On this episode of “The Lobby Bar,” hosts Charlie Ricciardelli and Tyler Rosen unpack the complex legal risks that can arise when companies make charitable donations that involve a government official. From anti-corruption concerns to disclosure issues, as well as lurking traps for the unwary in jurisdictions such as New York and California, Charlie and Tyler analyze real-world examples and discuss the increasing importance of adopting formal charitable giving policies to help ensure proper safeguards are in place.
Episode Summary
What could possibly go wrong when making charitable donations? The answer is: quite a bit if a government official is in the mix. Hosts Charlie Ricciardelli and Tyler Rosen walk through four key legal pitfalls that can transform a well-intentioned donation into a serious problem for a company or individual. They cover anti-corruption and linkage risks, including how charitable donations have served as the “quid” in federal quid pro quo corruption prosecutions; indirect gift concerns when an official has a compensated role at the recipient charity; black letter prohibitions in jurisdictions like New York and California; and disclosure obligations under the Lobbying Disclosure Act and California's behested payment rules, among other topics.
Voiceover (00:00):
From Skadden, you’re listening to “The Lobby Bar,” a political law podcast where we strive to make political law accessible and host Charlie Ricciardelli and Tyler Rosen deliver practical insights on the compliance challenges and regulatory developments that matter to legal, compliance, and government affairs professionals across all industries.
Tyler Rosen (00:23):
Hello, I am Tyler Rosen.
Charlie Ricciardelli (00:25):
And I’m Charlie Ricciardelli.
Tyler Rosen (00:27):
And we are partners in Skadden’s political law compliance and investigations practice, and you are listening to “The Lobby Bar.” So Charlie, what are we doing today?
Charlie Ricciardelli (00:34):
So we’re returning to the gag. I feel like we were gagless.
Tyler Rosen (00:36):
We were totally gagless.
Charlie Ricciardelli (00:38):
Last episode, we were without gag. Our gag, and we may be stretching the term a little bit at the moment, is more thematic, right? And we’re coming off of tax season. I think we all probably paid our taxes a couple of weeks ago. We’re sitting here, it is April 28th as we record this.
Tyler Rosen (00:53):
It’s actually not. It’s the 29th.
Charlie Ricciardelli (00:55):
Well, it’s one of those days. That’s how rough tax season was, apparently. I don’t even know what day it is anymore. Regardless, I think as maybe many of us were thinking about as we paid taxes, geez, maybe we should have made a few more charitable contributions. I like to think I’m a fairly generous or charitable giver, but I probably could have written one or two more checks. In any event, that is going to be the topic of this podcast is charitable donations. And more specifically, I suppose you would say the legal risks and pitfalls that go along with making charitable donations, because as I say when I speak about these issues somewhat frequently, there’s this notion that we’re making a charitable donation, what could possibly go wrong? Well, it turns out a fair number of things could go wrong when there’s a government official in the mix somewhere.
(01:42):
And that’s obviously not to say that most of the time it’s not laudable and completely permissible and fine to make charitable donations and you should be doing that, but you do want to put some strictures around it and think about what legal issues can arise when you’re making those donations when there is a government official in the mix. So, if we had to title this podcast, I guess it might be “Sometimes No Good Deed Goes Unpunished.” But, with that we’ll step through, I think, four or five legal issues that can come up in this context. Starting with the headline risk: anti-corruption, bribery, linkage. We’ll talk about personal enrichment and indirect gifts. We’ll talk about some jurisdictions that have actual black letter prohibitions on making gifts at the request of public officials, or if not prohibitions, subjecting them clearly to the gift rules. We’ll talk about disclosure restrictions on the officials soliciting, and then we’ll almost certainly end with the now famous, “so what” section of the podcast.
(02:36):
So with that, Tyler, why don’t you talk to us a little bit about the watch-outs in terms of linkage and anti-corruption when we’re in this space.
Tyler Rosen (02:43):
Sure. And if you’re a frequent flyer with us on these “Lobby Bar” podcasts or at our seminars or webinars, you’re probably cringing and you’re like, “Oh my God, these guys are going to talk about linkage again.” So I’ll try to do it fast, but just kind of to set the stage, when we talk about linkage or we talk about anti-corruption, what we’re talking about is most prominent under the Federal Honor Services Fraud Statute, but under similar laws as well where a benefit, political contribution, gift, charitable donation that is linked with a influencing a government decision is potentially criminalized. You can think of this as an implicit quid pro quo. And what’s relevant for us here is the charitable donation, if there’s a nexus with a government official, is absolutely something that prosecutors are happy to use as a quid in a corruption prosecution. There’s plenty of examples.
