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57–963 2010

ADDITIONAL DISCUSSION OF H.R. 5175, THE DISCLOSE ACT, DEMOCRACY IS STRENGTHENED 

BY CASTING LIGHT ON SPENDING IN ELECTIONS 

HEARING 

BEFORE THE

COMMITTEE ON HOUSE 

ADMINISTRATION 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

Held in Washington, DC, Tuesday, May 11, 2010 

Printed for the use of the Committee on House Administration 

( 

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/administration/index.html 

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(II) 

COMMITTEE ON HOUSE ADMINISTRATION 

ROBERT A. BRADY, Pennsylvania, Chairman 

ZOE LOFGREN, California, 

Vice-Chairwoman 

MICHAEL E. CAPUANO, Massachusetts 

CHARLES A. GONZALEZ, Texas 

SUSAN A. DAVIS, California 

ARTUR DAVIS, Alabama 

DANIEL E. LUNGREN, California, 

Ranking Minority Member 

KEVIN MCCARTHY, California 

GREGG HARPER, Mississippi 

JAMIE FLEET, Staff Director 

VICTOR ARNOLD-BIK, Minority Staff Director 

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ADDITIONAL DISCUSSION OF H.R. 5175, THE 

DISCLOSE ACT, DEMOCRACY IS STRENGTHENED BY CASTING LIGHT ON SPENDING IN 

ELECTIONS 

TUESDAY, MAY 11, 2010 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON HOUSE ADMINISTRATION, 

Washington, DC. 

The committee met, pursuant to call, at 5:00 p.m., in room 1310, 

Longworth House Office Building, Hon. Robert A. Brady (chairman 

of the committee) presiding. 

Present: Representatives Brady, Lofgren, Capuano, Lungren, and 

Harper. 

Staff Present: Jamie Fleet, Staff Director; Tom Hicks, Senior 

Elections Counsel; Janelle Hu, Elections Counsel; Jennifer Daehn, 

Elections Counsel; Matt Pinkus, Professional Staff/Parliamentarian; Kyle Anderson, Press Director; Joe Wallace, Legislative 

Clerk; Daniel Favarulo, Legislative Assistant, Elections; Greg Abbott, Professional Staff; Shervan Sebastian, Staff Assistant; Peter 

Schalestock, Minority Counsel; Karin Moore, Minority Legislative 

Counsel; Salley Collins, and Minority Press Secretary. 

The CHAIRMAN. I would like to call the hearing on House Administration to order. And good afternoon to members of the committee, witnesses and guests. And thank you for being here today. 

This hearing is our third on the impact of the Citizens United 

decision and the potential legislative response. As I said last week, 

the DISCLOSE Act is a bipartisan and fair solution to the Supreme 

Court overturning decades of campaign finance precedent. The bill 

does not play political favors. It applies to corporations, labor 

unions, trade associations and nonprofit advocacy organizations. 

The DISCLOSE Act provides prompt and honest disclosure of political spending seeking to influence our elections. 

As we have heard from our witnesses last week, additional disclosure laws are needed. The DISCLOSE Act allows voters to follow 

the money. The bill would require all covered organizations to report to the FEC within 24 hours of their campaign-related activity 

and their transfers of money to other groups that are then available for campaign-related activity. Disclosing these transfers of 

moneys will ensure that special interest money cannot hide behind 

sham organizations and shell corporations. 

The DISCLOSE Act also prevents foreign-controlled corporations 

and government contractors from influencing our elections. This is 


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not complicated. We do not let foreign citizens vote in our elections; 

we should not let them have any financial interest in them either. 

Critics of the DISCLOSE Act claim that it will chill First Amendment rights, but the Supreme Court in the Citizens United decision 

by an 8 to 1 majority rejected their argument that disclosure requirements chill the exercise of free speech. The court noted that 

disclosure requirements did not prevent anyone from speaking and 

recognized that disclosure laws enable the voter to make informed 

decisions and give proper weight to different speakers and different 

messages. 

The bottom line of this legislation is simple: Voters deserve to 

know who is financing elections. I hope that we can get to that simple goal. And I thank our panel for being here today and look forward to your testimony. 

Now I would like to recognize the ranking member, Mr. Lungren, 

for any opening statement. 

Mr. LUNGREN. Thank you very much, Mr. Chairman, for having 

this, the second hearing on proposed legislation following the Citizens United decision. 

As I understand it, it is the mind of the chairman of the Democratic majority to mark up this bill on Thursday afternoon. I might 

just say, the dispatch with which we are dealing with this is in obvious distinction to how the Court has treated this and how the 

FEC treated this. 

The organization Citizens United had to wait for several years 

before they got a decision, during which time they were unable to 

exercise what the Court said was their constitutional right protected under the First Amendment dealing with free speech and 

the essence of free speech being political speech. 

With all due respect, Mr. Chairman, it sounds like the gentleman 

doth protest too much in explaining how this bill is a bipartisan 

bill. I suppose 2 out of 176 or 178 Republicans makes it bipartisan. 

It would have been more bipartisan had the majority leadership—not speaking of you, Mr. Chairman, but others—had at least 

considered it appropriate to share the bill with us before it appeared in its final form announced to the press. 

It is difficult to understand bipartisanship when the press gets 

a quicker look at it than those of us on the bipartisan side of the 

aisle. But I understand these things. 

Saying something is disclosure doesn’t make it disclosure. We 

have to be very careful how we deal with this law because it does 

deal with the First Amendment right of protected free speech, political speech. 

Mr. Chairman, I thought we had a productive hearing last week, 

and I am looking forward to hearing from the witnesses here today. 

Thank you all for being here. 

Mr. Chairman, the hearing last week was revealing. It revealed 

that at least one of the majority’s witnesses did not believe that the 

Federal Election Commission could implement regulations before 

the bill becomes effective; thus leaving those who wish to speak out 

about politics without clear guidance on what they can say or how 

they can do it and suggesting that it would nullify their ability to 

so act for this election cycle. Perhaps that is the purpose of the bill. 


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It revealed how another majority witness who said he had participated in the writing of the bill could not, at least in my judgement, clearly answer my question about the provisions on coordination and how they may differ from current regulations because of 

the use of the word ‘‘or,’’ which, as a former English major, always 

suggested to me it meant alternatively as opposed to requiring both 

elements. And we have the question of content and conduct being 

both included as the measure of coordination superseded by language, which at least suggests to me it can be solely content. That 

is troublesome, at least as far as I am concerned, because it may 

stray too far in terms of defining what coordination is or is not. 

It also revealed that some Members on your side of the aisle 

thought the bill could stand some improvement. And for that, I 

offer my thanks. And hopefully we can improve that which is before us. 

Mr. Chairman, I look forward to hearing from our witnesses 

today. And I hope that if this committee does report the bill to the 

House, it will be one that has been carefully considered and subject 

to amendment. We may ultimately not agree on the policy that 

should be in place, but I think we do agree that the bills we pass 

should be clear and coherent in achieving their ends and free of unintended consequences. 

And since a bill contains potential criminal penalties, we have an 

obligation to ensure that it is not vague. We have an obligation, 

particularly when the criminal penalties are attached to an attempt by us to constitutionally restrict what otherwise would be 

considered free political speech, that we be very careful about how 

we do that. 

The Court most recently in a case involving the question of honest services statute, at least in the oral argument, expressed concern about passing statutes which are so vague as to give not unlimited but undue discretionary authority to prosecutors to pick out 

those they wish to take action against. And I think, therefore, we 

should be cautioned as to ensure that when we write this bill, it 

does so in a way that not only will pass the constitutional muster, 

as articulated in the Citizens United case, but also not chill free 

speech. 

Thank you very much, Mr. Chairman. 

I look forward to today’s testimony. And I thank you for having 

this hearing. 

The CHAIRMAN. Thank you. 

Anyone else? 

Gentlelady Lofgren. 

Ms. LOFGREN. Mr. Chairman, I do want to hear the witnesses. 

I won’t go on in any kind of considerable length. I think this is the 

third hearing we have had, the second hearing on the bill and the 

third hearing on the subject. And I think that there has been substantial—and I would like to submit for the record by unanimous 

consent a list of the communications between the majority and minority on this item. I am sure that Mr. Lungren speaks in good 

faith, but I think it is just inaccurate. 

Mr. LUNGREN. Will the gentlelady yield? 

Ms. LOFGREN. Yes, I would. 


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Mr. LUNGREN. Does that include the two letters I sent to the authors of the bill asking for cooperation for which we received no response for several months? 

Ms. LOFGREN. Yes, it does. And it also includes a whole variety 

of noted letters. And I think that if we read it, we will see that this 

has been far from a secret proceeding. 

The CHAIRMAN. Without objection. 

[The information follows:] 

[COMMITTEE INSERT] 

Ms. LOFGREN. And with that, Mr. Chairman, I would look forward to hearing from the witnesses and having time for questions. 

The CHAIRMAN. Mr. Harper? 

Mr. HARPER. No, thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

I would now like to introduce our witnesses. 

