Earlier this year, two major disclosure provisions of the Public Integrity Reform Act of 2011 (“PIRA 2011” or “the Act”) took effect, creating substantial compliance issues for individuals and entities that engage in New York State lobbying activities, as well as public officials who have side businesses. The new rules require reporting of (i) sources of funding for lobbying activity, and (ii) certain business relationships. The Joint Commission on Public Ethics (“JCOPE” or “the Commission”) issued proposed regulations and guidelines regarding the implementation of the new disclosure provisions on July 31st, expansively interpreting the new law.  

This Alert summarizes the Commission’s proposals and identifies important concerns for lobbyists and clients of lobbyists who will be affected by these regulations.  

The regulations regarding disclosure of certain entities’ source of funding for lobbying activity are extremely broad. These regulations will affect most, if not all, trade associations and coalitions that are registered to lobby in New York State or have otherwise retained outside lobbyists, requiring these entities to disclose all donations or dues in excess of $5,000. Additionally, the guidelines pertaining to business relationships with certain State officials affect all lobbyists and clients, both in their personal and professional capacities. The Commission’s “Source of Funding Regulations” are expected to be published in the State Register and subject to a formal comment period. Thus, it is possible that the proposed regulations may change before they become final. Nevertheless, because these requirements are retroactive to July 1, 2012 (with the first report being due on January 15, 2013), lobbyists and filers should ensure that they collect the information required by the proposed regulations. The business relationship disclosure requirement is already in effect.

  1. Source of Funding Regulations
  1. Who must comply?

Beginning with the Client Semi-Annual Report that must be filed with JCOPE on January 15, 2013, all clients of lobbyists — whether outside or in-house — must disclose “any payment to, or for the benefit of, the [entity] . . . which is intended to fund, in whole or in part, the [entity’s] activities or operation.” Although PIRA 2011 provided that this disclosure obligation was applicable to funds received by the entity to “fund the lobbying activities reported,” the proposed regulation is explicit that all funds received to support the organization — not just its lobbying operation — must be disclosed. Pursuant to this regulation, trade associations and coalitions will be required to publicly disclose the full amount of dues payments by members, even if most of the dues support non-lobbying operations of the organization.

Organizations that engage in lobbying on their own behalf, as well as clients of lobbyists (collectively “Filers”), who (i) “spen[d] in excess of $50,000” for lobbying compensation and expenses in New York State “during the Expenditure Threshold Period” and (ii) devote at least 3% of their “Total Expenditures” during the same period towards that lobbying activity, are subject to these regulations. The Expenditure Threshold Period is calculated as either the preceding 12 months, or the current calendar year. If the entity does not meet the threshold for the 12-month calculation, it must determine whether it meets the threshold for the calendar year. It is our understanding that the Commission developed this two-pronged analysis to ensure that entities are not able to deliberately delay certain spending to avoid the disclosure obligations.

  1. What must be disclosed?

Organizations that receive contributions to “fund . . . [their] activities or operations” — as opposed to payments in exchange for some good or service — and meet the above thresholds, must publicly disclose, for each contributor of more than $5,000: the name, the business address, the date the contribution(s) was received, and the amount of the contribution(s). Contributions from persons or entities must be aggregated and will be treated as coming from a “Single Source,” if contributors are: (i) two or more persons who are known to live in the same household (e.g., husband/wife; parent/child; roommates); (ii) business entities that the Filer knows or should know are related (e.g., parent and subsidiary corporations; subsidiary corporations with the same parent; local chapters of the same organization); and (iii) a sole proprietorship and its sole proprietor.  

Filers are not subject to this disclosure obligation if the above thresholds are not met. Additionally, if the Filer was not subject to the disclosure requirements for the January-June Client Semi-Annual Report, contributions received during that period — regardless of the amount — should not be aggregated with contributions received during the July through December period, when determining whether disclosure is required on the second semiannual report. In that instance, only those contributors who gave more than $5,000 during the second half of the year need to be disclosed. If, however, the Filer met the thresholds during the first half of the year, the contributions received during the second half must be aggregated with those contributions received during the first half of the year and reported, if they exceed $5,000.

  1. Examples:

Scenario 1: On January 14, Acme Association received a contribution of $2,500 from Mr. Smith. On August 1, Acme Association received a $5,500 contribution from Mrs. Smith. Acme Association knows that Mr. and Mrs. Smith live in the same household. Acme Association analyzed its overall expenditures and determined that for January through June, it did not meet the 3% threshold. Thus, it was not required to report any contributions on the disclosure report due on July 15th. Subsequently, Acme Association determined that it met the thresholds during the second half of the year, and is required to report its contributors on the report covering the July through December period, due on January 15th. Because it did not meet the threshold for the first half of the year, the contribution from Mr. Smith is not aggregated with Mrs. Smith’s contribution. Acme should only report Mrs. Smith’s $5,500 contribution on the second semi-annual report.  

Scenario 2: Acme Association analyzed its overall and New York lobbying expenditures, and determined that because its lobbying expenditures exceeded the threshold tests, it was required to comply with the new disclosure obligations. Acme received the same contributions from the Smiths as in Scenario 1. During the first report, Acme is not required to report the contribution from Mr. Smith, but is required to report contributions from other donors who gave more than $5,000 during that period. When completing the report for the second half of the year, Acme Association is required to aggregate the contributions from Mr. and Mrs. Smith, as they are deemed a Single Source, and disclose the full $8,000.  

