    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

      ADDITIONAL DISCUSSION OF H.R. 5175, THE DISCLOSE ACT, DEMOCRACY IS
             STRENGTHENED BY CASTING LIGHT ON SPENDING IN ELECTIONS

    =======================================================================

                                    HEARING

                                   before the

                               COMMITTEE ON HOUSE
                                 ADMINISTRATION
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 SECOND SESSION

                                   __________

                 Held in Washington, DC, Tuesday, May 11, 2010

                                   __________

          Printed for the use of the Committee on House Administration

                           Available on the Internet:
       http://www.gpoaccess.gov/congress/house/administration/index.html

                      U.S. GOVERNMENT PRINTING OFFICE
    57-963                    WASHINGTON : 2010
    -----------------------------------------------------------------------
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800
    Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001

                       COMMITTEE ON HOUSE ADMINISTRATION

                    ROBERT A. BRADY, Pennsylvania, Chairman
    ZOE LOFGREN, California,             DANIEL E. LUNGREN, California,
      Vice-Chairwoman                      Ranking Minority Member
    MICHAEL E. CAPUANO, Massachusetts    KEVIN McCARTHY, California
    CHARLES A. GONZALEZ, Texas           GREGG HARPER, Mississippi
    SUSAN A. DAVIS, California
    ARTUR DAVIS, Alabama
                          Jamie Fleet, Staff Director
                   Victor Arnold-Bik, Minority Staff Director

      ADDITIONAL DISCUSSION OF H.R. 5175, THE DISCLOSE ACT, DEMOCRACY IS
             STRENGTHENED BY CASTING LIGHT ON SPENDING IN ELECTIONS

                                  ----------

                             TUESDAY, MAY 11, 2010

                              House of Representatives,
                             Committee on House Administration,
                                                        Washington, DC.
        The committee met, pursuant to call, at 5:00 p.m., in room
    1310, Longworth House Office Building, Hon. Robert A. Brady
    (chairman of the committee) presiding.
        Present: Representatives Brady, Lofgren, Capuano, Lungren,
    and Harper.
        Staff Present: Jamie Fleet, Staff Director; Tom Hicks,
    Senior Elections Counsel; Janelle Hu, Elections Counsel;
    Jennifer Daehn, Elections Counsel; Matt Pinkus, Professional
    Staff/Parliamentarian; Kyle Anderson, Press Director; Joe
    Wallace, Legislative Clerk; Daniel Favarulo, Legislative
    Assistant, Elections; Greg Abbott, Professional Staff; Shervan
    Sebastian, Staff Assistant; Peter Schalestock, Minority
    Counsel; Karin Moore, Minority Legislative Counsel; Salley
    Collins, and Minority Press Secretary.
        The Chairman. I would like to call the hearing on House
    Administration to order. And good afternoon to members of the
    committee, witnesses and guests. And thank you for being here
    today.
        This hearing is our third on the impact of the Citizens
    United decision and the potential legislative response. As I
    said last week, the DISCLOSE Act is a bipartisan and fair
    solution to the Supreme Court overturning decades of campaign
    finance precedent. The bill does not play political favors. It
    applies to corporations, labor unions, trade associations and
    nonprofit advocacy organizations. The DISCLOSE Act provides
    prompt and honest disclosure of political spending seeking to
    influence our elections.
        As we have heard from our witnesses last week, additional
    disclosure laws are needed. The DISCLOSE Act allows voters to
    follow the money. The bill would require all covered
    organizations to report to the FEC within 24 hours of their
    campaign-related activity and their transfers of money to other
    groups that are then available for campaign-related activity.
    Disclosing these transfers of moneys will ensure that special
    interest money cannot hide behind sham organizations and shell
    corporations.
        The DISCLOSE Act also prevents foreign-controlled
    corporations and government contractors from influencing our
    elections. This is not complicated. We do not let foreign
    citizens vote in our elections; we should not let them have any
    financial interest in them either.
        Critics of the DISCLOSE Act claim that it will chill First
    Amendment rights, but the Supreme Court in the Citizens United
    decision by an 8 to 1 majority rejected their argument that
    disclosure requirements chill the exercise of free speech. The
    court noted that disclosure requirements did not prevent anyone
    from speaking and recognized that disclosure laws enable the
    voter to make informed decisions and give proper weight to
    different speakers and different messages.
        The bottom line of this legislation is simple: Voters
    deserve to know who is financing elections. I hope that we can
    get to that simple goal. And I thank our panel for being here
    today and look forward to your testimony.
        Now I would like to recognize the ranking member, Mr.
    Lungren, for any opening statement.
        Mr. Lungren. Thank you very much, Mr. Chairman, for having
    this, the second hearing on proposed legislation following the
    Citizens United decision.
        As I understand it, it is the mind of the chairman of the
    Democratic majority to mark up this bill on Thursday afternoon.
    I might just say, the dispatch with which we are dealing with
    this is in obvious distinction to how the Court has treated
    this and how the FEC treated this.
        The organization Citizens United had to wait for several
    years before they got a decision, during which time they were
    unable to exercise what the Court said was their constitutional
    right protected under the First Amendment dealing with free
    speech and the essence of free speech being political speech.
        With all due respect, Mr. Chairman, it sounds like the
    gentleman doth protest too much in explaining how this bill is
    a bipartisan bill. I suppose 2 out of 176 or 178 Republicans
    makes it bipartisan.
        It would have been more bipartisan had the majority
    leadership--not speaking of you, Mr. Chairman, but others--had
    at least considered it appropriate to share the bill with us
    before it appeared in its final form announced to the press.
        It is difficult to understand bipartisanship when the press
    gets a quicker look at it than those of us on the bipartisan
    side of the aisle. But I understand these things.
        Saying something is disclosure doesn't make it disclosure.
    We have to be very careful how we deal with this law because it
    does deal with the First Amendment right of protected free
    speech, political speech.
        Mr. Chairman, I thought we had a productive hearing last
    week, and I am looking forward to hearing from the witnesses
    here today. Thank you all for being here.
        Mr. Chairman, the hearing last week was revealing. It
    revealed that at least one of the majority's witnesses did not
    believe that the Federal Election Commission could implement
    regulations before the bill becomes effective; thus leaving
    those who wish to speak out about politics without clear
    guidance on what they can say or how they can do it and
    suggesting that it would nullify their ability to so act for
    this election cycle. Perhaps that is the purpose of the bill.
        It revealed how another majority witness who said he had
    participated in the writing of the bill could not, at least in
    my judgement, clearly answer my question about the provisions
    on coordination and how they may differ from current
    regulations because of the use of the word ``or,'' which, as a
    former English major, always suggested to me it meant
    alternatively as opposed to requiring both elements. And we
    have the question of content and conduct being both included as
    the measure of coordination superseded by language, which at
    least suggests to me it can be solely content. That is
    troublesome, at least as far as I am concerned, because it may
    stray too far in terms of defining what coordination is or is
    not.
        It also revealed that some Members on your side of the
    aisle thought the bill could stand some improvement. And for
    that, I offer my thanks. And hopefully we can improve that
    which is before us.
        Mr. Chairman, I look forward to hearing from our witnesses
    today. And I hope that if this committee does report the bill
    to the House, it will be one that has been carefully considered
    and subject to amendment. We may ultimately not agree on the
    policy that should be in place, but I think we do agree that
    the bills we pass should be clear and coherent in achieving
    their ends and free of unintended consequences.
        And since a bill contains potential criminal penalties, we
    have an obligation to ensure that it is not vague. We have an
    obligation, particularly when the criminal penalties are
    attached to an attempt by us to constitutionally restrict what
    otherwise would be considered free political speech, that we be
    very careful about how we do that.
        The Court most recently in a case involving the question of
    honest services statute, at least in the oral argument,
    expressed concern about passing statutes which are so vague as
    to give not unlimited but undue discretionary authority to
    prosecutors to pick out those they wish to take action against.
    And I think, therefore, we should be cautioned as to ensure
    that when we write this bill, it does so in a way that not only
    will pass the constitutional muster, as articulated in the
    Citizens United case, but also not chill free speech.
        Thank you very much, Mr. Chairman.
        I look forward to today's testimony. And I thank you for
    having this hearing.
        The Chairman. Thank you.
        Anyone else?
        Gentlelady Lofgren.
        Ms. Lofgren. Mr. Chairman, I do want to hear the witnesses.
    I won't go on in any kind of considerable length. I think this
    is the third hearing we have had, the second hearing on the
    bill and the third hearing on the subject. And I think that
    there has been substantial--and I would like to submit for the
    record by unanimous consent a list of the communications
    between the majority and minority on this item. I am sure that
    Mr. Lungren speaks in good faith, but I think it is just
    inaccurate.
        Mr. Lungren. Will the gentlelady yield?
        Ms. Lofgren. Yes, I would.
        Mr. Lungren. Does that include the two letters I sent to
    the authors of the bill asking for cooperation for which we
    received no response for several months?
        Ms. Lofgren. Yes, it does. And it also includes a whole
    variety of noted letters. And I think that if we read it, we
    will see that this has been far from a secret proceeding.
        The Chairman. Without objection.
        [The information follows:]

                               [COMMITTEE INSERT]

        Ms. Lofgren. And with that, Mr. Chairman, I would look
    forward to hearing from the witnesses and having time for
    questions.
        The Chairman. Mr. Harper?
        Mr. Harper. No, thank you, Mr. Chairman.
        The Chairman. Thank you.
        I would now like to introduce our witnesses.