STATEMENTS OF THE HONORABLE TREVOR POTTER, PRESIDENT AND GENERAL COUNSEL, CAMPAIGN LEGAL CENTER; 

JOHN C. COATES, PROFESSOR OF LAW AND ECONOMICS, 

HARVARD LAW SCHOOL; ELIZABETH LYNCH, ATTORNEY, 

CHINA LAW & POLICY; THE HONORABLE MICHAEL TONER, 

PARTNER, BRYAN CAVE, LLP; AND WILLIAM MCGINLEY, ATTORNEY, PATTON BOGGS, LLP 

The CHAIRMAN. The Honorable Trevor Potter. Mr. Potter currently serves as president and general counsel for Campaign Legal 

Center. Mr. Potter previously served as general counsel to John 

McCain in the 2008 presidential campaign and is a former commissioner and chairman of the Federal Election Commission. 

John F. Coates is a professor of law and economics as well as the 

research director for the Program of the Legal Profession at Harvard Law School. Before coming to Harvard, he taught on the adjunct faculties of New York University of Law and Boston University School of Law. 

Elizabeth Lynch is an attorney who focuses on legal development 

and reform in China and is founder of the China Law & Policy. 

Prior to working with China Law & Policy, Ms. Lynch was a research fellow at New York University Law School, U.S. Asian Law 

Institute, as well as a practicing attorney in New York, working on 

commercial litigation, including antitrust and securities actions. 

The Honorable Michael Toner. Mr. Toner is partner at Bryan 

Cave, LLP, where he heads up their election law and government 

ethics practice. Prior to joining the firm, Mr. Toner was former 

commissioner and chairman of the Federal Election Commission. 

William McGinley is of counsel in the Washington, D.C., office of 

Patton Boggs, where he advises a wide range of clients on political 

and campaign finance law issues. Before joining Patton Boggs, Mr. 

McGinley served as general counsel and deputy counsel to the National Republican Senate Campaign Committee. 

I thank the witnesses. And there is a button in front of you, and 

if you would just push that and speak into the microphone. We do 

have a 5–minute rule, and we do allow on this issue, on this bill 

being as important as it is, to go over it. We don’t want to go over 

it too far because you get a chance to reiterate anything you say 


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in your statement that you can’t get in, you can put in for the 

record. You will be able to incorporate it, I am sure you all can, 

when you answer that or any question that we give you, you can 

incorporate any part of your statement into that answer. 

We do have votes coming up around 6:30. I will do this as best 

as possible to get everything in. And hopefully we can get it in by 

then. If not, we all have to come back here about 7:30, 8:00 o’clock. 

And if you care to do that, I will join you doing that. But I would 

rather see if we can get this done. 

Mr. Potter, you are on. 

STATEMENT OF THE HONORABLE TREVOR POTTER 

Mr. POTTER. Thank you, Mr. Chairman and Mr. Lungren. 

I appreciate the honor of appearing before you today to discuss 

the DISCLOSE Act. 

I would like to say at the outset that I am appearing today on 

my own behalf and not on behalf of any other entity or client of 

my law firm. 

In Justice Kennedy’s majority—— 

The CHAIRMAN. In legalese, that means you are not getting paid? 

Mr. POTTER. It does. 

The CHAIRMAN. Thank you. I didn’t mean to interrupt you. 

Thank you. 

Mr. POTTER. In Justice Kennedy’s majority opinion in Citizens 

United, he was very clear about the importance of disclosure. He 

stated, ‘‘with the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable 

for their positions and supporters.’’ 

Justice Kennedy further stated, ‘‘the First Amendment protects 

political speech; and disclosure permits citizens and shareholders to 

react to the speech of corporate entities in a proper way. This 

transparency enables the electorate to make informed decisions 

and give proper weight to different speakers and messages.’’ 

Finally, Justice Kennedy stated, ‘‘the public has an interest in 

knowing who is speaking about a candidate just before an election.’’ 

Thus Justice Kennedy in his Citizens United opinion bound together the two elements of the decision: Independent corporate 

speech in elections is a First Amendment right, and the funding 

sources of such speech must be fully disclosed in order to make this 

constitutional right function in our political system. 

This section of Justice Kennedy’s opinion was the only one joined 

by the four Citizens United dissenters, meaning that the fundamental importance of disclosure was recognized by eight of the nine 

Justices. 

This background is important to your consideration of the DISCLOSE Act not only because it makes it clear that the disclosure 

provisions of the bill are constitutional, but because they complete 

the process begun by the Supreme Court in the Citizens United decision by requiring the sort of disclosure that Justice Kennedy and 

the other Justices found so essential to our Democratic system. 

I am fully aware that there are many who term this debate a 

partisan one between Republicans and Democrats. And as a Republican, I regret that is so. I know the DISCLOSE Act has only two 


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distinguished Republican Members of the House as cosponsors, and 

I hope there will be more Republican support because this should 

not be a partisan issue. 

Many Republicans have long argued for the exact conclusion that 

Justice Kennedy arrived at: Less restriction on political speech in 

return for full disclosure. 

This is not to say that the DISCLOSE Act is a perfect act of legislative draftsmanship. Few pieces of legislation are, especially before they have seen the light of public comment and the committee 

process. Thus I hope the members of the committee from both sides 

will work together to improve the bill. 

In particular, I have concerns that the provisions on foreign national involvement in the U.S. political process can and should be 

clarified and improved. 

Let me begin by saying that I think there is a bipartisan unanimity that we do not want foreign governments, foreign government officials or foreign government controlled entities from Venezuela, China, or elsewhere, spending money in U.S. elections, either directly or through the U.S. companies they control. This is a 

serious threat the bill must address. 

However, the bill goes further in a manner that I think makes 

it vulnerable to potential constitutional challenge for being both 

over-inclusive and under-inclusive. For instance, it declares some 

U.S. companies to be foreign nationals if they have a single nonU.S. Individual or company owning 20 percent of its shares, even 

if that individual has no control over the corporation’s affairs. 

More broadly, the current draft raises the question of why some 

U.S. companies like, say, Anheuser-Busch or Chrysler are treated 

differently in terms of their ability to have U.S. PACs or participate in local political activity than other U.S. companies with 

whom they directly compete, like, say, Sam Adams and Ford. 

I believe the better answer is to clearly prohibit the involvement 

in U.S. elections of any companies with foreign government ownership, either directly or through foreign government controlled corporations. This definition can be written to prevent the dangers we 

all seek to guard against without sweeping in purely commercial 

entities. 

The analogy would be to the Foreign Agents Registration Act, 

which makes exactly this sort of distinction. 

The DISCLOSE Act’s provisions requiring personal certification 

by the CEO under threat of perjury could police this ban on foreign 

government involvement. I am sure there are other areas of the 

proposed legislation which would also benefit from bipartisan discussion and amendments and hope that will occur. 

However, the bill fulfills an important need by requiring disclosure of who is spending money in U.S. elections. As I have noted, 

an 8–1 majority of the U.S. Supreme Court has stated that such 

disclosure is not only constitutional but is the expected and indeed 

necessary counterbalance to the new corporate and union right to 

expend unlimited funds in U.S. elections. 

I urge Congress to require such complete disclosure in time for 

the 2010 elections. Thank you. 

[The statement of Mr. Potter follows:] 


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The CHAIRMAN. I thank the gentleman. 

Mr. Coates. 

STATEMENT OF JOHN C. COATES 

Mr. COATES. Thank you, Mr. Chairman, Ranking Member Lungren and members of the committee. 

I am also delighted to be able to be here today to comment on 

this bill. By way of background, I am a corporate law scholar and 

a former corporate lawyer. I was a partner at Wachtell Lipton before going to Harvard. I am not a constitutional law scholar, and 

I am not going to address constitutional issues either about Citizens United or the bill. 

But I can say with some certainty that the Citizens United case 

did shock in some sense the owners of U.S. corporations. It was a 

radical change in their expectations of how their money would be 

used going forward. Corporations have been out of the election 

world in a direct sense for so long that very few companies that are 

active today needed to have special provisions in place. They were 

created after the Taft-Hartley Act. They were created after the Tillman Act, certainly. The owners of those companies never imagined 

that this change in law would be coming down. 

And as a result, the decision creates, from a purely corporate 

governance perspective, a massive new risk for the shareholders of 

those companies, and specifically that will be that managers of 

those companies will be using other people’s money, shareholders’ 

money, to pursue their own personal and political agendas using 

corporate bank accounts in the election process. And they are going 

to be able to do this in secret without any disclosure to shareholders or any ability on the part of shareholders to learn about, 

to analyze, to respond to the potential diversion by corporate managers. 

The DISCLOSE Act in its entirety is a measured and responsible 

response, I think, to this risk. By requiring disclosure, the bill 

would follow a long tradition of the Federal Government mandating 

disclosure by public companies, which supplements private enforcement by shareholders of their rights under State law. It would enable shareholders to track and monitor election expenditures and, 

if they want to, to get involved in pressuring managers to do what 

they want rather than what managers want. And it would discourage a certain kind of activity, which is to say essentially stealing 

shareholders money for the pursuit of a manager’s own personal interest. 

I think this, frankly, is what some sponsors and backers of this 

bill may have been referring to in recent media reports that were 

quoted last week as suggesting that it would chill some activities. 

It is not that it would chill speech; it would chill theft and use of 

the stolen property for speech that the backers of the corporation 

themselves would not themselves back. 

By requiring personal endorsements from CEOs, the bill would 

also follow a tradition. Here a tradition laid down by Chris Cox, 

former Member of this esteemed organization, and George Bush, 

whose reaction to Enron, appropriately, was to start requiring 

CEOs to personally certify financial statements. 


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That part of the bill is going to make sure that top managers 

can’t simply pretend to not know what is going on down in the 

ranks of their organizations. They won’t be able to do what Captain 

Renault did in Casablanca and pretend to be shocked at the gambling that was going on in the casino in that movie. Instead, they 

are going to have what Justice Scalia calls the civic courage to step 

up and participate in a democracy, which I think is something that 

he personally is in favor of. 

And finally, by covering conduits, the bill would make the disclosure requirements effective. They will deal with a sort of double 

problem with the use of other organizations by large companies to 

funnel money into the election cycle. The double problem is that, 

first, shareholders have managers take their money and not ask 

them or tell them about how they are using it. Then they turn it 

over carte blanche to other organizations, which ensures another 

layer of secrecy and clouds over their behavior. And again, there 

is good evidence to suggest that managers of companies themselves 

are surprised at how their money is used in the election world. 

And then, finally, the bill will plug the loophole for foreign ownership created by the Supreme Court in Citizens United. Anybody 

familiar with the Boston area will know that there is a giant Citgo 

sign near Fenway. Very few people know that Citgo is, in fact, 

backed by Venezuela and effectively controlled by Hugo Chavez. 

And after Citizens United, Citgo can directly funnel Hugo’s personal, political ambitions into our electoral world. 

I don’t think that is a good thing. I think that obviously runs 

afoul of longstanding bipartisan decisions to not have foreigners in 

our electoral process. 

Just to wrap up. Thank you for the opportunity to comment on 

the bill. And I hope that you will pass it as soon as reasonably 

practical. 

[The statement of Mr. Coates follows:] 


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The CHAIRMAN. I thank the gentleman. 

Ms. Lynch. 

STATEMENT OF ELIZABETH LYNCH 

Ms. LYNCH. Good afternoon, Chairman Brady, Ranking Member 

Lungren and distinguished members of the committee. My name is 

Elizabeth Lynch, and I am an attorney and editor at China Law 

& Policy. I want to thank you all for letting me testify today. 

I am grateful for this committee’s work on the DISCLOSE Act, 

legislation necessary to deal with the practical problems arising 

from the Supreme Court’s recent decision in Citizens United v. 

FEC. 

Of particular concern is the potential influence of foreign money 

and, given the structure of some multinational corporations, direct 

pressure from foreign governments in U.S. elections. 

First, how does Citizens United change our understanding of the 

corporate form? In Citizens United, the Court latches on to the 

legal shorthand of person and citizen that the common law periodically uses to describe corporations and takes these words literally. 

In doing so, it elevates corporations to equal status with individual 

citizens in the sphere of political speech. 

According to the Court, there should be no difference between the 

two. When analyzing a corporation’s right to political speech, courts 

are no longer permitted to take into consideration elements that 

make corporations inherently different from an individual citizen. 

These include limited liability, perpetual life, and preferential tax 

treatment. In other words, courts can no longer pull aside the corporate curtain and look at what is really going on behind the 

scenes that causes a corporation to be different from a real person. 

So how does this new logic help foreign corporations and governments in potentially influencing our elections? In today’s world, 

most foreign companies with a global presence often establish a 

U.S. subsidiary. These U.S. subsidiaries are incorporated under 

State law and, for purposes of the law, are considered citizens in 

the State in which they are incorporated. 

Unfortunately, now, with Citizens United, we are no longer permitted to look behind that corporate curtain of a U.S. corporation 

to see its possible relationship to a foreign corporation. 

But make no mistake, these U.S. subsidiaries are heavily influenced, if not outright controlled, by their foreign parent corporations. The parent usually owns a majority, if not all, of the shares 

of the subsidiary, and capital is often infused into the subsidiary 

from the parent. 

But the picture after Citizens United becomes increasingly more 

perilous when some of these foreign corporations have direct ties 

to their governments. For example, in socialist and post-socialist 

countries, such as China, Russia, and Vietnam, many corporations 

are still government run. The same holds true for oil-rich nations, 

like Venezuela and Saudi Arabia, where the oil industry is largely 

nationalized. 

Each of these countries has U.S. subsidiaries for many of their 

government-run corporations. Citgo, for example, is owned by the 

National Oil Company of Venezuela. With the Citizens United loopVerDate Mar 15 2010 00:47 Sep 09, 2010 Jkt 057963 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 E:\HR\OC\A963P2.XXX A963P2

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hole, the Venezuelan government has the potential to flood money 

into our electoral process through its relationship with Citgo. 

But unlike corporations, foreign governments are motivated by 

more than just corporate profits. Global influence, power, and advantage are also a major part of their calculation. Even if involvement in U.S. elections might harm profits of the state-controlled 

foreign corporation, if that involvement is ultimately beneficial to 

the foreign government for other reasons, it will seek to take advantage of the loophole. And in today’s world, where China has 

$2.4 trillion in foreign currency reserves and the United Arab 

Emirates’ Sovereign Wealth Fund houses $450 billion in assets, 

these foreign governments now have the money to do so. 

And that is why Section 102 of the DISCLOSE Act is necessary. 

In a post-Citizens United world, the current version of the Federal 

Election Campaign Act is glaringly ill-equipped. 

First, the act’s current prohibition only applies to political action 

committees and says nothing about direct expenditures by U.S. 

subsidiaries of foreign corporations, expenditures Citizens United 

now permits corporations to make through election night. 

Second, the act’s current prohibition that the foreign parent cannot give money to the formation of the U.S. subsidiary’s PAC is ineffective in today’s complex corporate world. Corporations are no 

longer that transparent. Under today’s corporate law, there is simply no way to prevent infusion of cash from one company to another. All the subsidiary has to do is issue stock that is purchased 

by the foreign parent and use those funds to ultimately do the foreign parent corporation’s bidding in our elections. 

But Section 102 of the DISCLOSE Act would effectively eliminate these current loopholes. By expanding the definition of foreign 

national to include U.S. Subsidiaries where 20 percent of the voting 

shares are owned by a foreign entity or where a majority of the 

board are foreign nationals or where the U.S. operations are, in 

fact, directed by a foreign entity, the DISCLOSE Act can protect 

our elections from undue foreign influence and restore the ability 

of the U.S. people to hold accountable their government. 

Thank you. And I look forward to your questions. 

[The statement of Ms. Lynch follows:] 


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The CHAIRMAN. Thank you. 

Mr. Toner. 

STATEMENT OF THE HONORABLE MICHAEL TONER 

Mr. TONER. Thank you, Chairman Brady, Ranking Member Lungren, and members of the committee for the opportunity to testify 

today regarding the DISCLOSE Act. 

I am appearing today in my personal capacity and not on behalf 

of any particular client. 

At the outset, I would like to emphasize that I am very troubled 

by the process by which Congress has considered the DISCLOSE 

Act to date. The legislation purports to respond to the Citizens 

United ruling but contains a large number of provisions that have 

nothing to do with the ruling and are in no way necessitated by 

the Supreme Court decision. 

The legislation was crafted behind closed doors with, as far as I 

can determine, little or no consultation with the Republican congressional leadership, neither in the House of Representatives or 

the Senate. 

In addition, the DISCLOSE Act seeks to make major changes to 

the Federal Election Campaign Act only months before a national 

election, with an effective date of 30 days after enactment, regardless of whether the Federal Election Commission has issued any 

regulations to effectuate the legislation. 

Moreover, the DISCLOSE Act fails to define numerous key statutory terms, which creates some potential for widespread confusion 

among regulated entities about what their legal obligations are 

under the law, all of which could take place as soon as this fall in 

the final weeks before the midterm election. 

Needless to say, the presence of any of these phenomena would 

seriously jeopardize the enactment of sound legislation. The presence of all three of them here makes it nearly impossible, in my 

view, for Congress to act in a responsible way. 

I will not attempt to identify all of my objections to the DISCLOSE Act, which are outlined in greater detail in my written 

comments, but I would like to highlight two of the biggest problems 

I see in the proposed legislation. 

First, the DISCLOSE Act would severely restrict the political activities of a large number of American corporations, including many 

longstanding companies run by American citizens, if foreign nationals are associated with the companies in certain ways. The practical effect of these provisions would be to prohibit many American 

companies from making any contributions or expenditures in connection with U.S. elections, from making any independent expenditures or election year communications, or even from operating a political action committee, which after all is funded by contributions 

from American citizens, is fully disclosed to the Federal Election 

Commission, and allows the company’s employees to be involved in 

American politics. 

The biggest targets of the legislation are American subsidiaries 

of foreign parent corporations, including companies that employ 

tens of thousands of Americans and have operations across this 

country. Targets of legislation potentially include Anheuser-Busch, 

Food Lion, Michelin North America, the Miller Brewing Company, 


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Nestle U.S.A., Panasonic Corporation, and the John Hancock Life 

Insurance Company, just to name a few of the legislative targets. 

I understand that advocating for additional foreign national restrictions in American elections makes for good politics, particularly in an election year. But to potentially sweep up hundreds of 

established U.S. companies that are run by Americans and restrict 

them from being involved in American elections, in my view, is 

very misguided. 

It is also unnecessary, given that the Citizens United ruling did 

not affect FECA’s existing regulations on foreign national contributions and expenditures, which, after all, were strengthened just 8 

years ago in the Bipartisan Campaign Reform Act of 2002, and 

given that no one has argued that there has been inappropriate foreign national involvement in American elections in recent years. 

Second, a number of key statutory terms are not defined in the 

DISCLOSE Act, which makes the legislation unduly vague in a 

wide variety of areas. I will just touch on one key area, and that 

deals with political party coordinated expenditures. The DISCLOSE Act provides that payments by political parties for communications made on behalf of their candidates would be subject to 

FECA’s party-coordinated expenditure limits but only if, ‘‘the communication is controlled by or made at the direction of the candidate.’’ However, the legislation does not define or specify what 

types of candidate conduct or communications constitute direction 

or control within the meaning of the statute. 

And that is a very important element. I think if Congress is 

going to amend the party committee coordinated expenditure limits, that there be key definitions as to what these statutory terms 

entail. My written comments go into a few scenarios that I think 

could easily arise and whether or not the legislation would restrict 

the activities or not. 

But more broadly, given that political parties cannot corrupt 

their own candidates, political parties should be permitted to make 

unlimited coordinated expenditures without any qualifications or 

conditions whatsoever. It is important to note that, under current 

law, political party coordinated expenditures must be made out of 

hard dollar funds which are raised subject to the contribution limits and source prohibitions of FECA. Permitting unlimited coordinated party expenditures would allow the political parties to more 

efficiently target their hard dollar funds in the most important 

races across the country and also would be fully consistent with the 

Bipartisan Campaign Reform Act’s emphasis on hard dollar fundraising and making those types of funds more important in Federal 

elections. 

If Congress decides to amend FECA’s political party coordinated 

expenditure provisions, in my view, it should lift the limits on 

party coordinated expenditures altogether without any statutory 

conditions. 

Thank you so much, Mr. Chairman, for the opportunity to be 

with you, and I look forward to the questions. 

[The statement of Mr. Toner follows:] 


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The CHAIRMAN. Thank you. 

Mr. McGinley. 

STATEMENT OF WILLIAM MCGINLEY 

Mr. MCGINLEY. Chairman Brady, Ranking Member Lungren, 

members of the committee, thank you for the opportunity to testify 

today regarding the DISCLOSE ACT. I am testifying today in my 

personal capacity and not on behalf of any client or any other individual or organization. 

The CHAIRMAN. Another freebie. 

Mr. MCGINLEY. My testimony reflects my personal views on the 

DISCLOSE Act as a citizen and a political law practitioner. 

I have serious concerns about this legislation because it appears 

designed to chill political speech and discriminate between different types of speakers. The fact that the Federal Government 

contractor and expanded foreign national bans apply only to corporations and not to similarly situated labor unions is particularly 

troubling. The only apparent reason for this disparate treatment is 

an attempt to elevate the labor union speech and possibly protect 

incumbents. 

My testimony today will focus on two topics: First, the potential 

consequences resulting from some of the vague terms contained in 

the DISCLOSE Act; and second, the chilling effects some of the disclosure requirements will have on political speech. 

The DISCLOSE Act contains many vague terms that will impose 

onerous requirements on political speakers. This will result in 

many of them inadvertently violating the law. First, the foreign national certification requirement under 102(c) appears to apply to 

every for-profit and nonprofit corporation. This means that not only 

will large publicly traded corporations be required to file the certification, but also every Federal campaign, PAC, and political party 

committee that is incorporated as a nonprofit corporation. In fact, 

it appears that the certification will need to be filed by incorporated State candidate committees and PACs and party committees as well, because the certification requires it for donations. 

Second, the broad reach of the new definitions of independent expenditure under Section 201(a) and covered coordinated communication under Section 324(b) now appear to regulate Internet communications, including the liberal and conservative blogosphere. 

These provisions apply to ‘‘communications,’’ an undefined term in 

the act. Current Federal law limits the application of these rules 

by using the definition of public communication that specifically excludes Internet communications, unless the Internet communication is an advertisement placed on another person’s Web site for a 

fee. 

Moreover, the media exemption contained in the DISCLOSE Act 

coordination rules under Section 324(b)(4) does not include Web 

sites or Internet communications in the same manner as current 

law. Therefore, this legislation does not exclude bloggers or Internet communications and places them at risk. If this bill passes, the 

Internet’s status as a free speech zone is in danger. 

Third, Section 324(a) provides that the republication in whole or 

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there is any actual coordination between the two groups. This is a 

radical departure from the current coordination framework, which 

requires that actual coordination be present. 

Section 324(a) as currently drafted does not contain similar safeguards. This means that if an outside group uses a portion of a 

campaign ad or a brochure to criticize a candidate, it may result 

in a prohibited contribution to that candidate. 

In addition, the DISCLOSE Act’s burdensome reporting requirements will have a chilling effect on independent political speech. 

First, Section 102(c) requires every corporation to certify under 

penalty of perjury that it is not subject to the expanded foreign national ban prior to engaging in political speech. This requirement 

will cause delay when a political speaker conducts the due diligence necessary to make such a certification. This severely burdens 

speech because effective advocacy requires a speaker to be nimble 

in response to the political messages of others. 

Second, the legislation requires a covered organization to file a 

public report, including posting the report on the organization’s 

Web site if it transfers money to another person that is deemed to 

be made for campaign activity. These types of transfers are made 

before an advertisement is publicly released. This prespeech disclosure forces a speaker to confer a competitive advantage on its opponents by revealing its private political strategies. It also dilutes the 

effectiveness of the advocacy. 

Finally, I am concerned that the legislation may become effective 

30 days after enactment during the upcoming 2010 elections; 30 

days is not enough time for the FEC to clarify the application of 

the DISCLOSE Act through the proper rulemaking procedures. 

Equally troubling is the protracted process for judicial review of 

this legislation, which appears designed to push any potential judicial relief until after the 2010 elections. 

I respectfully request that the committee not adopt the DISCLOSE Act and fashion a reasonable disclosure regime for independent speech that respects the freedoms of association and 

speech under the First Amendment. 

I am happy to answer any questions you may have. 

[The statement of Mr. McGinley follows:] 


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The CHAIRMAN. Thank you. 

We will open up for questions. And I have a question for Mr. Potter. Is it constitutional to require disclosures of the donors to private groups that engage in political speech? And is it necessary? 

Mr. POTTER. Mr. Chairman, I think, as my citations to Justice 

Kennedy in the 8–1 section of that opinion indicate, it is. 

What Justice Kennedy and the Court were saying is that it is important for people to know who is speaking and where the funding 

is coming from. And that would be true whether we are talking 

about a corporation or a trade association or a union or a 501(c)(4). 

Under current law, there is a range of disclosure that is already 

required, and that would apply to (c)(4)s as well. So I don’t see a 

constitutional problem with the provisions of the act. 

The CHAIRMAN. So what this bill does is say, who is saying something, and who is paying for something? That is really— 

Mr. POTTER. That is my understanding. 

The CHAIRMAN. Thank you. 

Mr. Lungren. 

Mr. LUNGREN. Thank you very much. 

And this is more of a general question, but it is one that I have 

difficulty finely defining in my own mind. 

I am for disclosure, appropriate disclosure. At the same time, we 

had an experience in California recently where we had a controversial proposition on the ballot called Proposition 8. It had to do with 

the definition of marriage. During the course of a court case that 

took place thereafter—it still is not resolved—there was a demand 

made, enforced by the court, that contributors to the Proposition be 

revealed. 

Subsequent to that, some of my constituents and some just outside my constituency received retaliatory action because they had 

contributed as little as $1,000 on behalf of the Proposition, one individual being fired from his job or forced to resign from his job, 

even though it had nothing to do with the job that he had; another 

business being the subject of boycott and threat. 

And I just say that as a factual matter. I know these facts to be 

true. 

Do we say that that is the price of debate in a vigorous society, 

a vigorous political society, and therefore, even though disclosure 

may allow for those things to occur, if one wishes to express himself or herself politically by way of donation, that that person 

should expect that repercussions, including that kind of retaliation, 

should take place because we believe it is of a higher value for disclosure so that the public may know who seeks to influence decisions before the public? 

Mr. Potter. 

Mr. POTTER. I think there are two answers there. 

One is that, as you are undoubtedly aware, there is a similar 

case right now in the Supreme Court, and there were oral arguments on it about a month ago out of the State of Washington with 

parallel questions. 

I recall the accounts of that oral argument, and I am going to 

paraphrase Justice Scalia saying something along the lines of, people who engage in political public discourse shouldn’t be shrinking 

violets. 


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But that is a flip answer, because the second part is that the 

Court said, going all the way back to a Socialist Workers Party 

case, that if you can show that there is going to be actual harm 

from disclosure, that you are going to be injured in a direct way, 

then you can be exempt from disclosure. And in fact, I believe it 

is still the case that the Socialist Workers Party has an exemption 

at the FEC from filing its donor disclosure forms because of that. 

So on an as-applied basis, I think you can say, if there is proof 

that there is going to be violence or actual harm to somebody because of a disclosure statute, that they can apply for and be exempt. But that doesn’t, in my view, mean that you shouldn’t have 

the disclosure requirements for everybody else. 

Mr. LUNGREN. Let me ask this question. I brought this up last 

week, and at least one of you talked about Venezuela having influence over our elections and so forth by way of this and maybe 

China. 

We have laws on the book which say that foreign nationals cannot take acts to influence elections. I don’t believe that Citizens 

United changes that, and the person making the decision for a corporation must be an American citizen rather than a foreign national. I don’t believe that changes this at all. 

But I do understand the concern people have with respect to, at 

some level, some threshold that you would have foreign influence 

because a corporation is somehow identified with foreign interest 

as opposed to other interests. 

