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Apr-22-2008US May Clarify Scrutiny(topic overview)
CONTENTS:
- The rule amendments, proposed today by the Treasury Department, would replace current rules that focused merely on foreign acquisitions of U.S. companies, and the amendments also leave the determination of the level of control sovereign funds have in each deal up to an agency's discretion. (More...)
- In the proposed regulations, Treasury officials wrote that "the regulations do not provide, and never have provided, an exemption based solely on whether an investment is 10 percent or less in a U.S. business." (More...)
- Immediately, Washington lobbyists and trade group representatives tore into the 90-page proposal, looking to see if the new rules would make life difficult for the foreign investors who have been pouring billions of dollars into the U.S. economy in recent months. (More...)
- Lowery told reporters during a briefing that in addition to submitting written comments, interested parties will be given the chance to appear at a public hearing that will be held at the Treasury Department on May 2. (More...)
- "At a time when the U.S. economy is slowing, encouraging investment in America is more important than ever," said Taylor Griffin, senior vice president for communications at the Financial Services Forum. (More...)
- Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. (More...)
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The rule amendments, proposed today by the Treasury Department, would replace current rules that focused merely on foreign acquisitions of U.S. companies, and the amendments also leave the determination of the level of control sovereign funds have in each deal up to an agency's discretion. 'These regulations reflect America's strong and continued commitment to safeguarding U.S. national security in a manner that reinforces the longstanding U.S. policy of welcoming foreign investment,' said Clay Lowery, assistant secretary for international affairs at the Treasury Department. [1] Congress passed the law last year after an uproar in 2006 over a plan by Dubai-owned DP World to manage six of the largest ports in the United States. The deal fell through after lawmakers from both parties contended the administration and the agency responsible for reviewing security issues had not fully considered all of the security concerns that had been raised. The proposed regulations — issued for a 45-day period of public comment — will overhaul current regulations to make them conform to the new Foreign Investment and National Security Act that Congress passed last July. "These regulations reflect America's strong and continued commitment to safeguarding U.S. national security in a manner that reinforces the long-standing U.S. policy of welcoming foreign investment," Clay Lowery, Treasury's assistant secretary for international affairs, said in a statement.[2] WASHINGTON (Thomson Financial) - The U.S. Treasury today released a proposed set of revisions for the review of foreign investments that is aimed at reducing the chances of unpleasant surprises from the process for either the U.S. government or the would-be investors. 'These regulations reflect America's strong and continued commitment to safeguarding U.S. national security in a manner that reinforces the longstanding U.S. policy of welcoming foreign investment,' said Assistant Secretary for International Affairs Clay Lowery.[3]
SWFs are simply treated as any other foreign government controlled company. The new regulations will be open for comment for 45 days and Treasury will hold a public hearing on them May 2. Four industry groups, the Business Roundtable, the U.S. Chamber of Commerce, the Financial Services Forum and the Organization for International Investment issued a joint statement praising the regulations as a needed step in finalizing national security reviews of foreign investment in the U.S. The Treasury's proposal 'clarifies the procedures for national security reviews,' they said, 'and provides certainty to investors.' The regulations provide 'necessary guidance,' according to the industry groups. They do not constitute a barrier to foreign investment in the U.S., but rather provide a roadmap for investors as to when and how they must go through the CFIUS process.[4] The regulations were also posted on the Web at http://www.treasury.gov/offices/international-affairs/cfius. Business groups representing both U.S. and foreign companies praised the decision. "The regulations provide necessary guidance on which transactions involve both control and a relationship to national security and therefore require a. review," said a joint statement from four groups — the U.S. Chamber of Commerce, the Business Roundtable, the Financial Services Forum and the Organization for International Investment.[2]
A finding of foreign control is one factor the U.S. looks at when weighing whether the transaction might have national security implications. Treasury is also trying 'to provide a little more predictability for the investment community,' he said. It is encouraging potential buyers to approach CFIUS early, before starting the official 30-day review process, with any questions or information.[4] "And we think we accomplished that." Wall Street has been particularly focused on two key issues: how the regulations would define "control" of the entity being purchased and how they would define "critical infrastructure," the purchase of which would come under government review. On the control issue, Treasury re-emphasized that even those deals in which a foreign entity takes less than a 10 percent stake in the U.S. asset can be reviewed by CFIUS. On the critical infrastructure issue, Treasury drew a fairly narrow definition, specifying that sales of only those assets whose "incapacity or destruction" would have a debilitating effect on national security would be reviewable by the committee.[5] The panel may reopen an investigation if it determines false information was provided. Under the rules, foreign investors would be exempt from a CFIUS review if they owned less than 10 percent of a U.S. company and if the stake was "solely for the purpose of investment." Other than that provision, the proposal does not set an official threshold on what would be "control" of a company, but allows a review if an investment could give a foreign entity key decision-making power. "All relevant factors are considered together in light of their potential impact on a foreign person's ability to determine, direct or decide important matters affecting a company," according to the draft provided by Treasury.[6] WASHINGTON -- The Treasury Department said it may review rules for foreign investments in U.S. companies that involve stakes smaller than 10%, depending on the level of control exerted by the foreign entity.[7]
