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Inside Political Law

Updates on developments in campaign finance, lobbying & government ethics law

Courts Struggle to Draw Constitutional Lines for Disclosure

By Julius Chen on Posted in Campaign Finance, Litigation

When the Supreme Court issued Citizens United v. FEC, there was little question that the landscape of campaign finance law shifted.  Much of the aftermath continues to focus on independent spending, contribution limits, and outright contribution bans on corporations and government contractors—restrictions that may have been upended by the notion that Citizens United narrowed the supporting governmental interest to quid pro quo corruption.  But in the meantime, states have responded by broadening disclosure regimes, often pointing to the fact that Citizens United upheld the public’s “interest in knowing who is speaking about a candidate.”  Various groups and individuals have, in turn, brought legal challenges to strike down those regimes, leading to a somewhat confused evolution in disclosure laws.  This was evident in two federal appellate decisions issued last week.

The Eleventh Circuit concluded that it was constitutional for Florida to require individuals to register as a PAC and file periodic disclosure reports when they pooled together $600 to fund radio ads about a ballot initiative.  But along the way, the court disagreed with a recent Tenth Circuit decision that stated: “It is not obvious that there is such a public interest” in reporting and disclosure when ballot initiatives are concerned because there is no need for the voter to “evaluate a human being, deciding what the candidate’s personal beliefs are and what influences are likely to be brought to bear when he or she must decide on the advisability of future governmental action.”  And even though the Eleventh Circuit ultimately held that the reporting and registration requirements in Florida were not “unduly burdensome,” it noted “concerns about the burdens that the lack of [minimum disclosure thresholds] place on truly small grassroots groups with little experience and little money.”

The Eighth Circuit by contrast held parts of Iowa campaign finance laws to be unconstitutional because they were in fact unduly burdensome.  On the one hand, a non-profit that makes a one-time independent expenditure could be required to file an “independent expenditure statement” and “initial report” within 48 hours, in part because “modern technology” makes the “burden of completing the short, electronic form . . . not onerous.”  But on the other hand, Iowa law could not compel the non-profit to file quarterly and supplemental reports thereafter because such requirements could discourage non-PACs, “particularly small [ones] with limited resources, from engaging in protected political speech” in the first place.

If you find all of this confusing, you’re in good company.  Even the Florida election officials in the Eleventh Circuit case “acknowledge that the laws were complex, and that state officials newly working with the laws need months of study to become comfortable with them.”  But what this importantly shows is that disclosure regimes are increasingly a point of contention, and that courts are struggling to figure out when the burdens on speech become so great that they are unconstitutional.  Perhaps some consensus will emerge as more opinions issue.  But for now, one gets the sense that small details, procedural niceties, and the still uncertain status of the “major purpose” test are pushing the courts to draw some thin lines that may end up collapsing in on themselves.  As always, time will tell.

A Vote on FEC Enforcement—Part II

By Robert Lenhard on Posted in Campaign Finance, Enforcement

Yesterday’s post noted several proposed changes to the Federal Election Commission’s Enforcement Manual that are likely to prove controversial.  Yet there are also proposals in that same document that merit serious consideration, if not outright support, from all on the Commission.  Here are just some suggestions of proposals that could win bi-partisan support.

  • Applying the statute of limitations to claims for equitable relief, such as disgorgement, as well as to monetary penalties.
  • Providing clarity on where penalty negotiations will begin by providing a chart like the one at section 6.5.6.4.
  • Providing greater clarity on the aggravating and mitigating factors the Commission will consider when deviating from the pre-set formulas.
  • Providing Commissioners with information on relevant pending and past matters—both those consistent with the staff recommendation and those that are inconsistent—when presenting a question for a vote.
  • Setting expectations for how long it will take staff to process cases at certain stages of the enforcing process.
  • Ending the use of admonishments.  A reasonable idea, but vulnerable to statutory and due process arguments and consequently, one whose time has probably passed.
  • Easing the granting of extensions of time in enforcement and untying the grant of an extension from a tolling of the statute of limitations.
  • Regularizing the use of contention language, correcting facts, and limiting admissions clauses in conciliation agreements.

