Any day now, the Department of Justice (DOJ) is expected to issue its long-awaited proposal to revise the Foreign Agents Registration Act (FARA) regulations, which the White House's Office of Information and Regulatory Affairs cleared for publication last month. As readers of Enforcement Edge know, FARA requires disclosure and transparency about domestic activities performed on behalf of foreign governments, companies, nonprofits, and other foreign actors, such as "political activities" that include lobbying federal officials and trying to influence American public opinion about U.S. policies or a foreign government's interests. Based on a government official's remarks at ACI's December 2023 FARA conference, the upcoming rulemaking seems likely to narrow DOJ's 20-year-old interpretation of one of FARA's broadest exemptions from registration, 22 U.S.C. § 613(d)(2).
This "(d)(2)" statutory exemption is paired with another FARA exemption, 22 U.S.C. § 613(d)(1), and the two are often referred to as "commercial exemptions." Subsection (d)(1) exempts traditional "private and nonpolitical" commercial activities, while (d)(2) exempts "other activities not serving predominantly a foreign interest." However, (d)(2)'s text isn't limited to commercial activity. Instead, DOJ's regulation interpreting (d)(2), which is codified at 28 C.F.R. § 5.304(c), focuses on commercial matters and effectively limits (d)(2)'s phrase "foreign interest" to mean only a foreign governmental interest. The regulation explains that lobbying and other political activities on a foreign corporation's behalf will be exempt under (d)(2) if the activities directly promote the foreign corporation's own economic interests rather than the political or public interests of a foreign government or political party.
This could all soon change. At last year's FARA conference, Jennifer Gellie, Acting Chief of the DOJ National Security Division's Counterintelligence and Export Control Section (CES) and former Chief of the FARA Unit, announced DOJ's new position that (d)(2) only exempts activities that predominantly benefit a "domestic interest" rather than a foreign interest, regardless of whether the foreign interest is governmental, commercial, nonprofit, or otherwise. Such an interpretation would shift DOJ's FARA analysis away from assessing the kind of foreign interest at issue, and toward assessing the relative prominence of domestic interests versus foreign interests of any kind.
Under DOJ's new position, for example, a private foreign company's public relations campaign about a proposed U.S. policy that benefits the company might no longer be exempt under (d)(2), and the same campaign by its U.S. subsidiary might only be exempt if it "predominantly" benefits the subsidiary's own interests rather than those of its foreign parent. During a Q&A session at the FARA conference, I noted that DOJ's new position potentially contradicts the FARA Unit's existing advisory opinions — including two that Acting Chief Gellie herself signed — which conclude that (d)(2) does exempt activities that solely promote a foreign non-governmental entity's own interests. If DOJ's forthcoming regulations overturn these advisory opinions, they may compound, rather than alleviate, public confusion about how to interpret (d)(2)'s broad statutory language. While we wait for DOJ's notice of proposed rulemaking, the (d)(2) exemption's origins, evolution, and recent application by the FARA Unit all hint at DOJ's plans — as well as potential challenges posed by DOJ's new approach.
The Past
FARA was originally enacted in 1938 to shine light on Nazi propaganda and other subversive activities in the United States. The original statutory definition of a foreign agent excluded persons "performing only private, nonpolitical, financial, mercantile, or other activities in furtherance of" a foreign principal's "bona fide trade or commerce." This commercial exemption changed only slightly over the years and is now codified at 22 U.S.C. § 613(d)(1).
In the 1960s, the U.S. embargo of Cuba reshaped the American market for imported sugar, leading lobbyists for foreign sugar interests to flood Washington, D.C. and seek favorable reallocations of U.S. tariff-rate quotas on sugar imports. Some lobbyists and others seeking to influence public opinion didn't disclose their foreign sponsorship, prompting congressional criticism. As a result of these and other controversies, FARA was expanded in 1966 to focus on foreign efforts to influence U.S. policymaking. The 1966 amendments added a broad definition of "political activities" that trigger registration and created (d)(2)'s exemption for activities "not serving predominantly a foreign interest."
Lesser known is that the 1966 amendments also created a provision formerly codified at 22 U.S.C. § 611(q), which elaborated the (d)(2) exemption and was sometimes called the "domestic subsidiary" exemption. The House Judiciary Committee report stated that Section 611(q) clarified "certain conditions under which legitimate representatives of U.S. concerns which own or control or are owned or controlled by foreign affiliates are nevertheless exempt from registration under the act." H. Rep. No. 89-1470, at 2 (1966).
