Federal Lobby Disclosure and Ethics Laws

Transcription

1 , Arps, Slate, Meagher & Flom LLP & Affiliates Federal Lobby Disclosure and Ethics Laws Washington Metropolitan Area Corporate Counsel Association by Kenneth A. Gross and Lawrence M. Noble, Arps, Slate, Meagher & Flom LLP Washington, D.C. June 17, 2008, Arps, Slate, Meagher & Flom LLP

2 Lobbying and Gift Laws Honest Leadership and Open Government Act House gift and ethics rules changes made in January and May On September 14, 2007, the President signed an ethics reform bill that makes significant lobbying, gift, and ethics changes to federal law and Congressional rules. Among other changes, the law: - significantly increases the frequency and scope of lobbyist disclosure (including with respect to contributions), - bans gifts from lobbyists, lobbying firms, and lobbyist employers to Senators and staff (matches House ban that passed in January), - holds lobbyists, lobbying firms, and lobbyist employers liable for improper gifts, - increases disclosure regarding travel and earmarks, and - addresses conflicts of interest for Members and staff. Grassroots lobbying is not required to be disclosed. 2, Arps, Slate, Meagher & Flom LLP

3 Lobbying Laws Federal Lobbying Law Lobbying Disclosure Act of 1995 ( LDA ) Three requirements must be met to trigger LDA registration and reporting requirements: - A company must have at least one employee who spends 20% or more of his or her working time engaging in lobbying activity; - That same employee must have 2 or more lobbying contacts; and - The company must spend more than $10,000 on such lobbying activity over a 3-month period. - Lobbying firm threshold: lobbying income for a particular client must exceed $2,500 over a 3-month period. These registration and reporting requirements are effective January 1, , Arps, Slate, Meagher & Flom LLP

4 Lobbying Laws What is Lobbying Activity Under the LDA? Lobbying activity consists of: - Lobbying contacts; and - Research and preparation for such contacts (i.e., work done with the intent that the results will be used for lobbying contact). Lobbying contact includes making the following communications in an attempt to influence legislation, formal rulemaking by an agency, federal contracts, or any other position of the federal government: - Communications with Congressional members and staff; and - Communications with Covered Executive Branch Officials (i.e., White House Staff and Presidential and Schedule C Appointees but not SES employees if using LDA Method or White House Staff and Cabinet Secretaries and Deputy Secretaries if using IRC Method). 4, Arps, Slate, Meagher & Flom LLP

5 Lobbying Laws Reporting Expenditures Under LDA Option of using LDA s or IRC s definition of lobbying activity. Differences are as follows: - IRC includes grassroots lobbying; - IRC includes state level lobbying; and - They have different definitions of Covered Executive Branch Official. - Under IRC, the time of employees with no contacts and who spend less than 5% of their time on lobbying activity does not need to be reported. LDA method has no such de minimis. Must use one definition lock, stock, and barrel for expenditures 5, Arps, Slate, Meagher & Flom LLP

6 Lobbying Laws Reporting Expenditures Under LDA For Corporations In-House Personnel: Must include internal expenditures (employee salary, overhead, and out-of-pocket, such as travel). Must include employee salary even though employee has not triggered lobbyist status. Outside Lobbyists: Must include payments made to outside lobbyists. Trade Association and Coalition Dues: Must include the portion of dues payments made to trade associations for lobbying. Travel and Entertainment: Must include travel and entertainment expenses related to lobbying. 6, Arps, Slate, Meagher & Flom LLP

7 Lobbying Laws Reporting Issues Lobbied Under LDA Must list issues lobbied by in-house lobbyists (the legislation, rulemaking, or decision). Should include bill and brief description of legislation. Must list the Congressional House or Executive Branch Agency contacted, if applicable. 7, Arps, Slate, Meagher & Flom LLP

8 Lobbying Laws Enforcement Changes S.1 Lobbying Law Changes - Increased Penalties - Civil: S.1 amends the LDA to increase civil penalties for violations from $50,000 to $200, Criminal: S.1 adds criminal penalties to the LDA (up to 5 years in prison and/or fines under Title 18 of the U.S. Code). S.1 sets a knowingly and corruptly standard for criminal penalties. - There is still a 60-day cure provision for reporting violations, but not for other violations of the new law, such as gift restrictions. 8, Arps, Slate, Meagher & Flom LLP

9 Lobbying Laws S.1 Lobbying Law Changes Lobbying reports are quarterly instead of semi-annual. Reports are electronic and placed on a public database. Reports are due 20 days after end of quarter (previously due 45 days after end of semi-annual period). Lobbying thresholds adjusted accordingly. - For example, 20% time per quarter rather than per six months, $10,000 expenditure per quarter rather than $24,500 per six months. - For lobbying firms, $2,500 income per quarter rather than $6,000 per six months. 9, Arps, Slate, Meagher & Flom LLP

