Corporate legal and compliance departments are usually well aware of the laws regulating lobbying the federal government. Recent news reports, however, indicate that companies have more trouble with state and local lobbying laws. A few features of state and local lobbying make it a tricky blind spot. This increases the risk of failing to properly register or file lobbying reports, or of running afoul of restrictions imposed on lobbyists. In this alert, we outline the questions that can help avoid these headline-grabbing violations.
MSRB Pay-to-Play Challenge Stymied by Sixth Circuit over Standing
Over the past few years, a few state political party committees have relentlessly sought to block or overturn pay-to-play laws overseen by the Securities and Exchange Commission (SEC). Yesterday, the Sixth Circuit delivered another defeat to an ongoing effort to challenge federal pay-to-play laws.
Last year, we noted that the Municipal Securities Rulemaking Board (MSRB) had drafted an amendment to its pay-to-play rule, Rule G-37, expanding their scope. Not long after our article, the Tennessee Republican Party, the Georgia Republican Party, and the New York Republican State Committee filed petitions to review the final rule adopting the MSRB’s amendments.
The Sixth Circuit dismissed this latest challenge for lack of standing. The result is not entirely surprising in that the petitioners faced a high hurdle: because they challenged the amendments to the MSRB’s rule, but not Rule G-37 itself, they were required to focus on activity restricted specifically due to the amendments and not the preexisting rule.
Essentially, the Court determined that the parties had not identified any particular person who could have made a contribution under the preexisting MSRB rule and would do so now but for the 2016 amendments. Similarly, the parties were unable to show that their fundraising efforts faced greater challenge post-amendment than under the old rule.
This opinion should not be seen as an endorsement of the substance of the pay-to-play rules. Rather, as with the an earlier challenge to the SEC’s rule, yesterday’s opinion from the Sixth Circuit emphasizes the importance of ensuring that the right people file their challenge in the right place at the right time.
Kentucky Raises Contribution Limits in July, Adjusts Reporting
Starting this month, nearly all of Kentucky’s campaign contribution limits increase, excepting contributions that remain either unlimited in amount or prohibited.
Perhaps the most substantial change is the establishment of building fund accounts for political party executive committees, which may now accept unlimited funds from corporations. Also of note is the elimination of an aggregate $10,000 or 50%-of-total-contributions limit on how much a candidate or slate of candidates may accept from certain committees, which would have the practical effect of allowing parties to direct more funding into contested races.
Limits are raised to $5,000 annually to any executive committee or caucus campaign committee (up $2,500 over the prior limit); to $2,000 per election for candidates and slates (+$1,000/election); and to $2,000 annually for permanent committees and contributing organizations (+$500/year). The latter two limits would be adjusted every other year. Limits on cash and anonymous contributions would also be raised to $100 from $50.
Other changes include increased thresholds for campaign finance reporting and modified reporting dates. The Kentucky Registry of Election Finance prepared a helpful summary of the changes.
Kentucky’s new campaign finance law follows a trend we have observed over the past ten years. As contributions to outside groups that are permitted to receive unlimited funds have surged, campaign resources have shifted away from candidates and parties and toward outside groups. One response to this dynamic has been a push to raise contribution limits to candidates and parties. As discussed during the legislative debate, Kentucky’s new law does just that. Expect more states to follow suit.
U.S. House Considering Major Change to Trade Association PAC Fundraising Rules
The U.S. House Committee on Appropriations is considering a major change to the way trade associations are allowed to raise money into their political action committees (PACs). Currently, if a trade association wants to solicit money from its member companies’ employees, it must first get advance approval from the company, and each company can authorize only one trade association to solicit its employees for any calendar year. The current draft of the Financial Services and General Government Appropriations bill, which provides funding for the Federal Election Commission (FEC), includes a rider that would prohibit the FEC from using any of the appropriated funds to enforce these trade association PAC fundraising rules. In another piece of welcome news for trade associations, the bill would also prohibit the Securities and Exchange Commission (SEC) from requiring public disclosure of companies’ trade association dues payments, a provision which was also successfully included in last year’s appropriations bill by agreement with the White House.
