CLE Seminar for the in-house counsel- Stefan Passantino & Randy Nuckolls June 8, 2016 Chicago, Illinios

1. Campaign Finance Regulation
and Disclosure
Recent Developments in Federal and Illinois
Law
CLE Seminar for In-House Counsel
June 8, 2016
Chicago, Illinois
Stefan Passantino
Partner
Dentons
Washington, DC
+1 202 496 7138
stefan.passantino@dentons.com
Randy Nuckolls
Partner
Dentons
Washington, DC
+1 202 496 7176
randy.nuckolls@dentons.com

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What Are the Goals of
Campaign Finance Regulation?
Prevent Corruption and Appearance
Protect Free Speech
Increase Voter Turnout & Participation
Increase Voter Knowledge
Assure Equality of Speech/
Limit Special Interests &
Private Wealth
Increase Competition and
Voice for Minority Beliefs
Reduce Negative Advertising
Give Legislators More Time to Focus on Legislation

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What Are the Goals of
Campaign Finance Regulation?
What Are the Different Ways to
Enact Campaign Finance
Regulation?
Most Intrusive Least Intrusive
Expenditure/
Speech Limits
DisclosureContribution Limits
Public
Finance

5. Federal Election Campaign Act Mandated:
• limited contributions to candidates for federal office
• required the disclosure of political contributions
• Required disclosure of expenditures “for the purpose of influencing” elections
• provided for the public financing of presidential elections
• limited expenditures by candidates and associated committees, except for
presidential candidates who voluntarily accepted public funding
• limited independent expenditures to $1,000
• limited candidate expenditures from personal funds
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Buckley v. Valeo 1976

6. • Contributions
• Less of a limit on speech
• More risk of
corruption/appearance
• Just a general expression of
support
• Less Constitutional Protection
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Buckley v. Valeo 1976
• Expenditure Limits
• core speech in the most
fundamental area: political
expression
• Less risk of corruption/
appearance
• Specific expression of support
• More Constitutional Protection
Where does “Coordinated Speech” fit here?

7. Contributions Expenditure Limits
Less of a limit on speech core speech in the most fundamental
area: political expression
More risk of corruption/appearance Less risk of corruption/ appearance
Just a general expression of support Specific expression of support
Less Constitutional Protection More Constitutional Protection
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Buckley v. Valeo 1976
• upheld limits on individual contributions to candidates and parties
• Deterring “APPEARANCE OF CORRUPTION”, informed electorate, gathering information to detect
campaign finance violations are all valid government interests
• Because there is less risk of corruption, struck limits on independent expenditures, limits
on candidates own expenditures, and total spending caps by campaigns.
• Concerns of "equality" less important than speech – "can't restrict some to make all equal"
• Held it is permissible to condition receipt of public funding on agreement to abide by
expenditure limits – even if receipt was conditioned on getting 5% of the vote
• Upheld disclosure and registration requirements on candidates, parties, and groups
contributing OR SPENDING $1,000 per year on “express advocacy” (magic words)

8. • Colorado I - Is all speech an “expenditure”? – coordinated limits assigned,
negative ads run pre-nomination
• No, independent expenditures are NOT the same as coordinated expenditures
• Independent expenditures MAY NOT be limited as contributions
• Colorado II - Is it constitutional to limit coordinated expenditures between
a party and its own candidate? To prevent “corruption” by the party?
• Takeaway: the government may NOT restrict independent expenditures
but may restrict coordinated expenditures
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Coordinated and Independent Expenditures
“Is a ‘Coordinated Expenditure’ more like a
contribution or an independent expenditure?”
Coordinated Limits and Political Parties
Colorado Republican Party I & II

9. • MI law held corporations may be prohibited from making direct
contributions or independent expenditures supporting or opposing
candidates
• UPHELD on a "corruption" theory
• compelling state interest in preventing "the distortive effects of immense
aggregations of wealth" held by corporations.
• Corporations have outsized influence and little correlation to the needs of the
public
• Corporations have PACs
• What about the media?
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Corporate Contributions and Expenditures
Austin v. Michigan Chamber of Commerce (1990)
(First real challenge to corporate contributions/expenditures since 1800’s
And 15 years after Buckley– why?)

