Organization for International Investment General Counsel Conference Briefing

Organization for International Investment General Counsel Conference Briefing on Campaign Finance Rules Presented by Robert K. Kelner Michael A. Nemeroff Covington & Burling LLP Sidley Austin LLP October 23, 2008 1

Overview • • Corporate Political Activity PAC Activity Individual Activity State Rules 2

Corporate Political Activity • Federal law prohibits use of corporate money in federal elections • This generally means: – NO political contributions – NO reimbursements with company funds – NO contributions in-kind of corporate resources 3

Exception #1: “Restricted Class” Activities • Communications to the “restricted class, ” including candidate endorsements or solicitations for contributions to candidates – executive and administrative personnel – stockholders – families of both groups • Candidate appearances/fundraisers – Subject to $2, 000 reporting threshold 4

Restricted Class Candidate Appearances/Fundraisers • If only restricted class members attend: – Corporate funds may be used to pay for the costs of the candidate’s appearance/fundraiser – Both the candidate and company representatives may expressly advocate for election of the candidate – No equal opportunity for other candidates to appear is required – Company must not facilitate personal contributions 5

Exception #2: Political Action Committees • Federal law allows PACs – Companies may pay the administrative expenses of the PAC – All contributions to PAC must be voluntary – Solicitation of contributions to PAC heavily regulated • Generally only the restricted class may be solicited • Foreign nationals cannot be solicited – Foreign parent cannot direct or subsidize the PAC 6

PAC-Candidate Contributions • PAC can accept $5, 000 per year from an individual • Once a PAC qualifies as a “multi-candidate” PAC, it can contribute: • $5, 000 per candidate per election • $15, 000 to national political parties per calendar year • $5, 000 combined limit for state and local parties in a particular state per year 7

PAC-Candidate Fundraisers • PAC may host fundraising events for federal candidates – Open to any non-foreign national – Cost of the event is treated as “in-kind” contribution by the PAC to the benefiting campaign • PAC or campaign must pay all expenses (including staff time) 8

Other Permitted Political Activity • Non-partisan “Get Out the Vote” activity • Contributions to politically-oriented taxexempt organizations 9

Foreign National Prohibition • Foreign nationals prohibited from making contributions – But “green card” holders are not considered foreign nationals • Foreign nationals prohibited from participating in decisions concerning contributions – Includes federal, state, and local contributions 10

Political Activity by Individuals 11

Individual Political Activity • Individuals are free to raise and contribute funds: – – Voluntarily In their personal capacity On their own time Using their own resources • Companies may not: – Direct or pay employees to engage in political activity – Facilitate the making of employee contributions – Reimburse employee political contributions 12

Use of Corporate Resources for Individual Volunteer Fundraising Events • Corporate resources may not be used for personal fundraising events unless properly reimbursed: – Staff Time – Customer/Client Lists – Catering/Food Services • Advance “reimbursement” required for many things 13

Individual Political Activity • Executives raising funds in personal capacity must not coerce subordinates into making contributions. – Advisable not to focus fundraising exclusively on subordinates. – Fundraiser should make clear that he/she is raising funds purely on own behalf, not for company. – Solicitation should not connect contribution to job status, “corporate citizenship, ” loyalty to company. – Avoid proximity to job performance evaluation and bonuses. 14

State Laws Regulating Political Activity 15

Common State Issues • Corporate contributions are permitted in some states • Registration and Reporting Issues – Must the federal PAC register and file reports? – May the federal PAC contribute at all to state candidates? • Separate bank accounts • Prohibition on contributions during legislative session • “Pay-to-Play” rules 16

Current Procedural Status Of New Rules • House gift ban for lobbyists effective January 6, 2007 – Meals and sports and entertainment gifts prohibited • House travel changes became effective on March 1, 2007 • Senate gift ban and travel changes became effective September 14, 2007, including: – Lobbyists’ obligation to comply with gift rules effective on same date – LDA reporting changes effective first quarter of 2008 – LDA reporting of political contributions effective July 2008 • House and Senate issued amended LDA guidance memorandum most recently on July 16, 2008 17

Ban On Gifts By Lobbyists • Gifts banned from “registered lobbyist, ” “agent of a foreign principal, ” and a “private entity” that “retains or employs” a “registered lobbyist” or an “agent of a foreign principal” – Applies to the exception for $50/$100 gifts • Only non-lobbyist can make such gifts • House memo states ban would apply to non-lobbyist’s use of personal funds if seeking to evade the gift ban – Senate Ethics Committee lawyer stated the Senate will follow the same rule – Anything that looks like circumvention is prohibited 18

