New Year, New Gift Rules for the Federal Executive Branch

Corporations, trade associations, and others who interact with federal executive branch employees should be aware of the Office of Government Ethics’ (OGE) recent amendments to the executive branch gift rules, which go into effect on January 1, 2017. Seeking to encourage transparency and advance public confidence in the integrity of federal officials, OGE redefined some of the gifts executive branch employees can receive from outside sources and suggested when permissible gifts should be declined because they may create an appearance of impropriety. The new amendments include some of the most detailed changes to the executive branch gift rules in many years.  This alert outlines the most significant changes.

The 2017 Presidential Inauguration: Ethics and Compliance Issues

With Election Day 2016 in the books, the political world turns to the transition of power and the January 20, 2017 Inauguration of President-elect Donald Trump and Vice President-elect Mike Pence. With the swearing in of the new President and Vice President will come the traditional balls, parties, and receptions. The inauguration and related events are costly, and paid for largely with private funds. Individuals, businesses, and other organizations donating to the inauguration, hosting related events, or giving out tickets to either should remember that they are operating in a highly regulated space. In this alert, we profile three common compliance issues.

Persons interested in this alert may also wish to review our alerts on the Presidential Transition and the political appointee vetting process.

Guidelines for Interacting with President-Elect Trump’s Transition Team

Over the next nine weeks, the Trump Presidential Transition team will formulate policy and staffing recommendations for the new administration. This alert gives a broad overview of the Transition and the laws that regulate interactions with Transition team members on issues related to appointments and policy recommendations. Persons interested in this topic may also wish to view our alert on the presidential appointee vetting process.

What To Expect When You Weren’t Expecting A Congressional Investigation

Congressional investigations are rare, but for corporations, they are not quite “black swan” events that are impossible to predict.  For companies in high profile, controversial, or highly regulated industries, they are more like “gray swan” events.  They happen often enough that you can and should plan for them.  We’ve published an article that helps you anticipate issues that will arise in any congressional investigation.  The article ran yesterday in a legal publication, Law360, and you can read it here

 

New Report Calls Out Corporate Political Disclosure “Basement Dwellers”

A report published today criticizes companies that refuse to disclose information about their political spending on their websites.  The non-profit Center for Political Accountability and the Zicklin School at Wharton annually rank all companies in the S&P 500 on their political disclosure practices, based on a 70-point metric.  The more information companies disclose on their websites, the more points they get.  This year’s report marks the second consecutive year for which the CPA-Zicklin Index has surveyed the full S&P 500.

While these disclosures are not required by law, the CPA-Zicklin Index has found success over the years at using the Index as a tool to pressure companies to either disclose more information about their political expenditures or to cut-off the spending altogether.

This year’s Index is no different, finding incremental improvement over last year’s report.  According to the 2016 report, the average overall score rose slightly this year from 33.93% in 2015 to 36.73%.  Citing this regular year-over-year increase, the report emphasizes that it can be used to identify “persistent basement-dwellers, those companies lagging behind in taking reasonable steps to safeguard themselves and shareholders against the acknowledged risks posed by corporate spending on politics.”  As a result of the attention given to the issue by this year’s report, those companies may find themselves the targets of name-and-shame campaigns, adverse publicity, shareholder proposals, or even litigation.

But companies should not read too much into the trend towards increased disclosure.  Forty-nine companies still received a score of “zero,” and 152 companies received scores of 10% or less, down only slightly from 156 in 2015.  And some of the increase in the average score may simply be a result of low-scoring companies who were surveyed for the first time in 2015 deciding to move to the middle-of-the-pack.  Moreover, most companies still receive no credit in two key categories, both of which are primary CPA-Zicklin focus areas: Less than half disclose any information about trade association dues payments and less than a third disclose information related to contributions to so-called 501(c)(4) groups.

