Sovereign Wealth Funds
Laws Limiting Foreign Investment Affect Certain U.S. Assets and Agencies Have Various Enforcement Processes
Gao ID: GAO-09-608 May 20, 2009
Foreign investors in U.S. companies or assets include individuals, companies, and government entities. One type of foreign investor that has been increasingly active in world markets is sovereign wealth funds (SWF), government-controlled funds that seek to invest in other countries. As the activities of these funds have grown they have been praised as providing valuable capital to world markets, but questions have been raised about their lack of transparency and the potential impact of their investments on recipient countries. GAO's second report on SWFs reviews (1) U.S. laws that specifically affect foreign investment, including that by SWFs, in the United States and (2) processes agencies use to enforce them. GAO reviewed policy statements, treaties, and U.S. laws, and interviewed and obtained information from agencies responsible for enforcing these laws. GAO also interviewed legal experts and organizations that track state foreign investment issues.
While the United States has a general policy of openness to foreign investment, it does restrict foreign investment, including from SWFs, in certain U.S. assets. The U.S. government has issued policy statements supporting openness to foreign investment and entered into international agreements to protect investors. However, sectors with specific restrictions on foreign investments include transportation, communications, and energy. For example, foreign governments may not be issued radio communications licenses and foreign entities are not allowed to own or control more than 25 percent of the voting interest of any U.S. airline. In other cases, foreign investors can purchase companies or assets in a sector but face restrictions on their activities once they invest. For example, foreign companies can invest in U.S. banks, but if a company's stake exceeds 25 percent or the company would control the bank, the company must receive prior approval and become regulated by banking regulators and would be limited in the types of nonbanking activities in which it can also invest. Foreign investors can generally invest in U.S. agricultural land, but must disclose purchases above certain thresholds to the Department of Agriculture (Agriculture). In addition, while not specifically a restriction on foreign investment, a recently strengthened U.S. law authorizes interagency reviews of certain foreign investments, potentially in any sector, for national security considerations. Most federal laws limiting foreign investment were put in place decades ago in response to national security or economic concerns at the time. GAO's analysis of state-level restrictions on foreign investment indicated that some states had restrictions on foreign entities' ability to invest in real estate, including agricultural land, and some had restrictions on foreign government ownership of insurance companies. The agencies responsible for enforcing the U.S. laws affecting foreign investment--Agriculture, Department of Transportation (DOT), Federal Reserve Board, Federal Communications Commission (FCC), Nuclear Regulatory Commission, and Department of the Interior--have processes for addressing key elements of enforcement, including those for (1) identifying all transactions subject to the law, (2) verifying the identity and amount of foreign ownership, and (3) monitoring changes in ownership. To identify investments potentially subject to restrictions and disclosure laws, each agency largely relies on requirements that entities seeking to establish new operations or invest in existing ones must first seek approval or licensing, or disclose their activity. To verify foreign ownership and ensure limits are not exceeded, agencies obtain and verify information about investor identities through information provided by the investors. Finally, to ensure that subsequent changes of ownership are disclosed and do not exceed legal limits, agencies review information from required ownership change declarations. Some agencies reported additional processes to identify new investments and ownership changes such as monitoring press releases, and receiving tips from competitors. Some agencies, but not all, reported using data from other government or private sources to independently verify changes in ownership information self-reported by entities in their sector.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director:
Team:
Phone:
GAO-09-608, Sovereign Wealth Funds: Laws Limiting Foreign Investment Affect Certain U.S. Assets and Agencies Have Various Enforcement Processes
This is the accessible text file for GAO report number GAO-09-608
entitled 'Sovereign Wealth Funds: Laws Limiting Foreign Investment
Affect Certain U.S. Assets and Agencies Have Various Enforcement
Processes' which was released on May 20, 2009.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to the Committee on Banking, Housing, and Urban Affairs, U.S.
Senate:
United States Government Accountability Office:
GAO:
May 2009:
Sovereign Wealth Funds:
Laws Limiting Foreign Investment Affect Certain U.S. Assets and
Agencies Have Various Enforcement Processes:
GAO-09-608:
GAO Highlights:
Highlights of GAO-09-608, a report to the Committee on Banking,
Housing, and Urban Affairs, U.S. Senate.
Why GAO Did This Study:
Foreign investors in U.S. companies or assets include individuals,
companies, and government entities. One type of foreign investor that
has been increasingly active in world markets is sovereign wealth funds
(SWF), government-controlled funds that seek to invest in other
countries. As the activities of these funds have grown they have been
praised as providing valuable capital to world markets, but questions
have been raised about their lack of transparency and the potential
impact of their investments on recipient countries.
GAO‘s second report on SWFs reviews (1) U.S. laws that specifically
affect foreign investment, including that by SWFs, in the United States
and (2) processes agencies use to enforce them. GAO reviewed policy
statements, treaties, and U.S. laws, and interviewed and obtained
information from agencies responsible for enforcing these laws. GAO
also interviewed legal experts and organizations that track state
foreign investment issues.
What GAO Found:
While the United States has a general policy of openness to foreign
investment, it does restrict foreign investment, including from SWFs,
in certain U.S. assets. The U.S. government has issued policy
statements supporting openness to foreign investment and entered into
international agreements to protect investors. However, sectors with
specific restrictions on foreign investments include transportation,
communications, and energy. For example, foreign governments may not be
issued radio communications licenses and foreign entities are not
allowed to own or control more than 25 percent of the voting interest
of any U.S. airline. In other cases, foreign investors can purchase
companies or assets in a sector but face restrictions on their
activities once they invest. For example, foreign companies can invest
in U.S. banks, but if a company‘s stake exceeds 25 percent or the
company would control the bank, the company must receive prior approval
and become regulated by banking regulators and would be limited in the
types of nonbanking activities in which it can also invest. Foreign
investors can generally invest in U.S. agricultural land, but must
disclose purchases above certain thresholds to the Department of
Agriculture (Agriculture). In addition, while not specifically a
restriction on foreign investment, a recently strengthened U.S. law
authorizes interagency reviews of certain foreign investments,
potentially in any sector, for national security considerations. Most
federal laws limiting foreign investment were put in place decades ago
in response to national security or economic concerns at the time. GAO‘
s analysis of state-level restrictions on foreign investment indicated
that some states had restrictions on foreign entities‘ ability to
invest in real estate, including agricultural land, and some had
restrictions on foreign government ownership of insurance companies.
The agencies responsible for enforcing the U.S. laws affecting foreign
investment”Agriculture, Department of Transportation (DOT), Federal
Reserve Board, Federal Communications Commission (FCC), Nuclear
Regulatory Commission, and Department of the Interior”have processes
for addressing key elements of enforcement, including those for (1)
identifying all transactions subject to the law, (2) verifying the
identity and amount of foreign ownership, and (3) monitoring changes in
ownership. To identify investments potentially subject to restrictions
and disclosure laws, each agency largely relies on requirements that
entities seeking to establish new operations or invest in existing ones
must first seek approval or licensing, or disclose their activity. To
verify foreign ownership and ensure limits are not exceeded, agencies
obtain and verify information about investor identities through
information provided by the investors. Finally, to ensure that
subsequent changes of ownership are disclosed and do not exceed legal
limits, agencies review information from required ownership change
declarations. Some agencies reported additional processes to identify
new investments and ownership changes such as monitoring press
releases, and receiving tips from competitors. Some agencies, but not
all, reported using data from other government or private sources to
independently verify changes in ownership information self-reported by
entities in their sector.
What GAO Recommends:
To enhance oversight of foreign investments, GAO recommends that FCC,
Agriculture, and DOT review the information they currently monitor to
detect changes in ownership of U.S. assets subject to restriction or
disclosure and assess the value of supplementing it with information
from other government and private data sources on investment
transactions.
View [hyperlink, http://www.gao.gov/products/GAO-09-608] or key
components. For more information, contact Loren Yager at (202) 512-4128
or yagerl@gao.gov or Richard Hillman at (202) 512-8678 or
hillmanr@gao.gov.
[End of section]
Contents:
Letter:
Background:
U.S. Federal Laws Do Not Address SWF Investments Specifically, but
Restrict Foreign Investments in the United States in Some Sectors:
Agencies Described Processes Addressing Key Elements of Enforcing Laws
Affecting Foreign Investment; Using Supplemental Information Could
Assist Some Agencies:
Conclusions:
Recommendation for Executive Action:
Agency Comments:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Summaries of Key Federal Foreign Investment Laws:
Appendix III: Comments from the U.S. Department of Agriculture:
Appendix IV: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: U.S. and SWF-Country Investment Treaties and Membership in
International Organizations:
Table 2: Major Provisions of Sector-Specific Laws that Apply
Specifically to Foreign Investors:
Table 3: Summary of Agency Processes for Detection of Initial
Investments:
Table 4: Summary of Agency Processes for Ensuring Foreign Owners Are
Identified and Amounts Purchased Are Below Requirements:
Table 5: Summary of Agency Processes for Identifying Ownership Changes
after the Initial Transaction:
Figures:
Figure 1: Foreign Investment Holdings and Flows in the United States:
1988 to 2008A:
Figure 2: Public and Private Foreign Portfolio and Direct Investment
Holdings of U.S. Assets by Country Groupings:
Figure 3: U.S. Gross Output and Foreign Direct Investment by Sector:
Figure 4: Timeline of Major Foreign Investment Laws and Influencing
Events:
Abbreviations:
Agriculture: Department of Agriculture:
BIT: bilateral investment treaty:
CFIUS: Committee on Foreign Investment in the United States:
Commerce: Department of Commerce:
DOD: Department of Defense:
DOT: Department of Transportation:
FCC: Federal Communications Commission:
FRB: Federal Reserve Board:
GDP: gross domestic product:
IEEPA: International Emergency Economic Powers Act:
Interior: Department of the Interior:
NISP: National Industrial Security Program:
NRC: Nuclear Regulatory Commission:
OECD: Organization for Economic Co-operation and Development:
SEC: Securities and Exchange Commission:
Section 127: Foreign Investment and National Security Act of 2007:
State: Department of State:
SWF: Sovereign wealth fund:
Treasury: Department of Treasury:
USTR: Office of U.S. Trade Representative:
WTO: World Trade Organization:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
May 20, 2009:
The Honorable Christopher J. Dodd:
Chairman:
The Honorable Richard C. Shelby:
Ranking Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
Foreign individuals, companies, and governments have long invested in
U.S. stocks, bonds, land, or other assets. Recently, one type of
investor has become more prominent in world capital markets. Known as
sovereign wealth funds (SWF), these government-owned investment funds
may seek to invest in a wide range of financial instruments in other
countries. Funded through surpluses generated by exports of natural
resources such as oil or other noncommodity exports, some SWFs have
large and growing sums of money to invest.
While some observers see SWFs as having positive effects on markets
because they may be long-term stable investors, other perspectives of
different interested parties are mixed. Since August 2007, SWFs have
made key investments into U.S. and European banks seeking capital as
the result of disruptions in the subprime mortgage loan market and
other markets. However, as large government-controlled investment
funds, SWFs have also been criticized for the lack of transparency
about their holdings and their investment strategies. Some market
observers have expressed concerns that SWFs could adversely affect
asset prices by moving large amounts of funds into or out of countries
or markets. Concerns have also been raised in congressional hearings
and elsewhere that rather than making investments primarily to earn
investment returns, as is generally the motivation of a private
investor, some SWFs may instead invest their assets to achieve the
noncommercial or political goals of their governments. However, some
observers have noted that little evidence exists as to whether SWFs
have engaged or intend to engage in noncommercial activities in another
country's economy.
Your letter asked us to examine a broad range of issues about SWFs. As
agreed with your offices, we have begun addressing the issues raised in
your request in a series of reports. In September 2008 we reported on
the availability of data on the size of SWFs and their holdings
internationally that have been publicly reported by SWFs, their
governments, international organizations, or private sources and the
availability of published or reported data from the U.S. government or
others on SWF investments in the United States.[Footnote 1] In this
report, we examined the legal environment facing SWF investment in the
United States, including reviewing (1) the U.S. laws that specifically
affect foreign investment, including that by SWFs in the United States,
and (2) the processes agencies use to enforce these laws.
To identify the U.S. legal environment that could affect SWF
investments in the United States, we reviewed U.S. government policy
statements and directives, as well as treaties and international
agreements addressing investment issues that the U.S. government has
entered into with other countries. We also reviewed legal treatises on
laws that affect foreign investment, as well as the laws and
regulations themselves, to identify the laws that place restrictions on
foreign investment or otherwise could affect foreign investors' use of
any purchased U.S. assets. We spoke with law firms that represent
foreign investors seeking to invest in the United States. We also
interviewed officials from government agencies that address
international trade and investment issues--including Department of
Agriculture (Agriculture), Department of Commerce (Commerce), Federal
Communications Commission (FCC), Department of Defense (DOD), Federal
Reserve Board (FRB), Department of the Interior (Interior), Nuclear
Regulatory Commission (NRC), Department of State, Department of
Transportation (DOT), Department of the Treasury (Treasury), Office of
the U.S. Trade Representative (USTR), and Securities and Exchange
Commission (SEC). We also met with an industry association that
represents U.S. subsidiaries of companies headquartered abroad. We
excluded from our review most laws that apply to both domestic and
foreign investors such as antitrust laws. We also collected information
about laws addressing foreign investment in banking, insurance, and
real estate and real property from the Conference of State Banking
Supervisors, the National Association of Insurance Commissioners, and
the National Association of Realtors. To determine the processes the
agencies have for enforcing the federal-level U.S. laws that affect
foreign investors specifically, we focused on the laws that either
restricted or required disclosure of such investments as the most
relevant. These were in the agriculture, transportation, banking,
communications, and natural resources and energy sectors. For the six
agencies[Footnote 2] responsible for enforcing the laws in these
sectors, we interviewed officials, reviewed regulations, and obtained
information on examples of enforcement actions taken by them with
respect to restrictions or other requirements on foreign investors.
Given the number of agencies we identified with enforcement
responsibility for these major provisions, we did not conduct a full
assessment of the extent to which the agencies are following their
processes for enforcing the laws. See appendix I for a more detailed
discussion of our objectives, scope, and methodology.
We conducted this performance audit from September 2008 through May
2009 in accordance with generally accepted government auditing
standards. These standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Background:
During the past 20 years the level of foreign investment in the United
States has increased. Foreign-owned assets in the United States, which
include holdings of bonds and other securities, were approximately $20
trillion in 2007, having increased from 39 percent of gross domestic
product (GDP) in 1988 to 145 percent of GDP in 2007.[Footnote 3] Within
this amount, the value of foreign investors' direct investment
holdings--which are investments of 10 percent or more of the equity
ownership in a company--have increased from about 8 percent of GDP in
1988 to more than 17 percent in 2007. In terms of annual flows into the
United States, new investments by foreign entities have generally
showed an upward trend since 1988, but dropped considerably in 2008
(see figure 1).
Figure 1: Foreign Investment Holdings and Flows in the United States:
1988 to 2008A (Percent of GDP):
[Refer to PDF for image: multiple line graph]
Year: 1988%;
Total investment flows: 4.8%;
Direct investment flows: 1.1%;
Total investment holdings: 39%;
Direct investment holdings: 7.9%.
