According to OpenSecrets, political donors gave a record amount of contributions to both federal and state candidates during the 2022 U.S. midterm elections. In addition, the Pew Research Center notes that Americans today are more likely to contribute to political candidates and parties than they were two decades ago. With an uptick in political donations at the federal and state levels, campaign finance violations will also likely increase, generating a rise in investigations and penalties. In this article, Corporate associate Nick Warshaw discusses political contribution issues that corporations and high net worth (HNW) individuals should be aware of and what changes in political law regulations we can expect to see in the future.
Nick works at the intersection of law and public policy, focusing on a diverse range of corporate, business, regulatory and real estate matters. Leveraging his extensive political and government experience, Nick provides clients with strategic legal counsel on how best to position themselves in highly regulated and politically nuanced matters.
Tell us about your work within the political law space. What sorts of matters do you generally deal with in your practice?
My political law clients typically range from HNW individuals and families to political candidates, political parties, corporations and nonprofits. I advise these clients on how to comply with the various and complex federal, state, and local campaign finance and election laws. I help family offices and HNW individuals achieve their political and nonprofit giving goals by preparing an analysis of what disclosure or filing obligations their political and nonprofit donations must meet.
I also help corporations — and individuals — comply with lobbying laws by providing guidance on what type of actions count — and do not count — as lobbying, as this can sometimes be a fine line to navigate. If a client’s actions are considered lobbying, then I step in to assess what disclosure and filing obligations the client must complete.
What should businesses and individuals be particularly mindful of when it comes to corporate and HNW political giving and reporting requirements?
On the corporate side, businesses need to be careful that they are not cutting checks directly to political candidates without first examining potential legal pitfalls. In many jurisdictions, including at the federal level, corporations are prohibited from contributing directly to candidates. I think there is a general public misperception that corporations are donating money directly to candidates, when in fact companies are giving federal contributions to outside groups legally known as independent, expenditure-only political committees, colloquially referred to as “Super PACs.” Corporations should also be mindful to not inadvertently give in-kind contributions (e.g., free event space) to political candidates, as this also may violate campaign rules.
When it comes to HNW political giving, individuals should be careful when making donations to candidates and ballot measures because it might trigger a reporting obligation. Some jurisdictions at the local and state levels, including California, require donors to report political contributions. For instance, if a HNW individual contributes $10,000 in aggregate to any California state or local candidate or ballot measure in a calendar year, the person is obligated to report the contribution through a public filing with the California Secretary of State. Not filing could result in either a fine or, in many cases, a media story, particularly if the individual is a high-profile person. Any individual in California who donated $10,000 or more in total political contributions to California state or local candidates or ballot measures in 2022 needs to file a report by Jan. 31.
HNW individuals also sometimes engage in something called “bundling” — for example, collecting checks from family and friends (usually at a political fundraiser) and using the collected checks to give to a political candidate. In some jurisdictions, the individual is considered a “bundler,” which may trigger specific reporting requirements. In this instance, the individual should seek guidance from a lawyer, or at the very least a professional political treasurer.
Furthermore, any individual who is registered as an “investment adviser” with the U.S. Securities and Exchange Commission must be extremely cautious about their political donations. An investment adviser is any person or firm who, in exchange for compensation, is: (1) engaged in the business of advising others; and (2) making recommendations, issuing reports or furnishing analyses on securities, either directly or through publications. Investment advisers are generally prohibited from providing advisory services for compensation to a government entity for two years after the adviser or certain of their executives/employees contribute to certain elected officials or candidates. Certain limited exceptions apply. Therefore, if an investment adviser contributes to certain candidates, it may preclude that adviser or firm from working for specific government entities. Investment advisers should consult with counsel any time they would like to make any sort of political contribution, as those laws are particularly challenging to navigate.
Are there contribution limits?
