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DC Circuit Court of Appeals Provides Major Support For the Constitutionality of Pay-to-Play Laws . . . And Probably Makes an Executive Order Mandating Contractor Disclosure of Political Spending Likely

Ever since the US Supreme Court’s landmark rulings in Citizens United and McCutcheon, significant questions have been raised (mostly by real scholars but also by agitators and pot-stirrers such as myself) as to whether pay-to-play laws – based as they are on appearances of potential corruption and not direct bribery – are constitutional.   The DC Circuit has now weighed in to provide significant legal and factual justification for the constitutionality of laws limiting personal campaign activity in order to prevent the appearance of corruption and to promote the “merit-based administration” of our government (which is only a GRADE 3 oxymoron, falling as it does on the scale between “pretty ugly” and “jumbo shrimp”).

The case in question is Wagner v. FEC in which a number of federal contractors brought free speech and associational challenges to a federal law prohibiting their planned contributions to federal candidates and political parties.  Federal law (2 USC 441c) prohibits government contractors from making campaign contributions to candidates, political committees, or political parties. 2 USC 441b imposes similar restrictions on corporations, national banks, and labor unions.  Of most importance to those of us tasked with pay-to-play compliance is not that 2USC 441c was upheld, that law has been on the books a long time and really only impacts individuals who directly contract with the federal government (in contrast with the myriad of people who work as employees of government contractors).  The Court also did not examine the issue of whether federal contractors may give to independent expenditure groups (SuperPACs).  What is significant about Wagner is the fact that the DC Circuit appears to contravene the US Supreme Court’s analysis in McCutcheon to hold that federal and state governments may enact pay-to-play laws admittedly abridging speech and associational rights in order to assure the public believes that government servants are not corruptible and are fulfilling their public duties “effectively and fairly”, free of “improper influence or corruption”.  (Wagner, Slip Op. 12-15).

Other federal courts have not agreed with the DC Circuit’s reading of McCutcheon to allow such latitude:

Our Supreme Court has made clear that only certain contribution limits comport with the First Amendment. Since contributing money is a form of speech, preventing quid pro quo corruption or its appearance is the only governmental interest strong enough to justify restrictions on political speech. Citizens United v. FEC, 558 U.S. 310, 357-61 (2010). More recently in McCutcheon, the Court concluded that “the possibility that an individual who spends large sums may garner influence over or access to elected officials or political parties . . . does not give rise to such quid pro quo corruption.” Id. at 1438. In effect, it is only direct bribery—not influence—that the Court views as crossing the line into quid pro quo corruption.

New York Progress and Protection PAC v. James Walsh, 13 Civ. 6769, S.D.N.Y, April 24, 2014, Slip Op. 3.

It will be interesting to see whether the Supreme Court reads its own opinion in McCutcheon as the DC Circuit does.  Recent reversal statistics of DC Circuit cases might indicate that the DC Circuit’s reading is not a slam dunk.

One civil servant who might not be inclined to wait for additional guidance from the Supreme Court on the issue is the one who resides at 1600 Pennsylvania Avenue.  As we have written previously, the White House is very serious about mandating contribution and issue advocacy disclosure obligations on federal contractors.  There are many who now believe that the Wagner decision will encourage President Obama to issue a long-awaited Executive Order mandating contractor disclosure of all political spending.  Recent reports by The Brennan Center that in the 2014 cycle, the top 25 federal contractors all made disclosed contributions through their PACs and, in total, gave more than $30 million are sure to spur additional calls for mandatory contractor disclosure.

DC Circuit Court of Appeals Provides Major Support For the Constitutionality of Pay-to-Play Laws . . . And Probably Makes an Executive Order Mandating Contractor Disclosure of Political Spending Likely

Is it Illegal “Pay-to-Play” for a Government Contractor or National Bank to Contribute to a Super PAC?

A new complaint was filed with the Federal Election Commission yesterday alleging that Chevron USA violated campaign finance laws and corollary “federal pay-to-play” laws by contributing $2.5 million to the Congressional Leadership Fund, a Super PAC tied by press reporting and former staffers to House Speaker Boehner. While the FEC complaint was filed by organizations likely more interested in “poking the bear” because of Chevron’s environmental footprint than its politics (Public Citizen, Friends of the Earth, Greenpeace, and Oil Change International, hereinafter referred to as “The Usual Suspects”), the complaint has facial merit and needs to be on the radar screen of government contractors, national banks, and foreign nationals everywhere.

The logic of the complaint is relatively straightforward and not new. Federal law (2 USC 441c) prohibits government contractors from making campaign contributions to candidates, political committees, or political parties. 2 USC 441b imposes similar restrictions on corporations, national banks, and labor unions. “Chevron”, as a government contractor, the complaint alleges, thus violated federal law by making a $2.5 million contribution to the Super PAC Congressional Leadership Fund (technically, an “independent expenditure political committee”).

At issue is whether the landmark Supreme Court opinion in Citizens United v. FEC has changed the rules with regard to contributions to independent expenditure committees (one of too many law firm “client alerts” on the meaning of Citizens United can be found here). There has not been a case addressing this precise issue squarely since that case. Arguably, the same United States Supreme Court which found corporate and labor union finance of political speech to enjoy First Amendment protection notwithstanding federal law to the contrary will likely extend such protections to government contractors, national banks and potentially foreign nationals notwithstanding the laws referred to above.