(03:35):
The one that first came to my mind is, as we were talking about doing this episode was there’s a case out of San Francisco several years back where the head of the Department of Public Works in San Francisco, a guy named Mohammed Nuru, was soliciting donations for, among other things, a city-aligned nonprofit that paid for certain things for the Department of Public Works employees and a company that was a waste management vendor for the public works. And I’m a New Jerseyan, we’re not going to stoop so low as to make waste management jokes here. They gave close to a million dollars in donations to this nonprofit, and the prosecutors were able to bring out evidence that those donations were linked with obtaining and renewing city contracts that the official controlled. And so, it’s absolutely something where if your donation, if the donation that folks at your companies are seeking to make are connected with trying to get government business or trying to influence some other type of government decision, it’s something that prosecutors will definitely look at.
Charlie Ricciardelli (04:35):
Yeah, that’s right. And again, when we talk about this and we talk about linkage, and again, we’ll try to avoid a full dive into linkage to spare you. But I think this just points out the importance of casting a wide net when you’re thinking about the quid, right? What is the thing of value that can substantiate a linkage claim? It could really be anything, whether it’s a charitable donation or a favor or a letter of recommendation. And so it really does underline the importance of making sure there is no such connection, no indication of a connection. When they were asking for that charitable donation, were they talking about the RFP that you’re up for, talking about the bill that you’re trying to change? It is very important to check those boxes from the diligence perspective that we’ll talk about a little bit later on.
Tyler Rosen (05:16):
Yeah, that’s right. And we’re seeing some of it, not in terms of prosecutions, but there’s been some press coverage and certainly Democrats on Capitol Hill are wound up about donations that companies have made to help fund the construction of the White House ballroom. Those are done through a 501(c)(3) nonprofit, Trust for the National Mall. And the questions that folks have been raising are, are there links to influencing government decisions when companies are giving? We’re seeing some of the same thing play out right now with donations to some of the semi-quincentennial organizations.
Charlie Ricciardelli (05:51):
Wow. How long did you practice that?
Tyler Rosen (05:53):
I spent the whole morning just standing in front of a mirror.
Charlie Ricciardelli (05:56):
You tried to get me to say it a couple times and I told you I was just going to cop out with the 250th.
Tyler Rosen (06:00):
It’s one of those words that if I try to read it on paper, I struggle with it because I see “sequin” pops out, “quince,” all sorts of weird words that are not relevant pop out. But in my head I can do it. It’s like the word annihilate. I can’t read annihilate. Phonetically doesn’t make sense to me.
Charlie Ricciardelli (06:16):
Oh, that’s interesting. We’re learning a lot about each other. You can’t apparently read, and I don’t know what day it is. We’re going to have to edit this podcast. But you’re making a broader point or you’re maybe leading to a broader point that obviously you’ve got to check the box on linkage to make sure there is no connection, that you’re not talking about government decisions at the same time you’re talking about these donations. But as with everything in this space, you have to consider the reputational concerns. And I think we’re really seeing that play out with things like the ballroom and the 250th, is even if you are very confident that there is no such suggestion or connection, you may be eating some reputational risk regardless. So, it’s something that’s got to be run through that filter. So, switching gears a little bit, even if there is no linkage concern, we’re not worried about the reputational issue, moving a little bit closer to black letter issues, you do have to think about whether the gift could be perceived as or actually personally enriching a government official.
(07:16):
And let me give you an example of what we’re talking about. And I think the clearest and most common one is if you’re making a donation to a charity and that official has some role, compensated position with the charity, that can be viewed as an indirect gift in a couple of different ways. One example is under the Florida gift law, Florida has historically taken the position that making a donation to a charity or other nonprofit where the government official has trust compensation, that that’s an indirect gift. Now, they haven’t always been consistent about that. The ground has shifted a little bit. In certain circumstances, you can make donations to charities where the official is drawing a salary. If it’s not clearly tied or your donation isn’t clearly funding that and they’ve gotten comfortable, for example, if there’s a good accounting practice demonstrating that your funds aren’t funding the official’s compensation that can be permissible, but it’s a rather strict interpretation and it’s one that you need to contend with, and they’re not the only jurisdiction necessarily taking that view.
(08:19):
And even in the absence of that, you do want to think about if there’s some indication that your donation in particular is going to personally benefit them, right? The example, even in the absence of an interpretation like in Florida, if it’s a small nonprofit and the official’s drawing a salary or the official’s close family member is drawing a salary, and your donation is so substantial as compared to the budget of the nonprofit, that’s problematic. I mean, at that point, there’s a credible argument that they couldn’t make those payments to the government official without your donation. So that’s a risk as well that this could be an indirect gift, bring in the gift laws, exacerbate the linkage concerns as well. So it’s something that you want to think about.
