FEC | In The Know

Can Permissible Contributions be Illegal?

Wednesday, September 1st, 2010

The disclosure yesterday that the House of Representatives’ Office of Congressional Ethics (OCE) recommended investigations of three Members of Congress for fundraising activity associated with financial reform legislation adds new urgency to the question of when apparently legal campaign contributions can become suspicious or even illegal.

Lobbyists and legislators involved in the OCE inquiry have expressed surprise to find themselves under scrutiny for campaign contributions that are clearly permitted by campaign finance laws. Campaign contribution limits are supposed to be set low enough to prevent corruption. But even a permissible contribution – one within the limits and source restrictions of campaign finance laws – can be illegal if the contribution is tied to a particular legislative act. Recently arguably common circumstances merely suggesting such a link have become enough to invite official scrutiny.

The Justice Department has long pursued legislation-for-contribution schemes under the rubric of “honest services fraud.” More recently the House of Representatives’ Office of Congressional Ethics (OCE) has scrutinized links between fundraising and legislation well short of a classic quid-pro-quo. It now appears that merely circumstantial events suggesting the “appearance” of a connection between fundraising and legislation may be sufficient to trigger an investigation.

In May the OCE referred some of its findings involving the appropriations lobbying firm PMA to the Justice Department. Our friends at Wiley Rein have a detailed discussion of the background to the referral. Some of the notable elements include:

PAC contribution request forms tying contributions to particular or even general legislative support;
PAC budget spreadsheets listing items supported by legislators;
E-mails justifying contributions by reference to general or specific legislative support, or even opportunities to discuss legislation in the future.

In July the OCE opened an inquiry into fundraising events by eight Members of Congress coincident with House action on financial institutions reform legislation. At the end of August OCE terminated its inquiry as to five of the lawmakers, but recommended further investigation of three others. What is striking about this later inquiry is that it appears to be based not on specific documentary evidence, but on circumstances and appearances. Moreover, the OCE seems to believe that the mere appearance of special treatment or access is sufficient to justify a full-fledged ethics investigation.

Documents associated with the investigation suggest that the timing of a fundraising event in association with legislative action is sufficient to raise questions. One finding suggested that soliciting or accepting contributions “in a manner which gave the appearance of special treatment or access” (emphasis added) was inappropriate. Once such an appearance was triggered, the inquiry went far further. The investigation included subpoenas to fundraising firms and lobbyists for “all files, correspondence, e-mails, receipts, notes and any other documents” related to fundraising events and all contacts over the course of more than a year between the subpoenaed lobbyists and Members being investigated.

The problem for PAC managers, fundraisers, lobbyists, and others potentially affected by such inquiries is that the triggering behavior appears to run from the plainly off-limits (such as tying a particular contribution to a particular vote or earmark) to the apparently routine (such as building personal contacts with members). While it may be that virtually no fundraising activity is exempt from scrutiny, there are some clear no-no’s:

Avoid discussing fundraising and legislation in the same e-mail, memo, or meeting;
Exclude discussions of fundraising from lobbying plans and reports;
Eliminate references to legislative support – especially as to particular actions or items – in PAC request forms and budget documents.

Beyond specific “don’ts” the enhanced scrutiny by the OCE is a reminder of an aphorism sometimes referred to as the “Washington Post test:” think about how that memo or e-mail would look on the front page of a major newspaper. What would it suggest to an ethics investigator? No one ever wants that sort of scrutiny, but if you’d be uncomfortable explaining a document to a reporter or an investigator, that’s a signal to think about what you’re writing, or what you’re doing.

David M. Mason, J.D.,
Senior Vice President, Compliance Services

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What is a PAC Solicitation?

Monday, August 30th, 2010

Corporations and trade associations may solicit funds for their PACs only from a restricted class of employees or members.

So just what is a “solicitation”? (I’ll address “restricted class” in a subsequent post.)

