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