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Inside Political Law

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

New Jersey Considering Aggressive Expansion of Pay-to-Play Legislation

Posted in Pay-to-Play, State Pay-to-Play

New Jersey, already home to some of the most complex and restrictive pay-to-play laws in the nation, is considering an aggressive new expansion of those laws.  A bill under consideration that recently passed through a senate committee would prohibit certain individuals and entities involved in managing state employee retirement funds from making contributions to national, federal, or other out-of-state political parties and committees to the same extent it currently prohibits them for in-state committees.  If adopted into law, this could restrict politically active individuals and entities concerned about New Jersey’s pay-to-play law from making contributions to the DNC, RNC, the national congressional committees, and the Democratic and Republican Governors’ Associations.  It is even possible, depending on the final language and how it is implemented, that this new law could affect contributions to other federal and non-New Jersey political committees.

This legislation appears to stem from two sources.  First, New Jersey Governor Chris Christie is the current chairman of the RGA, and both the RGA and RNC supported his re-election campaign.  State labor officials have cried foul on contributions from investment managers to those committees, saying their contributions benefitted Christie’s election and political influence.  Second, the State Investment Council amended its regulations in March 2014 to explicitly exclude national party committees from the contribution ban.  This bill seeks to repeal those exclusions and affirmatively include the federal, national, and out-of-state entities in the ban.

An identical bill, A3772, is in committee in the General Assembly.  We will be closely monitoring the progress of these bills.

New, Strict “Reverse” Revolving Door Restrictions in Pennsylvania?

Posted in Government Ethics, State Law

On October 15, Pennsylvania’s legislature sent House Bill 201 to Governor Tom Corbett for signature.  The legislation would prohibit a government employee from evaluating bids for state contracts submitted by his or her former employer for two years.

This legislation is interesting for a few reasons.  First, it is a twist on what are commonly known as “revolving door” restrictions.  Typically, revolving door restrictions limit the activities of former governmental officials.  For example, former government officials often may not advocate on behalf of their new employer in front of their former agencies or regarding matters in which they participated as a government official.  Many jurisdictions also impose restrictions based on financial interests.

Pennsylvania’s legislation is different in that it applies to new government employees who left the private sector, because it focuses specifically on state contracts, and because it is a straightforward ban on participation in evaluating proposals regardless of financial interest.

The restriction would also be harsher and would last twice as long as similar restrictions at the federal level that may require the recusal of a government employee from a matter involving a company at which the employee worked within the prior year.

Employers should keep an eye out for “reverse revolving door” rules of this kind, which are likely to sprout up in other states and localities.  When a company official leaves for public service, the company often seeks to determine whether the former employee’s new government position will impact operations.  Sometimes, compensation packages can be reconfigured or declined in order to avoid conflicts of interest down the road (for example, the federal executive branch has complex restrictions regarding government employees who have continuing financial interests in their former employers).  Pennsylvania’s law would effectively make that impossible.  The mere fact that an employee-employer relationship used to exist would be enough to mandate recusal.

Court Dismisses Challenge to SEC Pay to Play Rule (For Now)

Posted in Litigation, Pay-to-Play, SEC Pay-to-Play

In an important decision, the US District Court for the District of Columbia yesterday dismissed a constitutional challenge to the SEC’s “pay to play” rule, which restricts contributions and fundraising by some individuals who are associated with hedge funds, private equity funds, and other registered investment advisers. The Court ruled that the case had been filed in the wrong court, and that the district court in which it was filed lacked subject-matter jurisdiction.

Significantly, in dicta, the Court also expressed some doubt as to whether the state political parties challenging the SEC rule even had standing to bring the suit. The standing issue, which has been apparent since the filing of the suit, turns on the fact that plaintiffs were not able to identify a registered investment adviser, or an individual associated with one, to participate in the suit as a plaintiff. There is a material question, which the court did not ultimately reach, as to whether the state party plaintiffs could possibly have standing.

After the Court expressed concerns about standing early in the suit, the plaintiffs submitted an affidavit, filed after briefing had been completed, by a state legislator who asserted harm under the SEC rule. It is not clear that this will be sufficient to resolve the standing issues that have dogged the case from the outset, though the Court appeared to leave open that possibility.

