Previously published by Inside the Deal, Buyouts
Federal, state and local pay-to-play rules present a quagmire of
risk for investment advisers who seek to engage in the political
process. Here are 10 best practices to help you through the
1) Rules Are Everywhere
It isn't enough to look only at federal pay-to-play
restrictions when considering a contribution. Regulations exist at
the federal, state, municipal, and even with respect to individual
public pension funds. These regulations differ—sometimes
significantly—and overlap from jurisdiction to
jurisdiction. There is no way around doing your homework and
reviewing the rules in place for each potentially relevant
2) Rules Can Restrict More Than
Regulations can restrict activity beyond contributing money to a
candidate. Fundraising, hosting a "meet and greet," using
corporate resources and/or even having an employee volunteer his or
her time can trigger a violation. Moreover, under certain
circumstances contributions to non-candidate
entities—even 501(c)(3) charitable
organizations—can result in a violation. Some even apply
to an employees' spouse. So, think in terms beyond just
3) Know The Candidate Or Organization You Are
Before making any political contribution an adviser must know
the entity he or she is contributing to. This will help you
determine where the organization can spend money, whether the
contribution will be disclosed and whether the contribution counts
against contribution limits.
4) Educate Your Employees
The best defense against an inadvertent violation is a
well-educated team. Advisers should, for example, have a document
establishing the firm's policies with respect to political and
charitable contributions. Each employee should sign a document
certifying that they have read the policy and agree to follow the
5) Watch Certain Actions With Particular
Money spent hosting an event—food and drinks,
catering, parking, etc.—may be considered a contribution
to the candidate or party. This is true even for "meet and
greet" events, where no contribution is required to attend and
no solicitation for funds is made. Corporations are also prohibited
from making contributions or expenditures in connection with
federal elections, so advisers should generally avoid using
corporate resources to support their political activities.
Volunteering for a candidate is generally permissible under
pay-to-play statutes. However, expenditures made to support
volunteer efforts—i.e. travel and food—may be
considered an in-kind contribution to the candidate.
6) Consider The Timing Of Contributions
Fund managers must consider the optics surrounding a political
contribution, particularly its timing. If an elected official is
about to vote or has just voted on a major piece of legislation
that could impact the fund, an adviser should be cautious about
making a contribution at that time.
7) Be Cautious With Solicitation Letters And
Advisers should obtain approval before soliciting campaign
contributions. Once approved, solicitation letters should be
written on personal rather than corporate stationary. The candidate
or committee should reimburse the adviser for all mailing costs.
When emailing solicitation letters, advisers should email
solicitations from a personal rather than corporate email account.
Also, advisers should ensure any document they send out includes
all necessary disclaimers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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