Navigating Pay-to-Play Laws: Could They
Destroy Your Firm’s Good Name?
Construction Industry Round
Table, Spring Conference
May 2, 2012
Larry Norton & Jim Kahl
Womble Carlyle’s Political Law
Practice Group

• Overview of Regulation and
Risks
• Pay-to-Play Laws
• Beyond Pay-to-Play:
Procurement and Goodwill
Lobbying
• Gifts to Public Officials
• Risk Management
2

INTERACTING WITH PUBLIC OFFICIALS,
CANDIDATES
• Complex scheme of federal, state and local laws
• Vary considerably
• Impact on business and personal activity
• Government contractors subject to special restrictions on contributions and gifts, as well as disclosure obligations
• Lobbying laws reach non-traditional activities – e.g., goodwill & procurement lobbying
• Gifts to public officials
3

• Public sector clients are huge market
• Scrutiny by regulators, media, competitors, watchdog groups
• Charged political climate
• Civil and criminal penalties
• Loss of business/opportunities
• Harm to business reputation
4

5

Prohibited under federal law
• No corporate contributions to federal officeholders and candidates, national parties, and federal PACs
• Exception – contributions by a corporate PAC
State laws vary
• A few states allow unlimited corporate contributions
• Prohibited in about 20 states
• Remaining states impose limits
• No limit on corporate spending in support of or opposition to ballot measures
6

• Federal contractors prohibited from making contributions in federal elections, except through federal PAC
• Prohibition in force from beginning of negotiations through performance
• Draft Obama Executive Order
• State laws vary: some prohibit (Connecticut,
Illinois, South Carolina); others limit (Kentucky,
N.J., Ohio); many require disclosure
7

• Firm cannot reimburse contribution through salary increases, bonuses, or other means
• One firm official or employee cannot reimburse another
8

• Corporate facilities or resources cannot be used for fundraising activities in support of federal officeholders or candidates
(unless paid by permissible source)
• Result: illegal in-kind contribution
• Common corporate violation
• Civil & criminal sanctions
9

• Enlist subordinates to handle invitations,
RSVPs for fundraising event
• Use customer lists for political fundraising
• Collect and forward checks to campaign
• Use company envelopes and postage
• Pay for cabs to fundraisers
• Refer to personal fundraising efforts in selfevaluations or strategic planning
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• Non-partisan, tax-exempt entity that makes political contributions to officeholders, candidates, other PACs
• Bears corporate name; may receive solicitation & administrative financial support from corporation
• May also host fundraising events for officeholders and candidates
• Funded with voluntary contributions from qualified personnel, shareholders, members of the Board of Directors
• Special structure if parent is foreign company
11

WHY HAVE A CORPORATE PAC?
• Enhance company’s profile on important issues and public policy matters
• Support officeholders and candidates who understand your business and share your concerns
• Well-established way to make political contributions identified with your company
• Channel political activity away from areas of legal risk
12

• Company may allow federal candidate to appear at meeting or other corporate function
• May pay for meal associated with event
• Meeting with senior management only – may coordinate with candidate regarding message; may ask attendees to contribute
• Meeting with all employees – may not coordinate message; only the candidate may solicit contributions; must allow candidate for same office to appear, if request to do so
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• Prohibit or restrict political contributions by state and local contractors and bidders
• May also restrict fundraising
• Laws may apply to PACs, officers, directors, senior managers & even spouses and children
• Restrictions may begin before bid and end months after contract is terminated (“look-back” provision)
• Disclosure/registration/reporting

• Public sector clients are huge market
• Bids disqualified and contracts voided
• Fines and criminal penalties
• Employment issues
• Harm to business reputation
16

BEWARE OF IN-KIND CONTRIBUTIONS
• Home fundraising events
• Allowing campaign to use company’s facilities/equipment
• Sale of item or service at less than usual charge
• Purchase of fundraising tickets and items
• Loans
17

