Sunday, September 02, 2012

Considering Fabio Bassan's New Book: The Law of Sovereign Wealth Funds

Though sovereign wealth funds no longer attract the attention they did before the Arab Spring and the American presidential elections distracted the media and political elites, they remain an important and increasingly significant actor in the evolution of economic globalization and its consequences for the role of states and non-state enterprises in economic markets.  See, e.g., Nigeria to start $1B sovereign wealth fund,, August 31, 2012 ("Nigerian authorities pushed for the creation of a sovereign wealth fund as a means to better save the billions of dollars the nation annually earns annual from oil revenues. Opaque budgeting and corruption sees much of the money siphoned away.").

But, despite the relative quiet, important work continues to be produced.  This post considers one of them, an important new book from Fabio Bassan, a professor in the faculty of economics at Roma Tre, and the founding director of the Sovereign Wealth Funds Centre. Fabio Bassan, The Law of Sovereign Wealth Funds ((Cheltenham, Eng.: Edward Elgar, 2011).  This post considers this work.

This can be download as Backer, Larry Catá, Review Essay: Taking a Step Toward a Law for Sovereign Wealth Funds (September 7, 2012). Consortium for Peace Ethics Working Paper No. 2012-9/1. 

Sovereign Wealth Funds are emerging as financial superpowers[1] without a correspondingly proportionate regulatory structure. Fabio Bassan has sought to step into this gap with a proposal for a law of SWFs.[2] He is largely successful, but he also succeeds in illuminating the road yet left to travel. Long after one finishes reading Fabio Bassan’s meticulous consideration of the legal foundations of a law for sovereign wealth funds (SWFs), two quotes tend to linger. Together, these serve as bookends to this excellent work. The first frames the problem:

In the second half of the last century, states have been gradually losing their economic sovereignty. . . and participating in an advanced jus comune environment where domestic legal systems gradually lose their relevance. Conversely, in the first decade of the 21st Century national states have regained their central position as regulators and as shareholders, both internally. . . and internationally.[3]

The second casts a long shadow over the promise of the first: “The uncertainty of the BIT instrument casts a long shadow over the entire system.” (Bassan, 150).

Together these bookend the promise and the perils of the task undertaken in The Law of Sovereign Wealth Funds. Fabio Bassan has taken on a very great challenge. He would provide a legal structure for sovereign wealth fund (SWF) regulation,[4] and simultaneously, he would interrogate the consequences of the sovereign character of projections of private power between states.[5] But the world he describes is both unified by the logic of globalization[6] and fragmented within it.[7] It is that tension[8] that Dr. Bassan illuminates and seeks to bridge with increasing precision even as he develops a precise system of regulatory unification. SWFs incarnate and replicate the collisions between two tectonic forces that are grinding their way to a new normative framework of governance and power. On the one side is the state system, grounded in principles of sovereignty and of the fundamental distinction between the state and everything else, founded on formal structures and the respect for territorial borders. On the other side is the emerging system of societally constituted functionally distinct governance organs, grounded in principles of free movement of capital and investment, founded on systems of functional structures in which territory boundaries reference the functional boundaries of self constituted groups.[9] When they collide only fracture is possible.[10] The more these forces work toward harmonization, the more relentlessly they illuminate the resulting fracture of governance. That is perhaps the greatest insight of Bassan’s masterful effort to organize the law of SWFs

What emerges quite clearly is the conundrum that has been created by the structural realities of globalization, one left necessarily unresolved. Sovereignty (the political) matters, but sovereignty itself produces a fragmentation which, when mimicked within law as the principal governance instrument of sovereignty, reduces efforts to construct a singular law of SWFs to a set of managerial objectives the objective of which is to harmonize outcomes on the basis of principles. That is, law is tasked with the management of fragmentation. Indeed, “the only plausible answer is: admit that we must abandon the perspective of a general, one-size-fits-all regulation. (Bassan, 155).

