FIGHTING FOREIGN-CORPORATE POLITICAL ACCESS: APPLYING CORPORATE VEIL-PIERCING DOCTRINE TO DOMESTIC-SUBSIDIARY CONTRIBUTIONS

Author:rott, ryan
SUMMARY

Campaign finance regulations limit speech. The laws preclude foreign nationals, including foreign corporations, from participating in U.S. politics via campaign contributions. The unusual characteristics of corporations, however, may allow foreign corporations to exploit a loophole in the regulatory regime. A foreign corporation may contribute to political campaigns by acquiring a domestic... (see full summary)

 
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Introduction

In 1996, as President Clinton sought reelection, scandal threatened him and the Democratic Party. Many accused the Democrats of illegally selling political influence to foreigners. The following is an example of the type of illegal conduct alleged. In late February, a South Korean electronics company, Cheong Am Business Group, established a California subsidiary, Cheong Am America.1 The next month, the South Korean parent corporation capitalized the California subsidiary with a $1.3 million bank transfer.2 Shortly thereafter, John H.K. Lee, a South Korean citizen and the chairman of both the parent and subsidiary corporations, attended a Democratic National Committee (DNC) fundraiser and met Clinton.3 Within days, Lee directed Cheong Am America to contribute $250,000 to the DNC.4 Prior to the contribution, Cheong Am America did not operate and had no income.5 This contribution violated the Bipartisan Campaign Reform Act of 2002 (BCRA), also known as the McCain-Feingold Act,6 which prohibits foreign nationals from contributing to U.S. elections or candidates.7 Following media scrutiny, the DNC quickly admitted the contribution was illegal and returned it.8

These events prompted outrage and led to extensive investigation. A special Department of Justice task force, comprised of ninety prosecutors, FBI agents, and support staff, investigated millions of documents relating to the scandal.9 Congress also investigated. The Senate Committee on Governmental Affairs published a report alleging that

The President and his aides demeaned the offices of the President and Vice President, took advantage of minority groups, pulled down all the barriers that would normally be in place to keep out illegal contributions, pressured policy makers, and left themselves open to strong suspicion that they were selling not only access to high-ranking officials, but policy as well. Millions of dollars were raised in illegal contributions, much of it from foreign sources.10

The investigations uncovered evidence of illegal foreign efforts to influence the U.S. political process.11 They determined that although some foreign efforts seemed "innocuous," there was likely also "a broad array of [foreign] efforts designed to influence U.S. policies and elections through . . . financing election campaigns."12 Ultimately, the investigations met dead ends and the public lost interest.13

Congress has worried about corrupting influences invading politics since the country's founding and continues to worry about them today.14 As early as 1867, Congress regulated campaign finance to that end.15 These regulations restrict the marketplace to prevent people from buying influence. In the Cheong Am scandal, for example, the regulatory net caught the illegal foreign contribution and forced the DNC to return the contribution.16

Recently, however, the Supreme Court overruled some campaign finance regulations in the name of free speech.17 In doing so, the Court ripped holes in the regulatory net designed to protect politics from corruption. The system that remains allows domestic subsidiaries of foreign corporations to contribute to campaigns almost without limits.18 In the 2014 election cycle alone, domestic subsidiaries, through their Political Action Committees (PACs), contributed over $19 million to various campaigns or causes.19 That much money has the potential to corrupt elections by significantly impacting their outcomes.

If a domestic subsidiary contributes with its parent's foreign interests in mind, the contributions are illegal,20 potentially corrupting, and should be cause for alarm. This Note does not suggest that all domestic subsidiaries of foreign corporations are incapable of separating their interests from the foreign interests of their parents when they contribute to campaigns, as is required by law. In many cases, however, a parent company will dominate a subsidiary to pursue its own interests.21 This Note argues that Congress must balance free speech rights with the potential for corruption by allowing domestic subsidiaries to contribute in their own interests while precluding them from doing so in their foreign parents' interests.

