Political Law Playbook – May 2022 | Dentons - JDSupra - JD Supra

Welcome to the May 2022 edition of the Political Law Playbook. Of particular note in this month’s edition is a slew of impactful stories involving the Federal Election Commission (FEC). As we previously wrote about in Dentons' Soapbox blog, the FEC recently made news when four of its commissioners issued guidance that effectively requires Super PACs to comply with the LLC attribution reporting requirements by which other federally-registered political committees must abide. This was a previously unsettled area of federal campaign finance law. The FEC also handed down one of its largest ever penalties in an enforcement matter, fining a Canadian billionaire – Barry Zekelman - and two of his companies nearly $1 million for illegally directing money in 2018 to a Super PAC aligned with former President Trump. As a foreign national, Mr. Zekelman is prohibited by federal law from making contributions in connection with US elections or advising others to do the same.

A judge in the US District Court for the District of Columbia also recently dismissed a lawsuit against the FEC in a ruling that could have potentially significant reverberations for future attempts to spur agency action in settings where the six commissioners deadlock on regulatory or enforcement questions. The decision – arising out of a lawsuit filed by the advocacy group End Citizens United (ECU) against the FEC for inaction concerning a complaint that organization filed with the agency - asserted that the court had no jurisdiction over the nonenforcement decisions of the Commission when such determinations are grounded in the agency’s statutorily-granted prosecutorial discretion. If this analysis gains traction moving forward, it may spell doom for the “stalemate strategy” that some Democrat FEC commissioners have quietly employed to help sidestep the regulatory process and push certain issues into the federal courts for review.

Federal Elections & Campaign Finance

Federal Election Commission Signals Increased Scrutiny for LLC Contributions – The Federal Election Commission (FEC) recently released a Statement of Reasons analysis in connection with the closure of a long-running enforcement action announcing its intention to require independent expenditure-only committees (Super PACs) to comply with the LLC attribution reporting requirements. As we wrote about in our Dentons Soapbox analysis, the Commission had previously deadlocked on the issue in other matters under review. The breadth of impact for this recent FEC analysis is yet to be seen, but it is clear that affected entities and individuals can no longer rely on FEC indecision as a basis for ignoring the LLC attribution requirements.

Watchdog Group Sues FEC Over Citizenship of Donor – The government watchdog group Americans for Public Trust filed a lawsuit against the FEC last month in an effort to push the agency to act on its May 2021 complaint against Swiss businessman Hansjörg Wyss. The watchdog group cited several media interviews and a government filing indicating that Wyss is not a US citizen, “which would make donating to political candidates or political action committees illegal.” The lawsuit alleges that Wyss used nonprofit organizations to contribute millions to the Sixteen Thirty Fund and the New Venture Fund, two alleged dark money groups.

D.C. District Court Judge Rejects FEC Stalemate Strategy – Last month, Federal District Court Judge Timothy Kelly dismissed a lawsuit brought against the FEC in the US District Court for the District of Columbia by advocacy group End Citizens United (ECU) regarding the FEC’s decision to dismiss a past complaint the organization filed against former President Trump’s campaign committee. Using a strategy that some election law experts have come to refer to as the “stalemate strategy,” the FEC's three Democrat commissioners voted as a block to prevent the Commission from defending its past action with regard to the ECU complaint in court, opening up the possibility that a federal court could side with ECU to force the FEC to act on the original complaint. Judge Kelly, however, ruled that the court had no jurisdiction over such a lawsuit from a private party given that the Statement of Reasons provided by the Republican commissioners in voting to dismiss the original complaint was based in part on the agency’s prosecutorial discretion. Such a decision was considered nonreviewable under applicable legal precedent since it represents a final explained action by the agency.

