Federal Election Commission Main Page
FEDERAL ELECTION COMMISSION
Washington, DC 20463
July 28, 2000
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 2000-17
Joseph A. Rieser, Jr.
Reed Smith Shaw & McClay LLP
1301 K Street, NW
Suite 1100--East Tower
Washington, DC 20005-3317
Dear Mr. Rieser:
This responds to your letter dated June 9, 2000, on
behalf of Extendicare Health Services, Inc. ("Extendicare"),
requesting an advisory opinion concerning the application of
the Federal Election Campaign Act of 1971, as amended ("the
Act"), and Commission regulations to the formation and
administration of a separate segregated fund ("SSF" or
"PAC") by a domestic subsidiary corporation that is wholly-
owned by a foreign parent corporation.
Extendicare is a Delaware corporation with its
principal place of business in Milwaukee, Wisconsin, and it
is wholly owned by Extendicare, Inc., a Canadian corporation
with its principal place of business in Ontario, Canada.1
Through its wholly-owned subsidiaries, which are all United
States entities, Extendicare operates 237 nursing and
assisted living and retirement centers in 14 States with
more than 25,000 people employed by either Extendicare or
its domestic subsidiaries.2 Extendicare provides home
office management and administrative services for its
operating subsidiaries that operate the cited nursing and
retirement centers.
Factual background
Extendicare's board of directors has changed from time
to time in both size and composition over the years.
Currently the board is comprised of three individuals, only
one of whom is a US citizen. The other two are Canadian
citizens who are not lawfully admitted for permanent
residence in the United States, although they are lawfully
admitted to the United States for both residence and work
purposes. One of the Canadian directors is chair of the
Extendicare board and is also deputy chair and CEO of the
parent Canadian corporation. The other Canadian director is
CEO of Extendicare and president of the parent Canadian
corporation. The US citizen director is also the chief
finance officer of both Extendicare and the parent Canadian
corporation. The Extendicare president (not a board member)
is a Canadian citizen who is not lawfully admitted for
permanent residence in the United States. Of the remaining
officers, a number are foreign nationals who do not have
permanent resident alien status, and a number are U.S.
citizens. In Extendicare's top management structure, there
are board-elected officers, vice presidents who are not
board-elected, and senior managers (with various titles and
designations), hereinafter referred to as the "senior
management team." Presently, the overwhelming majority of
Extendicare's senior management team are U.S. citizens. One
such official is Extendicare's vice president of government
relations who is a United States citizen.
This vice president seeks Commission advice regarding
whether Extendicare may establish and administer an SSF
under the Act and Commission regulations that would solicit
contributions from the eligible personnel of Extendicare and
its subsidiaries who may lawfully make such contributions.
The proposed SSF would make contributions to candidates for
Federal and, perhaps (to the extent permitted under
applicable State laws), State and local offices. In view of
the foreign national status of two (out of three) members of
Extendicare's board and given that its parent corporation is
a foreign national, an approach for determining whether to
establish an SSF is described. A plan of operation for an
SSF is also described in the event that one is formed.
Special Committee proposal
The request states and explains that Extendicare's
board would establish a special committee (the "Special
Committee"). This Special Committee would be comprised only
of individuals who are U.S. citizens or permanent resident
aliens residing in the United States. The Special Committee
would be charged with the authority and responsibility to
determine whether it would be desirable and appropriate for
Extendicare to establish an SSF under 2 U.S.C. 441b(b)(2).
If it should determine that it would be desirable and
appropriate for Extendicare to establish such an SSF, the
Special Committee would also have the authority and
responsibility to determine what individual or individuals
(the "PAC Committee") would administer the fund. Subject to
the requirement that the members of the PAC Committee both
be employees of Extendicare or its subsidiaries and be U.S.
citizens or permanent resident aliens residing in the United
States, the Special Committee would have complete discretion
in determining the size and composition of the PAC
Committee. In particular, the Special Committee would not
be required to appoint to the PAC Committee only those
individuals who were members of the Special Committee; it
would have the authority to appoint those individuals whom
it deemed best, regardless of whether or not they were
members of the Special Committee. To the extent that the
PAC Committee needs by-laws by which to govern itself, the
Special Committee would expect to have the authority to
approve and amend them.
