Welcome to the May 2023 edition of Political Law Playbook. This month’s federal coverage highlights the recent legislative push to force the US Supreme Court to adopt a formal ethics code, the recent conviction of former Fugees rapper and Grammy-winner Pras Michel for violating the Foreign Agents Registration Act (“FARA”), and the imposition of prison sentences for several individuals operating scam PACs. We also report on the Federal Election Commission (“FEC” or the “Commission”) decision to enter into a Memorandum of Understanding with the Department of Justice (“DOJ”) regarding information sharing and enforcement cooperation and the Commission’s approval of campaign fund use for expenses incurred while traveling in connection with federal officeholder duties.

At the state level, recent weeks have produced a flurry of interesting legislative and judicial happenings. In Hawai`i, Governor Josh Green signed into law seven new bills that increase lobbying disclosure requirements under state law and promote overall government transparency. Indiana’s state legislature meanwhile passed new legislation barring the state and its localities from compelling nonprofit donor disclosure. We also examine a collection of important state judicial decisions addressing legal challenges to Missouri’s revolving door rules and North Carolina’s voter ID and redistricting plans.

Federal Elections & Campaign Finance

FEC Approves Advisory Opinion Regarding Travel Expenses & Signs MOU with Department of Justice – At its meeting last month, the FEC approved an advisory opinion addressing the permissible use of federal campaign funds to pay for certain travel expenses incurred in connection with federal officeholder duties. The final opinion approved by the Commission responded to a request on behalf of Representative Nanette Diaz Berragan (D-CA) regarding the potential use of campaign funds to pay for travel expenses incurred in connection with the Congressional Hispanic Caucus, and affirmed the legality of such campaign fund payments as “ordinary and necessary” and “incurred in connection” with federal officeholder duties. In its meeting session, the FEC also approved a Memorandum of Understanding regarding data sharing and enforcement cooperation between the Commission and DOJ.

Three Individuals Sentenced for Soliciting Millions of Dollars in Contributions for Scam PACs – Matthew Tunstall, Robert Reyes, and Kyle Davies were each sentenced to prison last month for their respective involvement in scam PAC schemes that led donors to believe they were supporting candidates Hillary Clinton or Donald Trump. The individuals solicited contributions by making “false and misleading” representations to donors that their money would go towards the 2016 election, when instead the operators were using the money for self-enrichment, standing up other organizations, and running advertisements containing additional fraudulent solicitations. The co-conspirators raised approximately $4 million in contributions during the 2016 election cycle. All were found guilty of crimes, including conspiracy to commit wire fraud, conspiracy to cause false statements to the Federal Election Commission, and money laundering.

Honest Ads Act Reintroduced – Representative Mike Gallagher (R-WI) and Derek Kilmer (D-WA) reintroduced the bipartisan Honest Ads Act last month. The bill, which has been introduced in previous Congresses, would ensure online political advertisements are better-monitored by the FEC, enable the FEC to enact rules for online advertising comparable to those in place for television, radio, and satellite ads, and generally require online ad funders to disclose more public information concerning communication sponsorship. Such reforms would also inhibit foreign actors from purchasing online advertisements. If passed, the law would expand the definition of “electioneering communication” to include paid online and digital advertising, require platforms to maintain a public file of certain electioneering communications, and mandate that such platforms take “reasonable efforts” to prevent foreign actors from influencing the American electorate. The bill has been referred to the House Committee on Administration.

Rep. Tom Tiffany Introduces OMAR Act To Prohibit Campaign Compensation For Candidate Spouses – Representative Tom Tiffany (R-WI) recently introduced legislation that would restrict the ability of federal candidates to use committee campaign funds to pay compensation to spouses. It would also require any payments made to spouses or immediate family members to be disclosed along with regular campaign finance disclosure reports. The bill, H.R. 2452, is similar to a bipartisan proposal introduced in 2007 by Representative Adam Smith (D-CA) that ultimately did not pass. Rep. Tiffany argues that this measure will help restore public confidence in Congress and prevent politicians from pocketing their campaign funds.

