Prohibited Campaign Contributions Threaten to Put Corporate Donors Behind Bars

Pillsbury Winthrop Shaw Pittman LLP

Historic spending on the 2020 election is driving aggressive DOJ prosecution of criminal campaign finance violations.

TAKEAWAYS

  • The DOJ is increasing its efforts to prosecute businesses and executives for criminal violations of the Federal Election Campaign Act (FECA).
  • Reimbursement contributions—where corporations reimburse employees for making political donations—are a common way corporations violate FECA.
  • To reduce the risk of a criminal enforcement actions, companies should review and update their policies and procedures for complying with relevant local, state, and federal election laws.

With 13 days remaining, all eyes are on the 2020 U.S. general election, including the eyes of top law enforcement officials. It’s nothing new that the Department of Justice (DOJ) is enforcing the Federal Election Campaign Act (FECA), 52 U.S.C. § 30101 et seq.; the Federal Election Commission (FEC) enforces civil violations and the DOJ enforces “knowing and willful” criminal violations over a certain monetary threshold. However, the record-breaking influx of campaign contributions leading up to the 2020 election means an equally unprecedented risk of enforcement actions, even for the most well-intentioned businesses.

The FEC does not currently have a quorum to enforce the FECA and hasn’t for over a year—it only has three Commissioners of the six-seat commission. However, once the FEC has a quorum, it will be able to enforce civil violations that may occur during the 2020 election. In the meantime, the DOJ is actively pursuing criminal violations.

Common Corporate FECA Violations

The DOJ has taken an increasingly aggressive approach to seeking out FECA violations, particularly when it comes to illegal campaign contributions through company reimbursements to its employees. Campaign donors have faced criminal investigations that have left companies on the precipice of ruin and individuals facing the very real possibility of jail time.

These matters are based on a campaign statute known as FECA, which applies a blanket prohibition on corporate campaign contributions. 52 U.S. Code § 30118. Accordingly, a “reimbursement” contribution, or “contribution in the name of another” is also prohibited under the statute. 52 U.S. Code § 30122. Corporations face exposure when they reimburse employees with corporate funds for campaign contributions or tie any form of compensation to an obligation to donate to a political campaign. Knowing and willful reimbursement contributions exceeding $10,000 in the aggregate are prosecutable as felonies under § 30118 and § 30122, and guilty parties can face sizeable monetary penalties and even prison sentences.

Corporations engaging in illegal reimbursement contributions may also face felony prosecution under federal conspiracy and false statement statutes.

DOJ to “Aggressively Pursue” Campaign Finance Act investigations

The DOJ’s focus on FECA matters has sharpened over the last few years, as companies from all sectors have found themselves ensnared in criminal investigations for potentially illegal reimbursement practices. FECA cases often attract publicity and require a careful approach to navigating internal investigations, negotiations with government officials, and, potentially, trial.

Recent cases include:

  • Cancer Treatment Centers of America. In July 2017, Cancer Treatment Centers of America Global Inc. (CTCA) admitted to reimbursing the political contributions of its executives with corporate funds through a bonus program. CTCA entered into a conciliation agreement with the FEC and agreed to a civil penalty of $288,000.
  • Dannenbaum Engineering. In December 2019, James D. Dannenbaum and his company, Dannenbaum Engineering (DEC), admitted to over $300,000 in illegal campaign contributions. Dannenbaum and a lead project manager solicited colleagues and family members to donate to various candidates with the understanding that DEC would reimburse donors in full. When DEC agreed to a $1.6 million fine, the DOJ commented that the “resolution demonstrates the department’s resolve to aggressively pursue those who seek to corrupt our democratic process.”
  • Postmaster General Louis DeJoy. Just last month, former employees of Postmaster General Louis DeJoy alleged that he reimbursed them for campaign contributions through bonuses, in violation of FECA and North Carolina election laws. Since the allegations surfaced in a Washington Post report, three watchdog groups have filed complaints with the FEC: Citizens for Responsibility and Ethics in Washington (CREW), the Campaign Legal Center (CLC), and North Carolina watchdog Common Cause. The House Oversight Committee also announced it would open an investigation and called for DeJoy’s immediate suspension.

Best Practices: FECA Compliance

Contributions to political campaigns, transition or inaugural committees will continue to be highly regulated. Given the outlook for an uptick in FECA investigations by DOJ, this is an especially important time for corporations to stay current with political law compliance. Companies should take measures to ensure that employees are informed on key aspects of the law. Among other things, companies should ensure that their employee guidelines and compliance policies include updated provisions on campaign contributions, that accounting practices properly cover campaign contributions and related activities, and that a reporting system is available to all employees. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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