Ep. 34 Campaign Finance and the NABPAC Legal Help Hotline with Carol Laham of Wiley | 02.11.21

On this episode or the #1 PAC podcast in America, we go in-depth with campaign finance law expert and NABPAC Legal Help hotline counselor, Carol Laham from Wiley. What every PAC manager needs to know about compliance, audits, advisory opinions, and the details of campaign finance reform legislation pending in the 117th Congress. 

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SPEAKER_00 0:07

Welcome back to the Facts About PACs podcast. This show is brought to you by NAPPAC, the National Association of Business Political Action Committees. And I am your host, Michaela Isler, NAPPAC's Executive Director. When it comes to getting it done right in the employee-funded and association PAC space, it takes a full team. Every PAC manager listening to this podcast knows that to be true. And sometimes the last piece of advice or wise counsel can be elusive, Adam Belmar.

SPEAKER_02 0:33

In most cases, Michaela, getting a lawyer on the phone when you need one can be a stressful and even costly proposition. Even in-house counsel who are familiar with your PAC can need time to get up to speak.

SPEAKER_00 0:45

You're right. And that's really exactly why NAPPAC offers all of our members access to our legal help hotline. Learned counsel, steeped in campaign finance law and compliance, and ready to assist when needed.

SPEAKER_02 0:57

You know, Michaela, the more comfortable PAC managers are when they're asking for guidance, the more often they do it. And the outcomes are invariably better when they do.

SPEAKER_00 1:07

Absolutely. So coming up, a deep dive with campaign finance attorney Carol from Wiley.

SPEAKER_02 1:13

But first, the Facts About PACs podcast is produced especially for the members of the National Association of Business Political Action Committees. In every episode, we recap this week's NAB PAC activities, share actionable intelligence and best practices, all while connecting the PAC community. Today's episode is brought to you by Sajic Public Affairs. Sajik Public Affairs is an award-winning consulting firm that provides high-impact communications, fundraising, market research, and political engagement solutions to America's top associations and corporate political organizations. Sajek's philosophy is that results make all the difference and they deliver. At SAJIC, innovation and expertise are everything. They know the secret to transforming political organizations into success stories and have a tailored vision and plan just for you. Step into the future of advocacy with Sajic Public Affairs.

SPEAKER_00 2:07

Thanks, Adam, and thanks to Sajak Public Affairs, a longtime partner with NAPPAC. Our guest today on the number one PAC podcast in America is someone we could not do without. She is the campaign finance law expert who is always just a call away for NABPAC members. Carol Aham from Wiley. Carol, welcome to the podcast.

SPEAKER_01 2:28

So great to be making my first Facts About PACs podcast. Thank you, Michaela.

SPEAKER_00 2:34

20 years ago, when we first started working together, we never thought we would be putting together a podcast. You're not kidding. So this is our first time having you on the show, but you are no stranger to everyone in the NABPAC community. Your voice is one we all appreciate and respect. So, Carol, let's just jump right into it. There is so much talk here at the beginning of the election cycle. And I want to begin with good PAC hygiene, or in other words, compliance. Audits are a regular and important function for PACs to undertake after each election cycle. FEC compliance is certainly no joke, and circumstances during the pandemic changed the normal flow of operations for most PAC managers. What kinds of questions are you getting from NAB PAC members these days, specifically on the audit front?

SPEAKER_01 3:17

Well, we've been getting a lot of questions, but I want to go back to the premise, which is that audits are a regular part of any PAC election cycle. And I want to make sure that people actually are doing their audits now because that's something we recommend at the end of every election cycle. Gives you an opportunity to look back at the previous cycle. And the things that you should be looking at in a PAC audit are number one, your FEC statement of organization. And we actually are getting questions about the statements of organization and making sure that they are compliant with the FEC requirements. But I've also been getting a fair number of questions about PAC articles of organizations and bylaws. And of course, bylaws are not required by the Federal Election Commission, but they're very highly recommended. And the reason that bylaws are recommended is it gives you a guide to how you want to operate your PAC. It tells you who your officers are going to be, it tells you whether or not you're going to have a PAC board or an advisory committee. And there's a lot of things that should go into those bylaws these days that didn't used to be the case. So, for instance, one thing that bylaws should contain that they didn't used to are statements about no contributions from foreign nationals and that foreign nationals won't be involved in the operation of the PAC. And this is, as we all know, a very current and important issue. And it's not something that 20 years ago anybody really gave too much thought to. But with the proliferation of US subsidiaries of foreign companies, it's become a very important issue today. So I think people need to really be looking at their bylaws. And we have been getting questions about the bylaws and make sure they incorporate really all of the requirements that the Federal Election Campaign Act tells them to incorporate. The other thing, of course, that we're getting tons of questions about are operating guidelines, what they should be, what should be in them, what shouldn't be in them. Really basic things about the financial part of the pack. And those often you'll find in operating guidelines.