Federal Election Commission (FEC) rules and court decisions construing what constitutes a solicitation for the PAC are surprisingly broad. An e-mail or letter asking employees or members to write a check or sign up for payroll deduction is clearly a solicitation. But many other activities such as routine government relations or grassroots web sites or newsletters and conference or meeting invitations can easily include inadvertent PAC solicitations. FEC4

Among the examples the FEC has concluded are solicitations are:

• A simple announcement of the time, location, and featured guest for a PAC fundraiser (AO 1976-27);
• Disclosure of the fact that the PAC may accept unsolicited contributions;
• Mentioning a PAC fundraiser in a convention mailing (AO 1976-27);
• Setting up a PAC Booth at a convention (unless contributions from non-restricted class members are declined)(AO 1976-96 and TK);
• Praising employees who have contributed to the PAC (AO 1979-13).

The FEC recently summed up its PAC solicitation rule by saying that communications that “encourage” or “facilitate” contributions to a PAC are solicitations.

In a somewhat surprising development a U.S. District Court recently concluded the “encourage or facilitate” test may not go far enough. The court ordered the FEC to explain why it did not also prohibit communications merely “informing” persons of fundraising activity as solicitations. (Utility Workers v. FEC, DDC 2010)

These rules can be particularly problematic for trade associations due to the “prior approval” requirement for soliciting employees of member corporations. Many announcements that association managers might consider routine (and even necessary) communications with members (such as publicly thanking members who contributed to the PAC) can run afoul of the very broad solicitation standard.

Aristotle’s professional services professionals can assist PACs in navigating the solicitation rules in their fundraising campaigns, web sites, newsletters, and other communications, helping craft effective and fully compliant PAC campaigns. Please contact Jeff Ashe (803-524-2198), Katie Anderson (202-758-9218) or Dave Mason (202-543-8345, x 242) on the professional services team for a review of your PAC communications and advice about making your PAC more effective while keeping it compliant.

David M. Mason, J.D.,
Senior Vice President, Compliance Services

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One PAC’s $900,000 Oops!

Wednesday, August 11th, 2010

Some recent news stories and editorials give the impression that the Federal Election Commission (FEC) has virtually gone out of business.

An early August enforcement announcement from the FEC provides a striking reminder that a lax approach to FEC compliance can lead to very high costs.

The American Resort Development Association’s Resort Owner’s Coalition PAC (ARDA-ROC PAC) paid $300,000 in penalties and disgorged over $600,000 on account of a series of violations of FEC rules between 2003 and 2008. The PAC’s violations included misstatements of financial activity, receipts of impermissible contributions, and improper solicitations.

One remarkable aspect of this case, given the high penalty, is that nearly all of the contributions were small – almost all under $200 – and there was evidently no malicious scheme involved. The PAC simply made some small mistakes, over, and over, and over again until they snowballed out of control.

The impermissible contributions occurred because the PAC lacked a system to review the thousands of small contributions to sort out those from corporations or overseas. The improper solicitations arose because the PAC failed to include one or more of three disclaimer statements the FEC requires for a combined dues/PAC solicitation.

These are mistakes any busy PAC administrator could make, and they underline the value of professional filing and compliance assistance. For ARDA-ROC PAC the consequence of failing to have professional PAC administration and regular review of PAC activities was extraordinarily large: Call Aristotle for a review of your PAC operations and compliance to avoid letting small mistakes become six-figure headaches.

David M. Mason, J.D.,
Senior Vice President, Compliance Services

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Digital Politics

Tuesday, June 1st, 2010

Our CEO, John Aristotle Phillips, will be a guest on the Digital Politics internet radio show and podcast this afternoon discussing fundraising, voter targeting, and GOTV efforts. Go here to listen live at 12pm PST/4pm EST: http://wsradio.com/. You can also hear the podcast here.

