Florida FARA Case Leaves Troubling Precedent

On May 7, 2019, a federal District Court in the Southern District of Florida ruled that an American company, RM Broadcasting, must register as a foreign agent under the Foreign Agents Registration Act (“FARA”) for its agreement to broadcast radio programming from Rossiya Segodnya (meaning “Russia Today”), a Russian state-owned news agency.  Although the decision has received some attention because it is the latest victory in the Department of Justice’s efforts to force Russian state-owned media organizations and their agents to register under FARA, it has much broader implications.  The FARA legal analysis underpinning the Court’s decision has significant shortcomings, reflecting RM Broadcasting’s failure to assert and brief perhaps its strongest legal defenses.

RM Broadcasting buys and sells radio airtime, including from WZHF 1390 AM in Washington, D.C.  In late 2017, RM entered into a services agreement to provide for the broadcasting and transmission of Rossiya Segodnya’s radio programs over WZHF.  Notably, RM agreed to sell essentially the entire broadcast schedule on WZHF, except for hourly station identifications, and to transmit Rossiya Segodnya’s programming in whole and unaltered.  In June 2018, the FARA Unit informed RM that the government concluded the company was required to register under FARA.  RM disagreed and brought an action for a declaratory judgment that it was not required to register.

RM raised a number of arguments that the Court found inapplicable or unpersuasive.  For example, RM argued that its services agreement did not give rise to an agency relationship under common law principal-agent theories.  Unfortunately, there is very clear precedent that FARA’s “agent of a foreign principal” is a statutory test that is wholly distinct from common law agency.  RM also argued that it was not broadcasting radio programs because the FCC licensee – from which RM bought airtime – did the actual broadcasting.  FARA, however, covers actions of an agent taken “directly or indirectly,” and the agreement required RM to provide broadcasting services to Rossiya Segodnya, which it did.

From a FARA perspective, RM failed to raise directly perhaps its strongest argument: the commercial exemptions to FARA.  Although RM made arguments that alluded to the commercial exemptions, such as stating that it simply buys and sells radio airtime in “an arms-length commercial business transaction,” it raised these issues in the context of its alleged agency relationship with Rossiya Segodnya, rather than as an exemption to registration.  RM never specifically cited and explained the commercial exemptions to FARA, their history and purpose, or the reasons that the exemptions could preclude registration.  The Department of Justice, which had no incentive to help RM strengthen its case, also failed to address the commercial exemptions in its briefs.  As a result, the Court’s opinion did not address these critically important issues.

FARA legal analysis requires consideration of three aspects of the law.  First, whether there is a relationship between a purported agent in the United States and a foreign principal outside the United States.  Second, whether the activities of the agent are within four categories of activities covered by the statute.  Finally, third, whether the activities are covered by an exemption that eliminates the registration requirement.  It is essential to consider all three components.  Additionally, because the triggering language of FARA is particularly broad, it is critical to consider the exemptions.

Unfortunately, because neither RM nor the government addressed the commercial exemptions to FARA, neither did the Court.  The Court’s analysis in the May 7 decision covers only whether RM has a relationship with Rossiya Segodnya and whether its activities are covered by one of the four statutory triggering activities that implicate FARA.  On these points, the Court concluded that the services agreement made RM an agent of a foreign principal, and concluded that RM’s activities were within the literal scope of the statutory term “publicity agent” under FARA.  But the Court’s analysis stopped there and did not consider whether the activities were exempt under a commercial exemption.

There are two commercial exemptions to FARA.  First, the statutory commercial exemption provides that private commercial transactions “in furtherance of the bona fide trade or commerce” of the foreign entity are exempt from FARA.  Trade or commerce, in turn, is defined to include the purchase or sale of “services . . . of any kind.”  This exemption applies to the “publicity agent” trigger, but it generally does not apply to political activities, such as those intended to influence the U.S. government or public on a matter of policy.  Second, the regulatory commercial exemption, which does apply to political activities, exempts activities that are “directly in furtherance of the bona fide commercial . . . operations of the foreign corporation.”

