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an even more nebulous concern. Recognition that these concerns could not be readily dismissed – at least in the court of public opinion – led to the withdrawal of the US $2.2 billion offer. 59 Be this as it may, it is questionable, however, absent a fundamental overarching agreement on how to deal with expanded state reach whether Chinese-controlled investment vehicles, in particular, can gain ongoing political support in Washington.60 Administration support appears conditional on adherence to a further generic set of principles that operate outside of the formal legal and regulatory guidelines that underpin the Cfius procedure. This requires an explicit commitment that ‘investment decisions should be based solely on commercial grounds rather than to advance, directly or indirectly, the geopolitical goals of the controlling government.’ According to the US Treasury, ‘greater information disclosure in areas such as purpose, investment objectives, institutional arrangements and financial information…can reduce uncertainty and build trust in recipient countries.’61 While national security has been deliberately framed to give ‘the broadest latitude’ possible, reinstating the financial sector does give rise to understandable ire on the part of Sovereign Wealth Funds, who see in the current debate geo-political gamesmanship devoid of policy cohesion. 62

It is also important to note that there are important structural and policy differences between the 3Com deal and those recently consummated within the financial sector.63 The recent financial acquisitions have been scoped to ensure that they remain below mandatory government review thresholds. Under US law, if there are no accompanying voting rights (or the portfolio investment is below 10%), then the investment is automatically deemed passive and therefore not subject to formal review. Secondly, as noted above, the passage of the Foreign Investment and National Security Act explicitly deleted financial services from the list of prescribed sectors. This does not mean, however, that monetary policymakers lack the capacity to block financial investments. The Bank Holding Company Act requires Federal Reserve approval before direct or indirect investment of more than 25% of voting shares can be authorised. In addition, a controlling interest, which is defined as having 10% of voting shares, can trigger a formal review. The critical question is whether the

59 S Kirchgaessner, ‘US Insiders Point to Bain Errors over 3Com’, Financial Times (London), 4 March 2008, 30; S Kirchgaessner, ‘Washington Obstacle Course Sees Chinese Companies Re-Examine Their US Ambitions’, Financial Times (London), 4 March 2008, 30.

60 The chairman of the Senate Banking Sub-Committee on Security and International Trade and Investment Edwin Bayh, suggests that the current regulatory approach is ‘naïve’, see E Bayh, ‘Time for Sovereign Wealth Fund Rules’, Wall Street Journal (New York), 13 February 2008, A2. Three members of the House Financial Services Panel, including its chairman, Barney Frank, have written to the US Treasury Secretary asking for confirmation that the ten per cent threshold will not be interpreted literally, see Associated Press, ‘Lawmakers Want CFIUS Rules Clarified’, Wall Street Journal (New York), 14 March 2008, A12; see, more generally, Alvarez above n 28.


Y Otaiba, ‘Our Sovereign Wealth Plans’, Wall Street Journal (New York), 19 March 2008, A16.

62 Oral comments provided to the author by a representative of a conglomerate of SWFs at a seminar, on which this paper is based, given to the International Monetary Fund, Washington, DC, 27 May 2008.

63 It is also important to emphasise that the main source of foreign investment in the United States comes form Europe, particularly the United Kingdom, France and Germany. Despite the sharp spike in Sovereign Wealth activity, as a sector it remains relatively small provider of overall foreign direct investment in the United States, see GAO, above n 49 at 8.


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