First Significant Pay-to-Play Legislation for the District of Columbia Approved by D.C. Council

On December 4, the D.C. Council unanimously approved the first significant pay-to-play law for Washington, D.C.  The restriction would apply to contractors with—or seeking—one or more contracts with an aggregate value of $250,000 or more.  The legislation will be considered by the Mayor and would be subject to a 30-day period of congressional review.

The Campaign Finance Reform Amendment Act of 2018 (B22-0107) includes several revisions to the District’s campaign finance law, including increased disclosure for independent expenditures.  Perhaps the most significant change is a new restriction on campaign contributions by contractors doing business with the District, and by prospective contractors seeking to do business with the District.

Under the new law, the District would be prohibited from entering into a contract if the contractor made a covered contribution to a covered official during the “prohibited period.”  Covered contributions are contributions from the contractor or its senior officers, such as the president, executive director, CEO, COO, or CFO.  Which District candidates are considered “covered officials” depends on who oversees the contract in question.  For example, if the contract must be approved by the D.C. Council, all candidates for D.C. Council would be considered covered officials.  Mayoral candidates and candidates for Attorney General would be covered officials if the contract is with an agency subordinate to either the Mayor or the Attorney General, respectively.

In most cases, the ban on contributions would begin on the date of the contract solicitation, and, for successful bidders, would continue in effect for different periods depending on the nature of the contract.

Type of Contract Duration of Restriction*
  • Sale of goods, services, construction, purchases & sales of land or buildings.
  • One year after termination of the contract.
  • Lease of land or buildings, licensing arrangement, loan.
  • One year after entering into the contract.
  • Surplus and disposition of land or buildings, tax exemption or abatement.
  • One year after the effective date of the relevant legislation approved by the D.C. Council.

* Duration of restriction for successful bidders.  The ban for unsuccessful bidders is shorter.

We will continue to monitor developments regarding this legislation, including action by Mayor Muriel Bowser, who, as reported by The Washington Post, has thus far declined to take a position on the legislation.

Congressional Investigations After the Midterm Elections

Brian Smith delivered the following remarks during Covington’s post-election conference call with clients on November 8, 2018.

“Restoring the Constitution’s checks and balances to the Trump administration.”  That’s what Democratic leader Nancy Pelosi promised in her speech after the elections.

Congressional oversight and investigations thrive in divided government, and Democratic leaders are already promising a new wave of oversight.

While the press and pundits are mostly focused on the likely political investigations – access to the President’s tax returns or investigations of the Trump Organization’s business activities – the House’s investigative agenda is much broader, and it has direct implications for many of our clients.

For example, when we last had a Democratic House and a Republican President, in 2007 and 2008, Congress conducted large investigations of drug companies’ sales and marketing practices, technology companies’ sharing of customer data, and the financial industry’s corporate practices.  A decade later, these three sectors – pharmaceutical, financial services, and technology – remain prime targets for congressional scrutiny, along with energy, government contractors, and most other highly regulated industries.

Moreover, a lot has changed in the last decade to increase the congressional investigations risks.

First, more committees now possess dedicated and experienced oversight staff than ever before, and several committees have dedicated oversight and investigations subcommittees.  We expect oversight activities from all the major committees next year.

Second, in recent years, several committees have modified their rules to give the chairmen unilateral authority to issue subpoenas – a practice that we expect to continue next year.  Even though many investigations do not result in subpoenas, the potent threat of a subpoena – issued without committee vote or sometimes even notice – makes it much harder for companies to resist congressional demands.

Third, congressional investigations, which always ebb and flow depending on the political environment, have become much more consistent and a mainstay of today’s legislative process.

That trend has been driven, in part, by legislative gridlock, as Members turn to oversight and investigations as a way to affect policy, and private sector practices, that they cannot reach through legislation.  With the Senate remaining in Republican control, House Members will have a greater incentive to pursue policy goals through investigations.

In predicting next year’s investigations, history is often a good guide.

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Are You Ready For Your Congressional Investigation?

If the current polls and predictions are accurate, the Democratic party is poised to take control of the House of Representatives next year, for the first time since 2010.  Congressional investigations thrive in divided government, and Democratic leaders in Congress are already promising a new wave of investigations.

My new article in Law360 examines the strategies for predicting whether a company or industry is likely to receive congressional scrutiny, the steps that companies and executives can take to prepare for congressional investigations, and the unique characteristics of congressional investigations that make them particularly challenging to navigate.  Companies that are likely targets for congressional investigations can prepare now by anticipating areas of inquiry, assessing vulnerabilities, and preparing response plans with guidance from counsel experienced in handling congressional investigations.

