2012 Elections: Status Update

The Federal Election Commission ("FEC") recently reported that House and Senate candidates had raised $285.2 million in the first six months of this year for the 2012 elections, a record haul for a non-election year. Despite the growth of Super PACs, most noticeably organized around supporting or opposing presidential candidates, this fundraising tally suggests that the increasing volume of political spending seen over the last decade shows no signs of slowing down in the 2012 cycle. Juxtaposed with this continued swell in campaign finance fundraising, over 100 CEOs and business leaders have publicly pledged to withhold making contributions to incumbents until the highly-partisan nature of Washington is changed and Congress passes meaningful deficit-reduction legislation. Led by the CEO of Starbucks, Howard Schultz, this campaign seeks to influence action in Washington through a proposed "boycott" on political contributions to candidates.

In this landscape, regulatory developments at the federal and state level continue apace, particularly in the arena of advisory opinions related to emerging independent expenditure PACs, and the impact of increasing focus on pay-to-play restrictions at the federal and state level. Outside of the campaign finance arena, enhanced gift rule disclosure and new ethics restrictions are among the highlights covered in this update on political law developments.

Legislative Update: Continued Responses to Citizens United

Shareholder Disclosure

Notwithstanding legislation introduced in July that included a number of transparency initiatives, including a requirement that shareholders vote to authorize corporate political activities, a lack of momentum at the legislative level is prompting campaign finance compliance action elsewhere. One recent development relates to a petition filed with the Securities and Exchange Commission ("SEC," or "Commission"). A group of professors has filed a petition with the SEC requesting a rulemaking that would require public companies to disclose political contributions to shareholders in annual proxy statements. Since the filing of the proposal on August 3, several transparency advocates have weighed in with the Commission, urging the SEC to support the proposal and to initiate a rule-making in an effort to enhance corporate accountability. Supporters of the proposal point to the Citizens United v. FEC decision, which discusses the ability and responsibility of shareholders to discipline corporate officers and board members who use corporate resources in conflict with shareholder interests. The decision also specifically mentions disclosure of corporate expenditures as a means by which shareholders can obtain information necessary to hold executives accountable. Opponents of the proposal have commented as well, citing the burdensome impact of an increasing number of disclosure requirements, in addition to pointing out a likely court battle should the rulemaking advance.

Also pending before the SEC is a proposal offered by the Municipal Securities Rulemaking Board ("MSRB," or "Board") that would add and amend rules pertaining to political contributions and prohibitions on municipal advisory activities. The Dodd-Frank legislation tasked the MSRB with establishing regulations for municipal advisors to prevent fraudulent and manipulative acts and practices. The MSRB has proposed a new Rule G-42, which concerns political contributions made by all municipal advisors, both those that are dealers and those that are not. Like Rule G-37, currently in place, the proposed rule would not ban political contributions, but would place a two year ban on municipal advisors conducting business with municipal entities for compensation if political contributions over $250 are made to state or local government officials with authority to hire municipal advisors. The comment period for the proposed rule closed on September 30.

Constitutional Amendment

Renewed efforts to restrict the impact of the US Supreme Court’s Citizens United decision continue to appear in Congress. Representatives Donna Edwards (D-MD) and John Conyers (D-MI) introduced an amendment to the US Constitution that would grant Congress and the states the ability to regulate corporate political activity. This authority would supersede the Citizens United decision. While an amendment to the constitution could take years to be ratified, even one that enjoyed broad support, the introduction of this amendment reinforces the trend of responses coming from Congress and the Administration with respect to the Citizens United decision. With the FEC and Congress unlikely come to an agreement on any legislative response due to the divisive nature of this decision, the 2012 elections will likely occur within the framework established under the Citizens United case, incorporating a new era of Super PACs, corporate political spending, and record fundraising by congressional candidates.

