FARA Unit Takes Aim at Foreign Litigation Funding and Commercial Exemption

On November 18, 2024, the U.S. Department of Justice (DOJ) Foreign Agents Registration Act (FARA) Unit published an advisory opinion that appears to severely narrow the statute’s most important exemptions. In the opinion, the Unit concluded that a law firm that received funding from a foreign non-governmental organization (NGO) to pursue impact litigation in U.S. courts was required to register under FARA and was ineligible for both the legal and commercial exemptions. This development delivers on an enforcement promise made by DOJ leadership last year and foreshadows forthcoming changes to FARA’s regulations.

Foreign Litigation Funding, an Enforcement Priority

In December 2023, FARA Unit Chief Turgeon identified foreign litigation funding as an enforcement priority, expressing concern that such arrangements could be weaponized in U.S. courts to tie up U.S. businesses, deplete their resources (providing foreign competitors with an advantage), and sow division among the U.S. public by inflaming social tensions. Chief Turgeon advised that foreign litigation funding arrangements may not be covered by FARA’s exemptions, including the legal and commercial exemptions.

The Opinion

Less than a year later, the Unit has taken its first shot across the bow of foreign litigation funders. In a June 24, 2024 opinion and follow-up letter dated September 30, 2024, the Unit advised a U.S. law firm that it was required to register under FARA to pursue impact litigation on behalf of third-party plaintiffs funded by a foreign NGO.

The Unit found that the law firm would be acting as an agent of a foreign principal by accepting funding from the foreign NGO and, in exchange, agreeing to engage in at least two types of registrable conduct. First, the law firm would be collecting, disbursing, and dispensing money for or in the interests of the foreign organization.[1] Second, the law firm would be engaged in “political activities” because it would seek to solicit potential plaintiffs to pursue claims and the litigation would serve as a vehicle to advance the foreign organization’s interests and “highlight . . . policy implications, spur legislative and rulemaking actions desired by [the foreign organization], and conform industry practices to [the foreign organization’s] preferences.”[2]

Turning to potential exemptions, the Unit found that the law firm was not eligible for the legal exemption, which covers “legal representation of a disclosed foreign principal before any court of law or any agency.”[3] The Unit said this exemption was not available because (i) the foreign funder would not be a party to the contemplated litigation or otherwise disclosed to the court, and (ii) the litigation would “not be seeking to redress a cognizable legal harm that [the foreign organization] suffered.” Rather, the law firm would be engaged in “political activities”—as the litigation was explicitly intended to shape U.S. public policy—that exceed the scope of the exemption.

The Unit also found the law firm ineligible for the commercial exemption. The commercial exemption actually contains two distinct exemptions. The first covers persons engaged “in private and nonpolitical activities” acting “in furtherance of the bona fide trade or commerce” of a foreign principal.[4] In a footnote, the Unit said the law firm did not qualify for this exemption because it was engaging in “political activities.” The second “commercial” exemption covers “other activities,” including political activities, “not serving predominantly a foreign interest.”[5] The Unit concluded that this exemption was not available because the activities would predominantly serve the foreign NGO’s interests.

A review of public FARA registrations reveals that the law firm that requested the opinion and ultimately registered, received funding from a private Australian NGO to pursue environmental-related litigation.

Analysis

The opinion clarified FARA’s applicability to certain foreign litigation funders and represents a notable shift away from prior understandings of FARA’s scope and exemptions.

The opinion clarified that if foreign litigation funders are not party to a litigation, their counsel does not qualify for the legal exemption. The Unit’s analysis then continued that the exemption may not to apply to litigation that is intended to affect U.S. public policy directly or indirectly, even when that aim is pursued through formal court proceedings. This would potentially create a registration obligation for any impact litigation or perhaps even any litigation that invokes policy arguments that is funded by a foreign entity, even when the foreign entity is a party to the litigation. This stance would all but swallow the exemption. Perhaps acknowledging the significant implications of such a broad restriction, the Unit declined to opine on whether the potential plaintiffs would be covered by the exemption.

Even more notably, the Unit adopted an interpretation of the commercial exemption that would drastically narrow it. The Unit’s analysis considered only the exemption’s statutory language, completely disregarding the corresponding implementing regulations. FARA’s regulations, specifically 28 C.F.R. § 5.304(c), state that the exemption is available for activities directly in furtherance of the commercial interests or other organizational objectives of a foreign principal,[6] so long as the activities are not directed by a foreign government/political party and do not directly promote the interests of a foreign government/political party. In other words, the exemption should be available unless the activities at issue directly serve a foreign government or foreign political party’s interest. But the Unit did not reference or analyze 28 C.F.R. § 5.304(c) in the opinion, even as the Unit acknowledged that the foreign organization was unconnected to any foreign government or foreign political party. If the Unit holds to this interpretation going forward, this framework would radically reshape the scope of the exemption.

Foreshadowing Regulatory Changes

The opinion’s interpretation of the commercial exemption is consistent with expected forthcoming changes to FARA’s regulations. In December 2023, Chief Turgeon and other FARA officials previewed that the exemption will be rebranded the “domestic interest exemption” and narrowed to only apply to activities that promote the interests of a U.S. entity, not of any foreign entity, whether a foreign government, political party, corporation, or nonprofit. These regulatory changes were approved by the Office of Information and Regulatory Affairs in July 2024 but they have yet to be published. In advance of their release, the Unit appears to be signaling that a key exemption many entities currently rely on will be significantly narrowed.

Senior FARA officials are expected to provide further insights at the American Conference Institute’s 6th National Forum on FARA on December 6, 2024.

[1] See 22 U.S.C. § 611(c)(1)(iii).

[2] See 22 U.S.C. § 611(c)(1)(i), (o).

[3] 22 U.S.C. § 613(g) (emphasis added).

[4] 22 U.S.C. § 613(d)(1).

[5] 22 U.S.C. § 613(d)(2).

[6] Including, for example, advocacy activities by nonprofits. See, e.g., Adv. Op. (Mar. 14, 2024) (noting “nonprofits are not precluded from claiming the exemption under Section 613(d)(2)”); Adv. Op. (July 6, 2023).