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2024 Hawaii Bill Would Limit Political Spending by Foreign-Influenced U.S. Corporations
Testimony

2024 Hawaii Bill Would Limit Political Spending by Foreign-Influenced U.S. Corporations

Testimony Submitted to the Committee on Transportation and Culture and the Arts of the Hawaii Senate

Michael Sozan, a senior fellow at the Center for American Progress, filed written testimony before the Hawaii Senate in support of S.B. 3243, a bill that would strengthen campaign-related spending disclosure requirements and limit political spending by U.S. corporations with appreciable foreign ownership.

Dear Chair Lee, Vice Chair Inouye, and members of the committee:

I submit this written testimony in strong support of S.B. 3243, a pro-democracy bill sponsored by Chairman Chris Lee (D) that is aimed at reducing foreign influence in Hawaii’s elections.1 This legislation is the subject of a February 6 hearing by the Senate Committee on Transportation and Culture and the Arts. If enacted, this people-powered legislation would prohibit political spending by foreign entities, including foreign investors who own appreciable levels of U.S. corporations, which would ultimately help strengthen Hawaii’s right to self-government.

I am a senior fellow at the Center for American Progress. Based in Washington, D.C., CAP is an independent, nonpartisan policy institute dedicated to improving the lives of all Americans through bold, progressive policies. My democracy reform work at CAP has involved scholarship in the areas of greater transparency of political-related spending, as well as preventing election-related spending by foreign-influenced U.S. corporations. My publications include reports and fact sheets analyzing this policy, with one report republished in the Harvard Law School Forum on Corporate Governance.2 These publications may be useful as the committee considers the pending legislation.

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After reviewing the pending legislation, I conclude that it contains carefully tailored provisions designed to protect Hawaii’s elections from foreign influence and reduce the outsize role that corporate money, often donated through secret money channels, plays in campaign outcomes. The bill would achieve these goals by stopping political spending by foreign entities, including foreign investors who own appreciable levels of stock in U.S. corporations. This legislation is particularly timely given that foreign investors now own approximately 40 percent of U.S. corporate equity, compared with just 4 percent of U.S. equity in 1986.3

In the long run, this policy fosters important broader goals for a strong democracy: helping protect Hawaii’s right to self-government; strengthening the ability of the state’s residents and small businesses to determine the political and economic future of their state; and holding lawmakers accountable to voters instead of multinational corporations. These steps, in turn, would increase people’s trust in government.

As you know, the committee’s consideration of this legislation follows a similar law that Seattle passed in 2020 to protect its elections after a deluge of corporate political spending by at least one foreign-influenced U.S. corporation.4 Seattle’s groundbreaking ordinance spurred momentum for parallel legislation across the nation at the local, state, and federal levels. For example, the city of San Jose, California, passed similar legislation in December 2023.5 Months earlier, Minnesota became the first state in the nation to sign similar legislation into law.6 In January 2024, the New York State Senate passed similar legislation.7 Moreover, several similar bills have been filed at the federal level by members of Congress, including Sen. Elizabeth Warren (D-MA), Rep. Pramila Jayapal (D-WA), and Rep. Jamie Raskin (D-MD).8

The bill under committee consideration would reduce foreign influence in Hawaii’s elections by preventing political spending from U.S. corporations that meet one of the following criteria:

  • A single foreign shareholder owns or controls 1 percent or more of the corporation’s equity.
  • Multiple foreign shareholders own or control—in the aggregate—5 percent or more of the corporation’s equity.
  • Any foreign entity participates directly or indirectly in the corporation’s decision-making process about political activities in the United States.

These bright-line thresholds would not bar political spending in Hawaii by all U.S. corporations but rather U.S. corporations that have levels of foreign ownership appreciable enough to influence the decision-making of corporate managers either explicitly or implicitly.

