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As the election year gets under way, it’s important for general counsel at politically active corporations to review federal election laws and to look at how the Bipartisan Campaign Reform Act of 2002, otherwise known as the McCain-Feingold law, significantly alters the legal landscape. McCain-Feingold builds on some basic tenets of federal election law. Businesses are prohibited from using corporate treasury funds to make contributions to a federal candidate, national political party or political action committee. Additionally, it’s illegal for a company to ask employees to make personal contributions to federal candidates and then reimburse those workers either directly through an expense reimbursement or indirectly through a performance bonus. Long before McCain-Feingold, the Federal Election Commission and the U.S. Department of Justice had started imposing significant civil and criminal sanctions on corporations and their executives. Last year, the Audiovox Corp., a New York consumer electronics company, and its executives were fined $849,000 — the highest fines ever collected by the FEC — for using corporate funds to reimburse employees for contributions to federal candidates. That penalty followed a $477,000 fine imposed upon Mattel Inc. for unwittingly allowing its chief lobbyist to use company funds to compensate workers for $120,000 in campaign contributions. In addition, the U.S. Sentencing Commission last year issued dramatically tougher criminal penalties: It increased the number of campaign finance violations that may be charged as felonies and boosted the maximum penalties for violations. PAC EXPLOSION Although a corporation cannot make direct financial contributions to federal candidates, it can have its voice heard in Washington, D.C., by creating a PAC. These lobbying groups have been in existence since 1944, when the Congress of Industrial Organizations labor union formed the first PAC to raise money for the re-election of President Franklin Roosevelt. In the ensuing 60 years, the number of PACs has exploded. Currently more than 1,500 corporations have PACs, including a majority of Fortune 500 companies, as well as many small to midsize businesses. Industry leaders, such as Wal-Mart Stores Inc., United Parcel Service Inc. and SBC Communications Inc., have some of the largest and most active corporate PACs in terms of candidate contributions, giving between $1 million and $1.8 million to candidates in 2003 alone. A PAC allows a corporation to pool contributions from employees in order to contribute to presidential or congressional candidates. Generally, a business may pay for some of the administrative and operating expenses of the PAC. However, a corporation is limited as to whom it may solicit and how it conducts such solicitations. At any time throughout the year, a company may seek contributions from senior-level, executive and administrative employees, corporate shareholders, and the families of both groups, which are collectively known as the corporation’s “restricted class.” Twice a year, under heavily regulated conditions, a corporate PAC may solicit employees outside of the restricted class. A corporation may also wish to invite a federal candidate to visit its facilities and speak to its employees. If the candidate only speaks to the corporation’s restricted class employees, the candidate may be able to seek and collect campaign contributions while on the corporation’s premises. Under certain conditions, the company may also endorse the candidate during these appearances. Often, a corporation will want to host an incumbent officeholder to speak to all of its employees about pending and future legislation. If the senator or representative’s remarks do not include any campaign-related discussions, the corporation is not required to provide equal time to the officeholder’s opponent. In certain circumstances, the company may be able to use corporate resources, such as a company jet or a company car, to transport the officeholder to the event, without running afoul of campaign finance regulations or congressional ethics rules. In the spirit of good corporate citizenship, many businesses are developing voter guides to encourage employees to exercise their right to vote. A corporation must be careful not to appear to endorse or oppose a candidate listed in any of these voter guides. Typically, these guides must feature at least two candidates and avoid expressly advocating the election or defeat of a particular candidate or party. Although a voter guide may include the candidates’ voting records, it should avoid “scoring” the candidates or otherwise showing a preference for a candidate. VOLUNTEER PROBLEMS An often surprising problem area for corporations during election years concerns employees who volunteer for a presidential or congressional candidate. Because federal law bars the use of corporate resources or facilities to assist in fund-raising efforts for federal candidates, a company’s employees can engage only in limited campaign-related activities during work hours using corporate resources. Businesses may permit employees to use corporate facilities for volunteer campaign activity only if the use is determined to be incidental. Generally, an employee volunteering for a federal candidate would be required to pay for long-distance telephone charges, photocopying costs and any secretarial support used, but may not need to reimburse the corporation for fixed costs such as office rent or utilities. Despite these restrictions, there are areas in which a corporation can offer a federal candidate the services of its employees, such as lawyers and accountants. The rules concerning volunteer activity are particularly complex, so corporations need to have clear policies regarding employee political activities on corporate premises to protect themselves from a possible FEC investigation. ISSUE ADVOCACY The McCain-Feingold law may significantly alter the activities of some of the most politically active corporations in the 2004 election cycle. In addition to banning “soft money” contributions to national party committees, the law curtails “issue advocacy.” Since 1996, corporations, labor unions and partisan advocacy groups have launched unprecedented barrages of issue ads. These ads were aimed at influencing elections, but did not trigger the contribution restrictions or disclosure requirements required under campaign finance law. By steering away from messages that include phrases such as “Vote for Senator Lincoln” or “Vote Against Senator Santorum,” the advertisements were previously unregulated by campaign finance law. In an attempt to limit such issue advertisements, McCain-Feingold imposes a blackout period during which issue advertisements are banned, even if those ads do not expressly advocate the election or defeat of a particular candidate. These restrictions, known as the electioneering communications ban, strictly prohibit a corporation from directly or indirectly financing any television or radio communication that refers to a clearly identified federal candidate — if the commercial reaches the relevant voting audience within 30 days of a primary election or 60 days of a general election in which the identified federal candidate is running. Because the electioneering communications ban does not include print media, direct mail or Internet communications, corporations remain free to use newspaper or magazine advertisements, billboards or mass mailings to engage in issue advocacy. Corporations can unintentionally violate the law by engaging in political activities that appear innocuous. Because of the complex and often arcane nature of federal campaign finance law, many uninformed executives have found their corporations the subject of a federal investigation into their political activities. In addition to the time and expense of the investigation itself, a finding of wrongdoing can cost the corporation in terms of civil and criminal penalties as well as loss of reputation and good will. It is critical for any corporation wishing to engage in any political activity to make sure it knows exactly what the laws are. Wesley D. Bizzell is an associate at Winston & Strawn in Washington, D.C. This article was originally published in the New Jersey Law Journal , aRecorder affiliate based in Newark, N.J. • Practice Center articles inform readers on developments in substantive law, practice issues or law firm management. Contact News Editor Candice McFarland with submissions or questions at [email protected]or go to www.therecorder.com/submissions.html.

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