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.

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

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.

The U.S. Department of Justice today announced the arrest of an alleged agent of the Iranian government, who has been charged with violating the Foreign Agents Registration Act (“FARA”).  The defendant is an Iranian political scientist, living in the United States as a permanent resident.  The Justice Department alleges that for years he has engaged in advocacy activities in the United States on behalf of the Iranian government, and that he has been paid approximately $265,000 for those services.  The advocacy allegedly included lobbying Members of Congress and the State Department, making television appearances, and writing articles.  The defendant is also alleged to have served as an advisor to the Iranian government.  The case was investigated by the U.S. Attorney’s Office for the Eastern District of New York, along with the FBI field offices in New York and Boston, reflecting the increasing involvement of U.S. Attorneys’ Offices and FBI field offices across the country in FARA investigations.

According to the Justice Department, the defendant emailed Iran’s Foreign Minister in July 2020 with links to his articles “in international newspapers and academic journals,” noting that “without support none of this would have been possible!  This has been a very productive relationship spanning decades that ought not to be interrupted.”  The Department also alleged that it has evidence reflecting the defendant’s awareness of his obligations under FARA, which is relevant to meeting the Department’s burden of proof that the defendant “willfully” violated FARA, which is a criminal statute.

This case reflects the continuing stream of prosecutions related to FARA, particularly with respect to what might be considered core FARA cases that involve paid advocacy for foreign governments.  The arrest and unsealing of the criminal complaint in the new FARA case was announced today by John Demers, the outgoing Assistant Attorney General for the National Security Division, one day before the end of the Trump Administration.  In March 2019, Demers announced a FARA enforcement initiative, including the appointment of a criminal prosecutor to head the Department’s FARA Unit.

Today Covington released an updated version of its manual for Chiefs of Staff to Members of Congress concerning best practices for responding to government investigations of Members and their staff.  Titled “A How-To Guide for Chiefs of Staff,” the manual describes how government investigations of Members and staff unfold and the steps that Chiefs of Staff need to take during the initial stages of any investigation.

With a full complement of six commissioners for the first time since early 2017, the FEC met in open session yesterday.  Led by FEC Chair Shana M. Broussard and Vice Chair Allen Dickerson, the first meeting addressed a number of non-controversial matters that lent themselves to consensus.  That said, there were several interesting features to the meeting.

Chair Broussard’s Goals:  In addition to reducing a significant backlog of almost 450 enforcement matters, with an emphasis on those facing the statute of limitations, Chair Broussard identified several substantive goals for her year as Chair.

  • Scam PAC rulemaking, to curb PACs that employ misleading tactics to divert funds that donors believe are going to support their favored candidate.
  • Internet advertising disclaimers.
  • Legislative recommendations to Congress, including updating the personal use rules and adding a bar on aiding and abetting the making of a contribution in the name of another.
  • Improve the agency’s use of social media and website to disseminate information to the public.

The list may seem modest to some, but the FEC Chair holds the gavel for only one year, so modesty may be the best way to success.  The first two items both face the peril of the devil that resides in the details, particularly how new rules would square with the First Amendment concerns that have animated the FEC’s debate in the past.

Online Platforms’ Screening of Foreign Nationals:  The single substantive matter at the meeting involved an advisory opinion request from an American living abroad who asked the FEC to rule that he did not have to comply with all of Facebook’s requirements for proof of citizenship.  The Commissioners unanimously declined that request.  Importantly, Vice Chair Dickerson noted that the agency had not issued an opinion on what the appropriate levels of screening for foreign nationals might be, and that his views on the question were similar to those of Commissioner Weintraub.  This suggestion that bi-partisan consensus might be possible on this issue, seemed an invitation to a well-tailored advisory opinion request.

Bi-partisan Consensus:  While the issues before the Commission were not weighty, there was a visible effort to find common ground when Commissioners had a concern.  Commissioners Weintraub and Cooksey joined with Vice Chair Dickerson to work through some issues with the phrasing of the advisory opinion and the best procedure for reaching a final decision.  While difficult issues lie ahead, if Chair Broussard and Vice Chair Dickerson can build a good, collaborative, decision making process, it will go far to making the agency a more effective single voice on what the Federal Election Campaign Act and its regulations mean in their application to specific transactions.  Yesterday’s meeting was a good start.

