The New Federal Lobbying Regulations

What the Act Means

Even if your organization has a lobbying compliance program already in place, it is very likely that it is inadequate to meet the demands of the new law. The reality of life after the Honest Leadership and Open Government Act is that federal political activity now occurs within a new and very complicated regulatory environment. Many individuals and businesses that have never before considered themselves to be involved in 'lobbying' need to take another look. Failure to comply with the new changes will result in harsh fines and possibly jail time.

The First Amendment guarantees all citizens (including businesses) the freedom of speech, association, and the right to petition Congress. Although political activity is constitutionally protected, it is nonetheless highly regulated by both state and federal government. Indeed, political activity and political speech are among the most highly regulated (and when done improperly) most severely punished activities.

The new regulatory environment in the area of lobbying is the result of amendments to the Lobbying Disclosure Act (LDA) of 1995, and new internal Senate and House of Representatives rules. These changes were made in legislation that was passed by the House of Represen-tatives on July 31, 2007 and by the Senate on Aug. 2, 2007.

From the perspective of a corporate counsel or corporate compliance officer, political activity after the Honest Leadership and Open Government Act has more red flags that Tiananmen Square. A business's response should not be to disavow any political activity, but rather to engage in political activity with the protection of a sound compliance plan. It is worth noting that the subject of this article is confined to lobbying and ethics requirements imposed by the federal law. Each state has different rules regulating state lobbying activity and we do not address those in this article.

Four Key Changes

Disclosing Lobbying Activity

The first question is whether a person or business is a 'lobbyist' subject to the law. To most, a lobbyist is someone like the character Nick Nailer in the film (and book), 'Thank You for Smoking' ' a smooth-talking, glad-handing Washington, DC-based operative in a $5,000 suit who wines and dines Senators in exclusive K Street restaurants. Not so. The new law dramatically increases the number of people and businesses which are subject to the law and also greatly expands the activities that are subject to this regulation. The LDA applies to those who perform their duties either as lobbyists outside corporate organizations or associations and in-house lobbyists who are employees conducting lobbying activity on behalf of his employer.

Companies have a three part test to determine if they have a 'lobbyist' under the LDA.

First, does the company have one (or more) employees that spend 20% or more of their time engaged in lobbying activity? (Before you answer 'no' to this question, see the definition of 'lobbying activity' below.)

Second, did that person make two or more lobbying contacts during the relevant period?

Third, did the company spend at least $12,250 on lobbying activity during the relevant period? The definition of 'lobbying activity' includes any attempt to influence legislation, rulemaking or agency decision making. The attempted procurement of a federal government contract is also considered lobbying activity. Additionally, work done by support staff who never actually contact official decision makers and their staff is also considered lobbying activity.

Under the new requirements, these questions must be asked on a quarterly rather than a semi-annual basis as previously required. The broad definition of 'lobbying activity' and the new time and financial threshold makes it easy to fall within this net. For instance, imagine your company is tracking a public policy issue that is of vital concern to your company. To keep track of this issue, you ask a member of your staff to track federal legislation, media reports on the issue and draft weekly memos briefing your senior staff on developments regarding the issue. This eager employee spends about one third of her time on the project. However, she has never been to Washington, DC, and doesn't know a soul who works on Capitol Hill. So far, this is not regulated lobbying activity and the company has no obligation to report any of the money it spends on this effort.

However, if one of these weekly memos alerts the CEO that legislation that will be detrimental to the interests of the company is about to be introduced and the CEO decides to call several members of Congress to educate them on this issue in an attempt to persuade them to oppose the legislation then ' assuming that the financial threshhold is met ' all of this activity is considered lobbying activity and must be reported.

If the threshold requirements are met, the individual and business must comply with the new law (including new reporting requirements) or they will be fined or criminally prosecuted.

Organizations must disclose to the relevant reporting agency ' either the Clerk of the House or the Secretary of the Senate ' the salary, overhead and out-of-pocket expense of the in-house personnel that are engaged in lobbying activities (this includes support staff), amounts paid to outside lobbyists, any dues paid to trade associations or coalitions and travel and entertainment expenses related to lobbying. Additionally, entities must disclose what subject they were lobbying on and all lobbying contacts that were made in connection with the lobbying effort. Reports are filed on a quarterly basis and are due twenty days after the close of each quarter. Failure to comply with this reporting requirement subjects the individual and organization to a fine of up to ($200 million) and five years in jail. To avoid these rather unpleasant (and embarrassing) penalties, an organization should develop programs to track lobbying activity and account for lobbying-related expenses.