The report, perhaps unintentionally, also makes clear that corporate political disclosure is not a panacea to “dark money.” The Index repeatedly touts a “strong and growing trend among S&P 500 companies” towards increased disclosure and claims that disclosure “is becoming common practice.”  At the same time, the Index warns of a potentially record-breaking year for “dark money” spending and “long-term trends” documenting “sharply escalating dark money in politics.”  But the increase in political disclosure by major public companies strongly suggests that the increase in “dark money” spending is not coming from large multinational corporations.

The Latest Twist in the Backpage Litigation and its Implications for the Attorney-Client Privilege in Congressional Investigations

Litigation by the Senate Permanent Subcommittee on Investigations to enforce a subpoena for documents from Carl Ferrer, the CEO of Backpage, an online forum accused of contributing to sex trafficking, has taken another interesting twist, with the D.C. District Court ruling that Backpage cannot assert the attorney-client privilege to protect certain documents.  It is rare for a court to issue a ruling on attorney-client privilege in a congressional investigation, and the court’s ruling has significant implications for any individual or company facing demands from Congress for documents, information, or testimony.

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Federal Court in D.C. Rules Against FEC in Important Disclosure Case

In an important decision, U.S. District Judge Christopher Cooper today ordered the Federal Election Commission to reconsider its dismissal of a complaint filed by CREW against two tax-exempt advocacy organizations that have never registered with the FEC.  CREW alleged that the two groups, American Action Network and Americans for Job Security, had as their “major purpose” influencing federal elections, and that they therefore should have registered as federal political committees, which would have meant disclosing their donors.  The FEC split 3-3, with the three Republican Commissioners voting not to find “reason to believe” that a violation had occurred.

For years, campaign finance reform groups have sought to breathe life into the “major purpose” test, first enunciated in the seminal 1976 campaign finance law case, Buckley v. Valeo (a case that was litigated by Covington & Burling).  There has been considerable uncertainty since Buckley as to the point at which expenditures related to federal elections would cause influencing federal elections to be an organization’s “major purpose.”  Judge Cooper ruled that the FEC erred in two respects when it dismissed the cases against AAN and AJS.  First, the Republican Commissioners had considered only “express advocacy” of the election or defeat of clearly identified federal candidates to count for purposes of the major purpose test.  The Court held that electioneering communications should have also been taken into account, even though they do not include express advocacy.  Second, the Court ruled that the Commissioners erred by considering the groups’ recent election related ads only in the context of their lifetime history of activities spanning many years, which tended to downplay the centrality of federal election activity to their missions.  Accordingly, the Court remanded the case to the FEC for further proceedings.

For a variety of practical reasons, there is a good chance that the case will now die on the vine at the FEC.  Because the Court did not define a specific standard that the FEC must adopt, limiting itself to rejecting the standards that the Republican Commissioners applied, ample room remains for the FEC to deadlock again on remand, even if the deadlock rests on different grounds.  But the significance of the case has less to do with the final outcome of this particular case, and much more to do with the standard that will apply in future cases.  Depending on whether the FEC appeals the Court’s decision, and if so, the outcome of the appeal, Judge Cooper’s decision may point the way to a more expansive conception of the major purpose test, validating campaign finance reform groups’ decades long crusade to use that test as a battering ram to force outside groups to register as reporting committees.  In the short run, it is fair to assume that those filing complaints with the FEC will cite liberally to Judge Cooper’s decision.

Supreme Court Refuses to Stay Senate Subpoena, Highlights the Difficulties Inherent in Challenging a Congressional Subpoena

The Supreme Court today refused to block a subpoena by the Senate Permanent Subcommittee on Investigations of the online forum Backpage and its CEO Carl Ferrer.  As we previously reported, Ferrer lost at the District Court in his effort to block the Senate subpoena, arguing primarily that the subpoena abridged his First Amendment rights.  Ferrer appealed the District Court’s decision to the Court of Appeals.  Since losing at the District Court, Ferrer has been fighting a parallel battle to delay the enforcement of the subpoena while the appeal is pending.

