D.C. BAR 2020 CONFERENCE – DISCOVER MORE AT https://www.dcbarconference.org
 

Washington Lawyer

A Foreign Concept

From Washington Lawyer, February 2010

By Nicholas G. Karambelas

mazeAnother election year approaches. It marks the beginning of that ritual unique to attorneys practicing in and around Washington, D.C.—being consulted by federal political campaigns and their contributors on the labyrinthine regulatory obligations set forth in the Federal Election Campaign Act of 1971 (FECA),[1] as amended by the Bipartisan Campaign Reform Act of 2002 (BCRA) and the regulations.[2] Many attorneys are tempted to render such advice on an ad hoc basis. However, the FECA-BCRA law is a highly technical, complicated, and comprehensive regulatory system with its own terminology, logic, and concepts.[3] The Federal Election Commission (FEC), an independent regulatory agency, administers and enforces the FECA-BCRA.

Money in politics has been an issue in political and public life since the early days of the Republic. There has always been a tension between financial power and voting power as the predominant influence on American politics. Over the decades Congress has made certain fundamental policy decisions with respect to the dynamics of this tension by excluding specific categories of persons from financially participating in federal election campaigns. These prohibited categories are:

  • Corporations, labor organizations, and national banks;
  • Federal contractors; and
  • Foreign nationals.

The United States Supreme Court is reconsidering the prohibition on contributions from corporations, labor organizations, and national banks.[4] The prohibition on federal contractors is comparatively straightforward and on par with the many restrictions and limitations to which business persons subject themselves under federal contracting law when they choose to become federal contractors. The foreign national prohibition is conceptually and qualitatively different from the other two prohibitions.[5] Rather than merely a means of regulating the influence of money on politics, this prohibition reflects a visceral fear embedded in the American psyche that un-American forces seek to manipulate and control the American political system.[6]

The Foreign National Prohibition
The United States’ foreign national prohibition is comprehensive.[7] The penalties for violating the foreign national prohibition are both criminal and civil.[8] The FECA-BCRA specifies the items a foreign national cannot give, to whom such items cannot be given, and the purpose for which a prohibited item cannot be given. Also, the FECA-BCRA mandates that a prohibited item cannot be given either directly or indirectly, nor can a foreign national promise either expressly or impliedly to give a prohibited item. Even if the purpose of the foreign national in giving the prohibited item is somehow not to influence the political process, it is still a violation merely because the item comes from a foreign national.

In Connection With Federal, State, or Local Election
Under the FECA-BCRA, a foreign national cannot give any of the following prohibited items in connection with a federal, state, or local election:

  • A contribution,
  • A donation of money, or
  • Other thing of value.[9]

Under these same regulations, a foreign national cannot give any of the following prohibited items in connection with a federal, state, or local election:

  • Expenditure,
  • Independent expenditure, or
  • Disbursement.[10]

Contribution Defined
The term contribution means anything of value that is given by any person for the purpose of influencing any election for federal office, or the payment of compensation to any person who renders personal services to a political committee without being compensated for those services by the political committee.[11] The FECA-BCRA does not further define the term anything of value, but provides descriptions of items that constitute contributions. Additionally, items that are contributions are not only set forth in the FECA-BCRA and the regulations, but also in Advisory Opinions (AOs) issued by the FEC and case law. Whether an item is a contribution is analyzed as follows:

  • Is the item a “thing of value”?
  • If so, is it an item that is described as a contribution under the FECA-BCRA and its regulations, the AOs issued by the FEC, or case law?
  • If not, is the item sufficiently similar to any item described as a contribution that the item should be deemed a contribution as well?

Items That Are Contributions. The most common form of contribution is a gift of cash to or for the use of the campaign. An in-kind contribution is deemed to be a “thing of value.”[12] An in-kind contribution is any good or service that is made available to the campaign for which the campaign pays nothing, or pays less than the commercial or normal price of the good or service otherwise payable at the time of the contribution and which is not excluded from the term contribution by the FECA-BCRA.[13] Where the campaign pays less than the commercial or normal price, the difference between the price actually paid and the commercial or normal price is the dollar value of the contribution.

