Campaign Finance Regulationand DisclosureRecent Developments in Federal and IllinoisLaw

CLE Seminar for In-House CounselJune 8, 2016Chicago, Illinois

Stefan PassantinoPartnerDentonsWashington, DC+1 202 496 7138stefan.passantino@dentons.com

Randy NuckollsPartnerDentonsWashington, DC+1 202 496 7176randy.nuckolls@dentons.com

2

3

What Are the Goals ofCampaign Finance Regulation?

Prevent Corruption and Appearance

Protect Free Speech

Increase Voter Turnout & Participation

Increase Voter Knowledge

Assure Equality of Speech/Limit Special Interests &Private Wealth

Increase Competition andVoice for Minority Beliefs

Reduce Negative Advertising

Give Legislators More Time to Focus on Legislation

4

What Are the Goals ofCampaign Finance Regulation?

What Are the Different Ways toEnact Campaign Finance

Regulation?Most Intrusive Least Intrusive

Expenditure/Speech Limits

DisclosureContribution Limits

PublicFinance

Federal Election Campaign Act Mandated:

• limited contributions to candidates for federal office

• required the disclosure of political contributions

• Required disclosure of expenditures “for the purpose of influencing” elections

• provided for the public financing of presidential elections

• limited expenditures by candidates and associated committees, except forpresidential candidates who voluntarily accepted public funding

• limited independent expenditures to $1,000

• limited candidate expenditures from personal funds5

Buckley v. Valeo 1976

• Contributions

• Less of a limit on speech

• More risk ofcorruption/appearance

• Just a general expression ofsupport

• Less Constitutional Protection

6

Buckley v. Valeo 1976

• Expenditure Limits

• core speech in the mostfundamental area: politicalexpression

• Less risk of corruption/appearance

• Specific expression of support

• More Constitutional Protection

Where does “Coordinated Speech” fit here?

Contributions Expenditure Limits

Less of a limit on speech core speech in the most fundamentalarea: political expression

More risk of corruption/appearance Less risk of corruption/ appearance

Just a general expression of support Specific expression of support

Less Constitutional Protection More Constitutional Protection

7

Buckley v. Valeo 1976

• upheld limits on individual contributions to candidates and parties

• Deterring “APPEARANCE OF CORRUPTION”, informed electorate, gathering information to detectcampaign finance violations are all valid government interests

• Because there is less risk of corruption, struck limits on independent expenditures, limitson candidates own expenditures, and total spending caps by campaigns.

• Concerns of "equality" less important than speech – "can't restrict some to make all equal"

• Held it is permissible to condition receipt of public funding on agreement to abide byexpenditure limits – even if receipt was conditioned on getting 5% of the vote

• Upheld disclosure and registration requirements on candidates, parties, and groupscontributing OR SPENDING $1,000 per year on “express advocacy” (magic words)

• Colorado I - Is all speech an “expenditure”? – coordinated limits assigned,negative ads run pre-nomination

• No, independent expenditures are NOT the same as coordinated expenditures

• Independent expenditures MAY NOT be limited as contributions

• Colorado II - Is it constitutional to limit coordinated expenditures betweena party and its own candidate? To prevent “corruption” by the party?

• Takeaway: the government may NOT restrict independent expendituresbut may restrict coordinated expenditures

8

Coordinated and Independent Expenditures

“Is a ‘Coordinated Expenditure’ more like acontribution or an independent expenditure?”

Coordinated Limits and Political Parties

Colorado Republican Party I & II

• MI law held corporations may be prohibited from making directcontributions or independent expenditures supporting or opposingcandidates

• UPHELD on a "corruption" theory

• compelling state interest in preventing "the distortive effects of immenseaggregations of wealth" held by corporations.

• Corporations have outsized influence and little correlation to the needs of thepublic

• Corporations have PACs

• What about the media?

9

Corporate Contributions and Expenditures

Austin v. Michigan Chamber of Commerce (1990)

(First real challenge to corporate contributions/expenditures since 1800’sAnd 15 years after Buckley– why?)

