The Political Reform Act of 1974 prohibits a foreign government or foreign principal from making any contribution, expenditure, or independent expenditure in connection with the qualification or support of, or opposition to, a state or local ballot measure or an election for a state or local office. The act prohibits a person or committee from soliciting or accepting a contribution from a foreign government or foreign principal for the same purposes. The act makes a violation of these prohibitions a misdemeanor.

This bill would expand these prohibitions to include contributions, expenditures, or independent expenditures made by a foreign-influenced business entity, as defined, in connection with an election or ballot measure. The bill would require a business entity that makes a contribution, expenditure, or independent expenditure to file with the filing officer and the applicable candidate or committee a statement of certification, signed by the entitys chief executive officer under penalty of perjury, avowing that the entity was not a foreign-influenced business entity on the date the contribution, expenditure, or independent expenditure was made. The bill would prohibit a person who receives funds from a business entity from using those funds for purposes of a contribution, expenditure, or independent expenditure in connection with a ballot measure or election unless the person receives a copy of the statement of certification from the business entity.

By creating a new crime and expanding the scope of an existing crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The Political Reform Act of 1974, an initiative measure, provides that the Legislature may amend the act to further the acts purposes upon a ²/₃ vote of each house of the Legislature and compliance with specified procedural requirements.

This bill would declare that it furthers the purposes of the act.

ASSEMBLY THIRD READING

ATR Bill Id:AB 83

Author:(Lee)

As Introduced Ver:December 16, 2022

2/3 vote

SUMMARY

Prohibits campaign contributions and expenditures by a foreign-influenced business entity (FIBE), defined as a business entity that has 1% or greater ownership by a single foreign principal, 5% or greater collective ownership by multiple foreign principals, or a foreign principal participating in contribution or expenditure decisions, as specified.

Major Provisions

1. Prohibits an FIBE from making a contribution, expenditure, or independent expenditure (IE) in connection with a state or local ballot measure or the election of a candidate to state or local office.
2. Requires a business entity, within seven days after making a contribution, expenditure, or IE, to file a statement of certification, signed by the chief executive officer of the business entity, that the business entity was not an FIBE when the contribution or expenditure was made.
3. Prohibits a person who receives a contribution or donation from a business entity from using that contribution or donation to make a contribution, expenditure, or IE in connection with a ballot measure or election unless the person also receives from the business entity a copy of the statement of certification that the business entity is not an FIBE.

COMMENTS

Federal law prohibits foreign nationals from making contributions and expenditures in connection with federal, state, and local elections. Similarly, state law prohibits foreign governments and foreign principals from making contributions, expenditures, or IEs in connection with a state or local ballot measure or the election of a candidate to state or local office.

For the purposes of the existing federal and state restrictions on contributions and expenditures by foreign principals, the determination of whether a business entity is permitted to make contributions or expenditures depends on where the business entity is organized, the location of its principal place of business, and the nationality of the individuals who are involved in making decisions regarding the business entity's contributions and expenditures. Both federal and state laws also have protections that prevent a domestic business entity from simply serving as a pass-through for campaign spending that is funded by a foreign principal.

This bill additionally restricts contributions and expenditures by a business entity if the percentage of equity in the business entity held by one or more foreign principals exceeds certain thresholds. In other words, a business entity that is organized under the laws of the United States (US) and has its principal place of business in the US, and where all individuals involved in the decisions regarding the business entity's contributions and expenditures are US citizens and legal permanent residents, could be prohibited by this bill from making contributions or expenditures in state and local elections in California depending on the nationality of those that hold shares in the business entity.

Although federal courts have upheld the existing federal law that prohibits foreign nationals from making campaign contributions and expenditures, the constitutionality of this bill is less clear, and it could be susceptible to a challenge that its provisions violate the First Amendment to the US Constitution.

In January 2010, in Citizens United v. Federal Election Commission (2010) 558 U.S. 310, the US Supreme Court struck down the 63-year old law that prohibited corporations and unions from using their general treasury funds to make IEs in federal elections, finding that the law unconstitutionally abridged the freedom of speech. In reaching its decision, the Citizens United court found that the "Government may not suppress political speech on the basis of the speaker's corporate identity," and that the court has "rejected the argument that political speech of corporations or other associations should be treated differently under the First Amendment simply because such associations are not 'natural persons.'"

A little over a year and a half after the Citizens United decision, a federal three-judge panel upheld the federal law prohibiting foreign nationals from making campaign contributions and expenditures in Bluman v. Federal Election Commission (2011), 800 F. Supp. 2d 281. Although the Bluman court upheld federal restrictions on campaign spending by foreign nationals, the plaintiffs in that case were two individuals who were lawfully in the US on temporary work visas. Accordingly, the court's analysis focused on the law as it applied to individuals. In a footnote in its opinion, the Bluman court acknowledged that its holding in that case meant that foreign corporations were also prohibited from making campaign contributions and expenditures. The footnote also noted, however, that since the case "concerns individuals, we have no occasion to analyze the circumstances under which a corporation may be considered a foreign corporation for purposes of First Amendment analysis."

This bill would ban certain business entities from making contributions and expenditures in California elections on the grounds that those business entities are foreign-influenced, even in situations where the foreign shareholders do not participate in or attempt to influence the campaign spending decisions of the business entity in any way. In light of the fact that this bill could restrict the ability of business entities to make contributions and expenditures in elections based on relatively low levels of foreign ownership, including in situations where the foreign shareholders had no involvement in influencing or attempting to influence the business entity's political decisions, it is unclear whether a court would uphold this bill against a challenge that its provisions violate the First Amendment to the US Constitution.

In May 2023, the Minnesota Governor signed House File 3 (HF3), which made various changes to that state's laws related to voter registration, elections, and campaign financing. Among other provisions, HF3 included restrictions on campaign contributions and expenditures by foreign-influenced corporations that are substantially similar to the provisions of this bill. Those provisions were scheduled to become effective on January 1, 2024. On December 20, 2023, however, the US District Court for the District of Minnesota issued a preliminary injunction that temporarily enjoined enforcement of the provisions restricting campaign contributions and expenditures by foreign-influenced corporations. (Minnesota Chamber of Commerce v. Choi, 0:23-cv-02015, (D. Minnesota)) In its opinion, the Court found that the plaintiffs were likely to prevail on the merits of their claim that the law violates the First Amendment to the US Constitution.