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11. • political committee formed to block statewide gas tax
• radio hosts urged listeners to circulate petitions and contribute to
the campaign
• state law held “contribution” = “anything of value”
• Holding
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Corporate Contributions and Expenditures
Media Exemption
San Juan County v. No New Gas Tax (2007)
Where’s the line?

12. Understanding the “Media Exemption”

13. • BCRA & McConnell v. FEC
• Candidates and Party Committees are out of the “soft money business”
• no limit at all on how hard money is solicited or contributed - thus, the “speech”
involved in soliciting funds is not impaired - limited scrutiny.
• State and local parties prohibited from using soft money on “federal election
activities”
• 1) registration 120 days out,(2) voter ID, GOTV, generic campaign activity, (3) public
communications that PASO a candidate for that office, (4) paying any employee who spends more
than 25% of her time on federal election activities
• NEW: “Electioneering Communications” - replaces “magic words”
express advocacy and resulting wide open “issue advocacy”
• broadcast communication - referring to clearly identified candidate - 60 days
before general, 30 before primary or convention - targeted to relevant
electorate
• disclosure required of individual funds used for this purpose
• corporate and union funds may not be used to fund this
Soft Money
BCRA, Citizens United, SuperPACs, and 501(c)(4)’s
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14. Type of Speech/Expenditure Treatment Under the Law
Contributions Limitations on Source and Amount
Constitutional if “narrowly drawn”
“Coordinated Expenditures” Treated as “contributions” – regulated
as to source and amount, disclosure
required
“Electioneering Communications” Regulated and disclosed
Issue ads naming a candidate
(no coordination, no “express
advocacy”)
Not subject to disclosure unless done
by political committee or “527”
Issue ads NOT naming a candidate Generally unregulated and undisclosed
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Soft Money
Regulation After McConnell

15. • BCRA & McConnell v. FEC
• Wisconsin Right to Life (2006) –
• what is an issue ad?
• What is “express advocacy”?
• FEC rule post decision: Required some disclosure of donors funding electioneering
communications only if they gave money for purpose of furthering a particular ad.
• CITIZENS UNITED – is Austin’s ban on independent
corporate speech constitutional?
• potential for corruption, distortion, inequality and shareholder
rights do not trump speech
• SPEECHNOW v. FEC - If corporate speech is constitutional, may groups
form for the specific purpose of paying for independent speech?
• Yes, but don’t “coordinate”!
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Soft Money
BCRA, Citizens United, SuperPACs, and 501(c)(4)’s

16. • Potential wrinkle - New Supreme Court Justice
• Does Scalia death open door to Citizens United reversal?
• Will next appointee join four liberal justices to reconsider ruling?
• Impact of 2016 election
• Clinton & Sanders both said they would insist that their
nominees oppose Citizens United
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Soft Money
BCRA, Citizens United, SuperPACs, and 501(c)(4)’s

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Coordination

18. Independent Political Committees –
Disclosure
It’s not as Transparent as it Appears
501(c)(4)
“People for
Ethical and
Transparent
Elections”
501(c)(4) or
527
Independent
Political
Committee
Disclosure: “People for Ethical
and Transparent Elections”
Disclosure: None
NAACP v. Alabama, 357 U.S. 449 (1958)
Doe v. Reed, 561 U.S. 2 (2010)
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19. Disclosure – It is not as transparent as it seems…
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20. • Lobbying Disclosure Act (LDA) and Honest
Leadership and Open Government Act (HLOGA)
• Definition of Lobbying under LDA and IRS
Calculation of Lobbying Expenses
• Audits Abound – GAO, IRS, and other Government
Agencies
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Lobbying Disclosure Act Compliance

21. Lobbying Disclosure Act Office of Government Ethics House and Senate
Obama Executive Order Ethics Rules
Office of the
Comptroller General
Special Interest
Groups/Media
Federal Lobbyist
IRS/FEC
DCAA
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The Compliance World for Federal Lobbyists

