Research Handbook on Sovereign Wealth Funds and International Investment Law
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Research Handbook on Sovereign Wealth Funds and International Investment Law

Edited by Fabio Bassan

Research on the role of sovereign investments in a time of crisis is still unsatisfactory. This Research Handbook illustrates the state of the art of the legal investigation on sovereign investments, filling necessary gaps in previous research. Current focus is based on investment flows and trends, grounded in economic scenarios and objectives. Conversely, investigations from a legal standpoint are still few, namely disregarding the host states’ concerns about sovereign investments goals and tools. Hence, most of the many relevant drivers that affect current sovereign investments, be they FDI or portfolio investments, remain unexplained. This book investigates the juridical foundation of sovereign investments and extends our frontier of understanding.
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Chapter 6: The Foreign Investment and National Security Act of 2007: An assessment of its impact on sovereign wealth funds and state-owned enterprises

Paul Rose

Abstract

In 2007, the U.S. Congress passed the Foreign Investment in the United States Act (FINSA), the most recent in a series of calibrations to a basic regulatory framework that is now nearly 40 years old. FINSA has particularly significant effects on investment by sovereign wealth funds (SWFs) and state-owned enterprises (SOEs). Indeed, FINSA is properly understood as a response to SWF and SOE investment activity, and is designed to provide a framework in which U.S. regulators can weigh the particular risks presented with investment by state-controlled entities. Although in general FINSA has performed ably and as intended in its first five years of implementation, balancing the risks associated with SOE and SWF investment in a competitively neutral way has historically been a challenge, and now may be even more challenging after the passage of FINSA. The chapter outlines several difficulties for state-controlled firms in interpreting and complying with FINSA, and argues that regulators could make regulatory compliance more simple and predictable for these firms by creating reliable signposts that will help guide firms through the regulatory straits imposed by the legislation. At the same time, the need for an experienced pilot – usually in the form of sophisticated legal counsel – is more important than ever. However, the need for such assistance functions as a kind of tax on deals involving SOEs and SWFs, and, in some cases, these state-controlled entities may determine that the benefits are not worth the risks and costs, and so will seek to invest elsewhere.

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