Category Archives: International

The Law of Non-Existent Markets

Written by: Todd Stevens

International borders are increasingly blending together in the corporate world, so it would seem natural that this would also be the case in corporate law. However, this is frequently far from reality, as securities regulations across the world often reveal themselves to be a patchwork quilt of individual legal systems struggling to interact. Such was the picture painted by Michael Mann, former first director for the Office of International Affairs at the SEC and current partner in the Washington, D.C. office of Richards Kibbe & Orbe, who spoke on the global regulation of financial markets at Chicago-Kent this past Thursday.

“One of the interesting things about international securities markets is that there is no such thing,” Mann said, introducing his presentation. “(The markets) are run by domestic bodies administering domestic laws.”

Having framed the international securities world in this light, Mann went on to emphasize the importance of individual relationships in international securities law. As securities markets differ from country to country, businesses are forced to work with different legal structures in each individual market. Thus, it is incredibly important to remember one’s position in any international business arrangement. An expert in the United States market is not necessarily an expert in the Chinese market, and being successful in the field of securities requires strong, mutually beneficial relationships with legal partners across the globe.

Mann went on to set up an outlook for the future. In the wake of the Supreme Court’s Morrison v. National Australia Bank decision, it is much harder to gain jurisdiction in the United States, even when presented with a company that has significant US contacts. This situation makes it all the more important for firms and their legal departments to focus on how they develop their own internal rules, making sure that they are prepared to deal with foreign legal systems as needed.
More importantly, attorneys working in securities markets need to communicate with utmost clarity the issues confronting clients who want to operate internationally so they can shield themselves against potentially hazardous foreign regulations.

“We need to make sure there’s an understanding in our customer of the rules of the marketplace,” Mann said.

On a grander scale, Mann said that the Morrison decision may offer an opportunity to take a new look at the international securities arena and retool it into something friendlier and more efficient, citing past compromises on insider trading law made by the United States and Switzerland as a possible example.
Similar concessions worldwide would be necessary to create an improved setting. As Mann stated, “If the marketplace is ever going to become internationalized, we need to redraw the jurisdictional boundaries… so that people can protect themselves as they so desire.

Eastern Europe’s Economic Struggle

As most Americans continue to grimace at the mere mention of the words ‘economic crisis’ and ‘current job market’, looking abroad may provide solace for some.  Eighteen years ago the Soviet Union fell, transforming Eastern Europe into a playground for the world’s most daring capitalists.  The recent global economic crisis, however, has intensified an already tumultuous situation by highlighting glaring weaknesses in the policies of many of Eastern Europe’s most powerful governments. Continue reading

Countries as Investors – by Nick Holland

Markets and exchanges are filled with individual and institutional investors, but what happens when countries want to get involved?

One possibility is that they are just another participant, and nothing is wrong. They are looking for profits just like the next investor. But is that always the case? What if a country is using investing as a tool for foreign policy? What if a country is investing heavily in a different country in order to gain political influence?

Sovereign Wealth Funds (SWFs) are raising these questions. Essentially, they are a country’s investment portfolio of foreign assets. Some SWFs have been for decades, but many have popped up in recent years. They typically earn the funds they invest from natural resources, predominantly oil. Soaring gas prices partially account for the recent increase in the numbers of these funds.

Even though there have not been any SWF abuses as contemplated in the questions above, domestic and European politicians are still worried. The uncertainty of whether SWFs are investing for economic or political reasons bothers them. The Committee on Foreign Investment in the United States, commonly referred to as CFIUS, already evaluates some foreign investment within this country. But some may think that more legislation is necessary. To help allay these fears, the International Monetary Fund (IMF) and a SWF international working group brokered a set of guiding principles for SWFs and published them last October. These principles are called the Generally Accepted Principles and Practices (GAPP) or the Santiago Principles (the IMF negotiated and adopted them in Santiago, Chile). GAPP advocates disclosure and transparency in the SWF, but they are entirely voluntary.

SWFs represent trillions of dollars of wealth, but politicians and others are skeptical of the SWFs’ motivations because there is much uncertainty about them. Hopefully, GAPP will close this information gap, and allay people’s fears. Only time will tell.