The Federal Election Commission divided 3-3 on Free Speech For People’s 2017 complaint against the oil company Citgo, its Venezuelan state-owned parent company, and President Trump’s 2017 inaugural committee. The FEC’s general counsel agreed with Free Speech For People that the companies and the inaugural committee violated a federal ban on donations to inaugural committees by foreign entities. However, the FEC divided along party lines and the case was closed. 

Background

In April 2017, contribution records from Trump’s inaugural committee, released by the Federal Election Commission, showed that the president who once rallied against the corrupting influence of big money in politics had no hesitations accepting major donations to his swearing-in ceremony.

In particular, the records revealed that Citgo, a wholly-owned subsidiary of the Venezuelan state oil company whose entire board of directors was composed of Venezuelan appointees, made a $500,000 contribution to President Trump’s inaugural committee.

The McCain-Feingold Bipartisan Campaign Reform Act of 2002 prohibits a presidential inaugural committee from accepting any donation from a foreign national. The FEC’s regulations add more detail to this prohibition. In fact, this is the only limit on donations to presidential inaugural committees.

If the Venezuelan government isn’t allowed to donate directly to Trump’s inaugural committee, then it shouldn’t be able to make that same donation through Citgo. And while in certain other circumstances the FEC has allowed domestic subsidiaries of foreign corporations to spend money in elections if only U.S. citizens are involved in the decision-making (a loophole opened before Citizens United that should be closed), that doesn’t seem to be the case here.

That’s why we filed an FEC complaint in April 2017 that alleged that Citgo, its Venezuelan state-run parent company, and President Trump’s inaugural committee violated the law through this donation.

The Venezuelan government has long used Citgo for influence in the United States 

Citgo Petroleum Corporation (Citgo) is an energy company, founded in Oklahoma in 1910 and now headquartered in Texas, with some 3,500 employees. Citgo is also an iconic American brand. Its famous triangular logo is seen around the United States, and is a major landmark in Boston’s Kenmore Square.

But since 1990, Citgo has been a wholly-owned subsidiary of Petróleos de Venezuela, S.A. (PDVSA), a Venezuelan state-owned oil company. PDVSA, and the Venezuelan government, have long used Citgo for political purposes in the United States.

As Ana Campoy wrote at Quartz, when Hugo Chávez took office as president in 1999, “the Venezuelan government [began] using Citgo to fulfill political goals both domestically and internationally. Under Chávez, the Houston-based company essentially became a cash cow to fund the social programs of his Bolivarian revolution … In 2005, as Bush struggled to respond to the devastation from Hurricane Katrina, Chávez supplied heating oil from Citgo at a discount to poor Americans.”

But Venezuela’s state oil company was flailing by the time Trump’s inauguration approached. Due to its precarious finances, it had been forced to pledge 49.9% of its own stock as collateral for a loan from Rosneft, a Russian oil company controlled by the Russian government. Meanwhile, Venezuelan president Nicolás Maduro was becoming increasingly authoritarian.  

As events would later unfold, both PDVSA and Citgo would become entangled in conflict between Maduro and a rival claimant to the presidency, Juan Guaidó; and then, between Trump and the Venezuelan government. Venezuela’s opposition took control over Citgo last year, and as of right now, it appears that Citgo will be sold to pay Canadian gold mining company Crystallex for a $1.4 billion judgment. 

But all that lay in the uncertain future when, in December 2016, Citgo–then still firmly under Venezuelan state control–gave $500,000 to the Trump inaugural committee.

On that date, all four of Citgo’s directors were Venezuelan nationals, appointed by the Maduro-controlled PDVSA. And notably, while Citgo produced an affidavit asserting that the funds for the donation were derived domestically, it did not dispute the allegation that its Venezuelan directors were deeply involved in the decision to make this political contribution.   

Analysis by the FEC’s nonpolitical professional career attorneys

The FEC’s general counsel, on behalf of the Commission’s nonpartisan career attorneys, agreed with Free Speech For People and recommended finding “reason to believe” that both Citgo and its Venezuelan parent company PDVSA had, through the $500,000 donation, violated the ban on foreign nationals donating to a presidential inaugural committee. (The general counsel did not recommend enforcement against the Trump inaugural committee. The regulation applicable to receiving a donation for foreign nationals requires that the violation be “knowing,” and the general counsel did not find sufficient evidence that the inaugural committee knew the donation was illegal.) 

