Foreign Money and U.S. Campaign Finance Policy

Foreign Money and U.S. Campaign Finance Policy

Updated March 25, 2019
Foreign Money and U.S. Campaign Finance Policy
Introduction
U.S.C. §30109(a)(5)(C)), including regarding foreign funds,
Federal campaign finance law and regulation prohibits
to the U.S. Attorney General for criminal investigation.
foreign money in U.S. elections. The public record reveals
little evidence that foreign money has intruded into U.S.
U.S. Subsidiaries of Foreign Corporations
campaigns systematically or decisively. Prohibited funds
Two different parts of FECA restrict foreign corporations’
surreptitiously affecting campaigns in the United States
and domestic subsidiaries’ campaign involvement. FECA
nonetheless remains a policy concern. Some policymakers
prohibits a foreign-parent corporation from making
argue that existing disclosure requirements and the 2010
expenditures or contributions to influence U.S. elections.
Citizens United Supreme Court ruling increase the risk for
Separately, the law also prohibits corporations and unions
untraceable foreign funds to affect U.S. campaigns. Others
from using their treasury funds (e.g., revenues from profits
counter that existing prohibitions clearly bar foreign funds
or dues) to make contributions. These provisions mean that
and that hypothetical concerns are exaggerated, and that
foreign corporations may have no involvement in U.S.
proposed restrictions on corporate spending could target
elections, but their domestic subsidiaries may do so as
particular companies or types of speech, or both. For
discussed below. The domestic subsidiary of the foreign
additional detail, see CRS Report R41542, The State of
parent could have at least two options for influencing
Campaign Finance Policy: Recent Developments and
elections.
Issues for Congress, by R. Sam Garrett; and CRS Legal
Sidebar WSLG1857, Foreign Money and U.S. Elections, by
First, the subsidiary could spend funds independently of a
L. Paige Whitaker.
campaign. After the Supreme Court’s 2010 Citizens United
decision, corporations (including domestic subsidiaries) and
Foreign National Prohibition in FECA
unions may use their treasury funds to engage in express
The Federal Election Campaign Act (FECA) prohibits
advocacy through independent expenditures. They also
foreign nationals from making contributions or
could make electioneering communications. The subsidiary
expenditures in U.S. elections. This prohibition applies not
also could provide treasury funds to other entities, such as
only to federal elections, but also to state and local ones.
super PACs or a trade association (groups primarily
The foreign national prohibition is broad, restricting
regulated under Section 501(c)(6) of the Internal Revenue
avenues for foreign funds to flow to or be accepted by
Code), for use in those entities’ IEs or ECs.
political campaigns, parties, or political action committees
(PACs).
Second, the domestic subsidiary could form a traditional
PAC. PACs may make IEs or ECs, and they also may
FECA bars foreign nationals from “directly or indirectly”
contribute directly to candidates, parties, or other PACs.
making contributions or donating another “thing of value”
Forming a PAC, however, does not permit the corporation
in any federal, state, or local election; and prohibits
to evade either the ban on treasury contributions or the
contributions to political parties or other political
foreign national ban. For example, the domestic subsidiary
committees (52 U.S.C. §30121(a)(1)). Any “person” (e.g., a
may provide minimal administrative support for the PAC,
U.S. citizen) may not “solicit or accept” a contribution or
but any funds the PAC uses to affect elections must be
donation from a foreign national (52 U.S.C. §30121(a)(2)).
raised through voluntary, limited contributions ($5,000 per
Foreign nationals may not make expenditures, including
election for contributions to candidate committees). In
independent expenditures (IEs, which call for election or
addition, FEC regulations require that only U.S. citizens or
defeat of candidates) or electioneering communications
permanent resident aliens participate in any spending or
(ECs, which mention candidates during pre-election periods
contributions decisions that affect U.S. campaigns. Foreign
but do not expressly advocate election or defeat).
nationals could not, for example, solicit PAC contributions
or direct the domestic subsidiary’s PAC to make an IE.
Federal Election Commission (FEC) regulations (11 C.F.R.
§110.20) bar foreign nationals from participating in
Existing disclosure requirements would make information
decisions about how U.S. unions, corporations, or political
about most of these activities publicly available.
committees (e.g., parties) participate in American
Specifically, the original sources of funds used in
campaigns. Other provisions in FECA or FEC regulations,
independent expenditures are not typically disclosed if
such as those concerning coordination between campaigns
those funds are routed through an intermediary, such as a
and other entities, could be relevant in specific
super PAC or trade association. Any entity making an IE or
circumstances.
EC, however, is required to report the expenditure even if
its donors are not disclosed. Relevant reporting
The FEC is responsible for civil enforcement of federal
requirements address campaign contributions and
campaign finance law and regulation. The agency may refer
expenditures generally, not just those that might be
cases of suspected “knowing and willful” violations (52
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Foreign Money and U.S. Campaign Finance Policy
connected to foreign sources or domestic subsidiaries.
of foreign ownership or control from making campaign
Additional detail appears in other CRS products.
contributions or expenditures; require tax-exempt
organizations to certify that they did not accept foreign
Selected Historical Examples of Prohibited or
funds for use in federal elections; and prohibit foreign
Questionable Foreign Funds
nationals from making contributions or expenditures in
Despite the protections discussed above, the presence of
state and local initiatives and referenda. Some of these
foreign funds—or possibly undetected foreign funds—
provisions appear in H.R. 1, which the House passed in
remains a policy concern. Modern concern dates at least to
March 2019. Language in the bill also would clarify that
the early 1970s, when some cash discovered on the
foreign nationals may not participate in decisionmaking
Watergate burglars (who worked for President Nixon’s
surrounding U.S. political contributions or expenditures,
reelection campaign) was found to have been laundered
and that the prohibition applies to super PAC activity.
through Mexico. Most episodes are less spectacular; they
involve small amounts and apparently result from mistakes.
Other recent legislation does not specifically address
The FEC often pursues these cases, underscoring that the
foreign funds but could indirectly do so. For example,
prohibition applies regardless of amount. For example, in
legislation that proposes additional disclosure requirements
2014, the agency assessed a $3,000 fine on a PAC that
or tightens restrictions on coordination between campaigns
“self-reported” accepting annual contributions from a single
and other entities, such as super PACs, could further
foreign national. When intentional violations of the foreign-
discourage use of prohibited foreign funds or make them
national prohibition occur, cases can be complex and
easier to detect. Supporters of such approaches argue that
prominent. They often involve other parts of FECA and
additional disclosure requirements and spending restrictions
other areas of law. Selected examples include the following. are a reasonable safeguard against questionable or

