Truth or Fiction? Foreign Interests in U.S. Elections
This is the concluding article of a two–part series on the effect of Citizens United on the 2012 election cycle.
By Anna Stolley Persky
As election season draws to a close, voters are making their decision, most likely based on a number of issues such as the economy and foreign policy. Or perhaps social issues, like gay marriage or abortion, are influencing voters’ choices.
Certainly some voters know who they want to support and never waffle in their choice. But politicians and political groups, through advertisements and other efforts, hope to influence the rest of the voters, the ones whose alliance can be swayed or who are truly undecided.
And whether it’s a presidential, congressional, state, or local election, one thing is clear: Some political groups have more money to burn than others. Organizations like the Center for Responsive Politics (CRP) also question whether foreign companies or foreign governments—or both—are secretly influencing U.S. elections.
“The possibility is there and, furthermore, we have already seen a willingness by foreign entities to shape U.S. elections,” says Sheila Krumholz, executive director of CRP, a nonprofit that tracks money in politics. “While I don’t want to be too breathless about this, no one can assure the American public that there is no foreign influence.”
Billions of dollars feed into fights over political office. In the 2010 congressional elections alone, candidates, political parties, and outside groups spent more than $4 billion in their campaigns.
Because of loopholes in campaign finance and related laws, critics say it is impossible to determine the extent to which foreign funds are contributing to U.S. elections. Of particular concern is the ability of political organizations involved in campaign messaging to hide the identities of their donors by filing as nonprofits under a specific tax code.
“The use of nonprofits to conceal the source of money used for political communication is a real problem,” says Joseph Sandler, who practices campaign finance and election law in the Washington, D.C., office of Sandler, Reiff, Young & Lamb, P.C. “It defeats the public’s interest in knowing who is behind this massive wave of independent political advertisements.”
But Joseph M. Birkenstock, who also practices in the same field at Caplin & Drysdale, Chartered, says there is no cause for alarm and no reason to radically change current campaign laws.
“There are a lot of people who correctly want to ensure that foreign entities are not directly contributing to and influencing U.S. elections,” says Birkenstock. “Based on my experience, there’s more concern than is actually merited. We already have laws against this and they are basically working. The current laws are better than people actually think they are.”
Concerned about the potential for foreign influence, critics say Congress needs to step up and pursue a variety of solutions, including further regulating political contributions and tightening the disclosure rules regarding foreign corporations.
But there’s at least one hitch. In 2010 the U.S. Supreme Court held in Citizens United v. Federal Election Commissio that political spending is considered protected speech under the First Amendment. The Court found that the government cannot stop corporations and unions from spending money to support or denounce candidates running for office.
This past May retired Supreme Court Justice John Paul Stevens publicly criticized the Court for Citizens United and its progeny, asserting that he expects the justices will soon have to clarify the scope of the ruling.
Since Citizens United, tax–exempt corporations and associations that engage in political messaging have become increasingly popular. These organizations do not have to reveal the identities of even their largest donors.
In the meantime, Congress has struggled with various attempts to regulate political contributions without running afoul of the Supreme Court. Congress came up with the Democracy Is Strengthened by Casting Light on Spending on Elections Act, commonly called the DISCLOSE Act, which would have required groups to disclose the identities of their larger donors. Supporters say increased transparency would force foreign donors out into the open.
In July 2010 the DISCLOSE Act was defeated. This summer the Senate rejected another attempt at getting the bill passed, with Republicans blocking the way.
Senate Minority Leader Mitch McConnell (R–Ky.) wrote in an editorial in USA Today that increased disclosure would have made it easier for the Obama administration and any future administration to “punish and intimidate its political enemies. . . .”
But critics of the current regulatory scheme say they will continue to fight for increased disclosure to help ensure the sanctity of the democratic system. “We should care because if we don’t care, then we leave our democracy undefended,” says Krumholz. “There are always others who will care, who will see the opportunities to subvert the integrity of our democratic system.”