Bassan starts with an interrogation of the conventional analytical framework. He rejects analysis premised on the notion that states and economic enterprises are necessarily distinct—that is he rejects the 20th Century convention of a distinction between law and politics. But unlike many who then suggest that economics is absorbed within politics,[11] he suggests the opposite; under the logic of globalization, economics may absorb politics. “Actually, one should admit that there are not separate political and economic playing fields where states and companies operate respectively. . . . They both make a political use of financial power trying to influence the market they operate in.” (Bassan, 3). A great insight; here used both to distinguish between state (political governments) and company (economic government), in three respects, influence, purpose and relationship (Bassan, 4), and to suggest its integration in the form of SWFs. (Bassan, 4-5). With that insight, Bassan criticizes the view of SWFs as reducible to one of state capitalism, which would limit the analysis of this sovereign enterprise in economic terms. (Bassan 5-14).

It becomes important, then, to map SWFs as a set of species within the legal structures through which law (and economics) are organized. Bassan posits that SWFs are a genus of the family “foreign government controlled investors’ (FGCI), that, in turn are part of the order “foreign investments.” Bassan then proposes, as the critical foundation of his work, to define and classify a species of SWF, around which a harmonized law may be built. (Bassan, 5). His aim is to give “guidelines for a legal environment . . .[in which] specific rules are needed for both SWF and host states.”(Bassan, 15). These are grounded in the traditional legal principles of “proportionality, transparency and non-discrimination.” (Bassan, 16).

Bassan hopes that by providing a shared definition of SWFs, he might provide a shared logical premise for the regulating activities of home and host states, and international organizations.[12] To get there, he must first critically examine current attempts at definition, all of which he finds deficient. [13] On the basis of an animating premise—that only certain precise activities of a sovereign ought to be understood as comprising the various species making up the genus SWF—he proposes a definition from which all follows:

funds established, owned and operated by local or central governments, which investment strategies include the acquisition of equity interest in companies listed in international markets operating in sectors considered strategic by their countries of incorporation.[14]

This precision is necessary both (1) to support the objective—creating a framework within which it might be possible to harmonize a related set of governance norms (here read law) for the regulation of SWFs—and (2) to provide a limiting structure that singularly focuses on the sovereign bi-lateral relationships between SWF and host states. Having carved up the regulatory universe to a manageable size—one grounded in ownership and purpose, sovereignty and political intervention(Bassan, 32-35)—a classification system follows based on the permutations and combinations of ownership and purpose.[15] But this exercise is not meant to theorize a topology of sovereign investing. It is meant to carve out a universe of SWFs that can be harmoniously regulated by a seamless regulatory system within and between states. It is meant to exclude a large class of sovereign investment vehicles, including enterprises that might be understood to be descriptively or functionally as SWFs, funds in which the state holds a minority interest,[16] or where states invite investment.[17] These are presumed to be either too remote from the sovereign or the purpose of which is to make investment other than in strategic sectors.

It is around this precision that the legal analysis of Part II is given form, and indeed, is made possible. (Bassan, 39-86). That analysis is divided into two parts—the first focusing on the regulation of the SWF itself,[18] and the second focusing on host state regulation that might limit SWF activity within the territory of the host state (or affecting enterprises over which it has regulatory authority).[19] The object, again, is to move from the theory of economic literature to the framing of structures for economic regulation that harmonizes transnationally between home and host states.[20] And true to the premises of globalization, and its foundation in free movement of capital (broadly understood), regulation is limited by necessity, and necessity exists only “where the market falls short.”[21] Assuming the SWF definitional baseline—the sovereign character of the fund—regulation “could only be appropriate to address host states’ concerns about SWF’s purposes.” (Bassan, 40). Beyond that, the market ought to be able to sort the rest. But, of course, both definition and construction of the limits of the appropriate regulatory universe contributes both, as Bassan would want, to harmonization, but at the same time, it necessarily increases regulatory fracture, by positing a law of SWF’s and, as well, another set of laws of sovereign investing that falls outside the parameters that Bassan posits.

For this limited but precise purpose, Bassan examines current SWF regulatory proposals, and like the definitions underlying each, finds them all unsatisfactory. (Bassan, 40-52). Three national law based approaches,[22] and the Santiago Principles,[23] are considered in more detail. The criticisms of the Santiago Principles, however, do not deter their use as the foundation of a law of SWFs within the narrow parameters carved out, with intervention necessary only in cases where the sovereign purpose of SWFs is clear. (Bassan, 52-53). This requires regulatory changes at the domestic and international levels. In the former, the Santiago Principles ought to be domesticated, permitting host states to apply restrictive measures as they like only to those qualifying SWFs “that disregard the code of ethics.” (Bassan, 53). At the international level, Bassan suggests that states create an international web of interconnected obligation by incorporating the Santiago Principles into their respective bi-lateral investment treaties. (Bassan, 54).

