Federal Election Commission Main Page
FEDERAL ELECTION COMMISSION
Washington, DC 20463
May 19, 2006
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 2006-15
Jonathan D. Simon, Esq.
VanNess Feldman
1050 Thomas Jefferson Street, N.W.
Washington, D.C. 20007-3877
Dear Mr. Simon:
We are responding to your advisory opinion request on
behalf of TransCanada Corporation ("TransCanada"), concerning
the application of the Federal Election Campaign Act of 1971, as
amended (the "Act"), and Commission regulations to political
donations and disbursements from two of TransCanada's wholly
owned domestic subsidiaries in connection with State and local
elections. The Commission concludes that the Act and Commission
regulations do not prohibit these political donations or
disbursements because the funds used for such donations and
disbursements would not come from a foreign national and because
the domestic subsidiaries would ensure that no foreign national
participates in making decisions concerning non-Federal election-
related activities.
Background
The facts presented in this advisory opinion are based on
your letter received March 28, 2006.
TransCanada, a Canadian corporation, maintains its
principal place of business in Calgary, Alberta, Canada.
TransCanada wholly owns two U.S. corporations, Gas Transmission
Northwest Corporation ("GTN") and TransCanada Hydro Northeast
Inc. ("TC Hydro").
GTN, a California corporation, has its principal place of
business in Portland, Oregon. GTN's Board of Directors
currently includes three directors, two of whom are U.S.
citizens.
TC Hydro is a Delaware corporation, with its principal
place of business in Westborough, Massachusetts. Three
directors comprise TC Hydro's Board of Directors; one of whom is
a U.S. citizen, and one of whom has permanent resident status in
the United States.
Both GTN and TC Hydro (collectively, "the Subsidiaries")
propose to make direct corporate political donations and
disbursements in connection with State and local elections to
the extent permissible under applicable State and local law.
The donations and disbursements would be made from funds
generated by the Subsidiaries' domestic U.S. operations. Each
Subsidiary's Board and officers, including foreign national
Board members and officers, would set an overall budget level
for political donations and disbursements in connection with
State and local elections. Other than setting the overall
budget amount, all decisions concerning the making of political
donations or disbursements will be made by individuals who are
U.S. citizens or permanent residents to whom such
responsibilities will be delegated.
Question Presented
May GTN and TC Hydro make donations and disbursements of
corporate funds in connection with State and local elections, to
the extent permitted by State and local law, from funds
generated by their U.S. operations?
Legal Analysis and Conclusions
Yes, GTN and TC Hydro may make corporate donations and
disbursements in connection with State and local elections to
the extent permitted by State and local law, provided that: (1)
the donations and disbursements derive entirely from funds
generated by the Subsidiaries' U.S. operations; and (2) all
decisions concerning the donations and disbursements will be
made by individuals who are U.S. citizens or permanent
residents, except for setting overall budget amounts.
The Act and Commission regulations prohibit a foreign
national from directly or indirectly making a contribution or
donation of money in connection with a Federal, State, or local
election. 2 U.S.C. 441e(a)(1)(A);1 11 CFR 110.20(b). In
addition, the Act and Commission regulations prohibit a foreign
national from directly or indirectly making an expenditure, an
independent expenditure, or a disbursement in connection with a
Federal, State, or local election. 2 U.S.C. 441e(a)(1)(C);
11 CFR 110.20(f). Commission regulations provide that foreign
nationals shall not direct, dictate, control, or directly or
indirectly participate in the decision-making process of any
person, such as a corporation, with regard to such person's
Federal or non-Federal election-related activities, including
decisions concerning the making of contributions, donations,
expenditures, or disbursements in connection with elections for
any Federal, State, or local office. 11 CFR 110.20(i). Thus,
in order for a domestic subsidiary of a
foreign national to make donations or disbursements in
connection with a State or local election, the donations or
disbursements may not be derived from the foreign national's
funds and no foreign national may have any decision-making
authority concerning the making of donations or disbursements.
In the Bipartisan Campaign Reform Act of 2002, Pub. Law No.
107-155, 116 Stat. 81 (2002) ("BCRA"), Congress amended the Act
to strengthen and expand the ban on campaign contributions and
donations by foreign nationals. See BCRA, 303, 116 Stat. at
96. Among other changes, BCRA amended 2 U.S.C. 441e to prohibit
foreign national contributions and donations that are made
"directly or indirectly." Previously, 2 U.S.C. 441e(a) banned
foreign national contributions made directly "or through any
other person." In promulgating regulations to implement this
statutory amendment, the Commission sought comment on whether
BCRA's new statutory language should be interpreted to prohibit
U.S. subsidiaries of foreign corporations from making donations
in connection with State and local elections, or from making
contributions in connection with Federal elections from a
separate segregated fund, or both. See Contribution Limitations
and Prohibitions, Final Rules, 67 Fed. Reg. 69928, at 69943
(Nov. 19, 2002).
When promulgating the Final Rules, the Commission indicated
that it found no evidence of Congressional intent to broaden the
prohibition on foreign national involvement in U.S. elections to
cover U.S. subsidiaries of foreign corporations. Consequently,
the Commission determined that "indirectly" did not apply to
donations made by such entities. Id. The Commission based its
determination on the lack of Congressional intent and on
substantial policy reasons set forth in the long line of
"advisory opinions over more than two decades that have affirmed
the participation of such subsidiaries in elections in the
United States, either directly in states where state law
permits, or through separate segregated funds with regard to
Federal elections, so long as there is no involvement of foreign
nationals in decisions regarding such participation." See id.
at 69943 (citing Advisory Opinions 2000-17 (Extendicare Health
Services, Inc.), 1999-28 (Bacardi-Martini, USA, Inc.), 1995-15
(Allison Engine Company Political Action Committee), 1992-16
(Nansay Hawaii, Inc.), 1992-07 (H&R Block, Inc.), 1990-08 (The
CIT Group Holdings, Inc.), 1989-29 (GEM of Hawaii, Inc.), 1982-
34 (Sonat Inc. Political Action Committee), 1981-36 (Japan
Business Association of Southern California), 1980-100 (Revere
Sugar Corp.), and 1978-21 (Budd Citizenship Committee)).
Consistent with this determination, the Commission has continued
to permit domestic subsidiaries of foreign corporations to make
contributions and donations in connection with U.S. elections
after BCRA and the Commission's implementing regulations became
effective, provided that the conditions set forth in Commission
regulations and the advisory opinions cited above were
satisfied. See, e.g., Advisory Opinion 2004-42 n.3 (Pharmavite
LLC).
1. Foreign Nationals
The Act and Commission regulations define "foreign
national" to include "foreign principals," as defined in
22 U.S.C. 611(b), and individuals who are not citizens or
nationals of
the United States and who are not lawfully admitted to the
United States for permanent residence. 2 U.S.C. 441e(b);
11 CFR 110.20(a)(3).2 Under 22 U.S.C. 611(b)(3), "foreign
principal" includes corporations organized under the laws of or
having its principal place of business in a foreign country.
TransCanada is organized under Canadian law and has its
principal place of business in Canada. Therefore, TransCanada
is a foreign national for purposes of 2 U.S.C. 441e.
Both GTN and TC Hydro are corporations organized under the
laws of California and Delaware, respectively, and both GTN and
TC Hydro have principal places of business in the United States.
Therefore, both Subsidiaries are not foreign nationals for
purposes of 2 U.S.C. 441e.
One director on each of the Subsidiaries' Boards is not a
U.S. citizen and is not a permanent resident, so both of these
directors are foreign nationals for purposes of 2 U.S.C. 441e.
2. Funds Used for Donations and Disbursements in Connection
with State and Local Elections
As noted above, the Commission has applied these provisions
of the Act and regulations in past advisory opinions that
considered factual situations and circumstances similar to those
presented here.3 In Advisory Opinion 1992-16 (Nansay Hawaii),
the Commission considered the same question at issue in this
request-i.e., which funds a domestic subsidiary of a foreign
corporation may use to make political donations to State and
local candidates. In that advisory opinion, the foreign parent
corporation wholly owned the subsidiary, and it provided regular
subsidies in the form of loans or capital contributions to the
subsidiary. However, the domestic subsidiary proposed to use
net earnings generated by the subsidiary in the United States
and from segregated accounts that were not subsidized by the
foreign corporate parent to make political donations. The
Commission opined that such donations were permissible, provided
the subsidiary could demonstrate through a reasonable accounting
method that it had sufficient funds in its accounts, other than
funds given or loaned by its foreign national parent
corporation, from which the donations were made.4
GTN and TC Hydro propose to use funds generated by their
domestic operations for the political donations and
disbursements. Like the subsidiary in Advisory Opinion 1992-16
(Nansay Hawaii), both Subsidiaries generate substantial net
earnings from their operations within the United States (i.e.,
income exceeding expenses after debt service).5 Neither
Subsidiary receives any subsidies from TransCanada or any other
foreign national. Both GTN and TC Hydro maintain separate bank
accounts located in the United States, into which they deposit
the receipts from their domestic operations and from which they
pay the expenses of these operations. Both Subsidiaries would
use these accounts for the political donations and
disbursements. Using funds that meet these conditions ensures
that the foreign parent corporation is not indirectly making or
subsidizing the domestic subsidiary's donations and
disbursements in connection with State or local elections.
Under these circumstances, the Commission concludes that the Act
and Commission regulations do not prohibit GTN and TC Hydro from
using the funds in their separate bank accounts to make
donations or disbursements in connection with State or local
elections.
3. Decision Makers for Donations and Disbursements in
Connection with State and Local Elections
The Commission has also considered in past advisory
opinions how a domestic subsidiary of a foreign national parent
corporation can ensure compliance with the prohibition in
11 CFR 110.20(i) on foreign nationals participating in decision-
making related to political donations and disbursements. In
Advisory Opinion 2000-17 (Extendicare Health Services,
Inc.), the domestic subsidiary had a Board of Directors that
included one U.S. citizen and two foreign nationals and which
was wholly owned by a foreign national corporation. The
Commission concluded that the Board was permitted to make
"general corporate policy decisions" to establish or terminate a
separate segregated fund ("SSF"), or to establish a Special
Committee or "other corporate personnel group" limited to U.S.
citizens or lawfully admitted permanent residents that would
administer the SSF. The Board was also permitted to set a
specific budget level for the direct costs of the SSF at a "not
to exceed" amount, and it could enforce compliance with this
overall budget level. The Commission determined that all other
decisions concerning the administration of the SSF must be made
by the Special Committee or other group limited to U.S. citizens
or lawfully admitted permanent residents in order to comply with
11 CFR 110.20(i).
GTN and TC Hydro propose similar arrangements to ensure
compliance with the prohibition on foreign national
participation in decision-making regarding political donations
and disbursements. The Boards of Directors of the Subsidiaries,
which include foreign nationals, would set an overall budget for
political donations and disbursements on an annual basis at a
"not to exceed" amount. The Subsidiaries' Boards would review
and enforce compliance with these overall budget amounts. Each
Board would delegate to a subset of its Board members, comprised
exclusively of U.S. citizens or permanent residents, the
authority to select the individual or individuals who will
exercise all other decision-making authority over political
donations and disbursements. These arrangements ensure that
foreign nationals do not directly or indirectly participate in
the decision-making process of GTN or TC Hydro with regard to
their non-Federal election-related activities.
Consequently, under these circumstances, the Commission
concludes that the Subsidiaries' donations and disbursements
made in the proposed manner would not be donations or
disbursements by a foreign national that are prohibited by the
Act. Therefore, GTN and TC Hydro may make donations and
disbursements in connection with State or local elections in the
proposed manner to the extent permitted by State and local law.
This response constitutes an advisory opinion concerning
the application of the Act and Commission regulations to the
specific transaction or activity set forth in your request. See
2 U.S.C. 437f. The Commission emphasizes that, if there is a
change in any of the facts or assumptions presented, and such
facts or assumptions are material to a conclusion presented in
this advisory opinion, then the requestor may not rely on that
conclusion as support for its proposed activity.
Sincerely,
(signed)
Michael E. Toner
Chairman
Enclosures (AOs 2004-42, 2000-17, 1999-28, 1995-15, 1992-16,
1992-07, 1990-08, 1989-29,
1982-34, 1981-36, 1980-100, and 1978-21)
_______________________________
1 Unlike many of the other provisions of the Act, section
441e applies to elections for State and local offices.
2 See also 8 U.S.C. 1101(a)(22) (defining "national") and
8 U.S.C. 1101(a)(20) (defining "an individual lawfully admitted
for permanent residence").
3 Section 110.20 was promulgated by the Commission in 2002.
It recodified provisions that previously appeared in section
110.4(a), which were considered in the earlier advisory
opinions.
4 The foreign national parent corporation and the domestic
subsidiary were also required to monitor future subsidies to
ensure that the parent corporation did not replenish all or any
portion of the subsidiary's political contributions.
5 In 2005, GTN's operations generated $169 million in
revenue, with a net income of $58 million, and TC Hydro's
operations generated $48 million in revenue, with a net income
of $36 million.