The rules clarify that transactions in which a foreign entity acquires less than a 10 percent stake in a U.S. business are not automatically exempt from a review by the Committee on Foreign Investment in the United States (CFIUS).[8] New rules governing when a secretive group of U.S. agencies can scrutinize sovereign wealth fund transactions may allow foreign investors to make passive investments of 10% or less without much scrutiny in some cases. The new amendments would also require sovereign funds to certify the accuracy and completeness of their filings with CFIUS (the Committee on Foreign Investment in the United States).[1] WASHINGTON, April 21 (Reuters) - The U.S. Treasury on Monday unveiled proposed new regulations to tighten security reviews of foreign investments in U.S. businesses while allowing sovereign wealth funds to make small passive investments with less scrutiny.[8]
The rules set out procedures to implement the new law. "These regulations reflect America's strong and continued commitment to safeguarding U.S. national security in a manner that reinforces the longstanding U.S. policy of welcoming foreign investment," said Assistant Treasury Secretary Clay Lowery.[6] "I think the new regulations reflect a strong continued commitment by the United states to maintaining our open investment climate and to safeguarding U.S. national security," Clay Lowery, the Treasury Department's assistant secretary of international affairs, told reporters. "We think that the clarifications made by the proposed regulations will help us run the process in a more efficient and effective manner," he said.[8]
'These regulations reflect America's strong and continued commitment to safeguarding U.S. national security in a manner that reinforces the longstanding U.S. policy of welcoming foreign investment,' said Assistant Secretary for International Affairs Clay Lowery.[4]
"What we tried to do is create regulations based on last year's statute that reflect a strong and continuing commitment by the U.S. government to maintain an open investment climate as well as to safeguard national security," said Clay Lowery, assistant Treasury secretary for international affairs.[5]
The U.S. Department of the Treasury issued proposed regulations Monday designed to implement the Foreign Investment and National Security Act of 2007.[9] The proposed regulations under the Foreign Investment and National Security Act of 2007 will update the review process for the secretive Committee on Foreign Investment in the United States (CFIUS).[6] The law extends the scope of national security reviews to cover deals involving critical infrastructure and energy and requires a second-stage review investigation of most proposed acquisitions by state-owned companies. It gives legal status to the little-known Committee on Foreign Investment in the United States, or CFIUS, a multi-agency group formed in 1975 to monitor U.S. policy on foreign investment.[2] "The issuance of the regulations clarifies the procedures for national security reviews by the Committee of Foreign Investment in the United States (CFIUS) and provide certainty to investors," the groups said in a joint statement. They said foreign direct investment in the United States supports over five million U.S. jobs, with an annual payroll of 335.9 billion dollars.[6]
In January, U.S. President George W. Bush issued an executive order similarly designed to implement the Act, which expands the investigative scope of the Treasury Department's Committee on Foreign Investment in the United States (CFIUS) to include foreign infrastructure and energy investments and adds an additional 45-day review of proposed acquisitions from foreign state-owned entities.[9]
The proposed new rules are aimed at clarifying the authority of the Committee on Foreign Investment in the U.S., which has weathered intense congressional criticism in the wake of business deals proposed by foreign firms, including a failed attempt by Dubai Ports World to acquire commercial operation rights at six U.S. ports.[7] The proposed regulations put into effect a law passed to strengthen reviews in the wake of Dubai Ports World's controversial 2006 deal to buy U.S. port operations, which was withdrawn after congressional objections. The new law enshrines CFIUS reviews into federal statute and requires them for transactions in which a foreign entity can gain control of a U.S. business.[8] The regulations define exactly how that new law will be implemented and spell out which deals will come under scrutiny of the Committee on Foreign Investment in the United States, the interagency body that oversees the transactions.[5]
WASHINGTON (AP) — The Bush administration, pledging a "strong and continued commitment" to safeguarding national security, issued 90 pages of regulations Monday to implement a new law tightening security reviews of foreign investments.[2] The inter-agency CFIUS implements the Foreign Investment and National Security Act (FINSA), which became law last summer. That law revamped the process for deciding when a foreign investment might pose a threat to U.S. national security. In the latest incident -- which contained at least one surprise -- private equity firm Bain Capital and a Chinese partner withdrew a takeover bid for 3Com (nasdaq: COMS - news - people ) after failing to find a way around concerns that this takeover would threaten national security because the Pentagon uses 3Com networking products.[3]
The regulations address an issue raised by the billions of dollars invested in U.S. banks in recent months by foreign government-run investment funds, also known as sovereign wealth funds. Sovereign funds from Asia and the Middle East have invested over $30 billion in companies such as Citigroup Inc. and Merrill Lynch & Co. Inc. in recent months as financial services firms sought to raise cash in response to the credit crisis. After the investments were structured to result in ownership stakes of less than 10 percent, some members of Congress raised concerns about the funds' ability to avoid scrutiny by CFIUS in this way.[2] A large number of passive sovereign wealth investments in Wall Street firms in recent months have been below the 10% mark. The rules state that a foreign person is not found to be in control of a U.S. entity if he or she holds 10% or less of a non-voting interest in the entity.[1]
The agency did stipulate that control is not determined by a certain number of board seats or a specific percentage of shares in a U.S. company. The acquisition of various convertible interests by a sovereign wealth fund also could lead to control under the regulations, and as such would be subject to the rule's 30-day review period.[1]
The rules would formalize the process in which the panel determines whether a foreign acquisition would "impair" national security or give a foreign entity control over "critical infrastructure."[6]
One CFIUS attorney, who declined to be named, said that eliminating what had been viewed as a safe harbor for deals in which the foreign entity buys less than 10 percent of a U.S. firm would sweep a broad class of new transactions into the bureaucratic CFIUS process. "That's a significant change," the attorney said. "This will bring more transactions into CFIUS -- and to me, that's a bad thing."[5] The CFIUS process emerged from obscurity in 2006, when the committee approved a deal that would allow a Dubai-based firm to buy a company that controlled U.S. ports, sparking a huge political outcry. That flap led Congress to pass the new law last summer.[5] The law was passed amid an outcry in Congress over Dubai Ports World's planned acquisition in 2006 of a company managing U.S. port facilities, which prompted DPW to back away from the deal.[6] The law, passed by Congress in July 2007, stems from congressional criticism of a proposed acquisition by United Arab Emirates-owned Dubai Ports World that would have allowed the company to manage six major U.S. ports in early 2006.[9]
In the proposed regulations, Treasury officials wrote that "the regulations do not provide, and never have provided, an exemption based solely on whether an investment is 10 percent or less in a U.S. business." [2] The regulations provide 'necessary guidance,' according to the industry groups. They do not constitute a barrier to foreign investment in the U.S., but rather provide a roadmap for investors as to when and how they must go through the CFIUS process.[3] The groups -- the Business Roundtable, the Financial Services Forum, the Organization for International Investment and the U.S. Chamber of Commerce -- said the regulations would provide much-needed certainty for investors.[5]
Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, asked Treasury last month to clarify in the new rules that investments below 10 percent aren't automatically exempt from scrutiny.[2] Democrats from the House Financial Services Committee last month asked Treasury to ensure that investments below the 10% threshold were not immune to CFIUS reviews.[1]
"We've tried to make that as clear as it possibly can be," Lowery said, adding that investments would be reviewed on a case by case basis. Treasury is also trying "to provide a little more predictability for the investment community," he said. It is encouraging potential buyers to approach CFIUS early, before starting the official 30-day review process, with any questions or information.[6] Treasury official Clay Lowery said the regulations aim to 'maintain an open investment climate.[5]
The Bush Administration has tried to encourage foreign investment in U.S. markets to help ailing banks, and Treasury officials have met with individual funds to craft codes of conduct.[1] WASHINGTON (AFP) — U.S. authorities announced new rules Monday aimed at offering more clarity to a controversial review program for foreign investment in U.S. companies.[6] Officials said the new rules are not aimed at discouraging foreign investment but would make the secretive review process more predictable and transparent.[6]
The new law is intended to ensure that high-level officials, including the director of national intelligence, participate in decisions concerning the security implications of direct foreign investment.[2] The proposed regulations follow in the wake of congressional passage of the Foreign Investment and National Security Act of 2007, which tightened federal scrutiny of overseas investments.[5] The Treasury's proposed regulations define control not in terms of percentage of shares or board seats, but as "the ability to exercise certain powers over important matters affecting a business," even if the foreign entity does not exercise that power.[8] At 9:03 a.m. Monday, the Treasury Department e-mailed the first details of regulations to govern how the government oversees foreign purchases of sensitive U.S. assets.[5] SWFs are simply treated as any other foreign government controlled company. The new regulations will be open for comment for 45 days and Treasury will hold a public hearing on them May 2.[3]
Although Congress passed FINSA with overwhelming bipartisan majorities, and CFIUS has committed under the law to better informing Congress, neither the law nor the regulations clarify the potential for negative political reactions to investments from China, the Middle East or other sensitive areas. [email protected][email protected] dem/pik/wash Copyright Thomson Financial News Limited 2007.[4]
