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A business executive writes a small check to a neighbor who is running for a seat on the local school board. It sounds harmless, but the executive isn’t a U.S. citizen and by writing that check, she has broken federal campaign finance laws.

Womble Carlyle attorney and former Federal Election Commission Deputy General Counsel Jim Kahl regularly counsels multinational companies and their leaders about compliance with federal and state campaign finance laws. He said the rules surrounding campaign contributions can be tricky, and have caused problems even for well-meaning executives.

“The campaign contribution rules for foreign nationals differ significantly from those for U.S. citizens,” Kahl said. Only U.S. citizens or permanent legal residents (i.e., green card holders) may contribute to political campaigns. Foreign nationals – both individuals and corporations – are prohibited from making campaign contributions.

The number one misconception, Kahl said, is thinking that his prohibition only applies to federal elections. However, under federal law foreign nationals are prohibited from contributing in all U.S. elections—federal, state and local. So for a foreign national individual, donating to a city council candidate is just as illegal as giving money to a presidential campaign. 

“These restrictions also apply to in-kind as well as monetary contributions,” Kahl said. “For example, a foreign national who hosts a fundraiser for a candidate at his home may find himself the subject of an FEC investigation. The gift of food, beverages and a venue is considered an illegal in-kind contribution.”

A second source of confusion stems from the fact that green card holders – non-citizens who reside permanently in the U.S. – are able to contribute, but other non-citizen residents, including those in the U.S. on a long-term work visa, are not. Kahl said, “Green card holders have a very specific status under the federal election law.”

What about contributions made by corporations or other business entities? A U.S. subsidiary of a foreign company may be able to make political contributions and it may be able to establish a political action committee (PAC), but special rules apply. As to corporate contributions, the funds used must come from domestic proceeds and foreign nationals may not participate in the decision-making regarding the contribution. Similarly, foreign nationals may not be involved in the management or oversight of the PAC, nor participate in decisions regarding its contributions. 

With proper planning, including granting U.S. citizens (or green card holders) decision making authority, the corporation may be able to make contributions and sponsor a PAC. But the rules are complicated, and must be followed closely. “It’s very easy to trip unintentionally over the rules in this area,” Kahl said.

For example, the board of directors of a U.S. subsidiary with foreign national members may make the decision to start a PAC. But it cannot appoint the U.S. citizen (or green card holder) members of the PAC Board. The FEC views the latter as foreign nationals taking an active role in PAC management – and, thus, a violation of federal campaign finance law. 

What happens if a company or individual violates federal campaign finance rules? Violations can result in civil monetary penalties following a Federal Election Commission investigation and criminal prosecution by the Department of Justice.

“It’s something that needs to be taken seriously. The foreign national individual or company may have to pay large fines. In addition, violations are usually newsworthy and can result in significant reputational damage to the corporate brand,” Kahl said.