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Republican presidential nominee Mitt Romney speaks at a campaign rally in Abingdon, Va., Oct. 5, 2012.BRIAN SNYDER/Reuters

A Canadian-owned company is raising eyebrows south of the border after federal election filings revealed it recently contributed $1-million to Mitt Romney's political action committee, a donation that has set off alarm bells amid the ever-murky waters of American campaign law.

OdysseyRe is a subsidiary of Toronto-based insurance giant Fairfax Holdings. The company, owned by Indian-born Prem Watsa, had total assets of $31.7-billion at the end of 2010, and employs more than 8,000 people worldwide.

The U.S. Supreme Court's controversial Citizens United ruling allows American corporations to make contributions to so-called SuperPACs, while banning foreign-owned companies from doing so. But there remains confusion about whether the 2010 ruling also applies to foreign-owned U.S. subsidiaries.

Fairfax says it doesn't, and that it's broken no laws. The decision to donate the money in August to Mr. Romney's Restore Our Future SuperPAC, a company official added Friday, was made by a sub-committee of the company's board of directors comprised entirely of U.S. citizens.

"We had no role; the U.S. company is in fact our largest company, and they had business reasons for doing it, but we played no role at all," Paul Rivett, Fairfax's vice-president of operations, said from Toronto.

Peter Lovell, counsel general for OdysseyRe, said "neither our parent company nor any other foreign nationals were part of the decision-making process to contribute to the SuperPAC."

The subsidiary chose to donate to Mr. Romney because, as a international reinsurer located in the United States, it operates under "one of the highest corporate tax rates in its industry," Mr. Lovell added.

"Gov. Romney has proposed meaningful corporate tax reform that would help to level the playing field; consequently, a victory by Gov. Romney in November would be beneficial to OdysseyRe."

Nonetheless, officials at Campaign Legal Center – a non-profit, non-partisan campaign finance watchdog – have said OdysseyRe's donation "raises some legal red flags."

And a Democratic congressman, Senator Sheldon Whitehouse of Rhode Island, is among those raising concerns, accusing some foreign-controlled companies of "exploiting loopholes in existing law" in a direct threat to American democracy.

"You can bet that wholly owned subsidiaries of foreign commercial entities have an agenda when they spend millions to sway the outcome of an election," Mr. Whitehouse said in a statement.

"And you can bet that agenda is not promoting the interests of middle-class American voters."

Nancy McLernon, CEO of the Organization for International Investment, said the issue "comes up time and time again because there isn't a firm understanding of the difference between a subsidiary and a true foreign national."

"Subsidiary rights are based on the U.S. citizens that work for them," she said in an interview.

"There are laws in place that ensure a large, thick wall between the Americans that contribute to campaigns and the parent company – U.S. citizens working for foreign nationals don't even discuss it with the parent company, and the parent company has no say in whether company employees do this."

It's all meant to ensure that the five million Americans employed by U.S. subsidiaries can participate fully in their native country's political process.

"If U.S. subsidiaries were banned from donating to SuperPACs, you would essentially be stopping American citizens from fully participating in the electoral system as their colleagues at U.S.-owned companies can," Ms. McLernon said.

The $1-million donation by OdysseyRe was the biggest contribution the company has made to a U.S. campaign, according to federal election filings. The company's previous donation of $4,350 was divided between Mr. Romney and Jon Huntsman, the moderate former Utah governor who also ran for president.