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Sarbanes Oxley : Law : Thought Leader
Businesses Must Avoid Facilitating Political Campaign Contributions
By
Michael Roberts
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Michael Roberts
Partner
Venable
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The Federal Election Commission (FEC) recently settled two high-profile campaign finance cases against corporations. Both Westar Energy, Inc., and Freddie Mac landed in trouble when corporate resources were used to facilitate contributions to the campaigns of candidates for federal office. The companies were fined substantial amounts (Freddie Mac paid the largest civil fine ever assessed by the FEC), and endured significant adverse publicity.
The fact that corporations are prohibited from making monetary contributions to candidates is well known, as is the fact that the McCain-Feingold law eliminated most ?soft money? given by corporations to political parties. The Freddie Mac and Westar cases raise an important point that is not as widely known: fundraising activities by corporate executives can also run afoul of the law when corporate resources are used, even to a very limited extent.
This article very briefly summarizes the alleged conduct giving rise to these cases, and the legal basis for finding a violation. With elections just around the corner and campaigns swinging into high gear, it may be a good time to review the rules in this area.
Westar Facts. According to FEC documents, senior Westar executives sent e-mails on the Westar computer system recommending that other senior executives make individual contributions to the campaigns of certain candidates for Congress. The messages asked that the checks be delivered to a designated Westar executive so that they could be sent jointly to the different campaigns. Several checks were collected, and were delivered by Federal Express either directly to the candidate committees, or indirectly through Westar?s lobbying firm. The lobbying firm (and lobbyist) knew that Westar executives had collected and forwarded the individual contributions for delivery to the campaign committees.
These activities took place after Westar had terminated its Political Action Committee (PAC). FEC documents make no suggestion that the individual contributions were coerced, or that the corporation reimbursed the executives directly or indirectly for their contributions.
Freddie Mac Facts. The primary allegation against Freddie Mac is that two of its most senior executives organized fundraising dinners for Members of Congress using corporate resources. For example, Freddie paid monthly retainers to two event planning companies, which were required to plan fundraisers as part of their duties. In addition, the senior executives solicited contributions from other executives and collected contribution checks ? either in person or through interoffice delivery ? which were sent to the candidate committees.
Applicable Rules. The Federal Election Campaign Act (?FECA?) broadly prohibits corporate contributions to candidates and political parties. As part of this ban, the FEC?s rules also prohibit corporations from ?facilitating? contributions. The rules provide that:
Corporations and labor organizations (including officers, directors or other representatives acting as agents of corporations and labor organizations) are prohibited from facilitating the making of contributions to candidates or political committees, other than to the separate segregated funds of the corporations and labor organizations. Facilitation means using corporate or labor organization resources or facilities to engage in fundraising activities in connection with any federal election . . . .
11 C.F.R. ? 114.2(f). The rules then provide several examples of activities that involve prohibited facilitation, including ?
• Using corporate staff to plan and conduct fundraising activity;
• Using corporate facilities to hold fundraisers;
• Using company mailing lists and other databases to solicit contributions;
• Providing catering services for fundraising purposes;
• Providing materials, such as envelopes and stamps, for sending contributions directly to candidates or political parties.
The FEC rules also recognize, however, a de minimis exception to the ban on corporate facilitation. Employees are permitted to make ?occasional, isolated, or incidental use? of corporate facilities ?for individual volunteer activity? involving a federal election. 11 C.F.R. ? 114.9(a). The rules create a safe harbor allowing up to one hour per week or four hours per month of volunteer activity, as long as any actual costs to the company are reimbursed. In addition, the FEC recently amended its rules to allow executives to use corporate e-mail systems without triggering the facilitation rules.
Violations. This is the only rule that Westar, its executives and lobbying firm allegedly violated, and is the primary rule that Freddie Mac and its executives violated. There were no allegations of quid pro quo (legislative favors in exchange for contributions), nor that the individual contributions were coerced by senior management or reimbursed by the corporation. In fact, the contributions by the individuals involved were completely lawful.