There seems very little doubt that Rossiya Segodnya’s purchase of RM’s airtime falls squarely within the scope of purchasing “services . . . of any kind,” and Rossiya Segodnya’s decision to purchase airtime and extend its broadcast reach seems, at least in part, to serve the company’s commercial operations.  To be sure, there are limitations on the commercial exemptions that may have been relevant in this case, including limitations when the commercial activities are directed by a foreign government or “directly promote” a foreign government’s political interests.  These issues, however, were entirely unexamined by the Court, and the Department was not required to show that Russian state interests or control were behind Rossiya Segodnya’s commercial activities.

As a result, the Court’s decision stands as a troubling precedent because it held, without qualification, that entering into a contract to sell services that fell within the FARA triggers required registration.  The FARA triggers are exceedingly broad and, particularly when applied without the accompanying exemptions, could require registration for a very wide range of activities.  The Court itself seems to have recognized these implications, noting that it “must apply the statutory language as written; it is not for the Court to rewrite the statute.”

The “publicity agent” trigger at issue in the RM case covers anyone who engages in the “publication [of] matter of any kind,” including books, periodicals, newspapers, broadcasts, movies, and more.  Without the commercial exemptions, this trigger could incorrectly appear to require registration for a wide variety of commercial activities that are completely outside the scope of the statute.  Everyday examples include a local movie theater contracting to show a foreign film, a publishing house contracting with a foreign author to publish the author’s novel, and a Madison Avenue advertising agency creating an ad campaign for a foreign car manufacturer.  Congress never intended for those activities to be captured by FARA, and that is made clear in the commercial exemptions and various other aspects of the legislative and regulatory history of the law.  The Florida Court’s FARA analysis unfortunately, and incorrectly, suggests otherwise.

As the Department of Justice pursues its new enforcement strategy for FARA, which Assistant Attorney General John Demers announced at a recent American Bar Association meeting, the specific scope and application of the statute will become even more important.  It might be easy to suggest that the Department would not pursue registration against the movie theater, publishing house, or advertising agency described above.  But there was also a time when the Department did not pursue registration of U.S. radio broadcasters doing business with foreign, state-owned media organizations.  Businesses contemplating commercial transactions with foreign companies should not have to rely on prosecutorial discretion when determining whether a given transaction would make a company an agent of a foreign principal under FARA.

RM, which did not receive support in the District Court from any interveners or amici, has publicly indicated that it does not have the resources to pursue an appeal.  That’s regrettable.  There is little case law on FARA, and the RM decision is a flawed and problematic addition to the very limited precedents.

Appropriations Committee Directs New FARA Guidance on Commercial Exemption

The House Appropriations Committee has quietly directed the Department of Justice to issue new guidance on the commercial exemption to the Foreign Agents Registration Act (“FARA”) with respect to state-owned companies.  The directive came in a Committee report accompanying legislation that provides funding for the Department for fiscal year 2020.  The report was approved by the Committee on May 22, 2019.

In the report, the Committee said it is “concerned,” that “the Department’s current guidance regarding the FARA commercial exception” has permitted state-owned companies “to dodge FARA requirements” even when the companies “take actions that directly promote the political and policy interests of their government owners.”

The Committee therefore “direct[ed]” the Department to issue updated commercial exemption guidance that would “requir[e] U.S. agents of wholly state-owned enterprises to register under FARA in those circumstances where the lobbying and public-relations efforts of such foreign firms promote not only the commercial interest of the entity, but also the foreign government’s stated political and policy interests.”

It is not clear which current FARA guidance the Committee found deficient.  Both commercial exemptions—one statutory and one regulatory—contain limitations that appear to go directly to the issues cited by the Committee.  The regulations implementing both exemptions specifically provide that the exemptions can only be used if the “activities do not directly promote the public or political interests” of a foreign government.