Contributed Expenditure. A contributed expenditure is a purchase paid to a vendor for or on behalf of the campaign from the assets or accounts of a person other than the candidate or his or her campaign. It is usually but not always an in-kind contribution, and it is treated in the same manner as a contribution directly to the campaign.

Items That Are Not Contributions. The FECA-BCRA excludes certain items of value from the meaning of contribution. Although such items are “things of value,” they are not contributions. These items are, inter alia:

  • Dollar value of volunteer services rendered by any individual to or on behalf of a candidate or a political committee;
  • Dollar value of the regular use of personal property as well as the cost of food, beverages, and invitations within certain dollar limits;
  • The sale of food or beverages by a vendor for use in connection with the campaign at less than commercial rates, as long as the dollar amount of the sale is equal to the cost to the vendor of the food or beverage;
  • A loan from a financial institution made in the ordinary course of business, or a loan received as an advance on a personal asset of the candidate such as a home equity line of credit or credit cards obtained in the ordinary course of business;
  • An honorarium received by the candidate for being the featured speaker at a political party fundraising event;
  • Certain payments made by a local committee of a state or national party;[14] and
  • Dollar amounts made to or on behalf of the campaign by the candidate from his or own personal funds.[15]

Donation of Money. The term donation means a payment, gift, subscription, loan, advance, deposit, or anything of value given to a person, but not any item that is a contribution.[16]

Anything of Value. The term anything of value is not defined in the FECA-BRCA or the regulations. It should be construed according to its common meaning and consistent with the purpose of the FECA-BRCA.

Independent Expenditures and Disbursements
Independent Expenditure. An independent expenditure is a kind of expenditure that is neither a contributed expenditure nor an operating expenditure. An independent expenditure is made by a person who is not in or part of the campaign that expressly advocates the election or defeat of a clearly identified candidate, and which is made without the cooperation, request, or assistance of the candidate or his or her campaign.[17] A purported independent expenditure which fails to satisfy the foregoing definition will be considered a coordinated communication and treated as a contribution from the person making the expenditure.[18]

Disbursement. A disbursement is any purchase or payment made by a political committee or by any other person, including an organization, that is not a political committee but is subject to the FECA-BCRA.[19]

Any Election in the United States
The prohibition extends to any election for any office in the United States. By its terms, the prohibition preempts any state or local election law that may permit a foreign national to give a prohibited item in connection with a state or local election.

Committee of a Political Party or Organization of a Political Party
A foreign national cannot give either of the following prohibited items to a committee of a political party:

  • A contribution, or
  • A donation.[20]
Interestingly, a foreign national appears able to give a “thing of value” to a committee of a political party as long as it is not a contribution or a donation.

Committee of a Political Party. This term includes a national political party committee, a national congressional campaign committee, or a state, district, or local party committee as well as the nonfederal account of a state, district, or local party committee.[21] It also includes any committee whose purpose is to purchase or construct an office building.[22]

Organization of a Political Party. This term means any organization of a political party, whether or not the organization is a committee of a political party.[23]

Inaugural Committee. A foreign national is prohibited from making a donation to an inaugural committee.[24]

Expenditure for Electioneering Communication
A foreign national is prohibited from making any of the
following for an electioneering communication:

  • Expenditure,
  • Independent expenditure, or
  • Disbursement.[25]

An electioneering communication is any broadcast, cable, or satellite communication that refers to a clearly identified candidate for federal office and that is made within 60 days before a general, special, or runoff election for the office sought by the candidate, or 30 days before a primary election or a nominating convention or caucus. If the communication refers to a candidate for office other than the president or vice president, it must be targeted to the relevant electorate to be an electioneering communication.[26]

Nonfinancial Participation in Connection With Elections
In addition to the financially based prohibitions, a foreign national is prohibited from participating in any way in the decision-making process of any person in connection with the election-related activities or administration of such person in connection with any election.[27] The term person includes a corporation, labor organization, political committee such a political action committee (PAC), or political organization.

In several AOs, the FEC has considered whether a foreign national may participate in the activities of an election campaign in the form of services to a person. The key issues are whether the services constitute a prohibited item and whether the services constitute participation in the decision-making process of the person.

