122 13 14 15 16 17 18 19 3 investor, if such person is a foreign government, does not have diplomatic relations) not to do business with, to subject to economic loss or injury, or otherwise to discriminate against any person (other than a person which is, or is controlled by, a foreign government with which such foreign investor, if such foreign investor is a foreign government, or person controlling such foreign investor, if such person is a foreign government, does not have diplomatic relations), because such person or an officer, director, employee, stockholder, or creditor thereof is or has been, or in order to deter such person or any officer, director, employee, stockholder, or credi tor thereof from, directly or indirectly, supporting or dealing with (i) any foreign government with which the United States has diplomatic relations or (ii) any person resident or operating in, or dealing with, any country with whose government the United States has diplomatic relations.". On page 7, line 23, strike the phrase "the preceding 20 sentence" and insert in lieu thereof the phrase "this para21 graph". 22 On page 10, between lines 19 and 20, insert the follow23 ing: 24 "(3) If any foreign investor, directly or indirectly, 25 having the beneficial ownership of more than 5 per centum 4 1 of any class of equity securities of a United States company 2 causes such United States company to engage in any act 3 by reason of which it would be prohibited pursuant to section 4 13 (f) of this title from acquiring, directly or indirectly, 5 the beneficial ownership of more than 5 per centum of any 6 class of equity securities of any other United States company, 7 the Commission, the Attorney General the holder of record 8 of any equity security of such United States company, 9 or any person aggrieved by such act, may bring an action 10 in a district court of the United States (or a court of general 11 jurisdiction, however designated, in any place, other than a 12 State, under the jurisdiction of the United States) to divest 13 the foreign investor of beneficial ownership of equity securi14 ties of such United States company. On a showing that the foreign investor has engaged in any such act, the court, by 16 order, shall revoke or suspend, for any period specified in 17 the order, the voting rights evidenced by equity securities 18 of such United States company beneficially owned by such 19 foreign investor and order the sale of all such securities.". 20 On page 10, line 20, strike "(2)" and insert in lieu 21 thereof "(3)". 15 22 On page 10, line 21, insert after "(1)" the phrase "or 23 (2)". 24 On page 11, following line 1, insert the following: 25 "or the sale of which was ordered pursuant to paragraph 26 (2) of this subsection". GENERAL COUNSEL OF THE DEPARTMENT OF COMMERCE, Washington, D.C., April 1, 1975. Hon. WILLIAM PROXMIRE, Chairman, Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is in response to your letter of February 13, 1975, requesting the comments of the Department of Commerce on S. 425, a bill "to amend the Securities Exchange Act of 1934 to require notification by foreign investors of proposed acquisitions of equity securities of United States companies, to authorize the President to prohibit any such acquisition as appropriate for the national security, to further the foreign policy, or to protect the domestic economy of the United States, to require issuers of registered securities to maintain and file with the Securities and Exchange Commission a list of the names and nationalities of the beneficial owners of their equity securities, and for other purposes." The bill, to be known as the "Foreign Investment Act of 1975," would amend Section 13(d) of the Securities Exchange Act of 1934 (which requires the disclosure of background, identity and other information about beneficial owners of more than 5 percent of registered and certain other securities) to include information as to (1) the owner's residence, nationality and financial position; (2) the background, identity, residence and nationality of any person, other than the beneficial owner who files the report, who possesses sole or shared authority to exercise the voting rights evidenced by the securities being acquired; (3) the source and amount of the funds used in making the acquisitions; (4) whether the purpose of the purchase is to obtain control of the business acquired and any plans or proposals to liquidate the business, sell its assets to or merge it with any other persons or to make any other major change in the business; (5) the number of shares which are beneficially owned and which there is a right to acquire directly or indirectly by the purchaser and his associates, giving certain information for each associate; and (6) the number of shares for which any person, other than the beneficial owner, has the authority to exercise the voting rights and certain information about such person. The bill would also require issuers of registered securities to maintain and file with the SEC a list of the names and nationalities of the beneficial owners of their equity securities. The bill would add a new Section 13(f) to the Act to require a Section 13(d) statement to be filed with the Securities and Exchange Commission 30 days prior to the acquisition by a foreign investor of more than 5 percent of any equity security of a U.S. company with total assets exceeding $1 million. The Commission would transmit a copy of the statement to the President promptly after filing. The bill specifies that the statement shall not be disclosed to the public and directs the Commission to "consult and cooperate with the President to assure that its actions are in accordance with the President's power and responsibilities with respect to the activities of foreign investors in the United States." The President may, by order within the 30-day period, prohibit the proposed acquisition "as he deems appropriate for the national security of the United States, to further the foreign policy of the United States, or to protect the domestic economy of the United States." The rules and regulations concerning the President's actions would be exempt from the Administrative Procedure Act. The bill would authorize the Securities and Exchange Commission, the Attorney General, a U.S. corporation in which a foreign investor has acquired an interest, or any shareholder of such a corporation to sue in Federal court to nullify any acquisition made in violation of the 30-day prenotification requirement of the bill. The court would have the authority to grant appropriate relief in the form of temporary or permanent restraining orders and injunctions to prevent violation of or enforce compliance with this requirement, including the power to revoke or suspend voting rights of shares unlawfully acquired and to compel their disposition. If these orders or injunctions are not compiled with, the court could vest ownership of the securities in a trustee who may