Introduction

Welcome to the July 2024 edition of the Political Law Playbook. Of particular note in this month’s federal coverage is a recent federal court’s ruling that the Federal Election Commission (“FEC”) erred in dismissing a “watchdog” group’s complaint alleging that Hilary Clinton’s presidential campaign committee violated federal campaign finance law by accepting millions of dollars of undisclosed coordinated contributions from an outside group.

As we continue to await the Department of Justice’s notice of proposed rulemaking that will announce proposed changes to the Foreign Agents Registration Act’s (“FARA”) implementing regulations, this edition highlights the DC Court of Appeals’ recent dismissal of the Department’s suit against casino-magnate Steve Wynn who, the Department claimed, failed to properly register as a foreign agent.

At the state level, we continue to highlight recent efforts of state legislatures to expand campaign finance laws to ban foreign money. We also cover the Texas Ethics Commission’s new rule requiring social media influencers to disclose their paid political work, and the Commission’s investigation into a former state representative for his alleged violation of the state’s “revolving door” ethics rules.

Finally, this edition features two of the recent US Supreme Court decisions that will impact the highly contentious 2024 election season.

Federal Elections & Campaign Finance

Clinton Campaign Case to Prompt Review of FECA’s Disclosure Exemption – A three-judge panel of the US Court of Appeals for the DC Circuit recently ruled that the FEC erred in dismissing a “watchdog” group’s complaint, which alleged that Hilary Clinton’s presidential campaign committee violated the Federal Election Campaign Act (“FECA”) by accepting millions of dollars of undisclosed coordinated contributions from an outside group. Under FECA, a candidate’s campaign committee must disclose the money that an outside political committee spends on coordinated communications as a contribution and as an expenditure it made. The outside political committee must disclose these costs as a contribution to the campaign. However, an exemption to this disclosure scheme exists for unpaid “communications over the Internet.” In dismissing the watchdog’s group’s complaint, the Commission concluded that, under this exemption, the money that the outside group in question spent on its unpaid online communications were exempt from FECA’s disclosure requirements. In the FEC’s view, all “input costs” – money spent on activities that result in an internet communication – for unpaid internet messages or posts are exempt. Rejecting this view, the DC Circuit panel held that the FEC stretched this exemption beyond its lawful limits and ordered the Commission to consider enforcement action against Clinton’s campaign and the outside group. If the FEC fails to comply with this ruling, the watchdog group that brought the complaint may pursue a private lawsuit against Clinton’s campaign committee and the outside group.

Minnesota US Senate Nominee Accused of Misusing and Misreporting Campaign Funds – A campaign finance transparency group recently filed a complaint with the FEC alleging that US Senate candidate Royce White misreported his Senate campaign funds and misappropriated campaign funds during a previous run for Minnesota’s 5^th Congressional District in 2022. Mr. White, a former NBA basketball player, is challenging Senator Amy Klobuchar, who is running for her fourth term in office. The transparency group’s complaint states that in White’s Senate campaign fund, a singular disbursement of $216.38 was reported to the FEC, despite a campaign announcement video and professional website having disclaimer statements stating they were “Paid for by Royce White for Senate.” The complaint further alleges that White misappropriated more than $150,000 of his 2022 campaign’s funds by using wire transfers, cash withdrawals, and checks from the campaign’s account to make payments for fitness clubs, cosmetics, clothing, entertainment, and other personal expenses. White has denied having misappropriated campaign funds and is in the process of reviewing and revising the allegedly problematic campaign filings.

FEC to Modernize Filing Software – With federal political committees anticipated to report approximately 650 million different financial transactions by the end of the 2023-2024 election cycle, efforts are underway at the FEC to update its filing software, called FECFile, to accommodate the anticipated surge of contributions and expenditures. The Technology Modernization Fund, an investment program for funding federal technology modernization projects, recently awarded the FEC $8.8 million to update and improve its filing software program. The FEC has characterized its modernization of FECFile as “essential” to the Commission’s ability to manage disclosure of federal political transactions moving forward. The project is set to be completed by 2027.