Services by a Foreign National. Because services are not a contribution, not a donation of money, and not a thing of value, then services are not a prohibited item so that a foreign national can render services.[28] The person may even compensate the foreign national for such services from campaign funds as an authorized expenditure of the campaign.[29] The FEC has distinguished the circumstance where the services of the foreign national are the creation of artwork used by the campaign for fundraising purposes. In this circumstance, the artwork is a contribution or, at least, a thing of value and therefore a prohibited item.[30]

No Participation in Decision-Making Process. Whatever services a foreign national renders to a person, those services cannot consist of participation in the decision-making process of the person. The foreign national cannot manage any aspect of the campaign, including decisions about making contributions, donations, or expenditures, or decisions about receipts and disbursements.[31] The types of services that a foreign national can perform are “lit drops, door to door canvassing, handing out literature at transit stations, telephone banking, and get out the vote activities.”[32]

A Foreign National

Foreign National Defined
The threshold inquiry is whether a person is a foreign national as defined under the FECA-BCRA. The FECA-BCRA contains an affirmative definition and a negative definition of a foreign national. A person includes an individual, a partnership, committee, association, corporation, labor organization, or any other organization or group of persons.[33]

Person Who Is a Foreign Principal. Any person who is a foreign principal under the Foreign Agents Registration Act (FARA) is a foreign national under the FECA-BCRA.[34] Any of the following persons is a foreign principal under FARA:[35]

  • The government of a foreign country;
  • A foreign political party;
  • A person outside of the United States, but not an individual who is either a U.S. citizen or a legal permanent resident of the United States, or a person who is not an individual and is organized under or created by the laws of the United States or of any state or other place subject to the jurisdiction of the United States, and has its principal place of business within the United States; and
  • A partnership, association, corporation, organization, or other combination of persons organized under the laws of or having its principal place of business in a foreign country.

Individual as Foreign National. A foreign national is any individual who is not a citizen of the United States. Any individual who is not lawfully admitted to the United States as a permanent resident, commonly referred to as a “green card” holder, is a foreign national.[36]

U.S. Subsidiary of a Foreign Principal
An entity organized under the laws of a state or of the United States, and has its principal place of business in the United States, is not a foreign national because it is not a foreign principal under the FARA. Even if a foreign national organizes and wholly owns it, the entity itself is not a foreign national. Foreign nationals often do business in the United States through subsidiaries that are organized under the laws of a state of the United States. Consequently, the issue arose as to whether such a subsidiary had the same right to participate in federal elections as any other U.S. entity. Through a series of AOs, the FEC has determined that a subsidiary of a foreign national can participate as long as it complies with certain special rules.[37]

Types of Entities. A foreign national usually forms its subsidiary as a corporation, partnership, or limited liability company (LLC) under state law. As a threshold issue, the subsidiary is subject to any applicable prohibitions or limits placed on the entity form of the subsidiary under the FECA-BCRA. If the subsidiary is formed as a corporation, then it is prohibited from participating in federal elections.[38] If the subsidiary is formed as a partnership, contributions are attributed to the individual partners as long as the participating partners are not a foreign principal or other prohibited source.[39] An LLC will be treated as a corporation for FECA-BCRA purposes if the LLC has chosen to be taxed as a corporation under the Internal Revenue Code (IRC), and treated as a partnership if the LLC has chosen to be taxed as a partnership under the IRC.[40] If the LLC chooses to be taxed as a corporation, then it is a corporation under the FECA-BCRA and is prohibited from participating like any corporation. If the LLC chooses to be taxed as a partnership or makes no choice at all, then it is a partnership under the FECA-BCRA and treated like any partnership with contributions attributed to each partner who is not otherwise a foreign principal or prohibited source.[41]

Connected Organizations: Connected PACs. Although a corporation is prohibited from directly contributing to or expending for federal elections, a corporation may form a political action committee (PAC) that can contribute to or expend for federal elections. The corporation then becomes a connected organization.[42] A PAC must form and maintain a separate segregated fund (SSF) from which it contributes to or expends for federal elections. The corporation may use its personnel and resources to administer the SSF.[43] However, only funds raised by the connected PAC can be deposited into the SSF and used for political purposes. No funds from the general treasury or revenues of the connected organization can be deposited into the SSF, or otherwise used by the PAC for political purposes. A PAC can solicit contributions for its SSF only from individuals who can contribute or expend under the FECA-BCRA and who bear a direct relationship to the connected organization such as a shareholder, member, and certain employees.[44] A connected PAC cannot solicit funds from the general public.[45]