Tyler Rosen (08:57):
That’s right. And then let me give you a somewhat fun story. Some number of years ago, a client of ours had gotten a request from a local official and sort of a small rural community where they were operating to help fund a local youth baseball team that had qualified for a tournament somewhere. I think it may have been Hawaii, help pay for this baseball team to go to Hawaii. And as I looked at it, I went on the youth team’s website to sort of see if I could figure out how it was organized. And there was a nice big team photo up there of the kids. They were like 13 year olds or something about that age. They helpfully had the names of players on there and I noticed that one of the players had the same distinctive last name as person soliciting the contribution and took another two minutes of digging and found that sure it was the kid’s son.
(09:42):
And so essentially the official was saying, “Hey, could you pay for my son’s trip to Hawaii?”
Charlie Ricciardelli (09:47):
Yeah. So again, you got to add this to your filter when you’re pre-clearing these things, when you’re thinking about them, we’ll talk a little bit about what your policies and procedures look like. There are jurisdictions out there, Tyler will talk about a couple of them, that really do have black letter provisions that just clearly state. It’s not even an interpretation of an indirect gift. It’s just clear that making a gift to a charity under certain circumstances is a problem. Do you want to walk through just a couple examples of that?
Tyler Rosen (10:12):
Yeah. One example is in New York under the state lobby law, there’s a provision of the regs dealing with a lobbyist gift ban that says you’re as a lobbyist or a lobbyist employer prohibited from making a donation to a third party that you couldn’t provide to the public official themselves if it’s solicited by or on behalf of the public official. And the state regulator put out, I think, 10 or 15 page opinion a few years ago laying out the different factors that you have to consider. But the bottom line is if a public official is soliciting you in New York State and you’re a lobbyist or lobbyist employer, there’s generally a ban on giving to a charitable organization. And that’s something that oftentimes the officials don’t realize, and it’s also a trap for the unwary for lobbyists and lobbyist employers.
Charlie Ricciardelli (10:57):
This caused, if I recall correctly, a little bit of consternation around COVID.
Tyler Rosen (11:01):
That’s right.
Charlie Ricciardelli (11:01):
Because folks weren’t exactly sure how to interpret that because lots of companies were trying to provide things to New York State, other charities, they were being asked to do so, PPE, other things to help alleviate the situation. And where those gifts were going to the government itself, this provision was not a problem, but it was something that had to be navigated in other contexts.
Tyler Rosen (11:24):
Yeah. And as I recall, I think they may have even gotten a special limited, narrow waiver for some of that at the time.
Charlie Ricciardelli (11:30):
That’s right.
Tyler Rosen (11:30):
You’re right, that was very much a live issue in the early days of COVID. Another example is that California State Teachers Retirement System, CALSTRS as a policy, it’s actually part of their pay-to-play policy where political contributions and gifts above a certain threshold can trigger a ban on CALSTR’s business. Well, part of that also extends to charitable donations that were solicited by a CALSTRS board member. So if you’re making donations at the request of a CALSTRS board member, you can knock your advisor out of managing CALSTRS funds for two years.
Charlie Ricciardelli (12:02):
Beyond these, I want to close this black letter piece out with just a couple of other things to think about. One, this is by and large something for the government official him or herself to think about, but just be aware. There are jurisdictions out there where there are restrictions. Very rarely are there just flat prohibitions, but there are restrictions on the ability of a government official to ask certain private organizations, private individuals to make donations to charities. For example, you’ll see laws or interpretations out there that they can’t selectively solicit folks who have business either before them or before their agency. Again, most of the time that’s their legal issue to deal with, but just be aware that those types of restrictions are out there. And then finally, and this is something that you want to think about that some folks lose track of, there are disclosure requirements for charitable donations in certain circumstances and certain jurisdictions, and they can be either the official’s obligation to disclose or the donors.
(13:01):
So for example, California has a behested payment report obligation that’s on the official. If an elected official solicits charitable donations from somebody and hits $5,000 in a year, they have to file reports, disclosing the fact that these behestive payments have been made. On the flip side for donors, just as an example, the clearest one is under the Federal Lobby Law, the Lobbying Disclosure Act. In the semi-annual report that a company files, it has to disclose certain payments that it makes that are associated with covered officials, including payments made to charitable organizations that are established, maintained finance controlled by a covered official or to an entity if the donation has been designated by a covered official. So you may have to go on the public record and disclose the fact these donations have been made. Under the LDA, the organizations we were talking about earlier, the ballroom donations, the 250th, I’m not going to try and say the word-
Tyler Rosen (13:56):
You take the cowards way out there.