My question is this: As we try and articulate that proposition in 

the law, ought we be concerned about whether or not we give license to other countries to utilize that same argument against 

American companies who may operate in their territory? 

For instance, if an American company were operating in Venezuela and the Venezuelan government were to say or the president of Venezuela were to say, we are going to put before our legislature a law which will nationalize American companies in this 

area of our economy, would we—should we be concerned about the 

inability of the American company to be able to respond to that by 

saying, even though it is a political decision, we believe this is unfair to our company and our employees in your country and therefore be subject to the law that they may adopt saying that criticizing prospective government decisions, that is bills before the legislature, or criticizing the candidate, the president is up for election 

when he makes this statement, is an illegal act and would subject 

the American company to criminal penalties, including imprisonment? 

And this is not a flip question. This is a question that I really 

am somewhat concerned about. We have a legitimate concern here, 

but ought we not to be very careful how we write this so we don’t 

give that kind of precedent for other countries to be able to use it 

against us? Obviously, they have their criminal justice schematic, 

but their definition of political participation may not seem to them 

entirely different than what we are attempting to restrict here, 

which is political free speech, otherwise thought. Would any of you 

respond to that? 

Mr. COATES. Let me take a quick stab at it. 


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So my first response is I am a little confused, both—you make 

this point, and it was made earlier by some of the other panelists 

last week, that the existing law already prohibits foreign persons. 

So, but at the same time, I hear you, the same people, claiming 

that if we simply add the provision that is in this bill it will have 

terrible consequences. So either we have the law already in place 

and it works or we don’t need to change it—— 

Mr. LUNGREN. If you would answer my question, please, because 

I only have a period of time. If you don’t want to answer the question, I will ask somebody else to answer that question. 

Mr. COATES. Honestly, that is a sincere response to your statement earlier that we already prohibit the thing that we are concerned about. 

Now, in response to the point about foreigners, if we have public 

financing, as is true in Europe, of campaigns, this whole concern 

goes away. 

Ms. LYNCH. I would just like to respond. 

I really appreciate that you are thinking about the international 

effects of domestic legislation, because I do think a lot of times 

Congress doesn’t look to that. And as somebody who works abroad 

and interacts with a lot of people in China and places like China, 

it is something that comes up, like what are the precautions if you 

are a foreign person abroad or a foreign business. 

But I think in the case of the DISCLOSE Act, I do think it is 

less of a problem. I do think that Section 102 just returns what we 

had before Citizens United; it just returns it back to the status quo. 

I think when Citizens United was decided, I think somebody on 

the panel said that a lot of corporations were surprised by its decision. And I think that would equally hold true of foreign governments. I don’t think foreign governments ever thought they would 

have the ability to put money in our elections. 

And I also think there are other avenues open to foreign governments and foreign corporations in the United States that they effectively use, such as lobbying and also comment periods before 

rulemaking. 

And what is really interesting to note in the case of China is that 

it has actually become much more responsive to U.S. interests—not 

U.S. interests, but it has allowed for U.S. corporations, U.S. Chamber of Commerce to actually give comments to recent laws that it 

has adopted, such as the anti-monopoly law and the amendments 

to their labor contract law. And all of that happened before Citizens United. 

So I actually think, while it is important to always be thinking 

about potential implications abroad of our own domestic legislation, 

I think Section 102 wouldn’t have necessarily that retribution. 

Mr. LUNGREN. I just recall the argument of the government in 

the first oral argument before the Supreme Court was that the government has the right to even ban a book if published by a corporation that criticized someone within the 90-day period who happened to be up for election. And that bothers me a great deal because that goes far beyond the idea that you are directly contributing to a candidate. That takes expression to the furthest extent, 

and one thing we have always been a little concerned about is that. 


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And frankly, I was surprised that the government took that position, but that was the position of the Federal Government. And I 

certainly wouldn’t want that to be the position of a foreign government, saying, well, that is the position that you folks have taken 

in the United States. 

Thank you very much, Mr. Chairman. 

The CHAIRMAN. I thank the gentleman. 

Ms. Lofgren. 

Ms. LOFGREN. Thank you, Mr. Chairman. 

Before I ask my questions, I wanted to note that I see former 

Representative Pete McCloskey here in the audience, someone who 

was a tremendous hero and whom we all admire. 

And, Pete, it is just great to have you here in the committee 

room. 

Mr. Coates, I am glad that we have got a corporate lawyer, not 

just constitutional lawyers here, because there are some questions 

I have had, and maybe you can help answer them for me. 

When I read the decision, I will say I didn’t agree with the decision, but it is the law. So now we have to see what is there and 

see what is possible consistent with the law. I accept that. 

But here is what I am interested in probing. The decision says 

the First Amendment does not allow the power to prevent corporate speech, to paraphrase; there is, furthermore, little evidence 

of abuse that cannot be corrected by shareholders through the procedures of corporate democracy. When I read that, I thought, I 

don’t know about that. I mean, corporate democracy isn’t that vibrant really. 

And towards the end of the decision, it talks again about shareholders. And I will read just part of it. It says, shareholder objections raised through the procedures of corporate democracy can be 

more effective today because modern technology makes disclosures 

rapid and informative, which really I think asks us—it is reaching 

out and enticing us to establish a vigorous disclosure procedure— 

and again, with the advent of the Internet, prompt disclosure expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable 

for their positions and supporters. Shareholders can determine 

whether their corporation’s political speech advances the corporation’s interests in making profits and citizens can see whether 

elected officials are in the pocket of so-called moneyed interests. 

The First Amendment protects political speech. The disclosure permits citizens and shareholders to react to the speech of corporate 

entities in a proper way. And I have been wondering what ‘‘a proper way’’ might be. And it goes on to say that transparency enables 

the electorate and the like. 

Now, I have been thinking about when shareholders, when you 

buy a piece of stock, your basic interest is in your return. It is in 

getting dividends and having the price increase in value so you can 

sell it. It is not so the officers and the directors can use your money 

or what would have been your dividend to play politics with your 

money. 

And right now, I don’t see any way to protect—I mean, put the 

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ished because of the expenditure decisions made by the officers and 

directors to say ‘‘sell the stock’’ is not the remedy because the stock 

value has been diminished. And also, if you are in a closely-held 

corporation, you are especially vulnerable because you can’t sell the 

stock, even if that were a proper remedy, which I think it is not. 

It seems to me that the business judgment rule really protects 

and insulates the officers and directors from accountability. And I 

have been exploring, is there some way that we could give shareholders some kind of remedy at law when there are expenditures 

for political reasons, which is protected, but the end result is the 

shareholder eats it financially; shouldn’t they have some kind of 

remedy? How would you craft that? 

Mr. COATES. Thank you for your question. 

Yes, I agree that the Supreme Court—I agree with the implication of your question that the Supreme Court was a little over-optimistic about the ability of shareholders under current law to take 

action. 

And the most basic point is that, without the disclosure requirements of the kind that are in this bill, they won’t even know what 

is being done with their money. 

Ms. LOFGREN. Well, if I may, the disclosure requirements benefit 

the electorate, and then they can make a decision. 

I remember—and I am sure Dan remembers as well—in California, a number of years ago, there was an initiative to regulate 

smoking in public places. And as soon as the public found out that 

it was funded by the tobacco companies, it just crashed in the polls. 

I mean, it went down. 

So the disclosure benefits the electorate, but the disclosure 

doesn’t actually solve the problem for the shareholder, does it? 

Mr. COATES. It does not completely solve the problem, but it is 

a minimum. It is a necessary thing. I think one thing, at least in 

principle, that shareholders could do if they were dissatisfied with 

what they learned their money was being used to do is to sponsor 

bylaw amendments that would then further control the use of political money by the companies in which they invest. 

And in fact, a significant number of companies have voluntarily 

adopted mandatory self-imposed disclosure requirements and reporting requirements. And I think, for that reason, that is another 

reason that this bill is in line with what in fact shareholders would 

want. 

I think it is also reasonable to explore alternative means to give 

shareholders more of a role in this area, and I think there are 

other bills that are out there that are worth exploring and working 

on to see if we could get that done, too. 

Ms. LOFGREN. If I could just do one quick follow up. On that 

point, I don’t think it belongs in this bill. I think that these disclosure provisions are essential, and it needs to move promptly. But 

on a separate track, I have been thinking, shouldn’t the shareholder—I mean, we really tightened up derivative—I mean, shareholder lawsuits. And, actually, I was one of the Democrats that 

voted to override President Clinton’s veto on that, and I am glad 

I did, and I think it was the right vote to this day. 


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But there are circumstances where, I mean, other than having 

the ability to go after the corporation that took your dividend and 

spent it on their pet project, what remedy do you have? 

Mr. COATES. The United Kingdom currently requires prior shareholder authorization for political activity. I am not necessarily saying that we could take it from their system and put it in ours exactly in the way that they do it, but that is at least worth exploring. 

I will also point out that, to the extent people are concerned 

about parity between unions and corporations, union members all 

have basically a right to opt out, not as a vote, not as a collective, 

but individually on whether they want their money used for political purposes. And so if you wanted to be strictly parallel, you 

would give every shareholder of every corporation the right to veto 

their personal pro rata share of proposed political expenditures, 

and that would be substantially more than the United Kingdom 

has done. But I think those are things that are at least worth putting in the mix. 

