Welcome to the June 2023 edition of the Political Law Playbook. This month’s federal coverage highlights the Federal Election Commission’s (“FEC” or the “Commission”) recently streamlined audit process, new proposals for political advertising disclosures for artificial intelligence (“AI”) on Capitol Hill, and a continued push for ethics reform at the US Supreme Court. It also covers an opinion issued by the Department of Justice (“DOJ”) that appears to expand the scope of the Foreign Agents Registration Act (“FARA”) registration requirements as part of the federal government’s ongoing efforts to shine light on foreign influence in the US.
At the state level across the country, there has been significant movement on campaign finance reform efforts. New York state recently adopted and funded a public financing program to expand candidate access to monetary resources when seeking state office, and Portland, Maine likewise established a “Clean Elections” program for municipal office elections that will take effect later this year. In New Hampshire, legislative changes have lowered the political committee registration threshold for organizations – including nonprofits – that spend $2,500 in connection with elections. Meanwhile, in Minnesota the state government is taking a page from DOJ’s book by implementing a state prohibition on contributions from corporations with foreign ties and affiliations.
Federal Elections & Campaign Finance
FEC Implements Updated Audit Process – The FEC recently approved new procedures for auditing political action committees that do not receive public funds. The changes will reduce the resources necessary to perform such audits, expedite the review process, provide audited entities with an “exit conference” on any legal questions that arise, and require all non-confidential materials to be posted online to promote transparency. The Commission’s new procedures will also reduce the administrative burden for agency staff by limiting the number of required audit reports in the review process to a maximum of two.
The Nationalization of Political Contributions and the Rising Role of Out-Of-State Donations – A recent investigative report from the campaign finance transparency website Open Secrets highlights the increasing role that “out-of-state” money is playing in elections across the US as our political battles become increasingly nationalized. The report’s findings reveal that out-of-state donors – those contributors who cannot vote in connection with the elections they fund – have been very active in federal House and Senate elections since at least the 1998 election cycle and appear to now constitute the majority of all Senate candidate funders across the nation. Open Secrets found the growth of out-of-state funding for state-level political campaigns to be more measured in recent cycles, but still on the rise in many jurisdictions – particularly states with smaller populations. A more detailed overview of Open Secrets’ findings can be found in its full report.
Rep. Jim Banks Introduces FECA Amendment to Prevent Foreign Influence – Congressman Jim Banks (R-IN) introduced H.R. 3463 last month to amend the Federal Election Campaign Act (FECA). If passed, the proposed legislation would revise existing law to prevent foreign nationals from making contributions or donations in connection with state or local ballot initiatives and referenda, thus expanding existing restrictions on the ability of foreign nationals to influence certain US electoral matters. Currently, foreign nationals are prohibited by federal law from making any political contributions, donations, and expenditures in connection with any federal, state, or local election, but that restriction does not extend to ballot measures. The bill is currently awaiting review in committee.
DOJ Urges Supreme Court Not to Decide Pending Case on NC Redistricting Matters – The DOJ and most of the parties to the prominent Moore v. Harper case in North Carolina have urged the US Supreme Court not to decide the case following the North Carolina Supreme Court’s decision last month. In a move covered in last month’s Playbook, North Carolina’s Supreme Court reversed its 2022 ruling that had previously declared Congressional redistricting maps and voter ID laws unconstitutional. The state will now be able to use its original Congressional maps for the 2024 elections, which are argued to be more favorable for Republican candidates. The DOJ submitted a brief in which it argued that the case – which is currently pending US Supreme Court review to determine state courts’ ability to limit state legislatures’ authority over congressional redistricting – is now moot as a result of the state Supreme Court decision last month. The US Supreme Court will likely decide what to do with the case before its term ends this month.
Bill Would Require Disclosure Of AI-Generated Content In Political Ads – In the wake of a recent advertisement generated by AI technology featuring President Biden, many legislators and industry associations have started a push for policies to curb the use of AI in political advertising. Congresswoman Yvette Clark (D-NY) recently introduced H.R. 3044, which would implement additional disclosure obligations for political advertisements that utilize AI technology.
