Interacting with the Government During the Pandemic: Compliance Blind Spots for Corporations and Executives

Interacting with the Government During the Pandemic: Compliance Blind Spots for Corporations and Executives

March 24, 2020, Covington Alert

The consequences of the COVID-19 pandemic are reverberating in every sector of the global economy, from life sciences to transportation, retail to manufacturing, financial services to sports and entertainment. As federal, state, and local governments attempt to blunt the pandemic’s public health and economic effects, many companies are frantically working with government to seek the help they believe they need to survive these trying times and to preserve their employees’ jobs. In addition, companies with products or services that could assist with the government’s response to the crisis are considering ways to contract with government agencies. As a consequence, many companies are more deeply engaged with government officials than ever before, including by seeking financial loans, grants, contracts, product approvals, regulatory relief, or guidance on how to operate in these times.

But the basic rules covering interactions with government – including lobbying, government ethics, campaign finance, bribery, and fraud laws – all remain in place. And, as with prior economic and national security emergencies, heightened enforcement of these laws is likely to follow the current crisis. As a result, companies that cut compliance corners now may pay a price down the road. 

This alert identifies some common areas of political law compliance risk to keep in mind, as companies engage with government concerning the COVID-19 crisis.

Federal Lobbying

In recent days, many high-ranking corporate officers have dramatically increased their levels of communication with Congress and other federal government officials due to the all-consuming pandemic. This increase in activity could trigger additional lobbying registration and disclosure requirements for companies and for the corporate officers themselves. The federal Lobbying Disclosure Act (“LDA”) requires a company to register and file regular reports when it employs a “lobbyist.” Those reports, among other things, must disclose the names of each lobbyist, a good faith estimate of the company’s total lobbying expenses for the quarter, and the issues and agencies lobbied. Lobbyists themselves must file personal semi-annual reports disclosing their political and politically-related contributions and certifying compliance with the Congressional gift rules.

Generally speaking, an individual (including a corporate executive) qualifies as a “lobbyist” if that person has two or more contacts with covered government officials at any time and spends 20 percent or more of his or her work-time on lobbying activities in a three-month period. Lobbying activities include not only time spent making lobbying contacts, but also time preparing for or supporting those contacts, including by strategizing with trade associations, outside lobbying firms, and other employees.

With the intense lobbying taking place around federal bills to rescue the economy and fight the virus, company officers may easily reach this threshold for registration, even if they do not work in the company’s Washington office or are situated outside the government affairs department. As a result, companies that have never previously registered under the LDA may find themselves subject to its requirements. And senior corporate executives may suddenly learn that they have become federal lobbyists. Companies should consider tracking the activities of corporate leadership during this period to identify whether the company and/or its officers have reached these registration thresholds.

Note also that we have confirmed with the House Clerk’s Office that LDA reporting obligations and deadlines are “still fixed,” notwithstanding the virus. The LDA itself does not authorize extensions for filing deadlines. Quarterly LDA disclosure reports covering lobbying activity in the first quarter of 2020 are still due on April 20, 2020.

State and Local Lobbying

Companies should also be mindful of state and local lobbying laws. Just as at the federal level, state and local governments are hard at work against the health and economic effects of the virus. Companies, seeking funds made available through local emergency declarations, seeking designation as “essential” businesses to remain open, or navigating state contracting laws, for example, should take account of the widely varying state and local lobbying registration laws. Any organization interacting with state or local government officials or employees should ask itself:

• Is this activity considered “lobbying”? State and local lobbying laws can cover lobbying legislative and executive branch officials and employees; seeking contracts and grants; “grassroots” lobbying; and even efforts to build “goodwill” with government officials;
• Does the activity require registration? Jurisdictions vary widely – some require lobbying registration in advance for any paid lobbying; others include de minimis exceptions that allow companies to engage in limited lobbying without registering; and
• What restrictions will apply? State and local lobbying laws may add ethical or campaign finance restrictions to lobbyists, or require disclosure of funding sources.

These laws may extend to communications with state universities, county hospitals, state health departments, and economic developments agencies. More on state lobbying is available here.