10

• political committee formed to block statewide gas tax

• radio hosts urged listeners to circulate petitions and contribute tothe campaign

• state law held “contribution” = “anything of value”

• Holding

11

Corporate Contributions and ExpendituresMedia Exemption

San Juan County v. No New Gas Tax (2007)

Where’s the line?

Understanding the “Media Exemption”

• BCRA & McConnell v. FEC

• Candidates and Party Committees are out of the “soft money business”

• no limit at all on how hard money is solicited or contributed - thus, the “speech”involved in soliciting funds is not impaired - limited scrutiny.

• State and local parties prohibited from using soft money on “federal electionactivities”• 1) registration 120 days out,(2) voter ID, GOTV, generic campaign activity, (3) public

communications that PASO a candidate for that office, (4) paying any employee who spends morethan 25% of her time on federal election activities

• NEW: “Electioneering Communications” - replaces “magic words”express advocacy and resulting wide open “issue advocacy”

• broadcast communication - referring to clearly identified candidate - 60 daysbefore general, 30 before primary or convention - targeted to relevantelectorate

• disclosure required of individual funds used for this purpose

• corporate and union funds may not be used to fund this

Soft MoneyBCRA, Citizens United, SuperPACs, and 501(c)(4)’s

13

Type of Speech/Expenditure Treatment Under the Law

Contributions Limitations on Source and AmountConstitutional if “narrowly drawn”

“Coordinated Expenditures” Treated as “contributions” – regulatedas to source and amount, disclosurerequired

“Electioneering Communications” Regulated and disclosed

Issue ads naming a candidate(no coordination, no “expressadvocacy”)

Not subject to disclosure unless doneby political committee or “527”

Issue ads NOT naming a candidate Generally unregulated and undisclosed

14

Soft MoneyRegulation After McConnell

• BCRA & McConnell v. FEC

• Wisconsin Right to Life (2006) –

• what is an issue ad?

• What is “express advocacy”?• FEC rule post decision: Required some disclosure of donors funding electioneering

communications only if they gave money for purpose of furthering a particular ad.

• CITIZENS UNITED – is Austin’s ban on independentcorporate speech constitutional?

• potential for corruption, distortion, inequality and shareholderrights do not trump speech

• SPEECHNOW v. FEC - If corporate speech is constitutional, may groupsform for the specific purpose of paying for independent speech?

• Yes, but don’t “coordinate”!

15

Soft MoneyBCRA, Citizens United, SuperPACs, and 501(c)(4)’s

• Potential wrinkle - New Supreme Court Justice

• Does Scalia death open door to Citizens United reversal?• Will next appointee join four liberal justices to reconsider ruling?

• Impact of 2016 election

• Clinton & Sanders both said they would insist that theirnominees oppose Citizens United

16

Soft MoneyBCRA, Citizens United, SuperPACs, and 501(c)(4)’s

17

Coordination

Independent Political Committees –Disclosure

It’s not as Transparent as it Appears

501(c)(4)

“People forEthical andTransparentElections”

501(c)(4) or527

IndependentPolitical

CommitteeDisclosure: “People for Ethicaland Transparent Elections”

Disclosure: None

NAACP v. Alabama, 357 U.S. 449 (1958)

Doe v. Reed, 561 U.S. 2 (2010)

18

Disclosure – It is not as transparent as it seems…

19

• Lobbying Disclosure Act (LDA) and HonestLeadership and Open Government Act (HLOGA)

• Definition of Lobbying under LDA and IRSCalculation of Lobbying Expenses

• Audits Abound – GAO, IRS, and other GovernmentAgencies

20

Lobbying Disclosure Act Compliance

Lobbying Disclosure Act Office of Government Ethics House and SenateObama Executive Order Ethics Rules

Office of theComptroller General

Special InterestGroups/Media

Federal Lobbyist

IRS/FECDCAA

21

The Compliance World for Federal Lobbyists

• The LDA is built around the set of definitions

• lobbyist

• covered legislative & executive branch officials

• lobbying activities

• Exceptions

• IRS regulations contain other definitions

• Corporations and nonprofit groups may use alternative IRSdefinitions for LDA reports

22

Lobbying Disclosure Framework

The LDA defines a "lobbyist" using a three-part test:

1. More than one “lobbying contact” with covered officials

2. “Lobbying activities” constitute 20% or more of the servicesperformed by that individual on behalf of his/her employer orclient during any quarter

3. Total organization “lobbying expenses” of $12,500 per quarterin the case of an employed “lobbyist” (or $3,000 per quarter inincome for a lobbying firm)

23

Who is a Lobbyist?

