Study of Corporate Charitable Giving Shows How Disclosure Rules Can Affect Companies

In March, a group of economists issued a study examining patterns of charitable giving by corporate foundations. Through data and analysis, the group found a connection between corporate charitable giving and lobbying efforts. One particular finding was that corporate foundations favored supporting charities directly linked to politicians.

As the New York Times points out in its coverage of the study, the federal campaign finance laws do not generally require disclosure of corporate contributions to charities.

However, both the Times and the researchers appear to have overlooked that federal lobbying laws do require such disclosure, when lobbyists give to charities closely associated with certain federal government officials.

Specifically, under the Honest Leadership and Open Government Act of 2007, federal lobbying registrants—which include both individual lobbyists and their corporate employers—must disclose the date, recipient, and amount of contributions made:

  1. To pay the cost of any event that honors or recognizes a covered legislative or executive branch official;
  2. To any entity that is named for a covered legislative branch official;
  3. To any person or entity, in recognition of a covered legislative branch official;
  4. To any entity established, financed, maintained, or controlled by a covered legislative or executive branch official;
  5. To any entity designated by a covered legislative or executive branch official;
  6. To pay the costs of any meeting, retreat, conference, or other similar event held by, or in the name of, one or more covered legislative or executive branch officials; or
  7. Contributions to a Presidential Inaugural Committee or Presidential Library Foundation.

While these reports do not generally cover giving by a corporation’s affiliated foundation, they do cover donations made from corporate treasury funds and corporate PAC funds.  Federal lobbyists file these reports semi-annually. The reports are available online and are subject to audit by the Government Accountability Office.

Some states have similar, even broader requirements. For example, California requires certain state and local officeholders to disclose so-called “behested payments” they solicit from third parties for charities and other organizations.

Now more than ever, companies and their executives find themselves under pressure to communicate a message of social and moral responsibility on behalf of their companies. At the same time, federal and state disclosure laws provide the data that can be used to cross-walk the companies’ giving with their legislative priorities. That can create business, reputational and legal consequences. The recent study shows why prudent companies will want to set up processes to manage their charitable giving—especially when elected officials are involved.

FEC Releases NPRM for Disclaimers on Internet Communications

The Federal Election Commission (FEC) took a step last week toward clarifying the “paid for by” and other disclaimer requirements that apply to political advertisements that appear on digital media. At its meeting on March 14, 2018, the FEC voted to publish in the Federal Register a Notice of Proposed Rulemaking on Internet Communication Disclaimers and the Definition of “Public Communication” (the NPRM).

Below is a summary of the two sets of proposed rules that the FEC puts forth in the NPRM. The FEC is accepting comments on its alternative proposals for 60 days, and has set a public hearing on this topic for June 27, 2018.

Two Alternative Sets of Rules

The NPRM sets forth two alternative proposals to amend its regulations for disclaimers on public communications on the internet. Both proposals would continue to require disclaimers for many internet communications, but both would allow certain communications to use a so-called “adapted disclaimer.” The FEC explains that the alternatives are not “fixed proposals.” Rather, it is possible that a potential final rule in this area could include elements of each alternative.

Alternative A: Extending Rules for Radio, TV, and Print Communications to the Internet. The NPRM’s “Alternative A” would modify the FEC’s existing disclaimer regulations by applying the full disclaimer requirements that currently apply to radio, television and printed public communications to public communications distributed over the internet.

Thus, Alternative A would require a public communication distributed over the internet that includes an audio or video component to include (1) the general “paid for by” and “authorized/not authorized by” disclaimer information that applies to all public communication, and (2) the “stand by your ad” requirements that currently apply to radio and television communications. Similarly, Alternative A would require text or graphic-based public communications on the internet to comply with the disclaimer requirements that currently apply to offline printed public communications. Those printed public communication rules require that a disclaimer be “of sufficient type size to be clearly readable” and be “printed with a reasonable degree of color contrast between the background and the printed statement.”

Alternative B: Requiring “Clear and Conspicuous” Disclaimer Information. Alternative B would require public communications distributed over the internet to include the “paid for by” and “authorized/not authorized by” disclaimers that apply generally to public communications, but it would not extend the “stand by your ad” and other particular requirements of radio, TV and printed public communication disclaimers to the internet. Under Alternative B, the “paid for by” and “authorized/not authorized by” disclaimers would need to be “clear and conspicuous” and not difficult to read or hear, as required by current regulations.

