New Executive Order May Significantly Expand Number of Executive Branch Officials “Covered” Under the Lobbying Disclosure Act

By Matthew Shapanka on Posted in Lobbying Compliance

Despite his promises to “drain the swamp,” last week President Trump issued an Executive Order that may inadvertently create a large number of new lobbyists.  The order creates a new category of federal employees who are exempt from competitive service requirements, all of whom may qualify as “covered executive branch officials” under the Lobbying Disclosure Act (LDA), potentially requiring those who communicate with those officials on behalf of a client to register as lobbyists and file reports.

Pursuant to the LDA, an individual who makes two or more “lobbying contacts” with “covered legislative branch officials” or “covered executive branch officials” may be required to register as a lobbyist, if certain other criteria are satisfied.    The definition of “covered executive branch official” includes the President, Vice President, Executive Office of the President employees, certain senior agency officials and senior military officers, and “any officer or employee serving in a position of a confidential, policy-determining, policy-making, or policy-advocating character described in section 7511(b)(2)(B) of title 5, United States Code.”

Section 7511(b)(2)(B), in turn, exempts from civil service rules employees “whose position has been determined to be of a confidential, policy-determining, policy-making or policy-advocating character by . . . the Office of Personnel Management for a position that the Office has excepted from the competitive service.”  This category of covered officials, until now, only referred to appointees to positions listed in “Schedule C” of the Excepted Service.  According to the legislative history of the 1997 amendments to the LDA, “[t]he change to the definition . . . reflects the stated intent by narrowing the statutory reference in the [LDA] to ensure that only ‘Schedule C’ employees are ‘covered executive branch employees.’”  LDA guidance issued by Clerk of the House and Secretary of the Senate also confirms that only Schedule C appointees, and not other categories of Excepted Service appointees, are covered officials under the LDA.

In establishing Schedule F, the order creates, for the first time, a second category of positions of a “confidential or policy-determining character.”  Prior to the President’s order, Schedule C was the only category of Excepted Service appointments that encompassed positions of that nature.  However, under the order, appointees to the newly-created Schedule F will hold “positions of a confidential, policy-determining, policy-making, or policy-advocating character.”  Schedule C and Schedule F are primarily distinguishable not by their responsibilities, but by their tenure: non-career appointees who normally leave office when the President who appointed them leaves office are listed in Schedule C, while career appointees who normally remain in their position when their appointing President’s term ends are listed in Schedule F.

Because the order requires OPM to except Schedule F appointees (“positions of a confidential, policy-determining, policy-making, or policy-advocating character”) from the competitive service,  the Clerk of the U.S. House and Secretary of the Senate might now conclude that employees in Schedule F serve “in a position … of a confidential, policy-determining, policy-making, or policy-advocating character described in section 7511(b)(2)(B),” and are therefore “covered executive branch officials” under the LDA.

The order amends OPM regulations effective immediately, but requires all federal agencies to conduct a review to determine whether existing Schedule A, B, or D positions should be reclassified as Schedule F.  Agencies must complete a “preliminary review” within 90 days of the order, and a “complete review” within 210 days.

Although it is not immediately clear how many career positions could be reclassified as Schedule F, the order could result in the creation of thousands of new covered officials, assuming the Clerk of the House and Secretary of the Senate conclude that Schedule F employees are now covered.  A dramatic expansion of executive branch positions covered by the LDA would presumably result in more individuals meeting the definition of lobbyist, thereby triggering registration for themselves and their employers.  Further, existing lobbying firms and companies that employ lobbyists would now be required to track and report a broader universe of activities including by capturing costs associated with lobbying activities that support contacts with Schedule F officials.

It is not certain that the Clerk of the House or Secretary of the Senate—much less a court—would conclude that new Schedule F appointees would qualify as “covered executive branch officials.”  Schedule F did not exist when the LDA, 1997 LDA amendments, and LDA guidance were adopted, and the legislative history and the LDA guidance issued by the Clerk of the House and Secretary of the Senate expressly state that among Excepted Service appointees, only Schedule C appointees are covered under the LDA.    Thus, there may be some room to challenge the conclusion that all Schedule F appointees are now covered officials.  The future of the order may also depend on the outcome of the upcoming election—Democrats in Congress have expressed a willingness to overturn the order by statute.

How Can Corporations Support the Voting Process?

By Derek Lawlor on Posted in Campaign Finance

In the midst of the COVID-19 pandemic, voting in the 2020 general election is likely to look different than we have seen in recent times. Election officials across the country are working through in-person voting and vote-by-mail procedures and individual voters are deciding how best to cast their ballots. At the same time, many corporations are recognizing this unprecedented situation and are asking how they can help support the voting process.

This alert discusses the laws that apply to corporate activity in this area, and highlights some options that corporations can consider.  Covington’s Election and Political Law Group has significant experience in this area and has advised a number of corporations on their plans leading up to the 2020 general election.

Avoiding Straw Donor Issues

By Brendan Parets on Posted in Campaign Finance

While federal campaign finance enforcement priorities can and do shift, prosecutions of “conduit contributions” or “straw donors” have remained steady over the years.  Unlike most of federal campaign finance law, the law around straw donors is stable and well developed, and straw donor prosecutions tend to be straightforward.  The recent media coverage surrounding allegations that Louis DeJoy, the U.S. Postmaster General, participated in a straw donor scheme at his former company highlights the risks of being implicated in such a scheme.

