Political committees, advertisers, and advertising platforms have operated under a cloud of uncertainty regarding which disclaimers, if any, must appear on internet-based advertisements. Existing Federal Election Commission (“FEC”) regulations and guidance left many unanswered questions about the disclaimers required for these increasingly important internet ads. The FEC has finally offered some clarity in this area, though some tough questions remain.

In December, the FEC voted to expand the agency’s political advertising disclaimer requirements to explicitly address internet-based ads, capping a winding rulemaking process that began over 11 years ago. These new rules go into effect on March 1, 2023. This client alert discusses how the disclaimer rules have changed, what ambiguities still exist, and what political committees, advertisers, and advertising platforms should expect going forward.

For over a decade, Covington has published a detailed survey of the “pay-to-play” laws of all 50 states.  Now, for the first time, Covington is updating the survey with a new section covering federal pay-to-play rules, in addition to those of the 50 states and many cities and counties.  This new section details the federal government contractor contribution ban and pay-to-play rules adopted by the Securities & Exchange Commission (SEC Rule 206(4)-5 and SEC Rule 15Fh-6), the Municipal Securities Rulemaking Board (MSRB Rule G-37), Commodity Futures Trading Commission (CFTC Rule 23.451), and Financial Industry Regulatory Authority (FINRA Rule 2030).

To help in-house lawyers and compliance professionals with reviewing proposed contributions, Covington publishes a detailed survey of the pay-to-play laws of the federal government, all 50 states, and all major cities and counties. This almost 460-page survey:

  • Details all federal and statewide pay-to-play rules.
  • Describes over one hundred “specialty” pay-to-play rules that apply to contractors doing business with certain agencies or companies operating in certain regulated industries, including those that apply to investment firms that manage state or local public funds, lottery and gaming companies, public utilities, redevelopment contractors, and insurance companies.
  • Includes pay-to-play laws for major cities and counties across the country.

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

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

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

The Federal Election Commission has announced contribution limits for 2023-2024.  The new “per election” limits are effective for the 2023-2024 election cycle (November 9, 2022 – November 5, 2024), and the calendar year limits are effective January 1, 2023. The new limits represent the largest election cycle increase since the limits started being indexed for inflation in the 2003-2004 election cycle.

The FEC increased the amount an individual can contribute to a candidate to $3,300 per election, up from $2,900.  Because the primary and general count as separate elections, individuals may give $6,600 per candidate per cycle.

The limit on contributions from individuals to national party committees also increased from $36,500 to $41,300 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 $123,900 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 2023 and 2024:

An individual may contribute to …
Federal Candidates$3,300per election
National party committees — main account$41,300per year
National party committees — convention account (RNC and DNC only)$123,900per year
National party committees — party building account$123,900per year
National party committees — legal fund account$123,900per year
State or local party committees’ federal accounts$10,000per year
Federal PACs$5,000per year

In 2018, Covington published the original version of its widely read primer on the Foreign Agents Registration Act, “FARA: A Guide for the Perplexed.” We have updated this primer periodically. Today, the firm released the latest edition of the primer, featuring new analysis of recent Department of Justice guidance regarding the scope of agency under FARA, the political consultant trigger, the commercial exemption, the academic exemption, and the lawyers’ exemption. The new material is highlighted, for ease of reference.

The House of Representatives formally established the new “Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party,” with a bipartisan vote of 365-65. The Select Committee, to be chaired by Rep. Mike Gallagher (R-WI), a former military intelligence officer who also serves on the House Intelligence Committee, has been in the works for some time. The Select Committee will be heavily focused on oversight and investigations and is expected to scrutinize, among other things, U.S. businesses operating in China, businesses in China on which the United States is perceived to depend, and other areas where Congress sees opportunities for private industry to bolster America’s competitive position against China. The Select Committee’s objectives are clear—companies, entities, and individuals with significant cross-border business with China should get ready for expected oversight now. 