A U.S. subsidiary of a foreign national that is a corporation may form a PAC-SSF, subject to the following:[46]

  • The personnel or resources of the connector U.S. subsidiary can be used to administer the PAC-SSF only if such personnel or resources are funded only from revenues derived from the U.S. operations of the U.S. subsidiary;[47]
  • No foreign national makes any contribution, donation to, or expenditure or disbursement for the PAC-SSF; and
  • No foreign national, including any foreign national who is a shareholder, director, or principal of the foreign national owner, can participate in the operation of the PAC-SSF, the appointment of principals of the PAC, or in any decision of a political nature such as whether to accept or make any contribution or expenditure.[48]

Violation of Foreign National Prohibition by U.S. Citizens or Permanent Residents

Additional Elements of Foreign National Prohibition
In addition to the element of the act of a foreign national giving a prohibited item, the foreign national prohibition consists of two separate and disjunctive elements and one corollary element. If done knowingly, an act of a person who solicits a contribution or donation from a foreign national, or an act of a person who accepts or receives a prohibited item, is a separate and complete violation of the foreign national prohibition.[49] The act of any person who provides substantial assistance to the commission of any act prohibited under the foreign national prohibition is a separate violation, but it is a corollary element because one of the foregoing three elements must serve as a predicate.[50]

Knowing Requirement. Before the BCRA was enacted, the foreign national prohibition appeared to impose strict liability on any person who committed an act that violated any element of the prohibition. The BCRA regulations clarified this issue by setting forth a knowing requirement and standards for determining whether the act was knowingly committed.[51] A person knows that the person violated an element of the foreign national prohibition if such person:

  • Actually knows that a foreign national is the source,
  • Is aware of facts that would lead a reasonable person to conclude that there is a substantial probability that the source is a foreign national, or
  • Is aware of facts that would lead a reasonable person to inquire whether the source is a foreign national and the person fails to make that inquiry.[52]

A person has conducted a reasonable inquiry if the person seeks and obtains copies of current and valid U.S. passport papers, which presumably show that the source is a U.S. citizen.[53] A safe harbor reasonable inquiry is defined as obtaining passport papers of persons who contribute or donate.[54]

Examples of the types of facts that would satisfy the foregoing knowing requirement are when the purported giver:

  • Uses a foreign passport or passport number for identification,
  • Provides a foreign address, or
  • Makes the purported contribution or donation with an instrument drawn on a foreign bank or by wire transfer from a foreign bank.[55]

Knowingly Solicit, Accept, or Receive
Any U.S. citizen or permanent resident who knowingly solicits, accepts, or receives a prohibited item from a foreign national violates the foreign national prohibition by committing that act even if the prohibited item never actually reaches or affects any election. As long as the solicitation is made, it does not matter whether the person who solicits is doing so on behalf of or in connection with a particular election or campaign. Similarly, as long as the U.S. citizen accepts or receives the prohibited item, it does not matter whether that person moves the prohibited item in a manner such that it reaches or affects any election. Whether solicitation, acceptance, or receipt has actually occurred will ultimately depend on the particular facts. The prohibited items under the solicit element and the accept/receive element are contributions and donations, but not expenditures, independent expenditures, or disbursements.[56]

Substantial Assistance. Any U.S. citizen or permanent resident who knowingly provides substantial assistance in soliciting, making, accepting, or receiving a contribution or donation from a foreign national violates the foreign national prohibition.[57] In addition, providing substantial assistance in making an expenditure, independent expenditure, or disbursement is a violation.[58] For this violation to occur, one or more of the acts in the predicate elements must have been committed. Substantial assistance is not a defined term in the FECA-BCRA. Whether this corollary element is violated will depend on the particular facts.

