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Remarks to the Organisation for Economic Co-operation and Development--City of London Conference on Sovereign Wealth Funds

Reuben Jeffery III, Under Secretary for Economic, Energy and Agricultural Affairs
London, United Kingdom
March 31, 2008


I would like to thank the OECD and the City of London for organizing this important and timely conference.

Earlier speakers addressed issues sovereign wealth funds (SWF) raise and the OECD process. I would like to focus on a few key aspects, including OECD's role and our own process in the United States.

From the recipient country side we welcome the constructive contribution to global liquidity that sovereign wealth funds provide, and the fact that current evidence shows that these investments generally pursue commercial and not political or foreign policy objectives.

The sovereign wealth fund phenomenon, of course, has only recently attracted wide attention because they are state-controlled, growing in number and size, and until recently have provided relatively little information on their investment objectives and performance. Not surprisingly, politicians and government officials feel pressured to act.

Multilateral work at the IMF and OECD is providing reassurance that governments will continue to be responsible actors, and that resort to protectionism or discrimination is unnecessary as well as harmful to broader economic interests.

Certainly from a U.S. perspective, experience has shown that a globally open and competitive investment climate has been a strong contributor to economic growth.

The United States, Abu Dhabi and Singapore Statement

Sovereign wealth funds themselves are providing reassurance. As noted, Abu Dhabi and Singapore joined the U.S. in a statement of principles for both the funds and for recipient governments.

The statement called for:

  • Investment decisions to be based on commercial grounds, not on the geopolitical goals of their governments;
  • Disclosure of investment objectives, institutional arrangements and financial information;
  • Strong internal controls, governance structures and risk management systems;
  • Fair competition with the private sector; and
  • Compliance with host country regulatory and disclosure requirements.

On the host country side, the statement called for:

  • Avoidance of protectionist barriers;
  • Non-discrimination;
  • Investment frameworks that are transparent, predictable and subject to the rule of law; and that
  • Any restrictions be proportional to genuine national security risks.

The statement is an important – and one of many – contribution to the work underway at the IMF and the OECD and is consistent with much of what we are hearing from those discussions.

It also represents a recognition by these funds that they can play an important role in creating an atmosphere of trust and reassurance in host countries.


The OECD's work on sovereign wealth funds is a vitally important contribution to building trust as well. The OECD can provide reassurance to OECD member countries that the tools exist to address concerns without resorting to protectionism, and the organization can reassure funds that host countries will act responsibly and treat them fairly.

The work emerging from the OECD Investment Committee is consistent with the principles in the March 20th Statement from Abu Dhabi, Singapore and the U.S.

Let me highlight a couple of aspects of this work.

The OECD's work on sovereign wealth funds has taken place in the context of ongoing discussions on open investment and national security in which important non-members have participated, including Russia and China.

OECD's deliberations includes reporting and peer monitoring of government practices – both practices in place today and under development – that address national security concerns.

This effort by the OECD reminds us that governments have existing regulatory tools available to address potential concerns without resort to discrimination or investment restrictions.

The OECD recognizes that specific processes addressing national security may differ from one government to another, but the principles are relevant to all.

A significant element of this conference is the opportunity for sovereign wealth funds to contribute directly to this process. The upcoming World Bank-IMF meetings offer a venue for both the Fund and the OECD to preview their work and contribute further to confidence building.

Similarly, the upcoming June ministerial presents an opportunity for government officials to emphasize their commitment to open investment and the principles emerging from the OECD's work.

U.S. Practice

In May, President Bush reaffirmed the long-standing U.S. commitment to open investment.

It is easy to understand why. Foreign direct investment in fact accounts for 6 percent of U.S. output, 20 percent of U.S. exports, and one in ten private sector jobs. Five million U.S. jobs are directly supported by foreign investment, and an equal number of jobs are supported indirectly.

The U.S. is also one of the largest international investors. U.S. public and pension funds, aggregating some $3 trillion, have significant investments overseas – estimates are somewhere north of 15 percent of their assets.

Committee on Foreign Investment in the United States (CFIUS)

The Committee on Foreign Investment in the United States – known as CFIUS – only reviews a small percentage of mergers and acquisitions activity in the U.S. In 2007, for example, about 8 percent of transactions were subject to review.

U.S. practice, we believe, aligns well with emerging principles at the broadest level.

CFIUS procedures are clearly laid out in law and implementing regulations.

CFIUS focuses exclusively on potential risks to national security.

CFIUS requires analysis focused on the potential risk associated with a particular investor, and vulnerabilities with respect to a specific investment.

Information provided by firms is confidential and protected by law from disclosure.

CFIUS is predictable. The process involves amble consultation with the investor and provides clear time lines for reviews (30 days) and investigations (45 days).

Where concerns are identified, the process provides flexibility to mitigate risks through agreement with the companies.

Finally, CFIUS is an accountable process. Only the President may decide to prohibit a transaction and then only upon a formal finding that there is a security threat which cannot be addressed through other existing legal channels.


From the United States government perspective, we are mindful of the political and national security sensitivities with regard to sovereign wealth funds, as expressed in the press and in capitals throughout Europe and North America.

The multilateral process underway through the IMF and the OECD, and responsible action by the funds themselves, is already contributing to building trust and confidence in SWF's.

These actions underscore first that SWF's will continue to make an important and positive contribution to the global economy; second, that governments can protect national security without resorting to protectionism; and third, that recipient countries will act responsibly and fairly in applying standards to investments on a non-discriminatory basis.

Thank you for attending today's discussion.

Released on April 10, 2008

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