Ms. LOFGREN. If I may, and perhaps I can follow up with you 

subsequent to this, because I think certainly we have tried to be 

evenhanded so that the rules will follow for everyone. But the 

union members don’t have their entire life savings at stake; the 

shareholders do. And to say that your pro rata share can be walled 

off doesn’t really do you any good if the stock takes a dive because 

your CEO, as a wild-eyed lefty, goes off on some tangent and the 

right wing organizes a boycott, and the stock takes a dive; how 

does that help you? 

Mr. COATES. I would love to follow up and work with you on alternatives to add to what is in the bill, but I just want to reemphasize, without disclosure, none of the rest of it works. 

Ms. LOFGREN. Thank you. 

I yield back, Mr. Chairman. 

The CHAIRMAN. I thank the gentlelady. 

Mr. Harper. 

Mr. HARPER. Thank you, Mr. Chairman. 

Mr. Potter, if I could, earlier you made a statement in your opening remarks that this should not be a partisan issue. Does the fact 

that this is the committee of jurisdiction on this bill, that none of 

the Republican members of this committee were consulted, does 

that not make it partisan? 

Mr. POTTER. I don’t know who was consulted in the process, Mr. 

Harper. 

I do know that I was continually hearing through the spring that 

one of the reasons that the bill had not yet been drafted and introduced as people had talked about doing shortly after the decision 

is that they were looking for Republican partners and not finding 

many. 

Since this is the committee of jurisdiction, what I am hopeful at 

this stage is that in the markup process, there can be a coming together, because, as Mr. Lungren said, I think both sides have favored disclosure as the essence here, and what I am hopeful is that 

people can coalesce around the details of it. 


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Mr. HARPER. Senator McCain made some remarks on this, that 

he thought that this legislation, the DISCLOSE Act, would favor 

unions. Do you agree or disagree with that statement? 

Mr. POTTER. Well, as I said, I am not here speaking on behalf 

of any client, including the good Senator. 

Mr. HARPER. I understand. 

Mr. POTTER. I think, having looked at it, and I read the testimony from last week that said it would favor unions, it seemed to 

me that the disclosure provisions were evenhanded. They would 

apply to both corporations and unions. 

And I can certainly remember past campaigns where unions paid 

for advertising that ran under catchy names that didn’t say anything about unions, ‘‘Americans for a Better Country’’ or something. So I think the fact that it would have to disclose the names 

of the unions that are sponsoring it, and that it was specifically 

sponsored by unions, would be an important disclosure provision 

and probably news to viewers who are used to just seeing the 

catchy name on it. 

Mr. HARPER. Is it your understanding that if corporations received TARP funds, that they are restricted under this bill? 

Mr. POTTER. I believe that is the case, unless they paid them 

back. 

Mr. HARPER. But their unions are not restricted. So I am trying 

to figure out how that—— 

Mr. POTTER. I suppose if they received TARP funds, but I don’t 

think any of them did. 

There are going to be provisions of the bill—the other discussion 

has been Federal contractors—where there are going to be more 

corporations affected than there are unions, because there are 

going to be more corporations that are Federal contractors than 

they are unions, but I don’t know that that makes the bill discriminatory against corporations. 

We have to start with the fact that Citizens United is a case 

about corporate spending. There was no union in that case. I think 

lawyers assume that unions have the same First Amendment 

rights as corporations do, but the whole Supreme Court decision is 

about corporate spending, corporate disclosure, corporate shareholders because that was the case before them. 

Mr. HARPER. Thank you, Mr. Potter. 

Mr. Toner, do you agree or disagree with Senator McCain’s statement that unions are treated—that this may favor unions a great 

deal? 

Mr. TONER. I don’t think it is a bad deal for the unions. That 

would be my short summation. 

And if I may, Congressman, two quick points I would make. A 

couple of the panelists have emphasized that Citizens United was 

a shock. I think, in many ways, Citizens United was a resettling 

of precedent in terms of the First Amendment values the Court has 

emphasized. 

And I say that because Citizens United overruled Michigan v. 

Austin Chamber of Commerce that in many ways was an outlier 

because the Supreme Court has emphasized that when you are 

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ley v. Valeo, that is unlimited; starting with political action committees in NCPAC, that was held could not be restricted. Nonprofit 

corporations, in Massachusetts Citizens for Life could not be restricted. Political parties could not be restricted. Really the only entities in America left were for-profit corporations. And so, in that 

respect, I think Citizens United was a reordering of the decision. 

And beyond that, of course, as you know, a large number of jurisdictions in this country for decades have allowed corporate contributions and expenditures before Citizens United. And I think it 

is fair to say that some of the best governed States in the Nation 

operate in those types of regimes, such as, for example, Virginia. 

And we have not seen the parade of horribles displayed there that 

we are hearing a little bit this afternoon. 

So, for all of these reasons, I really think in many ways, particularly in the foreign national area, this is a statute searching for 

problems that don’t exist. And I will emphasize one thing: Current 

law does not prohibit American companies that are owned 80 percent by Americans from being involved in U.S. elections. This bill 

would. I don’t think that is appropriate. Maybe other people think 

it is, but I think that is really a misguided policy choice. 

Mr. HARPER. Mr. McGinley, you were talking earlier and you 

mentioned about this taking effect within 30 days after passage 

without any regs being written. To your knowledge, has the FEC 

implemented or given any regulations on the Citizens United case, 

which was decided back on January 21 of this year? 

Mr. MCGINLEY. No. I believe the only thing that they did was 

put out a policy statement that said that the regulations affected 

by the decision would no longer be enforced. 

Mr. HARPER. Can you think of any reason, other than to impact 

the November 2010 election, of why would you have this take place 

without the regs being in effect? 

Mr. MCGINLEY. I think that would be the sole reason, because a 

number of the things that are happening in this bill. The unions 

are left untouched by the government contractor and the foreign 

national ban, despite the fact that a union may be an international 

union with international members receiving dues from an international source, or a union representing the employees of a Federal 

Government contractor or a union representing Federal Government employees that may be similarly situated. And so those types 

of labor unions are left untouched, left free to engage in the speech. 

And I also might add, under the disclosure regime, it is my understanding that there have been some studies where the average 

dues that unions receive from a member is below the thresholds for 

the reporting. What we are seeing is a carefully crafted disclosure 

threshold amount that requires the disclosure of donors to make 

sure that union members are not disclosed, and I think that that 

is very troubling. 

Mr. HARPER. Thank you, Mr. McGinley. 

Thank you, Mr. Chairman. I yield back. 

The CHAIRMAN. Thank you. 

Mr. Capuano. 

Mr. CAPUANO. Thank you, Mr. Chairman. 

As far as participation of the process, I mean, if there are amendments to be offered this week or whenever we are going to do the 


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markup, I am more than happy to look at every amendment offered 

by any member of this committee and make a judgment on that, 

and maybe even co-author. 

I have some of the same concerns, I said at the last hearing, on 

the definition of what a foreign corporation is. And if there are 

thoughtful amendments that are offered, I might even co-author 

them. 

I am not going to do it with the intent of killing the bill because 

I think the concept is right, but around the details, I am more than 

open to some of these things. I think some of these concerns are 

generally okay. 

First of all, Mr. Potter, I want to thank you very much. I am not 

sure, but I may be the only person up here who had an opponent 

from the Socialist Workers Party, and I didn’t know why they 

didn’t file anything. Now I do. I just figured they didn’t raise any 

money. Maybe they raised a lot, and I didn’t know it. 

Is there anybody on the panel that thinks that, regardless of the 

definition of a foreign corporation, that a United States citizen that 

works for a foreign-owned corporation could not make a contribution? Is there anybody here that thinks that this proposal would 

prohibit a U.S. citizen who works for CITGO or ADIA or anybody 

else from making a contribution? 

Go ahead, Mr. Toner. 

Mr. TONER. It would, yes. It would restrict a U.S. citizen from 

contributing to the company’s PAC; yes, sir. 

Mr. CAPUANO. No, no, to an actual political campaign or to a specific ballot question or anything else. 

Mr. TONER. You mean, setting aside the ability to contribute to 

the company’s PAC, which is a vital part of being involved in 

American politics? 

Mr. CAPUANO. Actually, you know what, I would ask you, and 

that is fine, if you think so, I would like you to show me that specific language because that is a fair concern. I don’t read it that it 

does, but if you do, I am happy to look at that. 

But do you see anything in here that would prohibit them from 

contributing to my campaign? 

Mr. TONER. Setting aside the inability to contribute to the company’s PAC, I agree with you. But I do think the PAC is an important issue. 

Mr. CAPUANO. I don’t disagree, and I would be happy to consider 

that. But the average employee of a foreign corporation, regardless 

of whether it is a wholly-owned subsidiary of the government or 

not of a foreign company, could contribute; we all agree with that. 

So, therefore, they have the right to participate in their own elections. 

Does anybody here think that—and again, CITGO, I am not sure 

they are a corporate organization. But I am positive ADIA is a corporation sponsorship. ADIA is the largest owned, largest sovereign 

wealth fund in the world, wholly owned by the government of the 

United Arab Emirates. Does anybody here think really they should 

have a right to participate in my election? Do you really think 

that? And if you do, it is okay; I just want to know it. 


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Mr. TONER. I don’t mean to be so disagreeable. Two points: I 

think it is illegal under current law, and I am not familiar with 

CITGO making contributions or expenditures—— 

Mr. CAPUANO. I didn’t ask whether it was legal. I asked whether 

you think they should be able to do so. 