Barry Zekelman’s Company Fined by FEC For Illegal Donations Directed to Trump Super PAC – The FEC recently reached a nearly $1 million settlement with Canadian business owner and billionaire, Barry Zekelman, for steering almost $2 million in contributions to America First Action – a federal Super PAC aligned with former President Trump - in violation of the foreign national contribution ban. Zekelman argued that the donations were not illegal because the contributions were made by a US subsidiary of his companies - Wheatland Tube, Inc. – and the president of Wheatland Tube is a US citizen. The FEC disagreed, however, and ultimately determined that Zekelman violated federal law by playing a prominent role in the discussions with the subsidiaries before the contributions were made.

Political Campaigns Are Facing Risks With Crypto Donations Made Via Coinbase And BitPay – With no identity verification available through BitPay and Coinbase, campaigns must generally rely on truthful self-reporting by users of the platform, who must fill out basic “know your customer” documentation when signing up for the online service and are encouraged to complete donor identity submissions with recipient committees. Currently the two largest cryptocurrency platforms in this space are BitPay and Coinbase, which both anonymize transactions by creating a “wallet address” - a common platform feature intended to prevent observers from using public blockchain explorers to identify the people behind each crypto transaction. With no identity verification available through BitPay and Coinbase, campaigns must generally rely on truthful self-reporting by users of the platform, who fill out basic “know your customer” documentation when signing up for the online service, and often complete donor identity submissions with recipient committees. Since the FEC requires candidates to collect and disclose donor identities, accepting cryptocurrency donations puts campaign committees at increased risk of violating FEC rules and failing to adequately screen out fraudulent or illegal giving.

Judge Rules Abby Finkenauer Cannot Appear on Iowa Primary Ballot – A Polk County, IA state district court judge recently ruled that Democrat Abby Finkenauer cannot appear on the upcoming Iowa primary election ballot for U.S. Senate. The decision comes after two former Republican county officials, Kim Schmett and Leanne Pellett, filed suit arguing that the State Objections Panel unlawfully allowed Finkenauer to stay on the ballot despite failing to collect enough signatures on her nomination petitions to qualify for the primary ballot under state law. Unless Finkenauer can successfully appeal the decision, Democrat voters will choose between Admiral Michael Franken and Dr. Glenn Hurst for the party nominee to challenge Republican Sen. Charles Grassley.

Federal Lobbying & Ethics

New OGE Rule Permits Federal Employees to Accept Donations of Up to $10K for Legal Defense Funds – The Office of Government Ethics (OGE) recently issued new guidelines for federal employees who accept donations to pay for job-related legal fees. Current federal ethics rules severely restrict the types of gifts and benefits executive branch employees may accept and from whom. Under the newly proposed rule, however, carve outs to these limitations would be created for federal employees who set up legal defense funds. Individuals who do not have business before the relevant employee’s agency would be able donate up to $10,000 per year to that person’s legal defense fund, so long as they are not a lobbyist, an agent of a foreign government, or acting on someone else’s behalf. OGE will accept comments on these proposed rule changes until June 21 before finalizing the relevant framework.

Congressional Watchdog Finds That While Most Lobbyists Follow Disclosure Rules, Many Omit Details – The Government Accountability Office (GAO) released its annual report on the Lobbying Disclosure Act (LDA) and compliance trends seen amongst federally-registered lobbyists. The report found that while almost all federal lobbyists comply with public disclosure requirements by providing proper documentation to the Clerk of the House and Secretary of the Senate, many registrants still leave out required details concerning reportable campaign donations and past government positions. The report also found that 72% of noncompliance cases referred to the Department of Justice (DOJ) between 2012 and 2021 were unresolved.

State Department Report Says White House Gift Records Incomplete for 2020 – A recent State Department report found that former President Trump’s Executive Office of the President failed to provide it with a complete list of gifts received from foreign leaders during 2020 by the President, Vice President and certain presidential family members. The State Department said it sought the missing information from the National Archives and Records Administration and the General Services Administration, but was told that potentially relevant records were not available because of access restrictions related to retired records.