Benjamin Freeman, national security investigator for the nonpartisan watchdog Project on Government Oversight (POGO), is concerned about what he describes as a potentially insidious method of foreign influence. Freeman has been researching whether lobbyists and lawyers retained by foreign entities are, in part, paid not just to lobby or influence particular politicians, but also to contribute some of their salary to the politicians’ campaign. In his studies, Freeman has focused on particular law firms and lobbyists in Washington, D.C., that are working on behalf of foreign entities such as South Korea.
“As we know, it’s illegal for foreign nationals to directly make campaign contributions,” says Freeman, author of the recently published book on lobbying The Foreign Policy Auction. “This could be a back door way for foreign nationals to contribute to U.S. campaigns and the political process in general.”
From Propagandists to Lobbyists
There are already a slew of laws and a government agency specifically targeting campaign finance and related issues.
Federal election law specifically forbids foreign governments and foreign political parties, corporations, associations, and individuals from contributing, donating, or spending funds in connection with any local, state, or federal election in the United States. The prohibition includes either direct or indirect contributions. In addition, it is unlawful to assist foreign nationals in violating the ban or to solicit, receive, or accept contribution or donations from them. As an exception, an immigrant who has a “green card” indicating lawful permanent residence in the United States can make contributions.
When a federal political committee receives a contribution from someone it believes could be a foreign national, it must either return the contribution to the donor or deposit the contribution and then take steps to determine its legality, according to the Federal Election Commission (FEC).
As for lobbyists, Birkenstock and others point out that agents of foreign governments are required under federal law to disclose their relationships and any activities they conduct on the foreign government’s behalf.
“In every election cycle, some people get strung up on this issue,” says Birkenstock. “What people don’t understand is that it is already illegal for foreign nationals to use any entity in the United States to bring foreign money into elections.”
A History of Concern
Concern over foreign influence dates back to the birth of this country. President George Washington, in fact, specifically cautioned the American people “[a]gainst the insidious wiles of foreign influence.”
Initially, however, campaign finance was barely regulated. And when Congress stepped in, the laws were aimed at domestic corruption, such as vote buying.
The 20th century saw a round of campaign finance reform laws, including the Federal Corrupt Practices Act. But, again, none of these laws focused on foreign contributions.
The worry over foreign influence grew with industrialization and World War I, but came to a peak in the 1930s with the rise of the Nazi movement in Germany. During this time Nazi propagandists were working in the United States to attempt to garner support from the American public. In response, Congress passed the Foreign Agents Registration Act (FARA) in 1938. At that time, FARA was directed at ensuring that agents of a foreign entity who were in this country for propaganda purposes were registered and monitored.
“Politicians got a little outraged and responded,” says Freeman. “They passed then what is basically a stripped–down version of what we have now.”
In 1946 Congress passed the Federal Regulation of Lobbying Act, which required tighter controls of the registration of lobbyists.
In the 1960s lobbyists for foreign countries competed for shares in the U.S. sugar import quota system. The U.S. Department of Justice appeared limited in its ability to force lobbyists to disclose their activities. Congress expanded the focus of FARA to include lobbying and other activities related to foreign economic interests.
“Politicians at the time looked at this and said, this is as close to bribery as it comes,” says Freeman.
Congress passed the Federal Election Campaign Act of 1971 (FECA) to establish regulations for U.S. political campaigns. The Act also required every candidate or political committee active in a federal campaign to disclose information about donors and it set restrictions on campaign spending. In addition, FECA established limitations on how much money an individual, committee, or group could contribute to a politician or a political committee. Congress also created the FEC as an agency responsible for the administration of federal election law.
In 1976 the Supreme Court addressed Congress’ amendments to FECA in Buckley v. Valeo, holding that restrictions on individual contributions to campaigns and candidates did not violate the First Amendment. The Court determined that these limitations supported the “integrity of our system of representative democracy.” However, the Court struck down mandatory limits on spending by candidates using their own money, limits on independent expenditures, and restrictions on overall campaign spending.
