The Department of Justice (“DOJ” or “The Department”) recently released a letter, sent to Senator Chuck Grassley (R-IA) and a bipartisan group of Senators a few weeks ago, in which DOJ expressed support for eliminating the Lobbying Disclosure Act (“LDA”) registration exemption to the Foreign Agents Registration Act (“FARA”). This is a striking and notable development that could have significant implications for U.S. companies with foreign parents or foreign affiliates. A repeal of the LDA exemption would dramatically expand the scope of FARA, reversing Congress’s decision in the 1990s to place foreign commercial lobbying under the LDA rather than FARA. Without the LDA exemption, U.S. subsidiaries of companies based around the world would likely be forced to report their lobbying activity under FARA, as we have written before. 

In this client alert, we highlight some of the key areas addressed in the Department’s letter.

The Federal Election Commission (“FEC”) recently answered a common question for those involved in operating a federal PAC:  When is the treasurer personally liable for violations of the rules on recordkeeping and reporting?  In doing so, the FEC highlighted the importance of external oversight of PAC operations, and the value of periodic audits of the PAC that can identify problems before they grow. 

The case involved a non-connected PAC affiliated with the Ute Indian Tribe (“Tribe”).  The Tribe hired a consultant who claimed extensive knowledge of the FEC’s intricate rules.  The Tribe allowed the PAC to operate outside its routine financial controls because the consultant told them the PAC would operate under the FEC’s recordkeeping and reporting system.    

Trouble began immediately, with the FEC’s Reports Analysis Division flagging problems with 75% of the reports the PAC filed in the three years after it began receiving funds in 2016.  As one measure of visible distress, the PAC amended one report five times.  Because no one at the Tribe was overseeing the PAC’s correspondence with the FEC—which were available on the FEC website—the Tribe was unaware of these warning signs.  The volume and magnitude of the filing errors ultimately triggered an FEC audit, which the treasurer also concealed from the Tribe, according to the complaint.

After an investigation, aided by the FEC and PAC audits of the PAC’s financial records, the FEC concluded that the treasurer had recklessly failed to fulfill his statutory duties by engaging in what was described as a pervasive lack of recordkeeping, and failed to use best efforts to obtain, maintain, and submit the relevant financial information to the FEC.  Factual and Legal Analysis at 11.  The conciliation agreement stated the PAC understated receipts by over $248,000, understated disbursements by over $550,000, failed to maintain documents for over $200,000 in contributions and over $93,700 in invoices or receipts, and had almost $95,000 in other reporting violations.  The FEC and the treasurer ultimately entered into a conciliation agreement, in which the treasurer admitted to violating his statutory duty to keep complete records and file accurate reports.  Based on the treasurer’s proof of financial hardship, the FEC agreed to reduce the assessed fine of $33,000 to $3,500. 

The FEC will hold a treasurer personally liable where there is evidence of a “knowing and willful” violation or where a treasurer recklessly fails to fulfill duties imposed by law, or where the treasurer has intentionally deprived himself or herself of operative facts giving rise to the violation.  This is a high bar, and one rarely met if the violations are minor or occasional.  A treasurer can also refute the allegations by showing that they have used “best efforts” as detailed in the FEC’s regulations and guidance to obtain, maintain, and submit information in connection with a committee’s reports and records.

This enforcement action underscores the importance of routine internal controls, including:

  • Appropriate internal checks and balances to ensure the PAC’s receipts and disbursements are properly accounted for and disclosed;
  • Having multiple people aware of how the PAC is tracking and reporting financial activity to the FEC;
  • Having an assistant treasurer who can monitor FEC notices of filing problems; and
  • Conducting periodic audits of the PAC’s finances and procedures to ensure compliance.

Sometimes something as simple as checking to see if the PAC’s bank account balance reconciles with the sums the PAC is reporting to the FEC can flag if there are other, deeper issues in the processing of receipts and disbursements.  Covington regularly advises corporations and their PACs in governance and compliance, including by performing external audits and assisting with navigating FEC audits.  The FEC also has a number of helpful guidance documents, including a simple discussion of best practices and a more thorough discussion of internal controls.

The California Fair Political Practices Commission (FPPC) adopted on Thursday higher political contribution limits and public officer gift limits for the 2023-2024 political cycle. The new limits take effect on January 1, 2023.

