Efforts to End Super PACs Moving Forward, Face Uphill Climb

By Andrew Garrahan on June 26, 2017 Posted in Campaign Finance

Last summer there was much ado about the two parallel efforts of a “Dream Team” of attorneys to “end Super PACs.” Their goal was to get the Supreme Court to overturn the decision of the D.C. Circuit in SpeechNow v. FEC, and similar decisions in other circuits, which led to the creation of Super PACs. Those efforts have continued to move forward, with developments on both fronts last week. However, intervening events have made it increasingly unlikely that the group will achieve its goal via either approach.

The first approach flows through the Federal Election Commission (“FEC”). The attorneys filed a complaint alleging that various donors and Super PACs had made or received contributions in excess of the pre-SpeechNow limits on PAC contributions. However, the FEC has officially recognized since 2010 that SpeechNow makes those limits unenforceable against Super PACs. Press reports indicate that the FEC dismissed the Dream Team complaint based on SpeechNow. Last week the complainants announced their plans to sue the FEC over the decision, on the grounds that it was arbitrary, capricious, and contrary to law. The complainants hope to take this case to Supreme Court. Among various challenges that have always faced the effort, however, there is one glaring new one: the confirmation of Justice Neil Gorsuch. His elevation (instead of Merrick Garland or another Democratic nominee) makes it less likely that the Court would reject the holding in SpeechNow and abolish Super PACs.

In the parallel effort, an aligned nonprofit has been working hard to pass an ordinance in St. Petersburg, Florida that would abolish Super PAC activity in that city. Last week, the ordinance passed a preliminary vote of the city council 5-3. This sets up a final vote in July to pass the ordinance. Having passed once already, it seems likely the ordinance will become law. The city is expecting an immediate lawsuit challenging the ordinance. That lawsuit would theoretically head to the Supreme Court by way of the 11th Circuit, which, unlike many other of the federal appellate courts, has not decided on this SpeechNow issue before. A decision upholding the ordinance would create a circuit split and potentially entice Supreme Court action. However, in the time since the ordinance was first introduced, the 11th Circuit reached a decision in Alabama Democratic Conference v. Broussard that appears to acknowledge that SpeechNow was rightly decided, though it does not directly address the issue. See Ala. Dem. Conf. v. Broussard, 838 F.3d 1057 (11th Cir. 2016), cert. denied sub nom. Ala. Dem. Conf. v. Marshall, No. 16-832, 2017 WL 1427593 (Apr. 24, 2017). This makes a circuit split unlikely, reducing the chances that the Supreme Court would take up the issue via this path. Even if the 11th Circuit upholds the ordinance, the Supreme Court would still likely strike it down as unconstitutional.

Will the FEC Declare War on Russia?

By Robert Lenhard on June 21, 2017 Posted in Campaign Finance

Noting that we are at an “all hands on deck” moment for our democracy, FEC Commissioner Ellen Weintraub circulated to the Commission yesterday a document citing former Vice President Dick Cheney for the proposition that the United States is now at war with Russia, and that “[e]very part of our government that has jurisdiction over [reported Russian attempts to affect the 2016 presidential election] must exercise every scrap of its jurisdiction as fully as it can.” She calls on the FEC to “find out the facts of what happened during the 2016 Presidential election, and move firmly and swiftly to fix any problems we might find.” As with any declaration of war, this one comes with a Churchillian reference to the FEC’s “finest hour,” and an insistence that this struggle must not be a partisan one, citing Senator Mitch McConnell for the proposition that we need strong action against Russia.

Despite what some may feel is overheated rhetoric, Commissioner Weintraub presents some quite sensible proposals about what the agency might do to ensure the integrity of our electoral system. While her list also includes proposals that some commissioners are certain to view as unsupported by the current factual record, it would be better if the commissioners were able to focus on the points where they agreed, rather than disagreed.