Federal Lobbying & Ethics

New Legislative Pushes for Supreme Court Ethics Code Gets Bipartisan Boost – Senators Angus King (I-ME) and Lisa Murkowski (R-AK) announced new legislation last month requiring the US. Supreme Court to adopt an ethics code within a 12-month period. The introduction of the bill seeking to mandate a formal ethics code for the Court comes amidst media reports highlighting several amended financial disclosure reports filed by various justices. While many on the political left, such as Senator Chris Van Hollen (D-MD), are firmly pushing for the implementation of an ethics code on the Court, many on the right question the constitutionality of such a legislative mandate and question whether the recent focus on judicial ethics by Democrat leaders is anything more than a partisan political ploy.

Foreign Agents Registration Act (FARA)

Senator Chuck Grassley Re-Introduces Foreign Agents Disclosure and Registration Enhancement Act – Senator Chuck Grassley (R-IA) has reintroduced the Foreign Agents Disclosure and Registration Enhancement Act in an effort to give the US Attorney General more tools to investigate FARA violations and increase oversight. The bill, S. 1364, has bipartisan support for reforming the current statutory framework to increase public awareness of foreign entity lobbying campaigns. If passed, the act would increase penalties for FARA registration violations, implement oversight checks, improve FARA advisory opinion transparency, and require the Government Accountability Office to study whether and to what extent the Lobbying Disclosure Act exemption is being abused to conceal foreign lobbying activity.

Fugees' Rapper Pras Michel Convicted In Foreign Influence Case – Former Fugees rapper and Grammy-award winner Pras Michel was recently convicted on 10 separate charges related to conspiracy, witness tampering, and failure to register as a foreign agent for China. Michel allegedly collected $100 million from Malaysian billionaire Jho Low to influence the administrations of both President Obama and President Trump. Michel used funds from Low to buy access to fundraising events supporting former President Obama and schemed with Low to have a Chinese dissident living in the US sent back to China. In a statement regarding the conviction, federal prosecutors asserted that the guilty verdict against Michel “demonstrates that anyone who engages in unlawful foreign-sponsored efforts to influence American officials, our elections, or the criminal justice system will be brought to justice.” Michel and his attorney say that they plan to appeal the ruling.

Non-Federal Elections & Campaign Finance

North Carolina Supreme Court Reverses Electoral District, Voter ID Rulings Decided Last Year – North Carolina’s Supreme Court recently acted to reverse its 2022 rulings that had previously declared unconstitutional the state’s former Congressional redistricting maps and voter photo identification law. In an unusual move, the now Republican-controlled state Supreme Court revisited the rulings made by the previous Democrat-leaning court and discarded its determinations on both key electoral issues. With this reversal, North Carolina’s 2018 voter ID law will go back into effect for the 2024 election cycle, and the state’s legislators will again have broad leeway to draw electoral boundaries as set forth in the state constitution. The 2022 ruling from the State Supreme Court had originally served as the basis for the US Supreme Court to grant certiorari on an appeal in the Moore v. Harper case. Given the reversal, however, the US Supreme Court may drop the case for mootness.

Proposed Constitutional Amendment Would End Montana Supreme Court Elections – The Montana House of Representatives recently passed a proposed amendment to the state constitution that would take the power of electing state Supreme Court justices away from voters. The amendment, House Bill 915, would alter the current construct and give the governor the ability to appoint justices, subject to state senate confirmation. While Montana judicial elections are technically non-partisan in nature, the races garner a significant amount of political activity. For example, in 2022, upwards of $2.9 million in outside expenditures were made concerning state supreme court races in a single month. Despite passing the state house, House Bill 915 fell short of passage in the state senate in the current legislative session. It will undoubtedly, however, be the subject of further consideration in the future.

Florida Senate Passes Bill Poised to Make More Changes to Election Laws – The Florida Legislature introduced S.B. 7050 and its companion H.B. 7067 last month, proposing an overhaul of current campaign finance laws. Among many other changes, the bill would mandate a disclaimer on voter ID cards that possession of the card does not automatically make a person eligible to vote, require certain classes of first-time voters to cast their ballots in person, and change absentee ballot request deadlines. It would also increase fines and penalties for organizations that conduct voter registration drives and require these groups to issue receipts to each registrant. The bills have passed both the state Senate and House chambers and currently await signature by Governor Ron DeSantis.

