Welcome to the November 2022 Edition of the Political Law Playbook. Of particular note this month at the federal level are continued efforts by Congress to address foreign influence in U.S. politics. The bipartisan Preventing Adversary Influence, Disinformation and Obscured Foreign Financing Act, or the “PAID OFF Act,” was introduced in the House last month, following in the wake of a companion Senate bill introduced by Senator John Cornyn (R-TX) in September. If passed, both bills would require agents of adversarial foreign countries to register under the Foreign Agents Registration Act (FARA), making them ineligible for several registration exemptions that exist under present law. Earlier last month, the Department of Justice (DOJ) also requested that law firm Sidley Austin register under FARA for its representation of Chinese surveillance company Hikvision USA. Sidley had not initially registered under FARA for its government-facing advocacy activities on behalf of Hikvision. This action by the DOJ came on the heels of a federal court denying the federal government’s motion to compel hotel magnate Steve Wynn to register under FARA for his relationship with China during the Trump Administration.
There has also been a flurry of campaign finance activity at the state level in the past month. Arizona’s citizens are voting on Proposition 211, which would require companies and nonprofits spending over $50,000 on campaign advertisements to disclose individual donors contributing over $5,000. Facebook’s parent company Meta also recently agreed to pay the maximum $24.7 million penalty for 822 intentional violations of the State of Washington’s political advertising disclosure requirements. Additionally, the U.S. Supreme Court agreed to resolve a circuit-split over state laws aimed at regulating platforms like Facebook, YouTube, and Twitter’s ability to moderate content on their respective sites.
Federal Elections & Campaign Finance
Watchdog Group Files FEC Complaint Against Nonprofits Tied To ‘Ghost’ Candidate Scandal – Last month, left-leaning watchdog group Citizens for Responsibility and Ethics in Washington (CREW) filed a complaint with the Federal Election Commission (FEC) against several groups alleged to be at the heart of a network of dark money nonprofits acting in Florida. The CREW complaint follows a 2020 “ghost candidate” scandal in Florida, in which several non-profit organizations allegedly ran campaign advertisements for individuals who were not actually running for state office in order to divide the Democratic vote. The complaint targets Grow United Inc., its founder Richard Alexander, and other involved nonprofit and political groups, including Alabama-based consulting firm Matrix LLC. The complaint, which alleges violations of the prohibition against contributions made in the name of another, is part of a continued search for the original source of the funds behind the Florida ghost candidate scheme.
RNC Sues Google Claiming Spam Filter Blocks Email – The Republican National Committee (RNC) sued Google last month in the U.S. District Court for the Eastern District of California alleging that the company siphoned millions of the committee’s emails to users’ spam folders over the last ten months because of the committee’s political affiliation views. Google denied the allegations, stating that it does not “filter emails based on political affiliation.” Google is currently piloting a FEC-approved program to keep campaign emails from ending up in user spam filters, but the RNC has criticized the effort and is not currently enrolled in the pilot project.
Foreign Agents Registration Act (FARA)
PAID OFF Act Introduced in House and Senate to Block Foreign Adversaries from Lobbying the U.S. Government – Congressmen August Pfluger (R-TX) and Jason Crow (D-CO) introduced the Preventing Adversary Influence, Disinformation and Obscured Foreign Financing Act, or the “PAID OFF Act,” in Congress last month, following a related bill introduced in the Senate this September that we covered in the last edition of the Playbook. The PAID OFF Act would amend FARA so that agents of foreign adversaries could no longer benefit from FARA’s existing exemptions for commercial activities and Lobbying Disclosure Act (LDA) registration. The bill would prevent foreign agents from China, Russia, Iran, North Korea, Cuba, and Syria from taking advantage of any of FARA’s registration exemptions, meaning agents from these countries would have to register and disclose their political activities to the Department of Justice (DOJ).
Judge Dismisses DOJ Bid to Force Wynn to Register as Foreign Agent – U.S. District Court Judge James Boasberg dismissed the Department of Justice’s suit against casino magnate Steve Wynn last month, holding that Wynn was not required to register as a foreign agent under FARA. While Wynn denied any relationship with China throughout the dispute, DOJ alleged that Wynn acted as an agent of the Chinese government when he helped China secure the return of one of its citizens from the U.S. in 2017. DOJ’s attempt to compel FARA registration by Wynn represented the first government suit of its kind in nearly 30 years and followed on the heels of multiple attempts by the Department’s FARA unit to pressure Wynn to register as a foreign agent.