Federal Lobbying & Ethics
The Senate Continues Push for US Supreme Court Ethics Standards – The Senate Judiciary Committee convened a panel last month to explore whether a legislatively-imposed standard of ethics could be binding on US Supreme Court justices. Chief Justice John Roberts declined an invitation to attend the panel, but Committee members nevertheless heard commentary from lawyers, academics, and ethics experts regarding the possibility of Congress imposing ethics requirements on the federal judicial branch. While many question Congress’ authority in this space given the constitutional separation of powers, several legislators – including Senators Sheldon Whitehouse (D-RI), Lisa Murkowski (R-AK), and Angus King (I-VT) – have all introduced bills aimed at increasing gift and conflict of interest disclosure, creating a code of conduct, and appointing an officer to review ethics complaints.
Congressman George Santos Charged with Fraud, Money Laundering, Theft of Public Funds, and False Statements – Congressman George Santos (R-NY) was indicted by the DOJ last month in the US District Court for the Eastern District of New York on charges of wire fraud, money laundering, theft of public funds, and making materially false statements to the House of Representatives. The charges include allegations that he solicited contributions from donors to fund advertisements for his upcoming congressional bid, but instead transferred the funds to his bank account for personal expenses.
Foreign Agents Registration Act (FARA)
DOJ Releases New FARA Advisory Opinion Impacting Digital Media Support Matters – Last month, the DOJ released an advisory opinion that could have profound impacts on digital media support activities related to foreign entities in the US. In the opinion, the DOJ stated that providing services to a foreign principal for the purpose of creating a virtual entity presence and displaying that foreign government agency’s presence on a US company’s online platform would qualify as information-service employee or publicity agent conduct under FARA and trigger registration requirements. While redactions in the opinion make the full extent of its implications unclear, the advisory opinion suggests that entities creating a website or other digital content hosted on US platforms could trigger FARA registration obligations.
Non-Federal Elections & Campaign Finance
FEC Issues Advisory Opinion on Colorado Republican State Central Committee Legal Fund Inquiry – The FEC issued an advisory opinion last month in response to a request from the Colorado Republican State Central Committee, holding that funds received and spent to litigate the constitutionality of Colorado Proposition 108 – which governs the state’s election nomination process – are not considered expenditures or contributions under federal law and therefore lie outside the purview of the FEC. The Commission reasoned that because these funds would be used for purposes of challenging the law rather than for influencing any election for federal office, the legal fund would not be engaging in activity in connection with a federal election. The original request for advisory opinion was covered in detail in the April Playbook.
NY State Budget Includes $39.5 Million for New State Public Campaign Finance System – The New York state legislature recently approved $39.5 million for the implementation and administration of a new state public campaign finance system that will match funds for statewide candidates who opt into the program. The new public framework lowers applicable contribution limits and authorizes matching public donations in a six-to-one ratio for in-state or in-district contributions of less than $250. The program is intended to make “outsider” candidates more competitive, to increase diversity in the candidate pool for state elected office, and to incentivize candidates to engage more with all voters. The program is set to go into effect in 2024.
Portland (ME) City Council Establishes Clean Elections Program – Portland, Maine recently adopted a municipal clean elections program that will provide funding to candidates in local races, including elections for mayor, city council, and school board. Mayoral candidates will get an initial contribution base of $40,000 from the city and may be awarded supplemental funds of up to $100,000 based on additional qualifying contributions. In contested city council races, at-large candidates will get an initial $10,000 in at-large races and $4,000 in district races, with up to $30,000 and $12,000 available respectively based on additional qualifying contributions. For the sake of these donation bonus payments, qualifying contributions are defined as donations of $5 or more. The program will go into effect this month in time to impact the current November 2023 election cycle.