22. • The LDA is built around the set of definitions
• lobbyist
• covered legislative & executive branch officials
• lobbying activities
• Exceptions
• IRS regulations contain other definitions
• Corporations and nonprofit groups may use alternative IRS
definitions for LDA reports
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Lobbying Disclosure Framework

23. The LDA defines a "lobbyist" using a three-part test:
1. More than one “lobbying contact” with covered officials
2. “Lobbying activities” constitute 20% or more of the services
performed by that individual on behalf of his/her employer or
client during any quarter
3. Total organization “lobbying expenses” of $12,500 per quarter
in the case of an employed “lobbyist” (or $3,000 per quarter in
income for a lobbying firm)
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Who is a Lobbyist?

24. • Individuals are “lobbyists”. A corporation or nonprofit group
that has at least one employee who meets the definition of a
“lobbyist”, meets the definition of “registrant” and must
register under LDA
• If an organization hires an outside person or entity that
meets the definition of a “lobbyist” – then that outside person
or entity must register under the LDA and disclose the
corporation as the “client”
• Form LD-1 registration must be filed within 45 days
• After lobbyist is employed or retained
• After lobbyist employee makes second contact and meets 20%
threshold
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Who Must Register?

25. Oral, written or electronic communications with covered
Legislative or Executive Branch official regarding:
• formulation, modification, or adoption of Federal legislation
• formulation, modification, or adoption of a Federal rule, regulation,
Executive order, policy or position
• the administration or execution of a Federal program or policy
(including the negotiation, award or administration of a Federal
contract, grant, loan, permit or license)
• the nomination or confirmation of a person subject to confirmation by
the Senate
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Covered Contacts (LDA Definition)

26. • A "Covered Legislative Branch Official" includes
• Members of Congress
• an elected officer of either House of Congress
• employees of a Member, Committee, leadership staff, joint committee, working
group or caucus
• A "Covered Executive Branch Official" includes
• the President
• the Vice President
• any officer or employee in the Executive Office of the President
• any Executive Schedule level I – V officer or employee
• any member of the armed services at or above pay grade O-7 & above
• “Schedule C” political appointees
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Covered Individuals (LDA Definition)

27. "Covered Executive Branch Official" includes
• All White House staff
• Top two officials of all departments within the Executive Office of
the President (OMB, STR)
• Top two officials (and immediate staff) of each Cabinet Agency
• Any person in the Executive Branch with legislative responsibility
with whom you interact in attempting to influence specific
legislation
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Covered Individuals (IRC Definition)

28. Lobbying activities means lobbying contacts AND
efforts in support of such contacts including
preparation and planning activities, research and
other background work that is intended, at the time it
is performed, for use in contacts, and coordination
with the lobbying activities of others
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"Lobbying Activities" (LDA Definition)

29. • a speech, article or other material distributed to the public through
a medium of mass communication
• a request for a meeting, a request for the status of an action, or
other similar administrative request
• testimony given before Congress or submitted for inclusion in the
public record
• information provided in writing in response to an oral or written
request, or in response to a request for public comments in the
Federal Register
• required by subpoena or civil investigative demand
• written comment filed as part of a public proceeding
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What is NOT a "Lobbying Contact"

30. • Calculation of time, overhead for all employees engaged in
lobbying activities
• Hard costs (travel, hotels, conference fees, meals)
• Payments to outside lobbying firms, vendors, consultants,
coalitions
• Percentage of association dues for lobbying
• State and local lobbying costs for Method B/C
• Grassroots communications for Method B/C
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Categories of Lobbying Expenses

31. • Method A
• Any LDA Registrant may use
• Method B
• For Section 501(c)(3) organizations that have made a Section 501(h)
election
• Method C
• For any 501(c)(4) or (c)(6) or corporation that calculates nondeductible
lobbying expenses and dues under Section 162(e)
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LDA Reporting Expenses

32. • Auditors want to see a system in place that tracks the type of
information that must be provided; time sheets, collection of
information
• Full disclosure of topics, sections of bills being lobbied
• IRS Auditors ask questions about percentage of time spent
by CEO and other executives
• DCAA and other government contract auditors are asking
questions about nature of services performed by outside
consulting firms hired by corporations
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Surviving a Federal Audit