Specifically, Commissioner Weintraub outlines six actions she will ask her fellow commissioners to support, including:

Having the Justice Department, Treasury and similar agencies brief the FEC to get it up to speed on the problem;
Ensure the FEC’s enforcement teams are fully staffed and form interagency task forces if the problem proves too big;
Assure the public that the FEC’s data is safe;
Begin a rulemaking to adopt a test that will treat more corporations as foreign nationals, barred from participating in American politics;
Hold hearings on whether more rulemakings might be necessary; and
Give Congress guidance on which pending legislation it should pass and if new bills are needed.

If the Republicans on the FEC can look beyond the overheated rhetoric, and identify reasonable steps the agency could take, progress could be made. There is no doubt the FEC should ensure its legal team is adequately staffed, and if particular expertise is lacking, seek it out in other agencies. If the Russians made efforts to hack the FEC’s computer system, an assurance as to the quality of the agency’s defenses would be welcome. And if the FEC had a more reliable source of information on the threat we face than the public reports in Time and The Intercept, that would be a good thing.

But there are certainly proposals that will not meet with majority support, and with that comes a significant risk that Thursday’s meeting is a repeat of past performances at the FEC, where one side accuses the other of being indifferent to the imminent threat of lawlessness, and the other accuses its opponents of stripping citizens of their liberties. It would be unfortunate, for the issue at hand is a significant one, and both sides have something meaningful to say about how to make improvements to the agency’s handling of it.

The FEC Revisits the Ban on Foreign Nationals’ Financing of American Elections

By Robert Lenhard on June 20, 2017 Posted in Campaign Finance

On Thursday, the FEC will return to the question of foreign nationals’ involvement in United States elections. This is an important question that deserves appropriate attention from our government. Be it the role of Chinese government-linked funds in the 1996 presidential campaign or the Russian government-linked cyber intrusion in the 2016 presidential race, Congress and the regulatory agencies responsible for ensuring free and fair elections should periodically review the legal protections in place, assess if they are adequate, and improve them if they are not.

So why does the FEC appear headed to yet another deadlock and battling press narratives on this important issue? In part it’s because there is a fundamental disagreement among the commissioners about how serious the problem is. In addition, this appears to be another instance where longstanding animosity between the commissioners makes building consensus difficult. Thursday will also be a test of Chair Steve Walther and Vice Chair Caroline Hunter’s ability to manage the agency through this difficult, but important issue. After reviewing the competing proposals and the last two hearings, I think consensus is possible, even if difficult. But first, it’s important to recall what is in dispute.

Existing Law

Federal law currently prohibits foreign nationals from making contributions or expenditures to influence federal, state or local elections. It bars contributions and expenditures, whether they are made “directly” or “indirectly.” It explicitly bans contributions to political parties, independent expenditures, electioneering communications, donations as well as contributions, and the giving of a “thing of value.” 52 U.S.C. 30121(a). It also bars U.S. citizens from facilitating a violation by soliciting, accepting or receiving contributions or donations from foreign nationals. The FEC’s regulations make clear that foreign nationals cannot participate in a U.S. citizen’s decision-making process about election-related activities, or in PAC decision-making. 11 CFR 110.20(i).

Who is a foreign national? The statute excludes U.S. citizens and individuals who are lawful permanent resident aliens (“green card” holders) from the ban. But what about corporations? When are they “foreign nationals”? For years, a majority of the FEC commissioners found a corporation could participate in otherwise permissible election-related activity, such as operating a federal PAC or giving to candidates in states that allow corporate contributions, if three things were true: the company was incorporated in the United States; all election-related decisions were made by U.S. citizens; and the funds used were generated from U.S. operations. The effect of this rule has been that a U.S. subsidiary of a foreign corporation is not a “foreign national” if it complies with these requirements.

