Campaign Compliance for Casino Companies

Article originally appeared in Gaming Management on 08/15/08

Campaign Compliance for Casino Companies 

Casino companies, like all companies, are subject to myriad federal and state laws governing their involvement in political campaigns. Federal campaign laws are common to all corporations and restrict or prohibit both hard and soft money contributions to candidates for federal office or used to influence federal elections. Likewise, most states have campaign laws that may restrict or prohibit the involvement of corporations in state or local elections.

Unlike other corporations, however, casino companies and their officers, employees, directors and some shareholders also may be subject to special state campaign laws that apply only to casinos. For example, New Jersey has a policy preventing certain casino personnel from contributing to state political campaigns or even from soliciting others to contribute to such campaigns. The purpose of this ban is to isolate the state’s gaming industry and diminish its ability to influence the political
process. Persons included within this prohibition are applicants for or holders of a casino license and any of their holding, intermediary or subsidiary companies; any officer, director, casino key employee or principal employee of any of these companies; or any person or agent acting for any of these companies or persons.

Violations of campaign laws can have serious ramifications for casino companies. On the federal level, the Federal Election Commission (FEC) has exclusive jurisdiction over the civil enforcement of the federal campaign finance law. Enforcement actions are initiated by FEC staff or by complaints filed by outside individuals or groups. If alleged violations are substantiated after investigation, a corporation could be subject to a significant fine.

Beyond fines, the violation of campaign laws has resulted in significant ramifications for casino licensees and applicants for casino licenses. In 2003, two suppliers in Michigan were denied applications because they made political contributions to Michigan candidates after filing their applications, which is in violation of Michigan state law. In 2000, a Las Vegas casino paid a $475,000 penalty for sending a mailer designed to discredit an elected official who was up for reelection, which is in violation of state campaign laws. The company blamed the lapse on a failure to adequately supervise its employees due to its rapid growth. gaming management compliance

Such a failure could have been avoided with the proper supervision provided by a comprehensive compliance plan. The rules and restrictions regarding political activity by casino companies can be quite complex. They can govern diverse areas, such as direct contributions to candidates; soft money spent for campaign purposes outside of contribution limits, often for external “electioneering communications”; internal company communications regarding political elections; and the creation and funding of political action committees. The purpose of including political activity in the casino company’s compliance plan is not to assure corporate compliance with all campaign laws. Rather, the compliance plan is generally intended to assure that the company’s employees do not engage in activities that could result in a campaign law violation. For example, whether the company should decide to set up and administer a political action committee is within the purview of management; however, compliance can be verified through legal counsel outside of the compliance plan. Areas typically covered in a campaign compliance plan include prohibitions for casino employees making campaign contributions, standards regarding political solicitations and other political activity, and restrictions on external and internal communications.

Preventing Employee Violations

The Federal Election Campaign Act of 1971 was initially passed to increase disclosure of contributions for federal campaigns. The act was amended in 1974 to limit campaign contributions. Specifically, for-profit corporations were prohibited from contributing directly to federal candidates, national party committees, or even state party committees for federal accounts. These are often referred to as “hard money” contributions. A well-designed campaign contribution compliance plan will identify federal prohibitions and any state prohibitions or limitations, and will properly instruct all casino personnel regarding their rights and obligations under the law. For example, the plan should clearly provide that no funds or assets of the casino company be used for federal campaign contributions. The plan should further reflect any state (or foreign) restrictions on campaign contributions. This should extend to situations where the contribution is in payment for an event or item, such as the purchase of tickets to special dinners or to bid to support a candidate or a political party. Most importantly, the plan should be designed to create procedures to assure that casino corporate personnel do not inadvertently violate hard money campaign prohibitions by providing in-kind contributions. Federal law defines a “contribution” to include “anything of value” given to a federal candidate or committee. This definition encompasses in-kind contributions such as office, meeting or convention space, and equipment, transportation or fundraising expenses. In the context of a casino, in-kind donations could include providing banquet space; complimentary food, beverage or lodging; or free use of casino-owned transportation. In situations where contributions are permitted in state or local elections, the campaign compliance plan should set procedures for the approval of permitted contributions and a mechanism to make sure contributions are captured and reported. Casino companies must avoid political contributions of money that might appear to be bribed. To avoid these issues, the compliance plan should assure complete transparency. In other words, the company must document and record the amount or origin of each contribution and its recipient. The plan can also limit the nature of contributions—for example, to prohibit cash contributions— and to assure that they are made only to an authorized campaign committee or other appropriate party. Centralized reporting within the company can assure that contributions are properly reported and do not exceed any contribution limits.

Solicitations and Political Activity

The viability of representative government depends upon the political election process, and most companies encourage their employees, as individual citizens, to participate freely and actively in the political process and to make personal political contributions to candidates, parties and committees of their choice. The campaign compliance plan, however, should make clear the distinction between private activity and actions taken as an employee. The plan may segregate these two roles by prohibiting political activity on company time and using company resources. Under no circumstances, however, shall any employee be compensated or reimbursed in any way for any personal political contribution, or favored or prejudiced in any condition of employment or promotion by making or failing to make any contribution. This could constitute a direct violation of prohibitions against hard money contributions and other campaign laws. The plan also can be drafted to avoid any question as to whether an employee is intimidated into or rewarded for contributing by prohibiting officers, directors or employees from soliciting contributions to any political candidate, campaign, party or ballot initiative from any other officer, director or employee, without regard to where such solicitation takes place.

Restrictions on Communications

A casino corporation may spend funds on communications directed to its own members, known as internal communications. These consist of internally focused communications to shareholders, executives and administrative personnel. These communications can be on any subject, including partisan endorsement in a particular campaign. External communications—messages to parties outside the casino corporation—may, however, be subject to both state and federal regulation or prohibition. For example, the Bipartisan Campaign Reform Act prohibits corporations from contributing “soft money” to both federal and state candidates and national, state and local political parties for “electioneering communications.” This includes electioneering communications that, through broadcast, cable and satellite communications, identify a candidate for federal office and are aired within 60 days before a general election or 30 days before a primary election; and can be received by 50,000 or more people in the jurisdiction the candidate seeks to represent. Compliance plans can instruct employees as to the required procedures for approval of all internal or external communications prior to distribution. This simple requirement may have saved almost a half million dollars in fines for that Las Vegas casino mentioned earlier.

Click here for a PDF of original article