After the election of two Democratic Senate candidates in the Georgia runoff elections on January 5, 2021, the Senate this year will be equally divided between 50 Democratic Senators (and those caucusing with them) and 50 Republican Senators. Governing in an equally divided Senate presents several challenges regarding the internal rules of the Senate, the makeup and control of committees, and the control of Senate business, including both legislation and the consideration and approval of nominations. In a client alert yesterday, we looked at the applicable principles and historical precedents concerning an equally divided Senate, and consider the implications for governing in the coming congressional term.

Last week, the Department of Justice’s FARA Unit released a curious advisory opinion.  The new opinion stated that it replaced an advisory opinion released by the Department in December 2019, and it revised the Department’s guidance on the scope of the lawyers’ exemption to FARA.  As far as we can tell, this is the first time that the Department has withdrawn and reinterpreted an advisory opinion.  The newly released opinion also resolves a mystery that has puzzled us since early December 2020, when we first noticed that the Department had quietly, without notice to the public, removed the earlier advisory opinion from its website.

Because the Department does not announce newly posted advisory opinions, we regularly watch the FARA Unit’s advisory opinion webpage for newly posted opinions.  In early December 2020, we noticed that the opposite had occurred: the Unit quietly removed an opinion issued in December 2019 regarding the lawyers’ exemption to FARA.

Even more curious, the next day, December 4, 2020, the Department’s Deputy Assistant Attorney General for the National Security Division, Adam Hickey, delivered major remarks at the American Conference Institute’s second national forum on the Foreign Agents Registration Act.  In his remarks, Mr. Hickey offered an interpretation of the lawyers’ exemption that arguably conflicted with the position in the 2019 opinion that had just been removed from the website.

In the 2019 opinion, the Department concluded that an “in-court representation” of a foreign government would be covered by the lawyers’ exemption to FARA.  The opinion went on, however, to conclude that the lawyers’ exemption would not apply to activities that lawyers commonly undertake related to litigation.  Specifically, the Department stated that FARA registration would be required if the organization were to “provide factual responses to media inquiries about the litigation, issue press releases containing facts regarding the litigation, [or] engage in press conferences regarding” its legal representation of the foreign government.

Mr. Hickey’s remarks in December 2020 echoed some of the 2019 opinion.  For example, he stated that “representation in a proceeding itself clearly qualifies” for the lawyers’ exemption.  Unlike the 2019 opinion, however, Mr. Hickey did not rule out the application of the exemption to ancillary activities, stating that the exemption’s application to other activities “will depend” and would be judged by the “‘bounds of normal legal representation[s],’” quoting from the legislative history of the provision.  Finally, Mr. Hickey specifically stated that “calling a press conference to announce a lawsuit” would be within the lawyers’ exemption.

With the 2019 opinion withdrawn from the FARA website, and Mr. Hickey’s new interpretation publicly announced, we puzzled over the applicable scope of the lawyers’ exemption.  By their terms, advisory opinions only apply to the particular party that seeks the opinion and only for the specific facts advanced in the request.  In this case, the Department’s actions and public statements appeared to be backing away from the earlier interpretation.

In the new opinion, issued on January 5, 2021, the Department helpfully sought to clarify the situation.  First, the FARA Unit acknowledged that it had removed the earlier opinion from the advisory opinion website.  Next, the FARA Unit stated that, although it stood by the 2019 opinion, it believed that a fuller explanation was necessary.  The opinion then referenced newly revised guidance on the FARA Unit’s website, which was updated the same day that the 2019 opinion was withdrawn.  The revised guidance on the lawyers’ exemption now includes the following: “The scope of the exemption, once triggered, may include an attorney’s activities outside those proceedings so long as those activities do not go beyond the bounds of normal legal representation of a client within the scope of that matter.”  Notably, the guidance before this revision did not include a similar discussion of permissible exempt activities outside a legal proceeding.  The new opinion concluded that responding to media inquiries about litigation would typically fall within the scope of the lawyers’ exemption, but a “proactive media engagement . . . more akin to a public relations campaign” typically would not.

Lawyers have long struggled with the application of the lawyers’ exemption to FARA.  By its terms, it provides a blanket exemption for lawyers who are engaged in a legal representation of a disclosed client before a court or agency of the U.S. government, but it contains an important limitation: lawyers cannot seek to influence the U.S. government outside of the bounds of the applicable legal proceeding.  The new guidance and revised advisory opinion helpfully clarify that activities that a lawyer normally undertakes on behalf of clients are exempt, even outside of applicable proceedings.  Of course, the exact scope of “normal” activities is still amorphous, and lawyers should seek specific guidance from FARA practitioners when considering public relations activities and other activities ancillary to defined legal proceedings.

