February 07, 2008

Sovereign Wealth Funds: Bayh and Webb ure limits

Senators Urge Limits on Foreign Funds
Sens. Bayh, Webb Urge Limits on U.S. Investments by Sovereign Wealth Funds

NEW YORK (Associated Press) - Two senators are calling for more federal scrutiny of foreign government-run funds and their investments in the United States, no matter how small those investments are.

On Thursday, Sens. Evan Bayh, D-Ind. and James Webb, D-Va., said the funds, known as sovereign wealth funds, pose national security threats because they could access U.S. technology and pursue other political objectives though their investments, rather than commercial goals.

The senators' comments underscore continued Capitol Hill concern about foreign government investment in the United States, even though Congress passed legislation last year to increase the regulatory scrutiny of such investment.

Bayh, in remarks before a congressional advisory panel on U.S.-China relations, said security threats could be limited by requiring the funds to take passive stakes that restrict their influence over U.S. corporations.

"It is in our mutual interest to set the standards now," Bayh said, to avoid an "overreaction down the road" similar to the controversy that erupted in early 2006, when a Dubai-based company, DP World, purchased port operations at six U.S. ports. That deal was scuttled in the face of congressional opposition.

Bayh said he has spoken with Treasury Department officials, who are formulating regulations to implement last year's law, which strengthened the Committee on Foreign Investment in the United States (CFIUS).

CFIUS is an interagency panel, chaired by Treasury and including the Defense and Homeland Security departments, among other agencies, that reviews foreign investment for security implications.

In Bayh's view, CFIUS is also a "a largely toothless watchdog" that has placed commercial interests above national security concerns.

If Treasury's regulations don't "strike the right balance," Bayh said, between protecting national security and remaining open to foreign investment, he will seek to hold hearings at the Senate Banking Committee. Treasury is expected to release a draft of the regulations as early as this month.

Sen. Chris Dodd, D-Conn., chairman of the banking committee, has said he is open to holding a hearing this year on sovereign wealth funds.

Sovereign wealth funds from Middle Eastern and Asian countries, including China, have taken a much higher profile in recent months after investing almost $30 billion in several ailing financial services firms, including Citigroup Inc. and Merrill Lynch & Co.

Those investments have resulted in ownership stakes below 10 percent, which U.S. regulators generally consider passive investments. CFIUS generally doesn't review purchases of less than 10 percent, particularly if the foreign buyers don't gain board seats or other levers of control.

But Bayh and Webb said small ownership stakes still give foreign investors influence. Webb noted that Saudi Prince Walid Bin Talal, who owns 3.9 percent of Citi, "was closely consulted" in the removal of Chuck Prince from the bank's CEO position last year.

"Holding a small minority of shares or not taking a board seat does not provide a guarantee that there will be no influence or control," Webb said in written remarks.

Webb said he has urged the Treasury to issue regulations "broad enough to ensure that potential national security implications" of passive investments are "appropriately assessed."

The senators' comments were made in testimony before the U.S.-China Economic and Security Review Commission, a bipartisan panel of former government officials and academics appointed by the White House and congressional leaders.

Robert Dohner, deputy assistant secretary for Asia at the Treasury Department, said in written remarks that current law "ensures thorough reviews" of foreign investments that "pose genuine national security concerns." Top of page

No comments: