October 23, 2008 Organization for International Investment General Counsel Conference Briefing on Campaign Finance Rules Presented by Robert K. Kelner.

October 23, 2008

Organization for International Investment General Counsel Conference

Briefing on Campaign Finance Rules

Presented by

Robert K. Kelner

Covington & Burling LLP

Michael A. Nemeroff

Sidley Austin LLP

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Overview

• Corporate Political Activity

• PAC Activity

• Individual Activity

• State Rules

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Corporate Political Activity

• Federal law prohibits use of corporate money in federal elections

• This generally means:– NO political contributions – NO reimbursements with company funds– NO contributions in-kind of corporate resources

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Exception #1: “Restricted Class” Activities

• Communications to the “restricted class,” including candidate endorsements or solicitations for contributions to candidates– executive and administrative personnel– stockholders– families of both groups

• Candidate appearances/fundraisers– Subject to $2,000 reporting threshold

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Restricted Class Candidate Appearances/Fundraisers

• If only restricted class members attend:– Corporate funds may be used to pay for the costs of the

candidate’s appearance/fundraiser– Both the candidate and company representatives may

expressly advocate for election of the candidate– No equal opportunity for other candidates to appear is

required– Company must not facilitate personal contributions

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Exception #2: Political Action Committees

• Federal law allows PACs– Companies may pay the administrative expenses

of the PAC

– All contributions to PAC must be voluntary– Solicitation of contributions to PAC heavily

regulated• Generally only the restricted class may be solicited

• Foreign nationals cannot be solicited

– Foreign parent cannot direct or subsidize the PAC

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PAC-Candidate Contributions

• PAC can accept $5,000 per year from an individual

• Once a PAC qualifies as a “multi-candidate” PAC, it can contribute:

• $5,000 per candidate per election• $15,000 to national political parties per calendar year• $5,000 combined limit for state and local parties in a

particular state per year

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PAC-Candidate Fundraisers

• PAC may host fundraising events for federal candidates– Open to any non-foreign national– Cost of the event is treated as “in-kind”

contribution by the PAC to the benefiting campaign

• PAC or campaign must pay all expenses (including staff time)

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Other Permitted Political Activity

• Non-partisan “Get Out the Vote” activity• Contributions to politically-oriented tax-

exempt organizations

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Foreign National Prohibition

• Foreign nationals prohibited from making contributions– But “green card” holders are not

considered foreign nationals

• Foreign nationals prohibited from participating in decisions concerning contributions– Includes federal, state, and local contributions

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Political Activityby Individuals

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Individual Political Activity

• Individuals are free to raise and contribute funds:– Voluntarily– In their personal capacity– On their own time– Using their own resources

• Companies may not:– Direct or pay employees to engage in political activity– Facilitate the making of employee contributions– Reimburse employee political contributions

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Use of Corporate Resources for Individual Volunteer Fundraising Events

• Corporate resources may not be used for personal fundraising events unless properly reimbursed:

– Staff Time– Customer/Client Lists – Catering/Food Services

• Advance “reimbursement” required for many things

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Individual Political Activity

• Executives raising funds in personal capacity must not coerce subordinates into making contributions.– Advisable not to focus fundraising exclusively on

subordinates.

– Fundraiser should make clear that he/she is raising funds purely on own behalf, not for company.

– Solicitation should not connect contribution to job status, “corporate citizenship,” loyalty to company.

– Avoid proximity to job performance evaluation and bonuses.

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State Laws Regulating Political Activity

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Common State Issues

• Corporate contributions are permitted in some states• Registration and Reporting Issues

– Must the federal PAC register and file reports?– May the federal PAC contribute at all to state candidates?

• Separate bank accounts• Prohibition on contributions during legislative session• “Pay-to-Play” rules

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Current Procedural Status Of New Rules

• House gift ban for lobbyists effective January 6, 2007

– Meals and sports and entertainment gifts prohibited

• House travel changes became effective on March 1, 2007

• Senate gift ban and travel changes became effective September 14, 2007, including:

– Lobbyists’ obligation to comply with gift rules effective on same date

– LDA reporting changes effective first quarter of 2008

– LDA reporting of political contributions effective July 2008

• House and Senate issued amended LDA guidance memorandum most recently on July 16, 2008

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Ban On Gifts By Lobbyists

• Gifts banned from “registered lobbyist,” “agent of a foreign principal,” and a “private entity” that “retains or employs” a “registered lobbyist” or an “agent of a foreign principal”

– Applies to the exception for $50/$100 gifts• Only non-lobbyist can make such gifts

• House memo states ban would apply to non-lobbyist’s use of personal funds if seeking to evade the gift ban