DOJ Demands Hikvision Lobbyists Register As Foreign Agents – In response to a DOJ FARA Unit request, Sidley Austin registered under FARA for its lobbying work on behalf of Hikvision USA, the U.S. subsidiary of the Chinese surveillance company accused of helping the Chinese government surveil Muslim minorities. The registration request by the DOJ comes in the wake of increasing U.S. efforts to crackdown on Chinese companies that are considered threats to U.S. national security. By registering under FARA, Sidley Austin is now required to disclose more information about the work it has done on Hikvision’s behalf since 2018, which it had previously reported under the less stringent Lobbying Disclosure Act (LDA) regime pursuant to the FARA exemption for those registering and reporting under the LDA.
Federal Lobbying & Ethics
Big K Street Players Spend More As Election Uncertainty Brews – With the coming election and the ensuing lame-duck period on the horizon, Washington is predictably seeing federal lobbying expenditures rise – particularly among the largest players in government advocacy. Last month, Roll Call reported $238.3 million had been spent on federal lobbying this year by the 10 largest registrant spenders – a nearly $40-million increase from last year. This total is only expected to spike in the fourth quarter, as lobbyists engage lawmakers with regard to the NDAA and other spending bills and work to navigate the rush of “midnight” legislation in the waning days of the current Congress.
White House Chief of Staff Ron Klain Warned About Hatch Act Violation – Last month, the Office of Special Counsel responded to a complaint from America First Legal Foundation alleging that White House Chief of Staff Ron Klain violated the Hatch Act. Klain had retweeted a post from the Democratic group Strike PAC, in which the group promoted the Democratic Party and solicited donations to support its political efforts. The Hatch Act prohibits government officials from using their official authority to influence or interfere with an election, in addition to prohibiting government employees from making solicitations for political contributions. While the Office of Special Counsel concluded that Klain’s activity did violate the Hatch Act, Klain received only a warning letter without a recommendation for disciplinary action given his deletion of the problematic tweet.
Non-Federal Elections & Campaign Finance
Meta Fined for Washington State Campaign Finance Violations – Facebook parent company Meta was fined the maximum penalty of $24.7 million last month by the State of Washington in connection with 822 separate violations of state campaign disclosure laws connected to the online platform’s production of adequate background records regarding political advertisements posted on the site. Earlier in the month, King County Superior Court Judge Douglass North granted the Washington Attorney General’s motion for summary judgment in the civil suit finding that Meta had intentionally violated the WA Fair Campaign Practice Act by failing to maintain and disclose recordkeeping information on political advertisements run on Facebook, including such data as ad sponsor names, ad costs, and certain targeting and reach information. The fine will likely be appealed, but the aggregate amount represents at present the largest campaign finance fine ever assessed by any U.S. jurisdiction. The State of Washington is also seeking over $10 million dollars in litigation costs from Meta in connection with the case and seeking to impose 12% annual interest on judgment amounts due if not paid in a timely manner.
Alaska Campaign Regulator Finds No Ongoing Illegal Coordination By Pro-Dunleavy Group – Last month, the Alaska Public Offices Commission (APOC) decided not to take immediate action on allegations that Governor Mike Dunleavy’s re-election campaign violated state law by coordinating with a third-party independent expenditure. Outside transparency and opposing political groups had alleged that the Governor had coordinated by virtue of concurrently employing Brett Huber as his campaign’s deputy treasurer while Huber worked as a consultant for a third-party political group in the state – A Stronger Alaska. Dunleavy’s campaign dropped Huber from its team in March of this year after Huber’s double role was publicized in the Anchorage Daily News. Given the lack of ongoing concurrent employment, the APOC found that the allegations did not need to be expedited prior to the election and the complaint could be held over for later review.
Groups Sue To Put Super PAC Question On 2024 MA State Ballot – Two Massachusetts groups filed a lawsuit with the Massachusetts Supreme Judicial Court last month in response to Attorney General Maura Healy’s dismissal of a potential ballot question effort back in September. As reported in last month’s Playbook, AG Healy rejected a ballot question proposal that would have capped individual donations to super PACs at $5,000 on the basis that it violates constitutional free speech protections and established case law. The groups challenging AG Healy’s decision– Equal Citizens and Free Speech for People– respectively argue that states have an inherent right to regulate campaign finance activity regarding Super PAC entities and that a $5,000 limit would address concerns regarding the potential for quid pro quo corruption.