The regulations have additional provisions related to state-owned enterprises, including provisions that explicitly permit such companies to use the exemptions.  The regulation for the statutory commercial exemption goes further and permits its application to companies “controlled” by a foreign government.  The regulatory commercial exemption, in contrast, specifically excludes application to activities directed by a foreign government.

It will be interesting to see whether the Department’s FARA Unit issues informal guidance in response to the Committee’s requirement, or whether it pursues formal rulemaking to revise the provisions noted above (or, perhaps, it does nothing because the directive is contained in report language, rather than a statute).  Additionally, although the new guidance is required to address only wholly state-owned companies, this action opens the commercial exemption to potentially broader action by the Department.  We will watch closely for developments.

Congressional Investigations and the Rules of the 116th Congress

With Congress heavily engaged in launching and pursuing new congressional investigations, particularly since the Democratic takeover of the House of Representatives, many of our clients have questions regarding the rules that govern congressional investigations. While many aspects of congressional investigations are not subject to any rules at all, the House, Senate, and their respective committees do have some rules governing subpoenas, depositions, and confidentiality.

Yesterday, Covington issued a client advisory that provides a detailed catalog of the rules applicable to congressional investigations, reflecting changes that have been adopted since the new Congress organized itself in January.

Congress Amends LDA Forms to Require Reporting of Lobbyist Convictions

The recent passage of the Justice Against Corruption on K Street Act of 2018 (“JACK Act” or the “Act”) imposes new requirements on those registering and filing reports under the Lobbying Disclosure Act (“LDA”). The Act amends the LDA to require that LDA registrants disclose listed lobbyists’ convictions for criminal offenses involving bribery, extortion, embezzlement, illegal kickbacks, tax evasion, fraud, conflicts of interest, making a false statement, perjury, or money laundering.


The JACK Act was inspired by Jack Abramoff, whose alleged corrupt lobbying activities placed him at the center of a political scandal that led to the conviction of more than twenty lobbyists, congressional aides, and politicians. Between 2006 and 2008, Abramoff himself was convicted of crimes including fraud, tax evasion, conspiracy to bribe public officials, and bribery of public officials. After serving four years in federal prison, Abramoff emerged as a purported political reformer, only to begin lobbying again.

The Law

Congress passed the JACK Act in response to Mr. Abramoff’s post-prison lobbying activities, in order to shed light on registered lobbyists with prior convictions. The Act specifically amends the LDA’s registration (form LD-1) and quarterly reporting (form LD-2) requirements to require registrants to report the date of conviction and a description of the offense “for any listed lobbyist who was convicted in a Federal or State court of an offense involving bribery, extortion, embezzlement, an illegal kickback, tax evasion, fraud, a conflict of interest, making a false statement, perjury, or money laundering.” Those who violate the JACK Act’s requirements are subject to the civil and criminal penalty provisions of the LDA. Those provisions establish civil penalties of up to $200,000 in fines for lack of compliance with LDA requirements or failure to appropriately remedy defective filings following notification. On the criminal side, those who “knowingly and corruptly” fail to comply with LDA requirements may be fined, imprisoned for up to five years, or both.

Going Forward

Amendments to Q4 2018 reports. The JACK Act took effect on January 3, 2019. As a result, any fourth quarter lobbying activity reports filed after January 3 are thus subject to its requirements.  Although guidance released by the Clerk of the House of Representatives is ambiguous as to whether all registrants are required to amend Q4 2018 reports if they were filed on or after January 3, the Office of the Secretary of the Senate has confirmed to Covington that registrants with no reportable convictions need not amend registrations or quarterly reports filed on or after January 3. However, registrants who have relevant convictions to report must file an amendment to their Q4 2018 reports, if those reports were filed on or after January 3. Guidance from the House Office of the Clerk provides additional information about how to disclose required information.

