Ethics: 2010-8

ADVISORY OPINION 2010-8

 

Application of Code to Communicator Lobbyist Referral Fee  

 

Introduction

 

The Citizen’s Ethics Advisory Board (“Board”) issues this advisory opinion at the request of Barbara Housen, general counsel to the Office of State Ethics.  At its December 2010 regular meeting, the Board granted her request, which involves a referral-fee scenario recently presented by a communicator lobbyist[1] to the legal division of the Office of State Ethics for informal staff advice.[2]

 

Background

 

The following scenario was presented for review: Communicator lobbyist X refers a lobbying client to communicator lobbyist Y with the understanding that he will receive a fee in exchange for the successful referral of the client.  Later, communicator lobbyist Y enters into a one-year lobbying contract with the client valued at $10,000, $2000 of which he pays of his own accord (as opposed to being directed by the client) as a referral fee to communicator lobbyist X, who provides no lobbying services to the referred client. 

 

Question

 

Based on that scenario, we have been asked (1) whether the Codes of Ethics, chapter 10, parts I and II, of the General Statutes (“Code”), permit the payment and/or acceptance of the referral fee; and if so, (2) whether the transaction must be documented on a lobbyist financial report.

Conclusion

 

We conclude as follows: (1) The Code does not prohibit communicator lobbyist Y from paying a referral fee for the successful referral of a lobbying client; and it prohibits communicator lobbyist X from making the referral and accepting the associated fee only if he also happens to be an individual designated in General Statutes § 1-84 (l) (i.e., a public official, state employee, or person acting on behalf of a public official or state employee).  (2)  Because communicator lobbyist X will not be lobbying on behalf of the referred client, the transaction need not be documented on a lobbyist financial report. [3]  

 

Analysis

 

            A similar scenario was addressed in a 2004 informal staff letter, the questions there being two-fold: whether “an individual who is not a lobbyist . . . may accept a referral fee for referring a potential lobbying client to a” communicator lobbyist, and if so, “whether the payment of the fee is reportable under the Code” of Ethics for Lobbyists (“Lobbyist Code”).[4]  In response, an attorney for the former State Ethics Commission (“SEC”) concluded that the Lobbyist Code “does not contain a provision that would prohibit the fee in question,” and that, because the fee is being paid by a communicator lobbyist (as opposed to a client lobbyist), “the payment is not reportable.”[5]

 

Although we agree with those conclusions, the facts there are slightly different than those before us, in that the referring individual here is a communicator lobbyist.  As to whether that fact alone would alter the conclusions, we think not and do so for the following reasons.

 

1.         Payment/Acceptance of the Referral Fee

 

Under General Statutes § 1-97, “registrants” (i.e., persons required to register as lobbyists under the Lobbyist Code[6]) are restricted from engaging in certain activities.  None of those restrictions expressly prohibit registrants from paying or accepting a fee in exchange for the successful referral of a lobbying client, but one of them does in fact prohibit registrants from accepting a certain type of compensation.         

            That is, § 1-97 (b) restricts them from accepting “compensation which is contingent upon the outcome of any administrative or legislative action.”  This contingent (or success) fee restriction was enacted “to prevent the undue pressure for lobbying success, and consequent pressure to engage in unethical conduct inherent in a contingent payment arrangement.”[7]  Under it, for example, the SEC prohibited the following conduct:

 

·        A communicator lobbyist from receiving a bonus “based on the outcome of [his or her] lobbying activities (e.g., because a particular bill is passed or ‘killed’) . . . .”[8]

 

·        A client lobbyist from changing the terms of its contract with a communicator lobbyist “because of dissatisfaction with the outcome of the lobbying effort or because the communicator lobbyist did not meet the client’s expectations.”[9]

 

·        An attorney from accepting a contingent fee for appearing before the General Assembly regarding a client’s claim against the State.[10]

 

But here, the compensation at issue is contingent not “upon the outcome of any administrative or legislative action,”[11] but rather upon one communicator lobbyist’s successful referral of a lobbying client to another.  That said, the facts before us do not present a prohibited contingent-fee arrangement under § 1-97 (b).         