It is fairly clear that the SEC rule suffers significant constitutional infirmities, especially in light of US Supreme Court campaign finance decisions that post-dated enactment of the SEC’s pay to play rule. What the world needs now is an employee of a registered investment adviser, who is herself covered by the SEC rule, and who is willing to serve as a plaintiff. But many such people, and their employers, fear that challenging the SEC in court could provoke retaliation from the powerful agency. The difficulty in identifying a willing plaintiff with clear standing only highlights the chilling effect of SEC regulation when the agency strays beyond its core mission and attempts to regulate political speech.

The next stop for this case will be the US Court of Appeals for the DC Circuit. The district court hinted broadly that the DC Circuit might want to revisit some of its own case law to clear a path for this case to be heard. There are thorny issues of subject-matter jurisdiction and timeliness to be worked through, even before a court would be ready to consider the standing issue. In the meantime, the possibility remains that another suit, filed with other plaintiffs, could be filed in another circuit, which may present both procedural and substantive advantages.

FARA Again in the Spotlight: New York Times Examines Foreign Funding and Think Tanks

Posted in Foreign Agents Registration Act

This weekend, the New York Times ran a lengthy investigative report on foreign government donations to U.S. think tanks.  The story alleged that the foreign governments bought influence and paid for advocacy by some of the nation’s most respected research institutions.  The article outlined contributions from Norway, UAE, Qatar, Japan, and others to think tanks including the Brookings Institution, the Center for Strategic and International Studies, the Atlantic Council, and the Center for Global Development.

For a few years, we have noted – and been tracking for many clients – the growing enforcement and interest in the Foreign Agents Registration Act.  This weekend’s Times story focused on think tanks, but the FARA issues it highlighted are equally relevant to universities, social welfare organizations, and others that accept foreign government funding.  We have also seen PR and consulting firms confront FARA issues related to their clients outside the United States.  FARA is an important consideration for any advocacy organization that is closely aligned with a foreign government, country, or ethnicity.  (One of the leading FARA cases, for example, involved an Irish newspaper and advocacy organization.)  Even corporations have run into FARA.  Companies with foreign affiliates or U.S. subsidiaries of a foreign parent with close ties to the home country government can easily trigger FARA inadvertently.

Notably, the Times article alleged that the think tanks’ arrangements with foreign governments may have violated the law:

[T]he tightening relationships between United States think tanks and their overseas sponsors could violate the Foreign Agents Registration Act….  The law requires groups that are paid by foreign governments with the intention of influencing public policy to register as “foreign agents” with the Justice Department.

Unfortunately (or fortunately, for the think tanks), that’s not quite a fair paraphrasing of the law.  FARA is a complicated and arcane statute – its application can swing quickly between very different outcomes, depending on the specific factual situation involved.  Applying the law requires examining the relationship between the U.S. entity and the foreign government, the specific activities undertaken, and even the physical location of the activities, among other considerations.

In our experience – from working with think tanks and foreign donors – most organizations seek to avoid triggering FARA by specifying that the think tank is independent and not acting on behalf of the foreign donor.  These legal considerations are usually specified clearly in the grant documents.  This posture is natural for respectable think tanks – independence is central to their reputations and credibility.

Because FARA is targeted at “agents” of foreign entities, the registration requirement is generally only triggered when the agent operates at the “direction or control” of a foreign entity.  But the language of FARA is very sweeping and the statute encompasses those who act at the “request” of a foreign principal or those whose activities are “financed, or subsidized in whole or in major part,” by a foreign entity.

As a result, it is very easy to trigger the statute unintentionally unless FARA considerations are taken into account when negotiating the grant and drafting the contracts or grant documents.  Even then, the parties must remain vigilant throughout the relationship to avoid crossing the line and triggering the statute, notwithstanding any legal language in a carefully drafted document.

Although FARA is relatively esoteric, Covington’s experience in this area spans more than 50 years.  (One of the leading FARA cases is Attorney General v. Covington & Burling, where we established that the attorney-client privilege applies to FARA.)  We also defended a consulting firm targeted in the Department of Justice’s largest FARA investigation of recent memory.  We have advised a number of think tanks and other organizations regarding grant agreements with foreign governments, as well as foreign government instrumentalities considering grants to think tanks.

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.