The authors of this article are from the law firm Covington & Burling LLP.: Timothy P. Stratford, Robert K. Kelner, Brian D. Smith, and Alexandra Langton
Attorney General Barr warned last year that Americans doing business in China should be wary of “behind-the-scenes efforts” to “cultivate and coerce” US companies into furthering the political objectives of the Chinese Communist Party, potentially in violation of US law. This article details the potential pitfalls for companies.
In his speech at the Gerald R. Ford Presidential Museum, Attorney General Barr warned that the Justice Department has seen more and more officials from the People’s Republic of China (PRC) and their proxies “reaching out to corporate leaders and inveighing them to favor policies and actions favored by the Chinese Communist Party, and there is a suggestion that things will go better (or worse) for them depending on their response to the PRC’s request.” The notion that American companies may be “rewarded” for advocacy in support of PRC policies could, in Barr’s view, trigger concerns related to the Foreign Agents Registration Act (FARA).
In line with Barr’s statements, the Department of Justice (DOJ) has stepped up its focus on FARA issues related to China by increasingly targeting companies doing business in China. Publicly disclosed enforcement actions include high-profile investigations and efforts to require registration of Chinese state-owned media organizations and companies allegedly operating on behalf of, or in the interest of, the PRC. A criminal FARA charge filed recently against the former Republican fundraiser Elliot Broidy also related, in part, to China. In this environment, companies doing business in China may need to consider FARA – and the DOJ’s increasing efforts to apply the statute to activities originating in China.
What is FARA?
FARA is a disclosure statute that requires “agents of foreign principals” to register with the DOJ and file detailed disclosure reports. The statute was originally enacted in 1938, in an effort to force public disclosure of Nazi and other foreign propagandists working in the United States, in the run-up to World War II. In line with these goals, the statute uses sweeping language intended to implicate anyone trying to influence public opinion or policy in the US on behalf of foreign interests.
What Does “Agent” of a Foreign Principal Mean?
To become an “agent” of a foreign principal, an individual or entity must engage – within the United States – in certain FARA-triggering activities as an agent of, or “in any other capacity at the order, request, or under the direction or control” of, a foreign principal. Agency under FARA has been held to go beyond traditional principles of agency law. Moreover, the term “request” is very broad. Although there is some case law indicting that a mere request, without some indication of an inducement or obligation to act, does not trigger the statute, Attorney General Barr’s reference to efforts to “coerce” companies or “inveighing” them to act may well be within the scope of the statute.
Does “Foreign Principal” Refer Only to Foreign Governments?
Those who have heard of FARA often think of the statute in the context of acting on behalf of foreign governmental interests. While FARA certainly applies to activities on behalf of foreign governments and political parties, the law also applies more broadly and captures activities undertaken on behalf of any entity or person outside the United States, including individuals, corporations, associations, non-governmental organizations, and others. In fact, the definition of a foreign principal is so broad, it even covers US citizens domiciled outside of the United States.
What Activities Trigger FARA?
Assuming that an individual or entity is acting as an “agent” of a “foreign principal,” the obligation to register under FARA is triggered when the agent conducts, on behalf of the foreign principal, one or more of the following activities within the United States:
1. Engaging in “political activities,” a term that encompasses any activity that is intended to, or even “believed” to, influence the US government or any section of the US public regarding the following: (1) formulating, adopting, or changing the foreign or domestic policies of the US or (2) the “political or public interests, policies, or relations of a government of a foreign country or a foreign political party”;
2. Acting as a “public-relations counsel,” “publicity agent,” “information-service employee,” or “political consultant”;
3. Collecting or dispensing money; or
4. Representing the interests of the foreign principal before an agency or official of the US government, such as by making direct contact with government officials.
Is a Contract or Payment Required to Trigger FARA?
There does not need to be a written contract or payment to trigger FARA. Under the literal terms of the statute, a mere “request” from a foreign government or any other foreign principal to engage in FARA-triggering activity could be enough. Having a written contract or payment, while not required to trigger FARA registration, are strong evidence of agency, suggesting that the activities are undertaken for the foreign principal. Even without a contract or payment, however, there may be other indicia of agency, such as correspondence between a foreign principal and their agent reflecting that the agent has been tasked with undertaking specific FARA-registrable actions on behalf of the foreign principal.
Is there a De Minimis Threshold to FARA?