“Adapted” Disclaimers and Other Exceptions

Both Alternatives in the NPRM propose that some public communications distributed over the internet may comply with the disclaimer requirements by utilizing an “adapted disclaimer.” An adapted disclaimer would provide an alternative to including a full disclaimer on the face of the communication as long as the full disclaimer information was still easily available to the reader or listener of the ad.

Alternative A: Adapted Disclaimers for Technological Limitations on Text/Graphic Ads. Under Alternative A, an advertiser could use an adapted disclaimer on a text or graphic communication when the full required disclaimer cannot fit on the face of the communication “due to external character or space constraints” that are “intrinsic to the technological medium.”

When a full disclaimer cannot fit on the face of a communication because of external character or space constraints intrinsic to the technology, then the advertiser may use an adapted disclaimer consisting of (1) the name of the person who paid for the communication on the face of the communication, in letters of sufficient size to be clearly readable, and (2) an “indicator” that gives the reader notice that further disclaimer information is available. The indicator could be any visible or audible element of the ad, including words, images, sounds, symbols or icons. There must be “technological mechanism” associated with the indicator that allows the reader to locate the full disclaimer “by navigating no more than one step away from the adapted disclaimer.” Examples of a technological mechanism under Alternative A include, but are not limited to, “hover-over mechanisms, pop-up screens, scrolling text, rotating panels, or hyperlinks to a landing page with the full disclaimer.” Alternative A would not permit advertisers to use an adapted disclaimer on communications with an audio or visual component.

Alternative B: Using a Space/Time Bright-Line Test for Adapted Disclaimers. Under Alternative B, an advertiser could use an adapted disclaimer when the full disclaimer would occupy more than a 10 percent of the overall time or space of a communication—including communications with an audio or video component. The relative metric for calculating the 10 percent bright-line test depends on the type of ad: for text ads, the metric is number of characters; for ads consisting of graphics or images, the metric is pixels; and for audio or video ads, the metric is seconds. The adapted disclaimer must identify the sponsor by name or common abbreviation, plus include an indicator that gives the reader notice that full disclaimer information is available. Again, the indicator could be any visible or audible element of the communication, including words, a website URL or an image, sound, or icon. Alternative B proposes that the technological mechanism that must be associated with the adapted disclaimer and provide the full disclaimer information could take the form of any of the mechanisms described under Alternative A, with the addition of “voice-over, mouse-over, and roll-over” mechanisms.

Alternative B proposes two additional aspects of its disclaimer rules. First, if an abbreviated disclaimer used under the 10 percent test above (i.e., a disclaimer consisting of the name or abbreviation of the sponsor, plus an indicator) would still take up more than 10 percent of the time or space of a communication, then the advertiser could use a “second tier” adapted disclaimer consisting solely of an indicator that provides a full disclaimer via a technological mechanism. Second, Alternative B proposes an exception to the disclaimer requirements for internet public communications that cannot provide a disclaimer either in the communication itself or via either of the adapted disclaimers discussed above.

Conclusion

The NPRM specifically asks for feedback on a wide variety of questions that the NPRM raises, and commenters will have 60 days from the date the NPRM is published in the Federal Register to submit their feedback to the FEC. Commenters who wish to testify at the hearing must first file written comments, and must include a request to testify in those written comments.

Major FARA Changes Move Forward in Congress as House Marks Up Bill

On Wednesday, January 17, 2018, the House Judiciary Committee voted 15-6 to report the Disclosing Foreign Influence Act (H.R. 4170) out of committee, taking a major step toward amending the Foreign Agents Registration Act of 1938 (FARA).

As discussed in an earlier update, Senate Judiciary Chairman Chuck Grassley and Representative Mike Johnson introduced identical bills in the Senate and House that would remove a major exemption from FARA registration and give the Department of Justice new investigative powers. Significantly, the bills would allow the Department to issue mandatory “civil investigative demands” for information related to investigations of FARA compliance. Details on the markup of the Johnson bill in the House can be found here. The Grassley bill, which awaits Senate action, can be found here.

