Ending Foreign-Influenced Corporate Spending in U.S. Elections

Michael Sozan is Senior Fellow at the Center for American Progress. This post is based on his Center for American Progress report. Related research from the Program on Corporate Governance includes Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here); Corporate Governance and Corporate Political Activity: What Effect will Citizens United Have on Shareholder Wealth (discussed on the Forum here) by John C. Coates, IV; and The Politics of CEOs by Alma Cohen, Moshe Hazan, Roberto Tallarita, and David Weiss (discussed on the Forum here).

The 2020 presidential election is less than a year away, and intelligence officials warn that foreign entities remain intent on affecting its outcome. At the same time, the U.S. House of Representatives is conducting an impeachment inquiry into President Donald Trump, due in large part to his solicitation of foreign interference from Ukraine in the 2020 presidential contest.

In the midst of these threats, Americans’ trust in government is near all-time lows, with voters deeply skeptical about a political system that they believe is corrupted and dominated by corporations and wealthy special interests. This dominance has been especially prominent since the U.S. Supreme Court’s ruling in Citizens United v. Federal Election Commission unleashed a torrent of spending directed to super PACs and shadowy nonprofit organizations.

Now more than ever, bold policy solutions are needed to help ensure that no foreign government, business, or person can unduly affect the nation’s democratic self-governance.

Before the Supreme Court’s 2010 decision in Citizens United, U.S. corporations had to finance campaign-related activity chiefly via disclosed donations from their employee-funded PACs. Corporations were not allowed to spend money directly from their corporate treasuries on independent expenditures—advertisements that expressly call for the election or defeat of a candidate. These ads are the lifeblood of election campaigns. But in Citizens United, the Supreme Court held that corporations are indeed permitted to spend corporate treasury funds on campaign-related ads, opening the door to unlimited corporate spending in U.S. elections.

Since the high court’s decision, corporations have taken full advantage of their new power. They have spent hundreds of millions of dollars, much of it through secret “dark money” channels, to elect their preferred candidates, often bankrolling negative advertising and distorting issues about which everyday Americans care.

Yet attempts to influence U.S. elections can take other forms as well. Foreign influence in U.S. elections—specifically, foreign influence via U.S. corporations—merits particular attention, especially in the wake of unlimited corporate spending post-Citizens United.

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.

Obama’s Warning

An important warning about the potential effects of Citizens United came from President Barack Obama during a dramatic moment in his 2010 State of the Union address. Standing just feet away from justices of the Supreme Court, President Obama criticized the high court’s newly issued decision. He predicted that it would create a new avenue for special interests and foreign influence in U.S. elections:

Last week, the Supreme Court reversed a century of law that I believe will open the floodgates for special interests—including foreign corporations—to spend without limit in our elections. I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities. They should be decided by the American people. And I’d urge Democrats and Republicans to pass a bill that helps correct some of these problems.

Justice Samuel Alito, a member of the high court’s conservative majority that had just decided the case, could be seen uttering the words “not true.” Unfortunately for U.S. democracy, however, Obama’s prediction about the harmful aftershocks of Citizens United has proved accurate.

In a political system that already allows corporations to cloak themselves in secrecy via unlimited dark-money spending, this foreign-influence loophole must be closed. The least lawmakers can do is block this avenue for inappropriate foreign influence in U.S. elections and in the policies that the federal government produces. Americans deserve to know that their best interests are paramount and that U.S. corporations are not acting as conduits for foreign influence in national affairs.

This post recommends a clear, strong policy solution: The United States must have bright-line foreign-ownership thresholds for American corporations that want to spend money in elections. These clear thresholds are supported by an array of lawmakers and regulators, as well as experts in constitutional and corporate governance law.

This post applies the recommended foreign-ownership thresholds to many of the nation’s biggest publicly traded corporations, and the data show that applying these recommended thresholds likely would prohibit many of these corporations from spending funds to influence elections.

