Trade associations, 501(c)(4) social welfare organizations, other outside groups that pay for political advertisements, and their donors now have more answers to long-running questions regarding when donations to these groups are publicly reportable.  After postponing consideration of the issue during its previous meeting, the Federal Election Commission (“FEC”) approved Wednesday an interim final rule on donor disclosure.  The interim rule amends the federal regulations that describe when outside groups that pay for independent expenditures — advertisements that expressly advocate the election or defeat of a clearly identified candidate — must publicly disclose on FEC reports the names of their donors.  The amended rule will take effect 30 legislative days after the FEC transmits the new rule to Congress, which the FEC anticipates will be September 30, 2022.

The interim rule brings the FEC’s regulations into harmony with a 2018 court decision that invalidated a long-standing regulation, 11 C.F.R. § 109.10(e)(1)(vi), requiring outside groups to disclose only those donors who contributed at least $200 to the outside group “for the purpose of furthering the reported independent expenditure.”  The interim final rule strikes the regulation entirely.  However, the FEC added a note to 11 C.F.R. § 109.10(e)(1) that clarifies the remaining portions of the regulation and the relevant statute are still in effect.

In the wake of the 2018 decision, many questions remained about when these groups must disclose donor names.  The revised regulation itself was not meant to answer those questions; it was simply meant to harmonize regulations on the books with existing court decisions.  Some of these questions were answered by an unusual guidance document the Commission posted to its website after the 2018 decision.  That guidance, which remains in effect, provides that groups (other than political committees) that pay for independent expenditures must disclose the names of donors of over $200 who made contributions “earmarked for political purposes” during the reporting period.

But when is a contribution “earmarked for political purposes”?  If a donor provides funds for get-out-the-vote activities, is that donation “earmarked for political purposes”?  If a donor makes a contribution following a presentation from an outside group describing its political activities, is the donation reportable?  What about a donation intended to further a hard-hitting issue advertisement whose purpose, at least in part, is to defeat a particular candidate?  These questions are all left unaddressed in the interim final rule and the website guidance.

In tandem with the approval of the interim final rule, however, three FEC Commissioners issued a rare “interpretive statement” addressing some of these questions, citing Covington’s previous analysis which had highlighted the uncertainty and confusion in the current approach.  In the statement, the Commissioners express their view that the new regulation should be interpreted to comply both with the court decision, but also “with the First Amendment and Supreme Court precedent” and “be fair to non-committee organizations and their donors and feasible for the Commission to administer.”  Absent definitive rulemaking, the Commissioners take the position that alleged violations of this particular donor disclosure requirement “are effectively unenforceable due to the absence of clear direction from the Commission on which donations to non-committee organizations are ‘earmarked for political purposes.’”  Nevertheless, the Commissioners expressed their view that a contribution is “earmarked for political purposes,” and therefore reportable, “only if it is designated or solicited for, or restricted to, activities or communications that expressly advocate the election or defeat of a clearly identified candidate for federal office.”  

Thus, a donor who gives money with a specific instruction that the funds be used for independent expenditures would make a reportable contribution.  On the other hand, “an unrestricted donation” or a donation designated for non-electoral purposes, or a donation in response “to a general solicitation to support the organization’s mission” would not be reportable, even if the funds are later used to fund express advocacy activities.

What does this mean going forward?  Of course, the Commissioners’ policy statement is not a binding statement of law by the Commission as a whole.  Still, absent a court decision or a change in position by the three Commissioners, enforcement matters alleging that social welfare organizations, trade associations, and other groups failed to disclose their donors are unlikely to find the required four votes to move forward unless the underlying contributions were allegedly designated or solicited for, or restricted to, express advocacy communications or activities.  Contributions made to support issue advocacy communications (other than electioneering communications), get-out-the-vote activities, and other efforts to influence elections that do not involve express advocacy would not be reportable under this interpretation.   

