Defense industry political activities: do's and don'ts.

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."

In addition to election-law requirements, politically active contractors also must adhere to federal laws governing lobbying. Like federal election law, satisfying reporting and disclosure requirements is the key to lobbying law compliance, particularly the Lobbying Disclosure Act.

The LDA requires entities to register and report lobbying activities if they employ an in-house lobbyist, and lobbying expenses exceed $24,500 for a six-month period. Some firms only hire outside lobbying firms and thereby shift registration and reporting obligations to those firms. Apart from reporting thresholds, firms also must understand relevant definitions to verify LDA coverage.

Under the LDA, lobbyists are employees who make more than one "lobbying contact" and spend at least 20 percent of their total time engaged in lobbying activities. A lobbying contact is any communication to a covered legislative branch or executive branch official.

All members of Congress and most congressional staff are covered. In the Executive Branch, the president, vice president, their staffs, senior executives, flag officers, and Schedule C employees all are covered.

Lobbying activities are considered lobbying contacts with these officials, including any efforts supporting these contacts, such as preparation or planning. Further, to trigger the LDA's requirements, the subject matter of the contact must concern the formulation, modification, or adoption of legislation, rule, regulation, executive order, or any other program, policy or position of the government.

It is also triggered by communications regarding the administration or execution of a federal program or policy, including the negotiation, award, or administration of a federal contract--excluding routine administrative inquiries.

Few employees will trigger a firm's registration or reporting requirements, because most employees have multiple duties and do not cross the 20 percent threshold. For instance, it is highly unlikely that a chief executive spends 20 percent of his or her time lobbying.

Contractors also must comply with the Byrd Amendment, which bars any use of federal funds to engage in lobbying activities and requires certification of compliance and certain disclosures. The amendment states that federal funds may not be used for lobbying efforts to obtain, extend or modify a contract award, and contractors must certify that no prohibited payments have been made. Contracts annually exceeding $100,000 require a declaration fully explaining any payment made using other than appropriated funds, including disclosure of the name of any registrant under the LDA who made lobbying contacts for the contractor as to that federal contract. Byrd Amendment violations may result in civil penalties of $10,000 or more, and may also result in adverse contract actions.

Joe Reeder and David Hickey are attorneys with the Greenberg Traurig law firm. The opinions expressed here are those of the authors and do not constitute legal advice or represent the views of NDIA or the NDIA Ethics Committee.