Federal campaign finance law makes it illegal for any person to “make a contribution in the name of another person or knowingly permit his name to be used to effect such a contribution.”  This provision prohibits someone from accepting reimbursement from another person, whether an individual or an organization, for a political contribution and prohibits any person from reimbursing someone else for a political contribution.  Conduit contributions that are made knowingly and willfully and that exceed $10,000 in the aggregate constitute a felony punishable by up to two years of incarceration, and those exceeding $25,000 in the aggregate are punishable by up to five years of incarceration.  Prosecutors also often charge conduit contribution cases under the federal false statements statute as causing a false statement to be made to the Federal Election Commission.  Additionally, almost every state, if not every state, also prohibits conduit contributions in state elections.

Conduit contribution cases generally arise in a few circumstances.  Political contributors may use straw donors to attempt to skirt contribution limits.  This was the case when conservative commentator Dinesh D’Souza pleaded guilty to reimbursing donors for contributions they made to a U.S. Senate candidate.  Foreign nationals prohibited from making contributions to political campaigns may also attempt to make contributions through other people.  Corporate owners or officers may use corporate funds to reimburse employees for political contributions in an attempt to evade the ban on using corporate funds to make political contributions to federal candidates.  Donations to 501(c)(4) social welfare organizations that are passed through to Super PACs can also raise conduit contribution concerns, and state regulators, particularly in California, have fined donors and organizations that have admitted to engaging in such transactions.

Most straw donor schemes are discovered through whistleblower reports or in the course of an investigation into another matter.  In recent years, the Department of Justice has discovered straw donor schemes by reviewing public Federal Election Commission campaign disclosure reports.

The vast majority of straw donor issues for individuals can be prevented by ensuring that an individual makes contributions only out of his or her own funds and does not give or receive reimbursements for political contributions.  Corporations should be aware of potential traps, such as when a government relations employee or contractor seeks reimbursement for a campaign contribution, sometimes characterized as an “entry fee” for a political event, as a business expense.  Corporate entities may also want to consider the following steps to avoid getting caught up in a conduit contribution investigation:

  • Institute robust controls for political engagement using corporate funds;
  • Engage in training to ensure that officers and employees are aware of the prohibitions against reimbursing contributions;
  • Perform a government affairs and political giving compliance audit; and
  • Never tie bonuses or compensation decisions to political giving.

 

D.C. Circuit’s McGahn Ruling Eliminates Key House Option for Subpoena Enforcement

By Matthew Shapanka on Posted in Congressional Investigations

On Monday, August 31, a panel of the U.S. Court of Appeals for the D.C. Circuit upended more than a decade of lower court precedent and concluded—at least for the moment—that the U.S. House of Representatives may not seek civil enforcement of subpoenas.  In Committee on the Judiciary v. McGahn, the court dismissed the case for lack of a cause of action, after the full D.C. Circuit court, sitting en banc in an earlier appeal in the same case, overruled the same panel when it concluded that the House Judiciary Committee had standing to enforce a subpoena against former White House Counsel Donald McGahn as part of its impeachment inquiry earlier this year.  Unless the en banc D.C. Circuit or the Supreme Court overturns the panel decision, the House is now limited to enforcing its subpoenas through criminal proceedings pursuant to 2 U.S.C. § 192, or exercising its own “inherent contempt” authority.  This week, the House asked the full D.C. Circuit to review the decision en banc.

Until last week’s decision, the House relied on the U.S. District Court for the District of Columbia’s ruling in Committee on the Judiciary v. Miers, 558 F. Supp. 2d 53 (2008), to seek civil enforcement for its subpoenas.  Unlike the Senate, which has express statutory authority to bring a civil suit to enforce its subpoenas, see 2 U.S.C. §§ 288b, 288d and 28 U.S.C. § 1365, the House, according to the Miers court, “has an implied cause of action derived from Article I to seek a declaratory judgment concerning the exercise of its subpoena power.”

In the new panel decision, Judge Thomas Griffith, joined by Judge Henderson, rejected this reasoning.  The panel concluded that the House lacks any cause of action—under Article I, the “traditional rules of equity,” or the Declaratory Judgment Act—to seek civil enforcement of its subpoenas.   Judge Judith Rogers dissented.

First, the court rejected the argument that the House has inherent power under Article I to seek civil enforcement of a subpoena “in furtherance of its constitutional power of inquiry.”  The majority explained that Congress’s decision to authorize only the Senate—and not the House—to seek civil enforcement of subpoenas, and to exclude suits that involve executive branch assertions of “governmental privilege,” 28 U.S.C. 1365(a), meant that “Congress has declined to authorize suits like the Committee’s twice over.”

Second, the court found that congressional subpoena enforcement was not an exercise of the court’s “traditional equitable powers.” According to the majority, upon adoption of the Federal Rules of Civil Procedure in 1938, federal courts no longer recognized a distinction between courts of law and equity.  Because the House could not point to any subpoena enforcement case prior to the 1970s, the court found that could not “possibly have been traditionally available in courts of equity.”  While “Congress may someday determine that the federal courts should stand ready to enforce legislative subpoenas against executive-branch officials, [] authorizing that remedy ourselves would be ‘incompatible with the democratic and self-depreciating judgment’ that we lack the ‘power to create remedies previously unknown to the equity jurisprudence.’”