 

The only other provision that potentially applies here is § 1-84 (l).  Housed in the Code of Ethics for Public Officials, § 1-84 (l) provides that “[n]o public official or state employee, or any person acting on behalf of a public official or state employee, shall wilfully and knowingly interfere with, influence, direct or solicit existing or new lobbying contracts, agreements or business relationships for or on behalf of any person.”  According to the SEC, § 1-84 (l) “was enacted, and will be administered, to prohibit a public official from ‘steering’ other individuals and entities to or away from particular lobbyists.”[12]  For example, § 1-84 (l) would prohibit a public official from contacting a lobbying client to “suggest a [communicator] lobbyist ‘who can get the job done.’”[13]

 

As applied here, in referring communicator lobbyist Y to the lobbying client—presumably as someone “who can get the job done”—communicator lobbyist X would be violating § 1-84 (l) only if he also happens to be a public official, state employee, or person acting on behalf of a public official or state employee.  Otherwise, neither his referral nor his acceptance of the referral fee would run afoul of § 1-84 (l).       

 

            Thus, in answer to the first question posed, the Code does not prohibit communicator Y from paying the referral fee to communicator lobbyist X for the successful referral of a lobbying client; and it prohibits communicator lobbyist X from making the referral and accepting the associated fee only if he also happens to be an individual designated in § 1-84 (l) (i.e., public official, state employee, etc.).    

 

2.         Reportability of the Referral Fee

 

            The next question is whether the transaction must be documented on a lobbyist financial report.  The answer to that question depends on the answer to this one: whether, by accepting the referral fee, communicator lobbyist X becomes a “subcontractor.”[14]  The term “subcontractor,” though undefined in the Code, is a term of art in the regulations, and it refers to a person who subcontracts with a “communicator lobbyist registrant . . . to lobby on behalf of one of the communicator’s clients . . . .”[15]  Here, because communicator lobbyist X is not being paid by communicator lobbyist Y to lobby on behalf of the referred client, but rather in exchange for the successful referral of that client, he is not a subcontractor.  Thus, in answer to the second question posed, the transaction need not be documented on a lobbyist financial report.

 

By order of the Board,

 

Dated____12/16/10______                                   __Kathleen Bornhorst___ 

Vice-Chairperson



[1]A “communicator lobbyist” is “a lobbyist who communicates directly or solicits others to communicate with an official or his staff in the legislative or executive branch of government or in a quasi-public agency for the purpose of influencing legislative or administrative action.”  General Statutes § 1-91 (v).

[2]The lobbyist did not seek an advisory opinion from the board, but because the issues raised are of first impression, the legal division decided to present them to the Board for review.   

[3]We emphasize that this advisory opinion interprets only the Code, and that it states no opinion as to whether any other laws or rules relating to referral fees may be implicated.

[4](Emphasis added.)  Request for Advisory Opinion No. 3617 (2004).

[5]Id.  The SEC attorney explained that, “if the lobbying client were paying the referral fee, an issue would be raised about whether the fee should be reported as an expenditure in furtherance of lobbying.”  Id.

[6]General Statutes § 1-91 (q).

[7]Advisory Opinion No. 94-3.

[8]Advisory Opinion No. 93-19.

[9]Advisory Opinion No. 96-23.

[10]Advisory Opinion No. 2002-20.

[11]General Statutes § 1-97 (b).

[12]Advisory Opinion No. 2003-12; see also Advisory Opinion No. 96-21 (“it is unarguable that the only articulated purpose for the legislation was to prohibit ‘the intentional steering of a contract to a particular lobbyist’”).

[13]Advisory Opinion No. 96-21.

[14]The Lobbyist Code and regulations set forth certain reporting and registration requirements with respect to “subcontractors.”  See General Statutes § 1-96 (b) (2) and Regs., Conn. State Agencies §§ 1-92-45, 1-92-46, and 1-92-46b.  For example, § 1-92-46b (c) provides that “the registration of any communicator lobbyist who hires any other communicator lobbyist pursuant to a subcontract shall include [among other things] . . . the fundamental terms of the subcontract.”

[15](Emphasis added.)  Regs., Conn. State Agencies § 1-92-46b (a).



Content Last Modified on 12/20/2010 10:01:20 AM