John will be joined on the show by Stephen Hershkowitz, partner of the law firm Sandler, Reiff and Young and former assistant general counsel at the Federal Elections Commission; and Peter Pasi (Executive Vice President) and Ben Olson (eCampaign Director) from emotive.

________

Update

The podcast is now live – check it out! http://wsradio.com/internet-talk-radio.cfm/shows/Digital-Politics-Radio.html

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Independent Expenditure Reporting Using Form 5

Tuesday, April 6th, 2010

Most committees are probably well versed on the standard filing forms Form 3 or 3X. There is, however, a different form for committees to disclose independent expenditures. Form 5 isn’t used often, but knowing how to fill it out correctly can save you a lot of time.

Form 5 is used to disclose the quarterly reports of independent expenditures (IE), or to file a 24- or 48- hour notice of an IE. A 48-hour notice is required anytime a committee spends $10,000 or more on a specific election during a calendar year. If the date of the IE is within 20 days of a specific election then the committee must file a 24-hour notice once the committee spends $1,000 or more.

Form 5 starts out pretty standard. The form is split in two parts. Schedule 5-A asks you to itemize receipts that were expressly given to the committee for the purpose of running an IE. This is not an itemization of all your committee’s receipts, simply those that were donated just for independent expenditures. Schedule 5-E is the itemization of all the disbursement to vendors for the purpose of running an independent expenditure.

The difference with Form 5 is at the bottom of each transaction. For each vendor transaction on Schedule 5-E, you will have to list the name of the federal candidate supported or opposed by the expenditure, and check whether the disbursement was intended to support or oppose the candidate. Another part that must be filled out for each transaction is the office being sought by the candidate and what cycle (Primary, General or other) the disbursement occurred in.

The reason that filling out the Office Sought and Cycle Period fields is so important is that Form 5 calculates aggregation differently than almost all other FEC forms. Most FEC forms fill out an aggregation field with the amount paid to a specific vendor during a cycle. Form 5 calculates the aggregation field by the election in which the independent expenditure occurred. That means that all of the transactions that make up any independent expenditures for say the Ohio Senate Primary 2010 should be added together, and have a different aggregation total than the Ohio Senate General 2010. That is why Form 5 has the aggregation field called “Calendar Year-To-Date per Election for Office Sought”. It is important to know that currently the software provided by the FEC, FECFile, does not correctly calculate these fields. The FEC is aware of this problem, and suggests that until a patch is released, committees file a memo entry with any report stating the correct aggregation totals. Recently, Aristotle launched their own version of Form 5 through our 360 software that does calculate the aggregation fields correctly and is fully compliant with FEC standards.

If anyone has any questions about Form 5 or other independent expenditure questions feel free to give me a call anytime at 202-543-8345 ext. 229.

John Mannion
Outsourcing Manager

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Fear not the FEC letter

Tuesday, September 22nd, 2009

As we’ve mentioned before , there’s a lot of fear when it comes to receiving letters from the FEC. Despite the many jokes about treasurers going to jail, there’s no need to worry about donning an orange jumpsuit, especially if that’s not your color.
When you receive a letter, most of the time it’s for clarification on a report or more information on a particular transaction.
The time to get nervous is when you simply don’t respond to the letters and file amendments. FEC
As long as you answer in a timely matter, you’re showing the FEC you’re doing your best to answer its questions.

So when do you worry? Well, obviously any knowledge of illegal activity an issue.
But a recent release from the FEC shows a new enforcement of an updated fine schedule for late filings.
The most important thing we tell our clients is to file on time- even if you have to go back to amend something.
And a friend who works over at the FEC tells me they plan to start invoicing, so get your reports in on time

Here is the information for the FEC- make sure you read this and see how serious the FEC is taking deadlines:
http://www.fec.gov/pages/brochures/admin_fines.shtml#examples

- Theresa Brown Kuhns

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Top five things to do before your FEC filing

Thursday, September 10th, 2009

Many people tend to get overwhelmed or over stressed when it comes to FEC filing. Most PACs keep a ledger of all contributions and checks as they are received or issued. Here are 5 tips to make generating your FEC report easier using a ledger and a few tips of the trade:

1) Make sure all payroll files are imported correctly and match what is in the original file. Also make sure that all of your counter check deposits are entered into your data.

