Introduction

Welcome to the May 2024 edition of the Political Law Playbook. This month’s federal coverage discusses an important recent advisory opinion issued by the Federal Election Commission (“FEC”) regarding the ability of federal candidates to fundraise for third-party groups engaging in issue advocacy and ballot initiative matters during the present election cycle, and a recent US Government Accountability Office (“GAO”) report highlighting an immense backlog of unresolved federal lobbying violation matters. At the state level, this month’s newsletter highlights an array of political transparency actions recently implemented across the county. In Florida, Governor Ron DeSantis recently signed into law disclosure requirements for political advertisements made using artificial intelligence, while Rhode Island lawmakers moved to ban “deepfakes”. This edition also highlights interesting developments in the Georgia General Assembly’s efforts to implement a proposed state-level foreign agent registration framework.

Federal Elections & Campaign Finance

FEC Complaint Alleges Campaign Finance Violations Connected to Senator Cruz's Podcast Publishing Deal with Prominent Media Company – Two campaign finance “watchdog” groups filed an investigation request with the FEC imploring the Commission to investigate possible violations of Federal Election Campaign Act (“FECA”) by Senator Ted Cruz (R-TX). The filing alleges that Senator Cruz violated FECA after iHeartMedia, a San Antonio-based audio media company that publishes the Senator’s podcast, made deposits to a super PAC supportive of the Senator’s reelection campaign, which then reported the payments as “digital revenue” or “digital income” as opposed to campaign contributions. In 2022, iHeartMedia entered into a syndication agreement with Cruz to be the host platform for his podcast. The Senator has previously said that the funds in question are “associated with sales” from said podcast. Federal law prohibits federal candidates and officeholders, their agents, and any entities that they directly or indirectly establish, finance, maintain or control, from directing or transferring contributions raised outside of FECA’s contribution limits and source prohibitions, i.e., “soft money,” to super PACs. The complaint alleges that Senator Cruz’s agreement with iHeartMedia resulted in the direction of soft money in connection with a federal election and that the super PAC misreported the iHeartMedia payments as “other receipts” rather than “contributions.”

FEC Approves Advisory Opinion Regarding Federal Candidate Fundraising for State Ballot Measures – On May 1, the FEC approved an advisory opinion, Advisory Opinion 2024-05, in response to a request from Nevadans for Reproductive Freedom (“NRF”), a Section 501(c)(4) nonprofit organization. NRF has filed a state constitutional initiative in Nevada and is in the process of collecting signatures needed for the measure to be placed on the general election ballot. The organization asked the Commission whether a federal candidate or officeholder may solicit funds for NRF and its PAC without regard to amount limitations or source restrictions applicable to federal candidates both before and after the initiative qualifies for the ballot. The Commission answered this question in the affirmative. The opinion may have significant consequences on the 2024 presidential election as well as future elections, as both President Biden and former President Trump can now raise money for outside groups advocating for ballot measures without being limited by dollar amounts or sources.

Former Congressman Asks Court to Toss a Six-Figure FEC Penalty – Former Congressman David Rivera (R-FL) recently asked the 11th Circuit Court of Appeals to let a jury decide whether he made campaign contributions in another person’s name to undermine a political rival in a Florida election. The FEC alleges that Mr. Rivera secretly directed more than $75,000 to a Democrat primary candidate as part of an effort to weaken the campaign of Rivera’s expected general election opponent. The contributions at issue were made during Rivera’s 2012 campaign for re-election to Congress in Florida’s 26th Congressional District. A federal district judge ordered Rivera to pay a $456,000 fine for violating FECA. The former congressman was also separately indicted for criminal offenses including conspiracy to commit money laundering.

Federal Lobbying & Ethics

US Government Accountability Office Report Finds Thousands of Unresolved Lobbying Violations – A recent report released by the United States Government Accountability Office (“GAO”) to Congress found that thousands of reports of lobbying violations remain unresolved years after they were referred to the US Attorney’s Office (“USAO”) for the District of Columbia. Under the Lobbying Disclosure Act (“LDA”), federal lobbyists must file new registrations with the Secretary of the Senate and the Clerk of the House within 45 days of qualifying as a lobbyist, as well as quarterly disclosure reports detailing specific lobbying activities and how much they were paid, and semiannual political contribution reports. When a lobbyist or firm fails to comply with these reporting requirements, the Secretary of the Senate and the Clerk of the House notify them and make referrals to the USAO for DC only when they fail to provide a proper response. According to the report, about 74 percent of the 3,622 referrals the USAO for DC has received for alleged quarterly lobbying reporting violations since 2014 were still pending as of January 2024. The GAO also found around two-thirds of alleged political contribution reporting violations are still open. While it is frequently said that the LDA operates on an “honor system,” the USAO does have the authority to respond to alleged violations — including with potential criminal and civil penalties. This longstanding logjam, however, raises questions about the USAO’s ability and appetite to undertake active enforcement of the LDA.

