No, Commissioner Weintraub, the FEC Can’t Circumvent Citizens United

March 31, 2016   •  By Allen Dickerson
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In an opinion piece published yesterday in The New York Times, Ellen Weintraub, a member of the Federal Election Commission, suggests a way to “blunt the impact” of Citizens United v. FEC. There are reasons to question the propriety of a federal officer attempting to “blunt” a First Amendment ruling against her agency, and I am unaware of another federal entity whose commissioners routinely take to the pages of major newspapers to decry binding Supreme Court precedent. But no matter how attractive you find her proposed “zero-tolerance standard,” under which any corporation with even a single foreign shareholder could be barred from any political activity, her proposal relies on a number of fatal legal errors.

Commissioner Weintraub makes a three-step argument. First, she asserts that the Supreme Court “has never held that corporations have any of the political rights of citizens.” Consequently, in Citizens United, the Court “can only have meant” to protect the First Amendment liberties of “associations of American citizens who are allowed to contribute.” Second, she notes that foreign nationals and U.S. government contractors are “forbidden by law from directly or indirectly making political contributions or financing certain election-related advertising known as independent expenditures and electioneering communications.” Finally, acknowledging that “many American corporations have shareholders who are foreigners or government contractors,” she claims that the law now requires her new “zero-tolerance standard,” which would bar any political activity by those corporations.

She is mistaken at each step.

First, the Commissioner is simply wrong when she claims that no case until Citizens United “held that corporations have any of the political rights of citizens.”

Cases doing precisely that predate the FEC itself. In NAACP v. Button, the Court applied the First Amendment to a corporation’s civil-rights litigation activities. Importantly, it did so for the NAACP itself and not merely its members: “petitioner may assert this right on its own behalf, because, though a corporation, it is directly engaged in those activities, claimed to be constitutionally protected, which the statute would curtail.”[1] Presumably, political rights are implicated by “extensive… lobbying activities” and “litigation aimed at ending racial segregation.”[2] Four years later, the Court extended that holding from corporations to unions in Mine Workers v. Illinois Bar Association.[3] Finally, and most obviously, the Court has long respected the press rights of for-profit corporations.[4]  

But perhaps the only “political rights” Weintraub has in mind are rights involving the spending of money to further political speech. In that case, Bellotti v. First National Bank of Boston – a 1978 decision authored by Justice Lewis Powell – is directly on point. It upheld the right of a corporation (a for-profit bank, in fact) to spend money advocating the passage or defeat of ballot measures. The language could not be clearer:

If the speakers here were not corporations, no one would suggest that the State could silence their proposed speech. It is the type of speech indispensable to decisionmaking in a democracy, and this is no less true because the speech comes from a corporation rather than an individual. The inherent worth of the speech in terms of its capacity for informing the public does not depend upon the identity of its source, whether corporation, association, union, or individual.

Just eight years later, the Court reaffirmed this holding in a decision authored by liberal Justice William Brennan. That case, Massachusetts Citizens for Life v. FEC, prevented the Commissioner’s own agency from banning a pro-life voter guide, published by a corporation, that endorsed specific candidates.

In short, and as the overwhelming majority of lawyers practicing in this area know, Citizens United’s decision to extend “political rights” to a corporation was completely unremarkable. And it is of a piece with the necessary role corporations play, in the context of political speech and association, as both protectors of vulnerable, atomized individuals and the means by which those individuals pool resources to accomplish greater ends. There are good faith disagreements about the proper scope of corporate political rights, but not their existence.

Second, Weintraub notes that foreign nationals and U.S. government contractors are “forbidden by law” from making political contributions or financing certain types of advertisements. This is true, so far as it goes, but of course corporations generally are also banned from making contributions, at least contributions to candidates and political parties. This highly-relevant fact should have been stated.

More importantly, Weintraub fails to explain how a single foreign shareholder in any way “contributes” to or “makes” a political expenditure when a corporation of which she owns a small fraction does so. When a corporate share is purchased, it is unlikely the money goes to the corporation; the share was sold on the open market, usually to someone who had held the share previously. It may have been many decades since the share was originally issued and the associated capital provided to the corporation, and it is unlikely that the cash was put up by individuals, as opposed to investment banks or similar entities. If the purchase of a share doesn’t provide the money by which political activity is undertaken, in what sense is our hypothetical shareholder engaging in politics at all?

Indeed, the usual argument, and the one made by the dissenters in Citizens United itself, is that individual shareholders must be protected from political speech by the corporations in which they hold shares. This is because, in Justice Stevens’s view, individual shareholders seldom exercise substantial control over corporations because of “the internal authority wielded by boards and managers.” Their principal means of expressing disagreement with a corporation is to sell their shares. Weintraub turns this argument on its head: shareholders, previously understood by the campaign finance reform community as vulnerable outsiders, are treated instead as active participants in corporate speech. Regardless of one’s view on the “shareholder protection” rationale underlying the Citizens United dissent, Weintraub’s argument is in clear tension with that line of reasoning.

And how do we even know who the offending shareholder is? What if the shareholder is in fact another company? As Justice Stevens recognized in his dissent in Citizens United, “[m]ost American households that own stock do so through intermediaries such as mutual funds and pension plans.” Moreover, many shares are held in “street name,” that is, the name of a broker or other fiduciary and not the name of the owner. How does Weintraub intend to sort out the ultimate owner of every share of stock issued by every American corporation?

These practical objections are relevant to the third step in the argument: that the only option available, under present law, is a “zero-tolerance policy.” But there is another option, and it’s the one the FEC itself has been using for decades: who controls the corporation’s activity?

That’s the standard used in other contexts. For instance, under existing regulations, “a foreign national shall not direct, dictate, control, or directly or indirectly participate in the decision making process” of a corporation or other entity engaged in election-related activities.[5] Not only must a U.S. citizen make the relevant decisions, but a U.S. subsidiary of a foreign corporation must fund regulated activity with earnings from the United States.[6]

So there is another model. And it addresses the fact that (1) individual shareholders very seldom make corporate decisions, and (2) individual shareholders do not, in any real sense, “fund” a corporation’s political expenditures. Instead, the existing rules require that (1) U.S. nationals make those decisions instead of foreign nationals, including shareholders, and (2) any funds must come from the corporation’s domestic activities (not from foreign sources). And this rule does not require the FEC to carry out the hopeless task of determining the precise, ever-changing owners of every share of stock, sometimes including intermediary funds, and determining whether each of those millions of individuals is a foreign national or U.S. government contractor.

But perhaps the impossibility of the task is the point. If Commissioner Weintraub gets her way, it will be impossible for any significant corporation to be sure that none of its shareholders is a prohibited person.[7] Indeed, Weintraub essentially threatens public companies, suggesting that she would vote in favor of enforcement actions against them and warning that “lawyers may wish to think twice before signing off on corporate political giving or spending that they cannot guarantee comes entirely from legal sources.” Even if a company could, miraculously, show that its shareholders are “legitimate,” shares change hands, and the very complexity described previously will encourage complaints, litigation, and deeply-invasive government investigations.

The goal, then, is to force any corporation of significant size into complete silence. Weintraub has conjured up a poison pill – the identity of any single shareholder – that, as a practical matter, would ban all corporate speech.

Weintraub may sincerely wish that policy outcome, but her argument simply doesn’t hold together. Corporations have long had First Amendment rights, and for good reason. While shareholders often have an interest in corporations being able to speak as corporations, in the overwhelming majority of cases they neither direct a corporation’s political speech nor fund it. And there is a better policy, one the FEC already pursues, and one that would pass constitutional scrutiny as a “less restrictive means” toward preventing foreign influence in our elections than the indiscriminate ban Weintraub proposes.

But finally, and most importantly, this proposal is clearly and unambiguously contrary to Citizens United. It is a transparent attempt to do indirectly what the Commission was told it may not do directly: ban corporate speech.

The article states that Weintraub will “direct the commission’s lawyers” to undertake a review of her novel theory. Those attorneys are professionals, and they will doubtless make all of these arguments. But a formal legal conclusion issued many months from now will not undo the harm done when a sitting federal official takes to the pages of the Times to fan the flames of an already distorted and bitter debate.

[1] 371 U.S. 415,  428 (1963).

[2] Id. at 420-21.

[3] 389 U.S. 217, 221-22 (1967) (specifically “hold[ing] that the freedom of speech, assembly, and petition guaranteed by the First and Fourteenth Amendments give petitioner [a union] the right to hire attorneys on a salary basis to assist its members in the assertion of their legal rights.”) (emphasis supplied).

[4] E.g., New York Times Co. v. United States, 403 U.S. 713 (1971) (per curiam).

[5] 11 CFR 110.20(i).

[6] See, e.g., MUR 4530 (Japan Green Stamp America, Inc.); Pre-MUR 358 (Future Tech International).

[7] She suggests that some rule might be adopted, and suggests the FCC’s 20% limit on foreign direct investment in a U.S. broadcasting licensee (or, at least, that seems to be what she is referring to) as a model. But the FCC routinely grants exceptions to that rule, and has recently suggested new regulations intended to address precisely the difficulties Weintraub eagerly embraces, despite helping to lead a much smaller agency with no relevant expertise. See Moreover, the FCC rule was adopted because of the limited number of broadcast frequencies available, a rationale that may be obsolete in light of technological developments. In any event, there is no constitutional right to a broadcast license, and the existence of the FCC’s quite-different rule provides no support for limiting corporate speech generally.

Allen Dickerson

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