Finally, the court rejected the House’s argument that the Declaratory Judgment Act permits it to bring suit to enforce its subpoenas.  The majority explained that the Act “does not itself ‘provide a cause of action’ as the ‘availability of declaratory relief presupposes the existence of a judicially remediable right.’”  Thus, because Article I and the rules of equity do not independently permit the House to enforce a subpoena, the Declaratory Judgment Act does not allow the House to “bootstrap its way into federal court.”

By concluding that the House does not have a cause of action to seek civil enforcement of subpoenas for testimony and documents, the McGahn opinion relegates the House to two much more cumbersome, and much less politically palatable, options.  First, if a witness refuses to testify before the House or a House committee pursuant to a subpoena, the Committee may cite the witness for contempt, and refer the matter to the full House.  If the House issues a contempt citation, pursuant to 2 U.S.C. § 192, the matter is referred to the U.S. Attorney for the District of Columbia for prosecution.  Although this option permits the House to seek to punish recalcitrant witnesses, it does little to compel testimony or document production.  Moreover, the Justice Department has usually declined to prosecute such contempt when it is directed at officials within the executive branch.

Second, the House may exercise its “inherent contempt” power to jail or fine recalcitrant witnesses.  While this option remains technically available, it has not be used since the 1930s, because, according to the Congressional Research Service, the arrest and detention of a witness by Congress is “cumbersome, inefficient, and unseemly.”

Although Congress could empower the House by statute to enforce subpoenas by civil action against any witness—including executive branch officials—that would require assent from the Republican Senate and Presidential approval (or veto override), which is not going to happen in this environment.

Like the earlier decision on standing, the case may be headed to the full D.C. Circuit for consideration, where the full D.C. Circuit will have the opportunity to consider both the arguments presented here and the rationale advanced in Miers.  Covington will continue to monitor these significant developments in congressional subpoena power.

[Updated 10:45 a.m., 9/10/2020]

The FEC Appears to be Exercising its Powers Without a Quorum

By Robert Lenhard, Peter Koski and Jasmine Jennings on Posted in Campaign Finance, Enforcement

Over the past 10 days, the FEC has been quietly exercising authority reserved for when at least four Commissioners vote in favor of an action.  Since July 3, however, the FEC has only had three Commissioners.  This activity raises consequential questions about the FEC’s ability to act without a quorum, and presents important concerns about the Commission’s use of its investigatory and enforcement powers.

On May 19, Trey Trainor was confirmed by the Senate as an FEC Commissioner, restoring a quorum to the agency for the first time since the previous summer.  As a result, the Commission regained the ability to promulgate rules and vote on enforcement matters, among other actions, which require the affirmative vote of four Commissioners.  Then, on June 26, Commissioner Caroline Hunter announced her resignation, effective July 3.  The Commission has been without a quorum since that date.

On August 14, however, the Commission released ten closed enforcement matters; closing an enforcement matter is an act that requires the vote of four Commissioners.  On August 21, the Commission released eight more closed enforcement matters.  In each, former Commissioner Hunter was one of the four authorizing votes.  Among the 18 matters, all but three were reported as having been voted on after her resignation on July 3.

Without a quorum, the Commission appears to be exercising its powers under a dubious legal theory.  To exercise many of its powers, the FEC requires an affirmative vote of at least four Commissioners.  The regulations, however, do not explicitly require those votes to be cast at the same time, and the Commission has a past practice of circulating matters among the Commissioners for a written vote.  In other words, Commissioners Walther, Hunter, and Weintraub could have voted unanimously in a matter before Trainor’s appointment.  If Commissioner Trainor now votes in line with the other three, the FEC seems to be taking the position that this constitutes the requisite fourth vote to exercise any number of the Commission’s powers, even though Hunter is no longer a Commissioner.  Similarly, the FEC may be relying on votes taken during the few weeks between Commissioner Trainor’s confirmation and Commissioner Hunter’s resignation, but formally certified after her departure to take action reserved for when the Commission has four votes.  In the recently released MURs, the FEC appears to be acting under one or both scenarios.

In each of the 18 closed MURs, Commissioners Hunter, Trainor, Walther, and Weintraub voted in favor of closing the matter.  In three—MUR #7011 (HC4President), MUR #7092 (Social Responsible Government), and MUR #7673 (Raul Campillo for City Council District 7 2020)—the Commission voted before Commissioner Hunter’s resignation, when all four voting Commissioners were actually serving as Commissioners.  The certification letter for MUR #7673 was signed on July 1, 2020, when Hunter was still a Commissioner.  As a result, that act appears to be valid.  The certification letter for MUR #7011 and MUR #7092, however, was not signed by the FEC’s Acting Secretary until July 20, seventeen days after Commissioner Hunter had resigned.  In the remaining 15 MURs, the Commission voted between July 15 and July 24, 2020, after Commissioner Hunter had resigned.

