO-PLAY UPDATE

SEC Adopts Pay-to-Play Rules for Investment Advisers

After almost a year of deliberations, on June 30 the SEC approved a tough "pay-to-play" rule for investment advisers that seek business from public pension funds and similar government investment accounts. The SEC rule, which was proposed last August (See GPS August 6, 2009), has its origins in draft regulations dating back to 1999.

New rule 206(4)-5 prohibits investment advisers from providing compensated services to state or local government clients for two years if the adviser, key executives and employees, or the corporate PAC of the adviser make political contributions to public officials in a position to influence the award of advisory business. The rule contemplates that if this time out is triggered, the adviser may provide uncompensated advice for a reasonable time to allow the government client to replace the adviser. The law also prohibits investment advisers from “bundling” contributions for covered officials, and from funneling contributions through others, such as spouses, lawyers or affiliated companies.

The two-year ban may be triggered by contributions made under “look-back” and “look-forward” provisions. When an adviser hires a new covered employee, the rule requires the adviser to “look back” at the employee’s contributions for a two-year period. A prohibited contribution by the new employee will disqualify the adviser from receiving compensation for providing advisory services to the relevant governmental entity for two years from the date of the contribution. The “look-back” period is only six months for employees who are covered by the new rule but are not engaged in soliciting business for the adviser. Prohibited contributions by these employees disqualify the adviser for six months from the date of the contribution.

The “look forward” provision applies to contributions by covered employees who leave the adviser or cease to work in a covered status. The SEC also included de minimis exceptions for contributions up to $350 if the contributor is entitled to vote for the candidate, and up to $150 if the contributor is not entitled to vote for the candidate, such as an out of state candidate.

One of the thorniest issues during the rulemaking process concerned investment advisers’ use of third-party placement agents to solicit government business. The August 2009 proposal completely banned investment advisers from retaining such agents – an unpopular proposal with many in the advisory community. In a nod to smaller funds that are more dependent on placement agents, the final rule allows advisers to hire such agents so long as they are regulated entities subject to similar pay-to-play restrictions.

An effective compliance program is essential. Under the SEC rule, an adviser’s code of ethics must require compliance with the pay-to-play provisions, the adviser must adopt policies and procedures designed to prevent violation of the rule, and the adviser must maintain records regarding its political contributions, covered employees, government clients, and placement agents retained by the adviser. Moreover, while the SEC says that it “designed the rule to reduce its impact, investment advisers are best positioned to protect [their] clients by developing and enforcing robust compliance programs designed to prevent contributions from triggering the two-year time out.”

The SEC rule becomes effective on September 12, 2010, which is 60 days after the rule was published in the Federal Register (July 14, 2010). The placement agent ban will not take effect for a year, which will allow time for the Financial Industry Regulatory Authority (FINRA), a self-regulatory agency for all securities firms doing business in the U.S., to draft pay-to-play rules of its own.

Court Hands Down Mixed Ruling on Connecticut’s Pay-to-Play Law

A three-judge federal court has upheld Connecticut’s ban on contributions by state bidders and contractors, their principals, and the spouses and dependent children of those individuals. But the court struck down the state’s ban on contributions by lobbyists and their families, and a prohibition on fundraising by contractors and lobbyists for candidates running for state office.

Connecticut’s pay-to-play law bans contributions by bidders and contractors, as well as by individuals associated with these entities: members of the board of directors; individuals who own more than 5% of the bidding or contracting entity; the president, treasurer and executive vice-president of the entity; and any officer or employee who has managerial or discretionary responsibilities with respect to a state contract.

The panel noted that the ban on contributions by individuals associated with a contractor “strikes us as bordering on overbroad,” but concluded that the legislature was entitled to leeway in attempting to curb corruption evidenced by the state’s recent corruption scandals. Similarly, the Court noted that “the record in support of the ban on contributions by contractors’ spouses and dependent children is by no means overwhelming,” but characterized such a ban as a reasonable anti-circumvention measure.

But not all provisions of the state law survived the court’s constitutional doubts.

The court overturned a ban on fundraising for state candidates by contractors and lobbyists, concluding that the law was not narrowly tailored to address a legitimate threat of corruption. The court wrote: “A state contractor, for instance, is prohibited under the [law] from advising his mother about whether she should contribute to a particular gubernatorial candidate.”

The panel also invalidated the state’s ban on contributions by lobbyists, noting that the state’s recent corruption scandals had nothing to do with lobbyists.

In response to the ruling, the Connecticut General Assembly on July 30 passed a bill that limits lobbyist contributions to $100 and prohibits state contractors (and their principals) from knowingly soliciting contributions from the contractor’s employees or from a subcontractor or principals of the subcontractor. On August 2, Gov. Rell vetoed the bill, not because of any complaint with the new provisions relating to lobbyists and contractors, but instead because of major increases the bill provides for public funding of gubernatorial elections.

Yes Virginia. . . there is a Pay-to-Play Law

As of July 1, the Old Dominion joined the ranks of pay-to-play states. Under the new Virginia law, bidders and offerors for state contracts of $5 million and up are prohibited from providing a contribution or a gift greater than $50 to the Governor, his political action committee, or a Cabinet Secretary responsible for the contracting agency. The contribution and gift ban applies from the date of bid submission to the award of the contract, but it does not apply to contracts awarded through competitive bidding. Individuals and organizations that violate the law are subject to penalties up to two times the amount of the gift or contribution.

For further information about the SEC pay-to-play rule, click here to see our client alert.

FEC ALLOWS “INDEPENDENT EXPENDITURE” COMMITTEES TO RAISE FUNDS WITHOUT LIMITS

In two recent advisory opinions, the FEC ruled that registered PACs that only intend to make independent expenditures may raise funds in unlimited amounts from individuals and corporations, provided they adhere to disclosure and notice rules and do not contribute to federal candidates or coordinate regarding their communications. The FEC opinions follow on the heels of the Supreme Court’s Citizens United ruling, which held that corporations may spend unlimited funds on independent ads that urge the election or defeat of candidates for public office.

In one opinion (AO 2010-09), the FEC ruled that the Club for Growth may register a new committee with the FEC which will collect unlimited contributions from the general public to fund independent expenditures, but will not accept contributions from corporations, unions, candidates, political committees, government contractors or foreign nationals. The Club for Growth intends to cover the new committee’s administrative and solicitation costs, and the committee’s treasurer will also serve as treasurer of the Club’s pre-existing PAC. In the other opinion (AO 2010-11), the FEC concluded that a new non-connected committee – the Commonsense Ten – may accept unlimited contributions from individuals, political committees, corporations, and unions for the purpose of funding independent expenditures.

These ruling may prove to be highly beneficial to tax-exempt organizations, such as trade associations and advocacy groups. Historically, the IRS has not attributed the political activities of separate committees, such as PACs, to their sponsoring organizations, an approach that has preserved such organizations’ tax-exempt status. Under the FEC rulings, PACs affiliated with tax-exempts may accept contributions in unlimited amounts and solicit funds from outside their membership base.

The FEC noted that it may revise its registration and reporting requirements, and its forms, in an upcoming rulemaking proceeding to implement the Citizens United case. In the interim, committees should include a letter with their Statements of Organization stating their intent to accept unlimited contributions for the purpose of making independent expenditures. A sample letter is attached to the FEC opinions.

COURT REINSTATES CRIMINAL CHARGES FOR REIMBURSING CONTRIBUTIONS

The Ninth Circuit Court of Appeals has reinstated criminal charges against attorney, Pierce O’Donnell, who was indicted on charges that he reimbursed employees of his law firm (and others) who had contributed $26,000 to a presidential campaign. A federal district court judge had dismissed the charges, concluding that the law prohibiting “a contribution in the name of another person” applied only to the use of false names, and not a conduit or reimbursement scheme as was alleged here. The appeals court held this reading was too narrow.

Judge Raymond C. Fisher, writing for the three-judge appeals panel, wrote: “We hold that this law prohibits a person from providing money to others to donate to a candidate for federal office in their own names, when in reality they are merely ‘straw donors.’”

With the election season in full swing, this ruling should serve as a reminder that reimbursing friends or employees for making campaign contributions can lead to indictments and jail. The FEC has also imposed large fines when employers use bonuses or other compensation to reimburse employees for making campaign contributions.

HOUSE PASSES BILL AIMED AT TOUGHER ENFORCEMENT OF FEDERAL LOBBYING LAWS

The House of Representatives on July 28 passed the “Lobbying Disclosure Enhancement Act,” which the bill’s sponsor hopes will ramp up enforcement of federal lobbying laws.

The bill requires the U.S. Attorney General to establish a task force, which would have primary responsibility for investigating and prosecuting violations of lobbying registration and disclosure requirements.

The bill’s sponsor, Rep. Mary Jo Kilroy (D-Ohio), says that the task force “will go after lobbyists who engage in shoddy reporting practices and hide behind ignorance of the law.”

Provisions of the bill that would have imposed an annual filing fee of $50 and assessed a $500 penalty against late filers were dropped during debate.

In sharp contrast to the intense media coverage concerning the DISCLOSE Act, a bill which seeks to blunt the effect of the Supreme Court ruling allowing for corporate funding of campaign ads, the lobbying bill moved to passage quickly and with little fanfare. Indeed, it came to the House floor just two weeks after it was introduced. There is no indication at this time as to the bill’s prospects in the Senate.

LOBBYISTS BARRED FROM FEDERAL ADVISORY BOARDS . . . AND THIS TIME WE REALLY MEAN IT!

In a June 18 memorandum, the President barred the heads of executive departments and agencies from appointing federally registered lobbyists to advisory committees and other boards and commissions. The new policy does not require the removal of currently-serving lobbyists, but it does prohibit their reappointment when their terms expire if they continue to be registered federal lobbyists. This new policy follows the President’s aspirational announcement last September that federal agencies' should try to keep their advisory boards free of federally registered lobbyists. The Director of OMB will issue proposed guidance to implement this new policy within 90 days, which will become final after public comment.

PAC POINTER – WHO CAN BE ASKED TO CONTRIBUTE?

Corporate PAC administrators may be able to find a few more potential contributors thanks to a recent FEC Advisory Opinion (AO 2010-4,Wawa, Inc.). According to the FEC, corporate managers who supervise hourly employees may qualify as “executive and administrative personnel” and be solicited by the corporate PAC.

