Understanding H.R. 1 (Part 1): Corporate & Trade Association Campaign Activity

With a growing chorus of support across the progressive landscape, the For the People Act of 2021 has emerged as a key legislative priority for congressional Democrats in the 117th Congress. Envisioned as a “transformational anti-corruption and clean elections reform package,” the bill would enact sweeping changes to federal election laws along with important changes to federal campaign finance, lobbying, and government ethics laws. Taken together, these changes would have significant implications for private parties engaged in all manner of political activity.

After House Democrats relied on their slim majority to pass the For the People Act, the bill now faces more uncertain prospects in the evenly divided Senate. Nonetheless, Democratic leaders are sure to continue to press aggressively to move the bill through the upper chamber. Likewise, even absent passage of the entire package, Democrats may look for opportunities to pass key elements of the broader bill on a bipartisan basis.

To assist our clients in understanding how the For the People Act would affect their existing activity and compliance obligations, this alert is the first of several that will provide insights into key elements of the bill and what they mean. This alert addresses the bill’s proposed changes to the campaign finance rules, the greatest impact of which is new disclosure obligations for politically active corporations (including non-profit entities and for-profit companies) and trade associations. As discussed in this alert, the bill makes what should be only minor changes to the operation of most PACs, primarily in clarifying the bar on the participation of foreign nationals.


FEC Provides Short Webinar Training for Candidate Committees

The Federal Election Commission (“FEC”) is offering a 90-minute online training session on Wednesday, April 7th, for campaign committees that use FECFile to file their disclosure reports.  The purpose of this training is to address common filing problems and to provide answers to questions committees may have prior to their quarterly FEC filing.  FEC staff will demonstrate the FEC’s free electronic filing software and will be available to answer questions.  The cost to register is $30 and you can find our more and register here.  Registration is offered on a first-come, first-served basis.  These short trainings are valuable opportunities for candidates, and their staff, to stay up-to-date on FEC compliance related matters.

Financial Institutions and Congressional Investigations – 2020 into 2021

Financial institutions are consistently targets of congressional oversight interest. In the last Congress, House and Senate committees held hearings with, demanded documents from, requested interviews with, and hosted briefings from a number of bank and non-bank financial institutions regarding a variety of issues. In a recent client alert, we looked at recent trends in congressional investigations of financial services companies and predict the future trajectory of investigations related to this industry.

California Increases Campaign Contribution Limits, Applies Limits to Local Elections

The California Fair Political Practices Commission (FPPC) has published contribution limits for 2021-2022.  The new “per election” limits are effective for the 2021-2022 election cycle, and the calendar year limits are effective January 1, 2021.  Note in particular that this year, for the first time, the state has imposed limits on contributions in city and county elections if the locality does not otherwise have its own contribution limits.

The amount an individual, business entity, or committee/PAC can contribute to a city, county or state candidate was increased to $4,900 per election, up from $4,700.  Because the primary and general count as separate elections, individuals may generally give $9,800 per candidate per cycle.  The limit on contributions from an individual, business entity, or committee/PAC to a candidate for governor also increased from $31,000 to $32,400 per year.  The contribution limit for PACs that contribute to state candidates increased from $7,800 to $8,100 per calendar year; some committees also have a separate, restricted account that may accept contributions in unlimited amounts for purposes other than contributing to candidates.

The following chart shows more details on the limits for individuals in 2021 and 2022:

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

Governor $32,400 per election
Lt. Governor, Secretary of State, Attorney General, Treasurer, Controller, Supt. of Public Instruction, Insurance Commissioner, and Board of Equalization $8,100 per election
Senate and Assembly $4,900 per election
City and County Candidates if no locally enacted limit* $4,900 per election
CalPERS/CalSTRS $4,900 per election
Committee (PAC), other than a Political Party, that Contributes to State Candidates $8,100 per calendar year
Political Party Account for State Candidates $40,500 per calendar year
Small Contributor Committee $200 per calendar year
Committee Account NOT for State Candidates (Ballot Measure, PAC, Political Party) No Limit per calendar year

* This state contribution limit applies by default to city and county candidates when the city or county has not enacted laws addressing contribution limits on such candidates.

Note that the amount and permissibility of contributions to California state and local candidates may be affected by factors other than the limits above, 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 a variety of disclosure requirements for contributors and lobbyists that should be reviewed and considered before making a contribution.

