EDITOR’S NOTE: This testimony was delivered on Wed., March 11, 2020, for the Maine State Chamber of Commerce by Gerald F. Petruccelli of Petruccelli, Martin & Haddow before the Joint Standing Committee on Veterans and Legal Affairs regarding LD 2136, An Act To Prohibit Contributions, Expenditures and Participation by Foreign Nationals To Influence Referenda (Emergency).
Senator Luchini, Representative Schneck, and members of the Joint Standing Committee on Veterans and Legal Affairs: Thank you for the opportunity to testify on LD 2136, An Act To Prohibit Contributions, Expenditures and Participation by Foreign Nationals To Influence Referenda (Emergency). My name is Gerald F. Petruccelli, from Petruccelli, Martin & Haddow in Portland, and I am here today on behalf of the Maine State Chamber of Commerce. I understand that many members of this committee are co-sponsors of the bill under consideration. I hope that, after hearing my testimony and reading the more complete testimony I will submit to the committee, you will consider the Chamber’s concerns about this legislation and reconsider your approach to this issue.
The bill explicitly seeks to prohibit political speech concerning a referendum question. It is the settled constitutional jurisprudence that prohibitions or restrictions on political speech, if constitutional at all, may be justified only under a standard of strict scrutiny demonstrating that the legislation is narrowly tailored to protect or advance a compelling State interest. It is therefore essential to identify the problem to be solved and to devise a solution that achieves the objective with minimal harm to constitutionally guaranteed liberty.
Supreme Court decisions and opinions of the Federal Election Commission have wrestled with these kinds of issues under existing federal law. This legislation is not content to incorporate the existing federal definitions and reinforce existing federal prohibitions. This bill substantially expands the definition of foreign national to sweep within it an American company chartered by an American state doing business only in the United States, if a true foreign national is indirectly the beneficial owner of 51% of the equity interest in the company. The mathematical consequence of this overbroad definition is that the 49% equity ownership in American hands is barred from participating in a referendum election that may substantially adversely affect the fortunes of the company. This is the antithesis of narrow tailoring, even assuming that the bill is in the service of a compelling state interest.
Nor is this legislation in any fair sense of the term an emergency. Failure to enact this legislation would not imperil the public peace, the public health, or the public safety. It would simply leave in place the rules governing initiated referendum elections.
There is already an abundance of state law governing the referendum election process and, if any additional legislation restricting the participation by foreign owners of Maine businesses is both constitutional and prudent, the legislature would be wise to stop at the federal definition of foreign national and not expand it to any enterprise in which the ultimate indirect beneficial ownership is 51% foreign held.
The bill would prevent a “foreign national” or a legal entity in which the foreign national holds/controls 50% or more of the total equity from contributing – directly or indirectly – to influence a referendum. Federal election law already prohibits contributions made by foreign nationals, but this legislation goes further to bar local companies that are majority owned by foreign parent companies or shareholders from the debate on referendum questions that may affect their ability to conduct business in Maine.
Federal elections law already addresses the importance of protecting the election process and provides sufficient protection from foreign interference. For example, a foreign entity with a U.S. subsidiary must not interfere with, contribute funds to, or direct the political efforts/speech of its U.S. subsidiary. See, e.g., 22 U.S.C. § 611(c); 11 CFR §110.4. Subsidiaries that are separately incorporated are considered separate legal entities for purposes of analyzing campaign contributions. So long as the entity establishes a separately segregated fund (SSF) into which no foreign money is contributed and no direction from a foreign entity is received, a local corporation can and should be allowed to participate in the legislative process, including initiated legislative proposals, through issue advocacy.
Federal law does not talk about ownership percentages when determining if an entity is a foreign principal. It looks at where the principal place of business is located and where the organization was created. See, id. See also, FEC AO 1985-3 (“Under 22 U.S.C. 611(b), a corporation organized under the law of any state within the United States whose principal place of business is within the United States is not a foreign principal and, accordingly would not be a ‘foreign national’ under 2 U.S.C. 441e.”)