FEC regulations currently prohibit corporations from soliciting “salaried foreman and other salaried lower level supervisors” who supervise hourly employees. The FEC found that the managers – Payroll Manager, the Retail Accounting Manager, and the Retail Accounting Assistant Manager – oversee departments or sections that have permanent status and function in Wawa’s corporate hierarchy and that in many organizations are managed by salaried executive employees. As such, the Wawa managers qualify as “executive and administrative personnel” and may be solicited for PAC contributions.

Jim Kahl Speaks with Undergraduate Students at 2010 Washington Media Plan Case Competition

2010-06-11T15:58:00.001-04:00

WASHINGTON, D.C. – Womble Carlyle Political Law attorney, Jim Kahl, spoke with under graduate student-participants at the inaugural Washington Media Plan Case Competition during its “Media Case Week” sponsored by the Washington Media Scholars Foundation which took place June 6-11.

The Washington Media Plan Case Competition gives undergraduate students the chance to play the part of a Media Strategist by creating a strategic media plan for a Public Policy campaign. Finalists in this years competition were invited to the nations capital to meet key industry leadership, participate in classroom instruction, as well as visit sites and attend presentations from leading media firms and organizations. The students were competing for the National Excellence in Media Award and scholarship money given by the Washington Media Scholars Foundation. The winner was announced at a networking reception held at the Newseum at the end of the week.

The Washington Media Scholars Foundation’s mission is to “engage college students who are interested in public policy media strategy, research and management with outside the classroom educational programs, and to provide scholarship opportunities for both students and their home institutions.”

James A. Kahl is a member of Womble Carlyle’s Political Law Team and served as Deputy General Counsel of the Federal Election Commission from 2002-2007. Jim advises clients in connection with campaign finance, lobbying and government ethics matters. Jim and Larry Norton, Womble Carlyle Political Law attorney and former FEC General Counsel, submitted a brief to the Supreme Court in Citizens United v. FEC, in support of the prevailing party. See a FAQ.

Citizens United: Federal and State Courts React

2010-04-09T10:23:00.013-04:00

Aftershocks from the Supreme Court’s ruling in Citizens United v. Federal Election Commission continue to be felt in federal and state courts, legislatures and agencies across the country. As we have previously reported, the landmark ruling allows corporations to spend unlimited treasury funds to promote or oppose candidates, so long as that spending is conducted independently of candidates and political parties. Congress and state legislatures are examining various proposals to limit the impact of the ruling, including more disclosure of political spending, advance approval by shareholders, and limits on political spending by government contractors and foreign interests. In the meantime, a number of recent court rulings reflect the profound influence of the Citizens United case on federal and state election laws.

Advocacy Group PACs May Raise Corporate Funds, But Still Must Report to the FEC

The Supreme Court ruling in Citizens United means that advocacy groups may raise unlimited money from corporations to finance election ads, according to a D.C. appeals court ruling issued on March 26 in a case called SpeechNow.Org v. Federal Election Commission. But the Court also ruled that such groups still need to register and file periodic disclosure reports with the FEC, if they spend more than $1,000 on “independent expenditures” and their major purpose is influencing federal elections.

As we have been advising our clients, when a corporation contributes funds to an organization that engages in political advocacy, it is important to consider in advance whether the group will be required to disclose the contribution in public reports filed with the FEC. The answer depends in large measure on how the funds are raised, and what is communicated between the organization and its corporate donors.

The SpeechNow ruling is limited to advocacy groups that spend all their funds on independent expenditures – that is, purchase ads and engage in other kinds of political activity, but do not make contributions to candidates or political parties. Federal PACs that use their funds to make direct contributions may not raise funds from corporations, trade associations, or other incorporated entities.

Corporations Eyed By Republican National Committee for Campaign Cash

A three-judge panel for the federal district court in Washington, D.C. dismissed a suit by the Republican National Committee to overturn a law preventing national party committees from raising and spending “soft-money” (corporate and labor contributions, and unlimited funds from individual donors). A cornerstone of the McCain-Feingold law, the soft-money ban was upheld in 2003 in a 5-4 Supreme Court ruling. The three-judge panel agreed with the RNC that Citizens United raises questions about the vitality of the Court’s earlier ruling, but wrote that its hands are tied unless and until the Supreme Court reconsiders that ruling.

That may happen soon. An appeal of the panel’s ruling has already been filed with the Supreme Court, although any decision is likely to come after the 2010 elections. But if the Court sides with the RNC, the national party committees, Democrat and Republican, will be back in the soft money business for the 2012 elections.

It is worth recalling that when the McCain-Feingold law was initially challenged in the Supreme Court, some corporate leaders joined reform advocates in support of the soft money ban. A brief filed with the Court by prominent business leaders, including Warren Buffett and Paul Volcker, characterized soft money fundraising by the parties as a “shakedown” that led to "rampant influence peddling." But the law and political landscape have changed considerably since then. While the Supreme Court concluded in 2003 that certain soft money donations to political parties were made to gain access to lawmakers, Citizens United rejects that as a constitutional basis for restraining political spending. Only "quid pro quo" corruption, either in reality or appearance, can justify such limits. Also, an unintended result of Citizens United was to diminish the influence of political parties, leaving them constrained by hard money limits and source prohibitions, while no restraints apply to political spending by corporations and interest groups.

Supreme Court of Colorado Says State Constitutional Provisions Violate First Amendment

Key Colorado campaign finance laws are found in the state constitution, rather than state laws and regulations. For that reason, the attorney general asked the Supreme Court of Colorado to address the impact of Citizens United on the state constitution. Not surprisingly, the court ruled that two state constitutional provisions are invalid to the extent they restrict corporations and unions from funding communications that advocate for the election or defeat of candidates, or from funding electioneering communications (ads that refer to a candidate during the period immediately preceding an election). Within a day of the ruling, a state legislator announced that she may propose a bill to require corporate advertisers to disclose their parent companies or top ten donors, and to prevent the use of shell companies to purchase political ads.

SHAREHOLDER RESOLUTIONS PROLIFERATE IN WAKE OF CITIZENS UNITED

Shareholders are pressing for more corporate disclosure and oversight of political spending, in the wake of the Supreme Court’s ruling in Citizens United v. FEC. Dozens of shareholder resolutions have been filed in recent weeks that seek to force corporations to report all of their political spending online (including independent expenditures and payments to advocacy groups) and require more oversight of political spending by corporate boards. Some corporations have reached pre-vote agreements with shareholders. Others have sought to exclude shareholder resolutions under SEC rules that allow the company to omit a shareholder proposal from its proxy materials if the company has substantially implemented the proposal. Others have obtained “no action” relief from the SEC, on grounds that the proposals are vague and indefinite.

Any corporation that has not examined its disclosure and oversight policies in some time is well-advised to do so before shareholders force the issue. Even if a resolution never materializes, a reassessment of current policy will help the company define its approach to corporate political activity in the wake of Citizens United, and establish policies and procedures for company officials and employees to follow. Also, as discussed above, Congress and many states are considering laws that would require shareholder approval for political spending. One U.S. House bill, for instance, requires shareholder approval for independent expenditures and electioneering communications over $10,000, and trade association dues that may be used for political activity. The bill also calls for quarterly reporting to the U.S. Securities and Exchange Commission of expenditures for political activity.

IOWA IS FIRST STATE TO PLACE CONDITIONS ON CITIZENS UNITED SPEECH RIGHTS

Iowa is the first state to impose conditions on the exercise of corporate free speech rights that were recognized by the U.S. Supreme Court in Citizens United. The new law was signed on April 8 by Iowa Governor Chet Culver.

The Iowa law requires corporations to obtain an affirmative vote of the board of directors, executive council, or similar leadership body before making an independent expenditure that advocates for or against a candidate or issue. Each ad funded by a corporation must state who the ad was "paid for by," the name and address of the corporation, and the name of the CEO.

Corporate independent expenditures in excess of $750 must be reported to the Iowa Ethics and Campaign Disclosure Board within 48 hours. The disclosure report must identify all sources of funding for the independent expenditure, the names and addresses of all individual shareholders, and the names and addresses of the shareholders in any corporation which is itself a shareholder in the company making the independent expenditure. The disclosure report must also include a certification from the board of directors or similar body authorizing the expenditure.

GAO REPORTS ON LDA COMPLIANCE – MORE SUNLIGHT ON THE WAY?

The U.S. General Accountability Office, which randomly audits federal lobbying reports, issued its own report on April 1 regarding compliance by federal lobbyists and lobbyist-employers. GAO's third annual report – mandated by the Honest Leadership and Open Government Act of 2007 – covers lobbying reports filed for the last quarter of 2008 and the first three quarters of 2009. The main take away point is that GAO expects LDA registrants and individual lobbyists to maintain records of their lobbying income and expenses, their reportable contributions, and other information required to substantiate their lobbying reports.

The report also noted that Congressional referrals to the U.S. Attorney's Office regarding noncompliance have risen significantly. In 2007, there were just 368 Congressional referrals stemming from LD-2 reports, which are the quarterly activity reports filed by registered lobbyists or the organizations that employ them. Since passage of the 2007 law, the number of referrals grew to 1099 for the period covering 2008 and the part of 2009 addressed in the GAO report. In addition, there were 2680 referrals stemming from LD-203reports, which is the new semi-annual filing that calls for disclosure of certain political contributions and other disbursements, and a certification that filers have complied with congressional ethics rules.

While the U.S. Attorney has yet to announce a prosecution stemming from the 2007 lobbying law, it has implemented a new tracking system for referrals and enforcement actions, and is pursuing potential violators with the aim of bringing them into compliance. The GAO report acknowledged that its review did not include identifying lobbyist organizations that failed to register and report.

More disclosure obligations may be on the way. Rep. Mike Quigley (D-IL) and Rep. Darrell Issa (R-CA) have introduced The Transparency in Government Act (H.R. 4938), which would expand the publicly available information about the activities of Members of Congress and federal lobbyists. The bill would require the disclosure of Members' finances, gift and travel reports, earmarks, and votes. Lobbyists would have to disclose each executive branch official and each Member with whom they met, rather than listing on their reports the government agency or house of Congress lobbied as is currently the case. Lobbyists would also have to register online within 72 hours of making a lobbying contact or being hired, rather than waiting 45 days. The Quigley/Issa bill would enact several of the lobbying "reforms" advocated by President Obama in his State of the Union Speech.

