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In the Arena: Law and Politics Update

Legal Commentary on Federal, State and Local Political Legislation

FEC Delays Issuing Opinion on Bitcoin Contributions

Posted in The Federal Election Commission

At yesterday’s public meeting, the Federal Election Commission discussed an advisory opinion request on Bitcoin contributions. The requestor, Make Your Laws PAC (MYL PAC), sought to accept bitcoins as contributions, as well as purchase, sell and trade them. The FEC’s Republican and Democratic members were divided over whether to classify bitcoin contributions as in-kind contributions, or to cap them at $100 – the current limit on cash contributions. After a brief discussion, the Commissioners agreed to hold over a final decision on the request for a future meeting.

In advance of today’s meeting, the Commission released two draft responses to the request. Both drafts held that bitcoin contributions should be permitted. However, Draft B stipulated that bitcoin contributions should be limited to $100 because they “raise similar concerns to cash contributions, which are limited … due to their untraceability and the ease with which they may be used for illegal purposes.” Draft A, on the other hand, would have treated bitcoin contributions as in-kind contributions, which are not subject to the $100 limit. The two drafts also took differing positions as to whether MYL PAC should be permitted to spend bitcoins to acquire goods or services. Both drafts would have allowed MYL PAC to purchase bitcoins as investments, and both proposed a similar system under which it should determine the value of bitcoin contributions for reporting purposes.

At the outset of the discussion, Commissioner Weintraub clarified that MYL PAC had submitted a follow-up to its initial request, in which it confirmed that MYL PAC will accept “only $100 worth of Bitcoin per election per contributor,” “based on how Bitcoin’s auditability compares with that of cash vs other mediums of exchange like checks.” Commissioner Weintraub also expressed, as she has in response to other advisory opinion requests on the issue, that she would prefer to tackle the issue of bitcoin contributions in the context of a rulemaking.

Commission Vice-Chair Ravel, stating that “Bitcoin allows for anonymous and untraceable” contributions that are analogous to those made in cash, expressed strong support for a lower, $100 limit on bitcoin contributions. Referencing the recent “Silk Road” investigation, Ravel also expressed concern that the Commission would be unable to verify whether contributed bitcoins had been used for illegal purposes. However, she also said that she agreed with “some general approaches” in Draft A, including its proposed method for valuing bitcoin contributions, and its provision that a committee should be permitted to purchase them as investments. For that reason, she suggested that the Commissioners hold over a vote on the matter  and attempt to draft an alternative response.

Commission Chair Goodman responded to Vice-Chair Ravel by arguing that bitcoin contributions are analogous to other items that can be contributed in-kind to committees, including securities or bonds, and that an electronic record of the transaction would be present in the case of a potential audit. He also said that in light of IRS notice 2014-21, which held that bitcoins should be treated as property for federal tax purposes, the Commission should do the same and recognize their transfer to a political committee as an in-kind contribution.

McCutcheon v. FEC, Part II: The Chief Justice on Earmarking

Posted in The Federal Election Commission, The Supreme Court

The Federal Election Commission’s anti-earmarking restrictions provided much of the rhetorical defense for Chief Justice Roberts’ opinion in McCutcheon v. FECLike this blog did in October, the Chief Justice argued that donors could not evade the contribution limits as easily as Justice Breyer said in oral argument.  But the Chief Justice went very far in the opposite direction.  Taking the hypothetical case of Representative Smith, the Chief Justice said that

the donor may not contribute to the most obvious PACs: those that support only Smith … He cannot retain control over his contribution, 11 C.F.R. § 110.1(h)(3), direct his money “in any way” to Smith, 2 U.S.C. § 441a(a)(8), or even imply that he would like his money to be recontributed to Smith, 11 C.F.R. § 110.6(b)(1).  His salience as a Smith supporter has been diminished, and with it the potential for corruption.

Slip Op. at 23-24.  Yet even if Justice Breyer was wrong, are the anti-earmarking provisions as unforgiving as the Chief Justice argued?  The FEC’s decisions suggest that they are not.