10 Lobbying Laws S.1 Lobbying Law Changes New Semi-Annual Disclosure Report Lobbyists, lobbying firms, and lobbyist employers are required to file a semi-annual report detailing political contributions, charitable contributions, and other expenditures made to, at the request of, for the benefit of, or recognizing covered legislative and executive branch officials. The report is due 30 days after the end of each semi-annual period (January-June and July- December). 10, Arps, Slate, Meagher & Flom LLP

11 Lobbying Laws S.1 Lobbying Law Changes Contents of New Semi-Annual Report The report must contain the following information: - The name of all PACs established or controlled by the lobbyist, lobbying firm, or lobbyist employer. - Each federal candidate or incumbent, leadership PAC, or party committee that received contributions of $200 or more (aggregate) from the lobbyist, lobbying firm, lobbyist employer, or their PACs during the semi-annual period. - The date and amount of each contribution is required. 11, Arps, Slate, Meagher & Flom LLP

12 Lobbying Laws S.1 Lobbying Law Changes Contents of New Semi-Annual Report The report must contain the following information: - Other contributions or donations to entities or events in which a covered official may have an interest (unless required to be reported under FECA), including: - Events held to honor or recognize a covered legislative or executive branch official - Entities designated by, or established, financed, maintained, or controlled by, such an official - Entities named for a legislative branch official - Any entity in recognition of a legislative branch official. - New guidance indicates that even events held by a third party may be reportable by a supporting sponsor. 12, Arps, Slate, Meagher & Flom LLP

13 Lobbying Laws S.1 Lobbying Law Changes Contents of New Semi-Annual Report The report must contain the following information: - Any funds paid or contributed by a lobbyist, lobbying firm, lobbyist employer, or their PAC(s) to pay for a meeting, conference, or similar event held by, or in the name of, one or more covered legislative or executive branch officials. - Each Presidential inaugural committee and library foundation to which contributions of $200 (aggregate) were made by a lobbyist, lobbying firm, lobbyist employer, or their PAC(s). - Certification With each semi-annual report, lobbyists, lobbying firms, and lobbyist employers must provide a certification that (i) they are familiar with the House and Senate gift rules, and (ii) they have not knowingly provided, requested, or directed a gift (including travel) to a Member or staff in violation of such rules. 13, Arps, Slate, Meagher & Flom LLP

14 Lobbying Laws S.1 Lobbying Law Changes Bundling Disclosure by Candidates S.1 amends FECA to require candidates campaigns, leadership PACs, and political party committees ( Covered Recipients ) to disclose for each reporting period the name, address, and employer of each lobbyist, lobbying firm, or lobbyist employer that has provided two or more bundled contributions totaling over $15,000 (and the specific amount bundled) during that period. 14, Arps, Slate, Meagher & Flom LLP

15 Lobbying Laws S.1 Lobbying Law Changes Bundling Disclosure by Candidates - A contribution is considered to be bundled if: - (i) the contribution is forwarded from the contributor(s) to the Covered Recipient by the lobbyist, lobbying firm, lobbyist employer (including its in-house lobbyists), or their PACs, or - (ii) the contribution is received by a Covered Recipient from the contributor(s) but will be, or has been, credited to a lobbyist, lobbying firm, lobbyist employer (including its in-house lobbyists), or their PACs through records, designations, or other means of recognizing that a certain amount of money has been raised. - Federal Election Commission issued Notice of Proposed Rulemaking November 6, , Arps, Slate, Meagher & Flom LLP

16 Lobbying Laws S.1 Lobbying Law Changes Change in Disclosure by Coalitions and Associations S.1 amends the LDA to require registrants to disclose any entity that: - (i) contributes over $5,000 per reporting period to the lobbying effort of the Registrant, and - (ii) "actively participates" in the planning, supervision, or control of the Registrant's lobbying activities (under pre-existing law, the threshold is contribution of $10,000 per reporting period and "in whole or major part plans, supervises, or controls" lobbying activities). - The term "actively participates" sets a lower threshold than the preexisting law 16, Arps, Slate, Meagher & Flom LLP

17 Lobbying Laws S.1 Lobbying Law Changes Change in Disclosure by Coalitions and Associations - There is an exemption from this disclosure requirement if: - (i) the Registrant lists the member entity on its public website as being a member of the Registrant or a contributor to the Registrant's lobbying effort (the specific Internet address must be provided), and - (ii) the member does not in whole or major part plan, supervise, or control the Registrant's lobbying activities. - Individual persons who are members of, or contributors to, a Registrant are exempt. 17, Arps, Slate, Meagher & Flom LLP