Regulation of Lobbying Activity

Executive Branch Rule Proposed

On September 13, 2011, the Office of Government Ethics ("OGE") published a proposed rule that expands the prohibition on certain lobbyist gifts to apply to all executive branch employees. The rule proposes to add a lobbyist limitation to the exceptions of the gift rule prohibition. Specifically, the rule proposes to eliminate the ability of all executive branch employees (as opposed to simply political appointees governed by the Obama Administration’s Ethics Pledge) from using the following four exceptions to the gift rule prohibition when the gift is provided by a lobbyist or lobbying organization:

  1. $20 de minimis. Currently, executive branch employees may accept gifts having a market value of $20 or less per source on a single occasion, subject to a limit of $50 in the aggregate. Eliminating this exception for lobbyists or lobbying organizations would align the executive branch rules with the House and Senate.
  2. Widely attended gathering ("WAG"). Currently, executive branch employees may accept offers of free attendance at WAGs where an agency designee has determined that attendance is in the interest of the agency. OGE feels that the WAG exception has been used to attend primarily social events where the nexus to the agency’s interest was attenuated. As such, this exemption would be eliminated.
  3. Social invitation. Currently, executive branch employees may accept offers of free attendance at social events attended by several persons, provided the invitation is not from a prohibited source and no fee is charged to other attendees. Executive branch employees would not be permitted to accept such an invitation from a lobbyist under the proposed rule.
  4. Meals, refreshments, and entertainment from private entities in a foreign area. Currently, executive branch employees may accept food, refreshments, or entertainment in the course of official attendance at certain meetings or events in foreign areas. This exception would no longer apply under the proposed rule if such provisions were offered by a lobbyist or lobbying organization.

The proposed rule would retain exceptions that are permitted under the 2009 executive order even when provided by a lobbyist or lobbying organization. These exceptions are limited to:

  • Gifts based on a personal relationship
  • Discounts and similar benefits
  • Gifts resulting from a spouse’s business or employment
  • Customary gifts provided by prospective employers
  • Gifts to the president or vice president; gifts authorized by an OGE-approved supplemental regulation
  • Gifts accepted under specific statutory authority.

The proposed rule also would allow the following three exceptions to apply: (1) awards and honorary degrees; (2) gifts resulting from an employee’s outside business or employment; and (3) certain benefits in connection with permissible political activities.

The OGE proposes to exclude the following four organizations from the definition of a lobbyist or lobbying organization: (1) 501(c)(3) tax-exempt organizations; (2) an institution of higher education; (3) a media organization with respect to any gift made in connection with the information gathering or dissemination activities of the organization; and (4) nonprofit professional associations, scientific organizations, and learned societies with respect to any gift made in connection with the entity’s educational or professional development activities.

Appointment of Lobbyists to Federal Boards and Commissions

On October 5, the Office of Management and Budget ("OMB") published final guidance that prohibits executive branch departments and agencies from appointing or reappointing lobbyists to advisory committees, commissions, boards, panels, delegations, or task forces. While the final guidance is effective November 4, this prohibition has been in effect since a June 18, 2010 White House memorandum. This final guidance details the prohibition, which applies to any lobbyist registered under the Lobbying Disclosure Act ("LDA"). State lobbyists and non-registered lobbyists employed by organizations registered under the LDA may still be appointed to federal boards or commissions. Lobbyists who were appointed prior to June 18, 2010 may continue to serve out their term of appointment, however, they may not be reappointed. While no waivers of this prohibition will be granted, lobbyists may be appointed or reappointed to federal boards or commissions under the following three circumstances: (1) the lobbyist files a bona fide deregistration; (2) the lobbyist has been de-listed by his or her employer as an active lobbyist, reflecting the actual cessation of lobbying activities; or (3) the lobbyist has not appeared on a quarterly lobbying report for three consecutive quarters as a result of their actual cessation of lobbying activities.