The Commission has required more to establish earmarking than a simple expression of donor support for a particular candidate.  For example, in MURs 4831 and 5274, the Commission settled with a state party over charges that it had earmarked contributions for its Senate candidate.  (The author represented the state party in that matter.)  But the Commission would not accept what two Commissioners called “the General Counsel’s broad earmarking analysis.”  Vice Chairman Bradley A. Smith and Commissioner Michael E. Toner, Statement of Reasons, MUR 4831 and MUR 5874.  The General Counsel appeared “to sweep within the classification of ‘earmarked’ contribution party fundraising that invokes candidates or urges support for their campaigns, when instead that activity should be (and is) regulated and disclosed as ordinary political party activity.”  In response, Commissioners Smith and Toner quoted the Supreme Court’s second decision in FEC v. Colorado Republican Federal Campaign Committee:

Donations are made to a party by contributors who favor a party’s candidates in races that affect them; donors are (of course) permitted to express their views and preferences to party officials; and the party is permitted (as we have held it must be) to spend money in its own right.

533 U.S. 431, 462 (2001).  “Consequently,” said the Commissioners, “unless the donor specifically earmarks his gift, we do not impose the original donor’s limit on party spending, even though the donor believed that by giving to the party he could assist the party’s nominees.”  Commissioners Smith and Toner were two of the five Commissioners who decided the matter; one Commissioner was recused.  But the fact remains that the Commission has declined to apply the sort of trip-wire approach to earmarking that Chief Justice Roberts described in his opinion.

Moreover, there is the question of what sort of information can even trigger a Commission earmarking investigation in the first place.  The Commission has said pretty clearly that there must be direct evidence of earmarking to open an investigation.  Decided in 2004, MUR 5304 involved allegations made by the National Republican Congressional Committee, by and through its general counsel, Donald F. McGahn II, that a House candidate used his state campaign committee to make contributions to his federal campaign through several state and local candidates and PACs.  The complaint juxtaposed contributions made by the state committee, with contributions received by the federal committee from the same donors.  But the Commission found no reason to believe an earmarking violation occurred.  As the General Counsel said: “The only facts provided by Complainant, derived from public disclosure records, show a series of contributions between respondents that are legal on their face. Proof that these contributions were actually made, therefore, would not be sufficient to show violations of the Act.”  First General Counsel’s Report, MUR 5304, at 8-9.

The Chief Justice’s dicta may well be cited in future Commission earmarking debates.  In their statement on the case, Commissioners Ann M. Ravel and Ellen L. Weintraub welcomed his “guidance to Congress and the FEC to strengthen transfer and earmarking rules.”  Statement of Vice Chair Ann M. Ravel and Ellen L. Weintraub on McCutcheon v. FEC. Their statement—and his “guidance”—show that the battle on this front has only just begun.

McCutcheon v. FEC, Part I: The Basic Facts

Posted in The Supreme Court

Over the coming days, we will examine closely some of the different issues and implications raised by the Supreme Court’s decision in McCutcheon v. FEC.  Right now, however, we will focus on what the Court actually did:

  • The Court struck down the caps on the total, combined amounts that any one individual may give to federal candidates, parties and PACs over the course of a two-year election cycle.  The suit did not challenge – and the Court left standing – the so-called “base limits,” or the amounts that any one person may give to any one federal candidate, PAC or party.  Thus, for example, an individual may still only contribute up to $2,600 per election to a candidate.  But there is no longer any ceiling on the total amount that an individual may give to all federal candidates, PACs and parties combined over the course of the two-year election cycle.  The Court held that the First Amendment does not permit such a cap on an individual’s overall political giving.
  • There were actually two caps at issue in McCutcheon: one on an individual’s total giving to all federal candidates, and another on an individual’s total giving to all federal PACs and party committees.  The Court struck them both down.  During the 2014 election cycle, the cap on how much an individual could give to all federal candidates combined was $48,600.  The cap on how much an individual could give to all federal PACs and parties combined was $74,600, of which no more than $48,600 could be given to committees other than national parties.  These caps were indexed to inflation and would have increased in 2015.
  • The caps the Supreme Court struck down in McCutcheon only applied to individual giving.  Federal PACs, partnerships, Native American tribes and other federally lawful sources were not subject to these caps.  Moreover, contributions to Super PACs, recount funds, state and local candidates, and the non-federal accounts of state and local parties have never been subject to these caps and are unaffected by the decision.
  • The principal opinion identified eight states that place similar caps on contributions in state and local elections: Connecticut, Maine, Maryland, Massachusetts, New York, Rhode Island, Wisconsin and Wyoming.  These states’ laws were not before the Court.  But the Court’s decision provides no reason to think that they remain valid.

With Convention Public Funding, the Rhetorical Dogs Come Back to Bite

Posted in Party Committees

If the national political conventions have come to be symbolized by “generic ‘party-time’ ways,” as Democracy 21’s Fred Wertheimer has said, then why should they be publicly funded?  The lack of an easy answer to this question may have hastened passage of H.R. 2019, which repeals public financing of the conventions and authorizes transfer of remaining funds to pediatric research.  In a blog post yesterday, the Campaign Legal Center’s Meredith McGehee called the bill’s passage “a despicable act.”  But the reform community unwittingly greased the skids for passage, creating a rhetorical environment surrounding the conventions that discredited them and turned their public funding into a target.

The conventions are more than big parties.  They are, after all, “elections” under the Federal Election Campaign Act of 1971.  (On this blog last June, Kip Wainscott discussed some of the effects that changing their schedules could have on the operation of the campaign finance laws, and on election administration.)  Just as the Electoral College might someday actually decide the Presidency, a future convention might someday actually decide the nomination, as past conventions indeed have done.  But even in the ordinary course, one might still contend that the ritual communication of party viewpoints is a public good that encourages a strong democracy.  There is ample reason to support giving taxpayers the opportunity to finance the conventions, as the law—until now—has done.

But there is something about the conventions, apart from their largely unrealized status as “elections,” that has caused reform proponents in recent years to single them out for legislation.  Reform proponents have presented the conventions as unique occasions for corruption.  In part, they said, this was because the conventions were “vehicles for the infusion of massive amounts of soft money into both political parties, and to their candidates and officeholders.”  In part, it was because members of Congress were “feted … at lavish parties sponsored by special interest donors ….”  And in part, they said, it was because the parties used the conventions “both to solicit soft money and to reward soft money donors.”  Rigorous interpretation of the soft money ban, changes to congressional gift rules, and robust public financing were all necessary to guard against these threats, they contended.

On the soft money ban, reformers achieved mixed success, when the Federal Election Commission in 2003 applied the McCain-Feingold law to the conventions.  The FEC held that the convention committees were national party agents that could not raise or spend soft money.  But it held also that host committees and municipal funds were not party agents, and thus could raise unlimited funds under previous rules.  It held that national party agents could only solicit up to $5,000 for a host committee or municipal fund from any one federally permissible source.  But the FEC also held that individual federal candidates could solicit unlimited amounts for these committees and funds, regardless of source.

On the gift rules, reformers achieved greater success when the Honest Leadership and Open Government Act of 2007 banned Members from attending parties at the conventions held in their honor and paid for directly by lobbyists, or by entities that employ or retain lobbyists.  The law treated the conventions uniquely in this way.  No such prohibition applied during the rest of the year, or anywhere else, or even—as the congressional ethics committees later made clear—on the day before the convention is gaveled into order.  Still, “[t]he new ethics rules are designed to end the worst influence-seeking events that took place at the national conventions,” said Democracy 21 President Wertheimer.  “These were the lavish, lobbyist-funded parties thrown to ‘honor’ and ‘recognize’ specific members of Congress, members of powerful congressional committees and members of congressional caucuses, who were feted like royalty by the lobbying community.”