Mr. TONER. Well, I do think it is relevant to assess whether it 

is lawful under current law, and I think it is unlawful. 

Mr. CAPUANO. No, because we are the ones who write these laws, 

so that is what I am trying to assess. I am trying to assess—my 

question, every time I write a law, is what do I want the law to 

be; not what the law is. I want to know, what kind of a world do 

I want to live in, not just in this; every time I participate in writing 

legislation, what is my goal? And I would argue that my goal would 

be to keep foreign entities out of my elections, but I am just curious 

if anybody here thinks that a corporation that is a wholly-owned 

subsidy of a foreign government should participate in the American 

electoral process. It is a philosophical question, not a legal one. 

Mr. TONER. Well, this law, this proposed law goes far beyond 

that goal, Congressman, and would sweep up U.S. Companies and 

U.S.—— 

Mr. CAPUANO. Mr. Toner, I guess if you don’t answer the question, that is okay. You are entitled to not answer the question. The 

other people aren’t answering it, and that is okay. But it is a very 

simple question: How is it that you don’t understand that question? 

Mr. TONER. If you want to make it illegal for American companies that are owned 80 percent by Americans, that is fine; that is 

your legislative choice. That is what this would do. 

Mr. CAPUANO. Mr. Toner, I can talk slower if you want me to. 

Do you think that a foreign corporation that is a wholly-owned subsidiary of a foreign government should participate in the elections 

of American politicians? Very simple question. 

Mr. TONER. I appreciate the cadence of your question. The answer is, no, but that is not necessary by this bill. 

Mr. CAPUANO. Thank you. I appreciate that, because I don’t either. 

And once you decide that some corporation should not participate 

in the American electoral process, then the next question is, where 

is the line? We are no longer at the question of whether corporations should or shouldn’t; the question is, which lines? I think those 

are fair questions. 

Twenty percent may be too low, a couple of members of the board 

maybe. Those are fair points, and I would be open to anybody making a reasonable suggestion to decide maybe the standards are a 

little too low; maybe they should be different. That is a fair point. 

But the concept of saying foreign governments, foreign corporations should not participate in the American electoral process I 

think is fair. 

As far as American corporations participating in other countries, 

they can and will do that whether we do anything or not. And that 

is the risk they run, and most companies, especially in China. I 

don’t think that China—actually, you cannot do business in China 

unless the person who runs that corporation is a Chinese citizen. 

It is kind of simple. So they kind of already raised the standard. 


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You can’t do business in China as an American citizen on your 

own, under a corporate format anyway. 

Am I wrong about that, Ms. Lynch? 

Ms. LYNCH. You can’t do business legally in China, yes. 

Mr. CAPUANO. Legally. Of course, we only want to talk about 

what is legal under the law. 

So I guess I also want to talk about the shareholder issues that 

Ms. Lofgren was talking about. Just out of curiosity, on the general 

concept, if any corporation, the most American corporation of all 

American corporations—whoever makes the American flags—I 

hope they are made in this country. I don’t know. But the most 

American corporation, if that corporation has a dollar sitting 

around that they don’t need to run the corporation, they don’t need 

to buy any more machines, they don’t want to hire anybody; whose 

dollar is that? I would argue that it would be the shareholders? 

Anybody disagree with that? Do you think it belongs to the CEO 

of the corporation? Okay. I guess that is unanimous for the silence. 

I would think that it is the shareholders’ money. And that being 

the case, I would then argue that any of these dollars should be 

subject—again, I am going back to Ms. Lofgren’s suggestion and 

Mr. Coates’ comment or suggestion with the comment, that when 

it comes time for corporations to spend money that they do not 

need to run the corporation, it should be the decisions of the shareholders to do so. And if they do—and I make no bones about it, I 

start from the premise that I don’t like this decision, but okay, as 

Ms. Lofgren said, it is the law. I am really kind of over it. I was 

over it pretty quickly. On the level of how angry I get about this 

decision, it is really not that high. There are a whole lot more decisions that the Court has made that I didn’t like. We can start with 

Bush v. Gore, but that is a different issue. 

But all that being said, Mr. Coates, and for others, I would ask 

you to look at the Shareholder Protection Act that has been proposed that would allow shareholders to be the decision makers as 

far as how much money a corporation is—that is not for today’s 

discussion though. 

I guess on the final point that I want to make, on retaliation, because I think retaliation is a fair point to make, and it is a real 

fact of life; I have seen retaliation in political circumstances all my 

life. And I don’t like them. As a matter of fact, when I was mayor 

of my community, one of the things I did, I banned lawn signs, 

which is, by the way, unconstitutional, but we did it anyway. And 

we lost in court, which I knew we would. 

But then I put political pressure on those who put yard signs up. 

The rule was, if you come into my city and you want to put up yard 

signs, you buy my political opposition. And for 10 years, we had no 

yard signs. Neighbors got along. Everything was fine. That was my 

definition of terms. 

So retaliation, I think, is a very real consideration. However, the 

question to me then comes, retaliation doesn’t just come on these 

issues. Is not retaliation potentially possible in straight-up political 

elections like, for instance, district attorneys, judges, attorneys general? Even Members of Congress might feel some compunction 

about maybe not being so friendly to someone who opposed them. 

So is retaliation in this circumstance, does anybody see it here as 


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any different, any more nefarious, or any more possible than it is 

in any other political situation? If you do, do you think that those 

contributions to judges running for office or DAs or attorneys general, should they be secret as well? 

Mr. COATES. Could I say, I think it is less—when I give money 

to my local Congressman—Barney Frank, for example; I live in 

Newton—that is instantly disclosed on the Web. It shows up so 

fast, and people track it, and then they analyze all the professors 

at Harvard and all professors generally. And they publish reports 

about it, and we get retaliated against. So you’re telling me that 

I get retaliated against, that is not so bad; but if Exxon gets retaliated against, that is terrible. 

Mr. CAPUANO. Who would dare retaliate against a professor in 

my district? 

With that, I—I actually have no time left, so I give back what 

I don’t have. 

The CHAIRMAN. Well, I think this is an important bill, so I will 

let the blinkers go right by. 

Mr. LUNGREN. I am just surprised that a Harvard professor 

would get retaliated against for contributing to Barney Frank in 

Massachusetts. I guess I don’t understand Massachusetts. 

As I understand the general proposition, the Supreme Court has 

basically said that you can restrict types of political participation, 

and we can put limits on expenditures to candidates, for instance, 

even though the use of money is free speech because of the corruptive influence or an attempt to try and eliminate or at least ameliorate the potential corruption; I mean, that is sort of a gross statement. 

Presumably that is the same basis for which this bill does not 

allow those who are Federal contractors to participate as others 

might participate. If that is the case, what is the essential difference between a corporation that has a government contract and 

a grantee of the Federal Government, which is not so impaired 

under this bill, or we talk about unions, a public employee union 

is not similarly restricted? Mr. Toner or Mr. McGinley or anybody 

else, can you tell me why there is an essential difference in those 

categories? 

And if there is not an essential difference, does that not give rise 

to a potential constitutional challenge where the Court has already 

told us, you cannot distinguish between corporations or different 

types of associations, free speech rights, and in this case, it would 

seem to me that if you differentiate between unions and corporations, one having a contract and the other having a relationship 

with the Federal Government representing Federal employees who 

get their direct pay from the Federal Government, how is that distinguishable? Or do you think that might give rise to a constitutional challenge in the courts? 

Mr. MCGINLEY. I will take the first crack at this one. 

I think that it does give rise to a constitutional challenge in the 

courts for the very reasons that the Court laid out in Citizens 

United. The Court said that the Federal Government does not have 

the authority to distinguish between different speakers who choose 

to speak in the political process. 


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If you have a corporation with a contract with the Federal Government and you have a labor union that represents Federal Government employees, a public service union, there really should be 

no difference between the treatment of the two under the law. 

What this does is decide that the employer cannot speak about 

issues that may be of concern to the employer. 

Mr. LUNGREN. Because of the potential corruptive influence. 

Mr. MCGINLEY. Because of the potential of corruption, which is 

the only compelling governmental interest that can satisfy the need 

to limit the speech, as opposed to the union, which represents the 

employees of the Federal Government and engages in collective 

bargaining. Why there should be a difference between those two 

types of situations I cannot explain. 

However, I can say that the Court was very clear about the fact 

that we need to have more speech from more speakers, and that 

the Federal Government contract prohibition that is currently in 

the DISCLOSE Act is going to prevent these companies from 

speaking out. Not only on express advocacy, which would be the advertisements that advocate the election or defeat of a candidate, 

but it may also prohibit them from speaking out with Electioneering communications, which now, under the bill, are not only 

from 60 days back from the general election and 30 days back from 

the primary; they begin from 120 days back from the general election. So if there is a bet the business piece of legislation that is 

moving through Congress that could endanger this company’s business, they don’t have the authority, not to advocate the election or 

defeat; they can’t even discuss the business and ask the general 

public to contact those Representatives because that may be a prohibited communication under this bill. 

Mr. LUNGREN. And what type of media can they use? 

Mr. MCGINLEY. They wouldn’t be able to use the television or 

radio under the Electioneering communication ban. But also under 

this bill, you have expanded the definition of an independent expenditure, which is something that applies year-round. Not only 

does it include express advocacy, which are those advertisements 

that advocate the election or defeat, but you have taken the functional equivalent of express advocacy, which is the electioneering 

communication standard that the Supreme Court set forth in Wisconsin Right to Life. Those are issue ads. That is the court case 

where the Court laid down that the First Amendment allows 

speakers to convey information. It may not be that they are not advocating the election or defeat, but the only authority that the Federal Government has to regulate those ads is if the advertisement 

is susceptible of no reasonable interpretation other than an appeal 

to vote for or against a candidate, an objective standard. 

