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Inside Political Law

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

Surprise! FECA Will Be Moving Across Town to Title 52 on September 1

Posted in Campaign Finance

The Office of the Law Revision Counsel, the keepers of the official U.S. Code, recently announced that voting and election provisions currently located in titles 2 and 42 (including FECA) will soon be transferred to a new title 52.  The official conversion table can be found here.  The Office has this to say about the move:

The transfers are necessary and desirable to create a well organized, coherent structure for this body of law and to improve the overall organization of the United States Code. No statutory text is altered. The provisions are merely being relocated from one place to another in the Code.

The decision to transfer provisions in the United States Code is taken very seriously. After careful study, the Office of the Law Revision Counsel has concluded that certain organizational deficiencies in the Code must be corrected. The short-term inconvenience of adjusting to new Code citations is greatly outweighed by the benefit of making much needed long-term improvements in the organizational structure of the Code.

It is not clear what went into the Office’s “careful study.”  In 2009, the Office recommended that Congress pass title 52—containing a similar collection of voting and election provisions—as positive law.  Read more about positive law codification here.  This recommendation never went very far—the Office’s website states that the bill was delivered to the Committee on the Judiciary on February 7, 2009, but did not get introduced.  The Office accepted questions and comments about the title 52 codification project at that time.

The current effort to move FECA and other provisions to title 52 is an “editorial reclassification,” which is a less involved process than positive law codification.  Code provisions are merely transported to a different location in the Code without any change in statutory text.  Though the Office’s website states that the public can send the Office comments and questions on the editorial reclassification that will move FECA to title 52, there is no indication that this move is up for debate.  The website simply states that the move will happen on September 1 and does not make this conditional on any other event.

The description of this move as a “short-term inconvenience” might be a bit short-sighted.  For example, the need to update current references to title 2 in FEC regulations and guidance documents alone would appear to be a potentially costly and time consuming endeavor.  And the need to translate title 2 references when citing  pre-2014 court opinions or FEC advisory opinions will certainly be a long-term chore.

We will keep an eye on the process to move FECA to its new location.  In the meantime, start preparing to update your 441b talking points to 52 U.S.C. § 30118.

Lobbyists Can Now Sit on Some Federal Advisory Committees: Here’s How to Find Out Where

Posted in Government Ethics, Lobbying Compliance

In a significant reversal by the Obama administration, lobbyists will now be permitted to serve on federal advisory committees, boards, and commissions after more than four years of sitting on the advisory committee sidelines.  In guidance published in the Federal Register today, the Office of Management and Budget (“OMB”) quietly revised, in large part, the administration’s longstanding and controversial ban on lobbyists serving on federal advisory committees, boards, and commissions.

OMB’s new guidance now permits lobbyists to hold some seats on advisory committees while maintaining the bar with respect to others.  The guidance distinguishes between lobbyists serving in an “individual capacity” (who are still prohibited from serving on advisory committees) and lobbyists serving in a “representative capacity” (who now may sit on these committees).  As described further in today’s Covington e-Alert, trade associations, corporations, and lobbyists can easily determine whether a particular seat on an advisory committee is an “individual capacity” seat (from which lobbyists are still barred) or a “representative capacity” seat (to which lobbyists may now be appointed).  Although never mentioned in the OMB guidance, the federal government already maintains a website with this information.  The FACA database, allows individuals to pull up a list of all members of a particular federal advisory committee.  If the “Member Designation” on the website is “Special Government Employee,” the lobbyist is still likely out of luck.  If the “Member Designation” is “Representative,” lobbyists should sharpen their pencils and prepare their applications — they are now generally free to serve on those committees.

The new guidance now gives lobbyists an opportunity to share their views, experience, and expertise on many federal advisory committees from which they had previously been barred.  But, because the bar still remains in effect with respect to many committee seats, lobbyists who are would-be advisory committee members will need to evaluate each committee, and each seat on the committee, on a case-by-case basis.