Contributions that are “designated” or “solicited” for express advocacy, however, would still be reportable.  Donors concerned about whether their donations would be publicly reported should therefore carefully consider any solicitations received from the outside group, the specific details of any communications with outside groups, and any instructions provided for the contributions, either formally in an assurance letter or in informal communications.

As we previewed in the fall, the Supreme Court today struck down the longstanding statutory prohibition on the use of funds raised after Election Day to repay a candidate loan in Federal Election Commission v. Cruz.  Although the outcome of the case—which was brought by Senator Ted Cruz (R-TX) following his re-election in 2018—was far from a surprise, the Court’s 6-3 decision makes clear that a supermajority of the current Court takes a deeply skeptical view on a wide array of campaign finance regulations. 

In his opinion for the Court, Chief Justice John Roberts reasoned that Section 304 of the Bipartisan Campaign Reform Act of 2002 (“BCRA”) was unconstitutional because the provision unduly restricts the rights of candidates and their campaigns to engage in political speech.  While the Court’s ruling concerns the relatively narrow issue of candidates loaning funds to their own campaigns, today’s decision could have implications for the broader campaign finance system. 

For example, after holding that Senator Cruz had standing to pursue his challenge, the Court opened its discussion of the merits of that challenge by emphasizing that the prevention of “quid pro quo” corruption or the appearance thereof is the only “permissible ground for restricting political speech.”  In so doing, the Court again rejected as a legitimate basis for regulating campaign contributions the desire to “limit the general influence a contributor may have over an elected official.”  While acknowledging that the “line between quid pro quo corruption and general influence may seem vague,” the majority reasoned that the First Amendment requires the Court to “err on the side of protecting political speech rather than suppressing it” when considering restrictions on money in politics.  This presumption against regulation is yet another indication of the shrinking sphere of Congress’s power to regulate money in politics.

Perhaps more significantly, the Court expressed deep skepticism for campaign finance regulations characterized by the majority as a “prophylaxis-upon-prophylaxis approach” to preventing corruption.  In this vein, the Court pointed to individual contributions limits, as well as the requirement that “nontrivial contributions” be publicly disclosed, as the primary—and perhaps only permissible—measure of defense against prohibited corruption.  As for other regulations going beyond the basic contribution limits and disclosure requirements, the majority explained that incorporating an added layer of protection against corruption “is a significant indicator that the regulation may not be necessary for the interest it seeks to protect.”  Taken together with the earlier discussion of the limited scope of Congress’s regulatory authority, this language strongly suggests that all but the most narrowly drawn campaign finance regulations will be greeted with significant scrutiny by the current Court.

Finally, even beyond these strong presumptions against regulation, the Court’s opinion underlines the significant evidentiary burden the government must carry to defend its regulations.  In particular, the Court explained that, in justifying a particular campaign finance regulation, the government “must do more than ‘simply posit the existence of the disease sought to be cured.’ . . .  It must instead point to ‘record evidence or legislative findings’ demonstrating the need to address a special problem.”

Much like the district court before it, the majority then emphasized that the FEC was “unable to identify a single case of quid pro quo corruption” in the context of the loan-repayment rules, the absence of which the majority described as “significant.”  The majority further dismissed the “handful of media reports and anecdotes” presented by the agency as evidence of the special risks associated with repaying candidate loans after an election” as “pretty meager.” In the majority’s view, such evidence addresses—at most—only the broader appearance of corruption within the federal system.

Interestingly, the majority also rejected an argument advanced by the dissenting Justice Kagan that contributions used to repay candidate loans are particularly concerning because they are more obviously analogous to gifts to the candidate him or herself, in that the contribution to the campaign will ultimately find its way to the candidate’s own bank account.  In addition to suggesting that no winning candidate would struggle to raise sufficient funds to repay a personal debt to his campaign, the majority noted that the challenged regulation did not prohibit any contributions to be used to repay a candidate debt.  Rather, the regulation merely limited the amount of funds contributed after an election that could be so used.  Reasoning that the regulation thus implicitly acknowledges that such contributions are not necessarily problematic, the Court appeared to largely fall back again on contribution limits and disclosure requirements as the ultimate failsafe against untenable corruption.

