Federal, state and local pay-to-play rules present a quagmire of risk for investment advisers who seek to engage in the political process. Here are 10 best practices to help you through the labyrinth:
1) Rules Are Everywhere
It isn’t enough to look only at federal pay-to-play restrictions when considering a contribution. Regulations exist at the federal, state, municipal, and even with respect to individual public pension funds. These regulations differ—sometimes significantly—and overlap from jurisdiction to jurisdiction. There is no way around doing your homework and reviewing the rules in place for each potentially relevant jurisdiction.
2) Rules Can Restrict More Than Contributions
Regulations can restrict activity beyond contributing money to a candidate. Fundraising, hosting a “meet and greet,” using corporate resources and/or even having an employee volunteer his or her time can trigger a violation. Moreover, under certain circumstances contributions to non-candidate entities—even 501(c)(3) charitable organizations—can result in a violation. Some even apply to an employees’ spouse. So, think in terms beyond just contributions.
3) Know The Candidate Or Organization You Are Contributing To
Before making any political contribution an adviser must know the entity he or she is contributing to. This will help you determine where the organization can spend money, whether the contribution will be disclosed and whether the contribution counts against contribution limits.
4) Educate Your Employees
The best defense against an inadvertent violation is a well-educated team. Advisers should, for example, have a document establishing the firm’s policies with respect to political and charitable contributions. Each employee should sign a document certifying that they have read the policy and agree to follow the identified procedures.
5) Watch Certain Actions With Particular Care
Money spent hosting an event—food and drinks, catering, parking, etc.—may be considered a contribution to the candidate or party. This is true even for “meet and greet” events, where no contribution is required to attend and no solicitation for funds is made. Corporations are also prohibited from making contributions or expenditures in connection with federal elections, so advisers should generally avoid using corporate resources to support their political activities. Volunteering for a candidate is generally permissible under pay-to-play statutes. However, expenditures made to support volunteer efforts—i.e. travel and food—may be considered an in-kind contribution to the candidate.
6) Consider The Timing Of Contributions
Fund managers must consider the optics surrounding a political contribution, particularly its timing. If an elected official is about to vote or has just voted on a major piece of legislation that could impact the fund, an adviser should be cautious about making a contribution at that time.
7) Be Cautious With Solicitation Letters And Emails
Advisers should obtain approval before soliciting campaign contributions. Once approved, solicitation letters should be written on personal rather than corporate stationary. The candidate or committee should reimburse the adviser for all mailing costs. When emailing solicitation letters, advisers should email solicitations from a personal rather than corporate email account. Also, advisers should ensure any document they send out includes all necessary disclaimers.
8) Be Careful With Email
Advisers should not to put anything in email, particularly in a fundraising solicitation, that could wind up being embarrassing. A good rule of thumb is to assume that any email you send out will be forwarded to your candidate’s opponent and the press.
9) Serving On A Host Committee
Under the federal pay-to-play rule an, an adviser that consents to the use of its name on fundraising literature for a candidate is deemed to be soliciting contributions for that candidate. Therefore, confer with your compliance department before agreeing to serve on the host committee for a political fundraiser.
10) Gifts, Placement Agents And Lobbying
In addition to pay-to-play rules, advisers must also keep in mind the myriad regulations on gifts to elected officials, the use of placement agents and disclosure of lobbying activities. All this, however, is beyond the scope of this article!
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