The current legal framework

Current law and U.S. Supreme Court precedent are clear when it comes to foreign influence: It is illegal for foreign governments, foreign corporations, or foreign individuals to directly or indirectly spend money to influence U.S. elections.9

The statutory prohibition against foreign involvement is foundational to U.S. self-government and exists primarily because foreign entities are likely to have policy and political interests that do not align with America’s best interests. This bedrock principle was discussed at length and developed by the nation’s founders and enshrined in the U.S. Constitution. It was reaffirmed just 12 years ago in the case of Bluman v. Federal Election Commission, written by now-U.S. Supreme Court Justice Brett Kavanaugh, who was part of a special panel deciding the case.10 In that case, the court 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.” The Supreme Court affirmed the Bluman decision without writing a decision.

Yet a loophole in current law makes the United States vulnerable to foreign influence because foreign entities can invest in an American-based corporation—and then that corporation can spend unlimited amounts of money on elections from its corporate treasury, often secretly. This loophole was opened in the Supreme Court’s misguided 2010 decision in Citizens United v. Federal Election Commission, in which the court gave American corporations the ability to spend money in elections based on the premise that corporations are “associations of citizens.”11 However, many of the largest American-based corporations are owned appreciably not only by citizens, but also by foreign entities. Foreign entities do not have a constitutional right to participate in activities of American self-government and are legally barred from spending directly or indirectly in U.S. elections.12 Even with the existence of this loophole, the subsequent Bluman decision concluded that nothing in Citizens United was inconsistent with the law that bans foreign contributions and expenditures in U.S. elections.

The legislation is rooted in well-accepted principles of corporate governance law and practice

Ownership thresholds are not new or untested in U.S. law. Rather, they are common regulatory tools used in many contexts—such as telecommunications, defense, and financial services—to help prevent undue foreign influence over U.S. sovereignty or national security and the divergent policy interests that flow therefrom.13

Hawaii’s interest in regulating foreign influence need not rest on the idea that foreign investors may be linked to hostile entities actively trying to weaken democracy. Rather, because current federal law does not explicitly prevent U.S.-based corporations with foreign owners from spending money in elections, foreign interests are almost inevitably going to influence the political system. That is because, pursuant to long-standing corporate governance principles, corporate managers are obliged to spend resources in ways that serve all shareholders, including foreign shareholders. As the former CEO of U.S.-based Exxon Mobil Corp. starkly stated, “I’m not a U.S. company and I don’t make decisions based on what’s good for the U.S.”14

The preamble to S.B. 3243 correctly states that “the explicit or implicit influence of major foreign investors subjects corporate decision-making to foreign influence as executives consider interests of foreign investors.”15 Corporate managers have a fiduciary obligation to look out for the best interests of all of their investors, including foreign investors. Even where a corporate manager may not have explicitly discussed an issue with a major foreign investor, the manager implicitly knows that investor’s policy preferences, just as a legislative aide knows the policy preferences of the elected official for whom they work. Whether explicit or implicit, the policy interests of major foreign investors can appreciably influence the manager’s decision-making in ways that are not aligned with the interests of Hawaiians.

Additionally, S.B. 3243 accurately provides another important reason for a ban on political spending by foreign-influenced U.S. corporations. As the bill’s preamble states, “[I]nvestors are the ultimate beneficiaries of corporate interests. … Where part of the shareholders’ equity is attributable to foreign investors, spending corporate treasury funds on Hawaii elections means spending the equity of foreign entities on Hawaii elections.”16The legislation under consideration fixes this problem, allowing Hawaiians to know that American corporations are not using the money of foreign investors to influence the state’s elections.17

The legislation’s foreign ownership thresholds are carefully crafted

As mentioned above, this bill is aimed not at disincentivizing foreign investment in U.S. companies but rather at setting ownership threshold guardrails on when foreign-influenced companies can spend political dollars to influence Hawaii’s system of self-government via elections. Ownership thresholds are not new or untested in U.S. law. Rather, they are common regulatory tools used in many contexts—such as telecommunications, defense, and financial services—to help prevent undue foreign influence over U.S. sovereignty or national security and the divergent policy interests that flow therefrom.18