Ferrer sought a stay of the subpoena from the District Court and lost; sought a stay from the D.C. Circuit Court of Appeals and lost; and finally sought a stay from the Supreme Court.  The Supreme Court delayed the enforcement of the subpoena briefly last week to permit both sides to submit briefs, but today’s action lifts that reprieve.  Ferrer will now face a short deadline with which to comply with the Senate’s demand for documents.

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Have We Reached A FARA “Tipping Point”?

The New York Times, earlier this month, reported that “secret ledgers” in Ukraine show $12.7 million in cash payments designated for former Donald Trump campaign chairman Paul Manafort from Ukraine’s pro-Russian political party. Days later, the Associated Press reported that Manafort helped the pro-Russian party “secretly route at least $2.2 million in payments to two prominent Washington lobbying firms.” These stories sparked a flurry of questions about whether Manafort and others unlawfully failed to register with the Department of Justice as foreign agents. This coverage, in turn, has sent “shockwaves” in Washington, with Politico today noting that “reps from multiple firms who lobby for foreign entities think this might be a tipping point, and the feds might take a broader look at other firms and clients.”  As we face a potential “tipping point” in FARA interest and enforcement, Covington today published this advisory which provides a basic compliance primer for those working for or contracting with foreign companies, governments, political parties, and individuals.

FEC to Reconsider Political Involvement by U.S. Subsidiaries of Foreign Corporations on Tuesday

Foreign nationals, both individuals and corporations, have long been barred from making contributions in federal, state or local elections in the United States. The statutory prohibition includes contributions made “directly” or “indirectly,” bars the solicitation as well as the making of contributions, and since 2002, includes a ban on expenditures, independent expenditures, or electioneering communications by foreign nationals.  Penalties are stiff, including incarceration for a criminal violation.

But how should the law treat U.S. corporations that are subsidiaries of a foreign corporate parent? Are they “American” if run by U.S. citizens, incorporated in the United States, and U.S. citizens make all funding and spending decisions?  The FEC first answered this question in a  1978 advisory opinion and, in essence concluded that if U.S. citizens control the decisions about contributions and the operation of the PAC, using corporate funds raised from U.S. operations, and the PAC contains only funds from lawful U.S. donors, the ban on “indirect” contributions by a foreign national does not apply, even if the U.S. subsidiary is wholly owned by a foreign parent company.

This view has always had its dissenters, but for decades this has been the view of a majority at the FEC. However, since 2012, at least three FEC Commissioners have argued that this view of the law is incorrect, and that the issues should be reconsidered and/or reversed so that U.S. subsidiaries of foreign corporations would be barred from making contributions or expenditures in federal, state or local elections, including being barred from operating a corporate PAC.  This has generated 3-3 deadlocks in a number of advisory  opinions. The FEC will revisit the issue Tuesday, as Commissioner Ravel has placed the issue on the agenda for the FEC’s next meeting, seeking to remove the exemption for U.S. subsidiaries run by U.S. nationals.

There seem to be three principal arguments in favor of a change.

  • The tools presently available to enforce the law are too weak to address the threat, and only an outright ban is sufficient to stop foreign involvement.
  • Even when foreign nationals have no direct role in contribution decisions, the foreign ownership alters the thinking of the Americans who run the U.S. subsidiary, and their loyalties cannot help but shift to the interests of their foreign owners, and only a total ban can prevent this indirect influence.
  • Citizens United led to an unwarranted expansion of corporate political power, and this is one way to reign it in.

In a statement released in advance of the meeting, Commissioner Ravel seems to be advancing the first of these arguments, citing a recent and successful Justice Department prosecution of a foreign national who funneled contributions into a state election, and a recent news report alleging that foreign nationals directly controlled a U.S. corporation’s decision to give to a super PAC. Some will take this as a sign the current regime is working, with violations being uncovered and prosecuted.

The issue is unlikely to be resolved at the FEC on Tuesday, but will remain a hot button topic in campaign finance, and should be on everyone’s radar screen if Congress takes up the issue of campaign finance reform in the next Congress.

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