3

so long as such activity is in furtherance of some domestic commercial endeavor.10

Under these two exemptions, a domestic business'

(1) commercial and (2) political activities are not considered to "serve predominantly a foreign interest" merely because these activities would also benefit the interests of the foreign entity that owns or controls (or is owned by or controlled by) the domestic business. It is clear that both the "commercial" and "political" commercial exemptions apply as long as (1) the foreign party and subject activities are not directly or indirectly supervised or subsidized by a foreign government or political party; (2) the identity of the foreign party is disclosed to any U.S. agency or official with whom such activities are conducted; and (3) the activities are in furtherance of the bona fide commercial interests of the domestic party." Admittedly, it is not always clear where one draws the line with these exemptions.

II. H.R. 1725 WOULD BROADEN FARA'S SCOPE

H.R. 1725, introduced by Rep. Dan Glickman, would amend FARA in four ways, by:

-

broadening FARA's scope to define a foreign-owned U.S. company as a "foreign principal";

narrowing substantially current law exemptions for
commercial activity;

renaming "foreign agents" as "representatives of foreign principals," and incorporating many employees and consultants of American-owned U.S. companies in this category; and

requiring those relying on an exemption to notify the Justice Department.

H.R. 1725 would broaden FARA's definition to provide that a "foreign principal" would be considered to control a person/entity "in major part" if the foreign principal holds more than 50 percent equitable ownership in the person/entity or, subject to rebuttable evidence, if the foreign principal holds at least 20 percent but not more than 50 percent equitable ownership. H.R. 1725 would change the criterion to ascertain a foreign principal from a place of incorporation test to a test based on equity ownership. As a result, any person acting as an agent, representative, or employee at the "order, request, or under the direction or control" of an entity with 20 percent or more foreign ownership likely would be subject to FARA's registration and reporting requirements.

H.R. 1725 would narrowly circumscribe the current "commercial commercial" and "commercial political" exemptions.

Permissible governmental contact would be limited to responding to direct requests by a U.S. government agency or official or in the context of a formal judicial or administrative proceeding.

The Glickman bill would eliminate the term "agent of a foreign principal" and create a new category, "representatives of foreign principals," who would be required to register with the Justice Department. This category would also include persons not controlled by a foreign principal but "who engage[] in political activities for purposes of furthering commercial, industrial, or financial operations with a foreign principal." This would sweep within FARA's ambit a wide range of lobbying activities by individuals and corporations who seek to benefit their business interests and who incidentally benefit those of a foreign entity as well.

Finally, the Glickman bill would require all parties relying on this narrow exemption to so notify the Justice Department. 12 This provision would appear to require registration and disclosure of a "commercial" commercial exemption, even though no political activity is involved. Hence, it constitutes a foreign direct investment registration requirement.

III. APII OPPOSES H.R. 1725 BECAUSE IT EXTENDS FARA TO INTERNATIONAL ECONOMIC COMPETITION, DISCRIMINATES AGAINST FOREIGN-OWNED U.8. COMPANIES BY ADDING BURDENSOME NEW REPORTING REQUIREMENTS, AND VIOLATES "NATIONAL TREATMENT" OBLIGATIONS

H.R. 1725 Would Convert FARA from a National Security
Safequard into a Foreign Investment Registration and
Reporting System Unrelated to National Security

In introducing H.R. 1725, Rep. Glickman noted "the need for the United States to aggressively promote its own economic interests through public policy."15 H.R. 1725 seeks to promote America's economic interests by equating international economic competition with national security and attempting to expand FARA to meet this new task.

FARA was enacted because of Congress' concern that fascist and communist governments would attempt to subvert the U.S. government through the use of propaganda. 1⁄4 FARA has also been

12

The Glickman bill would also narrow the so-called attorneys exemption. In addition, the bill proposes to replace some of FARA's terminology with less value-laden language; for example, FARA would be renamed the "Foreign Interests Representative Act," and the term "political propaganda" would be dropped in favor of "promotional or informational materials."

13

14

Statement of Rep. Dan Glickman at 2 (Apr. 11, 1991).

See, e.g., Hearing Before the Subcomm. on Oversight of Government Management of the Senate Comm, on Governmental Affairs, 102d Cong., 1st Sess. (June 20, 1991) (prepared statement of Mark Richard, Dep. Asst. Attorney Gen'l).

5

used to address espionage and other national security-related activities conducted on behalf of foreign governments in the United States. As such, FARA has served as an instrument to safeguard America's national security.

H.R. 1725 represents a radical departure from FARA's national security orientation. No national security purpose is served by requiring employees, consultants, and others working on behalf of foreign-owned U.S. corporations to register as foreign agents.

Foreign direct investment in America takes place because foreign companies want to share in the benefits of what is still the most open, dynamic, and exciting economy in the world. And, once having invested in this country, the foreign-owned U.S. company is subject to U.S. law and is under constant scrutiny by the American public and press.

The implication of H.R. 1725 is that foreign-owned U.S. companies are prepared to behave in ways that may be inconsistent with the interests of the United States. This is a very serious charge, but I believe it is baseless. I believe that the American executives who run these subsidiaries and their American employees are no different from their counterparts in American-owned U.S. companies.

B. H.R. 1725 Would Not Give Policymakers an Understanding of Who Is Influencing the Political Process

Rep. Glickman has stated that another purpose of H.R. 1725 is "simply to shed sunshine on lobbying by foreign interests so legislators, administrators and the American public are aware of who is working to influence public policy, and who is paying for it. 15 AFII agrees that Congress and the Executive branch should know who is attempting to shape policy decisions. However, we believe H.R. 1725 would fall far short of accomplishing this goal.