On public financing, Republicans turned the tables on the reformers.  They seized the same cannon that the reformers had once fired to support the soft money and gift restrictions—the image of the convention as Roman bacchanalia—turned it, and fired it back at the reformer lines.  “The question before the Members today is simple,” Representative Eric Cantor told the House in December.  “What is more important—finding cures for our children or balloons for party conventions and catering for politicians?”  Reformers strongly disputed the notion that convention public funding repeal had anything to do with pediatric research.  They must have recoiled from Representative Tom Cole’s declaration in the same debate: “I can tell you as a former chief of staff on the Republican National Committee who put on the convention in 2000, they do not need it. They absolutely do not need it. They can raise all the money they need from private sources, just as their nominees raised money from private sources.”

But Representative Cantor’s disdain for “balloons” and “catering for politicians” only echoed reform proponents’ own past arguments.  “The Democratic and Republican presidential nominating conventions are unabashed festivals of corporate cash,” Common Cause and Democracy 21 told the FEC in 2003.  If this is true, then why should the conventions be unabashed festivals of public cash?  A successful case for public funding requires defense of the conventions’ civic value, and a consistent argument that they are something more than just a big party.

FEC Deadlocks Again over Disclaimers on Mobile Phone Advertisements, with No Resolution in Sight

Posted in The Federal Election Commission

The irresistible force met the immovable object Thursday, as the Federal Election Commission deadlocked again on whether disclaimer requirements applied to advertisements displayed through new technologies.  The deadlock left no clear path toward a common understanding of the disclaimer requirements, with the Democratic-selected Commissioners contending that the law permits no exception for mobile phone ads, and the Republican Commissioners contending that applying the requirements would violate the law and burden speech.

Advisory Opinion Request 2013-18, submitted by Revolution Messaging LLC, dealt with so-called “banner advertisements” appearing at the bottom of a smartphone screen. (Revolution Messaging LLC  is a political consulting firm that crafts and places digital advertisements for Democrats and progressives.) Commission regulations apply the disclaimer requirements generally to public communications, including Internet communications that are placed for a fee.  But they contain exceptions  for “small items,” and for advertisements where “inclusion of a disclaimer would be impracticable.”

The Commission originally took up the request at its January 16th meeting. While the Republican-appointed Commissioners argued that mobile advertisements fell within the exceptions, the Democratic-appointed Commissioners contended that neither exception applied, and were unwilling to support an opinion that might appear to create a blanket exemption from the rules.  The Commission postponed a final vote so that Revolution Messaging could submit an amendment to its request, presenting additional facts that might break the logjam and allow the Commission to issue an opinion on the narrow facts presented.  Revolution Messaging proposed to “identify the advertiser” in its mobile phone ads by linking to its website or including its name or logo.  But at Thursday’s public meeting, the Democratic-appointed Commissioners stressed that these steps were inadequate, and that while a disclaimer might not need to be included on the banner ad itself, it must at least be included on the website to which the banner ad linked.

After the Commission meeting, the Democratic-selected Commissioners issued an unusual public statement defending their position.  They contended that the “small items” exception did not apply as a matter of law, because it “was intended to encompass only advertising on physical items”; that the “impracticable” exception did not apply because “there are no physical or technological limitations which prevent the provision of a complete disclaimer”; and that “any allegation that requiring mobile phone ads to contain disclaimers significantly limits political speech is clearly without merit.”  In a Tweet after the meeting, Commissioner Ann Ravel said: “Innovation, not exemption, is the answer.”

Thus the Commission remains unable to muster four votes as to how to apply disclaimer requirements, last rewritten five years before the first release of the iPhone, to an ever-growing array of digital advertisements.  While an advisory opinion would have provided a legal shield against future Commission enforcement, the Commission’s deadlock signals that the agency lacks the four votes necessary to initiate an enforcement action against ads like those in the request.

