April 2009

From the editors of Wolters Kluwer Law & Business, this update describes important developments from CCH ethics and government publications.

If you have any comments or suggestions concerning the information provided or the format used, we'd like to hear from you. Please send your comments to pamela.maloney@wolterskluwer

Federal Election Campaign Financing

U.S. High Court Considers Hillary: The Movie
By: Sarah Borchersen-Keto, CCH News Bureau Staff Writer
The U.S. Supreme Court considered the issue of whether a 2008 documentary, Hillary: the Movie, and advertising for the film, should be subject to the same campaign finance regulations that political advertisements face during election season in the case of Citizens United v. Federal Election Commission (Dkt. No. 08-205). A decision is expected in June.

The case, heard on March 24, concerns Citizens United, a nonprofit conservative organization which produced the documentary and sought to distribute it via a video-on-demand service during Clinton’s presidential campaign. A federal court sided with the Federal Election Commission (FEC) and stated that the film was equivalent to political attack advertising, and thus subject to provisions of the Bipartisan Campaign Reform Act.

Arguing on behalf of Citizens United, former U.S. Solicitor General Theodore Olson stated that freedom to participate in the political process “is being smothered by one of the most complicated, expensive, and incomprehensible regulatory regimes ever invented by the administrative state.” According to Olson, the documentary constitutes “the very definition of robust, uninhibited debate about a subject of intense political interest that the First Amendment is there to guarantee.”

Deputy Solicitor General Malcolm Stewart, representing the FEC, argued that the 90-minute documentary was the functional equivalent of a 30-second or one-minute political advertisement. He described the issue as an “easy case” because the film “repeatedly links Senator Clinton’s purported character flaws to her qualification for president.”

Justice David Souter told the court that “we have no choice really, but to say this is not issue advocacy, this is express advocacy saying don’t vote for this person.” He added that the difference between a one-minute political ad and a 90-minute documentary “is a distinction that I just cannot follow.”

Justice Ruth Ginsburg took a similar position, noting that the documentary “is targeted to a specific candidate for a specific office to be shown on a channel that says Election…08 now if that isn’t an appeal to voters, I can’t imagine what is.”

Other justices, however, voiced concern over the potential threat to First Amendment rights. Justice Anton Scalia indicated that First Amendment rights should take precedence when “what the government is trying to stifle is not just a speaker who wants to say something but also a hearer who wants to hear what the speaker has to say.”

Justice Samuel Alito expressed surprise when Stewart indicated that “additional media” could be subject to electioneering communication restrictions. “That’s pretty incredible,” Alito said, “if a book was published, a campaign biography that was the functional equivalent of express advocacy, that could be banned?”

Chief Justice John Roberts, meanwhile, raised the possibility of whether an advertisement from Wal-Mart Inc. stating that they have candidate action figures for sale would qualify as electioneering communications. Stewart replied, “if it’s aired in the right place, at the right time, that would be covered.” (CCH Federal Election Campaign Financing Guide, No. 1180, March 30, 2009)

Business Ethics

Boards of Directors, Moral Hazard and Corporate Compliance Programs
By: Jeffrey M. Kaplan
The lesson of the Delaware Court of Chancery’s 1996 decision in the Caremark case - that directors’ fiduciary duty of care includes “a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists,” and that companies should use the Corporate Sentencing Guidelines approach to compliance and ethics (“C & E”) programs for such purposes – is well known. So is the fact that the state’s Supreme Court approved Caremark in its 2006 decision in Stone v. Ritter. But what, as a practical matter, boards should do to meet Caremark-based expectations is generally less well understood. This article addresses three topics relevant to this challenging and important area:

• When the spirit of Caremark, as practical matter, may require a board to go beyond what some see as the relatively undemanding letter of that case.
• How boards should identify individual areas of risk to oversee.
• What should be addressed in directors’ interactions with C & E officers.

(Federal Ethics Report, Issue 16, No. 4, April 2009)

SCCE Benchmarking Survey Finds Third Party Controls Lacking
When the Society of Corporate Compliance and Ethics (“SCCE”) discussed the findings of a recent benchmarking survey, it noted that despite the proliferation of third party relationships in business, relatively few companies set ethics and compliance expectations on the companies they rely on to act on their behalf. The survey, which generated more than 400 responses, found that only 47 percent of the respondents disseminate their internal employee code of conduct to third parties. Only 26 percent of the respondents require third parties to certify to its internal, employee code of conduct. The SCCE cautioned that the relatively weak controls pose a great risk in the current enforcement environment particularly in the Foreign Corrupt Practices Act area in which many violations stem from activities by third parties. (Federal Ethics Report, Issue 16, No. 4, April 2009)

