Sheppard Mullin Discusses the Future of CFIUS After Proposed Reforms

‘Tis the season to wonder, what will 2018 bring? We may speculate on things like a private company making a moon landing or a peace accord with North Korea. We may be certain of things like well-intentioned gym memberships and a host of new-you products.

Somewhere between speculation and certainty we find the U.S. Government’s scrutiny of foreign direct investment in the United States. The recently proposed Committee on Foreign Investment in the United States (CFIUS) reform introduced in Congress sheds some light on the future of CFIUS reviews.

Congress Proposes CFIUS Reform

As discussed in Sheppard Mullin’s March 2017 … Read more

Cleary Discusses Administrative Fines Under the GDPR

Since the adoption of the General Data Protection Regulation (GDPR) in 2016, considerable attention has focused on the vastly increased scope of potential administrative fines, and even more attention is being paid to the issue with the GDPR becoming effective on May 25, 2018.  In this post, we summarize the key fining provisions, and analyze the recent relevant guidance on this issue from the Article 29 Working Party (an advisory group consisting of representatives from national data protection authorities together with the European Commission).

To summarize, the GDPR provides for potentially massive new fines for violations of its provisions, which … Read more

The Economics of Disclosure and Financial Reporting Regulation

Disclosure and reporting regulation is a central and recurring policy issue that has received significant attention in academic research on accounting, finance, and economics. Further fueling demand for this research are increasingly frequent requests that policy makers and regulators conduct cost-benefit or economic analyses of both existing and planned regulations and standards.

In a recent paper, we review the empirical literature on the economic consequences of disclosure and financial reporting regulation, drawing on U.S. and international evidence. We also extensively review the literature on mandatory International Financial Reporting Standards (IFRS). Our efforts are timely, because three developments have spurred disclosure … Read more

Morrison & Foerster Discusses What Global Investors Think About Brexit

Amid the uncertainty Brexit has created, foreign investors are assessing their existing and prospective investments in the UK, with particular focus on Brexit’s potential impact on EU-UK trade and labor mobility. No one has a crystal ball but our MoFo attorneys around the world have, through conversations with our clients and contacts, gained a picture of the views of smart and successful businesses and professionals about what they expect from Brexit. We have spoken to companies, from the very largest to startups, around the globe. This article sets out this crowd-sourced thinking from a wide variety of thoughtful contacts, and … Read more

Does Shareholder Protection Drive Development of Stock Markets?

Does the quality of legal and other institutions make a difference to economic development and growth? In their very well-known studies of the relation between law and finance, Andrei Shleifer and his collaborators (in particular Rafael La Porta and Simeon Djankov) found evidence to support this claim. Their econometric analysis showed that higher levels of shareholder and creditor protection were correlated with increased financial development. This work became highly influential among researchers and policy-makers. Since the mid-1990s, the widespread belief has been that strengthening shareholder and creditor rights will lead to improved financial outcomes.  This view became a mainstay of … Read more

How Five Jurisdictions Enforce Financial Market Manipulation and Insider Trading Laws

Insider trading and market manipulation — two of the most high-profile categories of financial misconduct — have resulted in several major cases, and significant sanctions in recent years. Our recent article examines the type, frequency, and severity of sanctions imposed for insider trading and trade-based financial market manipulation (“market manipulation”) over seven years from 2009 to 2015 in Australia, Ontario (Canada), Hong Kong, Singapore, and the United Kingdom (UK).

Regulatory Enforcement Approaches – Market Manipulation

What we found from our empirical research was that even in jurisdictions with similar insider trading and market manipulation laws, enforcement approaches differed significantly. A … Read more

Why Corporate Tax Residence Is a Myth

Corporate inversions have captured the imagination of the public and the popular press as well as that of the academic community. The idea is that a little paperwork can convert a U.S. corporation (which pays tax on its worldwide income) into a foreign corporation (which pays tax only on its U.S. source income), and the consensus is that the exploitation of this loophole by multinational corporations is abusive and unfair. Responding to these concerns, Congress and the Treasury Department have attempted to make it more difficult for U.S. multinationals to obtain tax advantages by inverting.

