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Political Giving Pitfalls: Campaign Finance Laws for You and Your Clients

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Political Giving Pitfalls: Campaign Finance Laws for You and Your Clients

Contributing to candidates, starting a political action committee, raising money for candidates, and being involved in advocacy organizations are all highly regulated efforts. It is important to understand contribution prohibitions and limitations, disclosure rules, and other restrictions on political activity at the federal, state, and local levels. In this overview course, we will explain how the Federal Election Campaign Act and the various state laws apply to different activities and actors, such as candidates, super PACs, companies, and individuals.

Presenters

Ronald Jacobs
Partner
Venable LLP

Transcript

More than 14 billion was spent on the 2020 elections, which was double the amount spent just four years earlier. That is a lot of money for politicians to raise and spend and for individuals and companies to donate. Political spending is a highly regulated area of the law at both the federal and state levels and the laws apply to both those raising the money and those giving it. It's not surprising, then, that there have been many enforcement matters, indictments, and embarrassing news stories about everything from simple mistakes to criminal activity. Just recently, the Congressional Oversight Committee recommended that the Justice Department should prosecute an individual for tying campaign contributions to a presidential super PAC to a regulatory decision that the individual made that affected the donor. The bad press and publicity, or even worse, that comes from campaign finance missteps can be devastating for politically active individuals, companies, and candidates. That is why it is important to know and understand the campaign finance rules that apply to political activity, even casual political giving. Compliance really is essential to being involved in the political process. There are many good and important reasons why people want to participate in the political process. Today, we will talk about how to accomplish those goals while complying with the law to minimize the risk of enforcement or bad publicity as we talk about political giving pitfalls, campaign finance laws for you and your clients. I'm Ron Jacobs, the chair of the political law practice at Venable LLP in Washington, DC. I have experience representing candidates, super PACS, associations, advocacy organizations, large and small companies, and individuals involved in the political process. With over 20 years of experience in the field, I'll help you to understand how to be involved in the political process without running a foul of the rules. Today, we'll cover a number of different topics to give you an overview of the rules around political giving. We'll start with an introduction to explain the rationale for how campaign finance laws work and then turn to the specific limits and prohibitions that cause problems for those involved in the political process. Most of what we'll cover will be focused on the rules that apply to federal campaigns, those running for the president, the US House, and the US Senate. After that, we will talk a little bit about how state laws work so that if you are interested in races for governor, state attorney general, or the state house in different places, you will have a good start. It's important to remember that state laws vary widely and what is permitted in one state can be a crime in another. So with that background, let's get started. Campaign finance law has two different ways of looking at the way money is spent, contributions and expenditures. Contributions are the money and other things of value that someone gives to a political committee, a check you write to a candidate, the use of a private jet to fly a candidate to an event. Expenditures are funds that are spent to support a candidate directly. For example, if you were to buy a digital ad on social media that says "Vote for Bob Smith for Congress" or if you were to buy a sign by the side of the road, that would be an expenditure. But the key is that an expenditure has to be done by yourself. It cannot be done at the request or suggestion of the candidate. If it's done at the request of the candidate, then it's something that's considered a coordinated contribution and becomes an in-kind contribution to the candidate. The reason the difference between a contribution and expenditure is important is that the Supreme Court has decided that there are different levels of restrictions that could be placed on contributions compared to expenditures. Contributions can only be limited based on corruption or the appearance of corruption. In other words, absent corruption or its appearance, the Supreme Court will strike down any law-limiting contributions. A recent Supreme Court decision is illustrative. In that case, the court looked at statements from members of Congress, academic articles, and newspaper articles that the government put forth to try to justify a limit on repaying campaign loans. At the end of the day, the court said none of that was evidence of the appearance of quid pro quo corruption and struck down the law anyway. But there's at least a standard by which the court will uphold limits on contributions. Expenditures are a different story. Supreme Court has said that expenditures may not be limited because an expenditure that is made without coordinating with a candidate cannot corrupt a candidate in any way, shape, or form. This is now determined as a matter of law. What this means is that for now, contributions may be limited and subject to regulation, whereas expenditures, as long as they're done independently of the candidate, are not subject to any contribution limits. This is important because individuals are limited in how much that they can give to a particular candidate, and certain entities can be prohibited from giving to candidates, but those individuals and entities are allowed to spend unlimited sums on their own because the First Amendment prohibits restrictions on those amounts. One other point that we'll discuss later, if an entity will only make independent expenditures and not give contributions to candidates, then individuals and entities that are limited in how much they can give directly to a candidate are still allowed to give unlimited amounts to those independent only expenditure committees. So it's an important distinction and it gets complicated because what looks like a contribution that should be subject to limitation may actually not be subject to limitation. With this background in mind, now we'll talk about federal contribution limits. The first thing to know about federal contribution limits is that there are specific dollar amounts that can be given. This chart helps to show the different limits that apply to individuals, candidate committees, multi-candidate PACs, non-multi-candidate PACs, and we'll discuss the difference between the two shortly, as well as state and local political committees and national party committees. The column on the left shows the giver and the columns on the right show the different recipients and the amounts that may be given. Interestingly, the individual contributions are indexed to inflation. Every two years, the Federal Election Commission looks at the Consumer Price Index+ and determines whether to raise them and how much. Eventually, the individual contribution limits then will probably catch up to the PAC contribution limits and we'll have to see what Congress does when that happens. I mentioned a minute ago that there are two different kinds of PACs, multi-candidate PACs and non multi-candidate PACs. The difference is really in three factors. One, the multi-candidate PAC has to have 