The Commission was set to consider another advisory opinion request at today’s meeting from the Solano County United Democratic Central Committee, but that request will be considered at the Commission’s next meeting, to be held on March 6th. Two advisory opinion requests are pending at this time. No rulemakings are open for comment.

On Campaign Payment of Legal Fees, Contrasting Views From Christie

Posted in Ethics

“The [law] … should not be interpreted to mean that a candidate or holder of public office can commit a criminal act in furtherance of his campaign and designate the legal defense of that action as a campaign expense.… Such expenses do not arise with respect to the candidate’s campaign, but because he decided to act irrespective of both his campaign obligations and federal law, in abuse of his local office.”

So said Chris Christie—then the United States Attorney for the District of New Jersey—when he opposed the 2003 request of an officeholder and former candidate to use campaign funds to defend himself against public corruption charges. The Federal Election Commission responded favorably to his views, sharply narrowing the circumstances in which candidates and officeholders could use federal campaign funds to pay criminal defense expenses, and starting a trend that has only gained momentum since then.

When Governor Christie’s own campaign asked the New Jersey Election Law Enforcement Commission for permission to spend campaign funds to respond to Justice Department subpoenas over the lane closings on the George Washington Bridge, similar concerns were voiced—but not by him. “Commissioners expressed concern that because there had been so few facts about the lane closures known, by approving the request they could eventually allow for campaign funds to be used in a criminal investigation, which is prohibited.” The campaign’s attorney, however, characterized the request as “ordinary,” and in the end it was granted.

Did Governor Christie’s attorney perhaps have a point, that U.S. Attorney Christie would not have acknowledged a decade ago? The main interest supporting federal restrictions on the campaign payment of legal fees is to avoid enriching candidates, and thereby risk corrupting them, by letting them spend campaign funds on expenses they would incur anyway, irrespective of candidate or officeholder status. This is why the FEC cited “expenses associated with a divorce or charges of driving under the influence of alcohol” as examples of prohibited expenses.

Yet since the FEC wrote these rules in 1995, the interrelationship between the criminal and political, which was frequent enough to begin with, has become more “ordinary” still. Even charges like drunk-driving, which the FEC found only to have “some impact” on campaign or officeholder status, and one insufficient to justify campaign payment, can now bring formal ethics proceedings as a matter of law. In the U.S. House of Representatives, because of a 2007 rules change, a criminal indictment requires the Committee on Ethics either to empanel an investigative subcommittee or to explain why it did not do so. In these cases, a Member’s best chance of prevailing in the mandatory ethics investigation is to win the criminal proceeding that triggered it. Yet the Member may not be able to use campaign funds to pay for the criminal defense, and must reserve them instead for what will then become a foreordained outcome before the Ethics Committee.

Two unusual facts were at play in the 2003 case that elicited U.S. Attorney Christie’s letter to the FEC. The first is that the government was seeking to recover the very same campaign funds that the officeholder wanted to use to pay his lawyers. The second, unspoken in his letter, was the prospect of asymmetrical warfare, in which amply supported prosecutors would have more leverage against a less well-heeled defendant. This latter consideration might have helped prompt the Christie campaign’s recent request. In any event, that request is a tacit acknowledgment that the interests at stake are not quite as clear-cut as Governor Christie once said they were.

FEC Debates Enforcement of Employee Time Log Requirement for State and Local Parties

Posted in The Federal Election Commission

At Thursday’s open meeting, the FEC approved two Audit Division recommendations that had been held over from the previous meeting. The Audit Division found that both the Dallas County Republican Party and the Republican Party of Iowa misstated their financial activity and failed to keep monthly payroll logs for their employees. But the Commission adopted the auditors’ recommendation only after scrutinizing and debating the scope of the party recordkeeping rules. The Commission’s debate shows how, in a world of super PACs and widespread corporate and union spending, the requirements of McCain-Feingold continue to have “teeth” for state and local political parties.