Contribution Limits

Under the new limits, an individual, business entity, or committee/PAC can contribute $5,500 per election to candidates for state legislature, up from $4,900.  This means that individuals may generally give $11,000 per candidate per cycle, because the primary and general are considered separate elections.  The same limit also applies to a candidate for local office unless the locality has adopted its own limits.  The limit on contributions from an individual, business entity, or committee/PAC to a candidate for governor also increased, from $32,400 to $36,400 per election.  The limit on contributions to PACs that contribute to candidates increased from $8,100 to $9,100 per year, though PACs can also have a separate, noncontribution account with no limit.

The following chart has additional details on the limits for individuals in 2023 and 2024:

An individual, business entity, or committee/PAC may contribute to…

Governor$36,400per election
Lt. Governor, Secretary of State, Attorney General, Treasurer, Controller, Supt. of Public Instruction, Insurance Commissioner, and Board of Equalization$9,100per election
Senate and Assembly$5,500per election
City and County Candidates if no locally enacted limit$5,500per election
CalPERS/CalSTRS$5,500per election
Committee (PAC), other than a Political Party, that contributes to State Candidates$9,100per calendar year
Political Party Account for State Candidates$45,500per calendar year
Small Contributor Committee$200per calendar year
Committee Non-Contribution AccountNo Limitper calendar year

Note that factors other than the limits above may influence the amount and permissibility of contributions to California state and local candidates, including contributions by the contributor’s affiliated individuals and entities; the contributor’s lobbying activity; and the contributor’s state contracting activity.  California also has several disclosure requirements for contributors and lobbyists that should be examined before making a contribution.

Gift Limits

Additionally, the FPPC raised the limit on gifts to public officials.  For 2023-2024, state and local officials and employees may not receive a gift or gifts totaling more than $590 in a calendar year from certain sources, up from $520.  However, the limit on gifts from or arranged by lobbyists is still $10 per month, as that limit is not subject to adjustments for inflation.

The CPA-Zicklin Index, which ranks companies’ political disclosure practices, has issued a new
report ranking companies in the Russell 1000 Index. This is a significant expansion of the Index,
which previously only covered companies from the S&P 500. The expansion will impact many
public companies that have not previously been subject to scrutiny by political disclosure

The annual CPA-Zicklin Index is a report jointly issued by the Center for Political
Accountability—a non-profit group promoting corporate political spending disclosure—and the
Zicklin Center for Business Ethics Research at the Wharton School of the University of
Pennsylvania. The report ranks companies based on political spending scores, according to a
metric created by CPA and the Zicklin Center. Companies receive up to 70 raw points across 24
indicators based on disclosures reflected on their corporate websites. The Index considers the
company’s political spending practices and whether it itemizes political expenditures, such as
payments to trade associations and 501(c)(4) social welfare organizations.

With the newfound scrutiny, companies, particularly those in the Russell 1000, should carefully
weigh how they respond to the CPA-Zicklin Index and other disclosure initiatives. Companies
can receive points on the CPA-Zicklin Index scoring indicators in many different ways, and
some options are easier for companies to comply with than others.

Covington regularly advises public companies regarding corporate political disclosure issues,
including strategies for responding to shareholder groups and other corporate political
disclosure activists.

The District of Columbia’s new pay-to-play law will take effect on November 9, 2022.  As we blogged about here, the Campaign Finance Reform Amendment Act of 2018 prohibits certain campaign contributions by contractors doing or seeking to do business with the D.C. government.  This prohibition applies to entities holding or seeking contracts worth an aggregate of $250,000 or more and extends to contributions by senior officers of the business.  A violation of the law may be considered a breach of the contract and can result in termination of contracts and disqualification from future contracts for up to four years.  This law does not apply to contracts sought, entered into, or executed prior to November 9, 2022.

The U.S. Securities and Exchange Commission (“SEC”) last week announced settlements with four investment advisory firms regarding alleged violations of the SEC’s pay-to-play rule, illustrating that federal regulators continue to aggressively pursue such cases.   The rule at issue, Rule 206(4)-5 (“the Rule”), prohibits investment advisers from, among other things, receiving compensation from certain government entities for two years after a person affiliated with the investment adviser makes a covered campaign contribution to an official of the government entity.  While the involved firms did not admit or deny the allegations in the settlement orders, an examination of the cases is instructive in assessing the current landscape of SEC pay-to-play rule enforcement.  Together, the four settlements are noteworthy in two major respects: (1) the circumstances of the underlying contributions that highlight the wide-reaching application of Rule 206(4)-5; and (2) the fact that one of the SEC Commissioners issued a sharp dissent that expressed deep concern about the breadth of the Rule.