The public interest is not well served by imposing added disclosure requirements only on foreign-owned U.S. companies which, after all, account for less than 5 percent of all U.S. corporate activity. If policymakers wish to learn who is influencing decisions, and how much money they spend doing it, this information should be collected from all groups --American and foreign-owned corporations, labor unions, trade associations, and so forth. The simplest and most appropriate way to collect this information is through the Lobbying Act, which was created to serve this very purpose. By broadening FARA to do in small part what the Lobbying Act was designed to do may, at best, give policymakers incomplete information. Not only will the government then have available information on those attempting to influence public policy, but we will have avoided the discriminatory effects of H.R. 1725.

15

See Statement of Rep. Dan Glickman, supra note 13, at 1.

6

E.R. 1725 Would Discriminate Against Foreign-Owned
U.S. Companies and Violate the U.8.' Obligation to
Accord "National Treatment"

H.R. 1725 seeks to place foreign-owned U.S. companies in disadvantaged position vis a vis similarly-situated Americanowned U.S. companies. Such unequal treatment would conflict with the U.S.' obligation to accord foreign-owned U.S. companies national treatment.

The Supreme Court of the United States has held that "national treatment of [foreign-owned U.S.] corporations means equal treatment with domestic corporations."16 This obligation arises under treaties of Friendship, Commerce, and Navigation ("FCN Treaty")," Bilateral Investment Treaties, 18 and the OECD National Treatment Instrument and Code of Liberalisation of Capital Movements. For example, Article VII, paragraph 1, of the FCN Treaty between the United States of America and the Kingdom of The Netherlands requires the United States to accord Dutch-owned U.S. companies treatment no less favorable than similarly-situated American-owned U.S. companies." In addition, Article XXIII, paragraph 3, of the FCN Treaty provides that Dutch-owned companies incorporated in the United States are deemed to be companies of the United States, rather than of The Netherlands.20 They therefore "are entitled to the rights and subject to the responsibilities of other domestic corporations 21 in other words, they are entitled to national treatment - because they are, in fact, domestic corporations. The same is true, for example, for companies a majority of whose shareholders are German, Greek, Irish,"

16

17

Sumitomo Shoji American. Inc. v. Avagliano, 457 U.S. 176, 188 n. 18 (1982).

This obligation arises under the 16 FCN treaties entered into since 1946.

18

The BIT program, initiated by the United States in 1981, was designed to encourage international investment. To date, the United States has signed 13 BITS, six of which have entered into force.

19

Treaty of Friendship, Commerce and Navigation, Dec. 5, 1957, United States-The Netherlands, 8 U.S.T. 2043,

22

Sumitomo, 457 U.S. at 188.

Treaty of Friendship, Commerce and Navigation, July 14, 1956, United States-FRG, art. VII, para. 1, 7 U.S.T. 1839, T.I.A.S. No. 3593.

23

Treaty of Friendship, Commerce and Navigation, Oct. 13, 1954, United States-Greece, art. XIII, para. 2, 5 U.S.T. 1829, T.I.A.S. No. 3057.

25

Israeli, and Japanese.26

By discriminating against foreign

owned U.S. companies, the U.S. would derogate from its international obligation.

IV. IMPACT OF FARA'S AMENDMENTS ON U.S. BUSINESS ACTIVITIES

The proposed amendments to FARA would have significant implications for foreign-owned U.S. companies, as well as their officers and employees. Registration under FARA does not place any legal proscription on the activities in which a foreign agent may engage or the materials the agent may disseminate. In practice, however, the stigma of registration under FARA, the taint of labeling materials disseminated with the requisite FARA statement, and the complicated filing procedures may discourage many activities. Consequently, expanding the scope of those required to register and file under FARA could have a significant impact on even the most innocuous business activities.

27

Consider, for example, the impact on Acme Widget Company of America, a foreign-owned or controlled U.S. company. То begin, Acme Widget Company probably would have to file a detailed registration statement with the Attorney General, and would have to file biannual supplements thereafter, unless Acme could meet the requirements of one of the commercial exemptions. (Under the Glickman bill, even if Acme was relying on an exemption to FARA registration, Acme would nevertheless have to notify the Attorney General and might be subject to burdensome regulations, even if it engaged in no political activity). In addition, all Acme Widget employees, consultants, and other agents who engage in political, public relations, informational, financial, or lobbying activities would be required to file a FARA registration statement.

Consequently, an Acme officer or employee delivering a speech at the local Rotary Club in support of trade legislation

24

Treaty of Friendship, Commerce and Navigation, Sept. 14, 1950, United States-Ireland, art. VI, para. 2, 1 U.S.T. 785, T.I.A.S. No. 2155.

25

Treaty of Friendship, Commerce and Navigation, Apr. 3, 1954, United States-Israel, art. VII, para. 1, 5 U.S.T. 550, T.I.A.S. No. 2948.

26

Treaty of Friendship, Commerce and Navigation, Oct. 30, 1953, United States-Japan, 4 U.S.T. 2063, T.I.A.S. No. 2863.

27 It should be observed that it is often impossible to know on a given day whether publicly held companies are, in fact, "American" or "foreign"-owned. Given the rapidity with which institutional investors move into and out of equity positions, no widely held company could ever hope to determine with certainty the nationality of its shareholders on a daily basis. Indeed, even a relatively minor investment by one or more passive foreign investors (e.g., a foreign-based bank, life insurance company, or pension fund) could determine whether a company, such as Acme Widget, is foreign-owned or controlled.