Election Law Compliance for High Net Worth Individuals and Family Offices

With less than one month to go before the 2018 elections, the ground is shifting for major political donors. Developments over the last several years, and especially in the last few months, show that the rules of the road are changing with respect to many of the common election law issues faced by high net worth individuals. These complex rules present an array of compliance traps for the unwary. To help high net worth individuals and their family offices navigate this thicket, Covington today has published an advisory describing steps high net worth individuals can take to ensure compliance with these rules.

Covington Issues Client Advisory Concerning “Earmarked” Contributions To Politically Active Organizations

A perennial compliance issue for corporations, family offices, and individual major donors who are considering contributions to politically active outside groups involves determining whether the contributions will be treated as “earmarked” for a specific candidate or political committee, which can result in legal compliance issues as well as disclosure of the donor’s identity.  The new advisory is available here.

FEC Issues New Guidance On Donor Disclosure for Entities Making Independent Expenditures

On September 18, the Supreme Court left in place the district court decision in CREW v. FEC, a case that dramatically increased the disclosure obligations for nonprofits and other entities that spend money on public communications that encourage people to vote for or against specific candidates.

We previously described the anticipated effects of the CREW decision, but guidance issued today by the FEC answers some questions even as it raises others.  While the CREW decision and new guidance do not change the reporting requirements for Super PACs and other political committees, they do change the donor disclosure requirements for other groups that pay for independent expenditures, such as trade associations and 501(c)(4) social welfare organizations.  The following are key takeaways from the guidance for these types of entities when making independent expenditures:

The following are key takeaways for entities making independent expenditures other than political committees:

  • There is no change in filing requirements for these entities whose only independent expenditures were made before September 18.
  • For entities making independent expenditure on or after September 18 aggregating to more than $250, the information required to be reported regarding their donors depends, in part, on when they received the contribution:
    • Contributions received 7/1/18 – 8/3/18 (beginning of the quarterly filing period through the date of the district court opinion):  Identify any person who contributed more than $200 in 2018 for the purpose of furthering the reported independent expenditure, which was the rule prior to the CREW decision.
    • Contributions received 8/4/18 – 9/30/18 (the end of the quarterly filing period) and beyond:  Identify any person who contributed more than $200 in 2018 if the contribution was intended to influence elections.  The filer must separately identify those contributors who gave for the purpose of furthering any independent expenditure.

“In the interests of fairness,” the FEC decided that more expansive disclosure is required only for contributions received on or after August 4 because “no one was on notice” that expanded disclosure would be necessary until after the August 3 CREW decision.

The FEC also provided several important clarifications about which contributions are—and are not—reportable going forward:

  • Filers must identify, with a special notation, all donors who contribute over the $200 threshold for the purpose of supporting any independent expenditure (not necessarily the specific reported independent expenditure).
  • For other contributions intended to influence elections, there is still considerable ambiguity as to how far-reaching the disclosures must be.  The FEC states that such contributions must be disclosed if they were “earmarked for political purposes.”  But it does not define when a contribution is “earmarked for political purposes.”  What about a contribution that was solicited to influence federal elections, but that was accompanied by written instructions making clear that the recipient could use the contribution for any purpose.  Is that contribution “earmarked for political purposes”?
  • The guidance also includes an odd quotation from the CREW decision stating that contributions are reportable when “used for other purposes in support or opposition to federal candidates by the organization for contributions directly to candidates, candidate committees, political party committees, or super PACs.”  It is not clear if the FEC meant that contributions for other purposes are disclosed only if they are used to support other political committees, or if it referred to such a use as merely an example of a case where contributions must be disclosed even when not made for purposes of furthering independent expenditures.
  • Interestingly, the CREW decision may in one respect lead to less disclosure.  The FEC’s new guidance indicates that 24-hour and 48-hour reports filed shortly after the public dissemination of an independent expenditure no longer need to disclose the contributors who supported the corresponding independent expenditure.  Now, contributors need only be disclosed on quarterly reports, which may mean that disclosure of a contributor could be delayed until months after the independent expenditure was disseminated—and potentially months after the election.

We will continue to closely monitor the evolution of this significant development.

California Social Media DISCLOSE Act Becomes Law, Takes Effect 2020

Earlier this week, California Gov. Jerry Brown approved the Social Media Disclose Act, to take effect in 2020.  We previously blogged about the Social Media DISCLOSE Act, which will place new disclosure obligations on social networks like Facebook and Twitter; advertising platforms like Google; and anyone who engages in online political advertising.  Covered platforms in particular should start thinking now about how they will comply with the law, or else risk being caught flat-footed when it kicks in just in time for the 2020 state elections.

 

Donor Disclosure Requirements Expand After Supreme Court Order

In a startling turn of events that will alter election spending decisions in the run-up to the general election, and after, the Supreme Court reversed a temporary stay issued by Justice Roberts on Friday, and left in place a district court decision that dramatically increased the disclosure obligations for entities spending on public communications that encourage people to vote for or against specific candidates.  The exact effects of this decision are hard to predict because political actors may adjust their behavior to accommodate for it. Nevertheless, here are a few key points.