For lawyers who specialize in election law, Buckley provides important guidelines for campaign funding and contributions. The opinion also created an important precedent equating money to speech. As Larry Noble, president and chief executive officer of Americans for Campaign Reform, puts it, “Buckley is the Old Testament of how you can regulate elections.”
Smoke and Fire
And then came the 1990s and allegations that donors were secretly receiving contributions from Asia and funneling them into the Clinton–Gore reelection campaign, prompting the Justice Department to investigate. The probe widened, resulting in years of allegations, charges, and some convictions. Congress jumped into the fray, with both the House Committee on Government Reform and Oversight and the Senate Governmental Affairs Committee conducting hearings.
Media headlines at that time depicted a growing concern that foreign entities were infiltrating the U.S. election process and destroying its sanctity. Sen. Fred Thompson (R–Tenn.), then chair of the Senate Governmental Affairs Committee, said the committee “believes that high–level Chinese government officials crafted a plan to increase influence over the U.S. political process.”
To Birkenstock, the hearings produced little concrete evidence in the end. “They had a lot of smoke and not a single bit of fire there,” says Birkenstock, who served as the Democratic National Committee’s (DNC) chief counsel between 1998 and 2003. His view is that the core problems were mistakes by individual fundraisers and a failure of managerial oversight.
But, to this day, other political observers disagree. Krumholz says there was, at that time, an influx of “unrelated instances of improper foreign participation,” and not just within the DNC or the Clinton–Gore reelection campaign. “If that’s just smoke, that’s quite a thick, dark cloud,” says Krumholz.
In 2002 Congress passed the Bipartisan Campaign Reform Act (BCRA), amending FECA. The law further regulates campaign financing, including placing restrictions on party soft money and issue advocacy. It uses the term “electioneering communications” to define political advertisements that refer to a clearly identified federal candidate and are broadcast within 30 days of a primary or 60 days of a general election. The Act forbids unions and certain corporations from spending money on those communications. If individuals or groups want to finance electioneering communications, they must disclose the identity of donors of more than $10,000.
In 2010 the Supreme Court again stepped into the issue of campaign finance reform with Citizens United. The case involved a nonprofit organization that wanted to air a film critical of then–presidential candidate Hillary Clinton and to advertise that film within 30 days of the Democratic primary. Citizens United sued the FEC to be able to air its film, but lost in the federal district court.
Ruling 5–4, the Supreme Court held broadly that the government may not ban or otherwise restrict political spending by corporations in candidate elections. Justice Anthony M. Kennedy wrote for the majority: “If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.”
Matt Vega, an associate law professor at Faulkner University’s Thomas Goode Jones School of Law in Montgomery, Alabama, argues that the High Court was “under the false assumption that information from any source can’t be a bad thing.”
“The Court takes the First Amendment right to political speech and turns it on its head,” says Vega. “The Court frames it as a right of people to listen to different viewpoints. Once you go there, you don’t have any principled basis to stop foreign governments from pushing their own information in the middle of an election cycle.”
Vega, who has written a law review article on the topic, adds: “If it’s an unlimited right to hear everybody’s information, then suddenly China is protected under the First Amendment to spend as many millions of dollars as it wants on the candidate of its choice.”
The majority opinion in Citizens United, however, left intact bans on direct contributions to candidates. The majority also upheld disclosure requirements, saying that transparency enables the public to make informed decisions.
Opening the Floodgates?
A week after the Citizens United ruling, President Obama blasted the Supreme Court in his State of the Union address. “[T]he Supreme Court reversed a century of law to open the floodgates for special interests—including foreign corporations—to spend without limit in our elections,” Obama said. “Well, I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities.”
But Jan W. Baran, a partner in the Washington, D.C., office of Wiley Rein LLP and cochair of the firm’s election law and government ethics practice group, wrote in The New York Times that the ruling would restrain Congress from “flooding us with arcane, burdensome, convoluted campaign laws that discourage political participation.”