The Split

Commissioners Steven Walther and Ellen Weintraub, as well as former Commissioner Ann Ravel, have long argued that the Supreme Court’s decision in Citizens United v. FEC requires a fundamental re-thinking of this construct. They argue that existing protections are inadequate after the Supreme Court gave corporations the right to make unlimited independent expenditures, and a weakening of the disclosure rules led to a proliferation of “dark money” groups, whose donors are masked from the public. In this world, they argue, a foreign power or corporation could influence our elections without our knowing it. While they can cite few specific violations, they view the risk to be sufficiently great to justify acting before disaster strikes, rather than after.

Room for Reform?

Chair Walther and Commissioner Weintraub suggest the FEC change the definition of when a corporation is a foreign national by focusing on ownership and/or control of the entity, rather than the current rule’s focus on decisionmaking about political spending. They are flexible as to where the new lines should be drawn: Is 5% ownership sufficient for an entity to become a “foreign national” or is 51% or 100% better? Should it matter if the foreign owner is a government entity or private sector one? Should the presence of one or more foreign nationals on the board of directors be determinative?

For the Republicans, all of these suggestions are an overreach, unsupported by statute or experience. While they have been willing to offer suggestions on expanded protections, they have been unwilling to abandon a test that focuses on the country of incorporation, U.S. citizens’ exclusive control of decisionmaking, and a domestic source of the funds used for political spending.

A second area of disagreement is over process. Commissioner Weintraub has urged a wide open rulemaking, with all ideas presented, commented on by the public, and debated among the commissioners. The Republicans offer an interpretive policy and a voluntary “safe harbor” for compliance, but no rulemaking.

Is Consensus Possible?

While forging consensus at the FEC has been difficult over the past decade, the following components present some opportunity.

A narrow rule rather than a broad-based discussion in rulemaking. The commissioners have now discussed and debated this question for over 5 years. Success is more likely if a majority of commissioners can agree on a rough outline of what they can live with and allow public comment on that proposal. We have seen the results of a multi-year debate on whether Citizens United is a threat or a blessing, and it provides little help in understanding or enforcing the law.
Clarify the commission’s understanding of the existing regulations. Commissioner Weintraub highlighted at the most recent hearing that the Republican proposal was helpful in describing the breadth of the existing regulations. Cement that into a formal agency interpretation. Whether it takes the form of policy or regulation, the more clarity on where the commission stands on these issues, the better.
Certifications of compliance. The Republican commissioners suggest insulating recipient committees from enforcement if they require donors to certify compliance with the foreign national ban. Expanding that to require those reporting independent expenditures or electioneering communications to acknowledge they have complied with the foreign national ban may go a long way to alleviating the other commissioners’ concerns that non-disclosing groups might be a hidden source of foreign influence. As with the Republicans’ existing suggestion, this would only be an attestation of compliance with existing law, rather than a change to that law.

It does not have to be perfect to be better. A step in the right direction can be an improvement, even if it does not get you all the way to where you want to go.

Grassley Defends Congressional Oversight; House Democrats Turn to Statutory Oversight Authority

By Robert Kelner, Brian D. Smith and Andrew Garrahan on June 19, 2017 Posted in Congressional Investigations

The Trump administration’s efforts to curtail congressional oversight of executive branch agencies by individual Members of Congress, including ranking Democratic Members of Committees, ran into significant opposition from an unlikely source: Senator Chuck Grassley (R-Iowa), the Republican Chairman of the Senate Judiciary Committee. Sen. Grassley’s strong reaction is consistent with his role as perhaps Congress’s most effective pursuer of oversight conducted outside of the formal committee process.

On May 1, 2017, the acting head of the Department of Justice’s Office of Legal Counsel, Curtis Gannon, issued a short legal opinion for the White House Counsel, Don McGahn, that “briefly explained” Congress’s “constitutional authority to conduct oversight.” The opinion stated that congressional oversight can “be exercised only by each house of Congress or, under existing delegations, by committees and subcommittees” and their respective chairmen. Individual Members of Congress, including ranking minority members of Committees, cannot engage in oversight, the opinion stated, because such requests are “not legally enforceable through a subpoena or contempt proceeding.”

