So-called "pay-to-play" rules can be a source of substantial anxiety for companies and investment firms doing business with state or local governments. Due to these pay-to-play rules, the personal political contributions of company executives, directors, employees, and even family members of employees can cause their investment firm employers to lose millions of dollars in fees from government contracts, face debarment from future contracts, and pay substantial civil penalties. To comply with these rules, many companies and firms require covered employees to preclear personal political contributions with company legal or compliance departments. They also periodically monitor campaign finance databases to identify if employees made restricted contributions in violation of the policy.
But given the volume of employee contributions and the number of databases to monitor, political contribution monitoring and preclearing can consume a significant amount of time and resources for corporate and investment firm legal and compliance departments. To simplify and streamline the process, Covington's Election & Political Law practice group and Six Lambda, a political contributions monitoring service, are now announcing a one-stop-shop service for political contributions monitoring and preclearance support.
Here is how it works: An investment firm or a company with government contracts adopts a pay-to-play policy that requires covered employees, directors, and others to preclear personal political contributions with the company’s compliance or legal department to ensure that the contribution does not violation pay-to-play restrictions. Upon clearance of conflicts and engagement with Covington, those preapproval requests are reviewed by Covington's Election & Political Law team, which then advises the company’s compliance or legal department as to whether the contributions can be approved or whether they raise concerns under applicable pay-to-play rules.
At the same time, Six Lambda – using its proprietary tools – continuously monitors the campaign finance databases of all 50-states and major localities to identify whether covered individuals at the company or investment firm have made political contributions without seeking preclearance. The company or investment firm receives daily reports of any such contributions. Upon clearance of conflicts and signing an engagement letter, Covington then reviews those reports to determine if the contribution presents a pay-to-play rule compliance problem and, if so, whether remedial steps are necessary.
In addition to the monitoring and preclearance service, companies and investment firms can also receive Covington's proprietary 50-state survey of "pay-to-play" rules, recently updated for 2020. This survey, of over 350-pages:
- Details all statewide pay-to-play rules;
- Describes over one hundred “specialty” pay-to-play rules that apply to contractors doing business with certain agencies or companies operating in certain regulated industries, including those that apply to investment firms that manage state or local public funds, lottery and gaming companies, public utilities, redevelopment contractors, and insurance companies; and
- Lists numerous localities that have adopted their own rules.
The survey also includes user-friendly charts and legal citations answering questions such as:
- Which donors are affected?
- Which contributions are restricted?
- Is there a de minimis exception? What are the other exceptions?
- Which types of contracts are covered?
- How long after a contribution does the restriction run?
- Does the rule restrict political fundraising and other solicitations?
- Are there reporting and disclosure requirements?
- What are the penalties?
These simple compliance steps on the front-end can help prevent catastrophic fines and business losses. For pricing inquiries, please contact paytoplaysurvey@cov.com. Fixed monthly fees are available.
If you have any questions concerning the material discussed in this client alert, please contact the following members of Covington's Election & Political Law practice group.
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