prohibited funds from domestic and foreign sources.
During the early and mid-1990s, allegations emerged
Opponents counter that although these requirements might
that foreign governments or nationals were attempting to
provide additional protections, they also could uniquely
influence U.S. policy decisions through campaign
burden certain types of organizations, such as those with
contributions. In particular, throughout the 1996 cycle, a
foreign assets, and could restrict the political speech of
series of large contributions solicited or contributed by
these entities or their donors. Several congressional
foreign nationals with ties to Asia flowed to the
committees have investigated reported foreign influence in
Democratic National Committee (DNC). This episode
the 2016 elections.
included a widely publicized fundraiser held at a
California Buddhist temple. Questions also emerged
Recent Federal Election Commission Activity
about funds originating in Hong Kong that went to the
In response to reports of Russian interference with the 2016
Republican National Committee (RNC) during the mid-
elections, the FEC has debated whether to adopt a new
1990s. The Senate Governmental Affairs Committee
policy statement, initiate a rulemaking, or pursue additional
and House Government Reform and Oversight
enforcement concerning foreign money. In September
Committee, and other committees, conducted extensive
2016, the FEC directed its general counsel to prioritize
and sometimes controversial investigations during the
enforcement cases involving alleged foreign influence.
105th and 106th Congresses. Partially as a result,
Because FECA prohibits the FEC from publicizing
Congress banned “soft money” in federal elections
enforcement information before cases are closed, it is
through the 2002 Bipartisan Campaign Reform Act
unclear how significant pending civil enforcement cases
(BCRA). Before BCRA, both major parties relied
might be. In March 2019, advocacy groups and media
heavily on unlimited soft money contributions for
“party
organizations reported that the FEC had reached
-building” activities.
conciliation agreements, including penalties totaling more
 In 2010, a homeowners’ association PAC paid a
than $900,000, with a super PAC and a domestic subsidiary
$300,000 fine after entering into a conciliation
of a foreign corporation concerning impermissible foreign-
agreement with the FEC. Among other violations, the
national involvement in 2016 electioneering.
PAC acknowledged that it had not properly screened its
donors for prohibited foreign contributions and that it
Those supporting additional commission action generally
had accepted prohibited contributions.
focus on the fact that any substantive interference in an

election would require raising or spending money, therefore
In 2015, the FEC deadlocked in an enforcement case
potentially violating the FECA foreign national ban. From
concerning whether FECA’s foreign national prohibition
this perspective, the FEC has unique expertise in
applied to local ballot initiatives. In that case, a
monitoring how those funds might affect elections. Those
Luxembourg-based company and a domestic subsidiary
who are skeptical of additional FEC action have suggested
contributed money to oppose a Los Angeles ballot
that the agency should focus on specific enforcement cases
initiative. A California state campaign finance agency
rather than a new rulemaking, and have noted that the
fined the companies more than $60,000 after the FEC
FEC’s jurisdiction does not include broader voting and
deadlocked.
elections issues.
Recent Legislative Activity
Legislation introduced in the 115th Congress, 116th
R. Sam Garrett, Specialist in American National
Congress, or both, concerning foreign money would amend
Government
FECA to require additional verification of online credit card
IF10697
contributions; prohibit U.S. companies with various levels
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Foreign Money and U.S. Campaign Finance Policy

Disclaimer
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