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.