Scenario 3: Trade Association XYZ analyzed its overall and New York lobbying expenditures, and determined that for January through June it met all necessary thresholds, making it subject to the new disclosure obligations. Association XYZ received dues payments from a variety of members in February and then again in September. In February, Corporation A paid $3,000, Corporation B paid $5,500, and Corporation C paid $6,000. In August, Corporation A2 paid $3,000, Corporation B paid an additional $2,000, and Corporation X paid $6,000. Corporation A2 is a subsidiary of Corporation A, and they are deemed to be a Single Source. Thus, Trade Association XYZ must disclose the $5,500 dues payment from Corporation B and the $6,000 dues payment from Corporation C during the first semi-annual reporting period, but not the payment from Corporation A. During the second reporting period, Trade Association XYZ must disclose the aggregated dues from Corporation A and Corporation A2, as well as the dues from Corporation X.  

The result of the new rule is that a member of an association that meets the thresholds, may have its contributions disclosed, even if that member had no intention of supporting a lobbying campaign. Additionally, trade associations may be required to disclose the dues that members pay — a rate that previously was private, and is potentially sensitive information.

  1. Are there any exemptions?

All 501(c)(3) not-for-profit corporations that are registered with the attorney general pursuant to the Executive Law, and all governmental entities, are explicitly exempt from this new disclosure obligation. Additionally, as is required by the statute, the regulations provide an opportunity for certain client filers to request an exemption from the additional disclosure. The Commission may grant an exemption from disclosing a particular Single Source if the Filer can show that such disclosure “will cause harm, threats, harassment or reprisals to the Single Source or individuals or property affiliated with the Single Source.” The Commission will consider an application seeking exemption of disclosure of all sources of contributions if the Filer is a 501(c)(4) tax-exempt organization, and that organization’s “primary activities involve areas of public concern that create a substantial likelihood that disclosure of its . . . [contributors] will cause harm [including economic harm], threats, harassment or reprisals to the Single Source(s) or individuals or property affiliated with the Single Source(s).” These exemptions are likely to be granted to organizations whose lobbying efforts are related to socially sensitive topics, but may be extended to trade associations that can show that disclosure will cause economic harm to the membership.

  1. Enforcement

Failure to file Client Semi-Annual Reports in a manner that is consistent with the new disclosure obligations could trigger both civil and criminal penalties that are provided for in the Legislative Law. Upon identifying an error or omission in the information regarding the source of funds, the Filer has 10 days to make any necessary amendments.

  1. Business Relationship Guidelines

As a result of PIRA 2011, lobbyists and clients of lobbyists are now required to disclose the name and information regarding public officials with whom these individuals have “reportable business relationships.” JCOPE’s new guidelines explain the reporting obligation from two separate angles — the lobbyist’s duty to disclose as part of the registration process, and the client’s obligation to disclose as part of the semi-annual reporting process. The Commission, however, uses the same key guidelines for both types of Filers.

  1. Who must comply?

This obligation applies to all lobbyists and clients. Notably, JCOPE significantly expands the meaning of the term “client” for purposes of identifying a reportable business relationship. The Commission uses the traditional definition of client — “every person or organization who retains, employs or designates any person or organization to carry on lobbying activities” — but also includes “[p]roprietors, partners, directors, or executive management of the organization; [i]ndividuals who own or control ten percent or more of the stock of the organization (or one percent in the case of a corporation whose stock is regularly traded on an established securities exchange); [e]mployees of the organization whose duties or responsibilities relate to lobbying activities in the State; and [e]mployees of the organization whose duties or responsibilities relate to procurement activities with the State.” The Commission does not define the term “lobbyist,” thus it is presumed that the statutory definition applies.

  1. What must be disclosed?

“Business relationship” is defined as an arrangement or understanding, whether formal or informal, between a lobbyist or a client of a lobbyist and “(i) a statewide elected official, state officer, state employee, member of the legislature or legislative employee (“State Person(s)”) or (ii) an entity in which a State Person is a proprietor, partner, director, officer or manager, or owns or controls ten percent or more of the stock of such entity (or one percent in the case of a corporation whose stock is regularly traded on an established securities exchange).” Although the explanation is awkwardly worded, when read along with the statute it becomes clear that a business relationship only needs to be disclosed if valued greater than $1,000 during any consecutive 12- month period. Multiple business relationships with the same State Person or the same entity with which the State Person is affiliated must be aggregated.  

The guidelines also clarify the statute’s standard that the reporting obligation exists when a lobbyist or client knew or had reason to know that they entered into a business relationship with a State Person. The lobbyist or client will be deemed to have had “reason to know . . . based on an examination of the totality of the facts and circumstances.” The Commission intends to use a reasonable person standard, and may consider: (i) “the [o]rigins of the relationship;” (ii) the “length of the relationship;” (iii) “[t]he type and actual value of the goods, service or items provided;” and (iv) whether the State Person’s relationship with the business entity “is generally known to the public.” The guidelines expressly state, however, that just because the information could have been obtained through a Freedom of Information Law (FOIL) request, it does not mean that the lobbyist or client has “reason to know” about the business status of the State Person.

  1. Enforcement

Failure to disclose this information in a timely manner could be punishable both by civil penalty and late fees. If information about a business relationship changes, the lobbyist has an obligation to amend the registration form within 10 days of the change. Similarly, clients have a duty to timely amend a previously filed Client Semi- Annual Report if the client determines that a relationship was not properly disclosed. Ensuring compliance with the reportable business relationship and source of lobbying funding disclosure obligations may be difficult for Filers, and it may be necessary for lobbyists and clients to establish new internal reporting systems or revisit dues structures. Although JCOPE has now issued regulations and guidelines regarding these reporting obligations, questions remain. Greenberg Traurig’s Government Law Compliance Practice is available to assist with questions regarding the new rules. GT has a broad range of experience in New York State and provides advice to some of the world’s leading corporations, lobbying firms, public officials, and others who seek to navigate New York’s complex compliance requirements.