Federal Lobbying & Ethics

SCOTUS Rules Tokens of Appreciation to State and Local Officials Are Not Bribes – As the June 2024 Edition of the Playbook highlighted, government gift and ethics laws can be easy to violate. A recent US Supreme Court decision partially struck down a federal anti-corruption law that bans state and local officials from accepting gifts over $5,000 from a person who was awarded a government benefit or contract due to the efforts of the official. In a 6-3 decision, the Court overturned the conviction of an Indiana mayor who had solicited and accepted a $13,000 check from local truck dealership owners after he helped them secure city contracts for the purchase of their garbage trucks. The opinion draws a distinction between a bribe and a gratuity, asserting that the law at issue criminalizes bribes, not gratuities. Bribery, according to the opinion, requires proof of an illicit deal, while a gratuity may be a gift or a reward for a past favor. As such, under federal law, officials may be charged and prosecuted for bribery, but not for taking money for past favors if there was no proof of an illicit deal. Delivering the opinion of the Court, Justice Kavanaugh stated that the law does not make it a crime for state and local officials to accept small gratuities as tokens of appreciation for their work such as lunches or framed photos, but rather leaves it to state and local governments to regulate gratuities to state and local officials. Justice Ketanji Brown Jackson wrote in dissent that officials who use their public positions for private gain threaten the integrity of the country’s government institutions.

Sen. Menendez Found Guilty in Corruption Trial – On July 16, Senator Bob Menendez (D-NJ) was found guilty in his federal corruption trial on all 16 counts contained in the relevant indictment, which included bribery, acting as a foreign agent, obstruction of justice, extortion, and conspiring to commit these crimes. As we reported in the March Edition of the Playbook, the obstruction charges were added after a businessman associated with the Senator pled guilty to charges stemming from his role in the crimes. The conviction is a win for the Department of Justice (“DOJ”) in its efforts to prosecute violations of the Foreign Agents Registration Act, as Menendez was the first sitting lawmaker prosecuted under the Act. After the verdict, Senator Menendez vowed to appeal the conviction, and immediately faced calls from his colleagues in the Senate to resign. Senator Menendez at first rebuked such calls, but recently announced that he will be resigning from public office effective August 20, 2024.

Rep. Porter Introduces Bills to Modernize Lobbying Database and Extend “Cooling-Off” Period – Representative Katie Porter (D-CA) recently introduced a package of bills intended to help Congress monitor federal lobbying activities more efficiently and curb the federal government’s “revolving door” – a term used to describe the practice of former members/employees of Congress and high-ranking executive branch officials lobbying the offices or agencies for which they used to work. If enacted, one of the bills titled the “Lobbying Disclosure Modernization Act” would amend the Lobbying Disclosure Act of 1995 to establish a single federal lobbying disclosure database for the public to search. Another bill titled the “Block the Revolving Door Act” would, if enacted, establish a uniform, two-year post-employment ban on federal lobbying for former Members of Congress and other senior government officials. In the June 2024 Edition of the Playbook we reported on Representative Jared Golden’s (D-ME) new bill that would cut off the revolving door entirely for members of Congress by permanently banning them from working as federal lobbyists. Both of Representative Porter’s bills have been referred to the House Committee on the Judiciary. 

Foreign Agents Registration Act

DC Court of Appeals Upholds Dismissal of FARA Lawsuit Against Casino Magnate – Steve Wynn, the former CEO of Wynn Resorts, will not have to retroactively register under FARA according to the US Court of Appeals for the DC Circuit. In May 2022, the DOJ sued Wynn, alleging that he failed to register under FARA while acting on behalf of the People’s Republic of China (“PRC”). The DOJ’s complaint alleged that in 2017, in an effort to further his casino business, Wynn conveyed the PRC’s request to the Trump Administration to cancel a visa of a Chinese national seeking asylum in the United States to escape a corruption charge in the PRC. The DC Circuit’s decision upholds a lower court’s dismissal of the DOJ’s suit, asserting that FARA does not permit the Department to bring suit against an individual who allegedly failed to comply with the law in the past but is no longer under a legal obligation to register. 

