While federal campaign finance enforcement priorities can and do shift, prosecutions of “conduit contributions” or “straw donors” have remained steady over the years. Unlike most of federal campaign finance law, the law around straw donors is stable and well developed, and straw donor prosecutions tend to be straightforward. The recent media coverage surrounding allegations that Louis DeJoy, the U.S. Postmaster General, participated in a straw donor scheme at his former company highlights the risks of being implicated in such a scheme.

Federal campaign finance law makes it illegal for any person to “make a contribution in the name of another person or knowingly permit his name to be used to effect such a contribution.” This provision prohibits someone from accepting reimbursement from another person, whether an individual or an organization, for a political contribution and prohibits any person from reimbursing someone else for a political contribution. Conduit contributions that are made knowingly and willfully and that exceed $10,000 in the aggregate constitute a felony punishable by up to two years of incarceration, and those exceeding $25,000 in the aggregate are punishable by up to five years of incarceration. Prosecutors also often charge conduit contribution cases under the federal false statements statute as causing a false statement to be made to the Federal Election Commission. Additionally, almost every state, if not every state, also prohibits conduit contributions in state elections.

Conduit contribution cases generally arise in a few circumstances. Political contributors may use straw donors to attempt to skirt contribution limits. This was the case when conservative commentator Dinesh D’Souza pleaded guilty to reimbursing donors for contributions they made to a U.S. Senate candidate. Foreign nationals prohibited from making contributions to political campaigns may also attempt to make contributions through other people. Corporate owners or officers may use corporate funds to reimburse employees for political contributions in an attempt to evade the ban on using corporate funds to make political contributions to federal candidates. Donations to 501(c)(4) social welfare organizations that are passed through to Super PACs can also raise conduit contribution concerns, and state regulators, particularly in California, have fined donors and organizations that have admitted to engaging in such transactions.

Most straw donor schemes are discovered through whistleblower reports or in the course of an investigation into another matter. In recent years, the Department of Justice has discovered straw donor schemes by reviewing public Federal Election Commission campaign disclosure reports.

The vast majority of straw donor issues for individuals can be prevented by ensuring that an individual makes contributions only out of his or her own funds and does not give or receive reimbursements for political contributions. Corporations should be aware of potential traps, such as when a government relations employee or contractor seeks reimbursement for a campaign contribution, sometimes characterized as an “entry fee” for a political event, as a business expense. Corporate entities may also want to consider the following steps to avoid getting caught up in a conduit contribution investigation:

  • Institute robust controls for political engagement using corporate funds;
  • Engage in training to ensure that officers and employees are aware of the prohibitions against reimbursing contributions;
  • Perform a government affairs and political giving compliance audit; and
  • Never tie bonuses or compensation decisions to political giving.