WHERE ARE PAY-TO-PLAY LAWS?
STATE LAWS
•
California
• Connecticut
• Florida
• Georgia (licensees)
•
Hawaii
•
Indiana (lottery contracts)
•
Illinois
• Kentucky
• Louisiana (hurricane contracts)
•
Maryland
•
Missouri
•
Nebraska
• New Jersey
• New Mexico
• Ohio
•
Pennsylvania
•
Rhode Island
•
South Carolina
• Vermont
• Virginia
• West Virginia
LOCAL LAWS
•
Oakland, City and County of L.A., Culver
City, San Francisco, County of San
Diego, plus Cal State Teachers
Retirement System, and Cal Public
Employees Retirement System
•
Chicago & Cook County
• Dallas, Houston, & San Antonio, plus
Teacher Retirement System of TX
• Denver
• Fort Lauderdale
•
New Jersey
– in over 165 cities & towns
•
New York City
• Philadelphia
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 Develop a risk map
 Notice to covered employees (some state-specific)
 Contribution surveys to support reports and certifications
 Pre-approval of some contributions
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• Super PACs –
• 527’s
• 501(c)(4)’s
• Minimizing the risks
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 Due diligence
 Avoid earmarking contributions and other conduit situations
 Know the company you keep
 Understand how disclosure works
 Expenditures may not be coordinated with candidate or party
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LOBBYING LAWS MAY ALSO APPLY TO
GOVERNMENT CONTRACTORS
• Generating “goodwill”
• Procurement lobbying
• May require registration by contractor/employee
• Disclosure reports
• May trigger contribution, gift restrictions
23

WHAT IS PROCUREMENT LOBBYING?
• Attempt to influence purchasing or procurement decisions by government agencies, pension systems
• Generally cover:
 Convince agency personnel of a need for products/services (“talking up” the service)
 Seek an appropriation
 Attempt to influence contents of an RFP
 Dooropening (“goodwill lobbying”)
• In 2005, 18 states had procurement lobbying laws.
Today, 26 states and many municipalities.
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COMMON EXCEPTIONS
• Responding to a formal request for bids or proposals
• Participating in a bid conference
• Small procurements
• Providing technical advice in response to a request by an agency official
• Some states require registration only if meeting with an official who has discretion to award or administer a contract
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• Arkansas
• Connecticut
• Delaware
• Florida
• Georgia
• Idaho
• Illinois
• Indiana
• Kansas
• Kentucky
• Louisiana
• Maryland
• Massachusetts
STATES THAT REGULATE
PROCUREMENT LOBBYING
• Michigan
• Mississippi
• Missouri
• New Hampshire
• New Jersey
• New York
• North Carolina
• Ohio
• Pennsylvania
• Rhode Island
• Tennessee
• Texas
• Vermont
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• Some sales activity may be subject to goodwill lobbying laws
• Meet with public officials to build relationships and generate goodwill, even if no effort a particular matter
• Examples:
 NC – lobbying includes “building of relationships . . . with intention of influencing current or future legislative or executive action or both”
 IL – Lobbying includes efforts to promote goodwill with high-level executive officials, their chiefs of staff and members of legislature
 HI – register as lobbyist if purpose of meeting is “getting to know” or “establish rapport” with legislators
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GIFTS TO PUBLIC OFFICIALS
AND EMPLOYEES
• Many states and localities impose special restrictions on gifts to public officials by government contractors and lobbyists
• Some states and localities require disclosure of gifts on periodic reports
• “Gifts” include meals, tickets to sporting or entertainment events, invitations to charitable fundraisers, etc.
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• Gifts to Members of Congress and
Congressional staff: $50/Gift and
$100/Year ($0 if hire federal lobbyist)
• Exceptions are available (Note that
House and Senate rules differ)
• Executive branch officials and employees: no gifts from “prohibited source” unless qualify for exception
• Obama appointees: no gifts from federal lobbyists or their employers
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• All states have laws in this area
• Most stringent restrict gifts and require reporting
• Most lenient allow gifts of all sorts, but may require reporting over $ threshold
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• Personal friendship and hospitality
• Widely-attended gatherings and receptions
• Invitations to charitable fundraising events
• Promotional items
• Plaques
• Informational materials
• Benefits available to the general public
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• Policies : Develop and disseminate simple and clear policies and procedures for political contributions, gifts, procurement activity, and use of corporate resources for fundraising
• Training : Provide regular training to key groups
(assist them to spot issues and ask questions)
• “Ask First” Culture : Encourage questions & make sure everyone knows who is responsible for answering political law questions

• Tracking systems : For gifts, political contributions & reportable payments
• Know the players : Identify who must file reports
& who can trigger violations. Don’t forget consultants!
• Separate responsibility : Keep government relations and compliance separate, if possible
• Legal Compliance Review: Identify risk areas, prioritize compliance needs

www.wcsr.com/politicallaw
Jim Kahl
JKahl@wcsr.com
(202) 857-4417
Larry Norton
LNorton@wcsr.com
(202) 857-4429
This presentation is intended to provide general information and should not be construed as providing legal advice or legal opinions. You should consult an attorney for specific legal questions.