In a recent interview, Baran, who had filed a Supreme Court brief in support of Citizens United, says the importance of the decision is that “any organization, any individual, singly or collectively, without collaborating with the candidate, can tell the public their view on any subject or candidate in politics.” Obama’s statement, adds Baran, is “a perfect example of a politician using rhetoric to scare the public.”
In June the High Court refused to revisit its controversial Citizens United decision when it struck down Montana’s century–old law banning corporate campaign spending. In a 5–4 ruling, the Court summarily reversed the Montana Supreme Court, which had upheld the state law. In doing so, the U.S. Supreme Court said that the state restriction was at odds with the precedent set in Citizens United.
But in January the High Court summarily affirmed a decision upholding restrictions on independent campaign spending by foreigners.
“The takeaway is that, when the Supreme Court said independent expenditures do not present the potential for corruption or harm to the political system, it apparently did not mean that to apply to everyone, including foreign nationals,” says Noble of the Americans for Campaign Reform, a nonpartisan group that supports the enactment of public funding of all federal elections. “The message is that the Supreme Court was not being as absolutist as it seemed. Apparently the Supreme Court does not think independent expenditures can never be harmful and can never be the source of potential corruption.”
While analysts ponder the reach and effect of Citizens United, Congress debated efforts to increase disclosure requirements by enacting the DISCLOSE Act.
To supporters of the DISCLOSE Act, the best way to counterbalance unlimited spending by political groups is by increasing donor disclosure requirements. With disclosure, supporters argued, independent groups involved in campaigns can be held accountable to the public. Armed with information as to the backers of each message, the public can then make an informed choice whether to listen to or ignore the message.
Specifically, the DISCLOSE Act would have required independent groups involved in political campaigns to reveal the identities of donors who give more than $10,000. But the DISCLOSE Act was defeated in July, with Senate Republicans blocking the bill with a filibuster. Politicians who voted against the Act say that forcing increased disclosure would result in quelling free speech and harassing political enemies.
Critics like Noble are concerned that McConnell and others have become “emboldened” in their fight against reform. “In the last year or two, on the conservative side, there has been a movement toward nondisclosure,” says Noble. “There is an argument going that even groups that are [political action committees (PACs)] should not have to disclose their donors. If that happens, we would have no idea where that money is coming from.”
“This is something to watch,” adds Noble, a former political law attorney at Skadden, Arps, Slate, Meagher & Flomm LLP. “If they make any headway in getting rid of disclosure, they really are opening up the door to foreign national expenditures. You would have no idea who is influencing the elections, including foreign nationals.”
In 2010 a blogger accused the U.S. Chamber of Commerce of funding political ads with money coming from foreign corporations. In response, President Obama said the American people “deserve to know who is trying to sway their elections.” The chamber vehemently denied the accusation, and in turn accused the White House of running a “smear campaign.”
Political groups that want to engage in electioneering communications can file under an oft–used tax code provision exempting certain organizations from the typical disclosure requirements. Organizations that file under section 501(c)(4) of the Internal Revenue Code don’t have to reveal the identities of their donors. However, nonprofits that file under this section have particular restrictions on when and how much they spend on behalf of or against political candidates. In general, less than half of the activities of a 501(c)(4) nonprofit can be spent campaigning for or against particular candidates for office.
With groups filing under section 501(c)(4), Krumholz says it’s impossible to decipher whether there is foreign funding involved and if such funding could stream into congressional or other political races.
“We don’t know,” says Krumholz. “The bottom line is there is no way to know because we don’t know where the money is truly coming from.”
Crossroads Grassroots Policy Strategies (Crossroads GPS), cofounded by Republican political strategist Karl Rove, is probably the most well-known 501(c)(4) organization in the country. Its sister organization is American Crossroads, a 527 super PAC, which must reveal its larger donors.
