Arnold & Porter Discusses the End of LIBOR

As alerted in our previous Advisories, LIBOR, the “world’s most important number,” is being phased out. Created almost 50 years ago on August 15, 1969—opening day of the Woodstock music festival—LIBOR began as a floating, market-determined interest rate for syndicated loans, but over time has become the benchmark interest rate for an estimated $350 trillion in outstanding financial arrangements around the world. These contracts include public and private loans and bonds; consumer financial products such as credit cards, mortgages and student loans, and some $200 trillion in interest rate derivatives.

Due in large part to concern that the determination of … Read more

Debevoise Discusses When to Disclose a European Deal

In Europe, when negotiating a transaction which may affect the market price of listed instruments of the parties, a key question arises: when to disclose it to the market? The short answer is as soon as possible unless you have a legitimate interest in delaying the announcement, the delay will not mislead the market and the confidentiality remains protected. This note details what it means in practice.

Pursuant to MAR (Market Abuse Regulation—EU Regulation No. 596/2014 of 16 April 2014), effective throughout the European Economic Area, an issuer is required to inform the public as soon as possible of inside … Read more

Will Putting Title III of Helms-Burton Into Effect Open the Litigation Floodgates?

On April 17, 2019, U.S. Secretary of State Mike Pompeo announced that President Trump would not suspend for any additional periods of time Title III of the Cuban Liberty and Democratic Solidarity Act – better known as “Helms-Burton.”[1]  Title III of Helms-Burton allows U.S. nationals whose property was expropriated by the Cuban government on or after January 1, 1959, to sue in U.S. courts anyone – regardless of nationality – who knowingly and intentionally “traffics” in that property.  But, in response to strong opposition from many of the United States’ close allies and trading partners and to concerns about … Read more

Cleary Gottlieb on France’s New Framework for Approving ICOs

On April 11, 2019, the French parliament adopted a law (the “Loi Pacte”or “Law”)[1] that establishes a new regulatory framework for initial coin offerings (“ICOs”) of blockchain based tokens by entities established or registered in France.  At the heart of the Law’s ICO provisions is an innovative framework that will allow issuers to request an optional visa from the French Financial Markets Authority (the “AMF”) prior to undertaking an ICO.  ICOs of tokens that are not financial instruments will still be permitted without a visa, but the expectation is that issuers obtaining the visa for an offering … Read more

Davis Polk Discusses France’s New Legal Framework for Digital Assets

After becoming one of the first countries to authorize the registration and transfer of unlisted securities using blockchain technology, France has adopted an innovative legal framework governing initial coin offerings (“ICOs”) and digital assets services providers (“DASPs”) with the aim of being at the forefront of the blockchain revolution in Europe.

After allowing the representation and transmission of unlisted securities through the use of blockchain technology in 2017, the draft “PACTE”[1] bill (the “PACTE Act”) was adopted by the French Parliament on April 11, 2019[2], constituting a new step in France’s economic transformation.

This PACTE … Read more

Protecting Against Protectionism in EU M&A

In a recent paper, we explore EU law covering EU cross-border mergers. These are typically more difficult and costlier than purely national mergers. Additionally, political hurdles can exist. In a time of global political and institutional transformations away from open markets and towards protectionism, the opposition to takeovers and mergers based on public interest considerations, such as national security, sees a revival.

This trend towards protectionism, together with a focus on industrial policy, has different facets. For example, recently France and Germany seemed to defend the idea of European champions, corporations that can compete on the global financial and … Read more

Land of the Falling Poison Pill: Understanding Defensive Measures in Japan

The advent of the “shareholder rights plan,” more popularly known as the “poison pill,” fundamentally altered the trajectory of American corporate governance. Intended to defend vulnerable boards from corporate raiders, the poison pill was embraced by U.S. managers in the 1980s as a lifeline in a sea of hostile takeovers. When pundits predicted an imminent wave of hostile takeovers in Japan in the mid-2000s, Japanese boards appeared to embrace the poison pill with equal enthusiasm.