FINANCIAL INDUSTRY PAY-TO-PLAY: SEC CLAMPING DOWN

The SEC intends to be active on the pay-to-play front, as signaled in two recent announcements involving Municipal Securities Rulemaking Board (MSRB) Rule G-37. This rule restricts campaign contributions to elected officials by municipal securities dealers. In a report involving JP Morgan Chase & Co, the SEC announced that the rule applies to contributions by an individual in an affiliated organization outside the corporate structure of the broker-dealer. In this matter, the illegal contribution to the California Treasurer was made by an executive of JP Morgan Chase who oversaw the activities of the bank’s broker-dealer subsidiary, JP Morgan Securities, Inc. Robert Khuzami, the Director of the SEC’s Division of Enforcement, has indicated that the activities of a person determine whether he or she is subject to the rules, not the person’s position in an organizational chart.

Separately, Southwest Securities Inc. recently agreed to pay the SEC $470,000 because the company underwrote Massachusetts bonds after a banker contributed to the campaign of state Treasurer Tim Cahill. While the company alleged that the violation was unintentional, it agreed to a $50,000 fine and a $420,000 payment to the U.S. Treasury representing the fees, plus interest, it earned on the bond work.

Meanwhile, the SEC continues its work on Proposed Rule 206(4)-5, which would restrict campaign contributions by investment advisors seeking contracts from public pension plans. This proposal is modeled closely on Rule G-37. One of the main sticking points is the proposal’s complete ban on investment advisors making payments to third-party “placement agents” who help them obtain the government work. Some critics claim that the prohibition discriminates against smaller investment advisors who need the placement agents to compete for government work. It appears now that the Financial Industry Regulatory Authority will work with the SEC to develop a more limited approach to the placement agent ban. We are following these developments closely and will provide updates as Rule 206(4)-5 moves forward.

FEC ISSUES REPORT ON PAC ACTIVITY

The FEC reported this week that PAC activity remained steady in 2009. The 4618 federally-registered PACs raised in excess of $555 million, spent over $464 million, and contributed over $174 million to federal candidates. This level of activity is roughly in line with 2007, the first year of the last election cycle. Labor PACs showed the greatest activity in comparison to 2007. They reported approximately $129 million in receipts, $96 million in disbursements, and $26 million in contributions, increases of 12%, 22.5%, and 9% respectively. PACs ended 2009 with over $403 million cash-on-hand, which is an increase of 6% over 2007.

We have been reminding clients and attendees of our webinars and presentations on the Citizens United case that a corporate PAC remains an essential tool. While restrictions have been lifted on independent corporate spending for ads and other communications that support or oppose candidates, a PAC is the only vehicle for a corporation to make political contributions that are directly identified with the company. PAC contributions are more closely linked to corporate goals and can provide a greater benefit to the corporation than personal contributions made by company officials.

We recommend a legal compliance audit for federal PACs, every two years, to review PAC bylaws, solicitations and other communications; assess reporting obligations for contributions to nonfederal candidates; review compliance with contribution limits and FEC bundling rules; evaluate internal controls for safeguarding PAC funds, consistent with FEC guidelines; and review recordkeeping practices. We also advise periodic training for personnel involved in PAC operations.

Norton, Kahl to Speak on Corporate Political Activity to Baltimore ACC Members

2010-03-02T12:15:00.004-05:00

BALTIMORE—The Supreme Court’s recent ruling in the Citizens United v. FEC has greatly changed the political landscape for corporate political activity. No one has been following these events more closely than Womble Carlyle attorneys Larry Norton and Jim Kahl, and they will share their knowledge with Baltimore-area in-house attorneys on March 31^st.

Norton and Kahl will be speaking at the monthly luncheon meeting of Association of Corporate Counsel's Baltimore Chapter. Their program is entitled, "Corporate Political Activity this Election Year - Treacherous Waters & Safe Harbors."

In the current environment, corporations have tremendous opportunities for political activity—but the also face great risks from noncompliance.

This program will familiarize business leaders with the Citizens United case and other developments in the regulation of political activity and lobbying. Norton and Kahl will address the elusive line between corporate and volunteer campaign activity, and why the distinction is so important. And they will discuss how companies and their executives can protect themselves from potential fines and criminal penalties, preserve their ability to compete for government contracts, and avoid the harm to business reputation that can occur from missteps in this area.

The event takes place at the Capital Grill, 500 E. Pratt St. in Baltimore. For more information or to register, please contact Stacey Stepek at (410) 691-6541 or via email.

About the Speakers

Larry Norton and Jim Kahl head Womble Carlyle's Political Law Practice. They represent corporations, trade associations, non-profit organizations, and others in connection with campaign finance, lobbying, and gift laws. Before joining Womble Carlyle, Norton and Kahl served as General Counsel and Deputy General Counsel, respectively, of the Federal Election Commission from 2001-2007. Norton and Kahl filed a brief in the Supreme Court in support of the winning party in the Citizens United case.

Larry Norton to Speak at Corporate Lobbying and Political Activity Forum

2010-02-25T10:22:00.002-05:00

Womble Carlyle attorney Larry Norton will be speaking at the American Conference Institute's National Advanced Forum on Corporate Lobbying and Political Activity. The conference is scheduled for April 29-30 at the Marriott Metro Center in Washington, D.C.

Norton is on the three-attorney Conference Advisory Board and will be speaking on "State Pay-to-Play Legislation and Enforcement: Navigating a Changing Landscape." Topics to be discussed include:

State variations across the country vis-à-vis covered donors
Trend toward including gifts and entertainment in state pay-to-play laws
Illinois' new pay-to-play requirements
- New registration and reporting requirements
- Contribution and solicitation restrictions on Illinois bidder, contractors and related entities
New Jersey’s pay-to-play regime
- Contribution limits and enforcement requirements
- Recent expansion of scope of regime
Assessing the potential risk to your company if the company or its contractors make political donations
Guidelines for employees – so they don’t unwittingly violate pay-to-play rules.

Norton also is leading a pre-conference workshop on “The Fundamentals of Corporate Political Activity.” The workshop will be held from 2-5 p.m. on April 28th.

For more information or to register, click here.

Citizens United: FAQ on the Impact and Implications of a Landmark Supreme Court Ruling

2010-02-18T12:02:00.014-05:00

On January 21, 2010, the Supreme Court handed down a landmark ruling that invalidated restrictions on the content and timing of political ads funded by corporations and labor organizations. (Citizens United v. Federal Election Commission). The ruling frees corporations, trade associations, advocacy groups and labor organizations to fund independent ads that support or oppose officeholders and candidates.

The Supreme Court's recognition that corporations have a First Amendment right to engage in independent political speech has implications well beyond political advertising. The ruling has prompted a wholesale reassessment of federal and state laws that limit the political speech rights of corporations, including the right to communicate about elections with employees, customers and vendors; finance voter registration and get-out-the-vote efforts; publish and distribute voter guides; and sponsor candidate debates. This reassessment will likely pave the way for corporations to use a host of new tools for influencing elections and public policy.

See our FAQ regarding the case by clicking here.

BLIZZARD OF NEW LAWS AND REGULATIONS IN THE NEW YEAR

As if the Citizens United decision weren’t enough, the New Year has already brought many new state laws and regulations affecting political activity. Quite a beginning for an election year.

FEC Revisits Coordination Rules: The Supreme Court’s recognition that corporations and unions may advocate for and against candidates was premised on the assumption that such speech is not “coordinated” with candidates and parties. As it turns out, at the time of the Court’s decision the FEC was in the midst of a rulemaking proceeding on its coordinated communications rules – the third try by the agency after earlier attempts have been invalidated by a D.C. federal court.

After the ruling, the FEC extended its comment period to February 24, asking this overarching question: "Now that Citizens United permits additional entities, such as public corporations and labor organizations, to make independent expenditures, does the proposed rule on coordinated communications adequately address these organizations?" The Commission also asks whether it should set a heightened bar for complaints that companies or advocacy groups have coordinated with a candidate. The concern is that, absent a mechanism to screen out dubious complaints at an early stage, the threat of a coordination complaint will chill protected speech. The FEC’s supplemental request for public comment can be reached at this link.

Separately, the FEC has announced that it will initiate a rulemaking regarding the impact of Citizens United on existing agency rules. No timetable has yet been set for those efforts.

White House Re-energizes Lobbying Reform Effort in Citizens United Aftermath: The Obama Administration’s displeasure with the Supreme Court's decision is no secret. The President himself voiced his disapproval directly to the Justices during the State of the Union speech. Now, the Administration is linking its fear that Citizens United will contribute to "undue" corporate influence – particularly foreign influence – on the political process with its desire for more lobbying reform. In a recent blog post by Ethics Advisor Norm Eisen, the White House is calling for additional regulation of lobbyists in the aftermath of the Citizens United decision. Specifically, the Administration is calling for:

Low-dollar limits on contributions that lobbyists may bundle or make to federal candidates
Elimination of the registration exemption for lobbyists who spend less than 20% of their time on lobbying activity for a client
Mandatory disclosure of the "details of every lobbying contact" by lobbyists
Fuller disclosure by foreign agent lobbyists; and
Full disclosure of earmark requests on a new database

New Jersey: The Garden State already has one of the toughest pay-to-play regimes in the country, and it just got more interesting. As one of his first acts, Governor Chris Christie signed Executive Order No. 7 on January 20, which extends political contribution limits and reporting requirements to unions that have collective bargaining agreements with the state.

The New Jersey Election Law Enforcement Commission (ELEC) has also proposed a record retention requirement of four years for entities required to file annual reports under the state's pay-to-play law. A hearing on the proposal was held on Tuesday. Remember that New Jersey’s annual pay-to-play report is due on March 30, 2010.

Ohio & California: Both states have embarked upon tougher enforcement of their lobbying and gift laws. The Ohio Attorney General has announced a campaign to investigate violations of the state's lobbying laws and to collect debts owed by lobbyists. Meanwhile, the California Fair Political Practices Commission has announced an effort to investigate 38 lawmakers who accepted, but failed to report, gifts from lobbying groups.

North Carolina: Last fall, Governor Beverly Perdue issued Executive Order No. 24 that is sure to have repercussions this election year. Now all cabinet agency employees are prohibited from accepting gifts from existing and prospective state contractors. The gift ban had previously applied to just a limited group of executive branch officials.

Illinois & New Mexico: While Illinois and New Mexico recently enacted for the first time limits on campaign contributions, you should be aware that these new limits will not go into effect until after this year’s elections. So the gubernatorial campaigns in both states are subject to the older – wide open – contribution rules. This week, the New Mexico House of Representatives passed a bill that would prohibit lobbyists and contractors from contributing to candidates and political parties.