Year: 1989%;
Total investment flows: 4.1%;
Direct investment flows: 1.2%;
Total investment holdings: 42.1%;
Direct investment holdings: 8.5%.
Year: 1990%;
Total investment flows: 2.4%;
Direct investment flows: 0.8%;
Total investment holdings: 41.4%;
Direct investment holdings: 8.7%.
Year: 1991%;
Total investment flows: 1.8%;
Direct investment flows: 0.4%;
Total investment holdings: 42.9%;
Direct investment holdings: 8.9%.
Year: 1992%;
Total investment flows: 2.7%;
Direct investment flows: 0.3%;
Total investment holdings: 43.2%;
Direct investment holdings: 8.5%.
Year: 1993%;
Total investment flows: 4.2%;
Direct investment flows: 0.8%;
Total investment holdings: 45.5%;
Direct investment holdings: 8.9%.
Year: 1994%;
Total investment flows: 4.3%;
Direct investment flows: 0.7%;
Total investment holdings: 46.4%;
Direct investment holdings: 8.7%.
Year: 1995%;
Total investment flows: 5.9%;
Direct investment flows: 0.8%;
Total investment holdings: 52.8%;
Direct investment holdings: 9.2%.
Year: 1996%;
Total investment flows: 7%;
Direct investment flows: 1.1%;
Total investment holdings: 57.4%;
Direct investment holdings: 9.5%.
Year: 1997%;
Total investment flows: 8.5%;
Direct investment flows: 1.3%;
Total investment holdings: 64.4%;
Direct investment holdings: 9.9%.
Year: 1998%;
Total investment flows: 4.8%;
Direct investment flows: 2%;
Total investment holdings: 68%;
Direct investment holdings: 10.5%.
Year: 1999%;
Total investment flows: 8%;
Direct investment flows: 3.1%;
Total investment holdings: 72.3%;
Direct investment holdings: 11.9%.
Year: 2000%;
Total investment flows: 10.6%;
Direct investment flows: 3.3%;
Total investment holdings: 77.1%;
Direct investment holdings: 14.5%.
Year: 2001%;
Total investment flows: 7.7%;
Direct investment flows: 1.6%;
Total investment holdings: 80.7%;
Direct investment holdings: 15%.
Year: 2002%;
Total investment flows: 7.6%;
Direct investment flows: 0.8%;
Total investment holdings: 83%;
Direct investment holdings: 14.3%.
Year: 2003%;
Total investment flows: 7.8%;
Direct investment flows: 0.6%;
Total investment holdings: 88.7%;
Direct investment holdings: 14.4%.
Year: 2004%;
Total investment flows: 13.1%;
Direct investment flows: 1.2%;
Total investment holdings: 99.1%;
Direct investment holdings: 14.9%.
Year: 2005%;
Total investment flows: 10%;
Direct investment flows: 0.9%;
Total investment holdings: 111.8%;
Direct investment holdings: 15.3%.
Year: 2006%;
Total investment flows: 15.6%;
Direct investment flows: 1.8%;
Total investment holdings: 126%;
Direct investment holdings: 16.3%.
Year: 2007%;
Total investment flows: 14.9%;
Direct investment flows: 1.7%;
Total investment holdings: 145.4%;
Direct investment holdings: 17.5%.
Year: 2008%;
Total investment flows: 4.2%;
Direct investment flows: 2.3%.
Source: International Economics Accounts, Bureau of Economic Analysis,
U.S. Department of Commerce.
[A] Investment holdings represent the amount existing at a certain
point in time. Investment flows are the amount of investment into and
out of the United States each year. At the time of this report, 2007 is
the latest year for which data on the value of total foreign investment
in the United States were available.
[End of figure]
SWFs Have Been Formed in Many Countries, but Recently Some Have
Experienced Asset Value Declines:
As we reported in September 2008, our analysis of the publicly
available government sources and private researcher lists identified 48
SWFs across 34 countries from most regions of the world.[Footnote 4] Of
the 48 SWFs we identified, 13 were in the Asia and Pacific region, 10
were located in the Middle East, and the remaining 25 were spread
across Africa, North America, South America, the Caribbean, and Europe.
[Footnote 5] Some countries, such as Singapore, the United Arab
Emirates, and the Russian Federation, have more than one entity that
can be considered a SWF. Some SWFs have existed for many years, but
recently a number of new funds have been created. For example, while
the Kuwait Investment Authority has existed since 1953 and the Kiribati
Revenue Equalization Reserve Fund since 1956, many commodity and trade-
exporting countries have set up new SWFs since 2000.[Footnote 6] In
July 2008, for example, Saudi Arabia announced plans to create a new
sovereign wealth fund.
Although some funds have continued to grow as they have received new
capital inflows, the recent financial crisis has led to declines in the
value of certain asset holdings of SWFs. Because not all funds publish
information on their size and performance, no official estimate of the
decline or increase in the overall size of SWFs is available. Some
funds that do publish information on the value of their investment
portfolios have reported losses in certain types of assets. Even with
these losses, some funds are reporting that they have grown in size.
For example, the Norwegian Government Pension Fund-Global incurred
losses of 23 percent of its value in 2008, including losses on its
equity portfolio of about 41 percent. However, the government of Norway
reports that the size of the fund increased in 2008 from new capital
infusions. Another example is Mubadala Development Company, a SWF of
the United Arab Emirates' Abu Dhabi, which experienced realized and
unrealized losses of $5.2 billion in 2008 but also received more than
$6.9 billion in contributions from shareholders.
Countries with SWFs account for a substantial share of the level of
foreign investment in the United States, although only a portion of the
investments in the United States made from entities in these countries
are made by such funds. As we reported in 2008, the extent of SWF
investment within the United States' data on overall foreign official
holdings cannot be identified.[Footnote 7] In the United States in
2008, entities from countries with SWFs accounted for about 33 percent
of foreign portfolio investment holdings--holdings of less than 10
percent of the equity ownership in a company--and more than 16 percent
of foreign direct investment holdings (see figure 2).
Figure 2: Public and Private Foreign Portfolio and Direct Investment
Holdings of U.S. Assets by Country Groupings:
[Refer to PDF for image: two pie-charts]
2008 foreign portfolio investment holdings:
Non-SWF[C] Europe: 34.4%;
SWF countries (includes all investment, not only SWF investment):
32.8%;
Other countries: 29.3%;
Japan: 12.5%.
2007 foreign direct investment holdings[A]:
Non-SWF Europe: 68.8;
SWF countries (includes all investment, not only SWF investment):
16.3%;
Other countries: 3.7%;
Japan: 11.1%.
Sources: Treasury International Capital System, U.S. Department of
Treasury, and International Economics Accounts, Bureau of Economic
Analysis, U.S. Department of Commerce.
[A] For foreign direct investment holdings, no data are available for
some SWF countries. Some countries do not report direct investment in
the United States while other countries have their data suppressed to
avoid disclosure of data on individual companies.
[B] Only a portion of a SWF country's investment in the United States
is made through SWFs. We reported in 2008 that SWF holdings are not
readily identifiable from U.S. data sources.
Data for SWF country holdings includes Iran and Iraq, which are not
included in our definition of SWF countries, because their holdings
cannot be separated out from those of other Middle East countries.
[C] Non-SWF Europe is comprised of all European countries that do not
have SWFs. The non-SWF Europe portfolio investment data includes
Belgium, Luxembourg, and Switzerland even though these countries are
major custodial, investment management, or security depository centers.
Much of the investment attributed to these countries originates
elsewhere. We also include Guernsey and Jersey. See Carol C. Bertaut,
William L. Griever, and Ralph W. Tyron, Understanding U.S. Cross-Border
Securities Data, Federal Reserve Bulletin (2006).
[End of figure]
U.S. Federal Laws Do Not Address SWF Investments Specifically, but
Restrict Foreign Investments in the United States in Some Sectors:
While most types of investors operating in the United States are not
subject to laws that are targeted at foreign investment, investments in
some sectors are subject to restriction. Although the United States has
an overall policy of openness to foreign investment through policy
statements and treaties and international agreements addressing
investment, we identified the banking, agriculture, transportation,
natural resources and energy, communications, and defense sectors as
having federal laws that apply to foreign investment specifically.
[Footnote 8] Banking, agriculture, transportation, natural resources
and energy, and communications make up about 20 percent of the U.S.
economy in terms of gross output. The sector-specific laws include
those that limit the amount of foreign ownership or control allowed or
require approval of foreign ownership, laws that restrict activities of
foreign-owned firms once the investment is made, and laws that require
disclosure of foreign ownership and control. The predominant rationale
for these investment laws is protecting national security. In addition
to laws specific to certain sectors, some broader federal laws--
including national security and general disclosure laws-
-can affect foreign investors investing in any sector. Lastly, there
are state level laws that also target foreign investment, especially in
the insurance and real estate sectors.
The United States Is Generally Open to Foreign Investment:
The United States has long been open and receptive toward foreign
investment and this openness has been demonstrated by the U.S.
government in various statutory frameworks, and policy measures, and in
treaties and international agreements addressing investment. For
example, a 1977 presidential statement noted that the U.S. policy
towards international investment was to neither promote nor discourage
investment flows or activities. A 1983 presidential statement noted
that direct investment in the United States was welcome if it was
responding to market forces. More recently, in 2007 former President
George W. Bush issued a policy statement supporting open international
investment regimes and stating that the U.S. government unequivocally
supports international investment in the United States.
The United States also has entered into agreements or treaties with
other countries and international organizations that acknowledge its
commitment to openness to foreign investment and encourage other
countries to also open their economies to investment. According to the
Department of State, the United States has entered into bilateral
investment treaties (BIT) with 40 countries, seeking to both encourage
the adoption of market oriented policies and protect cross-border
investments.[Footnote 9] The provisions of these treaties pledge the
United States and the signing country to grant foreign investors the
same investment opportunities as enjoyed by domestic investors.
[Footnote 10] The BITs also provide for the right of an investor to
submit an investment dispute with the treaty partner's government to
international arbitration. In addition to these treaties, many of the
free trade agreements the United States has entered into have
provisions that pledge open investment among the signing countries. For
example, the North American Free Trade Agreement signed by the United
States, Canada, and Mexico has provisions with terms similar to those
in the U.S. BITs. Lastly, the United States is also a member of two
international organizations--the Organization for Economic and
Community Development (OECD) and the World Trade Organisation (WTO)--
that advocate open investment related policies, including policies that
are transparent and nondiscriminatory.
In nine cases, the United States has entered into a BIT or a free trade
agreement with countries with SWFs, as shown in table 1. The table
shows the SWF countries that have signed investment treaties or entered
into free trade agreements with the United States, or are members of
OECD and WTO.
Table 1: U.S. and SWF-Country Investment Treaties and Membership in
International Organizations:
SWF countries: Algeria;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: observer[A];
OECD member: [Empty].
SWF countries: Angola;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Australia;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Check];
WTO member: [Check];
OECD member: [Check].
SWF countries: Azerbaijan;
BIT with the United States: [Check];
Free Trade Agreement with the United States: [Empty];
WTO member: observer;
OECD member: [Empty].
SWF countries: Bahrain;
BIT with the United States: [Check];
Free Trade Agreement with the United States: [Check];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Botswana;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Brunei;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Canada;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Check];
WTO member: [Check];
OECD member: [Check].
SWF countries: Chile;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Check];
WTO member: [Check];
OECD member: accession candidate[B].
SWF countries: China;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: enhanced engagement[C].
SWF countries: Colombia;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: pending;
WTO member: [Check];
OECD member: [Empty].
SWF countries: Gabon;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Hong Kong;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Ireland;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Check].
SWF countries: Kazakhstan;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: observer;
OECD member: [Empty].
SWF countries: Kiribati;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Empty];
OECD member: [Empty].
SWF countries: Kuwait;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Libya;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: observer;
OECD member: [Empty].
SWF countries: Malaysia;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Mauritania;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: New Zealand;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Check].
SWF countries: Nigeria;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Norway;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Check].
SWF countries: Oman;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Check];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Qatar;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Russia;
BIT with the United States: [Check][D];
Free Trade Agreement with the United States: [Empty];
WTO member: observer;
OECD member: accession candidate[B].
SWF countries: Sao Tome and Principe;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: observer;
OECD member: [Empty].
SWF countries: Singapore;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Check];
WTO member: [Check];
OECD member: [Empty].
SWF countries: South Korea;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: pending;
WTO member: [Check];
OECD member: [Check].
SWF countries: Sudan;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: observer;
OECD member: [Empty].
SWF countries: Trinidad and Tobago;
BIT with the United States: [Check];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: United Arab Emirates, Abu Dhabi;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: United Arab Emirates, Dubai;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Venezuela;
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
SWF countries: Vietnam[E];
BIT with the United States: [Empty];
Free Trade Agreement with the United States: [Empty];
WTO member: [Check];
OECD member: [Empty].
Source: GAO analysis of State Department, WTO, and OECD documents.
[A] Observer countries are defined as countries negotiating WTO
membership.
[B] Accession candidate refers to a country that is in the process of
applying for full membership.
[C] Countries that have entered into enhanced engagement with the OECD
are not full members but do actively and directly participate as
observers or full participants in the OECD committees and are expected
to consider adhering progressively to OECD instruments.
[D] The BIT with Russia enters into force pending Russia's ratification
process and exchange of ratified instruments.
[E] Vietnam has entered into a bilateral trade agreement with the
United States that contains an investment chapter similar to a BIT.
[End of table]
No Laws Specifically Target Sovereign Wealth Funds, but Some U.S.
Sectors Have Laws That Specifically Apply to Foreign Investors:
We did not find examples of federal laws that specifically target SWFs
investing in the United States; however some laws specifically target
foreign investment, which would include SWFs. While foreign investors
appear to face no federal restrictions specifically targeting their
ability to invest in many sectors of the U.S. economy, federal laws in
several sectors--banking, communications, transportation, natural
resources and energy, agriculture, and defense--do contain provisions
that either restrict the level of foreign investment, limit the use of
a foreign-owned asset, or at least require approval or disclosure of
any foreign investments. Banking, communications, transportation,
natural resources and energy, and agriculture accounted for about 20
percent of U.S. output in 2007.[Footnote 11] However, in terms of
attracting foreign investment, these sectors accounted for about 28
percent of foreign direct investment holdings in 2007 (see figure 3).
Figure 3: U.S. Gross Output and Foreign Direct Investment by Sector:
[Refer to PDF for image: two pie-charts]
Gross output 2007 (Total: $25.8 trillion):
Agriculture: 1%;
Transportation: 3%;
Communications: 3%;
Banking: 5%;
Natural resources and energy: 6%;
All other sectors: 82%.
FDI position 2007 (Total: $1.5 trillion):
Agriculture: 0%;
Transportation: 2%;
Communications: 3%;
Banking: 12%;
Natural resources and energy: 11%;
All other sectors: 72%.
Source: Industry Economic Accounts and International Economics
Accounts, Bureau of Economic Analysis, U.S. Department of Commerce.
Note:
The sectors are defined as containing the following industries: (1)
Banking: Federal Reserve banks, credit intermediation, and related
activities; securities, commodity contracts, and investments; and funds
trusts and other financial vehicles. (2) Communications: broadcasting
and telecommunications. (3) Transportation: air, rail, water, truck,
pipeline, transit and ground passenger transportation; and other
transportation and support activities. (4) Natural resources and
energy: mining (including all sub industries), utilities, and petroleum
and coal product manufacturing. (5) Agriculture: agriculture, forestry,
fishing, and hunting. (6) All other sectors: all the remaining
industries as reported in Bureau of Economic Analysis's data on gross
output and foreign direct investment.
