Tag: FEC

Federal Election Commission to Reconsider Political Involvement by U.S. Subsidiaries of Foreign Corporations on Tuesday

Feederal Election CommissionForeign nationals, both individuals and corporations, have long been barred from making contributions in federal, state or local elections in the United States. The statutory prohibition includes contributions made “directly” or “indirectly,” bars the solicitation as well as the making of contributions, and since 2002, includes a ban on expenditures, independent expenditures, or electioneering communications by foreign nationals.  Penalties are stiff, including incarceration for a criminal violation.

But how should the law treat U.S. corporations that are subsidiaries of a foreign corporate parent? Are they “American” if run by U.S. citizens, incorporated in the United States, and U.S. citizens make all funding and spending decisions?  The Federal Election Commission first answered this question in a  1978 advisory opinion and, in essence concluded that if U.S. citizens control the decisions about contributions and the operation of the PAC, using corporate funds raised from U.S. operations, and the PAC contains only funds from lawful U.S. donors, the ban on “indirect” contributions by a foreign national does not apply, even if the U.S. subsidiary is wholly owned by a foreign parent company.

This view has always had its dissenters, but for decades this has been the view of a majority at the FEC. However, since 2012, at least three FEC Commissioners have argued that this view of the law is incorrect, and that the issues should be reconsidered and/or reversed so that U.S. subsidiaries of foreign corporations would be barred from making contributions or expenditures in federal, state or local elections, including being barred from operating a corporate PAC.  This has generated 3-3 deadlocks in a number of advisory  opinions. The FEC will revisit the issue Tuesday, as Commissioner Ravel has placed the issue on the agenda for the FEC’s next meeting, seeking to remove the exemption for U.S. subsidiaries run by U.S. nationals.

There seem to be three principal arguments in favor of a change.

  • The tools presently available to enforce the law are too weak to address the threat, and only an outright ban is sufficient to stop foreign involvement.

  • Even when foreign nationals have no direct role in contribution decisions, the foreign ownership alters the thinking of the Americans who run the U.S. subsidiary, and their loyalties cannot help but shift to the interests of their foreign owners, and only a total ban can prevent this indirect influence.

  • Citizens United led to an unwarranted expansion of corporate political power, and this is one way to reign it in.

In a statement released in advance of the meeting, Commissioner Ravel seems to be advancing the first of these arguments, citing a recent and successful Justice Department prosecution of a foreign national who funneled contributions into a state election, and a recent news report alleging that foreign nationals directly controlled a U.S. corporation’s decision to give to a super PAC. Some will take this as a sign the current regime is working, with violations being uncovered and prosecuted.

The issue is unlikely to be resolved at the FEC on Tuesday, but will remain a hot button topic in campaign finance, and should be on everyone’s radar screen if Congress takes up the issue of campaign finance reform in the next Congress.

ARTICLE BY Robert Lenhard of Covington & Burling LLP

© 2016 Covington & Burling LLP

Legislature Tries Again To Put Citizens United On California Ballot

Nearly two years ago, I wrote that the California Supreme Court had blocked an effort to include an advisory vote in the statewide ballot. Proposition 49 asked whether the United States Congress and California Legislature should approve an amendment to the U.S. Constitution overturning the United States Supreme Court decision in Citizens United v. Federal Election Commission, 130 S. Ct. 876 (2010).  Just after New Year’s Day, the California Supreme Court issued an opinion addressing the merits of the argument.  The Court concluded:

  • As a matter of state law, the Legislature has authority to conduct investigations by reasonable means to inform the exercise of its other powers;

  • Among those other powers are the power to petition for national constitutional conventions, ratify federal constitutional amendments, and call on Congress and other states to exercise their own federal article V powers (U.S. Const., art. 5);

  • Although neither constitutional text nor judicial precedent provide definitive answers to the question, long-standing historical practice among the states demonstrates a common understanding that legislatures may formally consult with and  seek nonbinding input from their constituents on matters relevant to the federal constitutional amendment process;

  • Nothing in the state Constitution prohibits the use of advisory questions to inform the Legislature’s exercise of its article V-related powers; and

  •  Applying deferential review, Proposition 49 is reasonably related to the exercise of those powers and thus constitutional.

Howard Jarvis Taxpayers Assn. v. Padilla, 62 Cal. 4th 486, 494 (2016).

Earlier this month, Senators Benjamin Allen and Mark Leno decided to take another run at putting an advisory vote on the ballot. They gutted SB 254, a bill amending the Streets and Highways Code, and inserted legislation calling a special statewide election to be consolidated with the November 8, 2016 general election.  At this special election, the voters will be asked to vote on the following “advisory” question:

Shall the Congress of the United States propose, and the California Legislature ratify, an amendment or amendments to the United States Constitution to overturn Citizens United v. Federal Election Commission (2010) 558 U.S. 310, and other applicable judicial precedents, to allow the full regulation or limitation of campaign contributions and spending, to ensure that all citizens, regardless of wealth, may express their views to one another, and to make clear that the rights protected by the United States Constitution are the rights of natural persons only?

When Governor Brown allowed Proposition 49 (SB 1272) to become law without his signature, he observed “we should not make it a habit to clutter our ballots with nonbinding measures as citizens rightfully assume that their votes are meant to have legal effect.”  (Letter to Members of Cal. State Senate, July 15, 2014.). Perhaps the same could be said of proxy statements.

Article By Keith Paul Bishop of Allen Matkins Leck Gamble Mallory & Natsis LLP
© 2010-2016 Allen Matkins Leck Gamble Mallory & Natsis LLP