Because that definition was enacted by Congress, the default interpretation of the word “person” includes “corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals…” 1 U.S.C. § 1.
In addition to the new and overbroad characterization of what constitutes a foreign national for purposes of this legislation, it ought not to go unnoticed that this legislation alone singularly sets itself apart from the general provisions of 21-A M.R.S.A. § 1004. The maximum fine under § 1004 is $10,000. The maximum fine in this legislation is $100,000. Perhaps this singular sanction is intended to constitute evidence of narrow tailoring but conversely it sends the message that a political contribution by a company doing business in Maine that is 49% owned by Americans is ten times as bad as any other campaign violation within the general applicability of § 1004. As yet, there appears to be no evidence in any legislative record to support that legislative judgment.
The Constitutional Issues…
“Congress shall make no law … abridging the freedom of speech, [or]… to petition the Government for a redress of grievances.” Amend. I, U.S. Const. See also Art. I, § 4, Maine Const.
Freedom of speech is a bedrock principle of our democracy. It is protected by the Supreme Court’s application of a strict scrutiny analysis when reviewing laws that attempt to curtail that speech. That analytical framework requires that the government “prove that the restriction furthers a compelling interest and is narrowly tailored to achieve that interest.’” Sindicato Puertorriqueno de Trabajadores v. Burset, No. 12-1531 (PG), 2012 U.S. Dist. LEXIS 141024, at *15 (D.P.R. Sep. 27, 2012)(citing Citizens United v. Federal Election Comm’n, 558 U.S. 310, 130 S.Ct. 876, 898, 175 L.Ed.2d 753 (2010)). See also, NAACP v. Button, 371 U.S. 415, 438 (1963)(“[O]nly a compelling state interest in the regulation of a subject within the State’s constitutional power to regulate can justify limiting First Amendment freedoms.”)
Whether a law attempting to limit speech is narrowly tailored enough to survive strict scrutiny has been the subject of significant litigation. For example, The Supreme Court upheld a Tennessee law that prohibited campaigning within 100 feet of a polling place, because voter intimidation and voter fraud are so “difficult to detect” that creating the buffer zone was necessary to protect another fundamental right, “the right to cast a ballot in an election free from the taint of intimidation and fraud.” Burson v. Freeman, 504 U.S. 191 (1992). In contrast, the Supreme Court struck down a similar Massachusetts law that created buffer zones around abortion clinics, in part, because “[o]bstruction of abortion clinics and harassment of patients, by contrast, are anything but subtle” and there existed other, less restrictive options for protecting patients. McCullen v. Coakley, 573 U.S. 464, 496 (2014).
Similarly, the Supreme Court struck down a North Carolina law that sought to regulate the pay and communications of professional fundraisers for non-profit organizations, because “even if the State had a valid interest in protecting charities from their own naivete or economic weakness, the Act would not be narrowly tailored to achieve it” because “more benign and narrowly tailored options are available.” Riley v. Nat’l Fed’n of Blind, 487 U.S. 781, 792, 800 (1988). In contrast, the Supreme Court upheld a restriction on judges directly soliciting financial donations because it was narrowly tailored to the purpose of ensuring public trust in the judiciary. Williams-Yulee v. Fla. Bar, 575 U.S. 433 (2015). The Court held that it was narrowly tailored such that it withstood strict scrutiny because though the law “prevented judges from personally soliciting funds, they were still allowed to discuss any topic publicly and could have their campaign committees solicit funds for them.”