Stopping foreign-influenced U.S. corporations from spending money to affect U.S. elections is an issue of accountability that should transcend partisan political divisions. Unless and until lawmakers meaningfully address the problem of foreign influence in elections via U.S. corporations, they risk serious negative consequences for this country. In a properly functioning democratic society, a nation’s people must have faith in its elections, its elected leaders, and its government.

Background and scope of the challenge

Due to lax federal laws and reporting requirements, the United States is staring at two intersecting challenges that threaten the foundation of its democratic system. The first is secret corporate spending in U.S. elections, a problem discussed in detail in various Center for American Progress products, including “Secret and Foreign Spending in U.S. Elections: Why America Needs the DISCLOSE Act” and “Corporate Capture Threatens Democratic Government.”

The second challenge, though not as problematic on its face, involves foreign entities who invest in American-based companies. These investments are problematic given lax disclosure laws, which make it easy to hide information about who is actually investing in these companies. Both of these challenges occur within the context of foreign governments and related entities attempting to steer the outcomes of U.S. elections.

During the 2016 presidential election, the United States became the target of systematic and sweeping foreign interference from Russia that was designed to alter the election’s outcome. As special counsel Robert Mueller, among others, has concluded, the Russian government orchestrated sophisticated efforts through state-funded media, third-party intermediaries, and paid social media users in a massive effort to influence America’s election outcome. And the dangers of these illegal activities continue. National security officials say that foreign entities are again seeking to interfere with the 2020 presidential election.

Many of Russia’s ongoing actions violate longstanding laws that prohibit foreign involvement in U.S. elections and attempts to improperly influence the government and its leaders. At the same time, during 2019, President Donald Trump solicited foreign interference in the 2020 presidential election. The House’s impeachment inquiry into Trump is centered on his request that the president of Ukraine dig up dirt on one of Trump’s political rivals. Not only are Trump’s actions potentially illegal, they constitute an unconstitutional abuse of power. Regrettably, Americans are left with a situation in which Trump and his administration are thwarting necessary steps both to enforce laws against foreign influence in elections and to eliminate the threats that illegal interference poses to national security and the U.S. political community.

Yet inappropriate foreign influence in U.S. elections is not always overt. It often operates on the outer edges, or within loopholes, of U.S. law. This is true in the case of election spending by American corporations that have appreciable foreign ownership or control. Indeed, federal law does not effectively prevent a foreign entity from using a U.S.-based corporation to influence U.S. elections. In the age of massive foreign investment in American corporations, a new federal standard is necessary. Policymakers must ensure that U.S. corporations are not unduly influenced by their foreign investors when making spending decisions to attempt to affect American elections and policy.

Foreign interests diverge from domestic interests

Harvard Law School professor John C. Coates IV, a noted corporate governance expert, writes, “Democratic self-governance presumes a coherent and defined population to engage in that activity. Foreign nationals have a different set of interests than their U.S. counterparts, as regards a range of policies, such as defense, environmental regulation, and infrastructure. … Foreign and domestic interests predictably diverge.” Depending on the degree of their ownership or control, Coates writes, foreign investors “might be able to leverage ownership stakes in U.S. corporations to affect corporate governance. Through that channel, they could influence corporate political activity in a manner inconsistent with democratic self-government, or at least out of alignment with the interests of U.S. voters.”

Elected officials must be accountable only to Americans, not to foreign investors who wield increasing amounts of corporate power. The best solution to the problem is a set of clear, effective rules, including foreign-ownership thresholds, that prevent foreign-influenced American corporations from spending money in U.S. elections.

The prohibition on foreign influence in U.S. elections

The roots of the ban on foreign influence in U.S. elections can be traced to the founding of the republic. The framers of the U.S. Constitution included a provision known as the emoluments clause, designed to prevent foreign payments to U.S. government officials and thereby reduce opportunities for foreign entities to corrupt the political system.

George Washington used his farewell address at the end of his presidency to warn his fellow Americans that one of the greatest dangers to democracy involved the “insidious wiles” of foreign powers and the many ways that foreign powers could improperly influence the U.S. political system. Washington urged Americans “to be constantly awake, since history and experience prove that foreign influence is one of the most baneful foes of republican government.”