California Sets Up Age Requirement For Those Handling Political Campaign Dollars – California’s Fair Political Practice Commission promulgated a rule last month that requires a person be over 18 years of age if they are hired to hold a campaign position that requires them to sign campaign finance documents under penalty of perjury. This decision comes after a City of Milpitas (CA) councilmember hired his 14-year-old cousin to serve as the treasurer of his 2016 campaign and was fined $15,000 for misreporting campaign funds. While the rule mainly will apply to the role of campaign committee treasurer, it could affect other positions that involve campaign finances. Under the new rule, persons under 18 are still permitted to perform volunteer tasks such as door knocking.
Non-Federal Lobbying & Ethics
Ban On In-Session Campaign Donations Gets Thumbs Up From Hawaii Standards Commission – Last month, Hawai`i’s Commission to Improve Standards of Conduct recommended a bill to the state legislature that would prevent lawmakers from accepting campaign donations while the legislature is in session. Currently, Hawai`i law only prevents officeholders from hosting fundraising events while the legislature is in session, and they are still permitted to accept donations. The ban on in-session donations would apply to all elected officials at the state and local levels, including the governor, lieutenant governor, city council members and mayors. The Commission will share its full list of recommended changes with the legislature at the end of the calendar year for lawmakers’ consideration in the 2023 legislative session.
AT&T Charged with Trying to Illegally Influence Ex-Speaker Michael Madigan, Who Now Faces More Conspiracy Charges – Court records made public last month revealed that AT&T’s Illinois subsidiary has agreed to pay a $23 million fine as a result of a federal investigation into its efforts to influence legislation via payments to former Illinois House Speaker Michael Madigan’s close associate. While Madigan was charged with conspiracy and bribery in March, the court records reveal new charges filed against AT&T Illinois’ former president for conspiracy, corruptly giving something of value to reward a public official, and using a facility in interstate commerce to promote unlawful activity. According to the investigation, Madigan’s vote on a bill that would have ended landline service in Illinois was directly influenced by payments from AT&T.
Pay-to-Play
New State Law Could Curb Pay to Play Politics in Orange County & California – As we recently detailed in the Dentons Pay to Play Law Blog, California Governor Gavin Newsom signed into law a bill that dramatically expands the scope of the Golden State’s already comprehensive pay-to-play framework. The new law increases the contribution prohibition period for covered business entities and individuals from three to 12 months following the conclusion of a proceeding before an agency, and it also removes the exception for elected officials of local agencies. Now, groups such as city councils, school boards, councils, and boards of supervisors will be subject to pay to play restrictions. The law, which goes into effect January 2023, passed on a bipartisan basis in California in the wake of a range of corruption scandals across the state involving local elected officials.
New Details Show Sprawling Web Of Corruption In Southern California Cannabis Licensing – Multiple pay-to-play schemes in cannabis licensing were uncovered last month in Southern California, involving hundreds of thousands of dollars. The reporting by the Los Angeles Times led to a formal request to California Attorney General Rob Bonta to create a task force that would investigate and prosecute illegal activity tied to the award of cannabis licenses. Among the elected officials accused of impropriety in current reporting are Baldwin Park City Councilmember Ricardo Pacheco, who admitted to soliciting $150,000 in campaign contributions from a local cannabis distributor in exchange for distribution rights, and former San Bernadino County Planning Commissioner Gabriel Chavez, who purportedly funneled bribes from the cannabis industry to Pacheco. Both officials recently entered into plea agreements with federal prosecutors.
New Pay-to-Play Laws Recommended by Hawai`i Standards Commission – Last month Hawai`i’s Commission to Improve Standards of Conduct recommended that legislators update state pay-to-play laws to ban government contractors from making campaign contributions while actively working on a contract. The Commission’s recommendations would also extend the proposed political contribution prohibition to state and county grantees who receive funds through legislative appropriations. The Commission’s proposal will be considered by state lawmakers during the 2023 legislative session and closely monitored by the Playbook and the Dentons Pay to Play Law Blog.
Non-Profit Engagement and Disclosure
Arizona’s Proposition 211 Would Require Disclosure Of Campaign Donors – Arizona’s Proposition 211, a citizen-initiated ballot initiative known as the “Voters’ Right to Know Act”, will appear on the general election ballot in Arizona on November 8th. If passed, the proposition would require corporations, nonprofit groups, and charities – groups currently not required to disclose their donors – to disclose the identity of any individual who makes a financial contribution of $5,000 or more to a state political committee that spends $50,000 or more on a statewide or legislative ad campaign. The proposition’s disclosure requirements would also apply to local elections, mandating the disclosure of donors who contribute $2,500 to a campaign spending at least $25,000.