The settlements involved covered associates at four different firms making contributions to four different recipients: an unsuccessful candidate for Mayor of New York City; the incumbent Governor of Hawaii ; an unsuccessful candidate for Governor of Massachusetts; and to a then-candidate for Governor of California.  In two cases, the firms managed public pension money and, in the other two, the firms managed state university endowments, an often overlooked category of government entity investors. 

While the SEC Rule is intended to prevent fraud, it seems highly unlikely that any of the contributions at issue in these four cases could have influenced state investment decisions: 

  • All four investment advisory firms had preexisting business relationships with the relevant government entities before the prohibited contributions were made and no new business was solicited after the contributions. 
  • One of the donors was not even a covered associate at the time of the contribution.
  • Only one of the four prohibited recipients was an incumbent officeholder at the time of the contribution. 
  • Two of the four recipients failed to win election to the offices they sought. 
  • Two of the cases involved situations where the donor either received a refund or requested a refund. 
  • The contribution amounts were a drop in the bucket in proportion to the tens of millions of dollars raised in these elections – three cases involved a single $1,000 contribution and the fourth involved a contribution of $1,000 and another $400. 

Despite these factors, the SEC still censured all four investment advisers and levied civil penalties ranging between $45,000 and $95,000.    

In a stinging dissent which appears to be the first of its kind, SEC Commissioner Hester M. Peirce highlighted some of these facts and called the Rule an “exceedingly blunt instrument” and a “poorly conceived means to pursue laudable ends.” Commissioner Peirce urged the SEC to revisit the Rule and consider revisions.  “The Rule,” she argued, “agnostic to evidence of actual, harmful pay-to-play schemes, dissuades political contributions that have nothing to do with obtaining advisory business from government client.”  Commissioner Peirce’s call for a wholesale reconsideration of the Rule as it stands today counts as a rare public criticism of the far-reaching and constitutionally-debated Rule from within the SEC.  For now, however, these four settlement orders illustrate that the majority of Commissioners are disposed to continue to take a rigorous approach to pay-to-play rule enforcement.

As we have noted, by matching up public campaign finance reports with public lists of state contractors, the SEC can easily identify potential violations.  This, of course, underscores the need for hedge funds, private equity funds, and other investment advisers to ensure they have adopted, and follow, pay-to-play compliance policies.

The newly-established New York Commission on Ethics in Lobbying and Government recently took over as the state’s regulator of lobbying and government ethics, replacing the old Joint Commission on Public Ethics.  This change in the enforcer and a new group of commissioners could spell more rigorous enforcement of the state’s lobbying disclosure and ethics rules.  

The new body was created by the Ethics Commission Reform Act of 2022, a portion of the state budget bill enacted this spring.  While there are no changes to any substantive law, the effort is part of Gov. Kathy Hochul’s plan to clean up the operations of the ethics regulator and increase its transparency and independence. 

Its creation comes after the Joint Commission on Public Ethics (“JCOPE”) faced controversy over enforcement of public ethics and lobbying laws.

As part of the reforms, members of the new commission will be barred from making or soliciting contributions to candidates, PACs, parties, committees, newsletter funds, or political advertisements for candidates for the offices of Governor, Lieutenant Governor, the Legislature, Attorney General, and Comptroller.  The members, who will serve for staggered terms, will elect a chairperson to serve for a two-year term.

The Governor, state Senate, Assembly, Comptroller, and Attorney General will each submit nominees for the 11-member commission.  This number is down from the 14-member composition of the Joint Commission on Public Ethics, but adds appointments by the Comptroller and Attorney General.  The nominations will then be reviewed by law school deans for approval or denial.  Gov. Hochul announced her first two proposed appointees last week.

Although the changes do not alter or revoke any regulations or advisory opinions, the commission has the authority to adopt, amend, and rescind rules and regulations.  The commission also has the power to develop training programs on ethics and lobbying.  We expect the commission might make an early effort to show its independence by making changes to the regulations or announcing new enforcement initiatives, but time will tell.