[End of figure]
Several U.S. laws specifically affect foreign investment in the United
States regardless of the sector, with national security considerations
having the largest potential impact. These laws can potentially limit
foreign investment directly by preventing planned investments from
being carried out, which according to Treasury officials is rare, or
indirectly by discouraging investments by foreign investors who either
find the process burdensome or believe their chances of success are too
low. The Defense Production Act of 1950, as amended by the Foreign
Investment and National Security Act of 2007 (Section 721), authorizes
the President, following a review by the interagency Committee on
Foreign Investment in the United States (CFIUS), to suspend or prohibit
a foreign acquisition, merger, or takeover of a U.S. business that is
determined to threaten the national security of the United States.
[Footnote 12] The President can do this in cases where there is
credible evidence leading him to believe the foreign interest
exercising control might take action that threatens to impair national
security, and that provisions of law other than Section 721 and the
International Emergency Economic Powers Act (IEEPA) do not provide
adequate and appropriate authority for the President to protect the
national security. CFIUS may also enter into an agreement with, or
impose conditions on, parties to mitigate national security risks.
Filing a notice of a transaction with CFIUS is voluntary. However,
CFIUS can initiate a review unilaterally and can compel the production
of necessary information about the terms of any covered transaction. If
CFIUS is not satisfied that national security concerns can be
mitigated, it can recommend that the President suspend or prohibit such
a transaction, and the President may order divestment if the
transaction has been completed, regardless of whether a notice was
filed. The regulations outlining the review process for CFIUS provide
broad authority to review any covered transaction if it is a possible
impairment to national security.
In addition, IEEPA authorizes the President to prohibit certain
transactions or block any property in which any foreign country or
foreign national has any interest. It grants the President broad
authorities to "deal with any unusual and extraordinary threat, which
has its source in whole or substantial part outside the United States,
to the national security, foreign policy, or economy of the United
States." Before exercising these authorities, IEEPA requires the
President to declare a national emergency. National emergency
declarations are governed by the National Emergencies Act. IEEPA
sanctions are typically imposed pursuant to an executive order.
Further, in addition to the impact of statutes that may block foreign
investment, there is also an element of political risk to investing in
the United States that can have an effect on foreign investment.
According to a trade group representing foreign investors, the
political risk of investing in the United States has risen since 2006.
For example, the CFIUS review process came under increased scrutiny,
and went through significant reforms, after the public outcry over the
attempted purchase by a Dubai company, Dubai Ports World, of a company
that operated various U.S. port facilities. Although initially allowed
to proceed by CFIUS in 2006, subsequent congressional and media
attention ultimately caused the company to sell the U.S. portion of the
business to a U.S. company. Similar controversy thwarted a Chinese
state-owned enterprise's attempt to purchase a U.S. oil company in
2005. Legal experts representing SWFs investing in the United States
told us that they now take their clients to meet with members of
Congress prior to initiating a transaction that might be viewed as
politically sensitive to try to mitigate any potential concerns or
resistance that could disrupt a planned transaction.
Some federal laws do not restrict foreign investment, but place general
reporting requirements on foreign investments, regardless of the
sector. For example, the International Investment and Trade in Services
Act requires reporting on all investments in U.S. business enterprises
in which a foreign person owns a 10 percent or greater voting interest,
as well as periodic surveys of foreign ownership of U.S. firms. In
addition, under the Tax Equity and Fiscal Responsibility Act of 1982,
as amended, any U.S. corporation that is at least 25 percent foreign
owned and any foreign corporation doing business in the United States
must file an information return with the Internal Revenue Service
disclosing reportable transactions.
Lastly, all foreign investors, including SWFs, must abide by all
applicable U.S. laws. For example, any investor, including foreign
investors, which make substantial investments in U.S. registered
securities, must file proper disclosures with the SEC under federal
securities laws. Also, mergers and acquisitions by foreign investors
would still face a regulatory review by the Federal Trade Commission or
the Department of Justice, if there are concerns about possible
antitrust violations.
No Federal Laws Completely Prohibit Foreign Investment in a Sector, but
Limits and Additional Requirements Placed on Foreign Investors Exist
for Some Sectors:
The sector-specific federal laws that apply to foreign investors vary
in the types and levels of restrictions and provisions they contain.
Based on our review, there is no sector of the U.S. economy within
which foreign investors are completely excluded by federal law from any
type of investing. The laws that are in place generally fall into one
of the three following categories:
(1) Laws that limit and regulate direct foreign ownership in certain
sectors or require prior approval of foreign investment.
(2) Laws that restrict activities of either the foreign-owned firm or
the foreign parent once an investment has been made.
(3) Laws that do not explicitly limit foreign investment but require
disclosure of ownership.
Table 2 summarizes the key provisions of these laws by sector. For a
more detailed discussion of the applicable laws in each sector see
appendix II.
Table 2: Major Provisions of Sector-Specific Laws that Apply
Specifically to Foreign Investors[A]:
Laws that limit and regulate foreign investment or require approval:
Transportation: aviation and maritime;
Laws that limit and regulate foreign investment or require approval:
* Foreign investment in U.S. air carriers is limited to 25% of voting
interest;
* Foreign investors may have up to one third of the directors in U.S.
air carriers;
* Foreign investment in U.S. flag coastwise trade vessels is limited to
25% ownership or control;
* Foreign investors may own 100% of a U.S. flagged international trade
vessel so long as the vessel owner is organized and incorporated under
the laws of the U.S., its chief executive office and chairman of the
board are U.S. citizens, and no more than a minority of the number of
its Board of Directors necessary to constitute a quorum are non-U.S.
citizens;
* Foreign investment in U.S. commercial fishing vessels is limited to
25% ownership or control.
Communications;
* Foreign governments may not hold radio licenses;
* Foreign investment in corporations that hold broadcast, common
carrier (telecommunications services), and certain other radio licenses
is limited to 20%;
* Foreign investment in U.S. parent company of a company that holds
above-mentioned licenses is generally limited to 25%;
* License to own or control a cable landing system, or authorization to
provide telecommunications service may be withheld based on foreign
ownership.
Banking;
* Foreign banks must get FRB approval before establishing a branch or
agency, or acquiring ownership or control of a commercial lending
company, and any company (foreign or domestic) must get FRB approval
before acquiring 25% or more or otherwise acquiring control of a U.S.
bank;
* Banks must generally be subject to comprehensive supervision on a
consolidated basis by appropriate authorities in home country.
Natural Resources and Energy: nuclear energy;
* Entities that are known or are reasonably believed to be owned,
controlled, or dominated by foreign interests may not hold a license
for nuclear reactor facilities;
* Foreign ownership of nuclear production, utilization, and enrichment
facilities, as well as licensing for source material and special
nuclear material, must be evaluated for impact on the common defense
and security of the United States.
Natural Resources and Energy: mining and mineral leases;
* No foreign investor may directly purchase or own federal mineral
deposits that are open to exploration or other important mineral
leases;
* Foreign investors may, however, own up to 100% of a U.S. company that
holds mineral or mining leases;
* No foreign investor may directly hold a license to construct or
operate a deepwater oil or natural gas port beyond State seaward
boundaries and beyond the territorial limits of the United States.
Laws that restrict activities of foreign-owned firms or investors after
investment is made:
Transportation: aviation and maritime;
* Vessels that are more than 25% foreign owned cannot carry cargo or
passengers between U.S. ports;
* Aircraft that are more than 25% foreign owned cannot carry passengers
or cargo between two U.S. cities;
* Vessels that are more than 25% foreign owned are only allowed to fish
in U.S. fisheries under certain international agreements and are
subject to annual quotas.
Banking;
* The activities a bank holding company can engage in are limited.
(This is not limited to foreign investors.)
Defense;
* Non U.S. citizens and companies under foreign ownership, control, or
influence are generally not eligible for access to classified
information;
* Foreign government controlled companies generally cannot be awarded
U.S. defense contracts, or Department of Energy contracts, which
require access to proscribed information under a national security
program, absent a waiver.
Laws that do not restrict, but only require disclosure, of foreign
ownership:
Agriculture;
* Foreign investors in agricultural land holdings must file a
disclosure report.
Source: GAO analysis of relevant statutes.
[A] This table represents a high level summary of provisions of complex
statutes. For a more complete description of these provisions see
appendix II.
[End of table]
Based on our analysis, we found three sectors--transportation,
communications, and natural resources and energy--to have federal laws
with provisions that specifically limit foreign ownership. The level of
investment permitted or the type of restrictions vary by law and
sector. For example, in the transportation sector, total foreign
ownership may not exceed 25 percent of the voting interest of a U.S.
air carrier, under provisions of the Federal Aviation Act of 1958. In
the communications sector, foreign governments are prohibited from
holding any radio license, and foreign corporations are prohibited from
holding broadcast, common carrier (telecommunications services), and
certain other radio licenses. These prohibitions may prevent an SWF
from being issued such licenses, since such funds are government-owned
investment vehicles. Foreign investors may, however, hold up to 20
percent of the capital stock of licensees, and may hold up to 25
percent of the capital stock of U.S. entities that control licensees.
[Footnote 13] And in the natural resources and energy sector, foreign
investors are precluded from directly purchasing and holding mineral
extraction leases on U.S. lands. However, according to officials at the
Department of the Interior, the law does allow foreign investors to own
these assets indirectly by allowing up to 100 percent foreign ownership
of a U.S. company that holds such leases.
Some federal laws in transportation, banking, and defense do not
prevent foreign investors from purchasing U.S. assets but instead
restrict the activities in which these foreign-owned assets can engage.
For example, under shipping laws foreign-owned vessels--meaning vessels
more than 25 percent owned or controlled by foreign investors--are
generally not permitted to carry cargo between points in the United
States. Foreign investors are allowed to invest in U.S. companies that
provide goods and services to the U.S. military, subject to
restrictions related to the control of classified information and the
performance on classified contracts. For example, under the regulations
governing the National Industrial Security Program (NISP), a company is
ineligible for access to classified information or award of a
classified contract if that company is under foreign ownership, control
or influence to such a degree that the granting of a facility clearance
would be inconsistent with the national interest.[Footnote 14] Pursuant
to the regulations under NISP, foreign ownership, control or influence
may be mitigated through certain corporate agreements controlling
shareholder interests with respect to shareholder voting, board of
director composition, visitation privileges, technology and electronic
communication controls, and other security measures to effectively
monitor and address related threats.
In the banking sector, foreign companies, like domestic companies, must
seek approval for investments that exceed certain thresholds and must
meet other requirements once an investment is made above those
thresholds. Foreign companies are required to receive approval from FRB
prior to acquiring 25 percent or more of the voting shares, or
otherwise acquiring control, of a U.S. bank. Foreign banks must receive
prior approval of FRB before opening certain types of banking
operations in the United States. In general, only foreign banks that
are subject to comprehensive supervision on a consolidated basis by the
appropriate authorities in their home country are permitted by FRB to
acquire control of U.S. banks or bank holding companies or conduct
banking operations in the United States. In addition, once a foreign
company obtains 25 percent or more, or otherwise acquires control, of a
U.S. bank or bank holding company, it becomes a bank holding company
and is subject to restrictions on conducting certain banking and
nonbanking related activities. These restrictions apply to the company
and to any company that owns the foreign company. An official at FRB
told us that this may also serve to limit foreign investment in banks
by SWFs, since many of them would not want to be limited in the other
types of investments they could make in the United States.
Finally, foreign investors face no federal restrictions on investments
in U.S. agricultural land, but are required to report purchases above a
minimum threshold. Under the Agricultural Foreign Investment Disclosure
Act of 1978, foreign entities--meaning individuals, organizations, and
governments--are required to file reports on the acquisition or
transfer of agricultural land if it involves more than 10 acres or
produces agricultural products of $1,000 or more per year. U.S.
entities in which there is a significant interest or substantial
control must also file these reports. Significant interest or
substantial control is defined as 10 percent or more direct or indirect
interest in the entity if held by a single foreign person or a group of
foreign persons acting in concert, or a 50 percent or more direct or
indirect interest if held by a group of foreign persons not acting in
concert, as long as none of them individually holds a 10 percent or
greater interest. This information is compiled by the Farm Services
Agency of the Department of Agriculture and is reported annually. A
filing must also be made when there are certain changes in
circumstance.[Footnote 15]
Federal Laws Affecting Foreign Investment Were Generally Enacted to
Protect National Security and U.S. Industry:
The various investment laws restricting or otherwise affecting foreign
investment in the United States date back to 1872 in one case and were
generally enacted in response to national security concerns existing at
the time. For example, the Merchant Marine Act of 1920 was passed
largely to address concerns at the time that the United States maintain
a sizable shipping fleet under U.S. control. Also, the restrictions on
foreign ownership of communication licenses, as contained in provisions
of the Communications Act of 1934, were intended to preclude foreign
dominance of American radio and arose from lessons the United States
had learned from the foreign dominance of cables and the dangers from
espionage and propaganda disseminated through foreign-owned radio
stations in the United States prior to and during World War I. Further,
restrictions on ownership and control of U.S. air carriers are
partially the result of concern over military reliance on civilian
airlines to supplement airlift capacity in times of war. According to
some experts, foreign investment laws have received more prominence or
increased attention since the terrorist attacks on the United States in
2001.
Other rationales for these laws include, in part, using them to gain
access for U.S. investors abroad and protecting U.S. industries. For
example, part of the rationale for the reciprocity provision in the
Mineral Leasing Act of 1920 was to promote outward U.S. investment by
blocking investments from countries that did not allow U.S. investors
to participate in mineral leasing.[Footnote 16] The Merchant Marine Act
of 1920 also aimed to augment American shipping, as it allowed
preferential rail rates for shippers that used U.S. vessels, and
authorized the President to abrogate treaties that did not allow
discrimination in favor of U.S. shipping. Further, the foreign
ownership standards of the Civil Aeronautics Act of 1938 sought to
protect the then fledgling U.S. airline industry and stimulate the
domestic provision of aviation services. Lastly, the Agriculture
Foreign Investment Disclosure Act of 1978 was enacted partly in
response to concerns voiced by rural constituencies that foreign
investment, spurred by the depreciation of the U.S. dollar against
European currencies, was causing an escalation in the price of
agricultural land in the United States and posing a threat to family
farm and rural communities. Figure 5 shows a timeline of when these
various laws were passed.
Figure 4: Timeline of Major Foreign Investment Laws and Influencing
Events:
[Refer to PDF for image: illustration]
Timeline of Major Foreign Investment Laws and Influencing Events:
Mining Law of 1872;
World War I (1919-1924);
Mineral Leasing Act of 1920;
Merchant Marine Act of 1920;
Submarine Cable Landing License Act of 1921;
Great Depression (1930-1939);
Communications Act of 1934;
1938 Civil Aeronautics Act;
World War II (1939-1946);
Defense Production Act of 1950;
Atomic Energy Act of 1954;
Bank Holding Company Act of 1956;
Depreciation of dollar (1970-1980);
Major oil price increases (1974-1977);
Arms Export Control Act of 1976;
International Investment and Trade in Services Survey Act of 1976;
Change in Bank Control Act of 1978;
Agriculture Foreign Investment Disclosure Act of 1978;
Exon Florio Amendment to Defense Production Act of 1950 (1987);
International Banking Act/Foreign Bank Supervision Enhancement Act of
1991;
Executive Order Number 12829 (1993);
September 11th terrorist attacks (2001);
February 2006 Dubai ports world controversy:
Foreign Investment and National Security Act of 2007.