SPEAKER_02 5:42

Carol, it occurs to me there are no dumb questions. Even the basic questions are the ones that you shouldn't hesitate to get good counsel on. And I want to push beyond the compliance audit because so many companies right now are taking a close look at everything PAC, including their giving criteria. And you, as you well know, NATPAC created a document recently to help all of our PAC managers and their C-suite level executives during this PAC review process. So tell us and the audience, what kind of counsel are you providing to members and clients right now when it comes to the much broader, overarching all things pack review?

SPEAKER_01 6:21

So as it relates to giving criteria, which I think is the issue of the moment, I think the most important thing is you have to be true to your company. Not all giving criteria are going to look the same, but you have to know what's important to your company in terms of what you want to achieve by having a PAC and whether the giving criteria are helping you to achieve your goals. You don't want something in your giving criteria that says, for instance, we're not going to give to the 147 individuals that voted a certain way on January 6, 2021, because things change and there are other reasons to be giving to some of those individuals. And you need to make sure that the criteria are broad enough that it gives you flexibility, but also narrow enough that it's not completely subjective and that they don't have a purpose. You want your giving criteria to have a purpose. And I think that's the thing that mainly people are struggling with now and reviewing now. I also think it's the thing that CEOs are most interested in right now.

SPEAKER_00 7:31

Yeah, Carol, I think that's an important point. And I also think beyond just having the criteria, a lot of people don't realize that these PACs are very sophisticated and there's a history of processes in place, especially when giving or soliciting and interacting in general with your eligible classes. How important is it for employee-funded PACs and association PACs to seek legal counsel regularly when it comes to devising and updating these processes?

SPEAKER_01 7:59

We obviously, as we're lawyers, we think it makes a lot of sense. But the reason is you want to make sure that your processes are compliant with the Federal Election Campaign Act. But also you want to make sure that the processes, again, just like the giving criteria, don't trap you into a place where you don't want to be. They have to be flexible, but they have to be useful. And the thing that we like about processes more than anything else is well, I don't like to say this, pack people change. And you have to have a history from one person to the next. You can't just start over every time there's somebody new to the pack. The other thing is pack boards change. And they're sometimes not quite as sophisticated as the PAC treasurer or the PAC manager. So they need to understand how the PAC operates because oftentimes these PAC boards are people that come from various components of a company so that they could be the ambassador for the PAC, but they need to understand what a PAC does. And that's why the processes are important. And I do think that talking to lawyers about what goes into the processes helps you make sure that you're not doing something that's a little off the rails.

SPEAKER_02 9:22

Carol, I keep hearing from folks in the PAC space there is a movement towards alignment, integrating or aligning corporate values with giving criteria and some of these processes that are already in place. And so my question to you isn't whether it is right or proper to align in this way, but how do you counsel folks when you're thinking about durable process and criteria that make sense and don't box you in?

SPEAKER_01 9:51

That's completely correct. And in fact, they haven't been aligned for a long time. I would say it's really the past maybe two years where this issue of alignment has really come to the fore. And in part, that's because there have been external sources reviewing PAC contributions made by companies, and then they're going to the companies and saying, you know, you claim that you're big into diversity, but your contributions don't suggest that you're a diverse organization. Or you claim that you are environmentally conscious, but you're giving to people who aren't environmentally conscious. So there has been a movement, a big movement, for companies to try to align their pack with the values of the company. And I think that's an internal decision by the companies. But I think it's going to be more and more important in the future that there is this alignment and that the PAC doesn't really operate independently from the company because after all, it's connected to the company, it's a separate segregated fund, but all of the individuals who are giving are coming from a single company. And the people who are making the decisions are also coming from that company. And the PAC is supposed to be representing the values of the company. That's the argument. And I think that's why there is this movement toward alignment.

SPEAKER_00 11:25

Carol, kind of switching gears a little bit here, legislative action in the 117th Congress as it relates to campaign finance reform includes a bill that many in our community are familiar with, in HR1. It's something that we worked extensively on as an organization in the 116th Congress. And I just wanted to ask you specifically about one provision in the bill that I think many in the PAC space are maybe not as familiar with related to the CEO certification. We are getting some questions about what does this mean? What are the details? We worked hard on an amendment last year related to the four national definitions that currently are in law. So this kind of got put, I think, to the side. And so I just think it's important for our listeners to know a little bit more about the CEO certification. Would love it if you could just help all of us understand what this provision of the bill would require and how it's going to change the current practice. And really the bigger question are what are the consequences for potential non-compliance?