Perhaps no citation has been more favored in Federal Election Commission (“FEC”) decisions over the past decade than Heckler v. Chaney, 470 U.S. 821 (1985), a Supreme Court decision that gives an agency broad discretion over which enforcement cases to pursue.  But there is a category of cases where the FEC is not employing Heckler when it should:  Cases where the constitutional support for the statute no longer exists.  See Citizens for Responsibility and Ethics in Washington v. Federal Election Commission, 993 F.3d 880, 884 (D.C. Cir. 2021) (“New Models”); see also Citizens for Responsibility and Ethics in Washington v. American Action Network, No. 18-CV-945, 2022 WL 612655, at *2 (D.D.C. Mar. 2, 2022) (holding that an FEC dismissal that was supported by “constitutional doubts” that “militate in favor of cautious exercise of our prosecutorial discretion” was judicially unreviewable under Chaney).

The FEC continues to pursue enforcement penalties in several categories of cases where there is almost no chance that a majority of the Supreme Court would find the statute constitutional.  This resembles a sort of regulatory Russian Roulette, where the agency pursues enforcement actions until it finds a respondent that is willing to fully litigate the constitutional issues, mostly likely in a case with plaintiff-friendly facts.  The risk for the agency is that when one of these cases eventually comes before the Supreme Court, the justices may use a hammer, rather than a scalpel, in striking down the law. 

In two areas in particular, the FEC should exercise its prosecutorial discretion to decline to pursue cases based on statutes and regulations of dubious constitutionality.   

A Person Cannot Corrupt His or Her Spouse With a Campaign Contribution, No Matter How Large. 

Currently, the FEC follows the Supreme Court’s decision in 1976 to rather tentatively uphold the application of the contribution limits to contributions from intimate family members in the same way as contributions from lobbyists and corporate and union PACs.  But the law has evolved, and the Supreme Court has since been clear that generally the only legitimate interest the contribution limits play is to prevent quid pro quo corruption or its appearance.  It is nearly impossible to argue that a spouse who gives a contribution over $2,900 to his or her candidate/spouse presents the risk of quid pro quo corruption. 

There are several reasons for this.  First, spouses have wed their lives together, pledging to support each other unto death.  Does a $100,000 contribution really present a risk of corruption when the couple has already decided to join their lives together, in sickness and in health?  Second, once elected, most people would agree that the risk of corruption increases because the former candidate-turned-officeholder now holds actual political power.  But the Congressional gift rules allow an unlimited transfer of funds from one spouse to the other.  See, e.g., House Rule XXV, cl. 5(B)(3)(C).  How can the FEC defend a legal regime that so tightly limits financial support when the risk of corruption is speculative, particularly given Congress’s decision to explicitly allow Members of Congress to accept unlimited direct gifts from their spouses?  In most cases, we think it cannot.  

Still, the FEC continues to prosecute these cases, negotiating substantial penalties or engaging in multi-year investigations.  See, e.g., MUR 6860 (Terri Lynn Land for Senate); MUR 6848 (Friends of George Demos); MUR 6417 (Jim Huffman for Senate).  Nor is the problem particular to a political party, for both Senator John Kerry (MUR 5421) and Senator Ted Cruz (MUR 7001, et seq.) faced FEC investigations over spousal support for their campaigns. 

Over the years, some Commissioners have questioned the wisdom of this approach with respect to familial contributions.  See, e.g., MUR 5138 (Ferguson for Congress, et al.), Statement of Reasons, Vice Chair Bradley A. Smith and Commissioner Michael E. Toner at 2; MUR 5724 (Jim Feldkamp for Congress, et al.), Statement of Reasons, Vice Chair Matthew S. Petersen and Commissioner Caroline C. Hunter at 4-6; MUR 6848 (Friends of George Demos, et al.), Statement of Reasons, Vice Chair Matthew S. Petersen and Commissioner Caroline C. Hunter at 4; and MUR 7652 (Nicole Rodden for Congress, Inc.), Statement of Reasons, Chair Allen Dickerson and Commissioners Sean J. Cooksey and James E. Trainor III, at 5.  Commissioners have raised similar questions about applying these rules to a parent’s contribution to children/candidates.  MUR 5321 (Mary Robert, et al.) Statement of Reasons, Chair Bradley A. Smith and Commissioner Michael E. Toner at 4.

