A Question of Ethics

Are Contributions Allowed With a Bill Pending?

July 27, 2010

Q: As a lobbyist, I was alarmed to read that the Office of Congressional Ethics is investigating several Members for accepting campaign contributions immediately before an important House vote. I was not aware of any rule regarding the timing of contributions. Is there a new rule restricting contributions within a certain time frame of pending legislation?

A: The Office of Congressional Ethics is indeed conducting an investigation that appears to concern the timing of campaign contributions in relation to a key House vote.

According to reports, the investigation is focused on eight Representatives who, within 48 hours of an important House vote on financial reform legislation, held fundraisers and received campaign contributions from lobbyists and other donors likely to be affected by the legislation. One Member reportedly left the financial reform House debate in order to go to a fundraiser attended by finance companies, collected campaign contributions at the event and then returned to the House floor to vote against tougher restrictions on the companies.

So, are these contributions illegal?

No law prohibits you from contributing to a Member’s campaign immediately before a vote on a measure that could affect you. In general, the primary restrictions on contributions concern their size, not their timing. In addition, in your case, for contributions larger than $200 during a given period, the Lobbying Disclosure Act requires the lobbyist to disclose the date, recipient and amount of the contribution.

On the Members’ side of things, there is also no rule prohibiting them from accepting campaign contributions within any particular time frame of a vote. In fact, there are rules that explicitly allow Members’ campaigns to receive contributions. Both House and Senate rules provide that contributions lawfully made under the Federal Election Campaign Act are exempted from the general ban on gifts to Members. House and Senate rules also explicitly permit Members to attend campaign fundraisers. While the rules do include certain conditions regarding Members’ attendance at fundraisers, none of the conditions relates to timing.

Of course, the House ethics committee does urge Members generally to avoid the appearance of impropriety when soliciting or accepting contributions. For example, the House Ethics Manual states that Members and staffers should “always exercise caution to avoid even the appearance that solicitations of campaign contributions are connected in any way with an action taken or to be taken in their official capacity.”

To illustrate the point, the manual includes an example of a House staffer who is working on legislation with representatives of a corporation that supports the legislation. The manual states: “at least while the staff member is doing that legislative work, and for a reasonable period thereafter, he should not solicit contributions from the representatives of that corporation.” But where these factors are not present — i.e., a staffer actually working with corporate representatives on legislation — the House ethics committee has not published any guidance advising Members not to accept contributions while a vote is pending. Indeed, neither chamber’s ethics committee has ever taken the position that timing alone can make campaign contributions improper.

So, what then to make of the investigation by the Office of Congressional Ethics? Because it is not known what triggered the investigation, it is possible that something other than the mere timing of the campaign contributions was its impetus. After all, many other Members who are not being investigated also received contributions from financial service companies shortly before the House vote.

If, however, the timing of the contributions was the sole spark of the investigation, Members and donors should pay close attention. Responding to an investigation is no day at the beach. In this investigation, the OCE has been sending document requests to corporations, political action committees and other entities seeking several categories of documents spanning from Jan. 1, 2009, to the present. One category seeks all “files, correspondence, emails, receipts, notes, and any other documents regarding the soliciting, encouraging, facilitating, collecting, or forwarding of contributions” to any of the eight Members under investigation. Another seeks all correspondence with the eight Members. Gathering and producing such documents takes time and money.

Moreover, the mere act of producing them creates legal risk. Parties who produce documents in response to an OCE request submit a Request for Information Certification along with their production, in which they certify that they have provided “all information requested.” The certification states that it is being given under the False Statements Act, a federal criminal statute with maximum penalties of five years in jail and $250,000 in fines.

So, you are correct that there is no rule restricting contributions within a certain time frame of pending legislation. In fact, there is no precedent for sanctions based solely on the timing of contributions in relation to a Congressional vote. However, the current investigation is a good reminder that drawing the attention of the OCE can be costly, and not just politically. There are better ways to spend a summer than responding to document requests.

© Copyright 2010, Roll Call Inc. Reprinted with permission. Widely regarded as the leading publication for Congressional news and information, Roll Call has been the newspaper of Capitol Hill since 1955. For more information, visit www.rollcall.com.


A Question of Ethics

What Is the Impact of the Skilling Decision?