The Commission held over consideration of the audits over the scope of a rule designed to ensure that state and local parties do not spend nonfederal funds in connection with federal elections. A provision of McCain-Feingold requires state parties to pay employees entirely with federal funds, if more than 25 percent of their compensated time during a calendar month is spent on activities in connection with a federal election. A Commission rule, 11 C.F.R. 106.7(d)(1), requires state and local parties to keep a monthly log of the percentage of time each employee spends in connection with a federal election.

Commission Chair Goodman questioned whether the log requirement should be applied when the party employees were paid only with nonfederal funds and worked only on nonfederal campaigns. He argued that these employees should not be subject to the payroll log requirement because the Commission has no jurisdiction over purely state-level activity, and because the requirement placed an unnecessary burden on the committees. Commissioner Weintraub disagreed, and said that the Commission was bound to enforce the legal requirements set forth by Congress and the Commission’s regulations. Commissioner Weintraub argued that the logs are necessary to ensure that all committees adhere to this requirement.

The Commission earlier had considered whether parties were required to keep the logs when the employees were paid entirely with federal funds.  It found that the logs were required, but declined to pursue recordkeeping violations against committees that failed to keep them in this particular circumstance. By a vote of 5 to 1 (Commissioner Walther dissenting) the Commissioners agreed that although “the literal language of the regulation” applies the recordkeeping requirement to employees paid with 100% federal funds, the “soft money concerns underlying the regulations” are absent in that circumstance. But the Commission had made no previous allowance when party workers are paid exclusively with nonfederal funds, as was the case in the Dallas County and Iowa Republican audits.

In the end, the Commission acceded to the auditors’ recommendations. But Commissioner Goodman called on the two major national party committees to inform state and local parties of the recordkeeping requirement. Commission rules do not say exactly how employee time logs must be kept. But the Commission has indicated that the requirement can be met by a properly detailed Excel spreadsheet or by compliance software provided by a payroll vendor.

The time logs are only one example of how McCain-Feingold continues significantly to impact state and local party committees, even while other provisions of the law have been struck down or curbed in their application. State and local parties face especially complex allocation, while the allocation rules that apply to other types of committees have been struck down. State and local parties also face strict limits on using nonfederal funds for certain types of activities affecting federal elections, even when they do not involve federal candidates, while Speech Now v. FEC and related cases allow other types of committees to finance these activities on an almost wholly unrestricted basis when done independently.

Two advisory opinion requests are pending at this time. No FEC rulemakings are currently open for comment. The next open meeting of the FEC is scheduled for February 6th.

In its First Meeting of 2014, FEC Postpones Decision on Disclaimers for Mobile Advertisements

Posted in The Federal Election Commission

At the outset of the FEC’s first open meeting of 2014, Commission Chair Goodman outlined several of the agency’s priorities for the year, including:

  • Replacing the agency’s outdated IT system, which has been vulnerable to hacking attempts, most notably during the October 2013 government shutdown.
  • Improving the accessibility of the campaign finance data available on the FEC website. Commissioner Goodman said that the Commission would seek public comment on proposed changes to various website functions.
  • Clearing the Reports and Analysis Division’s case backlog. As reported by the Center for Public Integrity’s Dave Levinthal, nearly a quarter-million pages of committee reports have yet to be reviewed.
  • Improving the Commission’s capacity to provide guidance to the regulated community, including through seminars and webinars.

Before ending his remarks, Commissioner Goodman stated that the agency’s top priority should be to “avoid deterring the exercise of First Amendment rights.”

For well over an hour, the Commission debated an advisory opinion on mobile ads, which was requested by Revolution Messaging, LLC. At issue was whether ads appearing on mobile devices should be exempt from the statutory requirement that all “public communications” that expressly advocate the election or defeat of a federal candidate must be accompanied by certain disclaimers.

