With the 2018 midterm elections right around the corner, fundraising efforts are continuing to ramp up for political candidates on both sides of the aisle. In fact, MarketWatch estimated that this year’s campaigns may shatter records and become the most expensive midterm election in history, likely to top $4 billion. Current and former elected officials, political organizations, and PACs are continuing to solicit donations to help fund candidates’ bids for elected positions.
Chances are good that more of your firm’s employees have contributed, or plan to contribute, to their favorite candidates this year than ever before. Are you confident in your ability to verify and track employees’ pre-clearance requests or self-reported contributions?
Scope of Review Must Be National
It’s not enough for firms to simply monitor political contribution activity in their employees’ home states or municipalities. Axios reports that more than two-thirds of individual campaign contributions for candidates running for House of Representatives’ seats in 2018 came from donors located outside the candidates’ districts.
“Of the total amount of money given to House candidates – $508,578,037 – 73% came from outside the district. And, of the total number of contributions – 866,097 – 69% came from outside the district.”
Complicating matters further, every state has its own reporting requirements and procedures. Process differences aside, the timing issue makes it difficult to know when to validate employees’ political contributions.
Inadequate Processes Can Bring Financial and Reputational Risk
Even before the fervor of this year’s midterms, monitoring employees’ political contributions had become an arduous task for many compliance teams. Firms that rely on manual processes to match records with federal and state databases are either devoting significant time and resources to the task or they are using random sampling methods. Random sampling carries its own risks, leaving firms exposed to potentially massive fines, negative publicity, and the risk of long-lasting reputational harm.
Violations of political contribution limits and pay-to-play rules can be costly. The SEC announced settlements with several firms in July 2018 for violating Rule 206(4)-5 (the “pay-to-play” rule), assessing fines ranging from $100,000 to $500,000. These penalties followed a 2017 announcement of fines against ten other firms for violations related to political contribution activity and a staggering $12 million settlement against State Street Bank and Trust Company in 2016.
Is Your Political Contribution Monitoring Process Thorough and Scalable?
As more people become politically active, contribution activity is only expected to grow. Is your firm prepared to preclear or validate an increasing number of contributions? If you’re struggling trying to manage the process, there’s still time to implement a solution before election day.
ComplySci’s Political Contribution Validation service compares every pre-cleared and self-reported political contribution against contribution data from municipalities, states, and Federal records. When exceptions are noted, they’re flagged so your compliance team can investigate further. Using ComplySci’s automated solution can help your compliance department use limited resources more effectively while removing the inherent risks that come with manual verification and random sampling. Contact us to learn more today!