Foreign Agents Registration Act (FARA)

House Judiciary Committee Holds Hearing on Foreign Agents Registration Act Reform – The House Judiciary Committee Subcommittee on the Constitution, Civil Rights, and Civil Liberties recently held a hearing on potential reform of FARA, the antiquated disclosure law for agents representing the interests of foreign principals in the United States. While the witnesses and members of the subcommittee pointed out that the statute is problematically ambiguous, there was a clear divide between those hearing participants arguing for aggressive enforcement of FARA and those advocating for narrowing the statute. The hearing also highlighted a few substantive proposals that FARA practitioners and the DOJ focused on in the context of the Department of Justice’s recent Advance Notice of Proposed Rulemaking (“ANPRM”) to modernize FARA. The end result of the ANPRM process remains to be seen, but it is clear that both Congress and the Executive Branch are highly interested in revamping FARA and its associated regulations.

Non-Federal Elections & Campaign Finance

Wisconsin Supreme Court Chooses Maps Drawn by Republicans in New Redistricting Decision – In a 4-3 decision, the Wisconsin Supreme Court recently adopted a state legislative redistricting plan drawn by GOP lawmakers that likely maintains the party’s electoral advantage for future election cycles. Early last month, the US Supreme Court struck down a prior Wisconsin Supreme Court ruling adopting a different map drawn by the Governor. While a federal court could potentially consider future changes to the map at some time during the next decade, chances are good that the new Republican-drawn state legislative district lines will remain in place until 2032.

New York's Top Court Rejects Congressional Maps Drawn by Democrats – New York's highest court recently sided with state Republicans in ruling that the state’s Democrat-drawn congressional redistricting plan constituted an unconstitutional political gerrymander under state law. As a result of the decision, the Appeals Court said it may be necessary to move the upcoming congressional and state senate primary elections to allow a court-appointed special master to craft a new constitutionally-permissible plan.

San Jose City Council Passes Draft Policy Memorandum To Bar Political Donations by Foreign-Owned Corporations – The San Jose City Council recently voted 9-1 on a policy memorandum for draft legislative language that would prohibit corporations with one percent or more ownership by any foreign national (or five percent or more ownership by multiple foreign nationals) from making political contributions in connection with any city elections. Under the proposed ordinance, most S&P 500 members would be prohibited from making contributions or spending money on city candidates through means such as political action committees. The San Jose Mayor and other municipal leaders expressed concern over the proposed ordinance because of the potential for litigation and its questionable legality, but the ordinance is expected to go in front of the San Jose City Council for a passage vote in the coming weeks.

Mississippi Governor Signs Bill Making the Funding of Election Operations With Private Money Illegal – Mississippi Governor Tate Reeves recently signed H.B. 1365 into law, prohibiting the funding of elections with private money in Mississippi. The Center for Tech and Civic Life (CTCL), a nonprofit organization funded by Facebook CEO Mark Zuckerberg, made almost $2 million in grants to the Hinds County Election Commission during the 2020 election. Mississippi’s prohibition of so-called “Zuckerbucks” is indicative of a growing trend among Republican-controlled states that are pushing back against the private funding of election activities that are the province of state government.

Non-Federal Lobbying & Ethics

NJ Court Rules That Mayoral Candidate Is Subject to NJ Corruption Laws – In a recent ruling from a New Jersey state appeals court, a bribery indictment was reinstated against former Bayonne mayoral candidate Jason O’Donnell. The ruling overturns a controversial trial court’s decision to throw out similar charges last year because O’Donnell was not an elected public official when he was said to have been involved in the alleged illegal behavior. The ruling suggests that, moving forward, the state’s bribery rules will be applicable to candidates before officially becoming public officials.

Nonprofit Compliance & Disclosure

Virginia Governor Signs Bill Protecting Donor Privacy – Virginia Governor Glenn Youngkin recently signed into law a new bill – HB970 - that protects the private information of individuals who financially support charities and other nonprofit organizations of their choice within the Commonwealth. The bill was drafted for the purpose of protecting the ability of individuals to anonymously support causes of their choice without fear of harassment or intimidation.