18 Lobbying Laws S.1 Lobbying Law Changes Change in Disclosure by Coalitions and Associations - Please note that although this provision is entitled "Disclosure of Lobbying Activities by Certain Coalitions and Associations," the change it makes to the LDA could also apply to companies in certain cases (e.g., where the costs of a parent company's centralized lobbying efforts are "charged back" to a subsidiary or an affiliated company). 18, Arps, Slate, Meagher & Flom LLP

19 Lobbying Laws S.1 Lobbying Law Changes Sense of the Congress Regarding Lobbyist Self-Regulatory Organizations S.1 includes a "Sense of the Congress" provision calling on the lobbying community to develop proposals for multiple self-regulatory organizations to create standards, provide trainings and educational materials regarding law, ethics, reporting and disclosure requirements, and reasonable fees, and to provide third-party certification regarding such matters. 19, Arps, Slate, Meagher & Flom LLP

20 Conflict of Interest Laws Revolving Door and Conflict of Interest Changes Employment Negotiation Disclosure and Restrictions Under S.1, both the Senate and House require disclosure of employment negotiations that occur prior to election of the successor to the Senator or Member. - Senate A Senator (but not Staff) is prohibited from negotiating for, or entering an arrangement concerning, prospective employment for a job involving lobbying activities (as defined by the LDA) until after his or her successor has been elected. 20, Arps, Slate, Meagher & Flom LLP

21 Conflict of Interest Laws Revolving Door and Conflict of Interest Changes Employment Negotiation Disclosure and Restrictions - Senate For non-lobbying employment, Senators and Senior Staff who negotiate for, or enter an arrangement concerning, future private employment must file a disclosure statement with the Secretary of the Senate (including the name of the private entity(ies) involved) within three business days. - Such Senators and Staff must recuse themselves from (i) any communication with the prospective employer on issues of legislative interest to that employer, and (ii) any legislative matter in which there is an actual or apparent conflict of interest with regard to the private entity(ies). 21, Arps, Slate, Meagher & Flom LLP

22 Conflict of Interest Laws Revolving Door and Conflict of Interest Changes Employment Negotiation Disclosure and Restrictions - House Members and Senior Staff who negotiate for, or agree to, such future employment or compensation must file a disclosure statement with the Ethics Committee (including the name of the private entity(ies) involved) within three business days. - Such Members and Staff must recuse themselves from any matter in which there is an actual or apparent conflict of interest with regard to the private entity(ies). 22, Arps, Slate, Meagher & Flom LLP

23 Conflict of Interest Laws Revolving Door and Conflict of Interest Changes Prohibiting Influence on Private Employment Decisions S.1 prohibits Senators and Members from attempting to influence the hiring decisions of private entities. - Criminal Penalty under U.S. Code S. 1 amends federal law to prohibit Senators, Members, and staff from doing the following with the intent to influence a private entity's employment decisions on the basis of partisan political affiliation: - (i) taking or withholding, or offering or threatening to take or withhold, an official act, or - (ii) influencing, or offering or threatening to influence, the official act of another. - Penalties for violations of this prohibition include being banned from public office, fines, or imprisonment for up to 15 years. 23, Arps, Slate, Meagher & Flom LLP

24 Conflict of Interest Laws Revolving Door and Conflict of Interest Changes Prohibiting Influence on Private Employment Decisions - Senate Rule Change - S.1 amends Senate rules to prohibit Senators from engaging in the following activities with the intent to influence a private entity's employment decisions or practices on the basis of partisan political affiliation: - (i) taking or withholding, or offering or threatening to take or withhold, an official act, or - (ii) influencing, or offering or threatening to influence, the official act of another. 24, Arps, Slate, Meagher & Flom LLP

25 Conflict of Interest Laws Revolving Door and Conflict of Interest Changes Cooling Off Period S.1 expands the time, or persons, or both, that former Senators, senior staff, and certain senior Executive Branch officials are prohibited from lobbying (the "Cooling Off" Period), as follows: - Senate S.1 extends the one-year Cooling Off Period to two years for Senators (the prohibition applies to contact with Members and staff of both the House and Senate). - S.1 expands the one-year Cooling Off Period for former Senate Senior Staff (those with a salary that is 75% or more of that of a Senator) to cover all Senate Members and staff. - Executive Branch S.1 extends the Cooling Off Period for specific senior Executive Branch officials from one to two years. 25, Arps, Slate, Meagher & Flom LLP

26 Earmark Rules Earmark and Procedural Changes Senate S.1 includes several changes to Senate rules to increase transparency and control of the earmark process and to prohibit improper interests in earmarks. - Procedural: Rule changes regarding when and how earmarks may be added. - Disclosure: Public identification of earmark sponsor(s) at least 48 hours before a vote; notification to committee leadership of the purpose and beneficiaries of each earmark. - Certification: Public certification by the requesting Senator that he or she does not have an impermissible interest in an earmark. House In its January rule amendments, the House made similar changes. 26, Arps, Slate, Meagher & Flom LLP