Thomas Jefferson discussed the necessity of protecting the United States from “entanglement” in foreign politics, which he and other founders viewed with “perfect horror” due to the chance that U.S. officials could be corrupted by foreign entities. And Alexander Hamilton specifically highlighted the risk of a foreign power’s effort to cultivate a president or another top official, warning in “The Federalist Papers” of “the desire in foreign powers to gain an improper ascendant in our councils.”

Building on these foundational concepts espoused by the nation’s earliest leaders, the federal courts have continued to uphold the government’s ability to exclude foreigners from participating in or influencing U.S. elections, including in one important recent case. In a 2011 decision, Bluman v. Federal Election Commission, which was summarily affirmed by the Supreme Court, the District Court for the District of Columbia wrote that excluding foreigners from U.S. elections is not only permissible but that doing so is “fundamental to the definition of our national political community.” This decision, decided fewer than two years after Citizens United by a special three-judge panel and written by future Supreme Court Justice Brett Kavanaugh, concluded that this foreign national exclusion “is part of a common international understanding of the meaning of sovereignty and shared concern about foreign influence over elections.” The court also stated that “the United States has a compelling interest for purposes of First Amendment analysis in limiting the participation of foreign citizens in activities of American democratic self-government, and in thereby preventing foreign influence over the U.S. political process.” It concluded that “the majority opinion in Citizens United is entirely consistent with a ban on foreign contributions and expenditures.”

Importantly, the Bluman opinion makes clear the breadth of the ban on election spending by foreigners. In Bluman, the court affirmed the illegality of a Canadian citizen’s proposed election-related activity, even though it included only three $100 campaign contributions and payments for a flier supporting President Obama’s reelection. The chair of the Federal Election Commission (FEC), Ellen L. Weintraub, points out that “Bluman’s proposed activities were deemed illegal even though he hailed from a closely allied country, was lawfully working in the United States, and had proposed spending only an inconsequential amount of money. That’s how broad the foreign national political spending ban is.” (emphasis in original)

The decision in Bluman is based on federal law, where Congress has expressly prohibited foreign influence in U.S. elections. Under federal law, it is illegal for foreign nationals to spend money “directly or indirectly” or to provide anything of value in connection with U.S. elections. The term “foreign national” is defined to include not only foreign individuals but also foreign governments or other foreign entities, such as corporations. The prohibition includes election-related spending on independent expenditures and electioneering communications, and it extends to donations made to political campaigns, parties, and political action committees (PACs).

Yet this federal law has loopholes ripe for exploitation and was written before Citizens United, when corporate spending was not a huge concern. First, the law says that a U.S. corporation that is owned or controlled by a foreign entity is not itself a “foreign national” so long as the corporation is organized under U.S. laws and has its principal place of business in the United States. In addition, there are no meaningful statutory standards to measure when a U.S. corporation may be violating the ban on “indirect” foreign influence in U.S. elections, such as by making election-related spending decisions that are influenced by the corporation’s foreign investors. To make matters worse, big loopholes in campaign finance disclosure laws and corporate transparency requirements make spending by foreigners nearly impossible to detect.

The nation has reached a crucial juncture in its history. As FEC Chair Weintraub has compellingly written, U.S. elected officials must “be laser-focused on advancing the best interests of our country. And no other. This nation has shed blood, tears, and treasure over 2 ½ centuries safeguarding our democracy and the right of U.S. citizens to choose American leaders and policies.”

Corporate spending in U.S. elections

Threats of foreign influence in U.S. elections are exacerbated by gaping holes in the law that allow dark money—spending by organizations that do not reveal their donors—to flood into federal, state, and local elections, often drowning out the voices of voters or even the candidates running for election. This disturbing lack of transparency allows billionaires, corporations, and outside organizations to secretly fund election-related activities, including advertising for or against candidates. Often, U.S. corporations—including foreign-influenced U.S. corporations—use dark-money spending as a vehicle to improperly and secretly influence the election of the nation’s lawmakers, which in turn affects the policies those lawmakers enact. [Note: This post uses the term “corporation” to refer to a full range of public and private, for-profit business entities, including limited liability companies (LLCs), partnerships, and sole proprietorships.]