Bills To Boost Campaign Finance Transparency Hit Dead End In North Dakota Legislature – The North Dakota Senate voted against a House Bill 1441 last month, killing a proposal that would have increased expenditure reporting requirements for multicandidate committees in the state. This is not the first proposed campaign finance reform rejected by the North Dakota legislature this year, as it previously voted against increased reporting requirements targeting “dark money” groups operating in the state. However, two smaller bills – House Bill 1529 and House Bill 1257 – were passed and signed by the Governor last month. The former bill provides for a legislative study of campaign finance in the state, and the latter bill imposes a disclosure requirement on school board candidates.

Montana Lawmakers Move to Slash Timeline for Prosecuting Campaign Finance Violations – Montana legislators passed House Bill 947 last month in a move that will halve the statute of limitations for prosecuting campaign finance violations and decrease the length of time regulated entities are required to retain corresponding records. Instead of allowing four years for the Montana Commissioner of Political Practices to pursue such violations, the new law would decrease the statute of limitations to two years.

Non-Federal Lobbying & Ethics

Hawai`i Governor Signs Seven Government Ethics Reform Bills – Hawai`i Governor Josh Green has signed into law seven new pieces of legislation designed to increase transparency on lobbying efforts in the state. The reform package targets lobbying reporting requirements and comes in the wake of two former Hawai`i lawmakers accepting bribes in exchange for influencing legislation. One of the bills requires state lobbyists to disclose the specific piece of legislation or program number discussed with legislators on lobbying activity reports, while another expands the state gift ban to prohibit lobbyists from giving – and lawmakers from accepting – gifts. Another bill placed a $100 limit on cash donations to political campaigns. As a whole, Governor Green and the Hawai`i legislature’s actions in the wake of the scandal demonstrate the state’s willingness to institute government reform and root out corruption.

Judge Rejects Ex-Missouri Lawmaker's Push to Overturn Revolving-Door Lobbying Ban – US District Court Judge Doug Harpool recently upheld Missouri’s state revolving-door law that places a two-year ban on former lawmakers and legislative staff leaving their posts to work as lobbyists. Former state representative Rocky Miller and former legislative assistant John LaVanchy recently challenged the law in a suit against the Missouri Ethics Commission, claiming the restriction was violative of their First Amendment rights and constituted an unlawful limitation on their employment opportunities. Judge Harper upheld the law, which passed as part of the “Clean Missouri” initiative in 2018, because of its limited scope and role in combatting quid pro quo corruption or the appearance thereof.

The Philadelphia Board of Ethics Is Accusing Mayoral Candidate Jeff Brown of Illegally Coordinating with a Super PAC – The Philadelphia Board of Ethics is pursuing judicial action against Democrat mayoral candidate Jeff Brown for allegedly coordinating with a super PAC - For a Better Philadelphia - by fundraising for the group’s nonprofit arm. The Board asked the PAC to stop making expenditures while it investigated the coordination allegations and ultimately referred the case to Pennsylvania’s Court of Common Pleas Court, which issued an emergency order prohibiting the group from making any more expenditures or running advertisements ahead of the May 16^th primary election for mayor. While For a Better Philadelphia has complied with the orders, the investigation cites lengthy communications between Brown, his campaign manager, and an attorney for both the PAC and nonprofit regarding fundraising efforts for the organization. Brown admitted to fundraising for the organization but claims he ceased such activity when he became a candidate for mayor.

KS Governor Signs Compromise Bill to Change Ethics Commission Procedures – Kansas Governor Laura Kelly recently signed into law Senate Bill 208, instituting several reforms to the Government Ethics Commission’s subpoena powers and campaign finance enforcement mechanisms. Notably, the law creates a new five-year statute of limitations for actions before the Commission, raises registration fees for political committees, and opens the door for state legislators to solicit campaign contributions from non-lobbyists during session.

San Francisco MTA Commissioner Resigns Following Admission of Illegal Lobbying Conduct – San Francisco Municipal Transportation Agency (“SFMTA”) Board of Directors’ Vice Chair Gwyneth Borden recently resigned in the wake of admitting that she illegally lobbied city officials and staff for six months in 2019 and 2020, according to a stipulation in a recent order from the San Francisco Ethics Commission. Borden faced fines of up to $37,500 for lobbying before she resigned, stemming from a $12,500 consulting fee she received for assisting a restaurant group with a permitting issue while still employed by SFMTA. The accusations associated with the case detail emails made by Borden to staffers, supervisors, and commissioners in the city’s Planning Department between 2019 and 2020. Even if Borden had registered as a lobbyist for the described activity, however, she would have been prohibited from lobbying on behalf of the restaurant by city ethics laws applicable to her role at SFMTA.