       STATEMENTS OF THE HONORABLE TREVOR POTTER, PRESIDENT AND
        GENERAL COUNSEL, CAMPAIGN LEGAL CENTER; JOHN C. COATES,
     PROFESSOR OF LAW AND ECONOMICS, HARVARD LAW SCHOOL; ELIZABETH
      LYNCH, ATTORNEY, CHINA LAW & POLICY; THE HONORABLE MICHAEL
        TONER, PARTNER, BRYAN CAVE, LLP; AND WILLIAM MCGINLEY,
                      ATTORNEY, PATTON BOGGS, LLP

        The Chairman. The Honorable Trevor Potter. Mr. Potter
    currently serves as president and general counsel for Campaign
    Legal Center. Mr. Potter previously served as general counsel
    to John McCain in the 2008 presidential campaign and is a
    former commissioner and chairman of the Federal Election
    Commission.
        John F. Coates is a professor of law and economics as well
    as the research director for the Program of the Legal
    Profession at Harvard Law School. Before coming to Harvard, he
    taught on the adjunct faculties of New York University of Law
    and Boston University School of Law.
        Elizabeth Lynch is an attorney who focuses on legal
    development and reform in China and is founder of the China Law
    & Policy. Prior to working with China Law & Policy, Ms. Lynch
    was a research fellow at New York University Law School, U.S.
    Asian Law Institute, as well as a practicing attorney in New
    York, working on commercial litigation, including antitrust and
    securities actions.
        The Honorable Michael Toner. Mr. Toner is partner at Bryan
    Cave, LLP, where he heads up their election law and government
    ethics practice. Prior to joining the firm, Mr. Toner was
    former commissioner and chairman of the Federal Election
    Commission.
        William McGinley is of counsel in the Washington, D.C.,
    office of Patton Boggs, where he advises a wide range of
    clients on political and campaign finance law issues. Before
    joining Patton Boggs, Mr. McGinley served as general counsel
    and deputy counsel to the National Republican Senate Campaign
    Committee.
        I thank the witnesses. And there is a button in front of
    you, and if you would just push that and speak into the
    microphone. We do have a 5-minute rule, and we do allow on this
    issue, on this bill being as important as it is, to go over it.
    We don't want to go over it too far because you get a chance to
    reiterate anything you say in your statement that you can't get
    in, you can put in for the record. You will be able to
    incorporate it, I am sure you all can, when you answer that or
    any question that we give you, you can incorporate any part of
    your statement into that answer.
        We do have votes coming up around 6:30. I will do this as
    best as possible to get everything in. And hopefully we can get
    it in by then. If not, we all have to come back here about
    7:30, 8:00 o'clock. And if you care to do that, I will join you
    doing that. But I would rather see if we can get this done.
        Mr. Potter, you are on.

                STATEMENT OF THE HONORABLE TREVOR POTTER

        Mr. Potter. Thank you, Mr. Chairman and Mr. Lungren.
        I appreciate the honor of appearing before you today to
    discuss the DISCLOSE Act.
        I would like to say at the outset that I am appearing today
    on my own behalf and not on behalf of any other entity or
    client of my law firm.
        In Justice Kennedy's majority----
        The Chairman. In legalese, that means you are not getting
    paid?
        Mr. Potter. It does.
        The Chairman. Thank you. I didn't mean to interrupt you.
    Thank you.
        Mr. Potter. In Justice Kennedy's majority opinion in
    Citizens United, he was very clear about the importance of
    disclosure. He stated, ``with the advent of the Internet,
    prompt disclosure of expenditures can provide shareholders and
    citizens with the information needed to hold corporations and
    elected officials accountable for their positions and
    supporters.''
        Justice Kennedy further stated, ``the First Amendment
    protects political speech; and disclosure permits citizens and
    shareholders to react to the speech of corporate entities in a
    proper way. This transparency enables the electorate to make
    informed decisions and give proper weight to different speakers
    and messages.''
        Finally, Justice Kennedy stated, ``the public has an
    interest in knowing who is speaking about a candidate just
    before an election.''
        Thus Justice Kennedy in his Citizens United opinion bound
    together the two elements of the decision: Independent
    corporate speech in elections is a First Amendment right, and
    the funding sources of such speech must be fully disclosed in
    order to make this constitutional right function in our
    political system.
        This section of Justice Kennedy's opinion was the only one
    joined by the four Citizens United dissenters, meaning that the
    fundamental importance of disclosure was recognized by eight of
    the nine Justices.
        This background is important to your consideration of the
    DISCLOSE Act not only because it makes it clear that the
    disclosure provisions of the bill are constitutional, but
    because they complete the process begun by the Supreme Court in
    the Citizens United decision by requiring the sort of
    disclosure that Justice Kennedy and the other Justices found so
    essential to our Democratic system.
        I am fully aware that there are many who term this debate a
    partisan one between Republicans and Democrats. And as a
    Republican, I regret that is so. I know the DISCLOSE Act has
    only two distinguished Republican Members of the House as
    cosponsors, and I hope there will be more Republican support
    because this should not be a partisan issue.
        Many Republicans have long argued for the exact conclusion
    that Justice Kennedy arrived at: Less restriction on political
    speech in return for full disclosure.
        This is not to say that the DISCLOSE Act is a perfect act
    of legislative draftsmanship. Few pieces of legislation are,
    especially before they have seen the light of public comment
    and the committee process. Thus I hope the members of the
    committee from both sides will work together to improve the
    bill.
        In particular, I have concerns that the provisions on
    foreign national involvement in the U.S. political process can
    and should be clarified and improved.
        Let me begin by saying that I think there is a bipartisan
    unanimity that we do not want foreign governments, foreign
    government officials or foreign government controlled entities
    from Venezuela, China, or elsewhere, spending money in U.S.
    elections, either directly or through the U.S. companies they
    control. This is a serious threat the bill must address.
        However, the bill goes further in a manner that I think
    makes it vulnerable to potential constitutional challenge for
    being both over-inclusive and under-inclusive. For instance, it
    declares some U.S. companies to be foreign nationals if they
    have a single non-U.S. Individual or company owning 20 percent
    of its shares, even if that individual has no control over the
    corporation's affairs.
        More broadly, the current draft raises the question of why
    some U.S. companies like, say, Anheuser-Busch or Chrysler are
    treated differently in terms of their ability to have U.S. PACs
    or participate in local political activity than other U.S.
    companies with whom they directly compete, like, say, Sam Adams
    and Ford.
        I believe the better answer is to clearly prohibit the
    involvement in U.S. elections of any companies with foreign
    government ownership, either directly or through foreign
    government controlled corporations. This definition can be
    written to prevent the dangers we all seek to guard against
    without sweeping in purely commercial entities.
        The analogy would be to the Foreign Agents Registration
    Act, which makes exactly this sort of distinction.
        The DISCLOSE Act's provisions requiring personal
    certification by the CEO under threat of perjury could police
    this ban on foreign government involvement. I am sure there are
    other areas of the proposed legislation which would also
    benefit from bipartisan discussion and amendments and hope that
    will occur.
        However, the bill fulfills an important need by requiring
    disclosure of who is spending money in U.S. elections. As I
    have noted, an 8-1 majority of the U.S. Supreme Court has
    stated that such disclosure is not only constitutional but is
    the expected and indeed necessary counterbalance to the new
    corporate and union right to expend unlimited funds in U.S.
    elections.
        I urge Congress to require such complete disclosure in time
    for the 2010 elections. Thank you.
        [The statement of Mr. Potter follows:]

        [GRAPHIC] [TIFF OMITTED] T7963A.001

        [GRAPHIC] [TIFF OMITTED] T7963A.002

        [GRAPHIC] [TIFF OMITTED] T7963A.003

        [GRAPHIC] [TIFF OMITTED] T7963A.004

        [GRAPHIC] [TIFF OMITTED] T7963A.005

        [GRAPHIC] [TIFF OMITTED] T7963A.006

        [GRAPHIC] [TIFF OMITTED] T7963A.007

        The Chairman. I thank the gentleman.
        Mr. Coates.

                      STATEMENT OF JOHN C. COATES

        Mr. Coates. Thank you, Mr. Chairman, Ranking Member Lungren
    and members of the committee.
        I am also delighted to be able to be here today to comment
    on this bill. By way of background, I am a corporate law
    scholar and a former corporate lawyer. I was a partner at
    Wachtell Lipton before going to Harvard. I am not a
    constitutional law scholar, and I am not going to address
    constitutional issues either about Citizens United or the bill.
        But I can say with some certainty that the Citizens United
    case did shock in some sense the owners of U.S. corporations.
    It was a radical change in their expectations of how their
    money would be used going forward. Corporations have been out
    of the election world in a direct sense for so long that very
    few companies that are active today needed to have special
    provisions in place. They were created after the Taft-Hartley
    Act. They were created after the Tillman Act, certainly. The
    owners of those companies never imagined that this change in
    law would be coming down.
        And as a result, the decision creates, from a purely
    corporate governance perspective, a massive new risk for the
    shareholders of those companies, and specifically that will be
    that managers of those companies will be using other people's
    money, shareholders' money, to pursue their own personal and
    political agendas using corporate bank accounts in the election
    process. And they are going to be able to do this in secret
    without any disclosure to shareholders or any ability on the
    part of shareholders to learn about, to analyze, to respond to
    the potential diversion by corporate managers.
        The DISCLOSE Act in its entirety is a measured and
    responsible response, I think, to this risk. By requiring
    disclosure, the bill would follow a long tradition of the
    Federal Government mandating disclosure by public companies,
    which supplements private enforcement by shareholders of their
    rights under State law. It would enable shareholders to track
    and monitor election expenditures and, if they want to, to get
    involved in pressuring managers to do what they want rather
    than what managers want. And it would discourage a certain kind
    of activity, which is to say essentially stealing shareholders
    money for the pursuit of a manager's own personal interest.
        I think this, frankly, is what some sponsors and backers of
    this bill may have been referring to in recent media reports
    that were quoted last week as suggesting that it would chill
    some activities. It is not that it would chill speech; it would
    chill theft and use of the stolen property for speech that the
    backers of the corporation themselves would not themselves
    back.
        By requiring personal endorsements from CEOs, the bill
    would also follow a tradition. Here a tradition laid down by
    Chris Cox, former Member of this esteemed organization, and
    George Bush, whose reaction to Enron, appropriately, was to
    start requiring CEOs to personally certify financial
    statements.
        That part of the bill is going to make sure that top
    managers can't simply pretend to not know what is going on down
    in the ranks of their organizations. They won't be able to do
    what Captain Renault did in Casablanca and pretend to be
    shocked at the gambling that was going on in the casino in that
    movie. Instead, they are going to have what Justice Scalia
    calls the civic courage to step up and participate in a
    democracy, which I think is something that he personally is in
    favor of.
        And finally, by covering conduits, the bill would make the
    disclosure requirements effective. They will deal with a sort
    of double problem with the use of other organizations by large
    companies to funnel money into the election cycle. The double
    problem is that, first, shareholders have managers take their
    money and not ask them or tell them about how they are using
    it. Then they turn it over carte blanche to other
    organizations, which ensures another layer of secrecy and
    clouds over their behavior. And again, there is good evidence
    to suggest that managers of companies themselves are surprised
    at how their money is used in the election world.
        And then, finally, the bill will plug the loophole for
    foreign ownership created by the Supreme Court in Citizens
    United. Anybody familiar with the Boston area will know that
    there is a giant Citgo sign near Fenway. Very few people know
    that Citgo is, in fact, backed by Venezuela and effectively
    controlled by Hugo Chavez. And after Citizens United, Citgo can
    directly funnel Hugo's personal, political ambitions into our
    electoral world.
        I don't think that is a good thing. I think that obviously
    runs afoul of longstanding bipartisan decisions to not have
    foreigners in our electoral process.
        Just to wrap up. Thank you for the opportunity to comment
    on the bill. And I hope that you will pass it as soon as
    reasonably practical.
        [The statement of Mr. Coates follows:]

        [GRAPHIC] [TIFF OMITTED] T7963A.008

        [GRAPHIC] [TIFF OMITTED] T7963A.009

        [GRAPHIC] [TIFF OMITTED] T7963A.010

        [GRAPHIC] [TIFF OMITTED] T7963A.011

        [GRAPHIC] [TIFF OMITTED] T7963A.012

        [GRAPHIC] [TIFF OMITTED] T7963A.013

        [GRAPHIC] [TIFF OMITTED] T7963A.014

        [GRAPHIC] [TIFF OMITTED] T7963A.015

        [GRAPHIC] [TIFF OMITTED] T7963A.016

        The Chairman. I thank the gentleman.
        Ms. Lynch.

                      STATEMENT OF ELIZABETH LYNCH

        Ms. Lynch. Good afternoon, Chairman Brady, Ranking Member
    Lungren and distinguished members of the committee. My name is
    Elizabeth Lynch, and I am an attorney and editor at China Law &
    Policy. I want to thank you all for letting me testify today.
        I am grateful for this committee's work on the DISCLOSE
    Act, legislation necessary to deal with the practical problems
    arising from the Supreme Court's recent decision in Citizens
    United v. FEC.
        Of particular concern is the potential influence of foreign
    money and, given the structure of some multinational
    corporations, direct pressure from foreign governments in U.S.
    elections.
        First, how does Citizens United change our understanding of
    the corporate form? In Citizens United, the Court latches on to
    the legal shorthand of person and citizen that the common law
    periodically uses to describe corporations and takes these
    words literally. In doing so, it elevates corporations to equal
    status with individual citizens in the sphere of political
    speech.
        According to the Court, there should be no difference
    between the two. When analyzing a corporation's right to
    political speech, courts are no longer permitted to take into
    consideration elements that make corporations inherently
    different from an individual citizen. These include limited
    liability, perpetual life, and preferential tax treatment. In
    other words, courts can no longer pull aside the corporate
    curtain and look at what is really going on behind the scenes
    that causes a corporation to be different from a real person.
        So how does this new logic help foreign corporations and
    governments in potentially influencing our elections? In
    today's world, most foreign companies with a global presence
    often establish a U.S. subsidiary. These U.S. subsidiaries are
    incorporated under State law and, for purposes of the law, are
    considered citizens in the State in which they are
    incorporated.
        Unfortunately, now, with Citizens United, we are no longer
    permitted to look behind that corporate curtain of a U.S.
    corporation to see its possible relationship to a foreign
    corporation.
        But make no mistake, these U.S. subsidiaries are heavily
    influenced, if not outright controlled, by their foreign parent
    corporations. The parent usually owns a majority, if not all,
    of the shares of the subsidiary, and capital is often infused
    into the subsidiary from the parent.
        But the picture after Citizens United becomes increasingly
    more perilous when some of these foreign corporations have
    direct ties to their governments. For example, in socialist and
    post-socialist countries, such as China, Russia, and Vietnam,
    many corporations are still government run. The same holds true
    for oil-rich nations, like Venezuela and Saudi Arabia, where
    the oil industry is largely nationalized.
        Each of these countries has U.S. subsidiaries for many of
    their government-run corporations. Citgo, for example, is owned
    by the National Oil Company of Venezuela. With the Citizens
    United loophole, the Venezuelan government has the potential to
    flood money into our electoral process through its relationship
    with Citgo.
        But unlike corporations, foreign governments are motivated
    by more than just corporate profits. Global influence, power,
    and advantage are also a major part of their calculation. Even
    if involvement in U.S. elections might harm profits of the
    state-controlled foreign corporation, if that involvement is
    ultimately beneficial to the foreign government for other
    reasons, it will seek to take advantage of the loophole. And in
    today's world, where China has $2.4 trillion in foreign
    currency reserves and the United Arab Emirates' Sovereign
    Wealth Fund houses $450 billion in assets, these foreign
    governments now have the money to do so.
        And that is why Section 102 of the DISCLOSE Act is
    necessary. In a post-Citizens United world, the current version
    of the Federal Election Campaign Act is glaringly ill-equipped.
        First, the act's current prohibition only applies to
    political action committees and says nothing about direct
    expenditures by U.S. subsidiaries of foreign corporations,
    expenditures Citizens United now permits corporations to make
    through election night.
        Second, the act's current prohibition that the foreign
    parent cannot give money to the formation of the U.S.
    subsidiary's PAC is ineffective in today's complex corporate
    world. Corporations are no longer that transparent. Under
    today's corporate law, there is simply no way to prevent
    infusion of cash from one company to another. All the
    subsidiary has to do is issue stock that is purchased by the
    foreign parent and use those funds to ultimately do the foreign
    parent corporation's bidding in our elections.
        But Section 102 of the DISCLOSE Act would effectively
    eliminate these current loopholes. By expanding the definition
    of foreign national to include U.S. Subsidiaries where 20
    percent of the voting shares are owned by a foreign entity or
    where a majority of the board are foreign nationals or where
    the U.S. operations are, in fact, directed by a foreign entity,
    the DISCLOSE Act can protect our elections from undue foreign
    influence and restore the ability of the U.S. people to hold
    accountable their government.
        Thank you. And I look forward to your questions.
        [The statement of Ms. Lynch follows:]

        [GRAPHIC] [TIFF OMITTED] T7963A.017

        [GRAPHIC] [TIFF OMITTED] T7963A.018

        [GRAPHIC] [TIFF OMITTED] T7963A.019

        [GRAPHIC] [TIFF OMITTED] T7963A.020

        [GRAPHIC] [TIFF OMITTED] T7963A.021

        [GRAPHIC] [TIFF OMITTED] T7963A.022

        [GRAPHIC] [TIFF OMITTED] T7963A.023

        [GRAPHIC] [TIFF OMITTED] T7963A.024

        The Chairman. Thank you.
        Mr. Toner.

                STATEMENT OF THE HONORABLE MICHAEL TONER

        Mr. Toner. Thank you, Chairman Brady, Ranking Member
    Lungren, and members of the committee for the opportunity to
    testify today regarding the DISCLOSE Act.
        I am appearing today in my personal capacity and not on
    behalf of any particular client.
        At the outset, I would like to emphasize that I am very
    troubled by the process by which Congress has considered the
    DISCLOSE Act to date. The legislation purports to respond to
    the Citizens United ruling but contains a large number of
    provisions that have nothing to do with the ruling and are in
    no way necessitated by the Supreme Court decision.
        The legislation was crafted behind closed doors with, as
    far as I can determine, little or no consultation with the
    Republican congressional leadership, neither in the House of
    Representatives or the Senate.
        In addition, the DISCLOSE Act seeks to make major changes
    to the Federal Election Campaign Act only months before a
    national election, with an effective date of 30 days after
    enactment, regardless of whether the Federal Election
    Commission has issued any regulations to effectuate the
    legislation.
        Moreover, the DISCLOSE Act fails to define numerous key
    statutory terms, which creates some potential for widespread
    confusion among regulated entities about what their legal
    obligations are under the law, all of which could take place as
    soon as this fall in the final weeks before the midterm
    election.
        Needless to say, the presence of any of these phenomena
    would seriously jeopardize the enactment of sound legislation.
    The presence of all three of them here makes it nearly
    impossible, in my view, for Congress to act in a responsible
    way.
        I will not attempt to identify all of my objections to the
    DISCLOSE Act, which are outlined in greater detail in my
    written comments, but I would like to highlight two of the
    biggest problems I see in the proposed legislation.
        First, the DISCLOSE Act would severely restrict the
    political activities of a large number of American
    corporations, including many longstanding companies run by
    American citizens, if foreign nationals are associated with the
    companies in certain ways. The practical effect of these
    provisions would be to prohibit many American companies from
    making any contributions or expenditures in connection with
    U.S. elections, from making any independent expenditures or
    election year communications, or even from operating a
    political action committee, which after all is funded by
    contributions from American citizens, is fully disclosed to the
    Federal Election Commission, and allows the company's employees
    to be involved in American politics.
        The biggest targets of the legislation are American
    subsidiaries of foreign parent corporations, including
    companies that employ tens of thousands of Americans and have
    operations across this country. Targets of legislation
    potentially include Anheuser-Busch, Food Lion, Michelin North
    America, the Miller Brewing Company, Nestle U.S.A., Panasonic
    Corporation, and the John Hancock Life Insurance Company, just
    to name a few of the legislative targets.
        I understand that advocating for additional foreign
    national restrictions in American elections makes for good
    politics, particularly in an election year. But to potentially
    sweep up hundreds of established U.S. companies that are run by
    Americans and restrict them from being involved in American
    elections, in my view, is very misguided.
        It is also unnecessary, given that the Citizens United
    ruling did not affect FECA's existing regulations on foreign
    national contributions and expenditures, which, after all, were
    strengthened just 8 years ago in the Bipartisan Campaign Reform
    Act of 2002, and given that no one has argued that there has
    been inappropriate foreign national involvement in American
    elections in recent years.
        Second, a number of key statutory terms are not defined in
    the DISCLOSE Act, which makes the legislation unduly vague in a
    wide variety of areas. I will just touch on one key area, and
    that deals with political party coordinated expenditures. The
    DISCLOSE Act provides that payments by political parties for
    communications made on behalf of their candidates would be
    subject to FECA's party-coordinated expenditure limits but only
    if, ``the communication is controlled by or made at the
    direction of the candidate.'' However, the legislation does not
    define or specify what types of candidate conduct or
    communications constitute direction or control within the
    meaning of the statute.
        And that is a very important element. I think if Congress
    is going to amend the party committee coordinated expenditure
    limits, that there be key definitions as to what these
    statutory terms entail. My written comments go into a few
    scenarios that I think could easily arise and whether or not
    the legislation would restrict the activities or not.
        But more broadly, given that political parties cannot
    corrupt their own candidates, political parties should be
    permitted to make unlimited coordinated expenditures without
    any qualifications or conditions whatsoever. It is important to
    note that, under current law, political party coordinated
    expenditures must be made out of hard dollar funds which are
    raised subject to the contribution limits and source
    prohibitions of FECA. Permitting unlimited coordinated party
    expenditures would allow the political parties to more
    efficiently target their hard dollar funds in the most
    important races across the country and also would be fully
    consistent with the Bipartisan Campaign Reform Act's emphasis
    on hard dollar fundraising and making those types of funds more
    important in Federal elections.
        If Congress decides to amend FECA's political party
    coordinated expenditure provisions, in my view, it should lift
    the limits on party coordinated expenditures altogether without
    any statutory conditions.
        Thank you so much, Mr. Chairman, for the opportunity to be
    with you, and I look forward to the questions.
        [The statement of Mr. Toner follows:]

        [GRAPHIC] [TIFF OMITTED] T7963A.025

        [GRAPHIC] [TIFF OMITTED] T7963A.026

        [GRAPHIC] [TIFF OMITTED] T7963A.027

        [GRAPHIC] [TIFF OMITTED] T7963A.028

        [GRAPHIC] [TIFF OMITTED] T7963A.029

        [GRAPHIC] [TIFF OMITTED] T7963A.030

        [GRAPHIC] [TIFF OMITTED] T7963A.031

        [GRAPHIC] [TIFF OMITTED] T7963A.032

        [GRAPHIC] [TIFF OMITTED] T7963A.033

        [GRAPHIC] [TIFF OMITTED] T7963A.034

        [GRAPHIC] [TIFF OMITTED] T7963A.035

        [GRAPHIC] [TIFF OMITTED] T7963A.036

        The Chairman. Thank you.
        Mr. McGinley.

                     STATEMENT OF WILLIAM MCGINLEY

        Mr. McGinley. Chairman Brady, Ranking Member Lungren,
    members of the committee, thank you for the opportunity to
    testify today regarding the DISCLOSE ACT. I am testifying today
    in my personal capacity and not on behalf of any client or any
    other individual or organization.
        The Chairman. Another freebie.
        Mr. McGinley. My testimony reflects my personal views on
    the DISCLOSE Act as a citizen and a political law practitioner.
        I have serious concerns about this legislation because it
    appears designed to chill political speech and discriminate
    between different types of speakers. The fact that the Federal
    Government contractor and expanded foreign national bans apply
    only to corporations and not to similarly situated labor unions
    is particularly troubling. The only apparent reason for this
    disparate treatment is an attempt to elevate the labor union
    speech and possibly protect incumbents.
        My testimony today will focus on two topics: First, the
    potential consequences resulting from some of the vague terms
    contained in the DISCLOSE Act; and second, the chilling effects
    some of the disclosure requirements will have on political
    speech.
        The DISCLOSE Act contains many vague terms that will impose
    onerous requirements on political speakers. This will result in
    many of them inadvertently violating the law. First, the
    foreign national certification requirement under 102(c) appears
    to apply to every for-profit and nonprofit corporation. This
    means that not only will large publicly traded corporations be
    required to file the certification, but also every Federal
    campaign, PAC, and political party committee that is
    incorporated as a nonprofit corporation. In fact, it appears
    that the certification will need to be filed by incorporated
    State candidate committees and PACs and party committees as
    well, because the certification requires it for donations.
        Second, the broad reach of the new definitions of
    independent expenditure under Section 201(a) and covered
    coordinated communication under Section 324(b) now appear to
    regulate Internet communications, including the liberal and
    conservative blogosphere. These provisions apply to
    ``communications,'' an undefined term in the act. Current
    Federal law limits the application of these rules by using the
    definition of public communication that specifically excludes
    Internet communications, unless the Internet communication is
    an advertisement placed on another person's Web site for a fee.
        Moreover, the media exemption contained in the DISCLOSE Act
    coordination rules under Section 324(b)(4) does not include Web
    sites or Internet communications in the same manner as current
    law. Therefore, this legislation does not exclude bloggers or
    Internet communications and places them at risk. If this bill
    passes, the Internet's status as a free speech zone is in
    danger.
        Third, Section 324(a) provides that the republication in
    whole or part of any candidate or campaign materials
    constitutes coordination and results in a contribution to that
    candidate, regardless if there is any actual coordination
    between the two groups. This is a radical departure from the
    current coordination framework, which requires that actual
    coordination be present.
        Section 324(a) as currently drafted does not contain
    similar safeguards. This means that if an outside group uses a
    portion of a campaign ad or a brochure to criticize a
    candidate, it may result in a prohibited contribution to that
    candidate.
        In addition, the DISCLOSE Act's burdensome reporting
    requirements will have a chilling effect on independent
    political speech. First, Section 102(c) requires every
    corporation to certify under penalty of perjury that it is not
    subject to the expanded foreign national ban prior to engaging
    in political speech. This requirement will cause delay when a
    political speaker conducts the due diligence necessary to make
    such a certification. This severely burdens speech because
    effective advocacy requires a speaker to be nimble in response
    to the political messages of others.
        Second, the legislation requires a covered organization to
    file a public report, including posting the report on the
    organization's Web site if it transfers money to another person
    that is deemed to be made for campaign activity. These types of
    transfers are made before an advertisement is publicly
    released. This prespeech disclosure forces a speaker to confer
    a competitive advantage on its opponents by revealing its
    private political strategies. It also dilutes the effectiveness
    of the advocacy.
        Finally, I am concerned that the legislation may become
    effective 30 days after enactment during the upcoming 2010
    elections; 30 days is not enough time for the FEC to clarify
    the application of the DISCLOSE Act through the proper
    rulemaking procedures.
        Equally troubling is the protracted process for judicial
    review of this legislation, which appears designed to push any
    potential judicial relief until after the 2010 elections.
        I respectfully request that the committee not adopt the
    DISCLOSE Act and fashion a reasonable disclosure regime for
    independent speech that respects the freedoms of association
    and speech under the First Amendment.
        I am happy to answer any questions you may have.
        [The statement of Mr. McGinley follows:]

        [GRAPHIC] [TIFF OMITTED] T7963A.037

        [GRAPHIC] [TIFF OMITTED] T7963A.038

        [GRAPHIC] [TIFF OMITTED] T7963A.039

        [GRAPHIC] [TIFF OMITTED] T7963A.040

        [GRAPHIC] [TIFF OMITTED] T7963A.041

        [GRAPHIC] [TIFF OMITTED] T7963A.042

        [GRAPHIC] [TIFF OMITTED] T7963A.043

        [GRAPHIC] [TIFF OMITTED] T7963A.044

        [GRAPHIC] [TIFF OMITTED] T7963A.045

        [GRAPHIC] [TIFF OMITTED] T7963A.046

        [GRAPHIC] [TIFF OMITTED] T7963A.047

        [GRAPHIC] [TIFF OMITTED] T7963A.048

        The Chairman. Thank you.
        We will open up for questions. And I have a question for
    Mr. Potter. Is it constitutional to require disclosures of the
    donors to private groups that engage in political speech? And
    is it necessary?
        Mr. Potter. Mr. Chairman, I think, as my citations to
    Justice Kennedy in the 8-1 section of that opinion indicate, it
    is.
        What Justice Kennedy and the Court were saying is that it
    is important for people to know who is speaking and where the
    funding is coming from. And that would be true whether we are
    talking about a corporation or a trade association or a union
    or a 501(c)(4).
        Under current law, there is a range of disclosure that is
    already required, and that would apply to (c)(4)s as well. So I
    don't see a constitutional problem with the provisions of the
    act.
        The Chairman. So what this bill does is say, who is saying
    something, and who is paying for something? That is really--
        Mr. Potter. That is my understanding.
        The Chairman. Thank you.
        Mr. Lungren.
        Mr. Lungren. Thank you very much.
        And this is more of a general question, but it is one that
    I have difficulty finely defining in my own mind.
        I am for disclosure, appropriate disclosure. At the same
    time, we had an experience in California recently where we had
    a controversial proposition on the ballot called Proposition 8.
    It had to do with the definition of marriage. During the course
    of a court case that took place thereafter--it still is not
    resolved--there was a demand made, enforced by the court, that
    contributors to the Proposition be revealed.
        Subsequent to that, some of my constituents and some just
    outside my constituency received retaliatory action because
    they had contributed as little as $1,000 on behalf of the
    Proposition, one individual being fired from his job or forced
    to resign from his job, even though it had nothing to do with
    the job that he had; another business being the subject of
    boycott and threat.
        And I just say that as a factual matter. I know these facts
    to be true.
        Do we say that that is the price of debate in a vigorous
    society, a vigorous political society, and therefore, even
    though disclosure may allow for those things to occur, if one
    wishes to express himself or herself politically by way of
    donation, that that person should expect that repercussions,
    including that kind of retaliation, should take place because
    we believe it is of a higher value for disclosure so that the
    public may know who seeks to influence decisions before the
    public?
        Mr. Potter.
        Mr. Potter. I think there are two answers there.
        One is that, as you are undoubtedly aware, there is a
    similar case right now in the Supreme Court, and there were
    oral arguments on it about a month ago out of the State of
    Washington with parallel questions.
        I recall the accounts of that oral argument, and I am going
    to paraphrase Justice Scalia saying something along the lines
    of, people who engage in political public discourse shouldn't
    be shrinking violets.
        But that is a flip answer, because the second part is that
    the Court said, going all the way back to a Socialist Workers
    Party case, that if you can show that there is going to be
    actual harm from disclosure, that you are going to be injured
    in a direct way, then you can be exempt from disclosure. And in
    fact, I believe it is still the case that the Socialist Workers
    Party has an exemption at the FEC from filing its donor
    disclosure forms because of that.
        So on an as-applied basis, I think you can say, if there is
    proof that there is going to be violence or actual harm to
    somebody because of a disclosure statute, that they can apply
    for and be exempt. But that doesn't, in my view, mean that you
    shouldn't have the disclosure requirements for everybody else.
        Mr. Lungren. Let me ask this question. I brought this up
    last week, and at least one of you talked about Venezuela
    having influence over our elections and so forth by way of this
    and maybe China.
        We have laws on the book which say that foreign nationals
    cannot take acts to influence elections. I don't believe that
    Citizens United changes that, and the person making the
    decision for a corporation must be an American citizen rather
    than a foreign national. I don't believe that changes this at
    all.
        But I do understand the concern people have with respect
    to, at some level, some threshold that you would have foreign
    influence because a corporation is somehow identified with
    foreign interest as opposed to other interests.
        My question is this: As we try and articulate that
    proposition in the law, ought we be concerned about whether or
    not we give license to other countries to utilize that same
    argument against American companies who may operate in their
    territory?
        For instance, if an American company were operating in
    Venezuela and the Venezuelan government were to say or the
    president of Venezuela were to say, we are going to put before
    our legislature a law which will nationalize American companies
    in this area of our economy, would we--should we be concerned
    about the inability of the American company to be able to
    respond to that by saying, even though it is a political
    decision, we believe this is unfair to our company and our
    employees in your country and therefore be subject to the law
    that they may adopt saying that criticizing prospective
    government decisions, that is bills before the legislature, or
    criticizing the candidate, the president is up for election
    when he makes this statement, is an illegal act and would
    subject the American company to criminal penalties, including
    imprisonment?
        And this is not a flip question. This is a question that I
    really am somewhat concerned about. We have a legitimate
    concern here, but ought we not to be very careful how we write
    this so we don't give that kind of precedent for other
    countries to be able to use it against us? Obviously, they have
    their criminal justice schematic, but their definition of
    political participation may not seem to them entirely different
    than what we are attempting to restrict here, which is
    political free speech, otherwise thought. Would any of you
    respond to that?
        Mr. Coates. Let me take a quick stab at it.
        So my first response is I am a little confused, both--you
    make this point, and it was made earlier by some of the other
    panelists last week, that the existing law already prohibits
    foreign persons. So, but at the same time, I hear you, the same
    people, claiming that if we simply add the provision that is in
    this bill it will have terrible consequences. So either we have
    the law already in place and it works or we don't need to
    change it----
        Mr. Lungren. If you would answer my question, please,
    because I only have a period of time. If you don't want to
    answer the question, I will ask somebody else to answer that
    question.
        Mr. Coates. Honestly, that is a sincere response to your
    statement earlier that we already prohibit the thing that we
    are concerned about.
        Now, in response to the point about foreigners, if we have
    public financing, as is true in Europe, of campaigns, this
    whole concern goes away.
        Ms. Lynch. I would just like to respond.
        I really appreciate that you are thinking about the
    international effects of domestic legislation, because I do
    think a lot of times Congress doesn't look to that. And as
    somebody who works abroad and interacts with a lot of people in
    China and places like China, it is something that comes up,
    like what are the precautions if you are a foreign person
    abroad or a foreign business.
        But I think in the case of the DISCLOSE Act, I do think it
    is less of a problem. I do think that Section 102 just returns
    what we had before Citizens United; it just returns it back to
    the status quo.
        I think when Citizens United was decided, I think somebody
    on the panel said that a lot of corporations were surprised by
    its decision. And I think that would equally hold true of
    foreign governments. I don't think foreign governments ever
    thought they would have the ability to put money in our
    elections.
        And I also think there are other avenues open to foreign
    governments and foreign corporations in the United States that
    they effectively use, such as lobbying and also comment periods
    before rulemaking.
        And what is really interesting to note in the case of China
    is that it has actually become much more responsive to U.S.
    interests--not U.S. interests, but it has allowed for U.S.
    corporations, U.S. Chamber of Commerce to actually give
    comments to recent laws that it has adopted, such as the anti-
    monopoly law and the amendments to their labor contract law.
    And all of that happened before Citizens United.
        So I actually think, while it is important to always be
    thinking about potential implications abroad of our own
    domestic legislation, I think Section 102 wouldn't have
    necessarily that retribution.
        Mr. Lungren. I just recall the argument of the government
    in the first oral argument before the Supreme Court was that
    the government has the right to even ban a book if published by
    a corporation that criticized someone within the 90-day period
    who happened to be up for election. And that bothers me a great
    deal because that goes far beyond the idea that you are
    directly contributing to a candidate. That takes expression to
    the furthest extent, and one thing we have always been a little
    concerned about is that.
        And frankly, I was surprised that the government took that
    position, but that was the position of the Federal Government.
    And I certainly wouldn't want that to be the position of a
    foreign government, saying, well, that is the position that you
    folks have taken in the United States.
        Thank you very much, Mr. Chairman.
        The Chairman. I thank the gentleman.
        Ms. Lofgren.
        Ms. Lofgren. Thank you, Mr. Chairman.
        Before I ask my questions, I wanted to note that I see
    former Representative Pete McCloskey here in the audience,
    someone who was a tremendous hero and whom we all admire.
        And, Pete, it is just great to have you here in the
    committee room.
        Mr. Coates, I am glad that we have got a corporate lawyer,
    not just constitutional lawyers here, because there are some
    questions I have had, and maybe you can help answer them for
    me.
        When I read the decision, I will say I didn't agree with
    the decision, but it is the law. So now we have to see what is
    there and see what is possible consistent with the law. I
    accept that.
        But here is what I am interested in probing. The decision
    says the First Amendment does not allow the power to prevent
    corporate speech, to paraphrase; there is, furthermore, little
    evidence of abuse that cannot be corrected by shareholders
    through the procedures of corporate democracy. When I read
    that, I thought, I don't know about that. I mean, corporate
    democracy isn't that vibrant really.
        And towards the end of the decision, it talks again about
    shareholders. And I will read just part of it. It says,
    shareholder objections raised through the procedures of
    corporate democracy can be more effective today because modern
    technology makes disclosures rapid and informative, which
    really I think asks us--it is reaching out and enticing us to
    establish a vigorous disclosure procedure--and again, with the
    advent of the Internet, prompt disclosure expenditures can
    provide shareholders and citizens with the information needed
    to hold corporations and elected officials accountable for
    their positions and supporters. Shareholders can determine
    whether their corporation's political speech advances the
    corporation's interests in making profits and citizens can see
    whether elected officials are in the pocket of so-called
    moneyed interests. The First Amendment protects political
    speech. The disclosure permits citizens and shareholders to
    react to the speech of corporate entities in a proper way. And
    I have been wondering what ``a proper way'' might be. And it
    goes on to say that transparency enables the electorate and the
    like.
        Now, I have been thinking about when shareholders, when you
    buy a piece of stock, your basic interest is in your return. It
    is in getting dividends and having the price increase in value
    so you can sell it. It is not so the officers and the directors
    can use your money or what would have been your dividend to
    play politics with your money.
         And right now, I don't see any way to protect--I mean, put
    the free speech issues just to one side for a minute. How can
    shareholders be protected? I mean, if the value of the share is
    diminished because of the expenditure decisions made by the
    officers and directors to say ``sell the stock'' is not the
    remedy because the stock value has been diminished. And also,
    if you are in a closely-held corporation, you are especially
    vulnerable because you can't sell the stock, even if that were
    a proper remedy, which I think it is not.
        It seems to me that the business judgment rule really
    protects and insulates the officers and directors from
    accountability. And I have been exploring, is there some way
    that we could give shareholders some kind of remedy at law when
    there are expenditures for political reasons, which is
    protected, but the end result is the shareholder eats it
    financially; shouldn't they have some kind of remedy? How would
    you craft that?
        Mr. Coates. Thank you for your question.
        Yes, I agree that the Supreme Court--I agree with the
    implication of your question that the Supreme Court was a
    little over-optimistic about the ability of shareholders under
    current law to take action.
        And the most basic point is that, without the disclosure
    requirements of the kind that are in this bill, they won't even
    know what is being done with their money.
        Ms. Lofgren. Well, if I may, the disclosure requirements
    benefit the electorate, and then they can make a decision.
        I remember--and I am sure Dan remembers as well--in
    California, a number of years ago, there was an initiative to
    regulate smoking in public places. And as soon as the public
    found out that it was funded by the tobacco companies, it just
    crashed in the polls. I mean, it went down.
        So the disclosure benefits the electorate, but the
    disclosure doesn't actually solve the problem for the
    shareholder, does it?
        Mr. Coates. It does not completely solve the problem, but
    it is a minimum. It is a necessary thing. I think one thing, at
    least in principle, that shareholders could do if they were
    dissatisfied with what they learned their money was being used
    to do is to sponsor bylaw amendments that would then further
    control the use of political money by the companies in which
    they invest.
        And in fact, a significant number of companies have
    voluntarily adopted mandatory self-imposed disclosure
    requirements and reporting requirements. And I think, for that
    reason, that is another reason that this bill is in line with
    what in fact shareholders would want.
        I think it is also reasonable to explore alternative means
    to give shareholders more of a role in this area, and I think
    there are other bills that are out there that are worth
    exploring and working on to see if we could get that done, too.
        Ms. Lofgren. If I could just do one quick follow up. On
    that point, I don't think it belongs in this bill. I think that
    these disclosure provisions are essential, and it needs to move
    promptly. But on a separate track, I have been thinking,
    shouldn't the shareholder--I mean, we really tightened up
    derivative--I mean, shareholder lawsuits. And, actually, I was
    one of the Democrats that voted to override President Clinton's
    veto on that, and I am glad I did, and I think it was the right
    vote to this day.
        But there are circumstances where, I mean, other than
    having the ability to go after the corporation that took your
    dividend and spent it on their pet project, what remedy do you
    have?
        Mr. Coates. The United Kingdom currently requires prior
    shareholder authorization for political activity. I am not
    necessarily saying that we could take it from their system and
    put it in ours exactly in the way that they do it, but that is
    at least worth exploring.
        I will also point out that, to the extent people are
    concerned about parity between unions and corporations, union
    members all have basically a right to opt out, not as a vote,
    not as a collective, but individually on whether they want
    their money used for political purposes. And so if you wanted
    to be strictly parallel, you would give every shareholder of
    every corporation the right to veto their personal pro rata
    share of proposed political expenditures, and that would be
    substantially more than the United Kingdom has done. But I
    think those are things that are at least worth putting in the
    mix.
        Ms. Lofgren. If I may, and perhaps I can follow up with you
    subsequent to this, because I think certainly we have tried to
    be evenhanded so that the rules will follow for everyone. But
    the union members don't have their entire life savings at
    stake; the shareholders do. And to say that your pro rata share
    can be walled off doesn't really do you any good if the stock
    takes a dive because your CEO, as a wild-eyed lefty, goes off
    on some tangent and the right wing organizes a boycott, and the
    stock takes a dive; how does that help you?
        Mr. Coates. I would love to follow up and work with you on
    alternatives to add to what is in the bill, but I just want to
    reemphasize, without disclosure, none of the rest of it works.
        Ms. Lofgren. Thank you.
        I yield back, Mr. Chairman.
        The Chairman. I thank the gentlelady.
        Mr. Harper.
        Mr. Harper. Thank you, Mr. Chairman.
        Mr. Potter, if I could, earlier you made a statement in
    your opening remarks that this should not be a partisan issue.
    Does the fact that this is the committee of jurisdiction on
    this bill, that none of the Republican members of this
    committee were consulted, does that not make it partisan?
        Mr. Potter. I don't know who was consulted in the process,
    Mr. Harper.
        I do know that I was continually hearing through the spring
    that one of the reasons that the bill had not yet been drafted
    and introduced as people had talked about doing shortly after
    the decision is that they were looking for Republican partners
    and not finding many.
        Since this is the committee of jurisdiction, what I am
    hopeful at this stage is that in the markup process, there can
    be a coming together, because, as Mr. Lungren said, I think
    both sides have favored disclosure as the essence here, and
    what I am hopeful is that people can coalesce around the
    details of it.
        Mr. Harper. Senator McCain made some remarks on this, that
    he thought that this legislation, the DISCLOSE Act, would favor
    unions. Do you agree or disagree with that statement?
        Mr. Potter. Well, as I said, I am not here speaking on
    behalf of any client, including the good Senator.
        Mr. Harper. I understand.
        Mr. Potter. I think, having looked at it, and I read the
    testimony from last week that said it would favor unions, it
    seemed to me that the disclosure provisions were evenhanded.
    They would apply to both corporations and unions.
        And I can certainly remember past campaigns where unions
    paid for advertising that ran under catchy names that didn't
    say anything about unions, ``Americans for a Better Country''
    or something. So I think the fact that it would have to
    disclose the names of the unions that are sponsoring it, and
    that it was specifically sponsored by unions, would be an
    important disclosure provision and probably news to viewers who
    are used to just seeing the catchy name on it.
        Mr. Harper. Is it your understanding that if corporations
    received TARP funds, that they are restricted under this bill?
        Mr. Potter. I believe that is the case, unless they paid
    them back.
        Mr. Harper. But their unions are not restricted. So I am
    trying to figure out how that----
        Mr. Potter. I suppose if they received TARP funds, but I
    don't think any of them did.
        There are going to be provisions of the bill--the other
    discussion has been Federal contractors--where there are going
    to be more corporations affected than there are unions, because
    there are going to be more corporations that are Federal
    contractors than they are unions, but I don't know that that
    makes the bill discriminatory against corporations.
        We have to start with the fact that Citizens United is a
    case about corporate spending. There was no union in that case.
    I think lawyers assume that unions have the same First
    Amendment rights as corporations do, but the whole Supreme
    Court decision is about corporate spending, corporate
    disclosure, corporate shareholders because that was the case
    before them.
        Mr. Harper. Thank you, Mr. Potter.
        Mr. Toner, do you agree or disagree with Senator McCain's
    statement that unions are treated--that this may favor unions a
    great deal?
        Mr. Toner. I don't think it is a bad deal for the unions.
    That would be my short summation.
        And if I may, Congressman, two quick points I would make. A
    couple of the panelists have emphasized that Citizens United
    was a shock. I think, in many ways, Citizens United was a
    resettling of precedent in terms of the First Amendment values
    the Court has emphasized.
        And I say that because Citizens United overruled Michigan
    v. Austin Chamber of Commerce that in many ways was an outlier
    because the Supreme Court has emphasized that when you are
    talking about independent speech, there is no anticorruption
    rationale for restricting it. And so, starting with individuals
    in Buckley v. Valeo, that is unlimited; starting with political
    action committees in NCPAC, that was held could not be
    restricted. Nonprofit corporations, in Massachusetts Citizens
    for Life could not be restricted. Political parties could not
    be restricted. Really the only entities in America left were
    for-profit corporations. And so, in that respect, I think
    Citizens United was a reordering of the decision.
        And beyond that, of course, as you know, a large number of
    jurisdictions in this country for decades have allowed
    corporate contributions and expenditures before Citizens
    United. And I think it is fair to say that some of the best
    governed States in the Nation operate in those types of
    regimes, such as, for example, Virginia. And we have not seen
    the parade of horribles displayed there that we are hearing a
    little bit this afternoon.
        So, for all of these reasons, I really think in many ways,
    particularly in the foreign national area, this is a statute
    searching for problems that don't exist. And I will emphasize
    one thing: Current law does not prohibit American companies
    that are owned 80 percent by Americans from being involved in
    U.S. elections. This bill would. I don't think that is
    appropriate. Maybe other people think it is, but I think that
    is really a misguided policy choice.
        Mr. Harper. Mr. McGinley, you were talking earlier and you
    mentioned about this taking effect within 30 days after passage
    without any regs being written. To your knowledge, has the FEC
    implemented or given any regulations on the Citizens United
    case, which was decided back on January 21 of this year?
        Mr. McGinley. No. I believe the only thing that they did
    was put out a policy statement that said that the regulations
    affected by the decision would no longer be enforced.
        Mr. Harper. Can you think of any reason, other than to
    impact the November 2010 election, of why would you have this
    take place without the regs being in effect?
        Mr. McGinley. I think that would be the sole reason,
    because a number of the things that are happening in this bill.
    The unions are left untouched by the government contractor and
    the foreign national ban, despite the fact that a union may be
    an international union with international members receiving
    dues from an international source, or a union representing the
    employees of a Federal Government contractor or a union
    representing Federal Government employees that may be similarly
    situated. And so those types of labor unions are left
    untouched, left free to engage in the speech.
        And I also might add, under the disclosure regime, it is my
    understanding that there have been some studies where the
    average dues that unions receive from a member is below the
    thresholds for the reporting. What we are seeing is a carefully
    crafted disclosure threshold amount that requires the
    disclosure of donors to make sure that union members are not
    disclosed, and I think that that is very troubling.
        Mr. Harper. Thank you, Mr. McGinley.
        Thank you, Mr. Chairman. I yield back.
        The Chairman. Thank you.
        Mr. Capuano.
        Mr. Capuano. Thank you, Mr. Chairman.
        As far as participation of the process, I mean, if there
    are amendments to be offered this week or whenever we are going
    to do the markup, I am more than happy to look at every
    amendment offered by any member of this committee and make a
    judgment on that, and maybe even co-author.
        I have some of the same concerns, I said at the last
    hearing, on the definition of what a foreign corporation is.
    And if there are thoughtful amendments that are offered, I
    might even co-author them.
        I am not going to do it with the intent of killing the bill
    because I think the concept is right, but around the details, I
    am more than open to some of these things. I think some of
    these concerns are generally okay.
        First of all, Mr. Potter, I want to thank you very much. I
    am not sure, but I may be the only person up here who had an
    opponent from the Socialist Workers Party, and I didn't know
    why they didn't file anything. Now I do. I just figured they
    didn't raise any money. Maybe they raised a lot, and I didn't
    know it.
        Is there anybody on the panel that thinks that, regardless
    of the definition of a foreign corporation, that a United
    States citizen that works for a foreign-owned corporation could
    not make a contribution? Is there anybody here that thinks that
    this proposal would prohibit a U.S. citizen who works for CITGO
    or ADIA or anybody else from making a contribution?
        Go ahead, Mr. Toner.
        Mr. Toner. It would, yes. It would restrict a U.S. citizen
    from contributing to the company's PAC; yes, sir.
        Mr. Capuano. No, no, to an actual political campaign or to
    a specific ballot question or anything else.
        Mr. Toner. You mean, setting aside the ability to
    contribute to the company's PAC, which is a vital part of being
    involved in American politics?
        Mr. Capuano. Actually, you know what, I would ask you, and
    that is fine, if you think so, I would like you to show me that
    specific language because that is a fair concern. I don't read
    it that it does, but if you do, I am happy to look at that.
        But do you see anything in here that would prohibit them
    from contributing to my campaign?
        Mr. Toner. Setting aside the inability to contribute to the
    company's PAC, I agree with you. But I do think the PAC is an
    important issue.
        Mr. Capuano. I don't disagree, and I would be happy to
    consider that. But the average employee of a foreign
    corporation, regardless of whether it is a wholly-owned
    subsidiary of the government or not of a foreign company, could
    contribute; we all agree with that. So, therefore, they have
    the right to participate in their own elections.
        Does anybody here think that--and again, CITGO, I am not
    sure they are a corporate organization. But I am positive ADIA
    is a corporation sponsorship. ADIA is the largest owned,
    largest sovereign wealth fund in the world, wholly owned by the
    government of the United Arab Emirates. Does anybody here think
    really they should have a right to participate in my election?
    Do you really think that? And if you do, it is okay; I just
    want to know it.
        Mr. Toner. I don't mean to be so disagreeable. Two points:
    I think it is illegal under current law, and I am not familiar
    with CITGO making contributions or expenditures----
        Mr. Capuano. I didn't ask whether it was legal. I asked
    whether you think they should be able to do so.
        Mr. Toner. Well, I do think it is relevant to assess
    whether it is lawful under current law, and I think it is
    unlawful.
        Mr. Capuano. No, because we are the ones who write these
    laws, so that is what I am trying to assess. I am trying to
    assess--my question, every time I write a law, is what do I
    want the law to be; not what the law is. I want to know, what
    kind of a world do I want to live in, not just in this; every
    time I participate in writing legislation, what is my goal? And
    I would argue that my goal would be to keep foreign entities
    out of my elections, but I am just curious if anybody here
    thinks that a corporation that is a wholly-owned subsidy of a
    foreign government should participate in the American electoral
    process. It is a philosophical question, not a legal one.
        Mr. Toner. Well, this law, this proposed law goes far
    beyond that goal, Congressman, and would sweep up U.S.
    Companies and U.S.----
        Mr. Capuano. Mr. Toner, I guess if you don't answer the
    question, that is okay. You are entitled to not answer the
    question. The other people aren't answering it, and that is
    okay. But it is a very simple question: How is it that you
    don't understand that question?
        Mr. Toner. If you want to make it illegal for American
    companies that are owned 80 percent by Americans, that is fine;
    that is your legislative choice. That is what this would do.
        Mr. Capuano. Mr. Toner, I can talk slower if you want me
    to. Do you think that a foreign corporation that is a wholly-
    owned subsidiary of a foreign government should participate in
    the elections of American politicians? Very simple question.
        Mr. Toner. I appreciate the cadence of your question. The
    answer is, no, but that is not necessary by this bill.
        Mr. Capuano. Thank you. I appreciate that, because I don't
    either.
        And once you decide that some corporation should not
    participate in the American electoral process, then the next
    question is, where is the line? We are no longer at the
    question of whether corporations should or shouldn't; the
    question is, which lines? I think those are fair questions.
        Twenty percent may be too low, a couple of members of the
    board maybe. Those are fair points, and I would be open to
    anybody making a reasonable suggestion to decide maybe the
    standards are a little too low; maybe they should be different.
    That is a fair point.
        But the concept of saying foreign governments, foreign
    corporations should not participate in the American electoral
    process I think is fair.
        As far as American corporations participating in other
    countries, they can and will do that whether we do anything or
    not. And that is the risk they run, and most companies,
    especially in China. I don't think that China--actually, you
    cannot do business in China unless the person who runs that
    corporation is a Chinese citizen. It is kind of simple. So they
    kind of already raised the standard. You can't do business in
    China as an American citizen on your own, under a corporate
    format anyway.
        Am I wrong about that, Ms. Lynch?
        Ms. Lynch. You can't do business legally in China, yes.
        Mr. Capuano. Legally. Of course, we only want to talk about
    what is legal under the law.
        So I guess I also want to talk about the shareholder issues
    that Ms. Lofgren was talking about. Just out of curiosity, on
    the general concept, if any corporation, the most American
    corporation of all American corporations--whoever makes the
    American flags--I hope they are made in this country. I don't
    know. But the most American corporation, if that corporation
    has a dollar sitting around that they don't need to run the
    corporation, they don't need to buy any more machines, they
    don't want to hire anybody; whose dollar is that? I would argue
    that it would be the shareholders? Anybody disagree with that?
    Do you think it belongs to the CEO of the corporation? Okay. I
    guess that is unanimous for the silence.
        I would think that it is the shareholders' money. And that
    being the case, I would then argue that any of these dollars
    should be subject--again, I am going back to Ms. Lofgren's
    suggestion and Mr. Coates' comment or suggestion with the
    comment, that when it comes time for corporations to spend
    money that they do not need to run the corporation, it should
    be the decisions of the shareholders to do so. And if they do--
    and I make no bones about it, I start from the premise that I
    don't like this decision, but okay, as Ms. Lofgren said, it is
    the law. I am really kind of over it. I was over it pretty
    quickly. On the level of how angry I get about this decision,
    it is really not that high. There are a whole lot more
    decisions that the Court has made that I didn't like. We can
    start with Bush v. Gore, but that is a different issue.
        But all that being said, Mr. Coates, and for others, I
    would ask you to look at the Shareholder Protection Act that
    has been proposed that would allow shareholders to be the
    decision makers as far as how much money a corporation is--that
    is not for today's discussion though.
        I guess on the final point that I want to make, on
    retaliation, because I think retaliation is a fair point to
    make, and it is a real fact of life; I have seen retaliation in
    political circumstances all my life. And I don't like them. As
    a matter of fact, when I was mayor of my community, one of the
    things I did, I banned lawn signs, which is, by the way,
    unconstitutional, but we did it anyway. And we lost in court,
    which I knew we would.
        But then I put political pressure on those who put yard
    signs up. The rule was, if you come into my city and you want
    to put up yard signs, you buy my political opposition. And for
    10 years, we had no yard signs. Neighbors got along. Everything
    was fine. That was my definition of terms.
        So retaliation, I think, is a very real consideration.
    However, the question to me then comes, retaliation doesn't
    just come on these issues. Is not retaliation potentially
    possible in straight-up political elections like, for instance,
    district attorneys, judges, attorneys general? Even Members of
    Congress might feel some compunction about maybe not being so
    friendly to someone who opposed them. So is retaliation in this
    circumstance, does anybody see it here as any different, any
    more nefarious, or any more possible than it is in any other
    political situation? If you do, do you think that those
    contributions to judges running for office or DAs or attorneys
    general, should they be secret as well?
        Mr. Coates. Could I say, I think it is less--when I give
    money to my local Congressman--Barney Frank, for example; I
    live in Newton--that is instantly disclosed on the Web. It
    shows up so fast, and people track it, and then they analyze
    all the professors at Harvard and all professors generally. And
    they publish reports about it, and we get retaliated against.
    So you're telling me that I get retaliated against, that is not
    so bad; but if Exxon gets retaliated against, that is terrible.
        Mr. Capuano. Who would dare retaliate against a professor
    in my district?
        With that, I--I actually have no time left, so I give back
    what I don't have.
        The Chairman. Well, I think this is an important bill, so I
    will let the blinkers go right by.
        Mr. Lungren. I am just surprised that a Harvard professor
    would get retaliated against for contributing to Barney Frank
    in Massachusetts. I guess I don't understand Massachusetts.
        As I understand the general proposition, the Supreme Court
    has basically said that you can restrict types of political
    participation, and we can put limits on expenditures to
    candidates, for instance, even though the use of money is free
    speech because of the corruptive influence or an attempt to try
    and eliminate or at least ameliorate the potential corruption;
    I mean, that is sort of a gross statement.
        Presumably that is the same basis for which this bill does
    not allow those who are Federal contractors to participate as
    others might participate. If that is the case, what is the
    essential difference between a corporation that has a
    government contract and a grantee of the Federal Government,
    which is not so impaired under this bill, or we talk about
    unions, a public employee union is not similarly restricted?
    Mr. Toner or Mr. McGinley or anybody else, can you tell me why
    there is an essential difference in those categories?
        And if there is not an essential difference, does that not
    give rise to a potential constitutional challenge where the
    Court has already told us, you cannot distinguish between
    corporations or different types of associations, free speech
    rights, and in this case, it would seem to me that if you
    differentiate between unions and corporations, one having a
    contract and the other having a relationship with the Federal
    Government representing Federal employees who get their direct
    pay from the Federal Government, how is that distinguishable?
    Or do you think that might give rise to a constitutional
    challenge in the courts?
        Mr. McGinley. I will take the first crack at this one.
        I think that it does give rise to a constitutional
    challenge in the courts for the very reasons that the Court
    laid out in Citizens United. The Court said that the Federal
    Government does not have the authority to distinguish between
    different speakers who choose to speak in the political
    process.
        If you have a corporation with a contract with the Federal
    Government and you have a labor union that represents Federal
    Government employees, a public service union, there really
    should be no difference between the treatment of the two under
    the law. What this does is decide that the employer cannot
    speak about issues that may be of concern to the employer.
        Mr. Lungren. Because of the potential corruptive influence.
        Mr. McGinley. Because of the potential of corruption, which
    is the only compelling governmental interest that can satisfy
    the need to limit the speech, as opposed to the union, which
    represents the employees of the Federal Government and engages
    in collective bargaining. Why there should be a difference
    between those two types of situations I cannot explain.
        However, I can say that the Court was very clear about the
    fact that we need to have more speech from more speakers, and
    that the Federal Government contract prohibition that is
    currently in the DISCLOSE Act is going to prevent these
    companies from speaking out. Not only on express advocacy,
    which would be the advertisements that advocate the election or
    defeat of a candidate, but it may also prohibit them from
    speaking out with Electioneering communications, which now,
    under the bill, are not only from 60 days back from the general
    election and 30 days back from the primary; they begin from 120
    days back from the general election. So if there is a bet the
    business piece of legislation that is moving through Congress
    that could endanger this company's business, they don't have
    the authority, not to advocate the election or defeat; they
    can't even discuss the business and ask the general public to
    contact those Representatives because that may be a prohibited
    communication under this bill.
        Mr. Lungren. And what type of media can they use?
        Mr. McGinley. They wouldn't be able to use the television
    or radio under the Electioneering communication ban. But also
    under this bill, you have expanded the definition of an
    independent expenditure, which is something that applies year-
    round. Not only does it include express advocacy, which are
    those advertisements that advocate the election or defeat, but
    you have taken the functional equivalent of express advocacy,
    which is the electioneering communication standard that the
    Supreme Court set forth in Wisconsin Right to Life. Those are
    issue ads. That is the court case where the Court laid down
    that the First Amendment allows speakers to convey information.
    It may not be that they are not advocating the election or
    defeat, but the only authority that the Federal Government has
    to regulate those ads is if the advertisement is susceptible of
    no reasonable interpretation other than an appeal to vote for
    or against a candidate, an objective standard.
        In fact, in Citizens United, the FEC's attempt to
    promulgate a regulation that had two parts and 11 factors was
    specifically singled out by the Supreme Court as analogous to a
    prior restraint, because it was too confusing and nobody
    understood it. Now we have a definition of independent
    expenditure in this bill where it talks about the functional
    equivalent and offers a definition that really borrows largely
    from what the Supreme Court has already criticized as analogous
    to a prior restraint.
        Mr. Lungren. So we have actually moved further towards the
    prior restraint----
        Mr. McGinley. That is correct.
        Mr. Lungren [continuing]. Definition that the Court at
    least pointed to in the Citizens v. United case.
        Mr. McGinley. That is correct.
        The Chairman. If your answers aren't quicker, you are going
    to come back here instead of going to dinner.
        Mr. Toner. That is a powerful incentive to me, Mr.
    Chairman. I am hungry.
        Mr. Lungren. Mr. Chairman, there are a whole lot of other
    questions----
        The Chairman. I can well imagine.
        Mr. Lungren [continuing]. But I understand that we have
    time limits here.
        So, Mr. Chairman, I would like to introduce three items for
    the record; number one, the testimony from the Center for
    Competitive Politics.
        The Chairman. Without objection.
        [The information follows:]

        [GRAPHIC] [TIFF OMITTED] T7963A.049

        [GRAPHIC] [TIFF OMITTED] T7963A.050

        [GRAPHIC] [TIFF OMITTED] T7963A.051

        [GRAPHIC] [TIFF OMITTED] T7963A.052

        [GRAPHIC] [TIFF OMITTED] T7963A.053

        [GRAPHIC] [TIFF OMITTED] T7963A.054

        [GRAPHIC] [TIFF OMITTED] T7963A.055

        Mr. Lungren. Secondly, a law review article written by Mr.
    Bob Bauer stating that disclosure requirements like ``Stand By
    Your Ad'' really serve the purpose of regulating speech, and
    third, a study from procon.org that lists the average union
    dues for major unions across the Nation.
        [The information follows:]

        [GRAPHIC] [TIFF OMITTED] T7963A.056

        [GRAPHIC] [TIFF OMITTED] T7963A.057

        [GRAPHIC] [TIFF OMITTED] T7963A.058

        [GRAPHIC] [TIFF OMITTED] T7963A.059

        [GRAPHIC] [TIFF OMITTED] T7963A.060

        [GRAPHIC] [TIFF OMITTED] T7963A.061

        [GRAPHIC] [TIFF OMITTED] T7963A.062

        [GRAPHIC] [TIFF OMITTED] T7963A.063

        [GRAPHIC] [TIFF OMITTED] T7963A.064

        [GRAPHIC] [TIFF OMITTED] T7963A.065

        [GRAPHIC] [TIFF OMITTED] T7963A.066

        [GRAPHIC] [TIFF OMITTED] T7963A.067

        [GRAPHIC] [TIFF OMITTED] T7963A.068

        [GRAPHIC] [TIFF OMITTED] T7963A.069

        [GRAPHIC] [TIFF OMITTED] T7963A.070

        [GRAPHIC] [TIFF OMITTED] T7963A.071

        [GRAPHIC] [TIFF OMITTED] T7963A.072

        [GRAPHIC] [TIFF OMITTED] T7963A.073

        The Chairman. I will just ask unanimous consent that all
    articles, and various other documents be committed into the
    record.
        Mr. Lungren. And may I ask one more question?
        And that is, in the new disclosure requirements--not
    disclosure requirements, the new requirements for
    identification at the time of an ad, because in some cases now
    they double the number of people to be mentioned and the
    association has to be mentioned twice, at least my staff has
    tested it, and they utilize the names and associations of the
    people who appeared in the panel last week. And they found that
    for a 30-second ad, it could take up to an average of 13 to 14
    seconds. Does anybody believe that that is something that does
    in fact interfere with the right of free speech when at least
    half of the message has got to be a repetition of who it was
    that sponsored it and the name of the group? Or is that just
    one of the breaks of the game; if you are going to do a 30-
    second ad, half of it is going to be taken up with the
    statement?
        Mr. Potter. Mr. Lungren, I venture into that territory and
    say that, obviously, at some point, it becomes impractical.
    There is a standard the FEC currently uses that says, if the
    disclaimer takes up so much of the ad you can't get your
    message out--and I am thinking of text messaging, for
    instance--or it is impractical--I am thinking of sky writing--
    you don't apply it that way. So I think there is a reasonable
    way to deal with a very short ad.
        Mr. Lungren. And I was just thinking from what Ms. Lofgren
    said in quoting Justice Kennedy's statement about the use of
    new technology and so forth, you could require that there be
    some sort of message that is even shorter, but directs people
    to the Web site that contains that information that is
    necessary. I mean, there are ways of making sure that they have
    that available that would not take up the time of the ad
    itself, and yet not try and get around the identification.
        I understand what we are trying to do; I want to know who
    it is. But at the same time, you either are going to get the
    situation where they take up too much time, or you are going to
    hire that guy who speaks faster than anybody else and so nobody
    actually understands it, and yet it might fulfill what the law
    is. It is just one of the practical things I think we should be
    concerned about.
        Mr. Potter. It is a balancing issue because you and I both
    know that we are most likely to hear it on the ad, and we are
    less likely to write it down and go to the Web site and figure
    out who sponsored it. So we would like it on the ad, but you
    have to find a way to make it practical, I agree.
        The Chairman. Thank you.
        Before I recognize Ms. Lofgren, I would like to say a few
    words.
        I am either at a disadvantage--but in my view, I am at an
    advantage because I am not an attorney amongst all the other
    attorneys that are here.
        But Mr. Toner, you said something about labor, that they
    got a good deal. I can't figure out how. I can't figure out how
    labor got a good deal. In order to get a contribution from a
    candidate from labor, it has to be in writing. If you are a
    corporation, you don't have to get anything in writing. In
    order to get a contribution out of labor, members vote on it.
    If I have stock in AT&T, I don't vote on it. If members of a
    union want to get a request--if there is a request for a
    political contribution, it has to be a request made in writing,
    a member has to know about it. Members of the unions know about
    it, and members vote on it or ratify it. Nobody who is a member
    or a dividend owner or anybody in the corporation gets the
    chance to see that.
        I could have, I said it before, is it still Deer Park? I
    don't know what we are doing here. I could have stock in Deer
    Park, and Deer Park can support my opponent. And the money I am
    buying stock with, that money goes against my opponent. That
    can't happen in labor. So I don't think labor is getting a good
    deal. I think labor has been covered under this bill forever in
    time, and they do have full disclosure on every piece. So I
    just wanted to make that comment.
        I would like to now recognize Ms. Lofgren.
        Ms. Lofgren. Thank you, Mr. Chairman.
        I would like to ask unanimous consent to put a little
    compilation of information from, actually, Bob Bauer's position
    in favor of disclosure--because clearly he does favor
    disclosure--in the record, just to be clear on that.
        [The information follows:]

        [GRAPHIC] [TIFF OMITTED] T7963A.074

        [GRAPHIC] [TIFF OMITTED] T7963A.075

        Ms. Lofgren. I would like to get back to, you have already
    covered the union obligations that are found, not just in
    disclosure but in the Labor Management Reporting Act and the
    Civil Service Reform Act. I mean, there are a whole set of
    burdens on labor when it comes to political speech. But I would
    like to go back to the corporate world, once again, to further
    explore--let's give this example: Let's say this bill or
    something quite like it passes, becomes the law, and when
    covered advocacy happens through corporate money, there has to
    be disclosure of that fact. And let's say in that case, the
    corporation takes position A, and the people who don't support
    A get annoyed, and they organize a boycott, and they harm the
    brand of the corporation, and sales decline, and the stock
    value declines. And as a shareholder, I am not only getting my
    dividend, but my life savings just took a dive.
        As I see it right now, the officers and directors are
    pretty much protected from liability by the business judgment
    doctrine. And I am just thinking, what remedy does a
    shareholder have in such a case? Selling it doesn't make them
    whole because they already took a bath because of what the
    directors did. And I am wondering, can you envision, Mr.
    Coates, a remedy where, if the directors were reckless, that
    the shareholder might be able to sue for damages and get past
    the business judgment rule? How else do you hold the officers
    and directors accountable in such a scenario?
        Mr. Coates. I don't think that a litigation remedy is
    likely to be a good idea. It also would not likely work very
    well for reasons that I am happy to talk about at great length.
        But let me just say one remedy that might work instead is,
    with disclosure, if enough shareholders don't like option A
    that the company has been pursuing, they can legally, under the
    laws of all the States currently, propose a bylaw which would,
    in the future, prevent the company from engaging in that
    activity.
        Now, there is a problem--or two problems, one practical and
    one legal. The legal one is that the SEC, for reasons known
    only to itself, has frequently prevented those sorts of
    proposed by-laws from being put into the company's proxy
    statement and, as a practical matter, forced shareholders to
    have to pay for and print and distribute their own proxy
    statement, which then makes it practically impossible for them
    to get this enacted. So part of a separate potential bill would
    be to encourage or require the SEC to revisit some of those
    decisions.
        But even if it is completely legal, I think you are
    absolutely right to focus on the fact that, for many companies,
    it still will not be a practical option for the 25 million
    shareholders of Proctor & Gamble to get together, even if 12.5
    million of them dislike what management is doing, and adopt
    something. And so that then leads to the kind of thing that I
    was talking about earlier, which is a federally mandated vote
    before political expenditures----
        Ms. Lofgren. But what do you do if it is pre-IPO? Many of
    my constituents are working 18 hours a day, and they are doing
    stock options in the hopes that someday they are going to be
    worth a lot. As a matter of fact, they are more victim to
    something like this than a publicly traded entity. There is no
    market for this stock; you can't sell it. There are no
    shareholder meetings. They are just out of luck. What remedy
    for them, what is going to deter the directors and the officers
    from having fun with other people's money--always a
    temptation--if there is no possibility of ever being held to
    account?
        Mr. Coates. I think the point you are making is a good
    reason that Citizens United perhaps should be reconsidered from
    time to time by the Court, but I don't see a practical remedy
    for many shareholders in that situation.
        Ms. Lofgren. Mr. Chairman, the bells have rung, and you had
    announced previously that we would adjourn as soon as they did.
    So I will yield back, even though it is on yellow, and I have
    a----
        Mr. Lungren. Could I ask the gentlelady a question, though,
    before she yields back?
        The only theory I had not heard about the problem with
    Proctor & Gamble last week was what was just suggested. I am
    going to investigate that and see if it was some statement of
    political activity that was made by the chairman of the Board.
        The Chairman. I thank the members, and I thank the panel of
    witnesses. I appreciate your participation. This hearing is now
    adjourned.
        [The information follows:]

        [GRAPHIC] [TIFF OMITTED] T7963A.076

        [GRAPHIC] [TIFF OMITTED] T7963A.077

        [GRAPHIC] [TIFF OMITTED] T7963A.078

        [GRAPHIC] [TIFF OMITTED] T7963A.079

        [GRAPHIC] [TIFF OMITTED] T7963A.080

        [GRAPHIC] [TIFF OMITTED] T7963A.081

        [GRAPHIC] [TIFF OMITTED] T7963A.082

        [GRAPHIC] [TIFF OMITTED] T7963A.083

        [GRAPHIC] [TIFF OMITTED] T7963A.084

        [GRAPHIC] [TIFF OMITTED] T7963A.085

        [GRAPHIC] [TIFF OMITTED] T7963A.086

        [GRAPHIC] [TIFF OMITTED] T7963A.087

        [GRAPHIC] [TIFF OMITTED] T7963A.088

        [GRAPHIC] [TIFF OMITTED] T7963A.089

        [GRAPHIC] [TIFF OMITTED] T7963A.090

        [GRAPHIC] [TIFF OMITTED] T7963A.091

        [GRAPHIC] [TIFF OMITTED] T7963A.092

        [GRAPHIC] [TIFF OMITTED] T7963A.093

        [GRAPHIC] [TIFF OMITTED] T7963A.094

        [GRAPHIC] [TIFF OMITTED] T7963A.095

        [GRAPHIC] [TIFF OMITTED] T7963A.096

        [GRAPHIC] [TIFF OMITTED] T7963A.097

        [GRAPHIC] [TIFF OMITTED] T7963A.098

        [GRAPHIC] [TIFF OMITTED] T7963A.099

        [GRAPHIC] [TIFF OMITTED] T7963A.100

        [GRAPHIC] [TIFF OMITTED] T7963A.101

        [GRAPHIC] [TIFF OMITTED] T7963A.102

        [GRAPHIC] [TIFF OMITTED] T7963A.103

        [GRAPHIC] [TIFF OMITTED] T7963A.104

        [GRAPHIC] [TIFF OMITTED] T7963A.105

        [GRAPHIC] [TIFF OMITTED] T7963A.106

        [GRAPHIC] [TIFF OMITTED] T7963A.107

        [GRAPHIC] [TIFF OMITTED] T7963A.108

        [GRAPHIC] [TIFF OMITTED] T7963A.109

        [GRAPHIC] [TIFF OMITTED] T7963A.110

        [GRAPHIC] [TIFF OMITTED] T7963A.111

        [GRAPHIC] [TIFF OMITTED] T7963A.112

        [GRAPHIC] [TIFF OMITTED] T7963A.113

        [GRAPHIC] [TIFF OMITTED] T7963A.114

        [GRAPHIC] [TIFF OMITTED] T7963A.115

        [GRAPHIC] [TIFF OMITTED] T7963A.116

        [GRAPHIC] [TIFF OMITTED] T7963A.117

        [GRAPHIC] [TIFF OMITTED] T7963A.118

        [GRAPHIC] [TIFF OMITTED] T7963A.119

        [GRAPHIC] [TIFF OMITTED] T7963A.120

        [GRAPHIC] [TIFF OMITTED] T7963A.121

        [GRAPHIC] [TIFF OMITTED] T7963A.122

        [GRAPHIC] [TIFF OMITTED] T7963A.123

        [GRAPHIC] [TIFF OMITTED] T7963A.124

        [Whereupon, at 6:35 p.m., the committee was adjourned.]