27 Conflict of Interest Laws Revolving Door and Conflict of Interest Changes Restricting Contact with Lobbyist Spouses of Members S.1 requires both House and Senate Members to prohibit their staff from having any official contact with the Member's spouse if the spouse is a lobbyist (or is retained by a lobbyist, lobbying firm, or lobbyist employer to influence legislation). - For the Senate only, this restriction extends to immediate family members of the employing Senator who are lobbyists. 27, Arps, Slate, Meagher & Flom LLP

28 Conflict of Interest Laws Revolving Door and Conflict of Interest Changes Restricting Contact with Lobbyist Spouses of Members The Senate Rule also prohibits official contact by Senators or staff with the lobbyist spouses of any Senator (not just a staffer's employing Senator). - However, with regard to official contact between a Senator or staff and the lobbyist spouses of other Senators, there is a grandfather clause that exempts spouses who were serving as a registered lobbyist at least 1 year before (i) the Senator s most recent election, or (ii) marriage to the Senator. 28, Arps, Slate, Meagher & Flom LLP

29 Conflict of Interest Laws Revolving Door and Conflict of Interest Changes Restricting Floor Access for Former Senators S.1 ends Floor privileges for Senators-elect and for former Senators and Officers and former House Speakers who are lobbyists (or who represent a third party to influence legislative issues, whether directly or indirectly). - Such former Senators also lose gym and parking privileges. 29, Arps, Slate, Meagher & Flom LLP

30 Conflict of Interest Laws Revolving Door and Conflict of Interest Changes Expanding House Contractor Communication Ban S.1 amends the House rules to extend the lobbying restrictions that apply to House Committee consultants to cover any business organization of which the consultant is a member, employee, or partner. 30, Arps, Slate, Meagher & Flom LLP

31 Gift Laws Gift Rule Changes Affecting Senate and House Lobbyist/Lobbying Firm/Lobbyist Employer Gift Ban the gift limit from lobbyists, lobbying firms, and lobbyist employers decreases from $49.99 per occasion/$99.99 per year to $0 (the related exemption for gifts under $10 is no longer available to lobbyists/lobbying firms/lobbyist employers). - For the House, this ban has been in effect since January. - For the Senate, the ban took effect on September 14. Non-Lobbyists/Non-Lobbying Firms/Non-Lobbyist Employers For those entities that are not lobbyists and do not employ a lobbyist, the pre-existing gift rules still apply ($49.99 per occasion/$99.99 per year). 31, Arps, Slate, Meagher & Flom LLP

32 Gift Laws Gift Rule Changes Affecting Senate and House However, many gift exemptions are available, even to lobbyists/lobbying firms/lobbyist employers, including, but not limited to: - Reception exemption - Nominal food in certain settings - Widely attended gathering - Friendship (cannot be expensed and subject to increased scrutiny) - Food and local travel outside of D.C. (House rules vs. Senate rules) - Attendance at events sponsored by charity (House only) - Home district products - Nominal items (baseball caps, t-shirts, and greeting cards) - Training - Informational materials - Items paid for at market value or promptly returned - Commemorative items - Political contributions - Note: personal hospitality exemption is not permitted for lobbyists 32, Arps, Slate, Meagher & Flom LLP

33 Gift Laws Additional Gift Rule Changes Tickets to sporting or entertainment events: valuation rules - Senate: A ticket is valued at face value. - A ticket holder may seek pre-approval of an equivalent ticket value for a ticket with no face value (considering the value of tickets with similar seating, parking, food, access to non-public areas, etc.). - Otherwise, tickets with no face value are valued at the highest priced ticket with a face value, as in the House. - House: A ticket is valued at face value, but face value is face value only if the price is offered to the public. - A ticket without face value is valued at highest cost of a ticket with a face value. 33, Arps, Slate, Meagher & Flom LLP

34 Gift Laws Additional Gift Rule Changes Senate: S.1 amends the Senate gift rules to allow free attendance at certain constituent events in the Member s home state. - Key requirements include: in home state; no lobbyist present; attendance provided by event sponsor, who must be a constituent or group thereof; attended primarily by constituents (5 or more); cost of meals $50; Member or staff must participate in event or attendance must be appropriate to official duties. House: House guidance also allows for a constituent event exemption, but the requirements are different. 34, Arps, Slate, Meagher & Flom LLP

35 Gift Laws Additional Gift Rule Changes Restriction on Participation in Events at National Party Conventions - Both Senate and House A Member or Senator is prohibited from participating in an event honoring that Member during a national party convention if such event is directly paid for by a lobbyist, lobbying firm, or lobbyist employer. - A Member or Senator being honored in his or her capacity as a party s Presidential or Vice Presidential candidate is permissible. - Events honoring a Member outside of the 4-day convention period are permissible. - Congressional delegations and caucuses: permissible in the House, impermissible in the Senate. In the Senate it is permissible to honor the entire state delegation but not just the state s Congressional delegation. - Featured speaker: impermissible in the House, permissible in the Senate. - Earmark to third party expressly prohibited in the Senate. 35, Arps, Slate, Meagher & Flom LLP