2) Make sure that all address, employer, and occupation information is entered into your data for all contributions into the PAC.

3) Make sure all checks are entered correctly in the data and are coded for federal, state/local; contribution to committee, operating expenditure, etc.

4) Reconcile all of your payroll deposits, counter deposits, and cleared checks to your current monthly bank statement.

5) Compare your monthly receipts and disbursements to what is on your contributions/disbursements ledger for the month. If it matches, generate your report!

Happy filing!

- Elizabeth Yorns

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Time to hit the books

Thursday, September 3rd, 2009

man with book on beach It is officially the last week of summer and there are a lot of unhappy kids headed back to school. As a new Dad, I don’t need to worry about sending my 4-month old to school yet, but it is time for Dad to hit the books.

An off election year is the best time to further your knowledge in a specific industry. Over the remaining four months of the year, I will be focusing my efforts on enhancing my compliance expertise as we head into what is going to be a busy election year in 2010. There are a number of reputable organizations offering compliance seminars, training and workshops over the last few months of this year.

I plan on attending the Public Affairs Council September Conference Series – it is going to cover a political involvement legal overview and both a grassroots and PAC roundtable sessions. If you plan on attending, let me know, I’d love to get together!

The Federal Election Commission has been hosting a number of great outreach sessions this year and has two coming up this fall. On September 15^th and 16^th, the FEC will be in the windy city of Chicago, and on October 28^th and 29^th, there will be an FEC conference in San Francisco. I will be attending the conference in San Francisco as well.

If your PAC is active in a particular state, check out the state’s website – most offer free trainings and have updates on compliance rules listed on their homepages.

My advice is to take advantage of the opportunities now – in a short period of time, the focus will be on fundraising, new compliance requirements and grassroots advocacy. Understanding all the tools and opportunities that are out there can have a real effect on election night for your organization.

- Rob Christ

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“Back to School” for PACs

Wednesday, September 2nd, 2009

school bus Even though summer officially ends on 9/22, most of us view Labor Day as the end of summer and the beginning of the new school year. Freshly sharpened pencils, new backpacks, new teachers and all the trimmings of a new school year.

As we turn to fall, September is a great time to assess your PAC. Here are several checks you can make to ensure nothing has fallen behind in the lazy days of summer:

Have you audited your PAC Membership Card records recently?
What about updating PAC member contributor levels for easy sorting and invitations to special events?
Did you thank new PAC contributors or re-solicit your yearly check givers?
Do you have a process in place for soliciting new employees/members immediately after coming onboard?
Are your bank records tied out correctly?
Do you have any outstanding checks, from months ago, that need to be voided/reconciled?
When was the last time you updated your PAC Members with a regular communication piece?

The Aristotle Professional Services Department can help you give your PAC a “Back-to-School” check-up so you are ready for the fall! Email us at sales@aristotle.com anytime and we’ll talk through it together.

- Katie Anderson

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Compliance tip: Utilizing the FEC Website for Accurate Filings

Tuesday, September 1st, 2009

When preparing a bank reconciliation and FEC report, I highly recommend using the FEC Electronic Filing Report Retrieval Site.

FEC This site not only provides the correct FEC-ID number needed to file any amendment, but also provides the correct starting, ending and 11ai and 11aii year to date balances as well.

This FEC page differs from the FEC Disclosure Reports site that many people are more familiar with. The Report Retrieval site only discloses numbers and doesn’t go into detail with who gave and when. The best aspect of this site is the ability to copy and paste the correct numbers into your reporting tools to ensure accurate FEC report totals.

- Elizabeth Yorns

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