Political Law Playbook – August 2024

August 28, 2024

Welcome to the abridged August version of the Political Law Playbook as we say goodbye to summer, and hello to what is sure to be an interesting presidential election season. Highlights of this edition's federal coverage include the ongoing debate surrounding Vice President Kamala Harris' takeover of President Joe Biden's campaign committee and new ethics legislation that would prevent federal officeholders from buying and selling stocks.

This edition's state-level coverage includes New Hampshire's new artificial intelligence ("AI") disclosure law, which requires disclaimers in political advertisements with AI-generated content circulated in the months leading up to election day, and a Georgia lawsuit that argues that the fundraising and spending abilities of the state's leadership committees are unconstitutional. Also of note, a federal court recently held that Missouri's revolving door law, which prevented elected officials from lobbying for two years after leaving office, is unconstitutional under the First Amendment.

Federal Elections & Campaign Finance

Vice Pres. Harris Takes Over Pres. Biden's Campaign Committee - In July, the Biden-Harris campaign amended its filings with the Federal Election Commission ("FEC") to rename its principal campaign committee and declare Vice President Kamala Harris a candidate for president. Given that Vice President Harris and President Joe Biden were both named as candidates on the committee's formation document, the Vice President can arguably continue using the campaign's existing funds for the general election if she is on the Democratic ticket as either the presidential or vice-presidential nominee. The ability to amend the campaign's FEC filing was one reason why many political observers felt Harris would be a practical replacement for Biden. Some, however, have questioned Harris' ability to use the committee's funds, a notable example being current FEC chairman Sean Cooksey. Chairman Cooksey wrote in a post on X that an FEC regulation suggests that the contributions may need to be returned or refunded, but he did not elaborate or address the issue of Harris already being named on the committee's filings. It is possible that the Biden campaign will ask the Commission for guidance, in the form of an advisory opinion, on this issue in the coming weeks. Some experts suspect that transitioning the committee to Vice President Harris will ultimately be litigated. The Trump campaign has already filed a complaint with the FEC arguing that the money raised for President Biden's reelection bid cannot be transferred to the Vice President's presidential campaign. A conservative group and a group of Republican state parties have also filed a similar complaint.

FEC Referral Secures Criminal Conviction in Campaign Finance Matter - The FEC's referral of an enforcement matter to the Department of Justice ("DOJ") recently resulted in a successful criminal prosecution of a political committee vendor. The complaint alleged that Ryan Phillips, a former partner of In Compliance, Inc., misappropriated $46,226.66 from Heller for Senate, former US Senator Dean Heller's campaign committee, and $139,051.38 from the HellerHighWater PAC, the former Senator's leadership committee, through unauthorized withdrawals, checks, and transfers, and used those funds to make direct payments to himself or pay his personal expenses directly to merchants. To hide his illegal transactions, Mr. Phillips allegedly created multiple false entries in the PACs' accounting and campaign software and then reconciled the committees' bank statements. In June 2023, the Commission found probable cause to believe Phillips knowingly and willfully violated the Federal Election Campaign Act ("FECA") and voted to make a referral of the knowing and willful violations to the DOJ. Mr. Phillips has pled guilty to one count of making false statements to a federal agency and was sentenced to three years' probation following the criminal proceedings.

FEC Faces First Amendment Challenge to Rules Governing Itemization of Small-Dollar Conduit Contributions - A couple from Ohio have filed suit against the FEC in federal court claiming that the Commission's conduit reporting regulations are unconstitutional as applied to donations of up to $200. Under FECA, political committees must report all contributions received, but are required to itemize only contributions that aggregate in excess of $200 within the calendar year (or election cycle, in the case of an authorized committee of a candidate for federal office). Itemized entries include an individual contributor's name, address, occupation, and employer. The FEC's conduit reporting rule requires intermediaries or conduits of contributions to report to the Commission both the receipt of the initial contribution as well as the disbursement to the intended recipient regardless of the amount of the contribution. Under this framework, a donor who gives $3 to a candidate through digital platforms like WinRed or ActBlue will have their identifying information publicly reported to the FEC, while a donor who physically hands a $175 check to a congressman at a fundraiser will not have their identifying information publicly disclosed. This, the lawsuit claims, "defies comprehension." The plaintiffs have asked the court to declare that disclosure of contributor names and addresses of conduit contributions less than $200 violates the First Amendment. They have also requested a permanent injunction barring the FEC from enforcing the conduit reporting rule and have asked the court to order that all of their past small amount conduit contributions be removed from the FEC's public record.

