The Custom-House

The Korean Navy's Indian Ocean Aspirations

Trading countries like to protect their trade routes (China's growing navy, July 16, 2007; India wants to protect its sea lanes too, July 17, 2007).

South Korea is no exception.  Mingi Hyun over at the 'Manoeuvre' in Maritime Asia weblog has posted on the Korean response in a U.S. invitation to help protect joint U.S. and Korean interests in the Indian Ocean: USN-ROKN to Pursue Joint Operations in Indian Ocean (January 27, 2008):

New Executive Order on National Security Reviews of FDI

A Presidential Executive Order issued Wednesday will affect the way the U.S. will evaluate the security risks associated with foreign direct investment: Executive Order: Further Amendment of Executive Order 11858 Concerning Foreign Investment in the United States (January 23, 2008 - the text of the order is at the end of this post)

A Presidential Executive Order issued Wednesday will affect the way the U.S. will evaluate the security risks associated with foreign direct investment: Executive Order: Further Amendment of Executive Order 11858 Concerning Foreign Investment in the United States (January 23, 2008 - the text of the order is at the end of this post)

Does FINSA Cover Banks?

Nicholas Rummell says to expect "Sovereign funds to get more attention in D.C." (Financial Week's "After the bell " column, January 11, 2008). 

Last year Congress reformed the process the U.S. uses to review foreign direct investments for national security implications (Foreign Investment and National Security Act of 2007 - FINSA).  Look at my CFIUS archive for links to this history of this, and to analysis of FINSA's implications (CFIUS stands for Committee on Foreign Investment in the U.S. - the interagency committee that reviews investments). I posted here on implementing the reforms: What's left on CFIUS Reform? (Jan 6).

Rummell says to expect:

• Much of his note discusses the potential application of CFIUS to sovereign wealth fund investments in investment banks. "The committee typically examines companies involved in defense or infrastructure where there could be a national security threat, but with banks such as Citigroup and Merrill Lynch seeking additional capital from sovereign wealth funds, it could soon be probing Wall Street bailouts as well.  New guidance expected in the spring will delineate whether banks also fall under CFIUS’ jurisdiction."
• "Meantime, Sen. Christopher Dodd (D-Conn.) plans to hold hearings on the role of sovereign funds in U.S. capital markets, a staffer on his banking committee said."
• "...the Government Accountability Office is examining sovereign funds to determine the size, location and types of investments such funds make, as well as whether applicable laws and regulations, including CFIUS requirements, are adequate to protect U.S. market stability."

Tanker security

Terrorists can attack tankers a number of ways.  This December Government Accountability Report lays them out: Federal Efforts Needed to Address Challenges in Preventing and Responding to Terrorist Attacks on Energy Commodity Tankers .

What's left on CFIUS Reform?

In recent years the President has vetted foreign direct investments in the U.S. for national security threats under the authority of Section 721 of the Defense Production Act of 1950 (Exon-Florio statute), and through the mechanism of the inter-agency Committee on Foreign Investment in the U.S. (CFIUS).  The CFIUS has been chaired by the Treasury; here is a Treasury web site describing the process as it was: Committee on Foreign Investment in the United States (CFIUS).

However, the Foreign Investment and National Security Act of 2007 (FINSA) became effective on October 24, 2007 and amended the requirements in section 721.  This Federal Register notice from the Treasury gives a summary of the law's provisions: Regulations Pertaining to Mergers, Acquisitions and Takeovers (October 11, 2007).

There are still several things that need to be done to follow-up on the legislation: revision of the executive order setting up CFIUS, rulemaking, and publication of guidance:

Administration debates best rules for FDI security reviews

The Administration is still tied up in an internal debate over an executive order to implement changes to the way we look at the security implications of foreign investments, reports Bill Gertz of the Washington Times: Justice, DHS 'still object' to CFIUS order (Dec 6).  Changes are required under a new law passed earlier this year, but there are different ways to make them.

Another upbeat appraisal of this year's CFIUS reform

David Marchick and David Fagan think this year's reform of the process by which foreign direct investment is vetted for national security issues (done through Treasury's Committee on Foreign Investment in the US, so the "CFIUS" process) was done well: Rational security (TheLawyer.com, August 20).  The authors - attorneys at Covington and Burlington - provide a brief but useful analysis of each of the major revisions. In sum:

Review of CFIUS Process Changes

Christopher Wall, of Pillsbury, Winthrop, Shaw and Pittman, explains the changes in the CFIUS process: United States: Congress Approves CFIUS Reform Legislation Clearing The Way For Less Political Foreign Investment Reviews (July 25). 

This is a very helpful review of the changes and their implications.  The bottom line for foreign investors:

CFIUS Reform and the Savvy Foreign Firm

What do the recent changes in the U.S. process for security reviews of foreign investments mean for foreign firms? 

Here's what the trade lawyers say (CFIUS and Latin American Firms, Latin Business Chronicle, July 23; for a refresher on the existing process, go to the Treasury's web site: Committee on Foreign Investment in the United States):

Vodafone, Verizon, and the CFIUS

U.K.'s Vodafone, the largest mobile phone operator in the world, is trying to think through what it wants to do with its stake in U.S. Verizon Wireless, and with its relationship to its U.S. partner Verizon Communications.  Vodafone owns 45% of Verizon Wireless, and Verizon Communications owns 55%.  Does Vodafone want to sell its 45%, sit tight... or buy Verizon Communications. 

Since Vodafone is a foreign company, its purchase of Verizon Communications would raise national security issues that would be vetted through the interagency Committee on Foreign Investmetns in the United States (CFIUS).  For details on the CFIUS process, see the U.S. Treasury site, Committee on Foreign Investments in the United States (CFIUS). 

The first article below the fold discusses the Vodafone-Verizon relationship, the second looks at some of the potential CFIUS issues: