Overview
Across the nation, a growing number of states and localities are advancing legislation to prohibit political spending by foreign-influenced U.S. corporations. Generally, these “foreign-influence” bans prohibit corporations that are considered “foreign-influenced” from making any contributions or expenditures in connection with state and local elections, including prohibiting independent expenditures and contributions to ballot measure committees. In some jurisdictions, a U.S. corporation is considered “foreign-influenced” and prohibited from spending money from its corporate treasury if any one of the following conditions are met:
- A single foreign investor holds, owns, controls or otherwise has direct or indirect ownership of one percent or more of the corporation’s total equity or voting shares;
- Two or more foreign investors in the aggregate hold, own, control or otherwise have direct or indirect ownership of five percent or more of the corporation’s total equity or voting shares; or
- A foreign investor participates directly or indirectly in the corporation’s decision-making process about political activities in the United States.
In 2020, Seattle, Washington became the first jurisdiction to pass legislation prohibiting “foreign-influenced” corporations at the 1% - 5% thresholds described above from making contributions or expenditures in connection with state and local elections. The law defined a “foreign-influenced” company as a company with a single foreign owner with at least 1% ownership or multiple foreign owners with at least 5% ownership combined. The law requires companies making contributions to file with the city a certification of compliance with the ban confirming that (1) they are not organized under the laws of or headquartered in a foreign country, and (2) that the contribution is not financed in any part by a foreign national, and foreign nationals were not involved in making decisions regarding the contribution in any way.
In May of this year, Minnesota Governor Tim Walz signed into law the Democracy for the People Act (DPA), making Minnesota the first state in the nation to pass legislation prohibiting foreign political spending at these 1% - 5% thresholds. The Minnesota law follows the Seattle definition of “foreign-influence.” The law also requires any corporation that makes a permitted contribution or expenditure to submit a certification to the state verifying that it is not “foreign-influenced” within seven days of the contribution or expenditure. This new law was set to take effect January 1, 2024; however, a federal judge recently issued an injunction blocking the January 1st start date, arguing that the law impinged on free speech rights of corporations.
On November 7th, 2023, Maine voters overwhelmingly approved a ballot measure to curb foreign-influenced spending in elections. Maine’s new law bans foreign governments and corporations with 5% or more foreign government ownership from donating to future referendum races. Similar to the Minnesota foreign-influence law, groups in Maine have filed lawsuits challenging its constitutionality.
Similar foreign-influence legislation has been introduced in several other states and localities including California, Connecticut, Hawaii, Massachusetts, New York, Virginia, and Washington.
States and Localities to Watch
Connecticut: In March 2023, the Connecticut Legislature introduced SB1188, which would prohibit foreign nationals, including U.S. companies meeting a 5% - 20% foreign ownership threshold, from making contributions, independent expenditures, or ballot measure expenditures. The bill passed the Joint Committee on Government Administration and Elections and the Joint Committee on the Judiciary and was referred to the Senate in May.
Massachusetts: SB371 and H722 would prohibit political spending by foreign-influence corporations meeting the 1% - 5% threshold of foreign ownership. These bills are currently pending in the Joint Committee on Election Laws.
San Jose, California: In 2022, San Jose adopted a policy memorandum instructing city council staff to draft an ordinance prohibiting a foreign-influenced corporation from making contributions to candidates and independent expenditure committees and from making their own independent expenditures. Corporations deemed to be “foreign-influenced” include corporations with more than 1% ownership by an individual foreign national or more than 5% ownership by multiple foreign nationals. On December 21, 2023, the San Jose City Council voted to pass the memorandum. The passage of the memorandum will go to a final reading before the City Council in January.
Several bills were introduced in 2022 and 2023 in California, Hawaii, New York, Virginia, and Washington prohibiting political spending by foreign-influenced corporations meeting the 1% - 5% thresholds. These bills failed to pass.
The potential success of the lawsuits challenging the Maine and Minnesota laws will have important implications for foreign-influence bans nationwide and could impact other states and localities attempting to enact similar legislation. Steptoe’s Political Law group continues to monitor these and other developments in campaign finance law.