How did America get to the point where corporate power over its elections threatens its democracy?

In a 1905 address to Congress, Republican President Theodore Roosevelt decried the corruption that resulted from unlimited corporate power and political spending. Roosevelt called for sweeping legislation to bar corporations from spending money to influence elections and to require full disclosure of campaign contributions and political expenditures. In response, Congress passed the Tillman Act in 1907 and the Federal Corrupt Practices Act in 1910. Over the next 100 years, Congress enacted a series of laws—most of them upheld in federal court—further regulating federal campaign financing, including by corporations.

In the misguided Citizens United decision, the Supreme Court upended a century of precedent and allowed, for the first time, unlimited spending by corporations on independent campaign ads. The conservative majority of the high court wrote that the constitutional First Amendment rights of corporations cannot be abridged merely because they are corporations. They reasoned that because citizens enjoy the right to political free speech and corporations are “associations of citizens,” corporations also enjoy First Amendment privileges. This includes corporations’ unfettered right to spend unlimited amounts of money directly from their corporate treasuries to help elect the candidates that are most sympathetic to the policies they want. Republican Sen. John McCain (AZ), who was a longtime proponent of campaign finance reform, called the Citizens United decision the Supreme Court’s “worst decision ever.”

A subsequent decision, SpeechNow v. Federal Election Commission, officially launched the super PAC era. SpeechNow allowed unlimited corporate contributions to super PACs and other political groups that spend money “independently” of candidates—in theory though not often in practice. Recent years have seen a proliferation of political groups that masquerade as social welfare nonprofits failing to disclose their contributors—including corporate contributors—while spending large sums of money advocating for and against candidates.

One way to help ameliorate this anti-democratic result would be to shine a bright light on corporate spending in elections. Even in Citizens United, the justices assumed that unlimited corporate political spending would be coupled with “effective disclosure,” which would “provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters.” Moreover, conservative Justice Antonin Scalia, who often viewed campaign finance laws with deep skepticism, supported the need for disclosure, writing in another case that “requiring people to stand up in public for their political acts fosters civic courage, without which democracy is doomed.”

But mere months after the Supreme Court wrote about the importance of disclosing election-related spending, Senate Republicans killed legislation that would have required such disclosure. Without appropriate disclosure rules governing corporate spending in elections, it remains nearly impossible to know which candidates are being helped or hurt by the outsize voices of corporations, including foreign-influenced U.S. corporations. This dynamic runs the risk of rampant violations of the prohibition on foreign influence in U.S. elections.

Political spending by corporations and by their employee PACs

Fortunately, in recent years, some corporations in the S&P 500 stock index have voluntarily disclosed their election-related spending, which is tracked by the annual CPA-Zicklin Index. For years 2015 through 2017, S&P 500 corporations that wished to disclose their direct federal and state election-related spending, not counting spending from their corporate PACs, expended a combined $773 million. This includes corporate spending that usually would remain “dark” if not voluntarily disclosed.

Foreign-influenced corporations that engage in big dark-money spending from their corporate treasuries must by law report the copious amounts of money they spend to influence U.S. elections via another route: their corporate PACs. PAC money is comprised of contributions from a corporation’s U.S.-citizen managers and employees. The 111 S&P 500 corporations that CAP studied spent heavily via their PACs, doling out more than $83 million in the 2016 election cycle—years 2015 and 2016—to help elect their favored federal candidates. Although CAP’s recommended proposal would prevent foreign-influenced corporations from engaging in political spending from their corporate treasuries, it would not prohibit them from continuing to contribute funds from their corporate PACs, funds which come solely from U.S. managers and employees.