Future reporting. Moving forward, the JACK Act requires LDA registrants to take additional steps before filing lobbying disclosures. LD-1 and LD-2 forms now ask registrants to indicate whether or not lobbyists have reportable convictions, on lines 15 and 29, respectively. The LDA online filing system has been updated accordingly. To ensure filings are accurate, registrants should therefore conduct internal due diligence to identify any registered lobbyists’ reportable offenses. This diligence process could take a variety of forms, but it should at a minimum capture information concerning newly registered lobbyists and should provide a mechanism requiring all lobbyists promptly to inform those responsible for filing the registrant’s forms LD-1 and LD-2 of any relevant convictions. Because a lobbyist’s reportable convictions must be disclosed publicly on all future registrations or quarterly reports listing that lobbyist, registrants should be prepared for the reputational concerns and public scrutiny that may arise from employing or retaining a lobbyist with a reportable criminal history.

If you have any questions concerning compliance with the JACK Act, please contact a member of Covington’s Election and Political Law practice group.

New Department of Justice FARA Opinion May Narrow the “LDA Exemption”

The Department of Justice’s FARA Unit appears to have signaled a significant narrowing in the scope of a major FARA exemption that is especially important to private sector companies, including U.S. subsidiaries of foreign corporations.  The apparent narrowing of FARA’s exemption for those who register under the Lobbying Disclosure Act (“LDA”) appeared in an advisory opinion issued last week that has not yet been released publicly.

When Congress enacted the Lobbying Disclosure Act in 1995, it also created a FARA exemption for private sector lobbying activities that are registered and disclosed under the LDA.  Under the LDA exemption, persons who would otherwise be required to register as foreign agents can register instead as lobbyists, under the less onerous and less stigmatized LDA.  The exemption, however, is limited.  First, it is not available for an agent working for a foreign government or political party.  Second, a long-standing Department of Justice regulation precludes the use of the exemption if a foreign government or political party is “the principal beneficiary” of the activities, regardless of the whether a government or political party is the actual client.

Although no court has ruled on the meaning of “the principal beneficiary,” FARA practitioners generally have relied upon its plain meaning:  The LDA exemption is not available if a foreign government or political party is the main beneficiary of the activities.  Conversely, the exemption is available if the main beneficiary is a foreign corporation or other foreign non-governmental organization.  For example, a foreign corporation might lobby on a business issue that would increase its revenue and thus its home country’s tax base.  The increased tax base would certainly benefit the foreign country, but “the principal beneficiary” of the lobbying is the company, not the government.  The government’s benefit is secondary and incidental to the corporate activities.

The new advisory opinion, however, signaled a significantly different reading of the exemption.  In an opinion issued by the FARA Unit’s new leadership, the Department found that the company seeking the opinion did not have to register under FARA because it met the terms of the LDA exemption.  But in a John Marshall-like move, the Department took the opportunity to insert a footnote, within the otherwise favorable opinion, that was not necessary to its decision (what lawyers call “dicta”).  “While not the case here,” the footnote read, “there are situations in which a foreign government or political party may not be the principal beneficiary, but a principal beneficiary of lobbying activities in which the LDA exemption would not apply.”  (Emphasis in the original.)

The FARA Unit’s footnote appears to suggest that the question is not whether a private company, on the one hand, or the foreign government, on the other hand, is the main beneficiary of the activities, but rather whether a foreign government could be said to be among several entities that all somehow were a principal beneficiary.  Notably, the text of the footnote stands in stark contrast to the Department’s regulations, which limit the LDA exemption when “a foreign government or foreign political party is the principal beneficiary.  Simply put, the regulation says “the,” not “a,” principal beneficiary.

As we have noted in prior client advisories, there are many situations in which a foreign corporation has a strong and legitimate corporate interest in supporting U.S. policy positions that bring some parallel and additional benefit to a foreign government.  The Department of Justice regulation specifying that the LDA exemption will apply unless a foreign government is “the principal beneficiary” has thus acted as a critical threshold for distinguishing those cases where FARA registration is not required, even though a foreign government might have some interest in the matter, and cases where registration is required because the activities primarily advance a governmental interest.

