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Best Practices Employee Conflicts of Interest NA Political Donations Regulations

Changing The Way Political Contributions Are Monitored

In an era of constant campaigning—and constant contributing—firms need to keep a closer eye than ever on their employees in this conflicts of interest sphere. With the acquisition of political contributions monitoring champ Six Lambda, Star clients will be able to do just that  

“I was working at a family office, where my job was conducting due diligence on hedge funds. I found one that had violated a pay-to-play law, which required firms to monitor and pre-clear political contributions. The law said you can’t give money to anyone in places where you manage public pension funds. A junior employee at this hedge fund gave $500 to a state election in Massachusetts. The fund managed money for Massachusetts. The employee didn’t tell anyone. He didn’t pre-clear it, didn’t ask permission, and didn’t later attest to it. The SEC found out, conducted an investigation, and the hedge fund had to return its fees from the state: all over a small contribution that wasn’t going to influence anyone. I figured there must be a better way to monitor for this.”

So says Jon Liggett, founder of Six Lambda—a data collection and data processing company that specializes in helping enterprise financial firms monitor employee contributions to politicians and political entities in the US at the state, local, and federal level. Star recently acquired Six Lambda. Its game-changing capabilities are set to take Star’s own political contributions monitoring capabilities to the next level—along with that of its clients. 

One of the most critical compliance action-items associated with monitoring for political donations is remediation, i.e., discovering the improper donation and getting it pulled back so pay-to-play laws remain unbroken. “After a political contribution is reported, the clock starts ticking,” says Bill Donnell, a Senior Sales Executive who joined Star as part of the Six Lambda acquisition. “Firms are given four months to pull a contribution back if needed. So if your data is getting updated on a more frequent basis—which is exactly what the Six Lambda system does—you have more time to initiate and carry out the remediation process.”

Beyond timeliness of data there’s also quality of data. Again, Donnell: “From a data-quality perspective, the granularity of the data is extremely important. Six Lambda data is a big upgrade in that regard. Everyone knows about FEC data, but there’s far more to political contributions data than that. There’s state data. There’s municipal data. All spread out in different places and in different formats. Getting to that data is much more difficult and time consuming than getting to the FEC data. The Six Lambda system goes out and automatically discovers it all for you. The ability to get granular within each state is a huge advantage for financial firms and compliance officers from a risk and efficiency perspective.”

What’s in a name? For Jon Liggett and the team who spun up the Six Lambda system from scratch, everything. Again, Liggett: “When you’re working with election data, and you’re trying to track down who gave what to whom, you don’t have the luxury of crosschecking the name you’re working with against, say, a date of birth or a social security number. That information is simply not available to you as a compliance investigator, and that was a problem. Let’s say you’re checking on someone named Robert Smith to see if he made a political contribution and nothing comes up. Well, you’re not necessarily in the clear. He may have donated as Bob Smith. Previous search systems weren’t smart enough to figure things like nicknames out, but Six Lambda is; it also keeps a record of everything you searched for, so if the SEC comes knocking you can hand them an export of the search data and say, ‘we checked every database against every name in our firm and this is what we found.’ At the very least, it allows you to prove you were being diligent and applying your compliance policies in the right way.”

Star will be blending the capabilities Six Lambda brings into its current Political Contributions product, creating an enhanced offering for Star clients that will be available for immediate use. The Six Lambda search platform will continue to be offered as a standalone product by Star for the foreseeable future. However you look at it, the acquisition enhances the total capabilities available to Star clients as they strive for regulatory compliance in the increasingly important sphere of political contributions. “We’ve seen more and more clients request political contribution monitoring for their firms in the last few years,” offered Star CEO Jennifer Sun, “and we’re pleased to be able to offer our clients a more timely and accurate data set than what has been traditionally available in the market.”