The House Judiciary Committee accepted two amendments in the markup:

  • A modification to the bill’s requirement that the Department of Justice develop and implement a comprehensive strategy to improve administration and enforcement of FARA. Offered by the sponsor, Representative Johnson, the amendment sets a 120-day deadline for the Department to develop its strategy; clarifies that the Department’s Inspector General shall issue a report on the use of the civil investigative demand power; and directs the Department to issue detailed annual reports which describe the results of issuing civil investigative demands and indicate whether the Attorney General subsequently filed charges for an alleged FARA violation.
  • A requirement that the Department of Justice issue a report on steps needed to update the FARA filing system in order to make the database of filings “fully searchable, sortable and downloadable.”

The House markup left in place two apparent anomalies in the bill:

  • The first is a provision requiring foreign agents who are also federally registered lobbyists to file FARA reports on Lobbying Disclosure Act of 1995 schedules. This appears to mean that foreign agents who lobby under the LDA would file reports under FARA more often than other foreign agents, who file only semiannually.
  • The second is that the bill affects only the so-called “LDA exemption” from FARA registration. It leaves in place other exemptions that apply when promoting a foreign principal’s “bona trade or commerce,” engaging in “other activities not serving predominantly a foreign interest,” and providing certain types of legal representation in courts and before federal agencies.

The Committee rejected several proposed amendments to limit the use of information obtained as a result of civil investigative demands and the scope of information that the Department may seek through a civil investigative demand. The bill’s new enforcement provisions remain a significant feature and may provide the bill’s most significant effects if enacted.

Looking Ahead to the Future of ‘Fake News’

The rise of social media has brought multiple, recent charges of forgery and fraud in the dissemination of political attacks. The nature of such attacks is nothing new. Since the dawn of American elections, candidates have seen their words, views, and deeds fraudulently portrayed by political enemies. During the 1972 presidential election, an aide to Richard Nixon reportedly wrote a false letter to the editor of the Manchester Union Leader claiming that Senator Edmund Muskie of Maine, a candidate for the Democratic Party nomination, laughed at the use of an ethnic slur against Americans of French-Canadian descent. In 1880, a New York newspaper published a fraudulent letter, allegedly written by presidential candidate James A. Garfield, stating Garfield’s support for unrestricted Chinese immigration.

However, technology is making it easier and cheaper to develop these sorts of spurious attacks—and harder to quickly debunk them. Researchers and software companies are refining and commercializing tools, colloquially referred to as Photoshop-for-Voice, that will allow users to create realistic audio and video files of people saying things they have never actually said. Other emerging technologies will allow users to modify a person’s facial expression in real-time. Normal hardware and cheap software will allow anyone to create and manipulate these sounds and images. Through social media platforms, they can be distributed anonymously, instantaneously and widely.

How well can the law keep up with these developments? There are serious First Amendment issues involved. The cases distinguish between parodies and impersonations of candidates and public figures on the one hand, and malicious attempts to mislead viewers about the words and deeds of these figures on the other. But they do not always do so easily, as the Supreme Court signaled three years ago in Susan B. Anthony List v. Driehaus, when it allowed a First Amendment challenge to proceed against an Ohio statute that punished malicious campaign false statements. (The Sixth Circuit later struck down the Ohio law.) An aggrieved candidate might seek relief against a fraudulent attack under general federal or state anti-fraud or intellectual property laws, but time pressures and First Amendment protections can make their chances slim, even if the culprit can be found.

The federal campaign finance laws offer little more help. At the end of 2017, the Federal Election Commission recommended again to Congress that it broaden the federal statute that targets certain, narrow types of campaign fraud. 52 U.S.C. § 30124(a)(1) prohibits federal candidates, their employees and agents from “fraudulently misrepresenting” that they speak, write, or act “for or on behalf of any other candidate or political party . . . on a matter which is damaging” to such person or entity. However, this measure does not cover activities by independent actors. The FEC wants the statute to “encompass all persons purporting to act on behalf of candidates” and other political organizations, and it seeks to eliminate the requirement that such fraudulent activity pertain only to a matter that is “damaging.” But there has been no movement on this topic in the past, and little sign of any to come.