The legal opinion appears to be the basis for several recent attempts by administration officials to rebuff information requests from various Members of Congress. Politico recently reported that the “White House is telling federal agencies to blow off Democratic lawmakers’ oversight requests.” At a hearing in May, the acting administrator of the General Services Administration told Congress that the “administration has instituted a new policy that matters of oversight need to be requested by the committee chair.”

This new policy did not sit well with Sen. Grassley. Although he currently serves as the Chairman of the Senate Judiciary Committee, and would therefore not be immediately affected by the policy, Sen. Grassley has spent decades pursuing congressional oversight of agencies as a chairman, ranking minority member, and individual Senator.

In a June 7, 2017, letter to President Trump, Sen. Grassley tore into the Gannon opinion. He contended that both the Constitution and applicable court precedents provide that “all members need accurate information from the Executive Branch in order to carry out their Constitutional function.” He criticized the opinion for basing its conclusion on subpoena enforcement. This position, Sen. Grassley said, conflated Congress’s ability to compel a response and Congress’s ability to seek information voluntarily from the executive: “[T]he scope of information Members of Congress need from the Executive Branch in order to carry out their Constitutional duties is far broader than merely what is obtained through compulsory process.” The “vast majority of information Congress obtains . . . is obtained voluntarily, not by compulsion,” he added. (He also took the Office of Legal Counsel to task, noting that the opinion “fails to cite and analyze any authority that challenges its conclusion.”)

In a separate action partially in response to the Office of Legal Counsel’s opinion, on June 5, 2017, Rep. Elijah Cummings, the ranking Democratic Member of the House Committee on Oversight and Government Reform, sent a document request letter to the acting administrator of the General Services Administration. The letter requested a variety of documents related to a lease by President Trump’s business interests of the Old Post Office (now known as the Trump International Hotel Washington D.C.).

Notably, the letter was signed by all eighteen Democratic members of the Committee, and it invoked the Members’ statutory authority to access executive branch information under the little-know “seven Member rule.” The statutory seven Member rule, which dates from the 1920s, requires an executive branch agency to provide information requested by “the Committee on Government Operations of the House of Representatives, or of any seven members thereof.” (The Committee on Government Operations was the Committee’s name at the time.) According to the Democratic letter, the General Services Administration has failed to comply with a request by eight Members of the Committee earlier this year. It is likely that the administration will have a harder time resisting oversight requests conducted under this statutory provision. For example, in 2002, Rep. Henry Waxman successfully sued the Bush administration for access to census data under the seven Member rule.

There are additional risks for the administration, most obviously the theoretical possibility that today’s ranking Democratic Members could become tomorrow’s chairmen after the 2018 elections. Sen. Grassley knows this first hand. He conducted numerous, lengthy investigations, even as he moved from ranking to Chairman and back again throughout his career.

The Gowdy Era of Congressional Investigations

By Robert Kelner, Brian D. Smith, Gabe Neville and Andrew Garrahan on May 19, 2017 Posted in Congressional Investigations

With the announcement by Rep. Jason Chaffetz (R-Utah) that he plans to resign from Congress on June 30, it appears increasingly likely that Rep. Trey Gowdy (R-S.C.) will become the next Chairman of the House Committee on Oversight and Government Reform, the House’s powerful watchdog committee that has very broad investigative jurisdiction. Although a final decision on the next Chairman might not occur until early June, Mr. Gowdy’s selection could have broad implications for the Committee’s prominent role in oversight, including oversight of corporations and other private parties.

Mr. Gowdy, a former federal and state prosecutor, is one of the strongest questioners of witnesses in the House or the Senate. Unlike some others on the Oversight panel, Mr. Gowdy’s methodical interrogations are very similar to courtroom cross-examinations. One of his favorite techniques is to grill a witness about past statements, making the witness parse the meaning of individual words, like a trial lawyer undermining a witness’s credibility on the stand.

