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To Err Is Human, Except in Campaign Finance?

Q: I read a news story that a Maryland company was fined for reimbursing its employees for federal election campaign contributions. The wrinkle that caught my attention was that the government acknowledged that the company and the owner did not realize what they were doing was wrong but sanctioned them anyway. I am in charge of campaign finance for the company I work for. Can we really face sanctions for perfectly innocent violations?

A: This is a great question because it helps illustrate the difference between civil and criminal violations of the law. Essentially, your question is whether people can face liability even when they do not realize what they are doing is wrong. In the case of criminal law, the answer is usually no. In most circumstances, criminal law provides that someone cannot be liable unless they have something called mens rea, or knowledge that what one is doing is wrong.

Civil statutes, on the other hand, typically have no such requirement for liability. Thus, it is possible to violate civil statutes and face sanctions even if you have no idea that what you are doing is wrong.

Let’s look at the facts of the case you mention in your question. St. John Properties Inc. is a Maryland company involved in real estate management and development. In April 2010, the Federal Election Commission initiated an investigation of SJPI and its owner, Edward St. John, after concluding that there was “reason to believe” that the company had violated federal election law by reimbursing SJPI employees for federal campaign contributions.

The law in question, the Federal Election Act, prohibits companies from making federal election campaign contributions directly from their general treasury funds. It also prohibits making a contribution in someone else’s name. The FEC has previously concluded that these restrictions prevent companies from directing employees to make campaign contributions in their individual capacity and then reimbursing the employees explicitly for their contributions.

Last month, the FEC announced it had entered into a conciliation agreement with SJPI and St. John. According to the agreement, in October 2006, the Maryland Republican State Central Committee requested St. John’s assistance in quickly raising funds, and St. John agreed to try to raise about $60,000. Then, between Oct. 31 and Nov. 2, six SJPI senior vice presidents each voluntarily made contributions to the MRSCC in the amount of $10,000 — the maximum individual contribution permitted at the time. Before October 2006, none of the senior vice presidents had made a political contribution of more than $2,000.

In February 2007, St. John directed the SJPI controller to reimburse each of the senior vice presidents’ contributions by increasing their respective profit-sharing bonuses. The $10,000 bonuses were then “grossed up” to account for income taxes, such that the net amount received by each vice president for the contribution was $10,000.

Later that year, after the initiation of a state investigation regarding SJPI-related contributions to state candidates, and before anyone raised an issue with the FEC regarding the six vice presidents’ federal contributions, they each voluntarily repaid the portion of their annual profit-sharing bonuses related to their contributions.

According to St. John and SJPI, at the time of the contributions in 2006, SJPI and St. John had no intent to reimburse them, and the senior vice presidents had no expectation that they would be reimbursed.

Rather, St. John and SJPI said, the idea for the reimbursements did not arise until February 2007 during a review of the calculation of their annual bonuses. Therefore, St. John and SJPI contended, their actions were “taken in good faith” and “any violations … were inadvertent and unintentional.”

Indeed, the FEC stated in the agreement that it had “not found reason to believe that [St. John and SJPI] … committed a knowing and willful violation.”

This is significant because “knowing and willful” violations are more serious than other violations. Most notably, knowing and willful violations can result in criminal liability, which can mean heavy fines and jail time. The fact that the FEC found no reason to believe there were knowing and willful violations here might have spared St. John and his company this fate.

However, SJPI and St. John were not spared sanctions altogether. This is because civil violations typically do not require that someone has acted knowing and willfully. In this case, SJPI and St. John agreed to pay a $55,000 fine for violating federal election law.

Given your role in campaign finance at your company, the lesson here is to know the law. After all, St. John and SJPI both contended their violations were “inadvertent and unintentional,” and the FEC acknowledged there was no reason to believe they had committed a “knowing and willful” violation. Nonetheless, they paid a substantial fine for violating federal election law.

Know the law. Or, risk the consequences.

C. Simon Davidson is a partner with the law firm McGuireWoods. Click here to submit questions. Readers should not treat his column as legal advice. Questions do not create an attorney-client relationship.

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