The best remedy for the aggrieved campaign may be self-help. As it becomes harder to detect fake audio and video, campaigns, parties and media outlets may increasingly turn to forensic experts to verify or debunk the damaging files. As with the forgery of fine art and currency, a technological arms race may develop between those who produce fake content, and those employed to spot the fakes. Candidates may also seize on growing uncertainty about what is real to keep attacks from reaching critical mass. More than ever, a major campaign in 2018 will need an integrated legal, research, communications and technological strategy to survive in a world where increasingly, it seems, nothing is real.

Packingham, Free Speech and Campaign Finance

At first blush, the Supreme Court’s decision in Packingham v. North Carolina seems quite relevant to campaign finance. Echoing its 1997 decision in Reno v. American Civil Liberties Union, the Court said: “Social media offers relatively unlimited, low-cost capacity for communication of all kinds.” That observation suggests a tension between Internet use, and the Court’s persistent holdings that only avoiding corruption and its appearance can justify the general regulation of political giving and spending. The Court applied intermediate scrutiny to strike down North Carolina’s restrictions on social media use by registered sex offenders. At the very least, the Court’s decision would seem to bode ill for the enforcement of prolix disclaimer requirements against space-limited Internet communications, and for state and local laws that fail to provide the same allowances for personal Internet activity as Federal Election Commission rules do.

Still, there are two reasons to be guarded about Packingham’s future effect on campaign finance:

First, “undisciplined dicta” on First Amendment issues—like that which Justice Alito’s Packingham concurrence ascribes to Justice Kennedy’s majority opinion—can have a particularly hard time affecting future outcomes in campaign finance. McIntyre v. Ohio Elections Commission is a good example. Involving an Ohio woman who distributed leaflets on a school levy without a state-required disclaimer, McIntyre is the classic “don’t try this at home” campaign finance decision. Justice Stevens’ majority opinion was a paean to anonymous speech, citing Twain, Voltaire, Eliot, Dickens and the Federalist Papers. It found Mrs. McIntyre’s leaflets to be “the essence of First Amendment expression … No form of speech is entitled to greater constitutional protection than Mrs. McIntyre’s.” Yet, more than twenty years later, McIntyre has had virtually no effect on disclaimer requirements at the federal and state level. Seven years after McIntyre, Congress expanded the federal disclaimer requirements, and they remain undisturbed. Perhaps in both McIntyre and Packingham, the Court was moved by the drama of state power being used against a lone, individual speaker of normal means—and is less easily moved by the case of a party, PAC or candidate.

Second, as Bob Bauer recently argued on Just Security, the avoidance of corruption is not always the only state interest at stake when the Internet is used to influence elections. Some may have thought it pretentious for Justice Kennedy to declare that “the Cyber Age is a revolution of historic proportions,” and that “we cannot appreciate yet its full dimensions and vast potential to alter how we think, express ourselves, and define who we want to be.” And yet Russia’s deployment of “pro-Kremlin social media actors” in the 2016 election ironically proves the Justice’s point. It remains to be seen how last cycle’s experience will affect future attempts at enforcement and regulation, and its later judicial evaluation.

Bribery and the Brokered Convention?

In the industrial Midwest, after multiple ballots, the Republican convention finally chooses its nominee. Operatives for the frontrunner—a nationally known, polarizing figure who has infuriated Democrats with his abrasive rhetoric on the most divisive, racially-charged issue of the day—flood the city “with money to corrupt, with bullies to intimidate and with houries to seduce.” As for his principal opponent, rumors persist that the candidate’s coalition is forged on promises of cabinet appointments in exchange for votes.[1] A journalist rails:

The lesson to the Nation … is the necessity for the abolition of the Caucus System, which, in whatever party organization operative, is a system of swindling, by which the people are defrauded out of the effective exercise of the right of suffrage. There is no honesty in caucuses … The revenues of King Caucus are corruption funds … If a Republican form of government is to be preserved … the people must make a bonfire of his throne.[2]

Can Chicago’s experience in 1860 repeat itself in Cleveland in 2016? One recent commentator suggested that, after the first ballot, presidential contenders “would engage in a fierce lobbying battle for delegates, wooing them with ideological sweet talk, political promises and anything else they have to offer.” Another projected that, on the third ballot, the “delegations will be a hotbed of rumors, deals and rumored deals.” A third suggested that candidates may lure support by offering Cabinet posts, lucrative consulting contracts, and hard cash for votes. One need not watch House of Cards to imagine candidates, top aides, party leaders, and donors fanning out across the floor of the Quicken Loans Arena and hitting the phones to determine the cost of securing the support of delegates, party leaders, and donors. From this perspective, the issues of money and access loom much larger than when conventions were simply derided as “unabashed festivals of corporate cash.” The restrictions that Congress placed on lobbyist-paid events seem quaint when applied to what some think may happen in Cleveland.