• Individuals are “lobbyists”. A corporation or nonprofit groupthat has at least one employee who meets the definition of a“lobbyist”, meets the definition of “registrant” and mustregister under LDA

• If an organization hires an outside person or entity thatmeets the definition of a “lobbyist” – then that outside personor entity must register under the LDA and disclose thecorporation as the “client”

• Form LD-1 registration must be filed within 45 days

• After lobbyist is employed or retained

• After lobbyist employee makes second contact and meets 20%threshold

24

Who Must Register?

Oral, written or electronic communications with coveredLegislative or Executive Branch official regarding:

• formulation, modification, or adoption of Federal legislation

• formulation, modification, or adoption of a Federal rule, regulation,Executive order, policy or position

• the administration or execution of a Federal program or policy(including the negotiation, award or administration of a Federalcontract, grant, loan, permit or license)

• the nomination or confirmation of a person subject to confirmation bythe Senate

25

Covered Contacts (LDA Definition)

• A "Covered Legislative Branch Official" includes

• Members of Congress

• an elected officer of either House of Congress

• employees of a Member, Committee, leadership staff, joint committee, workinggroup or caucus

• A "Covered Executive Branch Official" includes

• the President

• the Vice President

• any officer or employee in the Executive Office of the President

• any Executive Schedule level I – V officer or employee

• any member of the armed services at or above pay grade O-7 & above

• “Schedule C” political appointees

26

Covered Individuals (LDA Definition)

"Covered Executive Branch Official" includes

• All White House staff

• Top two officials of all departments within the Executive Office ofthe President (OMB, STR)

• Top two officials (and immediate staff) of each Cabinet Agency

• Any person in the Executive Branch with legislative responsibilitywith whom you interact in attempting to influence specificlegislation

27

Covered Individuals (IRC Definition)

Lobbying activities means lobbying contacts ANDefforts in support of such contacts includingpreparation and planning activities, research andother background work that is intended, at the time itis performed, for use in contacts, and coordinationwith the lobbying activities of others

28

"Lobbying Activities" (LDA Definition)

• a speech, article or other material distributed to the public througha medium of mass communication

• a request for a meeting, a request for the status of an action, orother similar administrative request

• testimony given before Congress or submitted for inclusion in thepublic record

• information provided in writing in response to an oral or writtenrequest, or in response to a request for public comments in theFederal Register

• required by subpoena or civil investigative demand

• written comment filed as part of a public proceeding

29

What is NOT a "Lobbying Contact"

• Calculation of time, overhead for all employees engaged inlobbying activities

• Hard costs (travel, hotels, conference fees, meals)

• Payments to outside lobbying firms, vendors, consultants,coalitions

• Percentage of association dues for lobbying

• State and local lobbying costs for Method B/C

• Grassroots communications for Method B/C

30

Categories of Lobbying Expenses

• Method A

• Any LDA Registrant may use

• Method B

• For Section 501(c)(3) organizations that have made a Section 501(h)election

• Method C

• For any 501(c)(4) or (c)(6) or corporation that calculates nondeductiblelobbying expenses and dues under Section 162(e)

31

LDA Reporting Expenses

• Auditors want to see a system in place that tracks the type ofinformation that must be provided; time sheets, collection ofinformation

• Full disclosure of topics, sections of bills being lobbied

• IRS Auditors ask questions about percentage of time spentby CEO and other executives

• DCAA and other government contract auditors are askingquestions about nature of services performed by outsideconsulting firms hired by corporations