Source: GAO analysis.
[End of figure]
State Laws Restricting Foreign Investment Largely Limit Investments in
Real Estate and Insurance:
In addition to federal laws that may affect foreign investment, we
identified various state laws that may affect foreign investors'
ability to invest in U.S. assets, based on information available from
government and private sources with relevant expertise.[Footnote 17]
Based on our analysis of information from these sources, most state
level laws affecting foreign investment appear to be in the insurance
and real estate sectors. According to information collected by the
National Association of Insurance Commissioners, 28 states have laws
that address foreign government ownership of insurance companies in
their state. For example, under the state insurance code for Wyoming,
no foreign insurer that is owned or controlled in any manner or degree
by any government or governmental agency shall be authorized to
transact insurance in Wyoming.
Restrictions on foreign investment in real estate also exist in many
states. According to a survey conducted by the National Association of
Realtors in 2006, 37 U.S. states had some type of law affecting foreign
ownership of real property. These laws varied, with some only requiring
foreign investors to register as a company doing business in the state
before purchasing property, and others specifically prohibiting foreign
ownership of certain types of land. For example, one common type of
real property restriction was for agricultural land, with 15 states
having some law governing foreign ownership in this area.
Agencies Described Processes Addressing Key Elements of Enforcing Laws
Affecting Foreign Investment; Using Supplemental Information Could
Assist Some Agencies:
Agencies responsible for enforcing laws specifically addressing foreign
investment in six sectors have processes addressing the key elements of
enforcement.[Footnote 18] We determined, based on analysis of the
specific requirements of each law and professional judgment, that to
enforce laws restricting or requiring disclosure of purchases,
responsible agencies would at a minimum need to have processes
addressing three key elements: detecting foreign investments, verifying
the identity and share of foreign ownership to ensure that purchases
meet requirements of certain statutes, and monitoring ongoing changes
in ownership. Each of the agencies responsible for the six sectors has
processes addressing these three enforcement elements, although we did
not fully assess the extent to which these processes were being
followed. However, reviewing additional transaction and investment
sources could supplement some agencies' efforts to detect subsequent
ownership changes. Staff with the six agencies reported that they find
few violations of foreign investment laws in their sectors and have
taken some enforcement actions pursuant to these laws, with none
involving an SWF.
Enforcing Laws Affecting Foreign Investment Requires Several Key
Elements:
Federal agencies responsible for oversight in the agriculture,
transportation, banking, communications, and the two natural resources
and energy sectors of nuclear energy, and mining and mineral leases are
also responsible for ensuring compliance with the laws relating to
foreign investment in those sectors. In general, the laws in these
sectors are intended to limit foreign investment in U.S. assets to
specific percentages, ensure that the extent of foreign ownership of
certain U.S. assets is known, or limit the activities that can be
undertaken by the foreign owners. We determined that in order for
agencies to have the necessary information to determine whether the
requirements of the laws were being met, they would, at a minimum, need
processes to:
(1) identify all transactions that are subject to the law,
(2) verify the identity and amount of foreign ownership and control to
ensure that the portion of foreign ownership and control is below the
legal limit for restrictive statutes, and:
(3) monitor changes to ownership that occur after the initial
transaction, and ensure that foreign ownership and control remains
below the legal limit for blocking statutes.
Each Agency Identifies Transactions Subject to Relevant Laws Largely
through Licensing and Disclosure Requirements:
To identify investments potentially subject to the various restricting
and disclosure laws, each of the six federal agencies becomes aware of
potential foreign investments in its sectors through the existing
licensing and filing requirements that apply to its sector. Though the
processes vary by agency, the sector-specific laws applicable to
foreign investment generally require approval, licensing, or disclosure
of any entity seeking to operate or own assets in that sector (see
table 3).
Table 3: Summary of Agency Processes for Detection of Initial
Investments:
Transportation: aviation:
Legal provision: Foreign investment in U.S. air carriers is limited to
25% of voting interest;
Agency: Department of Transportation (DOT);
Detection of initial investments:
Primary actions:
* New air carriers must request a certificate to operate as a U.S. air
carrier or an exemption from certification requirements from DOT;
Supplemental actions:
* DOT monitors press reports and other public sources of information;
* DOT receives reports of possible violations and abuses from the
public and competitors.
Communications:
Legal provision: Foreign governments may not hold radio licenses.
Foreign investment in corporations that hold broadcast, common carrier
(telecommunications services), and certain other radio licenses is
limited to 20%. Foreign investment in U.S. parent company of a company
that holds above-mentioned licenses is limited to 25%. License to own
or control a cable landing system or authorization to provide
telecommunications service may be withheld based on foreign ownership;
Agency: Federal Communications Commission (FCC);
Detection of initial investments: Radio licenses;
Primary actions:
* Entities must apply for license with FCC prior to operations;
Supplemental actions:
* FCC reviews public comments with respect to transactions it is
required to approve.
Legal provision: Foreign governments may not hold radio licenses.
Foreign investment in corporations that hold broadcast, common carrier
(telecommunications services), and certain other radio licenses is
limited to 20%. Foreign investment in U.S. parent company of a company
that holds above-mentioned licenses is limited to 25%. License to own
or control a cable landing system or authorization to provide
telecommunications service may be withheld based on foreign ownership;
Agency: Federal Communications Commission (FCC);
Telecommunications authorizations: Primary actions:
* Companies wishing to provide telecommunications (i.e. common carrier)
services from the United States to foreign countries or within the
United States must apply for a certificate of public convenience from
the FCC;
* Companies wishing to construct and operate a submarine cable landing
system in the United States must apply for a cable landing license.
Banking:
Legal provision: Foreign banks must get FRB approval before
establishing a branch or agency, or acquiring ownership or control of a
commercial lending company, and any company (foreign or domestic) must
get FRB approval before acquiring 25% or more or otherwise acquiring
control of a U.S. bank. Banks must generally be subject to
comprehensive supervision on a consolidated basis by appropriate
authorities in home country;
Agency: Federal Reserve Board (FRB);
Detection of initial investments:
Primary actions:
* Any investor, including foreign ones, acquiring a U.S. bank must
apply for approval from the FRB;
* Foreign banks must apply for approval to establish a branch or an
agency, or acquire ownership or control of a commercial lending
company;
Supplemental actions:
* FRB monitors press releases and other public sources of information;
* FRB relies on existing relationships within the banking community;
* Banks are aware that banking is a highly regulated industry;
therefore most banks looking to enter the U.S. market check with the
FRB first.
Natural Resources and Energy: nuclear energy:
Legal provision: Foreign investors or entities that are known or are
reasonably believed to be owned, controlled, or dominated by foreign
interests may not hold a license for nuclear facilities; Foreign
ownership of nuclear reactor facilities, as well as licensing for
source materials or special nuclear material, must be evaluated for
impact on the common defense and security of the United States;
Agency: Nuclear Regulatory Commission (NRC);
Detection of initial investments:
Primary actions:
* Entities must apply for the issuance of a license for nuclear
production, utilization, and enrichment facilities and for handling
source material or special nuclear material;
Supplemental actions:
* NRC monitors press reports and other public sources of information;
* There are very few new applicants for nuclear reactors. Currently,
there are 17 pending applications for new licenses and generally about
6 license transfer applications per year.
Natural Resources and Energy: mining and mineral leases:
Legal provision: No foreign investor may directly purchase or own U.S.
mineral deposits that are open to exploration or other important
mineral leases. Foreign investors may however own up to 100% of a U.S.
company that holds mineral leases;
Agency: Department of the Interior (Interior);
Detection of initial investments: Primary actions:
* Interior is aware of investors because it awards mineral leases
through competitive sales;
* Claimants who have located mineral deposits that are open to mining
exploration submit a notice or plan of operations before beginning
operations.
Agricultural lands:
Legal provision: Foreign investors in agricultural land holdings must
file a disclosure report;
Agency: Department of Agriculture (Agriculture);
Detection of initial investments:
Primary actions:
* Foreign entities must file a report upon purchase of more than 10
acres in the aggregate of an agricultural land tract;
* Agriculture publicizes the requirements in various relevant
newsletters and county government offices, and routinely notifies state
bar associations, state real estate commissions, and state farm loan
offices;
Supplemental actions:
* Agriculture's county offices annually review all agricultural land
ownership changes in the Recorder of Deeds Office in their county;
* Agriculture monitors news reports;
* Agriculture investigates whistleblower tips.
Source: GAO analysis of relevant laws and regulations, as well as
activities described by agency officials, policy statements, and
process documents from cited agencies.
Note: The legal provisions described above are high level summaries of
complex statutes. For a more detailed discussion of the statutes see
appendix II.
[End of table]
For five of the sectors we reviewed--transportation, banking,
communications, nuclear energy, and mineral leases--entities seeking to
establish new operations or invest in existing ones must generally seek
approval from the federal oversight agencies through a licensing or
approval process. As a result, when an entity seeks to make an
investment in one of these sectors, the federal agency becomes aware of
the transaction. With respect to purchases by foreign entities of U.S.
agricultural land, the Department of Agriculture, although not required
to approve such purchases, becomes aware of them through reporting
requirements under the Agriculture Foreign Investment Disclosure Act.
[Footnote 19]
Agency officials described aspects of the approval and licensing
requirements and other actions they take to ensure their awareness of
foreign investments, as factors contributing to compliance. Officials
at the six agencies stated that foreign investors' compliance with
these laws is likely high because the requirements are well-
established, and consequences of not filing can be severe, such as
halting operations or forcing payment of penalties.[Footnote 20] In
addition, most of the agencies reported additional processes to ensure
compliance. For example, staff from four agencies told us that they
monitor press releases and other public information sources to identify
potentially relevant transactions. For example, NRC officials reported
that changes in ownership of nuclear facilities are somewhat rare and
are newsworthy when they do occur. In addition, staffs from two
agencies told us that they expect to receive whistleblower tips from
competitors or inside sources which they use to help monitor compliance
and become aware of transactions. For example, banking regulator
officials told us that in the late 1990s a foreign bank that operated
U.S. branches had invested in another U.S. financial services
organization violating restrictions set out in the Bank Holding Company
Act. They became aware of this violation from the staff of a law firm
employed as part of the transaction. Staff from Agriculture told us
that to ensure they are identifying all transactions, their field-based
staff annually review county records to identify real estate
transactions recorded that year to ensure all transfers of ownership
involving foreign parties were reported to them as required.
Agencies' Processes for Identifying Foreign Ownership and Verifying
Information Vary by Statute:
To identify foreign ownership, verify the accuracy of the identities of
the reported owners, and determine the full extent of foreign
ownership, each agency's methods vary according to the specific
provisions in the law applicable to its sector (see table 4).
Table 4: Summary of Agency Processes for Ensuring Foreign Owners Are
Identified and Amounts Purchased Are Below Requirements:
Transportation: aviation:
Legal provision: Foreign investment in U.S. air carriers is limited to
25% of voting interest;
Agency: Department of Transportation (DOT);
Process for ensuring foreign owners are identified and amounts
purchased are below requirements: DOT primarily uses the application
process to ensure foreign owners are correctly identified and to verify
that purchases are below legal limits. The agency:
* Requires U.S air carriers to submit extensive information about
owners' citizenship (including all shareholders) before being
authorized to operate;
* Requires submission of copies of transaction documents (such as
stockholders' agreement, stock purchase agreement, warrants, and debt
or equity funding agreements) directly from all types of air carrier
investors, including individuals, corporations, or partnerships;
* Reviews SEC filings for publicly traded companies to supplement and
corroborate other document submissions;
* Traces ownership back to ultimate economic beneficiaries through
review of air carrier's transaction records which state name and
citizenship of shareholders, the number of shares held, and the
percentage of ownership held.
Communications:
Legal provision: Foreign governments may not hold radio licenses.
Foreign investment in corporations that hold broadcast, common carrier
(telecommunications services), and certain other radio licenses is
limited to 20%. Foreign investment in a U.S. parent company of a
company that holds above-mentioned licenses is limited to 25%. License
to own or control a cable landing system or authorization to provide
telecommunications service may be withheld based on foreign ownership;
Agency: Federal Communications Commission (FCC);
Process for ensuring foreign owners are identified and amounts
purchased are below requirements: Radio licenses;
FCC primarily uses the application process to ensure foreign owners are
correctly identified and to verify that purchases are below legal
limits for investments in licensed companies. The agency:
* Requires that every attributable owner (generally, 10% or greater
stake for telecommunications companies; 5% or greater voting stock
interest in a corporation owning a broadcast license) must be reported
in the application;
* Requires that the applicant must provide information verifying
citizenship of company's owners, and for some radio services, the
location of the foreign owners' principal place of business, countries
of incorporation, countries where the majority of assets are held, and
countries that generate its most sales or revenues. Information is
verified by FCC staff when necessary using publicly available
resources;
* Traces ownership back to ultimate economic beneficiaries by examining
all voting and equity interests held in and through the successive
corporate parents of an applicant;
* May require a statistical sample of a publicly-traded companies'
various stockholders to estimate the portion of foreign ownership.
Telecommunications and cable landing licenses;
When foreign ownership is involved, the application is forwarded to
Team Telecom, an interagency review team, for approval.[A] In addition,
FCC asks for the identity of any 10% or greater equity or voting
interest holders. There is no statutory foreign ownership limit for
companies that provide non-radio based telecommunications services--
foreign ownership is considered primarily in terms of national security
interests by Team Telecom.
Banking:
Legal provision: Foreign banks must get FRB approval before
establishing a branch or agency, or acquiring ownership or control of a
commercial lending company, and any company (foreign or domestic) must
get FRB approval before acquiring 25% or more or otherwise acquiring
control of a U.S. bank. Banks must generally be subject to
comprehensive supervision on a consolidated basis by appropriate
authorities in home country;
Agency: Federal Reserve Board (FRB);
Process for ensuring foreign owners are identified and amounts
purchased are below requirements: Foreign ownership is reviewed as part
of the approval process. FRB:
* Examines ownership data records provided by applicants;
* Conducts background checks on the relevant individuals and corporate
entities looking for any crimes involving dishonesty. Individuals are
also fingerprinted;
* Performs Internet searches for background information on individuals
and corporate entities;
* Does full due diligence, including checking with Central Intelligence
Agency, Drug Enforcement Agency, and U.S. Citizenship and Immigration
Services;
* Collects information on and reviews ownership up to ultimate
beneficial owners;
* Investigates and makes a determination of whether or not foreign bank
is subject to comprehensive supervision on a consolidated basis by
appropriate authorities in its home country;
There are also criminal penalties for misrepresentation of data
provided to FRB on ownership.
Natural Resources and Energy: nuclear energy:
Legal provision: Foreign investors or entities that are known or are
reasonably believed to be owned, controlled, or dominated by foreign
interests may not hold a license for nuclear facilities. Foreign
ownership of nuclear reactor facilities, as well as licensing for
source materials or special nuclear material, must be evaluated for
impact on the common defense and security of the United States;
Agency: Nuclear Regulatory Commission (NRC);
Process for ensuring foreign owners are identified and amounts
purchased are below requirements: NRC primarily uses the application
process to ensure foreign owners are correctly identified and to verify
that purchases are below legal limits for foreign investments in
licensed companies. The agency:
* Requires that all applicants submit information on citizenship of
individuals, partners, principal officers, and directors; principal
location of business; place of incorporation; and whether it is "owned,
controlled, or dominated" by an alien, a foreign corporation, or a
foreign government and, if so, the details of that relationship;
* Informs applicants that attestations as to the validity of
information are provided under penalty of perjury from
misrepresentations;
* Reviews information on ownership, including up to the level of
ultimate beneficial owner, along with any additional information the
NRC may have on the applicant. If there may be reason to believe that
an applicant is "owned, controlled, or dominated" by a foreign
interest, NRC will request additional information;
* May request additional information, including copies of all relevant
SEC filings, management positions held by non-U.S. citizens, and the
ability of foreign entities to control the appointment of management
personnel;
* Considers percentage of foreign ownership in light of all other
information in making a determination. There is no established
threshold regarding foreign ownership.
The process for granting license for nuclear facilities is extensive;
the average process takes 18 to 30 months. The NRC also evaluates
foreign ownership with an orientation to common defense and security.
Therefore even if an applicant is not found to be under foreign control
it may still be denied a license if it has any foreign ownership and it
is determined that the foreign ownership is a threat to the common
defense and security of the United States.
Natural Resources and Energy: mining and mineral leases:
Legal provision: No foreign investor may directly purchase or own U.S.
mineral deposits that are open to exploration or other important
mineral leases. Foreign investors may however own up to 100% of a U.S.
company that holds mineral leases;
Agency: Department of the Interior (Interior);
Process for ensuring foreign owners are identified and amounts
purchased are below requirements: Interior verifies that lease holder
meets requirements--proof of citizenship and proof of state in which
corporation or partnership is incorporated or established--and
investigates indirect foreign ownership to ensure that home country of
foreign investor does not violate reciprocity requirements.[B] There is
no investigation into indirect foreign ownership unless a complaint is
filed. There is no threshold requirement for indirect foreign
ownership.
Agricultural lands:
Legal provision: Foreign investors in agricultural land holdings must
file a disclosure report;
Agency: Department of Agriculture (Agriculture);
Process for ensuring foreign owners are identified and amounts
purchased are below requirements: Agriculture:
* Attempts to track ownership back to the ultimate beneficial owner
through documents received from investor; however the agency only has
the authority under current regulations to track ownership back to
three tiers[C];
* Examines corporate structure documents provided by investor to
identify foreign ownership.
Submission of a report with false or misleading information is
punishable by fine of up to 25% of the asset's value.
Source: GAO analysis of relevant laws and regulations, as well as
activities described by agency officials, policy statements, and
process documents from cited agencies.
Note: The legal provisions described above are high level summaries of
complex statutes. For a more detailed discussion of the statutes see
appendix II.
[A] Team Telecom also reviews transactions where foreign investors are
seeking permission to exceed the 25% benchmark on indirect foreign
ownership of common carrier (telecommunications services). Team Telecom
is an interagency working group consisting of the Departments of
Justice, Homeland Security, and Defense, as well as the Federal Bureau
of Investigation. They review telecommunications transactions involving
foreign ownership in order to assess the impact on the national
security of the United States. They may require foreign investors to
take certain actions to mitigate any potential threats prior to
approval of the transaction.
[B] According to Interior officials, there are no countries on the
nonreciprocal list. Interior evaluates the laws of other countries with
respect to equal treatment of foreign investors and makes a
determination of reciprocity.
[C] Agriculture officials said that they plan to revise the regulations
to give them authority to track ownership back to the ultimate
beneficial owner; however, no proposed regulations had been published
in the Federal Register as of April 2009.
[End of table]
Across the six sectors, agencies require that investors establishing
operations or making purchases submit information regarding ownership
and control. The amount and type of information requested varies by
agency, in part due to the requirements of the statute. For example,
five of the agencies request information on ownership that allows the
agency to track ownership back to the ultimate beneficial owners.
However, in the case of mineral leases, the statute requires only that
the lease holder be a U.S. citizen, permanent resident, corporation, or
association of citizens, residents, or corporations. The requirements
concerning foreign ownership of the lease holder are less stringent
than the other sectors, therefore Interior requires less documentation
on ownership in this case.
Each agency reviews the information provided to determine if the extent
of foreign ownership can be accurately determined, and in some cases
verifies the accuracy against other sources. Three agencies reported
using outside sources to verify some of the information provided. For
example, DOT and NRC reported using, as part of their reviews of
ownership information provided, disclosures that entities investing in
5 percent or more of the securities outstanding for a publicly traded
company must file with SEC. Similarly, officials at FRB reported
verifying information through background checks of individual owners.
In the event that the original information provided is not enough to
determine the extent of foreign ownership, some agencies will request
additional information from the involved entities. For example, NRC can
request additional information that shows information such as
management positions held by non-U.S. citizens and the ability of
foreign entities to control the appointment of management personnel.
Officials at the agency stated they do not generally conduct
independent verification of the information provided unless they have
reason to believe the information provided is false. However, officials
at NRC stated that any nuclear facility operator would be subject to
ongoing ownership reviews under the National Industrial Security
Program, in order to receive clearances for working with classified
information. Each agency reported that it relies, to some extent, on
companies truthfully providing ownership information and stated that
there are penalties for misrepresentation that act as a deterrent to
supplying false information.
Ensuring compliance with laws applicable to foreign ownership sometimes
requires each agency to research various levels of ownership beyond the
entity conducting the transaction in the United States. Some agency
staff indicated this can be challenging because of the complex
ownership structures often employed. To determine the identities of
owners in such corporate structures, agency officials told us that they
ask applicants to provide additional documentation. To determine the
extent of foreign ownership of companies holding broadcast licenses
that are publicly owned, FCC staff told us that they have the
discretion to--and have--allowed the use of a statistical sample of the
shareholders of a public entity. Where common carrier
(telecommunications services) licenses are involved, FCC staff ask the
applicants to categorize the type of foreign investors who hold a stake
in their company, such as foreign governments, pension plans and
endowments, banks, insurance companies, and private equity funds. In
contrast, Agriculture staff told us that their ability to determine the
ultimate foreign owners of U.S. agricultural lands is sometimes limited
under their current regulations because their staff do not have
authority to compel disclosure of information beyond the third tier of
ownership.[Footnote 21] However, an official at Agriculture told us
that most filers comply with requests for additional information beyond
three tiers and that, in cases where ownership is only traced to the
third tier, this would still most likely indicate some level of foreign
ownership.
Agencies Monitor Changes in Ownership and Ensure Ongoing Compliance
with Laws through Various Processes:
To ensure that subsequent changes of ownership are disclosed or do not
exceed the legal limits after a transaction has been approved, the six
agencies responsible for these sectors have various procedures. (See
table 5.)
Table 5: Summary of Agency Processes for Identifying Ownership Changes
after the Initial Transaction:
Aviation:
Legal provision: Foreign investment in U.S. air carriers is limited to
25% of voting interest;
Agency: Department of Transportation (DOT);
Identifying ownership changes after the initial transaction:
Primary actions;
* U.S. air carriers proposing a substantial change in ownership--10% or
more--are required to submit information about the transaction to DOT,
including the name of shareholders, the number of shares held, and the
percentage of ownership held in light of the new transaction;
* Department conducts periodic fitness reviews of U.S. air carriers
every 3 to 5 years, which includes a comprehensive examination of the
air carrier's ownership, including review of SEC filings for publicly
held companies;
Supplemental actions:
* DOT monitors press reports and other public sources of information;
* DOT receives reports of possible violations and abuses from the
public and competitors.
Communications:
Legal provision: Foreign governments may not hold radio licenses.
Foreign investment in corporations that hold broadcast, common carrier
(telecommunications services), and certain other radio licenses is
limited to 20%. Foreign investment in a U.S. parent company of a
company that holds above-mentioned licenses is limited to 25%; License
to own or control a cable landing system, or authorization to provide
telecommunications service, may be withheld based on foreign ownership;
Agency: Federal Communications Commission (FCC);
Identifying ownership changes after the initial transaction: Radio
licenses;
Primary actions:
* Entities holding licenses must submit application and receive
approval from FCC for all transfers of control or assignments of
licenses;
* In addition, all broadcast licensees must submit biennial ownership
reports;
* All licensees going through "pro-forma" restructuring (generally
involving internal corporate restructuring or transfer of less than 50%
of capital stock) must notify FCC of, or obtain FCC approval for, the
reorganization, including changes in any disclosable interests
(generally, 10% or greater for telecom companies; 5% for broadcast
companies).
Supplemental actions:
* Every 8 years, FCC reviews ownership information during the broadcast
license renewal processes.
FCC reviews comments by competitors on investment transactions it is
required to approve.
Telecommunications and cable landing licenses:
Primary actions:
* Any sale or transfer of control must receive prior FCC approval;
Supplemental actions:
* FCC monitors comments made by competitors and other interested
parties on investment transactions.
Banking:
Legal provision: Foreign banks must get FRB approval before
establishing a branch or agency, or acquiring ownership or control of a
commercial lending company, and any company (foreign or domestic) must
get FRB approval before acquiring 25% or more or otherwise acquiring
control of a U.S. bank. Banks must generally be subject to
comprehensive supervision on a consolidated basis by appropriate
authorities in home country;
Agency: Federal Reserve Board (FRB);
Identifying ownership changes after the initial transaction:
Primary actions:
Banks are required to notify the FRB of changes in ownership that
constitute a change in bank control.
* FRB conducts annual bank examinations, including reviews of ownership
structure;
* Bank holding companies must submit annual reports listing all 5% or
greater owners.
Supplemental actions:
FRB monitors press releases and other public sources of information
such as SEC filings. FRB monitors banking-related actions in foreign
countries and operations of foreign banks outside the U.S. FRB issues
public orders for any opening or acquisition of a bank.
Natural Resources and Energy: nuclear energy:
Legal provision: Foreign investors or entities that are known or are
reasonably believed to be owned, controlled, or dominated by foreign
interests may not hold a license for nuclear facilities. Foreign
ownership of nuclear reactor facilities, as well as licensing for
source materials or special nuclear material, must be evaluated for
impact on the common defense and security of the United States;
Agency: Nuclear Regulatory Commission (NRC);
Identifying ownership changes after the initial transaction:
Primary actions:
* Current license holders must get prior written approval for transfers
of facility licenses;
* Licensees are also required to officially inform NRC of any
significant changes in respect to ownership or control of a licensee or
parent company;
* NRC can take enforcement action, including revocation of a license,
for conditions that would have warranted denial of a license
application and imposition of civil penalties.
Supplemental actions:
* Licensees must meet other requirements in terms of maintaining access
to classified information, through which changes in ownership could be
uncovered;
* NRC officials told us there are a limited number of license holders--
currently less than 100; therefore any changes are newsworthy and would
be easily detected.
There is no ongoing review unless NRC becomes aware of a change in
foreign ownership circumstances. Statute requires agency to act only if
it knows or has reason to believe an applicant is owned, controlled, or
dominated by foreign corporations or governments. Therefore there are
no regular affirmative searches for all possible transactions.
Natural Resources and Energy: mining and mineral leases:
Legal provision: No foreign investor may directly purchase or own U.S.
mineral deposits that are open to exploration or other important
mineral leases. Foreign investors may however own up to 100% of a U.S.
company that holds mineral leases;
Agency: Department of the Interior (Interior);
Identifying ownership changes after the initial transaction:
Primary actions:
* Interior has to approve any transfer of ownership of mineral leases;
* Lease holders must report 10% of owners or shareholders any time
ownership changes.
Agricultural lands:
Legal provision: Foreign investors in agricultural land holdings must
file a disclosure report;
Agency: Department of Agriculture (Agriculture);
Identifying ownership changes after the initial transaction:
Primary Actions:
* Filings must be made for changes in ownership;
* The agency publicizes the requirements in various relevant
newsletters and county government offices, and routinely notifies state
bar associations, state real estate commissions, and state farm loan
offices.
Supplemental Actions:
* The agency's county offices annually review all agricultural land
ownership changes in the Recorder of Deeds Office in their county;
* The agency's county offices send reminder letters to all foreign
owners of land and keeps active files on foreign owners;
* The agency receives whistleblower tips.
Source: GAO analysis of relevant laws and regulations, as well as
activities described by agency officials, policy statements, and
process documents from cited agencies.
Note: The legal provisions described above are high level summaries of
complex statutes. For a more detailed discussion of the statutes see
appendix II.
[End of table]
In each sector, entities conducting operations or holding licenses are
required by regulations to notify the relevant agencies of ownership
changes and are subject to civil or criminal penalties for
noncompliance with these requirements. Some agencies supplement
information from these mandated disclosures with additional reporting
requirements or regular examinations which include reviews of
ownership. In the broadcast sector, companies are required to submit a
biennial ownership disclosure to FCC. In banking and transportation,
agencies periodically review ownership. For example, banking regulators
told us that most banks, including those with foreign owners, are
examined annually, and these examinations include reviews of any
changes in ownership to ensure that the entities are still in
compliance with all requirements. DOT also examines operations in its
sector when it conducts examinations of airlines operating in the
United States every 3 to 5 years to ensure they still meet all fitness
requirements.
Officials with DOT, NRC, FCC, and FRB stated that in addition to formal
disclosure and review procedures, they also obtain information on
changes in foreign ownership through tips from competitors or comments
posted on public notices of proposed transactions. For example, a
competitor in the U.S. airline industry filed a public petition in
early 2009 asking DOT to examine the ownership of Virgin America
because of allegations that changes in the airline's ownership
structure could have resulted in a violation of foreign ownership
restrictions. Three agencies also reported reviewing news items about
companies in their sectors to become aware of potential transactions
that could lead to an ownership transfer. For example, FRB reported
monitoring press reports on banks under their supervision through
Bloomberg and other sources, and DOT also reported monitoring press
reports on U.S. air carriers.
While each agency has various processes for monitoring ownership
changes, staff at DOT, FCC, and Agriculture do not routinely review
information from certain additional sources, including those maintained
by other government agencies or private sources, to supplement the
information they use to identify possible unreported ownership changes.
Examples of sources of potentially relevant information include SEC
investor filings and news reports and transaction information captured
by private databases.[Footnote 22] This information may include
reported full or partial acquisitions of U.S. assets by foreign
investors in certain sectors. FRB reported that it does actively
monitor SEC filings and press reports concerning the institutions they
oversee. While staff at DOT and FCC told us that they believed that
their current processes resulted in a high compliance rate amongst
licensees in filing the proper notifications, staff at Agriculture
indicated that they had not assessed whether sources such as SEC
filings had potentially useful information because they were unaware
that they could access such information from these sources. Although
these agencies have processes for detecting changes in ownership, the
emergence of new foreign investors--such as recently-created SWFs--
appears to warrant consideration by these agencies of additional
sources of investment information that could supplement their existing
sources and provide them with greater assurance that they are detecting
all relevant transactions.