Disclosing Financial Support

Any 'Lobbyist' under this definition now faces new and exciting reporting requirements not included in the Lobbying Disclosure Act of 1995. In particular, all lobbyists and their employers must now disclose to relevant reporting entities ' either the Clerk of the House or the Secretary of the Senate ' the name of all Political Action Committees (PAC) established by the lobbyist or by his or her employer, all federal candidates or current federal officeholders that received contributions totaling more the $200 and other contributions to entities or events in which a federal candidate or current federal officeholder might have an interest (e.g., events held to honor those individuals or charities organized by such an official). There is no requirement that the federal candidate or federal officeholder be aware of the contribution.

The final requirement, disclosure of other contributions that are directed to non-candidate, non-PAC recipients, is particularly onerous and should be considered when your entity is engaging in philanthropic activity. For example, say your Congressman is 'Joe Smith.' Because of his exceptional service to his Congressional district, the local Chamber of Commerce is holding an event to honor Congressman Smith. Your company is a Chamber of Commerce member and always sponsors a table for their events. Even though the contribution benefits the Chamber of Commerce and not Rep. Smith, and even though your support for Chamber of Commerce events is customary, this year's contribution is a reportable contribution which must be disclosed on your corporation's lobbying reports if you are engaged in other reportable activity.

Many questions remain about how far the regulators will go regarding this requirement. For instance, if a candidate's spouse sits on the board of a charity to which your organization donates money, the new rules might be interpreted to require your lobbyist to disclose that contribution on this semi-annual report regardless of whether or not the candidate is even aware of the contribution. Much more will be learned about this requirement as the regulators promulgate specific rules to implement the law and the regulated community seeks additional guidance on this point.

Changes to the 'Gift Rule'

Under the old rule, House and Senate members could receive gifts that did not exceed $49.99 per occasions or an aggregate of $99.99 per year. For executive branch employees, the limits were $20 per occasion and $50 per calendar year.

In most instances, these gifts were given not as inducements to take an official action that benefited the giver but were shared 'in the ordinary course of business.' The practice of offering 'bribes' is not common in American business ' or in politics. However, businesses are familiar with the practice of sending gifts to clients and supporters, providing gifts as 'thank yous' to speakers or notable visitors who attend corporate events, or picking up the check at a lunch where business concerns are discussed. Many are surprised to learn that, when the receiver is a federal public official or one of their employees, numerous rules apply and, under the newly enacted law, an almost universal ban exists.

Under the new rules, lobbyist and lobbyist employers are prohibited from giving gifts of any kind. For those non-lobbyists and those who do not employ lobbyists, the old rule still applies. (So far, there is no change in the rule with respect to Executive Branch employees though Congress added language which sought to encourage the Executive Branch to enact a similar ban.) As is always the case in Washington, there are a few exceptions to the 'absolute' ban on gifts. Lobbyists and their employers can still host certain types of receptions, 'widely attended' gatherings (if the food and drink aren't too extravagnt) and participate in some charitable events that honor an elected official. If a bona-fide 'friendship' relationship exists between the giver and the receiver, gifts are allowed, but the giver can't ask his employer to reimburse him for the cost of this buddy's gift. Other minor exceptions also apply.

Many corporate entities have a suite at a sports or entertainment arena that is used for corporate entertainment. If you wish to host members of Congress or their Staff at those events they have to foot the bill for the cost of their own ticket. To further complicate matters, you should note that the House and Senate have different rules for determining the value of a ticket that does not have a face value, such as a suite pass or a parking voucher.

Flying the Not-So-Friendly Skies

Before the new rules were enacted members of Congress could fly on a company's private aircraft if they reimbursed the company an amount equal to the cost of a first class ticket on a commercial flight taking the same route. Those days are over ' sort of. Under the new rules, member of the House of Representative can no longer fly on your private jet or helicopter unless you are providing use of the aircraft because of a bona-fide familial friendship. Senators weren't quite ready to give up the use of private aircraft and they are still allowed to access private aircraft, but will be required to pay the full charter rate ' not just the cost of a first class ticket.

The rules are different and more complicated when the travel is related to a 'fact-finding' trip by members of their staff. Suffice it to say that, additional disclosure is required and lobbyists cannot accompany members or staff on fact-finding trips. The costs of the trip must be 'reasonable.' In other words, nothing too extravagant will be allowed and the use of private aircraft is, once again, prohibited.