Non-Federal Elections & Campaign Finance

New North Carolina Law Loosens Certain Campaign Finance Rules – North Carolina’s legislature recently enacted a law which will allow national political groups to give unlimited amounts to state parties and affiliated political committees and that amends the state’s campaign finance reporting requirements for these groups. The law allows national political groups to collect donations from individuals, corporations, and labor interests, and route some of the funds to state political committees, which can then in turn give to their preferred North Carolina candidates. The law also removes state reporting obligations for federal political action committees engaging in state and local political activity, which historically required the committees to file separate periodic contribution disclosure reports with the State Board of Elections. North Carolina Governor Roy Cooper (D) originally vetoed the bill on June 21, 2024, but the legislature – which is controlled by Republicans on a supermajority basis – overrode Cooper’s veto by a party-line vote with 70 Republicans voting in the affirmative and 46 Democrats voting in the negative. 

Maricopa County’s Failure to Enforce Campaign Finance Violations Lead to Millions in Fines – According to an analysis of public campaign finance records undertaken by The Arizona Republic, the Maricopa County (AZ) Recorder’s Office failed – for a period of at least four election cycles –  to report organizations that repeatedly neglected to file reports or pay late fees to the Maricopa County Attorney’s Office for prosecution. Under the state’s campaign finance laws, all political committees must file regular reports according to prescribed schedules, and all filing officers — city clerks, county election officials and the Arizona Secretary of State's Office — must notify the committees when such reports are late or missing. However, the law does not technically require those filing officers to impose penalties for noncompliance. In Maricopa County, the most populus county in the state, the current and previous Recorder’s Offices appear to have taken a universal “hands off” approach to such violations. Maricopa County’s approach sits in contrast with the enforcement appetites of other state agencies, such as the Pinal County Recorder’s Office, which has aggressively enforced campaign finance requirements.

Alaskan Constituents Attempt to Repeal Ranked Choice Voting Ahead of the November Election – As discussed in the February 2022 Edition of the Playbook, Alaska currently follows a unique – and often confusing and legally controversial – system of casting ballots known as ranked-choice voting. In January 2022, the Alaska Supreme Court upheld the system after it was approved by Alaskan voters via ballot referendum the previous year. Despite the system’s recent implementation across the state, an advocacy group called Alaskans for Honest Elections is now seeking to repeal the ranked-choice framework and restore the use of partisan primaries through a new ballot measure. In response to a lawsuit filed by a group of supporters of Alaska’s ranked choice voting, a Superior Court judge in Anchorage ruled that the Division of Elections acted properly in allowing sponsors of the repeal an opportunity to correct the defects in their recall petition. If the lawsuit against the recall petition fails, the measure will be on the November election ballot for voter consideration.

Texas Influencers Now Required to Disclose Paid Political Posts – The Texas Ethics Commission (“TEC”) recently approved a new rule requiring social media influencers to disclose their paid political work. As we reported in the April 2024 Edition of the Playbook, an investigation by The Texas Tribune which revealed that an organization hired dozens of influencers to defend impeached state Attorney General Ken Paxton, spurred the Commission to consider requiring social media influencers to disclose if they are being paid to post or share political advertisements. Rules governing elections in Texas mandate that the names of those who finance political ads appear in television, print, radio, or digital mediums. Social media users, however, were only required to label posts as political ads if their own advertising costs were more than $100 during a reporting period. The updated rule from the TEC mandates clear disclosure regarding such activities, requiring that an individual receiving compensation for promoting a post or creating their own content featuring a political figure disclose this to their audience. Political candidates and officials are allowed to post ads without labels as long as their profiles are distinctly marked with their complete names, as per existing rules. The amended rule will go into effect twenty days following submission to the Secretary of State. The final rule will then be published by the Secretary of State’s office and its effective date will be listed in the Texas Register.