Other than MUR #7673, the Commission’s actions are likely unlawful.  In 2019, the Supreme Court heard a challenge to the decision of the Ninth Circuit to issue an en banc majority opinion authored by Judge Reinhardt eleven days after his death.  The Ninth Circuit justified release of the opinion by noting that “the majority opinion and all concurrences were final, and voting was completed by the en banc court prior to his death.”  Rizo v. Yovino, 887 F.3d, 453, 455 (9th Cir. 2018).  The Supreme Court, however, vacated the opinion, finding that a judge cannot exercise “the judicial power of the United States after [] death.”  Yovino v. Rizo, 139 S.Ct. 706, 710 (2019).  To emphasize the point, the Court observed that “federal judges are appointed for life, not for eternity.”  Id.

Any distinction to be made between federal judges and FEC Commissioners only serves to strengthen the argument against the ongoing validity of Commissioner Hunter’s vote after she left the agency in order to establish the necessary four votes.  Unlike federal judges, Commissioners are not appointed for life but for a comparatively diminutive single, six-year term.  The term of appointments for FEC Commissioners suggests that individual Commissioners are not intended to have a lasting impact on the affairs of the agency.  If the efficacy of the vote of a lifetime appointed judge only persists so long as the judge is alive, so too must the vitality of a Commissioner’s vote be limited to the Commissioner’s time at the FEC.

The Yovino analysis suggests that the 15 MURs that were voted on and certified after Commissioner Hunter’s resignation are invalid.  There is a compelling argument that Yovino’s analysis applies with equal force to MURs #7011 and #7092.  While the Commission voted on the two MURs on June 26th, the certification letter was not signed until July 20, after Commissioner Hunter’s resignation.  Executing the certification letter after Commissioner Hunter had left the FEC puts the decision in a situation similar to Judge Reinhardt having cast a vote and authored a majority opinion while alive and serving as a judge, but having the decision vacated because the opinion was filed after he died.

The legal justification for releasing MURs #7011 and #7092 after Commissioner Hunter’s resignation is analogous to the Ninth Circuit’s reasoning in Yovino: “The justification suggested [] is that the votes and opinions in the en banc case were inalterably fixed at least 12 days prior to the date on which the decision was ‘filed,’ entered on the docket, and released to the public.”  Id. at 708.  The Supreme Court, however, rejected this justification as “inconsistent with well-established judicial practice, federal statutory law, and judicial precedent.”  Id.

The FEC’s actions may have implications beyond these MURs.  In May, the Commission reported a backlog of more than three-hundred cases awaiting enforcement decisions.  Among those, nearly one hundred are approaching the five-year statute of limitations. Because on-going enforcement actions are confidential, it is not clear if the FEC is taking the position that Commissioner Hunter’s votes to begin an investigation or proceed in enforcement actions also have a life beyond her tenure at the agency.  Were this to be true, individuals and companies subject to FEC scrutiny should be aware of Yovino’s implications on any adverse action that the Commission exercises without a quorum.

Increased Enforcement Risk for Criminal Campaign Finance Violations

By Robert Kelner, Peter Koski and William Sokolove on Posted in Campaign Finance, Enforcement

Every four years, prosecutors at the Department of Justice (“DOJ”) train their sights on money spent to influence the outcome of the presidential election—and those who spend it.  While the Federal Election Commission (FEC) has exclusive jurisdiction to penalize and enforce civil violations of the Federal Election Campaign Act (FECA), 52 U.S.C. § 30101 et seq., DOJ is responsible for criminally prosecuting “knowing and willful” FECA violations that rise to a certain monetary threshold.  The Department always “has a strong interest in the prosecution of election-related crimes,” but the massive influx of money that comes with a presidential election creates increased enforcement opportunities—and carries increased risk for companies and individuals to run afoul of FECA and other laws aimed at protecting the integrity of U.S. elections.  Even the most well-meaning company or individual may be caught in the crossfire of an investigation or subpoena.

Several high-profile FECA cases related to the 2016 presidential election cycle suggest that FECA will be at the top of federal prosecutors’ minds this time around.  For example, the guilty plea of President Trump’s former lawyer, Michael Cohen, included two related FECA violations.  Specifically, Cohen admitted to knowingly and willfully violating both 52 U.S.C. § 30116, which limits excessive contributions, for arranging six-figure in-kind donations to the President’s election campaign (well above the $2,700 individual contribution total permitted per election cycle), and § 30118, FECA’s prohibition on corporate contributions made directly to federal campaigns, for facilitating payment of the in-kind donations through a corporation.