We wonder whether the footnote indicates that the Department is contemplating a new FARA rulemaking to replace “the principal beneficiary” with “a principal beneficiary.”  If it does not, the new interpretation could be open to court challenge because it conflicts with the text of the regulation.  Although courts often defer to an agency’s interpretation of its regulations under the agency-friendly “Auer deference” doctrine, courts will not defer to an agency interpretation that is “plainly erroneous or inconsistent with the regulation.”  Auer v. Robbins, 519 U.S. 457, 461 (1997).  Reading “the” to mean “a” seems both plainly erroneous and inconsistent with the regulation as it exists today.  A notice-and-comment rulemaking would enable the Department to weigh the consequences of changing the regulation, with input from the regulated community.  In the meantime, regulated persons will be left to guess at the standard the FARA Unit intends to apply, or to seek additional advisory opinions to see whether the footnote in last week’s opinion is more than mere dicta.

The advisory opinion will be posted on the Department’s website in due course, in redacted form, per the Department’s laudable new policy of publishing its FARA advisory opinions, and we will post a link here once it is publicly released.

UPDATE:  The advisory opinion referenced in this post has now been published.  It is available here.

U.S. Department of Justice Announces Foreign Agents Registration Act Enforcement Initiative

Covington issued several client alerts in recent years warning of a rising tide of enforcement of the once-obscure Foreign Agents Registration Act of 1938 (“FARA”). Signs of this trend emerged long before the recent, high-profile Special Counsel’s Office investigation. Nonetheless, there was persistent skepticism abroad in the land, particularly among businesses outside the lobbying industry, that this trend was real or significant. Any remaining doubts were decisively answered last week when the Assistant Attorney General for the National Security Division, John Demers, a Trump appointee, for the first time publicly confirmed DOJ’s intention to make FARA a criminal enforcement priority. The predicted enforcement wave is not at an end. It is just beginning.

Speaking at an annual American Bar Association white collar lawyers conference, Demers told the assembled defense bar that DOJ has shifted from treating FARA as an “administrative obligation and regulatory obligation to one that is increasingly an enforcement priority.” The Assistant Attorney General announced that he was revamping the Department’s FARA Unit, which has overseen “administrative enforcement” of FARA for many decades, by appointing a criminal prosecutor to lead enforcement. The prosecutor, Brandon Van Grack, a deputy chief in the National Security Division’s Counterintelligence and Export Control Section, has spent most of the last 18 months assigned to the Special Counsel’s Office. It appears the Department is also making other staffing changes within the FARA Unit, presumably to reorient it toward enforcement. In his remarks, Demers appeared to emphasize the Department’s intention to pursue unregistered foreign agents.

Since at least the 1960s, the FARA Unit has focused on facilitating compliance with FARA and providing guidance to regulated persons. When the Unit identified an unregistered foreign agent, it typically worked with the agent to ensure that it registered and, sometimes retroactively, disclosed its activities. The small handful of FARA prosecutions that occurred over the past 50 years (after FARA was amended in 1966 with an expanded focus on economic lobbying) all involved some other kind of egregious criminal activity, such as terrorism, espionage, or violating trade sanctions. The Department now seems focused on enforcing stand-alone FARA violations.

For corporations, nonprofits, law firms, lobbying firms, think tanks and others that deal with foreign governments (or, in some cases, even non-governmental “foreign principals”), Demers’ announcement is a fire bell in the night, signaling that DOJ will be far more aggressive in seeking out high-profile test cases to accomplish general deterrence and to cause corporate America to take FARA seriously. The best analogy here is to DOJ’s decision in the early years of the 21st Century to breathe life back into the Foreign Corrupt Practices Act (“FCPA”), another criminal statute that many companies had ceased to take seriously because of infrequent enforcement. Billions of dollars in settlements and legal fees later, every major corporation in America, and many around the world, are heavily focused on implementing elaborate global anti-corruption compliance programs. But FARA remains absent from the compliance policies of most American corporations, including very large ones whose business models involve frequent contact with foreign governments. Few Chief Compliance Officers at major companies are focused on FARA risks. That is likely to change soon.

