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Some Thoughts on Business Entities and the Foreign Emoluments Clause

by Andy Grewal — Thursday, Feb. 2, 2017

Much of the commentary on President Trump and the Foreign Emoluments Clause has assumed that foreign government payments made to the Trump Organization should be treated as payments to the President himself. In this post, I want to informally explain how the presence of the business entities comprising the Trump Organization complicates the analysis. For a formal legal analysis of the relevant authorities and their application to the facts, see Parts III & IV of my article, The Foreign Emoluments Clause and the Chief Executive.

Regarding the relevant authorities, the Comptroller General and the Department of Justice Office of Legal Counsel have each issued opinions relating to business entities under the Foreign Emoluments Clause. As a general matter, they do not automatically ignore the separate existence of entities.

The opinions of the Comptroller General generally look to common law principles in determining whether to ignore the existence of a corporation. For example, suppose someone subject to the Foreign Emoluments Clause (a U.S. Officer) takes up employment with a domestic corporation. That domestic corporation then enters into a consulting contract with a foreign government, and temporarily “lends” the U.S. Officer to that government. In these circumstances, the Comptroller General would test the relationship between the foreign government and the U.S. Officer to see whether a common law employer-employee relationship existed. If so, the acceptance of compensation by the U.S. Officer from the foreign government (funneled through the domestic corporation) would be prohibited, absent Congressional consent.

The OLC has examined business entities under the Foreign Emoluments Clause on only a few occasions. In a 1982 opinion, the OLC applied an approach similar to the Comptroller General’s, in that it closely examined the facts to determine whether a strong relationship existed between a foreign government and the U.S. Officer, despite the corporation formally separating them.

In a 1993 opinion, the OLC applied a different approach for partnerships. For a payment from a foreign government made to partnership, the OLC concluded that a later distribution of that payment to a partner who qualified as a U.S. Officer would be a prohibited emolument, even if the U.S. Officer did not do any work for the foreign government. The OLC relied on the special “flow-through” legal characteristics of partnerships to distinguish its conclusion from the one it applied in the 1982 Opinion, essentially adopting a bright line rule, under which services performed by a partner for a partnership will be deemed to have been performed for the partnership’s foreign government clients, even absent any direct contact between the partner and the foreign government.

Both the Comptroller General and OLC’s approaches would help protect President Trump against Foreign Emoluments Clause challenges. Foreign governments make payments to Trump Organization entities, not President Trump himself, and under the Comptroller General’s approach, the President would be treated as being paid by a foreign government only if he acts as an employee of that government. That seems highly unlikely. For corporations, the OLC approach would compel a similar result. As long as Trump is not personally performing services for a foreign government through a corporation in the Trump Organization, no emolument will arise.

The issues are trickier when dealing with a foreign government payment made to a Trump Organization entity that is a partnership. If that payment is distributed to President Trump, that distribution, under the OLC’s approach, would reflect a prohibited emolument, at least where President Trump personally performed services for the partnership. However, the Foreign Emoluments Clause problem could be avoided by instructing the partnership to not make any distributions. The 1993 OLC Opinion applied the Foreign Emoluments Clause to the actual partnership distribution, not to the increase in the partner’s undistributed share of partnership income. Also, the Bush and Obama Administrations repudiated the 1982 and 1993 OLC opinions for applying the Foreign Emoluments Clause to persons who shouldn’t have been covered by it. The extent to which the OLC will follow the portions of those opinions that have not been formally repudiated, especially those portions containing the questionable partnership analysis, reflects a source of uncertainty.

My article argues that both the Comptroller General’s approach and the OLC’s approach suffer from some conceptual flaws, and I propose a test that is broader in some respects. The Comptroller General and OLC opinions are narrowly focused on circumstances where the U.S. Officer is a mere employee of an entity or a minor equity holder. But I think the analysis should differ for entities over which a U.S. Officer maintains control. For example, I think prohibited emoluments can arise even if President Trump does not take a formal distribution of money, if he has control over if and when the relevant entity makes a distribution.

However, I’m highly skeptical that a court would abandon the Comptroller General or OLC’s tests. If a court actually hears the case against President Trump on the merits (unlikely), I’m willing to bet that it’ll take a cautious approach. That is, to support a holding that the President of the United States has committed an impeachable offense, it will hew closely to existing authorities. Though Comptroller General opinions and OLC are not binding, I just don’t see a court stretching beyond them to show that the President of the United States should be removed from office, or that he must divest all of his business interests.

But a test along the ones that I propose could interest Congress if it wants to collect further information about the Trump Organization. To be sure, in an actual impeachment hearing, I doubt Congress would use a legal theory different from the ones developed by the Comptroller General and OLC. But from the perspective of collecting information or preparing an investigation, Congress can reasonably conduct a broad inquiry.

In any event, the available authorities regarding business entities and the Foreign Emoluments Clause provide yet another hurdle for those arguing the President has violated the Constitution.

Follow me on Twitter: @AndyGrewal

(This post was last updated on 8/5/17.)

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About Andy Grewal

Law Professor, University of Iowa

Cite As: Author Name, Title, Yale J. on Reg.: Notice & Comment (date), URL.

One thought on “Some Thoughts on Business Entities and the Foreign Emoluments Clause

  1. Pat

    Seems like the emolluments clause should work both ways: can’s give or receive anything of value. But it appears that corporations have had a field day of procurement via lobbyists to depart from Constitutional principles formed when there were no corporations in America, and no political parties either, in 1787.
    How can Constitutional values/principles be maintained by/through the impulse to interpret the Constitution, or the electoral system to favor these few rather than all the states for whom it was created with the Bill of Rights as protections for all of the citizens – as a method of fair governance?

    Reply

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