Recent charges against a Pennsylvania CEO serve as a reminder of how important it is for corporate counsel and executives to ensure that corporate funds are not being used to support political candidates in violation of campaign finance laws.
According to a complaint filed in December, David Stewart, the CEO of The York Building Products Co., Inc. d/b/a The Stewart Companies, approved the corporate reimbursement of nearly $100,000 in personal contributions that were made to federal, state and local candidates by company executives, including himself. Government officials were alerted to the alleged violations by a former employee, and the subsequent investigation included the review of individual campaign contributions, as well as company payroll records. If convicted, under Pennsylvania law, Stewart faces up to 24 months in prison and $10,000 in fines. The company also separately faces up to $10,000 in fines.
The United States Supreme Court has upheld the constitutional right of corporate entities to speak out on issues, as well as the right for corporations to support or oppose candidates for political office through independent expenditures. However, the direct corporate support of political candidates is illegal under federal law as well as the laws of many states, including Minnesota. The Minnesota state law makes it illegal for corporations to reimburse employees for political contributions. Individuals convicted of an unintentional violation of the statute can be fined of up to $10,000, while knowing violations of the law may result in up to $20,000 in financial penalties and 5 years in prison. A convicted corporation can be fined up to $40,000 and lose the right to do business in Minnesota.
The defense of an alleged campaign finance violation can be expensive and is often excluded under corporate D&O insurance policies. As corporate executives know, even the mere headline noting criminal charges against a CEO or a company can have devastating consequences, regardless of the outcome of a subsequent investigation.
With the 2016 elections right around the corner, corporate leaders should:
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REVIEW existing guidelines related to political activity;
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REVISE or supplement corporate policies before a problem arises; and
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EDUCATE management on the law and the importance of compliance.