At first glance, this legislation’s ownership thresholds to determine when a corporation is “foreign influenced”—1 percent for a single foreign shareholder and 5 percent for aggregate foreign ownership—may appear to be relatively low. However, as detailed in CAP’s report referenced above, the foreign ownership thresholds used in this bill are solidly grounded in corporate governance and related law; are constitutional; and have been supported by conservative lawmakers and corporate managers, among many others.19

There are relatively few individual shareholders who ever own as much as 1 percent of a major publicly traded corporation, and if they do, their stock is likely worth tens of millions of dollars, if not more. Shareholders who own 1 percent of corporate stock are rare and powerful; they are able to get their calls returned by executive suite managers and have sway over the strategic direction of a corporation.

The legislation’s 1 percent threshold is rooted in regulations of the U.S. Securities and Exchange Commission’s (SEC) governing thresholds for shareholder proposals. These regulations state that if a shareholder owns at least 1 percent of a corporation’s shares, that shareholder has the unique right to submit shareholder proposals to dictate a corporation’s course of action.20 In November 2019, the SEC even proposed eliminating the 1 percent threshold, finding that the vast majority of investors who submit shareholder proposals do not even have that level of equity ownership and that institutional investors below the 1 percent single owner threshold can, in fact, exercise substantial influence on a corporation’s decisions.21

A 5 percent aggregate foreign ownership threshold is also well supported. When a significant number of smaller shareholders together have a commonality—such as foreign domicile—it can influence corporate managers’ decisions, in the manner described above. Moreover, if several shareholders each own slightly less than 1 percent of a corporation, but together own at least 5 percent of a corporation, it makes little sense to ignore the possibility that they could join forces to do what a single 1 percent shareholder could do alone. One avenue for smaller shareholders to exert their collective influence is during “proxy season,” when they can threaten to band—or actually have banded—together to force votes on proposals that affect corporate decision-making.22

Finally, as Ellen L. Weintraub, longtime commissioner on the Federal Election Commission, has written, we are not working our way down from a 100 percent foreign ownership standard; we are working our way up from the zero foreign influence standard that a strict legal interpretation of federal law suggests.23 Weintraub’s argument is rooted in Citizens United, where the Supreme Court held that corporations could spend freely in politics—calling them “associations of citizens”—and that corporations’ rights to spend in politics flows from the collective First Amendment rights of their individual shareholders. Weintraub concluded that it “logically follows, then, that restrictions on the rights of shareholders must also apply to the corporation.”24 Under these circumstances where a corporation is not an “association of citizens,” any amount of foreign investment in a corporation should preclude management’s political expenditures—a point argued compellingly by experts at the nonpartisan organization Free Speech For People.25

The legislation is constitutional

The foreign ownership thresholds in this legislation are constitutional, a conclusion supported by several noted experts in constitutional, election, and corporate law.26At root, this legislation is consistent with the Bluman decision that the Supreme Court affirmed, declaring that foreign entities have no constitutional right to participate in U.S. elections.

Moreover, this legislation follows the approach laid out by Commissioner Weintraub, which provided a new, cogent way to read Citizens United in conjunction with the ban on foreign spending in U.S. elections. As discussed in the section above, Weintraub pointed out that Citizens United allows corporations to spend freely in politics by calling them “associations of citizens” and that corporations’ rights to spend in politics flows from the collective First Amendment rights of their individual shareholders. Weintraub stated that it “logically follows, then, that restrictions on the rights of shareholders must also apply to the corporation.” She also wrote, “One cannot have a right collectively that one does not have individually.”27 Therefore, according to Weintraub, “States can require entities accepting political contributions from corporations in state and local races to make sure that those corporations are indeed associations of American citizens—and enforce the ban on foreign political spending against those that are not.”28

How the foreign ownership thresholds practically would affect corporations

As discussed at length in CAP’s report, although the overwhelming majority of U.S. businesses have no foreign owners, the largest American-based corporations have appreciable foreign ownership. For the report, I analyzed data on foreign ownership of 111 U.S.-based publicly traded corporations in the S&P 500 stock index. The results include the following:

  • When applying the 1 percent single foreign shareholder threshold, 74 percent of the corporations studied exceeded the threshold.
  • When applying the 5 percent aggregate foreign shareholder threshold, 98 percent of the corporations studied exceeded the threshold.

These 111 politically connected corporations voluntarily disclosed $443 million spent in federal and state elections from their corporate treasuries in the years 2015, 2016, and 2017.29

The CAP report also concludes that among smaller publicly traded corporations, only 28 percent of the corporations that were randomly sampled exceeded the 5 percent aggregate foreign ownership threshold.30 From this analysis, it appears that smaller publicly traded corporations may be less likely to have as much aggregate foreign ownership as their larger counterparts and therefore would likely be less affected by this legislation’s ownership thresholds. This legislation would ultimately help amplify the voices of small, locally owned businesses in Hawaii at a time when large, foreign-influenced corporations are able to spend political dollars through routes such as Hawaii’s “noncandidate committees” or trade associations such as the Hawaii Hotel Alliance, which made expenditures for electioneering communications as recently as 2022.31

Conclusion

At a time of rising dark money campaign-related spending and foreign interference in U.S. elections, Hawaii is laudably positioning itself at the forefront of nationwide legislative efforts to take proactive, reasonable steps to impose transparency requirements related to campaign financing and stop political spending by foreign-influenced American corporations. This legislation would go far in reassuring the people of Hawaii that their elected leaders are enacting measures to protect the state’s democratic right to self-government and to create a political system that more fairly represents the priorities of everyday people.

I urge passage of this legislation. Please let me know if I can be of further assistance. I can be reached at [email protected].

Sincerely,

Michael L. Sozan

Endnotes

  1. Relating to campaign finance, S.B. 3243, Hawaii State Legislature, 2024 legislative session (January 24, 2024), available at https://www.capitol.hawaii.gov/session/measure_indiv.aspx?billtype=SB&billnumber=3243&year=2024.
  2. Michael Sozan, “Ending Foreign-Influenced Corporate Spending in U.S. Elections” (Washington: Center for American Progress, 2019), available at https://www.americanprogress.org/issues/democracy/reports/2019/11/21/477466/ending-foreign-influenced-corporate-spending-u-s-elections/; Michael Sozan, “Fact Sheet: Stopping Political Spending by Foreign-Influenced U.S. Corporations” (Washington: Center for American Progress, 2022), available at https://www.americanprogress.org/article/fact-sheet-stopping-political-spending-by-foreign-influenced-u-s-corporations/; Michael Sozan, “Fact Sheet: Ending Foreign-Influenced Corporate Spending in U.S. Elections” (Washington: Center for American Progress, 2019), available at https://www.americanprogress.org/issues/democracy/reports/2019/11/21/477468/ending-foreign-influenced-corporate-spending-u-s-elections-2/; Michael Sozan, “Ending Foreign-Influenced Corporate Spending in U.S. Elections,” Harvard Law School Forum on Corporate Governance, December 6, 2019, available at https://corpgov.law.harvard.edu/2019/12/06/ending-foreign-influenced-corporate-spending-in-u-s-elections/.
  3. Steve Rosenthal and Theo Burke, “Who’s Left to Tax? US Taxation of Corporations and Their Shareholders” (Washington: Urban-Brookings Tax Policy Center, 2020), p. 2, available at https://www.law.nyu.edu/sites/default/files/Who%E2%80%99s%20Left%20to%20Tax%3F%20US%20Taxation%20of%20Corporations%20and%20Their%20Shareholders-%20Rosenthal%20and%20Burke.pdf.
  4. Greg Scruggs, “Seattle passes campaign finance curbs on ‘foreign-influenced’ firms,” Reuters, January 13, 2020, available at https://www.reuters.com/article/us-usa-politics-seattle/seattle-passes-campaign-finance-curbs-on-foreign-influenced-firms-idUSKBN1ZD04T.
  5. Ojai Valley News, “San Jose bans city election contributions from multinational corporations,” December 13, 2023, available at https://www.ojaivalleynews.com/news/elections/san-jose-bans-city-election-contributions-from-multinational-corporations/article_8be0257c-99f9-11ee-97ae-9346565f658c.html.
  6. Emily Baude, “Walz signs voting accessibility and protections bill,” KSTP-TV, May 5, 2023, available at https://kstp.com/kstp-news/top-news/walz-to-sign-voting-accessibility-and-protections-bill-on-friday/.
  7. Democracy Preservation Act, S. 371, New York State Senate, 2023­­–2024 legislative session (January 3, 2024), available at https://www.nysenate.gov/legislation/bills/2023/S371.
  8. Anti-Corruption and Public Integrity Act, S. 5315, Section 721, 117th Cong., 2nd sess. (December 20, 2022), available at https://www.congress.gov/bill/117th-congress/senate-bill/5315?q=%7B%22search%22%3A%5B%22s5315%22%2C%22s5315%22%5D%7D&s=1&r=1; Anti-Corruption and Public Integrity Act, H.R. 9623, Section 721, 117th Cong., 2nd sess. (December 20, 2022), available at https://www.congress.gov/bill/117th-congress/house-bill/9623?q=%7B%22search%22%3A%5B%22jayapal+anti+corruption%22%5D%7D&s=6&r=10; Get Foreign Money Out of U.S. Elections Act, H.R. 6283, 117th Cong., 1st sess. (December 14, 2021), available at https://www.congress.gov/bill/117th-congress/house-bill/6283?q=%7B%22search%22%3A%5B%22raskin+get+foreign+money+out%22%2C%22raskin%22%2C%22get%22%2C%22foreign%22%2C%22money%22%2C%22out%22%5D%7D&s=1&r=1.
  9. Legal Information Institute, “52 U.S. Code § 30121 – Contributions and donations by foreign nationals,” available at https://www.law.cornell.edu/uscode/text/52/30121 (last accessed February 2024).
  10. Bluman v. Federal Election Commission, 800 F. Supp. 2d 281 (D.D.C. 2011), aff’d, 132 S. Ct. 1087 (January 9, 2012), available at https://www.scotusblog.com/case-files/cases/bluman-v-federal-election-commission/.
  11. Citizens United v. Federal Election Commission, 588 U.S. 310 (January 21, 2010), available at https://www.fec.gov/resources/legal-resources/litigation/cu_sc08_opinion.pdf.
  12. Legal Information Institute, “52 U.S. Code § 30121(a) – Contributions and donations by foreign nationals;” Bluman v. Federal Election Commission; Ellen L. Weintraub, “Seattle Takes On Citizens United,” The New York Times, January 14, 2020, available at https://www.nytimes.com/2020/01/14/opinion/seattle-citizens-united.html. For further discussion of the loophole, see Justice John Paul Stevens’ dissent in Citizens United v. Federal Election Commission.
  13. Sozan, “Ending Foreign-Influenced Corporate Spending in U.S. Elections.”
  14. Steve Coll, Private Empire: ExxonMobil and American Power (New York: Penguin Random House, 2012), p. 71 (quoting Lee Raymond).
  15. Relating to campaign finance, S.B. 3243, p. 3, lines 9–12.
  16. Ibid., p. 2, lines 1–9.
  17. Ellen L. Weintraub, “Taking On Citizens United,” The New York Times, March 30, 2016, available at https://www.nytimes.com/2016/03/30/opinion/taking-n-citizens-united.html.
  18. Sozan, “Ending Foreign-Influenced Corporate Spending in U.S. Elections.”
  19. Ibid.
  20. Legal Information Institute, “17 CFR § 240.14a-8 – Shareholder proposals, (b),” available at https://www.law.cornell.edu/cfr/text/17/240.14a-8 (last accessed February 2024).
  21. U.S. Securities and Exchange Commission, “Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8” (Washington: 2019), pp. 22–23, 154, available at https://www.sec.gov/rules/proposed/2019/34-87458.pdf.
  22. John C. Coates IV, “RE: An Act to limit spending by foreign-influenced corporations S.418 (Montigny), H.640 (Cutler), H.703 (Naughton)” (Cambridge, MA: Harvard Law School, 2019), pp. 6–7, available at https://freespeechforpeople.org/wp-content/uploads/2019/05/2019-Coates-MA-FIC-20190514-PDF-final.pdf.
  23. Weintraub, “Taking On Citizens United.”
  24. Weintraub, “Seattle Takes On Citizens United.”
  25. Ron Fein, “RE: Political spending by foreign-influenced corporations, S.454 (Comerford), S.482 (Montigny), H.839 (Uyterhoeven); Limits on contributions to super PACs, S.455 (Comerford), H.772 (Day), H.840 (Uyterhoeven)” (Austin, TX: Free Speech For People, 2021), p. 8, available at https://freespeechforpeople.org/wp-content/uploads/2021/09/rfein-written-testimony-election-laws-20210917-combined.pdf.
  26. Sozan, “Ending Foreign-Influenced Corporate Spending in U.S. Elections.”
  27. Weintraub, “Seattle Takes On Citizens United.”
  28. Weintraub, “Taking On Citizens United.”
  29. Sozan, “Ending Foreign-Influenced Corporate Spending in U.S. Elections.” Moreover, in 2020, California witnessed the major effect of foreign-influenced corporate spending on a state ballot initiative. That initiative, known as Proposition 22, invalidated a pro-worker state law and allowed companies to classify their workers as contractors instead of employees. See Michael Sozan, “Opinion: Stop political spending by foreign-influenced U.S. firms,” The Mercury News, December 15, 2020, available at https://www.mercurynews.com/2020/12/15/opinion-stop-political-spending-by-foreign-influenced-u-s-firms/. As I wrote in this op-ed, one of these corporations that spent tens of millions of dollars to drive the ballot initiative, Uber, was partially owned by the government of Saudi Arabia. Another corporation, Lyft, which also spent tens of millions of dollars on Proposition 22, has seen appreciable ownership by Chinese and Japanese conglomerates. This means that major foreign investors may have played a role—at least indirectly—in influencing the fate of California policy. See Brian Melley, “Uber, Lyft spend big, win in California vote about drivers,” The Associated Press, November 4, 2020, available at https://apnews.com/article/business-california-837ebb151c7aa65596537b4a5f7a2f9d; George Skelton, “It’s no wonder hundreds of millions have been spent on Prop. 22. A lot is at stake,” Los Angeles Times, October 16, 2020, available at https://www.latimes.com/california/story/2020-10-16/skelton-proposition-22-uber-lyft-independent-contractors; Bradley Hope and Justin Scheck, “How the crown prince of Saudi Arabia made his way into Silicon Valley circles with a $3.5 billion investment in Uber,” Business Insider, September 2, 2020, available at https://www.businessinsider.com/how-investment-in-uber-brought-saudi-prince-to-silicon-valley-2020-9; Zoe Henry, “Alibaba’s 9 most high-profile investments in U.S. start-ups,” CNBC, October 14, 2016, available at https://www.cnbc.com/2016/10/14/alibabas-9-most-high-profile-investments-in-us-start-ups.html; Toru Hatano, “Rakuten books $240m write-down as Mikitani exits Lyft’s board,” Nikkei Asia, September 1, 2020, available at https://asia.nikkei.com/Business/Technology/Rakuten-books-240m-write-down-as-Mikitani-exits-Lyft-s-board.
  30. Sozan, “Ending Foreign-Influenced Corporate Spending in U.S. Elections.”
  31. State of Hawaii Campaign Spending Commission, “Statement of Information for Electioneering Communication (9/15/21)” (Honolulu: 2022), available at https://ags.hawaii.gov/campaign/files/2022/08/HawaiiHotelAlliance-080422.pdf.

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