Although freedom of speech covers a broad range of activities and courts have found that some restrictions are permissible, “[i]ssue advocacy is the classic heart of First Amendment protection and should be burdened as little as possible.” Nat’l Org. for Marriage & Am. Principles in Action v. McKee, 765 F. Supp. 2d 38, 46 (D. Me. 2011). And as regulations grow and additional requirements are added, it is possible “to ignore the burdensome effects on the speech of individuals and small organizations.” Id. Here, the bill presumably attempts to create a bright line rule, but for dozens of small and mid-size Maine companies who would need to ensure compliance with the rule, the prospect of administrative burdens to track down citizenship information for every shareholder or LLC that is a partial owner of the company would effectively curtail their speech. That deterrent effect in and of itself calls into question the bill’s constitutionality and is particularly offensive to First Amendment freedoms because it is aimed at issue advocacy. For example, when reviewing a California law that sought to limit the amount of contributions to a ballot measure committee to ensure only small donations, the Supreme Court struck it down, finding that the law “does not advance a legitimate governmental interest significant enough to justify its infringement of First Amendment rights.” Citizens Against Rent Control/Coalition for Fair Hous. v. Berkeley, 454 U.S. 290, 299 (1981). That Court found that whatever the state’s interest in regulating contributions to a candidate, that there was no similar interest in “curtailing debate and discussion of a ballot measure.” Id. at 299.
Although Citizens United is a controversial Supreme Court decision, we must analyze the proposed legislation within the framework of that case because it is the controlling law. The Supreme Court explained that “because speech is an essential mechanism of democracy--it is the means to hold officials accountable to the people--political speech must prevail against laws that would suppress it by design or inadvertence.” Citizens United v. FEC, 558 U.S. 310, 312 (2010). The Supreme Court noted that the weight of First Amendment protections is strong because it is “[p]remised on mistrust of governmental power,” and therefore it “stands against attempts to disfavor certain subjects or viewpoints or to distinguish among different speakers, which may be a means to control content.” Id. at 312.
If this proposed legislation were to be enacted, it would very likely draw Maine into litigation. And Maine would very likely lose the argument because it would be committing “a constitutional wrong” by identifying “certain preferred speakers” because there is “no basis for the proposition that, in the political speech context, the Government may impose restrictions on certain disfavored speakers.” Id. In this case, the “disfavored speakers” are Maine-based businesses with foreign parent companies or shareholders.
Specific Impact on Maine Companies…
Many of Maine’s companies – from large to small – have shareholders from other countries. A list is attached, and we think it is accurate but not necessarily complete. This legislation would have a negative impact on many businesses of every size already in operation within our borders. Additionally, this type of legislation would serve as a significant deterrent to those businesses that the Chamber and others are working so hard to attract, because what company would want to move operations to Maine if they would be silenced on a ballot question that could significantly and detrimentally impact their ability to maintain profitability here?
The Maine State Chamber of Commerce truly is the voice of Maine business. That is not merely a slogan. The Chamber speaks for approximately 5,000 business enterprises of all sizes and shapes in every corner of the State on issues important to business generally. The Chamber has also been diligently working to improve Maine’s business climate to make Maine a more attractive place for foreign investors to generate new economic activity for the benefit of all of Maine’s people. Very few things are more harmful to any business development strategy than instability, unpredictability, or uncertainty. If a company can diligently comply with all applicable rules from the inception of a project and then be silenced by this law when others seek to defeat their efforts by initiated referendum, a prudent potential investor will be less enthusiastic about the prospect of coming here.
Finally, emergency legislation is rightly limited to “only such measures as are immediately necessary for the preservation of the public peace, health or safety…” Maine Const. Art. IV, Part 3, § 16. The exceptions laid out to the normal legislative timeline are narrowly tailored and are intended for those issues that are clear cut and can be enacted without the necessity of significant research or input from the public. This bill does not appear to fall into any of those categories and is much too complicated a measure to be considered in an emergency legislation context. There are significant and yet-unexplored unintended consequences of the proposed legislation that should caution the Committee against the current course. The Chamber represents business owners at every level of the economic continuum in Maine and, based on the broad impact this could have on our constituents at every one of those levels, the Committee ‘ought not to pass’ this legislation.