The practical effect of this provision would be that the FEC could not enforce the existing restrictions on trade association PAC fundraising at all during fiscal year 2018 (October 1, 2017 through September 30, 2018). If this provision were not enforced, this could have a major impact on trade association PAC fundraising. The dual restrictions of 30118(b)(4)(D) can severely limit a trade association’s ability to raise money for its PAC. Currently, if a trade association wants to solicit a member company’s employees, it must first convince the company to allow the solicitation, but the FEC’s rules severely limit what the trade association can say when making the request. Most companies are members of more than one trade association, but can currently only approve one of those associations’ PAC solicitations. Thus, companies must choose between supporting the PAC of a large business-wide trade association (like the Chamber of Commerce or National Association of Manufacturers), or a more industry-specific trade association. With these burdens lifted, trade associations will be able to solicit funds freely from the executives, administrative staff, and stockholders of all of their member companies, plus those individuals’ families. This should come as welcome news to trade associations, but will be less exciting to member company executives who could face an onslaught of new solicitations.
However, this all comes with two major caveats. First, the bill does not eliminate the solicitation rule. Instead, it essentially prohibits enforcement of the rule for FY2018. If the FY2019 appropriations bill does not contain the same restriction as this FY2018 bill, then the FEC presumably could resume enforcement of violations, including violations that occurred in FY2018. Second, even if the FEC is barred from enforcing this prohibition, the Department of Justice might theoretically be able to, acting independently, bring criminal charges for knowing and willful violations.
Therefore, even if this provision remains in the final bill, it would be prudent to seek advice of counsel before making a solicitation that violates the fundraising restrictions. The bill passed through subcommittee markup on Thursday with no changes.
The same bill also includes other political and election law provisions, including elimination of the Election Assistance Commission, which provides guidance on election best practices; restrictions on the IRS’ ability to enforce the rule against religious organization political activity; a prohibition on any IRS rulemaking that would regulate the political activity of 501(c)(4) social welfare organizations; and a prohibition on any SEC requirement that companies disclose their political contributions or trade association dues.
Rep. Gowdy Plans Deeper Oversight
The new chairman of the House Committee on Oversight and Government Reform, Representative Trey Gowdy (R-S.C.), outlined his plans for the Committee last week. As we expected, Mr. Gowdy said that he would pursue more methodical investigations. Noting that hearings are “an inefficient way to gather facts,” Mr. Gowdy said that the Committee would pursue investigations outside of the public spotlight and then use hearings to present the Committee’s findings.
This shift in focus could have significant implications for private sector companies and executives that are investigated by the Committee.
First, more methodical investigations usually mean more extensive document requests, including discovery of electronic records such as internal company e-mails. It may also mean that the Committee will conduct more interviews and depositions, or request that targets give sworn, written answers to detailed interrogatory requests. These investigative tools and techniques are the same methods that are used by criminal prosecutors. Mr. Gowdy, of course, is a former federal and state prosecutor.
Second, if the Committee conducts most of its investigation before proceeding to a hearing, hearings could be harder for company witnesses. Mr. Gowdy is a strong questioner, and he is at his strongest when confronting witnesses about past statements. If the Committee develops a detailed record of past statements, such as historical e-mails or deposition testimony taken in the context of the investigation, the hearings may look a lot like courtroom cross-examinations.
We previously noted that the Committee has sometimes been criticized for flitting from topic to topic, conducting a large number of relatively high level investigations. For the targets of these investigations, the high-profile hearings are a significant challenge to be sure, but the legal and public relations risks are relatively contained. Longer and deeper investigations carry significantly more risks to companies facing investigations by Mr. Gowdy and the Committee.
Efforts to End Super PACs Moving Forward, Face Uphill Climb
Last summer there was much ado about the two parallel efforts of a “Dream Team” of attorneys to “end Super PACs.” Their goal was to get the Supreme Court to overturn the decision of the D.C. Circuit in SpeechNow v. FEC, and similar decisions in other circuits, which led to the creation of Super PACs. Those efforts have continued to move forward, with developments on both fronts last week. However, intervening events have made it increasingly unlikely that the group will achieve its goal via either approach.
