On November 3, 2016, a Thurston County Superior Court judge levied an $18 million penalty against a trade association for violations of Washington campaign finance laws. This is believed to be the largest campaign finance penalty in American history. The case serves as a stark reminder of the need to review closely campaign-related activity for compliance in Washington state before proceeding.

Background

The case arose out of the 2013 campaign concerning I-522, a ballot measure that would have required labeling of genetically modified organisms (GMOs). During that year, the Grocery Manufacturers Association (GMA), a national trade association, determined that it would contribute money to oppose potential GMO labeling legislation in Washington state and other states around the country.

GMA supported these national efforts by raising money from its members into a “Defense of Brands Account.” GMA then used the money from this account to oppose and defeat legislation mandating GMO food labeling in various states, including Washington. The result in Washington state was that GMA—rather than its individual members—would appear on disclosure reports as the source of the funds in question. During 2013, GMA ultimately contributed $11 million (77% of all funds raised into the Defense of Brands Account) to oppose I-522.

Washington state requires an entity to register as a “political committee” when it has a primary purpose of making or receiving expenditures to support or oppose Washington state candidates or ballot measures. GMA did not register as a political committee until October 2013, under direction from the state. Until then, it had not filed any of the disclosure reports required of political committees, including the identity of the GMA members who had contributed to the Defense of Brands Account. 

In October 2013, Washington Attorney General Bob Ferguson filed a lawsuit alleging that GMA should have registered as a political committee when it set up the Defense of Brands Account in early 2013. The attorney general sought penalties for GMA’s failure to register as a political committee and file reports. The attorney general also alleged that GMA intentionally and unlawfully concealed the source of the funds it used to oppose I-522.

Thurston County Superior Court Judge Anne Hirsch agreed with the state and ruled that GMA had intentionally violated Washington law. After a trial on penalties, she imposed an $18 million fine, including treble damages.

Practical Implications

Washington state has one of the strictest campaign finance systems in the country. As the GMA case shows, the consequences of a reporting misstep can be dramatic. The GMA case also shows that the campaign finance rules do not just apply to parties, candidates and political committees. Any business that plans to raise or spend money on campaign-related activity can potentially trigger reporting requirements. So, before a business raises or spends money for political purposes in Washington state, it should consult counsel to ensure it is in full compliance with Washington campaign finance law. Suffice to say, an ounce of prevention is preferable to $18 million of cure. 

Read the court’s ruling here.

© 2016 Perkins Coie LLP