On Friday, January 1, 2021, the Senate voted to override President Trump’s veto of the 2021 National Defense Authorization Act (“2021 NDAA”) by a vote of 81 -13.  The Senate’s override follows the House of Representatives’ override on December 28, 2020, and the 2021 NDAA is now law.

Included in Title LXIV of the 2021 NDAA (Title 64 for those of us rusty on Roman numerals), are new information reporting requirements intended to identify individual beneficial owners of certain business entities.  Subject to a number of exceptions, the law requires certain U.S. and foreign entities to file annual reports with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) that will disclose information regarding the beneficial owners of reporting companies.  Overall, the reporting will identify those individuals exercising “control,” as the term is defined, over those entities required to report.  According to the legislation, over two million corporations, LLCs, and similar entities are formed under state law in the United States each year, and many “malign actors seek to conceal their ownership” of various entities intended to facilitate illegal activity.  Accordingly, the reporting mandated by the law is intended to help protect national security interests and interstate and foreign commerce, as well as counter the financing of terrorism.

Reporting Requirements

The reporting requirements are set forth under sections 6401 through 6403 of the 2021 NDAA.  The Act defines a “reporting company” as a corporation, limited liability company (“LLC”), or other similar entity that is created by the filing of a document with a secretary of state or similar State office under the State law (to include any U.S. State, D.C. or other U.S. commonwealth, territory, or possessions) or tribal law in the case of Indian Tribes.  Further, non-U.S. entities that register to do business in the United States by filing documents with similar State or tribal authorities are similarly included within the scope of a reporting company.  Each reporting company must disclose certain identifying information related to its beneficial owners.

Specifically, information that must be reported to FinCEN includes the beneficial owner’s full legal name, date of birth, residential or business street address, and unique identifying number (e.g., passport, license, or FinCEN identifier).  A beneficial owner is an individual who directly or indirectly (i) exercises substantial control over the reporting company or (ii) owns or controls not less than 25% of the ownership interests of the reporting company.

Key Exceptions Curtail Reporting Requirements: Tax-exempt and political organizations are among the organizations that don’t have to report

The scope of the reporting is significantly curtailed based upon exceptions that generally include the following:

  • Companies that issue securities registered under section 12 of the Securities Exchange Act of 1934, or that are required to file supplementary and periodic information under section 15(d) of the Securities Exchange Act of 1934);
  • Entities established under the law of the United States, an Indian Tribe, a State, or a political subdivision of a State, or under an interstate compact between two or more States that are designated to exercise governmental authority on behalf of such governments;
  • Banks, federal or state credit unions, bank holding companies;
  • Money transmitting businesses registered with the Secretary of the Treasury;
  • Brokers or dealers as defined in section 3 of the Securities Exchange Act of 1934;
  • An exchange or clearing agency, as defined in section 3 of the Securities Exchange Act of 1934, that is registered under section 6 or 17A of the Securities Act of 1934;
  • Any other entity not otherwise described that is registered with the SEC under the 1934 Securities and Exchange Act;
  • An entity that is an investment company or investment adviser properly registered with the SEC;
  • An investment adviser described in section 203(l) of the Investment Advisors Act of 1940 that has filed designated schedules with the SEC;
  • An insurance company as defined in section 2 of the Investment Company Act of 1940;
  • An entity that is an insurance producer authorized by a State and subject to supervision by the state insurance commissioner or similar official and has an operating presence and physical office in the United States;
  • A registered entity or various other specified entities under the Commodity Exchange Act;
  • A public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002;
  • A public utility;
  • A financial market utility;
  • Any pooled investment vehicle operated or advised by a bank, credit union, broker/dealer, entities acting as an investment company or investment adviser, or an investment adviser;
  • Any of the following —
    • An organization described in section 501(c) of the Internal Revenue Code (the “Code”) without regard to section 508(a) of the Code, and exempt from tax under section 501(a) of the Code;
    • A political organization under section 527(e)(1) of the Code that is exempt from tax under section 527(a) of the Code;
    • A trust described in section 4947(a)(1) or (2) of the Code;
  • An entity that operates exclusively to provide financial assistance to, or holds governance rights over, any entity described immediately above;
  • Any entity that (1) employs more than 20 full-time employees, (2) filed a federal income tax return reporting gross receipts exceeding $5 million, and (3) has an operating presence in the United States;
  • Any corporation, LLC, or similar entity that is owned or controlled, directly or indirectly, by certain entities described above; and
  • Any corporation, LLC, or similar entity that has existed for more than one year with very minimal activity (see language of bill).