50 different donors to the PAC. It also has to make contributions to at least five different candidates. And finally, the PAC has to be in existence for more than six months. There's some that have speculated that these restrictions may be unconstitutional to distinguish between the two different kinds of PACs, but so far, the courts have upheld these. The other thing to notice is the different way that contribution limits are calculated. The contributions to candidates are based on election. So the primary election and the general election are each their own separate contribution limits. Contributions to PACs and political parties, on the other hand, are calculated on an annual basis and so reset on January 1st of every year. Also, you'll note that there's a special column for the national party committees. In addition to the contributions that may be given by individuals, PACs, and other parties to the federal accounts of each of the committees, there are separate contribution limits for other special accounts. When we refer to the national party committees, we actually mean three party committees for each of the Republicans and the Democrats. So there's the National Committee, the Democratic National Committee or the Republican National Committee, the Senatorial Committee, the National Republican Senatorial Committee or the Democratic Senatorial Campaign Committee, then the House Committee, the DCCC and the NRCC. Each National Committee has a presidential nominating convention account and all three of the committees have election recount and legal funds, as well as headquarter building funds. As you can see, the contribution limits to those special accounts are quite high. A lot of people hear about large contributions that seem to be above the contribution limits that we just discussed. One way that this happens is through joint fundraising committees. A joint fundraising committee is a separate account that represents more than one candidate or more than one kind of committee. So, for example, you could have a candidate primary, a candidate general, the candidate's leadership PAC, and a national party committee plus a state party committee, all combined together into one joint fundraising committee so that a donor in that example could write a check for $57,300. Another way that joint fundraising committees work is with multiple candidates. So if you had six candidates all for the primary, and in general election, you would get to $34,800. Another example would be with a party committee that included its convention, recount, and building fund committees to get to up to $365,000. So through these joint fundraising committees, you can get to larger contributions than the limits that we showed in the chart. In addition to the limits on contributions, there are also restrictions on who can give campaign contributions. There are three in particular that we'll talk about. Contributions from foreign nationals, contributions from federal government contractors, and contributions from corporations are all prohibited. Let's unpack exactly what each of these means. The restriction on contributions from foreign nationals is one of the most stringently enforced federal election laws. Only US citizens and permanent residents, meaning green card holders, are allowed to make contributions. What's interesting about this federal rule is that it applies not only to contributions to federal candidates, but it also applies to contributions to federal, state, and local candidates, PACs, and political parties. At the same time, candidates, parties, and PACs are also prohibited from receiving and soliciting contributions from foreign nationals. There's actually examples of where state candidates have gotten in trouble with the Federal Election Commission for accepting contributions from foreign nationals. In one notable example, a candidate for governor accepted a contribution from a Canadian citizen. He even checked with state officials to make sure it was permissible under state law and they said, yes, it was, but he forgot to check the federal law, which also applied. The Federal Election Commission fined him for accepting the contribution from a foreign national. But it's not just contributions from foreign nationals that are restricted. Foreign nationals are also restricted in the kinds of activities they can undertake with respect to an election. In particular, the federal law prohibits foreign nationals from controlling any kind of political committee. This means that foreign nationals are not allowed to make decisions about things like a company's political action committee. It's important for US subsidiaries of foreign companies to make sure they have controls in place to satisfy this restriction and for any companies who have foreign nationals in senior executive positions, it's important to make sure that there are also restrictions on how those senior executives can be involved in the political activities of the US company. There was just a recent FEC enforcement matter against a US company that made a contribution to a federal super PAC. The contribution was vetted and approved by the company's US executives. However, the Federal Election Commission found that the owner of the company, who was a Canadian citizen, was involved in the decision to make the contribution. That involvement was enough to taint the entire contribution. The enforcement file is not entirely clear on exactly what that foreign national did, but it seems like the idea was that he had suggested that the company make the contribution because he wasn't allowed to himself and even though it was approved through normal channels through US citizens, from US dollars, within the United States, from a US incorporated company, the FEC still found that there was a violation. Not withstanding all of the restrictions on directing and controlling contribution activity, foreign nationals are allowed to solicit contributions to candidates or PACs. They just cannot be involved in making decisions about spending those contributions. In addition, the FEC has said that foreign nationals are allowed to volunteer for campaigns, so they can stuff envelopes, make phone calls, do any kind of activity like that, again, as long as they're not controlling or making decisions about the campaign's efforts. As I noted in this recent enforcement matter, it involved a contribution to a super PAC. So even though contributions to super PACs, as we'll talk about, are generally unlimited and permitted for corporations, if there's a foreign national involved, whether that be a foreign parent or foreign executive, it will be important to make sure that they stay out of the decision-making of those contributions. Next, let's turn to the restriction on contributions from federal government contractors. We're gonna talk later about contributions from state contractors in state campaigns, and those rules are quite complicated. The federal government contractor rule is actually fairly simple. As we'll talk about next, corporations are prohibited from making contributions to candidates, PACs, and parties at the federal level. Because of that, most federal government contractors are already restricted in their political activity because they're corporations. So this rule really comes into play for individuals and limited liability companies and partnerships, things that aren't subject to the corporate prohibition. So if an individual is a federal government contractor providing personal services, they are prohibited from making contributions to federal candidates, PACs, and parties. Similarly, limited liability companies and partnerships that are federal government contractors will also have to be careful with their political giving. Corporations which are otherwise prohibited from making campaign contributions are allowed to create a separate segregated fund, which