TheCorporateCounsel.net

It feels like four years ago that we narrowly avoided a government shutdown, but it’s actually only been four weeks – and it’s likely that our politicians will once again negotiate down to the wire when they revisit whether our government can continue operating past November 17th. Like most things in Washington, this isn’t just a “yes/no” decision. That means that when the SEC (eventually) gets funded, “Congress gonna Congress” when it comes to what exactly the Commission can do with the money.

We’ve blogged repeatedly over the past many years about appropriation bills that would tack on a restriction to the SEC’s ability to issue rules on “political spending” (or in some cases, that would remove the roadblock to rulemaking on that topic). Here’s the typical provision:

None of the funds made available by this Act shall be used by the Securities and Exchange Commission to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.

So, here we are again. Even though no “political spending” disclosure rules are contemplated by the hard-driving Reg Flex Agenda that represents Chair Gensler’s priorities, the risk of regulation persists, and appropriations bills that address this topic are making their way through the House & Senate in the form of H.R. 4664 and S. 2309. In addition, two other bills that have been introduced in the House – H.R. 4472 and H.R. 4563 – aim to codify this restriction so that it’s not dependent on the annual appropriations dance. Here’s an excerpt from that last one:

(a) Findings. — Congress finds the following:

(1) From 2010 through 2013, the Internal Revenue Service targeted conservative organizations seeking tax-exempt status. The result of this targeting was obvious—to discourage conservative organizations and individuals associated with them from engaging in the 2012 presidential election after an incredibly successful 2010 midterm election.

(2) In response to this treatment, a large number of conservative organizations sued the Internal Revenue Service. In 2017, a settlement was reached and the Internal Revenue Service was required to issue an apology for its actions.

(3) Congress quickly recognized that the Internal Revenue Service was not the only government agency that could question or threaten the tax-exempt status of disfavored political groups. The Securities and Exchange Commission, an independent government agency, also enjoys some regulatory power in this area.

(4) Beginning in 2015, Congress has included in every appropriations bill that has funded the Securities and Exchange Commission, an appropriations rider prohibiting the agency from using any of the funds made available to “finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.” See Consolidated Appropriations Act, 2016, H.R. 2029, 114th Cong. § 1 (2015); Consolidated Appropriations Act, 2017, H.R. 244, 115th Cong. § 1 (2017); Consolidated Appropriations Act, 2018, H.R. 1625, 115th Cong. § 2 (2018); Consolidated Appropriations Act, 2019, H.J. Res. 31, 116th Cong. § 1 (2019); Consolidated Appropriations Act, 2020, H.R. 1158, 116th Cong. § 1 (2019); Consolidated Appropriations Act, 2021, H.R. 133, 116th Cong. § 2 (2020); Consolidated Appropriations Act 2022, H.R. 2471, 117th Cong. § 2 (2022); Consolidated Appropriations Act 2023, H.R. 2617, 117th Cong. § 2 (2022).

(5) This prohibition is too important to be subject to yearly renewal. Instead, it must be enacted into permanent law so political organizations of both political parties can rest assured the Securities and Exchange Commission will not target them.

(b) Prohibition. – The Securities and Exchange Commission may not finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.

I’m not advocating for another disclosure rule, but I have always thought it was a stretch to compare the IRS settlement – which related to allegations that the agency was being extra strict in granting tax exempt status to conservative organizations – to the SEC’s consideration of a rule that would require companies to disclose the use of corporate resources for political activities. In any event, while our politicians have been arguing about it for the past decade, investors & companies have moved on with private ordering.

– Liz Dunshee