Pennsylvania: New pay-to-play laws applying to municipal pension funds took effect on December 17, 2009. The law requires that all Pennsylvania municipal pension funds adopt and follow a Code of Conduct that prohibits professional service contractors (including investment, legal, and consulting services) from offering a gift of more than "nominal value" to any "official, employee or fiduciary of a municipal pension system." It also prohibits such contractors from soliciting a campaign contribution for a municipal official or candidate for municipal office, or for the political party of that official or candidate. The law contains a "look-back" provision that bars firms from entering into contracts if they have made a prohibited contribution in the preceding two years. And finally, professional service contractors must disclose and update annually political contributions made over the past five years by their officers, directors, executive-level employees, owners (5% or more) and affiliated entities. A knowing and material misstatement (or omission) regarding any disclosure requirement in this law will prevent the entity from entering into a contract for up to three years.

Virginia: Earlier this week, the Virginia Senate passed a bill prohibiting bidders on state contracts worth more than $5 million from donating to the governor’s campaign committee. The bar would apply between the time a bid is submitted and the award of the contract.

Dallas: The City of Dallas adopted a pay-to-play ordinance, effective December 1, 2009, that bars campaign contributions to city council members by bidders on city contracts. The contribution ban extends to the bidders’ employees, and any person acting as a representative or agent of the bidder.

You are invited to a webinar

Citizens United: What the Landmark Supreme Court Ruling Means for Election-Related Spending By Corporations and Associations

DATE: Thursday, March 11, 2010
TIME: 12:00 p.m. – 1:00 p.m. (EST)
WHERE: ANYWHERE! Join from your desk or anywhere with Web access!
COST: There is no charge to attend, but space is limited.

Click here to register (Registrants will receive an email containing all log-in information prior to the program.)

The landmark Supreme Court ruling in Citizens United v. FEC changes the rules for corporate spending in federal and state elections. The ruling removes barriers on election ad spending by corporations, corporate coalitions and trade associations. It also expands the right of corporations to communicate with employees, customers and vendors, and donate to advocacy groups in support of their election activities. More than ever, it is essential for companies and associations to understand the scope of these new opportunities and the restrictions that continue to apply.

Why should you attend this webinar?

The opportunities to help your business through political activity and lobbying have never been greater. But so, too, are the risks from noncompliance.

This program will address new opportunities for influencing officeholders and candidates, and offer practical tips for keeping your company and employees out of trouble. We’ll address important questions that you and your management team should be asking, including:

How has the Supreme Court changed the rules for corporate participation in federal and state elections? For trade associations and advocacy groups?
What are the new opportunities for using political engagement to achieve business goals? What are the legal and business risks? What are the rules of the road you need to know about?
How are PACs affected? How about direct corporate contributions, using corporate resources to augment personal fundraising, or site visits by officeholders and candidates?
How are federal, state and local laws likely to change in the wake of Citizens United? Will the ruling lead to even more state and local restrictions on campaign contributions by government contractors and their employees ("pay-to-play" laws) and on lobbying by contractors? What steps is the FEC taking to clarify its regulations?
How have the risks of political engagement changed in the wake of Citizens United? What changes should corporations and associations consider to strengthen their compliance systems?

About the speakers:

Larry Norton and Jim Kahl head Womble Carlyle's Political Law Practice. They represent corporations, trade associations, non-profit organizations, and others in connection with campaign finance, lobbying, and gift laws. Prior to joining Womble Carlyle, Larry and Jim served as General Counsel and Deputy General Counsel, respectively, of the Federal Election Commission from 2001-2007. They co-author a blog on political law issues called Political GPS. Larry and Jim filed a brief in the Supreme Court in support of the winning party, Citizens United.

Questions about this Webinar? Please contact Katie Tedrow via email or via phone at (202) 857-4502.

Womble Carlyle Presents WMACCA Signature Luncheon: Corporate Political Activity this Election Year

2010-02-05T15:44:00.001-05:00

Larry Norton and Jim Kahl of Womble Carlyle’s DC Office and Political Law Team, will present WMACCA’s February Signature Luncheon titled, "Corporate Political Activity this Election Year - Treacherous Waters & Safe Harbors," on Thursday, February 25, 2010, from 12:00 – 2:00 p.m. at the Tysons Corner Marriott.

The landmark Supreme Court ruling in Citizens United v. FEC has transformed the rules for corporate spending in federal and state elections. Corporations are now able to communicate more freely about elections with the general public, as well as with their employees, customers and vendors. Corporations may also donate to trade associations and advocacy groups in support of their election activities. It is essential for companies and associations to understand the scope of these new opportunities and the restrictions that continue to apply.

Even before this ruling, a proliferation of new laws has raised the stakes for businesses engaged in political activity and lobbying at the state and local levels. For companies that seek or do business with government agencies, many state and local governments have adopted complex pay-to-play laws that restrict campaign contributions from companies, their officers and employees. States are also tightening laws that govern gifts to public officials, and expanding lobbying laws to cover sales professionals involved in government contracts and general efforts to cultivate goodwill.

The opportunities to help your business through political activity and lobbying have never been greater -- but so, too, are the risks from noncompliance. This program will familiarize you with the Citizens United case and other developments in the regulation of political activity and lobbying. You will learn about the elusive line between corporate and volunteer campaign activity, and why the distinction is so important. And you will learn how to protect your company and its executives from potential fines and criminal penalties, preserve your ability to compete for government contracts, and avoid the harm to business reputation that can occur from missteps in this area.

About the speakers:
Prior to joining the firm, Larry and Jim served respectively as General Counsel and Deputy General Counsel of the Federal Election Commission from 2001-2007. They co-author a blog on political law issues called Political GPS. Larry and Jim filed a brief in the Supreme Court in support of the winning party, Citizens United.

For more information and to register please click here.

GPS Special Edition: Corporations Free to Engage In Election Spending, Says U.S. Supreme Court

2010-01-22T11:54:00.005-05:00

The Supreme Court yesterday swept aside federal laws that ban political spending by corporations in candidate elections.

The ruling in Citizens United v. Federal Election Commission struck down a decades-old ban on ads funded by corporations (including incorporated trade associations and non-profits) that expressly advocate the election or defeat of a federal candidate. The court also overturned the McCain-Feingold law’s ban on corporate-funded “electioneering communications” – broadcast ads that merely refer to a candidate and air in the periods immediately before federal elections.

Contrary to some reports, the ruling does not permit corporations to make campaign contributions to candidates or party committees. Such contributions are still prohibited under federal law and the laws of many states. For companies taking advantage of this new ruling, it is essential to avoid coordinating with a campaign or party committee about an ad’s content, timing, or placement, or else the ad may be treated as a prohibited in-kind contribution. Firewalls and other measures can protect the company from potential liability.

Supreme Court Sides with Broadcasters in Landmark Case

2010-01-22T10:30:00.007-05:00

Overturns McCain-Feingold’s Electioneering Communication Prohibitions

The Supreme Court struck down longstanding federal laws that prohibit corporations from directly financing election ads in a decision released on January 21, 2010. The Court's ruling in Citizens United v. Federal Election Commission agreed with the position advocated by Womble Carlyle Sandridge & Rice, PLLC in a brief filed on behalf of ten State broadcasters associations. Corporations are now free to purchase ads that expressly support or oppose candidates, and so-called "electioneering communications" – broadcast ads referring to candidates which air in the periods immediately before elections.

"The Citizens United decision is a strong affirmation of the First Amendment rights of media corporations," said Womble Carlyle Communications Attorney Gregg Skall. "We are pleased that the Court recognized and protected the broadcast industry’s vital role in the dissemination of political information to the public."

Click here to read more...

New Year, New Scrutiny: Act Now To Protect Company From Auditors, The Media, And Others Who Are Reading Your Disclosure Reports

2009-12-08T10:10:00.003-05:00

In the rush of year-end deadlines and holiday preparations, it's easy to let next year's lobbying, campaign finance and pay-to-play deadlines wait until – well, next year. A little advance planning, however, can avoid unpleasant questions later in the year from government auditors, the media, watchdog groups and your competitors – all of whom may be scrutinizing your disclosure reports.

Here are some important deadlines that come early in the New Year:

Companies that employ one or more federal lobbyists must certify, by January 30, that no one in the organization has made a "gift" on behalf of the company (or been reimbursed for a "gift") to a Member of Congress or congressional staff. This certification should be supported by a survey of office or division heads, periodic training on congressional ethics rules, and appropriate policies and procedures.
The January 30 report must also disclose contributions to organizations with ties to Members of Congress or senior executive officials. These include payments for events that honor Members of Congress and covered executive branch officials, and payments to organizations that they finance or control. A comprehensive survey of office heads is essential due diligence for this disclosure requirement.
Individual lobbyists must separately certify compliance with gift rules and disclose personal contributions. Do you have a system for pre-approving political contributions and other reportable disbursements by your employee-lobbyists? Bear in mind that these disbursements can reflect on the company, and can trigger questions from the media and other observers.
Lobbyist-employers must also file a quarterly report on January 20, disclosing issues and agencies lobbied, and accounting for lobbying expenses. This accounting must include time spent behind-the-scenes by non-lobbyist employees, certain meetings between senior executives and covered government officials, and other disbursements. In addition, once a year, each lobbyist-employer is free to revisit the system it uses to calculate lobbying expenses. This reassessment can have a significant impact on the amount disclosed.
Some states with pay-to-play laws require companies that do business with state agencies to report political contributions made by the company, its officers and covered employees. Maryland and Pennsylvania contractors must file detailed reports in February, and New Jersey contractors must file reports in March. Advance planning is critical to ensuring that you collect all required information.
A bit of planning can also be helpful in making political contributions. Many state legislatures are in session in the early months of the year, a period when political contributions may be restricted or prohibited.
The FEC allows federal PACs to change their reporting schedule once each year. Making a change in January can simplify your PAC’s reporting obligations for the rest of the year.
Finally, many state lobbying registrations expire at the end of the year. It is important to review whether appropriate employees are registered and, where appropriate, renew your registration. Note that major changes in lobbying laws go into effect in Illinois and Massachusetts, both of which are discussed below.

New Ethics Rules in the Bay State for 2010

And speaking of the New Year. . . . Massachusetts' new ethics, lobbying and campaign finance reform law takes effect on January 1, 2010. The new law expands the definition of a lobbyist to include persons who are paid for "strategizing, planning, and research" related to communications with government employees. It also lowers the activity time and dollar thresholds that trigger lobbyist registration obligations, and clarifies that lobbyists are banned from giving gifts of any value to government officials or employees. In the area of political advocacy, the new law requires disclosure of expenditures and funding sources for third-party mailings and ads that support or criticize a candidate or campaign.