36 Gift Laws New Travel Rules: Factfinding Trips Factfinding trips (effective for House March 2007; for Senate December 2007) - New Restrictions on Lobbyist Involvement - Lobbyist may not pay for expenses related to otherwise exempt factfinding trip. - Lobbyist may not accompany Member or staffer on trip. - Lobbyist may not have more than de minimis involvement in arranging or organizing trip for employer. - New Restrictions on Lobbying Firm or Lobbyist Employer Involvement - Firm/Employer may pay for necessary expenses of factfinding trip if one-day event (excluding travel time and overnight stay). - Non-commercial corporate aircraft may not be used for such trips. - Member/staffer must certify compliance with above and all factfinding trips must be preapproved by the House or Senate Ethics Committee. 36, Arps, Slate, Meagher & Flom LLP

37 Gift Laws New Travel Rules: Factfinding Trips Factfinding trips (effective for House March 2007; for Senate December 2007) - Member/staffer travel disclosure is expanded for both the House and the Senate. - For the House, the post-travel grace period for disclosure has been shortened from 30 to 15 days. The Senate 30-day period has not been changed. - Both the Clerk of the House and the Secretary of the Senate are required to post travel disclosures, certifications, etc. on a public website. Please note that Senate guidelines regarding the reasonableness of the cost of one-day fact-finding trips funded by a lobbying firm or lobbyist employer will be required to advise that the use of private aircraft for such trips is not reasonable. 37, Arps, Slate, Meagher & Flom LLP

38 Gift Laws New Travel Rules: Other Than Factfinding Trips Restriction on use of funds to pay for travel on private aircraft: - Senate: Senators permitted to pay charter rate for such trips. However, the following are exempt: - Flights on aircraft owned or leased by a Member or his or her family member (so long as the use is proportionate to the ownership share and other conditions are met). - Flights on government aircraft. 38, Arps, Slate, Meagher & Flom LLP

39 Gift Laws New Travel Rules: Other Than Factfinding Trips Restrictions on use of funds to pay for travel on private aircraft: - House: Under House rules passed in January, Members may not use personal, official, or campaign funds for a flight on an aircraft, with the following exemptions: - Flights on commercial aircraft. - Flights on aircraft owned or leased by a Member or his or her family member (so long as the use is proportionate to the ownership share and other conditions are met). - Personal use of an aircraft supplied on the basis of a personal friendship. - Flights on government aircraft. 39, Arps, Slate, Meagher & Flom LLP

40 Campaign Finance Laws Federal Law Change Campaign Travel S.1 amends the Federal Election Campaign Act ( FECA ) to restrict the use of campaign funds for private air travel as follows: - Senate and Presidential/Vice Presidential Candidates Such candidates and their campaigns may only make expenditures for flights on privately operated aircraft if the candidate or campaign pays the charter rate, with the following exemption: - Flights on aircraft owned or leased by a Member or his or her family member (so long as the use is proportionate to the ownership share and other conditions are met). 40, Arps, Slate, Meagher & Flom LLP

41 Campaign Finance Laws Federal Law Change Campaign Travel S.1 amends FECA to restrict the use of campaign funds for private air travel as follows: - House Candidates The campaigns and leadership PACs of such candidates may only make expenditures for commercial flights, and not for privately operated aircraft, with the following exemptions: - Flights on aircraft owned or leased by a Member or his or her family member (so long as the use is proportionate to the ownership share and other conditions are met). - Flights on government aircraft. 41, Arps, Slate, Meagher & Flom LLP

42 Lobbying and Gift Laws Change to Federal Law Enforcement Donor Liability S.1 amends the Lobbying Disclosure Act ( LDA ) to make lobbyists, lobbying firms, and lobbyist employers liable for providing gifts or travel not permitted by Senate or House rules. Increased Penalties S.1 amends the LDA to increase civil penalties for violations and add criminal penalties (up to 5 years in prison and/or fines under Title 18 of the U.S. Code). S.1 sets a knowingly and corruptly standard for criminal penalties. Random GAO audits Certification of Compliance S.1 requires LDA registrants to provide a semi-annual certification that (i) they are familiar with the Senate and House gift rules, and (ii) they have not knowingly provided, requested, or directed a gift (including travel) to a Senator, Member, or staffer in violation of such rules. 42, Arps, Slate, Meagher & Flom LLP