This is far from an exhaustive list, and only serves to highlight that the agency should be able to find common ground on some of the proposed changes to current practices.  The search for compromise is frequently difficult, and is especially so at this point in the Commission’s history, when a string of hard and bitter fights have left bruises and a shortage of trust.  But the document in front of the Commission is an important one, and the opportunity to cement into place procedural protections that will guide the agency’s practices for years to come is worth the effort.

A Vote on FEC Enforcement

By Robert Lenhard on Posted in Campaign Finance, Enforcement

The Federal Election Commission made public two versions of its Enforcement Manual today, one based on current practices for handling the agency’s enforcement docket, and one proposing a dramatic shift in how cases could be handled in the future.  The choice between the two versions may be up for discussion at the agency’s next open meeting on June 27.  At least two themes run through the suggested changes: an increased control by the six Commissioners over the day-to-day processing of enforcement cases; and the cessation of any cooperation between the FEC and other government agencies, including the Justice Department, absent an affirmative vote of four of the six Commissioners.  While the documents are long, and the important changes many, here are some highlights.

Enforcement 

The changes, if adopted, would:

  • Curtail the ability of staff lawyers to consider facts outside the four corners of a complaint when recommending whether the Commission should begin an investigation;
  • Limit the ability of staff lawyers to act on potential violations of the law that are apparent from the facts in the complaint, but were not specifically identified by the person filing the complaint;
  • Require the affirmatively vote of four Commissioners to issue each subpoena, take any deposition or respond to a motion to quash a subpoena;
  • Require the affirmative vote of four Commissioners before an agency lawyer can ask a respondent to toll the statute of limitation in return for an extension or to enter into pre-probable cause conciliation;
  • Require the affirmative vote of four Commissioners before a staff lawyer can send a follow-up letter to seek clarification about facts or law after a respondent has explained why the Commission should not begin an investigation; and
  • End the use of press reports as the sole factual basis for a complaint.

Other Government Agencies

The changes, if adopted, would:

  • Bar FEC staff from providing the Justice Department with any non-public information without the affirmative vote of four Commissioner, including information on the status of an investigation or the substance of what the agency learns during an investigation;
  • Require staff to log and identify for the Commissioners on a weekly and quarterly basis all requests by a law enforcement agency for publicly available information on any person, including which individuals or groups were the subject of the inquiry;
  • Deny the Justice Department access to sua sponte submissions;
  • Prevent the General Counsel’s office from holding an investigation in abeyance at the request of the Justice Department without an affirmative vote of four Commissioners; and
  • Require the affirmative vote of four Commissioners before an FEC staff person may serve as a witness for the government in another agency’s case, such as providing expert witness testimony in a criminal prosecution.

These changes—were they to be adopted—would institutionalize Commissioner involvement in the day-to-day details of the enforcement functions of the agency.  This path, which leads
away from the Commissioners focusing on setting policy and serving as the ultimate decision-makers on matters and towards them supervising the day-to-day decisions of staff lawyers may be enticing in an agency that at times seems so trapped in acrimonious gridlock that it is impossible to constructively shape the law, but it is also a path that may in the long run lead to an agency even less relevant than before.

Wisconsin Assembly Votes to Permit Corporate Independent Expenditures, Double Contribution Limits

By Angelle C. Smith on Posted in Campaign Finance, State Law

Yesterday, the Wisconsin Assembly passed a bill that would modify Wisconsin’s ban on corporate expenditures  and double the state’s political contribution limits.  In response to Citizens United, the bill lifts Wisconsin’s blanket prohibition on corporate expenditures.  If passed by the Senate and signed into law, the bill would permit corporate independent expenditures and corporate contributions to independent expenditure committees.  Corporations would also be permitted to give funds to political parties to buy or rent office space for the party.