In 2010 and 2012, Crossroads GPS launched advertisements in Senate races in key battleground states. This year the group has allegedly spent millions of dollars to attack Democratic Sens. Sherrod Brown of Ohio and Jon Tester of Montana, and Democratic Senate candidate Tim Kaine of Virginia.
Two years ago, two campaign finance watchdog organizations wrote to the Internal Revenue Service requesting the agency to investigate whether Crossroads GPS was violating any federal tax laws. At that time, several media outlets delved into the issue. Crossroads GPS has said that the majority of its advertising is issue advocacy, as permitted under the law.
“The Associated Press, The New York Times, CBS News, and a wide variety of news organizations completely discredited this notion in 2010, and it is sad that it is rearing its ugly head again,” says Jonathan Collegio, spokesperson for Crossroads GPS.
Critics also question whether laws governing foreign entities and their involvement in politics are being properly monitored and enforced. For example, FARA requires individuals acting as agents of foreign principals in either political or quasi-political capacity to disclose to the Justice Department the nature of their relationships. FARA also requires agents to disclose their political activities, receipts, and disbursements in support of their roles as agents.
However, there are also exemptions to FARA, such as for attorneys who provide legal representation to foreign principals in court or in other legal proceedings. But what happens if an agent of a foreign entity fails to register in the first place?
The Justice Department, whether on its own or jointly with another agency like the FEC, is in charge of the majority of enforcement of campaign laws like FECA and the BCRA. In reality, the department has pursued only a handful of cases in the past few years involving allegations of foreign influence.
In one such case, a federal grand jury indicted a South Carolina virologist for allegedly soliciting and making illegal cash contributions on behalf of foreigners to the 2008 election campaign of Sen. Lindsey Graham (R–S.C.). Jian–Yun “John” Dong, chief executive officer of a biotechnology company, was also accused of stealing federal grant money.
Justice Department spokesperson Rebekah Carmichael told Washington Lawyer that government prosecutors are “committed to [pursuing] any credible lead we discover.”
Birkenstock, the election law expert at Caplin & Drysdale, says the Justice Department is doing a “good job” in enforcement, given the current state of the law. “What could the Justice Department do differently in light of the current disclosure rules to weed out foreign political expenditures that, in my experience, don’t even exist in the first place?” asks Birkenstock. “As for FARA, there is a ton of compliance. Responsible companies have robust FARA compliance systems already in place.”
But other critics question the extent to which the Justice Department is getting involved.
“The number one weakness with [FARA] is the lack of enforcement,” says Freeman of the nonpartisan group POGO, which investigates corruption, misconduct, and conflicts of interest. “It’s virtually nonexistent and relies too heavily on voluntary compliance.”
Following the Money
Freeman is concerned about another issue: To what extent, he asks, are lobbyists crossing the line in their representation of foreign clients?
The CRP estimates that more than $3 billion was spent on lobbying activities in Congress in 2011. POGO also calculates that one in eight dollars spent on lobbying in the nation’s capital originates from foreign sources.
POGO has recently established an online database of FARA filings that Freeman hopes will provide the public with some insight on what lobbyists and other agents of foreign entities are doing and with whom they are meeting.
Freeman, in his newly released book, focuses on power firms such as The Livingston Group, L.L.C. and its efforts regarding U.S. relations with foreign governments. Having searched through thousands of documents, Freeman says he has found a number of instances in which lobbyists visit, on behalf of their clients, political leaders, and then, sometimes even on the same day, make political contributions to those very same leaders. “There are a lot of interesting coincidences,” Freeman says.
For example, Freeman cites public filings that depict several instances where lobbyists from The Livingston Group visited congressional offices on behalf of foreign clients and then, during that same time period, contributed to those politicians’ campaigns.
“Can we say that the lobbyists working on behalf of foreign governments who contribute to political campaigns are doing so on behalf of their clients?” asks Freeman. “We cannot say that directly.” The Livingston Group did not return requests for comment.