California voters passed an initiative, Proposition 9, in 1974 that created the Fair Political Practices Commission (FPPC) and codified significant restrictions and prohibitions on candidates, officeholders, and lobbyists. That initiative is commonly known as the Political Reform Act (PRA). Amendments to the PRA that are not submitted to the voters, such as those contained in this bill, must further the purposes of the initiative and require a two-thirds vote of both houses of the Legislature.

Please see the policy committee analysis for a full discussion of this bill.

According to the Author

"Investments in US companies have increased dramatically in recent years. In 1982, foreign investors owned about 5% of all U.S. corporate equity (public and private). By 2019, foreign ownership jumped to an astonishing 40%. Since 2010, neither Congress nor the Federal Election Commission have taken action to protect our elections from foreign-influenced corporations exerting their influence. AB 83 would Get Foreign Money Out of California Elections by closing a loophole that allows corporations that are partly or wholly owned by foreign interests to spend money and influence political campaigns. This reform is crucial to protecting the integrity of California's democratic self-government."

Arguments in Support

One of the co-sponsors of this bill, the Center for American Progress, writes in support, "In the U.S. Supreme Court's misguided decision in Citizens United, the court gave American corporations the ability to spend money in elections based on the premise that corporations are 'associations of citizens.' However, many of the largest American-based corporations are owned appreciably by foreign entities. This creates a loophole in the Supreme Court's ruling, as recognized in a dissenting opinion by Justice John Paul Stevens: Foreign entities can invest in U.S. corporations that then spend large amounts of money from their corporate treasuries to influence the results of elections and ballot initiatives. [AB 83] would close that gaping loophole."

Arguments in Opposition

In opposition to this bill, the California Chamber of Commerce writes, "AB 83's proposal to bar foreign-influenced corporations from making independent expenditures and contributions in furtherance of independent expenditures will be subject to strict scrutiny because it burdens core First Amendment speech. AB [83] is unlikely to survive such scrutiny, as federal courts have not recognized a compelling interest in restricting the speech of 'foreign-influenced' individuals or entities, nor in regulating U.S. companies with a nominal amount of foreign ownership. When those owners could just as easily be isolated from decisions concerning electoral spending, the law is not narrowly tailored to serve the broader interest of keeping U.S. elections free from foreign influence."

FISCAL COMMENTS

According to the Assembly Appropriations Committee:

1. General Fund (GF) costs of $435,000 in the first year and $414,000 annually thereafter to the FPPC for three additional staff positions to enforce this bill's requirements. The FPPC also anticipates potential litigation costs of approximately $200,000 resulting from a constitutional challenge.
2. GF costs of approximately $1.3 million in the first year and $789,000 ongoing to the Secretary of State (SOS) to accommodate at least 40,000 new "statement of certification" filings each year. SOS is developing a new online campaign filing and disclosure system, the Cal-Access Replacement System (CARS), to replace the existing antiquated Cal-Access system. SOS's one-time costs include $435,111 for CARS contractor project development and software changes, staff overtime in SOS's Project Management Office, and system testing. SOS also anticipates needing six additional permanent staff positions to modify business practices to accept the new statement form, review filings to determine compliance, and notify filers of issues. Since this bill greatly expands the number filers who must submit disclosure forms, staff will incur extensive new customer service duties to support inexperienced filers.

Additionally, SOS notes this bill's required filings cannot be accommodated into Cal-Access due to current system limitations. Thus, SOS requests this bill be amended to specify delay of the filing requirement until CARS is certified or January 1, 2024, whichever is later.

VOTES

ASM ELECTIONS: 5-2-1

YES: Bryan, Bennett, Lee, Low, Pellerin

NO: Lackey, Essayli

ABS, ABST OR NV: Blanca Rubio

ASM APPROPRIATIONS: 11-4-1

YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Papan, Pellerin, Weber, Ortega

NO: Megan Dahle, Dixon, Mathis, Sanchez

ABS, ABST OR NV: Robert Rivas

UPDATED

VERSION: December 16, 2022

CONSULTANT: Ethan Jones / ELECTIONS / (916) 319-2094 FN: 0000725

Date of Hearing: March 29, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 83

Author:(Lee) – As Introduced Ver:December 16, 2022

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill prohibits campaign contributions, expenditures, and independent expenditures by a foreign-influenced business entity (FIBE), defined as a business entity that has 1% or greater ownership by a single foreign principal, 5% or greater collective ownership by two or more foreign principals, or a foreign principal participating in contribution or expenditure decisions.

This bill requires, seven days after making a contribution or expenditure, a business entity to file a statement of certification, signed by the chief executive officer under penalty of perjury, avowing the business entity is not a FIBE. The statement must be filed with the filing officer and the candidate or committee to which the contribution or expenditure is made. A person who uses a contribution from a business entity to make subsequent contributions or expenditures must keep records of such disbursements, as specified.

FISCAL EFFECT:

1. General Fund (GF) costs of $435,000 in the first year and $414,000 annually thereafter to the Fair Political Practices Commission (FPPC) for three additional staff positions to enforce this bill’s requirements. The FPPC also anticipates potential litigation costs of approximately $200,000 resulting from a constitutional challenge.
2. GF costs of approximately $1.3 million in the first year and $789,000 ongoing to the Secretary of State (SOS) to accommodate at least 40,000 new “statement of certification” filings each year. SOS is developing a new online campaign filing and disclosure system, the Cal-Access Replacement System (CARS), to replace the existing antiquated Cal-Access system. SOS’s one-time costs include $435,111 for CARS contractor project development and software changes, staff overtime in SOS’s Project Management Office, and system testing. SOS also anticipates needing six additional permanent staff positions to modify business practices to accept the new statement form, review filings to determine compliance, and notify filers of issues. Since this bill greatly expands the number filers who must submit disclosure forms, staff will incur extensive new customer service duties to support inexperienced filers.

Additionally, SOS notes this bill’s required filings cannot be accommodated into Cal-Access due to current system limitations. Thus, SOS requests this bill be amended to specify delay of the filing requirement until CARS is certified or January 1, 2024, whichever is later.

COMMENTS:

1. Purpose. According to the author:

Investments in [U.S.] companies have increased dramatically in recent years. In 1982, foreign investors owned about 5% of all U.S. corporate equity (public and private). By 2019, foreign ownership jumped to an astonishing 40%. Since 2010, neither Congress nor the Federal Election Commission have taken action to protect our elections from foreign-influenced corporations exerting their influence.

AB 83 would Get Foreign Money Out of California Elections by closing a loophole that allows corporations that are partly or wholly owned by foreign interests to spend money and influence political campaigns. This reform is crucial to protecting the integrity of California’s democratic self-government.

1. Support and Opposition. This bill is co-sponsored by the Center for American Progress (CAP), Free Speech for People, and Money Out Voters In, with support from dozens of progressive organizations. CAP argues:

In the U.S. Supreme Court’s misguided decision in Citizens United, the court gave American corporations the ability to spend money in elections based on the premise that corporations are “associations of citizens.” However, many of the largest American-based corporations are owned appreciably by foreign entities. This creates a loophole in the Supreme Court’s ruling….

This bill is opposed by the California Chamber of Commerce, which argues:

AB [83] is unlikely to survive [strict] scrutiny, as federal courts have not recognized a compelling interest in restricting the speech of “foreign-influenced” individuals or entities, nor in regulating U.S. companies with a nominal amount of foreign ownership. When those owners could just as easily be isolated from decisions concerning electoral spending, the law is not narrowly tailored to serve the broader interest of keeping U.S. elections free from foreign influence.

1. Campaign Spending and Potential Constitutional Issues. Federal law prohibits foreign nationals from making contributions and expenditures in connection with federal, state, or local elections. State law also prohibits foreign governments or foreign principals from making contributions, expenditures, or independent expenditures in connection with state or local ballot measures. Both federal and state laws have protections that prohibit a domestic business entity from simply serving as a pass-through for campaign spending that is funded by a foreign principal.

This bill additionally restricts contributions and expenditures by a business entity if the percentage of equity in the business entity held by one or more foreign principals exceeds certain thresholds. It is unclear whether this bill violates the U.S. Supreme Court holding in Citizens United v. Federal Election Commission (2010) 558 U.S. 310. The Court in Citizens United held that a government may not suppress political speech on the basis of the speaker's corporate identity. The Court held, “No sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations.” However, the District of Columbia circuit court held in Bluman v. FEC (2011) 800 F.Supp.2d 281, that government entities could exclude foreign citizens from activities that were part of democratic self-government in the United States. The Bluman court held that the government could bar foreign citizens (at least those who are not lawful permanent residents of the United States) from participating in the campaign process that sought to influence how voters would cast their ballots.

1. Implications for Nonprofit Organizations. Although a nonprofit organization does not qualify as a “business entity” under the Political Reform Act and is not considered a FIBE under this bill, some types of nonprofit organizations can and do make significant campaign contributions to candidates and ballot measures. This bill prohibits a nonprofit organization from soliciting or accepting a contribution from a FIBE, as is the case for any other entity. More significantly, however, this bill requires a person who uses a donation from a business entity to make a campaign contribution or expenditure to account for such funds and demonstrate none of such funds came from FIBEs. Thus, this bill could have significant implications for the operations of some nonprofit organizations.
2. Seattle Ordinance. This bill is similar to an ordinance adopted by the City of Seattle in January 2020, which was in effect for the city’s 2021 municipal elections. The Seattle ordinance, however, does not include the above-described requirements regarding donations by FIBEs. Additionally, it is unclear whether the Seattle ordinance completely restricts spending by foreign-influenced corporations in ballot measure campaigns.
3. Prior Legislation. AB 1819 (Lee), of the 2021-22 Legislative Session, was substantively identical to this bill. AB 1819 was held on this committee’s suspense file.

AB 20 (Lee), of the 2021-22 Legislative Session, would have prohibited contributions from business entities to candidates for elective office. AB 20 was referred to and heard in the Committee on Elections, but no vote was taken.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: March 15, 2023

ASSEMBLY COMMITTEE ON ELECTIONS

Isaac G. Bryan, Chair

ABPCA Bill Id:AB 83 (

Author:Lee) – As Introduced Ver:December 16, 2022

SUBJECT: Political Reform Act of 1974: contributions and expenditures by foreign-influenced business entities.

SUMMARY: Prohibits campaign contributions and expenditures by business entities that have 1% or greater ownership by a single foreign principal, or 5% or greater collective ownership by multiple foreign principals, as specified. Specifically, this bill:

1. Defines a “foreign-influenced business entity” (FIBE), for the purposes of this bill, as a business entity in which any of the following occur:
   
   1. A single foreign principal holds, owns, controls, or otherwise has direct or indirect beneficial ownership of 1% or more of the total equity, outstanding voting shares, membership units, or other applicable ownership interests of the entity.
      
   2. Two or more foreign principals, in aggregate, hold, own, control, or otherwise have direct or indirect beneficial ownership of equity or voting shares in an amount that is equal to or greater than 5% of the total equity, outstanding voting shares, membership units, or other applicable ownership interests of the entity.
      
   3. One or more foreign principals participate in any way, directly or indirectly, in the business entity’s decisionmaking process with respect to contributions or expenditures of funds in connection with a ballot measure or election.
2. Prohibits an FIBE, as defined, from making, directly or through any other person, a contribution, expenditure, or independent expenditure (IE) in connection with the qualification or support of, or opposition to, any state or local ballot measure or in connection with the election of a candidate to state or local office.
3. Requires a business entity, within seven days after making a contribution, expenditure, or IE, to file with the filing officer and the candidate or committee to which or for which the contribution or expenditure is made a statement of certification, signed by the chief executive officer of the business entity under penalty of perjury, avowing that, after due inquiry, the business entity was not an FIBE on the date the contribution or expenditure was made.
   
   1. Requires the business entity, for the purpose of this statement of certification, to ascertain beneficial ownership in a manner consistent with the requirements of the Corporations Code or, if the business entity is registered on a national securities exchange, as set forth by specified provisions of federal law.
      
   2. Requires a business entity, upon request, to provide a copy of the statement of certification to any other candidate or committee to which the business entity provides a contribution.
4. Prohibits a person or committee from soliciting or accepting a contribution from an FIBE.
5. Prohibits a person who receives a contribution or donation from a business entity from using that contribution or donation, directly or indirectly, to make a contribution, expenditure, or IE in connection with a ballot measure or election, or to contribute, donate, transfer, or convey funds to another person for purposes of making a contribution, expenditure, or IE in connection with a ballot measure or election, unless the person also receives from the business entity a copy of the statement of certification that the business entity is not an FIBE. Requires a person who uses a contribution or donation from a business entity for these purposes to separately designate, record, and account for the funds and ensure that disbursements for these purposes are made only from funds that comply with the requirements of this bill.
6. Provides that a person or committee may rely in good faith on a statement of certification by the business entity that it is not an FIBE for the purposes of this bill, as specified.
7. Provides that the term “foreign principal,” for the purposes of existing state law that prohibits foreign principals from making contributions, expenditures, and IEs in connection with a ballot measure or candidate election, includes a business entity in which a foreign principal, as specified, or a foreign government holds, owns, controls, or otherwise has directly or indirectly acquired beneficial ownership of equity or voting shares in an amount that is equal to or greater than 50 percent of the total equity or outstanding voting shares.
8. Specifies that the provisions of this bill do not prohibit a business entity from sponsoring a sponsored committee, as specified, nor does it require a statement of certification from the sponsor of a committee solely due to specified activities relating to sponsoring the committee.
9. Makes various findings and declarations.

EXISTING STATE LAW:

1. Creates the Fair Political Practices Commission (FPPC), and makes it responsible for the impartial, effective administration and implementation of the Political Reform Act (PRA). (Government Code §§83100, 83111)
   
2. Prohibits a foreign government or foreign principal from making, directly or through any other person, a contribution, expenditure, or IE in connection with the qualification or support of, or opposition to, a state or local ballot measure or in connection with the election of a candidate to state or local office. Prohibits a person or a committee from soliciting or accepting a contribution from a foreign government or a foreign principal in connection with the qualification or support of, or opposition to, any state or local ballot measure or in connection with the election of a candidate to state or local office. (Government Code §85320)
   1. Defines "foreign principal," for the purposes of these restrictions, to include the following:
      1. A foreign political party;
      2. A person outside the United States (US), unless either of the following is established:
         1. The person is an individual and a citizen of the US; or,
         2. The person is not an individual, and is organized under or created by the laws of the US or of any state or other place subject to the jurisdiction of the US and has its principal place of business within the US;
      3. A partnership, association, corporation, organization, or other combination of persons organized under the laws of or having its principal place of business in a foreign country; or,
      4. A domestic subsidiary of a foreign corporation if the decision to contribute or expend funds is made by an officer, director, or management employee of the foreign corporation who is neither a citizen of the US nor a lawfully admitted permanent resident of the US. (Government Code §85320(c))
   2. Provides that these restrictions do not prohibit a contribution, expenditure, or IE made by a lawfully admitted permanent resident. (Government Code §85320(d))
   3. Provides that a person who violates these provisions is guilty of a misdemeanor and shall be fined an amount equal to the amount contributed or expended. (Government Code §85320(e))
3. Defines “business entity,” for the purposes of the PRA, as any organization or enterprise operated for profit, including but not limited to a proprietorship, partnership, firm, business trust, joint venture, syndicate, corporation, or association. (Government Code §82005)

EXISTING FEDERAL LAW:

1. Prohibits a foreign national, directly or indirectly, from doing any of the following:
   
   1. Making a contribution or donation of money or other thing of value, or an express or implied promise to make a contribution or donation, in connection with a federal, state, or local election;
      
   2. Making a contribution or donation to a committee of a political party; or,
      
   3. Making an expenditure, IE, or disbursement for an electioneering communication, as defined. (52 USC §30121)
      
2. Prohibits a person from soliciting, accepting, or receiving a contribution or donation made by a foreign national to a committee of a political party, or in connection with a federal, state, or local election. (52 USC §30121)
   
3. Defines "foreign national," for the purposes of the prohibitions described above, to include the following:
   
   1. A government of a foreign country; a foreign political party; or a partnership, association, corporation, organization, or other combination of persons organized under the laws of or having its principal place of business in a foreign country; or,
      
   2. An individual who is not a citizen or a national of the US and who is not lawfully admitted for permanent residence in the US, as defined. (52 USC §30121; 22 USC §611(b))
4. Establishes the Federal Election Commission (FEC), and makes it responsible for the administration and enforcement of the Federal Election Campaign Act (FECA), including the restrictions on contributions and expenditures by foreign nationals described above. (52 USC §30106)

FISCAL EFFECT: Unknown. State-mandated local program; contains a crimes and infractions disclaimer.

COMMENTS:

1. Purpose of the Bill: According to the author:

In President George Washington’s Farewell Address of 1796, he said, “The insidious wiles of foreign influence… prove [to be] one of the most baneful foes of [a] republican government.” This founding philosophy of our nation laid the groundwork for many of the safeguards from foreign influence in politics that we have today.

Investments in US companies have increased dramatically in recent years. In 1982, foreign investors owned about 5% of all U.S. corporate equity (public and private). By 2019, foreign ownership jumped to an astonishing 40%. Since 2010, neither Congress nor the Federal Election Commission have taken action to protect our elections from foreign-influenced corporations exerting their influence.

AB 83 would Get Foreign Money Out of California Elections by closing a loophole that allows corporations that are partly or wholly owned by foreign interests to spend money and influence political campaigns. This reform is crucial to protecting the integrity of California’s democratic self-government.

1. Foreign Campaign Spending and Previous Legislation: As detailed above, federal law prohibits foreign nationals from making contributions and expenditures in connection with federal, state, and local elections. According to information from the FEC, "[t]he ban on political contributions and expenditures by foreign nationals was first enacted in 1966 as part of the amendments to the Foreign Agents Registration Act (FARA), an 'internal security' statute. The goal of the FARA was to minimize foreign intervention in US elections by establishing a series of limitations on foreign nationals. These included registration requirements for the agents of foreign principals and a general prohibition on political contributions by foreign nationals. In 1974, the prohibition was incorporated into [FECA], giving the [FEC] jurisdiction over its enforcement and interpretation."
   
   Until 2002, the restriction on contributions by foreign nationals specifically applied to contributions made "in connection with an election to any political office." Because that language was limited to elections for office, it was the position of the FEC that contributions from foreign nationals relating exclusively to ballot measures were not restricted by federal law. In 2002, the restriction on foreign contributions was amended to make it applicable to any contribution made "in connection with a Federal, State, or local election," though it is unclear whether that change was intended to cover ballot measure elections.
   
   In 1997, the Legislature approved and Governor Wilson signed SB 109 (Kopp), Chapter 67, Statutes of 1997, to prohibit foreign governments or foreign principals from making contributions, expenditures, or IEs in connection with state or local ballot measures. The legislative history suggests that SB 109 did not seek to regulate foreign contributions made in connection with elections for office because such contributions were already restricted by federal law. Instead, SB 109 was limited to foreign spending in connection with ballot measure elections, thereby restricting foreign spending that was not covered by federal law. Two years ago, in response to concerns that the FEC may not be able to adequately enforce the federal prohibition against foreign principals making contributions and expenditures in candidate elections, the Legislature approved and Governor Newsom signed AB 319 (Valladares), Chapter 313, Statutes of 2021. AB 319 expanded the provisions of SB 109 to prohibit, under state law, foreign governments and foreign principals from making contributions or expenditures in connection with candidate elections, thereby giving the FPPC the authority to bring enforcement actions in situations where those entities make contributions or expenditures in connection with state or local elections in California.
   
   There is one notable difference between the scope of the federal law and California law that restrict campaign contributions and expenditures by foreign entities. Federal law restricts contributions or expenditures by an individual who is not a citizen or a national of the US, and is not lawfully admitted for permanent residence in the US. California’s law, on the other hand, does not restrict contributions or expenditures by individuals who are legally present in the US, even if those individuals are not legal permanent residents. The initial version of SB 109 (and an unsuccessful bill from the preceding legislative session) would have restricted contributions by foreign nationals who were legally present in the US but who did not have legal permanent residency. That restriction was amended out of the bill to address opposition.
   
   With respect to business entities, however, state and federal law have similar tests for determining whether a business entity is a foreign principal, and thus subject to the restrictions on making contributions and expenditures. Specifically, a business entity is prohibited from making contributions and expenditures if it is organized under the laws of a foreign country or if its principal place of business is in a foreign country. Relatedly, both state and federal laws restrict individuals who are foreign nationals from participating in decisions to make campaign contributions or expenditures, including by business entities. In other words, for the purposes of the existing federal and state restrictions on contributions and expenditures by foreign principals, the determination of whether a business entity is permitted to make contributions or expenditures depends on where the business entity is organized, the location of its principal place of business, and the nationality of the individuals who are involved in making decisions regarding the business entity’s contributions and expenditures. Both federal and state laws also have protections that prevent a domestic business entity from simply serving as a pass-through for campaign spending that is funded by a foreign principal.
   
   This bill additionally would restrict contributions and expenditures by a business entity if the percentage of equity in the business entity held by one or more foreign principals exceeds certain thresholds. In other words, a business entity that is organized under the laws of the US and has its principal place of business in the US, and where all individuals involved in the decisions regarding the business entity’s contributions and expenditures are US citizens and legal permanent residents, could be prohibited by this bill from making contributions or expenditures in state and local elections in California depending on the nationality of those that hold shares in the business entity.
2. Corporate Campaign Spending and Potential Constitutional Issues: Although federal courts have upheld the existing federal law that prohibits foreign nationals from making campaign contributions and expenditures, the constitutionality of this bill is less clear, and it could be susceptible to a challenge that its provisions violate the First Amendment to the US Constitution.
   
   In January 2010, the US Supreme Court issued its ruling in Citizens United v. Federal Election Commission (2010) 558 U.S. 310, a case involving a nonprofit corporation (Citizens United) that sought to run television commercials promoting a film it produced that was critical of then-Senator and presidential candidate Hillary Clinton. Because federal law prohibited corporations and unions from using their general treasury funds to make expenditures for "electioneering communications" or for communications that expressly advocated the election or defeat of a candidate, Citizens United was concerned that the television commercials promoting its film could subject the corporation to criminal and civil penalties. In its decision, the Supreme Court struck down the 63-year old law that prohibited corporations and unions from using their general treasury funds to make IEs in federal elections, finding that the law unconstitutionally abridged the freedom of speech.
   In reaching its decision, the Citizens United court found that the “Government may not suppress political speech on the basis of the speaker’s corporate identity,” and that the court has “rejected the argument that political speech of corporations or other associations should be treated differently under the First Amendment simply because such associations are not ‘natural persons.’” The court’s decision in Citizens United avoided the issue of whether it would be permissible to restrict contributions and expenditures by foreign individuals and associations, noting that the law before the court “is not limited to corporations or associations that were created in foreign countries or funded predominately by foreign shareholders,” and that the law “would be overbroad even if we assumed, arguendo, that the Government has a compelling interest in limiting foreign influence over our political process.”
   
   A little over a year and a half after the Citizens United decision, a federal three-judge panel upheld the federal law prohibiting foreign nationals from making campaign contributions and expenditures in Bluman v. Federal Election Commission (2011), 800 F. Supp. 2d 281. In upholding the law, the Bluman court stated that “[i]t is fundamental to the definition of our national political community that foreign citizens do not have a constitutional right to participate in, and thus may be excluded from, activities of democratic self-government,” and that “the United States has a compelling interest for the purposes of First Amendment analysis in limiting the participation of foreign citizens in activities of American democratic self-government, and in thereby preventing foreign influence over the U.S. political process.” The court concluded that “[a] statute that excludes foreign nationals from political spending is therefore tailored to achieve that compelling interest.” The US Supreme Court subsequently summarily affirmed the judgement of the District Court in Bluman.
   