Specifically, Section 611(q) applied to government outreach and other activities "in furtherance of the bona fide commercial, industrial or financial interests of a domestic person" with "substantial" U.S. economic operations, even if it had a foreign owner or subsidiary that was also engaged in "bona fide trade or commerce." The provision explained that for purposes of the (d)(2) exemption, the U.S. person's activities wouldn't "predominantly" serve a foreign interest simply because the activities also benefitted the foreign affiliate's interests — with three conditions. First, a foreign government or political party couldn't be the foreign affiliate, nor could it substantially "supervise[], direct[], control[], finance[] or subsidize[]" the U.S. activities. Second, the U.S. person had to disclose its foreign affiliate's identity "to the [federal] agency or official ... with whom [the] activities are conducted." Third, if the foreign affiliate owned or controlled the U.S. actor, then the activities had to "substantially" promote that domestic person's own economic interests. In the House Judiciary Committee's view, Section 611(q) wouldn't have exempted the lobbying by the foreign sugar interests who inspired the 1966 amendments, because they "were not engaged in substantial business activities in this country; their operations were almost entirely foreign and their interest in the United States was solely as a market for their products." H. Rep. No. 89-1470, at 11 (1966).
The Present
In 1995, the Lobbying Disclosure Act (LDA) created today's comprehensive disclosure framework for private-sector lobbying of the U.S. government by both domestic and foreign entities. Congress shifted lobbying registration obligations for private foreign commercial entities out of FARA and into the LDA, but left FARA as the registration framework for lobbying on behalf of foreign governments. The LDA also repealed and replaced Section 611(q)'s domestic subsidiary exemption with a new FARA exemption for certain LDA-registered lobbyists, 22 U.S.C. § 613(h). Following some slight technical changes in 1998, FARA's "LDA exemption" now covers lobbyists who have registered under the LDA and undertaken lobbying activities for foreign clients other than governments or political parties.
In 2003, DOJ issued and revised several FARA regulations to supplement these various LDA amendments, including the current (d)(2) regulation, 28 C.F.R. § 5.304(c). DOJ's rulemaking explained its view that the former Section 611(q) was a "safe harbor" for "agents of multinational corporations," and that its repeal by the LDA warranted a regulation that "clarifies the reach" of (d)(2). DOJ chose to incorporate the former Section 611(q)'s wariness of foreign governmental control, but did not adopt its wariness of foreign governmental ownership or its distinction between foreign and domestic commercial interests. As a result, Section 5.304(c) exempts "political activities on behalf of a foreign corporation, even if owned in whole or in part by a foreign government," as long as the activities (1) "are directly in furtherance" of the foreign corporation's own "bona fide commercial, industrial, or financial operations," and (2) aren't "directed by," and don't "directly promote the public or political interests of," a foreign government or political party. DOJ's 2003 rulemaking also created 28 C.F.R. § 5.307, which similarly clarifies that DOJ won't recognize FARA's LDA exemption if a foreign government or political party is the true "principal beneficiary" of LDA-registered lobbying activity.
The (d)(2) and LDA exemptions overlap, but (d)(2) covers a broader range of activities. For example, if a wholly private foreign manufacturer lobbies members of the U.S. Congress about pending trade legislation, the lobbyist likely must register under the LDA. If no foreign government (or political party) directs or benefits from the lobbying, then both FARA's LDA and (d)(2) exemptions should apply. But consider if, instead of lobbying Congress, the same foreign manufacturer launches a nationwide television advertising campaign that encourages its customers to call their congresspersons about the pending trade legislation or lobbies only state legislatures about tax incentives for local factory investments. Based on past FARA enforcement actions and advisory opinions, DOJ may consider both of these efforts to be "political activities" requiring FARA registration absent an exemption. Neither of these activities should trigger the need for LDA registration, because the LDA only applies to certain federal officials and excludes public mass communications from its definition of covered "lobbying contacts." And absent any LDA registration, FARA's LDA exemption would not apply. But FARA's existing (d)(2) regulation, 28 C.F.R. § 5.304(c), might exempt both the publicity campaign and state lobbying, even if the legislative benefits flow exclusively to the hypothetical foreign manufacturer rather than to any U.S. subsidiary.
The Future
According to Acting Chief Gellie's comments last December, DOJ is rebranding (d)(2) as a domestic-interest exemption for political activities that predominantly benefit U.S. interests rather than foreign interests. If DOJ revises its regulations accordingly, this would accomplish what DOJ declined to do in its 2003 rulemaking: incorporate the repealed Section 611(q)'s focus on domestic actors and activities that "substantially" promote their own domestic interests.
When DOJ issues its rulemaking notice, the proposed regulations won't be effective immediately. As DOJ confirmed to the press, the public will have "an opportunity ... to raise concerns and provide comments on the proposed language." If, as Acting Chief Gellie previewed, DOJ proposes to revise the (d)(2) regulation to embrace a domestic-interest test, we'll be reading the rulemaking with several questions in mind:
- What kind of "domestic" nexus is necessary to qualify for the (d)(2) exemption? Must the domestic actor's activities "predominantly," "substantially," or "directly" benefit itself rather than a foreign affiliate? Whatever the wording, as we wrote after the December 2023 FARA conference, it's unclear how such a test "would hold up in complex and nuanced real-world situations where domestic and foreign interests are often similar, intertwined, or even wholly aligned."