We outline key knowns and unknowns about the Select Committee, and offer suggestions to prepare for its expected activities, in this client alert.

There is near universal agreement among policymakers, lawyers, and lobbyists that the Foreign Agents Registration Act (“FARA”) is deeply in need of legislative reforms to update the statute and bring it in line with modern practices. Agreeing on specific amendments, however, has been challenging, and several prior efforts ended with no new enactments, as we have chronicled. In recent weeks, there has been an increase in legislative activity, and one provision nearly became law. These recent actions are summarized in this client alert.

Congressional investigations thrive in divided government.  With a constrained ability to advance policy through legislation, Members are more likely to turn to investigations as a means of making headlines and affecting private sector practices. 

The Democratic Senate majority and the Republican House majority give the respective majorities the ability to control the agenda of each chamber, and likely virtually unfettered subpoena power.  Democrats will preside over all Senate committees and have control of the Senate agenda.  Likewise, Republicans will preside over all House committees and have control of the House agenda.  Rep. Kevin McCarthy (R-CA), the Republican Conference nominee for Speaker of the House, recently released a sweeping Oversight plan for “Oversight in the 118th Congress,” which is discussed below.

Congressional investigations have been on the rise generally in the past several years, and all signs indicate that investigations in the 118th Congress will be prolific and particularly challenging, especially for the companies, industries, and individuals that are a central focus of GOP critiques.  As part of these investigations, incoming House Republican committee chairs will possess virtually unchecked power to issue subpoenas, demand documents, call hearings, and compel witnesses to testify.

Congressional investigators have a large toolkit.  There are a number of ways Congress can exert pressure on companies and individuals, and this has expanded in recent years.  In the new Congress, recent developments in congressional investigations will be precedent-setting for newly empowered House GOP committees, who likely will look to the tactics and techniques that the current Democratic-led committees employed in the past few years for creative investigative ideas.  For example, many Americans watched the January 6th Select Committee hearings and that Committee’s effective use of videotaped deposition testimony.  In the future, we anticipate that more committees will use videotaped depositions, both to put additional pressure on witnesses and to generate additional headlines. 

Investigative Priorities

In the days since clinching a majority in the chamber, Senate Democrats have made clear that the party expects to wield subpoena power, despite Sen. Kyrsten Sinema’s (I-AZ) decision to become an independent, and to use the investigative tools at its disposal to conduct private-sector oversight.[1]  For example, Sen. Bernie Sanders (I-VT), incoming chair of the Senate Health, Education, Labor and Pensions Committee, identified “greed in the pharmaceutical industry,” high prices for healthcare, and “union busting” as areas of potential investigation.  Similarly, Sen. Ron Wyden (D-OR), chair of the Senate Finance Committee, has already taken steps to probe pharmaceutical companies’ compliance with tax laws.  And, Sen. Sheldon Whitehouse (D-RI), incoming chair of the Senate Budget Committee, hinted at the possible investigation of fossil-fuel companies’ claims about climate change.

Meanwhile, House Republicans have a laundry list of issues they want to investigate, including Big Tech, so-called “woke” ideology and corporations, and competition with China.  Prioritizing and coordinating those investigations across high-profile committee chairs with varying, sometimes overlapping jurisdiction will be critical to the effectiveness of these investigations.  If Rep. McCarthy becomes Speaker, he and the anticipated chairs of three premier investigative committees of the House with a long history of robust insight—Jim Jordan (R-OH) at House Judiciary, James Comer (R-KY) at House Oversight, and Cathy McMorris Rodgers (R-WA) at House Energy and Commerce—will surely be in close communication to maximize the impact of Republican investigations.  News reports indicate that these Members have already been collaborating on the GOP’s investigative agenda and that their staffs have been at work for months, internally and in consultation with outside groups, to develop an oversight agenda and prepare to deploy investigative tactics (such as document requests) immediately upon taking their respective gavels. 

