Lobbyists for foreign-owned companies are bristling over a new bill introduced by Sen. Charles Schumer (D-N.Y.) that will require them to register as foreign agents.

Schumer’s bill, which is co-sponsored by Democratic presidential candidate Sen. Barack Obama (Ill.), will require lobbyists for companies based abroad to register under the Foreign Agents Registration Act (FARA) instead of the Lobbying Disclosure Act (LDA).

Besides requiring much more paperwork, registering under FARA will also brand these companies as foreign, even though they have substantial U.S. operations, McLernon said. Companies that would have to change their registrations under the law include BP , L’Oreal and Nestlé , all of which have thousands of U.S. employees.

“It is just a scarlet letter ‘F.’ The word ‘foreign’ is seen as pejorative. So being labeled foreign is not good,” McLernon said. She added that the measure could also hurt the U.S. economy by leading foreign investors to back away from plowing capital into the United States.

In addition, U.S. companies may face retaliatory measures from governments outside of America, said one lobbyist for a company that would be affected by the bill.

“The most salient point is if we do begin to treat U.S. subsidiaries differently, that will tend to dampen foreign investment here and invite other governments elsewhere in the world to treat U.S. companies differently,” said the lobbyist, who represents a U.S. subsidiary of a European-based corporation.

Schumer thinks more disclosure by lobbyists is necessary.

“When it comes to representing foreign governments and corporations, disclosure is all-important and it’s worth a little extra work,” he said in a statement from his office. “No one’s blocking them from doing the work. We’re just saying they should disclose it. If you leave loopholes open, they’ll use them every time.”

Some suspect Schumer is aiming his bill at GOP presidential candidate Sen. John McCain (R-Ariz.). McCain’s campaign employs former lobbyists who have represented foreign firms and governments, including Rick Davis, the campaign’s manager, and Charlie Black, a senior adviser, and Obama and other Democrats have tried to use this against him on the campaign trail.

“This is a shot across the bow at the Rick Davises of the world,” said a Democratic lobbyist who has represented foreign-based private companies in the past.

Schumer’s office insisted it is not playing politics with the bill, which is also sponsored by Sen. Claire McCaskill (D-Mo.), a surrogate for Obama. Schumer decided to introduce the bill as he investigated lobbyists who represent Iraq and looked into whether their compensation was being paid with U.S. reconstruction funds, according to one of his aides.

Schumer’s bill would make two changes to the existing FARA law.

First, lobbyists would have to report any contacts they have with U.S. government officials outside of the country, such as ambassadors, on behalf of their foreign clients.

Sen. Charles Schumer (D-N.Y.). Photo by Benjamin J. Myers.

The second change is the one attracting the fury of McLernon and OFII, which has lobbied Congress hard in the wake of the Dubai Ports controversy to treat foreign-headquartered companies with U.S. subsidiaries the same as U.S. companies.

“You can’t put a flag on these global companies,” she said. “You have to look at what they are doing in the U.S. If they are doing good business activity here in the States, there is no reason they should be treated any differently,” she said.

U.S. subsidiaries annually employ more than 5 million Americans and spend close to $336 billion in payroll, according to OFII’s estimates.

Schumer’s bill would require much more paperwork for companies that now only have to register under the LDA. Supplemental reports required under FARA every six months can stretch to more than a hundred pages at times. Every contact between a lobbyist and a U.S. government official must be listed, along with their political contributions. In addition, public-relations materials, such as form letters and fact sheets, must be filed with the Justice Department.

“Clearly, there would be a cost in time for me and all of my colleagues to keep track of everything we do under FARA,” said the lobbyist representing the European company.

It would also add to the workload of the Justice Department’s Foreign Agents Registration Unit, which handles the forms.

“They couldn’t handle it. I am not even sure they can handle what they are dealing with now,” said Thomas Susman, a retired partner at Ropes & Gray who has worked on lobbying disclosure law in the past.

“Why gang up on thousands of those who are complying with the Lobbying Disclosure Act perfectly and honestly?” asked Susman.