Regulation of Foreign Businesses in the United States

Restrictions on Foreign Investors

           Foreign companies can enter the United States and engage in almost any area of business, but are subject to certain “restricted industries.”Thus, there is restriction upon foreign companies engaging in airlines and shipping business, in broadcasting, in defense (military) production, in areas of sophisticated technology, especially with military application potential, and in government contracts.Additionally, there may also be restrictions on the ownership by foreign governments, or companies they control, in certain industries such as banking and insurance. These restrictions may exist at the federal level, while others may exist at the state level. Restrictions at the state level will typically vary from state to state.

           There is specific legislation which gives the President of the United States authority to block mergers, acquisitions or takeovers of U.S. businesses by foreign persons if the proposed transaction threatens to impair U.S. national security.The action of the President is based upon the investigations and recommendations of the Committee on Foreign Investment in the United States.In the event such an investigation is initiated, it can cause considerable delay to any proposed merger, acquisition, or takeover.However, for all practical purposes, such an action has very rarely been taken by the U.S. President.

 Regulation of Businesses

 A.   Licensing of Business Operations

           Most businesses and professions are regulated by the laws of the states where they are engaged in their activities. Federal regulation is somewhat more limited and covers the following areas: manufacture of alcohol, production of meat preparations, manufacture of tobacco products, manufacture of pharmaceutical products, firearms manufacture and trading, investment advising and broadcasting on radio and television. As has been previously indicated, foreign businesses are subject to additional restrictions and requirements with respect to certain businesses, such as broadcasting and manufacture of firearms.

            Regulation of professions in the field of acounting, law, medicine, insurance and real estate brokage are governed by the state where the person or entity intends to practice. Additionally, the city and county where the business is carried on, may also require licensing of the operations, which is issued upon payment of the applicable fee.

B.   Reporting Requirements for Foreign Businesses

             Foreign companies entering the United States to do business or invest in existing U.S. businesses are subject to reporting and filing requirements under the U.S. Federal laws.Some of these are as follows:

Filings with the Bureau Of Economic Analysis:

            All “U.S. affiliates”, i.e. U.S. based entities that have a 10 % or more voting interest by a foreign “individual” (which includes corporate entities), must file an informational statement annually with the Department of Commerce. (If the U.S. affiliate’s annual sales/net income/assets exceed $30,000,000, it is to file a quarterly return).

           However, the U.S. entity is exempt from these filings if its total assets at the time of being establishedwere less than $3,000,000. In order to qualify for this exemption, the entity must file an “Exemption Claim”.

 International Investment and Trade Services :

 The Department of Commerce and the Department of Treasury are responsible for collecting certain data relating to foreign investment in the United States.Thus, foreign businesses or the U.S. affiliates of a foreign business, are required to provide the following information: (1) Reports detailing the establishment of a U.S. affiliate or acquisition of the assets or stock of a U.S. business enterprise; (2) Quarterly reports detailing direct financial transactions between U.S. affiliates and foreign parent entities; (3) Annual reports regarding financial and operating data of U.S. affiliates; and (4) Five-year benchmark reports detailing the amount, types, and characteristics of investment for use in a comprehensive national survey of foreign direct investment in the United States.


Exemptions from these requirements are available in certain cases, depending upon the size and type of transactions involved.                                                                                                                                                                                                                                                                                                                                                                                                                   Securities:

The Department of Treasury requires reports by United States issuers of the ownership of securities and reports by U.S. holders of record who holds securities on behalf of foreign persons.


The Foreign Investment in Real Property Tax Act:

          This legislation imposes a special tax withholding and reporting obligation upon foreign owners of real property interests in the U.S. upon the disposition of such real property.Once again, exemptions from these requirements are available, depending upon the specific details of individual transactions.

 Agricultural Foreign Investment Disclosure Act:

          The Agricultural Foreign Investment Disclosure Act requires foreign persons to make certain reports with respect to owning agricultural land in the United States. These requirements are not imposed upon: Leases for less than ten years, contingent future interests, subsurface or surface easements, and rights of way not used for agricultural production, interests solely for mineral rights, and security interests.

Foreign Corrupt Practices Laws

C. Foreign Corrupt Practices Act.

The United States has adopted the Foreign Corrupt Practices Act, which applies to activities of U.S. corporations in foreign  countries. This law provides that certain practices and conduct will be illegal even if such conduct or practices might be customary or common in other countries. Among other items, the act makes illegal the giving of bribes, kickbacks or other questionable, unlawful or improper payment, regardless of form, to or for the benefit of any governmental officials or their relatives or employees (including officials of any regulatory agencies or governmental controlled organizations) for the purpose of obtaining or retaining favorable treatment, business or other consessions for the company or any of its subsidiaries in the future or to pay for any such favorable treatment obtained in the past. The making of bribes, kickbacks or other questionable or unlawful conduct also extends to private parties.