It's important to note that the Massachusetts law increases penalties for civil and criminal violations of the state's bribery, ethics and lobbying laws. Criminal penalties for bribery can be as high as $100,000 and 10 years in prison, with civil penalties as high as $25,000. A violation of the lobbying and ethics rules can result in a sentence of five years in prison and a penalty of up to $10,000.

Illinois: The Rubik's Cube of Political Regulation

For Illinois lobbyists, state contractors and campaigns, 2009 has been an enormous compliance challenge. The year began with the adoption of one of the country's strictest pay-to-play laws, which prohibits political contributions by certain government contractors and their principals, and requires contractors to file and update registration reports under penalty of perjury. During the year, two state agencies issued rules interpreting the pay-to-play law, an executive order was signed and later rescinded, and the law itself was amended late in the year, with changes to take effect in July 2010. Illinois also overhauled its campaign finance laws, with new limits taking effect in January 2011.

More change is on the way in January 2010, when the state's new lobbying law takes effect. The new law adds compliance burdens for individual lobbyists and the organizations that employ them. The law requires registered lobbyists to:

Certify under oath the accuracy of their lobbying reports and pay higher filing fees
Itemize all expenditures, no matter how small (eliminating the $100 reporting threshold)
File weekly lobbying reports while the legislature is in session, and monthly reports at all other times (Semi-annual filing schedule is eliminated)
Take ethics training

The new law also increases the risks to lobbyists and their employers. Lobbyists are subject to a $10,000 fine for each day that a report is late. The Secretary of State Inspector General is also empowered to investigate violations of the lobbying law, pursuant to allegations received from any member of the public.

Pay-to-Play and State Pension Funds: Scrutiny of Placement Agents Continues

In recent weeks, the California Public Employees Retirement System (CalPERS) tightened disclosure rules for "placement agents" – middlemen who help investment managers obtain business from state pension funds and who have been at the center of pay-to-play investigations across the country. The new policy requires the disclosure of a placement agent’s identity and role in securing business, the identities of current or former CalPERS board or staff members who suggested hiring the agent, and the immediate reimbursement of any fees paid to the agent if the policy is violated.

The new disclosure policy did not, however, go as far as CalPERS Chairman, Rob Feckner, or State Treasurer, Bill Lockyer, would have liked. They unsuccessfully backed a proposal to require placement agents to register with the state Fair Political Practices Commission as lobbyists, and be subject to state disclosure and ethics obligations. While they failed to get the support of the 13-member board, Mr. Feckner directed the CalPERS staff to pursue legislation to achieve this goal.

Meanwhile, CalPERS is looking into its dealings with California equity fund, Markstone Capital Partners, whose chairman, Elliot Broidy, pleaded guilty last week to charges that he helped his firm obtain a $250 million investment from New York State’s public pension fund by making $1 million in illegal gifts to state officials.

New Jersey Search Engine Will Spur Enforcement of Pay-to-Play Laws

New Jersey's pay-to-play laws are notoriously complex. Through state law, a series of executive orders and approximately 150 municipal ordinances, bidders and contractors are severely restricted in terms of money they can raise for candidates or contributions they can make. These restrictions can affect state and local contracts, and apply to a company's owners, officers, and senior executives, as well as their family members. New Jersey has not shied from enforcing its law, either. The State has disqualified a number of bids, costing companies tens of millions of dollars in government business.

Last month the state election commission announced that campaign donations to municipal candidates are now in searchable form on the agency's website. There is little doubt that the media and watchdog groups will scour these records to see if any covered person from a bidder or contractor has made a prohibited contribution. We also expect competitors to make increasing use of the database, as evidenced by a recent lawsuit filed by one company to disqualify a competitor for a pay-to-play violation.

Larry Norton Named “Top Lawyer” In Washingtonian Magazine, Will Speak At Conference Sponsored by Women in Government Relations

Larry Norton was named in the December 2009 issue of Washingtonian Magazine as a "top lawyer" in the field of election and ethics law.

Larry is speaking on Friday, December 11, 2009, at the Women in Government Relations "PACs, Politics & Grassroots Conference." The event will be held at the Washington Court Hotel in Washington, D.C. Larry will talk about legal issues involved in lobbying the Obama Administration.

Rules for Advocacy Groups May Not Be Settled Until Spring 2010

2009-11-09T11:03:00.013-05:00

The Federal Election Commission (FEC) announced on October 21 that it will not seek further review of a ruling by a three-judge federal appeals panel that struck down restrictions on fundraising and spending by non-profit advocacy groups. (EMILY’s List v. FEC). The six-member Commission split evenly on whether to ask for review by the entire D.C. Circuit Court of Appeals, even though the ruling invalidated rules that the Commission adopted just four years ago.

For non-profits looking ahead to 2010, however, the rules governing fundraising and spending will probably not be clear until next spring. One reason is that the issue at the heart of the ruling in EMILY’s List – whether federal contribution limits apply to fundraising by advocacy groups – will reach the full D.C. Court of Appeals regardless of the FEC vote, through a separate case filed by a 527 organization called SpeechNow.org. The nine sitting judges currently on the appeals court are scheduled to hear oral argument in SpeechNow v. FEC on January 27, 2010. A ruling in the case is unlikely to come before March.

In addition, the Supreme Court is expected to rule in the next few months on the constitutionality of spending restrictions by corporations and unions. The FEC, in the meantime, promises to "issue guidance to political committees in the near future" regarding enforcement in the wake of the EMILY’s List decision.

Much remains unsettled in terms of the rules for fundraising and spending by non-profit advocacy groups. Until the picture clears, caution is well-advised.

FEC’s New Coordination Rules Could Impact Non-Profits, Political Consultants in 2010 Race

In October, the FEC released proposed rules concerning coordinated spending between outside groups and the campaigns of federal candidates and political parties. Federal law has long prevented candidates and political parties from arranging for outside groups to finance ads and other communications. Absent this prohibition, limits and source restrictions on campaign contributions would become meaningless.

The question for the FEC is when contact between outside groups and candidates/political parties is "coordinated" and when the Commission will investigate allegations that a coordinated expenditure has been made.

These new rules could have a huge impact in the 2010 election. With the Supreme Court poised to loosen restrictions on "independent" spending by third-parties, rules that define when a third-party is acting in concert with a candidate (or political party) will determine how careful advocacy groups must be to avoid ties with the candidates and parties they support. The stakes are also high for political consultants. To prevent the sharing of plans and strategy, the FEC proposes to limit the circumstances when consultants may simultaneously work for candidates and outside groups.

The Bipartisan Campaign Reform Act of 2002 (the "McCain-Feingold law") required the FEC to adopt new coordination rules, but earlier efforts have been invalidated by the courts. The current proposal seeks to cure defects cited by a federal appellate court in June 2008. (Shays v. FEC). One of the major faults cited by the court is the fact that the rules place relatively few restrictions on coordinated activity by outside groups and candidates unless it occurs within certain short periods before elections. The general approach of the proposed rules is to eliminate these time frames and instead confine the agency’s authority to certain types of communications. The FEC seeks comment on several alternatives, including communications that "promote, support, attack or oppose candidates; express advocacy communications; and communications that are the functional equivalent of express advocacy."

The proposed rules also address professional political consultants that provide services to campaigns and independent advocacy groups. As currently drafted, one way that coordination may occur between a candidate or party and an outside person or group is through a "common vendor" that conveys information between its two clients. Under the rules tossed out by the June 2008 ruling, no coordination can be found if a vendor performs services for the campaign or party at least 120 days before performing services for the outside group. The proposed rule offers three alternatives: retain the 120-day window, if the agency can develop a better record to support it; use a "two-year period" ending on the date of the general election; or use the "current election cycle" for the office sought, which could be a two, four or six-year election cycle period.

Whatever form the FEC coordination rules take, they are likely to have a major impact on the conduct of upcoming elections. Several court cases working their way through the appeals process, such as the Citizens United and Emily’s List cases, could allow outside groups to spend unlimited amounts on federal elections – so long as these groups act independently. Comments on the draft FEC rules are due on or before January 19, 2010, and hearings will be scheduled at a later date.

Illinois Expands Pay-to-Play Law: Adds Restrictions on Contributions, Requires More Lobbying Disclosure

The Illinois General Assembly has overridden Governor Quinn’s amendatory veto of a procurement reform law, with the House voting on October 29 and the Senate on November 3. The new law (SB0051), which will take effect on July 1, 2010, substantially changes restrictions on political contributions by contractors and their principals, and requires disclosure of contractors’ efforts to influence the award of state contracts.

The Illinois pay-to-play law took effect earlier this year and has been a moving target for businesses attempting to comply with it. Last year, an embattled Governor Blagojevich signed an executive order expanding the contribution ban, but Governor Quinn rescinded that order. Both the State Board of Elections and the Department of Central Management Services have published regulations to implement the law, and in September 2009 businesses were required to re-register using a new on-line registration system.

Highlights of the new law include:

A contribution ban now extends to corporate parents of bidding and contracting entities, and each operating subsidiary of the corporate parent. The law formerly applied to members of the contracting entity’s "unitary business group," a term which the law failed to define.
The law defines which executive employees of the contractor are subject to the contribution ban and other restrictions. The change in the law mirrors regulations adopted by the Illinois Department of Central Management Services.
Contractors are required to amend their registration within 5 business days of any change in information or no later than 1 day before the contract is awarded, whichever date is earlier. Registered entities have a continuing duty to report changes in information to the State Board of Elections on a quarterly basis.
State bond underwriters subject to the Municipal Securities Rulemaking Board’s Rule G-37 must certify, before entering into underwriting contracts with state agencies, that they will report political contributions, as required by the Rule, and that their failure to remain in compliance shall make the contract voidable by the State.
Bidders for contracts with an annual value of $10,000 or more must disclose their own financial interests, as well as the financial interests of each of their subcontractors and lobbyists.
Any person who initiates or participates in an oral communication about a procurement matter must submit a written report memorializing that communication, if the communication was made by someone required to register under the State’s Lobbying Registration Act.

We expect the State Board of Elections and Department of Central Management Services to propose new rules in the coming months to implement these changes.