Pros and Cons of DOJ FCPA Opinion Procedure Release Process
The Department of Justice (“DOJ”) Foreign Corrupt Practices Act (“FCPA”) Opinion Procedure is a unique process that permits organizations to ask DOJ in advance whether a proposed course of action is allowed under the FCPA, said Kathleen Hamann, a DOJ attorney in the Criminal Division who specializes in FCPA cases. Hamann joined with Alexandra Wrage, the head of TRACE International, Inc., in presenting an Ethisphere webcast symposium on February 24, 2009: Approaching the Sphinx: Opinion Procedures Releases and the DOJ. Wrage explained that TRACE, a membership organization specializing in anti-bribery compliance, had obtained the most recent Opinion issued by DOJ. (Federal Ethics Report, Issue 16, No. 4, April 2009)

Office of Government Ethics

OGE Issues 2008 Advisory Memoranda and Opinions
The Office of Government Ethics (“OGE”) recently released seven informal advisory letters and memoranda which represent the first installment of the 2008 guidance. One of the advisory letters had three parts. A total of 15 opinions were issued for 2007 in two installments. The informal opinions are edited and sanitized versions of selected letters written by OGE in response to requests for guidance in situations that do not meet the test for a “formal advisory opinion.” OGE releases the informal opinions in bulk the year following the year in which they were issued. The 2008 advisory opinions include five previously released memorandums to Designated Agency Ethics Officers (“DAEOs”), referred to as “DAEOgrams.” (Federal Ethics Report, Issue 16, No. 4, April 2009)

OGE Advises on Who Must Sign the Executive Ethics Pledge
In a memorandum to Designated Ethics Officials issued on March 16, 2009, the Office of Government Ethics (“OGE”) offered guidance to help agency ethics officials determine which officials are subject to the Executive Order 13490 Ethics Pledge. The agency has received numerous questions regarding which officials must sign the Pledge. The EO states that every appointee in every executive agency appointed on or after January 20, 2009, must sign the Pledge. The EO defines “appointee” as every full-time, non-career Presidential or Vice Presidential appointee, non-career appointee in the Senior Executive Service (or other SES-type system) and appointee to a position that has been excepted from the competitive service by reason of being of a confidential or policymaking character (Schedule C and other positions excepted under comparable criteria) in an executive agency. The term does not include any person appointed as a member of the Senior Foreign Service or solely as a uniformed service commissioned officer. OGE explained that in broad terms the Pledge was intended to apply to full-time “political” appointees of all types. (Federal Ethics Report, Issue 16, No. 4, April 2009)

Executive Branch

White House Lobbying Rules on Recovery Act Funds Criticized
The American League of Lobbyists, the American Civil Liberties Union, and the citizens for Responsibility and Ethics joined in sending a letter to Gregory B. Craig, the White House Counsel requesting that President Barack Obama rescind a section of the memorandum issued to executive branch agency heads outlining measures to ensure responsible spending of the Recovery Act funds. The letter asked for the revocation of the section dealing with lobbying efforts. On March 20, 2009, the White House issued a memorandum for the heads of executive branch departments and agencies aimed at ensuring responsibility of funds to be distributed under the American Recovery and Reinvestment Act of 2009, often referred to as the Stimulus bill. The memorandum included a section devoted to ensuring transparency of the registered lobbyist communication with regard to the Act. The memorandum explained that an executive department or agency official shall not consider the view of a lobbyist registered under the Lobbying Disclosure Act of 1995 regarding particular projects, applications, or applicants for funding under the Act unless the views are in writing. (Federal Ethics Report, Issue 16, No. 4, April 2009)

Investigations

High-Ranking CIA Official Receives Prison Sentence for Corrupt Behavior
A former high ranking official of the Central Intelligence Agency (“CIA”), Kyle “Dusty” Foggo, was sentenced in the U.S. District Court for the Eastern District of Virginia for his role in a corruption scheme involving defense contractor Brent Wilkes. On September 29, 2008, Foggo pleaded guilty to one count of the indictment pending against him. He admitted violating the honest services wire fraud statute, 18 U.S.C. §§1343 and 1326. In exchange for the guilty plea, the government agreed to drop the remaining 27 charges listed in the third indictment brought against Foggo. (Federal Ethics Report, Issue 16, No. 4, April 2009)

House of Representatives Staff Member Indicted for Corruption Charges
The Department of Justice (“DOJ”) announced on March 6, 2009, that a federal grand jury had brought a three-count indictment charging Fraser C. Verrusio, a former staff member in the House of Representatives, with conspiring to accept an illegal gratuity, accepting an illegal gratuity and making a false statement by failing to report his receipt of gifts from a lobbyist and the lobbyist’s client on his 2003 financial disclosure report. The investigation into Verrusio’s activities came about as part of the ongoing investigation into the activities of former lobbyist Jack Abramoff and his associates. (Federal Ethics Report, Issue 16, No. 4, April 2009)

Former Senator’s Aide Swept Up in the Abramoff Scandal
A former Congressional staffer, Ann Copland, pleaded guilty in the U.S. District Court for the District of Columbia to a one-count information charging her with conspiring to commit honest services fraud. Copland admitted receiving gifts from Abramoff and his lobbyists in exchange for taking actions favorable to the lobbyists and their clients. (Federal Ethics Report, Issue 16, No. 4, April 2009)