FCC Advances New Rules for AI in Political Ads - In the June 2024 Edition of the Playbook, we covered the Federal Communications Commission's ("FCC") proposed plan that would mandate the disclosure of AI-generated content in political advertisements aired on radio and TV in an attempt to increase transparency in on-air political communications. In July, the FCC advanced the proposal on a 3-2 vote. The proposed rules, if adopted, would require broadcasters to: ask political advertisers whether their content was created using AI tools, such as text-to-image creators or voice-cloning software; make on-air announcements when AI-generated content is used in a political ad; and include a notice disclosing the use of AI in their online political files. The proposal has now moved into a 30-day public comment period, which will be followed by a 15-day reply period. The FCC's commissioners will then be expected to finalize and pass a rule. It is unclear whether the proposed rules, if passed, would go into effect before the November general election.

Federal Lobbying & Ethics

Bipartisan Legislation Pushes to Ban Lawmakers from Trading Stocks - A bipartisan group of Senators recently unveiled new legislation named the "ETHICS (Ending Trading and Holdings in Congressional Stocks) Act," which would prohibit members of Congress, their spouses, and their dependent children from trading individual stocks. Currently, under the 2012 STOCK (Stop Trading on Congressional Knowledge) Act, lawmakers and their spouses must disclose when they trade individual stocks over $1,000 within 45 days. Critics of the current law argue that it is unevenly enforced and insufficiently curbs insider trading. In July, Senators Gary Peters (D-MI), Jeff Merkley (D-OR), Josh Hawley (R-MO), and Jon Ossoff (D-GA) announced an agreement to advance the ETHICS Act. A group of 17 "watchdog" groups have sent a letter to the Senate Committee on Homeland Security and Government Affairs in support of the legislation. The ETHICS Act, if passed, would: ban Members of Congress, the President, and Vice President from buying and selling covered assets (securities, commodities, futures, options, trusts, and other comparable holdings) almost immediately after enactment; require that elected officials, their spouses, and dependent children divest from covered assets beginning in 2027; and increase penalties for violations of STOCK Act disclosure requirements from $200 to $500.

Pay-to-Play

Harris-Walz Campaign Contributions Covered by Federal Pay-to-Play Rules - Banks and other financial institutions are restricted from donating to Vice President Harris and Minnesota Governor Tim Walz's presidential campaign ticket due to federal pay-to-play laws. One such law is the Securities and Exchange Commission's ("SEC") pay-to-play Rule 206(4)-5, which prohibits investment advisers from receiving compensation for providing advisory services to a government entity for two years after the investment adviser, or certain covered personnel, make a contribution to an "official" of the government entity. Governor Walz is considered an "official" under this scheme as he serves as Chair of the Minnesota State Board of Investment. Similar rules exist across other financial regulatory bodies, including the Commodity Futures Trading Commission and the Municipal Securities Rulemaking Board. These pay-to-play rules will likely have a dampening effect on the financial industry's support for the Harris-Walz campaign.