Numerous commentators have argued that … Read more

How Corporate Tax Systems Affect Cross-Border M&A Prices

There were more than $1 trillion worth of cross-border mergers and acquisitions in 2016, according to the United Nations Conference on Trade and Development, making them a prominent form of foreign direct investment and an important way for multinational entities (MNEs) to invest and restructure. When MNEs from various countries bid for a foreign target, each country’s system for taxing foreign dividends and capital gains affects deal prices and may determine who wins the bid.

A big question in the theoretical tax literature on capital ownership neutrality (CON) has been how to neutrally tax M&A (e.g., Desai and Hines (2003), … Read more

U.S. Tax Reform Requires an Understanding of Why Corporations Invert

For more than a century, the United States has had a worldwide tax system whereby U.S. taxpayers were subject to federal taxation on all of their income “from whatever source derived.”  In what would be a sharp break from longstanding practice, The Tax Cuts and Jobs Act, H.R. 1, would shift the United States from a worldwide to a largely territorial tax system by exempting the foreign source income of U.S. corporations from federal taxation.  That change, which has been estimated to reduce U.S. tax revenues by more than $200 billion over 10 years,[1] would more closely align the … Read more

Debevoise & Plimpton Discusses Contingency Planning For Brexit

Not many people would have predicted that the third quarter of 2017 – a period that ended six months after Britain gave formal notice of its intention to leave the European Union – would see more private equity investments in the UK than at any time since the financial crisis.   Nevertheless, as widely reported this week, figures published by Unquote” and SL Capital indicate that €13.7 billion (£12.1bn, or $15.9bn) was invested in UK buyout deals between July and September 2017, the highest quarterly total since 2008.

Whether this news represents a sustained resurgence of UK deals after a disappointing … Read more

Investor Choice in Global Markets for Securities

In a recent paper, we explore how globalization has affected the operation of securities markets and the challenges this poses for their regulation. The paper is part of the first phase of the New Special Study of the Securities Markets Project.

Securities markets have experienced unprecedented levels of cross-border activity over the past 30 years. Three secular trends have contributed to this phenomenon of globalization. First, liberalization: the removal of national foreign exchange controls and barriers to trade and investment. Second, the growth of collective investment, encouraged by favorable tax treatment of retirement saving. This has fostered a shift … Read more

Latham & Watkins Discusses Venezuelan Debt Dilemma

On November 2, 2017, President Maduro of the Bolivarian Republic of Venezuela announced the creation of a presidential commission, headed by Vice President El Aissami, for the “refinancing and restructuring” of Venezuela’s external debt, estimated at between US$100-150 billion.1 Foreign creditors have been invited to a meeting on November 13, 2017 in Caracas with Mr. El Aissami to start negotiations.

On November 3, 2017, the government of Venezuela announced its “absolute and responsible commitment to continue upholding the obligations [of Venezuela and Petróleos de Venezuela, S.A. (PdVSA)].”2 At the same time, PdVSA reported that it had executed a … Read more

Lessons from the Evolution of Corporations and Shareholder Rights in China

Although China seems to have taken far longer than Western developed nations such as the UK, the U.S., and Germany to create a modern corporate system, the imperial Qing government promulgated as early as 1904 a corporate law that included rules on limited liability and equal treatment of shares. Why then did it take another century for a mature corporate law and governance system to emerge?

