When Lobbying Becomes Criminal
White Collar Crime and Internal Investigations Alert 07/08/20 Hector J. Diaz
The U.S. Department of Justice (“DOJ”) has charged the first-ever criminal violation of the Lobbying Disclosure Act (LDA) in relation to a virtual currency initial coin offering.
Lobbying is a First Amendment right that allows individuals, corporations, and other groups “to petition the Government for a redress of grievances.” Const. Amend. I. However, two related matters involving a pair or defendants that were brought by the U.S. Attorney’s Office for Northern District of California last month are illustrative of the extended reach of criminal enforcement into lobbying activities and the risks associated with dubious virtual currency initial coin offerings.
The Lobbying Disclosure Act
The LDA, 2 U.S.C. § 1601, et. seq., is a federal law designed to increase accountability into federal lobbying practices and “to increase public confidence in the integrity of Government.” 2 U.S.C. § 1601(3). The LDA requires, inter alia, registration and reporting for certain statutorily defined “lobbying activities.” 2 U.S.C. § 1603.
A “lobbyist” is defined under the statute as any individual employed or retained for compensation for “services that include more than one lobbying contact,” and who engages in “lobbying activities” for twenty percent or more of the time spent on services for that client over a three-month period. 2 U.S.C. § 1602(10). The LDA requires lobbyists to register with the Clerk of the House and the Secretary of the Senate within 45 days of the earlier of the date of their first lobbying contact, or the date on which the lobbyist was “retained to make a lobbying contact.” 2 U.S.C. § 1603(a).
“Lobbying activities” include both “lobbying contacts, and efforts in support of such contacts, including preparation and planning activities, research and other background work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others.” 2 U.S.C. § 1602(7). A lobbying “contact” is any communication with covered officials, including congressional and staff members about any “program, policy, or position of the United States Government,” as well as legislation, rules, nominations, regulations, and Executive Orders. 2 U.S.C. § 1602(8)(A).
The LDA provides for a civil fine of not more than $200,000, “depending on the extent and gravity of the violation,” and criminal penalties of up to five years of imprisonment and a fine for whoever “knowingly and corruptly fails to comply with any provision of” the statute. 2 U.S.C. § 1606.
The Northern District of California Prosecutions
Jack Abramoff was charged with conspiracy to commit wire fraud and violating the LDA in an information. In a related case, Rowland Marcus Andrade was charged by indictment for wire fraud and money laundering. According to the allegations in the charging documents, Andrade and Abramoff conspired to make material false and misleading statements to potential purchasers of a proposed new cryptocurrency, AML Bitcoin, and its technology that was marketed to prevent money laundering and anonymous use through biometrics.
The defendants allegedly defrauded purchasers by making false statements when raising more than $5 million to fund AML Bitcoin beginning in July 2017, through at least December 2018. The indictment also alleged that Andrade laundered certain proceeds to conceal the illicit activities.
Abramoff allegedly knowingly and corruptly failed to register as a lobbyist, as required by the LDA, after being retained for lobbying efforts that would involve one or more lobbying communications with a federal official. In 2017, Abramoff was retained by a client in the marijuana industry to advocate for changes in federal law and policy. But, in June 2017, an FBI undercover agent, posing as a business person seeking to fund lobbying efforts, agreed to retain Abramoff for lobbying activities including lobbying contacts. After being retained, and after having a later lobbying contact with a federal elected official, Abramoff failed to register as a lobbyist with the Secretary of the Senate and the Clerk of the House of Representatives within 45 days of the retention or the contact, as required by the LDA.
Here are five key takeaways from the DOJ’s first prosecution of a lobbyist for a criminal violation of the LDA:
- Individuals and companies should be aware of the precise definitions under the LDA for what constitutes lobbying activities as well as registration and reporting requirements. Lobbying “activities” and “contacts” cover a broad range of conduct to a large array of “covered officials” under the statute. Consultation about the scope of the LDA, the intended purpose of the activities, and covered officials is advisable before any engagement.
- “Knowingly and corruptly” are specific elements that the government needs to prove about a defendant’s state of mind for a criminal LDA violation. The term “knowingly” means that the defendant was conscious and aware of actions or omissions, realized what was happening, and did not act or fail to act because of ignorance, mistake, or accident. To act “corruptly” means to act knowingly and dishonestly for a wrongful purpose. This is a relatively high bar for the government, similar to the intent elements in obstruction of justice statutes, but they can be proven entirely through circumstantial evidence allowing the government to draw reasonable inferences from surrounding facts and circumstances. Direct evidence is not required.
- The use of an FBI undercover agent is unusual in the context of a criminal lobbying case, however, its presence here shows that federal law enforcement has adopted a more aggressive posture to investigate and prosecute criminal lobbying violations.
- The LDA is not the only federal law of concern when it comes to lobbying activities. The Foreign Agents Registration Act (FARA) requires certain agents of foreign principals who are engaged in political activities or other activities specified under the statute to make periodic public disclosure of their relationship with the foreign principal, as well as activities, receipts and disbursements in support of those activities. Any person who willfully violates any provision of FARA or any regulation thereunder, or makes material false statements or omissions in filings can be imprisoned for up to five years. 22 U.S.C. § 618(a).
- Lobbying is a First Amendment right for individuals, corporations, and other groups. Like virtual currencies, lobbying can be a valuable part of legitimate business practices. Compliance policies, training, audits, and controls are all necessary, however, to advise employees and third-parties about the scope of the LDA, anti-money laundering laws, and where the boundaries lie when dealing in these heavily regulated, and particularly sensitive, areas.
For more information on Lobbying Disclosure Act violations, anti-money laundering laws, internal investigations, or compliance programs please contact your Quarles & Brady attorney or
- Hector Diaz: (602) 229-5274 / [email protected]