The legislation also authorizes the Secretary of the Treasury, with the written concurrence of the Attorney General and Secretary of Homeland Security, to issue regulations identifying other entities or classes of entities that should be exempt from the reporting requirements.

FinCEN’s Role

The information reported to FinCEN will not be public information, although FinCEN may disclose information to the following:

  • A federal agency for national security, intelligence, or law enforcement activity;
  • A State, local, or tribal law enforcement agency, if a court authorized the agency to seek the information;
  • A foreign authority, pursuant to a treaty, agreement, etc.;
  • A financial institution, with consent of the reporting company and in the form provided by the regulations; and
  • A federal regulatory agency, including the IRS.

Reporting Penalties

The new reporting requirements include civil and criminal penalties for the willful failure to provide accurate beneficial owner information or to report such information.  Any person who willfully fails to provide accurate beneficial owner information or to report such information may be subject to civil penalties of  up to $500 per day for every day the violation continues.  In addition, a person may also be subject to criminal penalties that include a fine of up to $10,000, up to two years imprisonment, or both.  The statute provides a limited safe harbor that allows any person to avoid the imposition of the reporting penalties if the person voluntarily submits corrected information within 90 days after the date of submission, unless the person knowingly filed false beneficial owner information with the intent of evading the reporting requirements.

The imposition of civil penalties based upon a willfulness standard could make it difficult for FinCEN to enforce such penalties in certain cases, particularly when the reporting company is compliant with respect to its other compliance obligations.  The IRS has encountered difficulty enforcing intentional disregard penalties under section 6721(e) of the Internal Revenue Code when the evidence does not support that the underlying failures were intentional.  The government has had more success imposing willfulness penalties for Foreign Bank Account Report (“FBAR”) (FinCEN 114) failures, where courts have acquiesced to a willful blindness standard.  That success has been aided in part by the plain English certification of the existence of foreign bank accounts on Form 1040 Schedule B making it more difficult for taxpayers to argue they were unaware of the filing obligation.

Outstanding Issues

The law requires the Secretary of the Treasury to promulgate regulations within one year after the date of enactment of section 6403 of the 2021 NDAA.  The statutory language of the reporting requirements does not define several key terms and raises various questions.  For example, for purposes of the definition of “beneficial owner,” it is unclear what constitutes “substantial control” over an entity.  (One potentially similar concept that Treasury could look to is that of “controlling persons” under AML/KYC rules that were incorporated into FATCA intergovernmental agreements.)  In addition, the definition of “reporting company” includes “similar entities” to corporations and LLCs, but it is not clear where this line should be drawn.  For example, will it include limited partnerships, limited liability partnerships, etc.?  Moreover, although many tax-exempt entities are not required to report, it is not clear whether the law also excludes taxable nonprofits.  Accordingly, FinCEN’s regulations and any related guidance will be important to understanding the full scope of the 2021 NDAA’s reporting requirements.

Effective Date

As discussed above, the 2021 NDAA became law on January 1, 2021.

The effective date of the reporting requirements is tied to the effective date of the regulations, which may not be later than one year after the date of enactment of the statute.  Any reporting company formed or registered before the effective date of the regulations must file a report to FinCEN not later than two years after the effective date of the regulations.

We will provide further coverage of the new FinCEN reporting requirements when Treasury publishes regulations at some point over the next year.

As the calendar turns from 2020 to 2021, we are taking stock of congressional investigations over the past two years, and assessing events in the recent weeks that help to shed light on the likely trajectory for congressional investigations in 2021.

  • In late October, we considered congressional investigations in the context of the upcoming election. We observed that stability in the control of the House would likely lead to the continuation or expansion of lines of inquiry recently pursued by the investigative committees, including drug pricing, health care access, COVID response, consumer protections, and oversight of CARES Act funds.
  • Immediately after Election Day, we assessed the factors that would change – and the factors that would stay the same – depending on the outcome of the presidential election. We concluded that a divided Congress and continued legislative gridlock would foster continued investigations, regardless of the presidential outcomes, because Members of Congress have found that investigations can affect policy, including by jawboning companies to implement corporate policy changes that Congress was unable to reach through legislation.
  • In mid-November, we considered the election results. We noted that Democratic House Members were unlikely to be as vigorous in investigating President Biden as they were with President Trump.  Instead of a reduction in investigations, however, we noted that the change in the presidency would simply change the type of investigations pursued by the Democratic House, including a likely increased focus on private sector entities.  We also drew parallels between the investigations conducted after the 2008 financial crisis and the wave of investigations conducted in 2020 concerning the pandemic, the government’s response, and the use of pandemic relief funds.
  • In early December, we hosted a webinar for in-house counsel that are likely to deal with congressional investigations. We providing advice on the political landscape, the strategies for responding to congressional inquiries, and the latest legal developments in enforcement of congressional subpoenas.