The Foreign Agents Registration Act

The Department of Justice’s continued focus on enforcement of the Foreign Agents Registration Act (“FARA”) means that foreign companies, domestic subsidiaries of foreign parents, and companies with foreign ownership or other significant foreign contacts should consider additional risks as they engage with federal, state, and local governments. FARA is an exceedingly broad statute – unless an exemption applies, it imposes obligations on anyone acting on behalf of a foreign person or organization who engages in any of the following activities within the United States:

• Engaging in “political activities,” a term that encompasses any activity that is intended to, or even “believed” to, influence the U.S. government or any section of the U.S. public regarding: (1) formulating, adopting, or changing the foreign or domestic policies of the United States or (2) the “political or public interests, policies, or relations of a government of a foreign country or a foreign political party”;
• Acting as a “public-relations counsel,” “publicity agent,” “information-service employee,” or “political consultant”;
• Collecting or dispensing money in the interest of the foreign principal; or
• Representing the interests of the foreign principal before an agency or official of the United States Government, generally by making direct contact with government officials.

The law might be implicated, for example, when foreign manufacturers try to get their products into the U.S. market, or a U.S. company owned by a sovereign wealth fund seeks FDA approvals. In some cases, the “commercial exemptions” to FARA would apply, relieving such companies of registration obligations. You can find more on FARA here.

Byrd Amendment and Lobbying with Government Funds

Under 31 U.S.C. § 1352, commonly referred to as the “Byrd Amendment,” specific rules and restrictions also apply to lobbying activities in the context of federal procurements. Two provisions of this law, as implemented by the Federal Acquisition Regulation (“FAR”), warrant mention here.

First, the law, as implemented by FAR 52.203-11 and FAR 52.203-12, prohibits companies from using appropriated funds to influence or attempt to influence a Member of Congress (or their employees) in connection with a “covered Federal action,” which includes the award, modification, or extension of a federal contract, grant, or cooperative agreement. When bidding on a federal contract opportunity, companies must certify that no appropriated funds have been paid or will be paid to influence the award of that contract. In addition, companies must flow down this requirement and obtain similar certifications from subcontractors for subcontracts exceeding $150,000.

Second, the Byrd Amendment and its implementing regulations provide that if a contractor does employ an outside lobbying firm to lobby in connection with a particular covered federal action, such as the award or extension of a contract, the contractor must file a report using OMB Standard Form LLL with the relevant government contracting officer. The LLL form requires contractors to identify the name and address of any lobbying registrant who has made a lobbying contact on behalf of the contractor with respect to a covered Federal action, and to update this disclosure within 30 days of the end of any quarter in which there is a subsequent change in the registered lobbyists making lobbying contacts on its behalf with respect to a covered Federal action.

Note that although Byrd Amendment requirements can be nuanced, noncompliance is not treated lightly. Failure to adhere to Byrd Amendment requirements could trigger a range of negative contractual actions, as well as the risk of damages and penalties under the civil False Claims Act.

Campaign Finance, Bribery, and Illegal Gratuities

While in-person political fundraisers have ground to a halt and campaigns have been pushed off the front pages, federal, state, and local primaries are still taking place throughout the spring and summer, with general elections in November. Campaigns continue to raise money, and companies seeking government action during the pandemic should carefully consider the timing of corporate, PAC, and executive fundraising and political contributions. Tying bailout or other requests to political contributions can raise concerns under criminal bribery and illegal gratuity laws. Even the appearance of impropriety may prompt an investigation.

For companies with PACs and other campaign finance disclosure obligations, the Federal Election Commission (“FEC”) has advised that it cannot change filing schedules, and reports and registrations remain due on the typical schedule. Some states have issued similar guidance.

Constituent Services and Ethics

Closely related to the campaign finance, bribery, and illegal gratuities concerns are House and Senate ethics rules governing how Members and staff can address the private commercial interests of donors or constituents, particularly with respect to interests before the Executive Branch. The basic rule is that Members of Congress must treat all constituents equally, without regard for the requestor’s political party, political positions, or campaign contributions. They may not unfairly favor one constituent over another or discriminate in favor of (or against) their political supporters.

Members and staff may communicate with the Executive Branch for constituents (and sometimes non-constituents with aligned interests) but only in limited ways. According to the House Ethics Manual, they generally may:

• Request information or status reports;
• Urge prompt consideration of a matter based on the merits of the case;
• Arrange appointments;
• Express judgment on a matter – subject to the ex parte communication rules; and
• Ask for reconsideration, based on law and regulation, or administrative and other decisions.