Part I introduces the history of the campaign finance regulatory environment and examines the cases that have chipped away at the regulations and their protections. Part II explains how corporations, through mergers and acquisitions, may enable foreign corporations to illegally access U.S. politics. Finally, Part III concludes that adopting legislation that applies a corporate veil-piercing theory, enforced in part by qui tam provisions, to the campaign finance system will prevent foreign corporations from accessing U.S. politics without infringing the free speech rights of domestic companies.

  1. Contributing to the Campaign Finance System

    This Part examines the history of campaign finance regulations and introduces the current legal framework regarding corporate and foreign participation in campaign finance. Section I.A examines the development of doctrine on corporate participation in campaigns. Section I.B discusses the longstanding prohibition on foreign participation in campaign finance. Section I.C explains the aftermath of Citizens United.

    1. A History of Corporate Campaign Finance Law

      U.S. leaders have been particularly concerned with political corruption since the country's founding.22 The framers worried that the country's infancy and size rendered it especially susceptible to corrupting influence.23 They eased their concerns by peppering the Constitution with several anticorruption clauses.24

      Specifically, the framers worried that corporate influences would corrupt U.S. politics. Though there were few corporations in the United States, the colonists loathed interacting with domineering corporations.25 Corporate monopolies, for example, prohibited colonists from trading with Native Americans and other countries' companies.26 In a memorandum that reflects early American perceptions, James Madison wrote, "there is an evil which ought to be guarded ag[ain]st in the indefinite accumulation of property from the capacity of holding it in perpetuity by . . . corporations. The power of all corporations ought to be limited in this respect."27 With the colonial experience in mind, the framers empowered the states to regulate corporations.28 States prohibited corporations from engaging in any conduct not expressly provided for in their corporate charters, prevented them from operating in other states, limited their ability to raise capital, and threatened to revoke their charters, which would force a corporation to dissolve.29

      The framers did not foresee that states would be ill-suited to address the problems. Eventually, as states competed with each other for corporate tax revenues, they chipped away at the restrictions and safeguards against corporate powers in a race to the bottom.30 By the end of the nineteenth century, the less-restricted corporations were multiplying and enjoying soaring revenues.31 Increased revenues enabled corporations to spend more on federal, state, and local elections.32

      Fearing corporate corruption, Congress began an enduring fight to reform campaign finance laws comprehensively.33 The first attempt, the Tillman Act of 1907, banned direct corporate contributions.34 Corporations could easily evade the ban because it lacked disclosure requirements and allowed them to reimburse directors who made personal contributions.35 Within a few years, Congress enacted, and later amended, the Publicity Act to remedy the Tillman Act's shortcomings.36 The Publicity Act required candidates to disclose information relating to funds but it brought little practical change.37 The Act did not include enforcement measures, so candidates "almost universally" ignored its requirements.38 Congress needed new comprehensive legislation to close these loopholes; it would take over half a century.

      Congress next attempted to overhaul campaign finance with the Federal Election Campaign Act of 1971 (FECA).39 "FECA remains the foundational law of the system: It sets contribution limits, requires disclosure of contributions and spending, and institutes public financing for presidential elections."40 A contribution limit caps what one gives to a particular candidate or committee, while an expenditure limit caps what one can spend overall on a given election.41 Meanwhile, an independent expenditure may advocate for or against a candidate, but must not be connected to any candidate's campaign.42 Although the law was imperfect, subsequent amendments remedied some of the issues.43 For example, these amendments created the Federal Election Commission (FEC) as a watchdog and enforcer.44

      Finally facing a comprehensive and capable campaign finance law, campaign-spending advocates took their cause to the courts.45 In Buckley v. Valeo, the foundational campaign finance case, the Supreme Court upheld FECA's limits on direct contributions to candidates but struck down limits on expenditures and independent expenditures.46 The Court reasoned, "although the Act's contribution and expenditure limitations both implicate fundamental First Amendment interests, its expenditure ceilings impose significantly more severe restrictions on protected freedoms of political expression and association than do its limitations on financial contributions."47 Critics lament that Buckley's reasoning was predicated on an assumption that money equaled speech.48 Although Buckley did not address corporate speech, it laid the groundwork for...

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