NRC and Interior are two agencies that may not benefit from monitoring
additional external sources for ownership changes. Citing the small
number of licensees in the sector, NRC officials stated that the need
for the agency to actively monitor changes in ownership in the nuclear
sector is low. Moreover, because of nuclear facilities' use of
classified information, operators are subject to reviews and monitoring
using classified and unclassified data sources, including ongoing
ownership reviews, through the National Industrial Security Program. In
addition, while officials at Interior did not report using any
government or private sources to monitor changes in ownership, the law
requires that leaseholders be U.S. citizens but does not limit foreign
ownership of a leaseholder. Thus, there may be no need for the agency
to actively monitor ownership changes.
Although Agencies Report that Violations Are Rare, They Have Taken Some
Enforcement Actions Concerning Violations of Laws Related to Foreign
Investment:
Interior, FRB, FCC, NRC, and DOT have rarely identified violations of
the applicable foreign investment laws, but have taken some enforcement
actions, although none were identified as involving an SWF. The number
of transactions the agencies review each year ranged from less than 20
to thousands. For example, NRC has reviewed, or is in the process of
reviewing, 17 applications for new licenses for nuclear reactors since
2007, and reviews roughly 6 transfers of ownership each year. In
contrast, Interior reported issuing more than 2,400 new onshore oil and
gas leases and approving more than 23,000 transfers of ownership of
such leases in 2008. Most of the agencies reported that their
application and licensing processes help assure that the foreign
investors comply with the law. As a result, actions against foreign
investors for violating the laws restricting foreign holdings or
requiring disclosure of purchases were rare. Only three of the six
agencies reported taking any enforcement actions since 2004. FCC and
DOT each reported one enforcement action over this period. Agriculture
reported assessing a total of 160 penalties over this period for
violations of their requirements, with the total for each year ranging
from 15 to 48. In addition, agency officials told us that they were not
aware of any current or past enforcement action that has been taken
against an SWF. Officials with each of the agencies that oversee these
laws also told us they have the ability to withdraw approvals to
operate, rescind purchases, or levy fines, and that this provides
considerable incentive on the part of any foreign investor to comply
with existing laws. Further, the enforcement actions that agencies
take, though rare, serve to strengthen their perceived enforcement
power among industry participants. In 1999, FRB received information
from a law firm involved in part of the transaction and subsequently
took enforcement action against a private foreign bank that had
allegedly hidden its acquisition of an insurance company. The bank's
actions violated the restriction under the Bank Holding Company Act
that it not engage in other financial activities. The agency assessed a
$100 million civil monetary penalty against the foreign bank and
entered into a consent order with the former chief executive officer,
based on allegations of his involvement in the violations, and the
failure to disclose them to the regulator. The consent order further
extends the restriction on the former chief executive officer's
involvement in the U.S. banking industry beyond the period that arose
as a consequence of the officer's criminal plea agreement in a separate
action.
Conclusions:
The United States is generally open to foreign investment; however,
sector-specific restrictions in federal laws on the ability of foreign
investors to purchase stakes in U.S. businesses or other assets exist
for certain sectors. We did not find any laws that only target SWFs. We
found that the agencies that are responsible for overseeing the laws
that either restrict or require disclosure of foreign investments have
processes for addressing key elements of enforcement for these types of
laws, including having processes for identifying transactions subject
to the law, verifying foreign ownership amounts, and monitoring changes
in ownership. To ensure that all changes in ownership that could affect
compliance with these laws are identified, the laws and regulations
generally require that such changes be reported to the relevant agency.
Although each agency takes steps to review information about subsequent
ownership changes, FCC, Agriculture, and DOT are not using some sources
of information that might enhance their ability to detect changes in
company ownership. These additional sources include information on
investment transactions--including those involving foreign entities--
that is compiled by various government or private sources. The sources
with potentially relevant information for these agencies include
Securities and Exchange Commission investor filings and transactions
captured by private databases. By assessing the usefulness of these
other sources and potentially including them in the agencies' oversight
process, the agencies might more accurately determine if transactions
subject to the foreign investment restrictions they are charged with
enforcing have occurred.
Recommendation for Executive Action:
To enhance their oversight of sectors subject to laws restricting or
requiring disclosure of foreign investments, we recommend that the
Chairman of the FCC and the Secretaries of Agriculture and
Transportation review the current sources of the information their
agencies currently monitor to detect changes in ownership of U.S.
assets--which are subject to restriction or disclosure requirements
applicable to foreign investors--and assess the value of supplementing
these sources with information from other government and private data
sources on investment transactions.
Agency Comments:
We provided a draft of this report to Agriculture, DOD, DOT, FCC, FRB,
Interior, NRC, SEC, State, Treasury, and the U.S. Trade Representative.
In a memorandum from Agriculture, the Director of Economic and Policy
Analysis noted that they agreed with our findings and recommendation
that they review their current sources of information and assess the
value of supplementing these with information from other government
agencies and private data sources, and indicated that they will use
such sources to enhance their ability to detect changes in ownership.
DOT and FCC provided technical comments but did not specifically
address our recommendation to them.
SEC provided technical comments, and noted that their staff are willing
to assist other government agencies by explaining any securities-
related reporting requirements that could apply to SWFs, and also by
helping to locate information about investments in securities of U.S.-
registered public companies. In providing technical comments, staff
from the Federal Reserve Board also stated that while federal bank
regulatory laws contains provisions that are specific to foreign banks,
these provisions generally provide that foreign banks operating in the
United States face the same standards and activity limits as U.S.
banks. We also received technical comments from DOD, DOT, FCC, FRB,
Interior, NRC, and Treasury, which we incorporated as appropriate.
We are sending copies of this report to the Secretaries of Agriculture,
Defense, Interior, State, Transportation, and Treasury; the Chairmen of
the FCC and SEC; NRC, FRB; U.S. Trade Representative; relevant
congressional committees; and other interested parties. The report also
is available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact Loren Yager at (202) 512-4128 or yagerl@gao.gov or Richard J.
Hillman at (202) 512-8678 or hillmanr@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix IV.
Signed by:
Loren Yager:
Director, International Affairs and Trade:
Signed by:
Richard J. Hillman:
Managing Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our objectives in this report were to (1) describe the U.S. laws that
specifically affect foreign investment, including that by SWFs, in the
United States, and (2) review the processes selected agencies use to
enforce these laws.
To identify and describe the U.S. laws that specifically affect foreign
investment, we (1) reviewed laws affecting foreign investment in the
United States, (2) reviewed documents concerning those laws, and (3)
talked to legal experts on foreign investment both inside and outside
the federal government about laws they considered important for foreign
investors in the United States.
The documents we reviewed included the following:
* A key legal study on foreign investment in the United States.
[Footnote 23]
* A Department of the Treasury (Treasury) study from 1979 that
summarized federal laws bearing on foreign investment in the United
States.[Footnote 24]
* Guides for foreign companies published by, for example, KPMG, on
investing in the United States.[Footnote 25]
* A legally-oriented testimony presented in congressional hearings on
SWF in 2008.[Footnote 26]
* Two volumes on the history of foreign investment in the United States
for reference to laws affecting foreign investment.[Footnote 27]
* U.S. policy statements on foreign investment.
* State Department (State) documentation on treaties in force.[Footnote
28]
We did not, however, include some types of laws that we judged less
directly related to the entities investing in the United States,
including the following:
* Income tax treaties and federal taxation of foreign investment in the
United States.
* Immigration statutes detailing visa requirements for foreign
investors or workers.
* Some federal regulations concerning foreign investment in commercial
fisheries in the United States.
* Most laws that pertain equally to both domestic and foreign
investors, as SWFs must follow the same laws that domestic investors
must follow. Such laws include antitrust statutes and laws targeting
health and safety.[Footnote 29]
* Legal issues related to the Committee on Foreign Investment in the
United States, as these issues have been addressed in other GAO
reports.[Footnote 30]
We spoke with law firms that represent foreign investors seeking to
invest in the United States. We also spoke with government agencies
that address international trade and investment issues--including
Department of Agriculture (Agriculture), Department of Commerce
(Commerce), Federal Communications Commission (FCC), Department of
Defense (DOD), Federal Reserve Board (FRB), Department of the Interior
(Interior), Nuclear Regulatory Commission (NRC), State, Department of
Transportation (DOT), Treasury, Office of the U.S. Trade Representative
(USTR), and Securities and Exchange Commission (SEC). We also met with
an industry association that represents U.S. subsidiaries of companies
headquartered abroad.
The six sectors we identified through this process of reviewing laws
were agriculture, banking, communications, natural resources and
energy, defense industrial base, and transportation.[Footnote 31] Also,
to provide information on their importance to the U.S. economy, we
calculated the share of the U.S. economy five of the sectors represent
by examining Bureau of Economic Analysis data on industries of the U.S.
economy ranked by output and value added as a percent of gross domestic
product (GDP).[Footnote 32] We determined that these data, as well as
data on cross-border investments from Treasury and Commerce's Bureau of
Economic Analysis used to provide context in the background section of
the report, are sufficiently reliable for our purposes.
To identify state level restrictions on foreign investment, we spoke
with officials at various federal agencies--including Treasury,
Commerce, and State--with responsibilities related to foreign
investment, to attorneys that advise foreign investors with U.S.
activities; and associations representing foreign businesses and state
officials. These associations included those representing state
legislatures and foreign companies operating in the United States. In
addition, we obtained the results of surveys done by two organizations-
-the National Association of Insurance Commissioners and the National
Association of Realtors--on state laws pertaining to foreign investors.
We are reporting on information provided to us by these sources on
state level laws. We did not conduct any independent review or analysis
of state level investment laws.
To evaluate the processes that were used to enforce the federal level
laws applicable to foreign investors, we reviewed agency processes for
carrying out laws concerning foreign investment in the following
sectors: agriculture, transportation: aviation, banking, broadcasting
and telecommunications, mining, and nuclear energy. We selected these
sectors for review as these were the sectors with laws that either
restricted foreign investment or required its disclosures and
represented critical infrastructure sectors. Agencies related to these
sectors are Agriculture, DOT, FRB, FCC, Interior, and NRC respectively.
To determine what activities these agencies undertake to enforce these
laws, we interviewed officials at these agencies responsible for
administering these laws. We also reviewed regulations and agency
documents describing their processes for enforcing the laws. We
determined, based on analysis of the specific requirements of each law
and professional judgment, that for agencies to have the information
necessary to determine whether the requirements of the laws were being
met, they would, at a minimum, need processes to:
(1) Identify all transactions that are subject to the law.
(2) Verify the identity and amount of foreign ownership to ensure that
the portion of foreign ownership is below the legal limit for blocking
statutes.
(3) Monitor changes to ownership that occur after the initial
transaction, and ensure foreign ownership remains below the legal limit
for blocking statutes.
We reviewed agency processes to determine whether they addressed these
three elements. To determine whether agencies had any opportunities to
improve their processes, we compared the various agencies' activities
to each other and used our professional judgment to assess whether any
such opportunities existed. To determine the frequency and number of
enforcement actions taken pursuant to these laws, we interviewed
officials and requested documentation from relevant agencies.
We spoke with officials from Agriculture, Commerce, FCC, Defense, FRB,
Interior, NRC, State, DOT, Treasury, USTR, and SEC. We also interviewed
industry and trade associations, and attorneys who advise foreign
investors in the United States.
We conducted this performance audit from October 2008 through May 2009
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Summaries of Key Federal Foreign Investment Laws:
This appendix covers key U.S. investment laws that specifically apply
to foreign investors; it does not include all such laws.
Agriculture:
Federal law: Agricultural Foreign Investment Disclosure Act of 1978;
Reviewing body: Department of Agriculture;
Requirements: Any foreign person who acquires or transfers any
interest, other than a security interest, in agricultural land must
report to the Secretary of Agriculture if it involves more than 10
acres in the aggregate or if it produces agricultural products of
$1,000 or more per year. A foreign person holding land that becomes or
ceases to be agricultural land, or a person who holds agricultural land
who becomes or ceases to be a foreign person must report these changes.
Foreign governments, entities created under the laws of a foreign
country or that have their principal place of business in a foreign
country, and U.S. entities in which there is a direct or indirect
foreign "significant interest or substantial control" are included in
the definition of foreign person. "Significant interest or substantial
control" is defined as a 10% or more interest in an entity if held by a
single foreign person or a group of foreign persons acting in concert,
or a 50% or more interest if held by a group of foreign persons not
acting in concert, none of whom individually holds a 10% or greater
interest in that entity;
Consequences of noncompliance and potential penalties for violations:
Failure to file a required report or knowingly submitting a report that
does not contain all of the required information or contains misleading
or false information may result in a civil penalty of up to 25% of the
fair market value of the foreign person's interest in the agricultural
land.
Transportation:
Federal law: Transportation Code, as amended; International Agreement
(Open Skies);
Reviewing body: Department of Transportation (DOT);
Requirements: To operate as a U.S. air carrier, an entity must obtain a
certificate of public convenience and necessity or an exemption from
the certification requirement from DOT. A certificate or an exemption
may only be issued to a "citizen of the United States," defined as: (1)
an individual U.S. citizen; (2) a partnership whose members are all
U.S. citizens; or (3) a corporation or association organized under U.S.
law which is under the actual control of U.S. citizens and where at
least 75% of the voting interest is owned and controlled by U.S.
citizens and where the president and at least two-thirds of the board
of directors and other managing officers are U.S. citizens. With
respect to the third category, DOT has interpreted control to mean that
day-to-day management decisions must be made by U.S. citizens, even if
there is substantial foreign investment--within the statutory limits--
in the airlines. DOT has construed the law as requiring actual control
of the enterprise to rest with U.S. citizens. These are case-by-case
determinations. Under the Open Skies agreement between the United
States and the European Union (EU), EU ownership of U.S. airlines of as
much as 25% of the voting equity, and/or as much as 49.9% of the total
equity of a U.S. airline shall not be deemed, of itself, to constitute
control of that airline, and EU ownership of 50% or more of the total
equity of a U.S. airline shall not be presumed to constitute control of
that airline. Such ownership shall be considered on a case-by-case
basis;
Consequences of noncompliance and potential penalties for violations:
DOT may deny, suspend, or revoke a certificate or other operating
authority if an applicant or existing air carrier is found to be in
violation of DOT's foreign ownership requirements.
Federal law: Title 46 of the U.S. Code, including the Shipping Act of
1916, and the Merchant Marine Act of 1920, 1929, and 1936;
Reviewing body: Department of Transportation;
Requirements: With respect to merchant shipping, a vessel may only be
registered as a U.S. flag vessel if it has not been registered under
the laws of a foreign country and it is wholly owned by one or more of
the following: (1) the U.S. government; (2) a state government; (3) an
individual U.S. citizen; (4) an association, trust, joint venture, or
other entity where all members are U.S. citizens; (5) a partnership in
which all the general partners are citizens of the U.S. and a
controlling interest in the partnership is owned by U.S. citizens; or
(6) a corporation if it is incorporated under U.S. law, its chief
executive and chairman of the board are U.S. citizens, and no more of
its directors are noncitizens than a minority of the number necessary
to constitute a quorum. The shipping of cargo between points in the
United States (the coastwise trade) is generally limited to U.S.-flag
vessels that are built in the United States and owned by U.S. citizens.