In fact, in Citizens United, the FEC’s attempt to promulgate a 

regulation that had two parts and 11 factors was specifically singled out by the Supreme Court as analogous to a prior restraint, 

because it was too confusing and nobody understood it. Now we 

have a definition of independent expenditure in this bill where it 

talks about the functional equivalent and offers a definition that 

really borrows largely from what the Supreme Court has already 

criticized as analogous to a prior restraint. 


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Mr. LUNGREN. So we have actually moved further towards the 

prior restraint—— 

Mr. MCGINLEY. That is correct. 

Mr. LUNGREN [continuing]. Definition that the Court at least 

pointed to in the Citizens v. United case. 

Mr. MCGINLEY. That is correct. 

The CHAIRMAN. If your answers aren’t quicker, you are going to 

come back here instead of going to dinner. 

Mr. TONER. That is a powerful incentive to me, Mr. Chairman. 

I am hungry. 

Mr. LUNGREN. Mr. Chairman, there are a whole lot of other questions—— 

The CHAIRMAN. I can well imagine. 

Mr. LUNGREN [continuing]. But I understand that we have time 

limits here. 

So, Mr. Chairman, I would like to introduce three items for the 

record; number one, the testimony from the Center for Competitive 

Politics. 

The CHAIRMAN. Without objection. 

[The information follows:] 


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Mr. LUNGREN. Secondly, a law review article written by Mr. Bob 

Bauer stating that disclosure requirements like ‘‘Stand By Your 

Ad’’ really serve the purpose of regulating speech, and third, a 

study from procon.org that lists the average union dues for major 

unions across the Nation. 

[The information follows:] 


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The CHAIRMAN. I will just ask unanimous consent that all articles, and various other documents be committed into the record. 

Mr. LUNGREN. And may I ask one more question? 

And that is, in the new disclosure requirements—not disclosure 

requirements, the new requirements for identification at the time 

of an ad, because in some cases now they double the number of 

people to be mentioned and the association has to be mentioned 

twice, at least my staff has tested it, and they utilize the names 

and associations of the people who appeared in the panel last week. 

And they found that for a 30-second ad, it could take up to an average of 13 to 14 seconds. Does anybody believe that that is something that does in fact interfere with the right of free speech when 

at least half of the message has got to be a repetition of who it was 

that sponsored it and the name of the group? Or is that just one 

of the breaks of the game; if you are going to do a 30-second ad, 

half of it is going to be taken up with the statement? 

Mr. POTTER. Mr. Lungren, I venture into that territory and say 

that, obviously, at some point, it becomes impractical. There is a 

standard the FEC currently uses that says, if the disclaimer takes 

up so much of the ad you can’t get your message out—and I am 

thinking of text messaging, for instance—or it is impractical—I am 

thinking of sky writing—you don’t apply it that way. So I think 

there is a reasonable way to deal with a very short ad. 

Mr. LUNGREN. And I was just thinking from what Ms. Lofgren 

said in quoting Justice Kennedy’s statement about the use of new 

technology and so forth, you could require that there be some sort 

of message that is even shorter, but directs people to the Web site 

that contains that information that is necessary. I mean, there are 

ways of making sure that they have that available that would not 

take up the time of the ad itself, and yet not try and get around 

the identification. 

I understand what we are trying to do; I want to know who it 

is. But at the same time, you either are going to get the situation 

where they take up too much time, or you are going to hire that 

guy who speaks faster than anybody else and so nobody actually 

understands it, and yet it might fulfill what the law is. It is just 

one of the practical things I think we should be concerned about. 

Mr. POTTER. It is a balancing issue because you and I both know 

that we are most likely to hear it on the ad, and we are less likely 

to write it down and go to the Web site and figure out who sponsored it. So we would like it on the ad, but you have to find a way 

to make it practical, I agree. 

The CHAIRMAN. Thank you. 

Before I recognize Ms. Lofgren, I would like to say a few words. 

I am either at a disadvantage—but in my view, I am at an advantage because I am not an attorney amongst all the other attorneys that are here. 

But Mr. Toner, you said something about labor, that they got a 

good deal. I can’t figure out how. I can’t figure out how labor got 

a good deal. In order to get a contribution from a candidate from 

labor, it has to be in writing. If you are a corporation, you don’t 

have to get anything in writing. In order to get a contribution out 

of labor, members vote on it. If I have stock in AT&T, I don’t vote 

on it. If members of a union want to get a request—if there is a 


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request for a political contribution, it has to be a request made in 

writing, a member has to know about it. Members of the unions 

know about it, and members vote on it or ratify it. Nobody who is 

a member or a dividend owner or anybody in the corporation gets 

the chance to see that. 

I could have, I said it before, is it still Deer Park? I don’t know 

what we are doing here. I could have stock in Deer Park, and Deer 

Park can support my opponent. And the money I am buying stock 

with, that money goes against my opponent. That can’t happen in 

labor. So I don’t think labor is getting a good deal. I think labor 

has been covered under this bill forever in time, and they do have 

full disclosure on every piece. So I just wanted to make that comment. 

I would like to now recognize Ms. Lofgren. 

Ms. LOFGREN. Thank you, Mr. Chairman. 

I would like to ask unanimous consent to put a little compilation 

of information from, actually, Bob Bauer’s position in favor of disclosure—because clearly he does favor disclosure—in the record, 

just to be clear on that. 

[The information follows:] 


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Ms. LOFGREN. I would like to get back to, you have already covered the union obligations that are found, not just in disclosure but 

in the Labor Management Reporting Act and the Civil Service Reform Act. I mean, there are a whole set of burdens on labor when 

it comes to political speech. But I would like to go back to the corporate world, once again, to further explore—let’s give this example: Let’s say this bill or something quite like it passes, becomes 

the law, and when covered advocacy happens through corporate 

money, there has to be disclosure of that fact. And let’s say in that 

case, the corporation takes position A, and the people who don’t 

support A get annoyed, and they organize a boycott, and they harm 

the brand of the corporation, and sales decline, and the stock value 

declines. And as a shareholder, I am not only getting my dividend, 

but my life savings just took a dive. 

As I see it right now, the officers and directors are pretty much 

protected from liability by the business judgment doctrine. And I 

am just thinking, what remedy does a shareholder have in such a 

case? Selling it doesn’t make them whole because they already took 

a bath because of what the directors did. And I am wondering, can 

you envision, Mr. Coates, a remedy where, if the directors were 

reckless, that the shareholder might be able to sue for damages 

and get past the business judgment rule? How else do you hold the 

officers and directors accountable in such a scenario? 

Mr. COATES. I don’t think that a litigation remedy is likely to be 

a good idea. It also would not likely work very well for reasons that 

I am happy to talk about at great length. 

But let me just say one remedy that might work instead is, with 

disclosure, if enough shareholders don’t like option A that the company has been pursuing, they can legally, under the laws of all the 

States currently, propose a bylaw which would, in the future, prevent the company from engaging in that activity. 

Now, there is a problem—or two problems, one practical and one 

legal. The legal one is that the SEC, for reasons known only to 

itself, has frequently prevented those sorts of proposed by-laws 

from being put into the company’s proxy statement and, as a practical matter, forced shareholders to have to pay for and print and 

distribute their own proxy statement, which then makes it practically impossible for them to get this enacted. So part of a separate 

potential bill would be to encourage or require the SEC to revisit 

some of those decisions. 

But even if it is completely legal, I think you are absolutely right 

to focus on the fact that, for many companies, it still will not be 

a practical option for the 25 million shareholders of Proctor & 

Gamble to get together, even if 12.5 million of them dislike what 

management is doing, and adopt something. And so that then leads 

to the kind of thing that I was talking about earlier, which is a federally mandated vote before political expenditures—— 

Ms. LOFGREN. But what do you do if it is pre-IPO? Many of my 

constituents are working 18 hours a day, and they are doing stock 

options in the hopes that someday they are going to be worth a lot. 

As a matter of fact, they are more victim to something like this 

than a publicly traded entity. There is no market for this stock; you 

can’t sell it. There are no shareholder meetings. They are just out 

of luck. What remedy for them, what is going to deter the directors 


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and the officers from having fun with other people’s money—always a temptation—if there is no possibility of ever being held to 

account? 

Mr. COATES. I think the point you are making is a good reason 

that Citizens United perhaps should be reconsidered from time to 

time by the Court, but I don’t see a practical remedy for many 

shareholders in that situation. 

Ms. LOFGREN. Mr. Chairman, the bells have rung, and you had 

announced previously that we would adjourn as soon as they did. 

So I will yield back, even though it is on yellow, and I have a—— 

Mr. LUNGREN. Could I ask the gentlelady a question, though, before she yields back? 

The only theory I had not heard about the problem with Proctor 

& Gamble last week was what was just suggested. I am going to 

investigate that and see if it was some statement of political activity that was made by the chairman of the Board. 

The CHAIRMAN. I thank the members, and I thank the panel of 

witnesses. I appreciate your participation. This hearing is now adjourned. 

[The information follows:] 


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[Whereupon, at 6:35 p.m., the committee was adjourned.] 


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