A new report from the Center for American Progress, written by senior fellow Michael Sozan, highlights the problem of political spending by foreign-influenced corporations. The report—which cites Free Speech For People’s pioneering legislative work in places like Seattle, St. Petersburg, and Massachusetts—proposes banning political spending by partially-foreign-owned corporations, using the same thresholds for foreign ownership as the Seattle and Massachusetts legislation that we helped develop. (We reviewed and commented on an earlier draft of the report.)
The report begins by identifying the problem:
Current election laws and Supreme Court precedent are clear when it comes to foreign influence: It is illegal for foreign governments, corporations, or individuals to directly or indirectly spend money to influence U.S. elections. These laws are foundational to U.S. democracy and exist primarily because foreign entities are likely to have policy and political interests that do not always align with America’s best interests.
Unfortunately, the Citizens United decision opened an unexpected loophole that makes the United States more vulnerable to foreign influence. Because foreign entities can invest in U.S. corporations—and those corporations can in turn spend unlimited amounts of money on U.S. elections—foreign entities can now exert influence on the nation’s domestic political process. This is especially noteworthy as foreign investors now own a whopping 35 percent of all U.S. stock.
As the report notes, the issue is not just about hostile intelligence services, and it is certainly not about xenophobia. Rather, the issue is one of democratic self-government:
The federal government’s interest in regulating foreign influence need not rest on the idea that foreign investors may be linked to hostile entities that are actively trying to weaken U.S. democracy or intentionally flouting U.S. laws against foreign interference in elections. Rather, because current federal law does not explicitly prevent a U.S.-based corporation with foreign owners from spending money in elections, foreign interests are almost inevitably going to influence the political system—because corporate managers are going to make their political decisions with the interests of their foreign investors in mind. At the very least, this dynamic creates a harmful appearance of impropriety that can weaken Americans’ trust in elections; in government officials; and ultimately, in the policies that those officials produce.
As FEC Chair Weintraub has observed, although the ban on foreign national spending in U.S. elections is crystal clear and well-established, the scope of the ban can be murky. Even fully disclosed money spent by U.S. corporations with an appreciable share of foreign ownership raises concerns about foreign influence, even where there is no intent to illegally influence U.S. elections. That’s because a foreign-influenced U.S. corporation has interests that are likely to diverge from American interests.
To address this issue, the report recommends banning political spending by corporations in three scenarios:
- A single foreign entity owns or controls 1 percent or more of the total equity, outstanding voting shares, membership units, or other applicable ownership interests of the corporation; or
- Multiple foreign entities own or control—in the aggregate—5 percent or more of the total equity, outstanding voting shares, membership units, or other applicable ownership interests of the corporation; or
- Any foreign entity participates in the corporation’s decision-making process about election-related spending in the United States.
These are, as noted above, the exact thresholds used in the Seattle and Massachusetts legislation. The report provides extensive support for these thresholds based on the corporate governance literature, and explains why criticisms of these thresholds are not convincing. And while the report is primarily directed towards recommending federal policy, it notes the important role of local and state legislation when Congress and the Federal Election Commission are unable to act.
CAP’s report highlights the problem of political spending by foreign-influenced corporations and the need for clear legal rules to prevent it. By further developing the factual and legal basis for a ban on political spending by foreign-influenced corporations, defined using the exact same thresholds as the pending Seattle and Massachusetts legislation that Free Speech For People helped develop, the report validates our work and makes an important contribution to public discussion around the need for this important campaign finance reform legislation in Seattle, Massachusetts, and around the country. We congratulate CAP for this tour de force and look forward to discussing it with elected officials and members of the public.
Read the Center for American Progress report on Ending Foreign-Influenced Corporate Spending in U.S. Elections.
Learn more about the Seattle legislation.
Learn about Free Speech For People’s broader efforts to challenge foreign influence in our democracy.