Under the revised contribution limits, donors could give candidates for Governor up to $20,000, for Senate $2,000, and State Representative $1,000 per election cycle.  The state’s aggregate contribution limit, which a Wisconsin resident is currently challenging the constitutionally of, would also be doubled.  These limits would be adjusted for inflation every two years.  Other provisions in the bill would expand the window when lobbyists are permitted to make political contributions and require both lobbyists and lawmakers to complete four hours of ethics training.

The Assembly passed this bill on a voice vote with almost no debate and prospects for passage in the Senate are unclear.  We will continue to monitor the progress of this bill.

Lobbying Disclosure and the Intelligence Community

By Robert Kelner on Posted in Lobbying Compliance

With the National Security Agency in the news, there has been some media attention to who is lobbying whom in the intelligence community, and how much they are spending while doing it.  Often media coverage of lobbying expenditures misinterprets the available federal Lobbying Disclosure Act (“LDA”) data.  The LDA notoriously contains many gaps.  Those who dislike gaps in disclosure statutes might prefer to call them “loopholes.”  Because of those gaps, it is usually not possible to say definitively who is lobbying whom based solely on LDA reports.

For example, a company that contacted the NSA, CIA, DIA, or other intelligence agency to encourage award of a contract generally would not be engaged in reportable lobbying activity under the LDA if it contacted only officials who are not “covered officials” under the LDA.  Most lower and mid-level officials, including many who handle procurement matters, are not covered officials.  So a company could “lobby” them to its heart’s content without triggering disclosure under the LDA, though there might be implications under government contracting rules, including rules that prohibit certain contacts while an RFP competition is active.  Government contracting rules also require disclosure of certain lobbying activities on OMB Form LLL.  But those disclosures are more obscure, and are not usually where the media looks when it covers lobbying expenditures.

Also, which officials count as “covered officials” varies depending on whether the company doing the lobbying has elected to use the “tax method” of reporting under the LDA or the “LDA method.”  Under the tax method, for non-legislative lobbying, only contacts with extremely senior executive branch officials would trigger disclosure that the company had lobbied that official’s agency.  For example, currently, there do not appear to be any officials at the NSA who qualify as covered officials under the tax method of LDA reporting.  So a company that elects to use the tax method generally would not need to disclose lobbying of the NSA if it lobbied on government contracts or policies, as opposed to lobbying on a legislative issue.  In contrast, a company that elected to use the “LDA method,” which adopts a significantly different definition of lobbying, might have to disclose that it engaged in non-legislative lobbying of the NSA if it contacted the Director or Deputy Director of NSA.  That’s because they are covered officials under the LDA method.

It’s all very complicated.  The upshot is that there are probably lots of companies lobbying intelligence agencies in one way or another without having to disclose on LDA reports that they are doing so.  There is nothing nefarious about that.  It is simply a function of the complexity of our lobbying disclosure laws.  That complexity, in turn, flows in part from the balancing of competing interests when Congress acts to regulate lobbying.

Wisconsin Aggregate Contribution Limit Challenged

By Julius Chen on Posted in Campaign Finance, Litigation, State Law

A Wisconsin resident has brought a federal lawsuit challenging the state law that restricts individual political contributions to candidates and committees to $10,000 in a calendar year.  As alleged in the complaint in the case, captioned Young v. Vocke, the aggregate limit is so low that if an individual were to make a maximum contribution to a statewide candidate, he or she would be barred from making other political contributions that year.  The question is whether this violates the First Amendment.

This case is significant because it presents a possible follow-up to McCutcheon v. FEC, the legal challenge to the federal biennial contribution limits that the Supreme Court will hear next fall.  As a general matter, the Court in Buckley v. Valeo recognized that contribution limits are constitutionally permissible.  But there can be specific, rare circumstances in which contribution limits may be so low as to run afoul of the First Amendment.  The new twist in the Wisconsin case—requiring individuals to carefully allocate their contributions arguably to a much stricter degree than the federal biennial limits—may well have some teeth.  And depending on how McCutcheon is decided within the next year, this Wisconsin challenge could be a case to keep an eye on.