Rep. McCarthy’s newly released oversight plan includes the following wide range of topics: Department of Homeland Security and our Open Border Crisis, Big Tech and the Silencing of Americans’ Free Speech, China, Security, COVID Origins, Hunter Biden, Disastrous Afghanistan Withdrawal, Washington Spending, DOJ/FBI, Education & Woke Ideology, Energy Production & American Industry, IRS Politicization & Abuse, and Breaking the Swamp’s Bureaucracy.  Rep. Comer also identified top investigation priorities for the House Oversight Committee in a recent op-ed,[2] pledging to “conduct serious investigations and propose real reforms” on issues including: the border and fentanyl crises, pandemic relief fraud, the Afghanistan withdrawal, domestic energy production, COVID-19 origins, and Biden family business activities.

Overall, priority number one is expected to be the Biden Administration and the Biden family.  We expect immediate probes of the Administration’s withdrawal from Afghanistan, the origins of and responses to the COVID-19 pandemic (including, for example, interactions between the Administration and teachers unions, procurement of tests from China, and more), energy policy and use of the Strategic Petroleum Reserve, and matters involving Hunter Biden.

But it is clear that GOP investigations will not be centered exclusively on executive oversight.  Even those investigations that are ostensibly focused on the Biden Administration will ensnare entities and individuals that interact with the Administration or are relevant to key Democratic policies during the first Congress.  For example, any entity that Republicans see as having advocated for or benefitting from the Bipartisan Infrastructure Law or the Inflation Reduction Act could be drawn into a congressional investigation.

More directly prioritizing the oversight of private entities, technology companies will likely be targets in a number of varied inquiries, including alleged political favoritism, content moderation, censorship, and the effect of technology on children, long a favorite topic of the anticipated Chair of the Energy and Commerce Committee.  Moreover, Rep. McCarthy’s oversight agenda lays out plans to investigate Big Tech, including specific references to companies and allegations of censorship, threatening national security, and “debanking efforts.”

Rep. McCarthy’s oversight plan also promises to stand up a China Select Committee to “investigate and provide policy recommendations on how the U.S. can win the economic and technological competition” with China.  This Committee would investigate, among other topics: deceptive trade practices, supply chain vulnerabilities, China’s pursuit of U.S. advanced technologies and intellectual property, exploitation of U.S. investment power, and advancement of CCP doctrine in U.S. academic institutions.  Companies that do business with China, and academic institutions with ties to China, would likely be targets of such investigations.  Additionally, Republicans have increasingly criticized corporations seen as turning a “blind eye” to issues in China while taking active, liberal stances on domestic issues.

Another high-risk area for the private sector is so-called “woke” capitalism and related “Environmental, Social, and Governance” (ESG) issues.  While Republicans historically have been viewed as cozy with big business, that dynamic appears to be shifting.  As corporate America increasingly faces pressure from consumers to adopt more active stances on issues such as social equity and combating climate change, Republicans have not been afraid to turn the spotlight on specific “woke” companies or even their individual CEOs, who could be hauled to Capitol Hill to testify on live television.

This is only the tip of the iceberg.  House Republicans know that in an era of divided government they will not be able to push through legislation, but their Committee chairs will have subpoena power and the ability to investigate virtually anything.  And, on the other side of the Capitol, Senate Democrats will be emboldened by their increased majority.

Given the anticipated oversight environment, we encourage our clients to think carefully about the congressional investigation risks they may soon face in the new congressional term.

[1] See, e.g., Jordan Carney, Senate Dems prepare to join the investigative fray, Politico (Dec. 14, 2022), https://www.politico.com/news/2022/12/14/senate-democrats-investigations-00073580.

[2] James Comer, Get Ready for Republican Oversight, Wall St. J. (Dec. 11, 2022), https://www.wsj.com/articles/get-ready-for-republican-oversight-government-transparency-democrats-gop-border-fentanyl-energy-inflation-majority-covid-11670789661.

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.