Election 2020: What You Need to Know About Federal Campaign Finance Law

Election 2020: What You Need to Know About Federal Campaign Finance Law

Jun 01, 2020

Client Alert

Brownstein Client Alert, June 1, 2020

For all the talk about there being too much money in politics—and there is a lot of money in politics—there are many restrictions on how individuals, businesses and other organizations can contribute, financially, to the political process. This client alert is intended to provide the basics about how federal law restricts contributions to federal elections.1

Introduction

Even amidst the COVID-19 pandemic, political campaigns trudge on toward Election Day. And while the retail aspects of campaigning may be different right now, the raising and spending money part continues, and the same old rules apply. The Federal Election Campaign Act (“FECA”)2 strictly regulates contributions by both individuals and businesses to federal campaigns and political committees. It is important for not only candidates, campaign committees and political parties, but for contributors as well, to be aware of these rules. Violations can result in a range of enforcement actions ranging from administrative fines to felony criminal charges.

Who, What and How Much

The rules governing federal campaign contributions can be divided into three categories: (1) those restricting who can contribute (“source restrictions”); (2) those defining what counts as a contribution (“type restrictions”); and (3) those limiting how much can be contributed (“amount restrictions”).

Who Can Contribute

First, federal campaigns, the national committees of political parties and the federal accounts of state political parties are prohibited from accepting contributions from certain sources, including the following: corporations; labor unions; federal government contractors; national banks; foreign nationals; and so-called “straw donors.”3 There are, however, many exceptions that apply to some of these generally prohibited categories. For example, political action committees (“PACs”) that are established by corporations, labor unions and national banks may contribute to candidates, campaign committees and political parties in accordance with strict rules. PACs will be discussed in more detail later in this alert. Despite the prohibition on corporate contributions, partnerships are permitted to make contributions in accordance with special rules, but such contributions count against the individual partner’s personal limits. Indian tribes may make contributions subject to the same limitations as individuals. Perhaps counterintuitively, minors (persons under the age of 18) may make contributions to candidates as long as the decision to contribute is made knowingly and voluntarily by the minor.

What Can Be Contributed

The second general category of restrictions on federal contributions relates to defining what counts as a contribution. In short, a contribution is almost anything of value given to a candidate or political committee gratuitously. Campaign contributions are most often money—cash, check, credit card payments—or may be in the form of goods or services given directly to a campaign or political party at no cost or below market cost. These types of contributions are called “in-kind” contributions and typically include office space, professional services, transportation services, food and beverage, and the like. A loan to a campaign—unless made by a financial institution at a market rate of interest—will also constitute a contribution.

How Much Can Be Contributed

A third important category of restrictions on contributions to federal campaigns concerns the amounts that can be contributed. For individual donors, the basic contribution for the current campaign cycle is $2,800 per candidate, per election.4 A primary election, general election, runoff election and special election are each considered to be a separate election with a separate limit. The limits that apply to contributions to PACs and political parties are different and vary according to details that are beyond the scope of this alert. So-called “Super PACs” are yet another category, with different rules: because they do not make contributions to candidates and are not controlled by an individual candidate, they may accept unlimited contributions, including from corporations and labor unions.

Violations Can Be Serious

Because these restrictions, and especially their interpretation and application by the Federal Election Commission (FEC), can be complicated, and because both candidates and their campaigns, as well as contributors, can easily commit technical violations of these rules, most violations can be easily remedied by simply undoing the offending contribution when it is discovered. However, violations of a more serious nature can involve formal enforcement action by the FEC. The most serious violations are referred for investigation by the Federal Bureau of Investigations (FBI) and can lead to criminal charges. In recent years, the types of serious violations that have most commonly resulted in criminal prosecution include contributions by foreign nationals, often in the form of straw donor schemes. Because almost every campaign cycle has seen prosecutions for these types of violations in recent years, they deserve additional commentary.

Again, federal law generally prohibits contributions by foreign nationals in all U.S. elections—federal, state and local.5 Specifically, the law prohibits foreign nationals from making a contribution to any campaign or to any independent expenditure effort. For this purpose, the term “foreign national” basically means any person who is not a citizen of the U.S. who is not a legal permanent resident (i.e., a “green card” holder). So, a noncitizen who holds a green card can legally contribute to a federal campaign.6 Notwithstanding this prohibition, there have been several high-profile criminal cases in recent years involving contributions by prohibited foreign nationals.

The straw donor scenario is also one that has been the subject of some significant prosecutions over the past several years. As explained above, the typical straw donor scheme involves the making of a contribution in the name of another. The violation occurs when one person gives money to another for the purpose of having the second person make the contribution in their name. This is typically done because the first person, the actual donor, cannot legally make the contribution because, for example, he or she is a foreign national, or because he or she has already made the maximum legal contribution to a particular candidate, but wants to contribute more, or simply wants to contribute anonymously, which is not allowed. This type of violation commonly involves a business owner who instructs his or her employee to contribute to a particular candidate with the promise of being reimbursed in the form of a fictitious bonus or other form of payment. The prosecution of such cases requires the government to prove the conduct was knowing and willful. Straw donor scheme crimes aggregating over $10,000 in a calendar year are prosecuted as felonies and can result in imprisonment.

The Bottom Line

As this summary illustrates, there are many potential traps for the unwary when it comes to political giving. And, it is important to emphasize that this is only a summary. The laws and regulations in this area, just at the federal level, are complex. Therefore, anyone, and certainly business entities, with an interest in making contributions to federal campaigns would be well advised to, at a minimum, check the FEC’s website,7 and, when in doubt, consult with experienced campaign counsel before participating in the process.

This document is intended to provide you with general information regarding federal campaign finance law. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

1 State campaign finance laws (which vary significantly from each other and often vary significantly from federal law) are beyond the scope of this alert.

2 52 U.S.C §§ 30101 – 30146.

3 Straw donors are persons who make contributions for which they are reimbursed by another person, thus concealing the actual source of the contribution in violation of federal law. Such illegal contributions often result in criminal prosecution for both the straw donor and the hidden contributor when discovered.

4 Under the FECA, this limit can change over time as adjusted by the Federal Election Commission (FEC) using the applicable inflation index. The limit applies to all candidates for federal office no matter the office sought.

5 See 52 U.S.C. section 30121.

6 Also allowable are otherwise permitted (for example in the case of a contribution to a Super PAC) contributions by a U.S. subsidiary of a foreign corporation, as long as the funding for such contributions is not being provided by the foreign corporation.

7 www.fec.gov.

Meet The Team

Christopher O. Murray Shareholder T 303.223.1183 cmurray@bhfs.com
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