Lobbying Reform Stalled, Potential Increase in Compliance Enforcement

Despite several legislative proposals, the appetite for advancing major changes to current lobbying regulation remains limited. Potential factors contributing to the lack of momentum include a crowded legislative calendar with multiple higher-priority items, as well as the absence of a monumental instance of failure under the current system. There have been indications in recent weeks that the Department of Justice ("DOJ") may be ramping up its oversight of LDA violations. A DOJ official, Keith Morgan, speaking recently at a conference warned of an anticipated increase in lobbying disclosure enforcement. Morgan works in the civil division in the Office of the US Attorney for the District of Columbia, which has enforcement power over the LDA. The office has created a database of potential LDA violators, allowing repeat non-files to be identified so that they may be contacted and potentially penalized. Thus far, compliance with the LDA and its new requirements under the Honest Leadership and Open Government Act has seen lax enforcement and very few incidents of fines or penalties, as most violators have inadvertently been noncompliant and bring themselves into compliance upon notice from authorities. It is worth noting that even with greater attention by DOJ with respect to the filing of disclosure reports, efforts remain focused solely on whether those registered under the LDA have filed. Compliance enforcement does not examine the accuracy of disclosure reports, nor does it evaluate whether all those who have triggered registration requirements under the LDA have registered.

Spotlight: Joint Select Committee on Deficit Reduction

The fulcrum of activity in Washington, DC right now is the Joint Select Committee on Deficit Reduction (the "Joint Committee"). Policymakers, stakeholders, and a wide range of interest groups are focused on the Joint Committee, whose work will shape the direction of policy for the remainder of 2011. As expected, partisanship has already crept into the foreground of the Joint Committee’s policy-related work, which, in turn, has bled into the campaign finance space.

The Joint Committee is tasked with producing legislation that will reduce the federal budget deficit by $1.2 trillion over ten years. Scrutiny surrounding the campaign fundraising activities of members of the Joint Committee and their interactions with lobbyists began immediately and continues to grow, with outside organizations calling on Joint Committee members to forgo campaign contributions during the Joint Committee’s deliberations and to publicly report any meetings with lobbyists. Representative Loebsack (D-IA) introduced the Deficit Committee Transparency Act (H.R. 2860) that would require: 48-hour disclosure of meetings with lobbyists; 48-hour disclosure of campaign contributions received from lobbyists or those totalling in excess of $500; a final report produced by the Joint Committee regarding such meetings and contributions; and 72-hour advance publication of the Joint Committee’s final report and legislative language prior to a vote. While it is unlikely that Congress will enact this bill or similar legislation placing restrictions on the lobbying of, or campaign fundraising by, members of the Joint Committee, the publicity around such activity remains escalated. In this regard, Senator Kerry (D-MA) recently announced that he would forgo campaign fundraising until the Joint Committee’s work is complete.

Legal Developments

Foreign Fundraising

The Supreme Court will review whether foreign nationals remain prohibited from contributing to political campaigns in the United States, a case that could have a considerable bearing on the impact of Citizens United. In a decision last month in Bluman v. Federal Election Commission, (U.S., No. 10-1766), a lower court upheld restrictions contained in Section 441e of the Federal Election Campaign Act that prevent campaign contributions from foreign nationals living in the United States. Attorneys representing the plaintiffs, both foreign born but living in the United States, have pointed to part of the First Amendment discussion in Citizens United, as well as in McConnell v. FEC, which held that the non-voting status of corporations and minors does not inhibit their ability to speak and monetarily contribute in political campaigns. The Supreme Court’s verdict in Bluman could be used to gut pieces of Citizens United if the Court rules to uphold the lower court’s decision, according to the plaintiffs. Such a ruling would indicate that prohibitions on independent campaign expenditures "can survive strict scrutiny and are not off-limits."

In the States

North Carolina Challenge

The trend of Constitutional challenges to state public financing laws continues in North Carolina, where a suit has been filed claiming that state law hinders citizens’ and organizations’ ability to become engaged in judicial elections. The law, enacted in 2002, provides public financing for candidates for appellate court judgeships and was later expanded to include certain other state offices. Under the law, candidates must qualify to receive public funds, which requires the fundraising of a certain amount of contributions, as well as following contribution and spending limits. Plaintiffs, two PACs, allege that the law infringes on the constitutional rights of freedom of political speech. At issue, according to the plaintiffs, is the trigger applicable to the public funds – if a candidate who has chosen not to participate in the public financing system receives a contribution or makes an expenditure in excess of a certain amount, the result is that matching funds are then distributed to all publicly-financed candidates.