Pressure Builds on Financial Sector to Curb Pay-to-Play Practices

Regulators across the country are intensifying scrutiny of the financial sector over the use of campaign contributions and other payments to get business with state retirement funds. At the federal level, the Municipal Securities Rulemaking Board approved in mid-October an amendment to Rule G-37 that requires municipal securities dealers to publicly disclose contributions to bond ballot committees made by dealers, their municipal finance professionals, and their political action committees. These reportable contributions do not, however, trigger G-37’s two-year "time-out" on government business that applies to many contributions by dealers to public officials and candidates. As reported in the October 13 Political GPS, the MSRB is still considering another proposal to extend the contribution disclosure requirements to PACs of banks that are affiliated with the dealers.

In New York State, Attorney General Cuomo and a bipartisan group of legislators are backing a bill to enshrine in law Mr. Cuomo’s Public Pension Reform Code of Conduct. Cuomo has been investigating pay-to-play practices involving the state pension fund, collecting almost $60 million in fines from several investment firms, and requiring settling firms to abide by the model Code of Conduct. The proposed legislation, entitled "Taxpayers’ Reform for Upholding Security and Transparency" ("T.R.U.S.T.") bans the use of placement agents; provides for a "time-out" on pension business if investment managers and their families make contributions to certain public officials; and replaces the state Comptroller as the sole fund trustee with a 13-member board of trustees.

As this legislation moves forward, we understand that 36 other states are investigating how financial brokers and other middlemen have used kickbacks and campaign contributions to gain access to retirement funds. In California, the Public Employees' Retirement System ("CalPERS") has launched an investigation into payments by money managers to a former CalPERS board member. The former board member allegedly received $65 million in fees while the state pension fund lost hundreds of millions on the investment. CalPERS also accepted the resignation of a prominent real estate investment advisor who was allegedly responsible for a $970 million investment in a development company that subsequently went bankrupt.

Contract Bidder Sues to Oust Competitor under New Jersey Pay-to-Play Law

A New Jersey contractor has filed suit over a $30 million contract award by Hudson County, New Jersey, claiming that the County should have voided the low bid because of a violation of the state’s pay-to-play law. The suit charges that prior to submission of the bid, the President of the low-bidder made a prohibited $1,000 contribution to a county official.

As we have discussed previously, New Jersey has one of the strictest and most complex pay-to-play laws in the country. The State has disqualified dozens of bids, while counties in the state continue to adopt new ordinances. Governor Corzine had pledged to bring a uniform approach to the state’s overlapping pay-to-play system, which includes a statewide law governing state and local contracts, well over 100 municipal ordinances and a series of executive orders. That task will now rest in the hands of Governor-elect Christie, who defeated Corzine last week.

This is the first instance of which we are aware that a pay-to-play law has served as the basis for a contract award challenge. It is likely that competitors for public contracts in pay-to-play jurisdictions across the country will scour state political contribution databases to look for grounds to oust their competitors. Please contact us if you need assistance in researching contributions in pay-to-play jurisdictions.

NC Candidates May Face Personal Liability for Campaign Penalties

The North Carolina State Board of Elections has asked the North Carolina General Assembly to consider making political candidates personally responsible for penalties their campaigns incur through violations of campaign finance laws. The requested change comes as the Board orders former Governor Mike Easley’s campaign committee to pay $100,000 for failing to report flights Easley took aboard donors’ planes throughout the years 2000 and 2004. Under current law, Easley cannot be held personally liable for the penalty. Attorneys for Easley’s campaign have said that the committee does not have sufficient funds to pay the penalty assessed by the Board.

Senate President Pro Tempore Marc Basnight issued a statement saying that lawmakers would "take a long look" at the Board’s recommendation. "We need to continue working to restore the public’s trust in government," Basnight said. The General Assembly is scheduled to reconvene in May 2010.

D.C. Appeals Court Tosses Out FEC Restrictions on Non-Profits

2009-10-13T14:11:00.002-04:00

A three-judge federal appeals panel on September 18 struck down FEC rules that limit fundraising and spending by non-profit advocacy organizations. The court in EMILY’s List v. FEC concluded that such groups have a constitutional right to raise unlimited funds in support of candidates for elected office, and to spend those funds on any independent, election-related activities, including political ads, get-out-the-vote efforts and voter registration drives.

The FEC adopted the challenged rules after the 2004 Presidential election, where 527 groups, such as Swift Boat Veterans for Truth and MoveOn.org, raised and spent millions of dollars on hard-hitting ads. One of the major rules rejected by the court treats funds received by a non-profit as a “contribution” if the organization tells prospective donors that any portion of their donations will be used to support or oppose federal candidates. Groups that receive over $1,000 in contributions and whose major purpose is influencing federal elections must abide by federal contribution limits and source restrictions, and file reports as a political committee. Other invalidated rules require non-profits to use “hard money” to fund certain types of ads and expenses.

The court’s ruling could mean a huge role for advocacy groups in the 2010 election, but it does not leave them unregulated. For instance, while the ruling removes many restrictions on fundraising and spending, it does not affect laws requiring registration and reporting with the FEC. The court noted that the FEC may also require such groups to use a “hard money” account for any direct contributions to candidates. And, the court noted, the ruling will have no effect on so-called “connected” PACs, i.e., PACs connected to corporations and unions.

There are also longstanding restrictions on how non-profits may spend funds received from for-profit corporations and unions. These restrictions, however, may be short-lived. As we wrote in the prior edition of Political GPS, the Supreme Court appears poised to use the pending case of Citizens United v. FEC to reject government limits on independent corporate or union spending.

We urge caution in relying on this ruling until the legal process plays out. The FEC may ask for review by the entire bench of the D.C. Court of Appeals, although at least four of the Commissioners on the six-member panel would have to vote in favor of such a move. This seems unlikely given the present make-up of the Commission and recent series of deadlocked votes in enforcement actions involving non-profits. If the FEC declines to pursue the case, the agency may still decide to issue new rules in response to the decision or the U.S. Solicitor General, who has exclusive authority over Supreme Court cases, may ask the Supreme Court to review the case.

MSRB Proposes Expanded Disclosure of Contributions Under Rule G-37
The Municipal Securities Rulemaking Board may expand Rule G-37, which imposes a two-year ban on doing business with a government issuer when broker-dealers and the financial professionals they employ – known as MFPs – make contributions over $250 to an official of that municipality. Broker dealers must also disclose these contributions to public officials.

On September 16, the MSRB requested comments on a draft rule which would extend the disclosure requirements to the PACs of banks and bank holding companies that are affiliated with the dealers. The MSRB is concerned with the perception that contributions by these PACs to issuer officials may be a significant factor in the awarding of municipal finance business to bank-affiliated dealers. Such contributions would not, however, trigger the two-year time out. Comments on the draft must be submitted to the MSRB by October 30.

This proposal follows on the heels of another proposed change to Rule G-37 that would require dealers to disclose contributions to bond ballot committees. (See July 1 Political GPS) The MSRB has not taken action on that earlier proposal.

More Pay-to-Play Developments in the Empire State
Four more investment firms have reached settlements with New York Attorney General Andrew Cuomo to pay back a combined $4.5 million to the New York State pension fund. The four companies – HM Capital Partners, Levine Leichtman Capital Partners, Access Capital Partners and Falconhead Capital – also agreed to adopt Mr. Cuomo’s Public Pension Fund Reform Code of Conduct. In addition to earlier settlements with The Carlyle Group ($20 million), Riverstone Holdings ($30 million), and Pacific Corporate Group Holdings ($2 million), the Attorney General has now recouped almost $60 million from investment firms allegedly involved in the pay-to-play corruption scandals involving the pension fund.

Attorney General Cuomo also announced on October 6 two more guilty pleas in the pay-to-play investigation involving the pension fund. Raymond Harding, former chair of the state Liberal Party, was set up as a sham placement agent by two former state officials in exchange for political favors he had provided. Mr. Harding received over $800,000 through placement fees. In addition, Saul Meyer, a partner in an equity fund, paid kickbacks to a former state official in exchange for business with the state pension fund.

Meanwhile, New York State Comptroller Thomas DiNapoli issued an executive order on September 23 banning the state pension fund from hiring money managers for a two-year period if they contribute to a candidate for Comptroller. This order is modeled after the SEC’s draft Rule 206(4)-5, which is aimed at curtailing pay-to-play practices by investment advisers in the public pension fund sector, and is intended as an interim measure until the SEC takes final action on its rule. (See August 6 Political GPS) Mr. DiNapoli submitted comments to the SEC on October 2 in support of the SEC proposal, which he believes should be broadened to cover contributions from family members of investment advisers. This order is modeled after the SEC’s draft Rule 206(4)-5, which is aimed at curtailing pay-to-play practices by investment advisers in the public pension fund sector, and is intended as an interim measure until the SEC takes final action on its rule.

Comment Period Closes on SEC Pay-to-Play Proposal; Connecticut Treasurer Cites Concerns
Speaking of the SEC proposal, the period for the public to submit comments closed on October 6. The SEC has yet to indicate whether there will be a public hearing on the proposal or when a final rule might be issued.

One comment that caught our attention was submitted by Connecticut State Treasurer Denise Nappier, whose state has one of the toughest pay-to-play laws. While Nappier is supportive of the SEC’s effort, she also offered some strong criticism of the proposal.

Napier warned that the proposed ban on placement agents would harm many private investment funds that do not have in-house marketing capabilities. She urged instead that the SEC consider the approach taken in the Connecticut law, which bans “finder’s fees” and requires disclosure of fees paid to placement agents.
Napier urged the SEC to abandon a “look-back” provision, which would prohibit an investment fund manager from providing advisory services to a public pension plan if one of its associates made a contribution to an official of the government entity within the prior two years. Napier noted that government investors frequently purchase interests in long-term pooled investment vehicles that include both public and private investors. Because such investment vehicles often have severe default provisions, Napier warned that “[g]overnmental investors cannot be placed in the position of potentially losing 50% or more of their capital account because a future hire triggers the retroactive attribution of a campaign contribution.”
Napier characterized the ban on contributions to political parties as “extreme,” noting that “[n]othing in the SEC’s proposed rule indicates that contributions to political party committees have presented a significant problem in the past.”

We will continue to report on the SEC proposal, and spotlight other comments and issues in future editions of GPS.

North Carolina Tightens Gift Ban, Restrictions on Placement Agents
Governor Bev Perdue has signed an Executive Order requiring all employees in Cabinet agencies to follow a state law barring the acceptance of gifts from firms that do business with the state or bid on state contracts. The order comes on the heels of allegations that Division of Motor Vehicles staff received from an outside vendor meals and tickets to sporting events and the governor’s inaugural ball. While the Executive Order is only directed at Cabinet agencies, many departments run by statewide elected officers are already operating under their own gift bans, and those that are not say they are either following Governor Perdue’s lead or are considering doing so.