Gift Limits

The FPPC has also published a gift limit increase.  For 2021-2022, state and local officials and employees are prohibited from receiving a gift or gifts totaling more than $520 in a calendar year from certain sources, up from $500.  The lobbyist gift limit is not subject to inflationary increases and remains at $10.  Covered gifts vary by official and other considerations.  Consult with counsel before providing anything of value to a government official or making political contributions.

.main article td { border: 1px solid black; }

Senate Subpoena Power Under the 2021 Power-Sharing Agreement

Recently, the Senate adopted a power-sharing agreement providing some contours for organizing the equally divided body.  As we have discussed previously, such agreements are very rarely needed.  The Senate has only faced a 50-50 partisan split a handful of times.  The most recent instance, in 2001, prompted the first power-sharing agreement, which served as a model for this year’s agreement.

The new power-sharing agreement offers guidance on a number of Senate functions.  However, the agreement leaves unanswered a crucial question for those interested in congressional investigations: Does the power-sharing agreement have any impact on the issuance of subpoenas by Senate committees?

Among other things, the agreement provides:

  • “The committees of the Senate, including joint committees and special committees,” shall be composed equally of members of both parties, appointed by the two party Leaders;
  • The Chair of a full committee may “discharge a subcommittee of any Legislative or Executive Calendar item which has not been reported because of a tie vote and place it on the full committee’s agenda”; and
  • In the case of “a measure or matter” not reported because of a tie vote, either Leader may make a motion to discharge the measure or matter.

The agreement does not specifically mention subpoenas.  Given that the rules of many Senate committees provide for the issuance of subpoenas based on a majority vote of committee (and/or subcommittee) members, the mandated 50-50 split for committee membership could have major implications for the issuance of subpoenas—requiring committee Chairs to seek bipartisan support in order to compel witness testimony or the production of documents.  This in turn could bring new significance to committees with Republican leaders who have demonstrated a willingness to work collaboratively with their Democratic colleagues on oversight matters.  In this regard, keep an eye on efforts by Democratic leaders to seek to partner with incoming Homeland Security & Governmental Affairs Committee (HSGAC) Ranking Member Rob Portman (R-Oh.), who previously worked closely with incoming HSGAC Chairman Gary Peters (D-MI) on the Committee’s Permanent Subcommittee on Investigations.

Senate Democratic Leader Chuck Schumer (D-N.Y.) and Republican Leader Mitch McConnell (R-Ky.) have noted that the 2021 agreement is “almost identical” to the 2001 agreement.  There is little guidance on how that agreement was interpreted to apply to committee investigatory functions, perhaps because it was only in effect for five months.  Interestingly, one of the few changes between the 2001 and 2021 agreements is found in the clause regarding tied committee votes.  See the comparison below (substantive differences bolded by Covington).

The 2001 agreement uses the phrase “legislative item or nomination,” rather than “measure or matter.”  That change may indicate an intent to clarify that the tie vote procedure will apply to more than purely legislative votes and nominations.

Whether the 2021 power-sharing agreement’s tie vote procedures apply to committee votes to issue subpoenas is an open question that impacts the investigatory landscape of the entire Senate.  Most committees provide that subpoenas of witnesses and documents may be issued upon a majority vote of committee members.

To illustrate the potential implications of tied, party-line votes on the committee subpoena process, Covington has created a chart broadly categorizing the committees’ subpoena powers.  (The chart is based on the committee rules from the 116th Congress, since the committee rules of the 117th Congress have not yet been promulgated.)  Only the HSGAC Permanent Subcommittee on Investigations Chair may unilaterally issue subpoenas.  The Senate Committee on Health, Education, Labor, and Pensions (HELP) rules permit the committee to, by majority vote, delegate the power to issue subpoenas to the Chair, Subcommittee Chair, or to the Chair’s designee.  Five committees allow the Chair to issue a subpoena—without a majority vote—as long as the Ranking Member does not object within a specified time period: Agriculture, Commerce, HSGAC, Small Business, and Veterans’ Affairs.  The rest require a majority vote, or at least the approval of the Ranking Member.