As we predicted, today’s decision—while ostensibly narrow in its immediate impacts—signals a continuing and marked shift in favor of challenges to federal campaign finance regulations.  Given the Court’s clear rejection of any but the narrowest of legitimate purposes for such regulations, as well as the increasingly high presumption against essentially anything other than simple contribution limits and disclosure requirements, it is difficult to say with certainty that any current regulation is safe from challenge. 

The 2021 report from the Government Accountability Office (“GAO”) offers new details on the landscape of Lobbying Disclosure Act (“LDA”) compliance and enforcement.  The report is based on random audits of lobbyists’ filings and analysis of enforcement by the U.S. Attorney’s Office for the District of Columbia (“USAO”).

The report included several trends GAO identified in previous years.  For example, lobbying registrants still often fail to round their lobbying expenses and lobbying income to the nearest $10,000, a “recurring issue” from 2012 through 2021.  Additionally, many LDA reports continue to be amended following a registrant’s knowledge of the audit, prompting the GAO to suggest its “contact may spur some lobbyists to more closely scrutinize their reports than they would have without our review.”

Below, we highlight other key takeaways.

  • High Number of Pending Cases: The GAO reported that about 72 percent of the 3,473 cases referred to USAO from 2012 to 2021 were “pending further action” as of February 2022.
  • Low Enforcement Levels: The United States Attorney brought criminal charges against only one lobbyist under the LDA in June 2020. The lobbyist was charged with one count under the LDA for failing to register as a lobbyist and later pled guilty. USAO officials stated that GAO continues to review its records to find “additional chronic offenders” for further action related to noncompliance.
  • Former Government Positions: An estimated 35 percent of lobbyists may not have properly disclosed previously held covered positions in the executive or legislative branch. The report calls the trend “statistically significant,” compared with figures for 2013, 2014, 2016, and 2017.  The LDA requires a filer to disclose if a new lobbyist previously held positions in the executive or legislative branch, such as high-ranking officials and congressional staff, within the past twenty (20) years.
  • LD-203 Reports: Seven percent of LD-203 reports were missing reportable political contributions.
  • LD-2 Reports: Eight percent of lobbyists who filed new registrations did not file LD-2 reports for the quarter when they first registered, as the LDA requires.

In the digital age, it has become common to accuse opponents of propping up their online presence through paying influencers, buying followers or likes, or of being supported by bots.  A California law new this year is looking to shed light on at least some of that activity.

The California Fair Political Practices Commission recently approved rules that tighten the reporting requirements of committees that pay to “amplify” online advertising.  The change may be notable for any committee that makes or may make expenditures to digital strategy consultants for social media “likes,” shares, followers, or similar activity.  The rules require committees with reportable expenditures for amplification measures to specifically describe the payments in their reporting statements.

The new regulation defines amplification as “efforts to create or increase the appearance of support or opposition for a candidate, committee, or measure online through the purchase of followers, friends, shares, follows, reposts, comments, likes, dislikes, or similar electronic registrations of approval or disapproval” that are visible to users of a digital platform or Internet site.  Under the new rules, committees must provide information about the type of amplification it bought, as well as a “detailed description” of the number of shares, follows, reposts, comments, likes, and dislikes purchased.

Currently, California law requires a candidate or committee that makes an expenditure to pay for amplification services to report the expenditure, including a “brief description of the consideration for which each expenditure was made.”  However, the disclosure must not specifically indicate that the committee paid to amplify a communication, a gap the new regulation aims to fill.

The House Judiciary Committee Subcommittee on the Constitution, Civil Rights, and Civil Liberties held a hearing on Tuesday on potential reform of the Foreign Agents Registration Act (“FARA”), the first FARA hearing by the House Judiciary Committee in over 30 years.