Foreign Agents Registration Act

Former CIA Analyst Accused of Violating FARA - In July, the US Attorney's Office for the Southern District of New York announced an indictment against Sue Mi Terry, a former CIA analyst and foreign policy specialist, charging her with two felony counts of serving as an unregistered agent for a foreign power in violation of the Foreign Agents Registration Act ("FARA"). Ms. Terry allegedly received more than $37,000 in covert funding for a public policy program focusing on South Korean affairs and also received high-priced dinners and other luxury goods, including a $2,845 Dolce and Gabbana coat and a $3,450 Louis Vuitton handbag paid for by the South Korean government. It is also alleged that Terry violated Congress's truth in testimony disclosure rules by failing to disclose that she had received gifts and money from a foreign government before testifying before Congress. In response to the indictment, Terry's lawyer has stated that "these allegations are unfounded and distort the work of a scholar and news analyst known for her independence and years of service to the United States."

Senators Request Update on DOJ's Investigation of Potential FARA Violations by Chinese Government-Related Entities - Senators Marco Rubio (R-FL) and Lindsey Graham (R-SC) recently wrote to US Attorney General Merrick Garland asking that the DOJ present a briefing on what the Department and other agencies are doing to combat the Chinese Communist Party's ("CCP") alleged misinformation efforts in the US, and requesting that the DOJ investigate potential FARA violations by organizations with ties to the CCP. The Senators' letter alleges that 18 organizations are being funded by a US citizen living in Shanghai with ties to the CCP. These organizations, it is claimed, have a track record of parroting CCP talking points, opposing US interests, receiving funding from CCP entities, and/or working with CCP officials without having registered under FARA. Senator Rubio wrote a similar letter to Attorney General Garland in August 2023. The Department has not publicly responded to the Senators' letter.

Non-Federal Elections & Campaign Finance

New Hampshire Enacts AI Political Advertisement Disclosure Law - On August 2, the governor of New Hampshire signed into law a bill that requires AI-generated content be disclosed in political ads run within 90 days of an election. For visual media, the text of the disclosure must appear in a size that is easily readable by the average viewer. Videos must have the disclosure appear for the duration of the video. For audio-only media, the disclosure must be read in a clearly spoken manner and in a pitch that can be easily heard by the average listener at the beginning of the audio, the end of the audio, and - if the audio is greater than two minutes in length - interspersed within the audio at intervals of not greater than two minutes each. The law also allows candidates and election officials who are "depicted through the use of a deceptive and fraudulent deepfake" to bring legal action against those responsible for that depiction. State Representative Angela Brennan, who introduced the legislation, said she hopes it will deter misinformation during the upcoming election cycle.

Nonprofit Tied to Colorado Gov. Polis Found to Have Violated State's Campaign Finance Laws - A nonprofit entity created in 2018 to pay for Colorado Governor Jared Polis' transition team has admitted to violating the state's campaign finance laws and will pay an $18,000 fine under a settlement agreement with state election officials. The organization, named Boldly Forward Colorado, donated nearly $352,000 in 2023 to Property Tax Relief Now, an issue committee supporting a ballot measure backed by Polis. According to the settlement agreement, the organization's donations to Property Tax Relief Now accounted for 29% of its spending. A bipartisan 2022 law outlines when politically engaged nonprofits must report their donors to the state. The law provides, in part, that if during the combined period of the current calendar year and the preceding two calendar years, an organization makes contributions to a single statewide Colorado issue committee in either support of or opposition to a single statewide Colorado ballot issue that exceeded twenty percent of the total dollar amount of all funds spent, then the organization must disclose its donors. Accordingly, as part of the settlement, Boldly Forward Colorado must now register as an issue committee and report its donors to the state.

Georgia Democrats Sue to Overturn Law Allowing Unlimited Leadership Committee Spending - Georgia Democrats have filed suit in federal court asserting that the 2021 law that created leadership committees in the state is unconstitutional because it unfairly gives unlimited fundraising powers to some people but not others. The law only allows the governor and lieutenant governor, opposing major party nominees, and Democratic and Republican caucuses in both the state House and Senate to form leadership committees. Georgia has contribution limits of $3,300 for a primary and general election and $1,800 for runoff elections for contributions to legislative candidate committees. Additionally, such candidate committees may not accept contributions while the legislature is in session. There are no contribution limits for contributions made to leadership committees, and these committees can raise and spend unlimited sums on behalf of any candidate and coordinate directly with the candidate's campaign. The Democrats who filed suit have requested a preliminary injunction to freeze leadership committees' fundraising and spending while the suit moves forward.