The first approach flows through the Federal Election Commission (“FEC”). The attorneys filed a complaint alleging that various donors and Super PACs had made or received contributions in excess of the pre-SpeechNow limits on PAC contributions. However, the FEC has officially recognized since 2010 that SpeechNow makes those limits unenforceable against Super PACs. Press reports indicate that the FEC dismissed the Dream Team complaint based on SpeechNow. Last week the complainants announced their plans to sue the FEC over the decision, on the grounds that it was arbitrary, capricious, and contrary to law. The complainants hope to take this case to Supreme Court. Among various challenges that have always faced the effort, however, there is one glaring new one: the confirmation of Justice Neil Gorsuch. His elevation (instead of Merrick Garland or another Democratic nominee) makes it less likely that the Court would reject the holding in SpeechNow and abolish Super PACs.
In the parallel effort, an aligned nonprofit has been working hard to pass an ordinance in St. Petersburg, Florida that would abolish Super PAC activity in that city. Last week, the ordinance passed a preliminary vote of the city council 5-3. This sets up a final vote in July to pass the ordinance. Having passed once already, it seems likely the ordinance will become law. The city is expecting an immediate lawsuit challenging the ordinance. That lawsuit would theoretically head to the Supreme Court by way of the 11th Circuit, which, unlike many other of the federal appellate courts, has not decided on this SpeechNow issue before. A decision upholding the ordinance would create a circuit split and potentially entice Supreme Court action. However, in the time since the ordinance was first introduced, the 11th Circuit reached a decision in Alabama Democratic Conference v. Broussard that appears to acknowledge that SpeechNow was rightly decided, though it does not directly address the issue. See Ala. Dem. Conf. v. Broussard, 838 F.3d 1057 (11th Cir. 2016), cert. denied sub nom. Ala. Dem. Conf. v. Marshall, No. 16-832, 2017 WL 1427593 (Apr. 24, 2017). This makes a circuit split unlikely, reducing the chances that the Supreme Court would take up the issue via this path. Even if the 11th Circuit upholds the ordinance, the Supreme Court would still likely strike it down as unconstitutional.
Will the FEC Declare War on Russia?
Noting that we are at an “all hands on deck” moment for our democracy, FEC Commissioner Ellen Weintraub circulated to the Commission yesterday a document citing former Vice President Dick Cheney for the proposition that the United States is now at war with Russia, and that “[e]very part of our government that has jurisdiction over [reported Russian attempts to affect the 2016 presidential election] must exercise every scrap of its jurisdiction as fully as it can.” She calls on the FEC to “find out the facts of what happened during the 2016 Presidential election, and move firmly and swiftly to fix any problems we might find.” As with any declaration of war, this one comes with a Churchillian reference to the FEC’s “finest hour,” and an insistence that this struggle must not be a partisan one, citing Senator Mitch McConnell for the proposition that we need strong action against Russia.
Despite what some may feel is overheated rhetoric, Commissioner Weintraub presents some quite sensible proposals about what the agency might do to ensure the integrity of our electoral system. While her list also includes proposals that some commissioners are certain to view as unsupported by the current factual record, it would be better if the commissioners were able to focus on the points where they agreed, rather than disagreed.
Specifically, Commissioner Weintraub outlines six actions she will ask her fellow commissioners to support, including:
- Having the Justice Department, Treasury and similar agencies brief the FEC to get it up to speed on the problem;
- Ensure the FEC’s enforcement teams are fully staffed and form interagency task forces if the problem proves too big;
- Assure the public that the FEC’s data is safe;
- Begin a rulemaking to adopt a test that will treat more corporations as foreign nationals, barred from participating in American politics;
- Hold hearings on whether more rulemakings might be necessary; and
- Give Congress guidance on which pending legislation it should pass and if new bills are needed.
If the Republicans on the FEC can look beyond the overheated rhetoric, and identify reasonable steps the agency could take, progress could be made. There is no doubt the FEC should ensure its legal team is adequately staffed, and if particular expertise is lacking, seek it out in other agencies. If the Russians made efforts to hack the FEC’s computer system, an assurance as to the quality of the agency’s defenses would be welcome. And if the FEC had a more reliable source of information on the threat we face than the public reports in Time and The Intercept, that would be a good thing.