Congressional Ethics Office Refers Alleged Unregistered Lobbyist to DOJ

Posted in Enforcement, Lobbying Compliance

For several years, we have been warning clients and others that it was only a matter of time before we would see criminal referrals against lobbyists who fail to register under the federal Lobbying Disclosure Act (“LDA”).  Until now, the U.S. Attorney’s Office for the District of Columbia has focused exclusively — and rarely — on bringing cases against registered lobbyists who fail to timely file reports.  This week, however, the Office of Congressional Ethics (“OCE”) of the U.S. House of Representatives mentioned in its quarterly report that during the second quarter of this year, “OCE voted to refer one entity to the U.S. Attorney’s Office for the District of Columbia for failure to register under the Lobbying Disclosure Act.”  This is big news.

OCE voted to refer one entity to the U.S. Attorney’s Office for the District of Columbia for failure to register under the Lobbying Disclosure Act.”  This is big news.

We don’t know which “entity” OCE referred to the Department of Justice for failure to register.  And given OCE’s history of making trumped up referrals to the House Ethics Committee, it is hard to know whether this new LDA-related referral to DOJ is credible.  It might not be.  Regardless, because there clearly are lobbyists active on Capitol Hill whose firms have not registered under the LDA, this is not likely to be the last referral.

Very few, if any, complaints have been filed by the usual suspects with the Department of Justice concerning unregistered federal lobbyists.  Ironically, the reform groups that typically file complaints against lobbyists and public officials have had little appetite for complaints about unregistered lobbying because it would undercut their main narrative about the LDA, which is that it is so filled with “loopholes” that firms can easily lobby without actually triggering registration.  The media have picked up this narrative.

Nonsense.  While there are generous exceptions in the LDA, and gray areas, there are also many scenarios in which the obligation to register is clear as the Rocky Mountain air (on a good day).

Identifying firms that should register but don’t is not easy work for law enforcement.  But the same could be said about many other areas of criminal law.  The relative lack of enforcement against unregistered firms has more to do with the priority placed on it by DOJ — seemingly very little — and the media’s lack of interest in the story.  Time will tell whether the new OCE referral is the beginning of a trend, or a flash in the pan.

FEC Dismisses Challenge to Use of Trade Association Dues for Independent Expenditures

Posted in Campaign Finance, Enforcement

An FEC enforcement action recently made public may be of interest to organizations that use members’ dues for political activities.  In a complaint to the FEC, a Massachusetts realtor claimed the National Association of Realtors and its state and local affiliates were forcing her into paying for their political activities.   The realtor’s local affiliate required her to pay dues to the National Association of Realtors (NAR) in order to access the Multiple Listing Service (MLS), which she contended was required for her to perform her job as a realtor.   NAR raised their membership dues by $40 per year, and some portion of this increase went to financing independent expenditures out of NAR’s treasury funds and through a Super PAC.  In effect, the realtor asserted that the dues increase constituted improper coercion of political contributions.

Although the FEC exercised its prosecutorial discretion to dismiss the case, the First General Counsel’s Report and Chairman Goodman’s statement of reasons may be instructive for membership organizations financing political activities with member dues.  Both would dismiss the complaint for failing to state a violation of the federal campaign finance laws.   They identified only two types of coercion that the FECA and FEC regulations prohibit.   First, contributions to a corporation’s or labor union’s PAC may not be coerced.   Because the complaint did not refer to PAC solicitations, this prohibition was inapplicable.   Second, the FEC’s regulations provide that if a corporation facilitates the making of contributions to candidates or PACs by using “coercion, such as the threat of a detrimental job action, the threat of any other financial reprisal, or the threat of force, to urge any individual to make a contribution or engage in fundraising activities on behalf of a candidate or political committee,” the contribution or fundraising activities are attributed to the corporation.  Nonetheless, even assuming that the loss of access to MLS would be a sufficient “threat … of financial reprisal” to constitute coercion, under Citizen’s United and SpeechNow.org, NAR is permitted to use its treasury funds to fund independent expenditures and to make contributions to Super PACs.   Therefore, the First General Counsel’s Report and Chairman Goodman’s statement of reasons determined, NAR’s actions were no more than the group’s own decision to fund political activities and consequently did not violate the FECA.

Two More Public Relations Firms Trip Over the Foreign Agents Registration Act

Posted in Enforcement, Foreign Agents Registration Act, Lobbying Compliance

Two public relations firms have filed documents with the Department of Justice revealing that they provided public relations and media services in the United States for the government of Ecuador without being registered under the Foreign Agents Registration Act (FARA), as that law requires.  These firms are the latest in a long string of law firms, business consultants, and individuals who have inadvertently triggered FARA and sought to register with the Department of Justice for work already underway or even completed.  Despite some increased attention to FARA in recent years, the statute remains relatively unknown.

