Transcript Foreign Investment in the United States

Foreign Investment in the
United States
WISTA Annual Conference
October 16, 2008
New Orleans, LA
Introduction
• Moderator: Eileen P. Brown, Partner, Thompson
Coburn LLP
• Panelists:
– Marilyn L. Muench, former Deputy Assistant
General Counsel for International Affairs, U.S.
Department of the Treasury
– Peter S. Shaerf, Managing Director, AMA
Capital Partners
• Contributor:
– Patricia J. Williams, Director, U.S. Coast Guard
National Vessel Documentation Center (NVDC)
Goal
•
To outline various U.S. laws and
regulations that may impact
decisions on making foreign
investment in the U.S. maritime
industry so that you may spot and
address issues as you consider
transactions
U.S. Citizen Control
•
•
U.S. government interest in ensuring
U.S. citizen control of certain assets
(i.e., vessels, aircraft)
Overview of U.S. citizen
requirements applicable to vessels –
coastwise and registry trade
U.S. Governmental Review and
Certain Restrictions on Transactions
• Committee on Foreign Investment in the
United States (CFIUS) multi-agency
governmental review of acquisition of U.S.
assets by foreign entities.
• Office of Foreign Assets Control (OFAC)
administers economic and trade sanctions
based on U.S. national security, foreign
policy or economic concerns.
Discussion
• Impact of high profile cases, such as
Dubai Ports World.
• Will the current financial crisis and the
need to attract capital to the U.S.
change the analytical framework and
enforcement decisions associated with
issues relating to citizenship and
foreign control?
NATIONAL VESSEL
DOCUMENTATION CENTER
WISTA USA ANNUAL CONFERENCE
OCTOBER 15-17, 2008
NEW ORLEANS, LA
Homeland
Security
United States
Coast Guard
NVDC
THE NATIONAL VESSEL
DOCUMENTATION CENTER
792 T J JACKSON DRIVE
FALLING WATERS WV 25419
The NVDC is a sub-unit of the Department of Homeland
Security and the United States Coast Guard. Its mission is
to facilitate maritime commerce and the availability of
financing while protecting the economic privileges of United
States citizens through the enforcement of regulations, and
to provide a register of vessels available in time of war or
emergency to defend and protect the United States of
America.
What is Vessel Documentation?
U.S. vessel registration is demonstrated by the issuance of a
Certificate of Documentation (COD). A COD is required for the
operation of a vessel in certain trades and such documentation
provides evidence of nationality for international purposes.
Who is Eligible to Document a Vessel in the U.S.?
• Natural Persons
• Certain Corporations
• Certain Partnerships (Associations, Etc.)
• Certain Limited Liability Companies
• Government (Federal, State, Local) Entities
Why Document a Vessel?
•
•
•
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Required for vessels engaged in certain trades
if measuring at least five net tons
Entitles vessels to preferred mortgage
financing
Provides for unhindered commerce between
states
Provides conclusive evidence of nationality for
vessels in foreign waters
What types of endorsements are
available?
COASTWISE – Includes the transportation of passengers or merchandise
between points embraced within the coastwise laws of the U.S. Generally,
coastwise trade is trade between a point in the U.S. and another point in the
U.S. (including Hawaii, Alaska, Puerto Rico and other Territories).
REGISTRY – Includes trade between a point in the U.S. and a foreign point or
transportation between foreign points (foreign trade).
FISHERIES – Includes the processing, storing, transporting, planting,
cultivating, catching, taking, or harvesting of fish, shellfish, marine animals,
pearls, shells, or marine vegetation in the navigable waters of the U. S. or in
the exclusive economic zone.
RECREATIONAL – Permits operation for pleasure only.
Coastwise Trade/Jones Act Trade
• U.S. citizen control test applied to any
owner of a vessel entitled to participate in
the coastwise trade.
• Stock in vessel owning entity must be at
least 75% owned by U.S. citizens.
What is Lease Financing or
Coastwise Under Charter?
• Statutory change to eliminate technical
impediments to financing “Jones Act”
vessels
• Not intended to undermine U.S. Control
provisions for “Jones Act” vessels
• Permits documentation by a foreigncontrolled owner when chartered to an
eligible citizen (charterer is the owner pro
hac vice)
Coastwise Citizenship
Requirements for Corporate
Owners
Traditional U.S. Citizen
(considered a Section 2 Citizen)
Documentation Citizen
(requirements for Foreign Trade
or Lease Financing)
• Organized in the U.S.
• U.S. CEO, Chairman
• Restrictions on aliens – no
more than a minority of the
number of directors to
constitute a quorum
• At least 75% equity invested in
U.S. citizens
• Organized in the U.S.
• U.S. CEO, Chairman
• Restrictions on aliens – no
more than a minority of the
number of directors to
constitute a quorum
• 100% of the stock may be
foreign owned.
Citizenship Documentation
Required for Coastwise
Endorsements
Traditional Coastwise
• CG-1258 (Application)
• No additional
requirements
Lease Finance Coastwise
• CG-1258 (Application)
• Affidavit from owner
• Citizenship Statement of
charterer (must qualify as
Section 2 citizen)
• charter (must be for at least
3 years)
• any subcharters
• Charterer must be owner pro
hac vice
Financing
Documented Vessels
In general, there are no citizenship requirements applicable
to mortgagees of U.S. documented vessels, except:
• The American Fisheries Act, Pub. L. 105-277, places
stringent citizenship requirements on mortgagees of
fishing vessels 100 Feet or greater in length (46 USC §
31322)
Recently (Pub. L. 110-181), the Coast Guard was
authorized to request reports from mortgagees to ensure
compliance with 46 USC § 12139 & 46 CFR 67.31 (Foreign
Control Provisions)
Permissible Foreign Investment
Dependent on Form of Investment and
Trade Endorsement Sought
TRADE ENDORSEMENT
CITIZENSHIP REQ’MTS
MORTGAGEE LIMITS
RECREATIONAL
REGISTRY
COASTWISE
BASIC U.S.
BASIC U.S.
U.S. & 75% U.S.
EQUITY
BASIC U.S. ,
UNRESTRICTED
EQUITY, OTHER
REQUIREMENTS
U.S. & 75% EQUITY
U.S. & 75% EQUITY
IN THE AGGREGATE
UNRESTRICTED
UNRESTRICTED
UNRESTRICTED
COASTWISE/LEASE
FINANCE
FISHERY <100 FT
FISHERY >100 FT
UNRESTRICTED
UNRESTRICTED
MUST BE ELIGIBLE TO
DOCUMENT FISHING
VESSEL (OTHERS AS
APPROVED BY MARAD)
*BASIC U.S. OWNERSHIP REQUIREMENTS FOR CORPORATIONS ARE: ORGANIZED IN U.S., U.S. CEO, U.S.
CHAIRMAN, AND RESTRICTIONS ON ALIENS FOR QUORUM PURPOSES
U.S. Government Review
of Foreign Investment in
the U.S.
Committee on Foreign Investment in the
United States (CFIUS)