What the decision does.  As we described more fully in a client alert in August, the trial court struck down a Federal Election Commission (FEC) regulation that stated that, when making an independent expenditure of over $250 in support of or opposition to a federal candidate, entities that are not registered with the FEC need only disclose those donors who gave to the group for the purpose of funding the specific ad that was being reported.  Instead, the court concluded that these groups must (a) disclose the identity of all donors who gave over $200 to the group for the purpose of influencing a federal election, and (b) identify which of those donors gave for the purpose of funding any of the group’s independent expenditures.

What this will mean going forward.

  • Many outside groups that have made independent expenditures in the past will stop. These groups rarely anticipate disclosing donors, and many of their donors rely on that.  A similar court decision in 2012 expanding disclosure of donors to groups funding electioneering communications led to an almost complete stop to those types of ads until it was reversed on appeal.
  • Some of these groups will shift from spending on independent expenditures (which encourage people to vote for or against a particular candidate) to spending on electioneering communications (broadcast ads that mention a candidate shortly before an election, but don’t explicitly tell you to vote for or against the candidate) or other less regulated forms of political speech.
  • This decision does not affect Super PAC spending. While many people don’t realize it, Super PACs already disclose their donors.  So spending by these groups won’t be affected by the court’s rulings.
  • The success of reform groups and state regulators in litigating disclosure provisions is not limited to this case. The ruling by the D.C. Circuit in this case when denying the request for a stay, and the Supreme Court’s ruling today, will likely embolden those willing to litigate over disclosure.

Donors and groups with active political spending programs will need to be mindful of this decision, and its implications going forward.  While rulings on a request for stay are different from a dispositive ruling on the underlying claims, they are related, and the decisions discussed here point to a period of increased emphasis on disclosure of those who fund a broad range of political speech.

California’s New “Social Media DISCLOSE Act” Regulates Social Media Companies, Search Engines, Other Online Advertising Outlets, and Political Advertisers

California’s new “Social Media DISCLOSE Act” takes on the trending topic of online political advertising disclosure. Assuming Gov. Jerry Brown signs the bill, then come 2020, social media networks like Twitter and Facebook, as well as Google and similar tools, may face burdensome new obligations related to California political advertising.  Political advertisers themselves will also have to make additional disclosures. The law targets advertisements that often appear as “sponsored content,” and places the disclosure burden on the online platform.

The law applies to “online platforms” and certain persons who are registered political committees placing California political advertisements on those online platforms.  “Online platform” is defined to include websites and web or digital applications that sell advertising directly to advertisers, but not websites or apps that only display advertisements sold via another platform.

Under the Act, the platform must include with each advertisement a disclosure of who paid for the ad, or a link to the sponsor’s page on that platform or another page disclosing sponsorship information.  The platform also must maintain records of the advertisements disseminated via the platform and make them available to the public online, including via a link on the advertiser’s profile or similar page on the platform.  The records must include the first and last date the ad ran; the total impressions of the ad; the rate charged or amount spent on the ad; and information about who paid for the ad.

The advertiser, meanwhile, must notify the platform that the advertiser is placing a political advertisement, and provide the platform with the advertiser’s name as well as the name of the candidate or measure to which the advertisement refers.

The law includes an exception for video, audio, and email ads; and for ads that consist of images linking to a website.  These ads already carry significant disclosure obligations imposed in the original California DISCLOSE Act and elsewhere in state law.

The law also makes minor adjustments to disclosure of other online advertisements.  The law takes effect January 1, 2020.

PLI Current Highlights New Wave of FARA Enforcement

As the Foreign Agents Registration Act continues to receive national attention, an article in this quarter’s PLI Current journal describes the Justice Department’s increased focus on the statute.  The article, authored by Covington’s Rob Kelner, Zack Parks, and Alex Langton, discusses the shifting FARA enforcement landscape, analyzes how the statute works, and addresses pending FARA reform legislation.  As the article notes, because “both the Department of Justice and Congress have signaled a clear intent to strengthen FARA and to clamp down on enforcement,” the time has come to “reevaluate previously accepted axioms regarding FARA.”

Covington has one of the nation’s most experienced and long-standing FARA practices, which includes attorneys in our Election and Political Law and White Collar Defense practice groups.  The firm routinely advises U.S. and international clients on compliance with FARA, obtains advisory opinions from the FARA Unit, represents clients in FARA audits and internal investigations, and defends clients accused of violating FARA.  For questions on FARA enforcement or compliance matters, please reach out to any member of Covington’s Political & Election Law Practice Group.

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