Orange Is Not Necessarily The New Pin-Stripe

As mentioned earlier, the penalties for non-compliance are stiff and fines can easily run into the six-figure range. The new lobbying and ethics rules require in-house counsel and corporate compliance officers to create a strategic plan and think proactively about their political activities. Such a review should includes seven key steps for evaluating and improving your compliance program:

• Review to what extent your organization is interacting with public officials and federal decision makers. Are you engaged in 'lobbying activity?'
• If so, what are you doing to internally track your activity so you can accurately report your lobbying activity?
• What are you doing to internally track your lobbying expenses so that you are accurately reporting?
• Has your organization appointed a responsible person who has the time and expertise to handle your filing and disclosure requirements?
• What training have you conducted in the area of lobbying and ethics? Do you need to supplement that training to inform your employees about changes in the law?
• How do you plan on keeping current on the changes in this area of the law?
• Should you conduct an external review of your lobbying and ethics compliance process?

Not every business person who wants to engage in political activity need fear that he or she will end up in a federally issued jump-suit. To avoid doing so, those in charge of an organization's corporate compliance program must add these new regulations to their duties. While the above steps will go a long way to providing the foundation for successfully confronting the requirements of the new rules, the best way to navigate these waters is through the counsel of experienced specialists in the area.

Compliance officers and in-house counsel should consult with attorneys and governmental relations professionals that have proven track records in providing advocacy and strategic planning in this specific area. Every business or trade association should develop a specific compliance program to keep the corporation and officers out of jeopardy.

Thor Hearne and Amy Blunt are members of Lathrop & Gage, L.C., Kansas City, MO, providing government affairs counsel and public policy consulting to clients on the local, regional and national levels, including compliance with state and federal regulatory bodies and election law.

Businesses of all sizes must participate in the political process. Failure to do so places a company's survival at risk. As President Ronald Reagan once said, 'Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.' Organizations should have a voice in whether and how they are taxed or regulated or whether you or your competitors are subsidized.

Federal and state legislation (even local government regulation) can dramatically affect the profitability of any business. And public officials need input from their constituents in the business community to understand how proposed laws will affect the businesses (and their employees) that are subject to the laws written by politicians. However, participating in the political process is not without hazard. Seeking to exert influence in the political process improperly will not only frustrate the objective, but could also result in the involvement of another federal agency ' the Federal Bureau of Prisons. Recall Rep. William Jefferson of Louisiana ' caught by the FBI with $90,000 in 'cold hard cash' in his freezer, and lobbyist Jack Abramoff, who is now wearing, instead of his trademark fedora, an orange jumpsuit.

Largely in response to these scandals, Congress just passed the Honest Leadership and Open Government Act of 2007. Congress's stated hope in passing this sweeping legislation is that it will increase public confidence in the honesty of the political process.

What the Act Means

Even if your organization has a lobbying compliance program already in place, it is very likely that it is inadequate to meet the demands of the new law. The reality of life after the Honest Leadership and Open Government Act is that federal political activity now occurs within a new and very complicated regulatory environment. Many individuals and businesses that have never before considered themselves to be involved in 'lobbying' need to take another look. Failure to comply with the new changes will result in harsh fines and possibly jail time.

The First Amendment guarantees all citizens (including businesses) the freedom of speech, association, and the right to petition Congress. Although political activity is constitutionally protected, it is nonetheless highly regulated by both state and federal government. Indeed, political activity and political speech are among the most highly regulated (and when done improperly) most severely punished activities.

The new regulatory environment in the area of lobbying is the result of amendments to the Lobbying Disclosure Act (LDA) of 1995, and new internal Senate and House of Representatives rules. These changes were made in legislation that was passed by the House of Represen-tatives on July 31, 2007 and by the Senate on Aug. 2, 2007.

From the perspective of a corporate counsel or corporate compliance officer, political activity after the Honest Leadership and Open Government Act has more red flags that Tiananmen Square. A business's response should not be to disavow any political activity, but rather to engage in political activity with the protection of a sound compliance plan. It is worth noting that the subject of this article is confined to lobbying and ethics requirements imposed by the federal law. Each state has different rules regulating state lobbying activity and we do not address those in this article.