Ban On Gifts By Lobbyists • 23 enumerated exceptions still apply; for example: – Campaign contributions or free attendance at event sponsored by political action committee – Personal friendship (reciprocation; personal funds) – Widely attended events • Attended by a range of interests; at least 25 people are expected; attendance related to official duties – Refreshments at reception of nominal value not part of a meal (“finger food”) • Senate and House recently denied approval for reception with “heavy” hors d’oeuvres, plates, and silverware • One-on-one drinks prohibited – Items of little intrinsic value, e. g. , T-shirt; baseball hat • Only listed items; not comparably priced items • Any other item must cost less than $10 19

Valuation of Tickets • Members and staff may not accept a ticket from a lobbyist or an entity that employs or retains lobbyists • For all entertainment and sporting events the government official must pay – Face value of ticket – For tickets without face value, the highest cost ticket for the event with a face value – Other methods of valuing (e. g. , pro rata share) not allowed 20

Gift Rule Compliance • Twice each year each lobbyist and each employer of a lobbyist will file a report (LD-203) certifying compliance with House and Senate gift rules, including travel rules – Must obtain identification number and password from Secretary of the Senate and file report electronically – Will report political and other contributions to federal officials • Will not report contributions of spouse – Civil penalties up to $200, 000; criminal penalties up to 5 years in prison $250, 000 (individual) or $500, 000 (organization) fine • Also, each lobbyist must certify that he/she has read the gift rules and is familiar with them • GAO has conducted random compliance audits; generally found compliance • Public reporting of number of referrals to DC US Attorney • DOJ report to Congress number of enforcement actions and sentences; so far little enforcement 21

Candidate Reporting of Bundling • Candidate committees must disclose lobbyists they “reasonably know” have made two or more “bundled” campaign contributions exceeding $15, 000 • Bundled contributions are: – contributions forwarded by a lobbyist to the candidate committee – contributions the candidate receives directly from a contributor, but which the candidate credits to a lobbyist • Semiannual basis, but FEC may require quarterly disclosure • FEC has solicited comments on proposed final rules, but regulations have not been finalized • Current law already requires all individuals that collect and forward contributions to file reports with FEC, but there is low compliance – Candidates’ bundling reports may identify individuals not complying with reporting obligations 22

Executive Branch Gift Rules (No Change) • All gifts prohibited from “prohibited source” with limited exceptions – $20/$50 per event per year – personal friendship (reciprocation) – widely attended events – No charity exception • A company is a “prohibited source” for any agency which regulates it or before which it does any business • A gift also is prohibited when given because of an agency employee’s position • These rules impose no liability on the donor 23

LDA Reporting • LDA Reporting for an organization employing lobbyists: – report four times each year (April 21, July 21, Oct. 20 and Jan. 20) all lobbying activities and estimated expenditures. There should be a documented system for collecting reportable information. The system should be followed each cycle, and supporting records should be maintained • House and Senate have issued detailed guidance – report twice each year (July 30 and Jan. 30) all contributions to federal candidates and other committees, widely attended events honoring Members, party retreats, Presidential libraries or inaugural committees – Certify compliance with House and Senate gift rules • Each lobbyist is required to file same report 24

Lobbyist Travel Limits • Lobbyists and agents of a foreign principal banned from paying for travel – In Senate all travel changes took effect in December 2007 • Private entities that employ or retain lobbyists or agents of a foreign principal also are prohibited from paying for travel, except such entities may pay for travel – Subject to regulations for 1 -day trip (exclusive of travel time and overnight stay) for fact finding or appearance, or – Sponsored by certain 501(c)(3) organizations approved by Senate ethics committee or by any “institution of higher education” for House travel – Ethics committees may approve 2 -night stays case-by-case 25

Lobbyist Travel Limits • Members and staff may not accept reimbursement for: – A trip “planned, organized, requested or arranged” by a registered lobbyist or agent of a foreign principal – A trip on which a lobbyist “accompanies” the Member or staff – House and Senate ethics committees have issued regulations and forms – The company being visited must provide a written certificate of compliance with rules before trip to each person invited to travel – Members and staff must provide before and after travel written certificates of compliance with rules 26

Lobbyist Travel Limits • Ban on lobbyist involvement in travel does not apply: – If Member is able to travel on official funds • Returning to home state • Side trip from field hearing – If Member is traveling on campaign funds to attend a fund raiser • In that case, trip may be “planned, organized, requested or arranged” by a lobbyist • Ban does not apply to travel under Mutual Educational and Cultural Exchange Act or Foreign Gifts and Decorations Act • No lobbyist involvement should be allowed in any trip without discussion with the Member’s office until practices under new rules become more routine 27