Overturning the loophole would prevent foreign spending – solves democracy.

Now more than ever, bold policy solutions are needed to help ensure that no foreign government, business, or person can unduly affect the nation’s democratic self-governance.

Before the Supreme Court’s 2010 decision in Citizens United, U.S. corporations had to finance campaign-related activity chiefly via disclosed donations from their employee-funded PACs. Corporations were not allowed to spend money directly from their corporate treasuries on independent expenditures—advertisements that expressly call for the election or defeat of a candidate. These ads are the lifeblood of election campaigns. But in Citizens United, the Supreme Court held that corporations are indeed permitted to spend corporate treasury funds on campaign-related ads, opening the door to unlimited corporate spending in U.S. elections.

Since the high court’s decision, corporations have taken full advantage of their new power. They have spent hundreds of millions of dollars, much of it through secret “dark money” channels, to elect their preferred candidates, often bankrolling negative advertising and distorting issues about which everyday Americans care.

Yet attempts to influence U.S. elections can take other forms as well. Foreign influence in U.S. elections—specifically, foreign influence via U.S. corporations—merits particular attention, especially in the wake of unlimited corporate spending post-Citizens United.

Current election laws and Supreme Court precedent are clear when it comes to foreign influence: It is illegal for foreign governments, corporations, or individuals to directly or indirectly spend money to influence U.S. elections. These laws are foundational to U.S. democracy and exist primarily because foreign entities are likely to have policy and political interests that do not always align with America’s best interests.

Unfortunately, the Citizens United decision opened an unexpected loophole that makes the United States more vulnerable to foreign influence. Because foreign entities can invest in U.S. corporations—and those corporations can in turn spend unlimited amounts of money on U.S. elections—foreign entities can now exert influence on the nation’s domestic political process. This is especially noteworthy as foreign investors now own a whopping 35 percent of all U.S. stock.3

Obama’s warning

An important warning about the potential effects of Citizens United came from President Barack Obama during a dramatic moment in his 2010 State of the Union address. Standing just feet away from justices of the Supreme Court, President Obama criticized the high court’s newly issued decision. He predicted that it would create a new avenue for special interests and foreign influence in U.S. elections:4

Last week, the Supreme Court reversed a century of law that I believe will open the floodgates for special interests—including foreign corporations—to spend without limit in our elections. I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities. They should be decided by the American people. And I’d urge Democrats and Republicans to pass a bill that helps correct some of these problems.5

Justice Samuel Alito, a member of the high court’s conservative majority that had just decided the case, could be seen uttering the words “not true.”6 Unfortunately for U.S. democracy, however, Obama’s prediction about the harmful aftershocks of Citizens United has proved accurate.

In a political system that already allows corporations to cloak themselves in secrecy via unlimited dark-money spending, this foreign-influence loophole must be closed. The least lawmakers can do is block this avenue for inappropriate foreign influence in U.S. elections and in the policies that the federal government produces. Americans deserve to know that their best interests are paramount and that U.S. corporations are not acting as conduits for foreign influence in national affairs.

This report recommends a clear, strong policy solution: The United States must have bright-line foreign-ownership thresholds for American corporations that want to spend money in elections. These clear thresholds are supported by an array of lawmakers and regulators, as well as experts in constitutional and corporate governance law. This report applies the recommended foreign-ownership thresholds to many of the nation’s biggest publicly traded corporations, and the data show that applying these recommended thresholds likely would prohibit many of these corporations from spending funds to influence elections.

Stopping foreign-influenced U.S. corporations from spending money to affect U.S. elections is an issue of accountability that should transcend partisan political divisions. Unless and until lawmakers meaningfully address the problem of foreign influence in elections via U.S. corporations, they risk serious negative consequences for this country. In a properly functioning democratic society, a nation’s people must have faith in its elections, its elected leaders, and its government.

Background and scope of the challenge

Due to lax federal laws and reporting requirements, the United States is staring at two intersecting challenges that threaten the foundation of its democratic system. The first is secret corporate spending in U.S. elections, a problem discussed in detail in various Center for American Progress products, including “Secret and Foreign Spending in U.S. Elections: Why America Needs the DISCLOSE Act”7 and “Corporate Capture Threatens Democratic Government.”8