Foreign Agents Registration Act

Rep. Cuellar Indicted Over Alleged Bribery Scheme – Representative Henry Cuellar (D-TX) and his wife were charged earlier this month with allegedly participating in a yearslong $600,000 bribery scheme involving Azerbaijan and a Mexican bank, according to a recently unsealed federal indictment. The indictment’s allegations center on the Representative’s purported efforts on behalf of an oil and gas company owned by Azerbaijan’s leaders, as well as an unnamed bank based in Mexico City. Congressman Cuellar is accused of acting as an agent of a foreign entity while a US government official by delivering a speech favoring Azerbaijan in Congress and inserting provisions into aid bills to benefit those who were paying bribes to his family. The government also asserts that the congressman agreed to influence legislative activity and to advise and pressure US executive branch officials regarding measures beneficial to the Mexican bank. In response to the indictment, Cuellar issued a statement vehemently denying any wrongdoing and Minority Leader Hakeem Jeffries (D-NY) informed the media that Cuellar would take leave from his post as the top Democrat on the Homeland Security Appropriations Subcommittee while he responds to the charges.

Georgia Governor Vetoes State-Level Foreign Agent Bill – Earlier this month, Georgia Governor Brian Kemp vetoed a bill that would have required registration and disclosure for agents of foreign principals operating within the state with the Georgia Government Transparency and Campaign Finance Commission.  The bill, which was loosely based on the existing framework for such entities at the federal level under the Foreign Agents Registration Act (“FARA”), would have had far-reaching compliance impacts on foreign companies, nonprofits, academic institutions, religious institutions, and others operating in the state, as it did not include major exemptions intended to carve out certain common commercial and advocacy activities that exist in the federal framework. Noting that the bill would have imposed an array of unintended state-level registration requirements on agents of foreign principals, Governor Kemp vetoed the legislation at the request of its original sponsor.  Whether the bill will be reconsidered in future legislative sessions remains to be seen.

Nonprofit Compliance & Disclosure

House Ways and Means Committee Investigating Chamber of Commerce Donations – Earlier this month, the House Ways and Means Committee launched an inquiry into the US Chamber of Commerce’s acceptance of donations from The Tides Foundation – a left-leaning nonprofit group – in the wake of reporting by Breitbart indicating that the foundation was substantially funding “economic development”, “project support”, and “human rights and economic empowerment” projects. Committee Chair Jason Smith (R-MO) sent a letter to the US Chamber asserting that The Tides Foundation's sponsorships and partnerships with anti-business organizations appear to conflict with the Chamber’s mission to support small businesses, and likewise raise questions about the how the funding from Tides squares with the Chamber’s exempt purpose. Citing the media reporting surrounding the donations, Chairman Smith gave the Chamber until May 20 to explain why it accepted the funds in question, detail how the funds have been used, and describe what “taxpayers [are] getting in return for the US Chamber of Commerce Foundation’s tax-exempt status.”

Non-Federal Elections & Campaign Finance

Crypto Exchange Founder Sues Cal. Governor Newsom Recall Committee Alleging Theft and Fraud – Rescue California, the California recall committee that aimed to oust Governor Gavin Newsom from office in 2021, is facing a lawsuit stemming from the committee’s operational activities during its failed attempt to remove Newsom from the state’s highest office. In his suit, Jesse Powell, a founder and chair of one of the world’s largest cryptocurrency exchanges, alleges that the recall group’s current and former operators deceived him into making a $1 million contribution to the committee. Specifically, he claims that he made the contribution on the condition that his personally identifying details, such as his name and company, would be kept confidential and not disclosed to the public. After much back and forth between Powell and Rescue California’s operators about how to make a contribution, he ultimately made the contribution through an LLC. California law requires that political donations made through an LLC disclose the full name for the officer that approved the political activity. The state also requires that donations made via an intermediary include the name, address, occupation and employer of the donor. This information was allegedly not shared with Mr. Powell before he made the contribution. Accordingly, he was publicly disclosed as the source of the donation. In addition to the $1 million Mr. Powell wired to the committee, he is also seeking damages for their alleged theft and fraud.

