One FEC Commissioner’s Answer to Citizens United

April 7, 2016
posted by Bob Bauer

FEC Commissioner Weintraub believes that she has hit upon a regulatory maneuver to stop publicly traded corporations from making independent expenditures, or unlimited contributions to independent expenditure committees.  At a time when newspaper editorialists carry on with attacks on the Commission as “worse than useless,” the Commissioner seems determined to prod the FEC to face the major “money in politics” issues of the day.<\p>

This is her theory: foreign nationals cannot make contributions or independent expenditures, which means that the FEC could establish that no corporation with foreign nationals as shareholders could engage in this political spending.  The rule would not bring about this result outright: it would require a corporation to “certify” that it was not making contributions or independent expenditures with these funds.  As a practical matter, corporations with foreign national shareholders could not risk making the certification and would forgo this political spending.  The Commissioner plans to direct lawyers to produce proposals that she and her colleagues can consider in a future rulemaking.

This is an interesting proposal, but it is generally appreciated that a Commission unable to agree on matters of lesser moment will not find a majority in favor of this one.  But even beyond that, the proposal is vulnerable to questions about its viability as a regulatory measure.

There is first the question of the broader constitutional theory that Commissioner Weintraub is staking out, which is, effectively, that the FEC can act in this fashion because a corporation has no free-speech rights separate from the rights enjoyed by its “association’ members.  Allen Dickerson has already responded to this point.  He argues that the Supreme Court rejected this position some time ago, and it is indeed notable that Justice Byron White, who led the way in voicing these concerns in Bellotti v. First National Bank of Boston, wrote the dissent.

Another set of issues raised by the Weintraub proposal is more technical, and these emerge from a close reading of the Motion to launch the rulemaking that she intends to put before the Commission.

The Commissioner wishes to jump to the certification requirement without addressing the first order issue: is there a supportable legal theory underlying the requirement? The Commissioner’s proposal is to require any organization like a Super PAC accepting corporate contributions to verify that the donating “corporations are associations of United States citizens who are eligible to contribute.”  The thrust of this aspect of the rule is that because there are foreign nationals among the shareholders, the corporation cannot be such an association and cannot give.

FEC rules have long provided that just the availability of money not permissibly used in federal elections is not disqualifying: the spender may simply show that it used other money, not the prohibited funds.  A US subsidiary of a foreign corporation may make contributions and elections, provided that it uses only the funds on hand generated by US revenue generating activities.  It remains controlled by foreign nationals, and its operations certainly are subsidized in part by foreign source money, but so long as it doesn’t use prohibited funds – – and so long as foreign nationals do not control its political decisions – – it may make US political contributions.  In other words, the controlling inquiry is not whether it is an “association of United States citizens.” See,e.g. FEC Advisory Opinion 2006-15 (May 16, 2006).  It would be hard to say, except in the narrowest of terms, that a wholly owned subsidiary of a foreign corporation is an “association of United States citizens,” but the federal campaign finance law allows for its participation in U.S. elections on the condition that foreign nationals not direct the activity. Commissioner Weintraub is now moving in the contrary direction, relying on language in Citizens United to which she appears to be attributing more importance than it merits.

The Commissioner may have concluded that it is better to have the argument, to have the FEC show some life on the issue, and she doubtless does not harbor illusions that the agency will produce anything like what she has proposed.  Dickerson suggests that the Commissioner may have in mind to  generate uncertainty about the law and raise compliance risks to a seemingly prohibitive level, with the result that corporations would decline the option of certification and just not spend.  It is not necessary to take this view to doubt that, as a regulatory initiative, the Commissioner’s proposal passes muster.

It is interesting that the Commissioner is repeating more generally a concern about Citizens United’s dangers in inviting foreign political influence.  Some have rejected this concern, but it is legitimate.  The wholly-owned subsidiary of a foreign corporation provides an avenue for foreign influence it is difficult to police, irrespective of regulations that limit spending to US source funds and prohibit foreign national direction or control of the political decision-making process.  A U.S. Board of Directors using only US funds can be expected to be entirely aware of and sensitive to the concerns of their foreign owners.  So Citizens United opened up a risk that was not present to the same degree before.

That is an argument, however, of a different stripe than the one that Commissioner Weintraub is making.  Her argument is that we may have less reason to be concerned about Citizens United because the publicly traded corporations with shareholders who are foreign nationals can be effectively barred through her proposed “certification” process from contributing altogether. The FEC, divided on so much else, will not likely come together around this proposal, and even others, including those who believe that Citizens United was incorrectly decided, will have reasonable grounds to question that this is the answer, in the form of an FEC rulemaking, to the problems that the decision has created.

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