1. Foreign Investment in the United States
WISTA Annual Conference
October 16, 2008
New Orleans, LA

2. Introduction Moderator: Eileen P. Brown, Partner, Thompson Coburn LLP
Panelists:
Marilyn L. Muench, former Deputy Assistant General Counsel for International Affairs, U.S. Department of the Treasury
Peter S. Shaerf, Managing Director, AMA Capital Partners
Contributor:
Patricia J. Williams, Director, U.S. Coast Guard National Vessel Documentation Center (NVDC)

3. Goal
To outline various U.S. laws and regulations that may impact decisions on making foreign investment in the U.S. maritime industry so that you may spot and address issues as you consider transactions

4. U.S. Citizen Control
U.S. government interest in ensuring U.S. citizen control of certain assets (i.e., vessels, aircraft)
Overview of U.S. citizen requirements applicable to vessels – coastwise and registry trade

5. U.S. Governmental Review and Certain Restrictions on Transactions
Committee on Foreign Investment in the United States (CFIUS) multi-agency governmental review of acquisition of U.S. assets by foreign entities.
Office of Foreign Assets Control (OFAC) administers economic and trade sanctions based on U.S. national security, foreign policy or economic concerns.

6. Discussion Impact of high profile cases, such as Dubai Ports World.
Will the current financial crisis and the need to attract capital to the U.S. change the analytical framework and enforcement decisions associated with issues relating to citizenship and foreign control?

7. NATIONAL VESSEL DOCUMENTATION CENTER
WISTA USA ANNUAL CONFERENCE OCTOBER 15-17, 2008
NEW ORLEANS, LA
Coast Guard Authorization Act of 1996:
Congress passed provisions which modified the Shipping Act of 1916, the Jones Act, by allowing for lease financing of vessels.
In very general terms, lease financing is an alternative to the more traditional mortgage financing, but as enacted, the new provisions of the law relaxed some Jones Act restrictions on who could be involved in the ownership of vessels enrolled in the coastwise trade.
Much lobbying effort and rhetoric since that time has focused on what the Coast Guard’s application of the law has done or may do to the Jones Act. However, it is the Coast Guard’s position that Congress permanently amended the Jones Act by passing the provisions of 46 U.S.C (e) in 1996, and it is now the Coast Guard’s task to apply the amended law. The language of the law and its legislative history have generated much discussion and conflicting advice about what Congress intended.
The one thing we can say with certitude is that Congress did intend to change the Jones Act.
Homeland Security
United States
Coast Guard

8. NVDC
THE NATIONAL VESSEL DOCUMENTATION CENTER 792 T J JACKSON DRIVE FALLING WATERS WV 25419
The NVDC is a sub-unit of the Department of Homeland Security and the United States Coast Guard. Its mission is to facilitate maritime commerce and the availability of financing while protecting the economic privileges of United States citizens through the enforcement of regulations, and to provide a register of vessels available in time of war or emergency to defend and protect the United States of America.

9. What is Vessel Documentation?
U.S. vessel registration is demonstrated by the issuance of a Certificate of Documentation (COD). A COD is required for the operation of a vessel in certain trades and such documentation provides evidence of nationality for international purposes.
Who is Eligible to Document a Vessel in the U.S.?
Natural Persons
Certain Corporations
Certain Partnerships (Associations, Etc.)
Certain Limited Liability Companies
Government (Federal, State, Local) Entities

10. Why Document a Vessel?
Required for vessels engaged in certain trades if measuring at least five net tons
Entitles vessels to preferred mortgage financing
Provides for unhindered commerce between states
Provides conclusive evidence of nationality for vessels in foreign waters

11. What types of endorsements are available?
COASTWISE – Includes the transportation of passengers or merchandise between points embraced within the coastwise laws of the U.S. Generally, coastwise trade is trade between a point in the U.S. and another point in the U.S. (including Hawaii, Alaska, Puerto Rico and other Territories).
REGISTRY – Includes trade between a point in the U.S. and a foreign point or transportation between foreign points (foreign trade).
FISHERIES – Includes the processing, storing, transporting, planting, cultivating, catching, taking, or harvesting of fish, shellfish, marine animals, pearls, shells, or marine vegetation in the navigable waters of the U. S. or in the exclusive economic zone.
RECREATIONAL – Permits operation for pleasure only.

12. Coastwise Trade/Jones Act Trade
U.S. citizen control test applied to any owner of a vessel entitled to participate in the coastwise trade.
Stock in vessel owning entity must be at least 75% owned by U.S. citizens.

13. What is Lease Financing or Coastwise Under Charter?
Statutory change to eliminate technical impediments to financing “Jones Act” vessels
Not intended to undermine U.S. Control provisions for “Jones Act” vessels
Permits documentation by a foreign-controlled owner when chartered to an eligible citizen (charterer is the owner pro hac vice)

14. Coastwise Citizenship Requirements for Corporate Owners
Traditional U.S. Citizen (considered a Section 2 Citizen)
Organized in the U.S.
U.S. CEO, Chairman
Restrictions on aliens – no more than a minority of the number of directors to constitute a quorum
At least 75% equity invested in U.S. citizens
Documentation Citizen
(requirements for Foreign Trade or Lease Financing)
Organized in the U.S.
U.S. CEO, Chairman
Restrictions on aliens – no more than a minority of the number of directors to constitute a quorum
100% of the stock may be foreign owned.

15. Citizenship Documentation Required for Coastwise Endorsements
Traditional Coastwise
CG-1258 (Application)
No additional requirements
Lease Finance Coastwise
CG-1258 (Application)
Affidavit from owner
Citizenship Statement of charterer (must qualify as Section 2 citizen)
charter (must be for at least 3 years)
any subcharters
Charterer must be owner pro hac vice

16. Financing Documented Vessels
In general, there are no citizenship requirements applicable to mortgagees of U.S. documented vessels, except:
The American Fisheries Act, Pub. L , places stringent citizenship requirements on mortgagees of fishing vessels 100 Feet or greater in length (46 USC § 31322)
Recently (Pub. L ), the Coast Guard was authorized to request reports from mortgagees to ensure compliance with 46 USC § & 46 CFR (Foreign Control Provisions)

17. Permissible Foreign Investment Dependent on Form of Investment and Trade Endorsement Sought
TRADE ENDORSEMENT CITIZENSHIP REQ’MTS MORTGAGEE LIMITS
RECREATIONAL BASIC U.S. UNRESTRICTED
REGISTRY BASIC U.S. UNRESTRICTED
COASTWISE U.S. & 75% U.S. UNRESTRICTED
EQUITY
COASTWISE/LEASE BASIC U.S. , UNRESTRICTED
FINANCE UNRESTRICTED
EQUITY, OTHER
REQUIREMENTS
FISHERY <100 FT U.S. & 75% EQUITY UNRESTRICTED
FISHERY >100 FT U.S. & 75% EQUITY MUST BE ELIGIBLE TO
IN THE AGGREGATE DOCUMENT FISHING VESSEL (OTHERS AS APPROVED BY MARAD)
*BASIC U.S. OWNERSHIP REQUIREMENTS FOR CORPORATIONS ARE: ORGANIZED IN U.S., U.S. CEO, U.S.
CHAIRMAN, AND RESTRICTIONS ON ALIENS FOR QUORUM PURPOSES

18. U.S. Government Review of Foreign Investment in the U.S.

19. Committee on Foreign Investment in the United States (CFIUS)
CFIUS - a multi-agency U.S. government entity that evaluates the national security implications of mergers and acquisitions that could result in foreign control of U.S. businesses

20. Committee on Foreign Investment in the United States (CFIUS)
Principal member agencies include:
Department of the Treasury (Chair)
Department of Commerce
Department of Defense
Department of Energy
Department of Homeland Security
Department of Justice
Department of State

21. Committee on Foreign Investment in the United States (CFIUS)
CFIUS can decide to refer cases to the President and can recommend unfavorable action, including divestment or blocking of a transaction. Only the President can decide to divest or block a transaction.

22. Key Concepts for CFIUS Process
Notification of mergers and acquisitions to CFIUS is voluntary, but CFIUS can request parties to a transaction to submit a notice if they do not do so on their own.
CFIUS focuses on the national security implications of an eligible transaction. Although “national security” is not defined, CFIUS has interpreted it broadly and it includes within its ambit “critical infrastructure”.
A transaction is subject to CFIUS jurisdiction only if it involves foreign control.
Transactions that are not notified to CFIUS for review at the time the transaction is being completed remain indefinitely subject to future review and to possible unfavorable action.

23. Office of Foreign Assets Control (OFAC)
OFAC, located within the Department of the Treasury, is the primary enforcer of economic (non-military) sanctions imposed by the U.S.
OFAC sanctions can be imposed:
against entire countries (e.g., Cuba) or more limited regions of countries (e.g., Sudan)
against particular categories of companies or individuals, such as those found to be engaged in terrorism or drug trafficking

24. Office of Foreign Assets Control (OFAC)
OFAC sanctions usually are enforced by restricting actions that can be taken by U.S. firms and individuals with respect to the sanctioned entities.
Restricted activities often include the “facilitation” of transactions with such sanctioned entities.
OFAC regularly publishes and updates information relating to its sanctions programs, including the identities of sanctioned entities.

25. Foreign Investment in Shipping
or : ¿Dónde están los euros? or : Πού είναι τα ευρώ or : Ou sont les euros?
Peter S. Shaerf
Managing Director
AMA Capital Partners
October 16th 2008

26. The number of publicly listed maritime companies in the U. S
The number of publicly listed maritime companies in the U.S. has exploded

27. Global Market Capitalization

28. Global Volume Traded

29. Have We Scared them away?

31. Why it can work.. Barriers to entry Lack of liquidity !!
Lack of understanding of sectors
Long term stability of market

32. But why it doesn’t work.. Regulatory intervention Union affiliation
Cost differentials
Comparable global opportunities
Lack of Liquidity
Minority positions

34. Hypothetical Scenarios for Discussion

35. Hypothetical #1 European shipowner/operator to acquire:
U.S. registered vessels
U.S. shipping company
an interest in a U.S. shipping company

36. Hypothetical #2 Sovereign wealth fund to acquire:
controlling interest in a U.S. shipyard

37. Hypothetical #3
Asian shipowner with international businesses (including Cuba) acquires:
U.S. company (not necessarily marine-related)

38. Questions?