But there are certainly proposals that will not meet with majority support, and with that comes a significant risk that Thursday’s meeting is a repeat of past performances at the FEC, where one side accuses the other of being indifferent to the imminent threat of lawlessness, and the other accuses its opponents of stripping citizens of their liberties. It would be unfortunate, for the issue at hand is a significant one, and both sides have something meaningful to say about how to make improvements to the agency’s handling of it.
The FEC Revisits the Ban on Foreign Nationals’ Financing of American Elections
On Thursday, the FEC will return to the question of foreign nationals’ involvement in United States elections. This is an important question that deserves appropriate attention from our government. Be it the role of Chinese government-linked funds in the 1996 presidential campaign or the Russian government-linked cyber intrusion in the 2016 presidential race, Congress and the regulatory agencies responsible for ensuring free and fair elections should periodically review the legal protections in place, assess if they are adequate, and improve them if they are not.
So why does the FEC appear headed to yet another deadlock and battling press narratives on this important issue? In part it’s because there is a fundamental disagreement among the commissioners about how serious the problem is. In addition, this appears to be another instance where longstanding animosity between the commissioners makes building consensus difficult. Thursday will also be a test of Chair Steve Walther and Vice Chair Caroline Hunter’s ability to manage the agency through this difficult, but important issue. After reviewing the competing proposals and the last two hearings, I think consensus is possible, even if difficult. But first, it’s important to recall what is in dispute.
Existing Law
Federal law currently prohibits foreign nationals from making contributions or expenditures to influence federal, state or local elections. It bars contributions and expenditures, whether they are made “directly” or “indirectly.” It explicitly bans contributions to political parties, independent expenditures, electioneering communications, donations as well as contributions, and the giving of a “thing of value.” 52 U.S.C. 30121(a). It also bars U.S. citizens from facilitating a violation by soliciting, accepting or receiving contributions or donations from foreign nationals. The FEC’s regulations make clear that foreign nationals cannot participate in a U.S. citizen’s decision-making process about election-related activities, or in PAC decision-making. 11 CFR 110.20(i).
Who is a foreign national? The statute excludes U.S. citizens and individuals who are lawful permanent resident aliens (“green card” holders) from the ban. But what about corporations? When are they “foreign nationals”? For years, a majority of the FEC commissioners found a corporation could participate in otherwise permissible election-related activity, such as operating a federal PAC or giving to candidates in states that allow corporate contributions, if three things were true: the company was incorporated in the United States; all election-related decisions were made by U.S. citizens; and the funds used were generated from U.S. operations. The effect of this rule has been that a U.S. subsidiary of a foreign corporation is not a “foreign national” if it complies with these requirements.
The Split
Commissioners Steven Walther and Ellen Weintraub, as well as former Commissioner Ann Ravel, have long argued that the Supreme Court’s decision in Citizens United v. FEC requires a fundamental re-thinking of this construct. They argue that existing protections are inadequate after the Supreme Court gave corporations the right to make unlimited independent expenditures, and a weakening of the disclosure rules led to a proliferation of “dark money” groups, whose donors are masked from the public. In this world, they argue, a foreign power or corporation could influence our elections without our knowing it. While they can cite few specific violations, they view the risk to be sufficiently great to justify acting before disaster strikes, rather than after.
Room for Reform?
Chair Walther and Commissioner Weintraub suggest the FEC change the definition of when a corporation is a foreign national by focusing on ownership and/or control of the entity, rather than the current rule’s focus on decisionmaking about political spending. They are flexible as to where the new lines should be drawn: Is 5% ownership sufficient for an entity to become a “foreign national” or is 51% or 100% better? Should it matter if the foreign owner is a government entity or private sector one? Should the presence of one or more foreign nationals on the board of directors be determinative?
For the Republicans, all of these suggestions are an overreach, unsupported by statute or experience. While they have been willing to offer suggestions on expanded protections, they have been unwilling to abandon a test that focuses on the country of incorporation, U.S. citizens’ exclusive control of decisionmaking, and a domestic source of the funds used for political spending.
A second area of disagreement is over process. Commissioner Weintraub has urged a wide open rulemaking, with all ideas presented, commented on by the public, and debated among the commissioners. The Republicans offer an interpretive policy and a voluntary “safe harbor” for compliance, but no rulemaking.
