The Federal Election Commission regains a quorum in the middle of the 2020 election cycle: Enforcement, audits, advisory opinions, or not so fast?
21 May 2020
Below, we discuss what this may mean for enforcement, audits, obtaining advice from the Commission, and steps companies should consider to manage their campaign finance risk in the midst of a presidential election year.
The six-person Commission requires four votes to take most actions and is required to have no more than three members from either political party. With only four members, a unanimous vote will be required for those actions. Moreover, the newly confirmed Commissioner, James E. Trainor, advised President Trump’s 2016 campaign and may therefore consider recusing himself from specific matters.
Reinstating a quorum does not ensure that the Commission will move quickly through the reported backlog of 350 enforcement matters or that it will address cases from the current election cycle with alacrity. Given the procedural steps required to finalize an enforcement matter, even when the Commission has been at full capacity, it often does not resolve many enforcement actions until years after an election has occurred and some are not resolved within the five-year statute of limitations period.
However, companies that operate political action committees (“PACs”) and that engage in federal elections should not be complacent regarding the potential for FEC enforcement and ensuring their compliance program is designed to mitigate the risk of campaign finance violations. First, any person can file a complaint with the Commission alleging violations of campaign finance law and the Commission is required to consider all complaints that satisfy basic procedural requirements. Whistleblowers, competitors, good government groups, and political opponents may be motivated to file a complaint, which can create negative press in addition to the expense and distraction of defending an enforcement action. Second, complainants, particularly good government groups, have been pushing federal courts to act on FEC enforcement matters when the Commission is unable or unwilling to enforce apparent violations based on unique statutory provisions that allow complainants to sue the Commission if it delays in taking action on an enforcement action or declines to pursue an alleged violation. Given the Commission’s propensity to deadlock on hot-button issues, these efforts to shift decision-making to the judicial branch are unlikely to abate.
An FEC audit requires four votes from the Commissioners to commence and at various junctures in the process. Companies that operate PACs may be subject to audits and the audit process is likely to start up again, albeit on a schedule more delayed than usual. An FEC audit of a PAC will focus on whether the PAC is in compliance with its obligations on who and how it solicits and how well it has maintained appropriate records, among other things. To be proactive, review your compliance program to ensure it is designed to comply with these obligations. A periodic review of policies and practices is also recommended.
Where the current tangle of statutes, regulations, advisory opinions, and other guidance is unclear or does not neatly apply to novel facts, parties may seek an advisory opinion from the Commission which, if granted, will effectively allow the party to move forward with the proposed conduct without the risk of enforcement. In the absence of a quorum, there was little motivation to file such requests. We may now see a raft of new advisory opinion requests, which means it is important to track potentially applicable changes or clarifications to the law made through this process.
What to Watch For?
To avoid being subject to an FEC enforcement matter or audit, legal and compliance teams should consider whether to:
- Review current policies and procedures regarding corporate and employee political activity.
- Evaluate your company’s PAC compliance program to ensure it is consistent with legal obligations and market practice.
- Review the corporate structure and corporate governance policies to ensure that they restrict involvement of foreign nationals in the corporate political activities of U.S. companies.
Best practices may be tailored to suit your company’s size, footprint, and risk profile.
If you have questions, please contact Claire Rajan or consult Allen & Overy’s 2020 FEC Practice Guide.