43 Lobbying and Gift Laws Ethics Law Compliance Employee compliance training Lobby reports: tracking employee time (lobbyists and non-lobbyists) and capturing all covered expenditures Gift ban: preclearing all employee expenses on behalf of federal officials Semi-annual certification: compliance with gift and lobby disclosure rules Policies on lobby disclosure, gifts, and campaign contributions 43, Arps, Slate, Meagher & Flom LLP

44 Lobbying Laws S.1 Lobbying Law Changes Changes in Information Required at Registration S.1 requires additional information from registrants. In particular: - Disclosure of Governmental Clients LDA registrants required to identify whether any client is a state or local government or government-controlled entity (e.g., agency, district). - Expanded Disclosure of Previous Legislative and Executive Branch Employment Registrants required to disclose certain legislative and executive branch employment during the past 20 years (previous requirement: two-year look back). 44, Arps, Slate, Meagher & Flom LLP

45 Lobbying and Gift Laws Sense of Congress re: Executive and Judicial Branches S.1 includes a non-binding provision stating that it is the sense of Congress that all restrictions on Congressional officials and employees should also apply to the executive and judicial branches. 45, Arps, Slate, Meagher & Flom LLP

46 Gift Laws Executive Branch Gift Rules Gifts to executive branch officials and employees continue to be limited to $20 per occasion and $50 per calendar year. Commonly used exemptions include: - Widely attended gathering (but requires pre-clearance from agency) - Meals and entertainment from non-prohibited source - Personal relationship (factors: personal payment and relationship history) - Gifts the receipt of which is specifically authorized by statute (e.g., Foreign Gifts and Decorations Act) 46, Arps, Slate, Meagher & Flom LLP

47 , Arps, Slate, Meagher & Flom LLP & Affiliates Federal Campaign Finance Laws Washington Metropolitan Area Corporate Counsel Association by Kenneth A. Gross and Lawrence M. Noble, Arps, Slate, Meagher & Flom LLP Washington, D.C. June 17, 2008, Arps, Slate, Meagher & Flom LLP

48 Campaign Finance Laws Federal Hard Money Rules Contribution Limits for Individuals Limits To Candidates $2,300 per election To State Party Committees $10,000 per yr. To National Party Committees $28,500 per yr. To Federal Leadership PACs $5,000 per yr. Aggregate Amounts $108,200 per two-year election cycle, as follows: (1) $42,700 to candidates; (2) $65,500 for all other contributions, of which not more than $42,700 may be to committees other than national party committees (i.e., federal PACs and federal accounts of state party committees, leadership PACs). 48, Arps, Slate, Meagher & Flom LLP

49 Campaign Finance Laws Attribution and Designation Rules Knowing to whom one is making a contribution and necessity of making designations on the contribution check. Spousal attribution. - Contribution attributable to signer of check. Knowing the date of a contribution is important: - For applying contribution limits; and - For reporting purposes. Contributions are deemed to be made when one relinquishes control over the contribution check (e.g., mailbox rule). One may not give to a particular candidate s election after the date of that election, unless: - The campaign has net outstanding debt; and - The check is designated in writing for that election s debt retirement. 49, Arps, Slate, Meagher & Flom LLP

50 Campaign Finance Laws Establishing and Operating a PAC Federal law permits a corporation (but not a partnership or an LLC not filing as a corporation with the IRS) to establish and operate, and pay administrative expenses for, a PAC to make contributions to federal candidates. Registration and reporting requirements. Federal PACs must file electronically with the FEC if take in or spend $50,000. Organizational documents and issues. PAC officers. Issues related to incorporation. Taxpayer ID number. Federal and state income taxes. 50, Arps, Slate, Meagher & Flom LLP

51 Campaign Finance Laws PAC Limits A multi-candidate PAC may contribute up to - $5,000 to a candidate, per election; - $5,000 to another PAC, per calendar year; and - $15,000 to a national party committee, per calendar year. 51, Arps, Slate, Meagher & Flom LLP

52 Campaign Finance Laws Soliciting for PAC PAC may solicit company s Restricted Class (shareholders and executive and administrative personnel). - As a guideline, this generally includes employees who are exempt under FLSA. - FLSA exempt employees are still not solicitable if they are: - Hourly paid, - Unionized, - First-line supervisors of hourly-paid employees (unless they have some other exempt function), or - Possibly outside sales persons. 52, Arps, Slate, Meagher & Flom LLP

53 Campaign Finance Laws Soliciting for PAC Must provide union with same method for soliciting its members at the company. - May require the union to pay for related costs. PAC may solicit non-restricted Class employees under very narrow circumstances. - Must be limited to twice yearly, - Solicitation must be sent to their homes, - May not use payroll deduction, and - Must have independent custodian of the funds that ensures anonymity of certain contributions. - Must grant union PACs ability to solicit non-unionized employees up to twice a year. 53, Arps, Slate, Meagher & Flom LLP