* The rules provide that the Ranking Member (RM) has 72 hours (48 hours in the case of Veterans’ Affairs) to respond to the Chair’s issuance of a subpoena; if the RM does not respond in that time, the RM’s approval is not required.  They also provide that if the RM disapproves, the subpoena may be authorized by a majority vote.  They do not address what happens if the RM does not respond at all within time period (i.e., does not “disapprove”).  It appears that in that case, the Chair could unilaterally issue the subpoena.

** Note that HSGAC Subcommittees—including the Permanent Subcommittee on Investigations—may “adopt rules concerning subpoenas which need not be consistent with the rules of the Committee.”  However, in the event the Subcommittee authorizes the issuance of a subpoena pursuant to its own rules, a written notice of intent to issue the subpoena shall be provided to the Chairman and Ranking Minority Member of the Committee (or designated staff officers), by the Subcommittee Chairman (or designated staff officers) immediately upon such authorization.  In addition, no subpoena shall be issued for at least 48 hours, excluding Saturdays and Sundays, from delivery to the appropriate offices, unless the Chairman and Ranking Minority Member waive the 48-hour waiting period or unless the Subcommittee Chairman certifies in writing to the Chairman and Ranking Minority Member that, in his or her opinion, it is necessary to issue a subpoena immediately.

*** HELP may, by majority vote, delegate the power to issue subpoenas to the Chair, Subcommittee Chair, or to the Chair’s designee.

Senators Urge Secretary Yellen to Expand IRS Regulation and Enforcement of Political Spending by 501(c)(4) Organizations

In a letter sent to newly confirmed Treasury Secretary Janet Yellen last Wednesday, Senators Sheldon Whitehouse and Elizabeth Warren called for renewed efforts to “rein in abuse by ‘dark money’ organizations” and urged Secretary Yellen to bolster the IRS’s “woefully inadequate” regulation and enforcement related to the political activity of 501(c)(4) social welfare organizations.  As the new Congress begins to consider legislation to force the disclosure of donors to 501(c)(4) organizations, prospective donors to these groups should be aware of emerging new risks of disclosure of their identities to the IRS—both over the longer term, should the proposed legislation pass Congress, and more immediately, should the IRS heed the Senators’ urging and shift its enforcement priorities with regard to these contributions.

New regulations issued by the IRS near the end of the Trump Administration, which we previously discussed in May of 2020, limited reporting obligations for 501(c)(4) social welfare organizations and allowed these groups to report only the amounts received from each substantial contributor in their filings, and to keep donors’ names and addresses secret except in the event of an IRS examination.  The IRS is unlikely to overturn these regulations quickly in the new Biden Administration: as Senators Whitehouse and Warren discussed in their letter to Secretary Yellen, “Republican appropriations riders have tied Treasury’s and the IRS’s hands, preventing promulgation of new regulations regarding 501(c)(4) organizations.”  But the new Congress has already taken the first steps to override these regulations and expand disclosure obligations through legislation.  Also last Wednesday, Representative David Price introduced the Spotlight Act in the House, which would repeal the IRS’s regulations and require reporting to the IRS of certain donors to 501(c)(4) organizations. Senators Jon Tester and Ron Wyden introduced a companion bill in the Senate on the same day.  Senators Whitehouse and Warren in their letter also called for passage of the more comprehensive For the People Act (H.R.1/S.1), which among other provisions would strengthen disclosure requirements for political giving, including contributions to 501(c)(4) groups.

As that legislation works its way through Congress, Senators Whitehouse and Warren have urged Secretary Yellen to implement a “more robust 501(c)(4) enforcement regime.”  The Senators, both of whom are members of the Senate Finance Committee which oversees the IRS, specifically encouraged Treasury and the IRS to investigate groups who have made “open and notorious inconsistent statements” by reporting to the IRS that they do not engage in political activity while at the same time reporting to the Federal Election Commission and state election agencies that they make political expenditures.  They also called for cooperation with the Department of Justice and other law enforcement agencies investigating the attack on the U.S. Capitol on January 6, 2021, to identify whether any “dark money organizations” were involved in organizing and funding the rally that preceded the attack and review the tax-exempt status of any organization that may have been involved.  The latter enforcement priority has also been promoted by Senator Wyden, the new chair of the Senate Finance Committee, who has deemed it a priority of the Committee to identify “whether tax-exempt organizations were involved with planning or inciting the insurrection,” and noted that the Committee is “going to make sure the IRS moves on this promptly.”

