Across the nation, at the local, state, and federal level, lawmakers are advancing pro-democracy legislation to stop political spending by foreign-influenced U.S. corporations—also known as “FIC legislation.” As the Center for American Progress has written about extensively in a report, fact sheets, and numerous testimonies in state and local legislative proceedings, stopping foreign-influenced corporations from spending money to affect elections and ballot measures is an issue of self-government and accountability that should transcend partisan political divisions.
Stopping foreign-influenced corporations from spending money to affect elections and ballot measures is an issue of self-government and accountability that should transcend partisan political divisions.
In a healthy democracy that fairly represents all Americans, people must have faith in elections and trust that government leaders are looking out for Americans’ best interests, not those of foreign governments, foreign businesses, or other foreign investors who own appreciable shares of U.S. corporations that can subvert the democratic process. This column describes FIC legislation, discusses the jurisdictions making progress on it, and explains why it should withstand any legal challenges.
What is FIC legislation?
At its core, FIC legislation prevents American-based corporations with appreciable levels of foreign ownership from spending money—often vast sums of money—from their corporate treasuries to sway U.S. elections or ballot initiatives. A U.S. corporation is considered “foreign influenced” and prohibited from spending money from its corporate treasury if it meets one of the following criteria:
- A single foreign shareholder owns or controls 1 percent or more of the corporation’s equity, which is a major share for large publicly traded corporations.
- Multiple foreign shareholders—in the aggregate—own or control 5 percent or more of the corporation’s equity.
- Any foreign entity participates in the corporation’s decision-making process about election-related spending in the United States.
According to CAP research, approximately 98 percent of S&P 500 corporations likely exceed the 5 percent aggregate threshold.
It defies logic to allow groups of foreign nationals, or foreign nationals in combination with American citizens, to fund political spending through corporations.
FEC Commissioner Ellen L. Weintraub
FIC legislation closes a dangerous loophole opened by Citizens United v. Federal Election Commission. Even though long-standing federal law prevents foreign entities from directly or indirectly spending money in U.S. elections, this loophole allows foreign entities to influence U.S. elections indirectly through investments in politically active American corporations. Foreign investors could include the Saudi royal family, Russian oligarchs, Japanese or Chinese conglomerates, or European national banks, among many others.
Foreign ownership of U.S. corporate stock has mushroomed from only 5 percent in 1982 to a whopping 40 percent in 2020. Some of America’s best-known businesses are appreciably foreign-owned. This includes Uber and Lyft, which joined forces with other foreign-influenced companies in 2020 to spend a record-breaking $200 million on a California ballot initiative that overturned a pro-worker state law.
5%
Foreign ownership of U.S. corporate stock in 1982
40%
Foreign ownership of U.S. corporate stock in 2020
Foreign interests often deviate from domestic interests, especially in areas such as national security, taxation, or drug pricing; and CEOs must prioritize shareholder profits, including profits for foreign shareholders. Foreign ownership thresholds are not new or untested in U.S. law. Instead, they are common regulatory tools used in many industries, such as telecommunications, defense, and financial services.
It is unsurprising that America’s founders warned against attempts by foreign entities to subvert our democratic process, and politically active corporations provide an avenue. Notoriously, the former CEO of U.S.-based Exxon Mobil Corp., which is substantially owned by foreign investors, once said, “I’m not a U.S. company and I don’t make decisions based on what’s good for the U.S.”
FIC legislation is being introduced and passed around the nation
The past few years have seen FIC legislation achieve significant momentum at the local, state, and federal level.
In 2020, Seattle became the first jurisdiction to pass FIC legislation at the ownership thresholds described above, after a major foreign-influenced corporation spent approximately $1.5 million—a record-breaking sum—in an attempt to help elect its preferred candidates to the city council. Two years later, in 2022, San Jose, California, conditionally passed FIC legislation. And just last month, Minnesota became the first state in the nation to pass this policy into law, as part of a larger election reform package. In signing the historic bill into law, Gov. Tim Walz (D-MN) remarked, “Today is a great day for Democracy.”
Similar FIC bills are being debated and making their way through legislative chambers in several other states, including Washington, Hawaii, and California. Notably, for three years in a row, the New York Senate has passed FIC legislation on a bipartisan vote.
On the federal level, FIC legislation authored by pro-democracy champion Rep. Jamie Raskin (D-MD) garnered 35 co-sponsors and was endorsed by a coalition of organizations representing several million Americans. Sen. Elizabeth Warren (D-MA) has sponsored similar legislation in the Senate.
FIC legislation stands on firm legal foundation
As CAP detailed in its earlier report, noted legal experts conclude that FIC legislation is constitutional and should withstand any legal challenges. Notably, because foreign investors—under current court precedent and law—lack a constitutional right to spend money to influence U.S. elections either directly or indirectly, they also lack the constitutional right to do so via corporations.
In 2012, two years after the U.S. Supreme Court’s anti-democratic decision in Citizens United, it summarily affirmed a lower court decision authored by now-Justice Brett Kavanaugh in the case of Bluman v. Federal Election Commission, which upheld the federal ban on foreign nationals spending their own money in U.S. elections. Kavanaugh wrote, “It is fundamental to the definition of our national political community that foreign citizens do not have a constitutional right to participate in, and thus may be excluded from, activities of democratic self-government.” Kavanaugh affirmed that the United States has an indisputable and compelling First Amendment interest in “preventing foreign influence over the U.S. political process.” This is a recognized reason for regulating the sources of money in politics. Moreover, FIC legislation is “narrowly tailored” to protect democratic self-government, especially in light of the facts of the Bluman precedent.
It is fundamental to the definition of our national political community that foreign citizens do not have a constitutional right to participate in, and thus may be excluded from, activities of democratic self-government.
Supreme Court Justice Brett Kavanaugh (while serving as D.C. circuit court judge)
Neither does FIC legislation violate the constitutional rights of U.S. investors, who cannot extend their rights to investors living abroad, where they enjoy no constitutional rights. Just four years ago, the Supreme Court held in Agency for International Development v. Alliance for Open Society International Inc. that U.S. entities “cannot export their own First Amendment rights” to foreign entities with whom they associate.
In deeming FIC legislation constitutional, longtime commissioner of the Federal Election Commission Ellen L. Weintraub recognized that the Citizens United majority protected the First Amendment rights of corporations because they were “associations of citizens” and that a corporation’s right to spend in elections flows from the collective rights of its shareholders to participate. Therefore, the limits on the rights of corporate shareholders, including the prohibition on spending by foreign entities, must also apply to the corporation. As Weintraub convincingly stated, “It defies logic to allow groups of foreign nationals, or foreign nationals in combination with American citizens, to fund political spending through corporations.”
Finally, not only is FIC legislation constitutional, but it is also reasonable and practicable from a corporate governance perspective. Corporate managers regularly determine who their worldwide shareholders are, such as in preparation for their annual shareholder meetings. And FIC legislation reasonably requires CEOs to certify compliance with the law. Any argument by a corporation that it cannot accurately discern its level of foreign ownership is not only troubling; it strengthens the notion that it should not be allowed to spend in U.S. elections.
See also
Conclusion
Americans are demanding bold solutions to make sure that elections are protected, people are fairly represented, and our democracy survives its current precarious moment. FIC legislation both rests on solid legal footing and is critical to helping ensure that corporations appreciably owned by foreign investors are not influencing America’s sovereignty and self-determination.