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that it requests protection for the foreign policy interests of the United States only to the extent that this can be accomplished without impeding investigation and enforcement actions by authorized agencies of the United States. In this case, the Department of State respectfully defers to the judgment of the Court as to whether a protective order can be fashioned which will prevent premature disclosure to third parties of the names and nationalities of certain foreign officials without impeding access to the information in question by appropriate law enforcement bodies.
On December 11, 1975, the Department of Justice, pursuant to 28 U.S.C. 517, filed the suggestion of interest. Judge Pratt issued a memorandum and order on December 17, 1975, requiring Lockheed to appear, testify and produce records concerning the matter under investigation. He noted the suggestion of interest and ordered that (1) the documents produced remain subject to the continuing jurisdiction of the Court, and (2) the SEC not produce any documents or information provided by Lockheed to any third party except a grand jury until it had given 10 days' notice to Lockheed and any interested Government agencies to apply to the Court for the relief to which they might be entitled. The order contained a proviso protecting the ability of the SEC to utilize the documents or information in investigative proceedings, to refer them to law enforcement agencies subject to the Court's jurisdiction and order, and to initiate, prosecute, or respond to a Justice Department request in certain civil actions or proceedings arising out of the investigation, as the SEC deemed appropriate. The order also provided for the SEC to take such additional steps as it deemed appropriate to maintain the confidentiality of the documents.
Foreign Investment Reporting Requirements
The reporting requirements of Part 803, Chapter VIII, Title 15 of the Code of Federal Regulations were amended by notice dated May 16, 1975, to include certain foreign business enterprises owned by U.S. persons and U.S. business enterprises owned by foreign persons where the parent's investment is less than $2,000,000 on January 1 of any calendar year, but subsequently exceeds that amount. The regulations as amended also changed the level of ownership at which a U.S. company is considered foreign-owned, and therefore required to report, from 25 percent to 10 percent. The changes, which were made at the instance of the Bureau of Economic Analysis, Department of Commerce, were made retroactive to January 1, 1975, in order to provide consistent data throughout the calendar year.
The following are the pertinent paragraphs of Part 803, Chapter VIII, Title 15 of the Code of Federal Regulations, as amended:
$ 803.1 Who must report.
(b) Foreign business investment in the United States—(1) Basic requirement. A report is required to be filed with respect to every business enterprise subject to the jurisdiction of the United States in which foreign persons, either as individuals or as affiliates hold a 10 percent or more ownership interest, or which is owned in a manner indicated in paragraph (b)(2) of this section directly or indirectly by a foreign person or persons. Such business enterprises shall include, but not be limited to, corporations, partnerships, investments in real property, leaseholds, estates, trusts, and sole proprietorships or other forms of outright individual ownership.
(2) Foreign beneficial interest. If the foreign-owned interest in a United States business enterprise, including commercial real property, is held, exercised, or administered by a United States estate, trust (including irrevocable trusts), nominee, agent, representative, custodian, or other intermediary of the foreign beneficial owners, such intermediary shall be responsible for reporting for the business enterprise the required information on Form BE605, BE-606, BE-606B, or BE-6061, or shall instruct the United States business enterprise in question to submit the required information. This does not relieve the United States business enterprise of responsibility for reporting if such business enterprise has knowledge of the direct or indirect foreignowned interest, but only one report should be filed for each such enterprise. For the purposes of this report, accounts or transactions of a United States business enterprise with a United States estate, trust, nominee, or other intermediary of foreign beneficial owners shall be considered as accounts or transactions with such beneficial owners.
(3) Insurance companies. Reports for U.S. branches or subsidiaries of foreign insurance companies are required on Form BE-6061.
(4) Consolidated reports. If a reporter held a 10 percent or more ownership interest in other United States enterprises engaged in the same type of business and is required to report, the information requested in the reporting forms may be consolidated for such reporter and enterprises, provided all accounts are fully consolidated. A list of the enterprises included in the consolidations must be pr ded.
$ 803.2 Forms to be used and frequency of reports.
(a) Each reporter is required to submit reports on the following forms as applicable.
(2) Foreign direct investments in the United States. Form BE-605. One Form BE-605 is to be filed quarterly for each United States corporation 10 percent or more of whose voting stock is owned directly or indirectly by a foreign person(s) or organization(s) and its United States or foreign affiliates.
Form BE-6061. One Form BE-6061 is to be filed annually for each United States branch of a foreign insurance firm, or for United States insurance companies 10 percent or more of whose voting stock is held by foreign owners.
$ 803.4 Exemptions.
(a) United States direct investments abroad—1) Exemption based on value of property. A reporter whose investment in foreign countries, at any time during the reporting period, exceeds an aggregate value of $2,000,000 based on the value of holdings of securities, equity in surplus accounts, and intercompany indebtedness or net branch investment in foreign countries, unless otherwise exempt from reporting, is required to report. Value is to be determined by the book value as carried on the books of the foreign organization converted into United States dollars. Reports for individual foreign subsidiaries, affiliates, or branches (other than banks) which are inactive, or have a book value which at no time during the reporting period exceeds $25,000, can be omitted with a note to that effect. For foreign branches of banks, reports are required if either (i) the book value exceeds $25,000 or (ii) the total assets exceed $2,000,000.
(b) Foreign direct investment in the United States—(1) Exemption based on value. If the value of a foreign-owned U.S. business organization exceeds $2,000,000 at any time during the reporting period, the business organization is required to report. Otherwise, the business organization (other than a L'.S. branch or agency of a foreign bank) is not required to report. The value is to be determined by the book value of the foreign owner's holdings in the securities, surplus accounts, and liability accounts of the reporter. For banks, reports are required if total assets exceed $3,000,000.
$ 803.5 General definitions.