Non-Federal Lobbying & Ethics

Georgia Campaign Finance Commission Finds State Representative Violated Campaign Finance Laws – Following an 18-month investigation into state lawmaker Carl Gilliard, the Georgia Government Transparency and Campaign Finance Commission recently concluded that Gilliard engaged in “egregious” violations of the state’s campaign finance laws when he utilized campaign funds for his own personal purposes and failed to disclose certain expenditures as required by law. The Commission determined that Representative Gillard improperly used more than $54,000 in campaign contributions in 2022 for personal purposes and that his campaign committee likewise failed to disclose approximately 110 expenditures totaling more than $53,000 during that same year. Through filings by his lawyer, Mr. Gilliard acknowledged that while he was ultimately responsible, he blamed consultants who he believed were filing the necessary reports. Representative Gilliard agreed to pay a $17,000 fine, but is allowed to use campaign funds for the payment.   

Oregon Ethics Commission Will Not Investigate Complaints Against Gov. Kotek – The Oregon Government Ethics Commission has decided not to pursue an investigation into Oregon Governor Tina Kotek’s since-abandoned plan to give her wife an expanded policy role in her administration. After a 60-day preliminary review of allegations that Kotek broke state ethics laws by providing her spouse with office space and assigning state police officers and other staff to assist her, the Commission deadlocked in a 4-4 tie on whether to proceed with a more thorough investigation of the complaints. The preliminary review concluded that there is not a “substantial objective basis” to believe that the governor violated Oregon’s laws related to nepotism, conflicts of interest, and prohibited use of office. The Commission’s deadlock vote resulted in an administrative dismissal of the matter.

Colorado Secretary of State’s Office Finds Advocate Engaged in Illegal Lobbying – The Colorado Secretary of State’s Elections Division recently determined that a pro-wolf advocate who lobbied state lawmakers during the 2024 session violated the state's lobbying laws. In a settlement with the state, Mr. Stephen Capra admitted he violated Colorado law by failing to register as a lobbyist and file disclosure documents in conjunction with his wildlife advocacy efforts. The bill that Mr. Capra lobbied, which concerned wild carnivores and the livestock business, ultimately failed to advance out of the state’s House Agriculture, Water & Natural Resources Committee. As a result of the Commission’s determination, Capra was ordered to register and file the disclosure statements required of a Colorado state lobbyist, and likewise pay a $250 fine. In issuing such a lenient penalty package to Mr. Capra, the Elections Division cited several mitigating factors, including the relatively limited nature of the violation and the respondent’s cooperation with the investigation. The settlement materials also indicated that the case would be dismissed.

Former Texas Lawmaker Currently Under Investigation for Alleged Revolving Door Violations – Former Texas state Representative Chris Paddie, who resigned from his seat in March 2022, has recently become the target of an investigation by the TEC for his alleged violations of Texas’ revolving-door law. Under this law, departing legislators who make campaign contributions to fellow lawmakers may not lobby in Texas for two years after their last donation. In the two years prior to Paddie registering as a lobbyist in December 2022, he reportedly made roughly $50,000 in campaign contributions to other lawmakers. In February 2023, TEC commissioners issued a unanimous opinion which concluded that the law does not permit a person to cure a past violation or reduce the two-year waiting period by reimbursing his or her campaign with personal funds. Following the opinion’s release, Paddie’s lawyer announced that he had terminated his lobbyist registration effective immediately. Now, the TEC is investigating Paddie’s activities during the three-month period he was registered as a lobbyist, as well as over a longer 33-month period, to determine whether he violated the revolving door law. If Paddie is found to have violated the law, the TEC could potentially fine him for as much as three times the amount he was paid to lobby.