The Courts and Free Speech
Federal Judge Blocks California Community College’s Political Flyer Policy – Last month, a California federal judge granted a preliminary injunction preventing Clovis Community College from enforcing a controversial school flyer dissemination policy. The policy, which required all student flyers to be vetted by an administrator for “inappropriate or offensive language or themes,” was challenged by conservative student organization Young Americans for Freedom on grounds that the policy was viewpoint discrimination in violation of the First Amendment. U.S. District Judge Jennifer Thurston agreed, saying that the students’ First Amendment rights outweighed the school’s interest in moderating the content of student flyers.
Tech Groups Petition Supreme Court in Challenge to Social Media Law in Florida – Last month, trade associations representing tech groups including Meta, Twitter, and Google petitioned the U.S. Supreme Court to rule on whether a Florida law that aims to restrict the ability of social media sites to moderate content on their platforms violates the First Amendment. Tech groups NetChoice and the Computer and Communications Industry Association (CCIA) were successful earlier this year in getting the U.S. Court of Appeals for the Eleventh Circuit to uphold a preliminary injunction blocking Florida’s law, and the State of Florida appealed the Eleventh Circuit’s ruling to the U.S. Supreme Court earlier in September. The groups had also filed suit against a similar law in Texas, and the U.S. Court of Appeals for the Firth Circuit had initially upheld the Texas law. Last month, the Fifth Circuit agreed to stay their original ruling in anticipation of the case before the Supreme Court due to the circuit split.
Political Law Practice Pointers
With FARA enforcement front and center in both in the halls of Congress and at the Department of Justice, this edition of the Playbook highlights some of the compliance considerations for those who may be relying on the statute’s exemption frameworks to avoid burdensome federal disclosure obligations. As our loyal readership is aware, FARA is a federal statute that imposes a series of onerous registration, disclosure, and compliance requirements on any individual or entity, subject to certain exemptions, that qualifies as an “agent of a foreign principal” by: undertaking “political activities” on behalf of the principal; serving as a “public relations counsel,” “publicity agent,” “information-service employee,” or “political consultant” for the foreign principal; soliciting, collecting, disbursing, or dispensing money or things of value on behalf of the foreign principal; or otherwise representing the interests of the foreign principal before the U.S. government. While there are a number of exemptions, two of the most commonly invoked exemptions – the LDA exemption and the commercial exemption – have been the focus of recent reform efforts undertaken by Congress.
The LDA exemption is available to an agent representing a foreign business, nonprofit, or individual, and allows them to forego registration under FARA if their activities for such principals are instead reported under the LDA framework. Notably, this exemption is not available when the foreign principal is a foreign government or foreign political party. The LDA is a less burdensome disclosure regime, but invoking the exemption generally requires an agent to have at least de minimis federal lobbying contacts and interaction with officials in the legislative or executive branch of the U.S. Government on matters of policy issues.
Agents that represent a foreign principal that is a business, nonprofit, or individual may also forego registration under FARA if their activities are private, non-political, and likewise further the bona fide trade or commerce interests of the foreign principal. This exemption is also not available when the principal is a foreign government or foreign political party. Many foreign businesses use this exemption when they engage agents in the U.S. to help them advance their business interests, for instance performing market analysis or making business development connections. As covered in previous editions of the Playbook, the DOJ has recently narrowed the applicability of this exemption, stating that it is not available, even for foreign businesses, if the activity would advance the public interests of a foreign country’s economic sector writ large. Such activity would not be limited to a specific company or transaction, but rather would advance the political interests of a foreign government such that the FARA disclosure regime would be triggered.
These exemptions and their applicability to those representing foreign interests in the U.S. are highly fact-specific, and as such, it is important to proceed with caution and seek experienced counsel in the space. As we have noted in past publications, some in Congress are looking to do away with or severely limit the scope of the LDA exemption, as they view it as a loophole for foreign actors to avoid the more burdensome disclosure obligations of FARA versus what the LDA requires. The DOJ is also undergoing a rulemaking that will modernize and update various provisions of the law, so there may be potentially significant changes to the FARA regulatory framework on the horizon. The Dentons Political Law Team regularly advises a host of clients, including businesses, nonprofits, and consulting firms, on the compliance hurdles associated with FARA registration and disclosure. If you have questions regarding potential compliance obligations under this complex federal law, please reach out to us for assistance.
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