DISSENTING OPINION
OF
COMMISSIONER SCOTT E. THOMAS
ADVISORY OPINION 2000-17
In voting against Advisory Opinion
2000-17, I continue to believe that under 2 U.S.C.
§ 441e, a wholly owned domestic subsidiary and its foreign national parent
corporation should be treated as one entity. See, e.g., Dissents in Advisory Opinions 1989-29, 1992-16, and 1999-28 at [1976-1990
Transfer Binder] Fed. Elec. Camp. Fin. Guide (CCH) ¶ 5976, and 1 Fed. Elec. Camp. Fin.
Guide (CCH) ¶ ¶ 6059 and 6305, respectively; and Statement for the Record in Advisory
Opinion Request 1996-6, 1 Fed. Elec. Camp. Fin. Guide (CCH) ¶ 6994. Section 441e broadly prohibits a foreign national
(which includes a foreign corporation) from making a political contribution “through any other person.” 2 U.S.C. § 441e (emphasis added). Just as a domestic corporation and its
subsidiaries are seen as one entity in order to prevent a parent corporation from making
excessive contributions through its subsidiaries’ political committees (see, e.g., 2 U.S.C. § 441a(a)(5); 2 U.S.C. §
441b(b)(4)(A)(i); 11 C.F.R. § 114.5(g)(1)), so too a foreign national parent corporation
and its subsidiaries should be seen as one entity to prevent the foreign national
corporation from making prohibited contributions through its subsidiaries.
Extendicare is the wholly owned
subsidiary of Extendicare, Inc., a Canadian corporation and thus a “foreign
principal” as defined by 22 U.S.C. § 611(b). See 2 U.S.C. § 441e(b)(1). As the wholly owned subsidiary of a foreign
national corporation, Extendicare should not be allowed to make contributions to
candidates for political offices in the United States.
In addition, the facts of this case
illustrate how easy it is for a foreign corporation to evade the §441e prohibition and
why, as a matter of law, Extendicare and Extendicare, Inc. should be viewed as one entity. Extendicare has only three persons on its board of
directors. Of these three directors only one
is a United States citizen; the other two are foreign nationals. One of the foreign
nationals is Chairman of the Extendicare board of directors and is also deputy chairman
and CEO of the foreign national parent. The
other foreign national director is both CEO of the domestic subsidiary and president of
the foreign national parent corporation. Extendicare’s
board proposed that it be allowed to establish a Special Committee, comprised only of
individuals who are U.S. citizens or permanent resident aliens residing in the United
States, to decide whether to establish a separate segregated fund (“SSF”). The Special Committee also would have the
authority to determine who would administer the SSF.
Obviously, the management of the domestic subsidiary and the foreign national
parent are inextricably intertwined and should be viewed as one entity. Moreover, as a practical matter,
Extendicare’s
foreign national-controlled board of directors is able to exercise clear control over the
SSF when it is able to appoint the committee which, in turn, is able to appoint the people
who administer the SSF.
Recognizing this latter point, the
Office of General Counsel originally stated that foreign nationals on the board of
directors should not be able to participate in the appointment of members of the Special
Committee. Agenda Document No. 00-72 at 7
(July 20, 2000). Under this approach,
it would at least appear that non-foreign nationals were establishing and controlling the
Special Committee designed to supervise the SSF.[1] In Advisory Opinion 2000-17, however, the
Commission rejected even the minimal efforts at reducing foreign influence found in the
original Office of General Counsel language described above. Indeed, in an alternative draft which was
eventually adopted by the Commission, Commissioner Sandstrom went even further and
specifically urged the Commission to adopt language permitting the foreign national board
members to directly participate in the appointment of members of the Special Committee. Agenda Document No. 00-72-A at 7 (July 25, 2000).
In my view, Advisory Opinion 2000-17
is plainly inconsistent with the statutory ban on foreign nationals making contributions
either directly “or through any other person” in connection with election to any
political office. 2 U.S.C. §441e. Similarly, the Commission’s Regulations
provide:
A
foreign national
shall not direct, dictate, control, or directly
or indirectly
participate
in the
decision-making of any person, such as a corporation, labor
organization, or political committee,
with regard to such person’s Federal or
nonfederal
election-related
activities, such as decisions concerning the
making
of contributions or expenditures in
connection with elections for any local, State,
or Federal office or
decisions concerning the administration of a political committee.
11 C.F.R.
§110.4(a)(3)(emphasis added). Under Advisory
Opinion 2000-17, foreign nationals may directly appoint the individuals who will select
persons to determine the membership and operating policy of the SSF. These appointed individuals will be directly
responsible to the foreign nationals who hired them and who also may fire them. Given the factual circumstances presented in
Advisory Opinion 2000-17, it is difficult to believe that a foreign national will not
“directly or indirectly” participate in “decisions concerning the
administration of a political committee.”
A decade ago, the Commission
considered a regulation which would treat United States corporations that are more than
50% owned by foreign nationals as foreign nationals for purposes of the Act. 55 Fed. Reg. 34280 (August 22, 1990). Emphasizing national security concerns, the
Department of Justice “strongly support[ed]” the proposed regulation:
Section 441e represents one of the
main federal statutory defenses against
efforts by foreign nationals and
foreign interests to influence the domestic
election processes of the United
States through campaign contributions. The
function of this statute is to
safeguard a vital feature of the Nation’s sovereignty.
In our opinion, it deserves a broad
construction in keeping with the vital national
security interests which it was
enacted to protect.
.
. .
.
The 50% ownership test which the
Commission has proposed is fully consistent
with the internal security objectives
of the statute. In fact, the majority
ownership
approach which the FEC is proposing
for access to domestic political activity is
in fact more lenient than is the
Federal Communication Commission’s (FCC’s)
standard for foreign access to the
domestic airwave. Accordingly, arguments that
the test selected by the FEC is
unfair to foreign nationals fall way short of the mark.
In the opinion of the Department of
Justice, this is a good regulation which is
badly needed, and which will advance
the important national security goals that underlie
2 U.S.C. § 441e. The FEC should adopt this regulation without
delay.
Letter from
U.S. Department of Justice to FEC (Criminal Division November 15, 1990).[2]
Unfortunately, the FEC rejected the
national security concerns of the Department of Justice and never adopted the proposed 50%
rule. Instead, it continued to allow even
wholly owned subsidiaries of foreign national parent companies such as Extendicare to set
up separate segregated funds and make contributions in connection with United States
elections. And now, in Advisory Opinion 2000-17, the Commission goes even further and
allows foreign nationals to directly appoint what is in effect the governing board of the
domestic subsidiary’s SSF. Section 441e
may still be on the books, but this opinion and other recent Commission decisions (see, e.g., MUR 4250 where Commission failed to
pursue a $1.6 million foreign national loan guarantee provided to the National Policy
Forum, an arm of the Republican National Committee), have clearly placed the provision on
life support.
August 30, 2000
Scott
E. Thomas /s/
________________________
______________________________________
Date
Scott E. Thomas
Commissioner