The state law being challenged is, however, somewhat of a moving target.  State legislators are apparently collaborating on a bill that would raise the maximum contribution to statewide candidates to $20,000, and concomitantly raise the maximum aggregate annual contribution to match that amount.  Would this change the constitutional calculus?  We’ll have to see how the courts parse through all of this in the coming years.

DOJ Files First Real Lobbying Disclosure Act Enforcement Action

By Robert Kelner on Posted in Enforcement, Lobbying Compliance

On Friday, June 7, the U.S. Attorney’s Office for the District of Columbia filed what appears to be the first ever complaint in a Lobbying Disclosure Act (“LDA”) enforcement action that was not the product of a negotiated settlement.  While there have been a small handful of settled enforcement actions over the last few years, in this case, according to the complaint, the defendant, Biassi Business Services, Inc., allegedly ignored multiple warnings and failed to resolve the matter prior to enforcement.

As in the prior settled cases, this one is a civil action brought by the U.S. Attorney’s Office because an LDA-registered entity allegedly failed on numerous occasions to file LD-2 and LD-203 reports with the Secretary of the Senate and Clerk of the House.  The complaint alleges that the defendant failed to file 128 reports due since 2009.  The complaint also notes ominously that under the Honest Leadership and Open Government Act of 2007 (“HLOGA”), each late report could lead to a penalty of up to $200,000.  That means the maximum fine could run into the millions of dollars.

There are a few things worth noting about this new case.  First, there still has yet to be any criminal enforcement of the LDA, even after HLOGA amended the LDA to provide for criminal penalties.  Second, the D.C. U.S. Attorney’s Office (which has rare exclusive jurisdiction to enforce the LDA) continues to focus its enforcement efforts on firms that register but then repeatedly fail to file disclosure reports even after numerous warnings.  There has yet to be any public report of a U.S. Attorney’s Office investigation or enforcement action against an unregistered lobbyist or corporation.  It seems likely that if a criminal LDA enforcement action is ever brought, it will be against a firm or individual that fails to register altogether, or one that registers but intentionally mis-reports its activities.

Finally, an interesting feature of the complaint is its claim that the defendant corporation is liable for the failure of its employee lobbyists to file their own personal LD-203 semiannual political contribution disclosure forms.  Corporate registrants are required to file an LD-203, and employees listed as lobbyists must also file personal LD-203s.  It is far from clear, however, that a corporation can be held liable for the failure of an individual lobbyist to file his own personal reports.  That’s an issue that may be litigated in this case, if it doesn’t settle quickly, as we suspect it might.

We’ll keep our eyes on this one.

FEC General Counsel Tony Herman Returns to Covington

By Robert Kelner on Posted in Campaign Finance

We are pleased to report that our former partner Tony Herman, who left the firm in 2011 to become General Counsel of the Federal Election Commission, will be returning to the firm.  The firm formally announced Tony’s expected return today.  We look forward to Tony’s involvement in our Election and Political Law Practice Group.  He will bring unique and timely insights based on his recent FEC experience.  The last two FEC general counsels have been former Covington lawyers.  Our Election and Political Law Practice Group will now include a former FEC Chairman, Bob Lenhard, as well as a former FEC General Counsel, Tony Herman.

Non-Profit Donor Disclosure Rules in New York Are Now In Effect

By Derek Lawlor on Posted in Campaign Finance, State Law, Tax

New York Attorney General Eric Schneiderman announced today that he has adopted regulations requiring non-profits engaging in certain electioneering activity in New York, including 501(c)(4) organizations, to disclose their donors.  We previously wrote on the proposed rules, which after a series of public hearings, have been slightly modified and adopted by the Attorney General.  The new regulations are effective immediately.