SPEAKER_01 12:26

Well, I can tell you the first thing it's going to do is make the CEO a lot more interested in the PAC than they may have been before. You know, some CEOs have been interested in the PAC, uh, and others are uh distant from it. I'm gonna read you the pertinent language so that we can talk through it. What it says is prior to making in connection with an election for federal office of any contribution. So prior to making any contribution, donation, expenditure, independent expenditure, or disbursement for an electioneering communication by a corporation, the chief executive officer of the corporation shall file a certification with the commission, meaning the Federal Election Commission, under penalty of perjury. That's the most important part of this whole thing, that a foreign national did not direct dictate, control, or directly or indirectly participate in the decision-making process related to the activity in violation of subsection A3, and A3 relates to foreign national activity, unless the chief executive officer has previously filed such a certification during that calendar year. Okay, so that was a lot of words. So what is what does it break down to? What it breaks down to is that number one, a PAC has got to comply with the foreign national restrictions. And in another section of H1, they break out what these restrictions are, and basically they're codifying what the FEC has said over the years in various advisory opinions. So fundamentally, foreign nationals cannot be involved in the operation of a PAC. That's the bottom line. And the CEO is going to have to certify that no foreign nationals are involved in the operation of the PAC. This to me shouldn't be a big deal, right? Because PACs are operating in compliance with these foreign national rules. They know the rules, they know that they can't have foreign nationals participating. Where it comes into play again, and I see this a lot in our practice, is for the US subsidiaries of foreign companies. That's where it comes into the best. And the foreign nationals are interested in what's going on sometimes, and it's really hard for the company to say, I'm sorry, you don't have any rights to be involved in our PAC. This is a U.S. entity. Foreign nationals cannot be involved in U.S. elections. And that's where the rubber meets the road. You have to, at in the first instance, make sure the foreign nationals are outside of the process, including board members. If there are board members, even at the U.S. subsidiary that are foreign nationals, they have to be excluded from any decisions about the PAC. So what has to happen? The CEO has to certify that there's no foreign national direction or control indirectly or directly in the PAC. And they should be able to do that, but they're going to be asking a lot more questions than they have in the past. And then, of course, it's under penalty of perjury. So those are buzzwords in the law, and those can come with criminal liability. It's not just that you're signing something, and if you knew that it wasn't true, then you've perjured yourself. That's why CEOs are going to be, I'd say, more involved in the operation of a PAC or understanding what the PAC does.

SPEAKER_02 16:12

So, Carolyn, when we hear the word any, and I believe you said prior to any, does that mean that that is a certification that has to happen each and every time an action contribution is taken?

SPEAKER_01 16:27

We don't think that the provision means that because it does say at the end of it, unless they've previously filed such a certification during that calendar year. So we think this is a once-a-year certification, probably at the beginning of the year before you make your first contribution to any candidate. And we all know that most PACs aren't making any contributions in the first quarter. So it gives CEOs a little bit of time to understand this. And they make the certification once, and that's gonna be fine for that calendar year.

SPEAKER_02 16:59

And let me follow up and ask a question that might be on the minds of our listeners as well. What happens if the CEO is themselves a foreign national?

SPEAKER_01 17:08

So that's a great question. And if a CEO is a foreign national, uh, they're not supposed to be involved in the operation of the PAC. It would be somewhat ironic for a foreign national to make this certification because they're not supposed to know anything about the operation of the PAC. The provision doesn't really address that. It does say that if a company doesn't have a CEO, it's the highest ranking official of the corporation. I would imagine that the Federal Election Commission will have to issue some regulations about this, addressing that precise issue so that a non-foreign national will make this certification. That's a guess. But you know, this is the problem with legislation. They don't think about those issues. And that's a great issue because there are a lot of CEOs that in fact are foreign nationals.

SPEAKER_00 18:00

Carol, I appreciate you shedding some light on this because I do think that the specifics of this is probably something that just needs to be revisited should HR1 should it pass the Senate. So we wanted to bring that forward. One other thing I just wanted to touch on, too, related to the recent increases in individual limits. It's been a long time issue for us in the PAC community because our limits have never been increased, even for a cost of living adjustment. And that has put us at a little bit of a disadvantage. Curious if you could touch on that a little bit. I know we've had a lot of questions about that as the new limits came out from the FEC this week.

