Employees Can Be Liable in Donation Schemes
Q: As an employee in the political affairs department of a small company, I have been following the news that Fiesta Bowl executives asked employees to make political contributions and then reimbursed the employees with Fiesta Bowl funds. No one at my company has ever asked me to make a political contribution or offered to reimburse me for one. But reading the stories about the Fiesta Bowl makes me wonder what I would do if my boss ever put me in that situation. On the one hand, it sounds from the articles like it might be illegal for a corporation to reimburse employees for contributions. On the other hand, I would not want to be crossways with my boss. If I were to go along with it and accept a reimbursement for a political contribution, could I get in trouble myself?
A: As you may know, federal law prohibits corporations from using corporate treasury funds to make contributions directly to federal election campaigns. As long as this restriction has been in place, most corporations have diligently complied with it. Others, however, have sought ways around it. One scheme that has been used more than once is the one you mention — asking employees to make contributions in their individual capacity and then reimbursing the employees for their contribution.
The latest organization to make news for allegations of such a scheme is the Fiesta Bowl, which last week released an investigative report stating that several current and former Fiesta Bowl employees said the Fiesta Bowl had reimbursed them and others for political contributions. The report was prepared by a law firm at the request of a special committee of the bowl’s board of directors. The typical method of reimbursement, the employees said in the report, was a “bonus” check equal to the amount of a contribution and then grossed up to include any taxes that the employee would owe on the bonus. The investigators reviewed records regarding the timing and amounts of campaign contributions and bonus payments, and cited evidence supporting the employees’ claims.
If the allegations are true, there is no question that the Fiesta Bowl could face liability. Likewise, your own corporation could face liability if it were ever to reimburse you for a campaign contribution. Your question, however, is whether you yourself could face liability. Depending on the circumstances, I am afraid that you could.
In fact, there are several different statutes and legal theories that government officials have used over the years to target not just the corporations that engage in these schemes but also the employees themselves. One such statute is a provision of the Federal Election Campaign Act that prohibits making a contribution in someone else’s name. Specifically, it states: “No person shall make a contribution in the name of another person or knowingly permit his name to be used to effect such a contribution.” This prohibition and the prohibition on direct corporate contributions mean it is illegal for employees to accept reimbursements for political contributions.
Federal and state prosecutors have used other laws as well to target individuals involved in reimbursement schemes, including conspiracy, wire fraud, mail fraud and a statute criminalizing false states to the government. In 2007, for example, executives of a Florida engineering company pleaded guilty to criminal charges that they fraudulently diverted corporate funds to federal campaigns. One of the allegations against the executives was that they had asked employees to make political contributions and then paid the employees back with corporate funds through bonuses and false travel expense reimbursements. Two of the executives spent several years in prison. In addition, many other employees faced potential civil liability for their involvement in the scheme.
Most states have similar laws regarding state political contributions. Indeed, many of the Fiesta Bowl contributions were to state candidates, in possible violation of Arizona law.
This can put employees in sticky situations. If their boss were to ask them to make a political contribution and offer to reimburse them, they might find it difficult to say no. Some employees might even presume that the very fact that their boss asked them to do it means that it must not be against the law.
The Fiesta Bowl report states that employees who admitted to making reimbursed contributions said that while their bosses did not force them to make the contributions, the employees felt pressure to do so. One employee told the investigators that he needed to make the contributions if he wanted “to stay on the good side.” Employees also told investigators that they did not believe that they were doing anything illegal. One employee said: “I never felt all along that anything was being done illegally or wrong. I felt I was … just doing my job, and I felt, who would put me in this predicament?”
Perhaps for reasons like these, the government has often chosen not to pursue lower-level employees who make political contributions and accept reimbursement at their bosses’ request. In the case involving the Florida engineering firm, for example, the Federal Election Commission dropped its claim against all employees other than the executives who were alleged to have spearheaded the scheme.
Yet, some might find this to be cold comfort. I can see why. There are better ways to avoid legal liability than to rely on prosecutorial discretion.
C. Simon Davidson is a partner with the law firm McGuireWoods. Click here to submit questions. Readers should not treat his column as legal advice. Questions do not create an attorney-client relationship.