Japan’s experience might have been evidence that corporate governance around the world was destined to converge on the American model – but for two inconvenient … Read more

Cleary Gottlieb Discusses CFIUS and the Unwinding of Kunlun’s Acquisition of Grindr

On March 27, 2019, journalists affiliated with Reuters reported that the Kunlun Group (“Kunlun”), a China-based tech firm, was preparing to sell its wholly owned subsidiary, Grindr, after the Committee on Foreign Investment in the United States (“CFIUS”) informed the group that Kunlun’s continued ownership of Grindr constituted a national security risk.  This forced divestiture of Grindr is a pointed reminder that CFIUS remains focused on protecting the sensitive personal data of U.S. citizens, has the power to upend closed deals that have not been cleared by the committee, and is dedicating increased resources to the review of transactions that … Read more

The Future of Data Driven Finance: Financial Regulation, Data Regulation, and RegTech

Fifty years ago, banking was a relationship business. Bank managers collected information about depositors and borrowers from all sorts of sources, formal and informal. In recent decades, credit decisions have become far more data-driven, with companies like Amazon and the Alibaba-affiliate, Ant Financial, taking the lead in the U.S. and China. This paradigm shift in finance, however, is only just beginning. We are entering a period in which the leaders in finance will have to focus intensely on data and its analysis. Banks and traditional financial institutions around the world are in the process of building ever-more sophisticated IT systems … Read more

Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis

Investment expenditure in Europe collapsed in the aftermath of the 2008 global financial crisis. This collapse followed a boom during which the corporate sector borrowed heavily (Gopinath, Kalemli-Ozcan, Karabarbounis, Villegas-Sanchez, 2017). Figures 1 and 2 illustrate the extent of the increase in leverage and the collapse of investment  in Europe as compared with the United States. These developments were particularly pronounced in peripheral European economies.

In a new paper (Kalemli-Özcan, Laeven, Moreno, 2018), we investigate whether the corporate debt accumulated during the boom years held back investment by non-financial corporations after the crisis. Specifically, we consider whether high levels of … Read more

Debevoise Discusses China’s New Foreign Investment Law

On March 15, 2019, China’s top legislature, the National People’s Congress, passed the long-anticipated new Foreign Investment Law (the “FIL”). Promulgation of this legislation is widely held to have been accelerated in response to changes in China’s economic conditions, in particular cross-border trade tensions and increasing pressure on China’s domestic economy in recent years.

The FIL, which will become effective on January 1, 2020, will replace the primary laws that have been governing foreign-invested enterprises (“FIEs”) in China for the last four decades: the Sino-foreign Equity Joint Venture Law, the Sino-foreign Cooperative Joint Venture Law and the Foreign Enterprise Law … Read more

Brexit Fools’ Day

March 29 was meant to be Brexit Day, marking the UK’s departure from the EU. Instead, it was yet another day of Brexit high drama as Prime Minister Theresa May’s Brexit deal was voted down for a third time, leaving the possibility of (i) the UK leaving the EU on April 12 in a “no deal” scenario or (ii) the EU granting a long Brexit delay (with conditions attached).[1]

Third Time Unlucky. In a turn of events that treaded that delicate line between tragedy and comedy:

  • DUP: The DUP (Northern Ireland’s Democratic Unionist Party) voted against the proposed Brexit

Read more

How Workers As Directors Affect Tax Aggressiveness, Earnings Management

Employee participation in corporate decision-making is a trending issue for politicians on both sides of the pond. In the U.S. and the UK, politicians and the popular press are debating whether assigning board seats to workers by law could be transferred to their corporate governance systems. In August 2018, U.S. Senator Elizabeth Warren proposed legislation requiring 40 percent of the board of directors of any large American corporation be selected by the company’s employees. Similarly, UK Prime Minister Theresa May proposed renewing the British corporate governance system and mandating UK corporations include employee representatives on all British company boards.