The First General Counsel’s Report noted that all evidence suggested that Citgo’s leadership was selected by PDVSA, and in at least one case, by the president of Venezuela himself:

CITGO’s Response does not … rebut the Complaint’s allegation that CITGO’s Board of Directors at the time of the donation consisted entirely of foreign nationals. According to publicly available information, much of which comes from CITGO itself, CITGO’s Board of Directors at the time of the $500,000 donation consisted of … nationals of Venezuela…. Additionally, at least some of the CITGO board members at the time of the donation apparently held concurrent positions within PDVSA, the foreign parent that the Venezuelan government owns. … Although CITGO Holding, Inc., and the CITGO Board of Directors were purportedly responsible for appointing CITGO’s board members and executive officers, respectively, the Venezuelan government apparently had considerable influence over key personnel decisions at CITGO. For example, Venezuela’s President on November 22, 2017, reportedly named Asdrúbal Chávez, a cousin of former President Hugo Chávez, as the new president of CITGO in an event broadcast on state television.

The professional staff also noted that, since 1978, the FEC had long interpreted foreign-national ban language nearly identical to that in the inaugural committee regulation as prohibiting foreign national participation in the decision-making process. 

Since the unrefuted facts indicates that the entire board of CEO consisted of Venezuelan appointees and Citgo management was closely intertwined with the Venezuelan government, the staff concluded:

These circumstances, coupled with the considerable control that the Venezuelan government apparently had in CITGO operations and in the absence of any explanation by Respondents, raise a sufficient inference that foreign nationals on CITGO’s board and in its holding companies may have indirectly made the donation to the Inaugural Committee, which the regulation prohibits. Accordingly, we recommend that the Commission find reason to believe that Petroléos de Venezuela, S.A, CITGO Petroleum Corporation, and CITGO Holding, Inc., violated 11 C.F.R. § 110.20(j) by making a foreign national donation.

The FEC’s deadlock

Commissioners Broussard, Walther, and Weintraub voted in favor of finding reason to believe that Citgo and PDVSA had made an illegal foreign donation, as the FEC’s nonpolitical career staff had recommended. Commissioners Cooksey, Dickerson, and Trainor voted against. The 3-3 deadlock prevented the action from moving forward. (The decision was not lightly received; after the action was blocked, two commissioners dissented from closing the file.) 

Commissioners Cooksey, Dickerson, and Trainor provided a written statement explaining their vote against enforcement. These commissioners argued that the FEC’s professional career staff misunderstood the law. Rather, they argued that, as long as PDVSA didn’t provide or reimburse the funds used for the donation, then the donation came from Citgo, a legally distinct entity. Furthermore, they opined that even if the Venezuelan PDVSA-appointed directors of Citgo participated in Citgo’s decision to make the donation, it would not constitute a foreign national “indirectly” making a donation within the meaning of the FEC regulation. 

While the other three commissioners disagreed with this analysis, the Commission can only enforce by majority vote, so a 3-3 split vote means that enforcement is blocked.

The problem with political spending by foreign-influenced corporations

The absurdity of the FEC’s inability to enforce in this case gives a green light to foreign entities and governments to order and direct how U.S. assets should be spent on donations to presidential inaugural committees. But the problem is larger than that.

Until 2010, corporations were prohibited from spending money to influence federal (and many state and local) elections. The Supreme Court’s Citizens United decision changed that, and opened the door to foreign interests using the leverage of corporate treasuries to influence our democracy. Yet the Supreme Court has, even after Citizens United, upheld bans on political spending by foreign interests, affirming a decision by then-Judge (now Justice) Brett Kavanaugh that such bans are justified by the interest in protecting democratic self-government.

Political spending by foreign-influenced corporations is a rising risk to our democracy and self-government. The problem isn’t just hostile foreign governments using corporations as instruments of state policy. The money in corporate treasuries is part of shareholders’ residual equity, and thus in some sense “belongs to” investors–including foreign investors who are legally prohibited from spending their money directly to influence U.S. elections. Furthermore, foreign investors (like domestic investors) with significant holdings can use both formal and informal mechanisms to influence corporate decision-making, and even without such direct influence, executives act in the shadow of knowing that. In the words of the former CEO of ExxonMobil, “I’m not a U.S. company and I don’t make decisions based on what’s good for the U.S.”

In places like Seattle and St. Petersburg, Florida, Free Speech For People has helped to draft and pass legislation to push back against corporate political spending by foreign-influenced corporations. This year, we have worked on similar bills in seven states and Congress. 

Read our complaint. 

Read the general counsel’s report, recommending reason to believe a violation had occurred.

Learn more about this case.

Learn more about Free Speech For People’s work to challenge foreign influence in our democracy.