oversight

Foreign Agent Registration: Justice Needs to Improve Program Administration

Published by the Government Accountability Office on 1990-07-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                                                                                                 i
                                          I:n f-..---
                                          __-.. ted Star t’s
                                                          . General      Accounting     Office

                                           Rqxxt, 1o the Chairman, Subcommittee
GAO --                                     on Oversight of Government
                                           Management, Committee on
                                           Gwernmental Affairs, U.S. Senate
-_.                 -. ._-__-,_-.. ._- ..,-...“. -. ..- __--   .------         -_.-..
*July 1990
                                           FOREIGN AGENT
                                           REGISTWTION
                                           Justice Needs to
                                           Improve Program
                                           Administration




                          RESTRICTED--Not       to be released outside the
                          General Accounting office unless 8pecifhUy
                          approved by the Office of Congremional
                          Relations.


GAO,/NSIAD-90-250
-~                 united states
GAO                General Accounting Office
                   Washington,D.C.20648

                   National Security and
                   Intemation8l Affairs Division

                   B-240379

                   July 30,199O
                   The Honorable Carl Levin
                   Chairman, Subcommitteeon Oversight
                     of Government Management
                   Committee on Governmental Affairs
                   United States Senate
                   Dear Mr. Chairman:
                   ln responseto your request, we have updated our 1980 report’ on the
                   Department of Justice’s administration of foreign agent2registration.
                   Cur objectives were to determine whether (1) the recommendations
                   made in our 1980 report have been implemented and (2) foreign agents
                   are complying with the law by registering with the Department of Jus-
                   tice, by fully disclosing their activities, and by fii required reports on
                   time. We also reviewed the adequacyof the Justice Department’s disclo-
                   sure criteria and guidance.
                   In our 1980 report, we recommendedthat the Attorney General seek leg-
                   islative authority to (1) require written notification to the Justice
                   Department of all exemption claims prior to any agent activity and (2)
                   give .the
                           . Justicesubpoena
                                     Department additional enforcement measures(such as
                   admuustrative              powers, a scheduleof civil fines for minor vi+
                   lations, and increasesin existing fines).

                   The Department of Justice has not implemented the recommendations
l3esultsin Brief   we made in our 1980 report. As a result, the Department has no mfor-
                   mation on exemptions and still has limited enforcement authority.
                   The admmistration of foreign agent registration has remained a
                   problem. The Justice Department currently maintains files on approxi-
                   mately 776 foreign agents.Cur review of Justice’s files on a random
                   sample of 46 of these agentsindicated that one-half of them had not
                   fully disclosedtheir activities; over one-half registered initial forms late;
                   and over one-half filed their required semiannual reports late.
                   We also found that the Justice Department’s disclosure criteria is
                   unclear. Both foreign agents and the Justice Department officials who
                   review the agents’ registration forms lack specific written guidanceon
                   what should be reported. The questions on the semiannual supplemental
                   statements are general and do not specifically require the information
                   necessaryto satisfy the act’s disclosure requirements.

                   The Foreign Agents Registration Act of 1938 was enactedto identify
      Background   agentsengagedin political activities, including the spreading of foreign
                   propaganda on behalf of foreign principals,3 and to require them to pub-
                   licly report their activities and finances. Amendments to the act, passed
                   in 1966, were designedto place emphasison protecting the integrity of
                   the U.S. government’s decision-making processand to disclosethe activi-
                   ties of foreign agents,including their contacts with executive branch
                   officials.
                   The 1938 act, as amended,requires foreign agentsto disclosetheir con-
                   nections with foreign governments,foreign political parties, and other
                   foreign principals, as well as the activities they perform on behalf of
                   such principals in the United States.Justice’s regulations implementing
                   the act are found at 28 Codeof Federal Regulations, Part 6.

                   The regulations require that foreign agentsfile an initial statement with
                   detailed information and exhibits and file a supplemental statement
                   every 6 months for the duration of the foreign principal-agent relation-
                   ship. According to the regulations, a statement is “detailed” within the
                   meaning of the act when it has that degreeof specificity necessaryto
                   permit meaningful public evaluation of each of the significant steps
                   taken by a registrant to achieve the purposesof the foreign principal-
                   agent relationship.
                   The act also provides certain exemptions to registration, such as for dip-
                   lomatic, humanitarian, commercial, and legal activities. However, for-
                   eign agents are not required to notify the Justice Department when they
                   claim such an exemption.
                   The Department of Justice’s Registration Unit, composedof nine profes-
                   sional and four admin&rative staff, is responsible for administering and




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                     implementing the act. The Registration Unit’s responsibilities include
                     (1) identifying unregistered agents,(2) ensuring that agentsfile reports
                     on time, (3) rendering advisory opinions interpreting the act, (4)
                     reviewing reports to ensure proper form and completeness,and (5)
                     requesting report corrections when errors are found.