Four Key Changes

Disclosing Lobbying Activity

The first question is whether a person or business is a 'lobbyist' subject to the law. To most, a lobbyist is someone like the character Nick Nailer in the film (and book), 'Thank You for Smoking' ' a smooth-talking, glad-handing Washington, DC-based operative in a $5,000 suit who wines and dines Senators in exclusive K Street restaurants. Not so. The new law dramatically increases the number of people and businesses which are subject to the law and also greatly expands the activities that are subject to this regulation. The LDA applies to those who perform their duties either as lobbyists outside corporate organizations or associations and in-house lobbyists who are employees conducting lobbying activity on behalf of his employer.

Companies have a three part test to determine if they have a 'lobbyist' under the LDA.

First, does the company have one (or more) employees that spend 20% or more of their time engaged in lobbying activity? (Before you answer 'no' to this question, see the definition of 'lobbying activity' below.)

Second, did that person make two or more lobbying contacts during the relevant period?

Third, did the company spend at least $12,250 on lobbying activity during the relevant period? The definition of 'lobbying activity' includes any attempt to influence legislation, rulemaking or agency decision making. The attempted procurement of a federal government contract is also considered lobbying activity. Additionally, work done by support staff who never actually contact official decision makers and their staff is also considered lobbying activity.

Under the new requirements, these questions must be asked on a quarterly rather than a semi-annual basis as previously required. The broad definition of 'lobbying activity' and the new time and financial threshold makes it easy to fall within this net. For instance, imagine your company is tracking a public policy issue that is of vital concern to your company. To keep track of this issue, you ask a member of your staff to track federal legislation, media reports on the issue and draft weekly memos briefing your senior staff on developments regarding the issue. This eager employee spends about one third of her time on the project. However, she has never been to Washington, DC, and doesn't know a soul who works on Capitol Hill. So far, this is not regulated lobbying activity and the company has no obligation to report any of the money it spends on this effort.

However, if one of these weekly memos alerts the CEO that legislation that will be detrimental to the interests of the company is about to be introduced and the CEO decides to call several members of Congress to educate them on this issue in an attempt to persuade them to oppose the legislation then ' assuming that the financial threshhold is met ' all of this activity is considered lobbying activity and must be reported.

If the threshold requirements are met, the individual and business must comply with the new law (including new reporting requirements) or they will be fined or criminally prosecuted.

Organizations must disclose to the relevant reporting agency ' either the Clerk of the House or the Secretary of the Senate ' the salary, overhead and out-of-pocket expense of the in-house personnel that are engaged in lobbying activities (this includes support staff), amounts paid to outside lobbyists, any dues paid to trade associations or coalitions and travel and entertainment expenses related to lobbying. Additionally, entities must disclose what subject they were lobbying on and all lobbying contacts that were made in connection with the lobbying effort. Reports are filed on a quarterly basis and are due twenty days after the close of each quarter. Failure to comply with this reporting requirement subjects the individual and organization to a fine of up to ($200 million) and five years in jail. To avoid these rather unpleasant (and embarrassing) penalties, an organization should develop programs to track lobbying activity and account for lobbying-related expenses.

Disclosing Financial Support

Any 'Lobbyist' under this definition now faces new and exciting reporting requirements not included in the Lobbying Disclosure Act of 1995. In particular, all lobbyists and their employers must now disclose to relevant reporting entities ' either the Clerk of the House or the Secretary of the Senate ' the name of all Political Action Committees (PAC) established by the lobbyist or by his or her employer, all federal candidates or current federal officeholders that received contributions totaling more the $200 and other contributions to entities or events in which a federal candidate or current federal officeholder might have an interest (e.g., events held to honor those individuals or charities organized by such an official). There is no requirement that the federal candidate or federal officeholder be aware of the contribution.

The final requirement, disclosure of other contributions that are directed to non-candidate, non-PAC recipients, is particularly onerous and should be considered when your entity is engaging in philanthropic activity. For example, say your Congressman is 'Joe Smith.' Because of his exceptional service to his Congressional district, the local Chamber of Commerce is holding an event to honor Congressman Smith. Your company is a Chamber of Commerce member and always sponsors a table for their events. Even though the contribution benefits the Chamber of Commerce and not Rep. Smith, and even though your support for Chamber of Commerce events is customary, this year's contribution is a reportable contribution which must be disclosed on your corporation's lobbying reports if you are engaged in other reportable activity.

Many questions remain about how far the regulators will go regarding this requirement. For instance, if a candidate's spouse sits on the board of a charity to which your organization donates money, the new rules might be interpreted to require your lobbyist to disclose that contribution on this semi-annual report regardless of whether or not the candidate is even aware of the contribution. Much more will be learned about this requirement as the regulators promulgate specific rules to implement the law and the regulated community seeks additional guidance on this point.