A corporation, partnership, or association may qualify as a U.S.
citizen only if 75% of the entity is owned by U.S. citizens, in
addition to other requirements;
Consequences of noncompliance and potential penalties for violations: A
person that violates this provision is liable to the U.S. government
for a civil penalty of not more than $11,000. Each day of a continuing
violation is a separate violation. In some situations, a vessel and its
equipment are liable to seizure by and forfeiture to the government.
Merchandise transported in violation of the registration requirements
is liable to seizure by and forfeiture to the government.
Alternatively, an amount equal to the value of the merchandise or the
actual cost of the transportation, whichever is greater, may be
recovered from any person transporting the merchandise or causing the
merchandise to be transported. Note: there can be dual penalties here,
under both of these provisions, if both apply.
Federal law: Magnuson-Stevens Fishery Conservation and Management Act,
as amended;
Reviewing body: Department of Transportation;
Requirements: Foreign vessels are not permitted to fish commercially
within the boundaries of any state. However, they can fish within an
area that is contiguous to the U.S.'s territorial sea and extends 200
miles from the shore, called the Exclusive Economic Zone (EEZ), but
only after issuance of a permit by the Secretary of Commerce. Foreign
vessels fishing in the EEZ are also subject to annual quotas;
Consequences of noncompliance and potential penalties for violations:
In general, persons found to have committed specified acts prohibited
by certain sections of the act shall be liable for a civil penalty not
to exceed $100,000 for each violation, considering various factors.
Communications:
Federal law: Communications Act of 1934, as amended;
Reviewing body: Federal Communications Commission (FCC);
Requirements: Under Section 310(a) of the Act, foreign governments or
their representatives may not hold radio licenses. Under Section 310(b)
of the Act, certain communications licenses--including broadcast,
wireless personal communications systems, cellular, and aeronautical
fixed--may not be granted to: 1. any alien individual or his or her
representative; 2. any foreign corporation; 3. any corporation of which
more than 20% of the stock is owned or voted by aliens or, their
representatives, or by a foreign government or its representative, or
by foreign corporations; 4. any corporation directly or indirectly
controlled by any other corporation of which more than 25% of the stock
is owned or voted by aliens, their representatives, or by a foreign
government or its representative, or by a foreign corporation.
With respect to the last category, a public interest determination may
be made to permit additional foreign ownership above the 25% threshold.
Under Section 214 of the Act, any party seeking to provide common
carrier communication services between the U.S. and a foreign point
must obtain a certificate of public convenience from the FCC. Under the
"public convenience or necessity" standard, the FCC may have the
authority to restrict ownership and facility operation to U.S. citizens
and entities controlled by U.S. citizens;
Consequences of noncompliance and potential penalties for violations:
FCC can deny an application for a license or the transfer of a license
to any company that doesn't meet these ownership requirements. FCC has
authority to order the forfeiture of assets for violations under the
Act. There are daily and overall maximums outlined in the act for
different types of violations. For example, an unauthorized
"substantial transfer of control" carries a suggested fine of $8,000,
which can be lowered or raised at the discretion of FCC subject to the
daily and overall maximums.
Federal law: Submarine Cable Landing License Act of 1921;
Reviewing body: Federal Communications Commission (FCC);
Requirements: Any entity that owns or controls a cable landing station
in the U.S., and all other entities owning or controlling a 5% or
greater interest in the cable system and using the U.S. points of the
cable system are required to apply for and receive a cable landing
license. The Act permits the FCC to deny an application for a license
if to do so would assist in securing rights for the landing or
operation of cables in foreign countries, or in maintaining the rights
or interests of the United States or of its citizens in foreign
countries, or will promote the security of the United States; FCC can
also place conditions on such licenses. As a result, FCC has discretion
to withhold a cable landing license based on foreign ownership issues.
Under certain circumstances, licensees are required to notify FCC for
prior approval if they seek to become affiliated with a foreign
carrier;
Consequences of noncompliance and potential penalties for violations:
FCC can withhold or revoke a license or transfer of a license under
certain conditions. A person who knowingly operates without a required
license shall be guilty of a misdemeanor and fined not more than
$5,000, or imprisoned for not more than one year, or both.
Natural Resources and Energy:
Federal law: Atomic Energy Act of 1954;
Reviewing body: Nuclear Regulatory Commission (NRC);
Requirements: The NRC is prohibited from licensing any person to
transfer or deliver, receive possession of or title to, or import into
or export from the United States any source material or special nuclear
material if, in the opinion of NRC, the issuance of a license to such
person for such purpose would be "inimical to the common defense and
security or the health and safety of the public." Any transfer of such
a license must be approved by the NRC. NRC is prohibited from issuing a
license for utilization or production facilities for industrial or
commercial purposes, medical therapy, or research and development
activities to:
* any person for activities which are not under or within the
jurisdiction of the United States (with some exceptions);
* an alien or any corporation or other entity if NRC knows or has
reason to believe it is owned, controlled, or dominated by an alien, a
foreign corporation, or a foreign government; or;
* any person within the United States if, in the opinion of the NRC,
the issuance of a license to such person would be inimical to the
common defense and security or to the health and safety of the public.
The NRC is prohibited from issuing a license to the U.S. Enrichment
Corporation if the NRC determines the applicant is owned by a foreign
interest.
Consequences of noncompliance and potential penalties for violations:
NRC can deny an application for a license or a license transfer from
applicants if it makes the requisite findings.
Federal law: General Mining Law of 1872;
Reviewing body: Department of the Interior (Interior);
Requirements: Except as otherwise provided by law, all valuable mineral
deposits in lands belonging to the United States that are open to
exploration and purchase may be purchased by U.S. citizens and by those
who have declared their intention to become U.S. citizens;
Consequences of noncompliance and potential penalties for violations:
Interior can deny a mineral patent to any applicant who does not meet
the requirements.
Federal law: Mineral Leasing Act of 1920, as amended;
Reviewing body: Department of the Interior (Interior);
Requirements: Authorizes the disposition (e.g. by prospecting permits
or leases) by the federal government of deposits of coal, phosphate,
sodium, potassium, oil, oil shale, gilsonite or gas, and the public
lands containing such deposits only to: (1) U.S. citizens; (2)
association of citizens; (3) municipalities, in the case of coal, oil,
oil shale, or gas; and (4) any corporation organized under U.S. law.
Foreign investors may own an interest in a lease through stock
ownership, stock holding, or stock control in a present or potential
lessee that is incorporated under U.S. law but only if the laws,
customs, or regulations of their country do not deny similar or like
privileges to citizens or corporations of the United States. If it is
determined that a country has denied similar or like privileges to
citizens or corporations of the United States, it would be placed on a
list available from any Bureau of Land Management State office;
Consequences of noncompliance and potential penalties for violations:
If a lease holder is found to be noncompliant with requirements, they
have 2 years to remedy the situation, after 2 years if nothing is done
the foreign interest is deemed relinquished.
Federal law: Deepwater Ports Act of 1974, as amended;
Reviewing body: [Empty];
Requirements: The Deepwater Ports Act of 1974, as amended authorizes
the Secretary of Transportation to issue licenses to U.S. citizens for
the construction and operation of deepwater oil or liquid natural gas
ports beyond State seaward boundaries and beyond the territorial limits
of the United States. Foreign investors may own interest in a license
holder through stock ownership so long as the licensee is incorporated
under U.S. law and its president or other executive officer, and its
chairman of the board of directors is a United States citizen and the
board is comprised of no more noncitizens than a minority of the number
necessary to constitute a quorum to conduct business;
Consequences of noncompliance and potential penalties for violations:
Transportation can deny license to any applicant who does not meet the
requirements.
Defense:
Federal law: Executive Order No. 12829, National Industrial Security
Program, as amended;
Reviewing body: Department of Defense (DOD); Nuclear Regulatory
Commission (NRC); Department of Energy (DOE); Office of the Director of
National Intelligence (ODNI);
Requirements: The purpose of the National Industrial Security Program
(NISP) is to safeguard federal government classified information that
is released to contractors, licensees, and grantees of the U.S.
government. The NISP Operation Manual provides uniform procedures and
guidance for applying these safeguards, and applies to all government
contractors that perform contracts which require their access to
classified information. Foreign investors in businesses engaged in
classified government contract work (e.g., national defense,
intelligence activities, nuclear power production, or nuclear weapon
production) are subject to these detailed procedures. Under these
procedures, contractors cannot have access to classified information
unless they have a facility clearance. To be eligible for such a
clearance, a company must not be under foreign ownership, control, or
influence (FOCI) unless measures can be taken to negate or mitigate the
FOCI;
Consequences of noncompliance and potential penalties for violations:
Firms that cannot negate or mitigate an FOCI, cannot have access to
classified information.
Federal law: National Defense Authorization Act for Fiscal Year 1993;
Reviewing body: Department of Defense (DOD); Department of Energy
(DOE);
Requirements: A U.S. company that is controlled by one or more foreign
governments cannot be awarded a U.S. defense contract, or a DOE
contract under a national security program, if such contract requires
access to proscribed information unless the secretary concerned
determines that a waiver is essential to the national security
interests of the United States or in cases involving contracts for
restoration, remediation, or waste management, where such a waiver will
advance the environmental restoration, remediation, or waste management
objectives of the department and will not harm the national security
interests of the United States and the where the awardee is controlled
by a foreign government with which the Secretary concerned is
authorized to exchange Restricted Data under a provision of the Atomic
Energy Act of 1954. Where a U.S. company has been awarded a U.S.
defense contract, or DOE contract under a national security program, if
such contract requires access to proscribed information, no entity
controlled by a foreign government may merge with, acquire, or take
over that company absent conclusive CFIUS review. The term "entity
controlled by a foreign government" includes--(1) any domestic or
foreign organization or corporation that is effectively owned or
controlled by a foreign government; and (2) any individual acting on
behalf of a foreign government, as determined by the Secretary
concerned. The term does not include an organization or corporation
that is owned, but is not controlled, either directly or indirectly, by
a foreign government if the ownership of that organization or
corporation by that foreign government was effective before October 23,
1992;
Consequences of noncompliance and potential penalties for violations:
If a firm can't get the necessary waiver it can't be awarded the
contract.
Banking:
Federal law: International Banking Act (IBA), as amended by the Foreign
Bank Supervision Enhancement Act of 1991 (FBSEA);
Reviewing body: Federal Reserve Board (FRB); Office of the Comptroller
of the Currency (OCC);
Requirements: FBSEA generally precludes U.S. branches of foreign banks
from engaging in domestic retail deposit-taking, except for those
branches that were insured by the Federal Deposit Insurance Corporation
at the time FBSEA was enacted (i.e. 1991). Consequently, a foreign
entity that wishes to engage in full deposit-taking must establish one
or more domestic bank subsidiaries. With limited exception, no foreign
bank may establish a branch or an agency, or acquire ownership or
control of a commercial lending company (CLC), without the prior
approval of FRB. FRB is prohibited from approving such an application
unless it determines that the foreign bank is "subject to comprehensive
supervision or regulation on a consolidated basis by the appropriate
authorities in its home country"--commonly referred to as the
"comprehensive supervision standard." If FRB is unable to find that a
foreign bank is subject to comprehensive supervision or regulation on a
consolidated basis by the appropriate authorities in its home country,
FRB may still approve an application by the bank if, among other
things, the appropriate authorities in the home country are actively
working to establish arrangements for the consolidated supervision of
such bank;
Consequences of noncompliance and potential penalties for violations:
If FRB finds that the foreign bank is not subject to comprehensive
supervision or regulation on a consolidated basis by the appropriate
authorities in its home country, and the appropriate authorities in the
home country are not making demonstrable progress in establishing
arrangements for the comprehensive supervision or regulation of such
foreign bank on a consolidated basis, FRB may order the closing of (or,
in the case of federally licensed branches or agencies, to recommend
that the OCC close) any U.S. offices of a foreign bank.
Federal law: Bank Holding Company Act (BHCA), as amended;
Reviewing body: Federal Reserve Board (FRB);
Requirements: The BHCA governs any entity (foreign or domestic) that is
or seeks to become a "bank holding company." As a result of the IBA,
the BHCA restrictions on nonbanking activities generally apply to all
foreign banks with U.S. banking operations. Among other things, the
BHCA: 1. Requires that FRB give prior approval for certain transactions
involving the acquisition of ownership or control of the voting shares
of a bank or the assets of a bank; 2. Imposes limitations on the types
of nonbanking organizations a BHC may own; 3. Imposes limitations on
the types of nonbanking activities a BHC may engage in directly or
indirectly through subsidiaries.
BHCA prohibits bank holding companies from engaging in certain
nonbanking activities but provides some exemptions for foreign bank
holding companies. A company becomes a "bank holding company," if it
has control over any bank or any company that is or becomes a bank
holding company. Any company has control over a bank if: 1. it directly
or indirectly owns, controls or has power to vote 25% or more of any
class of voting securities of the bank or company; 2. it controls in
any manner the election of a majority of the board of directors or
trustees of the bank or company; or; 3. FRB determines that it directly
or indirectly exercises controlling influence over the management or
policies of the bank or company;
Consequences of noncompliance and potential penalties for violations:
Criminal penalty:
A person who knowingly violates any provision of this law shall be
imprisoned not more than 1 year, fined not more than $100,000 per day
for each day during which the violation continues, or both. A person
who, with the intent to deceive, defraud, or profit significantly,
knowingly violates any provision of this law shall be imprisoned not
more than 5 years, fined not more than $1,000,000 per day for each day
during which the violation continues, or both;
Civil penalty:
Any company which violates, and any individual who participates in a
violation of, any provision of this law, or any regulation or order
issued pursuant thereto, shall forfeit and pay a civil penalty of not
more than $25,000 for each day during which such violation continues.
Not specific to an economic sector:
Federal law: Section 721 of the Defense Production Act of 1950, as
amended by the Foreign Investment and National Security Act of 2007
(FINSA);
Reviewing body: Committee on Foreign Investment in the United States
(CFIUS); Interagency group with Department of Treasury as the lead
agency;
Requirements: Section 721 authorizes the President to take action to
suspend or prohibit any merger, acquisition, or takeover that is
proposed or pending by or with any foreign person which could result in
foreign control of any person engaged in interstate commerce in the
U.S. and that threatens to impair the national security of the U.S.
Section 721 establishes a process for reviewing a foreign acquisition
of a U.S. business, which begins with a voluntary notice by the
companies of covered transactions (though CFIUS may also unilaterally
initiate a review). In response to any notice of a covered transaction,
CFIUS conducts a 30-day review to identify and resolve any national
security concerns. CFIUS may also conduct an additional 45-day
investigation in certain circumstances. Should CFIUS identify national
security concerns associated with a transaction during the review or
investigation periods, it may negotiate or impose measures intended to
mitigate any such concern. Finally, CFIUS may choose to forward the
transaction to the President with a recommendation for possible action
if national security concerns remain unresolved at the conclusion of an
investigation. The President may decide to suspend or prohibit the
acquisition only if there is credible evidence that the foreign entity
exercising control might take action that threatens national security,
and provisions of law, other than Section 721 and the International
Emergency Economic Powers Act, do not provide adequate and appropriate
authority to protect the national security. FINSA requires that CFIUS
provide an annual report to Congress on covered transactions on which
action has been concluded, as well as report promptly to Congress after
each such case;
Consequences of noncompliance and potential penalties for violations:
Any person who, after the effective date, intentionally or through
gross negligence, submits a material misstatement or omission in a
notice, or makes a false certification, may be liable for a civil
penalty not to exceed $250,000 per violation. Any person who, after the
effective date, intentionally or through gross negligence, violates a
material condition or provision of a mitigation agreement, may be
liable for a civil penalty not to exceed $250,000 per violation or the
value of the transaction, whichever is greater. The statute provides
for the President or CFIUS to initiate a review of a covered
transaction that was previously reviewed or investigated if any party
submitted false or misleading material information or omitted material
information in connection with the review or investigation, or, under
certain circumstances, if any party intentionally materially breaches a
mitigation agreement or condition.