Prior GAO Reports    In 1974, we reported that many agents’ statements to the Justice
                     Department were not filed on a timely basis or lacked sufficient detail to
                     adequately describethe registered agents’ activities on behalf of their
                     foreign principals4 The 1974 report also stated that the Justice Depart-
                     ment was not making full use of its authority to enforce the act and
                     related regulations.
                     In a 1980 follow-up report, we noted that despite Justice’s efforts to
                     improve the administration of the act, people were acting as foreign
                     agents without registering, registered agents were not fully disclosing
                     their activities, and officials in the executive branch were often unaware
                     of the act’s requirements. Thus, the act’s goal of providing the public
                     with sufficient information on foreign agents and their activities was
                     not being completely fulfilled.

                     The Registration Unit identifies unregistered agentsby reviewing news-
Foreign Agents May   papers, magazines,and the CongressionalQuarterly;6 inspecting regis-
Not Be Registering   tered agent’s records; and acting on tips provided from various sources
                     such as government agenciesand material Ned by registered agents.
                     The unit doesnot make scheduledreviews of executive agency records
                     or periodic inquiries of agency officials about agent activities because,
                     according to the Chief of the unit, additional staff would be neededfor
                     this purpose.
                     During its review of the CongressionalQuarterly for the period October
                     1988 through October 1989, the Registration Unit identified 70 individ-
                     uals or firms acting as lobbyists for foreign interests, 13 of which it
                     believed may be obligated to register as foreign agents. Subsequently,
                     the Registration Unit sent these 13 individuals or firms letters

                     4Effectlvenemof the Fore&n                       Act of 1938, POAmended, and Its Administration
                     bytheDepartmcntofJu8tice
                     6AccordingtotheLkputyChiefoftheRegiatrrttonUnit,the                                isthebest
                     sourceofinf~onindMduaiswho~lowylngfor                                               be obligated to
                     regkter as foreign agents.



                     Page 3                                            ~O/lWUD4mllSO       Fomim Agent Re&t.radon
                       requesting that they provide (1) a complete statement of who owns and
                       controls the foreign principal, (2) a description of the nature of the
                       activities for or in the interest of the foreign principal, and (3) a copy of
                       the written contract with the principal or a full description of the terms
                       and conditions of each existing or proposed oral agreement.As of June
                       1990, the Registration Unit had receivedthe requestedinformation but
                       had not completed its analysis to determine whether these individuals
                       or firms had to register under the act. However, according to the Chief
                       of the Registration Unit, prelimlnary indications are that at least some
                       of them should have registered as foreign agents,

                       We found that the Registration Unit did not collect information on the
                       number of foreign agentswho were claiming an exemption from regis-
                       tering because,according to the Chief of the Unit, the Justice Depart-
                       ment still has not taken steps to have the act amendedto require written
                       notification of all exemption claims, as we recommendedln our 1980
                       report. Moreover, Justice officials do not believe that the additional
                       information on unregistered foreign agentsthat might result from an
                       exemption notification requirement would justify the associatedcostsin
                       increasedmanpower needsand paperwork. However, Justice has not
                       performed a cost analysis to support this position. Wedo not believe
                       that the administrative costs of implementing the exemption notification
                       requirement would be exorbitant, and we think it could improve pro-
                       gram administration.

                       Each agent is required to file a semiannual supplemental statement
InadequateDisclosure   wlthln 30 days after the expiration of each period of 6 months suc-
in Reporting           ceedlngthe original filing of a registration statement. In our 1980 report,
                       we noted that 146 (49 percent) of the 299 supplemental statements that
                       we reviewed had not provided adequatedisclosure. Such omissionscon-
                       tinue to be a problem.
                       According to the act, each supplemental statement must contain infor-
                       mation on (1) the nature and status of the registrant’s business,(2) for-
                       eign principals represented,(3) activities performed for foreign
                       principals, (4) related financial data, (6) dissemination of political pro-
                       paganda, and (6) the filing of certain required exhibits and short-form
                       registration statements. The unit’s caseworkersreview these statements
                       for adequate disclosure and request additional information from the
                       agents,as necessary.




