GAO’s Second Report on SWFs

Ashby Monk

The GAO just released a new report entitled: “Sovereign Wealth Funds: Laws Limiting Foreign Investment Affect Certain U.S. Assets and Agencies Have Various Enforcement Processes.” This report seems to have two main objectives:  First, it examines the U.S. laws that affect foreign investment in the United States. Second, it evaluates which agencies enforce them and how they do it.

This report is worth reading; the impetus for producing it was clearly the 2007/2008 concerns many Washington policymakers had about SWFs’ activities. What is ironic then is the fact that the report details the extent to which many sensitive investments in the U.S. by foreign investors, including SWFs, were off limits well before the issue of SWFs cropped up. Will the fears that led to this report be muted by its release?

“…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.”

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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