Some SWFs have  existed for many years, but recently a number of new funds have been  created. Some funds  that do publish information on the value of their investment portfolios  have reported losses in certain types of assets. Although the United States has an  overall policy of openness to foreign investment through policy statements  and treaties and international agreements addressing investment, we  identified the banking, agriculture, transportation, natural resources and  energy, communications, and defense sectors as having federal laws that  apply to foreign investment specifically. National emergency declarations are governed by the National  Emergencies Act. Foreign banks must receive prior  approval of FRB before opening certain types of banking operations in the  United States. These restrictions apply to the company and to any company  that owns the foreign company. Finally, foreign investors face no federal restrictions on investments in  U.S. agricultural land, but are required to report purchases above a  minimum threshold. State Laws Restricting Foreign Investment Largely Limit Investments in Real Estate and Insurance

In addition to federal laws that may affect foreign investment, we  identified various state laws that may affect foreign investors’ ability to  invest in U.S. assets, based on information available from government and  private sources with relevant expertise. Restrictions on foreign investment in real estate also exist in many states. Agencies Described Processes Addressing Key Elements of Enforcing Laws Affecting Foreign Investment; Using Supplemental Information Could Assist Some Agencies

Agencies responsible for enforcing laws specifically addressing foreign  investment in six sectors have processes addressing the key elements of  enforcement. We determined that in order for agencies to have the necessary  information to determine whether the requirements of the laws were being  met, they would, at a minimum, need processes to  (1) identify all transactions that are subject to the law,  (2) verify the identity and amount of foreign ownership and control to  ensure that the portion of foreign ownership and control is below the  legal limit for restrictive statutes, and  (3) monitor changes to ownership that occur after the initial transaction,  and ensure that foreign ownership and control remains below the legal  limit for blocking statutes. For five of the sectors we reviewed—transportation, banking,  communications, nuclear energy, and mineral leases—entities seeking to  establish new operations or invest in existing ones must generally seek  approval from the federal oversight agencies through a licensing or  approval process. While each agency has various processes for monitoring ownership  changes, staff at DOT, FCC, and Agriculture do not routinely review  information from certain additional sources, including those maintained  by other government agencies or private sources, to supplement the  information they use to identify possible unreported ownership changes. In addition,  while officials at Interior did not report using any government or private  sources to monitor changes in ownership, the law requires that  leaseholders be U.S. citizens but does not limit foreign ownership of a  leaseholder. Recommendation for Executive Action

To enhance their oversight of sectors subject to laws restricting or  requiring disclosure of foreign investments, we recommend that the  Chairman of the FCC and the Secretaries of Agriculture and  Transportation review the current sources of the information their  agencies currently monitor to detect changes in ownership of U.S. assets— which are subject to restriction or disclosure requirements applicable to  foreign investors—and assess the value of supplementing these sources  with information from other government and private data sources on  investment transactions. To identify and describe the U.S. laws that specifically affect foreign  investment, we (1) reviewed laws affecting foreign investment in the  United States, (2) reviewed documents concerning those laws, and (3)  talked to legal experts on foreign investment both inside and outside the  federal government about laws they considered important for foreign  investors in the United States. U.S. policy statements on foreign investment. Legal issues related to the Committee on Foreign Investment in the  United States, as these issues have been addressed in other GAO  reports. We did not conduct any independent review or analysis  of state level investment laws. We also reviewed regulations and agency documents describing their  processes for enforcing the laws. With respect to merchant shipping, a vessel may  only be registered as a U.S. flag vessel if it has not  been registered under the laws of a foreign  country and it is wholly owned by one or more of  the following: (1) the U.S. government; (2) a state  government; (3) an individual U.S. citizen; (4) an  association, trust, joint venture, or other entity  where all members are U.S. citizens; (5) a  partnership in which all the general partners are  citizens of the U.S. and a controlling interest in the  partnership is owned by U.S. citizens; or (6) a  corporation if it is incorporated under U.S. law, its  chief executive and chairman of the board are  U.S. citizens, and no more of its directors are  noncitizens than a minority of the number  necessary to constitute a quorum. Federal  Communications  Commission (FCC)
Under Section 310(a) of the Act, foreign  governments or their representatives may not hold  radio licenses.
Why GAO Did This Study

Foreign investors in U.S. companies or assets include individuals, companies, and government entities. One type of foreign investor that has been increasingly active in world markets is sovereign wealth funds (SWF), government-controlled funds that seek to invest in other countries. As the activities of these funds have grown they have been praised as providing valuable capital to world markets, but questions have been raised about their lack of transparency and the potential impact of their investments on recipient countries. GAO's second report on SWFs reviews (1) U.S. laws that specifically affect foreign investment, including that by SWFs, in the United States and (2) processes agencies use to enforce them. GAO reviewed policy statements, treaties, and U.S. laws, and interviewed and obtained information from agencies responsible for enforcing these laws. GAO also interviewed legal experts and organizations that track state foreign investment issues.

What GAO Found

While the United States has a general policy of openness to foreign investment, it does restrict foreign investment, including from SWFs, in certain U.S. assets. The U.S. government has issued policy statements supporting openness to foreign investment and entered into international agreements to protect investors. However, sectors with specific restrictions on foreign investments include transportation, communications, and energy. For example, foreign governments may not be issued radio communications licenses and foreign entities are not allowed to own or control more than 25 percent of the voting interest of any U.S. airline. In other cases, foreign investors can purchase companies or assets in a sector but face restrictions on their activities once they invest. For example, foreign companies can invest in U.S. banks, but if a company's stake exceeds 25 percent or the company would control the bank, the company must receive prior approval and become regulated by banking regulators and would be limited in the types of nonbanking activities in which it can also invest. Foreign investors can generally invest in U.S. agricultural land, but must disclose purchases above certain thresholds to the Department of Agriculture (Agriculture). In addition, while not specifically a restriction on foreign investment, a recently strengthened U.S. law authorizes interagency reviews of certain foreign investments, potentially in any sector, for national security considerations. Most federal laws limiting foreign investment were put in place decades ago in response to national security or economic concerns at the time. GAO's analysis of state-level restrictions on foreign investment indicated that some states had restrictions on foreign entities' ability to invest in real estate, including agricultural land, and some had restrictions on foreign government ownership of insurance companies. The agencies responsible for enforcing the U.S. laws affecting foreign investment--Agriculture, Department of Transportation (DOT), Federal Reserve Board, Federal Communications Commission (FCC), Nuclear Regulatory Commission, and Department of the Interior--have processes for addressing key elements of enforcement, including those for (1) identifying all transactions subject to the law, (2) verifying the identity and amount of foreign ownership, and (3) monitoring changes in ownership. To identify investments potentially subject to restrictions and disclosure laws, each agency largely relies on requirements that entities seeking to establish new operations or invest in existing ones must first seek approval or licensing, or disclose their activity. To verify foreign ownership and ensure limits are not exceeded, agencies obtain and verify information about investor identities through information provided by the investors. Finally, to ensure that subsequent changes of ownership are disclosed and do not exceed legal limits, agencies review information from required ownership change declarations. Some agencies reported additional processes to identify new investments and ownership changes such as monitoring press releases, and receiving tips from competitors. Some agencies, but not all, reported using data from other government or private sources to independently verify changes in ownership information self-reported by entities in their sector.