Federal Judge Blocks Enforcement of Florida’s Financial Disclosure Rules for Elected City Officials – In June, a federal district court judge in the Southern District of Florida issued a preliminary injunction preventing members of the Florida Commission on Ethics from enforcing a state law requiring extensive financial disclosure by the state’s mayors and city council members. Last year, the Florida state legislature enacted a law requiring elected municipal officials to file a significantly more detailed financial disclosure form. The prior financial disclosure form required such officials to disclose their employers, primary sources of income, and major assets. The new financial disclosure form, however, requires such officials also disclose their net worth, income, and the value of their personal assets and liabilities. The deadline for submitting the new financial disclosure form was set at July 1. Candidates for elected municipal office were also required to file the new form before they qualified for the ballot. In issuing the injunction, the federal judge found that the financial disclosure requirements at issue under the new law raise certain First Amendment issues of concern. Under the new law, which is now on pause, officials who fail to comply after a 60-day grace period are subject to fines of $25 a day, up to $1,500.

Pay-to-Play

Arizona Governor Accused of Alleged “Pay-to-Play” Scheme – The Arizona Attorney General’s Office recently opened an investigative review of Governor Katie Hobbs in regard to an alleged “pay-to-play” scheme involving large corporate and personal donations to Hobbs’s inaugural committee, gubernatorial campaign, and the Arizona Democratic Party. The inquiry commenced following a report published by The Arizona Republic, which revealed that a corporate supporter of Hobbs, Sunshine Residential Homes Inc., received a nearly 60% rate increase in funding from the Arizona Department of Economic Security during the first year of the Hobbs Administration. The increase in state funding occurred in the wake of Sunshine Residential and individuals associated with the company making approximately $200,000 in donations to Hobbs’ inaugural committee, campaign, and other aligned political organizations following her election. These donations purportedly followed closely on the heels of an additional $200,000 in previously reported political contributions to the Arizona Democratic Party and Hobbs-aligned political organizations during the 2022 state gubernatorial race. In response to the newspaper’s reporting, Republican lawmakers sent a letter to the Attorney General requesting an investigation into the matter. The Attorney General’s office confirmed that it will begin an investigation into the alleged pay-to-play scheme.

The Courts and Free Speech

SCOTUS Remands Social Media Moderation Case Due to the Lack of Standing – Earlier this month, the US Supreme Court rejected an effort to restrict White House officials and other federal employees from pressuring social media companies to remove posts from their platforms that the US government deems problematic, saying the challengers did not have legal standing to bring the case. State officials from Missouri and Louisiana, along with several individual social media users, filed suit against the Biden Administration alleging that it violated the First Amendment by operating a sprawling federal “censorship enterprise” to influence platforms to modify or take down posts. The Court ruled 6-3 that the states and individuals could not show that they were directly harmed by the communication between federal officials and social media platforms, and therefore did not have the legal standing to bring suit. Further, the majority opinion asserted that the state and individual petitioners failed to establish the likelihood of future harm at the hands of the defendants in such a way that would justify forward-seeking relief.

Practice Pointers

The threat of artificial intelligence (“AI”) influencing US political processes continues to be in the forefront of the minds of federal and state lawmakers alike. As we have detailed over the past several editions of the Playbook, state lawmakers across the country are attempting to regulate the use of AI in campaign advertisements through new legislation with varying degrees of success. At the federal level, the Senate Judiciary has likewise held multiple hearings over the past year on the development and regulation of AI. Senator Richard Blumenthal (D-CT), Chair of the Senate Judiciary Subcommittee on Privacy, Technology, and the Law, questioned a panel of witnesses about the threat of artificial intelligence to the integrity of the electoral system in a hearing last July. The Committee’s Ranking Member – Senator Josh Hawley (R-MO) – also presented research from Google and MIT establishing how large language models can predict public opinion and how such tools could be used to manipulate voters close to election day. While Congress has introduced many iterations of AI-regulating bills, a Congressional Research Services report shows that most are never enacted, and often fail to pass out of even one legislative chamber. The Dentons Political Law Team continues to stay abreast of various developments concerning the regulation of AI usage in political expenditures on both the federal and state levels. Please do not hesitate to reach out if your organization or client has questions about this continuously evolving issue.

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