The amount of dark money being pumped into U.S. elections is staggering. Since 2006, groups that do not disclose their donors have spent at least $1 billion in dark money just to influence federal elections. In that same time period, an additional $1 billion has been spent by groups that only partially disclose their donors, bringing the total federal spending by groups that do not fully disclose their funders to at least $2 billion. That does not even include the more than $2.1 billion that outside groups have spent in state elections since 2005. It is important to bear in mind that all of these totals are just a subset of dark money—amounts that, while technically reported to the FEC or a state regulator, have no real donor information attached and therefore cannot be traced back to their source. It is impossible to know the actual amounts of dark money because some campaign spending takes advantage of dark-money loopholes and is not reported at all.

Isolating just the 2018 election cycle—which did not involve a presidential election, where vastly more money is spent to influence the result—outside groups that did not fully disclose their donors reported more than $539 million in spending. This set a new record for a nonpresidential election year. During that same election cycle, political committees that are required to disclose their direct donors reported receiving more than $176 million from shell corporations and other groups that do not further disclose their donors. Shell companies often can be organized as an LLC with little more than an opaque, nondescriptive name—that gives no clue as to its true owners—and a post office box address, which hides whether the owner is a foreign entity.

Not surprisingly, the percentage of outside spending in elections that has not been fully disclosed has skyrocketed after Citizens United. In 2006, before Citizens United, groups that did not fully disclose their donors comprised less than 2 percent of outside spending, excluding party committees. In sharp contrast, since Citizens United in 2010, this percentage has ballooned to more than 50 percent of outside spending, excluding party committees.

Choosing the correct business form is the name of the game. After Citizens United, a growing number of political nonprofits decided to organize themselves under section 501(c) of the U.S. tax code. They gave themselves benign-sounding names and are now spending big sums of money to sway federal, state, and local elections. 501(c) organizations can even accept donations directly from foreign entities, as long as those funds are not used for election-related spending. However, these same organizations can be engaged in election-related spending. And because 501(c) organizations are not required to disclose their donors, or fully disclose their election-related activities, it is virtually impossible to discern the extent of foreign-influenced corporate spending in U.S. elections.

Two principal types of 501(c) organizations spend in politics: 1) 501(c)(4) political nonprofits, or “social welfare organizations,” such as the National Rifle Association; and 2) 501(c)(6) nonprofit trade associations such as the Chamber of Commerce, the American Petroleum Institute, and the Business Roundtable. There are legitimate reasons for organizations to incorporate under these provisions. However, current laws provide avenues for other organizations to abuse these provisions in order to spend huge sums of money on election-related advertisements after pooling dark-money funds from contributors—often including U.S. corporations. In other words, some political organizations are successfully using legal fictions to shield true donors.

U.S. Chamber of Commerce takes advantage of dark money

The most prolific dark-money group pumping money into elections is the U.S. Chamber of Commerce, a 501(c)(6) nonprofit trade association that advocates on behalf of its corporate members. The chamber, which directs almost all of its spending to help elect Republicans, spent a whopping $130 million on political advertisements between 2010 and 2018. The chamber does not generally disclose its donors and has urged companies to reject even voluntary disclosure of their political spending. But due to voluntary disclosure by some corporate donors, it is known that large foreign-influenced U.S. corporations are dues-paying members of the Chamber of Commerce and have given major sums of money to the chamber since 2010. For example, Dow Chemical Co. has contributed at least $13.5 million to the chamber; health insurance company Aetna Inc. has contributed $5.3 million; and oil company Chevron Corp. has contributed $4.5 million.

Undisclosed dark money, including money raised by 501(c) groups, sometimes is funneled through other organizations, including super PACs, which then often use the money to flood close election races with negative advertising. Officially birthed with the 2010 SpeechNow case, super PACs are outside groups that may raise unlimited sums of money from people and entities such as 501(c)s or corporations—and then, under generic names like Americans for Patriotism, spend unlimited sums to overtly advocate for or against political candidates. Super PACs are only required to disclose their direct donors, such as 501(c) groups, but not the donors—including corporations—that send the millions of dollars of dark money to the 501(c) groups.

Outside spending in congressional races overwhelmingly is aimed at influencing the results of the most competitive elections across the country. Outside groups such as super PACs accounted for more than half of all television advertising in the most competitive Senate races in the 2018 cycle. In the same cycle, super PACs and dark-money groups collectively outspent the candidates’ own campaigns in a record-breaking 16 congressional elections.