Pay-to-Play

Former IL Mayor Anthony Ragucci Charged in Red Light Camera Bribery Scheme – Former IL Mayor Anthony Ragucci Charged in Red Light Camera Bribery Scheme – Former Oakbrook Terrace, IL Mayor Anthony Ragucci was accused last month of accepting thousands in payoffs in exchange for allowing red light cameras in Oakbrook Terrace, and is now facing federal corruption charges. Ragucci resigned in January 2020 amid reports of this misconduct and has now been charged with one count of wire fraud and one count of filing a false tax return. According to the federal charges, a red-light camera firm received a contract to operate the cameras in the suburb in 2012. In 2017, the president of an unnamed company that worked as the sales representative of the red-light camera firm allegedly agreed to pay Ragucci $3,500 a month from revenue generated by the red light cameras.

Pay-to-Play Proposal and Municipal Ethics Rule Changes Included in Policy Report Published by Atlanta Mayor’s Transition Team – Atlanta Mayor Andre Dickens’ transition team recently published a set of comprehensive policy recommendations for tackling the city’s present challenges in an 88-page report. The report suggests, among other things, that the mayor consider implementing new city pay-to-play provisions that would restrict campaign contributions by existing and prospective municipal contractors after the submission of a bid, as well as for a meaningful period after the commencement of a city contract. The transition team drew inspiration for its pay-to-play proposal from restrictions employed by other major cities (including the City of Los Angeles) and recommended the creation of new ethics rules that seek to balance the principals of transparency, compliance, discretion and efficiency.

New York's Lieutenant Governor Resigns After Arrest in Federal Bribery Case – New York Lieutenant Governor Brian Benjamin (D) resigned last month after his arrest on charges associated with a purported campaign finance scheme. Benjamin, who pled not guilty to all charges at his initial appearance in federal court, faces counts of bribery, fraud, conspiracy and falsification of records related to an alleged scheme to obtain campaign contributions from a real estate developer in exchange for Benjamin’s assistance with a state grant.

The Courts and Free Speech

US Supreme Court Lets RI Election Finance Disclosure Law Stand – The US Supreme Court declined to review a federal appellate court decision that affirmed the constitutionality of Rhode Island’s 2012 election finance disclosure law that required independent expenditure groups to disclose all donors giving at least $1,000 to their efforts, and for the advertisements themselves to publicly report both the funder of the message and that funder’s top five largest donors. Two conservative groups, the Gaspee Project and the Illinois Opportunity Project, had challenged the constitutionality of the law, claiming that the act violated the First Amendment and infringed on the rights of privacy and association.

Political Law Practice Pointers

As a follow-up to our Practice Pointers from the last edition of the Political Law Playbook concerning the reporting obligations of federal PACs that engage in congressional primaries, this edition focuses on the disclosure requirements for federal PACs that may engage in state-level primaries. Each state has its own rules regarding the registration/reporting obligations for federal PACs (sometimes referred to as “out-of-state committees” under state law) that make contributions to state candidates, so making such nonfederal contributions often triggers additional compliance hurdles for federal PACs. Despite the lack of uniformity, state laws typically fall into two camps: those that require federal PACs to register and report in the same manner as state PAC rules; and those that permit federal PACs to simply file FEC reports with the appropriate state agency in lieu of such registration/reporting requirements. The latter is clearly the more streamlined approach from a compliance perspective, and often impacts the direction that federal PACs take when choosing how to engage in state-level races. Our readers should be aware, however, that both approaches include at least an additional reporting step for federal PACs above and beyond the normal FEC reporting.

We should note that not all federal PACs are set up to give to both federal and state candidates, as this is an element that is typically handled in a PAC’s operating charter or bylaws. For those that are structured to participate in nonfederal elections, the Dentons Political Law Team regularly advises a wide range of federal connected PACs (separate segregated funds), nonconnected PACs, and other political organizations with regard to the intricacies of state campaign finance disclosure rules across the country. If your organization has questions regarding state campaign finance registration or reporting requirements, please reach out to our authors for assistance.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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