Is Consensus Possible?
While forging consensus at the FEC has been difficult over the past decade, the following components present some opportunity.
- A narrow rule rather than a broad-based discussion in rulemaking. The commissioners have now discussed and debated this question for over 5 years. Success is more likely if a majority of commissioners can agree on a rough outline of what they can live with and allow public comment on that proposal. We have seen the results of a multi-year debate on whether Citizens United is a threat or a blessing, and it provides little help in understanding or enforcing the law.
- Clarify the commission’s understanding of the existing regulations. Commissioner Weintraub highlighted at the most recent hearing that the Republican proposal was helpful in describing the breadth of the existing regulations. Cement that into a formal agency interpretation. Whether it takes the form of policy or regulation, the more clarity on where the commission stands on these issues, the better.
- Certifications of compliance. The Republican commissioners suggest insulating recipient committees from enforcement if they require donors to certify compliance with the foreign national ban. Expanding that to require those reporting independent expenditures or electioneering communications to acknowledge they have complied with the foreign national ban may go a long way to alleviating the other commissioners’ concerns that non-disclosing groups might be a hidden source of foreign influence. As with the Republicans’ existing suggestion, this would only be an attestation of compliance with existing law, rather than a change to that law.
It does not have to be perfect to be better. A step in the right direction can be an improvement, even if it does not get you all the way to where you want to go.
Grassley Defends Congressional Oversight; House Democrats Turn to Statutory Oversight Authority
The Trump administration’s efforts to curtail congressional oversight of executive branch agencies by individual Members of Congress, including ranking Democratic Members of Committees, ran into significant opposition from an unlikely source: Senator Chuck Grassley (R-Iowa), the Republican Chairman of the Senate Judiciary Committee. Sen. Grassley’s strong reaction is consistent with his role as perhaps Congress’s most effective pursuer of oversight conducted outside of the formal committee process.
On May 1, 2017, the acting head of the Department of Justice’s Office of Legal Counsel, Curtis Gannon, issued a short legal opinion for the White House Counsel, Don McGahn, that “briefly explained” Congress’s “constitutional authority to conduct oversight.” The opinion stated that congressional oversight can “be exercised only by each house of Congress or, under existing delegations, by committees and subcommittees” and their respective chairmen. Individual Members of Congress, including ranking minority members of Committees, cannot engage in oversight, the opinion stated, because such requests are “not legally enforceable through a subpoena or contempt proceeding.”
The legal opinion appears to be the basis for several recent attempts by administration officials to rebuff information requests from various Members of Congress. Politico recently reported that the “White House is telling federal agencies to blow off Democratic lawmakers’ oversight requests.” At a hearing in May, the acting administrator of the General Services Administration told Congress that the “administration has instituted a new policy that matters of oversight need to be requested by the committee chair.”
This new policy did not sit well with Sen. Grassley. Although he currently serves as the Chairman of the Senate Judiciary Committee, and would therefore not be immediately affected by the policy, Sen. Grassley has spent decades pursuing congressional oversight of agencies as a chairman, ranking minority member, and individual Senator.
In a June 7, 2017, letter to President Trump, Sen. Grassley tore into the Gannon opinion. He contended that both the Constitution and applicable court precedents provide that “all members need accurate information from the Executive Branch in order to carry out their Constitutional function.” He criticized the opinion for basing its conclusion on subpoena enforcement. This position, Sen. Grassley said, conflated Congress’s ability to compel a response and Congress’s ability to seek information voluntarily from the executive: “[T]he scope of information Members of Congress need from the Executive Branch in order to carry out their Constitutional duties is far broader than merely what is obtained through compulsory process.” The “vast majority of information Congress obtains . . . is obtained voluntarily, not by compulsion,” he added. (He also took the Office of Legal Counsel to task, noting that the opinion “fails to cite and analyze any authority that challenges its conclusion.”)
In a separate action partially in response to the Office of Legal Counsel’s opinion, on June 5, 2017, Rep. Elijah Cummings, the ranking Democratic Member of the House Committee on Oversight and Government Reform, sent a document request letter to the acting administrator of the General Services Administration. The letter requested a variety of documents related to a lease by President Trump’s business interests of the Old Post Office (now known as the Trump International Hotel Washington D.C.).