Because the Oversight Committee tackles some of the most high-profile and controversial issues in Congress, both parties recognize that special skills are needed to lead the Committee. Mr. Gowdy is widely recognized to have just those skills. In addition to his professional background as a prosecutor, Mr. Gowdy led the House’s Select Committee on Benghazi, which investigated the terrorist attack on the U.S. diplomatic mission in Libya, throughout its entire existence from 2014 to 2016. Mr. Gowdy earned praise from his colleagues in his handling of the Committee’s investigation, which included a marathon hearing with Secretary of State Hillary Clinton. To be sure, Mr. Gowdy also garnered his share of criticism from Democratic Members.

While Mr. Gowdy has proven he has the skills to be Oversight Chairman, the substantive issues on which he would focus is less clear. He is not known as a champion of any one particular topic. Mr. Gowdy has publicly pushed for Congress to take on more nonpartisan oversight, leaving behind what he has referred to as the “political subpoenas” that characterized investigations during the Obama Administration.

Mr. Gowdy’s relationship with the Democrats on the Oversight Committee will be important to the direction of the Committee. Current Chairman Chaffetz and the Ranking Democratic Member, Elijah Cummings, have an interesting relationship. Although they often clash in hearings, in the press, and in internal wrangling about the Committee’s priorities, they have also jointly signed a number of document request letters and permitted some breathing room on each other’s favored issues. For example, the Committee has conducted a number of investigations on pharmaceutical pricing, one of Mr. Cummings’s key priorities. Mr. Cummings was also the senior Democratic Member of the Benghazi Committee. Although their prior interactions show that they can certainly clash, they also know the areas where their interests might align. Whether bipartisan oversight increases under Mr. Gowdy’s leadership remains to be seen. Bipartisan oversight occurred more frequently during the Chaffetz-Cummings era than during earlier periods of the Committee’s history, and we generally think that trend will continue.

At times, the Committee has been criticized for flitting from topic to topic, conducting a large number of relatively high level investigations, with media interest often causing it to switch gears on short notice. If we had to bet, we think that, under a Gowdy chairmanship, the Committee will concentrate more methodically on a smaller set of deeper investigations. If that occurs, Mr. Gowdy could become one of the most influential chairmen of the Committee in many years.

D.C. Circuit Dismisses Major Case Concerning Attorney-Client Privilege in Congressional Investigations

By Robert Kelner and Brian D. Smith on May 17, 2017 Posted in Congressional Investigations, Litigation

The long saga of the legal challenge by Carl Ferrer, CEO of Backpage.com, to a subpoena issued by the Senate’s Permanent Subcommittee on Investigations (“PSI”) appears to have reached a conclusion. A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit this week dismissed the case as moot and additionally vacated a series of prior rulings by the district court in the case. The D.C. Circuit’s ruling effectively wipes the slate clean, erasing a district court action that seemed to open the door to a rare adjudication of Congress’s ability to compel the production of documents covered by the attorney-client privilege, while possibly making it significantly more difficult for individuals and companies to assert the privilege before Congress.

Although it may come as a surprise to many observers, including experienced litigation attorneys, both the Senate and House maintain that they are not required to respect the attorney-client privilege or the related attorney work product doctrine. Congressional lawyers contend that such privileges are judicial, common law privileges that do not bind legislatures. Congress’s position is rooted in the Constitution’s separation of powers and the inherent legislative authority to conduct investigations.

Congressional investigators often use this dynamic as a source of leverage over corporations and others from whom they seek to obtain documents or testimony. Although it is relatively rare for a committee actually to compel production of privileged documents, it does happen. For example, Congress did so in a high profile case involving Bank of America some years ago. Over the years, Congress, corporations, and the courts have managed to steer clear of opportunities to test Congress’s position that it need not respect the attorney-client privilege, and there has never been a definitive court ruling on the topic, even though Congress has staked out this position for more than a century.