Political Operatives Fined for Robocall Scheme Targeting Black Voters in New York – The New York State Attorney General’s Office announced last month that it has reached a settlement with two political operatives who used a robocall campaign to try to discourage black voters in the state from voting in the 2020 general election. The pair have agreed to pay a $1.25 million fine as part of the settlement. During the summer of 2020, around 5,500 New Yorkers received robocalls falsely claiming that if they voted by mail, their personal information would be sent to law enforcement agencies, debt collectors, and the government. The New York Attorney General stated that the calls came from a “sham” organization called Project 1599, which was created by the operatives, Jacob Wohl and Jack Burkman. A federal judge had also ordered the men to call back the voters they previously targeted and inform them that the original calls included false information. Mr. Wohl and Mr. Burkman were also charged with election fraud in 2020 in both Michigan and Ohio, where a judge sentenced them to hundreds of mandatory service hours registering new voters.

Philadelphia Ethics Board Changes its Rules on Super PAC and Candidate Coordination – In April, the Philadelphia Board of Ethics amended its campaign finance rules in response to its failed lawsuit against For A Better Philadelphia, which we detailed in the February edition of the Playbook. In Pennsylvania, super PACs are allowed to raise and spend money in unlimited amounts but are prohibited from working in coordination with candidates’ campaigns. The city’s Board of Ethics accused Jeff Brown of coordinating with For A Better Philadelphia, a super PAC, prior to announcing his run for mayor. A state judge rejected the Board’s suit because its regulations did not make it clear that the prohibition on coordination applied to people who have not yet announced their candidacies. Under the Board’s new rules, it will now consider coordination to have occurred when a candidate or someone who becomes a candidate directs or donates funds to, solicits funds for, or otherwise provides funds to an outside spending group in the twelve months before the covered election. The new rules, which only apply to city elections and not state or federal races, now go to the city Law Department for final approval and will be posted online by the Department of Records for 10 days before taking effect.

Wisconsin Voters Pass Ballot Measure Barring Private Funds for Election Administration – A ballot measure in Wisconsin amending the state’s constitution to bar the use of private funds in administering elections was passed by voters, receiving 54 percent of the vote. The measure asked Wisconsinites if the state's constitution should be amended to provide that private donations and grants may not be applied for, accepted, expended, or used in connection with the conduct of any primary, election, or referendum. This measure was proposed amidst Republican condemnation of Facebook founder Mark Zuckerberg’s significant donations to two groups that offered grants to local municipalities to conduct elections as they contended with the COVID-19 pandemic during the 2020 election cycle. The National Conference of State Legislatures reported in December that 27 states prohibit, limit or regulate the use of private or philanthropic funding to run elections. Wisconsin has now increased this number to 28 states.

New Arizona Law on Campaign Finance Reporting Takes Effect – The Governor of Arizona recently signed into law new legislation that will require public officials with four-year terms to file quarterly campaign finance reports during their tenure in office. Previously, state law had required that those who run for office file quarterly reports of contributions and expenses into their campaign committees starting only the year before they are up for election. The legislation is worded to take effect immediately and officials must file their first quarterly reports under the new framework by July 15.

California Sues Huntington Beach Over New Voter ID Law – As we detailed in the April Playbook, voters in Huntington Beach, California recently voted to approve a ballot initiative allowing city officials to require all residents who want to cast a ballot in municipal elections to show a valid ID. The state has now filed suit against the city, accusing Huntington Beach of violating California’s Constitution and the state election code. California Attorney General Rob Bonta asserts that the city’s charter does not exempt it from following state laws that govern voter registration and election integrity. Huntington Beach’s attorney has said that the city will “vigorously uphold and defend the will of the people.”

Florida Governor Approves AI Disclosure Requirement for Political Ads – Florida Governor Ron DeSantis signed into law last month a bill requiring political advertisements created using artificial intelligence (“AI”) to contain a disclosure of such use within the ad. Specifically, the disclosure must be in 12-point font for a print ad, be clearly readable and take up 4% of the space of a television or video ad, be viewable without the user taking any action in an internet ad, and be at least 3 seconds in an audio ad on the radio. As defined in the legislation, “generative artificial intelligence” means “a machine-based system that can, for a given set of human-defined objectives, emulate the structure and characteristics of input data in order to generate derived synthetic content including images, videos, audio, text, and other digital content.” Violators of the disclosure requirement are guilty of a first-degree misdemeanor punishable by a prison sentence of up to one year and a $1,000 fine. The Florida Elections Commission can also receive complaints of violations of the new requirement and impose their own punishment. The law takes effect July 1, 2024.

Oklahoma Election Task Force Recommends Significant Campaign Finance Changes – Oklahoma Governor Kevin Stitt’s Task Force on Campaign Finance and Election Threats released its report last month recommending some significant overhauls to the state’s campaign finance rules.  The task force recommended allowing candidates to accept unlimited contributions from individual and political parties, and also that the state triple campaign contribution limits from political action committees to candidates from $5,000 per election to $15,000 per election. Governor Stitt created the task force in November 2023 to study campaign finance and foreign investment and interference in Oklahoma elections. Ultimately, to effectuate the report’s recommendations, the state’s Legislature, Election Board, and the Ethics Commission would need to act.  

