U.S. individuals and businesses (“Agents”) that act on behalf of foreign persons (“Foreign Principals”) need to be mindful of registration and reporting requirements under the federal Foreign Agents Reporting Act (FARA), which are reported to the Department of Justice and Congress. Over 14,000 registrations, many of which are no longer active, are publicly available on-line and date back to the 1940’s. Bill can be reached via email or at 713.622.1120.

The law was originally intended to make the public aware of Nazi activities and its propaganda efforts in the United States.  Today, it provides an interesting electronic road-map of U.S. cross-border history, recording the work done by U.S. agents on behalf of foreign governments (e.g., Soviet Union, Libya, Iraq), political causes (Castro in the 1950’s), political parties of all types, and foreign industries and commercial organizations.  The law remains an important federal enforcement tool – a way to prosecute non-filers that are working against the interests of the United States, an important tool when prosecutions for spying or terrorist-related activities are difficult or impossible.

Many Agents do not want to release information to the government about their activities with Foreign Principals.  But penalties for non-compliance can be severe; individuals, for example, can face a fine up to $10,000 or imprisonment for not more than five years.  (An alien convicted of a violation of, or a conspiracy to violate, any provisions of FARA could be deported.)

Recently, a defendant was convicted of FARA violations, and, when combined with the related conspiracy charges, faced up to 15 years in jail.  (The Agent in the case dubbed "Suitcasegate", involved a Venezuelan government plan to fund a candidate in the 2007 Argentinean presidential election.)

According to Bill Leary, MFR Director, “FARA issues and questions need to be referred to legal counsel, but management, auditors and advisors should be aware of the basic issues under the law to be alert to areas of exposure.  Individuals with foreign clients need to consider when FARA reporting may be needed to initiate registration in the compressed time-frame mandated by the law and reporting.  Having had many foreign clients while working in Washington, D.C., I had to be aware of when our representation was approaching FARA disclosure.”

Agents

An “Agent” of a foreign principal is required to register as a foreign “propagandist” under FARA if certain activities are conducted within the United States.  FARA has a very expansive scope.  Often, persons incorrectly assume that only lobbying activities are covered by it, when in fact most traditional lobbying is covered by other legislation.  It applies if a U.S. or foreign individual or legal person:

(i)             Engages in “political activities” (discussed below) for or in the interest of a Foreign Principal;

(ii)            Acts as a public relations counsel, publicity agent, information-service employee or political consultant for a Foreign Principal;

(iii)           Solicits, collects, disburses, or dispenses contributions, loans, money, or other things of value for a Foreign Principal; or

(iv)          Represents the interests of a Foreign Principal before any agency or official of the Government of the United States.

Public relations firms, media consultants, and market researchers, as well as those involved in political consulting, fall under the statute if activities are conducted on behalf of a Foreign Principal.”  As a result, all such businesses need to consider whether FARA might apply to their client projects.  An exception applies to certain U.S. news services and certain publications, provided, among other things, that none of its policies of the publication are determined by any Foreign Principal.  (During the Cold War, Agents of Soviet newspapers and publications  registered only to find themselves appearing before McCarthy’s House Committee on Un-American Activities.) 

Powers of attorney and fiduciary arrangements can fall under this broad definition, but a formal legal relationship is not required. 

Foreign Principals

Another key definition is that of “Foreign Principal.” It includes foreign federal, state or local governments (those claiming legitimate governing status and governments in abstentia) and foreign political parties, as well as opposition and rebel factions (e.g., the Northern Ireland’s IRA and Castro as he challenged the government of Cuba in the 50’s).  It also includes individuals outside of the United States, unless it is established that such person is a U.S. citizen, domiciled within the United States.  It excludes legal persons if they are both (i) organized or created under U.S. laws and (ii) their principal place of business is within the United States. 

This provision can be surprisingly inclusive when applied to global businesses, expatriated companies, non-domiciled green card holders and those with “management and control” outside the United States.  The regulations also include within their scope a domestic person any of whose activities are directed or indirectly supervised, directed, controlled, financed, or subsidized in whole or in major part by a Foreign Principal.

Looking at the reporting Foreign Principals in 2008, there were 151 foreign jurisdictions referenced and approximately 285 categories that Foreign Principals were grouped.   In rough terms these broke down into the following broad categories:

Governments, Ministries, Agencies, Embassies and/or Consulates

38%

Tourism-Related Organizations (National or Local), not Included Elsewhere

14%

Development-Related Organizations, not Included Elsewhere

11%

Political Groups or Political Persons

11%

Other Businesses

9%

Associations and Policy Groups

8%

Other Local Principals

5%

Other (e.g., Charitable Nature, Other Individuals, Media)

4%

A total of 393 active Agents registered at the end of 2008, represented 547 foreign principals.  Total registrations under FARA at the end of 2008 totaled 1,868.  It is a surprisingly small number.

Exceptions

U.S. diplomatic personnel and diplomatic personnel of recognized governments are covered by exceptions, as are activities in furtherance of bona fide religious, academic, fine-arts, and scientific pursuits.  Exceptions also apply to fund raising for medical, food and clothing assistance.  After its enactment, those registered under the federal Lobbying Disclosure Act of 1995 (“LDA”) qualify for an exception.  (This change is the single most important reason many filers now escape FARA filing, but it is an exception that must be carefully reviewed because it may not be as broad as one initially assumes.) 

Two exceptions that merit special attention deal with ordinary business activity and legal representation.  Persons engaged in the private and non-political activities in furtherance of a bona fide trade for a foreign principal can qualify for an exception, and so do activities not predominantly serving a foreign interest.  (But, for example, fostering trade relations or foreign development activities might not be exempt.)  

Lawyers representing a Foreign Principal before any court of law or any agency of the federal government do not need to be disclosed provided the representation does not include any attempts to influence or persuade others in government.  (For example, meeting with a member of Congress about the implications of an adverse judicial decision would mean FARA compliance is required.)  Actions by an accounting firm, for example, do not qualify for this exemption, even if the firm is authorized to practice before an agency or to represent a client in Tax Court.

Political Activities

FARA defines political activities as “any activity that the person engaging in believes will, or that the person intends to, in any way influence any agency or official of the Government of the United States or any section of the public within the United States with reference to formulating, adopting, or changing the domestic or foreign policies of the United States or with reference to the political or public interests, policies, or relations of a government of a foreign country or a foreign political party.”  The regulations exclude routine inquiries concerning current policy or efforts seeking administrative action.

Thus, it seems that seeking rulings and representing a Foreign Principal in connection with an IRS examination falls outside of FARA, as do routine governmental inquiries.   Working with Treasury and IRS personnel as they attempt to draft interpretive or legislative regulations is another matter.

FARA registration is perhaps one of the most over-looked filings.  Yet it’s criminal penalties and broad scope means individuals and businesses should consider it as they act to represent foreign interests. 

According to Bill Leary, “Although FARA is an arcane disclosure requirement; yet you’d be surprised at the number of individuals suspected of espionage that are prosecuted under FARA (with very few things that the government needs to prove to sustain a conviction), rather than other more burdensome federal criminal laws.  Also, over the years, you would be surprised at the number of agents that were ridiculed or “exposed” because of the clients that they represented. FARA disclosures are readily available and can surface in public media at the most inopportune times.”