SPEAKER_01 18:37

Yeah, I mean the new limit is $2,900 per individual, which means a couple can now give more than a pack to a campaign. This has just been a long-held problem that for some reason Congress did not change the limits as it did for individuals. So it puts a lot of pressure on PACs because they have to raise more and more and more money in order to be at all competitive. But for the time being, I don't see anything that suggests that Congress is going to change this and index that limit for inflation like it has the other limits until someday they realize that PACs are a good legal way to make contributions and they should index it, but it's just not on the horizon.

SPEAKER_00 19:21

We talk a lot about all the misinformation out there, which is one of the reasons why we started the Facts About PACs podcast. So, Carol, we have seen that again in the wake of the pause taken after the events on January 6th, with all this misinformation out there. Should pack managers be worried that their companies will suffer retribution from policymakers for taking a pause in these contributions? We've seen a lot in the media reporting on this.

SPEAKER_01 19:46

So I would say pack managers shouldn't have to be worried about it, but clearly they have to be worried about it just because of what you said, which is in particular, there have been a lot of staff on the Hill that have objected to the fact that PACs are taking a pause andor taking a pause with respect to everybody, not just the 147. It's unfortunate that they've gone out and said these things because there are House and Senate ethics rules that discuss whether or not, for instance, a member of Congress can take a meeting with somebody or deny a meeting with somebody based on a political contribution. And they are not supposed to do that. That's against the rules. So I think they're talking out of turn, and I'm hoping the ethics committees will come out with some sort of guidance and remind them that PAC contributions should have no relevance to whether or not they're going to take a meeting on official business. But I can see how a PAC manager is concerned about it. I wouldn't blame them for being concerned about it. They're in the front lines, they're getting the grief about it. And I think, like most things, it'll blow over once people start making their contributions again.

SPEAKER_02 21:05

Carol, we were really lucky to have the chairman of the Federal Election Commission, Trade Trainer, with us, both on this podcast and involved in the post-election conference. And one of the things that he pointed to was the ability of the FEC to give prior guidance, especially when they are at full strength. How do our PAC managers stay innovative? The world has changed. It's work from home. The normal activities that they would engage in have gone virtual. And so folks were trying to think how do I engage with my eligible class and make things perhaps even just a little bit more fun or a little bit more relevant? This takes innovation. What guidance do you give PAC managers about seeking FEC guidance on questions before they innovate? And is that really what folks should do?

SPEAKER_01 21:50

Well, they for sure can ask for advisory opinions. And to the extent that their innovation is something that hasn't been discussed or addressed by the FDC before in other advisory opinions, then we typically will recommend that they in fact do get an advisory opinion. Because what an advisory opinion does is as long as you follow all the factual predicates that you've told the Federal Election Commission that you're going to do, it gives you basically a free pass. You know, it tells you, yes, you can do this or no, you cannot do this. So advisory opinions are great, especially now that you have a complement of six commissioners, which we haven't had in some time, but they need to be well researched, they need to be within the bounds of the law. I don't recommend that the pack manager themselves ask the questions because typically an advisory opinion is going to make a legal argument about why it's permissible. And it's going to rely on past advisory opinions, it's going to rely on the regulations in order to convince the commissioners that what your innovation is, it should be permissible under the law. So I want to go it alone. Talk to your lawyers about it. Your lawyers might be able to give you enough comfort that you can do the innovation in and of itself. You only go to the FEC when it's something so new and different that they haven't addressed it before and you can't fit it within the four corners of something that's come before.

SPEAKER_00 23:27

Carol, we could probably talk for hours, but I want to just first thank you for being with us. But I also just want to reiterate how lucky we all are at NAPAC to have you involved as our counsel in the NAPAC legal hotline. We just so appreciate all of your insight and guidance. You know, I'm always reminded that PACs were created as a reform, and it's a reform that has worked for nearly 50 years in an unblemished way. And we are the most transparent way of participating in the process, and we just appreciate all of your insights today. So thank you. It's been my pleasure.

SPEAKER_01 24:02

I am so happy to be doing this and feel honored to be the counsel to NAT PAC. And I really enjoyed working with all your members.

SPEAKER_00 24:12

Thanks, Carol. And I want to say again, thank you to all of our listeners for putting the Facts About PAX podcast on your listen list. Don't miss an episode. Subscribe on Apple Podcasts or wherever you get your ear candy. Coming up next, an exploration of the outreach and educational work of Association PACs. We'll look at transportation and infrastructure policy priorities with Ashley Jackson from the National Asphalt Pavement Association. You don't want to miss it. And as always, until then, stay safe, stay engaged, and keep moving forward.