Rhode Island Lawmakers Move to Ban Political "Deepfakes" – Rhode Island legislators introduced a bill last month to ban what they call “deceptive and fraudulent synthetic media” in the 90-day run-up to any election. The legislation, H7487, defines “synthetic media” as “an image, an audio recording, or a video recording of an individual’s appearance, speech, or conduct that has been intentionally manipulated ... [with] digital technology to create a realistic but false image, audio, or video.” This type of media is often referred to as a “deepfake.” Robocalls using AI to mimic a candidate’s voice, such as the robocall sent to New Hampshire primary voters discouraging them from voting in the state’s primary election, which we discussed in our February and April 2024 editions of the Playbook, were used as an example of deepfakes by the Rhode Island Secretary of State. An amended version of the bill passed the state House of Representatives earlier this month.

Non-Federal Lobbying & Ethics

NYC Council Bill Would Ban Political Consultants, Fundraisers from Lobbying Former Clients – The New York City Council is considering a bill seeking to ban political fundraisers and campaign consultants from lobbying their former bosses. The bill would prohibit a person or organization who has engaged in fundraising or political consulting for certain candidates from lobbying such candidates if elected within two years after the occurrence of the fundraising or political consulting. This prohibition would apply for one year after the certification of election results for the candidate. If enacted, violations of the proposed provision could result in fines between $2,500 for initial infractions and up to $30,000 for subsequent violations. This bill is one of three lobbying bills being spearheaded by Councilman Lincoln Restler. The other two bills would prohibit former elected officials from lobbying city agencies for two years after their exit from public office and ban certain municipal employees from lobbying any city agency for one year and the agency they served for two years after leaving public service. The City Council last held a hearing on the bills on April 19.

Former Kentucky Secretary of State Cleared of Charges of Ethics Violations – Former Kentucky Secretary of State Alison Lundergan Grimes has been cleared of ethics charges stemming from allegations that she had abused her access to voter registration data to benefit herself and fellow Democrats. A state judge ruled that Ms. Grimes legally accessed the data while acting in the scope of her public duties as Secretary of State. The former Secretary of State had faced a $10,000 fine after the state Executive Branch Ethics Commission said that she committed ethics violations by improperly ordering the downloading and distribution of voter registration data.

International Political Law

Canada Updates Third-Party Federal Election Expenditure Limits – Elections Canada, the country’s agency of Parliament tasked with administering electoral events, published updated limits on expenses for regulated activities of third parties involved in federal elections. The Canada Elections Act imposes a limit on expenses a third party can incur for regulated political activities. For the period of April 1, 2024, to March 31, 2025, a third party is prohibited from incurring overall election advertising expenses of a total amount of more than $602,700 during a general election. The previous limit was $579,950. For the same period, a third party is also prohibited from incurring election advertising expenses in a given electoral district of a total amount of more than $5,166 during a general election. The previous limit was $4,971. These limits are adjusted annually based on a formula of a base amount multiplied by the inflation adjustment factor in effect for the period.

Practice Pointers

As we have noted in our recent editions of the Playbook, political activity always ramps up during an election year and we have seen an increased number of inquiries regarding how to engage politically through connected corporate PACs. This edition of Practice Pointers focuses on the role that this type of political committee can play for your organization during this election cycle, and in the future.

Under federal campaign finance law, corporations are generally prohibited from making contributions in connection with federal elections. However, FECA and the FEC’s regulations permit these entities to sponsor a political committee that may raise funds from individuals associated with such entities and make contributions and expenditures for federal candidates as otherwise permitted under federal law. These connected organizations may use general treasury funds to pay for the establishment, administration, and fundraising costs for the PAC and may exercise control over the committee. This structure presents a significant opportunity for your organization to facilitate political engagement for your employees and stakeholders. However, corporate PACs must follow very specific rules regarding fundraising activities. Notably, only a limited class of individuals may be solicited to make contributions, and who exactly constitutes this “solicitable class” depends not only on the type of entity involved - i.e., corporation, labor organization, membership organization, or trade association – but also on the specific contours of an organization’s labor force. As a corporate PAC must limit its political spending to funds raised through its “restricted class”, these determinations are often informative on whether it is advantageous for an entity to form a PAC.

The Dentons Political Law Team regularly advises a wide array of clients on the formation and maintenance of corporate PACs. If your organization has questions regarding engaging politically through such a committee, please do not hesitate to reach out to us for guidance.

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