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Non-U.S. Companies and the U.S. Presidential Election

Money and politics always go together, but in the U.S. there is a special – and highly-regulated – relationship between elections and campaign contributions.

The political transparency site OpenSecrets estimates that thus far almost $300 million has been raised by all presidential candidates between individual donations (90% of the total) and PACs.  These figures do include, thought, the growing amount of money raised by the 2,236+ “Super PACs” which has reached $550 million in 2016 alone.  So what is U.S. campaign finance all about, and how does it affect non-U.S. companies?  Our guest blog contributors from the law firm Allen & Overy share their insights.

This year’s U.S. election is attracting global attention.  With high-profile candidates, broad policy proposals, and the potential for major political shifts, the election could have major consequences for international companies that do business in the U.S., and as a result such companies and their senior executives may be considering getting involved.  Before taking action, however, it is important to understand a few basic principles of U.S. campaign finance law and how they impact what global companies and their employees can—and can’t—do.

As an initial matter, U.S. campaign finance law imposes a number of restrictions on involvement in U.S. elections by non-U.S. persons.  In particular, foreign nationals (other than permanent residents residing in the United States) – including corporations organized outside of the U.S. – are prohibited from making contributions in any U.S. federal, state, or local election.  This includes contributions to SuperPACs – a relatively new breed of political committee that can accept unlimited contributions from U.S. corporations and individuals (but not from foreign persons), so long as it acts independently of any candidates it supports.  Additionally, foreign nationals (including non-U.S. corporations) are prohibited from making decisions regarding contributions or directing the contributions of others. 

Notwithstanding these restrictions, U.S. subsidiaries of non-U.S. corporations are permitted to establish federal political action committees (often referred to as PACs) to the same extent as other U.S. companies.  Such corporate PACs, which are unique to the U.S., are a key mechanism through which companies participate in the U.S. electoral process.  PACs collect contributions from eligible corporate employees (e.g., senior executives and managers), and use those contributions to support various candidates and causes.  The administrative and solicitation costs of the PAC can be paid by the corporate sponsor, which can also designate the recipient of the PAC’s contributions.  Many U.S. subsidiaries of foreign corporations operate PACs – indeed, such PACs made nearly $20 million of campaign contributions in the 2014 election cycle.  However, U.S. campaign finance law places certain limits on the extent to which a non-U.S. parent company and non-U.S. employees can be involved in the operation of a U.S. PAC.  Key issues with respect to such PACs include the following: 

  • A PAC must be operated by the U.S. subsidiary and U.S. citizens. Essentially, only the U.S. subsidiary (as distinct from the non-U.S. parent) can exercise control over the PAC.  Foreign nationals cannot be involved in the day-to-day operation of the PAC, or in the decision-making process for the selection of candidates and committees that the PAC will support.  That means that the non-U.S. parent company may not directly or indirectly influence the flow of PAC funds.  Any involvement by the foreign parent company and non-U.S. nationals must be limited to certain circumscribed areas, which operate at a remove from the PAC’s day-to-day operations.
  • A PAC’s operating expenses must come from funds of the U.S. subsidiary. As mentioned above, the U.S. subsidiary must be the entity that runs the PAC, and this includes paying for the operating and solicitation expenses of the PAC.  At bottom, all PAC expenses must be paid for with funds generated by the U.S. subsidiary, not the foreign parent or any other foreign entity.  
  • A PAC cannot solicit or accept contributions from foreign national employees. Multinational companies with a foreign parent and U.S. subsidiary are likely to have many foreign national employees.  A U.S. subsidiary operating a PAC needs to make sure that no foreign national is solicited to contribute to—or actually contributes to—the PAC.  This can be accomplished through certain commonly-employed controls in the solicitation process. 
Author

Charles E. Borden, Samuel Brown, and Kate E. Wooler

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