Charlie Ricciardelli (13:57):
It is, indeed. There’s been a lot of inks built recently about whether those need to be disclosed or should have been disclosed on the LD203s, the semi-annual reports. In our view, this is the statement that everybody loves from lawyers. It depends on the sort of facts and circumstances, not only of how the organization is structured, but also the manner in which it was solicited, if it was solicited at all, all goes into the hopper to figure out whether it may need to be disclosed, but it’s something you should be talking to council about coming out with a view on whether it has to be disclosed, but just be aware there are disclosure requirements out there. So as we like to do, we will try to tie a bit of a bow on this with maybe famous or probably not totally famous, but hopefully useful so what section.
(14:43):
And I think that the so what is, listen, we’ve laid out in sort of summary fashion, the pitfalls, the traps for the unwary that people might not be thinking about when it comes to these charitable donations. The so what will come as an absolute galloping shock to you, I’m sure, coming from us that, well, you should be preclearing these in some manner and there should be some policies and procedures around that. And because of all the issues that we’ve just been talking about for the past 15 or so minutes, we’re seeing that becoming increasingly common is to have some form of charitable policies and procedures in place. And I think it’s becoming more common because it’s becoming more important, especially because we’re seeing prosecutors, regulators, the media, the public focus more and more on these charitable donations. So Tyler, why don’t you talk a little bit about what we’re seeing, where they sort of come from, what we’re seeing folks put in those policies?
Tyler Rosen (15:35):
Yeah, it’s definitely been the trend to memorialize your methodology for dealing with charitable donations. Some of it I think goes back to there was a notice to members, the joint guidance from NASD and NYSE back in 2006, and obviously it applies to FINRA members today, but I think it’s kind of instructive and illustrative of how to think about some of these issues. Essentially, the guidance there from NASD and NYSC was that you should have a policy that addresses charitable giving when it comes to, in this case, it was in relation to your customers or clients, but we would say the same thing with respect to government officials. You can have a tailored policy that’s appropriate for the company, for the company’s charitable giving. There may be thresholds that require different levels of scrutiny and vetting, and that’s something that’s contemplated by that NASD, NYSC guidance.
(16:28):
I think I would sort of broadly think about our charitable donations policies that we see kind of in two buckets, ones that will be much more sort of instructive about the types of priorities that the company has and aligning the company’s giving with those priorities. So say our focus is on job training and access to education and whatever the topics may be. And then specific donation requests are sort of vetted through that or held up against that metric. The other one would be more of just an open-ended pre-clearance program, again, with thresholds and different levels of seniority needed to review something that has a nexus with a government official.
Charlie Ricciardelli (17:10):
Yeah. The nice thing about that, and the way I think of it as sort of a substantive policy where you’re laying out the types of charitable causes, organizations that you will support as a company. What’s nice about that is it acts as a pretty useful shield to not necessarily completely inoculate yourself against, but at least to mitigate the allegations that you’re making donations to curry favor or in connection with government decisions. You say, “Whoa, these are the types of organizations that we historically support here. We’ve written it down and we followed this procedure.” It’s a little bit like, but not entirely the same as when we tell folks running their PACS, their political action committees, that if you give on a regular cadence, we make contributions in October and May all the time. That helps inoculate you against somebody suggesting that the donations tied to something that’s going on then.
(17:59):
Similarly, if somebody’s going to come and say, “Well, you made this donation to influence this action or this official,” you say, “Well, no, this is exactly the type of donation we usually will make.” The downside though is you’re less nimble. You don’t have the flexibility necessarily without making an exception to the policy to give to as many causes as you may want to do. So it does sort of narrow your giving options a little bit at that point, which is where that sort of procedural open-ended pre-clearance approach comes into play.
Tyler Rosen (18:27):
Yeah, I think that’s exactly right. I think the other part of it too is in addition to the charitable donations policy, you do want to make sure that it’s linking in some way with your broader anti-corruption policy, whether that’s a cross-reference or it’s an incorporation in the anti-corruption, anti-bribery, anti-corporation policy, that you are making clear that charitable donations are something that we need to think about through the rubric of anti-bribery, anti-corruption, just as we would any other type of payment that’s potentially connected with a government official.
Charlie Ricciardelli (18:56):
Yeah, I think that’s right. And it’s something we tend to harp on a lot, whether it’s a charitable donation policy or a gifts policy or political contribution policy. You want to make sure that you’re including the appropriate cross-references jump sites to those policies. You never want an employee to pick up a policy under the impression ... I mean, if they pick up charitable donation policy or gift policy, they are going to think justifiably, “This is the policy. And as long as I do everything-
Tyler Rosen (19:20):
This is the policy.
Charlie Ricciardelli (19:20):
... in four corners of this policy, I’m good to go.” So that’s why you want to include those references so if they don’t miss an important part of the program.
Tyler Rosen (19:29):
So then you have a policy now. What do you then do with it as things come in?
Charlie Ricciardelli (19:33):
Well, yeah, you follow it, obviously. That’s my really pro-tip for you. But this is where I will really press and remind people that you follow the policy, you’re going to obviously line it up against your anti-corruption policy. You’re going to make sure that there’s no concerns about linkage. You’re going to check all the black letter provisions that we talked about. You’re going to come up with some level of diligence, and this varies greatly to protect against the indirect personal benefit, indirect gift, personal enrichment issue. And we see different variations of that. Some companies really take a deep dive, we’ll pull 990s, get representations to make sure that officials aren’t pulling a salary out of an organization. Others, if there’s no indication of that, may get comfortable. But you’ve got to set some level of diligence as you’re going through to check all the boxes that we’ve talked about.
(20:23):
But first and foremost, and maybe I should have started with this and really I think I’m going to end up closing with it, is this is kind of fundamental. You need to understand what this entity is. There needs to be some basic vetting and every policy, procedure should include this. At a minimum, you need to confirm its tax status so that you can just understand what it is that you’re giving to, because a lot of the restrictions on corporate giving flow from the organization’s tax status. You may think it’s a (c)(3). Well, what if it’s a C4 and it could raise potential pay to play issues? What if it’s a GoFundMe? What if there is no tax status and you’re just making a donation to a GoFundMe and it’s going right into the official’s pocket? Well, that’s a problem.
(21:05):
So you need to do some basic diligence. What is the thing’s tax status? Kicking the tires on it. I mean, this story is so old now, but I keep retelling it because it’s useful. The former Congresswoman, Corrine Brown out of Florida had what appeared and walked and talked like a 501(c)(3) charitable organization called One Door for Education that was ostensibly making or providing scholarships to students, to local students. She raised a whole bunch of money into that, and then a scandal erupted, and it turns out that it was really just a slush fund for her and some folks close to her in her circle. It was sending her on shopping trips, going to Beverly Hills, paying for weekends away. There was a scholarship out of the, I can’t remember, six figures that they raised. At least there was one scholarship of like $1,200 that it issued, but otherwise was a complete and utter slush fund.
(21:59):
It didn’t have its tax status. And so all these executives had to testify at this trial and probably say some embarrassing things, and a lot of that could have been prevented with a little bit of diligence on the front end like, “Hey, does this thing have 501(c)(3) tax status? No? What are we doing here? We’re not going to contribute to it.” So even though there was no direct legal liability for the donors there, they were embroiled in that scandal. I was actually, just before we got on here, I was looking back at some of the testimony and somebody had to get up there and admit that they wrote checks that ended up going to this (c)(3), which wasn’t a (c)(3). And they wrote checks and handed the consultant and they actually left the payee field blank. They’re just like, “Well, give it to any organization you want. We just know it’s going to please Congresswoman Brown.” So that’s my plug for diligence in vetting these things on the front end to avoid some of these issues.
Tyler Rosen (22:49):
Yeah, I think that’s right. And look, I also want to say we don’t want the takeaway from this to be, “Shut down your charitable giving program. If there’s a government official anywhere in the mix, Charlie and Tyler said, ‘Don’t do it.’“ That’s an oversimplification. There’s lots of times where it’s completely appropriate if you’re operating in a market and you want to be community minded and do things that benefit the communities where your company’s present, that public official may well be very well situated to talk about what the community needs and what sort of donations are right for that community. It just does require this extra bit of diligence of making sure that we really do kick the tires on the organization and also the circumstances that we’re not setting ourselves up for an allegation that donation is linked with influencing a government decision.
Charlie Ricciardelli (23:37):
Absolutely echo that. I mean, I would say the overwhelming majority of cases, this is fine. It’s laudable, right? It’s good for companies to be generous and make charitable donations, and you should do that just as with everything, put the appropriate safeguards in place and you’ll be properly protected. So I think with that, we’ll close. Thank you again for joining another episode of The Lobby Bar. If you enjoy what you’re listening to, please don’t forget to like and subscribe and tell your friends and coworkers, and we’ll see you back here again soon.
Voiceover (24:07):
Thank you for joining us for today’s episode of The Lobby Bar, a political law podcast. If you like what you’re hearing, be sure to subscribe in your favorite podcast app so you don’t miss any future conversations. Additional information about Skadden can be found at skadden.com.
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