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Navigating the intricacies of political contributions amidst the 2024 election cycle poses significant challenges for companies, prompting heightened concerns over compliance policies and procedures. In collaboration with Skadden, Arps ("Skadden"), StarCompliance's latest webinar addresses these pressing issues, delving into essential changes applicable to all firms. With a staggering 96% of webinar participants expressing apprehension regarding the risks associated with pay-to-play, the critical role of political contributions in shaping policies and mitigating risk becomes evident.
The Challenges of State & Local Rules
The webinar sheds light on the often overlooked complexities of state and local regulations governing political contributions, which differ substantially from federal laws. These local rules present unique challenges, exemplified by prohibitions against government officials accepting even minor gratuities like coffee. To navigate this complexity effectively, companies are advised to establish a robust baseline pay-to-play policy tailored to accommodate state and local nuances.
"As the 2024 presidential election heats up, the spotlight on political contributions grows stronger. Pay-to-play regulations make liability laws very strict and daunting,” stated Charlie Ricciardelli, Partner, Political Law at Skadden. “There are a raft of rules and regulations at the federal, state and local levels that can knock a company out of being able to obtain a contract and provide services to entities in the government, just because of a political contribution made either by the company itself, its PAC or a personal political contribution that was either solicited or made by certain employees.”
Facing Other Complexities
Beyond regulatory intricacies, additional complexities arise concerning spouses' contributions, employee volunteering, and contractual arrangements. While federal fair play rules do not encompass spouses, the indirect risks associated with their contributions warrant inclusion in company policies. Similarly, volunteering activities necessitate careful scrutiny to ensure compliance with solicitation and resource usage guidelines. Regarding short-term and contract employees, firms must decide whether to subject them to the same standards, with pre-clearance and contractual provisions serving as vital risk mitigation measures.
“It's crucial to understand that these regulations don't just impact financial institutions but extend to any company engaging with government entities, from suppliers of walkie-talkies to a fire department to renting real estate to the government,” Ricciardelli added. “Compliance isn't solely about federal rules; it's equally vital to navigate and comply with state and local regulations.”
Other considerations may involve:
- How to respond if an employee wants to host a federal candidate in the office and wants to invite other employees?
- How should firms treat contributions to federal elections when the candidate is a former state/local official?
- Is there a concern that the individual may still have or exercise indirect influence, depending on the level of the former position?
- When it comes to volunteer activities, what should firms consider that would qualify an activity as an “in-kind contribution?”
- When onboarding new employees, should firms also consider whether to inquire about political contributions in the past two years, since there is a look-back period?
Risk Mitigation
To mitigate risks effectively, firms are encouraged to implement proactive measures, including regular training reminders and leveraging technology for monitoring and surveillance. The manual tracking of political contributions is labor-intensive and prone to errors, making technological solutions indispensable for identifying and addressing areas of risk efficiently. 55% of webinar respondents reported doing some form of manual review. Leveraging technology not only streamlines the pre-clearance process but also enhances oversight and reduces the likelihood of compliance breaches.
“The key is to have a good compliance system in place for political donations. The baseline proposition for a successful Pay to Play policy is to make sure it’s appropriately tied to the rules you must deal with,” added Ricciardelli. “Are we getting the right contributions into the system from the right people in the organization, that we can review and vet to make sure they are not problematic? That’s the goal for a robust compliance strategy in the world of political donations.”
Conclusion
In conclusion, companies must tailor their policies to accommodate state and local jurisdiction requirements, consider unique risk areas such as spouses and contract employees, and leverage technology to optimize political contribution monitoring and surveillance. 95% of webinar respondents indicated that they are using some form of technology to conduct monitoring and/or surveillance. By adopting a proactive approach informed by expert insights, firms can minimize the chance of compliance breaches and mitigate associated risks effectively.