North Carolina’s State Government Ethics Act forbids accepting gifts from firms that do business with the government. However, that law applies only to elected officials and high-ranking appointees such as cabinet secretaries and department heads.

North Carolina State Treasurer Janet Cowell also announced several initiatives designed to increase transparency and strengthen oversight for the state’s $60 billion public pension fund. The changes come just weeks after the Treasurer ousted her chief investment officer. Among these changes, outside managers of state pension funds are required to disclose fees paid to placement agents and whether placement agents are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority.

White House Takes Aim at Lobbyists . . . Again
The White House has announced that agencies may not appoint federally-registered lobbyists to serve on agency advisory boards and commissions. The new policy applies equally to corporate, union and public interest lobbyists, but lobbyists who currently serve on such boards may continue to serve until their appointments expire.

In a September 23 blogpost, Special Counsel Norm Eisen stated that the new policy, which he characterized as “aspirational,” represents the “next step in the President’s efforts to reduce the influence of special interests in Washington.” Federal advisory boards have been around since the 1970s, and were created to facilitate private-sector input to government agencies.

The White House incurred the ire of the lobbying community earlier this year when it attempted to prohibit lobbyists from engaging in any oral (in-person or telephone) communications with agency officials regarding Recovery Act funded projects. It eventually backed off of that effort, and instead created a limited oral communication blackout period for anyone who sought to influence the funding process. (See August 6 Political GPS) One of the chief criticisms of the failed lobbyist communication ban was that it singled out lobbyists when other private sector participants also had the capability to influence awards. The same charge could be leveled at this latest policy, which bars lobbyists from advisory committees, but allows non-lobbyist CEOs and other company officials to serve on such boards.

Upcoming Deadlines

October 15, 2009

Third quarter FEC report for candidates

October 20, 2009

Quarterly report for Lobbying Disclosure Act filers (LD-2)

Monthly FEC report for PACs filing monthly

Monthly IRS Form 8872 for nonfederal PACs filing monthly*

*Qualified state or local political organizations (QSLPO) are exempt from this filing

Upcoming Events

Navigating Pay-to-Play Laws: Ensuring Compliance in a Complex Environment

An Audioconference sponsored by Columbia Books & Information Services

October 27, 2009 (2:00 – 3:30 pm EST)

Supreme Court Hears Arguments in Campaign Finance Case: Are Limits on Corporate Funding of Election Ads About to Fall?

2009-09-15T12:12:00.021-04:00

The Supreme Court heard arguments last week in Citizens United v. FEC, which began as an unremarkable case about an obscure advocacy group and its movie about Hillary Clinton, and has mushroomed into one of the most important campaign finance cases in history. A ruling in the next few months could overturn longstanding federal and state laws that ban independent election spending by corporations and unions. The case would not, however, affect restrictions on corporate contributions to candidates.

A brief recap for readers unfamiliar with the case: During the 2008 primaries, Citizens United, a non-profit corporation, sought to air "Hillary: The Movie" through a video-on-demand cable arrangement, and advertise for the movie on broadcast and cable television. The FEC concluded that the plan violated the McCain-Feingold ban on corporate and labor funding of communications that refer to a federal candidate and that air over radio or television in the 30 days before a primary election and 60 days before a general election. That ban applies equally to for-profit and non-profit corporations, with the exception of certain non-profits that, unlike Citizens United, decline all corporate funding.

Rather than rule on narrow grounds – for instance, that because viewers must seek out video-on-demand, it is not the type of communication that led Congress to enact the McCain-Feingold ban – the Court on its own initiative raised the stakes. In late June, the Court asked for additional argument on whether two of its earlier rulings should be reversed, potentially invalidating not just the McCain-Feingold law, but also laws that bar corporations and unions from funding communications that "expressly advocate" for the election or defeat of a candidate.

We attended the Supreme Court argument last week, where the questioning by the Justices was brisk. While oral arguments are notoriously unreliable for judging outcomes, there appear to be five Justices inclined to strike down these federal and state laws. Such a ruling would:

Open the floodgates for corporate and labor funding of election ads, with the potential that in some races such spending could overwhelm candidates and political parties that must abide by hard-money limits and source prohibitions.

Ratchet up interest in the activities of non-profits, which will need to navigate complex FEC rules that can qualify them as "political committees," subject to hard-money limits and disclosure of donors.

Bring greater scrutiny to IRS rules that restrict political activity by 501(c) organizations.

We'll continue to watch this case and keep Political GPS readers posted.

D.C. Circuit Rejects Challenge To Federal Lobbying Law

The United States Court of Appeals for the District of Columbia last week rejected a challenge to a 2007 law that calls for wider disclosure of participants in lobbying efforts by coalitions and trade associations.

Under the Honest Leadership and Open Government Act of 2007, a coalition or association that is registered under federal lobbying laws must disclose the name, address and principal place of business of any organization that contributes more than $5,000 toward the registrant's lobbying activities and "actively participates in the planning, supervision, or control of such lobbying activities." The law requires registrants to list such organizational supporters on their disclosure reports or identify them as members or contributors on their publicly-accessible websites. The website option is not available if the supporting organization participates "in whole or in major part" in lobbying activities.

The National Association of Manufacturers argued that the new disclosure requirement would chill NAM members from participating in public policy initiatives and that the law's requirements are impermissibly vague. In a 48-page opinion, the three-judge panel unanimously upheld the new requirements, concluding that Congress has sought to "shine increasing light on the efforts of paid lobbyists to influence the public decisionmaking process. We find nothing unconstitutional in the way Congress has gone about that task."

A copy of the ruling can be found here.

Treasury Adopts Restrictions on Lobbying for TARP Funds

The Treasury Department has finally issued rules, first promised last January, that restrict the activities of lobbyists and others in regarded to funding determinations under the Emergency Economic Stabilization Act (EESA) – the $700 billion "TARP" bailout program. The Treasury rules are modeled on, and in many aspects identical to, OMB's recently issued rules relating to communications with administration officials about stimulus-funded projects. (See August 6 Political GPS)

Like OMB's restrictions, the Treasury rules prohibit all persons, including lobbyists, from having in-person or telephone conversations with agency employees regarding TARP spending from the time a person or entity submits an application for financial assistance to the time of preliminary funding approval. In addition, oral communications between lobbyists and government officials outside the black-out period must be summarized and posted on the agency's website. The Treasury rules, however, go further than OMB in one important regard – written communications submitted by both lobbyists and EESA applicants must be posted on the Treasury website.

The Treasury rules retain some of the exceptions adopted by OMB. For example, the new rules impose no restrictions on logistical discussions, such as how to apply for assistance under EESA, and Treasury officials are free to speak about TARP issues at widely attended gatherings.

The eight-month delay in issuing the new rules has raised some eyebrows, especially since the TARP program is seen as moving toward a wind-down phase.

State Round-up

Illinois – Campaign Finance Bill Vetoed and Pay-to-Play Update: . Pat Quinn vetoed a bill that for the first time would have imposed limits on campaign contributions. The bill was vetoed at the request of its General Assembly sponsors and had been criticized by several reform groups for setting contributions limits too high and permitting too many loopholes. The bill allowed annual limits on contributions to candidates of $5000 for individuals and $10,000 for corporations. The bill also permitted generous transfers from legislative leaders to candidates, and would not have taken effect until 2011, sparing legislators from facing new rules in the next election. The Illinois Reform Commission had proposed much lower contribution limits that would have applied on an election-cycle basis.

Meanwhile, Gov. Quinn issued an "amendatory veto" of Senate Bill 51, which among other things would revise Illinois' pay-to-play law. The Governor is seeking changes that primarily impact other parts of the bill, but his new proposed effective date of July 1, 2010 would apply to the pay-to-play provisions. The General Assembly has not yet acted on the Governor's recommendations.

In addition, the Illinois State Board of Elections is requiring all bidders for and recipients of state contracts that were required to register under the state's pay-to-play law to re-register electronically by September 30, 2009. This includes an entity that is no longer required to update its registration because, for example, it bid on but was not awarded a contract valued at more than $50,000 during the first seven months of 2009. The Board of Elections stated that this new requirement is aimed at ensuring a complete record of all businesses that have registered since the law became effective earlier this year.

New Jersey – Another City Enacts Pay-to-Play: The Jersey City Council approved a "pay-to-play" ordinance that bars campaign donations from developers during the three months before they apply for a contract for a particular site, as well as during the period that they are designated as the developer. Developers who violate the ordinance will be disqualified from engaging in projects in Jersey City for four years.

New York – Crackdown on Lobbyist Gifts: The New York Public Integrity Commission charged three groups – the Trial Lawyers Association, the Uniformed Firefighters Association, and the Police Benevolent Association – with violating the state's ban on gifts from lobbyists. In a 2008 opinion, the Public Integrity Commission found that gifts to lawmakers worth more than a cup of coffee were illegal. The three groups allegedly held receptions last year for state lawmakers and their staffs that violated the gift ban. Prior to the March 2008 opinion, lawmakers were allowed to receive gifts under $75 in value.

SEC Proposes Pay-to-Play Rules for Pension Fund Industry

2009-08-06T10:41:00.009-04:00

The SEC voted on July 22 to propose new rules restricting campaign contributions by investment advisors seeking contracts from public pension plans. The proposed rule is similar to draft Rule 206(4)-5 that the SEC considered in 1999, and is based on an existing rule – MSRB Rule G-37 – that applies to municipal securities dealers. Under the draft rules, an investment adviser would be barred from providing compensated advisory services if that adviser, or certain of its executives or employees, makes political contributions to public officials with influence over their selection, or to candidates seeking such public offices. The two-year "time out" on compensated work would also apply to any employer who subsequently hires a covered employee who has made a prohibited contribution.

The draft rule contains two anti-circumvention measures. Advisers cannot ask other persons or PACs to make contributions to covered candidates or their state or local party committees. In addition, an adviser cannot funnel contributions through third parties such as spouses, lawyers or other companies. Unlike the 1999 draft, this proposal also bans advisers from paying third parties, such as placement agents, to solicit a government client on behalf of the investment adviser.

The rule has a de minimis exception that allows a covered employee of an adviser to make a contribution of up to $250 per election per candidate, but only if the contributor is eligible to vote for the candidate.