Notably, the letter was signed by all eighteen Democratic members of the Committee, and it invoked the Members’ statutory authority to access executive branch information under the little-know “seven Member rule.” The statutory seven Member rule, which dates from the 1920s, requires an executive branch agency to provide information requested by “the Committee on Government Operations of the House of Representatives, or of any seven members thereof.” (The Committee on Government Operations was the Committee’s name at the time.) According to the Democratic letter, the General Services Administration has failed to comply with a request by eight Members of the Committee earlier this year. It is likely that the administration will have a harder time resisting oversight requests conducted under this statutory provision. For example, in 2002, Rep. Henry Waxman successfully sued the Bush administration for access to census data under the seven Member rule.
There are additional risks for the administration, most obviously the theoretical possibility that today’s ranking Democratic Members could become tomorrow’s chairmen after the 2018 elections. Sen. Grassley knows this first hand. He conducted numerous, lengthy investigations, even as he moved from ranking to Chairman and back again throughout his career.
The Gowdy Era of Congressional Investigations
With the announcement by Rep. Jason Chaffetz (R-Utah) that he plans to resign from Congress on June 30, it appears increasingly likely that Rep. Trey Gowdy (R-S.C.) will become the next Chairman of the House Committee on Oversight and Government Reform, the House’s powerful watchdog committee that has very broad investigative jurisdiction. Although a final decision on the next Chairman might not occur until early June, Mr. Gowdy’s selection could have broad implications for the Committee’s prominent role in oversight, including oversight of corporations and other private parties.
Mr. Gowdy, a former federal and state prosecutor, is one of the strongest questioners of witnesses in the House or the Senate. Unlike some others on the Oversight panel, Mr. Gowdy’s methodical interrogations are very similar to courtroom cross-examinations. One of his favorite techniques is to grill a witness about past statements, making the witness parse the meaning of individual words, like a trial lawyer undermining a witness’s credibility on the stand.
Because the Oversight Committee tackles some of the most high-profile and controversial issues in Congress, both parties recognize that special skills are needed to lead the Committee. Mr. Gowdy is widely recognized to have just those skills. In addition to his professional background as a prosecutor, Mr. Gowdy led the House’s Select Committee on Benghazi, which investigated the terrorist attack on the U.S. diplomatic mission in Libya, throughout its entire existence from 2014 to 2016. Mr. Gowdy earned praise from his colleagues in his handling of the Committee’s investigation, which included a marathon hearing with Secretary of State Hillary Clinton. To be sure, Mr. Gowdy also garnered his share of criticism from Democratic Members.
While Mr. Gowdy has proven he has the skills to be Oversight Chairman, the substantive issues on which he would focus is less clear. He is not known as a champion of any one particular topic. Mr. Gowdy has publicly pushed for Congress to take on more nonpartisan oversight, leaving behind what he has referred to as the “political subpoenas” that characterized investigations during the Obama Administration.
Mr. Gowdy’s relationship with the Democrats on the Oversight Committee will be important to the direction of the Committee. Current Chairman Chaffetz and the Ranking Democratic Member, Elijah Cummings, have an interesting relationship. Although they often clash in hearings, in the press, and in internal wrangling about the Committee’s priorities, they have also jointly signed a number of document request letters and permitted some breathing room on each other’s favored issues. For example, the Committee has conducted a number of investigations on pharmaceutical pricing, one of Mr. Cummings’s key priorities. Mr. Cummings was also the senior Democratic Member of the Benghazi Committee. Although their prior interactions show that they can certainly clash, they also know the areas where their interests might align. Whether bipartisan oversight increases under Mr. Gowdy’s leadership remains to be seen. Bipartisan oversight occurred more frequently during the Chaffetz-Cummings era than during earlier periods of the Committee’s history, and we generally think that trend will continue.
At times, the Committee has been criticized for flitting from topic to topic, conducting a large number of relatively high level investigations, with media interest often causing it to switch gears on short notice. If we had to bet, we think that, under a Gowdy chairmanship, the Committee will concentrate more methodically on a smaller set of deeper investigations. If that occurs, Mr. Gowdy could become one of the most influential chairmen of the Committee in many years.