sell them or do anything to give effect to the order or injunction of the court. The bill would amend the Securities Exchange Act of 1934 to provide that any foreign investor that fails to file a 13(d) statement could be fined $1,000 for each and every day that such failure to file continues. The Department of Commerce opposes enactment of S. 425 because the bill represents a substantial departure from our traditional open door policy on foreign investment which has resulted in significant benefits to the United States and to the economy. The Department is fully aware of and appreciates the concern over the factor that have precipitated the proposed legislation. On the basis of the data that are currently available, however, the Commerce Department does not believe that the effects of recent and past foreign investments represent a threat either to our national security or to foreign control over our economy. Moreover, there already exists a variety of laws, regulations, and administrative practices that generally protect against the possibility of foreign investors abusing their position in this country. The Commerce and Treasury Departments are now in the process of carrying out a comprehensive survey and study of foreign direct investment in the U.S. as required by the Congress in the Foreign Investment Study Act of 1974. We expect that these surveys and studies will provide us with data about the character, extent and the effects of foreign investment and with the information required to make appropriate policy recommendations to the Congress if necessary. At the same time, the Executive Branch has under review the entire range of administrative and legislative regulations and controls to insure that present procedures and mechanisms for gathering and disseminating data and enforcing existing laws and regulations are adequate to protect the national interest. We have been advised by the Office of Management and Budget that there would be no objection to the submission of our report to the Congress from the standpoint of the Administration's program. Sincerely, KARI. E. BAKKE, General Counsel. Senator WILLIAMS. We begin this morning with testimony from two administration witnesses-first, Mr. Jack F. Bennett, Under Secretary for Monetary Affairs, Department of the Treasury. As this agenda list has been released, Mr. Howard Menell is listed. as the first witness. He is the Assistant Counsel to the Subcommittee on Securities who has done some investigatory work in connection. with these hearings. In view of the time problems of the administration's witnesses as well Senator Metzenbaum, Mr. Menell will appear at the end of our hearings this morning or possibly tomorrow. We will begin with the Under Secretary for Monetary Affairs for the Treasury, Mr. Jack F. Bennett. STATEMENT OF JACK F. BENNETT, UNDER SECRETARY FOR Mr. BENNETT. Mr. Chairman, I appreciate this opportunity to present to your committee the administration's views on foreign investment in the United States. We certainly agree with you this is a fit subject for public discussion at this time. Within the executive branch we have been engaged in an extensive interagency review of governmental policy toward such investment. We felt that such a review was appropriate in the light of the pace of change in international economic affairs, including, in particular, the rapid growth in the hands of a few governments of funds available for investment abroad. In summary, the basic conclusion of our review was to reaffirm the traditional policy of our Government as stated, for example, by the President in October when he signed the Foreign Investment Study Act of 1974. He said: We continue to believe that the operation of free market forces will direct worldwide investment flows in the most productive way. Therefore my Admin istration will oppose any new restriction on foregn investment in the United States except where absolutely necessary on national security grounds or to protect an essential national interest. An important underlying reason for the reaffirmation of that policy was our recognition that we shall need all the investment we can appropriately attract to assist in restoring the productivity growth of our economy. Our review confirmed that existing laws, regulations, and practices provide extensive information with respect to foreign investments as well as safeguards to deal with particular investments. We concluded, however, that in addition to enforcing rigorously the existing laws and regulations which control the activity of foreign investors, we should take administrative action to supplement the present arrangements: First, by establishing a new continuing high-level, interagency committee to report to the President's Economic Policy Board and to serve as the focal point within the executive branch for insuring that foreign investments in the United States are consistent with our national interest. Second, by creating a new office to serve that committee and all other parts of our Government by monitoring foreign investment and producing analyses both of developing trends in various categories of investment, and of the prospective impact of significant individual investment proposals. Third, by using the new office to centralize and improve the gathering of information on foreign investment and its dissemination to appropriate parts of the Government. Last, by negotiating procedures with the principal foreign governmental investors for advance consultation with the U.S. Government on prospective major direct investments in the United States. It is our belief that the policy and arrangements we are proposing will simultaneously safeguard our national interest and, by clarifying the situation, actually enhance the attractiveness of the United States for foreign investors. We do not believe that there is at this time a need for any new legislation, apart from the possible desirability of legislation which is now being studied by the SEC to impose more effective requirements, on both domestic and foreign investors, to reveal the beneficial owners standing behind investments held in nominee names. At the outset of the administration review just completed we took a look at trends in foreign investment over the last several years. Although the term "investment" sometimes covers all types of financial claims, in this particular study, we concentrated on investments in relatively long-term assets, such as stocks and bonds, rather than short-term assets such as bank deposits and Treasury bills. We distinguished between direct investment and portfolio investment. Until recently, foreign equity holdings of 25 percent or more were classified in our statistics as direct investment. Starting in January we now include any holdings of 10 percent or more in the direct investment category. These data are available since under the existing law the U.S. Government collects a substantial amount of data on foreign investment |