Minnesota Passes Sweeping Election Reforms – Minnesota Governor Tim Walz recently signed into law a legislative package that implements several electoral and campaign finance reforms. Notably, the election reform bills expand disclosure requirements for political advertisers and impose a contribution ban on nonprofits and corporations with a “foreign influence.” Corporations that make qualifying contributions or expenditures under the new law are required to submit a certification to the Campaign Finance and Public Disclosure Board within seven days of such payments certifying that they are not a foreign-influenced corporation as of the date(s) such contributions or expenditures were made. The new legislative changes go into effect in January 2024.
Pennsylvania Lawmakers Advance Legislation Banning Pre-Checked Campaign Contribution Boxes – The Pennsylvania State Senate Government Committee advanced S.B. 383 last month. The measure would prohibit political candidates from using pre-checked boxes on campaign sites as a means of affirmatively opting contributors into recurring donations – a fundraising tactic that bill sponsor state Sen. Amanda Cappalletti describes as “deceptive and unethical.” While the practice was widespread among candidates on both sides of the aisle in Pennsylvania’s midterm elections, the bill echoes recommendations from the FEC that candidates and entities seeking recurring contributions should receive the affirmative consent of the contributors.
Colorado and Connecticut Pass Laws Prohibiting Utility Companies from Using Ratepayer Money for Political Activities – Both Colorado and Connecticut recently passed laws that will prohibit utility companies from using ratepayer money for certain political activities. In Colorado, the state House and Senate chambers recently passed the Utility Regulation Act, which will prevent utilities from charging ratepayers for expenses for lobbying or other activities meant to influence the outcome of any local, state, or federal legislation, ordinance, resolution, or ballot measure. The law also prevents utilities from passing along membership dues from organizations that engage in lobbying and costs of political advertising, and requires certain disclosures. Connecticut also passed a bill with similar provisions prohibiting utilities from charging ratepayers for lobbying efforts, and which additionally requires utility companies to file annual disclosures with the state’s Public Utility Regulatory Authority. These changes come in the wake of recent published findings revealing that Connecticut’s gas and electric utilities are the largest spenders on energy policy lobbying in the state and are frequent advocates against climate regulation.
Allegheny County Council Approves Campaign Finance Regulations – The Allegheny County (PA) Council recently passed an ordinance that applies federal contribution limits to its county elections for the offices of county executive, city council, treasurer, controller, district attorney, and sheriff. The bill, which was passed in response to recent high spending in the county’s primary elections, would also tack on campaign finance reporting requirements. Like federal campaign finance law, the ordinance will not limit independent expenditure groups’ spending or restrict the amount candidates can contribute to their own campaigns. However, the new bill does contain a provision doubling the contribution limits in a particular race should an active candidate donate $100,000 or more to their own campaign or political action committee. Despite the threat of a veto by the current county executive, the ordinance is likely to go into effect following the 2023 general election.
Florida Commission on Ethics Rejects Complaint Against DeSantis – The Florida Commission on Ethics recently rejected a complaint filed against Governor Ron DeSantis alleging that the Governor – and now presidential candidate – violated campaign finance laws by running a “shadow” campaign for president before officially declaring his presidency. The Florida Commission on Ethics found that the complaint, filed with the Commission by a Super PAC supporting former President Trump’s 2024 bid, had no legal basis. The Commission found that Governor DeSantis’ travel outside of Florida does not inherently create a continuing or frequently occurring conflict between his private interests and the performance of his public duties, nor does it impede the full and faithful discharge of his public duties.
Bill To Boost Political Finance Transparency Heads To NH Gov. Sununu’s Desk – Last month the New Hampshire legislature sent H.B. 195 to Governor Sununu’s desk for signature. The bill, if signed into law, would seek to lower the registration threshold for organizations operating in the state as political committees. Previously, only groups that spent $5,000 or more on advocacy for or against a candidate or party in an election cycle were required to register with the state and comply with corresponding expenditure disclosure statements. Under the new legislation, the threshold spending limit will be halved so groups that spend $2,500 or more will have to register and report as political committees moving forward. The new threshold will account for spending on state House races, supporters of the change say, and will go into effect within 60 days of passage. Notably, 501(c)(4) groups are exempt from these reporting requirements.
