FARA Reform Doesn’t Go Far Enough

Nobody really knows what consultants do. Sen. Richard Blumenthal, in his capacity as chairman of the Senate Permanent Subcommittee on Investigations (PSI), asked a group of four consulting executives about their work last Tuesday. Their response did little to dispel the mystery: emails with redacted copy, calendar invites with redacted participant names, and the rest. 

They did not fall silent because of some pact of trade secrecy; a Saudi court had asked them to. With a threat of up to 20 years in prison, the country’s sovereign wealth fund, called the Public Investment Fund (PIF), sued four of its advisors—Boston Consulting Group (BCG), McKinsey & Company, M. Klein & Company, and Teneo—in an effort to block the PSI’s access to advisory documents. 

The consultants earned the interest of the committee after the June announcement that the PIF-backed LIV Golf would merge with the PGA Tour. The PIF’s attorney, Rachel Prober of the American firm Akin, said in a letter to the PSI that the “target, scope, and extraterritorial nature of the subpoenas are unprecedented.” Now, the four companies’ refusal to comply with the committee’s subpoenas has instigated a concrete power struggle between the PSI and the defiant consultants and a more abstract one between the U.S. and Saudi Arabia. 

“BCG is caught between two sovereigns,” the firm’s Global Chair Rich Lesser said during last week’s hearing. Michael Klein had the same to say about his firm: “The reality of being caught between two legal orders from two sovereign nations is a challenging position and not one that I have previously faced as an investment banker.”

The apparent challenge for Lesser, Klein, and their peers is sustained, of course, by their retention of the PIF as a client. The only committee member willing to bring up this rather obvious fact was Sen. Laphonza Butler of California, a Democrat whose appointment we addressed last year. After each executive affirmed that the PIF remains a client of their respective organizations, Butler asked a simple question: “Do you normally retain clients who sue you?”

BCG’s head called it “unprecedented;” McKinsey’s said it’s “not common practice;” Klein’s called it “aberrant;” Teneo’s called it “unusual.”

These admissions, coupled with the cooperation that the firms promised the committee in theory and their remarkable lack of cooperation in practice, did not relieve Blumenthal’s concerns; after the consultants’ opening statements, he said, “You say that you’re between a rock and a hard place, but you’ve chosen sides. You’ve chosen the Saudi side, not the American side.”

It’s easy to get behind Blumenthal’s frustration: The companies he’s targeting are actively prioritizing the laws of a foreign country over those of their own. But these consulting firms, like the U.S.-based law firm representing the Saudis’ sovereign wealth fund against peer U.S.-based consultancies, are “American companies” as much as any other multinational corporation is. These entities do business overseas, form relationships of mutual benefit with foreign corporations, or, in this case, with a subsidiary organization of a foreign government; they even retain hostile clients in the face of potential criminal indictments. In choosing the Saudi side, the consultants are just responding to the current state of play and the limited loyalty engendered by agreeable American participation with the global market. This situation is a consequence of circumstances the U.S. actively cultivates.

It remains to be seen how far Blumenthal wants to dig his heels in. His complaints with the four witnesses may make their competitors think twice about signing long-term contracts with the PIF, but the hearings and attention devoted to this dispute will be really worthwhile if the senator is hoping to leverage a strengthening of the Foreign Agents Registration Act (FARA). The current form of the 1938 law requires the DOJ to keep a fresh pen next to a registration sheet for those disseminating foreign propaganda on American soil. The law does not prohibit activities, but merely requires self-reporting of foreign activity at home. 

Sen. Chuck Grassley of Iowa introduced a bipartisan bill last April that would give the attorney general “greater authority to promote enforcement of disclosure requirements for agents of foreign principals” with increased criminal penalties and the addition of civil penalties for failing to comply with FARA. While this initiative moves things in the right direction, it does not address the disconnect between the nation, her laws, and the companies that function according to them. Under the current paradigm, the four consultants had every reason to sign contracts with the Saudi government, and right now the increased risk of noncompliance in the Kingdom outweighs the risk of noncompliance in the States.

In this case, the PIF claims it is binding the consultants from sharing advisory documents with the PSI because of national security concerns. Grassley’s proposal and another from Sen. Lindsey Graham of South Carolina address blind spots for enforcement; yet they do not consider whether foreign lobbying that neuters congressional regulatory oversight by otherwise domestic companies is in our national interest. 

Sterner measures are needed. If Sen. Blumenthal wishes to save his committee from future embarrassment and arm it with sharper teeth than that of a foreign sovereign wealth fund, he should push for something tougher: prohibiting these companies’ objectionable behavior by delegating judicial review of such foreign-entanglement cases to a federal agency like the International Trade Commission. 

Michael Klein claimed in his testimony that his firm is “proud to work with our clients to create economic opportunity here in the United States.” But at what cost?

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