The rule against ex parte communications prohibits Members and staff from weighing in on off-the-record matters under formal consideration by agency officials, such as adjudicatory and rulemaking proceedings that include formal hearings and decisions made on a record. For example, a Member may not weigh in ex parte on which of two companies should be awarded a contract.

The Senate has similar guidelines. Some additional considerations are available here.

Fraud, Waste, and Abuse

Government investigations into companies that allegedly sought to profit off the crisis often follow national emergencies. The wars in Afghanistan and Iraq have spurred investigations by the Special Inspectors General. Congressional and Department of Justice investigations of use and abuse of federal bailouts after the 2008 financial crisis targeted financial services companies and stimulus recipients. This crisis will be no different. Any recipient of bailout funds or other emergency action will be under great scrutiny in the months and years to come. The Department of Justice is already setting up a Coronavirus Fraud Coordinator in each U.S. Attorney’s Office and has set up a fraud hotline and website for reporting frauds related to the pandemic. Companies should closely adhere to the terms of their agreements and the laws under which they benefit; carefully account for their use of funds; avoid making promises they do not intend to keep; and avoid engaging in profiteering, “price-gouging,” and other practices that will attract attention and may be illegal under emergency declarations, among other best practices.

STOCK Act and Insider Information

This crisis has already seen its first allegations of insider trading under The Stop Trading on Congressional Knowledge Act (“STOCK Act”), and more are likely to follow. The STOCK Act generally provides that a federal government official who buys or sells securities on the basis of material, non-public information has engaged in insider trading and may be prosecuted. Moreover, pursuant to the STOCK Act, an insider trading case can potentially be brought against anyone who buys or sells securities on the basis of material, non-public information obtained from the government. If, for example, an official managing bailout money passes on information to a company executive, trading based on that information could be prohibited if the inside government information was material and non-public. Given recent market volatility, companies would be wise to use this time to revisit their insider trading policies to ensure they address STOCK Act considerations, and to provide training to employees regarding these rules. More information about the STOCK Act is available here.

Gifts to the Federal Government

Reflecting the desire to help in the crisis, organizations may be considering donating employee time or company resources to the federal government. These donations may raise concerns under the Anti-Deficiency Act and related prohibitions on gifts to agencies. Under these laws, federal agencies are generally prohibited from accepting donations of goods or money unless the agency has specific statutory authority to do so. These laws might be triggered when individuals are paid by a company but doing work for the government, or when a company makes in-kind contributions of medical supplies, food, or other material to the government. Similar rules exist in some states and localities. There are solutions available to these problems, but they must be carefully navigated.

Interacting with the Government During the Pandemic: A Compliance Checklist

• Counsel and compliance officers navigating political laws in this environment should ask themselves some key questions to ensure they do not end up on the wrong side of the law. A checklist is below.
• Does the company have a federal lobbying compliance program? Is it capturing increased lobbying activity of corporate executives?
• Who is interacting with state and local government officials on behalf of the company? What are the lobbying registration and reporting consequences of these activities?
• Does the company have foreign connections that make FARA a concern? Is the company engaging in political, lobbying, or related activities on behalf of a foreign entity or a foreign government?
• Are the company’s lobbying activities benefiting a foreign government?
• Is the company itself making political contributions during this period of intense lobbying activity? Are corporate executives or corporate PACs?
• Will the company receive funding from government, including via contracts, grants, bailouts, loans, and other infusions? What are the terms of those agreements? Who is in charge of monitoring those terms? How did the company obtain those funds? Is the company abiding by the lobbying restrictions in the Byrd Amendment and/or in the agreement?
• Is the company making trading decisions based on insider information derived from the U.S. Government? Does the company’s insider trading policy address trading based on inside government information?
• Is the company providing anything of value to the government or officials? Does the donation comply with anti-deficiency rules and the rules governing gift-giving?

Covington's Election and Political law practice group and Government Contracts practice group are available to help advise on compliance policies, provide training, and address real-time issues related to corporate engagement with government agencies during the pandemic.

This information is not intended as legal advice. Readers should seek specific legal advice before acting with regard to the subjects mentioned herein. If you have questions concerning the material discussed in this client alert, please contact the following.