In addition to FECA’s limits on excessive and corporate contributions, criminal penalties are available for knowing and willful violations of several other FECA provisions, as recent prosecutions have demonstrated.  The following are likely to be specific enforcement priorities for the Department:

Ban on Contributions and Donations From Foreign Nationals (§ 30121): FECA’s ban on contributions and donations from “foreign nationals” applies to non-citizens who are not lawful permanent residents (i.e., non-citizens who are not green card holders), as well as “foreign principal[s]” as that term is defined in the Foreign Agents Registration Act (FARA), 22 U.S.C. § 611, including foreign governments, foreign political parties, and foreign corporations.  One particularly thorny compliance area is the applicability of this prohibition to domestic U.S. subsidiaries of parent corporations organized under the law of, or with their principal place of business in, a foreign country.  Although the issue is not directly addressed by the statute, the FEC has offered guidance that such domestic subsidiaries do not qualify as “foreign principals” and are therefore not independently subject to FECA’s ban on donations by foreign nationals (keeping in mind that contributions by both foreign and domestic corporations are prohibited at the federal level).  However, a donation by the domestic subsidiary may not be funded by the foreign parent, nor can foreign nationals participate in any way in the donation.  FECA’s ban on political donations by foreign nationals applies with equal force to donations to presidential inaugural committees and any state- and local-level donations.  In fact, this is one of the few areas where the federal government can regulate, and DOJ can prosecute, activity in non-federal elections. ­­

The issue of foreign money in elections has in the last several election cycles been a special focus for the Department.  For example, in 2016 the Department successfully obtained a guilty plea from Bilal Shehu, who admitted to illegally funneling $80,000 of funds from a foreign national into Barack Obama’s 2012 reelection campaign.  DOJ’s interest in the case stemmed from a remarkable series of events: the money that Shehu illegally contributed went toward two $40,000 tickets to a San Francisco fundraiser with then-President Obama.  One of those tickets was used by Edi Rama—now the Prime Minister of Albania—who was denied entry to the fundraiser, yet able to get a photograph with the president.  Rama used his photograph with the president as part of his successful campaign in Albania during the country’s national elections.

Other notable foreign money FECA cases in recent years include DOJ’s ongoing prosecution of Lev Parnas and Igor Fruman for alleged federal and state donations funded by foreign nationals to facilitate licensing of a business venture, and the successful guilty plea DOJ obtained from Imaad Zuberi for funneling foreign funds into hundreds of thousands of dollars of illegal campaign contributions.

“Conduit” Contributions (§ 30122): also known as “reimbursed contributions,” “straw donor” contributions, and contributions in the name of another, these are one of the most common FECA violations.  A conduit contribution entails one individual passing money to a second “conduit” individual, to fund a donation in the conduit’s name to a federal candidate.  Conduit contributions are typically used to hide the identity of the true donor, often for the purpose of evading FECA’s substantive prohibitions, such as the limits on excessive contributions and contributions funded from impermissible sources as prohibited by § 30118 (corporate contributions) and § 30121 (contributions funded by foreign nationals).  Conduit contributions may also be subject to felony prosecution under federal conspiracy and false statement statutes.

A particular area of conduit contribution exposure for corporate clients is donations that are arranged by a corporate official, but made in the names of employees who are then reimbursed from corporate funds.  Such contributions are illegal under FECA, and, if over $10,000 in the aggregate and knowingly and willfully made, prosecutable as felonies under § 30118 and § 30122.  This can potentially lead to substantial monetary penalties and even prison sentences for individuals involved: conduit contributions over $10,000 can lead to up to two years in jail time, and conduit contributions over $25,000 can lead to up to five years in jail time.

Just yesterday, former Kentucky Democratic Party chairman Jerry Lundergan was sentenced to 21 months in prison and fined $150,000 for “orchestrating a multi-year scheme to funnel more than $200,000 in secret, unlawful corporate contributions” from a company he owned into the Senate campaign of his daughter, Alison Lundergan Grimes.  A jury had previously convicted Lundergan of ten felony counts, including one count of making a corporate campaign contribution.  Another example of a recent prosecution is the $1.6 million penalty agreed to in November of 2019 by Dannenbaum Engineering Corporation, which entered into a Deferred Prosecution Agreement with DOJ to resolve $323,000 of illegal conduit contributions made through its employees over a two-year period.

“Coordinated Expenditures” (§ 30116): independent expenditures by individuals and political action committees can become impermissible “coordinated” expenditures if made “in cooperation, consultation, or concert, with, or at the request or suggestion of” a candidate or a candidate’s authorized committee.  Coordinated expenditures are treated as “contributions” for the purposes of FECA and can lead to criminal penalties.  While impermissible “coordination” cases are considered difficult to prosecute, the 2015 case of Virginia political consultant Tyler Harber—sentenced to two years of jail time for exactly this conduct—shows that such prosecutions are not impossible.  In a case hailed as “the first criminal prosecution in the United States based upon the coordination of campaign contributions between political committees,” Harber pleaded guilty to violating FECA for making and directing $325,000 of expenditures as part of a PAC he created and operated to benefit a candidate for Congress, while simultaneously serving as the campaign manager for that candidate.  Harber admitted to “participating in the purchase of specific advertising” by the PAC in order to benefit the candidate, while knowing that such coordination was unlawful.  Even though the circumstances of Harber’s coordination that led to prosecution in this case were particularly egregious, given the increased use of independent expenditures it is possible that prosecutors will use the Harber case as a model for more aggressively pursuing other coordination cases in the future.

