Center for American Progress

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

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

Testimony Submitted to State Government and Tribal Relations Committee of the Washington State House of Representatives

Michael Sozan, a senior fellow at the Center for American Progress, filed written testimony before the Washington State House in support of H.B. 1885, a bill that would strengthen campaign-related spending disclosure requirements and limit political spending by U.S. corporations with appreciable foreign ownership.

Dear Chair Ramos, Vice Chair Stearns, Ranking Member Cheney, and members of the committee:

I submit this written testimony in support of H.B. 1885, a pro-democracy bill that would strengthen campaign finance disclosure.1 This legislation is the subject of a January 9, 2024, hearing by the House State Government and Tribal Relations Committee. If enacted, this people-powered legislation would prohibit political spending by U.S. corporations with appreciable levels of foreign ownership, thereby limiting foreign influence in Washington’s elections and ballot propositions, while strengthening the state’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.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Discussion

The pending legislation contains carefully tailored provisions designed to protect Washington’s elections and ballot propositions 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. Ultimately, this policy would help protect Washington’s right to self-government, strengthen the ability of the state’s residents and small businesses to determine the political and economic future of their state, and help ensure that lawmakers are accountable to voters instead of multinational corporations. In turn, this would increase people’s trust in government. 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

As you know, the committee’s consideration of this legislation follows on the heels of 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 No legal challenges have been mounted against the Seattle legislation.

Seattle’s groundbreaking ordinance has helped build momentum for parallel legislation across the nation, at the local, state, and federal levels. For example, most recently, the city of San Jose, California, passed similar legislation in December 2023.5 Months earlier, Minnesota became the first state in the nation to pass similar legislation.6 In March 2023, the Hawaii State Senate passed a parallel bill on a bipartisan vote.7 That same month, the New York State Senate did the same.8 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).9

The bill under committee consideration would reduce foreign influence in Washington’s elections and ballot propositions 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 Washington 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.

In the U.S. Supreme Court’s misguided decision in Citizens United v. Federal Election Commission, the court gave American corporations the ability to spend money in elections based on the premise that corporations are “associations of citizens.”10 However, many of the largest American-based corporations are owned appreciably not only by citizens but also by foreign entities; yet 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 our elections.11 This creates a loophole in the Supreme Court’s ruling, as recognized in a dissenting opinion by Justice John Paul Stevens: Foreign entities can invest in U.S. corporations that then spend large amounts of money from their corporate treasuries to influence the results of elections and ballot initiatives, a scenario that now regularly occurs.12

As the preamble to H.B. 1885 correctly states, “The explicit or implicit influence of major foreign investors subjects corporate decision making to foreign influence as executives consider interests of foreign investors.”13 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. 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 Washingtonians.

Additionally, H.B. 1885 accurately provides another important reason for a ban on political spending by foreign-influenced U.S. corporations. As the bill’s preamble states, “Investors are the ultimate beneficiaries of corporate interests. Where part of the shareholders’ equity is attributable to foreign investors, spending corporate treasury funds on elections in the state of Washington means spending the equity of foreign entities on elections in the state of Washington.”14 The legislation under consideration fixes this problem, allowing Washingtonians to know that American corporations are not using the money of foreign investors to influence the state’s elections.15

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.16 Moreover, the U.S. Securities and Exchange Commission has recognized the substantial power that shareholders can wield at the 1 percent and 5 percent ownership levels delineated in this legislation.

Additionally, 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. As the preamble to H.B. 1885 states, “Corporations and similar business entities with partial foreign ownership regularly spend millions of dollars on elections in the state of Washington.”17

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. 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 therefore help amplify the voices of small, locally owned businesses in Washington.

This bill is not aimed at disincentivizing foreign investment in U.S. companies but rather setting guardrails on when foreign-influenced companies can spend political dollars to influence Washington’s system of self-government via elections and ballot propositions.

Conclusion

At a time of rising dark money campaign-related spending and foreign interference in U.S. elections, Washington should be heralded for 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 Washington that their elected leaders are enacting measures to protect the state’s democratic right to self-government and 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 msozan@americanprogress.org.

Sincerely,

Michael L. Sozan

Endnotes

  1. Strengthening campaign finance disclosure by prohibiting campaign contributions and expenditures by foreign-influenced corporations, H.B. 1885, Washington State Legislature, 2023–2024 legislative session (December 6, 2023), available at https://app.leg.wa.gov/billsummary?BillNumber=1885&Year=2023.
  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/. X
  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. Bill relating to campaign finance, Hawaii State Legislature, S.B. 1179 S.D. 1, 2022 legislative session (January 20, 2023), available at https://www.capitol.hawaii.gov/session/measure_indiv.aspx?billtype=SB&billnumber=1179&year=2023;
  8. Democracy Preservation Act, New York State Senate, S. 371, 2023­­–2024 legislative session (January 3, 2024), available at https://www.nysenate.gov/legislation/bills/2023/S371.
  9. 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.
  10. 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.
  11. Legal Information Institute, “52 U.S.C. § 30121(a) – Contributions and donations by foreign nationals,” available at https://www.law.cornell.edu/uscode/text/52/30121 (last accessed January 2024); Bluman and Steiman v. Federal Election Commission, memorandum opinion, U.S. District Court for the District of Columbia, No. 10-1766 (August 8, 2011), available at https://www.bloomberglaw.com/public/desktop/document/Bluman_v_Federal_Election_Commission_Civil_No_101766_BMK_RMURMC_2?1565223708; 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.
  12. For example, in 2020, California witnessed the outsize 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. 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.
  13. H.B. 1885, p. 1, lines 11–13.
  14. H.B. 1885, p. 1, lines 14–18.
  15. See 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.
  16. Sozan, “Ending Foreign-Influenced Corporate Spending in U.S. Elections.”
  17. H.B. 1885, p. 2, lines 12–14.

The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.

Author

Michael Sozan

Senior Fellow

Team

Democracy Policy

The Democracy Policy team is advancing an agenda to win structural reforms that strengthen the U.S. system and give everyone an equal voice in the democratic process.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.