The request further explains that the PAC Committee
would have the complete authority to administer the SSF,
without review or approval by the Special Committee or by
Extendicare's board of directors. That is, it would decide:
what individuals among Extendicare's (and its subsidiaries')
work force would be solicited for contributions to the fund
and when to solicit such contributions; to whom to make
contributions and when to make them; and what expenditures
to make from the fund and when to make them.
According to the request, Extendicare's by-laws
presently allow the board to designate committees, to be
comprised of one or more directors. The by-laws provide
that, to the extent permitted by law and provided by the
resolution establishing the committee, the committee shall
have and may exercise all of the powers of the board in the
management of the business and affairs of the corporation.
The by-laws currently are silent with respect to whether
individuals who are not directors may serve on such
committees.
To the extent that Extendicare's board includes U.S.
citizens or permanent resident aliens residing in the United
States, it would be anticipated (but not necessarily
foreordained) that all or some of such individuals would be
appointed to serve on the Special Committee. However,
because the size and composition of the board changes from
time to time, it cannot be predicted in advance whether the
board would always have at least one such individual on it.
As a result, in order to assure that a Special Committee
could always be constituted, it is proposed that
Extendicare's by-laws would be specifically amended both to
permit the board of directors to appoint the Special
Committee and to provide that such Special Committee may or
may not include members of the board of directors, as the
board sees fit. Such an amendment to the by-laws will
require the approval of either Extendicare's board or its
shareholders.
Opinion format
Given this factual background and the described
circumstances, Extendicare asks ten questions concerning the
proposal to form and operate a PAC. Questions one through
ten are set forth with some editing of the actual phrasing
as used in the request. To facilitate the Commission's
response, the basic statutory and regulatory provisions are
stated initially and then applied to answer each question.
Act and Commission regulations
The Act and Commission regulations prohibit a foreign
national from making a contribution, directly or through any
other person, or an expenditure in connection with an
election to any political office.3 In addition, it is
unlawful to solicit, accept, or receive a contribution from
a foreign national. 2 U.S.C. 441e(a); 11 CFR 110.4(a)(1)
and (2). As defined in the Act, the term "person" includes
a corporation. 2 U.S.C. 431(11).
The term "foreign national" includes a "foreign
principal" as defined by 22 U.S.C. 611(b), but does not
include any citizen of the United States. 2 U.S.C.
441e(b)(1). Section 611(b) defines a "foreign principal"
to include:
(1) a government of a foreign country and a
foreign political party;
(2) a person outside of the United States, unless
it is established that such person is an
individual and a citizen of and domiciled within
the United States, or that such person is not an
individual and is organized under or created by
the laws of the United States or of any State or
other place subject to the jurisdiction of the
United States and has its principal place of
business within the United States; and
(3) a partnership, association, corporation,
organization, or other combi-nation of persons
organized under the laws of or having its
principal place of business in a foreign country.
Accordingly, under 611(b)(2) and (3), a corporation
organized under the laws of any State within the United
States that has its principal place of business in the
United States is not a foreign principal. Therefore, it
follows that such a corporation would not be a foreign
national under 2 U.S.C. 441e. The term "foreign national"
also includes an individual who is not a citizen of the
United States and who is not lawfully admitted for permanent
residence in the U.S. as defined by 8 U.S.C. 1101(a)(20).
2 U.S.C. 441e(b)(2).
Commission regulations, at 11 CFR 110.4(a)(1)--(4),
implement the foreign national prohibition, explaining its
broad scope and barring foreign national participation in
certain election-related activities:
(a) Contributions or expenditures by foreign nationals.
(1) A foreign national shall not directly or through
any other person make a contribution, or an
expenditure, or expressly or impliedly promise to make
a contribution, or an expenditure, in connection with a
convention, a caucus, or a primary, general, special,
or runoff election in connection with any local, State,
or Federal public office.
(2) No person shall solicit, accept, or receive a
contribution as set out above from a foreign national.
(3) A foreign national shall not direct, dictate,
control, or directly or indirectly participate in the
decision-making process of any person, such as a
corporation, labor organization, or political
committee, with regard to such person's Federal or
nonfederal election-related activities, such as
decisions concerning the making of contributions or
expenditures in connection with elections for any
local, State, or Federal office or decisions concerning
the administration of a political committee.
(4) For purposes of this section, foreign national means --
(i) A foreign principal, as defined in 22 U.S.C. 611(b); or
(ii) An individual who is not a citizen of the United
States and who is not lawfully admitted for permanent
residence, as defined in 8 U.S.C. 1101(a)(20);
(iii) Except that foreign national shall not include
any individual who is a citizen of the United States.
The Commission has applied section 110.4(a)(3) in past
advisory opinions that considered factual situations and
circumstances similar to those presented here. For example,
in Advisory Opinion 1995-15, the Commission approved a PAC's
operating structure where its sponsoring domestic
corporation was about to be acquired by a foreign
corporation. The attributes of the PAC's future composition
included that all its members and officers would be US
citizens. Citing this fact among others, along with prior
advisory opinions, the Commission concluded that: "after the
company is acquired by a foreign corporation, foreign
nationals will not direct, control, or otherwise participate
directly or indirectly in the decision-making process of the
PAC, including the administration of or contributions by the
PAC." Advisory Opinion 1995-15. In other opinions applying
the cited regulations, the Commission has emphasized the
requirement that foreign nationals, who are either on the
corporate board or hold other positions with the
corporation, may not vote on the selection of individuals
who would operate the PAC or exercise decision-making
authority with respect to contributions and expenditures by
the PAC, or by the domestic corporation itself in non-
federal elections. Advisory Opinions 1992-16, and 1990-8;
see also Advisory Opinion 1989-29 [same emphasis in opinion
issued prior to adoption of 11 CFR 110.4(a)(3) where non-
federal PAC was funded with corporate treasury moneys and
proposed to make contributions only in non-federal elections
subject to State law]. Recently, in Advisory Opinion 1999-
28, the Commission indicated that the conclusions and
guidance within these opinions have continued relevance to
the operations of an SSF established by the United States
subsidiary of a foreign national parent corporation. Given
the cited regulations as applied in the cited opinions, and
subject to the responses to the questions set forth below,
Extendicare may establish and function as the connected
organization for a PAC.
Questions and responses
(1) Extendicare requests advice as to whether it is
necessary to delegate to the Special Committee the
decision whether or not to establish a separate
segregated fund, and whether it is permissible under the
Act for the board (which may or may not include foreign
nationals) to make that decision, provided that it
delegates to the Special Committee the authority to
select the members of the PAC Committee.
(2) As long as at least one member of Extendicare's board
of directors is a U.S. citizen or a permanent resident
alien residing in the United States, would it be
permissible if the Special Committee established by the
board consisted only of such director or directors?
(3) May the board also appoint non-directors to the Special
Committee? If so, must
any other members of the Special Committee be board elected
officers of
Extendicare? May non-board elected officers be appointed?
May non-officer
employees be appointed?
The board itself may make the general corporate policy
decision to establish an SSF, or it may delegate the
authority to make this decision to the Special Committee.
However, the board must delegate all decisions concerning
the administration of the SSF to the Special Committee or to
some other corporate personnel group comprised exclusively
of United States citizens or individuals lawfully admitted
for permanent residence in the United States. Such a
delegation could also be made to any director, officer or
other executive of Extendicare who is not a foreign
national. Commission regulations would not bar the board's
appointment of non-directors, non-board elected officers or
non-officer employees to the Special Committee.
(4) Regardless of whether or not any members of the board
of directors are U.S. citizens or permanent resident
aliens residing in the United States, may the Special
Committee be comprised solely of non-directors?
Yes, this is merely a matter of internal corporate
policy and practice.
(5) Must members of the Special Committee be appointed for
a fixed term, to be replaced by the board only upon the
expiration of such term or in the event of a vacancy
created by death, departure from Extendicare, etc., or may
the members of the Special Committee serve at the
pleasure of the board?
It would not matter whether the members of the Special
Committee served for a fixed term or at the pleasure of the
board. If desired, the Special Committee could be a self-
perpetuating body.
(6) Must members of the PAC Committee be appointed for a
fixed term, to be replaced by the Special Committee only
upon the expiration of such term or in the event of a
vacancy created by death, departure from Extendicare, etc.,
or may members of the PAC Committee serve at the pleasure
of the Special Committee?
It makes no difference whether the PAC Committee
members are appointed for a fixed term or may serve at the
pleasure of the Special Committee. The Commission
emphasizes that, in addition to complying with 441e, the
appointees to the PAC Committee would also have to qualify
as executive or administrative personnel of Extendicare or
one of its affiliated corporations. 2 U.S.C. 441b(b)(7),
11 CFR 114.1(c).4
(7) Must members of the PAC Committee be board-
elected officers of Extendicare, or may non-board elected
officers, or non-officer employees, be appointed by the
Special Committee to the PAC Committee?
Otherwise eligible personnel within any of the stated
personnel groups may be appointed by the Special Committee
to the PAC Committee. They must themselves be US citizens
or permanent resident aliens in the United States. See
response to question six and footnote 4.
Questions eight through ten, set forth below, concern
the extent to which, if at all, the directors or officers of
Extendicare who are foreign nationals may exercise control
and oversight authority over the PAC Committee (and the PAC)
with respect to personnel and financial matters. With
respect to personnel, the request explains that some
members of the PAC Committee may be supervised by
Extendicare officers and executives who are foreign
nationals and who would, in the normal course of their
supervisory functions, have authority to make performance
evaluations, compensation
reviews and other similar personnel decisions pertaining to
these PAC personnel. The Extendicare job descriptions for
such personnel would not specify duties for the PAC
Committee, but those appointed thereto would assume PAC
responsibilities as a part of their regular jobs. With
respect to financial oversight, the request notes that
personnel who will have PAC Committee duties hold positions
in corporate departments of Extendicare whose budgets would
be affected by the time and other corporate resources
attributable to their PAC functions. The board currently
reviews and approves the budgets for these departments and
would propose to continue that function even if it
represents a form of control over the direct or indirect
costs paid by Extendicare for the establishment and
administration of its PAC.
(8) For purposes of performance evaluation, compensation
review, and other similar personnel decisions
in relation to an employee's PAC-related activities, may a
PAC Committee member be supervised by his or her superior
for regular Extendicare duties, or must
such person be supervised and evaluated with respect
to the quality of his or her services for the PAC Committee
only by the Special Committee or a
subcommittee thereof?
As was indicated in the response to questions one
through three, the Extendicare board may make a general
corporate policy decision to establish an SSF; it may
similarly make a general corporate policy decision to
terminate an SSF whose establishment it previously
authorized. Those core decisions represent a permissible
exercise of corporate control over an SSF by any
corporation, including one that, like Extendicare, is owned
by a foreign parent corporation or by other foreign
nationals.
Beyond this level of basic corporate control through
its governing board, other decisions of Extendicare and its
personnel relating to the PAC, including its formation and
operating policies, come within the purview of the foreign
national prohibition as set forth in 110.4(a)(3). As
already indicated in the responses above, this means that
foreign national directors of Extendicare must avoid any
participation in the administration of the PAC. For
example, selecting and giving PAC work assignments to
personnel who will serve on the PAC Committee must be made
only by US citizens or individuals lawfully admitted for
permanent residence in the United States.
With respect to the supervision by foreign nationals of
personnel who have functions on the PAC Committee, the
Commission concludes that a reasonable approach should be
followed that would avert the possibility of arbitrary
actions, favorable or unfavorable, by a foreign national
supervisor solely on the basis of a subordinate's
performance of duties with respect to PAC Committee matters.
One permissible policy would be to require that all
performance evaluations and compensation reviews (and other
similar personnel related actions), to the extent they
entail consideration of the
PAC functions of personnel who are subordinates of foreign
nationals, be based exclusively on the input to the
supervisor by the most senior person on the Special
Committee or the PAC Committee who has direct knowledge of
the employee's performance of PAC functions. Other
approaches may also be reasonable. The Commission would not
require that a separate system of supervision and evaluation
be established outside the normal structure of personnel
administration within Extendicare.
(9) May the board of directors, if the Special Committee
determines to establish an SSF, be involved in the review
and approval of any budget for the establishment,
administration and solicitation costs of the SSF? Is there
a problem if the board, as it currently does, reviews and
approves the budgets for such departments, even if they
reflect, in part, the costs of establishing, administering
and soliciting contributions to the SSF or in making
permitted contributions and expenditures, even if such costs
are indirect costs? Should the budget of the PAC Committee
for direct, out-of-pocket expenses incurred in establishing,
administering and soliciting contributions to the fund or in
making permitted contributions or expenditures be viewed
similarly or differently? Does it matter whether the board
reviews and approves a separate budget for such direct
and/or indirect costs?
(10) If budgetary review by the board of direct, out-of-
pocket costs and/or of the indirect costs of the SSF is not
permitted, would it be permissible if the Special Committee,
either by by-law or by board resolution, was accorded the
authority to review and approve such budget? Would such
delegation of authority be permissible if it were subject to
a "not to exceed" limit? If neither the board nor the
Special Committee may exercise such budget review authority,
would it be permissible that such budget authority of the
PAC Committee be subject to a "not to exceed" limit
established from time to time in advance by the board and/or
Special Committee?
The Commission concludes that a reasonable approach,
one which comports with 110.4(a)(3)'s bar on foreign
national participation in decisions concerning the
administration of a PAC, should be followed. With respect
to direct costs, one such approach would be to set a
specific budget level for PAC direct costs at a "not to
exceed" amount. The board's review power of direct costs
(short of a decision to terminate the PAC entirely), should
be limited to ascertaining and enforcing compliance by the
Special Committee or the PAC Committee with the budget
levels established by the board in accord with the above
described procedures. Other budget setting and review
procedures for the direct costs of PAC operations may also
be reasonable if they assure compliance with Commission
regulations. With respect to the indirect costs to
Extendicare for PAC operations, the usual and normal
corporate procedures for budget decisions and review may be
followed and would not be prohibited by Commission
regulations.
This response constitutes an advisory opinion
concerning the application of the Act, or regulations
prescribed by the Commission, to the specific transaction or
activity set forth in your request. See 2 U.S.C. 437f.
Sincerely,
(signed)
Darryl R. Wold
Chairman
Enclosures (AOs 1999-28, 1995-15, 1992-16, 1990-8, and 1989-
29)
_______________________________
1 Extendicare is a wholly-owned subsidiary of Extendicare
Holdings, Inc. ("Holdings"), a Wisconsin corporation with
its principal place of business in Milwaukee. Holdings
serves as the ultimate U.S. parent corporation, but its role
is limited to that of a holding company: it has no
operating assets and performs no management or
administrative services. Holdings is a wholly-owned
subsidiary of Extendicare International, Inc., a Canadian
corporation, which, in turn, is a wholly-owned subsidiary of
Extendicare, Inc., the top level parent corporation. The
stock of this parent Canadian corporation is traded on the
Toronto and New York Stock Exchanges.
2 Extendicare's 1999 consolidated revenues from USA
operations were over $967 million, although its consolidated
positive cash flow from operations that year was less than
$19 million. It had a consolidated loss for 1999, but had
earnings in each of the preceding four years exceeding $25.5
million.
3 Unlike most of the other provisions of the Act, section
441e applies to any election for any political office,
including state and local as well as Federal offices.
United States v. Kanchanalak, 192 F.3d 1037, 1044 (D.C. Cir.
1999) [concluding that Commission interpretations of 2
U.S.C. 441e in both its regulations and an advisory opinion
have "consistently interpreted 441e as applicable to
federal, state, and local elections since 1976."]
4 The Commission notes that if Extendicare forms an SSF,
the contribution solicitation and other functions of the SSF
(and Extendicare to support the SSF) shall comply with 2
U.S.C. 441b(b)(1)--(7) and Commission regulations at 11 CFR
Part 114. See, in particular, 11 CFR 114.5; see also
Advisory Opinion 1999-28 which discusses the application of
the cited SSF regulations in the same context as presented
here, the PAC of a USA subsidiary of a foreign parent
corporation.