But the law is far less forgiving in 2016 than in 1860. Had Lincoln’s convention manager and future Supreme Court appointee, David Davis, been active today, he might have found his way to the Court as a defendant instead of a justice. The federal criminal code at 18 U.S.C. § 599 prohibits candidates from promising to appoint, or using their influence to appoint, any person to any public or private position or employment, “for the purpose of procuring support in his candidacy.” An accompanying provision establishes criminal consequences for promising employment, positions, contracts, appointments or other benefits resulting from congressional action as consideration or reward for political activity or support in connection with general elections, primary elections, or political conventions or caucuses. The Hobbs Act bars extortion affecting interstate commerce and has been used to prosecute various cases of public corruption. Multiple provisions prohibit individuals from offering cash or things of value in exchange for votes. And, finally, the campaign finance laws create avenues for identifying and prosecuting unreported or misreported contributions.

One cannot casually dismiss the viability or constitutionality of these statutes. To do so would depend mainly on an energetic reading of a 1982 decision, Brown v. Hartlage. There, the Supreme Court struck down a Kentucky law as it applied to the nullification of an election result because a candidate pledged to cut his own compensation, if elected, by $3,000. But the Brown candidate’s civic-minded pledge to drain his own pockets is plainly distinguishable from a corrupt attempt to fill someone else’s.

Moreover, these laws, and others besides, operate against a backdrop in which courts and prosecutors have focused closely on electoral transparency and integrity and the protection of “merit-based administration.” The Supreme Court has recognized the legitimacy of regulations “upholding the integrity of the electoral process” and stated plainly that “some kinds of promises made by a candidate [] and some kinds of promises elicited by voters from candidates [] may be declared illegal without constitutional difficulty.” The Justice Department has asserted that the Hobbs Act can apply to promises of future official action, and its Office of Legal Counsel pronounced in 1980 that the law might be violated “if people were promised employment or special consideration for employment [] as an enticement or reward for future political activity or support of a party or candidate.” If a candidate may not offer a primary voter or caucusgoer pecuniary benefits without impermissibly commercializing the voting process, under what logic may a candidate offer such benefits to a delegate standing in the shoes of thousands or tens of thousands of voters?

The general trends toward criminalization of the political process and aggressive enforcement of the bribery laws raise the possibility that a brokered convention could bring these same laws into play, even if the convention in Cleveland more closely resembles the one on The West Wing than the one on House of Cards, or the one in Chicago in 1860. “Exploiting the political process for personal gain will not be tolerated, and we will continue to pursue those who commit such illegal actions.” This is what the Justice Department declared in 2014, when an Iowa state senator pled guilty to concealing payments he received to switch his presidential endorsement before the Iowa caucuses. The Iowa endorsement-buying case is a very good example of where a conspicuous lack of transparency in the political process fueled criminal prosecution. The conventions have long been a lightning rod for reform. This summer, the wattage may be higher.

 

1 Michael Burlingame, Abraham Lincoln: A Life (2008), available at: https://www.knox.edu/about-knox/lincoln-studies-center/burlingame-abraham-lincoln-a-life.

2 Three Against Lincoln: Murat Halstead Reports the Caucuses of 1860, at 27 (William B. Hesseltine, ed., Louisiana U. Press, 1960).

FEC Unveils Website, Debates Super PAC and State Party Restrictions

The Federal Election Commission endured a four hour session on Thursday, October 29. Among the topics discussed were a resolution for the Repledge advisory opinion request, a request from Senate Majority PAC and House Majority PAC seeking to clarify the legal limits of would-be candidates and Super PACs during the testing the waters period, and a heated discussion about Commissioner Lee Goodman’s proposal to provide regulatory relief for state and local parties.

But first, the session opened with the debut of the Commission’s new website. You can check it out here.