“Scam PACs”: a developing area of criminal campaign finance enforcement is “Scam PACs,” or “political committees that collect political contributions, frequently using the name of a candidate, but which spend little to none of the proceeds on political activity benefitting that candidate.”  Because there is no clear rule setting out how much money a PAC must spend on advancing political causes versus compensating the PAC managers, criminal Scam PAC cases can be difficult to pursue under FECA.  Nonetheless, DOJ first successfully prosecuted a Scam PAC case in November of 2018 as a wire fraud conspiracy, and there have been several more prosecutions since then.  In January of 2020, for example, a Maryland political consultant was sentenced to three years in prison for operating “Conservative StrikeForce” PAC, through which he solicited donor funds for conservative candidates and causes, but then spent the donations on himself.  And in July of 2019, a former candidate for Congress pleaded guilty to operating “fraudulent and unregistered political action committees” through which he collected over $1 million, which he spent on “purely personal expenses.”  The defendant in that case admitted to knowingly and willfully violating FECA’s PAC disclosure requirements, in addition to one count of wire fraud.

Individuals and corporate entities moving to increase their political contributions and expenditures over the next four months—whether through corporate PACs, individual donations by employees, or otherwise—must be mindful of the FECA provisions above and the potentially serious criminal penalties for violations.  Even those that are not themselves the target of law enforcement may be swept into a costly investigation that could have been avoided through effective compliance, using discretion when determining which organizations and individuals to transact with, and consulting outside counsel when questions arise.

The Supreme Court’s Mazars Decision Contains a Significant Suggestion That Congress May Be Bound by the Attorney-Client Privilege in Congressional Investigations

By Robert Kelner and Perrin Cooke on Posted in Congressional Investigations

Understandably, much of the commentary following the release of the Supreme Court’s blockbuster decision in Trump v. Mazars USA, LLP has focused on the impact of the Court’s ruling on the long-running quest for the President’s tax returns and other financial records.  Buried in the Court’s opinion, however, is an easily overlooked aside regarding the attorney-client privilege that could have significant implications for private parties responding to requests from congressional investigators.

As our colleagues have explored in greater detail elsewhere, congressional investigators have long averred that they are not bound by judge-made common law privileges, including the attorney-client privilege and attorney work product doctrine.  Congress’s steadfast refusal to recognize privilege notwithstanding, serious privilege disputes between Congress and private parties are relatively rare, and the question of Congress’s ability to compel production of privileged material has remained largely unsettled by the courts.  Capitalizing on this uncertainty in the law, congressional investigators frequently rely on the implied or stated threat of a subpoena for privileged material as leverage to obtain sought-after non-privileged documents or testimony.

In Mazars, however, the Supreme Court may have dramatically weakened that leverage and tilted the scale in favor of parties resisting congressional demands for privileged material.  In effect, Mazars represents the Court’s effort to balance Congress’s investigatory prerogatives with countervailing separation-of-powers and related private interests.  In this vein, in discussing the limitations on Congress’s inherent investigative authority, Chief Justice Roberts’s opinion for the Court notes that recipients of congressional subpoenas “have long been understood to retain common law and constitutional privileges with respect to certain materials, such as attorney-client communications.”

In support, the Court points to an account of a famous privilege dispute arising out of the Senate Whitewater investigation.  There, congressional investigators issued a subpoena for notes from a meeting between the Clintons, White House lawyers, and the Clintons’ private counsel.  After a months-long standoff, the Clintons and Congress ultimately reached an agreement under which the Clintons would produce the requested documents in exchange for a concession from the Senate Whitewater Committee that such disclosure would not constitute waiver of attorney-client privilege.  Although the parties thus avoided a direct dispute on privilege, the Mazars Court cited this episode as evidence of a common understanding that parties responding to a congressional investigation have a right to withhold privileged material.

Of course, the question of the applicability of the attorney-client privilege to congressional investigations was not squarely before the Court in Mazars, and the Court’s brief aside on this subject may be easily cast as dicta.  Nonetheless, the Court’s approving recognition of the view that the privilege does apply to Congress will surely prove helpful to parties fighting efforts by congressional investigators to compel disclosure of privileged material.

D.C. Circuit Rules Obstruction of Office of Congressional Ethics Not a Crime, but Questions and Risks Remain

By Angelle Smith Baugh and Perrin Cooke on Posted in Congressional Investigations, Litigation

In a unanimous ruling, the D.C. Circuit shed new light this week on the applicability of key federal criminal statutes on proceedings before the Office of Congressional Ethics (“OCE”).  While largely removing the prospect of criminal obstruction liability for parties responding to inquiries from OCE, the court’s opinion is another reminder of the potentially serious collateral consequences inherent in any congressional investigation.

The case, United States v. Bowser, arose out of an OCE investigation of a senior aide to former Congressman Paul Broun.  OCE is an independent, non-partisan entity that was established by a House Resolution in 2008.  While OCE is tasked with investigating alleged violations of any “law, rule, regulation, or other standard of conduct” committed by a “Member, officer, or employee of the House,” its powers are limited.  For example, OCE cannot issue subpoenas or compel cooperation with its investigations.  Participating in an OCE investigation in voluntary—though, the OCE often threatens to embarrass witnesses by declaring them to be uncooperative in public documents and drawing an “adverse inference” from any unwillingness to cooperate.  Further, OCE is not authorized to formally determine whether such a violation occurred or otherwise take action to sanction Members or staff under investigation.  Rather, OCE is intended to serve as a fact-finding body, with the Office ultimately responsible for determining whether there is “substantial reason” to believe that a violation has occurred and, upon making such a determination, referring matters to the House Ethics Committee for further review.

