March 22, 2012
Foreign Corporations, Non-profits and the Holding of Citizens United

Days after Citizens United v. FEC was decided, President Obama famously said at his 2010 State of the Union address that he believed the decision would “open the floodgates for special interests - including foreign corporations - to spend without limits in our elections.”  There may be loopholes which allow foreign corporations to donate through American entities, but not only are corporations generally not funding super PACs, the ban on money accepted directly from foreign corporations appears to be being followed.  Last month, Rick Santorum’s super PAC returned a $50,000 donation from such a corporation.

The Internal Revenue Service has also said non-profit organizations under 501(c)(3) of the Internal Revenue Code (which applies to charitable organizations) are banned from contributing to super PACs.  (In contrast, non-profit social welfare organizations organized under Section 501(c)(4) of the Code may donate to political causes as long as that is not their main activity.  Professor Rick Hasen has more on 501(c) non-profit donations after Citizens United)  This ban from the IRS led to Mitt Romney’s super PAC refunding a $100,000 check from a 501(c)(3) charity.

But here’s the important question from a legal standpoint: under the holding of Citizens United, should either of these bans be constitutional?

With regard to free speech, the First Amendment states, “Congress shall make no law…abridging the freedom of speech.”

One of the virtues of the First Amendment is it protects speech that the public or the government doesn’t like to ensure that those in power can’t suppress ideas they find threatening. Political speech is given the highest protection by the Supreme Court.  This speech is so highly protected that the Court has allowed people to advocate violence (as long as it is only speech and would not directly incite violence) and use profanity to express a political message in a courthouse.  Both of those decisions are now over forty years old but are still accepted law.  (For more on the second case, there’s a fascinating but not-suitable-for-work law review article on the topic.)

More recently, the Court has read the free speech element of the First Amendment broadly, both in Citizens United in 2010, and in Sorrell v. IMS, decided last year, which held Vermont’s interest in regulating health care did not outweigh the free speech rights of companies in the medical industry.  (The one exception to the Court’s recent First Amendment interpretation was Holder v. Humanitarian Law Project, a national security case in which the Court ruled the conduct was distinct from pure speech because there was coordination with designated foreign terrorist organizations.  Even in that case, the Court acknowledged pure political speech on behalf of terrorist organizations was protected.)

If corporations are persons for the purposes of free speech, then it seems to reason that all corporations, including foreign corporations and all non-profits, should be given the same right under the First Amendment.  (As an aside, this Court hasn’t ruled corporations are persons for all purposes.  In ruling last year that AT&T was not a person under the Freedom of Information Act, Chief Justice Roberts humorously concluded: “The protection in FOIA against disclosure of law enforcement information on the ground that it would constitute an unwarranted invasion of personal privacy does not extend to corporations. We trust that AT&T will not take it personally.”)

A look at the language of Citizens United indicates its holding may, in fact, extend to foreign corporations and 501(c)(3) non-profits.  The Court, echoing its holding from decades earlier, asserted that “political speech must prevail against laws that would suppress it” based on that principle that “Speech is an essential mechanism of democracy.”  Political speech can be limited in certain situations, the Court acknowledges, but the standard is “strict scrutiny” which requires the government to prove that the restriction “furthers a compelling interest and is narrowly tailored to meet this interest.” The Court noted “Speech restrictions based on the identity of the speaker are all too often simply a means to control content.”  Therefore, it found “no basis for the proposition that, in the context of political speech, the Government may impose restrictions on certain disfavored speakers.  Both history and logic lead us to this conclusion.”  Does logic then lead to the proposition that foreign corporations and 501(c)(3) non-profits should be just as protected as other corporations?

Perhaps foreign corporations are exempt from the holding because to the extent corporations are people, they are not American and don’t have the rights of citizens.  But the First Amendment does not specifically apply to citizens.  The Bill of Rights, including the First Amendment, refers to “people” while the other provisions of the Constitution refers to “Citizens” for rights reserved only to that select category of people.  (Update: On the other hand, earlier this year the Court affirmed a lower court opinion upholding a provision of the Bipartisan Campaign Reform Act banning foreign nationals from making political contributions.)

And with regard to any possible distinction among categories of non-profit organizations, here’s the Citizens United Court:  ”No sufficient government interest justifies limits on the political speech of non-profit or for-profit corporations.”  For 501(c)(3) organizations to be banned from political contributions, the Court would need to find the IRS has a more compelling reason to restrict speech than the FEC.

Perhaps President Obama’s prediction about the floodgates opening up was correct - just premature.

March 15, 2012
Who is funding the super PACs?

Sheldon Adelson gave Gingrich's super PAC $10 million

When Citizens United came down two years ago there was a lot of fear it would lead to a major influx of corporate donations in elections.  In his 2010 State of the Union address just after the decision came down, President Obama said he believed it would “open the floodgates for special interests - including foreign corporations - to spend without limit in our elections.”  John McCain had predicted the super PACs that resulted from the decision would “destroy the political process.”  Presumably both major party presidential candidates from the last presidential election worried the decision would lead to corporations controlling the messaging during the following presidential election.

But looking at the super PACs that have developed, wealthy individuals, not corporations, are the dominant donors.  Corporations, it turns out, are giving less than half of one percent of all contributions raised by the most active super PACs.  Below is a compilation of some of the biggest contributors.

Mitt Romney’s super PAC Restore Our Future received $1.25 million from Wall Street investor Julian Robertson, and two other wealth individuals gave $1 million.  Many other financial investors contributed six-figure donations.  Top  Jewish donors have donated more than 10% of the total $36 million raised by Restore Our Future.  Billionaire investor Ken Griffin donated $150,000 to Restore Our Future.  Frank Vandersloot’s company Melaleuca donated $1 million.  (Vandersloot is also co-chair of the Romney campaign.)

Las Vegas casino magnate Sheldon Adelson and his family have twice donated $5 million to Newt Gingrich’s super PAC Winning Our Future.  (Adelson had said he could give $100 million to Gingrich or another Republican last month though that may have changed as he was recently sued for $375 million.)  Before the super PAC received money from Adelson it had only raised $2 million.  Three wealthy individuals, including Mrs. Adelson’s youngest daughter, have each donated $500,000 to the super PAC.

Rick Santorum’s super PAC, the Red, White and Blue Fund, received $1 million from energy executive William Dore and at least $331,000 from investor Foster Friess which was about 40% of its funding in 2011.  (It also returned a $50,000 donation from a foreign corporation that may have violated American election law.)

Ron Paul has done very well at receiving small donations but like the other candidates his super PAC, Endorse Liberty, relies on the extremely wealthy.  Billionaire PayPal founder Peter Thiel, who likes to keep a low profile, has donated the majority of Endorse Liberty’s funding: $2.6 million out of $3.4 million total.

Meanwhile, on the Democratic side, the pro-Obama super PAC Priorities USA Action, has received a $2 million gift from Dreamworks executive Jeffrey Katzenberg and a widely-publicized $1 million gift from political comedian Bill Maher as well as five- and  six-figure donations from other wealthy individuals in entertainment and business including directors Steven Spielberg and J.J. Abrams and Chicago media tycoon Fred Eychaner.  The Service Employee International Union has also been a major donor, giving Priorities USA Action a $1 million donation.

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