Right to Rise USA Memo on Foreign-Owned Corporations Donating to Super PACs

MEMORANDUM TO: Right to Rise Super PAC FROM: Charlie Spies DATE: February 19, 2015 SUBJECT: Contributions by Domestic Subsidiaries of Foreign Corporations to Federal Super PACs Foreign nationals have been prohibited from contributing, donating, or spending funds in connection with any elections in the United States for more than forty years. 2 U.S.C.§441e. The term “foreign national” is defined by reference to “foreign principal” in the United States Code. Therefore, a “foreign national” includes, for these purposes, “a partnership, association, corporation, organization, or other combination of persons organized under the laws of or having its principal place of business in a foreign country.” 22 U.S.C. §611(b). Foreign Corporate Contributions No foreign corporation, either organized under the laws of, or having its principal place of business in, a foreign country may contribute or participate at all in state or federal elections. Therefore, a foreign corporation may not contribute to a Super PAC. Domestic Corporations Owned in Whole or Part by Foreign Corporations The Federal Election Commission (“FEC”) has repeatedly made clear that even if a corporation is a wholly owned subsidiary of a foreign corporation, and by implication, any foreign ownership under 100%, as long as the subsidiary is both organized under the laws of a U.S. state and has its principal place of business within the U.S., the subsidiary is not a foreign national under the statute. AO 2006-15; AO 2000-17. However, the FEC has also imposed several restrictions under what conditions a subsidiary may participate in the political system. In AO 2006-15, two wholly owned subsidiaries of a Canadian corporation sought to donate to a state and local election. The FEC concluded that, subject to restrictions, the corporations could. The restrictions are based on 11 C.F.R. §110.20, which, supplementing 2 U.S.C. §441e, do two things. First, 11 C.F.R. §110.20(b) provides a foreign national may not make expenditures, contributions, or disbursements in connection with elections. In AO 1992-16, the FEC concluded that this prohibition meant a subsidiary could make contributions as long as the money was wholly derived from the net earnings generated within the United States and were spent from segregated accounts not subsidized by the foreign parent corporation. The FEC

FOREIGN CORPORATE CONTRIBUTIONS MEMORANDUM PAGE 2 concluded that the subsidiary must also demonstrate through reasonable accounting methods that the funds were segregated. AO 1992-16. Second, 11 C.F.R §110.20(f) provides a foreign national may not direct, control, participate, or otherwise administer the decision-making process of any person or organization, in the decisions regarding participation in elections. In AO 2000-17, the FEC concluded that a subsidiary could create a PAC and donate money, so long as the decision making process was made by U.S. citizens. The foreign parent corporation, or the non-U.S. citizen leadership of the subsidiary, was permitted to make the general decision to 1) create a separate segregated fund and/or PAC, 2) the decision to disband such a fund or PAC, 3) and a specific “not-to-exceed” budget level for the fund. However, any further decisions had to be made by a Special Committee comprised solely of U.S. citizens, including the composition of the Special Committee itself. AO 2000-17. Direct Contributions from a Domestic Subsidiary of a Foreign Corporation to a Super PAC A question arises if a U.S. subsidiary of a foreign corporation, in compliance with both the segregation of funds and decision-making, wishes to contribute directly to a Super PAC in connection with an election. Because of 2 U.S.C. §441b’s ban on corporate contributions, this problem has not emerged since Citizens United v. FEC declared the ban unconstitutional.1 The last such advisory opinion regarding these regulations was written in 2006. Therefore, the FEC has not yet specifically addressed whether such a corporation may directly contribute to a Super PAC in connection with a federal election. Nevertheless, the FEC has consistently made clear that a U.S. subsidiary, as long as it is chartered and principally operating domestically, is not a foreign national and may participate, even by contributing to state elections. AO 2006-15. Now that §441b’s contribution ban for federal elections has been struck by Citizens United, Speechnow v. FEC and its progeny, we conclude that a domestic subsidiary corporation may now directly contribute to a Super PAC in connection with a federal election. With that said, because 11 C.F.R. §110.20 remains in force, the domestic subsidiary corporation must still comply with the restrictions on foreign national funds and participation. We believe that the creation of a separate corporate account of only U.S. raised monies, and a special committee subject to the same restrictions in AO 2000-17 under U.S. citizen control, would be sufficient to permit donations directly from a domestic subsidiary to a Super PAC. 1 This proceeds from the assumption a foreign national is not simply “funneling” money through the U.S. corporation, as this would (and has been declared to) violate §441e. 202058113.1 48886/181460