CFIUS - a multi-agency U.S. government
entity that evaluates the national security
implications of mergers and acquisitions
that could result in foreign control of U.S.
businesses
Committee on Foreign Investment in the
United States (CFIUS)

Principal member agencies include:
Department of
 Department of
 Department of
 Department of
 Department of
 Department of
 Department of

the Treasury (Chair)
Commerce
Defense
Energy
Homeland Security
Justice
State
Committee on Foreign Investment in the
United States (CFIUS)

CFIUS can decide to refer cases to the President
and can recommend unfavorable action,
including divestment or blocking of a
transaction. Only the President can decide to
divest or block a transaction.
Key Concepts for CFIUS Process
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Notification of mergers and acquisitions to CFIUS is voluntary,
but CFIUS can request parties to a transaction to submit a notice
if they do not do so on their own.
CFIUS focuses on the national security implications of an
eligible transaction. Although “national security” is not defined,
CFIUS has interpreted it broadly and it includes within its ambit
“critical infrastructure”.
A transaction is subject to CFIUS jurisdiction only if it involves
foreign control.
Transactions that are not notified to CFIUS for review at the
time the transaction is being completed remain indefinitely
subject to future review and to possible unfavorable action.
Office of Foreign Assets Control
(OFAC)
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OFAC, located within the Department of the
Treasury, is the primary enforcer of economic
(non-military) sanctions imposed by the U.S.
OFAC sanctions can be imposed:
against entire countries (e.g., Cuba) or more limited
regions of countries (e.g., Sudan)
 against particular categories of companies or
individuals, such as those found to be engaged in
terrorism or drug trafficking

Office of Foreign Assets Control
(OFAC)

OFAC sanctions usually are enforced by restricting
actions that can be taken by U.S. firms and individuals
with respect to the sanctioned entities.

Restricted activities often include the “facilitation” of
transactions with such sanctioned entities.

OFAC regularly publishes and updates information
relating to its sanctions programs, including the
identities of sanctioned entities.
Foreign Investment in Shipping
or
: ¿Dónde están los euros? or : Πού είναι τα ευρώ
Peter S. Shaerf
Managing Director
AMA Capital Partners
October 16th 2008
or
: Ou sont les euros?
The number of publicly listed maritime
companies in the U.S. has exploded
U.S. Public Companies
25
Number of Listed Companies
21
20
16
15
Container
Owner/Liner
Companies
Dry Bulk
Companies
10
8
Tanker
Companies
6
5
2
2
0
October 2001
Year
October 2008
Global Market Capitalization
Total Market Capitalization at
October 2nd 2008
Approx. $241 Billion
Other , 12.9%
Finland, 2.5%
U.S.A, 29.8%
Netherlands,
3.1%
Taiwan, 2.5%
S. Korea,
3.3%
China, 3.6%
Singapore,
6.3%
Denmark,
11.2%
Hong Kong ,
3.6%
Norway, 6.3%
Japan, 9.5%
Global Volume Traded
Total Volume Traded between Q1'08 - Q3'08
Approx. $519 Billion
Netherlands,
2.7%
Finland, 1.8%
Other , 5.5%
Taiwan, 2.8%
S. Korea, 2.2%
China, 2.0%
Denmark, 11.2%
Hong Kong ,
2.2%
U.S.A, 50.5%
Japan, 13.9%
Norway, 8.6%
Singapore, 3.9%
Have We Scared them away?
Why it can work..
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Barriers to entry
Lack of liquidity !!
Lack of understanding of sectors
Long term stability of market
But why it doesn’t work..
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Regulatory intervention
Union affiliation
Cost differentials
Comparable global opportunities
Lack of Liquidity
Minority positions
Hypothetical Scenarios for Discussion
Hypothetical #1
• European shipowner/operator to
acquire:
– U.S. registered vessels
– U.S. shipping company
– an interest in a U.S. shipping company
Hypothetical #2
• Sovereign wealth fund to acquire:
– controlling interest in a U.S. shipyard
Hypothetical #3
• Asian shipowner with international
businesses (including Cuba) acquires:
– U.S. company (not necessarily marinerelated)
Questions?