Donors interested in contributing to a 501(c)(4) organization should be aware of these potential changes to the IRS’s enforcement efforts under the new Administration, as well as the potential for the passage of legislation changing disclosure obligations: there is no guarantee that donations to these groups will be kept confidential in perpetuity and the effective date of the Spotlight Act, if enacted, would be “the taxable year ending after the date of” its enactment.  Donors should carefully vet recipient groups before donating, including identifying whether the recipient has previously reported election-related expenditures to the FEC or a state election agency, to understand the group’s political activities and the potential risks of future disclosure that may accompany a contribution to a 501(c)(4) organization that engages in political spending.

Congressional Investigations with a Democratic House and Senate

In recent months, we have highlighted key developments on Capitol Hill and discussed the implications of the change in Administration on the pace and focus of congressional investigations.  With a Democratic majority now in both the House and the Senate, investigations targeting the private sector are primed to take center stage in the new Congress.

As we explained in greater detail last month, while Vice President Kamala Harris will hold the deciding vote in event of a tie on the Senate floor, day-to-day operations in the Senate will be dictated by a negotiated agreement between the party leaders that the Senate adopted yesterday.  While the agreement calls for each Senate Committee to be composed of an equal number of members of both parties, Democratic leadership on key committees will have a profound influence on the Senate’s oversight agenda.

As previously noted, the 2018 elections and Democratic takeover of the House of Representatives heralded a new wave of oversight and investigations on Capitol Hill.  With myriad investigations targeting both the executive branch and the private sector, the last Congress represented a new high-water mark in oversight activity on both sides of the Capitol.  At the same time, due to legislative action largely grinding to a halt, ambitious Members have increasingly used oversight and investigations as a key tool to influence policy.  With Democratic control of the Senate, we expect Democratic Senators to join their House colleagues in utilizing their investigative authority to affect policy.

Of course, with President Trump no longer in office, Democratic investigators on the Hill may be less interested in investigating the executive branch.  Still, look for many Members to continue pushing for investigations of the Trump administration.  In particular, interest in ongoing oversight of the distribution and use of CARES Act funds and the numerous issues related to the 2020 presidential election and electoral vote protests will likely continue to garner interest well into 2021.  These investigations will in turn continue to draw in private companies, such as CARES Act fund recipients and tech companies.

Overall, however, we predict that the most significant effect of a Democratic-controlled Senate is the likely uptick in investigations focused on the private sector.  Even as House investigators have doggedly pursued investigations focused on the Trump Administration, key committees have launched wide-ranging investigations into everything from drug pricing and the COVID-19 response to competition across digital markets.  And, with many major legislative initiatives still subject to a filibuster, an aggressive investigatory agenda may prove a particularly appealing avenue for pushing corporate policy changes through oversight, rather than legislation.

Given the consistency in the majority and leadership in the House, we expect that most of the changes in the oversight environment in 2021 will come in the Senate.  With this in mind, here are a few trends we will be monitoring related to oversight in the newly Democratic Senate:

  • A Crowded Oversight Field. Even setting aside the impending impeachment trial, a number of Senators in both parties are angling for leadership positions or preparing for future White House runs of their own.  In recent years, individual Senators have increasingly launched their own investigations to highlight pet issues or raise their political profiles.  At the same time, Democratic Senators who have already shown a penchant for launching individual investigations when in the minority will now have the power to launch investigations with the weight of their respective committees behind them.  Taken together, these trends suggest that the number of potential sources for new investigations in the Senate has never been higher.
  • Leveraging Activity in the House. Drawing on the intense oversight activity throughout the last Congress, Senate oversight committees may look to launch follow-on investigations to build upon the work of their House colleagues.  For example, incoming Finance Committee Chairman Ron Wyden (D-Or.) has signaled that lowering prescription drug prices is among his top priorities for the current Congress.  Should this legislative push be accompanied by active oversight, the Committee may look to the wide-ranging drug pricing investigation in the House Oversight Committee as a ready model.  Similarly, Senator Amy Klobuchar (D-Minn.), who will lead the Senate Judiciary Committee’s Antitrust Subcommittee, recently announced that she plans to hold hearings related to antitrust reform that will target industries such as tech, health, and media.  Many of her proposed reforms echo those recommended in last year’s House Judiciary tech antitrust report.
  • Expanded COVID-19 Oversight. Since the spring, the House Select Subcommittee on the Coronavirus Crisis has led the pandemic oversight agenda, and received considerable attention for it.  There is no corollary to the Select Subcommittee in the Senate.  Thus far, COVID-focused oversight has been dispersed across a variety of Senate committees, and with the shift in Senate control, Senate committees may begin to focus on how corporations have responded to the pandemic.
  • Renewed Action in the Banking Committee. The Senate Banking Committee will be led by incoming Chairman Sherrod Brown (D-Ohio), and a key member of the Committee is Senator Elizabeth Warren (D-Mass.).  With these two Senators operating in coordination, and with a bit of rivalry, the Senate Banking Committee is primed for an aggressive oversight push.  Throughout recent years, the House Financial Services Committee has been the scene of a number of newsworthy hearings focused on everything from consumer protection issues to fair housing protections.  The Senate Banking Committee may soon take up these and other issues as an element of a broader legislative agenda.