FARA is an arcane statute that requires “agents of foreign principals” engaged in certain enumerated activities to register with the Department of Justice (“DOJ”) and file both detailed disclosure reports and copies of any “informational materials” that are distributed within the United States. As the witnesses and members of the Subcommittee pointed out, the 1938 statute contains sweeping provisions that are famously vague and that have not been modernized to meet the realities of the 21st Century.

While the witnesses broadly acknowledged the problematic ambiguity and lack of clarity of the statute, they varied in their views about how to reform FARA and provide more certainty to the regulated community. A representative of the Project on Government Oversight, Dylan Hedtler-Gaudette, sharply criticized the Department of Justice’s lax enforcement, testifying that it “has not and continues to not sufficiently prioritize the enforcement and administration of this law.” On the other hand, law professor Jonathan Turley criticized the Department of Justice’s aggressive use of overbroad provisions of the statute in its enforcement. Professor Turley highlighted free speech concerns and the Department’s broad interpretation of the statute as applied to nonprofits in a recent advisory opinion, calling the opinion an “alarm for Congress.”

This divide between more aggressive enforcement of FARA and narrowing the statute was a common theme throughout the hearing, by both the witnesses and the members of the Subcommittee. There also seemed to be few substantive openings for bipartisan consensus.  The minority members of the Subcommittee principally focused on FARA as a potential mechanism to pursue investigations of Hunter Biden. As a result, the prospect of bipartisan legislative reform appears dim.

Surprisingly, the hearing addressed very few substantive proposals that FARA practitioners and the Department of Justice have focused on recently in the context of DOJ’s Advance Notice of Proposed Rulemaking (“ANPRM”) to modernize FARA. These potential administrative changes might address some of the concerns expressed by the witnesses and members of the Subcommittee. For example, nearly all of the witnesses called for more clarity and “clear lines” with respect to the exemptions to FARA, but they offered few practical solutions for how common exemptions like the commercial exemption or the legal exemption should be changed.  Accordingly, while there may not be much hope for broad consensus for legislative reforms, the Department of Justice may still provide more clarity through regulation.

Corporations, trade associations, non-profits, other organizations, and individuals face significant penalties and reputational harm if they violate state laws governing corporate and personal political activities, the registration of lobbyists, lobbying reporting, or the giving of gifts or items of value to government officials or employees. To help organizations and individuals comply with these rules, Covington has published a detailed survey—over 300 pages—that summarizes the campaign finance, lobbying, and gift rules adopted by all 50 states and the District of Columbia.

In the survey, the entries for each state are divided into three sections, one section addressing lobbying rules, another section addressing the rules governing the giving of gifts and items of value to government officials and employees, and a third addressing campaign finance laws. Information is provided in a table question and answer format intended to address common questions with practical guidance.

The lobbying section addresses questions such as who is required to register and file reports, which activities trigger registration, and common exceptions; whether state law covers procurement lobbying, grassroots, and/or goodwill lobbying; whether state law regulates local lobbying; and the timing for registration. It also covers common post-registration questions such as reporting deadlines and training requirements.

The gift section addresses whether state law imposes a general restriction on gifts to government employees regardless of source and whether special restrictions apply to gifts from lobbyists or lobbyist principals. Common exceptions, including for meals and travel, and dollar thresholds, are addressed.

The campaign finance section addresses corporate contribution prohibitions and restrictions, corporate contributor registration and reporting requirements, and state law governing federal PAC registration and reporting requirements, among other topics.

Covington is pleased to be able to offer the survey for purchase in its entirety. Alternatively, individual states or groups of states may be made available at discounted rates. For questions or to purchase the survey, please contact 50statesurvey@cov.com.

Companies doing business with state and local governments or operating in regulated industries are subject to a dizzying array of “pay-to-play” rules. These rules effectively prohibit company executives and employees (and in some cases, their family members) from making certain personal political contributions. Even inadvertent violations can be dangerous: a single political contribution can, for example, jeopardize the company’s largest public contract.