Nonprofit Compliance and Disclosure

Indiana Nonprofit Disclosure Bill Nears Passage – In light of recently passed legislation, Indiana nonprofits may no longer have to disclose their donor data to state and local government agencies. House Bill 1212 recently passed the state House and Senate, strengthening protections concerning nonprofit donor privacy. The new legislation will implement new protections guaranteeing nonprofit donor anonymity and ensuring nonprofit organizations cannot be forced by any Indiana state or local government to divulge personal information regarding entity contributors. Government agencies will also not be able to request or require that contractors or grantees share information regarding nonprofits they have supported. The bill would not affect existing campaign finance and lobbying reporting requirements, but rather would be limited to nonprofit organizational disclosure regimes.

IRS Rejects 501(c)(3) Application for Exemption on Committee Identification as Political Party – The IRS recently issued a determination ruling that an organization did not qualify for a tax exemption under IRC Section 501(c)(3) because it described itself as a “political party,” despite the fact that its activities did not meet the legal standard for a non-exempt “action organization.” While the organization’s Articles of Incorporation and Bylaws categorized the group as a political party and a “civil democratic party,” the organization warranted to the IRS that none of its activities will attempt to influence legislation nor will it attempt to support or oppose candidates in political campaigns. Despite this, the IRS still determined that the organization could not receive tax exempt status because it was an “action organization” that spends a substantial part of its activities attempting to influence legislation by advocating for the adoption or rejection of legislation. Thus, despite the organization’s actual activities, the IRS’s determination demonstrates that it will take an applicant’s self-description at face value when determining eligibility for exempt status.

The Courts and Free Speech

Influential Conservative Nonprofit Group Does Not Have to Reveal Donors, Face Campaign Finance Sanctions, Denver Judge Rules – Denver District Court Judge David H. Goldberg ruled last month that that political nonprofit Unite for Colorado did not violate state campaign finance law by failing to register as a ballot initiative committee and filing corresponding donor disclosure reports. Colorado law mandates committees register as ballot initiative committees with the state when their spending on a ballot initiative is the committee’s “major purpose.” While the Colorado Secretary of State initially pursued sanctions against Unite for Colorado, Judge Goldberg found that such sanctions were unwarranted because the committee’s spending on three state ballot initiatives only amounted to about 10.5% of the committee’s overall spending. In previous “major purpose” cases, judges have found the threshold to be between 30% and 50% of a committee’s spending before it would trigger committee registration and reporting requirements.

Anchorage Assembly May Crack Down On Political Speech By Labeling It ‘Hate’ Speech – The Anchorage, Alaska Assembly recently considered an ordinance that would crack down on political speech at assembly meetings, giving members of the body the ability to end certain public comments. The ordinance specifically targets speech that contains misinformation, disinformation, or extremist conspiracies and would give the Assembly the ability to curtail speech that it considers to fall in any of these categories. Observers voice concern that that the proposed ordinance would constitute an unlawful and unconstitutional curbing of protected political speech, rather than just preventing hate speech and political violence as the ordinance purports. The Assembly has postponed its decision on the controversial measure.

Practice Pointers

This month’s Practice Pointers highlights the changing landscape of nonprofit disclosure regimes across the US. While some states may have stronger disclosure frameworks in place than others, it is important for nonprofits operating nationwide to be cognizant of how their activities in different states might inadvertently create donor disclosure risk and/or political committee qualification concerns. While some states may have stronger disclosure frameworks in place than others, it is important for nonprofits operating nationwide to be cognizant of the different donor disclosure requirements activities in certain states they might trigger. As donors and the nonprofits to which they give value privacy, navigating the variety of nonprofit disclosure frameworks becomes essential to the consideration of if – and how – to engage in each jurisdiction. Some states, such as Indiana, may have more protections in place to ensure donor privacy, while others like Colorado may police nonprofit disclosure in a more aggressive fashion. Due to the variety of enforcement postures in each state, it becomes crucial for nonprofits to thoroughly vet the regulations in each state before advocating, educating or influencing in the policy and political spaces.

As Dentons Political Law Team regularly advises nonprofit organizations on compliance and other issues related to campaign finance, election, and lobbying law, please do not hesitate to reach out for advice on any specific questions you or your organization may have.

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