One of the foundational principles of U.S. democracy is that elections must be decided by Americans. Election law makes it illegal for foreign governments, corporations, or people to spend money to influence U.S. elections, either directly or indirectly. This bedrock principle was established by the nation’s founders, enshrined in the U.S. Constitution, and reaffirmed in federal court. This principle is necessary primarily because foreign entities often have policy and political interests—regarding, for example, taxes, the environment, workers’ rights, or national security—that do not align with the best interests of the United States.
Unfortunately, the U.S. Supreme Court’s misguided 2010 decision in Citizens United v. Federal Election Commission introduced a loophole that makes U.S. elections more vulnerable to foreign influence: Foreign entities are now able to influence America’s political process by investing in U.S. corporations, which in turn spend enormous amounts of money to sway the results of elections and ballot measures.
Americans deserve to know that they—and not foreign entities—are deciding their country’s economic and political future. The good news is that as federal, state, and local elected leaders debate and pass legislative solutions, the incoming Biden administration can take significant executive actions to help reduce the political spending of foreign-influenced U.S. corporations.
Background on corporate and foreign spending in U.S. elections
Laws banning foreign entities from directly or indirectly influencing U.S. elections have taken on increased significance in recent years given aggressive attempts by Russia and other foreign actors to steer the results of U.S. presidential elections to fit their own agendas, as well as President Donald Trump’s unconstitutional solicitation of Ukraine for foreign assistance for his failed reelection campaign.
But as the Center for American Progress discussed in a 2019 report, a dangerous loophole in campaign finance law exists. The conservative majority on the Supreme Court ruled in Citizens United to strike down restrictions on corporate political spending, helping unleash a torrent of such spending and spurring the power of super political action committees (super PACs) and secret dark-money organizations that often traffic in negative advertising. “Dark money” refers to election-related spending that cannot be traced to its source and is often routed through so-called nonprofit organizations such as the U.S. Chamber of Commerce and the National Rifle Association (NRA), which receive large contributions from corporations.
Since Citizens United, independent groups unrelated to political parties have poured more than $7 billion into federal elections according to the nonpartisan Center for Responsive Politics. More than $750 million of dark money was spent in the 2020 election cycle alone.
The Citizens United decision also created a path that foreign entities started using to legally circumvent the law prohibiting them from spending money in U.S. elections: investing in American companies. These investments allow foreign entities to exert direct or indirect influence over the companies’ managers, who often spend corporate money to shape the American political process in furtherance of their shareholders’ goals.
Foreign investment in the U.S. economy is not bad. Approximately 35 percent of all U.S. stock is now owned by foreign entities, up sharply from just a few decades ago. And one need not believe that all foreign-influenced corporations are trying to deliberately influence American elections (although there are several recent examples of that), that these corporations are bad actors, or that they should reject investments from foreign entities to believe limits on this type of political spending are necessary.
At the very least, political spending by foreign-influenced U.S. corporations creates an appearance of impropriety that can weaken Americans’ trust in elections; in elected leaders; and, ultimately, in the policies those leaders produce. Challenges arise because the interests of foreign investors often diverge from those of America. Moreover, federal law obligates corporate CEOs to look out for their foreign shareholders’ interests, which means corporations are inclined to spend resources in ways that do not disserve foreign shareholders. Perhaps it is unsurprising, then, that Exxon Mobil’s then-CEO once remarked, “I’m not a U.S. company and I don’t make decisions based on what’s good for the U.S.”
So long as Citizens United continues, through its loophole, to offer foreign shareholders a legal mechanism through which their influence and money can enter U.S. elections, it is dangerous to democracy and makes little policy sense. As Commissioner of the Federal Election Commission (FEC) Ellen L. Weintraub has written, “restrictions on the rights of shareholders must also apply to the corporation. … One cannot have a right collectively that one does not have individually.”
How to solve the foreign corporate spending problem
Fortunately, a popular, commonsense solution exists: a ban on election-related spending by foreign-influenced U.S. corporations, enforced with bright-line foreign ownership thresholds.
Under this policy, if a single foreign entity—government, company, or person—owned more than 1 percent of a U.S. corporation, that corporation would be prohibited from spending money in elections. Often, investors who own at least 1 percent of a major corporation are among the largest shareholders, owning tens of millions of dollars or more of stock. The prohibition would also apply if a group of foreign entities owned at least 5 percent of a U.S. corporation. Most of America’s largest publicly traded corporations exceed this 5 percent threshold, although many smaller companies do not.