No wonder voters are so cynical about politics: 69 percent of television ads in the weeks leading up to the November 2018 midterm elections contained an attack on a candidate. And in the 2016 presidential primary, an analysis of advertisements aired by dark-money entities in 23 media markets found that 70 percent were attack ads, compared with only 20 percent of ads by other political groups.

As the Center for American Progress has discussed, rampant dark money contributes to the toxicity of America’s political culture, which is being poisoned by the politics of personal destruction. People want to believe that their voices matter in the political system that is supposed to fairly represent them, and they are appropriately concerned that all of this undisclosed money fuels a massive, behind-the-scenes effort by corporations and special interests to obtain influence over the people’s government. In light of this toxic stew, Americans are demanding limits on political campaign spending.

Two-thirds of Americans believe that new laws would be effective in reducing the outsize role of money in politics, with 77 percent wanting limits on the amount of money that can be spent on campaigns and 65 percent saying that new laws could be written to effectively reduce the role of money in politics. And a poll conducted immediately after the 2018 midterm elections revealed that 82 percent of voters believed that Congress’ first item of business should be anti-corruption legislation that should include cracking down on special interest money in politics.

Justice Stevens’ warning

In his powerful dissent in Citizens United, Supreme Court Justice John Paul Stevens vividly explained the dangers of runaway corporate spending in U.S. elections:

Corporate “domination” of electioneering can generate the impression that corporations dominate our democracy. When citizens turn on their televisions and radios before an election and hear only corporate electioneering, they may lose faith in their capacity, as citizens, to influence public policy. A Government captured by corporate interests, they may come to believe, will be neither responsive to their needs nor willing to give their views a fair hearing. The predictable result is cynicism and disenchantment: an increased perception that large spenders “call the tune” and a reduced “willingness of voters to take part in democratic governance.” To the extent that corporations can exert undue influence in electoral races, the speech of the eventual winners of those races may also be chilled. Politicians who fear that a certain corporation can make or break their reelection chances may be cowed into silence about that corporation. On a variety of levels, unregulated corporate electioneering might diminish the ability of citizens to “hold officials accountable to the people,” and disserve the goal of a public debate that is “uninhibited, robust, and wide-open.” At the least, I stress again, a legislature is entitled to credit these concerns and to take tailored measures in response.

Inappropriate spending in U.S. elections via foreign-influenced U.S. corporations

Clearly the United States faces a variety of challenges to its election system both from foreign influence and rampant, secret corporate spending. What happens when these challenges are exploited by inappropriate spending via foreign-influenced U.S. corporations, whether such influence is active or unintentional, warrants further scrutiny.

It is important to note, however, that there is no general obligation for U.S. corporations to disclose who their owners are, including foreign owners. According to estimates by Harvard Law School professor John Coates, there are more than 5 million corporations active enough to file tax returns with the Internal Revenue Service, and of those, less than 1 percent are publicly traded corporations. And even those publicly traded corporations are obligated only to disclose ownership of top officers, directors, and shareholders who own at least 5 percent of their shares. So in most circumstances, government regulators and the public are not able to discern whether a corporation is foreign-influenced or whether a foreign-influenced corporation has spent from its treasury to sway U.S. elections.

Federal law says that if a domestic subsidiary of a foreign parent is incorporated within the United States and has its principal place of business within the United States, it is not a foreign national. But the law does not specifically address the situation of a foreign entity owning or influencing a U.S. corporation. Although the law broadly prohibits foreigners from spending in U.S. elections—“directly or indirectly”—Congress has left it to the Federal Election Commission, the federal agency with jurisdiction over election spending, to determine when a U.S. corporation is acting on behalf of a foreign entity.

In turn, the FEC has continued to work under minimal and insufficient regulatory requirements, developed before Citizens United radically reshaped the campaign finance system. Previously, the FEC only had to concern itself with limited contributions from corporate PACs—money raised under strict circumstances from individual corporate employees. The FEC determined, reasonably, that a foreign parent and U.S. subsidiary relationship at least calls the U.S. subsidiary’s election-related spending into question.