- Does DOJ support its "domestic interest" reading by reference to the 1966 FARA amendments and legislative history surrounding (d)(2)'s enactment? While (d)(2)'s drafting history offers insights on how some in Congress understood that particular exemption, the statutory text itself says nothing about "domestic interests." That concept came from the former Section 611(q), which defined only a subset of (d)(2) scenarios and has long since been repealed. It's unclear whether a newly narrowed (d)(2) regulation can appropriately incorporate a "domestic interest" concept from a separate statutory provision that Congress jettisoned three decades ago, and which DOJ characterized in its 2003 rulemaking as "largely unnecessary" once "Congress authorized registration under the LDA rather than FARA for lobbying activities on behalf of foreign principals other than foreign governments and foreign political parties[.]"
- Does DOJ try to narrow its recognition of the LDA exemption? In recent years, Congress and DOJ alike have criticized the LDA's disclosure requirements as providing insufficient transparency about foreign lobbying, compared to FARA's more detailed disclosures. As a result, DOJ has encouraged Congress to repeal FARA's statutory LDA exemption. Although DOJ's rulemaking remains bound by the existing statutory text, DOJ may impose further regulatory requirements on foreign private lobbyists who seek to invoke the LDA exemption.
Even before DOJ has published its rulemaking, a recent March 2024 advisory opinion by the FARA Unit suggests some answers to all three of these questions, and reveals how DOJ's new reading of (d)(2) is already shaping its application of the exemption. The heavily redacted opinion, which attaches related FARA Unit opinions from September and November 2023, indicates that DOJ analyzed the (d)(2) exemption's availability by applying a version of the "domestic interest" test in addition to strictly construing 28 C.F.R. § 5.304(c)'s existing criteria.
The party requesting the opinion was a nonprofit advocacy organization that lobbied the U.S. government, in connection with a grant awarded by an organization that was registered and headquartered in a foreign country. The nonprofit registered under the LDA, but the FARA Unit's initial September 2023 letter concluded that FARA's LDA exemption did not apply, because the lobbying registration "ma[de] no mention" of the foreign grantor. The FARA Unit explained its view that "[w]ithout a valid LDA registration for [the nonprofit's] specific representation of [the foreign grantor], the LDA exemption is unavailable and [the nonprofit] must register under FARA for its work on behalf of [the foreign grantor]."
The FARA Unit's subsequent November 2023 letter — issued just nine days before Acting Chief Gellie's comments at the FARA conference — concluded that the (d)(2) exemption did not apply either. First, the FARA Unit acknowledged that "nonprofits are not precluded from claiming" the (d)(2) exemption, but concluded that the requester's domestic political activities did not serve its foreign grantor's "bona fide commercial, industrial, or financial operations," as 28 C.F.R. § 5.304(c) requires, and instead served the grantor's "political or public interests." Second, the FARA Unit concluded that while the political activities "may also serve [the nonprofit's] own interests, ... they predominantly serve [the foreign grantor's] interests, given that [it] awarded the grant to [the nonprofit] contingent on [the nonprofit] using the grant funds for [the grantor's] purposes and based on [the nonprofit's] representations that it would engage in the specific activities at issue." Notably, DOJ stated that "[t]his is true even if" the lobbying satisfied § 5.304(c)'s other requirements that the political activities not be directed by, and not directly promote the public or political interests of, any foreign government or political party. In support, the FARA Unit also cited an April 1965 Senate Foreign Relations Committee report — but that report concerned an early version of the 1966 FARA amendments that did not yet include the House's addition of Section 611(q)'s domestic-subsidiary exemption.
The FARA Unit's final March 2024 letter reversed course. After the nonprofit provided extensive information about how the foreign grantor did not control its positions or activities, the FARA Unit concluded that the nonprofit's political activities "directly" advanced its own interests and "were not significantly influenced" by the foreign grantor. Accordingly, the FARA Unit agreed not to contest the nonprofit's argument that it was exempt under (d)(2) because it was not "predominantly" serving its foreign grantor's interests.
The reasoning underlying this March 2024 advisory opinion suggests that even if DOJ does not revise FARA's (d)(2) regulation, DOJ may apply its domestic-interest test to activities that do not satisfy a strict application of the existing regulation's criteria. Thus, with or without a new (d)(2) regulation, the FARA Unit may begin to instruct U.S. agents of foreign non-governmental entities to register under FARA for activities that did not previously require it. And even apart from (d)(2), DOJ's upcoming regulatory proposal will likely suggest many other changes to the scope of FARA compliance obligations. Foreign actors doing business in the United States, and domestic actors with foreign ties, should remain alert to these and other FARA developments — and bookmark this blog for our future thoughts on DOJ's rulemaking.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.