Afterwards, the Commission began to address the advisory opinion requests on the agenda. After tabling the Repledge request until noon, the Commission addressed the AO request from Senate Majority PAC and House Majority PAC. Counsel for the requestors, Marc Elias, Jonathan Berkon and Rachel Jacobs, were present at the session. The request seeks to clarify three areas of the law. First, the request asked for clarification regarding “pre-candidacy” activities between individuals contemplating federal candidacy and federal Super PACs. Second, the request asked for clarification of the “testing the waters” (“TTW”) exemption under federal regulations, which allows individuals contemplating candidacy to raise and spend funds without registering and reporting with the FEC as long as they are “for the purpose of determining whether an individual should become a candidate.”  Specifically, the requestors sought clarification about the type of conduct that triggers federal candidacy such that the TTW exemption no longer applies. Third, the requesters asked for clarification about the definition of “agent” under federal regulations and whether federal regulations require that a minimum number of expected attendees attend a Super PAC event such that a candidate can permissibly speak, attend, or be featured as a special guest for the event.  The Commission issued two draft advisory opinions on Wednesday, October 28 that were largely similar in substance except for their responses to the last two questions asked by the requesters.

Commissioner Goodman began the discussion by asking Mr. Elias whether the FEC even has jurisdiction over pre-candidates during the TTW period. He noted that the Commission has some jurisdiction over this period, but only once the individual formally announces his or her candidacy. Commissioner Goodman felt that the statute only applies to candidates and it is outside the Commission’s jurisdiction to regulate activities prior to an individual becoming a candidate for federal office. He felt that the TWW activities created jurisdiction retroactively, which is outside the scope of the FEC’s authority.  Commissioner Ellen Weintraub disagreed with Commissioner Goodman’s concerns. She did not believe that jurisdiction was retroactive. Instead, she noted that she believes the TTW period acts more as a protection and allows an individual to have relative freedom in determining whether to run. Commissioner Weintraub explained that the FEC has jurisdiction to regulate TWW activities because TTW is an exception to the definition of contribution and the FEC’s jurisdiction covers when individuals raise and spend contributions. Mr. Elias expressed concern about the conduct occurring during the TTW period.  He pointed out that  the rules for actions during this time are unclear but that his clients are seeking guidance under the current law and regulations, which cover TTW activities . Among other issues, the advisory opinion request asked if potential candidates could assist with forming a Super PAC and if contributions to that Super PAC counted towards the limits that could be upheld retroactively under the TTW exemption. Chair Ann Ravel also mentioned that the answers to some of Mr. Elias’ questions would be better answered by a rulemaking, and the FEC may not use advisory opinions to create rules. In particular, she was referring to the definition of “agent” under federal regulations, and on which the requesters sought clarification in their request.

Before seeking Mr. Elias’ opinions on the two drafts, Commissioner Caroline Hunter revealed that the Commission would not be voting on the drafts during the session. Mr. Elias asked why this was the case, given that the drafts were nearly identical except for the answers to questions 11 and 12. Vice Chair Matthew Petersen noted that the drafts were only released the preceding day and that the AO request addressed “complex and timely” questions. Further, the Commission wanted an opportunity to ask requesters’ counsel questions prior to voting on the drafts.  Chair Ravel told Mr. Elias that he could expect his request to be further addressed at the next meeting of the Commission on November 10, 2015. Several commissioners indicated that they did not know where their colleagues stood on the issues in the request. Commissioner Weintraub signaled to Mr. Elias that just because the drafts were similar did not mean that there was consensus on the Commission.

After a quick break the Commission reconvened to discuss the Repledge advisory opinion request. The issue had been delayed several times due to issues with the language in Draft C. As Commissioner Goodman put it, the disagreement was not whether the answer to the question was yes, but rather how the Commission came to yes. Despite the consensus, the Commission failed to approve a draft and therefore could not issue a formal advisory opinion.

Next, the FEC addressed an advisory opinion request submitted on behalf of 21st Century Fox. The Commission unanimously approved the draft and issued a formal opinion.