Though a previous challenge to the law by plaintiff PACs was rejected, the PACs say that the law has since changed, citing the U.S. Supreme Court’s recent decision in Arizona Free Enterprise Club’s Freedom Club PAC v. Bennett, U.S., No. 10-238, that struck down a similar matching fund law in Arizona due the resulting substantial burden on political speech in the absence of a compelling state interest.

Wisconsin Decision: Campaign Finance Law "Too Unsettled" to Declare Disclosure Laws Unconstitutional

Illustrating the lingering uncertainty surrounding state campaign finance and disclosure laws, a federal judge in Wisconsin refused to invalidate state disclosure rules, notwithstanding a verdict that the laws were not applicable to the plaintiff. The case concerned an individual plaintiff who had mailed opposition material in the context of a referendum – an act, according to the judge, that did not warrant enforcement of the state’s campaign finance disclosure rules. A larger issue looming over the case, however, was whether the laws are facially unconstitutional. In yet another reference to the pivotal Citizens United case, the judge cited unsettled campaign finance reform law in his decision not to declare the Wisconsin statutory provisions facially unconstitutional, citing previous case law and the Citizens United dissent in ruling that courts should refrain from issuing broad constitutional rulings in the absence of absolute necessity.

Developments at the FEC

Political Activity on the Internet

At its October 6 meeting, the FEC unanimously adopted a draft advanced notice of proposed rulemaking to address disclaimers for internet political advertising, though the Commissioners said they do not anticipate such a rule to go into effect until after the 2012 elections. Under current FEC rules, campaigns must clearly and conspicuously identify who paid for the ad and whether a candidate authorized the ad. These requirements apply to both print and broadcast communications. Internet advertisement sellers, such as Google and Facebook, have sought exemptions for such small ads, arguing that the exemption provided for small items such as bumper stickers or political campaign buttons where a disclaimer would be impractical should apply to internet ads as well.

The Commission seeks comments regarding how it should amend disclaimer requirements for Internet communications in a manner that would "provide flexibility consistent with their purpose," according to the draft rulemaking notice. Specifically, the FEC would ask whether it should establish rules similar to those recently adopted by the California Fair Political Practices Commission ("FPPC"), which do not contain a disclaimer exemption for internet ads for state campaigns. The FPPC does allow small internet ads can use various methods to provide the disclaimer information, such as rollover displays or links that connect to another website.

PAC Contributions and Independent Expenditures

In a settlement agreement with The National Defense PAC, the FEC agreed not to enforce its requirement that nonconnected PACs making independent expenditures and direct campaign contributions be separate entities. Under the terms of the settlement, provided that The National Defense PAC maintains separate bank accounts, it may make both candidate contributions and independent expenditures (and receive contributions to the PAC accounts for these purposes). On October 5, the FEC announced that the Commission would apply the terms of The National Defense PAC settlement to all nonconnected PACs. Thus, one nonconnected PAC may now make direct campaign contributions (subject to individual contribution limits) and unlimited independent expenditures if the PAC maintains segregated bank accounts for campaign contributions and for non-contributions (i.e., independent expenditures). The FEC notes that future rulemaking will codify this legal development and revised forms will reflect the new regulatory regime. Until this time, the Commission requests that a nonconnected PAC that plans to establish a separate non-contribution account for the purpose of making independent expenditures notify the FEC of their intent to do so.