In Bowser, the former aide was accused of using official funds to hire an outside consultant to assist his boss in preparing for debates and other campaign appearances.  The ensuing OCE investigation ultimately led to an Ethics Committee probe and, as relevant here, the federal prosecution of the aide.  Importantly, the aide was charged with not only violating the prohibition on the use of official funds for political activity, but also multiple crimes stemming from his efforts to thwart OCE’s initial investigation.  In particular, after voluntarily complying with a request for documents, the aide signed two documents certifying that he had complied fully with the request and acknowledging that this certification was subject to the False Statements Act.

Following a trial, the aide was convicted of obstructing Congress, as well as concealing material facts from and making false statements to OCE during the course of its investigation.  After the district court granted the aide’s request to dismiss the obstruction charge, the aide appealed his remaining convictions on the grounds that the federal statutes under which he was charged did not apply to his interactions with OCE.

In upholding some—but not all—of the aide’s convictions, the D.C. Circuit drew an important distinction between the federal obstruction-of-Congress statute codified at 18 U.S.C. § 1505 and the more familiar False Statements Act set out at 18 U.S.C. § 1001.  Specifically, the Court noted that the obstruction statute criminalizes only the obstruction of an “inquiry or investigation [that] is being had by either House, or any committee of either House or any joint committee of the Congress.”  By contrast, the False Statements Act applies to “any investigation or review, conducted pursuant to the authority of any committee, subcommittee, commission or office of the Congress.”  Reasoning that OCE was merely an office of Congress—and not a committee of Congress—the court concluded that the obstruction statute does not apply to investigations conducted by OCE.  The court thus affirmed the dismissal of the obstruction charge.  At the same time, however, the court upheld the aide’s false-statements convictions on the grounds that he had fair notice of the applicability of § 1001 to his certification that his response was complete.

Although Bowser largely alleviates the risk of an obstruction charge for parties investigated by OCE, the court’s decision leaves some questions unresolved.  Most notably, the court left open the possibility that a “legislative office might work so closely with the House or a [House] committee that the investigation” could be covered by the obstruction statute.  Further, because the court’s decision focused on the application of the obstruction statute to OCE, the court did not directly address whether prosecutors may bring an obstruction charge in connection with an inquiry from an individual Member or group of Members.  These open questions notwithstanding, the decision is a stark reminder of the potential risks associated with any congressional investigation.

DOJ Charges Abramoff in First-Ever Criminal Lobbying Disclosure Act Prosecution

By Matthew Shapanka on Posted in Enforcement, Lobbying Compliance

Nearly a decade after his release from prison, having served nearly four years on corruption charges, disgraced lobbyist Jack Abramoff may be heading back behind bars, this time as the first person ever charged and convicted for criminal violations of the Lobbying Disclosure Act (“LDA”).  Yesterday the Justice Department announced that notorious lobbyist Jack Abramoff will plead guilty in what is believed to be the first ever criminal prosecution for failure to register under the LDA.

Although the LDA provides for criminal penalties for any person who “knowingly and corruptly fails to comply with any provision of [the Act],” 2 U.S.C. § 1606(b), until now DOJ had never identified an instance of failure to register that was so “knowing and corrupt” as to rise to the level of a criminal violation.  Indeed, even the LDA’s civil penalty—providing for civil penalties up to $200,000 for “knowingly” failing to either (1) remedy a defective filing within 60 days of receiving notice from the Clerk of the House and the Secretary of the Senate, or (2) otherwise comply with the Act—is rarely invoked.

Abramoff’s charges stem from an FBI sting operation in which an undercover agent posing as a business person seeking to fund lobbying efforts agreed to retain Abramoff for lobbying activities including lobbying contacts.  After being retained, and later contacting a member of Congress on behalf of his new client, the Information alleges that Abramoff failed to register.

The LDA requires “a lobbyist” to register with the Clerk of the House and the Secretary of the Senate within 45 days of the earlier of the date of their first lobbying contact, or the date on which the lobbyist was “retained to make a lobbying contact.”  2 U.S.C. § 1603(a).  A “lobbyist” is an individual who is employed or retained by a client for compensation for “services that include more than one lobbying contact,” and engages in “lobbying activities” for 20% or more of the time spent on services for that client over a 3 month period.  Id. § 1602(10).

A “lobbying contact” is any communication with a covered official—including all members of Congress and their staff—regarding legislation, nominations, rules, regulations, Executive Orders, or any other “program, policy, or position of the United States Government.”  Id. § 1602(8)(A).  “Lobbying activities” includes both “lobbying contacts, and efforts in support of such contacts, including preparation and planning activities, research and other background work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others.”  Id. § 1602(7).

To be fair to prosecutors, these rules can be so complex that a “knowing and corrupt” violation is difficult to commit.  Many businesses (and their lawyers) routinely scrutinize whether their employees or consultants have triggered LDA registration by making “more than one lobbying contact” and engaging in “lobbying activities” for 20% or more of their time.

