Questions and Answers About Super PACs and Corporate Compliance Risks

In the 2016 election cycle, super PACs have already raised over $625 million. As super PACs continue to dominate the electoral landscape, this is a good time to consider the implications of super PACs on corporate compliance programs. In this article, the eighth of Allen & Overy’s weekly coverage of political law issues designed to help in-house legal and compliance personnel, we will answer some frequently asked questions about super PACs, corporate and super PAC activities in the 2016 presidential elections and the implications for corporate risk exposure and compliance programs.

What is a super PAC?

A super PAC is a political committee that can raise and spend unlimited amounts, including from corporate sources, as long as the activity is publicly disclosed and conducted independent of candidates. Candidate committees, on the other hand, may only accept contributions of up to $2,700 per individual per election cycle. Some super PACs choose to spend their efforts solely in support of or in opposition to a single candidate.

Are there limits to how much companies or individuals can contribute?

Individuals, corporations and unions are all free to contribute to super PACs in unlimited amounts. However, foreign nationals, including foreign corporations, are prohibited from making contributions to super PACs. As we noted in last week’s article on foreign donors, a federal criminal case was recently brought against individuals who helped a Mexican businessman in the construction business funnel $500,000 to a super PAC to support mayoral candidates, a district attorney and a U.S. congressman.

What disclosure rules apply?

Just like traditional PACs, super PACs are required by law to disclose contributions and expenditures. This includes the name of the individual or entity that made the contribution and the date and amount of the contribution. Although the contributor must be reported, some donors have established shell corporations to donate, which can obscure the true source of the funds. The Washington Post recently reported that such “ghost” corporations are active in the 2016 cycle. In a recent case involving a $1 million contribution made by a short-lived LLC to Restore Our Future, a pro-Romney super PAC, although the Federal Election Commission (FEC) did not pursue that matter, commissioners indicated that they would pursue these matters in the future.

What are the rules that cover super PACs and candidates?

Super PACs can spend unlimited amounts of money on advertisements to support or oppose candidates or parties. Citizens United v. Federal Election Commission, which ushered in unlimited independent spending, found that there is no opportunity for corruption as long as there is no coordination between the spender and the candidate. As a result, super PACs cannot make direct contributions to candidates or parties and cannot coordinate their spending efforts with candidates. Super PACs are restricted from making any communication that was made in cooperation, consultation or concert with, or at the request or suggestion of a candidate, a candidate’s campaign or a political party. Because Super PACs cannot make contributions to candidates, they cannot foot the bill for candidate campaign expenses, such as paying ballot access fees, rent, phone bills, staff salaries and airfare.

Sounds pretty simple―is it?

Coordination is complicated in practice, particularly with those super PACs established to support a single candidate. For example, a candidate may attend, speak at and serve as a featured guest at super PAC fundraisers, but must restrict any solicitation for contributions to the super PAC to the usual limits for candidates ($2,700 per election). Also, footage of candidates that is publicly available may be used by super PACs without being treated as coordination.

Regulators have typically struggled to enforce coordination rules, partly because communications between the independent spender and candidate took place behind closed doors and regulators can only guess what actually happened. That said, occasionally the public does get a peek behind the curtain at the activities of candidates and super PACs. For example, Make America Great Again, a pro-Trump super PAC, was shut down in October 2015 after reports that the super PAC had close ties with Trump’s campaign and his office. Those ties were recently confirmed in an essay by the former communications director of the super PAC on why she no longer supports Trump. She wrote that she attended meetings in Trump Tower discussing Trump’s polling, delegate count and strategy.

What is the corporate risk associated with super PAC activity?

As we discussed in our March 16 article, “Brand Risks,” corporate political engagement can draw unwanted attention, as can personal political activity by executives and employees. Accordingly, corporations have historically shied away from making large contributions to super PACs. This election, however, may prove to be different. The Washington Post recently reported that, as of January 31, 2016, 680 companies have given at least $10,000 to a super PAC this cycle, together contributing nearly $68 million. Chevron, which in 2012 donated $2.5 million to a super PAC that focused on House of Representatives races, remains an example of a large super PAC contribution from a publicly traded company.

What are the pay-to-play risks?

Companies that are subject to pay-to-play laws also need to be aware of concerns in connection with covered employees making contributions to super PACs, particularly those that support a single candidate. The federal pay-to-play laws also prohibit doing indirectly what cannot be done directly. If a company is subject to a pay-to-play law and contributes to a super PAC, the contribution could be viewed as circumvention if the super PAC coordinates with a candidate or otherwise inadvertently makes a contribution to a candidate. It is important to note that “coordination” may be defined differently depending on the election – state and local laws may not mirror federal law on coordination.

Corporations subject to pay-to-play laws often pre-clear certain employees’ contributions, including contributions to super PACs. In light of the anti-circumvention and coordination issues, a company’s compliance department may conduct due diligence on a super PAC to ensure that it is not making contributions or coordinating with a candidate or party. As further assurance, a company may obtain a letter of representations from the super PAC, effectively stating that it has not and will not coordinate with or make contributions to candidates or parties.