The Federal Election Commission has ruled foreign donors can finance U.S. referendum campaigns, opening the door to foreign spending on fights over high-profile policy issues, Axios has learned.

Why it matters: Foreign nationals are barred from donating to U.S. political candidates or committees. But the FEC's decision — allowing them to support ballot committees — provides another avenue for foreigners to directly influence U.S. voters and domestic policy.

  • A major question stemming from the decision is whether foreign nationals are now permitted to spend money to influence the actual mechanisms of the U.S. democratic process.
  • That would include congressional redistricting, which is frequently subject to ballot referenda.
  • The FEC's ruling did not address that question, meaning it will likely be litigated in future fights at the commission.

The decision only concerns federal law; states remain free to outlaw foreign funding for state-registered ballot committees.

  • Seven states already do so.
  • In Maine, where a Canadian-owned power company is financing a ballot committee pushing for new energy transmission lines, Gov. Janet Mills, a Democrat, recently vetoed legislation to ban foreign ballot measure funding.

Driving the news: In a 4-2 vote in July, the FEC ruled ballot initiatives are not "elections" under existing federal law, and therefore the foreign donation prohibition doesn't apply.

  • Two sources familiar with the decision told Axios that FEC chair Shana Broussard, a Democrat, voted with the panel's three Republicans to dismiss the underlying complaint. It alleged illicit foreign funding for a ballot committee in Montana.

The big picture: There are already 61 referenda on state ballots in 2022, according to electoral research service Ballotpedia. The decision has the potential to affect not just policy initiatives, but the mechanics of U.S. democracy itself.

  • Issues such as congressional redistricting are frequently settled via state referenda. The FEC's decision could put wealthy foreigners in a position to influence that process.
  • The opposing view is the federal ban on foreign donations "in connection with" an election bars funding for such measures — regardless of whether they're litigated via ballot question.
  • That issue wasn't addressed in the FEC's decision this week.

The backstory: The decision stemmed from a 2018 complaint alleging a Canadian subsidiary of Australian firm Sandfire Resources illegally financed a measure to block new restrictions on hard rock mining in Montana.

  • David Brooks, the executive director of Montana Trout Unlimited and one of the complainants in the case, called the FEC ruling "surprising and scary" in an emailed statement to Axios.
  • "Are we, as U.S. citizens, really OK with letting foreign money go directly to state lawmaking via citizen initiative campaigns?"

Sandfire did not respond to a request for comment. The Montana Mining Association, which spearheaded opposition to the 2018 ballot measure, also did not respond to inquiries.

What they're saying: "This FEC decision reflects a big loophole in the federal ban on foreign money in U.S. elections," said Brendan Fischer, the director of federal and FEC reforms at the Campaign Legal Center.

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