FARA requires that an agent register with the Department within ten days of meeting the statute’s triggers, and it further prohibits anyone from acting as an agent until the registration is complete.  The PR firms’ filings show that both engaged for months in activities that required registration, but they did not register until just weeks ago.  One firm, McSquared PR, revealed that it had been receiving money from the government of Ecuador since May 2013.  The other firm, FitzGibbon Media, disclosed that it contracted to assist McSquared in December 2013.

FARA is an old statute that, despite its age, remains relatively obscure.  It was enacted in 1938 in an effort to force public disclosure of Nazi propagandists in the United States.  The statute uses sweeping language that can apply to anyone working in the United States on behalf of anyone outside the United States – both foreign governments and foreign corporations.  To make matters worse, the law contains complex and interrelated triggers that require assessing the relationship between the U.S. company and the foreign entity, the type and location of activities undertaken for the foreign entity, and whether one of the statue’s several exceptions might apply.  In short, it is very easy to trigger the statute inadvertently.

The recent PR firms’ filings also demonstrate the typical enforcement pattern of the FARA statute.  The Department of Justice relies primarily on press reports and other public information to uncover agents who have failed to register.  In this case, the Washington Free Beacon reported in June that McSquared “touted the government of Ecuador as a client” but was not registered under FARA.  It is possible that McSquared then received an inquiry letter from the Department, asking whether the company should have registered.  FARA inquiry letters are common, and they are the Department’s primary method to prompt compliance with the statute.  The Department has an explicit policy of “encouraging voluntary compliance” with FARA, even after the fact, rather than pursuing criminal or civil enforcement proceedings.  Although the statute carries stiff criminal penalties, the Department’s policy reserves criminal enforcement for “significant FARA offense[s],” such as willful violations involving millions of dollars.

The PR firms’ filings indicate that they were paid $6,408,000 for the public relations campaign.  Despite an “eye-popping” budget for such a cash-strapped nation, the disclosures filed by the PR firms have likely brought this matter to a close.

Despite House Ethics Rule Change, Privately Funded Travel Still Publicly Disclosed

Posted in Government Ethics

National Journal reported today that the House Ethics Committee quietly scrapped “decades of precedent” requiring Members of the House of Representatives and certain senior staff to disclose privately funded travel on annual financial disclosure forms.

Despite this change, travel costs still must be disclosed.  Under the current House travel rules, Members of the House and all House staff must file a post-travel disclosure form with the House Ethics Committee within 15 days of their return from a privately funded trip.  The completed forms are publicly available on the House Clerk’s website.  These disclosure forms provide details regarding the cost, purpose, and sponsor of the trip.

The Wall Street Journal reports that the House Ethics Committee’s logic for eliminating the trip information on the annual financial disclosure is that the information is simply redundant; the information is on the post-travel disclosure forms.  Regardless of the logic, privately funded travel for Members of Congress and congressional staff continues to be a hot topic of public scrutiny.

New Virginia Ethics Laws Take Effect Tomorrow; More Changes May Come in 2015

Posted in Government Ethics, Lobbying Compliance, State Law

Those active in Virginia politics should note that portions of Virginia’s new ethics law take effect tomorrow, July 1, 2014, including the new $250 annual limit on “tangible” gifts from lobbyists and government contractors.

Governor Terry McAuliffe has said that this is not the end of ethics reform in Virginia.  Earlier this month, he used his line-item veto to defund the newly-created ethics commission.  He explained that he thought the new laws were too weak and it was not worth creating the commission because he plans to introduce another, tougher ethics bill in the 2015 General Assembly session.

In addition to the new law, Virginia’s executive order on ethics also remains in effect.