And via a regulation and a series of advisory opinions, the FEC has developed a framework to look at spending by corporations with foreign ownership. Under the FEC’s framework, an American corporation that is owned in part or in whole by foreign investors is permitted to spend money in U.S. elections if the corporation clears two exceedingly low hurdles: 1) no foreign national can be involved in the decision-making about such spending; and 2) the expended funds are generated solely in the United States.

This framework developed for the pre-Citizens United era is extremely lax, and Republican FEC commissioners have resisted promulgating any meaningful regulatory updates. Foreigners can actively attempt—and have attempted—to evade this framework’s restrictions. But just as importantly, there is rampant election spending by foreign-influenced U.S. corporations that complies with the letter of the law but unintentionally pushes the outer boundaries of the regulatory framework to its breaking point. This allows foreign-influenced corporate spending to seep into U.S. elections.

Former ethics counselor to President Obama, Norman Eisen, has observed, “It’s a sad state of affairs, but the worst scandal in the United States is what’s legal.”

Active illegal spending via American corporations

Some foreigners continue to exploit the United States’ lax campaign finance system with the goal of illegally influencing election outcomes. Often, these attempts involve secretive back-channel money and/or opaque business entities, which leave U.S. elections open to increasingly aggressive actors such as Russia and China, nations known to exercise control over their domestic companies without owning a direct stake in them.

FEC Chair Ellen L. Weintraub has stated that “the doors are wide open for political money to be weaponized by well-funded hostile powers.” Weintraub recently testified that the number of matters before the FEC that include alleged violations of the foreign-national contribution ban increased from 14 to 30 in the period from September 2016 to September 2019. Weintraub also lamented that FEC enforcement actions in these types of matters are hampered by low staffing levels, multiple commissioner vacancies, and disagreements with Republican-appointed commissioners who are reluctant to bring enforcement actions.

Active illegal spending in U.S. elections frequently is facilitated by shell organizations, including limited liability companies, which often do not disclose their beneficial owners, even to state regulators. Beneficial owners are entities who may not be on record as an owner—often called a “nominal” owner—but who may indirectly exercise control over a corporation through ownership interests, voting rights, agreements, or otherwise or have an interest in or receive substantial economic benefits from the corporation’s assets. Beneficial owners can run shell companies through one or more countries and/or multiple layers. As Sheila Krumholz, executive director of the Center for Responsive Politics, has testified, “since the unique structure of LLCs often requires the entities to disclose only minimal information necessary for incorporation, LLCs have become attractive vehicles to move funds through different opaque entities like ‘shell’ companies in elaborate, complicated financial transactions funneling money into U.S. elections without ever disclosing its source,” which can become conduits for quietly influencing U.S. elections.

Between 2012 and 2018, LLCs spent approximately $107 million to influence federal elections. And the number of LLCs that routed this money into federal elections nearly quadrupled from 2012 to 2018, swelling to almost 4,000 LLCs. As Krumholz testified to the U.S. Senate, “The scale and sophistication of these operations presents grave challenges to the integrity of the American political system.” When money is laundered through shell corporations set up to protect anonymous donors, this lack of disclosure certainly denies Americans the ability to see “whether elected officials are ‘in the pocket’ of so-called moneyed interests,” as Justice Anthony Kennedy emphasized in the Citizens United decision. These problems are not likely to subside anytime soon, as the United States is now the second-most-popular destination in the world to incorporate shell companies, after Switzerland and before the Cayman Islands.

There are many recent examples of foreigners allegedly actively trying to spend money in U.S. elections through various means. (see sidebar) Aided by outdated laws, a weak regulatory framework, and lax federal enforcement, this active spending by foreigners in U.S. elections poses a threat to America’s sovereignty, national security, and body politic. It is imperative that the United States make it far easier to detect and stop illegal influence in its elections.

The complete publication, including footnotes, is available here.

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