Notes
[1] 2 U.S.C. § 431 et seq.
[2] PL 107-155; 11 C.F.R. § 100 et seq.
[3] See Nicholas G. Karambelas, Counseling Campaigns for Federal Office Under the FECA-BCRA, Wash. Law., May 2004, at 34.
[4] Citizens United v. Federal Election Commission, No. 08-205 U.S. Sup. Ct., rehearing Sept. 9, 2009. The issue at the rehearing was whether Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990), and McConnell v. Federal Election Commission, 540 U.S. 93 (2003), which upheld the constitutionality of the prohibition, should be reconsidered.
[5] For an articulate but unpersuasive argument that the foreign national prohibition is unconstitutional, see Evan C. Zoldan, Strangers in a Strange Land: Domestic Subsidiaries of Foreign Corporations and the Ban on Political Contributions From Foreign Sources, Law and Policy in International Business, Jan. 1, 2003.
[6] See Richard Hofstadter, The Paranoid Style in American Politics, Harper’s Magazine, November 1964.
[7] 2 U.S.C. § 441e.
[8] 2 U.S.C. § 437(g).
[9] 2 U.S.C. § 441e(a)(1)(A).
[10] 11 C.F.R. § 110.20(f).
[11] 2 U.S.C. § 431(8)(A).
[12] 11 C.F.R. § 100.52(d)(1).
[13] 11 C.F.R. § 100.52(d)(2).
[14] 2 U.S.C. § 431(8)(B).
[15] 11 C.F.R. § 110.10; 2 U.S.C. § 431(26).
[16] 11 C.F.R. § 300.2(e).
[17] 2 U.S.C. § 431(17); 11 C.F.R. § 109.1 et seq.
[18] 11 C.F.R. § 109.21.
[19] 11 C.F.R. § 300.2(d).
[20] 2 U.S.C. § 441e(a)(1)(B).
[21] 11 C.F.R. § 110.20(c)(1).
[22] 11 C.F.R. § 110.20(d).
[23] 11 C.F.R. § 110.20(c)(2).
[24] 11 C.F.R. § 110.20(j); 11 C.F.R. § 104.21(a)(1).
[25] 2 U.S.C. § 441e(a)(1)(C).
[26] 2 U.S.C. § 434(f)(3).
[27] 11 C.F.R. § 110.20(i).
[28] AO 2004-26.
[29] AO 2007-22.
[30] AO 1981-51; AO 1987-25.
[31] AO 2007-22.
[32] Ibid.
[33] 2 U.S.C. § 431(11).
[34] 2 U.S.C. § 441e(b)(1).
[35] 22 U.S.C. § 611(b).
[36] 2 U.S.C. § 441e(b)(2).
[37] AOs 2000-17, 1995-15, 1992-16, 1990-8, and 1985-3.
[38] 2 U.S.C. § 441(b).
[39] AO 1996-13.
[40] 26 C.F.R. § 301.7701-3(a).
[41] See Karambelas, Nicholas G. Limited Liability Companies: Law, Practice and Taxation, Vol. 1 § 6:22, West 2009.
[42] 2 U.S.C. § 431(7).
[43] 2 U.S.C. § 431(7).
[44] 2 U.S.C. 441b(b)(2)(C).
[45] A connected PAC formed by a connected organization is not to be confused with a nonconnected PAC, which is formed by any group of persons which does not include any person who is a foreign national, corporation, labor organization, or membership organization. See generally Nicholas G. Karambelas, Counseling Campaigns for Federal Office Under the FECA-BCRA, Wash. Law., May 2004, at 34.
[46] Matter Under Review (MUR) 6093 Conciliation Agreement Jan. 29, 2009, (Transurban Group), Federal Election Commission.
[47] AO 2006-15.
[48] AO 2004-26.
[49] 2 U.S.C. § 441e(a)(2).
[50] 11 C.F.R. § 110.20(h).
[51] 11 C.F.R. § 110.20(a)(4).
[52] 11 C.F.R. § 110.20(a)(4)–(i)(iii).
[53] 11 C.F.R. § (a)(7)
[54] 11 C.F.R. § 110.20(a)(7).
[55] 11 C.F.R. § 110.20(a)(5).
[56] 11 C.F.R. § 110.20(g).
[57] 11 C.F.R. § 110.20(h)(1).
[58] 11 C.F.R. § 110.20(h)(2).