   Although the Bluman court upheld federal restrictions on campaign spending by foreign nationals, the plaintiffs in that case were two individuals who were lawfully in the US on temporary work visas. Accordingly, the court’s analysis focused on the law as it applied to individuals. In a footnote in its opinion, the Bluman court acknowledged that its holding in that case meant that foreign corporations were also prohibited from making campaign contributions and expenditures. The footnote also noted, however, that since the case “concerns individuals, we have no occasion to analyze the circumstances under which a corporation may be considered a foreign corporation for purposes of First Amendment analysis.” To the knowledge of committee staff, no federal court has had the occasion to consider such a question.
   
   Although it is not entirely without potential complications, there are relatively few variables to consider when establishing rules that govern the determination of whether an individual is a foreign national for the purposes of making campaign contributions and expenditures. By contrast, there are far more variables to consider when establishing rules to determine whether an association of individuals (including a business entity) is a foreign national. Should an association of individuals be considered a foreign national—and prohibited from making campaign contributions and expenditures—if even a single one of its members is a foreign national? Or if some specified percentage of its members are foreign nationals? Should the test be based on the source of the money used by the association of individuals to make contributions or expenditures? Based on the nationality of the individuals who make the decisions about making campaign contributions and expenditures? Or based on the jurisdiction where the association was formed or where it operates?
   
   As explained in greater detail above, existing state and federal law consider a number of factors when determining whether an association of individuals that makes campaign contributions or expenditures is a foreign national. Those factors include the source of the funds used by the association for making those contributions or expenditures, the jurisdiction in which the association was organized and in which it operates, and the nationality of individuals who make the association’s political spending decisions. State and federal laws do not, however, generally consider the nationality of individual members of an association of individuals for the purposes of determining whether the association is a foreign national, except to the extent that it is relevant for determining the source of funding used for political spending and the identity of the individuals who are making the association’s political spending decisions.
   
   This bill makes the nationality of individual constituent members of an association of individuals relevant for the purposes of determining whether that association is a foreign national. Specifically, this bill deems a business entity to be “foreign-influenced,” and thus prohibited from making contributions and expenditures in California elections, if a single foreign principal owns 1% or more of the business’ total equity, or if two or more foreign principals collectively own 5% or more of the business’ total equity. An analysis prepared by the Center for American Progress (CAP)—one of the co-sponsors of this bill—suggests that this change would dramatically expand the scope of state law restricting campaign contributions and expenditures by foreign nationals. In particular, the CAP study suggests that almost all very large, publicly-traded corporations would be considered FIBEs under the provisions of this bill. Specifically, based on an analysis of 111 US-based publicly traded corporations in the S&P 500 stock index, the CAP study found that 74% of the studied corporations had a single foreign shareholder who owned 1% or more of the corporation’s total equity, and that 98% of the studied corporations had multiple foreign shareholders who collectively held at least 5% of the corporation’s total equity. The CAP report also suggests that smaller corporations are less likely to be considered FIBEs under this bill. Specifically, the report found that approximately 28% of smaller publicly-traded corporations met the 5% aggregate foreign ownership threshold established by this bill based on a random sample of 10% of the corporations that are listed in the Russell Microcap Index (an index that is made up of smaller publicly traded corporations).
   
   In their arguments supporting these thresholds, proponents of this bill point to testimony from corporate governance experts that makes a persuasive case that 1% ownership of a corporation confers substantial influence over corporate governance. Additionally, the bill’s supporters argue that the shareholders of a corporation should be considered the source of the money in the corporation’s treasury, since the shareholders own the corporation and are the residual claimants on the corporation’s assets. Accordingly, this bill’s supporters contend that campaign contributions and expenditures made by FIBEs as defined by this bill are being made with funds that are at least partially derived from foreign principals. By restricting the ability of FIBEs to make contributions and expenditures, then, the proponents maintain that this bill limits the ability of foreign principals to participate in activities of democratic self-government in a manner that is consistent with the court’s decision in Bluman.
   
   The proponents and author of this bill additionally provide evidence of significant campaign spending by corporations that would be classified as FIBEs under this bill. According to the same CAP report referenced above, for example, the 111 US-based publicly traded corporations in the S&P 500 stock index that were studied as part of that report disclosed making $443 million in spending related to federal and state elections from their corporate treasuries in 2015, 2016, and 2017.
   
   Notwithstanding that evidence of significant campaign spending, the proponents of this bill have not provided information that demonstrates that foreign investors in US-based business entities actually are using or attempting to use their influence over corporate governance to affect the political spending decisions of those business entities. That information may be difficult to obtain, since there is no requirement for shareholders of a corporation to publicly disclose their attempts to influence corporate governance. Nonetheless, this bill would have the effect of banning certain business entities from making contributions and expenditures in California elections on the grounds that those business entities are foreign-influenced, even in situations where the foreign shareholders do not participate in or attempt to influence the campaign spending decisions of the business entity in any way.
   
   Such a policy would significantly restrict the ability of a business entity to make contributions and expenditures that are in the interests of the business and its domestic shareholders. In fact, in some situations, this bill could result in a business entity being designated as an FIBE, and thus prohibited from making contributions and expenditures, even where the business entity has less than 1% foreign ownership. For example, if Company A is 50% American owned and 50% foreign owned, this bill defines that company as a “foreign principal.” If Company A owns 1% of Company B, then this bill designates Company B as an FIBE, even if the remaining 99% of Company B is American owned. In this situation, Company B would be considered an FIBE even though just 0.5% of the company is foreign-owned.
   
   There are other mechanisms, however, through which the constituent members of an FIBE could participate in elections. The provisions of this bill, for instance, make clear that FIBEs would be permitted to sponsor a committee that receives contributions from officers, employees, and shareholders (other than shareholders who are foreign principals). Relatedly, nothing in this bill prevents an employee, officer, or individual shareholder of an FIBE from making campaign contributions or expenditures (provided that the individual is not a foreign principal).
   
   Nonetheless, in light of the fact that this bill could restrict the ability of business entities to make contributions and expenditures in elections based on relatively low levels of foreign ownership, including in situations where the foreign shareholders had no involvement in influencing or attempting to influence the business entity’s political decisions, it is unclear whether a court would uphold this bill against a challenge that its provisions violate the First Amendment to the US Constitution.
3. Implications for Nonprofit Organizations: As detailed above, the PRA defines the term “business entity,” as any organization or enterprise operated for profit, including but not limited to a proprietorship, partnership, firm, business trust, joint venture, syndicate, corporation, or association. Accordingly, nonprofit organizations, which often are organized as corporations, would not be considered FIBEs for the purpose of this bill, and would not be required to certify that they are not “foreign-influenced” when making campaign contributions and expenditures.
   
   While federal tax laws limit the ability of certain types of nonprofit organizations to make contributions to candidates for elective office (notably, charitable organizations that are organized under Section 501(c)(3) of the Internal Revenue Code are prohibited from making contributions to candidates), other types of nonprofit organizations can and do make significant campaign contributions to candidates for elective office. For example, professional and trade associations, which often are organized as nonprofit corporations under Section 501(c)(6) of the Internal Revenue Code, often make campaign contributions to candidates for elective state or local office. Additionally, nonprofit organizations can and do make campaign expenditures in connection with ballot measures (including those organized under Section 501(c)(3) of the Internal Revenue Code, though limits do apply).
   
   Although this bill would not result in a nonprofit organization being classified as an FIBE, it nonetheless could have significant implications for the operations of nonprofit organizations that make campaign contributions or expenditures. As is the case with any other entity, this bill would prohibit a nonprofit organization from soliciting or accepting a contribution from an FIBE. Perhaps more significantly, however, this bill additionally prohibits a person who receives a donation from a business entity from using that donation, directly or indirectly, for campaign contributions or expenditures unless the person receives a certification that the business entity is not an FIBE. Additionally, this bill requires a person who uses a donation from a business entity for the purpose of making campaign contributions or expenditures to account for the funds used for those contributions or expenditures and to demonstrate that none of the funds used were from FIBEs.
   
   It is this restriction on donations that especially could affect nonprofit organizations. Under California law, when an entity receives money from another person for the purposes of making campaign contributions or expenditures, the money received itself is generally treated as a campaign contribution, subject to required reporting and other restrictions on contributions. Nonprofit organizations, however, often receive donations for purposes other than making campaign contributions and expenditures. Those donations may be designated for specific purposes, or they may be unrestricted donations that are not earmarked or intended for a specific purpose. In some cases, nonprofit organizations may use some of those unrestricted funds to make contributions or expenditures to support or oppose candidates or ballot measures. Under certain circumstances, California law requires a nonprofit organization to identify certain donors if the organization uses funds received from unrestricted donations to make contributions and expenditures.
   
   Because this bill imposes conditions on the use of a donation that is received from a business entity, regardless of whether that business entity is an FIBE, this bill could create new recordkeeping and compliance requirements for nonprofit organizations that make campaign contributions or expenditures. At a minimum, a nonprofit organization would need to be able to demonstrate that none of the funds used by the organization for making campaign contributions or expenditures were derived, directly or indirectly, from an FIBE. Additionally, to the extent that a nonprofit organization uses funds that are derived, directly or indirectly, from a donation from a business entity when making campaign contributions or expenditures, the nonprofit organization would need to maintain documentation that the business entity was not an FIBE on the date that the organization received the donation. It is unclear how burdensome the recordkeeping and compliance requirements of this bill would be for nonprofit organizations that make contributions and expenditures.
4. Seattle Ordinance: This bill is similar to an ordinance that the City of Seattle adopted in January 2020, and that was in effect for municipal elections held in Seattle in 2021 (Seattle elects its city officials—mayor, city attorney, and city council members—in odd-numbered years). The Seattle ordinance, however, did not include the restrictions on donations by FIBEs that are included in this bill, as described in greater detail above. Additionally, it is unclear whether the Seattle ordinance completely restricts spending by foreign-influenced corporations (the term used instead of FIBEs in the ordinance) in ballot measure campaigns.
5. Arguments in Support: One of the co-sponsors of this bill, the Center for American Progress, writes in support:

In the U.S. Supreme Court’s misguided decision in Citizens United, the court gave American corporations the ability to spend money in elections based on the premise that corporations are “associations of citizens.” However, many of the largest American-based corporations are owned appreciably by foreign entities. This creates a loophole in the Supreme Court’s ruling, as recognized in a dissenting opinion by Justice John Paul Stevens: Foreign entities can invest in U.S. corporations that then spend large amounts of money from their corporate treasuries to influence the results of elections and ballot initiatives.

[AB 83] would close that gaping loophole. At first glance, the legislation’s ownership thresholds to determine when a corporation is “foreign influenced”—1 percent for a single foreign shareholder, and 5 percent for aggregate foreign ownership—may appear to be relatively low. However…the foreign ownership thresholds used in A.B. 83 are solidly grounded in corporate governance and related law, are constitutional, and have been supported by conservative lawmakers, corporate CEOs, and longstanding commissioners on the Federal Election Commission among many others. Moreover, the U.S. Securities and Exchange Commission has recognized the power that shareholders have at the levels of ownership delineated in this legislation. This bill is not aimed at disincentivizing foreign investment in California based companies but rather setting guardrails on when foreign influenced companies can spend political dollars to influence U.S. elections and ballot measures. …

At a time of rising foreign interference in U.S. elections, California should be commended for positioning itself at the forefront of legislative efforts across the nation to take proactive, commonsense steps to stop political spending by American corporations that are appreciably owned by foreign investors. A.B. 83 would go a long way in reassuring the people of California that their democratic right to self-government is protected.

1. Arguments in Opposition: In opposition to this bill, the California Chamber of Commerce writes:

AB 83 is redundant as “foreign influence” is already prohibited by state and federal law. In this case the proposal is preempted by the Federal Election Campaign Act of 1971, which as amended, prohibits foreign nationals, directly or indirectly, from making contributions “in connection with a Federal, state, or local election.” Therefore, Congress has already regulated foreign spending in connection with local elections…

According to a 2020 memo by Perkins Coie – while the Supreme Court has not spoken directly on the issue of foreign election financing, it affirmed without opinion a federal three-judge panel decision in Bluman v. Federal Election Commission. There, the lower court upheld the federal law prohibiting foreign nationals from making contributions and expenditures in connection with any federal, state, or local election…

The Bluman court concluded that the federal ban on foreign-national spending was appropriately tailored to prevent foreign influence, whereas AB 83 is much broader and would prevent domestic corporations from spending in connection with U.S. elections, ostensibly to prevent foreign influence. The Citizens United Court’s brief statement about foreign-national spending would appear to weigh against a regulation as broad as AB 83 —the Supreme Court hypothesized only about foreign corporations or corporations “funded predominately by foreign shareholders.”

Thus, AB 83’s proposal to bar foreign-influenced corporations from making independent expenditures and contributions in furtherance of independent expenditures will be subject to strict scrutiny because it burdens core First Amendment speech. AB [83] is unlikely to survive such scrutiny, as federal courts have not recognized a compelling interest in restricting the speech of “foreign-influenced” individuals or entities, nor in regulating U.S. companies with a nominal amount of foreign ownership. When those owners could just as easily be isolated from decisions concerning electoral spending, the law is not narrowly tailored to serve the broader interest of keeping U.S. elections free from foreign influence.

1. Previous Legislation: This bill is substantively identical to the May 2, 2022, version of AB 1819 (Lee) of 2022. This committee approved AB 1819 by a 4-1 vote, but it subsequently was held on the Assembly Appropriations Committee’s suspense file.
   
   AB 20 (Lee) of 2021 would have prohibited contributions from business entities to candidates for elective office, as specified. AB 20 was heard in this committee on April 29, 2021, and was held in committee without recommendation.
2. Political Reform Act of 1974: California voters passed an initiative, Proposition 9, in 1974 that created the FPPC and codified significant restrictions and prohibitions on candidates, officeholders, and lobbyists. That initiative is commonly known as the PRA. Amendments to the PRA that are not submitted to the voters, such as those contained in this bill, must further the purposes of the initiative and require a two-thirds vote of both houses of the Legislature.

REGISTERED SUPPORT / OPPOSITION:

Support

Center for American Progress (Co-Sponsor)

Free Speech for People (Co-Sponsor)

Money Out Voters In (Co-Sponsor)

350 Bay Area Action

350 Conejo / San Fernando Valley

350 South Bay LA

350 Southland Legislative Alliance

350 Ventura County Climate Hub

All Rise Alameda

American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO

American Promise

Ballona Wetlands Institute

Ban SUP (Single Use Plastic)

Building the Base Face to Face

California Alliance for Retired Americans

California Climate Voters

California Environmental Voters (formerly CLCV)

California Movetoamend.org

Change Begins With Me (INDIVISIBLE)

Chino Valley Democratic Cub

Cloverdale Indivisible

Coastal Lands Action Network (CLAN)

Contra Costa Moveon

Council on American-Islamic Relations, California

Courage California

Culver City Democratic Club

Defend Ballona Wetlands

Defending Our Future: Indivisible in CA

East Valley Indivisibles

El Cerrito Progressives

Election Integrity Project California

End Citizens United//Let America Vote Action Fund

Feminists in Action (formerly Indivisible CA 34 Womens)

Fix Democracy First

Hillcrest Indivisible

Hollywood Now

Indi Squared

Indian Valley Indivisibe

Indivisble East Bay

Indivisible 30/Keep Sherman Accountable

Indivisible 36

Indivisible 41

Indivisible Auburn CA

Indivisible Beach Cities

Indivisible CA 29

Indivisible CA 37

Indivisible CA Statestrong

Indivisible CA-25 Simi Valley Porter Ranch

Indivisible CA-3

Indivisible CA-39

Indivisible CA-43

Indivisible CA-7

Indivisible California Green Team

Indivisible Claremont / Inland Valley

Indivisible Colusa County

Indivisible El Dorado Hills

Indivisible Elmwood

Indivisible Euclid

Indivisible Lorin

Indivisible Los Angeles

Indivisible Los Gatos

Indivisible Manteca

Indivisible Marin

Indivisible Media City Burbank

Indivisible Mendocino

Indivisible Normal Heights

Indivisible North Oakland Resistance

Indivisible North San Diego County

Indivisible OC 46

Indivisible OC 48

Indivisible Peninsula and CA-14

Indivisible Petaluma

Indivisible Ross Valley

Indivisible Sacramento

Indivisible San Bernardino

Indivisible San Diego Centra

Indivisible San Jose

Indivisible San Pedro

Indivisible Santa Barbara

Indivisible Santa Cruz County

Indivisible Sausalito

Indivisible Sebastopol

Indivisible SF

Indivisible Sherman Oaks

Indivisible Sonoma County

Indivisible South Bay LA

Indivisible Stanislaus

Indivisible Suffragists

Indivisible Ventura

Indivisible West Side LA

Indivisible Windsor

League of Women Voters of California

Livermore Indivisible

Long Beach Environmental Alliance

Los Angeles County Democratic Party

Mill Valley Community Action Network

Mountain Progressives

Norcal Solar

Northern California Recycling Association

Nothing Rhymes With Orange

Orchard City Indivisible

Orinda Progressive Action Alliance

Our Revolution

Our Revolution Long Beach

PDA-CA

People for The American Way

Progressive Democrats of Santa Monica Mountains

Public Citizen, Inc.

Representus

Resistance Northridge-Indivisible

Riseup

Rooted in Resistance

San Diego Indivisible Downtown

San Joaquin Valley Democratic Club

SFV Indivisible

Socal 350

Stamp Stampede

Tehama Indivisible

The Santa Monica Democratic Club

Together We Will Contra Costa

Urban Ecology Project

Vallejo-Benicia Indivisible

Valley Women's Club of San Lorenzo Valley

Venice Resistance

Voices for Progress

Women's Alliance Los Angeles

Yalla Indivisible

Yolo Indivisible
One individual

Opposition

California Chamber of Commerce

One individual

Analysis Prepared by: Ethan Jones / ELECTIONS / (916) 319-2094