To ensure compliance with these rules, some companies have adopted pay-to-play policies that require employees to obtain pre-approval from the legal or compliance department before making certain political contributions. But it is not always easy to determine whether a particular contribution should be pre-approved. Analyzing how the rules apply to a contribution and identifying the universe of applicable pay-to-play rules is a daunting challenge.

To help in-house lawyers and compliance professionals with making these decisions, Covington annually updates a detailed survey of the pay-to-play laws of the 50 states and multiple cities and counties. This over 400-page survey:

  • Details all statewide pay-to-play rules.
  • Describes over one hundred “specialty” pay-to-play rules that apply to contractors doing business with certain agencies or companies operating in certain regulated industries, including those that apply to investment firms that manage state or local public funds, lottery and gaming companies, public utilities, redevelopment contractors, and insurance companies.
  • Includes pay-to-play laws, where applicable, for all capital cities, all cities with a population of over 100,000 (200,000 for California and New Jersey) and many counties.

The survey also includes user-friendly charts and legal citations answering questions such as:

  • Which donors are affected?
  • Which contributions are restricted?
  • Is there a de minimis exception? What are the other exceptions?
  • Which types of contracts are covered?
  • How long after a contribution does the restriction run?
  • Does the rule restrict political fundraising and other solicitations?
  • Are there reporting and disclosure requirements?
  • What are the penalties?

Covington is pleased to be able to offer the survey for purchase in its entirety.  Alternatively, individual states or groups of states may be made available at discounted rates.  For questions or to purchase the survey, please contact paytoplaysurvey@cov.com

Yesterday, the House Select Committee to Investigate the January 6th Attack on the United States Capitol filed a highly consequential brief in ongoing litigation relating to a subpoena seeking documents involving attorney John Eastman’s alleged participation in efforts to thwart Congress’s certification of the results of the 2020 Presidential election.  Not surprisingly, the Select Committee’s assertion that it has reason to believe that former President Trump and others “engaged in a criminal conspiracy” has drawn the bulk of the media’s attention.  Comparatively little analysis, however, has explored the underlying legal reason that the Select Committee made this newsworthy pronouncement.  The answer provides important clues regarding the applicability of the attorney-client privilege in congressional investigations.

As we have explored elsewhere, Congress has long argued that the attorney-client privilege, the work product doctrine, and other common law privileges do not apply in congressional investigations, while many—including the Supreme Court—have noted that the protections often apply in practice.  Although privilege disputes have arisen in connection with congressional oversight, to date, leaders in both parties have generally avoided directly litigating the issue in federal court.  The Select Committee’s brief in the Eastman litigation appears to be the most recent and high-profile example of Congress’s effort to avoid obtaining a judicial ruling on its position that it is not bound to respect attorney-client privilege or other protections.

Rather than declaring outright that privilege does not apply in the context of congressional oversight, the argument advanced by the General Counsel for the House of Representatives (on behalf of the Select Committee) proceeds largely on the premise that Congress is bound by the privilege.  Indeed, the vast majority of the 58-page brief is dedicated to reasoning that the attorney-client privilege does not guard against disclosure in this case because, among other reasons, the privilege does not apply to legal advice relied upon to engage in illegal conduct.  This invocation of the so-called “crime fraud exception” explains the headline-grabbing summary of then-President Trump’s alleged criminal conduct.

By arguing with little fanfare that the privilege was waived or did not apply due to a narrowly defined and well-established exception to the general rule that confidential attorney-client communications are privileged, the Select Committee’s brief seems to proceed on the implicit  assumption that the privilege generally would apply to its oversight work.  Nonetheless, in a short, easy-to-miss footnote, the Select Committee sought to preserve Congress’s historical position:

Congress has consistently taken the view that its investigative committees are not bound by judicial common law privileges such as the attorney-client privilege or the work product doctrine. . . . Here, Congressional Defendants have determined, consistent with their prerogatives, not to submit an argument on this point.  This is not, however, intended to indicate, in any way, that Congress or its investigative committees will decline to assert this institutional authority in other proceedings.

