California’s Fair Political Practices Commission (FPPC) is more aggressive than ever and is employing new tactics. The FPPC’s recently-released end-of-year report detailing enforcement activities in 2013 highlights some interesting statistics that should be on the radar of every company doing business in California.
Prosecutions of both “serious campaign cases” and lobbying violations were both “at their highest level ever” last year, while prosecutions of conflicts of interest “continued at record high levels.” In just one “proactive” investigation of gift-giving by three major companies to public officials, the FPPC found 205 violations resulting in “86 successful prosecutions to date.” In total, last year, the FPPC closed 854 cases “with proven violations,” of which 257 resulted in prosecutions and 597 resulted in warning letters. To contrast these figures with those of 2012, the number of cases closed with proven violations is up 20% (854 from 712), the number of cases resulting in prosecutions is up 44% (257 from 178), and the number of cases resulting in warning letters is up 12% (597 from 534).
The FPPC emphasized its focus on “aggressively compelling compliance” before elections are held. To further this goal, the 27-staff-member Enforcement Division has established programs to “proactively pursue” campaign money laundering and conflicts of interest (both listed as top enforcement priorities), as well as donor disclosure on state ballot measures, and those who should have—but did not—file campaign reports.
At Covington’s biannual political activity and government affairs compliance conference, we noted that campaign finance regulators and watchdogs appear to be increasingly using “big data” as method of detecting violations through identification of patterns in contributions. The FPPC is becoming more sophisticated in its approach as well, adapting “new investigative techniques,” including “more complex analytical audits.” The FPPC has also stepped up interagency collaboration, working with city and county clerks as well as law enforcement agencies.
Among the investigations highlighted by the FPPC, a few are worth special attention.
- “Dark money” litigation. In a widely-covered case, the FPPC litigated over disclosure of the “true source” of multimillion dollar contributions by Americans for Responsible Leadership (ARL) to California state committees. The FPPC noted that, after taking the case up to the California State Supreme Court, ARL “admitted to acting as an intermediary for the true source of the contribution.” The investigation, which also involved the California Department of Justice, led to a record settlement of $1,000,000. Donor disclosure continues to be a hotly-contested issue across the country.
- Ballot measure ad donor disclosure. The FPPC compelled a committee established to support Proposition 37 (related to genetically engineered food) to “make disclosure of the committee’s largest donors more conspicuous.” The FPPC also investigated a failure to disclose the donor of a $100,000 contribution to a ballot measure committee active in Sacramento, ultimately identifying a Seattle-based hedge fund manager as the source.
- “Shadow lobbying.” The FPPC fined a public policy consulting firm and its principals for seeking to influence legislative or administrative action without registering as lobbyists. As we noted at Covington’s recent conference, there is likely to be an uptick in investigation (at the federal level and in some states) of those who qualify as a lobbyist but who have not registered.
- “Money laundering” or conduit contributions. The FPPC fined a developer for providing funds to a business associate so the associate could make political contributions. The associate then asked others to make contributions that would be reimbursed. Reimbursed contributions represent a significant compliance risk for individuals and businesses. This type of activity is comparatively easy to prosecute and, at the federal level, is one of the most common sources of criminal campaign finance convictions.
- Widespread pre-election audit pilot program. Following a request by San Bernardino County and subsequent legislative action, the FPPC has agreed to a pilot program to work with the county “for the first time in a State or local election” to perform pre-election audits of “all competitive campaign committees.” We will be watching to see whether this pilot program indicates that broad-based auditing of campaign finance reports is practicable.
- Investigation of money laundering through a party committee. An FPPC audit by the Enforcement Division led to an allegation that a state senator laundered money to his brother’s Assembly campaign through the Stanislaus County Republican Central Committee. An administrative law judge has recommended fines of $40,000. As enforcement agencies increase their use of “big data” analysis of contribution patterns, we expect to see increased investigation based on the flow of money through political committees.
California’s FPPC is one of the most aggressive political law and campaign finance regulators in the country. However, the FPPC’s trends appear to correspond with broader trends we see across the nation, as media reports of contributors using sophisticated campaign finance techniques lead to the use of increasingly sophisticated investigative tools and analytics by regulators and watchdog groups.