Non-Federal Lobbying & Ethics
Shemia Fagan Resigns As Oregon Secretary Of State Following Cannabis Consulting Scandal – Oregon’s Secretary of State Shemia Fagan resigned from her post last month after revelations that she received $10,000 a month from a contract with an Oregon cannabis company at the same time that her office was auditing state cannabis regulations. Shemia maintains that her actions were in line with state ethics obligations and that she recused herself from overseeing the audit prior to accepting the contract, which ultimately issued findings favorable to her cannabis industry clients. Despite Shemia’s resignation, her past conduct remains under review by the Oregon Ethics Commission, which is expected to issue a report in the coming weeks detailing its investigative findings regarding potential ethics rule violations.
US Supreme Court Tosses Convictions of Former Cuomo Aide and ‘Buffalo Billion’ Developers – The US Supreme Court recently overturned the 2018 convictions of several New York businessmen and political aides for bid-rigging $855 million in state contracts as part of former New York Governor Andrew Cuomo’s “Buffalo Billion” initiative. The individuals involved – SUNY Polytechnic Institute founder Alain Kaloyeros, and business owners Louis Ciminelli, Steven Aiello, and Joseph Gerardi – were convicted under a theory of wire fraud tied to efforts to defraud the nonprofit development arm of SUNY Poly, which approved the state contracts. Former Cuomo aide Joseph Percoco was also convicted for honest services wire fraud, conspiracy to commit honest services fraud, and solicitation of bribes and gratuities for accepting large payments from the businessmen in exchange for lucrative state agreements and other official action. Justice Clarence Thomas’ opinion in the Court’s unanimous decision stated that the theory of wire fraud under which the businessmen were convicted criminalizes traditionally civil matters and federalizes traditionally state matters, making it invalid under the federal fraud statute.
Pay to Play
CA State Court Upholds the Constitutionality of SB 1439’s Expanded Pay-to-Play Provisions – A California Superior Court recently upheld the constitutionality of the state’s controversial new pay-to-play laws, which went into effect at the beginning of this year. The law at issue, S.B. 1439, was initially challenged in February 2023 on grounds that it violated free speech as protected by both the federal and California constitutions. In his ruling, Judge Richard Sueyoshi found that California had not violated the plaintiff’s free speech and petition rights because the state had acted upon a compelling government interest in passing a law designed to prevent corruption or the appearance of corruption in local government operations in the same manner that it was already addressing such issues at the state level. The law – which is covered in detail in Dentons’ Pay-to-Play Blog – expanded California’s long-standing state pay-to-play provisions to cover elected officials of local agencies and extended the contribution prohibition period for “covered parties” from three months to twelve months following a final decision in a relevant proceeding.
Practice Pointers
This month’s Practice Pointers highlight the federal government’s continued enforcement focus on foreign influence in US elections and policymaking. In recent action, the DOJ continues to demonstrate that it is actively reviewing and evaluating the scope of FARA under new technology and methods of public communication. The aforementioned agency advisory opinion that requires registration for activities supporting the establishment and development of a foreign government agency’s virtual presence on a US online platform suggests that regulators are seeking to capture an increasingly broad swath of conduct in an increasingly broad swath of venues within the law’s scope. While the heavy redactions in the advisory opinion make it difficult to glean definitive guidance on specific registration obligations, the opinion does highlight the need for entities operating in this space to remain vigilant about DOJ’s changing guidance and enforcement approach as they conduct business with entities that may have foreign ties.
As noted above, attempts to curb foreign influence in US politics have also begun to trickle down to the state level. Minnesota’s recent legislation requiring foreign affiliation certifications from corporations contributing in the state demonstrates a broad desire to stamp out foreign influence in domestic elections at all levels of government. Because of the changing landscape towards foreign actors at both the federal and state level, it is crucial that any organization operating in this space be aware of applicable registration and disclosure requirements resulting from relationships with foreign entities and governments. The Dentons Political Law Team regularly advises organizations and business on FARA compliance and other issues related to campaign finance, election, and lobbying activities, so please do not hesitate to reach out.
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