It’s a common scenario: An employee receives a text from a friend asking them to contribute to the campaign of a candidate the friend supports. Without thinking much about it, the employee makes a $500 contribution. Though the employee has been trained on their company’s political contributions policy, it doesn’t occur to the employee to check with compliance before contributing. But the employee’s seemingly routine political contribution could jeopardize the company’s contracts with public entities, trigger investigations, or even result in enforcement actions and substantial penalties.
As the 2026 election season accelerates, now is a good time for companies that do business with government entities to emphasize pay-to-play compliance and remind employees of the consequences that can result from their personal political contributions.
Pay-to-play rules are designed to prevent political contributions from influencing the award of government contracts. While some pay-to-play rules, such as the U.S. Securities and Exchange Commission’s Rule 206(4)-5 and the Municipal Securities Rulemaking Board’s Rule G-37, apply only to certain financial-sector companies and their employees, many states and municipalities have adopted pay-to-play rules that apply to a much broader range of government contractors, regardless of industry.
The consequences of a pay-to-play violation, even an inadvertent one, can be steep. Depending on the circumstances, a prohibited political contribution can result in forfeited payments, contract cancellations, disgorgement of receipts, civil penalties, and disqualification from future contracting opportunities. These penalties apply even when the violation was unintentional.
As elections near and campaign solicitations proliferate, companies can take steps to refresh employee awareness of political contribution compliance protocols. Effective techniques may include sending company-wide reminders of political contribution restrictions and preclearance requirements, requiring employees to certify compliance with preclearance requirements and report political contributions on a periodic basis, and conducting regular compliance training. Companies can also identify potential violations by monitoring public political contribution databases.
Election season can also be a good time to review existing policies to make sure they adequately protect against pay-to-play risks. Important considerations include whether policies apply to appropriate categories of personnel, clearly identify covered employees and types of contributions, and address risks associated with applicable state and local policies.
Several recurring issues continue to create pay-to-play risk across industries:
- Contributions to state officeholders running for federal office: While contributions to federal campaigns are often lower-risk, violations may nevertheless occur when the federal candidate currently holds a state or local office with authority over the award of government business or the ability to appoint people with such authority. Examples often include governors, mayors, state treasurers, and state legislative leaders running for federal office. To avoid inadvertent violations, contributions to such federal candidates should, like contributions to candidates for state and local office, be reviewed carefully.
- Failure to consider indirect contribution risk: Contributions to joint fundraising committees, political action committees, and certain politically active organizations, including some 501(c)(4) organizations, can sometimes be viewed as indirect contributions to candidates. These entities should be scrutinized to understand where funds are ultimately directed before contributions are made.
- Overlooking state and local pay-to-play rules: State and local pay-to-play regimes are often broader and more restrictive than the better-known SEC and MSRB rules. State and local laws may impose restrictions without de minimis exceptions; cover broader groups of employees, officers, directors, owners, or affiliated persons; restrict contributions to a wider range of candidates, political committees, or officeholders; and apply to contractors, vendors, and other entities that are not subject to federal law pay-to-play regimes.
Even with robust policies and compliance practices, pay-to-play violations sometimes happen. In some circumstances, companies can seek exemptions from the penalties associated with violations. While there is no guarantee that relief will be granted, companies are generally better positioned when they can demonstrate a strong compliance program of written policies, regular trainings, employee certifications, and active monitoring. If a problematic contribution is identified, companies should evaluate remedial measures immediately, including seeking a refund and seeking counsel as soon as practicable after discovery.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Election and Political Law practice.
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