Top 5 Political Law Compliance Tips for 2016

Date: January 19, 2016

Avoid Common and Costly Missteps that Accompany Political Contributions, Lobbying and Gifts

Another election year is upon us, and once again federal and state candidates are on track to raise and spend unprecedented sums for their election efforts.  That means corporations, trade associations, 501(c)(4) advocacy organizations, their political action committees (“PACs”), leaders, members and donors will be inundated with political contribution requests.  They may also be asked to help candidates and political parties in other ways, such as hosting fundraisers or providing in-kind contributions of goods or services. 

For many organizations, political engagement is not an option – decisions by federal, state and local officials may be critical to their success.  Any organization engaged in political activity must understand the basic rules of the road in order to avoid common pitfalls.  Here are our Top 5 compliance tips for addressing the political law risks facing your organization this election year.

Compliance Tip No. 1: Know the contribution rules that apply to you

Federal corporate contributions are prohibited

  • All incorporated entities, including corporations, trade associations and 501(c)(4) organizations, are prohibited from contributing to federally-registered candidates, political parties and PACs.
  • However, direct and indirect independent corporate candidate advocacy is permitted by the Supreme Court's Citizens United v. FEC ruling (e.g., radio, TV, cable, Internet and print ads expressly supporting or opposing candidates that are not coordinated with candidates).  Corporate issue advocacy is also permitted.

Federal and state corporate contribution rules may differ significantly

  • Only a few states allow unlimited corporate contributions in state/local elections.
  • Contributions from incorporated entities are prohibited in about 20 states, and other states impose limits on corporate contributions.

Consider establishing a federal or state Political Action Committee (PAC)

  • An incorporated entity (but not a 501(c)(3) organization) may establish a PAC as a vehicle for contributing when corporate funds cannot be used.  PACs are funded by individuals affiliated with the organization.  Only state-registered PACs can be used in some state/local elections.   

Avoid common contribution missteps  

  • Conduit and “straw-man” contributions and contribution reimbursement schemes are almost always illegal, and are a favorite target for federal and state prosecutors.
  • Corporate facilities or resources – such as conference rooms, copiers, phones and secretarial time – should not be used to assist in fundraising activities in support of federal candidates (unless paid by a permissible source or limited safe harbor rules apply).  Such “corporate facilitation” can result in significant fines.  This activity is also illegal in many states. 

Compliance Tip No. 2: “Pay-to-Play” laws pose special risks for public contractors

  • “Pay-to-play” laws may prohibit or restrict political contributions by state or local public contractors (including pension fund investment advisers and municipal bond broker-dealers).   These contribution restrictions may also apply to the organization's PAC, and to its officers, directors, senior managers and even their spouses and children.
  • The sanctions for violating pay-to-play laws can be harsh – e.g., bids disqualified, contracts voided, prospective contract bans.  In addition, adverse publicity is likely to accompany violations since  the media covers pay-to-play violations closely.  

Compliance Tip No. 3: Lobbying laws are increasingly onerous

  • In many states, the term “lobbying” may mean more than just direct communications with legislators or executive branch officials.  For example, lobbying laws and regulations may also cover “grassroots” lobbying (communicating with the public), “goodwill” lobbying (“getting to know” public officials) or “procurement” lobbying (communications about pubic contracts).   
  • States are also requiring more disclosure about lobbying activities, imposing political contribution restrictions on lobbyists and mandating ethics training for lobbyists and their employers.    

Compliance Tip No. 4: Yes, a cup of coffee could be an illegal gift

  • Gift giving is highly regulated by federal, state and local laws.  Gift and ethics laws must be reviewed carefully because a “gift” may be anything of value – even a cup of coffee!
  • Gift and ethics rules usually apply to gift giving to elected legislative and executive officials and career government employees.  And most states impose additional gift restrictions on lobbyists and government contractors.
  • Virtually all gift rules have exceptions, which allow for some level of gift giving.  Common exceptions permit officials to receive invitations to receptions, awards and certificates, and informational materials.  In some jurisdictions a wide range of gift giving is permitted, but advance planning is essential.  When gift giving is allowed, the donor and/or recipient may have disclosure obligations. 

Compliance Tip No. 5: Know – and manage – your risk

  • Develop clear political activity policies and procedures (tailored to your organization's level of political engagement) outlining “do's and don'ts” for employees. 
  • Designate a “go-to” person who can respond to employees' political activity questions.
  • Establish tracking processes for gifts, contributions and other reportable expenditures to facilitate preparation of lobbying, campaign finance and IRS reports. 
  • On a periodic basis (i) provide training and/or informative materials for certain key employee groups and (ii) review the scope of your organization's political activities to identify risk areas and prioritize compliance needs.

For additional information contact the Whiteford, Taylor & Preston LLP Political Law Team: