When a loophole doesn’t need to be closed

Recent legislation introduced in the Senate would change an almost 15-year-old law designed to increase the disclosure of information about the lobbying activities of foreign companies.

The Closing the Foreign Lobbying Loophole Act was apparently inspired in part by allegations relating to a reported relationship between Republican presidential candidate Sen. John McCainJohn Sidney McCainTrump's plan to claw back spending hits wall in Congress Defense bill moves forward with lawmakers thinking about McCain How House Republicans scrambled the Russia probe MORE (Ariz.) and Ukrainian politician Viktor Yanukovich.

But the legislation is in fact counterproductive to the goal of greater disclosure. As tempting as it may be in an election year to single out foreigners for greater scrutiny, the bill should be rejected.

The legislation would repeal a provision of the Lobbying Disclosure Act of 1995 (LDA), which allowed lobbyists who advance the commercial interests of foreign corporations to register and report their activities under the LDA. Prior to LDA’s enactment, representatives of foreign corporations and other principals had to register and report their clients and activities under the more arduous requirements of the Foreign Agents Registration Act of 1938 (FARA).

FARA was enacted to address concerns about the spread of Nazi propaganda. The purpose of the legislation was to identify foreign agents who might engage in subversive political activity.

In 1966, Congress amended FARA and changed the focus from controlling subversive political activities to disclosing lobbying on behalf of foreign interests. At the time, Congress recognized the need to limit the application of FARA to activities that influence government policies rather than the economic interests of foreign entities and enacted exemptions.

Therefore, Congress created the “commercial exemption,” which could be invoked when the activities of an agent for a foreign principal were private, nonpolitical and with a bona fide trade and commercial purpose.

In addition, Congress created the “domestic subsidiary exemption,” which exempted representation of a U.S. corporation engaged in substantial business in the United States even if that U.S. corporation had a foreign parent or subsidiary.

But these provisions only added to the confusion and failed to result in greater disclosures. There was a great deal of ambiguity and confusion inherent in determining whether the exemptions were applicable, a determination that usually allowed foreign principals to decide for themselves whether registration was required.

Today, lobbyists who represent the commercial interests of foreign entities — other than foreign governments or political parties — are exempt from FARA only if they register and report their activities under the LDA. As the Senate Committee on Governmental Affairs stated in a 1998 report, “The Committee’s intention is to reaffirm the bright line distinction between governmental and non-governmental representations. Agents of private commercial foreign principals will be exempt from FARA requirements so long as they register under the LDA.”

In addition to reporting their activities, LDA registrants are required to disclose information on any relationship with foreign entities. For example, companies registered under the LDA must report information on any foreign entity that holds at least a 20 percent ownership in it or is an affiliate with a direct financial interest in the outcome of its lobbying activities. A registered lobbyist must disclose the interests of any foreign entities in issues that are advanced. Finally, at the request of a legislative or executive branch official, a lobbyist must disclose the identity and interest of any foreign client.

Importantly, recent amendments to the LDA through the Honest Leadership and Open Government Act of 2007 have added criminal penalties to the enforcement of the LDA — sanctions that have always been available under FARA. These penalties will bring a new level of parity between the LDA and FARA and will be available to prosecutors to pursue those who purposely avoid disclosing their foreign clients under the LDA.

If the goal is greater disclosure of the lobbying efforts on behalf of foreign commercial interests, there must be clear and easily applicable rules. The LDA meets that need. The stated argument for the Closing the Foreign Lobbying Loophole Act resurrects a debate that has been long-settled and provides no credible rationale for reverting to pre-LDA registration requirements.

Congress was correct in creating the LDA exemption from FARA registration. As is often said, if it isn’t broken, don’t fix it.

Spulak served as staff director of the House Rules Committee, then as general counsel to the House of Representatives. He is now a partner in the Public Policy and Government Advocacy Practice Group at King & Spalding.