FARA has no de minimis threshold. It can be triggered by even the slightest activity, within the United States, that meets any one of the statutory triggers. For example, a single meeting with a US official within the United States by an executive of a company headquartered outside the United States, or by its US subsidiary on behalf of the foreign parent, could potentially satisfy the “representation” trigger. (The Department of Justice has not publicly addressed the question of whether a meeting at a US Embassy would count as “within the United States,” but in theory, it could.) Additionally, the mere act of hosting a conference, distributing a policy report, requesting a meeting, or reaching out to opinion leaders on behalf of a foreign principal, within the United States, could satisfy the “political activities” trigger.
How Would One Trigger FARA from China?
FARA applies to activities “within the United States.” The FARA Unit of DOJ recently has taken a broad view of what constitutes activity “within the United States,” suggesting that even a very limited nexus to the United States is enough to trigger the statute’s jurisdiction over related activities outside the United States. The FARA Unit recently stated that it did “not concur” with the assertion that registration for FARA-triggering activities would not be required if those engaging in the activities were “physically outside the US at the time of performance or delivery of the service.” Given the FARA Unit’s current position, it is possible that even an e-mail or phone call from China to the United States, if it otherwise satisfied one of the FARA triggers, could be viewed by DOJ as requiring FARA registration.
Why Aren’t There More FARA Registrants?
Although there is certainly widespread non-compliance with the statute, there are also several “exemptions” that can be relied upon to exempt a person from registration. The most commonly invoked categories of exempt activities are summarized below.
Certain Commercial Activities: FARA provides that private and nonpolitical activities “in furtherance of the bona fide trade or commerce” of a foreign principal, such as the purchase and sale of commodities, services, or property, do not require registration. Additionally, certain political activities for a foreign corporation “in furtherance of the bona fide commercial, industrial, or financial operations of the foreign corporation” may also be exempt. Notably, however, one cannot rely on this exemption for political activity if the activity is directed by, or “directly promote[s] the public or political interests of,” a foreign government or political party. There is little published guidance regarding the scope of activities that constitute directly promoting the public or political interests of a foreign government or political party. Over the last couple of years, the FARA Unit has taken a more expansive view of this language, treating contacts in the United States about matters that are also important to a foreign government, such as trade and sanctions policies, as potentially falling outside the commercial exemption, even where a foreign corporation has a legitimate commercial interest in the same issue.
Registration under the Lobbying Disclosure Act (“LDA”): FARA includes an exemption that permits an agent of a foreign private sector principal to satisfy a FARA obligation by registering under the LDA, so long as the agent has engaged in at least some lobbying activities. Registration under the LDA requires less detailed disclosures than does FARA registration. Because this exemption only applies when at least some lobbying activities are involved, the exemption does not apply to those engaged solely in other triggering activities, such as public relations advice, political consulting services, or fundraising within the United States. Importantly, the LDA exemption is not available to an agent of a foreign government or political party. Moreover, even if the agent is engaged by a private entity, the exemption is not available if “the principal beneficiary” of the work is a foreign government or political party. The FARA Unit has taken an increasingly broad view of activities that would make a foreign government the principal beneficiary of actions undertaken by an agent on behalf of a private sector foreign principal.
Lawyers Engaged in the Practice of Law: FARA also includes a narrow exemption for lawyers engaged in the practice of law on behalf of a foreign client. This exemption is limited, however, and does not apply to a lawyer’s attempt to influence US agency personnel outside of judicial proceedings; criminal or civil law enforcement inquiries, investigations, or proceedings; and agency proceedings required by statute or regulation to be conducted on the record. The intent behind this exemption appears to be to require registration by law firms when they act more as lobbyists, public relations advisors, or political consultants than as legal counselors in governmental proceedings. This is a very fine line, requiring careful parsing of the language of the lawyer’s exemption.
How is the DOJ Approaching FARA?
In March 2019, the Department of Justice announced that it was opening a FARA enforcement initiative and appointing a criminal prosecutor to head the FARA Unit. While it remains unclear exactly how rigorous the department’s FARA enforcement initiative will be, there are already signs that greater use is being made of grand jury subpoenas and other criminal investigation tools to investigate FARA violations. The Department has also tightened its oversight of existing FARA registrants, making more aggressive use of its authority to direct the FBI to assist in auditing those registrants.
What Steps Should I take to Comply with FARA?
The Department of Justice is closely scrutinizing the relationship between US companies in China and foreign principals in the PRC. Because the application of FARA often depends on specific facts, with small changes in the facts leading to large changes in the application of the law, US companies in China and their counsel should carefully examine, or reexamine, their compliance policies with respect to FARA.
This article appears in Issue 4 of the AmCham China Quarterly Magazine, which you can read here.