– Senate Ethics Committee lawyer stated the Senate will follow the same rule

– Anything that looks like circumvention is prohibited

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Ban On Gifts By Lobbyists

• 23 enumerated exceptions still apply; for example:– Campaign contributions or free attendance at event sponsored

by political action committee– Personal friendship (reciprocation; personal funds)– Widely attended events

• Attended by a range of interests; at least 25 people are expected; attendance related to official duties

– Refreshments at reception of nominal value not part of a meal (“finger food”)• Senate and House recently denied approval for reception with

“heavy” hors d’oeuvres, plates, and silverware• One-on-one drinks prohibited

– Items of little intrinsic value, e.g., T-shirt; baseball hat• Only listed items; not comparably priced items• Any other item must cost less than $10

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Valuation of Tickets

• Members and staff may not accept a ticket from a lobbyist or an entity that employs or retains lobbyists

• For all entertainment and sporting events the government official must pay– Face value of ticket

– For tickets without face value, the highest cost ticket for the event with a face value

– Other methods of valuing (e.g., pro rata share) not allowed

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Gift Rule Compliance

• Twice each year each lobbyist and each employer of a lobbyist will file a report (LD-203) certifying compliance with House and Senate gift rules, including travel rules– Must obtain identification number and password from Secretary of the

Senate and file report electronically– Will report political and other contributions to federal officials

• Will not report contributions of spouse

– Civil penalties up to $200,000; criminal penalties up to 5 years in prison $250,000 (individual) or $500,000 (organization) fine

• Also, each lobbyist must certify that he/she has read the gift rules and is familiar with them

• GAO has conducted random compliance audits; generally found compliance

• Public reporting of number of referrals to DC US Attorney• DOJ report to Congress number of enforcement actions and

sentences; so far little enforcement

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Candidate Reporting of Bundling

• Candidate committees must disclose lobbyists they “reasonably know” have made two or more “bundled” campaign contributions exceeding $15,000

• Bundled contributions are:– contributions forwarded by a lobbyist to the candidate committee

– contributions the candidate receives directly from a contributor, but which the candidate credits to a lobbyist

• Semiannual basis, but FEC may require quarterly disclosure

• FEC has solicited comments on proposed final rules, but regulations have not been finalized

• Current law already requires all individuals that collect and forward contributions to file reports with FEC, but there is low compliance– Candidates’ bundling reports may identify individuals not complying

with reporting obligations

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Executive Branch Gift Rules (No Change)

• All gifts prohibited from “prohibited source” with limited exceptions– $20/$50 per event per year

– personal friendship (reciprocation)

– widely attended events

– No charity exception

• A company is a “prohibited source” for any agency which regulates it or before which it does any business

• A gift also is prohibited when given because of an agency employee’s position

• These rules impose no liability on the donor

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LDA Reporting

• LDA Reporting for an organization employing lobbyists:

– report four times each year (April 21, July 21, Oct. 20 and Jan. 20) all lobbying activities and estimated expenditures. There should be a documented system for collecting reportable information. The system should be followed each cycle, and supporting records should be maintained

• House and Senate have issued detailed guidance

– report twice each year (July 30 and Jan. 30) all contributions to federal candidates and other committees, widely attended events honoring Members, party retreats, Presidential libraries or inaugural committees

– Certify compliance with House and Senate gift rules

• Each lobbyist is required to file same report

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Lobbyist Travel Limits

• Lobbyists and agents of a foreign principal banned from paying for travel– In Senate all travel changes took effect in December 2007

• Private entities that employ or retain lobbyists or agents of a foreign principal also are prohibited from paying for travel, except such entities may pay for travel– Subject to regulations for 1-day trip (exclusive of travel time and

overnight stay) for fact finding or appearance, or

– Sponsored by certain 501(c)(3) organizations approved by Senate ethics committee or by any “institution of higher education” for House travel

– Ethics committees may approve 2-night stays case-by-case

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Lobbyist Travel Limits

• Members and staff may not accept reimbursement for:– A trip “planned, organized, requested or arranged” by a

registered lobbyist or agent of a foreign principal

– A trip on which a lobbyist “accompanies” the Member or staff

– House and Senate ethics committees have issued regulations and forms

– The company being visited must provide a written certificate of compliance with rules before trip to each person invited to travel

– Members and staff must provide before and after travel written certificates of compliance with rules

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Lobbyist Travel Limits

• Ban on lobbyist involvement in travel does not apply:– If Member is able to travel on official funds

• Returning to home state

• Side trip from field hearing

– If Member is traveling on campaign funds to attend a fund raiser

• In that case, trip may be “planned, organized, requested or arranged” by a lobbyist

• Ban does not apply to travel under Mutual Educational and Cultural Exchange Act or Foreign Gifts and Decorations Act

• No lobbyist involvement should be allowed in any trip without discussion with the Member’s office until practices under new rules become more routine