Increased Enforcement Risk for Criminal Campaign Finance Violations

Every four years, prosecutors at the Department of Justice (“DOJ”) train their sights on money spent to influence the outcome of the presidential election—and those who spend it.  While the Federal Election Commission (FEC) has exclusive jurisdiction to penalize and enforce civil violations of the Federal Election Campaign Act (FECA), 52 U.S.C. § 30101 et seq., DOJ is responsible for criminally prosecuting “knowing and willful” FECA violations that rise to a certain monetary threshold.  The Department always “has a strong interest in the prosecution of election-related crimes,” but the massive influx of money that comes with a presidential election creates increased enforcement opportunities—and carries increased risk for companies and individuals to run afoul of FECA and other laws aimed at protecting the integrity of U.S. elections.  Even the most well-meaning company or individual may be caught in the crossfire of an investigation or subpoena.

Several high-profile FECA cases related to the 2016 presidential election cycle suggest that FECA will be at the top of federal prosecutors’ minds this time around.  For example, the guilty plea of President Trump’s former lawyer, Michael Cohen, included two related FECA violations.  Specifically, Cohen admitted to knowingly and willfully violating both 52 U.S.C. § 30116, which limits excessive contributions, for arranging six-figure in-kind donations to the President’s election campaign (well above the $2,700 individual contribution total permitted per election cycle), and § 30118, FECA’s prohibition on corporate contributions made directly to federal campaigns, for facilitating payment of the in-kind donations through a corporation.

In addition to FECA’s limits on excessive and corporate contributions, criminal penalties are available for knowing and willful violations of several other FECA provisions, as recent prosecutions have demonstrated.  The following are likely to be specific enforcement priorities for the Department:

Ban on Contributions and Donations From Foreign Nationals (§ 30121): FECA’s ban on contributions and donations from “foreign nationals” applies to non-citizens who are not lawful permanent residents (i.e., non-citizens who are not green card holders), as well as “foreign principal[s]” as that term is defined in the Foreign Agents Registration Act (FARA), 22 U.S.C. § 611, including foreign governments, foreign political parties, and foreign corporations.  One particularly thorny compliance area is the applicability of this prohibition to domestic U.S. subsidiaries of parent corporations organized under the law of, or with their principal place of business in, a foreign country.  Although the issue is not directly addressed by the statute, the FEC has offered guidance that such domestic subsidiaries do not qualify as “foreign principals” and are therefore not independently subject to FECA’s ban on donations by foreign nationals (keeping in mind that contributions by both foreign and domestic corporations are prohibited at the federal level).  However, a donation by the domestic subsidiary may not be funded by the foreign parent, nor can foreign nationals participate in any way in the donation.  FECA’s ban on political donations by foreign nationals applies with equal force to donations to presidential inaugural committees and any state- and local-level donations.  In fact, this is one of the few areas where the federal government can regulate, and DOJ can prosecute, activity in non-federal elections. ­­

The issue of foreign money in elections has in the last several election cycles been a special focus for the Department.  For example, in 2016 the Department successfully obtained a guilty plea from Bilal Shehu, who admitted to illegally funneling $80,000 of funds from a foreign national into Barack Obama’s 2012 reelection campaign.  DOJ’s interest in the case stemmed from a remarkable series of events: the money that Shehu illegally contributed went toward two $40,000 tickets to a San Francisco fundraiser with then-President Obama.  One of those tickets was used by Edi Rama—now the Prime Minister of Albania—who was denied entry to the fundraiser, yet able to get a photograph with the president.  Rama used his photograph with the president as part of his successful campaign in Albania during the country’s national elections.

Other notable foreign money FECA cases in recent years include DOJ’s ongoing prosecution of Lev Parnas and Igor Fruman for alleged federal and state donations funded by foreign nationals to facilitate licensing of a business venture, and the successful guilty plea DOJ obtained from Imaad Zuberi for funneling foreign funds into hundreds of thousands of dollars of illegal campaign contributions.

