In April 2018, a steel pipe manufacturer called Wheatland Tube gave $1 million to the super-PAC supporting Donald Trump’s reelection and the campaigns of Trump-allied Republicans. Around the same time, the CEO of its parent company, Barry Zekelman, dined with Trump and his son Donald Trump Jr. in a private dining room at the Trump International Hotel in downtown Washington. The meeting went well for Zekelman, who runs Zekelman Industries, one of North America’s largest steel companies. On May 31, 2018, Trump announced a cap on steel imports from South Korea, which compete with Zekelman’s steel, followed by a 50 percent tariff on steel from Turkey, another competitor. Less than a week later, Wheatland Tube gave another $250,000 to the pro-Trump super-PAC, America First Action Inc., run by former aides to the president, then another $500,000 in October.
This classic case of influence-peddling comes with a twist. Zekelman is Canadian, as is Zekelman Industries. Federal law prohibits foreigners from spending money to influence US elections. But in Zekelman’s case, the donations didn’t run afoul of federal regulators—or at least they wouldn’t have if Zekelman hadn’t blabbed to the press.
The episode is a stark example of how foreign money can penetrate and influence US elections in ways that are entirely legal, and ripe for abuse. More than a billion untraceable dollars have been spent in US elections since 2006, and it’s unknowable how much of that came from foreign sources, legally or illegally.
“We’re very vulnerable because our campaign finance system is so opaque, and because there’s all these loopholes and back doors,” says Michael Carpenter, a former adviser to Vice President Joe Biden on foreign policy and to the National Security Council on Russia. “Any creative, resourceful foreign power could easily set up all kinds of shells and fronts to channel money into, at a minimum, super-PACs, if not into campaigns themselves.”
There’s a widespread perception that federal laws ban foreign spending in political races, and that’s true, but only to an extent. In addition to the unknown quantities of illegal money pouring into US elections through shell companies and other illicit pathways, gaping loopholes in these laws could allow substantial foreign spending on the 2020 presidential election, fully within the boundaries of the law.
The judicial branch has increasingly pried the door open to more foreign spending—and allowed it to stay secret. In 2011, Brett Kavanaugh, then a judge on the DC Circuit Court of Appeals and now a Trump appointee on the Supreme Court, wrote an opinion that invalidated a portion of a federal law that prohibited some political spending by noncitizens. The opinion was affirmed by the Supreme Court, raising the prospect that the Supreme Court will continue to back the rights of foreigners to spend in US elections.
Here are several ways that foreign individuals, companies, and states could influence the 2020 election legally:
Foreign contributions through US subsidiaries:
Zekelman was taking advantage of a loophole in the ban on foreign giving. While a foreign corporation or person is prohibited from spending money to influence an election, a foreign-owned company that is incorporated in the United States can make such a donation. That’s why the money came from Wheatland Tube, a Chicago company wholly owned by Zekelman Industries. As long as the foreign owners are not involved in the decision to donate, the political spending is legal.
Zekelman would have gotten away with his contribution if he had not admitted to the New York Times that he was aware of the contribution and encouraged it. That revelation prompted a watchdog group to file a complaint against him last month with the Federal Election Commission. Zekelman contends that the donation was legal because he didn’t make the final decision to donate. But it’s a legal detail that hardly matters in practice. A company knows when its owners or board members want to influence a politician, party, or election; they don’t need a green light from a boss to do it—especially in a case like this one, where the Trump-allied super-PAC reached out to the company to ask for a donation. Once Zekelman met with Trump, it didn’t take an express order from him for Wheatland’s president (who is also the general counsel for Zekelman Industries) to know that the money had served a purpose and that he should give again.
“That is a pretty big loophole,” says Brendan Fischer, a campaign finance expert at the Campaign Legal Center who filed the complaint against Zekelman. “On the one hand, if the foreign owner does participate in the decision, you’re almost never going to know about it…And even if they are careful and don’t explicitly tell their employees or board members who to contribute to, almost everyone is going to know what their boss wants, and they’re going to be able to fulfill the foreign owner’s political desires without being explicitly told what to do.”
This loophole came about inadvertently in 2010, when the Supreme Court’s Citizens United ruling allowed corporations to spend money to support political candidates. That prompted the FEC to write the current rule. The FEC could change its rules to limit the potential for foreign companies or owners to influence US elections through American subsidiaries. But the commission is deadlocked between its three Democratic and three Republican members, and it’s taken no action in recent years. Rep. Jamie Raskin (D-Md.) introduced a bill in March to close the loophole by prohibiting political contributions by corporations that are controlled by foreign nationals. The bill has yet to get a hearing.
“When a US-based company is owned by foreigners, the US managers are obliged to spend company resources in a way that best serves the interests of the foreign owners, not the American people,” FEC chair Ellen Weintraub, a Democrat, said in testimony last month before a House panel, noting that her proposals to address the issue have been blocked by the commission’s Republican members. “Until we address, by statute or regulation, the various ways that foreigners may route money through corporate entities, our political system remains at risk of being influenced by foreign corporate or governmental interests.”
Online ads that promote or smear candidates:
Funneling money through US-based corporations isn’t the only way to legally flood elections with foreign money. The rules are even less strict when it comes to political advertising. Foreigners can legally place political ads that attack or promote candidates on Facebook, Google, or YouTube without any need to funnel funds through a US entity. In 2016, Russia paid for Facebook ads in rubles, prompting criticism of Facebook for not catching the Kremlin. But many of those ads were entirely legal: Paying for them with Russian currency was sloppy, but it wasn’t prohibited.
The problem is a massive loophole in an outdated campaign finance law. The 2002 McCain-Feingold Act banned “electioneering communication” by foreign people and entities on TV and radio, but internet advertising was in its infancy at the time and was left out of the bill. The result is that a foreign government can run digital ads about American candidates as long as they do not explicitly instruct viewers to vote for or against that person. “I think it’s fair to say that foreign nationals are legally allowed to run a range of political ads that are obviously designed to influence elections without running afoul of the law,” says Fischer.
In April, four Democrats and one Republican in Congress introduced a bill, the PAID AD Act, to apply the same prohibitions on broadcast ads to digital ones. That would mean foreign countries, entities, and individuals could not purchase online ads that promote or attack a candidate. Sen. Amy Klobuchar (D-Minn.) will introduce companion legislation in the Senate soon.
Online issue-based ads:
The PAID AD Act also addresses a separate loophole: There is no prohibition on foreign nationals running ads about hot-button political topics that are clearly meant to influence an election, as long as they don’t mention a candidate. For example, the Russian government could legally fund ads about immigration or Black Lives Matter in order to help Trump or inject discord into elections.
In 2016, “Russia was running ads that did not mention candidates that were designed to suppress voting, to increase division and hatred, to focus on issues that clearly were intended to influence the election,” says Fred Wertheimer, a campaign finance expert whose nonprofit, Democracy 21, helped craft the PAID Ad Act. “And the overall goal was quite clear: It was to help candidate Trump and harm candidate Clinton.”
Propping up US extremists to influence elections:
The intelligence community believes Russia will seek to steer the 2020 elections. Carpenter, the former Biden adviser who now studies Kremlin interference tactics at the University of Pennsylvania’s Penn Biden Center for Diplomacy and Global Engagement, says at least one powerful weapon for a foreign power to spread chaos will be entirely legal. In 2016, the Russian government used the Internet Research Agency, through fake social media accounts, to exacerbate political divisions, an illegal move that led to indictments against 13 Russians and three Russian entities from special counsel Robert Mueller. This time around, Carpenter believes Russia is likely to spend money directly supporting US voices that sow discord. There’s no law against foreign giving to extremist US groups, which can then use those funds to spread their own divisive messages.
“My guess is that rather than using the Internet Research Agency as the fulcrum for trying to pry Americans apart and create discord in our society, the Russians are going to try and fund or support local efforts here in the US to do the same thing,” says Carpenter. “And that, as opposed to super-PACs, is going to be even harder to trace because there’s no reporting requirement. It’s not even illegal. They can send money to whatever alt-right media source or social media source they want to.”
Carpenter poses a hypothetical: “Some Russian American who has ties to people back in Russia establishes a shell company here. That shell company establishes another one—there’s a couple of layers. They establish a nonprofit organization, a 501(c)(4) that’s called Patriotic Americans—I’m just making this up. And this organization is in turn dedicated to funding [conspiracy theorist] Alex Jones’ Infowars…So Russian oligarch X or Y or Z or all three of them donate money through these various shells that wind up in the hands of this nonprofit. None of this is illegal. It’s also untraceable. But it ends up polluting our media ecosystem from within.”
It would be hard to make such foreign spending illegal, but it could be made more traceable. The Stop Secret Foreign Interference in Elections Act, introduced by three Democratic senators in May 2018, would, among other transparency measures, require political nonprofits to disclose any foreign donors. The Senate has yet to hold a hearing on the measure.
Even if the loopholes allowing foreign spending in US elections were closed, there’s no reason to think a nefarious actor like the Kremlin would cease engaging in it. Still, it would allow prosecutors to pursue not just foreign agents, but also anyone in the United States who helps them.
“We have laws that say that foreign governments cannot interfere or spend money in connection with our elections,” says Wertheimer. “We need to make sure that they don’t have loopholes and cover everything that should be covered.”
Foreign media ads:
Federal campaign finance restrictions on political advertising exempt media outlets acting in their legitimate press function. This exemption is aimed at maintaining the freedom of the press, but in the era of false news and propaganda, it also creates a vulnerability.
The exemption could allow foreign influence to enter the political bloodstream through media outlets masquerading as news and promoting fake, misleading, or divisive articles through social media. In 2016, fake news mills in Macedonia flooded Facebook with fabricated news stories that quickly went viral on the platform. If Russia, or any other foreign nation or person, were to fund a news outlet, it would be hard to distinguish propaganda to influence the election from legitimate news. The outlet could run ads that promote its coverage, which in practice could mean promoting posts supporting or attacking a candidate.
“Everybody is skeptical of the government defining who is and who is not a media entity and who is and who is not acting within the scope of the legitimate press function,” says Fischer. “I think any entity that claims to be a media company is given pretty broad leeway to operate, even if their activities or expenditures could have the effect of influencing an election.”
Fischer adds, “If it’s kids in Macedonia who are loosely doing reporting and reporting on information that they believe to be at least somewhat true, and there’s at least an argument that they are acting as a media entity and promoting some sort of press function, then it’s probably going to be a hands-off operation even if they do get funding from the Russian government.”