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Legislative Options After Citizens United v. FEC: Constitutional and Legal Issues

Foreign Corporations vs. Foreign-Owned Corporations under Election Law

The corporations that are the targets of proposed legislation are incorporated within the United States but are owned, to some degree, by foreign governments, corporations, or individuals, or can otherwise be characterized as under “substantial foreign influence.”58 They are not foreign corporations in the sense that they are incorporated under the laws of another country. Such foreign corporations are among the “foreign nationals” currently prohibited from making campaign contributions or expenditures under 2 U.S.C. § 441e(a).59 The constitutionality of this prohibition was not at issue in Citizens United and has apparently never been challenged. 60

In contrast, U.S. corporations with some degree of foreign ownership or control were prohibited from directly making campaign expenditures under 2 U.S.C. § 441b prior to Citizens United because of their status as corporations, not because of their foreign ties. They could, however, form political action committees (PACs) to make such expenditures. There were statutory and regulatory limitations upon the involvement of foreign nationals in these PACs, but these limitations were based on the alienage of the foreign nationals, not of the corporations. 61

Redefining “Foreign Nationals” to Include Foreign-Owned Corporations

Many proposed bills would amend the existing definition of “foreign national” to include corporations with some degree of foreign ownership or control.62 Such proposals could arguably be characterized as contrary to the prevailing legal theory of the corporation, the “natural person theory,” which views corporations as separate persons possessed of personalities and interests distinct from those of their shareholders.63 However, there are instances where courts or statutes effectively rely on alternate theories of the corporation,64 or otherwise look beyond the corporate

(...continued) evaluate such regulations.”). S. 2959, § 2. 58

59 “Foreign national” includes any “foreign principal” under 22 U.S.C. § 611(b), as well as individuals who are not U.S. citizens or lawful permanent residents. 2 U.S.C. § 411e(b)(1)-(2). “Foreign principal” under 22 U.S.C. § 611(b) includes foreign governments, corporations, and political parties “organized under the laws of or having [their] principal place of business in a foreign country.” 22 U.S.C. § 611(b)(1) & (3).

60 Citizens United, slip op., at 118 (Stevens, J., dissenting) (“Although we have not reviewed them directly, we have never cast doubt on laws that place special restrictions on campaign spending by foreign nationals.”).

61 See 2 U.S.C. § 441e(a) (prohibiting foreign nationals from funding the operation of the PAC); 11 C.F.R. § 110.4(a)(3) (“[Foreign nationals may not] direct, dictate, control, or directly or indirectly participate in the decision- making process of any political action committee.”).

62 The degree of foreign ownership varies, ranging from 5% of the total number of outstanding shares (H.R. 4517, § 2) to 20% of the voting shares (S. 2959, § 2) to 50% or more (H.R. 4540, § 2).

63 See, e.g., Cannon Mfg. Co. v. Cuhady Packing Co., 267 U.S. 333 (1925); Herbert Hovenkamp, Enterprise and American Law: 1836-1937 43 (1991).

64 For example, the “enterprise theory,” also known as the “unitary business theory,” treats the corporation and its parent or subsidiaries as a single entity because of their common interests. See, e.g., Mobil Oil Corp. v. Comm’r of Taxation of Vt., 445 U.S. 425 (1980) (upholding a tax on the income that corporations received in the form of dividends from subsidiaries or affiliates doing business abroad); Copperweld v. Independence Tube Corp., 467 U.S. 752 (1984) (holding that, because of their common economic interests, a parent and subsidiary are incapable of (continued...)

Congressional Research Service

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