In Ferrer’s case, the company withheld attorney-client privileged documents, as well as other documents, but PSI contended that the company had not explicitly asserted the attorney-client privilege until relatively late in the process. The district court agreed and held that Backpage had waived its ability to object based on the attorney-client privilege, and it ordered the company to produce documents. PSI’s arguments, however, opened potentially dangerous ground for Congress. In finding that Ferrer had waived the privilege, the court’s ruling seemed to suggest that such a privilege existed before Congress. After all, how could Ferrer have waived something that did not exist?

During the weeks and months that the litigation and appeal developed, PSI completed its investigation, issued a final report, and held its final hearing in January 2017. In the D.C. Circuit, PSI informed the court that it would not certify its continued interest in enforcing the subpoena, which was required in this instance because a new Congress convened in January, and it advanced the mootness argument, perhaps in recognition of the risk associated with an appellate ruling on the attorney-client privilege before Congress. Although Ferrer, with the support of various amici, continued to press the appeal, the Court determined that the case was moot because PSI no longer was seeking to compel production of documents. The Court then went one step further and actually vacated the decisions of the district court below, so that the lower court’s decisions will not have precedential value in future cases involving congressional investigations.

This outcome essentially restores the status quo ante, in which congressional investigation committees and those under investigation will bargain around Congress’s position on the attorney-client privilege without any real guidance from a controlling court decision. Given the dramatic impact that would have been felt if the Backpage case had led to a ruling on the applicability of attorney-client privilege in congressional investigations, it is not altogether surprising that PSI in the end sought to avert a ruling by the court on the issue, and that the D.C. Circuit was very willing to oblige.

California AG Becerra Hints at Crackdown on Nonprofit Political Activity

By Andrew Garrahan on May 5, 2017 Posted in Campaign Finance, State Law

Nonprofits that are active in California politics, already facing one of the most complex regulatory environments in the country, now have another thing to worry about: the state’s Attorney General. In remarks Wednesday, Attorney General Xavier Becerra announced his intent to pursue nonprofit organizations that he believes “abuse” their nonprofit status for political purposes. With the federal government long bogged down in how to handle these political nonprofits, California could become the leading antagonist of nonprofits that wade into politics.

Even before Becerra’s remarks, California has been a leader in states’ efforts to disclose (some would say discourage) nonprofit political activity. The state’s Fair Political Practices Commission (“FPPC”) already has a complete regulatory regime dedicated to uncovering the political activity of what it calls “multipurpose organizations,” including 501(c)(3) charities, 501(c)(4) social welfare groups, and 501(c)(6) trade associations. Under the regime, multipurpose organizations may have to publicly disclose their donors and their expenses to influence state elections. Failure to comply with the state’s disclosure rules carries a steep price tag — the FPPC settled with a 501(c)(4) for $1 million in 2013 for failing to meet the state’s disclosure expectations. Even some nonprofits that are not politically active must disclose their donors privately to the Attorney General. Professional fundraisers may need to register as well.

If his course of action against allegedly fraudulent veterans’ charities is any indication, Becerra means business. Last month, he sued a pair of charities that allegedly served the personal interests of its officers, seeking unspecified damages, penalties, and to have the organizations dissolved. Becerra’s new focus on politically-active nonprofits, combined with his office’s role in policing nonprofit finances and the regulatory powers of the FPPC, means that organizations participating in California state politics would do well to reassess their compliance with the state’s political and charitable regulations.

Corporate Political Disclosure Fight Shifts to Mutual Funds

By Zachary G. Parks on May 4, 2017 Posted in Corporate Political Spending Disclosure

Corporate political disclosure activists this week launched a new tactic in their fight to pressure companies to publicly disclose information about their political and lobbying activities.

For more than a decade, public pension funds and others have aggressively pushed shareholder resolutions that call on public companies to self-disclose information about contributions to trade associations and other non-profit groups that pay for election-related advertisements. These efforts have been largely unsuccessful. Since 2006, according to the Manhattan Institute’s ProxyMonitor, only one such proposal has received majority shareholder support, with average support over the last two years at just 23 percent.