With the contribution limits themselves vulnerable to challenge, it seems prudent for the FEC to limit the use of its enforcement powers to facts that most closely conform to the constitutional guidelines of preventing corruption or the appearance of corruption.       

The FEC’s Ban on Government Contractor Contributions to Super PACs Cannot Be Squared with Court Decisions

For a number of years, several reform groups have cross-matched Super PAC donor lists against the online database of federal government contractors.  Each cycle, there are a number of “hits” to these searches, and the group then files a complaint with the FEC, alleging an illegal contribution by a federal contractor in violation of 52 U.S.C. § 30119(a)(1). The FEC generally pursues all of these cases to a settlement.

There are two risks to this approach.  First, the contribution is to a group – a Super PAC – that by its nature is independent of candidates.  In addition, a candidate may solicit contributions to such a group only up to the statutory limit of $5,000 and, in most cases, there is no evidence that the candidate was even involved in the solicitation.  Thus, contributions to independent Super PACs do not carry the same risk of corruption or its appearance as contributions to candidates. 

Second, in most enforcement cases there is no evidence that the contribution was motivated by or had an effect on government contracting.  In some cases, the donor has presented uncontroverted evidence that it did not know it was a government contractor, because government contracts made up a small part of the company’s business.  See, e.g., MUR 7842 (TonerQuest, Inc.); MUR 7569 (3M Company); MUR 7451 (Ring Power Corporation).  In some cases, the “contracts” are general procurement agreements that all vendors must sign to provide products in the normal course of business, such as to a federal health system or branch of the military services.  See, e.g., MUR 7887 (Hamilton Company); MUR 7886 (Astellas Pharma US, Inc.); and MUR 7843 (Marathon Petroleum Company LP). 

This is not always the case.  Sometimes, the FEC has pursued cases where the contributor gave to a Super PAC that focused support on a candidate who could appoint officials to positions that might oversee staff who would oversee contracts.  See e.g., MUR 7450 (Ashbritt, Inc.).  In these cases, the agency has a much stronger argument that its enforcement action supports the state interest in preventing corruption or the appearance of corruption.  But in most cases, there is no identifiable relationship between the contribution and any government contract.   

Despite an absence of evidence of quid pro quo corruption and case law raising “substantial doubt” about the constitutionality of the government contractor ban as applied to Super PAC contributions, Wagner v. Fed. Election Comm’n, 901 F. Supp. 2d 101, 107 (D.D.C. 2012), vacated on other grounds, 717 F.3d 1007 (D.C. Cir. 2013), the FEC has tended to process all of these cases the same.  In the FEC’s view, a contribution plus a contract equals a violation.  By not considering the question of whether enforcement involves facts that advance the government’s interest in preventing corruption or the appearance thereof, and not using Heckler to dispose of cases where the facts do not support this compelling government interest, the prosecution of these cases is a clock, ticking toward the time when a contractor has the resources and will to litigate a case that strikes down the law as applied to Super PAC contributions. 

There are a number of recent cases where the FEC has used Heckler to dismiss cases that meet the agency’s standards for dismissal under its Enforcement Priority System because the contribution or the size of the contract was small ($10,000 to $15,000) and made without any evident intent to violate the statute.  See, MUR 7888 (Martin Marietta Materials); MUR 7844 (Kirby-Smith Machinery); MUR 7845 (Excel Dryer); MUR 7846 (Amedisys).  Three Commissioners also voted to not pursue a matter involving a routine purchase from a tire repair store out of concern for how broadly the agency might be interpreting the word “contract.”  MUR 7890 (Service Tire Truck Center), Statement of Reasons, Chair Allen Dickerson and Commissioners Sean J. Cooksey and James E. Trainor II.  So this is an issue that the Commission is wrestling with, but not, we argue, with sufficient attention to the constitutional questions raised by pursuing cases that involve no underlying anticorruption interest.

The history of the Federal Election Campaign Act of 1971, as amended, has been one of Congress passing sweeping reforms and the courts striking parts of the law.  The agency should enforce the law, but should do so strategically with the constitutional concerns raised by the courts in mind.  Otherwise, it risks making the statute more closely resemble Swiss cheese than a coherent regulatory regime.

Mr. Lenhard and Mr. Parks have served as counsel to respondents in some of the cases cited above.

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.