The new regulations require organizations that make more than $10,000 in expenditures in New York elections to disclose on an annual financial report (1) election-related expenditures over $50, and (2) information about donors who gave $1000 or more to the organization that year.  The donor disclosure threshold increased from $100 in the proposed rule and the $50 expenditure threshold was added.

Election-related expenditures.  The regulations require these covered organizations to disclose detailed information about communications that contain express advocacy as well as communications that contain “election targeted issue advocacy.”  The latter is similar to “electioneering communications” on the federal level, but covers communications that run within 45 days of a primary election and 90 days of a general election and refer to, or feature the image or voice of, a clearly identified candidate, or refer to a political party, constitutional amendment, or any other question put to the voters in that election.  The 45/90 day window was reduced from 180 days in the proposed rule, but is still broader than the 30/60-day window for federal electioneering communications.

Donor Disclosure.  The regulations also require covered organizations to disclose detailed information about donors who gave $1000 or more to the organization during the year.   The new regulations attempt to allow an organization to limit the scope of this disclosure.  While the language of the proposed rule applied to any contribution made to the organization “that is available to be used for a New York election related expenditure,” the new regulations cover any contribution to the organization unless “the donation is deposited into an account the funds of which are not used for making New York election related expenditures.”

A few additional notes on the new regulations.  In discussing the proposed rules, we noted that the potential reach of the proposed rule was unclear.  The pertinent statutes on which the AG relies regulate “charitable organizations.”  In an existing rule, but a rule that has apparently not been the subject of a serious challenge, the AG has interpreted the statutes to include 501(c)(4) social welfare organizations.  If there was any previous ambiguity, the AG’s press release announcing the adopted regulations makes clear that the purpose of these rules is indeed to require 501(c)(4) organizations to disclose their donors and expenditures.

In addition, the AG’s press release states that the new regulations apply to other types of 501(c) organizations::

The new regulations apply to all registered organizations exempt from taxation under section 501(c) of the Internal Revenue Code, except for 501(c)(3) organizations, which are already strictly prohibited from intervention in political campaigns.

Specifically, in a document that contains the AG’s responses to public comments on the proposed rule, the AG’s response to a comment on 501(c)(6) trade associations states that they could also be covered: “The rule as drafted applies to trade associations to the extent they are charities required to register with the Attorney General pursuant to New York law.”

It is ironic that this “charitable organizations” regulation only excludes true charities from its reach.  As we noted earlier, the underlying question whether the AG’s office has legal authority to expand that office’s reach is far from clear.

D.C. Circuit Vacates Federal Contractor Ban Decision on Way to En Banc Review

By Julius Chen on Posted in Campaign Finance, Litigation

Earlier today a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit issued its opinion in Wagner v. FEC, sending the legal challenge brought by three federal contractors back to the start.

The contractors had sued the Federal Election Commission back in October 2011, arguing that federal law unconstitutionally prohibits federal contractors from making political contributions to influence federal elections.  The FEC prevailed in federal district court last fall, but appeared to run into a roadblock on appeal when the judges raised the question whether the district court ever had the power to decide the constitutional issue in the first instance.  All parties—perhaps not wanting to begin anew after 20 months of litigation—argued that the case had followed the correct procedural path.  But the D.C. Circuit today disagreed without reaching the constitutional question and vacated the district court’s opinion upholding the statute.

Still, the constitutional question will get its day in court—although in a slightly different one.  Under the jurisdictional statute, the district court is required to create a factual record and certify its findings to the full D.C. Circuit, something the D.C. Circuit has asked for by the end of next week.  The parties will likely then file new briefs over the summer and argue the case to the eight active judges on the court in the fall.  With the Supreme Court also hearing a challenge to the biennial contribution limits, it promises to be an important few months for major provisions of the Federal Election Campaign Act.