July 13, 2010

by C. Simon Davidson

Q: I have a question about the recent Supreme Court decision in the criminal trial of former Enron CEO Jeffrey Skilling. Although the case concerned a private-sector situation, I have been told that it marks a major change in public corruption law and that it will make it more difficult for federal prosecutors to punish offenders both within and outside government. What is the impact of the decision? Will it really result in an increase of unpunished public corruption?

A: To put your question in context, a little background is in order. The honest services fraud statute has its origins in the general federal statutes criminalizing fraud. They prohibit using mail and other means of communication for the purpose of a “scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” Over time, disagreement developed over whether these statutes should apply even where a victim does not lose any money or property to the perpetrator of the fraud.

In general, federal appeals courts said that they do. In a series of decisions beginning in the 1940s, courts interpreted the statutes to include deprivations not only of money or property, but of intangible rights as well. In the classic example, a city official accepts a bribe from a third party in exchange for awarding a government contract to the party. The contract terms and performance are exactly the same as they would have been in the absence of the bribe. In these circumstances, the city has suffered no monetary loss. However, courts reasoned, the city has been deprived of its right to the official’s honest services as a result of the official’s fraud. Thus evolved the “honest services” doctrine of fraud. By 1982, all federal appeals courts had embraced it.

In 1987, however, the Supreme Court put on the brakes. It held that the statute could not apply to deprivations of mere “intangible rights” in the absence of “clear and definite” language from Congress. Congress responded the following year by enacting the honest services fraud statute, which provides that fraud includes “a scheme or artifice to deprive another of the intangible right of honest services.” However, the new statute did not define “honest services” or explain the types of circumstances in which the “intangible right” to those services is deprived.

The statute quickly became a popular tool among federal prosecutors. Part of its attraction, no doubt, was its malleability. Over time, the statute was applied to ever-expanding groups of conduct. Defense attorneys howled about the lack of clarity. It seemed only a matter of time before it all would come to a head.

In February 2009, it almost did, but the Supreme Court instead declined an opportunity to address a challenge to the statute. Justice Antonin Scalia disagreed with the high court’s decision. Scalia noted that the statute, which “consists of only 28 words,” had been invoked to capture “a staggeringly broad swath of behavior, including misconduct not only by public officials and employees but also by private employees and corporate fiduciaries.” Without a coherent limiting principle to define the intangible right of honest services, Scalia argued, the law invited “abuse by headline-grabbing prosecutors in pursuit of local officials, state legislators, and corporate CEOs who engage in any manner of unappealing or ethically questionable conduct.”

“It seems to me quite irresponsible,” Scalia contended, “to let the current chaos prevail.”

Last month, the Supreme Court finally did address the “chaos” that Scalia described. In the Skilling case, the high court pared the statute “down to its core” by holding that it could apply only to cases involving bribes or kickbacks. More specifically, the statute was constitutional when applied to “fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who had not been deceived.” The statute no longer applies, the court said, to “undisclosed self-dealing by a public official or private employee.” In other words, it does not cover officials or employees who act to further their own undisclosed financial interests while ostensibly acting in the interests of others.

So, what is the impact of all of this? Most importantly, public officials and private employees should not consider the decision to be a license to engage in undisclosed self-dealing. Depending on the circumstances, engaging in such self-dealing could expose officials and employees to other legal risks. These may include securities laws, insider trading laws and civil suits by shareholders, among others. Skilling was charged with conspiring to commit not only honest services fraud, but also money-or-property fraud and securities fraud.

Therefore, I would not expect a surge in unpunished public corruption. As the court noted, the vast majority of honest services fraud cases historically involved bribes or kickbacks. These cases are still covered by the statute.

Moreover, Congress may respond, just as it did the last time. The Supreme Court did not say that it is unconstitutional per se to criminalize undisclosed self-dealing. Rather, it said that if Congress wants to do so, it should “employ standards of sufficient definiteness and specificity” to overcome constitutional concerns. In other words, be clearer than last time.

© Copyright 2010, Roll Call Inc. Reprinted with permission. Widely regarded as the leading publication for Congressional news and information, Roll Call has been the newspaper of Capitol Hill since 1955. For more information, visit www.rollcall.com.