Thus, the sole basis for asserting that Westar and Freddie Mac engaged in prohibited corporate facilitation is that their executives used corporate resources ? the executives? time, e-mails, clerical assistance, FedEx packages, and, in the case of Freddie Mac, outside fundraising consultants ? to solicit, collect and forward campaign contributions from individuals. Such activities allegedly were not voluntary because they promoted company interests. Moreover, the lobbyist and lobbying firm, as the corporation?s agents in delivering the contributions to the committees, were likewise held responsible because they played a role in the apparently unlawful facilitation.
Both cases were FEC settlements in which neither company admitted to wrongdoing, and neither case is strictly binding on the agency. In fact, Vice-Chairman (now Chairman) Michael Toner was a lone dissenter in the Westar case, arguing that the Commission was taking an overly broad view of what constitutes corporate facilitation. Nonetheless, these cases provide guidance as to how many Commissioners and Commission staff may view these issues.
Comments. Taken at face value, the Westar case suggests that even the very trivial use of corporate resources for soliciting contributions may trigger an FEC claim of unlawful facilitation. The executives? activities in Westar would likely have consumed less than one hour per week or four hours per month, well within the safe harbor. The only out-of-pocket costs to the company were for the FedEx package used to send the contributions, and (arguably) the lobbyist?s time to deliver the contributions at a fundraiser. Further, while the corporate resources involved in the Freddie Mac case were more substantial, the record-breaking size of the fine suggests that the FEC will deal harshly with deep-pocketed corporations found to have violated FEC regulations.
The cases also suggest that the FEC will be skeptical of claims that a corporate officer or employee who makes campaign contributions is engaged in ?volunteer? political activity if the checks go to candidates who are important to the company?s political objectives. The fact that the Freddie Mac executives reported their fundraising activity in various corporate documents, including presentations to the board of directors, was considered evidence that their fundraising activities were not voluntary. These reports included statements that the fundraising activity made up for the fact that Freddie did not have a PAC.
Similarly, a political analysis prepared by Westar?s executives had identified key Members of Congress on issues important to Westar, while a subsequent document coordinated the individual contributions by Westar executives to those Members. Further, the FEC settlement specifically rejected the argument that the Westar lobbyist could be volunteering his time to deliver contributions from the corporation even though he did not bill his time on an hourly basis.
The dissent in Westar criticized the finding that Westar?s executives were deemed to be acting on behalf of the corporation, and not engaging in volunteer political activity, merely because the candidates who received the contributions might benefit Westar. It emphasized that corporate facilitation can only occur when unreimbursed corporate resources are contributed. Executives devoting nominal amounts of their time to political fundraising activities do not violate the rules merely because the candidates they support will benefit the corporation.
Executives who are responsible for a company?s government relations activities should note that the conduct at issue would likely have been lawful had the executives? activities involved contributions via a corporate PAC instead of directly from the individuals. (The Westar PAC had been terminated at the time of the facilitation, and Freddie Mac had not yet created a PAC.) A ?connected organization? (a corporation or labor union) to a PAC is explicitly allowed to cover the costs of administration, specifically including the costs of soliciting, collecting and disbursing PAC funds. This authority helps insulate a company from allegations of improper facilitation. The indirect effect of these decisions may well be to encourage politically active corporations to form PACs and follow the specific requirements and disclosure rules governing their activities in connection with PACs.
Finally, practical steps can be taken to reduce a company?s exposure to allegations that it has improperly facilitated campaign contributions. On the one hand, a company might prohibit its officers or employees from engaging in any political fundraising activities at all while on company premises or using company systems. This may or may not be feasible, depending on the nature of the company and industry. On the other hand, a politically active company may choose to establish a PAC so that it can formally solicit and disburse campaign contributions according to PAC rules.
In any event, a company should provide guidance to its executives and employees as to what political activities are and are not permitted using company resources. Such guidance would help prevent conduct that could lead to expensive proceedings and unfortunate publicity down the road.
Michael Roberts
Partner
Venable
Michael Roberts a partner in the legislative practice, and Ron Jacobs is an associate in the regulatory practice, of Venable LLP, in Washington, DC.
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