This policy would help advance important pro-democracy goals announced by Joe Biden during his presidential campaign. Biden pledged to protect U.S. sovereignty from foreign influence and vowed to stop the illicit flow of foreign money into American elections.
Many federal lawmakers support foreign ownership thresholds. Sen. Elizabeth Warren (D-MA) and Rep. Pramila Jayapal (D-WA) filed legislation to codify the 1 percent and 5 percent foreign ownership thresholds discussed above. In fact, in 2010, shortly after Citizens United was decided, the U.S. House of Representatives passed legislation that included foreign ownership thresholds, but a Republican-led Senate filibuster killed the bill by one vote.
FEC Commissioner Weintraub has led a sustained effort to promulgate this policy solution in new regulations, although she has been blocked by Republican-aligned commissioners.
States and localities are flexing their muscles too. Earlier this year, Seattle, Washington became the second city in the nation—St. Petersburg, Florida, was the first—to pass a foreign ownership policy into law, following a sharp uptick in election spending by foreign-influenced U.S. corporations, including Amazon, which poured $1.5 million into the 2019 city council races to support its preferred candidates. Similar legislation has been filed in many states across the country, including New York and Maryland.
Policy recommendations
There are several steps that the incoming Biden administration can take to help reduce political spending by foreign-influenced American corporations.
Direct the Department of Justice to determine the extent to which foreign entities influence U.S. elections via American corporations and make recommendations to stop this inappropriate activity. Instruct the Department of Justice to work with the FEC, the Securities and Exchange Commission, the Department of the Treasury, and other relevant agencies to: 1) determine the extent to which foreign money is being spent directly or indirectly in connection with U.S. elections; and 2) issue concrete recommendations to help prevent political spending by foreign-influenced U.S. corporations, including an analysis of how foreign ownership thresholds would help accomplish this goal. A similar recommendation is supported by the Declaration for American Democracy, a broad coalition of more than 170 organizations representing tens of millions of Americans.
Create a position within the White House focused on protecting democracy writ large, which would encompass policies to prevent foreign influence in U.S. elections, including via foreign-influenced U.S. corporations. This position would coordinate democracy reform work across all federal government components and help develop policy recommendations to reduce political spending by foreign-influenced U.S. corporations.
Direct the Department of Justice to determine the incidence of illicit foreign money in elections. Direct the department, with assistance from the FEC, Department of the Treasury, IRS, intelligence agencies, and any other relevant entities, to conduct investigations on a regular basis to determine the incidence of illicit foreign money in each federal election cycle, including via U.S. corporate spending. A similar proposal is included in the SHIELD Act (H.R. 4617), passed by the U.S. House of Representatives in 2019.
Direct the Department of Justice to prioritize the enforcement of existing laws that could help reduce inappropriate political spending by foreign-influenced U.S. corporations. Direct the department to prioritize its resources to focus on enforcing existing laws that could help stop direct or indirect foreign involvement in U.S. elections via American corporations.
Issue an executive order requiring government contractors that engage in political spending to disclose foreign ownership or control. Require that as a condition of doing business with the federal government, any contractor that conducts political spending must disclose information about foreign ownership and/or control. Government contractors should also be required to disclose executives or board members who are foreign nationals.
Refuse any campaign donations from the PACs of foreign-influenced U.S. corporations. President-elect Biden should commit to voluntarily refuse any PAC donations from foreign-influenced U.S. corporations, putting the onus on corporations to certify that they are not foreign-influenced at the time of their PAC’s donation.
Instruct the Department of the Treasury and IRS to consider a rulemaking regarding collecting information from political nonprofits in order to help detect illegal foreign money in elections. Earlier this year, the IRS issued a harmful new rule that allows political nonprofits to stop reporting to the IRS the names and addresses of their donors. These nonprofits include 501(c)(4)s and 501(c)(6)s, such as the Chamber of Commerce and the NRA, which spend money on elections without revealing their donors. The old rule should be reinstated because there is a compelling need for this information, which helps the government discover and investigate campaign finance violations such as the illegal funneling of foreign money into U.S. elections.
Conclusion
Americans know that the government cannot reflect their preferred candidates or policies when elections are significantly influenced by runaway corporate spending and foreign investors to whom corporate CEOs owe a fiduciary duty. In order to help strengthen the nation’s democracy and promote economic patriotism, the Biden administration must take concrete steps to reduce political spending by foreign-influenced U.S. corporations.
This article was published by the Center for American Progress.
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