The Department of Justice’s FARA Unit appears to have signaled a significant narrowing in the scope of a major FARA exemption that is especially important to private sector companies, including U.S. subsidiaries of foreign corporations.  The apparent narrowing of FARA’s exemption for those who register under the Lobbying Disclosure Act (“LDA”) appeared in an advisory opinion issued last week that has not yet been released publicly.

When Congress enacted the Lobbying Disclosure Act in 1995, it also created a FARA exemption for private sector lobbying activities that are registered and disclosed under the LDA.  Under the LDA exemption, persons who would otherwise be required to register as foreign agents can register instead as lobbyists, under the less onerous and less stigmatized LDA.  The exemption, however, is limited.  First, it is not available for an agent working for a foreign government or political party.  Second, a long-standing Department of Justice regulation precludes the use of the exemption if a foreign government or political party is “the principal beneficiary” of the activities, regardless of the whether a government or political party is the actual client.

Although no court has ruled on the meaning of “the principal beneficiary,” FARA practitioners generally have relied upon its plain meaning:  The LDA exemption is not available if a foreign government or political party is the main beneficiary of the activities.  Conversely, the exemption is available if the main beneficiary is a foreign corporation or other foreign non-governmental organization.  For example, a foreign corporation might lobby on a business issue that would increase its revenue and thus its home country’s tax base.  The increased tax base would certainly benefit the foreign country, but “the principal beneficiary” of the lobbying is the company, not the government.  The government’s benefit is secondary and incidental to the corporate activities.

The new advisory opinion, however, signaled a significantly different reading of the exemption.  In an opinion issued by the FARA Unit’s new leadership, the Department found that the company seeking the opinion did not have to register under FARA because it met the terms of the LDA exemption.  But in a John Marshall-like move, the Department took the opportunity to insert a footnote, within the otherwise favorable opinion, that was not necessary to its decision (what lawyers call “dicta”).  “While not the case here,” the footnote read, “there are situations in which a foreign government or political party may not be the principal beneficiary, but a principal beneficiary of lobbying activities in which the LDA exemption would not apply.”  (Emphasis in the original.)

The FARA Unit’s footnote appears to suggest that the question is not whether a private company, on the one hand, or the foreign government, on the other hand, is the main beneficiary of the activities, but rather whether a foreign government could be said to be among several entities that all somehow were a principal beneficiary.  Notably, the text of the footnote stands in stark contrast to the Department’s regulations, which limit the LDA exemption when “a foreign government or foreign political party is the principal beneficiary.  Simply put, the regulation says “the,” not “a,” principal beneficiary.

As we have noted in prior client advisories, there are many situations in which a foreign corporation has a strong and legitimate corporate interest in supporting U.S. policy positions that bring some parallel and additional benefit to a foreign government.  The Department of Justice regulation specifying that the LDA exemption will apply unless a foreign government is “the principal beneficiary” has thus acted as a critical threshold for distinguishing those cases where FARA registration is not required, even though a foreign government might have some interest in the matter, and cases where registration is required because the activities primarily advance a governmental interest.

We wonder whether the footnote indicates that the Department is contemplating a new FARA rulemaking to replace “the principal beneficiary” with “a principal beneficiary.”  If it does not, the new interpretation could be open to court challenge because it conflicts with the text of the regulation.  Although courts often defer to an agency’s interpretation of its regulations under the agency-friendly “Auer deference” doctrine, courts will not defer to an agency interpretation that is “plainly erroneous or inconsistent with the regulation.”  Auer v. Robbins, 519 U.S. 457, 461 (1997).  Reading “the” to mean “a” seems both plainly erroneous and inconsistent with the regulation as it exists today.  A notice-and-comment rulemaking would enable the Department to weigh the consequences of changing the regulation, with input from the regulated community.  In the meantime, regulated persons will be left to guess at the standard the FARA Unit intends to apply, or to seek additional advisory opinions to see whether the footnote in last week’s opinion is more than mere dicta.

The advisory opinion will be posted on the Department’s website in due course, in redacted form, per the Department’s laudable new policy of publishing its FARA advisory opinions, and we will post a link here once it is publicly released.