The Select Committee’s explicit decision “not to submit an argument” on Congress’s longstanding position seems clearly driven by a preference to avoid direct judicial consideration of the issue, even though it would be dispositive in this case were the court to rule on this basis.

If this initial briefing is any indication, the Eastman case could hold important implications not only for former President Trump and others involved in the events of January 6 but for any party involved in an investigation before Congress.  For those who are or may be the subject of congressional oversight requests, the parties’ further briefing on this issue—as well as any future decisional law arising from the case—merit close attention.

The Department of Justice’s FARA Unit released several new advisory opinions today interpreting the Foreign Agents Registration Act (“FARA”) and its regulations.  While the newly published opinions addressed a number of topics, the FARA Unit’s scrutiny of the activity of nonprofits was a prominent and recurring theme.

Many nonprofits, think tanks, universities, religious organizations, educational institutions, and charitable organizations, rely on the so-called academic exemption to FARA.  This exemption applies to those who engage “only” in activities in furtherance of bona fide religious, scholastic, academic, or scientific pursuits or of the fine arts.  However, regulations to the statute provide that this exemption does not apply where the agent of a foreign principal engages in political activities “for or in the interests of” the foreign principal.

The new advisory opinions shed important light on the scope and limitations of the exemption. In one opinion, the FARA Unit interpreted the exemption narrowly, concluding that the Vice President of a private foreign university was required to register under FARA for “conduct[ing] outreach and advocacy” to U.S. government officials “to promote [the foreign university’s] mission, goals, and financial priorities.”  The FARA Unit reasoned that the outreach involved advocacy to obtain grants from the U.S. government and was, therefore, not only in furtherance of the scholastic and academic pursuits of the University.

In another opinion, the FARA Unit concluded that a not-for-profit charitable organization established by a foreign government to increase “friendship and goodwill” between a foreign country and “the rest of the world” through exchange programs was required to register.  The FARA Unit reasoned that the activities would influence the U.S. public to view the foreign government “in a positive light” and “ultimately foster beneficial U.S. foreign policies” with respect to the foreign country.  Because the organization was engaged in political activities, the academic exemption did not apply.

Not all of the advisory opinions were as foreboding with respect to academic activity. The FARA Unit decided that a university professor was not required to register for providing a foreign government with factual, “independent analysis of issues of international law” within the professor’s expertise because the information was not intended to influence the U.S. public with regard to U.S. or foreign policy. The opinion did not reach the academic exemption, instead concluding that the professor’s activity did not meet any of the FARA-enumerated activities.

These interpretations of the exemption should prompt nonprofits and other organizations relying on the academic exemption to consider whether registration may be required. As Covington reported last year, the DOJ is currently considering changes to the academic exemption through an advance notice of proposed rulemaking (“ANPRM”).  While the ANPRM is still an early step in the administrative law process, further changes to the scope of the exemption may be significant for nonprofits that deal with foreign government and policy issues and that are not currently registered.

FCC Chairperson Jessica Rosenworcel issued a press release on Wednesday stating that she has circulated to her fellow FCC commissioners and proposal that, if adopted by the agency, will clarify that the TCPA and related FCC rules impose a consent standard on “ringless voicemails” delivered to a user’s voicemail inbox.

The proposed action responds to a 2017 Petition for Declaratory Ruling filed by a company called All About the Message that argued that because ringless voicemails bypass telephone networks and are transmitted directly to telephone company voicemail servers at no charge to users, they are not “calls” governed by the TCPA and FCC rules.

The text of the proposed action is not yet public; but, if adopted, the action is expected to impose a consent standard on ringless voicemails when they are transmitted to a recipient’s voicemail inbox.  It also may require those transmitting ringless voicemails to comply with other TCPA and FCC rules governing prerecorded calls.