The charging documents in this case seem unconcerned with the definitions of “lobbying contact” and “lobbying activities,” instead focusing on Abramoff’s blatant obligation to register once retained to undertake these functions.  While the rules are complicated and arcane to many businesses and lobbyists, prosecutors in this case were clearly convinced that Abramoff, of all people, should know better: the information charging him for violating the Act specifically points out that Abramoff “was aware of the obligations to register as a lobbyist in part because Congress amended provisions of the Lobbying Disclosure Act in 2007 in part as a reaction to Abramoff’s past conduct as a lobbyist.”

Open for Business: The FEC’s Public Meeting on Thursday, June 18

By Robert Lenhard on Posted in Campaign Finance

Tomorrow, the FEC will hold its first open meeting since last August, now that Commissioner James Trainor III has been sworn in.  The agenda will consist of four reasonably routine matters, consisting of three advisory opinion requests and a request for comments on whether the Commission should begin a rulemaking.

As of this morning, all of the advisory opinion requests had only one draft, which often indicates at least preliminary consensus among the Commissioners as to the outcome.  Because only four of the six Commission seats are filled, and all items on the agenda require the affirmative vote of four commissioners, unanimity is required to approve each agenda item.  This will be an early public window into how Commissioner Trainor will approach his role on a Commission that has often seen contentious exchanges among the Commissioners and more than the traditional level of deadlocked votes on important questions of law. This agenda should be tailor made to avoid such conflict.

Can a PAC that serves as a conduit for earmarked contributions take a percentage fee, and if so, how is that reported?  FEC AO 2019-15 (NORPAC).  Like its more famous predecessors, Act Blue and WinRed, NORPAC would like to solicit, process, and forward earmarked contributions to candidate committees.  To pay the credit and debit card vendors, and cover its administrative and solicitation costs, NORPAC would like to deduct and retain a percentage of the contributed amount, (the “Convenience Fee”).  In addition to routine overhead, the fee would help pay staff costs associated with organizing and attending fundraising events for candidates, and to collect and distribute contributions received at these events.

The draft opinion permits NORPAC to do all that it asks, noting that the Convenience Fee would constitute a contribution to NORPAC (which like Act Blue and WinRed, is registered with the FEC as a non-connected committee) from the original contributor, and the entire amount given would count against the candidate-recipient’s limits, even though a portion had been deducted by NORPAC.  The FEC also provides explicit guidance as to how NORPAC should report these transactions.

Can a PAC’s name include a candidate’s initials?  FEC AO 2019-16 (Philip Shemanski).  Mr. Shemanski wants to start a PAC that encourages citizens to vote against Donald Trump.  To help achieve this end, he would like to use the letters “DT” in the PAC’s name, such as “The Defeat DT Campaign” or “The Campaign Committee Against DT’s Re-election.”  Because there is a statute that prohibits a political committee that is not a candidate’s authorized committee from including a candidate’s name in its name, he asks if the use of initials is permitted.  The draft opinion concludes that Mr. Shemanski’s proposal is permissible, because the initials are an abbreviation, rather than a full first or last name or nickname, and are not commonly used to refer to President Trump. The FEC staff is also comforted that at least two other federal officeholders up for re-election this year share those initials.

Some may recall that last year a district court enjoined the Commission from enforcing its regulation that implements a similar aspect of this restriction.  Pursuing America’s Greatness v. FEC, 363 F. Supp. 3d 94 (D.D.C. 2019).  The draft opinion takes the position that the court’s decision did not address the validity of the statute, just the regulation that implemented it, and did not enjoin the agency from enforcing the statute.

Is commercial political speech for the purpose of influencing a federal election?  FEC AO 2019-18 (IDF International Technologies, Inc.).  IDF, a for-profit corporation, operates an online political discussion forum on various topics, including a political discussion forum.  IDF does not communicate with or take a public position on any political party, candidate, or issue, though the users of its forum do.  IDF sells advertising on the forum to generate revenue, and buys online advertising from companies such as Google, in the form of banner ads, pay-per-click ads, and display ads, to help draw traffic to its site.  To attract customers, IDF would like those ads to discuss candidates.  Examples it gives are: “Do You Hate [Candidate]? Read it before it’s taken down. This is what they aren’t telling you.” IDF tracks click-through rates, and will use the names of those candidates that generate the most traffic to its site in these ads.  IDF states the ads will not espouse a public position on any candidate or political party or contain express advocacy.

The draft opinion concludes that IDF is engaged in purely commercial activity and not activity for the purpose of influencing a federal election.  As a consequence, it escapes the FEC’s regulatory clutches, and need not comply with the agency’s restrictions on the source and amount of revenue, disclosure or disclaimers.

Should the FEC open rulemaking on a candidate campaign committee’s transfers to a party committee? Citizens United and Citizens United Foundation petitioned the FEC to begin rulemaking to amend 11 CFR 113.2(c) so that federal candidates can no longer make unlimited transfers of funds to party committees.  Instead, candidates would share the same limit as individuals, which is now $35,500 to a national party’s general account.  Note: additional contributions up to $106,500 can be made to party committees sub accounts, which, depending on the party committee, may pay for convention, legal and building expenses.  The existing rule caught notice when the Bloomberg campaign gave $18 million to the Democratic National Committee’s general account at the end of its presidential run.  The FEC’s sole decision here is whether to open the question to public comment.

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