Engaging in political activity can create liability if not carefully managed. At every level of government, laws, regulations and rules prohibit, restrict and require disclosure of lobbying and political activities. In many cases, applicable regulatory regimes overlap and are not necessarily intuitive. Accordingly, because of the potential for negative publicity, civil penalties and even prison time, every entity that comes in contact with government officials must have a compliance program in place to limit its potential for non-compliance.
The past few years have been particularly active in the area of political law. In December 2013, the U.S. Attorney's Office for the District of Columbia obtained a $200,000 default judgment against a consulting firm for violations of the Lobbying Disclosure Act of 1995 (LDA). In November 2013, the Internal Revenue Service (IRS) released proposed guidance regarding political activity by 501(c)(4) entities. In 2010, the U.S. Supreme Court decided one of the most important campaign finance cases in history and the Office of Congressional Ethics requested documents from numerous companies that had engaged in lobbying and campaign finance activities related to the U.S. House of Representatives. In 2007, Congress enacted major overhauls to the federal campaign finance laws, lobbying disclosure laws, and Congressional gift and travel rules. Notably, this activity has not been limited to the federal level — state and local governments continue to enact new campaign finance, lobbying, ethics and "pay-to-play" laws.
The Political Law Group at Holland & Knight helps clients navigate the complicated world of political law by designing internal compliance programs, vetting campaign contributions and gifts, and representing clients during investigations.
For more than 100 years it has been illegal for corporations to contribute funds out of the corporate treasury directly to a candidate for federal office. Corporate "soft money" contributions to the national political parties have been illegal since enactment of the Bipartisan Campaign Reform Act of 2002 ("BCRA" or "McCain-Feingold"). In addition, it is illegal for corporations to facilitate the making of a contribution to a federal candidate or to reimburse employees for contributions to a federal candidate. However, as a result of the Supreme Court's 2010 decision in Citizens United v. Federal Election Commission, corporations and labor unions may now use treasury funds to pay for communications that urge voters to support or oppose federal candidates (express advocacy). The ban on corporate and labor union direct contributions to federal candidates, political parties or PACs remains in place. Corporate contributions at the state level vary by jurisdiction. Currently, 22 states prohibit corporate contributions, while 28 states and the District of Columbia allow some form of corporate contributions.
In addition, most states and the federal government have rules regarding candidate events, such as fundraisers and "meet and greets," candidate travel on private aircraft and third-party communications that mention candidates.
Potential problem areas in campaign finance include illegal corporate contributions, reimbursed campaign contributions and improper disclaimers. Any entity that operates a Political Action Committee (PAC), makes federal, state or local corporate campaign contributions, or has individual employees involved in political activity should implement a comprehensive compliance program to prevent violations of campaign finance laws.
The Honest Leadership and Open Government Act of 2007 (HLOGA) increased civil penalties for violations of the Lobbying Disclosure Act of 1995 (LDA), as amended, from $50,000 to $200,000. For the first time, it provides criminal penalties of up to five years in prison. The Secretary of the Senate has referred well over 8,000 potential LDA violations to the U.S. Attorney for the District of Columbia since 1995. In addition, the Government Accountability Office (GAO) is now required to audit LDA filings, and lobbyists and their employers are both subject to the LDA. The IRS requires organizations to track and report lobbying expenses, using a different definition of lobbying found in the Internal Revenue Code (IRC). In addition to the LDA and IRC, every state and many localities regulate lobbying activity. In some cases, registration is required before making a lobbying contact.
All entities that come in contact with government employees must be aware of and comply with conflict of interest laws, post-employment restrictions, and gift and travel rules. With the passage of HLOGA in 2007, violations of the House and Senate gift and travel rules are now violations of the LDA for lobbyists and entities that employ lobbyists. HLOGA also included increased post-employment, gift and travel restrictions for the legislative branch. In 2009, President Obama signed Executive Order 13490, which created new gift and post-employment restrictions for political appointees in the executive branch. Each state and most localities also have separate ethics provisions.
An understanding of the definition of lobbying and political campaign activities is critical for all organizations, regardless of tax status. Tax-exempt organizations must take care to comply with IRS restrictions on political and lobbying activity by being aware of the operative definitions, limits and restrictions in this area and how they are applied to particular types of 501(c) organizations. Taxable businesses are precluded from taking a business expenses deduction for most lobbying and political expenses. Further, trade associations must notify their members that the portion of their dues allocable to lobbying by the association is not deductible. Political organizations such as PACs, political parties and issue advocacy groups must comply with Section 527 of the IRC and IRS disclaimer requirements.
"Pay-to-play" laws ban, restrict or require disclosure of campaign contributions or gifts to public officials made by government contractors or potential government contractors. These laws combine elements of campaign finance, ethics and government procurement law. They can apply to contributions or gifts made by the government contracting entity itself, the entity's PAC, officers, board members or employees, and in some cases, the family members of officers, board members or employees. While all jurisdictions prohibit bribery, pay-to-play laws go beyond these restrictions to regulate otherwise legal political activity. Congress enacted a federal pay-to-play law in 1940 and made revisions in 1971. California passed the original state pay-to-play law in 1982. Most current pay-to-play laws trace their origin to Municipal Securities Rulemaking Board (MSRB) Rule G-37 approved by the Securities and Exchange Commission (SEC) in 1994. Other federal pay-to-play rules include SEC Rule 206(4)-5, Commodity Futures Trading Commission Rule 23.451, proposed MSRB Rule G-42, and proposed SEC Rule 15Fh-6.
Currently, 20 states have enacted pay-to-play laws as well as numerous local jurisdictions, including New York City, Los Angeles, Chicago and Houston. For entities with government contracts, pay-to-play has become a compliance challenge that cannot be ignored.
Political Law Group Services
The Holland & Knight Political Law Group provides services in the following areas:
Federal, state and local campaign finance compliance:
- establishing and maintaining PACs
- preparing and reviewing FEC and state filings
- advising on corporate political activities
- pre-clearing political advertising
- pre-clearing political travel
- tracking individual contributions for purposes of the FEC biennial contribution limit
- implementing internal compliance programs to avoid violations of the Federal Election Campaign Act, FEC regulations, and related state or local laws and regulations
- representation during an enforcement action or audit
Federal, state, and local lobbying compliance:
- preparing and reviewing LDA registrations and filings
- calculating lobbying expenses using either the LDA or IRS method
- consulting on planned events, including receptions, meals and travel
- advising on post-employment restrictions for former government employees
- designing and implementing internal lobbying compliance programs to avoid violations of the House and Senate rules, the LDA and related state or local laws and regulations
- representation during an enforcement action or audit
Federal, state, and local ethics compliance:
- preparing and reviewing gift, travel and financial disclosure forms
- pre-clearing gifts and travel
- drafting internal policies, reimbursement forms, and employment contracts
Federal, state, and local pay-to-play compliance:
- preparing and reviewing pay-to-play disclosure and certification forms
- designing and implementing internal pay-to-play compliance programs
- pre-clearing campaign contributions
IRS compliance related to lobbying and political campaign activities:
- lobbying and political restrictions for 501(c) organizations
- IRS (and federal, state, and local campaign finance) compliance for "527" organizations
- IRS filing requirements for state or local political committees
- creating and maintaining affiliated organizations (including PACs and 501(c)(4) entities)
- implementing internal compliance programs to avoid violations of IRC and IRS regulations