The Usual Suspects, in their complaint against Chevron, allege as a matter of fact that “The Federal Election Commission has appropriately interpreted the prohibition against contractor contributions to “any political party committee, or candidate for public office or to any person for any political purpose or use” to include political committees and super PACs involved in Federal elections.” (The Usual Suspects Complaint, p.3, emphasis added). This might be news to three of the six commissioners of the Federal Election Commission.

It is true that a Democratic commissioner of the FEC testified to this effect before Congress in a House Oversight hearing. It is also true that the FEC, in a footnote I am convinced the Republican Commissioners failed to catch before publication of an explanation of FEC policy, wrote “Foreign nationals, government contractors, national banks and corporations organized by authority of any law of Congress cannot contribute to … separate [independent expenditure] accounts.  §§ 2 U.S.C. 441b, 441c, and 441e.”

It is also true that the Usual Suspects’ complaint cites a prominent law firm blog for this same proposition although, if one reads the actual blog post cited, one gains a new appreciation for the phrase “selective, out-of-context, quoting”.

Chevron argues in its own defense that the “Chevron” that made the contribution is a distinct company from the “Chevron” which contracts with the government. I guess I’d argue that too were I Chevron, but this fight will ultimately be won or lost at the Altar of the First Amendment.

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Is it Illegal “Pay-to-Play” for a Government Contractor or National Bank to Contribute to a Super PAC?

The White House is Not Giving Up on Federal Contractor Pay-to-Play

The White House is very serious about mandating contribution and issue advocacy disclosure obligations on federal contractors.

We have reported several times on the various tell-tale signs, tea leaves and trial balloons that would lead one to believe that the White House is very serious about mandating disclosure by executive order. Much of the drama stemmed from a draft Executive Order that was floated last April and didn’t appear to get very far.

Most notably, the executive order under consideration would have required “every contracting department and agency” to “require all entities submitting offers for federal contracts to disclose certain political contributions and expenditures that they have made within the two years prior to submission of their offer” including:

(a) All contributions or expenditures to or on behalf of federal candidates, parties or party committees made by the bidding entity, its directors or officers, or any affiliates or subsidiaries within its control; and

(b) Any contributions made to third party entities with the intention or reasonable expectation that parties would use those contributions to make independent expenditures or electioneering communications.

Congress responded with language inserted into the 2012 Defense authorization bill and again in the December 2012 omnibus spending bill.

With apologies to Jack Nicholson, they’re baaaack . . .

On Monday, Senator Susan Collins of Maine announced on the US Senate Committee on Homeland Security and Government Affairs website that the White House Fiscal Year 2013 budget seeks to reverse the prohibition on such requirements included in the Fiscal Year 2012 omnibus appropriations bill.

Sure enough, she’s right. Check it out yourself. The 2013 budget seeks to remove Section 743 which contained the prohibition against requiring such disclosures.

Said Senator Collins: “What possible good can come from linking political information to a process which must be grounded solidly and unequivocally on providing the very best value to American taxpayers?  It is unfathomable why this Administration would consider a move that would, at worst, corrupt the process, and at best, create a perception that political beliefs of private citizens is to be considered in selecting the winners and losers among businesses vying for federal contracts.”

I’m guessing that’s a rhetorical question.

Contractors, lock your doors. This ain’t over yet.

The White House is Not Giving Up on Federal Contractor Pay-to-Play

EVENT: Political Law Compliance after Citizens United – 5/6/10

Campaign Finance, Government Contracting, Tax, Lobbying & Ethics Rules

This comprehensive one-day training seminar brings you up-to-date on Congressional and White House responses to Citizens United and other key developments involving lobbying, ethics and tax rules at this annual conference.

Citizens United reinforced the First Amendment rights of corporations and labor unions to participate in the political process by advocating the election or defeat of clearly identified candidates. After this landmark event, how can groups most effectively, and legally, participate in the political and public affairs process?

Hear from FEC Chairman Petersen; Mike Duncan, former Republican National Committee Chairman; and Michael Boos, Citizens United Vice President and General Counsel.

Thursday, May 6, 2010
8:00 a.m. – 6:00 p.m.
The Offices of McKenna Long & Aldridge LLP, Washington, DC

Program Highlights:

  • Practical developments and new areas of concern in federal campaign finance law
  • A discussion from both sides of the political aisle regarding political party and interest group activity after Citizens United
  • Experience the Supreme Court journey with Michael Boos, Vice President & General Counsel of Citizens United
  • Insights into current DOJ FCPA prosecutions, public-corruption investigations and enforcement priorities
  • Issues affecting nonprofit organizations and donors providing financial support for political activities

Registration Fee:

Register today and Save 50% off the BNA Subscriber rate of $595. Enter discount code “MLA10” at online checkout.

CLE credit will be available.

For more information or to register by phone, call 800-952-2477.

EVENT: Political Law Compliance after Citizens United – 5/6/10