US Hints at Curbing Foreign Agent Registration Exemptions

The Justice Department has indicated it’ll soon propose revising foreign lobbying disclosure obligations in a manner lawyers interpret as a dramatic shift for companies and nonprofits that have long relied on exemptions.

A DOJ official’s remarks at a recent conference prompted attendees to warn clients—particularly US subsidiaries of overseas companies—about an upcoming rule change under the 1938 foreign transparency law. The practitioners view the official’s comments to mean a wide swath of companies may be forced to begin registering as “foreign agents” and file detailed public reports.

The Dec. 1 remarks from Jennifer Gellie, who oversees Foreign Agents Registration Act enforcement at the department, “rocked everyone’s world” at the fifth annual gathering of FARA practitioners, said Kate Belinski, a Ballard Spahr partner who co-chaired the conference.

FARA lawyers are now scrambling to tell clients that their spending on Capitol Hill meetings and other advocacy campaigns benefiting an internationally-based company may no longer be kept under wraps. For instance, Belinski said she’s started making preparations to reestablish a business coalition formed to oppose prior legislation that would’ve removed another filing exemption from the statute.

While Belinski and four other conference attendees said that they’re reserving final judgment until the actual proposed rule is released in the coming months, they flagged the preview as a potentially major concern for companies and said it would lead to a legal challenge if finalized.

A source familiar with the department’s rulemaking process said the lawyers’ reactions have been a bit overblown. Rather than revealing details of an unreleased regulation, Gellie’s intent was to clarify a reading permitted by the original statutory text that’s become conflated over the years by an outdated regulation, said the source, who spoke on condition of anonymity to discuss a draft regulation that’s still under internal review.

More specifically, Gellie highlighted during a question-and-answer session that the department wants to rebrand what’s currently considered the second part of the commercial exemption by instead calling it the domestic interest exemption, attendees said. FARA lawyers interpreted her explanation as a considerable narrowing of what’s been the most relied upon of the law’s multiple carveouts.

Past department guidance exempted activities on behalf of a foreign entity, provided they don’t primarily serve an overseas government or political party. But the new proposal would appear to eliminate the government and party distinction, focusing instead on whether the advocacy predominantly benefits either a domestic or an international interest. If the latter, then the exemption wouldn’t be available.

“Figuring out whether something primarily benefits a domestic interest versus a foreign interest can be a hard line to draw, especially when you’re talking about US subsidiaries of foreign companies,” said Murad Hussain, a white collar partner at Arnold & Porter, who attended Gellie’s panel.

The five attendees shared consistent accounts of Gellie’s comments, which were made at a conference that was closed to the media.

DOJ will be issuing a proposed rule “to update FARA regulations that will provide an opportunity for the public to raise concerns and provide comments on the proposed language,” a department spokesman said in a statement.

The source familiar with the process said the proposal wouldn’t completely alter the calculus for US subsidiaries like FARA practitioners fear. A company lobbying for its own financial purpose in the US would remain exempt from registering even if their actions had incidental benefits to the foreign parent, the source said.

Opinion Reversal

The change could upend longstanding norms in the FARA bar and also reverse the department’s advice to companies as recently as earlier this year, lawyers said.

“It did appear to be a narrowing of the exemption that is not consistent with how practitioners have been viewing it, and not necessarily reflected in Department of Justice actions and communication over the years and decades,” said Brandon Van Grack, who was chief of DOJ’s FARA Unit until early 2021 and now co-chairs Morrison Foerster’s national security practice.

In June 2023, Gellie signed an advisory opinion that confirmed the exemption of an association of foreign-based companies planning to lobby federal, state, and local lawmakers and a federal agency—all with the intent of advancing their financial and commercial interests. But the opinion cited a section of the FARA regulations that emphasized the connection to a foreign government or political party—which didn’t exist for this trade association. It was the same regulatory language that’s on track for a revision in the proposal Gellie discussed.

The department’s fall regulatory agenda issued last week forecasts the proposal modernizing FARA rules—which has long been anticipated amid more than a year of delays—will now be slated for publication in April 2024.

The department hinted clarifications and changes to the exemptions might be coming when it first solicited public input on plans to issue the rule in 2021, but without signaling sweeping changes to the commercial exemption.

A desire to go bold is understandable when DOJ rarely gets to revise the FARA regulations, said Joshua Rosenstein, a veteran FARA lawyer at Sandler Reiff. “But the more those changes diverge from established practice, rather than clarifying specific nuanced questions, the higher the risk of significant opposition to those changes.”

‘Major Change’

Adam Hickey, who played a senior role in crafting FARA policy as a National Security Division deputy assistant attorney general until early this year, said what Gellie discussed “would be a major change.”

Ever since the 1995 passage of the Lobbying Disclosure Act permitted foreign companies to avoid FARA filings by instead disclosing much less specific filings with Congress, “we have been less concerned with political activities to promote commercial interests unless they are a Trojan horse for advancing a foreign government’s interests,” said Hickey, now a partner with Mayer Brown.

Gellie and other DOJ speakers also reiterated at the conference the department’s continuing priority of working with Congress to repeal the LDA exemption. If that were to succeed, it would only amplify the impact of narrowing the commercial exemption, attorneys said.

Such substantial changes may further increase interest in FARA and the annual single-day conference, which started in the aftermath of DOJ’s heightened emphasis on FARA enforcement in 2016.

“We were laughing at the end of the conference that we thought there were a lot of people at this year’s conference; just wait until next year,” Belinski said. “There’ll be thousands of FARA practitioners.”