Lawyers who specialize in political law say that the issue of foreign influence appears again and again because of a misconception that if one lobbies for a foreign government, one is doing some sort of “dirty work” or is confused about his or her national allegiance.
“The reason this gets the skeptical attention that it does is that some people have the frame of reference that lobbying for a foreign government is the same as spying,” says Birkenstock. “It’s not.”
It is relatively clear that lobbyists and other agents working on behalf foreign governments must register under FARA, which has strict disclosure requirements. But agents lobbying on behalf of foreign commercial interests can often file instead under the less stringent Lobbying Disclosure Act (LDA).
Foreign companies that are state-owned, however, must register under FARA, which leads to some questions.
“What percentage of the business has to be state–run? Where is the tipping point for registration?” asks Birkenstock.
Birkenstock also disagrees with the text of the statute, which defines a company as foreign if its board of directors meets outside the United States. Says Birkenstock: “Multinational companies don’t have flags.”
Critics argue that agents of foreign entities are finding ways to file under the LDA and avoid scrutiny. Some critics advocate for increasing disclosure requirements for agents of foreign corporations.
But for Baran, whose practice at Wiley Rein includes all aspects of political law, state and local campaign finance laws, government ethics requirements, and lobbying laws, the fuss over disclosure for agents of foreign corporations is another issue that rises and then dies upon further examination. “Everybody seems to focus on the issue, and then after they learn that these companies and their foreign parents employ hundreds of thousands of U.S. citizens, everybody walks away without changing the rule,” says Baran.
Meanwhile, some states have sought to limit corporate donations to state and local political campaigns. In September the U.S. Court of Appeals for the Eighth Circuit upheld Minnesota’s ban on direct corporate contributions to state political campaigns. That case, experts say, could land in the Supreme Court.
“I could see the Supreme Court taking up the issue of whether the Eighth Circuit subjected Minnesota’s disclosure law to too high a level of scrutiny,” says Vega, the Faulkner University law professor.
Vega also points out that there is “considerable confusion” regarding the scope of the ban on political spending by foreign corporations. Vega says the ban does not include U.S. corporations that have one or more foreign nationals with an ownership interest.
Calling the Court
Lawyers who specialize in political law predict that the Supreme Court will have to weigh in on the questions surrounding lobbying and campaign finance, and will do so relatively soon.
One issue some lawyers say is ripe for review concerns the way the FEC has defined the disclosure requirements in the BCRA.
In 2011 Rep. Chris Van Hollen (D–Md.) sued the FEC alleging that the agency misinterpreted the disclosure requirements in the BCRA. The battle is over a section of the BCRA that requires disclosure of “all contributors” of $1,000 or more to groups involved in electioneering communications.
But in its interpretation, the FEC narrowed the disclosure requirements to contributors who gave money for the “purpose of furthering electioneering communications.” Further, the FEC explained that donor disclosure was only required if the donation was “specifically” for electioneering communications. The U.S. District Court for the District of Columbia found that the regulation directly contravened the BCRA. As of press time, the case is on appeal.
Most discussions about foreign interests focus on contributions to politicians and groups to influence an election. Some critics, like POGO’s Freeman, suggest that the Supreme Court should address the boundaries for agents of foreign entities when attempting to affect legislative results. Others want the Supreme Court to clarify what influence is permissible in other aspects of politics.
“When a foreign national has some interest in this country, do they have the right on our soil to try to influence legislation?” asks Sandler. “If so, does that extend to initiatives and referendums? That has not been addressed yet.”
 558 U.S. 50 (2010).
 424 U.S. 1 (1976).
 American Tradition Partnership, Inc. v. Bullock, 132 S. Ct. 2490 (2012).
 Bluman v. Federal Election Commission, No. 11–275.
 Minnesota Citizens Concerned for Life, Inc. v. Swanson, No. 10–3126.
Anna Stolley Persky is a frequent contributor to Washington Lawyer.