Defense Industry Political Activities: Do's and Don'ts

By Reeder, Joe; Hickey, Dave | National Defense, February 2006 | Go to article overview

Defense Industry Political Activities: Do's and Don'ts


Reeder, Joe, Hickey, Dave, National Defense


No one in the defense industry needs ethics training to know that providing a congressman one million dollars, a Rolls Royce, rugs, antiques, furniture, yacht club fees and vacation expenses in exchange for appropriations act language favoring the employee's company is bribery. Yet, last year a congressman and a defense contractor learned the criminal penalties and the precipitous fall from power that accompany such violations.

Despite this high-profile prosecution--and similar prior and inevitable future misdeeds--federal contractors may participate in the political process legitimately and legally. But strong leadership and sound company ethics and compliance programs are absolutely essential.

Most ethics programs will not transform all employees into experts on the intricacies of campaign finance, lobbying and ethics laws governing political activity But basic knowledge of the dos and don'ts of corporate political activity will prevent serious and potentially embarrassing pitfalls, and corporate leaders must know or be able to assess quickly the nuances before permitting any financial participation by anyone.

Politically active companies must be effective in retaining and disseminating the rules on federal campaign finance law limitations and reporting requirements. They also must ensure real-time updates whenever these rules change. Since World War II, government contractors have been barred from making direct contributions to federal candidates or committees. This bar applies to companies negotiating for a government contract and regardless of whether the contractor is a sole proprietorship, a partnership or a corporation.

Subcontractors may make political contributions, but must adhere to other bars (no corporate contributions). Contractors also are barred from giving anything towards "electioneering communications" (broadcast, cable or satellite communications referring to a specific federal candidate and made within 30 to 60 days before any election).

Despite these restrictions, contractors may establish a separate fund known as a political action committee, or PAC. A company PAC may collect voluntary donations of personal funds from executive and administrative personnel and their families, and, in turn, contribute PAC funds to candidates provided there is strict compliance with applicable contribution limits. Currently, individuals may only contribute $2,100 per federal candidate per election and $5,000 per PAC per calendar year. PACs (multi-candidate) may only contribute $5,000 per federal candidate per election. Satisfying PAC reporting requirements also is key to compliance. Registration with the Federal Hection Commission is required within 10 days of establishing a PAC and, thereafter, monthly or quarterly reports of receipts and disbursements must be filed.

Some campaign finance law violations are criminal, if knowingly committed. Prosecution by the Justice Department is more likely if attempts to influence an election involve "patently illegal" contributions made through a concealed scheme. The Justice Department views violations of contribution limits; contributions from contractors, corporations, unions or foreign nationals; disguised contributions, and reporting and disclosure infractions to be core violations, and hence prosecutable as "patently illegal.

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