Federal law: International Investment and Trade in Services Survey Act
(IITSSA);
Reviewing body: Department of Commerce; Department of Treasury;
Requirements: Under IITSSA, a report is required by a U.S. business
enterprise when a foreign person acquires (directly or indirectly)
through an existing U.S. affiliate, a 10 % or more voting interest in
that enterprise, including an enterprise that results from the direct
or indirect acquisition by a foreign person of a business segment or
operating unit of an existing U.S. business enterprise that is then
organized as a separate legal entity, or by the existing U.S. affiliate
of a foreign person when it acquires a U.S. business enterprise or
operating unit that the existing U.S. affiliate merges into its own
operations. Under certain circumstances, quarterly reports must be
filed concerning direct financial transactions between a U.S. affiliate
and its foreign parent group. The act also calls for regular surveys of
foreign portfolio investment, meaning investments of less than 10% in
U.S. enterprises;
Consequences of noncompliance and potential penalties for violations:
Civil penalty:
Failure to file the required report carries a civil penalty of not less
than $2,500.00, and not more than $27,000;
Criminal penalty:
Willful failure to report will result in a fine of no more than
$10,000.00, imprisonment for up to a year, or both. Any officer,
director, employee, or agent of any corporation who knowingly
participates in such a violation, upon conviction, may be punished by a
similar fine, imprisonment, or both.
Federal law: Tax Equity and Fiscal Responsibility Act of 1982, as
amended;
Reviewing body: Department of Treasury, Internal Revenue Service;
Requirements: Domestic corporations that are at least 25% foreign owned
or a foreign corporations doing business in the U.S. must file an
informational return with the IRS disclosing reportable transactions,
and maintain records relating to transactions between the domestic
corporation and the foreign-related parties;
Consequences of noncompliance and potential penalties for violations: A
reporting corporation that fails to timely file any required
information or fails to maintain records as required shall pay a
penalty of $10,000 for each taxable year with respect to which the
failure occurs. A continuing failure can result in additional
penalties.
Federal law: International Emergency Economic Powers Act;
Reviewing body: Office of the President of the United States;
Requirements: The International Emergency Economic Powers Act (IEEPA)
authorizes the President to prohibit certain transactions or block any
property in which any foreign country or foreign national has any
interest. It grants the President broad authorities to "deal with any
unusual and extraordinary threat, which has its source in whole or
substantial part outside the United States." Before exercising these
authorities, IEEPA requires the President to declare a national
emergency. National emergency declarations are governed by the National
Emergencies Act (NEA). IEEPA sanctions are typically imposed pursuant
to Executive Order;
Consequences of noncompliance and potential penalties for violations: A
civil penalty may be imposed on any person who commits an unlawful act
under the Act in an amount not to exceed the greater of $250,000 or an
amount that is twice the amount of the transaction that is the basis of
the violation. The Department of the Treasury has issued guidelines
that implement these statutory penalty authorities. Criminal penalties
provide that a person who willfully commits, willfully attempts to
commit, or willfully conspires to commit, or aids or abets in the
commission of, an unlawful act described in IEEPA shall, upon
conviction, be fined not more than $1,000,000, or if a natural person,
may be imprisoned for not more than 20 years, or both.
Source: GAO analysis of relevant statutes.
[End of table]
[End of section]
Appendix III: Comments from the U.S. Department of Agriculture:
USDA:
United States Department of Agriculture:
Farm and Foreign Agricultural Services:
Farm Service Agency:
1400 Independence Ave, SW:
Stop 0501:
Washington, DC 20250-0501:
May 6, 2009:
T0: Mike McCann Director:
Operations Review and Analysis Staff:
From: [Signed by] Joy Harwood:
Director:
Economic and Policy Analysis Staff:
Subject: Farm Service Agency's Response to the General Accountability
Office Sovereign Wealth Funds Report:
The Farm Service Agency (FSA) agrees with the General Accountability
Office (GAO) findings and recommendation regarding the GAO report,
"Sovereign Wealth Funds: Laws Limiting Foreign Investment Affect
Certain U.S. Assets and Agencies Have Processes for Addressing Key
Elements of Enforcement." Now that FSA's Agricultural Foreign
Investment Disclosure Act group is aware of additional sources of
information from other government departments and private data
applicable to foreign investors, we will use them to enhance our
ability to detect changes in company ownership. We will regularly
search sources such as the Securities and Exchange Commission as well
as Bloomberg, Dealogic, Lexis-Nexis, and Thomson Reuters.
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Loren Yager, (202) 512-4128 or yagerl@gao.gov:
Richard J. Hillman, (202) 512-8678 or hillmanr@gao.gov:
Acknowledgments:
In addition to the contacts named above, Cody Goebel, Assistant
Director; Celia Thomas, Assistant Director; Tania Calhoun; David
Dornisch; Patrick Dynes; Nina Horowitz; Richard Krashevski; Michael
Maslowski; Marc Molino; Omyra Ramsingh; and Jeremy Schwartz made major
contributions to this report.
[End of section]
Footnotes:
[1] See GAO, Sovereign Wealth Funds: Publicly Available Data on Sizes
and Investments for Some Funds Are Limited, [hyperlink,
http://www.gao.gov/products/GAO-08-946] (Washington, D.C.: Sept. 9,
2008).
[2] The six agencies are Agriculture, FRB, FCC, Interior, NRC, and DOT.
[3] As a percentage of overall combined market holdings of long term
U.S. securities, foreign ownership increased from 10.2 percent in 2000
to 19.4 percent in 2008. This data comes from Treasury's International
Capital System and FRB's Flow of Funds Accounts of the United States
and excludes, for example, short term securities and bank loans.
[4] There are a variety of definitions and lists of SWFs. Based on our
research, we classified SWFs with the most interest to policymakers as
those that (1) are government-chartered or sponsored investment
vehicles; (2) invest some or all of their funds in assets other than
sovereign debt outside the country that established them; (3) are
funded through government transfers arising primarily from sovereign
budget surpluses, trade surpluses, central bank currency reserves, or
revenues from the commodity wealth of a country; and (4) are not
actively functioning as a pension fund. We excluded funds that act as
pension funds--that is, that received contributions from or made
benefit payments to individuals--because these funds generally have
specific liabilities in the form of near-term to long-term obligations
that other funds do not have.
[5] Countries with SWFs that we included in our analysis were Algeria,
Angola, Australia, Azerbaijan, Bahrain, Botswana, Brunei, Canada
(Alberta and Quebec), Chile, China, Colombia, Gabon, Hong Kong,
Ireland, Kazakhstan, Kiribati, Kuwait, Libya, Malaysia, Mauritania, New
Zealand, Nigeria, Norway, Oman, Qatar, the Russian Federation, Sao Tome
and Principe, Singapore, South Korea, Sudan, Trinidad and Tobago, the
United Arab Emirates (Abu Dhabi and Dubai), and in the United States
(Alaska, New Mexico, and Wyoming), Venezuela, and Vietnam.
[6] The Kuwait Investment Authority was founded to invest the proceeds
of natural resource wealth and provide for future generations in
Kuwait, and the Kiribati Revenue Equalization Reserve Fund was formed
to manage revenues from the sale of Kiribati's phosphate supply.
[7] We reported that while the Bureau of Economic Analysis of the
Department of Commerce, and Treasury, are charged with collecting and
reporting information on foreign investment in the United States, the
extent to which SWFs have invested in U.S. assets is not readily
identifiable from such data. We also reported that SWFs assets are a
small portion of overall global assets and are less than the assets of
several other large classes of investors. As of the end of 2006, the
estimated total size of the SWFs we identified, $2.7 trillion to $3.2
trillion, constituted about 1.6 percent of the estimated $190 trillion
of financial assets outstanding globally.
[8] The defense sector is not a discrete sector in U.S. government
economic statistics, as compiled by Commerce's Bureau of Economic
Analysis. Rather it includes parts of various sectors across the
economy, such as aviation, electronics, and communication.
[9] According to Treasury officials, the United States currently has
BITs in force with 40 countries, and has signed BITS with 7 others that
are not yet in force.
[10] U.S. BITs typically oblige each party to a treaty to treat
investors from the other country as well as it treats domestic
investors in like circumstances. This is called the obligation to
provide national treatment. The treaties also oblige countries to treat
investors from the other country as well as it treats other foreign
investors in like circumstances. This is called the obligation to
provide most favored nation treatment.
[11] The sectors used for our analysis are defined as containing the
following industries: (1) Banking: Federal Reserve banks, credit
intermediation, and related activities; securities, commodity
contracts, and investments; and funds, trusts and other financial
vehicles; (2) Communications: broadcasting and telecommunications; (3)
Transportation: air, rail, water, truck, pipeline, transit and ground
passenger transportation; and other transportation and support
activities; (4) Natural Resources and Energy: mining (including all sub
industries), utilities, and petroleum and coal product manufacturing;
(5) Agriculture: agriculture, forestry, fishing, and hunting; (6) All
other sectors: all the remaining industries as reported in Commerce's
Bureau of Economic Analysis's data on gross output and foreign direct
investment. We did not separately include defense in this estimate and
did not attempt to define the defense sector in terms of industries, as
it includes parts of various sectors across the economy.
[12] Section 721 of the Defense Production Act was amended by the
Foreign Investment and National Security Act of 2007. Included in the
changes was the inclusion of protection of critical infrastructure as a
factor for CFIUS to take into account in its national security reviews.
[13] The FCC also has discretion to permit licensees to exceed the 25
percent benchmark and, in particular cases, has approved higher levels
of foreign investment in common carrier (telecommunications) licensees.
[14] Executive Order No. 12829, signed January 6, 1993, as amended,
established NISP for the protection of information classified under
Executive Order No. 12958, as amended.
[15] Agriculture staff told us that they are regularly asked by such
agencies as the Federal Bureau of Investigation, the Department of
Homeland Security, Drug Enforcement Agency, and others to provide
information about the identity of owners of agricultural lands. Such
requests may be to ensure that drug traffickers are not using
agricultural lands for illegal purposes.
[16] The act was designed to give the State Department leverage to
pressure foreign governments to open the door to U.S. businesses that
wished to expand abroad.
[17] For more information on our methodology for identifying state
level investment laws that may affect foreign investment please see
appendix I.
[18] For this report, we did not review compliance of the laws
specifically applicable to defense industrial base firms since these
laws apply equally to domestic investors that purchase such firms and
have been discussed recently as part of other GAO reports. These laws
include, for example, requirements that limit foreign ownership or
influence for U.S. contractors that have access to classified
information. See, for example, Observations on the National Industrial
Security Program, GAO-08-695T (Washington, D.C.: Apr. 16, 2008.)
[19] 7 U.S.C. §§ 3501-3508. The Department of Agriculture publishes an
annual report based on their review of the filings. The 2007 report
shows that 1.6 percent of all privately held land in the United States
(about .94 percent of all U.S. land) is held by foreigners.
[20] We did not independently verify the extent to which foreign
investments violating these laws had occurred in these sectors.
[21] Agriculture officials said that they plan to revise the
regulations to give them authority to track ownership back to the
ultimate beneficial owner; however, no proposed regulations had been
published in the Federal Register as of April 2009.
[22] Examples of such private data sources are Bloomberg, Dealogic,
Lexis-Nexis, and Thomson Reuters.
[23] J. Eugene Marans, Joseph E. Pattison, John H. Shenefield, and John
T. Byam, Manual of Foreign Investment in the United States (2004). We
also spoke the one of the authors of this study about the study's
scope. He told us the authors had refined the scope of this work over
several decades but started out by examining a similarly-focused work
done at the behest of the U.S. Commerce Department in the mid-1970s as
part of a multi-volume series of reports on foreign investment in the
United States. See David Morris Phillips Legal Restraints on Foreign
Direct Investment in the United States (Washington, D.C., Apr. 1976).
[24] U.S. Department of the Treasury, Foreign Investment in the United
States: A Summary of Federal Laws Bearing on Foreign Investment in the
United States (Washington, D.C., 1979).
[25] KPMG, Investing in the U.S.--A Guide for Foreign Companies
(February 2008). See also Baker & McKenzie, A Legal Guide to
Acquisitions and Doing Business in the United States, (2007).
[26] Jeanne S. Arichibald. U.S. Regulatory Framework for Assessing
Sovereign Investments. Testimony before the Senate Committee on
Banking, Housing and Urban Affairs (Apr. 24, 2008).
[27] Mira Wilkins, The History of Foreign Investment in the United
States to 1914. Cambridge, Massachusetts: Harvard University Press,
(1989). See also Mira Wilkins, The History of Foreign Investment in the
United States, 1914-1945. Cambridge, Massachusetts: Harvard University
Press, (1989). Appendix 4 of the second volume lists principal U.S.
federal legislation affecting foreign investment in the United States.
[28] See U.S. Department of State, Treaties in Force. Section 1:
Bilateral Treaties. (Washington, D.C., November 2007) and U.S.
Department of State, Treaties in Force. Section 2: Multilateral
Agreements. (Washington, D.C., November 2007).
[29] We included several provisions of Federal Bank regulatory laws.
Federal bank regulatory law deals specifically with foreign banks in a
number of statutes, such as the International Banking Act and Bank
Holding Company Act. In large part, the purpose of these provisions is
to assure the foreign banks meet prudential standards that apply to
U.S. banking organizations and that foreign banking organizations are
generally subject to the same activity limits in the United States as
those to which U.S. bank holding companies are subject.
[30] See GAO, Defense Trade: Enhancements to the Implementation of Exon-
Florio Could Strengthen the Law's Effectiveness, [hyperlink,
http://www.gao.gov/products/GAO-05-686] (Washington, D.C.: Sept. 28,
2005). Also see, GAO, Foreign Investment: Laws and Policies Regulating
Foreign Investment in 10 Countries, [hyperlink,
http://www.gao.gov/products/GAO-08-320] (Washington, D.C.: Feb. 28,
2008).
[31] We also note that these sectors are included in the set of 17
critical infrastructure and key resource sectors identified by Homeland
Security Presidential Directive 7, issued December 13, 2003. The 17
sectors identified in the directive are those that have been deemed
critical to the nation's security, economy, public health, and safety.
The list of sectors specified in the directive is distinct from
critical infrastructure as defined by CFIUS. The regulations governing
the CFIUS process do not identify a list of sectors that, per se,
constitute critical infrastructure.
[32] We did not separately include defense in this estimate and did not
attempt to define the defense sector in terms of industries, as it
includes parts of various sectors across the economy.
[End of section]
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Phone:
The price of each GAO publication reflects GAO‘s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO‘s Web site,
[hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548: