Covington today released an updated version of its manual for Chiefs of Staff to Members of Congress concerning best practices for responding to government investigations of Members and their staff. Titled “A How-To Guide for Chiefs of Staff,” the manual describes how government investigations unfold and the steps that Chiefs of Staff need to take during the initial stages of any investigation.
The start of 2017 brings two changes to the federal Office of Government Ethics (“OGE”) rules for executive branch officers and employees.
First, important changes to the executive branch gift rules went into effect this week. We detailed those changes in this alert.
Second, OGE’s overhaul of the Executive Branch Ethics Program regulations (5 C.F.R. Part 2638) also took effect at the start of the year. Most of these rules address the operation of ethics programs at federal agencies and their relationship with OGE. There are several rules that should be of interest to prospective or incoming agency officials. Some highlights:
- Certain high-level appointees must participate in a briefing on their “immediate ethics obligations,” usually within fifteen days of their appointment, including the individual’s financial conflicts and recusal obligations, and a plan to comply with the requirements of their ethics agreement.
- Agency written job offers must now include a notice of the ethics rules and laws that will apply should the offeree accept employment, instructions on how to get more information on ethics, and any applicable timeframes for receiving training or completing a financial disclosure.
- Employees who become supervisors will receive written information about agency ethics, in addition to the normal training requirements.
- A year before the Presidential election, each agency must assess whether it has sufficient ethics staff to support the presidential transition. The regulation also explains that OGE will offer training on counseling incoming and outgoing employees and officials, and assist the transition with preparing for nominations and any new ethics initiatives.
These requirements are especially relevant as Inauguration Day approaches and the incoming administration begins the hiring and appointment process. Individuals considering entering the administration should also consider our guidance on financial disclosures, interacting with the transition, and the appointee vetting process.
As the President-elect begins to nominate individuals for Senate-confirmed positions in his administration, one of the major hurdles these individuals face is the statutory requirement that the Director of the Office of Government Ethics (“OGE”) review and certify a public disclosure of each source of income exceeding $200 and each property interest exceeding $1,000 in value. While for many classes of assets, identifying and disclosing the relevant assets is relatively straightforward, it is often much more difficult to file a compliant report for pooled investment fund assets, such as hedge funds, since the details of the underlying assets are often undisclosed to the investor by the fund manager or subject to a confidentiality agreement between the investor and the fund manager. This alert explains the most recent OGE guidance applicable to hedge funds and other pooled investment fund holdings.
Prior to 2014, OGE maintained a strict “disclose or divest” policy, requiring a nominee to divest their undisclosed assets—regardless of whether or not the filer had access to information about the fund’s underlying holdings—unless the fund qualified as an “excepted investment fund.” This strict policy, OGE recognized, “can conflict, for no substantive reason, with the goal of attracting and placing talented professionals in public service.” Thus, in 2014, OGE issued revised guidance clarifying that the investor may not be required to “disclose or divest” if either (1) a fund is an “excepted investment fund” or (2) if the investor has no access to information on certain underlying assets, which allows OGE to certify that the investor may report only what is known about the fund.
The advisory linked above provides additional details on this disclosure requirement, the potential exemptions, and other relevant considerations for potential nominees.
Corporations, trade associations, and others who interact with federal executive branch employees should be aware of the Office of Government Ethics’ (OGE) recent amendments to the executive branch gift rules, which go into effect on January 1, 2017. Seeking to encourage transparency and advance public confidence in the integrity of federal officials, OGE redefined some of the gifts executive branch employees can receive from outside sources and suggested when permissible gifts should be declined because they may create an appearance of impropriety. The new amendments include some of the most detailed changes to the executive branch gift rules in many years. This alert outlines the most significant changes.
With Election Day 2016 in the books, the political world turns to the transition of power and the January 20, 2017 Inauguration of President-elect Donald Trump and Vice President-elect Mike Pence. With the swearing in of the new President and Vice President will come the traditional balls, parties, and receptions. The inauguration and related events are costly, and paid for largely with private funds. Individuals, businesses, and other organizations donating to the inauguration, hosting related events, or giving out tickets to either should remember that they are operating in a highly regulated space. In this alert, we profile three common compliance issues.
Over the next nine weeks, the Trump Presidential Transition team will formulate policy and staffing recommendations for the new administration. This alert gives a broad overview of the Transition and the laws that regulate interactions with Transition team members on issues related to appointments and policy recommendations. Persons interested in this topic may also wish to view our alert on the presidential appointee vetting process.
Congressional investigations are rare, but for corporations, they are not quite “black swan” events that are impossible to predict. For companies in high profile, controversial, or highly regulated industries, they are more like “gray swan” events. They happen often enough that you can and should plan for them. We’ve published an article that helps you anticipate issues that will arise in any congressional investigation. The article ran yesterday in a legal publication, Law360, and you can read it here.