The … Read more

The Brexit Twilight Zone

More Brexit chaos unfolded last week as the UK Parliament voted (1) for a second time to reject Theresa May’s Brexit deal, (2) to reject a no-deal Brexit and (3) in favor of Brexit delay. Yet these actions seem to have accomplished very little: A third vote on May’s Brexit deal is looming – perhaps as early as Tuesday –a no-deal Brexit is technically still on the table, and whether Brexit gets delayed is now up to the EU. With each attempt to clarify the UK’s Brexit strategy, the same options (deal, no-deal, delay) keep bouncing back to Parliament, as … Read more

Skadden Discusses UK Antitrust Authority’s Proposals for More Scrutiny and Weaker Judicial Review

On February 21, 2019, the U.K. Competition and Markets Authority (CMA), at the U.K. government’s request, set out “wide-ranging and radical” proposals to reshape U.K. competition enforcement and consumer protection regime.1

These are proposals at the very earliest stage, and they remain far from becoming government policy. Still, the CMA has been vocal in positioning itself as a consumer champion and ties this effort to its role within a post-Brexit U.K. Some of these propos­als may therefore have traction. If enacted, they would represent a step change in U.K. antitrust enforcement.

Summary

The proposals mark a significant intensification of … Read more

U.S. Corporate DPA Program: International Embarrassment?

In a forthcoming paper in Arizona State Law Journal, I argue two main points regarding Deferred Prosecution Agreements (DPAs) negotiated between federal prosecutors and corporations accused of misconduct: First, since the recent appellate court ruling in United States v. Fokker Services B.V.[1] (which narrowly circumscribes a court’s role in reviewing and approving DPAs), cases have begun to arise in which district courts express strong misgivings about having to approve DPAs they would otherwise reject as overly-lenient. Second, numerous countries around the world—including Australia, Canada, France, Ireland, Singapore, and the United Kingdom—appear to be rejecting U.S.-style corporate DPAs as … Read more

March Madness – Brexit Edition

The countdown to Brexit on March 29 brings new twists and turns every day. On Wednesday, the UK’s House of Commons voted on amendments to the Brexit process, establishing a March timetable for decisions on whether to seek a deal, no deal, or delay, while dangling the possibility of a second referendum. In light of these developments, and with apologies to U.S. college basketball’s championship tournament, here is a brief guide to the “Final Four” Brexit options.

A Brexit Deal: The only Brexit deal on the table is a UK-EU negotiated Withdrawal Agreement and Political Declaration, which proposes an orderly … Read more

Debevoise & Plimpton Discusses Responsible Investment as an Opportunity for European Funds

European private equity fund managers are well aware that demonstrating a commitment to responsible investment is becoming an essential component of a smooth and successful fundraising. Regulation is only one of the drivers for that change, but it is an increasingly significant one, and two recent developments are characteristic of the changing regulatory landscape. They also highlight an opportunity for private equity fund managers – many of whom are already focused on ESG (“environmental, social and governance”) considerations when making and managing portfolio investments.

The first development comes from the UK’s Financial Reporting Council (FRC), a body that regulates accountants … Read more

Debevoise & Plimpton Discusses UK Financial Conduct Authority’s Proposal for Heads of Legal

In a long-awaited but widely-expected development, the UK Financial Conduct Authority (“FCA”) has issued a new consultation paper[1] proposing that Heads of Legal do not need to be designated as Senior Managers under the Senior Managers Regime (“SMR”). Ever since the introduction of SMR in 2016, the FCA has delayed formally confirming whether heads of legal should be allocated the SMF18 role (Other Overall Responsibility Function).

The FCA came to its position in light of the potential difficulties created by legal professional privilege. A fundamental principle of the SMR is that if a firm breaches a FCA requirement, the … Read more

Does Corporate Social Responsibility Reduce Profit Shifting?

In recent decades, economies have become bound together through globalization, a phenomenon that integrates societies and creates business opportunities but also challenges tax policies. The amount of taxes corporations pay is a heatedly debated topic among policy makers, academics, and the media. An article in the Financial Times (Toplensky, 2018), for example, argues that multinational enterprises (MNEs) are paying significantly lower taxes now than they did prior the financial crisis. An important way MNEs reduce their taxes is to move profits from the countries where they’re based to countries where tax rates are lower, a practice commonly referred to as … Read more