“Pay-To-Play” Trends and Developments

You know what we’re talking about: “If you want to do business in my town, we’ve got a system…” And, of course, what followed were a number of high-profile cases of public corruption, and in response, a number of states and municipalities then enacted strict contribution and gift-giving bans on businesses and their executives that contract with state and local government agencies.

New Jersey has had such rules in effect for several years; Philadelphia recently enacted a ban on such activity by municipal contractors. In December 2007, the U.S. District Court for the District of Connecticut upheld Connecticut’s broad pay-to-play contribution ban. And more recently a federal District Court upheld New York City’s program limiting contributions from companies and individuals doing business with City agencies. There are approximately 16 states or other jurisdictions that currently have such bans in effect and others are giving the matter serious consideration. Illinois and New Mexico come to mind, but there are others. There are even suggestions that such a ban at the federal government level, meaning contributions to Congressmen and Senators from corporate officers with companies doing business with the federal agencies, should be considered.

Ensuring that a company isn’t making illegal campaign contributions is fairly manageable. It begins with an effective system of internal controls over corporate contributions for political purposes where permitted. We have assisted several clients develop and manage corporate political contribution programs.  The more difficult part is the ban imposed on senior executives and others who are occasionally solicited for personal political contributions by office seekers. Informing such individuals about these bans that affect their own personal political giving as well as conducting periodic check-ups to assure compliance is essential. In such instances, we’ve suggested that these individuals may want to consider referring such requests to their organization’s political action committee.

This issue is here to stay. It’s only going to continue to spread into more jurisdictions; obviously a juicy scandal will act as a propellant to advance the advocates’ case that such bans serve a public interest. Companies today are dealing effectively with laws passed years ago such as the Foreign Corrupt Practices Act (FCPA) that require them to maintain accurate books and records. The “pay-to-play” restrictions will require adaptation and recognition that doing business whether it’s with a government agency or a firm in the private sector, means fair and open competition, and who can be against that?