Changes to the 'Gift Rule'

Under the old rule, House and Senate members could receive gifts that did not exceed $49.99 per occasions or an aggregate of $99.99 per year. For executive branch employees, the limits were $20 per occasion and $50 per calendar year.

In most instances, these gifts were given not as inducements to take an official action that benefited the giver but were shared 'in the ordinary course of business.' The practice of offering 'bribes' is not common in American business ' or in politics. However, businesses are familiar with the practice of sending gifts to clients and supporters, providing gifts as 'thank yous' to speakers or notable visitors who attend corporate events, or picking up the check at a lunch where business concerns are discussed. Many are surprised to learn that, when the receiver is a federal public official or one of their employees, numerous rules apply and, under the newly enacted law, an almost universal ban exists.

Under the new rules, lobbyist and lobbyist employers are prohibited from giving gifts of any kind. For those non-lobbyists and those who do not employ lobbyists, the old rule still applies. (So far, there is no change in the rule with respect to Executive Branch employees though Congress added language which sought to encourage the Executive Branch to enact a similar ban.) As is always the case in Washington, there are a few exceptions to the 'absolute' ban on gifts. Lobbyists and their employers can still host certain types of receptions, 'widely attended' gatherings (if the food and drink aren't too extravagnt) and participate in some charitable events that honor an elected official. If a bona-fide 'friendship' relationship exists between the giver and the receiver, gifts are allowed, but the giver can't ask his employer to reimburse him for the cost of this buddy's gift. Other minor exceptions also apply.

Many corporate entities have a suite at a sports or entertainment arena that is used for corporate entertainment. If you wish to host members of Congress or their Staff at those events they have to foot the bill for the cost of their own ticket. To further complicate matters, you should note that the House and Senate have different rules for determining the value of a ticket that does not have a face value, such as a suite pass or a parking voucher.

Flying the Not-So-Friendly Skies

Before the new rules were enacted members of Congress could fly on a company's private aircraft if they reimbursed the company an amount equal to the cost of a first class ticket on a commercial flight taking the same route. Those days are over ' sort of. Under the new rules, member of the House of Representative can no longer fly on your private jet or helicopter unless you are providing use of the aircraft because of a bona-fide familial friendship. Senators weren't quite ready to give up the use of private aircraft and they are still allowed to access private aircraft, but will be required to pay the full charter rate ' not just the cost of a first class ticket.

The rules are different and more complicated when the travel is related to a 'fact-finding' trip by members of their staff. Suffice it to say that, additional disclosure is required and lobbyists cannot accompany members or staff on fact-finding trips. The costs of the trip must be 'reasonable.' In other words, nothing too extravagant will be allowed and the use of private aircraft is, once again, prohibited.

Orange Is Not Necessarily The New Pin-Stripe

As mentioned earlier, the penalties for non-compliance are stiff and fines can easily run into the six-figure range. The new lobbying and ethics rules require in-house counsel and corporate compliance officers to create a strategic plan and think proactively about their political activities. Such a review should includes seven key steps for evaluating and improving your compliance program:

• Review to what extent your organization is interacting with public officials and federal decision makers. Are you engaged in 'lobbying activity?'
• If so, what are you doing to internally track your activity so you can accurately report your lobbying activity?
• What are you doing to internally track your lobbying expenses so that you are accurately reporting?
• Has your organization appointed a responsible person who has the time and expertise to handle your filing and disclosure requirements?
• What training have you conducted in the area of lobbying and ethics? Do you need to supplement that training to inform your employees about changes in the law?
• How do you plan on keeping current on the changes in this area of the law?
• Should you conduct an external review of your lobbying and ethics compliance process?

Not every business person who wants to engage in political activity need fear that he or she will end up in a federally issued jump-suit. To avoid doing so, those in charge of an organization's corporate compliance program must add these new regulations to their duties. While the above steps will go a long way to providing the foundation for successfully confronting the requirements of the new rules, the best way to navigate these waters is through the counsel of experienced specialists in the area.

Compliance officers and in-house counsel should consult with attorneys and governmental relations professionals that have proven track records in providing advocacy and strategic planning in this specific area. Every business or trade association should develop a specific compliance program to keep the corporation and officers out of jeopardy.

Thor Hearne and Amy Blunt are members of Lathrop & Gage, L.C., Kansas City, MO, providing government affairs counsel and public policy consulting to clients on the local, regional and national levels, including compliance with state and federal regulatory bodies and election law.