Case Challenging Colorado Contribution Limits To Be Decided Later This Year - In July, a federal trial concluded in a case challenging Colorado's contribution limits on the grounds that they violate the First Amendment by limiting donors' freedom of speech. The plaintiffs filed suit against the Colorado Secretary of State in 2022 seeking to overturn the limits. Their initial request for a preliminary injunction to suspend the limits was denied. Colorado limits individual contributions to $1,425 for statewide candidates and $450 for legislative candidates. The state's contribution limits were initially approved by voters in 2002 through an amendment to the Colorado constitution. Colorado currently limits individual contributions to $1,425 for statewide candidates and $450 for legislative candidates. The state has asserted that Colorado candidates have sufficient resources to engage in core political speech and therefore the law does not violate the First Amendment. The district court judge has ordered the plaintiffs to file a summary of their case by September 23, and the Colorado Attorney General's Office to file a response by October 23, with a reply from the plaintiffs due by November 12.

Non-Federal Lobbying & Ethics

US Appeals Court Holds Missouri Revolving Door Law Unconstitutional - In July, the US Court of Appeals for the Eighth Circuit held that a Missouri law banning lobbying for two years after an official leaves elected office, often referred to as a "revolving door rule," was unconstitutional under the First Amendment. The law in question was enacted through a ballot initiative in 2018 and states that "no person serving as a member of or employed by the general assembly shall act or serve as a paid lobbyist … until the expiration of two calendar years" after the conclusion of their time in office. The court rejected the state's claim that the revolving door law was necessary to prevent corruption, finding that there was no evidence of corruption. The court held that Missouri could not have a compelling interest in solving a problem that was not proven to exist, and therefore, the revolving door rule impermissibly infringed on First Amendment liberties.

New Louisiana Law Changes Composition of Ethics Board - The Louisiana Board of Ethics will face challenges conducting its business over the coming months under a new state law that gives Governor Jeff Landry more control over the body. The new law expands the number of Board members from 11 to 15 members effective January 2025. Starting this month, however, the number of Board members required to hold a meeting will jump from six to eight of the current 11 members, and ten instead of eight of the 11 members will need to be present in order for the Board to conduct official business. The Board is charged with investigating elected officials, political candidates, and public employees for potential violations of state ethics rules, including conflicts of interest and campaign finance reporting failures. The public is able to confidentially report concerns about government officials to the Board, and then the Board decides whether the matter merits further investigation. Under the prior law, the governor and lawmakers had to pick Board members from a list of people recommended by the leaders of Louisiana's private colleges and universities. The new legislation removed that requirement, and starting in January, the governor will pick nine of the 15 Board members and legislators will pick the other six. All of the appointments will be subject to confirmation by the Louisiana Senate.

Practice Pointers

As interest in making political contributions ahead of the 2024 general election continues to grow, this month's Practice Pointers serve as a reminder that the personal contributions of your organization's employees may be attributable to your entity under federal, state, or local pay-to-play laws. As discussed above in the context of the Harris-Walz presidential ticket, pay-to-play laws generally restrict government contractors and other types of organizations that conduct business with government from making contributions to certain public officials and political organizations. Violators of such laws may have their current contracts voided and/or be barred from future contracting opportunities with the jurisdiction. Very often, these laws apply not only to the contracting entity, but also to connected organizations of the contractor and its high-level employees. Accordingly, organizations engaged in government contracting and other forms of business with government need to be mindful of the pay-to-play rules applicable to the jurisdictions they currently contract with, and those that they hope to contract with in the future. The Dentons Political Law Team regularly advises clients on specific pay-to-play questions as well as pay-to-play compliance programs to ensure that organizations are safeguarded against inadvertent violations. Please do not hesitate to reach out as your organization examines its pay-to-play risk exposure ahead of the November election.

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