UPDATE:  The advisory opinion referenced in this post has now been published.  It is available here.

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Photo of Robert Kelner Robert Kelner

Robert Kelner is the chair of Covington’s nationally recognized Election and Political Law Practice Group.  He counsels clients on the full range of political law compliance matters, and defends clients in civil and criminal law enforcement investigations concerning political activity. He also leads

Robert Kelner is the chair of Covington’s nationally recognized Election and Political Law Practice Group.  He counsels clients on the full range of political law compliance matters, and defends clients in civil and criminal law enforcement investigations concerning political activity. He also leads the firm’s prominent congressional investigations practice.

Rob’s political law compliance practice covers federal and state campaign finance, lobbying disclosure, pay to play, and government ethics laws. His expertise includes the Federal Election Campaign Act, Lobbying Disclosure Act, Ethics in Government Act, Foreign Agents Registration Act, and Foreign Corrupt Practices Act.

He is also a leading authority on the arcane rules governing political contributions and marketing activities by registered investment advisers and municipal securities dealers.

Rob’s political law clients include numerous multinational corporations, many of which are household names.  He counsels major banks, hedge funds, private equity funds, trade associations, PACs, political party committees, candidates, lobbying firms, and politically active high-net-worth individuals. He has represented the Republican National Committee, National Republican Congressional Committee, and National Republican Senatorial Committee.  He also advises Presidential political appointees on the complex vetting and confirmation process.

As a partner in the firm’s White Collar Defense & Investigations practice group, Rob regularly defends clients in congressional investigations before virtually every major congressional investigation committee.  He also defends corporations and others in investigations by the Federal Election Commission, the Public Integrity Section of the U.S. Department of Justice, federal Offices of Inspector General, and the House & Senate Ethics Committees.  He has prepared many CEOs and corporate executives for testimony before congressional investigation panels. He regularly leads the Practicing Law Institute’s training program on congressional investigations for in-house lawyers.  In addition, he is frequently retained to lead internal investigations and compliance reviews for major corporate clients concerning lobbying and campaign finance law issues.

Rob has appeared as a commentator on political law matters on The PBS News Hour, CNBC, Fox News, and NPR, and he has been quoted in the New York Times, Washington Post, Wall Street Journal, Associated Press, Legal Times, Roll Call, The Hill, Politico, USA Today, Financial Times, and other publications.

Rob is Chairman of Covington’s Professional Responsibility Committee and a General Counsel of the firm.  He also currently serves as Chairman of the District of Columbia Bar’s Legislative Practice Committee, and he previously was appointed by the President of the American Bar Association to serve on the ABA’s Standing Committee on Election Law.

Photo of Brian D. Smith Brian D. Smith

Brian Smith assists clients with challenging public policy matters that combine legal and political risks and opportunities.

Brian represents companies and individuals facing high-profile and high-risk congressional investigations and hearings, and other criminal, civil, and internal investigations that present legal, political, and public…

Brian Smith assists clients with challenging public policy matters that combine legal and political risks and opportunities.

Brian represents companies and individuals facing high-profile and high-risk congressional investigations and hearings, and other criminal, civil, and internal investigations that present legal, political, and public relations risks. He assists companies and executives responding to formal and informal inquiries from Congress and executive branch agencies for documents, information, and testimony. He has extensive experience preparing CEOs and other senior executives to testify before challenging congressional oversight hearings.

Brian develops and executes government relations initiatives for clients seeking actions by Congress and the executive branch. He has led strategic efforts resulting in legislation enacted by Congress and official actions and public engagement at the most senior levels of the U.S. government. He has significant experience in legislative drafting and has prepared multiple bills enacted by Congress and legislation passed in nearly every state legislature.

Prior to joining Covington, Brian served in the White House as Assistant to the Special Counsel to President Clinton. He handled matters related to the White House’s response to investigations, including four independent counsel investigations, a Justice Department task force investigation, two major oversight investigations by the House of Representatives and the Senate, and several other congressional oversight investigations.

Brian is a Professorial Lecturer in Law at the George Washington University Law School.