Fighting Foreign-Corporate Political Access: Applying Corporate Veil-Piercing Doctrine to Domestic-Subsidiary Contributions

IntroductionIn 1996, as President Clinton sought reelection, scandal threatened him and the Democratic Party. Many accused the Democrats of illegally selling political influence to foreigners. The following is an example of the type of illegal conduct alleged. In late February, a South Korean electronics company, Cheong Am Business Group, established a California subsidiary, Cheong Am America.1 The next month, the South Korean parent corporation capitalized the California subsidiary with a $1.3 million bank transfer.2 Shortly thereafter, John H.K. Lee, a South Korean citizen and the chairman of both the parent and subsidiary corporations, attended a Democratic National Committee (DNC) fundraiser and met Clinton.3 Within days, Lee directed Cheong Am America to contribute $250,000 to the DNC.4 Prior to the contribution, Cheong Am America did not operate and had no income.5 This contribution violated the Bipartisan Campaign Reform Act of 2002 (BCRA), also known as the McCain-Feingold Act,6 which prohibits foreign nationals from contributing to U.S. elections or candidates.7 Following media scrutiny, the DNC quickly admitted the contribution was illegal and returned it.8These events prompted outrage and led to extensive investigation. A special Department of Justice task force, comprised of ninety prosecutors, FBI agents, and support staff, investigated millions of documents relating to the scandal.9 Congress also investigated. The Senate Committee on Governmental Affairs published a report alleging thatThe President and his aides demeaned the offices of the President and Vice President, took advantage of minority groups, pulled down all the barriers that would normally be in place to keep out illegal contributions, pressured policy makers, and left themselves open to strong suspicion that they were selling not only access to high-ranking officials, but policy as well. Millions of dollars were raised in illegal contributions, much of it from foreign sources.10The investigations uncovered evidence of illegal foreign efforts to influence the U.S. political process.11 They determined that although some foreign efforts seemed "innocuous," there was likely also "a broad array of [foreign] efforts designed to influence U.S. policies and elections through . . . financing election campaigns."12 Ultimately, the investigations met dead ends and the public lost interest.13Congress has worried about corrupting influences invading politics since the country's founding and continues to worry about them today.14 As early as 1867, Congress regulated campaign finance to that end.15 These regulations restrict the marketplace to prevent people from buying influence. In the Cheong Am scandal, for example, the regulatory net caught the illegal foreign contribution and forced the DNC to return the contribution.16Recently, however, the Supreme Court overruled some campaign finance regulations in the name of free speech.17 In doing so, the Court ripped holes in the regulatory net designed to protect politics from corruption. The system that remains allows domestic subsidiaries of foreign corporations to contribute to campaigns almost without limits.18 In the 2014 election cycle alone, domestic subsidiaries, through their Political Action Committees (PACs), contributed over $19 million to various campaigns or causes.19 That much money has the potential to corrupt elections by significantly impacting their outcomes.If a domestic subsidiary contributes with its parent's foreign interests in mind, the contributions are illegal,20 potentially corrupting, and should be cause for alarm. This Note does not suggest that all domestic subsidiaries of foreign corporations are incapable of separating their interests from the foreign interests of their parents when they contribute to campaigns, as is required by law. In many cases, however, a parent company will dominate a subsidiary to pursue its own interests.21 This Note argues that Congress must balance free speech rights with the potential for corruption by allowing domestic subsidiaries to contribute in their own interests while precluding them from doing so in their foreign parents' interests. …