“Conduit” Contributions (§ 30122): also known as “reimbursed contributions,” “straw donor” contributions, and contributions in the name of another, these are one of the most common FECA violations.  A conduit contribution entails one individual passing money to a second “conduit” individual, to fund a donation in the conduit’s name to a federal candidate.  Conduit contributions are typically used to hide the identity of the true donor, often for the purpose of evading FECA’s substantive prohibitions, such as the limits on excessive contributions and contributions funded from impermissible sources as prohibited by § 30118 (corporate contributions) and § 30121 (contributions funded by foreign nationals).  Conduit contributions may also be subject to felony prosecution under federal conspiracy and false statement statutes.

A particular area of conduit contribution exposure for corporate clients is donations that are arranged by a corporate official, but made in the names of employees who are then reimbursed from corporate funds.  Such contributions are illegal under FECA, and, if over $10,000 in the aggregate and knowingly and willfully made, prosecutable as felonies under § 30118 and § 30122.  This can potentially lead to substantial monetary penalties and even prison sentences for individuals involved: conduit contributions over $10,000 can lead to up to two years in jail time, and conduit contributions over $25,000 can lead to up to five years in jail time.

Just yesterday, former Kentucky Democratic Party chairman Jerry Lundergan was sentenced to 21 months in prison and fined $150,000 for “orchestrating a multi-year scheme to funnel more than $200,000 in secret, unlawful corporate contributions” from a company he owned into the Senate campaign of his daughter, Alison Lundergan Grimes.  A jury had previously convicted Lundergan of ten felony counts, including one count of making a corporate campaign contribution.  Another example of a recent prosecution is the $1.6 million penalty agreed to in November of 2019 by Dannenbaum Engineering Corporation, which entered into a Deferred Prosecution Agreement with DOJ to resolve $323,000 of illegal conduit contributions made through its employees over a two-year period.

“Coordinated Expenditures” (§ 30116): independent expenditures by individuals and political action committees can become impermissible “coordinated” expenditures if made “in cooperation, consultation, or concert, with, or at the request or suggestion of” a candidate or a candidate’s authorized committee.  Coordinated expenditures are treated as “contributions” for the purposes of FECA and can lead to criminal penalties.  While impermissible “coordination” cases are considered difficult to prosecute, the 2015 case of Virginia political consultant Tyler Harber—sentenced to two years of jail time for exactly this conduct—shows that such prosecutions are not impossible.  In a case hailed as “the first criminal prosecution in the United States based upon the coordination of campaign contributions between political committees,” Harber pleaded guilty to violating FECA for making and directing $325,000 of expenditures as part of a PAC he created and operated to benefit a candidate for Congress, while simultaneously serving as the campaign manager for that candidate.  Harber admitted to “participating in the purchase of specific advertising” by the PAC in order to benefit the candidate, while knowing that such coordination was unlawful.  Even though the circumstances of Harber’s coordination that led to prosecution in this case were particularly egregious, given the increased use of independent expenditures it is possible that prosecutors will use the Harber case as a model for more aggressively pursuing other coordination cases in the future.

“Scam PACs”: a developing area of criminal campaign finance enforcement is “Scam PACs,” or “political committees that collect political contributions, frequently using the name of a candidate, but which spend little to none of the proceeds on political activity benefitting that candidate.”  Because there is no clear rule setting out how much money a PAC must spend on advancing political causes versus compensating the PAC managers, criminal Scam PAC cases can be difficult to pursue under FECA.  Nonetheless, DOJ first successfully prosecuted a Scam PAC case in November of 2018 as a wire fraud conspiracy, and there have been several more prosecutions since then.  In January of 2020, for example, a Maryland political consultant was sentenced to three years in prison for operating “Conservative StrikeForce” PAC, through which he solicited donor funds for conservative candidates and causes, but then spent the donations on himself.  And in July of 2019, a former candidate for Congress pleaded guilty to operating “fraudulent and unregistered political action committees” through which he collected over $1 million, which he spent on “purely personal expenses.”  The defendant in that case admitted to knowingly and willfully violating FECA’s PAC disclosure requirements, in addition to one count of wire fraud.

Individuals and corporate entities moving to increase their political contributions and expenditures over the next four months—whether through corporate PACs, individual donations by employees, or otherwise—must be mindful of the FECA provisions above and the potentially serious criminal penalties for violations.  Even those that are not themselves the target of law enforcement may be swept into a costly investigation that could have been avoided through effective compliance, using discretion when determining which organizations and individuals to transact with, and consulting outside counsel when questions arise.

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