32

Surviving a Federal Audit

• Filed by Registrants and individual Lobbyists (1/30 and 7/30)

• Must disclose campaign contributions or donations topresidential libraries/inaugural committees >$200

• Also expenditures with respect to legislative & executivebranch officials:

• For events honoring covered officials

• to an entity named after or in recognition of such official

• to an entity “established, financed, maintained or controlled” or an entitydesignated by such official

• to pay for a meeting, retreat or conference held by or in the name ofone or more officials

33

Semiannual LDA (LD-203) Reports

• LDA reports filed by Registrant and each listed lobbyist mustinclude certification that:

• They have “read and [are] familiar with” the gift & travel rules

• Have “not provided, requested, or directed” any gift or travel “withknowledge” of any violation of these rules

• Civil fines up to $200,000 and criminal penalties up to 5years in jail for a knowing violation

• Failure to properly file LD-203s is common cause of referralsto Justice Department

34

LD-203 Certification Requirement

By State

• California

• Delaware

• District of Columbia

• Florida

• Georgia

• Illinois

• Indiana

• Maryland

• Michigan

• Minnesota

• Missouri

• New York

• Oklahoma

• Virginia

By Topic

• Definition of “Lobbyist”

• Vendor Lobbying

• Vendor “Success Fees”

• “Goodwill Lobbying”

• Disclosure by Lobbyists

• Gift/Expenditure Limits and Reporting

• “Pay-to-Play”

(www.paytoplaylawblog.com)

State Lobbyist Disclosure Laws: Recent Changes

35

• States are trending toward an expansion of thedefinition of “Lobbyist” into more executive branchand school board activities:

- For example, several states have recently enactedlegislation expanding their definitions of “lobbying” to broadlycover efforts to influence decision-making in the executivebranch.

State Lobbyist Disclosure Laws:

Definition of a “Lobbyist”

36

Several states have gone so far as to create a separate legaldefinition for lobbying efforts aimed at government contracts – thisnew type of lobbying is entitled “Vendor Lobbying” and uses aseparate reporting regime.

• A person is deemed to be a lobbyist if heor she undertakes any communicationwith an official of the executive orlegislative branch of state governmentfor the ultimate purpose of influencingany executive, legislative, oradministrative action – includingregarding procurement-related matters.

State Lobbyist Disclosure Laws:Vendor Lobbying

37

38

39

40

The Vendor Lobbying “Heat Index”

• The following states currently have some form of “payto play” regulations or reporting requirements in placeat the state level:

• California, Connecticut, Florida, Hawaii, Illinois, Indiana,Kentucky, Louisiana, Maryland, Missouri, New Jersey, NewMexico, New York, Ohio, Pennsylvania, Rhode Island, SouthCarolina, Vermont, and West Virginia.

“Pay to Play” States

41

Those with current state contracts:

Any business entity whose contracts with state agencies, inthe aggregate, annually total more than $50,000, and anyaffiliated entities or affiliated persons of such business entity,are prohibited from making any contributions to anypolitical committees established to promote the candidacyof the officeholder responsible for awarding the contracts,or any other declared candidate for that office [30 I.L.C.S.500/50-37(b)].

“Pay to Play” States - Illinois

42

Those with pending bids and proposals:

Any business entity whose aggregate pending bids and offerson state contracts total more than $50,000, or whoseaggregate pending bids and proposals on state contractscombined with the business entity's aggregate annual totalvalue of state contracts exceed $50,000, and any affiliatedentities or affiliated persons of such business entity, areprohibited from making any contributions to any politicalcommittee established to promote the candidacy of theofficeholder responsible for awarding the contract on which thebusiness entity has submitted a bid or offer [30 I.L.C.S.500/50-37(c)].

“Pay to Play” States - Illinois

43

June, 2016 44

Stefan PassantinoPartner

D +1 202 496 7138E stefan.passantino@dentons.com

Randy NuckollsPartner

D +1 202 496 7176E randy.nuckolls@dentons.com

Questions

www.paytoplaylawblog.com