33. • Filed by Registrants and individual Lobbyists (1/30 and 7/30)
• Must disclose campaign contributions or donations to
presidential libraries/inaugural committees >$200
• Also expenditures with respect to legislative & executive
branch officials:
• For events honoring covered officials
• to an entity named after or in recognition of such official
• to an entity “established, financed, maintained or controlled” or an entity
designated by such official
• to pay for a meeting, retreat or conference held by or in the name of
one or more officials
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Semiannual LDA (LD-203) Reports

34. • LDA reports filed by Registrant and each listed lobbyist must
include certification that:
• They have “read and [are] familiar with” the gift & travel rules
• Have “not provided, requested, or directed” any gift or travel “with
knowledge” of any violation of these rules
• Civil fines up to $200,000 and criminal penalties up to 5
years in jail for a knowing violation
• Failure to properly file LD-203s is common cause of referrals
to Justice Department
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LD-203 Certification Requirement

35. By State
• California
• Delaware
• District of Columbia
• Florida
• Georgia
• Illinois
• Indiana
• Maryland
• Michigan
• Minnesota
• Missouri
• New York
• Oklahoma
• Virginia
By Topic
• Definition of “Lobbyist”
• Vendor Lobbying
• Vendor “Success Fees”
• “Goodwill Lobbying”
• Disclosure by Lobbyists
• Gift/Expenditure Limits and Reporting
• “Pay-to-Play”
(www.paytoplaylawblog.com)
State Lobbyist Disclosure Laws: Recent Changes
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36. • States are trending toward an expansion of the
definition of “Lobbyist” into more executive branch
and school board activities:
- For example, several states have recently enacted
legislation expanding their definitions of “lobbying” to broadly
cover efforts to influence decision-making in the executive
branch.
State Lobbyist Disclosure Laws:
Definition of a “Lobbyist”
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37. Several states have gone so far as to create a separate legal
definition for lobbying efforts aimed at government contracts – this
new type of lobbying is entitled “Vendor Lobbying” and uses a
separate reporting regime.
• A person is deemed to be a lobbyist if he
or she undertakes any communication
with an official of the executive or
legislative branch of state government
for the ultimate purpose of influencing
any executive, legislative, or
administrative action – including
regarding procurement-related matters.
State Lobbyist Disclosure Laws:
Vendor Lobbying
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The Vendor Lobbying “Heat Index”

41. • The following states currently have some form of “pay
to play” regulations or reporting requirements in place
at the state level:
• California, Connecticut, Florida, Hawaii, Illinois, Indiana,
Kentucky, Louisiana, Maryland, Missouri, New Jersey, New
Mexico, New York, Ohio, Pennsylvania, Rhode Island, South
Carolina, Vermont, and West Virginia.
“Pay to Play” States
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42. Those with current state contracts:
Any business entity whose contracts with state agencies, in
the aggregate, annually total more than $50,000, and any
affiliated entities or affiliated persons of such business entity,
are prohibited from making any contributions to any
political committees established to promote the candidacy
of the officeholder responsible for awarding the contracts,
or any other declared candidate for that office [30 I.L.C.S.
500/50-37(b)].
“Pay to Play” States - Illinois
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43. Those with pending bids and proposals:
Any business entity whose aggregate pending bids and offers
on state contracts total more than $50,000, or whose
aggregate pending bids and proposals on state contracts
combined with the business entity's aggregate annual total
value of state contracts exceed $50,000, and any affiliated
entities or affiliated persons of such business entity, are
prohibited from making any contributions to any political
committee established to promote the candidacy of the
officeholder responsible for awarding the contract on which the
business entity has submitted a bid or offer [30 I.L.C.S.
500/50-37(c)].
“Pay to Play” States - Illinois
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44. June, 2016 44
Stefan Passantino
Partner
D +1 202 496 7138
E stefan.passantino@dentons.com
Randy Nuckolls
Partner
D +1 202 496 7176
E randy.nuckolls@dentons.com
Questions
www.paytoplaylawblog.com