SEC Testifies on SWFs

In testimony today before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, an official with the Securities and Exchange Commission said that while the U.S. welcomes foreign investments, any attempt to prohibit sovereign wealth fund investment might lead to market distortions.

"A better approach might be to address the underlying issues of transparency, independent regulation, de-politicizing of investment decisions, and conflicts of interest," said Ethiopis Tafara, the SEC's director of the Office of International Affairs, in a copy of his remarks posted to the SEC website.

"Any analysis of foreign government investment in the U.S. economy and financial sector, therefore, should include consideration not only of sovereign wealth funds, but also of the equally significant and potentially even more thorny issues surrounding sovereign businesses, whose minority interests are owned in part by U.S. investors, because both trends are manifestations of a serious blurring of the distinction between the role of the market and the role of the state," Tafara said in testimony.

The SEC requires disclosure of ownership, Tafara noted, adding that ownership by a foreign government does not shield it from liability under U.S. federal securities laws.

"It is a well-established principle of American jurisprudence and international law that sovereign immunity does not extend to a state’s commercial activities in another jurisdiction," Tafara said. "And while SEC enforcement cases involving a foreign person or entity are, all things being equal, somewhat more complicated than those with no cross-border nexus, SEC staff have a strong track record investigating such cases and working closely with our foreign counterparts in collecting evidence abroad."