The CFIUS review process, which up to now had been by executive order of the president, affects only a small percentage of foreign investments but has been used to block some controversial acquisitions.[6] 'We've tried to make that as clear as it possibly can be,' Lowery said. He added that in case-by-case reviews, CFIUS has previously found foreign control when foreign investment has been less than 10 pct, and has found no foreign control when foreign investment is above 10 pct.[4]
The no-surprises approach was made clear in a briefing for reporters, during which Lowery repeated the words 'clarity' and 'predictability' to describe changes in the operations of the Committee on Foreign Investment in the United States (CFIUS).[4] The groups also noted that foreign direct investment in the United States supports more than 5 million jobs with an annual payroll of $335.9 billion. They said keeping that pipeline of foreign capital flowing is crucial.[5]
Immediately, Washington lobbyists and trade group representatives tore into the 90-page proposal, looking to see if the new rules would make life difficult for the foreign investors who have been pouring billions of dollars into the U.S. economy in recent months. [5] The proposed rules also contain a long list of questions that CFIUS has found from experience it usually ends up asking. That should allow would-be investors to be better-prepared. 'CFIUS has been reviewing their investments for 19 years, 17 of them before anybody invented the name,' Lowery said.[3] Controlling stakes would automatically trigger CFIUS reviews, though the rules also state non-voting investments of less than 10% are not specifically exempt from scrutiny.[1]
The rules would require a high-level official to certify to Congress that any investment plan has "no unresolved national security plans."[6] Currently, proposed transactions involving certain industries that could impact U.S. national security or critical infrastructure are vetted by the CFIUS, which is made up of 12 representatives from government agencies and the Bush administration.[1]
A 1988 law gave the president the authority to stop foreign acquisitions that pose a security threat, and the president delegated to CFIUS the authority to investigate the deals.[2] The deal eventually fell through, but prompted Congress to pass the legislation to increase scrutiny of foreign investment proposals.[9]
Lowery emphasized one particular clarification in the proposed rules: despite a longstanding and widespread perception in the investment community, there is not now and never has been a 'bright line' test of 10 pct foreign ownership, above which the U.S. would assume foreign control.[4] Lowery said that despite a common perception, there is no "bright line" test of 10 percent foreign ownership, above which the U.S. would assume foreign control.[6]
Lowery told reporters during a briefing that in addition to submitting written comments, interested parties will be given the chance to appear at a public hearing that will be held at the Treasury Department on May 2. Lowery said he could not give an estimate of how long it will take officials to draw up the final rules once the 45-day comment period ends. [2] Last month, the Treasury Department issued a set of guidelines that it had agreed to along with sovereign funds from Singapore and Abu Dhabi.[1]
CFIUS has approved nearly all deals officially proposed by sovereign wealth funds, though in fact many deals are first informally proposed to the committee.[1] There are no special standards in the proposal for the government investment vehicles known as sovereign wealth (OOTC:SOVW) funds (SWFs). 'CFIUS has been reviewing their investments for 19 years, 17 of them before anybody invented the name,' Lowery said.[4] The guidelines included calls for sovereign wealth investment to be based solely on commercial grounds, as well as for stronger governance, disclosure and internal controls at the funds.[1]
"At a time when the U.S. economy is slowing, encouraging investment in America is more important than ever," said Taylor Griffin, senior vice president for communications at the Financial Services Forum. [5] Details of the CFIUS review of the effort by Dubai-owned DP World to buy and run operations at U.S. ports were first reported by The Associated Press.[2] "The critical infrastructure definition is plain vanilla," said Christopher Wall, a partner in the law firm Pillsbury Winthrop Shaw Pittman who specializes in advising clients on the CFIUS process. "This should send a positive signal to companies investing in the area."[5] CFIUS is an interagency panel led by the Treasury, which operates in secrecy. It also includes the heads of agencies including Homeland Security, Commerce, Energy, Defense and State, and the attorney general.[6] At 11:49 a.m., four business groups fired off an e-mail heaping praise on Treasury's regulations.[5] Within three hours, the business community had come to a consensus that the regulations would be a terrific deal for corporate America.[5]
Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. [8]
SOURCES
1. New rules propose added scrutiny to sovereign wealth fund transactions - Financial Week
2. The Associated Press: New rules to tighten security reviews of foreign investments
3. U.S. Treasury releases proposed foreign investment regulations UPDATE - Forbes.com
4. U.S. Treasury releases proposed foreign investment regulations UPDATE
5. Business groups praise foreign investment rules - Eamon Javers - Politico.com
6. AFP: US announces new rules for foreign investment review
7. Free Preview - WSJ.com
8. UPDATE 3-US Treasury rules clarify foreign security reviews | Deals | Mergers & Acquisitions | Reuters
9. JURIST - Paper Chase: Treasury Department issues new security review regulations for foreign investments
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