The debate ended with no clear resolution. Commissioners Walther, Weintraub and Ravel all stressed the importance of providing some form of disclaimer in the ads, which would generally take the form of “banner ads” that stretch across a small portion of a smartphone screen. Commissioner Weintraub acknowledged that it would be impractical to include a full disclaimer in such an ad, but stressed that the ad could link to a webpage that would provide the disclaimer. Commissioners Goodman, Petersen and Hunter all argued that a blanket exemption should be provided for mobile phone ads, as they were effectively similar to bumper stickers and pins, which are exempt from the disclaimer requirements.

Eventually, Commissioner Weintraub suggested that she would consider granting the request if it provided more specifics as to the exact type of ad to which the exemption would apply. Stressing that the advisory opinion process is meant for questions about the legality of specific, individual transactions, she urged Revolution Messaging to amend its request to provide further details, such as whether a principal campaign committee or outside group would pay for the ad. Since the Commission appeared likely to deadlock on a 3-3 vote, Revolution Messaging decided to return at a subsequent meeting with an amended request.

Next, the Commissioners considered a string of four audit division recommendations on state and local party committees. The audit division found that all four committees failed to keep logs indicating the percentage of time that each of its employees spends on federal election activity. Final votes on two of the recommendations were postponed due to unanswered questions about the committees’ specific accounting practices; the other two recommendations, for the Vermont Democratic Party and the Democratic Party of South Carolina, were approved unanimously.

Finally, the Commission announced that it would seek comment on an upcoming interpretive rule on nationwide independent expenditures in presidential primary elections. Under current law, certain reporting requirements are triggered when a committee makes over $10,000 of independent expenditures within a given time frame in relation to a specific primary election. But the Commission does not provide guidance on how these thresholds should be calculated when the expenditures relate generally to the presidential nominating process, and not specifically to an upcoming primary in a particular state.

No other advisory opinion requests are pending at this time. No FEC rulemakings are currently open for comment. The next open meeting of the FEC is scheduled for January 30th, 2014.

FEC Crossroads Deadlock, Ohio False Advertising Case Raise IRS, FCC Issues

Posted in Outside Groups, The Federal Election Commission, The Supreme Court

Friday saw two big developments in the field of election law: the Federal Election Commission’s release of dueling statements of reasons over whether Crossroads Grassroots Policy Strategies might be a federal political committee, and the Supreme Court’s decision to take up a challenge to Ohio’s ban on false statements in political campaigns.  Each, obviously, involves the tension between regulation and First Amendment interests.  But each also shows how the campaign finance laws can affect—and be affected by—an entirely different area of law.

The so-called “major purpose” test at the heart of the Crossroads GPS matter is the $64,000 question of campaign finance law: when does a group, having raised or spent more than $1,000 in a calendar year to influence federal elections, have the “major purpose” of nominating or electing a candidate— which, in turn, triggers the obligation to register, report and disclose donors to the FEC as a political committee?  This was a matter of great urgency to Crossroads GPS, which spent more than $15.4 million on independent expenditures in 2010, and yet did not register with the FEC, and made no comprehensive disclosure of its donors to any agency.  The Commission’s divide was predictable.  Its three Republican-selected Commissioners found no reason to investigate whether Crossroads had the major purpose of influencing elections, while its three Democratic-selected Commissioners thought it no less clear that the FEC should have engaged in the “fact-intensive analysis” that its past guidance on the subject seemed to require.

But there are at least two paths that lead to the disclosure that Crossroads GPS and other, similar groups organize to avoid: “political committee” status under FEC rules, and “political organization” status under section 527 of the Internal Revenue Code, which brings periodic reporting requirements like those the FEC enforces under a law passed in 2000.  The unsettled scope of the FEC’s major purpose test, combined with the IRS’s relatively clear requirements for 527 disclosure, combine to create a strong incentive for electorally active groups to form under section 501(c)(4) of the Internal Revenue Code instead of section 527, thereby incurring no public donor disclosure requirements with either agency.  Viewed in this way, disputes over section 501(c)(4) status are often just a proxy battle in the war over political committee registration.  By standing down from a finding of “major purpose,” the FEC places the ball squarely in the IRS’s court to determine whether a group like Crossroads GPS must disclose its donors.

