Maine State Chamber opposes legislation to limit foreign investments, free speech
Below, please find the Maine State Chamber’s testimony to the Joint Standing Committee on Veterans and Legal Affairs as it was prepared for the public hearing on Monday, March 15, 2021. Gerald F. Petruccelli of the firm Petruccelli, Martin & Haddow in Portland testified on the Chamber's behalf in opposition to three bills: LD 194, An Act To Prohibit Contributions, Expenditures and Participation by Foreign Government-owned Entities To Influence Referenda (EMERGENCY); LD 479, An Act To Ban Foreign Campaign Contributions and Expenditures in Maine Elections; and, LD 641, 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. The Chamber is the Voice of Maine business, speaking for approximately 5,000 Maine businesses of all sizes throughout the state. Some are owned by individuals or parent companies that are not in Maine or even the United States. Not surprisingly, there is, or once was and we hope will be again, significant cross-border commerce with our Canadian neighbors.
Each of these bills should be rejected for any or all of three basic reasons. Predominately, they present very substantial challenges to settled constitutional limits concerning the permissible governmental regulation of political speech. Second, there is no emergency in any fair sense of the term. Third, enactment of any of this proposed legislation would present serious operational difficulties for Maine businesses and impede their ability to protect and advocate for their legitimate interests. A more detailed analysis of these points follows.
Introduction…These bills explicitly intend 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. That well-established standard imposes on the drafters and defenders of any such legislation a heavy burden of demonstrating that the legislation is narrowly tailored to protect or advance a compelling State interest. They must not merely assert but show not only a legitimate State interest but a “compelling” one. It is therefore essential to identify with precision the problem intended to be solved by these enactments. And the obligation of the sponsors is to devise a solution that achieves the objective with minimal restrictions on the constitutionally guaranteed liberty to speak and advocate on issues, especially issues that are on the ballot.
Supreme Court decisions and opinions of the Federal Election Commission have wrestled with these kinds of issues under existing federal law. However, none of these bills are content to incorporate the existing federal definitions and to reinforce existing federal prohibitions. Instead, each creates vulnerabilities that leave the State open to significant and costly free-speech challenges, and the committee should reject them.
These bills are also not addressing any 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 current and longstanding rules governing initiated referendum elections.
Compliance with any of these bills, if enacted, would not only impermissibly burden or restrict the exercise of political liberty but would also present logistical and operational complexities that cannot be justified by any State interest that meets the standard of “compelling.”
Analysis…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 use the federal definition of foreign national and not expand it. These bills bar local companies that are owned by foreign parent companies or with foreign shareholders from any debate on referendum questions that may affect their ability to conduct business in Maine. Stock markets do not have citizenship requirements, so there is no true way for any publicly traded company to prevent foreign actors from obtaining an ownership interest, for example.
LD 641…Except for its broader definition of “foreign national” and its reference to a “foreign national’s” majority control of a legal entity/business, LD 641 tracks the most closely to last session’s LD 2136. We will not reiterate all the reasons we opposed that legislation here, but it is important to note that this bill is even more susceptible to criticism and litigation. Critical for this analysis is that LD 641 substantially expands upon the federal definition of foreign national, located at 52 U.S.C. § 30121(b), to include anyone who is not a U.S. Citizen. This expanded definition would prohibit contributions from U.S. Nationals (those who owe permanent allegiance to the United States but who are not citizens, such as the residents of American Samoa), and lawful permanent residents, many of whom have lived, worked, and paid taxes in our communities for many years.
There is ample case law that demonstrates that LD 641’s restrictions on the free speech rights of lawful permanent residents and U.S. nationals are unconstitutional. See, e.g., Bridges v. Wixon, 326 U.S. 135, 161 (1945) (“[O]nce an alien lawfully enters and resides in this country he becomes invested with the rights guaranteed by the Constitution to all people within our borders. Such rights include those protected by the First and the Fifth Amendments and by the due process clause of the Fourteenth Amendment. None of these provisions acknowledges any distinction between citizens and resident aliens. They extend their inalienable privileges to all ‘persons’ and guard against any encroachment on those rights by federal or state authority.”) Some restrictions have since been upheld, such as punishment for foreign nationals openly encouraging rebellion, but there is nothing in this law that is sufficiently narrowly tailored to withstand constitutional scrutiny.
LD 479…LD 479 is the only non-emergency bill of the three being reviewed at this hearing. It lowers the threshold for political-participation-disqualifying foreign ownership to a paltry 5%. One Canadian owner out of 20 owners of a Maine business of any size leaves the 19 American owners powerless to advocate for any position on any issue. It also deviates from the federal contribution prohibitions listed at 52 U.S.C. § 30121(a), which would cause unnecessary confusion and legal conflicts that would needlessly impede participation in the political process. When the law is not clear, it opens the State to litigation. LD 479’s definition of “foreign owner” also conflicts with federal definitions and would create a legal minefield for any company that is or has a subsidiary. Similarly, it would be difficult if not impossible to imagine how section 3 of LD 479 would be enforced. Notwithstanding the critical First Amendment consideration discussed elsewhere, this bill appears to prohibit a foreign national from re-sharing a post on social media and would require every internet platform to monitor the financial ties related to every post or communication made by its users. Both requirements are unrealistic and would necessitate a significant and economically wasteful, not to mention intrusive, increase in monitoring capacity to be uniformly enforced.
Both LD 479 and LD 641 substantially expand 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 foreign national is indirectly the beneficial owner of some percentage of the equity interest in the company. As noted above, the mathematical consequence of this overbroad definition is that the remaining equity ownership in American hands is barred from participating in a referendum election that may substantially adversely affect the company. This is the antithesis of narrow tailoring, even assuming that the bill is in the service of some compelling state interest that has not been clearly stated. The inalienable political rights of the majority American owners cannot constitutionally be abridged in this way.
LD 194…This emergency bill is similar to the others, except that it focuses on what it defines as “government-owned entities” rather than on a definition of “foreign nationals.” It sets an arbitrary threshold of 10% of any kind of ownership, without any explanation of how or when that percentage would be calculated. Where the ownership of publicly traded companies is ever changing, with shares being bought and sold by investment groups or mutual funds, including say public pension trusts, with undisclosed beneficial ownership on a daily if not hourly basis, it could make calculating the foreign-government ownership percentage cumbersome, if not impossible.
Federal election 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 C.F.R. § 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.
All three bills define foreign ownership in terms of percentages. However, 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.”)
In addition to the new and overbroad characterization that two bills make regarding what constitutes a foreign national, it ought not to go unnoticed that LD 194 and LD 641 depart from the general provisions of 21-A M.R.S.A. § 1004. The maximum fine under § 1004 is $10,000. The fine in both proposed pieces of legislation is the greater of $100,000 or twice the amount of the contribution. Perhaps this 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 covered by § 1004. As yet, there appears to be no evidence in any legislative record to support that legislative judgment.
Additionally, several bills are now pending in Congress to amend the laws prohibiting the participation of foreign entities and individuals in the election process. If the Legislature passes a bill that works in contravention to such changes, the State will again likely face significant litigation to clear up any resulting confusion or conflict of laws.
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, [but] they were still allowed to discuss any topic publicly and could have their campaign committees solicit funds for them.” The pending LDs show no comparable attention to narrow tailoring. Instead, they all show a determination to sweep as broadly as possible.
And 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, their proliferation itself makes it easier “to ignore the burdensome effects on the speech of individuals and small organizations.” Id. Here, the bills presumably attempt 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 size 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. These bills are obviously animated by concern that a proposed ballot initiative might be defeated (or passed) if campaign participation is not tightly regulated.
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” and 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.
Impact on Maine Companies…Many of Maine’s companies – from large to small – have shareholders from other countries. Foreign investment is not new, and it is generally not considered to be a problem. All three bills would have a negative impact on many businesses of every size already long 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?
Apart from the difficulty of determining ownership of publicly traded stocks from one minute to the next, consider the unfairness of denying a business an equal chance to contest referenda inimical to its interests. A foreign owned company that has invested heavily in Maine and operates several retail locations in Maine could be facing a municipal referendum hostile to its business and be unable to campaign at all. Or a small company in northern Maine with Maine owners and Canadian owners (who might even all be cousins) could be barred from participating in a referendum campaign that might put the company out of business. Even if it were not unconstitutional, such legislation would be horrible policy.
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 all kinds 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 an 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. We have had both foreign investment and initiated referenda for a long time without identifying whatever problem these bills were written to solve.
The exceptions laid out to the normal legislative timeline are narrowly tailored and are intended for issues that are clear cut and can be enacted without the necessity of significant research or input from the public. The two bills marked as “emergencies” (LD 194 and LD 641) do not fall into any of those categories, and they are not appropriate 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 Committee “ought not to pass” any of the three proposed bills.
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