One of the last topics discussed was Commissioner Goodman’s proposal to provide state and local parties regulatory relief. Commissioner Goodman’s proposal argued that legal reform is necessary and could help strengthen state and local political parties. Among his suggestions were allowing parties to access candidate materials for coordinated communications, expanding freedom to engage in volunteer activities, and allowing political parties to register voters and further engage in get-out-the-vote activities. He stressed that this was a bipartisan effort and one that would make small yet meaningful changes that would provide great relief to the local parties. The discussion became contentious when Commissioner Weintraub suggested adding Super PAC limitations to the proposal. The Republican commissioners revealed their frustration with the Democratic commissioners’ desire to make sweeping changes rather than incremental ones. In turn, the Democratic commissioners signaled that they were not willing to support the proposal. Clearly frustrated, Commissioner Goodman requested that the Commission table the proposal until the next meeting. The request was granted.

The Commission next meets on November 10.

Commission Divides Sharply on Scope of Foreign National Ban

The Federal Election Commission met on Thursday, October 1. The agenda included two advisory opinion requests, discussion about whether to ban foreign national contributions to state and local ballot measures, and a notice of proposed rulemaking on reporting multistate independent expenditures and electioneering communications on presidential primary elections.

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At Stake in the FEC Debate Over Leadership PACs: More Criminal Enforcement?

In dueling draft advisory opinions to Representative Maxine Waters, the Federal Election Commission is divided over whether “leadership PACs” are subject to the personal use rules. Both drafts agree that FEC rules would not keep Representative Waters’ campaign, PAC or her personally from giving to a foreign candidate. But Draft A warns the Congresswoman that “the personal use prohibition applies to your leadership PAC,” while Draft B states flatly that the personal use restrictions do not apply to leadership PACs.” The FEC is scheduled to take up the drafts at its September 17 meeting.

What’s at stake in the Waters request is not whether Members of Congress can make “personal use” of their leadership PAC funds. Congressional ethics rules already keep them from doing that. Rather, it’s whether the FEC will expand the scope of federal campaign finance law’s personal use restriction in a way that emboldens criminal prosecution.

Current law presents heavy barriers against enforcing the personal use restrictions against leadership PAC spending, whether civilly or criminally. As recently as 2013, the FEC asked Congress to change the law to extend the personal use ban to leadership PACs, saying that “Congress might not have considered the application of the personal use prohibition to this particular type of political committee.” The FEC’s treatment of the issue in other advisory opinions has been muddled at best. In an advisory opinion issued last year to Representative Paul Ryan over whether his PAC could pay to publicize his book, the FEC deadlocked on the issue, with “three Commissioners holding the position that the Act’s personal use prohibition does not apply to leadership PACs.”

However, the general subject of personal use is a very attractive object of criminal prosecution. The Commission’s debate comes as the Justice Department has seemed more active in core campaign finance cases, with the recent prosecution of a House campaign manager for illegally setting up and running a super PAC, and the indictment of three aides to the presidential campaign of Representative Ron Paul for allegedly disguising payments made to an Iowa state senator for his endorsement.

Thus, the Waters opinion presents a serious policy question for the Commission. The FEC’s decision will have a small effect on what Members actually do, because of the existing Congressional ethics prohibitions. But a change in policy could give prosecutors a significant new tool in public corruption cases that—as all six of the current FEC Commissioners admitted—“Congress might not have considered.”

DC Circuit Spurns GOP Challenge to SEC Pay-to-Play Rule

The United States Court of Appeals for the District of Columbia Circuit today left standing the Securities and Exchange Commission’s “pay-to-play” rule, which bars investment advisers from providing paid services to state and local governments when making certain political contributions to state and local officials.

The court rejected as time-barred a challenge to the rule that was brought by state Republican parties in New York and Tennessee. The court held that the state parties brought their suit in the wrong court and at the wrong time, saying that the Investment Advisers Act required the challenge to be brought at the circuit court level and within 60 days of promulgation. The SEC rule took effect in 2010; the state parties sued in federal district court in 2014.

Informed investment advisers maintain strict procedures to comply with the SEC rule, which affects some federal elections as well as many non-federal elections. Four incumbent governors currently seek the presidency: Chris Christie of New Jersey, Bobby Jindal of Louisiana, John Kasich of Ohio, and Scott Walker of Wisconsin. The court’s ruling leaves in place a barrier to fundraising in direct support of their campaigns.

The opinion in New York Republican State Committee v. SEC is available here.

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