54 Campaign Finance Laws Soliciting for PAC What constitutes a solicitation? What may be said to all employees vs. solicitable employees? One-third rule. Charity PAC match. Deductibility issues. Using payroll deductions to fund a PAC Authorization Requirement. - No requirement for annual reauthorization but records must be maintained. - Use of inter- or intranet for obtaining payroll deduction authorization. - Document retention of authorizations day deposit rule. 54, Arps, Slate, Meagher & Flom LLP

55 Campaign Finance Laws Soliciting for PAC All PAC solicitations must have necessary caveat language, e.g., using a PAC contribution card stating: - I am contributing to the PAC as indicated below. Prior to contributing, I am aware: - That contributions to the PAC will be used in connection with federal elections and are subject to the prohibitions and limitations of the Federal Election Campaign Act. - Of my right to refuse to contribute without reprisal. - That the guidelines for contributing are merely suggestions. I may contribute more or less than the guidelines suggest or nothing at all and I will not be favored or disadvantaged by reason of the amount of my contribution or my decisions not to contribute [only required if recommended level of contributing]. - That contributions to the PAC are not deductible for federal income tax purposes. - That I must be a U.S. Citizen or Permanent Resident Alien (i.e., a Green Card holder residing in the U.S.) to make a contribution. - Federal law requires the PAC to use its best efforts to collect and report the name, mailing address, occupation, and name of employer for each individual whose contributions exceed $200 in a calendar year. 55, Arps, Slate, Meagher & Flom LLP

56 Campaign Finance Laws Operating a Multi-State PAC If a PAC (including a federal PAC) contributes at the state or local level, it must comply with that state's or locality's law. Some states make it easy for federal PACs to give (Ohio and Texas). - Texas administrative expenses issue (AO 132). Some states make it very difficult or illegal to use a federal PAC (Connecticut, Florida, Massachusetts, and Rhode Island). 56, Arps, Slate, Meagher & Flom LLP

57 Campaign Finance Laws Operating a Multi-State PAC Some states impose burdensome restrictions on PACs. - Michigan requires annual authorization on payroll deductions. - New York treats administrative expenses as contributions and requires in-state bank account. - North Carolina requires in-state assistant treasurer. - Tennessee requires reimbursement of administrative expenses and greater itemization in reports. Most states require registration and reporting by the PAC. 57, Arps, Slate, Meagher & Flom LLP

58 Campaign Finance Laws Solicitation Guidelines for Avoiding Even the Appearance of Coercion No words suggesting that contributing is a condition of employment (e.g., must contribute, have to contribute, or required to contribute ). Do not imply that contributing will affect opportunity to advance within the company (e.g., do not discuss issues regarding promotions and then discuss contributing). One-on-one oral solicitations should be avoided. Group presentations are permitted (such as at a meeting), but they should be scripted. Not a United Way drive. 58, Arps, Slate, Meagher & Flom LLP

59 Campaign Finance Laws Solicitation Guidelines for Avoiding Even the Appearance of Coercion Follow-up communications (e.g., follow-up call or ) - Should not be done to ask if employee has given, and if not, to ask why. - May be done to offer assistance or to answer questions that employee may have. - Any oral follow-up communication should be scripted. May tell employee that it is important to contribute to the PAC given that a strong PAC is vital to the success of the company. - Do not characterize the PAC as helping to gain access to candidates. - May characterize PAC as helping to elect candidates whose views are good for the company's business interests. - Do not say that PAC donations help get laws passed. 59, Arps, Slate, Meagher & Flom LLP

60 Campaign Finance Laws Contributing PAC Funds In deciding as to whom to contribute, one should be careful when putting in writing the justification or reason for a contribution. To the extent that one puts such justification or reason in writing, one should: - Not mention any particular past, present, or future official action (e.g., a vote on a particular legislation or other governmental decision). - Not characterize the contribution as helping to gain access to the candidate or a seat at the table. - Limit the writing to general reasons for supporting the candidate (e.g., the candidate's positions on general issues and the leadership positions held by the candidate). 60, Arps, Slate, Meagher & Flom LLP

61 Campaign Finance Laws Sending Transmittal Letters with Contribution Checks It is better not to send transmittal letters except with legal disclaimers. To the extent that a transmittal letter is sent, the following guidelines should be followed: - Do not mention any particular past, present, or future official action (e.g., a vote on a particular legislation or other governmental decision). - Do not mention any particular official matter (e.g., a particular legislation, rulemaking, or RFP). - Limit the letter to merely expressing general support for the candidate. 61, Arps, Slate, Meagher & Flom LLP

62 Campaign Finance Laws PAC Compliance Issues Bank reconciliation against FEC report. Embezzlement policy safe harbor (April 2007). - Checks in excess of $1,000 are authorized in writing or signed by two people. All wire transfers require two authorizations. - An individual who does not handle PAC accounting receives incoming checks and places a restrictive endorsement on them, i.e., For Deposit Only. - Petty cash must have written log and the fund should not exceed $ All bank accounts must have their own Taxpayer ID number. - Bank reconciliations are done by someone other than a check signer or person responsible for PAC accounting. - PAC tax: federal and local. 62, Arps, Slate, Meagher & Flom LLP