In the closing days of 2020, we saw several events and developments that brought greater clarity to Congress’s likely investigative agenda, targets, and priorities in 2021.

  • At the end of December, Speaker Nancy Pelosi announced that the House would extend the mandate of the House Select Subcommittee on the Coronavirus Crisis, which exists as a subcommittee under the powerful House Oversight and Government Reform Committee. The Select Subcommittee will continue to be chaired by Rep. Jim Clyburn (D-S.C.), a member of the House Democratic leadership.  Throughout 2020, the Subcommittee launched numerous inquiries related to the government’s pandemic response, and it engaged in high-profile inquiries targeted at recipients of CARES Act funds, both large and small.  Although the Subcommittee has widely targeted its investigations on anything related to the pandemic, the Subcommittee’s hearings in 2020 tended to focus on Trump administration officials, rather than private industry.  With the change to the Biden administration, we expect that subcommittee will increasingly focus its hearings, in addition to its investigations, on the private sector.
  • Also in December, the House Republican conference elected Rep. Cathy McMorris Rodgers (R-Wash.) as the first woman to lead the minority members of the House Energy and Commerce Committee, which is one of the most active investigative committees in Congress, and she has indicated an interest in conducting congressional oversight of technology companies. We also expect the committee to continue to focus on oversight of COVID vaccines and the use of government funding for research, development, and distribution of the new vaccines.  We anticipate that the Committee could closely scrutinize the distribution of vaccines, examine any potential injuries alleged to have been caused by the vaccines, and perhaps examine the PREP Act and the vaccine injury fund, each of which provide legal structures and protections related to vaccine development and distribution.
  • In a perhaps ironic development at the end of the year, several Democratic Members of the House scored a major legal victory in a lawsuit to enforce a statute that permits any seven members of the House Oversight Committee – even without support of the full Committee – to demand information from the executive branch. The lawsuit began in 2017, when the Democratic Members were in the minority and President Trump was newly in office.  Since then, of course, control of both institutions has switched.  Given this change in control, the Democratic Members’ “victory” in this litigation will now provide Republican Members of Congress with a new tool to go after the Biden administration.
  • The last few years have seen an unprecedented number of litigated cases regarding Congress’s ability to enforce subpoenas. With some year-end announcements, we now know that this litigation is likely to continue into 2021.  In late December, the House Oversight Committee notified the D.C. Circuit Court of Appeals that it intended to renew its subpoena for President Trump’s financial records in the next Congress.  As a technical matter, congressional subpoenas expire at the end of each congressional session, which occurred on January 3, 2021.  The Oversight Committee’s announcement indicates that Congress will continue its investigation of President Trump into 2021, and we will almost certainly see continued litigation related to congressional subpoena enforcement.

Finally, today, in the first full legislative day of the new Congress, the House adopted its internal rules, several of which have important implications for congressional investigations.

  • The new rules included several provisions related to the announcements above. For example, the rules reauthorized the Select Subcommittee on the Coronavirus Crisis.  The rules also provided a one-time authorization to the chair of the Select Subcommittee and the chair of the Oversight and Reform Committee to reissue subpoenas that expired at the end of the Congress and to do so immediately, before the Committee adopts its internal subpoena rules, in an investigation concerning political interference in response to the pandemic and an investigation of the census.
  • The new rules made two changes to clarify the House’s position on existing law. The rules now specifically state that the House has the authority to subpoena a current or former President, Vice President, and White House staff.  The new rules also now specifically cite subpoena issuance as an example of actions that congressional leaders may take to ensure continuation of existing litigation.
  • The rules extended recent practices that are important to investigations, including an extension of the authority for committees to hold remote hearings during the pandemic, and continuing the authority for committees to conduct depositions by Members or counsel.
  • The new rules also expanded the scope of the disclosures required in the congressional “truth-in-testimony” form, which is required from witnesses appearing before congressional hearings. The new rules expanded the reporting requirements to include grants from foreign governments and certain fiduciary relationships, and the rules will require committees to make the disclosures available before a hearing rather than afterward.  The truth-in-testimony requirement is an esoteric part of congressional practice and witnesses often struggle with the vague requirements of the rule and the questions in the form.

As always, we encourage our clients to think carefully about the congressional investigation risks they may face today and in the new congressional term.