Absolutely. The federal government, the vast majority of states and many local jurisdictions have their own contribution limits for political candidates and campaigns. Under the famous 2010 Supreme Court case, Citizens United v. Federal Election Commission, donors can give an unlimited amount to Super PACs (or their state-equivalent entities). However, in most jurisdictions, there are limits to how much a person can give directly to candidates. Thus, HNW individuals have to make sure they don’t exceed the relevant jurisdiction’s contribution limit laws. This also applies to corporations in certain jurisdictions where businesses can contribute directly to candidates.
The Federal Election Commission outlines federal contribution limits on its website. California also breaks down its own state contribution limits. Most jurisdictions publish similar charts on their ethics commission’s websites.
What are some current trends in the political law space?
One big political news story right now is the U.S. Department of Justice’s investigation of high-profile companies and individuals regarding the use of “straw donors,” or masking the identity of a political donor by routing the political contribution through another person, as well as the alleged illegal use of customer funds to make political donations. While these are extreme examples, corporations should set up political compliance policies to ensure they avoid even the appearance of impropriety. Corporations should ensure that they not only understand political giving laws and reporting obligations, but that they aren’t directing and controlling their employees’ political contributions. Companies should also be aware that they should not reimburse an employee for making a political contribution, as it likely would result in a contribution being paid for a person or company other than the contributor who was disclosed.
Additionally, disclosure of the identity of top donors on political advertisements is an emerging trend in more jurisdictions across the country and that affects both HNW individuals and corporations. If a HNW individual gives a large political contribution to a certain type of political committee, it might result in the name of the donor appearing directly on the disclaimer of an advertisement. For example, California’s disclosure requirements stipulate that the top three donors to most political committees must be featured in the committee’s political advertisements within the disclaimer. Donors need to be aware that their name might end up being very public through an advertisement. Their donation may even trigger their name being displayed on a television advertisement.
Another trend we’re seeing is public matching fund ordinances being enacted in more jurisdictions. For instance, if a resident donates $5 to a candidate, the jurisdiction will match the contribution and give $5 (or more) to the same candidate. New York City and the City of Los Angeles have matching programs. Voters in the City of Oakland just passed a similar but unique voucher measure. And Seattle already has a similar program enacted. Seattle and now Oakland provide vouchers that are worth a certain amount of money to residents, who can then pledge up to the voucher amount to candidates. This allows people who would not otherwise be active in the political giving process the ability to contribute to candidates.
Based on what you’re seeing and hearing now, what are some changes that you think we will see in the next three to five years when it comes to campaign finance laws?
Political law regulators are currently grappling with how to regulate the promotion of political campaigns and candidates through content created by social media influencers, and I think we will see additional regulations in this digital space within the next few years. Social media influencers on various internet platforms are increasingly being paid to promote political campaigns. Currently, it isn’t always clear when an influencer is being paid to promote a candidate versus when an influencer is supporting a political campaign for free. Political law regulators are trying to figure out how best to disclose to consumers that an influencer’s political promotional content is being paid for by a candidate or campaign.
Political law regulators are also trying to figure out how to oversee political advertisements generated by artificial intelligence (AI). Down the road, I think we will see more regulations pertaining to disclaimers on ads generated by AI. AI can quickly and cheaply generate hundreds of different versions of just one ad. It may be possible that each ad may need different disclaimers depending on its exact language and content. Some jurisdictions are beginning to require candidates and campaigns to provide the regulator with the copy of their advertisement, but it gets tricky when you throw AI into that mix and generate hundreds of versions of an ad that are all slightly different.
What makes your practice unique?
Not many big law firms have attorneys who primarily focus on counseling HNW individuals, nonprofits and corporations on navigating through complex campaign finance laws and reporting requirements. At Loeb, we have a renowned Trusts & Estates practice and a robust Nonprofits & Tax-Exempt Organizations practice. My background complements these existing spaces. I am fortunate to work directly for former California Governor, Governor Gray Davis (Ret.). Governor Davis provides invaluable insight into the political process and has a unique understanding of political actors’ needs. With the assistance of my colleagues, I help guide our clients in these practice areas through their political contribution strategies so that they can achieve their political giving goals and avoid regulatory violations and public relations problems.