The SEC’s proposal follows on the heels of efforts in several states to target influence peddling in the pension industry. As we have reported previously, states including California, Texas and Oklahoma have restricted campaign contributions or prohibited the use of placement agents, and New York Attorney General Cuomo recently created a "Public Pension Fund Reform Code of Conduct," which was adopted by The Carlyle Group as part of a $20 million settlement of a “pay-to-play” investigation.

The SEC's proposed rule can be reached through this link. Interested parties have 60 days to submit comments once the proposal is printed in the Federal Register.

FEC Busts Law Firm for Reimbursing Employee Campaign Contributions

A Pennsylvania law firm paid $155,000 to settle charges with the Federal Election Commission, after the Commission found probable cause that the firm reimbursed campaign contributions made by employees and their family members. According to an investigation report released by the FEC, certain reimbursement checks contained notations indicating that the reimbursements were actually bonus payments to the employees. FEC staff, however, found these notations unpersuasive because, among other things, the firm's payroll records did not reflect that these checks were bonuses and the amount of the checks coincided with contributions contemporaneously made by the employees. Also, some employees allegedly involved in the scheme invoked their Fifth Amendment privilege against self-incrimination and declined to cooperate.

With a new campaign season upon us, this FEC settlement serves as a timely reminder that employees may not be reimbursed for contributions to federal candidates, either by the company that employs them or by anyone else who works for the company. These are known as "contributions in the name of another." As the FEC investigative report noted, in these cases "the true source of funds is withheld from the recipient committee, the FEC, and the public," and therefore "is inherently self-concealing." Beware: these schemes are not just fodder for the FEC. The Justice Department has brought criminal charges in these types of cases, and is not foreclosed from taking action merely because action is taken by the FEC. And most states also prohibit these types of conduit schemes.

OMB Issues New Guidance on Lobbyist Restrictions

As we reported previously (see June 2 GPS), the White House in late May eased its earlier restrictions on lobbyist communications with government officials regarding stimulus-funded projects. In an unusual move, that change of policy was announced through a blog entry by Norm Eisen, special counsel to the President for ethics and government reform. More detailed guidance, which was promised at the time, was issued on July 22, 2009, in a memorandum from OMB Director Peter Orszag.

The thrust of the new guidelines is as promised on the blog. The restriction on oral (in- person or telephone) communications regarding Recovery Act projects now applies not just to lobbyists, but to all outside parties that seek to influence the funding process. However, the speech prohibition now applies only from the time a person or entity submits a formal application for a competitive grant or other request for financial assistance under the Recovery Act to the time funds are rewarded. In this way, the prohibition mirrors restrictions on procurement lobbying in many states.

Registered lobbyists are, nonetheless, still singled out for special treatment. Communications between lobbyists and government officials outside the above-described black-out period must be summarized and posted on the agency's website. Each agency is also required to post any written communications submitted by lobbyists. But there's an important loophole here: no disclosure is required concerning communications between a currently-registered federal lobbyist and government officials, if the lobbyist is not communicating on behalf of a client for whom he or she is registered. For instance, a federal lobbyist may confer with officials in his or her personal capacity, and the exchange need not be disclosed by the agency. This also means that disclosure is not required if a lobbyist confers on behalf of a client but was retained to make only one contact and, therefore, does not trigger registration obligations. The disclosure provisions also do not apply to communications by state-registered lobbyists, lobbyists who have previously terminated their federal registration, or non-lobbyist employees of an organization registered under the federal Lobbying Disclosure Act.

More LDA Referrals to Department of Justice

The Secretary of the Senate's office recently reported that it has referred to the Justice Department a total of 5,596 instances of non-compliance since the inception of the Lobbying Disclosure Act. According to BNA's Money & Politics Report, over 1700 of these matters were referred last month. While the U.S. Attorney's office has yet to exercise the authority granted in 2008 to treat these violations as federal crimes, no registrant wants to be on the receiving end of a "compliance letter" from the Justice Department. In addition, the U.S. Attorney has reported progress in identifying habitual LDA violators and in tracking LDA referrals.

Womble Carlyle Files Supreme Court Brief Challenging Election Ad Ban

Womble Carlyle filed a brief last week in the U.S. Supreme Court on behalf of ten state broadcaster associations. The case is Citizens United v. FEC, where the Court is considering whether to strike down the federal ban on independent corporate and union expenditures for election-related communications.

The brief argues that the McCain-Feingold law unconstitutionally singles out broadcast media (as well as cable and satellite) by barring corporate and union political ads during the weeks prior to an election. A copy of the brief is linked here.

Norton and Kahl Submit Comments to FEC on Improving Commission's Website

Larry Norton and Jim Kahl filed comments with the FEC regarding the accessibility of information on the Commission’s website. The comments note difficulties in accessing campaign records and searching the files of closed enforcement matters, and include suggestions for making the website more user-friendly. The FEC solicited public comment on these matters through a notice published in the Federal Register.

Supreme Court Poised to Allow Corporate Funding of Campaign Ads

2009-07-01T14:01:00.024-04:00

In a stunning move, the Supreme Court announced on Friday that it is reconsidering the constitutionality of laws that prohibit corporations and unions from funding ads that influence elections. A ruling that such laws are unconstitutional would invalidate a decades-old spending restriction that applies in federal elections and in many states, and would unleash a flood of spending in the 2010 cycle and beyond.

The issue is presented to the Court in Citizens United v. FEC, a challenge to the “electioneering communications” provision of the McCain-Feingold law. That law, which passed in 2002, bars corporate and union financing of ads that identify a federal candidate, and that are aired in the run-up to the election on broadcast, cable or satellite. Citizens United, a non-profit group, wanted to air an anti-Hillary Clinton documentary through a cable television video on-demand service, and advertise for it on broadcast and cable television. A lower court said that because the group accepted corporate funding, it could do neither.

Rather than rule on the narrow question of whether this ban could be constitutionally applied in this instance, the Court announced that it wants to reconsider prior rulings allowing government to ban corporations and unions from spending their money in connection with elections. At stake is not just the McCain-Feingold law, but also a federal law that prohibits corporations and unions from paying for communications that “expressly advocate” for the election or defeat of a candidate - and many similar state laws.

This turn of events is remarkable not only because the Court seems poised to make a transformative change in campaign finance rules, but because five-and-a-half years ago the Court rejected a facial challenge to the electioneering communications provision in McConnell v. FEC. The Court had yet another opportunity to remake the law just two years ago in FEC v. Wisconsin Right to Life, but Chief Justice Roberts and Justice Alito – neither a fan of the electioneering communications provision - decided to proceed more incrementally. Now it appears that the two are ready to join three other Justices (Kennedy, Scalia, and Thomas) to chart a new path.

Re-argument is scheduled for September 9, 2009, just weeks before the Court formally begins its next session. A ruling in the case could come early in 2010, opening the door to a wide range of organizations – corporations, unions, business and trade associations, and ideological groups – to fund campaign ads and other communications.

RULE G-37 MAY EXPAND TO BALLOT COMMITTEE CONTRIBUTIONS

Last week, the Municipal Securities Rulemaking Board (MSRB) announced that it is considering expanding the reach of its Rule G-37 to cover ballot committee contributions. The rule, which was adopted in 1994, prohibits any securities underwriter from engaging in business with a municipal issuer within two years after it, or one of its professionals, makes certain political contributions. It also requires the disclosure of certain political contributions to issuer officials.

The MSRB’s latest actions are driven by concerns that municipal securities dealers can curry the favor of politicians by contributing to bond ballot campaign committees that they support. The MSRB’s latest proposal would apply G-37’s disclosure requirements to contributions to bond ballot campaigns, but would not invoke the two-year time-out on doing business with the municipality.

The draft amendment to G-37 is available on the MSRB website. The MSRB is seeking comments on, among other things, the prevalence of contributions to bond ballot committees, whether there is a connection between making such contributions and securing bond underwriting business, and how dealers are solicited to make such contributions. Comments are due by August 7, 2009.

OTHER PAY-TO-PLAY DEVELOPMENTS

State and local governments continue to pass new pay-to-play laws and make changes to existing law. The rapid change in this area is well-illustrated by these developments that occurred in just the last week or so.

Colorado
On Tuesday, June 23, a state district judge temporarily enjoined enforcement of Amendment 54, a Colorado ballot initiative that established state and local pay-to-play rules. Approved by voters in December 2008, the law prohibits campaign contributions and fundraising by companies that have sole-source contracts with state or local agencies, and by the company’s officers, directors, and individuals with a 10% or greater ownership interest. The law also bars companies from receiving a sole source contract related to a ballot initiative if the company or any of its principals contribute to the initiative.

Ruling from the bench, Judge Catherine A. Lemon sharply criticized several provisions in the law, commenting that her ruling was not a close call. The state Attorney General acknowledges constitutional problems with Amendment 54, but expects to appeal. Until a written decision is issued and the Attorney General decides whether to seek a stay pending appeal, caution is advised.

San Antonio
The San Antonio City Council has expanded its pay-to-play law. Previously, the law prohibited legal signers on proposals submitted for city contracts from making a campaign contribution to any council member or candidate. The contribution ban has been extended to cover:

Any individual seeking a “high-profile” discretionary contract, as designated by the city
Any owner or officer of an entity seeking such a contract
The spouse of any of these individuals
Any attorney, lobbyist, or consultant retained to assist in seeking the contract

The blackout period runs from the 10th business day after the solicitation has been released until the 30th calendar day after the contract is awarded. Additionally, city officials and employees are no longer able to accept gifts of entertainment, transportation, or lodging from those seeking or doing business with the city.

Oklahoma
In Oklahoma, the state’s Pension Oversight Commission and the Tobacco Settlement Board have voted to require disclosures by all firms seeking to manage the investment of public funds. Prospective investment advisers must reveal the existence of third-party marketing agents and any fees paid to these third-parties to assist in securing state business.

Detroit
In the wake of recent corruption scandals, a pay-to-play proposal, modeled on New Jersey’s law, was introduced in the Detroit City Council. The ordinance would prohibit political contributions from companies that have or seek no-bid city contracts valued at more than $25,000. The contribution ban would extend to employees, family members, and political action committees; and it would apply for the year preceding a contract award.

FOLLOW UP ON PAY-TO-PLAY WEBINAR

We appreciate that many of you were able to join us for our webinar last week on recent developments regarding “pay-to-play” laws and a view toward the future. For those of you who were unable to join us, the presentation with audio and PowerPoint slides can be accessed here. Please contact us if we can assist you with tailoring a training program for your company or developing a multi-state compliance plan in this increasingly risky area.