Florida Clarifies Registration Requirements for Federal and Out-of-state PACs

Posted in Campaign Finance, State Law

New guidance from the Florida Bureau of Election Records will be useful to federal PACs and other non-Florida political entities that want to participate in Florida politics but were wary of the state’s registration and reporting requirements.  Under the new guidance, available on page 34 of the Florida Political Committee Handbook:

  • Out-of-state and federal entities that have “only received donations that were not made for the purpose of influencing the results of Florida elections” and are otherwise legally permitted to make contributions may make Florida contributions without registering with the state.  In other words, if an entity only receives general donations and wants to make Florida contributions, it does not need to register.  Note that other political activity in Florida, such as making expenditures for express advocacy, may require registration.
  • A political committee that is registered in Florida must “maintain a separate bank account solely for Florida political activities” and deposit all of its receipts for Florida activities into that account.  These funds must be spent only on Florida activity.
  • If a federal or other non-Florida entity has to register in Florida, it may not commingle funds from its Florida account with its other funds.

We advise that any entity considering taking advantage of this new guidance consult with counsel before doing so.

IRS Release Reflects Ongoing Scrutiny of Political Activity by Nonprofits

Posted in Tax

Two items in last week’s news highlight that federal tax law remains an important consideration in the lead up to the 2014 and 2016 elections.

First, the IRS released a letter that denied the application of the Arkansans for Common Sense, a now defunct liberal group, for classification as a 501(c)(4) social welfare organization.  The facts made this an easy case for the IRS (between 50 and 85% of the organization’s expenditures, depending on how you define “political” spending, related to influencing elections).  Nonetheless, the denial letter highlights the risk that the IRS, widely viewed currently as not willing or able to enforce the existing restrictions on political campaign intervention by social welfare groups, remains something of a wild card.  This impression is underscored by the letter’s apparent reliance on a revenue ruling that does not address whether or to what extent social welfare organizations can engage in political activities without jeopardizing their exemption.  That revenue ruling, based on a different definition of political activity, deals with whether a social welfare organization has made a taxable exempt function expenditure under section 527 of the Internal Revenue Code.

Second, IRS Commissioner Koskinen told reporters from the Center for Public Integrity that the IRS expects to release new proposed regulations on political spending by tax-exempt groups in early 2015.  Perhaps significantly, the proposed new rules are to be broader in scope than last year’s withdrawn proposed regulations.  In particular, they will address the definition of political activity, the organizations to which the definition will apply and how much political activity organizations can engage in without jeopardizing their income tax exemptions.  While any new rules seem likely to draw an immediate legal challenge from one or possibly even both sides of the aisle (if the now withdrawn proposed regulations are any indication), it is clear that anyone planning political spending in 2014 and 2016 should anticipate that the rules may change in mid-course.

SEC Announces Major Fines In First Pay-to-Play Enforcement Case

Posted in Enforcement, SEC Pay-to-Play

The Securities & Exchange Commission hit a Philadelphia-area private equity firm today with a major penalty, in the SEC’s first case involving alleged violations of its 2010 “pay-to-play” rules.  More enforcement actions may be coming.

The SEC pay-to-play rules were adopted to prevent, among other things, executives of investment firms from making political contributions in an attempt to secure investments from state and local pension funds.  In this case, the facts alleged by the SEC suggest a quintessential pay-to-play violation.  According to the SEC’s order, in 2011, an unnamed “covered associate” of a private equity firm called TL Ventures made a $2,500 contribution to a Philadelphia mayoral candidate and a $2,000 contribution to the Governor of Pennsylvania.  Because the Philadelphia mayor and the Governor of Pennsylvania could appoint some members of public retirement boards that had invested public pension funds with TL Ventures, the SEC asserted that the firm had violated pay-to-play rules.

According to the SEC’s order, TL Ventures agreed to settle the pay-to-play charges (and a charge that it failed to register as an investment adviser) by disgorging its $256,697 in profits, plus interest, and paying a $35,000 penalty.  In large part, these significant fines stemmed from the simple fact that a single employee made political contributions totaling less than $5,000.

In its press release, the director of the SEC’s Enforcement Division signaled that this case may not be the last: “We will use all available enforcement tools to ensure that public pension funds are protected from any potential corrupting influences,” he said.  Pay-to-play enforcement cases like this one may be an easy way for the SEC to pick-off low hanging fruit and increase its enforcement figures.  Unlike other areas of securities law, almost all of the elements of a pay-to-play violation are already public record.  By matching up public campaign finance reports with public lists of state contractors, the SEC can easily identify potential violations.  This, of course, further underscores the need for hedge funds, private equity funds, and other investment advisers to ensure they have adopted, and follow, pay-to-play compliance policies.