These relatively low levels of shareholder support have come as other corporate political disclosure efforts have fizzled. In 2015, Congress prohibited the Securities & Exchange Commission from using appropriated funds to promulgate a rule requiring public companies to disclose their political spending. And just this week Congress voted to keep these restrictions in the latest appropriations bill.

Stymied in these efforts, the advocacy group Public Citizen yesterday published a report arguing that major mutual fund companies like The Vanguard Group, BlackRock Inc., and Fidelity Investments could change this trend if they used their shares to vote for corporate political disclosure shareholder resolutions. According to the report, “64 percent of political spending disclosure shareholder resolutions at companies where mutual funds own more than 5 percent of common stock would have received majority support in 2016 if those mutual funds had voted their shares in support [of] the resolutions.” The report comes in connection with a grassroots advocacy campaign aimed at mutual funds and efforts by Senator Bob Menendez (D-NJ) to rally support for the cause.

It is unclear how successful these groups will be at convincing mutual funds to weigh in. Mutual funds often defer to the experience and judgment of corporate boards and, to date, mutual funds have not supported these proposals. They may be reluctant to reverse course now given the traditionally low levels of shareholder support, the fact that much of the requested information is already publicly disclosed, and criticisms that corporate political disclosure efforts can harm shareholder value.

Virginia Makes Key Adjustments to Law Governing Gifts to Officials, Adds New Lobbyist Gift Notification

By Andrew Garrahan on April 26, 2017 Posted in Government Ethics, Lobbying Compliance, State Law

Organizations represented by lobbyists in Virginia should be aware of a new law enacted today. The law eliminates a controversial exception to the state’s $100 limit on lobbyist gifts to legislators and officials, adds a key new exception to that law, and also includes an additional gift notification requirement for lobbyists. The changes represent Virginia’s continued efforts to tweak its ethics laws in the wake of Gov. Bob McDonnell’s now-vacated corruption conviction.

First, all registered state lobbyists will have three weeks from the end of each legislative session to send statewide elected officials, cabinet secretaries, and legislators a summary of any gifts the lobbyist gave to that person or their family between January 1 and the end of the legislative session.

Second, the lobbyist gift rule exception for large events open to “individuals who share a common interest” was eliminated. These events are now subject to the $100 limit on gifts from lobbyists, their principals, and persons seeking state business. This exception was widely criticized as a “loophole” that allowed a senior state official to attend a luxury suite at a football game. Other exceptions for large events, such as those attended by members of a civic organization or from a particular industry, are still valid.

Third, a new “reception exception” was created. Similar to rules that exist in the U.S. House and Senate, it is no longer considered a “gift” for an official or legislator to attend a reception where “food, such as hors d’oeuvres, and beverages that can be conveniently consumed by a person while standing or walking are offered.” Thus, such receptions are not prohibited by the law limiting gifts from lobbyists, their principals, and persons seeking state business.

These are the most broadly-applicable changes for lobbyists and their employers, though the law includes technical amendments and smaller changes as well. Note that the state’s executive order on ethics, governing executive branch officials and employees, remains unchanged. Most of the changes take effect July 1, 2017.

2016 GAO Annual Lobbying Disclosure Act Compliance Report Issued

By Andrew Garrahan on April 5, 2017 Posted in Lobbying Compliance

On Friday, the Government Accountability Office (“GAO”) released its tenth annual report on compliance with and enforcement of the federal Lobbying Disclosure Act (“LDA”). The report summarizes the results of GAO’s random audits of lobbyists’ quarterly LD-2 activity reports and semi-annual LD-203 contribution reports, and provides a snapshot of the current enforcement environment.

