The U.S. Department of Justice has announced the first criminal prosecution for a violation of federal laws prohibiting outside groups from coordinating their activities with the candidates and campaigns they support.

The six-member Federal Election Commission, which is primarily responsible for interpreting and enforcing federal campaign finance laws, has deadlocked repeatedly over whether to investigate complaints of coordination. But with this announcement, the Justice Department, which may pursue knowing and willful violations of the same laws, has stepped into the breach.

In the plea agreement, a Virginia-based political consultant admitted serving as campaign manager for a U.S. candidate for Congress, while at the same time operating a Super PAC that spent $325,000 on ads attacking that candidate’s opponent. No one else has been charged in the case. Interestingly, there is no indication in the charging documents that the candidate knew about the work the consultant was doing for the Super PAC. However, the coordination rules apply not just to candidates, but also to their staff, and in some circumstances, their volunteers.  Violations may be established even if the candidate is unaware of a representative’s unlawful activity. 

How the Coordination Rules Work

Super PACs and other independent groups may discuss certain subjects with campaigns, but they may not work together on the Super PAC’s spending and strategy. Thus, for example, if a campaign asks a Super PAC to run an ad, or the campaign shares nonpublic information with a Super PAC that the PAC uses to develop or determine the timing of an ad, the cost of the ad is considered an in-kind contribution to the campaign. Because corporations (and incorporated nonprofits) are prohibited from making any contribution in federal elections, and individuals are subject to a $2700 per election limit, a coordinated expenditure can be, and usually is, an illegal in-kind contribution.

Reading the Tea Leaves

Should politically-active groups, such as Super PACs and 501(c)(4)s, be worried about this case?

On the one hand, the case does not appear to be a close call. In papers released by the Justice Department, the consultant admitted to concealing the coordinated expenditures by, among other things, using an online alias, changing the Super PAC’s address, and threatening legal action against an inquiring party official.  The consultant also made a lot of money – upwards of 23% of the Super PAC funds raised – while promising contributors that administrative costs would not exceed two percent. Although no charges stem directly from the consultant’s use of the Super PAC to enrich himself and his family, these facts are part of the plea agreement and add color to the case. To top it off, the consultant has pleaded guilty to making false statements to FBI agents. In short, the conduct here does not fall into the gray area of the coordination rules.

On the other hand, coordination is the most significant legal risk that independent expenditure groups face, and this case establishes that a violation of the coordination rules can lead to a criminal prosecution. This alone should get the attention of anyone involved in forming and running a Super PAC or politically-active 501(c)(4).

An Ounce of Prevention

What should such groups do? There are at least four things groups should do when making independent expenditures to support or oppose a candidate:

They should have a written coordination policy that details the limits on what employees, vendors, and volunteers for the group may do and how they may interact with the candidate and candidate’s supporters. The group should incorporate its coordination policy into its agreements with vendors to ensure that if vendors work for both the candidate and the independent expenditure group, necessary firewalls are in place (e., different staff perform the work and they do not share information). The group should be careful when interacting with campaign representatives, including former campaign staff and donors, to ensure that information is not being shared impermissibly, or that the campaign is not asking for support or giving a green light to the outside group’s plans. The group should put in place a governance structure to ensure that campaign staff do not serve an impermissible role in the organization – and to be sure the group is spending donor funds appropriately.

Fundraising Activities

The plea details how the consultant directed a maxed-out donor to give money to the Super PAC, and that donor then gave the Super PAC approximately $300,000. Generally, the mere fact that maxed out donors to a candidate also give to a Super PAC supporting the same candidate is not a problem. There are even some permissible ways for campaign staff to suggest that donors who wish to help the candidate contact a Super PAC. And the FEC has blessed candidate appearances at fundraisers for the Super PACs that support them.

In this case, however, because the campaign manager was also running the Super PAC, his effort to steer the donor crossed the line. The case shows that campaign staff must be very careful in responding to questions about a Super PAC, and independent groups must be similarly careful about how they interact with a campaign’s donors and volunteers.

Looking Ahead

It is difficult to say whether this case portends more enforcement of federal coordination laws. But groups making independent expenditures can no longer count on the inaction of the FEC. There is a new cop on the beat, and outside groups should be careful not to make themselves the next target.