FEC Foreign-Money Proposal Unlikely to Yield Consensus

By Kenneth P. Doyle

The Federal Election Commission is not expected to agree on a new proposal to clamp down on what critics see as a potential channel for foreign money into U.S. campaigns.

The proposal by Democratic FEC Commissioner Ann Ravel, which is on the agenda for an Aug. 16 commission meeting, calls for rescinding a decade-old FEC advisory opinion that allowed a U.S. domestic subsidiary of a foreign-based company to establish a corporate political action committee and pay for the PAC's administrative costs (See previous story, 08/15/16).

The 2006 FEC ruling is seen by Ravel and other critics as a key loophole, allowing the owners of foreign parent companies to influence U.S. campaigns—and perhaps funnel money directly from foreign sources into campaigns. The FEC Republican commissioners have disagreed, however, arguing that current rules protect the rights of American employees of foreign-owned companies to participate in campaigns in the same way as employees of U.S.-owned companies.

The FEC Republicans, who have opposed previous Democratic calls to tighten campaign finance rules, are not expected to support Ravel's latest proposal.

Heightened Concerns

Concerns about foreign influence have been heightened this year by a series of incidents, including alleged Russian hacking of Democratic Party computer systems and a recent New York Times report of secret payments by a pro-Russian political party in Ukraine to Paul Manafort, the campaign manager for Republican presidential nominee Donald Trump. Manafort, who previously worked as a consultant for former Ukrainian Prime Minister Victor Yanukovich, denied the Times report, saying he has never received an “off-the-books payment.”

Ravel's new FEC proposal doesn't address all the questions now being raised about possible foreign influence. Instead, it is narrowly focused on closing gaps in current federal campaign finance rules. Critics of these rules say they are riddled with loopholes that could erode the long-standing legal prohibition against foreign money in U.S. campaigns.

The 2006 advisory opinion (AO 2006-15) targeted by Ravel was issued to the Canadian energy and pipeline company TransCanada Corp., which asked that two of its U.S. subsidiaries be allowed to set up a PAC. The FEC said this was allowed as long as contributions to the PAC came from U.S. employees and U.S. employees controlled the PAC's decision-making process. The ruling was approved by a 5-1 vote of the FEC commissioners several years before Ravel was appointed to the commission (97 DER A-1, 5/19/06).

In addition to allowing traditional corporate PACs for domestic subsidiaries of foreign companies, the 2006 FEC ruling has been cited to allow U.S. subsidiaries to contribute to super PACs. Super PACs arose after the 2010 Supreme Court ruling in Citizens United v. FEC allowed unlimited, direct corporate spending to influence campaigns.

Some super PACs have received large contributions from U.S. subsidiaries of companies based outside the United States. Ravel's memo explaining her new proposal for FEC action cited the example of a super PAC supporting former Florida Gov. Jeb Bush's campaign for the Republican presidential nomination. The Bush super PAC reportedly received contributions of $1.3 million from a San Francisco real estate company, American Pacific International Capital Inc., controlled by two Chinese nationals.

Ravel also cited a recent criminal case involving foreign national Jose Azano Matsura, who faced federal prosecution for allegedly making illegal foreign contributions to mayoral and congressional candidates in San Diego during the 2011-2012 election cycle (See previous story, 07/26/16). Ravel noted that, according to an indictment, the case involved $600,000 in foreign money funneled through “sham Domestic corporations.”

Earlier Deadlock on Ballot Measures

In addition to reversing the advisory opinion allowing domestic subsidiary companies to have corporate PACs, Ravel also has proposed tightening restrictions on foreigners financing state and local ballot measure campaigns. The FEC last year deadlocked along party lines on a Ravel proposal to “clarify” that the prohibition on foreign contributions applies to state and local ballot measures, as well as to candidate elections (See previous story, 10/02/15).

That effort followed a deadlocked FEC vote on an enforcement case regarding a foreign producer of online pornography that provided more than $300,000 to oppose a Los Angeles ballot measure to require the use of condoms in video sex scenes. The Republican FEC commissioners bristled at Ravel's suggestions that they didn't care about the threat of foreign influence, saying it was up to Congress to establish whether the ban on foreign campaign money applies to ballot measure campaigns.

The FEC is composed of three commissioners recommended by Democrats and three Republicans. The commissioners frequently have split 3-3 in votes on key policy issues.

While Ravel and fellow Democrats have called for tougher enforcement action by the commission, FEC Republicans have accused the Democrats of pressing to expand campaign finance law beyond the boundaries set by Congress and the courts.

Divisions Evident After FEC Forum

FEC Democrats repeatedly have warned that campaign spending by corporations and other outside groups since the 2010 Citizens United ruling could open the door to foreign influence in U.S. politics. Republicans have countered that the supposed threat of foreign money is overblown and meant to provide cover for Democrats to impose a broader regulatory agenda.

After an FEC-sponsored forum on the issue in June, Republican election lawyer Bradley Smith, a former FEC commissioner who heads of the nonprofit Center for Competitive Politics, said foreign money already is illegal in U.S. campaigns, and there was “no evidence of any significant efforts by foreigners to circumvent the prohibition” (See previous story, 06/24/16).

Caroline Hunter, a Republican FEC commissioner, said after the June forum that she agreed with restricting foreign money in U.S. elections, as current law states, but indicated her concern that the issue could be used as a smokescreen for increased regulation aimed at chilling campaign spending in general, especially from conservative and business-oriented groups.

Democratic FEC Commissioner Ellen Weintraub, who pushed for the FEC forum on the issue, said she hoped it would help inform the agency about “what we need to do going forward because no one wants foreign money in our elections.” Weintraub acknowledged, however, that the deep divisions among the commissioners have hampered action on a range of issues in the past.

“You don't lose money betting against action” at the FEC, she said.

To contact the reporter on this story: Kenneth P. Doyle in Washington at kdoyle@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

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