Insights

Political & Election Law: Using Straw Donors is the Go to Jail Offense of Campaign Finance

Monday, November 21, 2016

One of the worst campaign finance mistakes that an individual or company can make is reimbursing someone else for making political contributions, which is also known as “making contributions in the name of another” or “straw donations.” It is one of the few campaign finance violations that can result in jail time, yet every election cycle individuals and companies are guilty of violating this rule.

In many cases, the scheme is simple: Person A asks Person B to contribute to a candidate, and then Person A reimburses Person B the funds for making the contribution. In most cases, Person A has already maxed out their contributions to the candidate, and they recruit the straw donor (Person B here) to circumvent the contribution limit.

In 2014, political activist Dinesh D’Souza was sentenced to five years’ probation, eight months in a halfway house, and a $30,000 fine for making illegal contributions in the names of others. D’Souza pleaded guilty to asking friends to contribute to a Senate campaign and then proceeded to pay the friends back the amount they donated to the campaign.

“Making contribution in the name of another” prohibitions exist in federal law and also at the state and local levels in many jurisdictions. There are two primary justifications for these rules. First, they prevent wealthy donors from evading contribution limits. If not for these rules, wealthy donors could conceivably contribute unlimited sums of money to candidates by funneling those contributions through their friends, family, and business associates. Second, they help prevent donors from hiding their identity. An individual seeking anonymity could use another name or reimburse another person for a contribution, thereby keeping their name (i.e., the true source of the contribution) out of public view.

On October 29, 2016, the Boston Globe published an article bringing to light potential illegal donations from a Boston law firm, the Thornton Law Firm. The article alleged that partners of the firm received payments from the firm labeled as a “bonus” that matched the political donations made by the partners. These “bonuses” were usually paid to the partners within ten days of them donating to a candidate. Both the amounts and timing of the bonuses, as compared to the amounts and timing of the contributions, raises concerns that the law firm was engaging in making illegal contributions.

The scheme uncovered by the Boston Globe is unlikely to be cut and dry because of the complexities of the arrangement. The “bonuses” were paid to equity partners, and the firm has already publicly claimed that the payments were made from funds that the partners were otherwise entitled to. Put another way, one of Thornton’s defenses is that there was no “giving in the name of another” because the bonus money belonged to the partner to begin with. This is further complicated by the fact that, under Federal Election Commission regulations, partnerships are allowed to donate to campaigns under certain circumstances.

While the facts of Thornton Law Firm’s alleged scheme may be complicated by these arguments, donors should understand that most violations are straightforward. And not only are these violations often the most easy to detect, they are also the quickest way to earn jail time for violating campaign finance rules. Executives and companies wanting to explore ways to encourage political and civic participation by the employees should consult with experienced campaign finance counsel and keep in mind the myriad examples of donors paying significant penalties for their crimes.

This blog post was written by Karen Blackistone Oaks, a partner with The Gober Group. She specializes in advising clients that are engaged in multi-faceted, multi-million dollar policy campaigns that incorporate a wide range of advocacy strategies.