Companies fretting over ‘foreign agents’ label

K Street is pushing back on proposals moving through Congress that would dramatically expand the work covered by foreign lobbying laws.

The legislation would, among other things, eliminate a provision that has long shielded international corporations with U.S. subsidiaries from having to file under the Foreign Agents Registration Act (FARA).

{mosads}The exemption allows private entities, like non-U.S. companies, to disclose their activities through the domestic lobbying law — known as the Lobbying Disclosure Act (LDA) — rather than register as a foreign agent, which comes with a much stricter disclosure regiment. FARA also requires disclosure of more than just lobbying, including advisory services and public relations.

While good-government groups hail the potential change, saying it would help curtail abuse, international corporations warn that being called a “foreign agent” could create the wrong impression.

Nancy McLernon, the leader of Organization for International Investment, an industry group for the U.S. subsidiaries of foreign companies, says the legislation could have “tremendous collateral impact” for her organization’s members — which include Swiss-based Nestle, South Korea-based Samsung and Budweiser-maker Anheuser-Busch, which is headquartered in Belgium.

McLernon was involved in pushing for the so-called LDA exemption when it passed in 1995.

She emphasized that the group supports the intent of the new legislation — rooting out foreign involvement in U.S. politics — but said it creates “significant unintended consequences.”

“We look forward to working with legislators to have a more laser-like focus on what they’re trying to get at,” she said. “Of course a representative for Nestle shouldn’t be considered a foreign agent.” McLernon added that U.S. subsidiaries collectively employ 7 million Americans.

FARA, a World War II-era law, has gained new prominence — and infamy —in the Trump era. Two of the president’s former aides have been indicted for undisclosed foreign lobbying, putting the spotlight on the law’s requirements.

Critics of FARA are seizing the moment, hoping the attention being paid to foreign lobbying can help them push changes to the law through Congress.

Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) has a bill to overhaul FARA that advanced out of committee in January. A companion bill in the House sponsored by Rep. Mike Johnson (R-La.) has advanced as well.

Another bill, from Sens. Dianne Feinstein (D-Calif.), John Cornyn (R-Texas), Todd Young (R-Ind.) and Jeanne Shaheen (D-N.H.), was introduced this month and is more sweeping in its reforms.

All of the legislation, however, would increase the enforcement capabilities of the Justice Department to crack down on FARA violators, in addition to nixing the LDA exemption for U.S. subsidiaries.

Government watchdog groups such as Issue One and Public Citizen, which have long been champions of ethics reform, see the current political environment as the time to strike.

“Not only is enforcement and compliance [of FARA] very weak, but at the intersection between foreign governments and nongovernment foreign actors, the lines are blurred these days,” said Tyler Cole, Issue One’s policy counsel. “There is a philosophical reason why you would want to close the LDA loophole.”

“Closing the LDA loophole means the American people are going to have more information about how foreign actors are trying to influence the government,” he said.

Cole argued the problems with corporate U.S. subsidiaries being forced into FARA registration can be fixed.

“I would say it’s fair for them to be concerned about the possibility, but I don’t think that means there aren’t ways to find simple solutions,” he said. “Any statutory reform effort has to be coupled with the agency taking a hard look at the procedures and rules to make sure that enforcement is both effective and realistic.”

Ainsley Holyfield, a spokeswoman for Johnson, said the congressman has been hearing from groups — and from other members whose offices have been contacted by outside organizations — critical of nixing the exemption.

“Lobbyists have made attempts to discredit this bill because they are content with the status quo and using lapses in the law to skirt disclosure requirements,” she wrote in an email. “Our legislation simply asks lobbyists working at the order or interest of a foreign principal or government to properly disclose those relationships in line with the original intent of the law.”

The law already provides exemptions, she said, that would “apply to most U.S. subsidiaries,” citing Justice Department guidance.

FARA does already include a “commercial exemption” for registering with the Justice Department, but there are ambiguities and limits on how it can be used, including when a foreign agent engages in any direct lobbying.

However, many of the terms within FARA are hazily defined, creating headaches for compliance lawyers and the entities worried they could be swept up in the disclosure requirements.

Prior to the LDA exemption, there was an exception made for domestic subsidiaries of private foreign companies that allowed them to bypass FARA as long as their activities did not “predominantly serve the interests” of the foreign parent company — a standard open to all kinds of interpretations.

“A lot of people didn’t know what to do,” said Thomas Spulak, a partner at King & Spalding. “Many erred on the side of not registering, thinking ‘I only did a little lobbying,’ not knowing about the lack of a de minimus exception. … I know that this was a quandary for a lot of companies, which is what was behind this ’95 exemption. It was really an attempt to do the right thing.”

Unlike domestic lobbying laws, FARA has no threshold for triggering registration; all advocacy is covered, no matter how much time is spent on it.

One lawyer who practices before the Justice Department’s FARA Unit said it has become more aggressive in how it enforces the law, and some conversations he’s had with them “indicate they are looking at the statute differently.”

Companies are worried, for instance, that even if they’re headquartered in the United States, they could trigger FARA if they advocated before American lawmakers on policies that would affect one of their subsidiaries abroad.

“I don’t think [FARA] was intended to cover that, but a not-too-creative lawyer could make that argument,” he said, asking for anonymity to speak freely. “When you have a statute that is so broadly worded … someone can construe the interpretation to make it
apply.”