                       P8ge 4                                 GAO/NSIADWW     Foreign Agent Reglstmtlon
                     Our review of 25 foreign agent files and the supplemental statements
                     that should have been filed between June 1,1987, and April 1, 1990,
                     showed that about half of the statements did not adequately report the
                     agents’ activities, basedon criteria previously mentioned. Among the
                     deficiencies we identified were insufficient description of activities; con-
                     flicting responsesto questions; no listing of contacts, and/or finances;
                     missing supplemental forms; no statement of purpose or position; and
                     latenessin reporting activities.
                     According to the Unit Chief, inadequate disclosurestypically occur
                     when (1) agents are not specific in reporting information, (2) questions
                     on the supplemental statement forms are not specific, and
                     (3) caseworkerslack effective methods to obtain additional information.
                     Unit officials stated that they are taking steps to improve the adminis-
                     tration of disclosure reporting by writing or calling individuals to
                     request additional information. They are also conducting more inspec-
                     tions of agents’ books and records to assurethat registered agents are
                     reporting all their activities and finances.

                     In our analysis of the supplemental statements, we noted that the ques-
                     tions on the forms were general and did not specifically require informa-
                     tion necessaryto satisfy the act’s disclosure requirements. We also
                     found Justice’s regulations implementing the act do not provide ade-
                     quate information to understand disclosure requirements. The Unit
                     Chief agreed with our analysis. He stated that, if requestedthe
                     caseworker will give advice to an agent. However, he also stated that
                     the caseworkersreviewing the statements do not have standardized
                     written guidance on specifically how and what a foreign agent should
                     report. Consequently,there is potential for inconsistent reviews from
                     one caseworker to another.

                     Our review of registration statements showed that over one-half of a
Timelinessof Agent   sample of 28 initial registration statements were not filed by the
Registration and     required dates, and over one-half of a sample of 204 supplemental state-
Reporting Remainsa   ments were not filed before the deadlines.
Problem              The act requires that people file initial registration forms within 10 days
                     of becomingagents.In 1980, we reported that 61(77 percent) of the 79
                     registration forms filed by foreign agents,that we reviewed, did not
                     meet this requirement. The level of registration compliance has con-
                     tinued to be low. Of 28 foreign agent’s initial registration statements we
                     reviewed for this report, 19 (68 percent) were not registered on time. Of


                     P8ge5                                 GAO/NSuDgo-2M)   Foreign Agent Registration
                       B-240979




                       these 28 statements, 17 (61 percent) missed the due date by more than
                       30 days. Furthermore, we could not determine whether seven(25 per-
                       cent) of the initial statements met the requirement becausethe material
                       in the files did not show when they began activities for the foreign prin-
                       cipal. In summary, 26 (93 percent) of the 28 forms were either not filed
                       on time or did not contain sufficient information to determine their
                       filing status.
                       Similar problems exist in the filing of supplemental statements.The act
                       requires agentsto file supplemental reports within 30 days of the end of
                       each 6-month period. In our 1980 report, we noted that 179 (60 percent)
                       of the 299 supplemental statements reviewed were not filed by the
                       deadline. For the period from June 1,1987, through April 1,1990, we
                       reviewed 46 foreign agents’ files and found 121(69 percent) of the cor-
                       responding 204 semiannual supplemental statements that were sup
                       posed to be filed, were filed late. About 27 (13 percent) of these 204
                       statements missed the due date by more than 30 days. We could not find
                       the supplemental statements for 23 (11 percent) of the 204 statements
                       due becausethey were either missing from the Ales and Justice officials
                       could not find them (3 percent of the statements), or the Justice Depart-
                       ment said it had never received them (8 percent of the statements).
                       Unit officials said that agentsfrequently register and report late
                       becausethey lack awarenessof or ignore the act’s requirements.

                       The Registration Unit’s follow-up proceduresinclude sending reminder
Follow-Up Procedures   letters, making a phone call, and then mailing a formal notice to each
                       delinquent filer. In addition, a copy of the delinquency notice is sent to
                       the agent’s foreign principal.
                       Registration Unit staff stated that they had not assessedadministrative
                       fines against late filers or used subpoenapowers becausethe Justice
                       Department lacks authority to take such administrative actions.
                       According to the Unit’s Chief, the authority to levy fines against late
                       filers and summon individuals to appear, testify, or produce records at
                       administrative hearings could improve registration and reporting com-
                       pliance under the act. We recommendedboth of these actions in our
                       1980 report, but the Justice Department did not pursue them.