Agency Procedure Following Submission of Probable Cause Brief

On October 6, the FEC adopted a procedure to formalize the Commission's practice in the latter stages of the Probable Cause process. During this process, the Office of General Counsel ("OGC") will advise the Commission whether or not it intends to proceed with a Probable Cause recommendation. When the OGC recommends whether or not the Commission should find probable cause, such recommendation is accompanied by a Probable Cause Brief. A respondent is permitted to respond to the Probable Cause Brief (the "Reply Brief") and request a hearing (the "Probable Cause Hearing"). Following a respondent's Reply Brief and the Probable Cause Hearing, OGC must advise the Commission whether OGC intends to proceed with its recommendation (the "OGC Notice").

Under this new procedure, the OGC Notice must contemporaneously be provided to the respondent at the time it is provided to the Commission. In addition, the OGC Notice may include information that replies to, or argues facts or law in response to, the respondent's Reply Brief or issues arising out of the Probable Cause Hearing. If the OGC Notice contains new facts or legal arguments, the respondent may request an opportunity to address to the new points raised by the OGC within five days of receiving the OGC Notice. If the Commission approves this request, the respondent may file a Supplemental Reply Brief within ten days of the Commission's permission to address the new points.

Foreign Born Candidates

The FEC has approved an advisory opinion ("AO") concerning the ability of a foreign born national to raise campaign contributions as a candidate for the president of the United States. Final action on the AO came on September 2, a day after the commissioners, uncomfortable with the draft AO, agreed to tweak the draft in an effort to obtain unanimous consent. Two draft advisory opinions were released in advance of the September 1 FEC meeting, both expressing the commissioners’ position that FEC law could not prevent the petitioner, a foreign national, from registering as a candidate for the presidency, or from soliciting and receiving related campaign contributions. At issue was whether a foreign national presidential candidate would be eligible to receive matching funds under the public financing program. Some commissioners wished to withhold opinion on the matter, deeming it premature and hypothetical in that the foreign national requesting the AO has not met a series of requirements in order to be eligible for public financing. Ultimately, the AO issued provided that the foreign national candidate would not be eligible for public matching campaign funds, stating that the constitutional requirement that the president be a natural born citizen warranted the FEC to use its discretion to block taxpayer dollars going to the petitioner’s campaign.

The ruling contained a footnote cautioning that fundraising activities by a foreign national candidate for the presidency could be subject to penalties for fraud, as the individual is not permitted under constitutional law to serve as president of the United States.

Public Dissemination of Certain Independent Expenditures

On October 4, the FEC published guidance regarding when certain independent expenditures have been "publicly disseminated" for purposes of FEC reporting requirements. Under the FEC notice of interpretive rule, the public dissemination date (which triggers certain reporting requirements) for independent expenditure communications such as yard signs, mini-billboards, t-shirts, hats, and buttons may be any reasonable date starting with the date the filer exercises control over the items, up to and including the date that the communications are actually disseminated to the public. The FEC notes that the reasonable date could be any of the following: (1) the date the filer receives delivery of the communication; (2) the date the filer distributes the communication to members, employees, or affiliated organizations; (3) the date the filer authorizes members or employees to display the communication; or (4) the date of actual public dissemination, if known. The FEC guidance notes that the public dissemination date may not be later than the actual date of dissemination or subsequent to the date of the election to which the independent expenditure communication pertains.

Electronic RFAI

Beginning in October, the FEC Reports Analysis Division will begin sending PAC treasurers Requests for Additional Information ("RFAI") via email. To continue to receive RFAIs via paper, a PAC treasurer must make a request to the FEC. RFAIs allow PAC treasurers an opportunity to potentially avoid further action by correcting the public record.

FEC Filing Deadlines

The following lists key filing deadlines for the remainder of political activity conducted in 2011:

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Political committees that make independent expenditures at any time during 2011 are required to disclose this activity within 48 hours each time the expenditures aggregate $10,000 or more. Entities that make disbursements for electioneering communications in 2011 that aggregate $10,000 or more must disclose this activity within 24 hours of public distribution of the communications.

Future FEC Meeting Dates

The following lists upcoming dates for FEC open meetings and closed executive sessions for the remainder of 2011:

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