Congressional investigations will always be driven by media headlines and political considerations.  Members tend to focus on investigations that align with their own policy interests, and the interests of their constituents.  Given all these factors, we encourage our clients to think carefully about the congressional investigation risks they may face throughout the coming Congress.

FEC Provides Corporate PAC Virtual Training

For many of us, the New Year brings new resolutions, both professionally and personally.  For those of us that are involved with Corporate PAC’s, the Federal Election Commission (“FEC”) makes it simple to quickly check one of these goals—to cultivate a better understanding of the FEC regulations that govern Corporate PACs—off our list.  On March 3rd, the FEC will host a full-day Corporate PAC Webinar covering the basics of federal election law and PAC Operations.  If you feel comfortable with the basics, the FEC also offers a half-day program solely focused on PAC Operations.  The FEC charges a nominal fee for these training ($80 for a full-day, $60 for a half-day).

In the past, these trainings have provided Corporate PAC’s with high-quality presentations, focused on providing even the most novice with a thorough understanding of the Corporate PAC basics.  While these trainings are not designed to address a Corporate PAC’s most complex issues, this is a great way to refresh your understanding of federal election law.

FEC Increases Contribution Limits for 2021-2022

The Federal Election Commission has announced contribution limits for 2021-2022.  The new “per election” limits are effective for the 2021-2022 election cycle (November 4, 2020 – November 8, 2022), and the calendar year limits are effective January 1, 2021.

The FEC increased the amount an individual can contribute to a candidate to $2,900 per election, up from $2,800.  Because the primary and general count as separate elections, individuals may give $5,800 per candidate per cycle.

The limit on contributions from individuals to national party committees also increased from $35,500 to $36,500 per year.  This increase also affects the limit on contributions to additional specialized accounts of the party committees, which were first allowed through legislation passed in 2014.  Each of these accounts can receive contributions that are triple the amount that can be given to the main party account, or $109,500 per account per year.  These accounts can be used to pay for expenses related to presidential nominating conventions, headquarters buildings of the party, and election recounts, contests, and other legal proceedings.

The following chart shows more details on the limits for individuals in 2021 and 2022:

An individual may contribute to …
Federal Candidates $2,900 per election
National party committees — main account $36,500 per year
National party committees — convention account (RNC and DNC only) $109,500 per year
National party committees — party building account $109,500 per year
National party committees — legal fund account $109,500 per year
State or local party committees’ federal accounts $10,000 per year
Federal PACs $5,000 per year

Covington Publishes Comprehensive Advisory Comparing Biden and Trump Executive Orders on Ethics

The ethics rules that apply to Presidential appointees shifted Wednesday, in some ways significantly, as President Biden, just hours after being sworn in, signed an “Executive Order on Ethics Commitments by Executive Branch Personnel” and President Trump, just hours before his term expired, revoked his Executive Order on Ethics.

While the Biden and Trump Executive Orders differ in some significant ways, it would be too simplistic to characterize the new rules as more restrictive.  President Biden did announce additional ethics restrictions not present in the now-repealed Trump Executive Order, but he also relaxed some of the more restrictive provisions in the Trump Executive Order.  Generally speaking, President Biden has imposed greater restrictions on people joining government but fewer restrictions on people leaving government.

This advisory summarizes the key differences between the Biden and Trump Executive Orders on Ethics and highlights the implications of these orders for those entering or exiting the Administration and the companies that hire former Administration officials.