                       P8ge 6                                GAO/NStAD&HS9   Fonign Agent Registration
                          5949979




                          In addition to reaffirming our 1980 recommendations,we further recom-
Recommendations           mend that the Attorney General direct the Registration Unit to take the
                          following actions:
                      l Develop standard disclosure criteria for reporting under the act; provide
                        specific guidance to agents and agencypersonnel on the criteria and
                        how information should be reported; and enforce compliancewith the
                        criteria.
                      9 Revisethe supplemental statement to better reflect the requirements of
                        the act as well as the standard criteria.

                  -       The Department of Justice usesthe lack of authority as a reason for not
1v1al4lJc13 IV1           taking action to enforce the law but has not sought the neededlegisla-
Congressional             tive authority. Therefore, the Congressmay wish to consider amending
Consideration             the Foreign Agents Registration Act of 1938, as amended,to give the
                          Department of Justice the authority to:
                      . Subpoenaforeign agentsto appear, testify, or produce records at admin-
                        istrative hearings.
                      . Impose administrative fines for minor violations against those who,
                        after being directly informed of their obligation to report, still fail to do
                        so.

                          Appendix I provides details on the scopeand methodology of our
                          review.
                          As requested,we did not obtain formal agency commentson this report;
                          however, we discussedour findings with appropriate Department of
                          Justice officials and incorporated their commentswhere appropriate.
                          As arranged with your office, unless you publicly announceits contents
                          earlier, we plan no further distribution of this report until 40 days from
                          the date it is issued.At that time, we will send copiesto the Attorney
                          General and appropriate congressionalcommittees and make copies
                          available to other interested parties upon request.




                          P8ge 7                               GAO/NSUD4&269   Foreign Agent Registration
This report was prepared under the direction of Allan I. Mendelowitz,
Director, Trade, Energy, and Finance Issues.He can be reached on (202)
276-4812if you have any questions about this report. Other major con-
tributors are listed in appendix II.

Sincerely yours,




Frank C. Conahan
Assistant Comptroller General




Page8                              GAO/NSIAD-8&889 Fodgn Agent Regbtmtion
GAO/NSLUH@%O   Fcaw@Apnt   Re@tmtlon
Contents




Appendix I                                                               12
Scopeand
Methodology
Appendix II                                                              13
Major Contributors to
This Report




                        Pyt   10   GAO/NS~880   Foreign Agent Registration
     Appendix I
                                                                                                   .
     Scope and Methodology


                   In developing information for this report, we reviewed the act, the legis-
                   lative history, and the Justice Department’s rules and regulations that
                   addressthe responsibilities of foreign agents and managersof the regis-
                   tration process.
                   We also interviewed Department of Justice officials regarding the
                   efforts to improve the administration of foreign agent registration. We
                   reviewed the proceduresused by the Registration Unit to identify unre-
                   gistered agents.
                   We obtained Justice’s listing of 819 foreign agentsregistered under sep-
                   arate registration numbers as of December31,1989. Becausesomefor-
                   eign agents registered their suboffices under separate registration
                   numbers, we adjusted the number of registered agentsby counting those
                   agents with more than one registration number as one agent. This
                   adjustment resulted in a population size of 776 foreign agents.
                   To get someindication of whether the registration problems identified in
                   our prior reports still exist, we drew a random sample of 46 of the regis-
                   tered foreign agent files. This size sample was sufficiently large to sta-
                   tistically validate the continued existenceof the problems identified in
                   our earlier reports.
                   Weexamined records indicating when foreign agent reports were
                   received by the Registration Unit and then comparing that date to
                   report due dates prescribed in the regulations. In assessingthe timeli-
                   nessof agent initial registration, we reviewed 28 initial registration
                   forms filed after 1980. To assessthe timeliness of foreign agents’ semi-
                   annual supplemental forms, we reviewed 46 agent files and the corre-
                   sponding statements that were supposedto have been filed between
                   June 1,1987, and April 1,199O.We limited our review of supplemental
                   statements to those filed after June 1987 to determine whether this is a
                   current problem.
                   To assessadequacy of disclosure, we reviewed 25 agent files and the
                   agents’ required semiannual supplemental statements for the period
                   June 1987 through April 1990.
                   Our work was conducted from January through June 1990 in accor-
                   dance with generally acceptedgovernment auditing standards.




                   Plrge 12                             GAO/NSLUHO-250 Fortign Agent Rtghtration




--
Major Contributorsto This Report


                           Elliott C. Smith Assistant Director
NatkXI~   Security   and   Anne M Pond ivaluator
International Affairs      Laura C.’ Filipkcu, Evaluator
Division, Washington,      Arthur J. Kendall, Mathematical Statistician
                           JamesM. Fields, Social ScienceAnalyst
D.C.




(-)                        Page 13                             GAO/NSlAD9&230   Foreign Agent Rtgimdon
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