One unknown is how the appointment of a dedicated prosecutor to oversee FARA enforcement may alter the FARA Unit’s approach to interpreting the statute in advisory opinions and informal guidance provided to the regulated community. Like FCPA, FARA includes vague and barely defined terms. By now, the Department has helped define FCPA through guidance documents and enforcement cases. FARA, in contrast, even after more than 80 years, remains amorphous, with little available case law or guidance. DOJ began publishing its FARA advisory opinions only last year, and there are decades’ worth of opinions that have yet to be published. The statute itself is riddled with anachronistic terminology and provisions that, if interpreted literally, would sweep in an astounding range of routine activities by corporations and nonprofits. Unlike U.S. domestic lobbying laws, FARA can be triggered without any payment at all, and it contains no threshold that would exempt incidental and de minimis activity from triggering registration.  Bills currently pending in Congress to reform FARA focus on toughening it rather than clarifying its meaning and rationalizing its practical impact.

If the Department’s announced intention to pivot from facilitating compliance to enforcement follows the arc that defined DOJ’s approach to reinvigorating FCPA, we can expect to see the Department look for more high-profile FARA settlements like the one it secured recently against the law firm Skadden.  And we can envision that the Department’s focus may extend beyond law, lobbying and public relations firms, given the statute’s extraordinary reach.

The political nature and domestic focus of FARA (which applies only to activities “within the United States”) makes this a rather more dangerous path for DOJ and for the regulated community than was the case with the rebirth of FCPA. FARA’s breadth potentially provides prosecutors with a target-rich environment in which to pursue cases against corporations, individuals, advocacy groups, and others, and we are already seeing signs of a cottage industry of groups that are adept at filing FARA complaints with DOJ for their own purposes. We have long described FARA to clients as a “gotcha” statute, which can be invoked by political opponents and dusted off by prosecutors when other statutes are unavailing. The Department’s announced enforcement initiative will test its discretion in using this powerful prosecutorial tool.

Follow our blog, Inside Political Law, to keep abreast of further FARA-related developments.


The Top 10 Political Law Red Flags for M&A Deals

During the diligence process that precedes a merger or acquisition, investment firms and corporations should pay careful attention to political law risks.  Political laws are notoriously complex, are often not intuitive, and even seemingly minor or technical violations of these rules can result in significant penalties and reputational harm.  These risks are especially acute when the target company is a government contractor, retains a lobbying firm, has a government affairs department, operates a PAC, or has politically active executives.  To help investment firms and acquirers navigate these issues, we recently published an article addressing the top political law red flags to consider in the diligence process.  Red flags addressed include:

  • Is there a lingering “pay-to-play” problem that could jeopardize a major contract?
  • Is the company appropriately registered under applicable lobbying laws?
  • Is there a looming FARA problem?

By considering these and other political law issues up-front, an acquirer can avoid being blindsided by a massive compliance problem and can adjust purchase terms to minimize any risk the acquirer may inherit from the target.

FEC Increases Contribution Limits for 2019-2020

The Federal Election Commission has announced contribution limits for 2019-2020.  The new “per election” limits are effective for the 2019-2020 election cycle (November 7, 2018 – November 3, 2020), and the calendar year limits are effective January 1, 2019.

The FEC increased the amount an individual can contribute to a candidate to $2,800 per election, up from $2,700.  Because the primary and general count as separate elections, individuals may give $5,600 per candidate per cycle.