A report published today criticizes companies that refuse to disclose information about their political spending on their websites. The non-profit Center for Political Accountability and the Zicklin School at Wharton annually rank all companies in the S&P 500 on their political disclosure practices, based on a 70-point metric. The more information companies disclose on their websites, the more points they get. This year’s report marks the second consecutive year for which the CPA-Zicklin Index has surveyed the full S&P 500.
While these disclosures are not required by law, the CPA-Zicklin Index has found success over the years at using the Index as a tool to pressure companies to either disclose more information about their political expenditures or to cut-off the spending altogether.
This year’s Index is no different, finding incremental improvement over last year’s report. According to the 2016 report, the average overall score rose slightly this year from 33.93% in 2015 to 36.73%. Citing this regular year-over-year increase, the report emphasizes that it can be used to identify “persistent basement-dwellers, those companies lagging behind in taking reasonable steps to safeguard themselves and shareholders against the acknowledged risks posed by corporate spending on politics.” As a result of the attention given to the issue by this year’s report, those companies may find themselves the targets of name-and-shame campaigns, adverse publicity, shareholder proposals, or even litigation.
But companies should not read too much into the trend towards increased disclosure. Forty-nine companies still received a score of “zero,” and 152 companies received scores of 10% or less, down only slightly from 156 in 2015. And some of the increase in the average score may simply be a result of low-scoring companies who were surveyed for the first time in 2015 deciding to move to the middle-of-the-pack. Moreover, most companies still receive no credit in two key categories, both of which are primary CPA-Zicklin focus areas: Less than half disclose any information about trade association dues payments and less than a third disclose information related to contributions to so-called 501(c)(4) groups.
The report, perhaps unintentionally, also makes clear that corporate political disclosure is not a panacea to “dark money.” The Index repeatedly touts a “strong and growing trend among S&P 500 companies” towards increased disclosure and claims that disclosure “is becoming common practice.” At the same time, the Index warns of a potentially record-breaking year for “dark money” spending and “long-term trends” documenting “sharply escalating dark money in politics.” But the increase in political disclosure by major public companies strongly suggests that the increase in “dark money” spending is not coming from large multinational corporations.
Litigation by the Senate Permanent Subcommittee on Investigations to enforce a subpoena for documents from Carl Ferrer, the CEO of Backpage, an online forum accused of contributing to sex trafficking, has taken another interesting twist, with the D.C. District Court ruling that Backpage cannot assert the attorney-client privilege to protect certain documents. It is rare for a court to issue a ruling on attorney-client privilege in a congressional investigation, and the court’s ruling has significant implications for any individual or company facing demands from Congress for documents, information, or testimony.
In an important decision, U.S. District Judge Christopher Cooper today ordered the Federal Election Commission to reconsider its dismissal of a complaint filed by CREW against two tax-exempt advocacy organizations that have never registered with the FEC. CREW alleged that the two groups, American Action Network and Americans for Job Security, had as their “major purpose” influencing federal elections, and that they therefore should have registered as federal political committees, which would have meant disclosing their donors. The FEC split 3-3, with the three Republican Commissioners voting not to find “reason to believe” that a violation had occurred.
For years, campaign finance reform groups have sought to breathe life into the “major purpose” test, first enunciated in the seminal 1976 campaign finance law case, Buckley v. Valeo (a case that was litigated by Covington & Burling). There has been considerable uncertainty since Buckley as to the point at which expenditures related to federal elections would cause influencing federal elections to be an organization’s “major purpose.” Judge Cooper ruled that the FEC erred in two respects when it dismissed the cases against AAN and AJS. First, the Republican Commissioners had considered only “express advocacy” of the election or defeat of clearly identified federal candidates to count for purposes of the major purpose test. The Court held that electioneering communications should have also been taken into account, even though they do not include express advocacy. Second, the Court ruled that the Commissioners erred by considering the groups’ recent election related ads only in the context of their lifetime history of activities spanning many years, which tended to downplay the centrality of federal election activity to their missions. Accordingly, the Court remanded the case to the FEC for further proceedings.
For a variety of practical reasons, there is a good chance that the case will now die on the vine at the FEC. Because the Court did not define a specific standard that the FEC must adopt, limiting itself to rejecting the standards that the Republican Commissioners applied, ample room remains for the FEC to deadlock again on remand, even if the deadlock rests on different grounds. But the significance of the case has less to do with the final outcome of this particular case, and much more to do with the standard that will apply in future cases. Depending on whether the FEC appeals the Court’s decision, and if so, the outcome of the appeal, Judge Cooper’s decision may point the way to a more expansive conception of the major purpose test, validating campaign finance reform groups’ decades long crusade to use that test as a battering ram to force outside groups to register as reporting committees. In the short run, it is fair to assume that those filing complaints with the FEC will cite liberally to Judge Cooper’s decision.