There are a few key takeaways from this year’s report. First, the same compliance issues have continued to plague LDA registrants at about the same rates year after year. Some simple steps could bring many of these registrants into compliance. Second, the U.S. Attorney’s Office for the District of Columbia, tasked with enforcing the LDA, appears to have focused its efforts on “chronic offenders,” and has set up new processes to pursue them. Third, GAO, the Clerk of the House, and the Secretary of the Senate have all quietly adjusted their enforcement or audit procedures in the past few years, making it less likely that a registrant will be audited and less likely that certain types of offenders will be referred for enforcement.

Compliance Challenges

GAO’s audits of LD-2 reports uncover a few simple compliance problems that, year after year, continue to trip up registrants. This year’s GAO report also shows a jump in the percentage of reports that were not backed up with proper financial and issue documentation. Those issues, and some simple reporting tips and reminders, are highlighted below.

Income and Expense Documentation. This year, registrants were able to provide documentation for their lobbying income and expenses on only 83% of the reports GAO audited, down from 92% last year. GAO expects that registrants will be able to support their income and expenditures claims with financial records, such as invoices and receipts.

Issue Documentation. Similar to the financial documentation issue, registrants were able to provide documentation supporting the issues they reported lobbying for only 77% of the reports GAO audited this year. This was down from 89% last year. GAO expects registrants to be able to show evidence of the issue lobbied, such as emails, calendar entries, agendas, or similar documents.

Initial LD-2 Reports. As in prior years, about 10% of entities registering for the first time failed to file a quarterly report for the quarter in which they register. Organizations and individuals that file an LD-1 report for the first time in a quarter must also file an LD-2 report covering their lobbying activity in that quarter.

Rounding. In another recurring problem area, 26% of reports failed to round expenses to the nearest $10,000. GAO speculates that this may be due to the wording of Form LD-2. The report emphasizes that rounding is the correct approach, as reinforced by new examples on rounding in the House and Senate LDA guidance.

Former Positions. Each year, about 15-20% of reports may not properly disclose the prior government positions held by listed lobbyists. The first time a lobbyist’s name appears on a report for a client or employer, the report must disclose any Congressional or senior level executive branch position the lobbyist has held in the last twenty years.

Focus on Chronic Offenders

The U.S. Attorney’s Office for the District of Columbia (“USAO”) is tasked with enforcing the LDA, and does so via referrals from the House and Senate. Based on GAO’s report, the USAO appears to have focused its enforcement efforts on “chronic offenders,” those lobbyists who “repeatedly fail to file reports.” These chronic offenders are referred to an Assistant U.S. Attorney for follow-up action, and the USAO reports it has created a new notice for chronic offenders that lists all of their outstanding referrals. Per GAO, the USAO has four chronic offender cases under investigation, and expects to resolve all of them this year. Furthermore, it expects to open more chronic offender cases by the end of 2017.

Shifting Enforcement and Audit Activity

Until the 2015 report, GAO reported auditing 100 LD-2 reports each year. Then, in 2015, it audited only 80 LD-2s. The same is true in this year’s report for 2016. This indicates the drop to 80 audited reports is not an anomaly, but represents a change in methodology at GAO. The end result is that registrants are now slightly less likely to have their LD-2 reports audited than they were in the past. GAO did not change its LD-203 practice of auditing 160 LD-203 reports.

Another interesting development is that the House and Senate have not referred any individual lobbyists to the USAO for LD-203 noncompliance since 2013, and have not referred any lobbyist employer for LD-203 noncompliance since 2014. GAO does not explain why the House and Senate may have ceased referring these matters to the USAO. The USAO has, however, had difficulty enforcing LD-203 compliance against individual lobbyists because they have often left their employer and thus become more difficult to contact. It may be that the House, Senate, and USAO decided that resources dedicated to resolving LD-203 noncompliance would be better applied elsewhere.

***

The focus on bringing chronic offenders into compliance, and the relative simplicity of resolving some recurring compliance issues, means that now would be a good time for registrants to take stock of their lobbying reporting and recordkeeping practices to determine whether their organization is properly filing LD-2 and LD-203 reports.