For the purpose of these reports, the following definitions are prescribed:
(g) Parent. Parent shall mean any person or affiliated group of persons directly owning 10 percent or more of the voting securities of a corporation or of other ownership equities in other types of organizations. In some cases, there may be more than one parent.
See Fed. Reg., Vol. 40, No. 97, May 19, 1975, pp. 21705–21706.
Foreign Investment in the United States
The Department of Commerce, on January 31, 1975, filed with the Federal Register final survey regulations concerning the Survey of Foreign Direct Investment in the United States, being conducted as a part of the study required to be carried out by the Department of Commerce pursuant to the Foreign Investment Study Act of 1974 (P.L. 93-479; 88 Stat. 1450; 15 U.S.C. 78b note, approved October 26, 1974). The regulations, which constitute a new Part 804 of Title 15 of the Code of Federal Regulations, set forth reporting and recordkeeping requirements pertaining to the survey, outline confidentiality provisions applicable to reports and analysts studying the reports, describe the reporting form to be used and where such form can be obtained, and specify penalties for violation of the regulations.
See Fed. Reg., Vol. 40, No. 23, Part I, Feb. 3, 1975, pp. 5003–5007. The Dept. of the Treasury regulations, issued pursuant to the Foreign Investment Study Act of 1974, were published at Fed. Reg., Vol. 39, No. 246, Part II, pp. 44119-44140, and appear at 31 CFR Part 129. For a detailed description of the Act, see the 1974 Digest, pp. 538_541.
On February 16, 1975, the Department of State and the Imperial Embassy of Iran in Washington issued a joint U.S.-Iranian statement regarding possible Iranian Government investment in Pan American World Airways. The statement reads in part, as follows:
In recent weeks the Government of Iran and Pan American World Airways Inc. have sought agreement in regard to the possible investment by the Iranian Government in Pan American. The United States Government has been informed of these developments and has been in consultation with both Pan American and the Government of Iran on this subject.
The United States Government and the Government of Iran recognize that any final agreement reached between Iran and Pan American World Airways Inc. is subject to approval by the United States Civil Aeronautics Board, using its normally ap plied laws and regulations. It is also understood that there be appropriate provisions in such an agreement which would satisfy various requirements of the United States Department of Defense vis-à-vis Pan American. Both Governments note that in entering into such an arrangement, the Government of Iran has no interest in controlling the management or operations of Pan American. For its part, the United States Government has no objection in principle to the proposed agreement.
Dept. of State Bulletin, Vol. LXXII, No. 1863, Mar. 10, 1975, p. 298.
On March 4, 1975, Charles Robinson, Under Secretary of State for Economic Affairs, testified before the Subcommittee on Securities of the Senate Committee on Banking, Housing, and Urban Affairs in opposition to S. 425, 94th Congress, 1st Session. The bill, introduced on January 27, 1975, by Senator Harrison Williams, Jr., was entitled “Foreign Investment Act of 1975.” It provided for notification by foreign investors of purchases of equity shares in U.S. firms and gave the President authority to screen and, at his discretion, block investments which would result in acquisition by a foreigner of beneficial ownership of more than five percent of the equity securities of a U.S. company. He stressed that the traditional policy of the United States has been to minimize the barriers to investment as well as to trade flows, noting that the U.S. commitment to such nonrestrictive treatment of foreign investment is embodied in an extensive network of Friendship, Commerce, and Navigation (FCN) treaties. The following are excerpts from his statement:
The Department of State is opposed to S. 425 on the basis that it goes beyond what is necessary to safeguard our national interests from any undesirable foreign investments and might well have the effect of discouraging investments which we would find desirable....
... the "screening" provisions of this bill, that is, those provisions which permit the President to prohibit the acquisition by foreigners or by U.S. companies controlled by foreigners, of more than 5 percent of most American companies, violate approximately 15 of our treaties of Friendship, Commerce and Navigation.
These FCN treaties are designed to establish an agreed framework within which mutually beneficial economic relations between two countries can take place. The executive branch has long regarded these treaties as an important element in promoting
our national interest and building a strong world economy, and the Senate, by ratification of our FCN treaties, has supported this view.
To our benefit, the treaties establish a comprehensive basis for the protection of American commerce and citizens and their business and other interests abroad, including the right to prompt, adequate and effective compensation in the event of nationalization. However, the FCN treaties are not one-sided. Rights assured to Americans in foreign countries are also assured in equivalent measure to foreigners in this country.
From the viewpoint of foreign economic policy, the incentive for the FCNs was the desire to establish agreed legal conditions favorable to private_investment. The heart of “modern” (i.e. post-World War II) FCN treaties, and those with our OECD partners are generally of this type, is the provision relating to the establishment and operation of companies.
This provision may be divided into two parts: (1) the right to establish and acquire majority interests in enterprises in the territory of the other party is governed by the “national treatment" standard, (2) the foreign controlled domestic company once established is assured national treatment, and discrimination against it in any way by reason of its control by nationals of the foreign cosignatory to the FCN Treaty is not permissible.
. . It is these two aspects of many of the treaties which are infringed upon by the bill before us.
It is important to note that the FCN treaties do exempt certain areas from the “national treatment” standard in order to conform with laws and policies in existence when the treaties were negotiated and in order not to infringe upon other treaty obligations of the United States or our national security interests. Thus, specific exclusions from national treatment, while varying somewhat from treaty to treaty, include communications, air and water transport, banking, and exploitation of natural resources. Also, the modern FCN provides that its terms do not preclude the application of measures relating to fissionable materials, regulating the production of or traffic in implements of war, or traffic in other materials carried on directly or indirectly for the purpose of supplying a military establishment or measures necessary to protect essential security interests. The provisions of S. 425, however, go far beyond the necessary exceptions already permitted to national treatment.