Question of foreign funding of U.S. elections unsettled

The most heated controversy over the recent Supreme Court ruling striking down parts of the nation’s campaign-funding laws has focused on whether the decision frees foreign corporations to pour money into American elections.

President Obama raised this specter Wednesday in his State of the Union address, saying the ruling would “open the floodgates for special interests -- including foreign corporations -- to spend without limit in our elections.”

A day later, Senate Minority Leader Mitch McConnell (R-Ky.) said the president was “completely wrong.” He said that a separate law strictly prohibits foreigners and foreign corporations from “any participation in U.S. elections, just as they were prohibited before.”

Election-law experts say neither claim is quite correct. Although foreign corporations cannot directly put money into U.S. races under the ruling, their U.S. subsidiaries may.

The 5-4 decision in Citizens United vs. Federal Election Commission struck down on free-speech grounds the long-standing federal and state laws that barred corporations and unions from spending money to elect or defeat candidates for office. The decision applied to all corporations, both for-profit firms and nonprofits.

“It means a U.S. subsidiary of a foreign corporation can now spend freely in U.S. elections,” said Tara Malloy, a lawyer with the Campaign Legal Center in Washington.

Among the multinational companies with lobbying operations in Washington are Swiss drug makers, German manufacturers, Japanese and Korean automakers and British aerospace firms. Under FEC rules, a U.S. subsidiary of a foreign company could spend money on congressional races, but only if the subsidiary earned the money in the U.S. and its American employees decided on how to spend it.

The regulation says: “A foreign national shall not direct, dictate, control, or directly or indirectly participate in the decision-making process” for spending money on campaigns.

But many question whether the FEC could police election-spending decisions by multinational firms.

“We have a dysfunctional system currently,” said Washington attorney Trevor Potter, a former FEC chairman. The agency has been evenly divided, with three Republican and three Democratic appointees, and has been unable to make decisions.

Potter also said that the law is not clear on whether extra restrictions should apply to companies that are controlled by foreign governments. “What do you do with a company that is owned by Venezuela or China?” he asked.

Democrats in the House and Senate have proposed laws in response to the high court’s ruling. Sen. Al Franken (D-Minn.) introduced a bill last week that would ban election contributions or spending by corporations that are controlled by foreign citizens or governments.

“Nothing in our current laws . . . explicitly prohibits foreign companies from creating American subsidiaries or getting control of American companies and using them to flood the airwaves in support of their preferred candidates,” a statement on Franken’s website said.

Obama and many Democrats appear to agree with the high court’s dissenters, who say the current election limits on foreign corporations are in danger of being struck down.

Since 1907, Congress has prohibited domestic corporations from using their money “directly or indirectly” to elect candidates for federal office. After World War II, Congress extended this ban to labor unions and made it clear that the ban applied to independent election spending, not just to contributions to a candidate.

But in its Jan. 21 ruling, the court majority struck down all of these bans and said that it was unconstitutional to limit political spending “based on the speaker’s corporate identity.” Justice Anthony M. Kennedy added: “We need not reach the question whether the government has a compelling interest in preventing foreign individuals or associations from influencing our nation’s political process.”

In dissent, Justice John Paul Stevens said the logic of the majority opinion “would appear to afford the same protection to multinational corporations controlled by foreigners as to individual Americans.” Lawyers with differing views on campaign-finance measures agree that it will take future cases to decide whether election restrictions on foreign-owned firms will stand.

david.savage@latimes.com