The limit on contributions from individuals to national party committees also increased from $33,900 to $35,500 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 $106,500 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 2019 and 2020:

An individual may contribute to …
Federal Candidates $2,800 per election
National party committees — main account $35,500 per year
National party committees — convention account (RNC and DNC only) $106,500 per year
National party committees — party building account $106,500 per year
National party committees — legal fund account $106,500 per year
State or local party committees’ federal accounts $10,000 per year
Federal PACs $5,000 per year

Investment Adviser Hit With $100K SEC Fine, a Reminder that Public Universities are Covered by Pay-to-Play Rule

In December, the Securities and Exchange Commission (“SEC”) fined an investment adviser $100,000 for violating the SEC’s pay-to-play rule.  The SEC’s rule effectively prohibits investment adviser executives and other “covered associates” of an investment adviser from making political contributions in excess of de minimis amounts ($350 per election if the contributor is eligible to vote for the candidate; $150 if not) to officials of a government entity with which the investment adviser does or may seek to do business.  In this case, two of an investment adviser’s covered associates made political contributions to Ohio gubernatorial candidates and a candidate for Ohio Treasurer well in excess of the SEC rule’s de minimis thresholds: $46,908 in total, spread between several candidates and across several years.

This is not the first big fine the SEC has issued for a pay-to-play rule.  Indeed, the SEC’s enforcement of the SEC rule has increased significantly since the first case in 2014.  Nor does this case involve the largest fine; last summer, for example, a different firm was fined $500,000.

The lesson here for investment advisers relates to the nature of the governmental entities involved.  One was a state pension fund, which most investment advisers will recognize is likely to be covered by the SEC’s pay-to-play rule.

But the other was a public university.  Many forget that public universities, though academic in nature and often largely independent from other government agencies, may invest public assets.  And governing officials at the university may be subject to appointment by an elected official; in this recent case, the Governor of Ohio appoints the members of the university’s board of trustees.  This fine serves as a reminder that it is important for investment advisers to carefully evaluate all potential investors for government entity status, and not only investors of public pension fund assets.

First Significant Pay-to-Play Legislation for the District of Columbia Approved by D.C. Council

On December 4, the D.C. Council unanimously approved the first significant pay-to-play law for Washington, D.C.  The restriction would apply to contractors with—or seeking—one or more contracts with an aggregate value of $250,000 or more.  The legislation will be considered by the Mayor and would be subject to a 30-day period of congressional review.

The Campaign Finance Reform Amendment Act of 2018 (B22-0107) includes several revisions to the District’s campaign finance law, including increased disclosure for independent expenditures.  Perhaps the most significant change is a new restriction on campaign contributions by contractors doing business with the District, and by prospective contractors seeking to do business with the District.

Under the new law, the District would be prohibited from entering into a contract if the contractor made a covered contribution to a covered official during the “prohibited period.”  Covered contributions are contributions from the contractor or its senior officers, such as the president, executive director, CEO, COO, or CFO.  Which District candidates are considered “covered officials” depends on who oversees the contract in question.  For example, if the contract must be approved by the D.C. Council, all candidates for D.C. Council would be considered covered officials.  Mayoral candidates and candidates for Attorney General would be covered officials if the contract is with an agency subordinate to either the Mayor or the Attorney General, respectively.

In most cases, the ban on contributions would begin on the date of the contract solicitation, and, for successful bidders, would continue in effect for different periods depending on the nature of the contract.

Type of Contract Duration of Restriction*
  • Sale of goods, services, construction, purchases & sales of land or buildings.
  • One year after termination of the contract.
  • Lease of land or buildings, licensing arrangement, loan.
  • One year after entering into the contract.
  • Surplus and disposition of land or buildings, tax exemption or abatement.
  • One year after the effective date of the relevant legislation approved by the D.C. Council.

* Duration of restriction for successful bidders.  The ban for unsuccessful bidders is shorter.

We will continue to monitor developments regarding this legislation, including action by Mayor Muriel Bowser, who, as reported by The Washington Post, has thus far declined to take a position on the legislation.