63 Campaign Finance Laws Documents and PAC Recordkeeping S ARE DOCUMENTS. Virtually indestructible and potentially very dangerous. PAC must keep records for 3 years from the date that the relevant information is reported. Payroll deduction authorization must be kept for at least 3 years from the date the employee s last deduction is reported. 63, Arps, Slate, Meagher & Flom LLP

64 Campaign Finance Laws PAC Recordkeeping One must keep records of (1) copies of reports, (2) bank statements, (3) information of receipts and disbursements, (4) if received contribution exceeds $50, a copy of the check, (5) if disbursement exceeds $200, a receipt or cancelled check, and (6) any other records to substantiate information in reports. To the extent PAC gives at the state level, must keep records under state law. 64, Arps, Slate, Meagher & Flom LLP

65 Campaign Finance Laws Relationship Between Affiliated PACs PACs of affiliated companies share the same limit regarding the contributions that they make and the contributions that they receive. Implications if there is a merger of companies and Joint Ventures - Prior to the merger, the PACs of the different companies do not share a contribution limit. - After the merger, contributions made by the affiliated PACs prior to the merger are counted to determine if they have reached their shared limit. - If prior to the merger, the PACs combined contributions to a candidate exceed their shared limit, then those PACs after the merger are considered to have already reached their shared contribution limit but not to have exceeded it. - To transfer payroll deductions, one does not need to get reauthorization but merely a notice. 65, Arps, Slate, Meagher & Flom LLP

66 Campaign Finance Laws Ban on Corporate Contributions Under FECA Soft Money Rules Federal law prohibits corporations from making contributions, in-kind contributions, such as the use of corporate facilities or personnel for campaign purposes. National Party Committees Ban on soft money (no building funds). State Party Committees Federal Account, State Account, Levin Account. 66, Arps, Slate, Meagher & Flom LLP

67 Campaign Finance Laws Outside Groups 527s and 501(c)(4)s What is a 527? What is a 501(c)(4)? What is the difference? Know to whom you are giving. Electioneering Communication (broadcast communication that: (1) refers to a clearly identified candidate for federal office; (2) is made within 60 days of a general, special, or runoff election or within 30 days of a primary; and (3) is targeted to the relevant electorate). 67, Arps, Slate, Meagher & Flom LLP

68 Campaign Finance Laws Exemptions from Corporate Ban Fundraising at the Office Internal communication and fundraising only solicitable class (i.e., shareholders and executive or administrative personnel) are invited. External communication and fundraising persons outside solicitable class are invited. - Where there is advance payment. - Incidental use of corporate facilities in connection with volunteer activity (safe harbor: up to one hour/week or four hours/month if volunteer reimburses company for out-of-pocket costs, or more than one hour/week or four hours/month if reimburse fair market value). - An individual employee volunteers his or her own time without using corporate facilities or personnel. 68, Arps, Slate, Meagher & Flom LLP

69 Campaign Finance Laws Bundling Corporation cannot facilitate contributions. Bundling and providing stamped or addressed envelopes. Exemption if individual is appointed to a significant position in the campaign. Westar case: FEC MUR 5573 (2005). Freddie Mac case: FEC MUR 5390 (April 18, 2006). - $3.8M civil penalty -- implications for corporations. 69, Arps, Slate, Meagher & Flom LLP

70 Campaign Finance Laws Other Exemptions from Corporate Ban Meet and greets and non-political appearances. Gift laws may apply. Plant Tours. - Giving candidates equal access to corporate premises to address rank and file employees. Use of corporate aircraft (first-class airfare vs. charter rate). - Hitchhikers - Changes to House and Senate ethics rules and campaign finance law 70, Arps, Slate, Meagher & Flom LLP

71 Campaign Finance Laws Other Prohibited Contributions Making a contribution in the name of another reimbursing or compensating some one for his or her contribution. This is likely to be criminally prosecuted. Foreign nationals Billing for political fundraising services 71, Arps, Slate, Meagher & Flom LLP

72 Campaign Finance Laws Enforcement Increased civil penalties for FECA violations. - Civil penalties increased for violations involving reimbursed contributions to no less than 300% and no more than 1000% of amount in violation. FEC focusing on larger big bang cases. Increased criminal penalties for FECA violations. - Increases maximum jail time for lesser violations (involving less than $25,000) to 2 years. - Increases maximum jail time for greater violations (involving $25,000 or more) to 5 years. - Subjects violations to Federal Sentencing Guidelines. 72, Arps, Slate, Meagher & Flom LLP