Federal Election Commission Main Page
June 26, 1992
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 1992-16
Roy A. Vitousek, III
Cades, Schutte, Fleming & Wright
Hualalai Center
75-170 Hualalai Road
Suite B-303
Kailua-Kona, Hawaii
Dear Mr. Vitousek:
This responds to your letters dated March 18 and May 4,
1992, as supplemented by your letters dated May 20 and June
15, 1992, requesting an advisory opinion on behalf of Nansay
Hawaii, Inc. concerning application of the Federal Election
Campaign Act of 1971, as amended ("the Act"), and Commission
regulations to the involvement of a U.S. subsidiary of a
foreign corporation in state and local elections.
Nansay Hawaii ("the company") is a wholly owned
subsidiary of Nansay Corporation (Japan), which is a
privately held corporation. The company is a corporation
organized under the laws of Hawaii, and it has its principal
place of business in that State. Both Nansay Corporation and
the company are engaged primarily in real estate development
and management.
The company's Board of Directors is made up of four
directors, two of whom are United States citizens and one of
whom has been lawfully admitted for permanent residence. One
of the citizen directors is the company's president. The
company's By-Laws provide that a majority of the directors
constitute a quorum to transact business and that any act or
business must receive the approval of a majority of the
quorum. According to the By-Laws, the Board may also
create and appoint special committees.
Nansay Hawaii owns several parcels of developed and
undeveloped real estate in Hawaii, either directly or as a
general partner in a limited partnership. The company
derives revenue from lease rents, sales, and other income
from its developed Hawaii properties. Two of the properties,
an office building and a resort hotel are "profit centers";
they generate net earnings, i.e., income exceeding expenses
after debt service. To meet the debt service with respect to
undeveloped properties as well as funding development costs
and operating expenses incurred by the company, the company
receives "regular subsidies in the form of loans or
contributions to capital from its foreign national parent."
There are no direct contributions from the foreign national
parent to the accounts of the profit centers.1/
You state that Nansay Hawaii wishes to make
contributions to state and local candidates. You express
concern as to whether the funding of the company would affect
its ability to make contributions in state and local
elections. The company is also concerned about the
lawfulness of its process of making election-related
decisions. The company seeks an advisory opinion on whether
it may make the proposed contributions based on the
conditions set out below.
The company proposes to make contributions from the
operating accounts of the above-mentioned office building and
resort hotel, both developed properties located in Hawaii.
These operating accounts are separate bank accounts
maintained by the company and "into which are deposited the
receipts from operations of these properties and from which
the expenses of operations, including debt service, are
paid." The company has experienced net positive cash flow
from the building and resort, and anticipates that this will
continue. The resort anticipates a net earnings of $444,000
in 1992, after payment of debt service, and the office
building anticipates net earnings of $58,000 after debt
service. You note that, "[a]s with any other expense which
would decrease the net operating revenues of the
corporation," political contributions may result in an
increase in the subsidies to the company from the foreign
national parent.
You state that the company's president has proposed that
the Board of Directors consider a resolution authorizing the
establishment of a special committee made up of the two U.S.
citizen Board members and empowering that committee to make
all election-related decisions on behalf of the company. The
committee could then either make election-related decisions
itself or delegate the authority to specific senior
management employees of the company who are also U.S.
citizens. The resolution creating the committee and
appointing the Board members to the committee would be
considered and voted on by a majority of the directors who
attend a duly noticed regular or special meeting of the
Board.
You state that the Board would play no direct role in
determining the aggregate amount of political contributions.
This amount would be determined by the committee in
consultation with the president and the chief financial
officer, both of whom are U.S. citizens.2/
The Act and Commission regulations prohibit foreign
nationals from making a contribution directly or through any
other person, or making an expenditure, in connection with an
election to any political office. 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). Unlike most of the other
provisions of the Act, section 441e applies to any election
for any political office, including state and local offices.
The term "foreign national" includes a "foreign
principal" as defined by 22 U.S.C. §611(b). 2 U.S.C.
§441e(b)(1); 11 CFR 110.4(a)(4)(i). Section 611(b) defines a
"foreign principal" as including:
(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 combination of persons
organized under the laws of or having its
principal place of business in a foreign
country.
Under 22 U.S.C. §611(b), a corporation organized under
the laws of any state within the United States, with a
principal place of business within the United States, is not
a foreign principal and, accordingly, would not be a foreign
national under 2 U.S.C. §441e. As a discrete entity
incorporated under the laws of Hawaii with its principal
place of business in that state, Nansay Hawaii falls outside
the definition of a foreign principal.
Section 441e, however, also prohibits contributions by a
foreign national through any other person. In Advisory
Opinion 1989-20, the Commission prohibited contributions by a
real estate development company that was predominantly funded
by a foreign national parent, and whose projects were not yet
generating income. See also Advisory Opinion 1985-3.
In this regard, the Commission takes note of your
statement that, as with any other expense that would decrease
the net operating revenues of the corporation, the
contributions may result in an increase in the subsidies from
the foreign national parent. The Commission recognizes that
there are legitimate business reasons for foreign parent
subsidization of U.S. subsidiaries, e.g., to cover losses
from business operations and to enable expansion of the
subsidiary's business ventures. In order to avoid
contributions to candidates by the foreign parent through the
subsidiary (i.e. foreign funding of these contributions),
however, certain conditions should be met.
The subsidiary must be able to demonstrate through a
reasonable accounting method that it has sufficient funds in
its account, other than funds given or loaned by its foreign
national parent, from which the contribution is made. See,
by analogy, 11 CFR 102.5(b)(1)(ii). In addition, the foreign
parent must consider the political contributions of its
subsidiary when granting further subsidies to or further
capitalization of the subsidiary. The amount that the
foreign parent distributes to the subsidiary cannot replenish
all or any portion of the subsidiary's political
contributions during the period since the preceding subsidy
payment. The parent should make this review each time it
makes payments to its U.S. subsidiary, and must reduce its
subsidy if indicated by such review.
In the situation presented, however, Nansay Hawaii will
make its political contributions by using net earnings
generated from properties owned by it. You have also
indicated that the two accounts for these properties are not
presently subsidized by the parent. Therefore, it appears
that the foreign parent would not be making contributions
through Nansay Hawaii. To further ensure that such
contributions are not made, the company and its foreign
parent must monitor all subsidy outlays by the parent to the
company pursuant to the requirements set forth above.
The prohibitions of the Act and regulations also pertain
to those making decisions as to a corporation's political
contributions. According to 2 U.S.C. §441e(b)(2), the term
"foreign national" includes an individual who is not a U.S.
citizen and who is not lawfully admitted for permanent
residence as defined by 8 U.S.C. §1101(a)(20). When
considering political contributions by domestic subsidiaries
of foreign corporations, the Commission has consistently
interpreted §441e to prohibit any director or officer of the
company or its parent who is a foreign national, or any other
foreign national, from participating in any way in the
decision-making process with regard to making contributions
to candidates. See Advisory Opinions 1989-29, 1989-20,
1985-3, and 1982-10. Commission regulations also state:
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.
11 CFR 110.4(a)(3).
Based on the conditions set out by you, it appears that
Nansay Hawaii can satisfy this requirement. In addressing
the application of 11 CFR 110.4(a)(3) to the operation of a
separate segregated fund by a domestic subsidiary, the
Commission conditioned its approval of the operation partly
on the basis that foreign national members of the
subsidiary's Board would abstain from voting on matters
concerning the SSF and its activities. The Commission also
conditioned its approval on the basis that the foreign
national Board members would abstain from voting on the
selection of individuals to operate the SSF and exercise
decision-making authority with respect to SSF contributions
and expenditures. Advisory Opinion 1990-8. If only the
non-foreign national Board members, who presently constitute
both a quorum and a majority of the Board, participate in the
discussion and vote on the selection of the proposed
committee, and only non-foreign nationals participate in the
functions and operations of the committee, Nansay Hawaii will
be in compliance with section 110.4(a)(3).
This response constitutes an advisory opinion concerning
application of the Act, or regulations prescribed by the
Commission, to the specific transactions or activities set
forth in your request. See 2 U.S.C. §437f.
Sincerely,
(signed)
Scott E. Thomas
Vice-Chairman for the
Federal Election Commission
Enclosures (AOs 1990-8, 1989-29, 1989-20, 1985-3, and
1982-10)
ENDNOTES
1/ The subsidy amounts from the foreign parent exceed the net
revenues generated by the developed properties.
2/ You explained that the company's corporate budget is
prepared, reviewed, and approved by the president and chief
financial officer and that the budget is not reviewed or
approved by the board.