Throughout 150 years of corporate evolution in China, the government has to varying degrees played an active and dominant role. It exercised complete control at the start of the late Qing Dynasty (1860-1911) but … Read more

Debevoise & Plimpton Discusses FCA’s Reforms to UK’s IPO Process

The UK Financial Conduct Authority (the “FCA”) has published changes to the Conduct of Business sourcebook (“COBS”) to boost the transparency of the IPO process and tackle conflicts of interest that may arise from the interaction between an issuer and analysts of the syndicate banks.  The changes, published in the FCA’s Policy Statement PS17/23 (the “Policy Statement”) on 26 October 2017, broadly crystallise the FCA’s proposals that were outlined in its consultation paper launched on 1 March 2017 (see our client update, “UK Regulator Proposes Changes to IPO Process”, dated 16 March 2017).   The primary goal of the … Read more

Gibson Dunn Discusses Proposed Changes to CFIUS Review

On November 8, 2017, a bipartisan group of lawmakers introduced a long-awaited bill that could significantly alter the process by which the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) reviews foreign investment in the United States.[1]

The proposed Foreign Investment Risk Review Modernization Act of 2017 (“FIRRMA”) would modernize the CFIUS review and approval process, which has struggled to keep pace with a surge of foreign investment in the United States over the last several years.  If passed, the bill would revamp the CFIUS review process and update the regulations to address the national … Read more

Davis Polk Discusses China’s New Rules on International Investment Arbitration

On October 1, 2017, new international investment arbitration trial rules (Chinese version) (the “Rules”) issued by the China International Economic and Trade Arbitration Commission (“CIETAC”) became effective. The Rules mark China’s first attempt to establish a domestic arbitral institution for international investment disputes. The Rules come at the same time as China’s “Belt and Road” initiative, focusing on improving trade infrastructure on land from China to other countries in Asia, securing efficient sea trade routes and establishing a network of free trade zones and cultural exchanges. CIETAC may become the forum of choice for Chinese investors in future arbitrations with … Read more

How U.S. and UK Deal Structures Protect Minority Shareholders

Takeover transactions are often the most significant activity affecting corporations and their shareholders. Accordingly, there are intense debates about the value and impact of takeovers and the extent to which law should regulate such transactions. One area of focus for takeover regulation has been the potential impact of takeovers on minority shareholders. The focus on minority shareholders is not surprising as research suggests that laws which protect minority shareholders are associated with stronger financial markets.

In a recent book chapter, I focus on how deal structures affect the protection of minority shareholders in two common law jurisdictions, the U.S. and … Read more

The Promise and Perils of Crowdfunding

In the last few years, a source of financing for start-ups, known as crowdfunding, has become widely available. It involves raising capital from a large number of individuals, each of whom typically contributes a small sum. The internet has lowered the costs of crowdfunding by facilitating the dissemination of information about small projects, and its use has grown exponentially, with some $34 billion being raised worldwide through crowdfunding in 2015 alone.

While the availability of crowdfunding is clearly good news for entrepreneurs, its merits for those providing the funding are less certain. Because funders typically put only small sums into … Read more

How to Encourage Dialogue Between Boards and Institutional Investors in the U.S. and the EU

With institutional shareholders playing a growing role in corporate governance, dialogue between boards and shareholders is increasingly common in the U.S. and Europe. Talking with boards is essential to institutional investors’ stewardship functions, and engaging with institutional investors has become a focus of listed companies’ communication strategies. Empirical analysis shows that private discussions with directors have become institutional investors’ preferred method of engagement, and they resort to shareholder proposals, public criticism, and similar practices only if private conversations fail.

Nevertheless, meetings between directors and institutional investors raise legal concerns in the U.S. and the EU, because they may lead to … Read more

Simpson Thacher Discusses Trump and GOP Lawmakers’ Tax Overhaul Plan

On September 27, President Trump, the House Committee on Ways and Means and the Senate Committee on Finance released their framework for tax reform (the “framework”), which represents the most detailed proposal for changes to the tax code issued during the Trump administration.  The framework’s key elements include:

  • a reduction in corporate tax rates to 20% and partial limitation on the deductibility of interest for corporate taxpayers;
  • a shift to a modified “territorial” regime of corporate taxation that eliminates tax on dividends from foreign subsidiaries but subjects all foreign earnings to current taxation at a minimum rate to be determined;

Read more