is another name for a political action committee that we'll talk about in a few minutes. Even corporations that are federal government contractors are allowed to make contributions from their PACs. Where everything gets a little strange is with respect to super PACs. There, a traditional corporation is allowed to make an unlimited contribution to the super PAC, but if they're federal government contractors, they're not allowed to make a contribution. The FEC has brought several recent enforcement cases against contractors who are corporations that made contributions to super PACS. So if someone is solicited for a contribution to a super PAC, it's important to make sure that the corporate entity does not hold federal government contracts. It is permissible for subsidiaries or parents of entities that hold federal government contracts to make corporate contributions to super PACs, but it's very important to vet the contribution request carefully to make sure that the entity making the contribution is not itself a federal government contractor. I've made several references now to the restrictions on corporations making contributions to federal candidates, federal PACs, and federal political parties. This is one of the bedrock restrictions in federal campaign finance law. It also leads to some of the more complicated rules and the need to jump through hoops in order to be involved in the political process. The simple rule is that corporations, both for profit and nonprofit, are prohibited from making contributions in connection with federal elections other than contributions to super PACs and independent expenditure committees, which we'll talk about later. Importantly, this includes both monetary contributions, so checks that the company might like to write to a candidate, as well as in-kind contributions. It's these in-kind efforts that can get complicated sometimes. Allowing a candidate to use a company's resources, like a conference room or a private jet or anything like that, would be an in-kind contribution subject to the corporate prohibition restriction. This corporate facilitation is one of the areas that gets companies into trouble. It's important to remember as I talk about these corporate contribution restrictions that the same restriction applies to labor unions as that applies to corporations. This seems to be a balancing that was done when the Federal Election Campaign Act was written back in the seventies to make sure that corporations and unions had a certain even-handed treatment under the law. So this use of company resources to help candidates is known as corporate facilitation. Corporate facilitation means providing anything that's free or reduced charge to a candidate for fundraising purposes or for campaign activity. This could be using a conference room for a fundraiser, providing food and beverage, providing transportation, or providing the use of employee time. While individuals are allowed to donate their time to a campaign, they are not allowed to donate their subordinates' time. So if an executive wants to be involved in a fundraiser, that person may not ask their assistant to assist with those activities. They would have to prepay the assistant's time or the campaign might even pay for that assistant's time if it's necessary to do the activity. Any time a company is providing something to a campaign, it has to be paid for in advance in order to avoid a contribution being made and it has to be paid at fair market value. Now, interestingly, a company could provide the use of resources and facilities to a super PAC if it wanted to, because independent expenditure committees are not subject to the corporate restriction. One way that companies can be involved in the process is with making restricted class communications. So a company is allowed to communicate with its restricted class on any subject, including expressly advocating the election or defeat of a candidate and asking for contributions to a candidate, as long as it doesn't collect the contribution. So typically that could be done by an email to the restricted class with a link that allows the person to click on the link and make a contribution to a candidate. All of these kind of communications have to include voluntary notices to make sure that the individuals know that they're allowed to contribute or not contribute through that process and obviously whether they want to vote or not vote for that particular candidate. Expenses for communications to the restricted class have to be reported to the Federal Election Commission if they exceed $2,000 per election. That number probably was relevant in the 1970s when companies would mail materials to their restricted class or have other similar kinds of communications. Now that can all be done electronically. It's very unlikely that most companies would ever get to that $2,000 number to trigger reporting. So what is the restricted class? For for profit companies, that means executive and administrative personnel, shareholders, directors, if they're either shareholders or receive compensation, anyone who follows the recognized professions, like doctors, lawyers, or engineers, as well as families of the restricted class. For labor unions and nonprofits, that means individual members and any individual with whom the association normally interacts, if it's members or corporations. This means that companies are allowed to suggest who to vote for with their executive personnel or their shareholders. When this rule was written, it was before independent expenditures were protected as free speech, which means that now, a company could technically communicate outside of its restricted class, meaning to hourly employees, as long as it was done as an independent expenditure, as opposed to a restricted class communication. As we'll talk about later, independent expenditures do have to be reported to the Federal Election Commission. Another important area for companies involves candidate appearances. Candidates may speak to the restricted class of a company. The company may pay for all of those costs associated with the event as long as only the restricted class and as long as there are only incidental employees outside of the restricted class that are necessary for the event, such as staff to set up or clean up, things like that. Non-employees are allowed at these events, but only if they are being honored or speaking or have some particular role in the event. The company is allowed to pick which candidates it wants to have to these kind of events. It does not have to have all the candidates in a particular race there and has complete control over the scope of the event. Candidates are allowed to appear outside of the restricted class, where all employees are allowed to attend, but if the company allows one candidate in a particular election to appear, then it has to allow all candidates to appear or have the opportunity to appear. It's also important to remember that these appearances are for candidates. Sitting office holders may also appear at a corporate site and visit with employees, regardless of the restricted class, as long as they're there in their official capacities and not in their capacity as a candidate. That means, for example, that a senator could come visit a company in the senator's state, talk about the different economic efforts that he's working on, things like that. As long as he doesn't talk about the campaign, he can speak to any employee. What we're talking about here are campaign events where the person appears in their capacity as a candidate, speaking about their election. One of the biggest ways that companies get involved in the political process are through political action committees. We're gonna now talk about political action committees and the role they play in the federal election process. A political action committee is a special kind of entity registered with the Federal Election Commission that's allowed to accept contributions of up to $5,000 per year from individuals who are US citizens and make contributions to candidates, other PACs, and political parties. We're gonna focus here on multi-candidate PACs, which are those PACs that have over 50 donors, have made contributions to more than five candidates, and have been in existence for six months. As we talked about before, these multi-candidate PACs are allowed to give up to $5,000 per election to candidates. This means $5,000 for the primary and $5,000 to the general. Importantly, PACs, at least traditional PACs, are not allowed to receive any corporate funds into their treasury. All contributors who give $200 or more are disclosed on a PAC's reports. PACs are all registered with the Federal Election Commission and are highly transparent. So even though sometimes PACs make the news for being involved in the political process, they're very transparent and highly regulated. Importantly, there are two different kinds of political action committees. There's what's called a connected PAC, which is known as a separate segregated fund, and then there's a non-connected PAC, which is a standalone PAC. A connected PAC or separate segregated fund is one that is connected to some other entity, like a company or an association or a union. Connected PACs are limited in their solicitations. They're only allowed to solicit their restricted class, which we'll talk about in just a second, but the benefit is that the connected organization is allowed to pay all administrative and support costs. This means that all the money in the PAC can be used for making contributions to candidates and parties, as opposed to having to pay for overhead. These kinds of costs can include fundraising expenses, events, and things like that. A non-connected PAC is the opposite. It does not have a connected organization attached to it. It has to pay all of its expenses out of the PAC itself, which means there may be less available for contributions, but it is not limited in its solicitation. It's allowed to solicit any US citizen or permanent resident for contributions. It doesn't have to limit itself to just the restricted class. Corporate PACs are a form of connected or segregated fund. They're connected to the company. They're clearly identified with the company because the FEC's rules say that they have to include the company's full legal name. And as mentioned, like other connected PACs, their company's allowed to pay for the setup, compliance, communications, incentives, and other kinds of expenses that go with it, as long as it's solicited only from the restricted class. The restricted class of a company PAC is similar to the restricted class that we talked about before when talking about communications. It includes executive and administrative personnel, which we'll unpack a little bit in just a second, shareholders, board members, as long as either they're shareholders or they receive compensation for their service, as well as the recognized professions, like lawyers, engineers, and doctors. It includes the family members of all of these people as well. It does not include hourly employees. So then the question becomes, what exactly are executive and administrative employees? While the Federal Election Commission regulations say that this concept does not exactly mirror the Fair Labor Standards Act's distinction between hourly and salaried employees, exempt or non-exempt, in reality, it comes pretty close. These employees, you have to exercise discretion and independent judgment on matters of significance performing their duties. This includes things like performing major assignments that affect business operations, help plan long and short term business objectives, provide expert advice to senior management, investigate and resolve matters of significance, or make recommendations for action. It also includes overseeing other employees, like hiring, firing, and disciplining, planning work and determining how to do work, and interpreting and implementing management policies and operating practices. The FEC has been fairly liberal in its interpretation of these rules. And so convenience store managers are considered to be salaried employees with decision-making authority, as well as other relatively low-level employees, as long as they're salaried and as long as they have some oversight functions are generally gonna be considered to be within the restricted class. When we talk about membership organizations, it's a little bit different. It includes executives and administrative employees of the membership organization itself, so the people who work for the association. It also includes any individual members. So if it's a professional society with lawyers, doctors, or engineers as individual members or an advocacy organization, a social welfare group that has individual members who join, then they are considered to be individual members. It also includes corporate members, but for corporate members, it means any of the individuals who are in the restricted class of that corporate member. So particularly executive and administrative employees, as long as the members' company has given prior approval. Prior approval is a complicated concept that really makes associations unhappy. Companies are allowed to give prior approval only to one association per year and they're allowed to make restrictions on which individuals within their restricted class may be solicited. The prior approval has to be in writing and it has to be separate for each different year. So even if an association requests prior approval for five different years, the member company has to approve each year separately and is allowed to revoke future approvals before they happen. Individuals who work for a company that's a member of an association cannot be solicited until after prior approval has been granted. This means that PAC solicitations are really a two-step process. First, the PAC has to ask the member companies for prior approval permission, and then once they have, they're allowed to solicit for the PAC contribution. One of the complicated things is that it's often unclear at a company who has the authority to grant prior approval for such a highly regulated construct. There's nothing in the Federal Election Campaign Act that says which individual within a particular company is allowed to give that prior approval. This means the communications. This gets particularly complicated when a PAC is trying to advertise a fundraising event. That event can only be advertised to individuals who work for companies that have already granted prior approval. So sometimes you might see an ad for an event that says, "Click here to learn more," and that learn more involves learning about how the company can make prior approval. Many associations with corporate members have actually worked to expand their membership to include individual members so that they can avoid this whole prior approval process, which leads to the next question, which is, what are membership organizations and what are members? Membership organizations are organizations that have members, some are all of whom are vested with the power and authority to operate or administer the organization. The organization has to in its articles, bylaws, constitution, or other formal organizing documents, expressly state the qualifications for membership and the requirements for membership. It has to make its articles, bylaws, constitution, and other formal organizational documents available to its members upon request. It has to expressly solicit individuals or companies to become members of the organization. It then has to expressly acknowledge the acceptance of membership, like giving someone a membership card or including the member's name on a membership newsletter list. It cannot be organized primarily for the purposes of influencing federal elections. So you can't create a membership organization that's sole purpose or primary purpose, rather, is to elect candidates for office. So if you have an organization that satisfies the membership organization requirements, it then has to actually have members. So members are those individuals or other organizations like companies that have some significant financial attachment to the membership organization, such as a significant investment or ownership stake, or they have to satisfy a multi-part test. They have to pay membership dues at least annually of a specific amount predetermined by the organization or they have to have a significant organizational attachment to the membership organization, either by affirming a membership on an least an annual basis or having direct participatory rights in the governance of the organization. What does it mean to have participatory rights? It means the right to vote directly or indirectly for at least one individual on the organization's highest governing board, the right to vote directly for organizational officers, the right to vote on policy questions where the highest governing body of the membership organization is obligated to abide by those results, the right to approve the organization's annual budget, or the right to participate directly in similar aspects of the organization's governance. So if you have a membership organization with either individuals or organizations who have those participatory rights, then you have members. Those members may then be solicited for contributions or they may be asked for their prior approval if those members are companies. These rules are really designed to prevent an organization from creating members or deeming people to be members without their consent in order to get around the solicitation rules. The Federal Election Campaign Act is odd in the way it restricts political activity. Rather than restricting a connected PAC from accepting contributions from anyone, it restricts the organization to making solicitations to individuals who are within the restricted class and so it's important to understand what a solicitation is. A solicitation is the obvious, any request for a contribution or the encouragement of someone to make a contribution. But it also includes things like any discussion of the benefits of giving to a PAC or the benefits of the PAC. The FEC has said that organizations can publicize everyone who's a member of a PAC, but can't call them out with a gold star kind of recognition in public locations. They also cannot talk about how the PAC is beneficial to the organization, unless it's to the restricted class only. In addition to who's allowed to be solicited, there are also rules about how solicitations are done. In particular, contributions have to be voluntary. There could be no coercion involved, no reimbursement, no rewards or punishment for giving. And it's important that all solicitations make that clear. The FEC says that specific disclaimers have to be included on solicitation notices in order to comply with the rules. In particular, if an organization includes any suggested giving amounts, for example, if they have each individual employee who is a vice president or an assistant vice president or director is recommended to give a certain amount, then the solicitation notice must include disclaimers saying that these are just suggested amounts, that any amount may be given above or below that, subject to the contribution limits. In addition to the voluntary nature, the contribution solicitations must also inform the contributors that their contributions are not deductible for federal tax purposes. This applies for PAC solicitations, candidate solicitations, and any other solicitation for a federal contribution. It's also important when making solicitations to understand the rule about reimbursements. Campaign contributions may not be reimbursed by anyone. This is one of the most important rules in federal elections and is often violated. Companies are not allowed to reimburse contributions made by their employees, whether they be to candidates or to PACs. Wealthy individuals cannot reimburse contributions made by their family members or friends. No reimbursement. Reimbursing a contribution causes violations by both the donors, as well as the recipients. Campaign committees will get fined for reimbursed contributions if they should have known they were reimbursed because they're reporting the wrong donor and they're also accepting excessive contributions. Corporations who reimburse contributions are, of course, making impermissible corporate contributions. Companies that operate PACs have to be very careful not to reimburse contributions through bonuses, expense accounts, or any other kind of gross-up for political activity. Again, this is a frequent violation that we see, and it's important to make sure that companies have good processes and procedures in place to make sure that they're not reimbursing employee contributions. That covers the topics today that we want to talk about on limitations on contributions at this federal level. Now we'll turn to the topic of independent expenditures, ways to spend money that people get involved in the process without giving directly to a candidate. Independent expenditures really took off in the past 10 years or so after the Citizens United decision by the Supreme Court. Prior to that time, corporations, both for profit and nonprofit, were prohibited from not only making contributions, but also making expenditures. Only in limited circumstances were nonprofit organizations, like a 501 social welfare group, allowed to make very limited amounts of independent expenditures. With Citizens United, the Supreme Court struck down that prohibition on making independent expenditures by corporations and said that because there's no corruption or risk of corruption, corporations are allowed to make independent expenditures as long as they're not coordinated with the candidate. A series of court decisions by the DC Circuit and other courts expanded that decision. Once you say that a corporation is allowed to make an independent expenditure or individuals are allowed to spend unlimited sums to make independent expenditures, then it becomes true also that political action committees that only make independent expenditures are also allowed to accept unlimited contributions. That caused the rise of what's now called the super PAC, or technically what is known as an independent expenditure only committee. This means that a super PAC can be formed and accept unlimited contributions from individuals and corporations, as long as the only thing it does is make independent expenditures. It also means that other kinds of organizations, like 501 social welfare organizations, are allowed to make independent expenditures themselves. The issue there is whether those organizations have to disclose their donors and whether they become political committees. A word now about donor disclosure. People talk a lot about dark money involved in independent expenditures and super PACs. The interesting thing is that true super PACs, which are registered with the Federal Election Commission, have to disclose all of their donors and all of the expenditures they make. So they're actually relatively transparent. The difference is that other organizations, like 501 social welfare organizations, are also allowed to make independent expenditures, and generally speaking, they don't have to disclose their donors, except in certain limited situations. The other thing that happens is that 501 s are allowed to make contributions to super PACs. And so the 501 may be listed as the donor to the super PAC, but the donors to the 501 are not disclosed. This means that the individuals behind the 501 which may make a contribution to a super PAC are not actually disclosed, which is where that term dark money comes from. But if someone wants to set up a super PAC and accept contributions, they have to understand that all of the donations in will be disclosed. And so individuals who write a check directly to that super PAC will appear on the campaign finance reports. Many states have enacted rules that try to force upstream disclosure of donors. California, for example, has rules that would require a 501 that gives money to a super PAC to register itself as a political committee or a certain kind of committee and disclose its donors as well. And that continues up the chain so that there's less dark money or less undisclosed individual contributions in certain states. But those rules apply only to state elections and not to federal independent expenditure efforts. What makes something an independent expenditure as opposed to a contribution? For federal independent expenditures, the rule is that there cannot be any coordination between the candidate and the entity making the expenditure, whether that be a super PAC, a regular PAC, or a 501 . Otherwise, that effort is considered to be a contribution to the candidate, not an expenditure, and as we talked about before, contributions are subject to limitations and prohibitions. Thus, a super PAC would be in violation of both the contribution limits into it and also the contribution limits out to the candidate if it were coordinated in its efforts with the candidate. In addition, if the super PAC were to coordinate with the candidate resulting in an in-kind contribution, that would mean that the candidate would have accepted an impermissibly large contribution as well and violated the law. Thus, the risk of violating the coordination rules and making an in-kind contribution are quite large. It can result in violations of the law by both the super PAC, the donors to the super PAC, and also the candidate who receives the in-kind contribution. So what does it mean to have a coordinated communication? At the highest level, coordination means the request or suggestion from a candidate. So a candidate goes up to super PAC and says, it would be great if you could help me with on-air advertising or reaching a particular demographic or whatever it may be, a specific request or suggestion, but of course, it would be very easy to avoid making a specific request or suggestion. And so the coordination rules have broader contours as well. The federal definition of coordination includes what's called both the content prong as well as the conduct prong. The content prong is complicated. It includes a variety of different kinds of content, but in general, anything that refers to a candidate or supports a candidate during certain time windows before an election will satisfy the content prong, basically the things that are important to candidates. The conduct prong is the more interesting prong. That's where you find the request or suggestion and then also other kinds of conduct. Republishing a candidate's materials, for example, is a form of conduct. The Federal Election Commission has said that while independent expenditure committees can take parts of campaign material, like video clips on websites or things like that, to create their own ads, they cannot just take a candidate ad that may be available on YouTube and pay to have that broadcast elsewhere. So a super PAC cannot simply take campaign material and pay to have it broadcast or disseminated itself. There are also rules about employees and former employees. An employee cannot work for a campaign, know all of the secrets about the campaign, and then move to a super PAC and start spending money through the independent expenditure committee. There are certain cooling off windows that have to take place there to avoid the campaign benefiting from having its employee move to the super PAC. And then there are the prongs that deal with material involvement between the campaign and the outside group or discussions between the campaign and the outside group. In general, these discussions or information sharing have to include material, non-public information about either the content of the communication, so what are we gonna say about the candidate, the intended audience of the communication, we're gonna go on air between certain time periods or we're gonna reach certain demographics, the means and modes of the communication, the specific media outlets used for the communication, the timing or frequency of the communication, or the size and prominence of a printed communication or duration of a communication by means of broadcast cable or satellite, so all of the kind of things that would be important for a campaign to be sharing with a super PAC. If that nonpublic material information is shared between the two, then it becomes a coordinated communication. What's interesting has been efforts recently by campaigns to broadcast this material information and make it public so that others can see it. There's a range of options that have been available. Some campaigns put things up like the B-roll of their footage and other kinds of messaging that they hope outside groups will pick up. At least one candidate put his entire playbook as well as his opposition research up on a website that was available to anyone as long as they knew where to look. In addition to the super PAC that was supporting him, his opponent also found the information and so was able to use it against him. This was not coordination because it was placing what would otherwise be non-public information in a public forum. Other candidates have gotten even bolder. They'll create what's called a red box on their website. Rather than just share information, they will make specific requests. We need help here. We need this kind of communication up. So far, the Federal Election Commission has not said that that's coordination, apparently under the theory that because it's a request to everybody, it's a request to no one in particular. I actually think that that's a area that could be considered to be coordination and caution should be used. Coordination is one of the complicated areas in campaign finance law and there are many exceptions to these broad rules that I laid out and many nuances, such as the red box that I just talked about, and other ways to make material available online. States have different rules about what constitutes coordination and many have stricter rules or rebuttable presumptions that certain kinds of conduct result in coordination. The other thing to keep in mind about coordination is that it really focuses on what I call the outputs, the communications from the super PAC to the general public. What it does not include is coordination at the input level, the fundraising, which means the candidates can be involved in raising money for the super PACS that support them. Again, there are a variety of rules that apply, but in general, a candidate is allowed to appear at an event to support a super PAC, can make fundraising calls for the super PAC, and help to raise money in other ways. The key is that none of the fundraising be a venue for sharing that non-public information. The other thing to keep in mind is that while unlimited contributions are permissible to super PACS, candidates are not allowed to solicit contributions that are not subject to the limitations of the Federal Election Campaign Act, which means that a candidate could ask a donor for a contribution to a super PAC, but is not allowed to make a specific ask for a dollar amount above $5,000. This leads to the strange situation where a candidate says, I really hope you'll support this outside group that's helping me without making any particular ask, but passing that person's information onto the super PAC, who can then make a specific request for whatever sum that the super PAC is hoping to receive. This is another area where state law varies widely and sometimes raising money for a super PAC is considered to be coordination itself, even if there's not a specific request or suggestion or ask. Independent expenditures are tricky, and it's not an area to dabble in. It's important to understand the fundraising rules, the coordination rules, and all the other issues that go along with making sure that something acts independently from a candidate. Independent expenditures certainly have been the interesting area of campaign finance law over the past few years and are the area where large sums of money really do come into play. So we've now talked about both contributions and the limitations that are placed on them as well as expenditures and the relatively loose rules that apply there other than the efforts to make sure that they're independent. That will conclude our relatively quick tour of federal campaign finance law. Now we'll turn around and talk about state campaign finance rules. Obviously, we can't go through all 50 states, but we'll talk about some common trends and common themes that emerge from the different state laws and also talk about how different state laws can be. And as we mentioned at the outset, when we talk about state campaign finance law, we're really talking about the rules that apply to state-level elections, whether it be the governor, the attorney general, the state legislature, the Supreme Court, in some states, local candidates as well. Some larger local jurisdictions have their own campaign finance laws. So in California, for example, you'll find that the city of Los Angeles has its own rules that apply to city council elections that are different than the California rules. And in many states, the state law and the local law will apply. So it gets particularly complicated. But for today, we're gonna focus really at the state-level rules. Each state has its own rules and those laws vary widely. Some states have absolutely no limits on campaign contributions. Others have very low limits. We spent a lot of time talking about the rule about federal corporate contributions and the prohibition there. Some states allow corporate contributions. Some states allow unlimited corporate contributions. Others have certain caps on state corporate contributions and others don't. So it really goes all over the map. Some states have what are called pay-to-play rules or restrictions on government contractors. We'll spend a few minutes talking about those restrictions because the state rules are much more rigorous than the federal government contractor ban. A number of states have rules on timing of when you can give. At the federal level, candidates are allowed to raise money pretty much any time from the minute they get elected to the time of the election and beyond. Some states have restrictions on when the fundraising season starts. There has to be a gap between the last campaign and the next campaign and those are set by calendar dates. Other states have rules on not giving during their legislative sessions. Unlike Congress, which is in session pretty much the entire time with short recesses or breaks, state legislatures are often in session only for limited periods, often from sort of January to early spring, following an election year. In those states, there are often restrictions on giving to state legislators or governors during those legislative sessions, again, the concept there being that you're limiting the ability to corrupt or to influence decisions based on campaign giving. As I mentioned, corporate contributions are a big area in campaign finance law. This chart shows which states prohibit corporate contributions, which states limit corporate contributions, and which states allow for unlimited corporate contributions. You can see that Maine appears on the chart twice because it's going to go from a state that prohibits corporate contributions to one that allows them in limited amounts starting in 2023. You can also see that the list of limited states, in other words, states that allow for limited corporate contributions is fairly long. It's very close in size to the list of states that prohibit corporate contributions. In those states that allow for limited corporate contributions, the rules are often easier. You don't have to work through political action committees, but a company can simply make a contribution to a candidate. But in states that impose limits, there are often restrictions on how affiliated corporations make contributions so that a parent in a subsidiary may share a corporate contribution limit or various forms of affiliates may share corporate contribution limits so that there's not an effort to circumvent those limited contribution rules. And then there are five states with unlimited corporate contributions, Alabama, Nebraska, Oregon, Utah, and Virginia. In those states, corporations are allowed to write checks directly to candidates without any limitation on them. What I think is that looking at these different state lists and how one would consider whether the states have corruption or not, they don't really track with whether they allow or prohibit corporate contributions. In many ways, allowing corporate contributions, especially with some limits on them, actually simplifies campaign finance law and avoids some of the loopholes in some of the circumvention efforts that are undertaken to make contributions to candidates. And so by including a limit or prohibition on corporate contributions, it can actually increase the level of perceived corruption. And so finding the right balance can be an important thing for state legislatures as they design their campaign finance laws. One of the key features of many state campaign finance laws are the pay-to-play rules. The pay-to-play rules are laws that are designed to prevent campaign contributions from buying access to government contracts. These laws do not target specific quid pro quo corruption. Rather, they target the giving of contributions generally in order to prevent that corruption. So in a number of state, government contractors or prospective government contractors are prohibited from making campaign contributions. About 15 states or so have these rules and a number of localities also have different rules. The general concept is that the laws either prohibit or limit contributions from contractors differently than they limit or prohibit contributions from the general public. The rules range from donor disclosure requirements all the way up to prohibitions on receiving contracts if contributions have been made. Unlike the federal rules, which are fairly limited, as we discussed, these rules often apply not only to the business entity, but also to officers, owners, and their families, as well as affiliated companies, so that it's designed to really have a broad scope and reach. This means that careful compliance systems are necessary for any companies that have state government contracts. This can be particularly complicated for nationwide companies that have state contracts in a number of states because the rules are very different from state to state. While the laws vary widely from state to state and even from locality to locality within states, there are several key elements that have similarities and can be grouped together. These include the types of contracts that are subject to the pay-to-play rules, the value of the contract subject to the pay-to-play rules, and the types of goods and services that are subject to the rules. The types of contract can vary widely. Some state pay-to-play rules apply to all government contracts. Others apply only to certain kinds of contracts. Sole source contracts in particular are often subject to these rules because they're not subject to competitive bidding, whereas some states exempt the competitively bid contracts because there's less opportunity for political influence. Some state laws are even narrower than this. Georgia, for example, only prohibits contributions related to state utilities, such as electric companies, but not to general state contractors. The value of the contract can also be a threshold question. Some states exempt certain low dollar contracts or small contracts, but apply only when a particular threshold is met for all of the government contractors' contracts or that a particular contract is above a certain threshold. Finally, there's also the issue of the goods and services that are subject to the rules. Some states exempt real estate transactions. Others include them. Some states apply only to legal services or financial services. It really runs the gamut. The next big question is which contributions are covered. Sometimes the rules are fairly narrowly tailored. A contract with the executive branch, for example, may only require limitations on political giving to the governor. Other times, all political contributions, including the state political parties or local political parties, can be swept within the rules. The last key element of state pay-to-play laws are the scope of who is restricted in giving. Usually, it applies to the company that holds the contracts. Sometimes it applies to parent and subsidiary companies, and then it often applies to owners of a certain percentage, typically above 5% or 10%. The laws often apply to key employees as well. That includes people in the executive suite, such as the chief executive officer, the chief operating officer, the chief financial officer. It can also apply to the employees who are responsible for negotiating the contracts and even for performing the contracts with the state. So determining which employees are subject to the restrictions can be complicated. Many of the state laws also apply to family members of the covered individuals. This really changes campaign finance law from something that typically involves personal individual contributions and basically imputes family activity to the company, even when it has nothing to do with the government contracts at stake. What this means is that in certain states, a contribution by the spouse of an employee of a company can cause an impact on whether the company can hold state government contracts. Designing a compliance system to protect against these kinds of contributions can be complicated. Typically, companies that hold state government contracts will have a pay-to-play policy that requires executives, owners, and any individuals who are responsible for the negotiation or award of the contract to pre-clear any contributions that they make or that their family members make so that the company can make certain that the contributions will not cause them to lose a government contract. This is important because the way the pay-to-play rules work often is that making a contribution causes a company to become ineligible to receive a contract or can even cause a contract to be terminated. New Jersey has one of the more complicated pay-to-play rules on the books. Several enforcement matters in that state highlight how these rules work. In one case, the owner of a paving company made a contribution to his local political party at the request of a friend. He was shocked to discover that that contribution caused him to lose all of his paving contracts with the state, even though he was performing well and they liked his services. Another case in New Jersey involved a law firm that was doing bond underwriting work for the state. Again, a random contribution caused the firm to lose its contract to do business with the state. The states that have broadly applicable pay-to-play laws include Idaho, Illinois, Louisiana, Alabama, North Carolina, Virginia, Pennsylvania, Massachusetts, Rhode Island, and Maryland. Maryland is an interesting state because it is not a prohibition state like many of the pay-to-play states are, but is a reporting obligation that is imposed on the company to file reports twice a year that include disclosing contributions made by senior executives, as well as board members and owners. A number of states have rules that apply in many different cases, including Ohio, Georgia, Florida, Arkansas, and New York, but the exact contours depend. Again, if any company has a contract with state governments, it's important to understand which state governments it holds the contract with, which localities it may hold the contract with, and then design a program to ensure compliance with its political giving and the political giving of its executives and family members. In addition to the state pay-to-play rules, a number of states have what I call the random political giving rules. These include restrictions on giving during the legislative session, particular rules about who is allowed to solicit contributions, and things like that. For example, Connecticut prohibits lobbyists from raising money for candidates, soliciting contributions to candidates, even their family members soliciting contributions to candidates. Maryland has restrictions on fundraising during the legislative session and also limits how lobbyists can be involved with political action committees. The other interesting campaign finance issue with states, particularly those that prohibit corporate contributions or impose relatively low limits, are what are called the administrative accounts. A number of states, particularly their political parties, have the ability to accept corporate contributions into administrative accounts, which are funds that are not used for electing or defeating candidates, but for things like housekeeping and other administrative tasks that aren't directly related to the election. Thus, even though the laws may suggest that a corporation may not make a contribution, there are these admin accounts or house accounts that are allowed to accept the corporate contributions. Again, it's important to understand and look under the hood to figure out exactly what the rules are. The thing to keep in mind with these random state rules is that they are random and that it's important to look not only at the contribution limits, but also at other sections of the state code that may include different restrictions that apply, whether they be the pay-to-play rules, the timing of the contributions, or restrictions on fundraising. And on that note, we'll wrap up today. As we explained, there are lots of traps for those involved in the political process, lots of different rules to think about, and in addition to the rules, there's also the perception. What may be legal may lead to a very bad story in the local newspaper or a national newspaper, so it's important to think about perceptions when you're counseling on campaign finance law and giving. The reputational risk to companies and individuals could be very high in this space, and so it's important to understand how best to design a compliance program, how best to counsel clients who want to be involved in the political process without destroying their reputations. We've touched on a lot of different topics today and could go much deeper in any one of them, so it's important to dig into the law carefully when designing compliance programs and counseling clients. The key things to think about are contribution limits, prohibitions on giving contributions by certain kinds of people or entities, the amount that they're allowed to give, and the timing of when they're allowed to give. And then it's also important to think about the recipients. Will they disclose the contributions? Do they have to? What's the time period? Will it matter? All these things come into play when helping clients navigate the campaign finance world. I hope that you found today's discussion helpful and a good introduction to the campaign finance laws.

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