FEC Punishes Major Oil Company for Super PAC Contributions Over Rare and Isolated Government Contracts | Wiley Kidney LLP


The Federal Election Commission (FEC) punished Marathon Petroleum Company LP (Marathon) for making three contributions, totaling $1.5 million, to two super PACs in 2019 and 2020, while one of the company’s many units , unbeknownst to the lawyers for the company approving the contributions, was negotiating a small isolated contract to supply jet fuel to the Federal Defense Logistics Agency.

The punishment, meted out by a 6-0 vote from the commissioners, indicates little tolerance for small, if inadvertent, government contracts. This question is important for many large companies with complex and extensive operations, which may be at some stage of bidding or negotiating small government contracts as they consider making contributions to super PACs. Many large companies may find it difficult or impractical to keep track of all potential federal responses and negotiations underway.

The Federal Election Campaign Act prohibits any company or person “that enters into a contract with the United States or any of its departments” from making any contribution to a federal political committee, including super PACs. 52 USC § 30119(a)(1). Although the wording of the statute suggests that the prohibition only applies after the company has “entered into” a contract, the statute then applies the prohibition to the “commencement of negotiations” for a federal contract continuing until until the negotiations end or the performance of the contract is completed. 52 USC § 30119(a)(1). The Commission’s regulations extend the time period beyond the statutory period to even cover the period after the government “sends out requests for proposals”, if this occurs before negotiations. 11 CFR § 115.1(b).

Unbeknownst to Marathon attorneys reviewing a request for contributions to two super PACs, a Marathon office in Detroit in 2019 had responded to a request for a bid it had received from the Defense Logistics Agency, an agency of the US Department of Defense, to supply a jet with fuel. The federal agency awarded the contract in early 2020. Marathon delivered jet fuel and fulfilled its contract commitments in September 2020. The total value of the contract was $1 million, a tiny contract and a sum of money in business operations.

Marathon argued that it had never engaged in federal government contracts, and those who requested and provided legal review of contributions in 2019 and 2020 were unaware that the Detroit office was bidding on a small federal contract or sold fuel to the government. At least one of the contributions took place while the tender was in progress, but before Marathon had “closed the contract”. Had the company’s attorneys been known, Marathon argued, another affiliate, which was not under contract with the federal government, would have legally made the contributions from its own independent revenue. In summary, Marathon’s contributions were the result of an inadvertent oversight of the company’s contribution approval process and the company’s inability to keep up with all of the ongoing contract negotiations across the many business units and offices in the company. In addition, after learning of the slip-up, Marathon immediately obtained a refund of its dues.

In a similar earlier case (MUR 6403 (Arctic Slope)), the Board had considered these factors persuasive in exercising its discretion to dismiss the case. Marathon requested the same treatment. But the Commission took a more aggressive enforcement stance, finding reason to believe Marathon violated the contractor‘s ban and proceeding with enforcement. Marathon chose to reconcile. The Commission approved the conciliation agreement and imposed a civil penalty of $85,000. The amount of the civil penalty, low compared to the amount of the contributions, could have been calibrated to the mitigating circumstances presented by Marathon.

Finally, Marathon also claimed a constitutional defense. Marathon argued that the ban on federal contractors cannot constitutionally apply to super PAC contributions under the reasoning of Citizens United v FEC. According to this argument, spending independent of super PACs does not give rise to the type of misunderstanding the corruption that must be present to justify contribution and expenditure bans. This issue was probably not one that the Commission thought it could credit in the absence of a court ruling or legislative action. Thus, the issue, as well as the Commission’s regulation extending the duration of the ban beyond the legal period, remains open for consideration by a future court.

Election Law News recently reported on another issue that plagues retail businesses that occasionally sell goods or services to federal government agencies in a retail context rather than in a tendering and procurement context.

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