The Ohio case before the Supreme Court challenges the constitutionality of a state law that makes it a crime to “disseminate a false statement concerning a candidate, either knowing the same to be false or with reckless disregard of whether it was false or not, if the statement is designed to promote the election, nomination, or defeat of the candidate.”  (In a 1986 advisory opinion, the FEC held that the Federal Election Campaign Act preempted a related subsection of the same Ohio law, raising a separate question about the law’s validity that does not appear to be before the Supreme Court.)

One of the arguments advanced by the petitioner in the Ohio case is that candidates and groups use the statute—and the state’s rocket-docket process for considering and deciding violations—as a club to keep their opponents’ ads off the air.  This especially affects non-candidate sponsors like political parties, PACs and nonprofits.  The reason lies in the Federal Communications Commission’s political broadcasting rules.  Under the Communications Act of 1934, broadcast stations can usually reject their ads for any reason—unlike candidate ads, which are almost always immune from station censorship based on content.  A pending state investigation can be a powerful reason for a station to reject or pull an ad.  And the candidate who wants stations to pull a hostile ad has a powerful reason to file a complaint with the Ohio Elections Commission, even if that complaint later proves unsuccessful: the complaint offers another reason why a risk-averse station, which could face liability for the ad’s content, should reject the ad or insist on changes to it.

The Crossroads GPS matter and the Ohio case raise obvious questions involving the balance between regulation and First Amendment issues.  But, less obviously, they show yet again that the federal and state campaign laws do not act in a vacuum.  They can affect, and are often affected by, the operation of other laws.

New Law Brings Major Changes to the FEC’s Administrative Fine Program — and New Challenges for Independent Expenditures

Posted in Disclosure, Enforcement, The Federal Election Commission

On December 26, President Obama signed into law a bill to extend the Federal Election Commission’s administrative fine program.  The new law broadens the program significantly, in ways that will especially affect those who make independent expenditures.

The administrative fine program allows the FEC to collect fines on a streamlined basis, and on fixed schedules, when political committees fail timely to file their regular periodic reports, or when candidate committees fail timely to file their last-minute contribution (or “48-hour”) reports.  While the program places strict limits on when a respondent can challenge a fine, it has generally been regarded as successful, and has largely avoided partisan or ideological controversy.

The program was last reauthorized in 2008 and would have expired with reports covering activity through December 31, 2013.  In its 2012 legislative recommendations, the FEC asked Congress simply to extend the existing program for another five years.

But the new law, introduced in November by Republicans and Democrats in the Committee on House Administration, and passed by voice vote and unanimous consent in the House and Senate respectively, goes beyond the FEC’s 2012 request.  It broadens the program significantly to cover an array of additional reports:

  • Reports of independent expenditures made by persons other than political committees — like corporations, unions, and nonprofit organizations not registered with the FEC.
  • 24- and 48-hour reports of independent expenditures that aggregate $1,000 or more during the 20 days before an election, or $10,000 or more during the rest of the election cycle.
  • Reports of “electioneering communications” — i.e., broadcast, cable and satellite communications other than independent expenditures, and made by persons other than political committees, that refer to candidates before their voters within 30 or 60 days before the election.
  • Reports of “lobbyist-bundled” contributions filed under the Honest Leadership and Open Government Act of 2007.

The new law raises several issues that the Commission will have to address through rulemaking.  The most complicated of these involve independent expenditures.  Because independent expenditure reports are normally triggered by large payments for media placement, they tend to involve extremely large amounts, and hence could bring very large fines.  Moreover, the filing deadlines for independent expenditure reports are usually triggered by the date on which the communications were distributed, which can make it hard to evaluate the timeliness of some reports.  Finally, while the new law would seem to increase the likelihood that groups making independent expenditures will face Commission enforcement, it does so in a process that, by its nature, does not involve actual investigation or agency discretion.