Having framed the law of SWFs within the Santiago Principles, now made obligatory both within domestic legal orders and at the international level, Bassan then turns, in Chapter 4, to the consequences of this legal superstructure on the authority of host states to restrict SWF investment activity. For that purpose, Bassan introduces a core assumption: starting from the defining premise of SWFs as grounded n sovereignty and purpose, regulation should aim at “guaranteeing a correct use of sovereignty” rather than of neutralizing the sovereign element of SWFs. (Bassan, 55). For that purpose, Bassan starts from an examination of the obligations of states (and its potential to limit national power to interfere with sovereign projections of economic investment power from other states) under international law. The focus is on GATT (Bassan, 56-57), GATS (57-59), the OECD’s soft law regulatory interventions (Bassan, 59-60), and European Union laws. (Bassan 60-61). GATT is determined to be inapplicable by its own terms to SWFs (as Bassan has defined them); GATS principles are not really useful because they might apply to FDI but not necessarily to portfolio investments (the bread and butter of SWF activity); the OECD Code of Liberalisation may provide a useful set of principles;[24] and European law provide a useful future legal referent with calls to develop a SWF ethics code but less useful as a source of law because, like GATS, European institutions may not have competence over portfolio investments, which are distinguishable from FDI under European law and practice. Bassan also quite sensibly looks to international law sources for sources that might lead to harmonized structures of restrictions of investment activity. (Bassan, 61-75). He finds that the exemption and waiver provisions of the WTO Treaties may not apply easily to SWFs. On the other hand, the OECD’s framework principles appear more appealing.[25]

Yet Bassan might also have examined the regulatory incoherence[26] that is now arising within which SWFs may find themselves entangled. One example worth considering is the rise of new anti-bribery and corruption regimes at the international level,[27] that, when layered on national efforts,[28] affect the character of trade and investment flows across borders. Some of these may have collateral effects on SWFs.[29] Another layer worth exploring is that of Islamic law and finance on both SWF construction, operation and the framework for the protection of investor rights, especially where these funds buy sovereign debt.[30]

European law provides an opportunity to consider the Golden Share cases both to the matter of sovereignty and to the applicability of state aids principles to this related problem. While Bassan touches on this,[31] he might have usefully explored this in more detail beyond its initial treatment in the EU Communication “A Common European Approach to Sovereign Wealth Funds.”[32] The development of European principles of proportionality and non-discrimination as the framework within which states could develop national measures to restrict third party investment is then explored.[33] But interestingly, and especially in the European context that is the focus of this book, the important distinction between sovereign investment from another EU Member State on the one hand, and form a non EU Member State, on the other, remains substantially unexplored. Thus, for example, it is likely that the approach of EU Member States to investment from EU sovereign investor states may have to be considered using a distinct framework from the application of such restrictive measures against, say, Malaysian SWFs. Likewise, the discussion of the legal framework within which restrictions on sovereign investing may be erected in the United States (Bassan, 71-73), Australia (74), Russia (74-75), Canada (75), and Japan (75), remains to be fully developed. But Bassan provides a useful introduction.

What this overview of national legislation reveals is precisely what Bassan has been seeking to overcome—“having their main weaknesses in the excessive fragmentation and in the vagueness of safeguard clauses. (Bassan, 76). At the multilateral level, approaches suffer from their character as soft law, whatever treaty law there is provides limited guarantees, the OECD approaches are themselves fragmented, not binding and lacking an enforcement mechanism. (Bassan, 76-77). EU approaches offer a better alternative but are themselves potentially to restrictive and perhaps too protective of SWFs, and bi-lateral treaties may be inappropriate to prevent or repress wrongful restrictive measures (wrongful, at least by Bassan’s measure) by host states. (Bassan, 77-78). National approaches are characterized by ambiguity, incoherence and a singular lack of connection between object and method of regulation. Focused on the peculiarities of the politics of each regulating host state, these domestic efforts cause further fragmentation of a regulatory issue that is essentially transnational in scope. (Bassan, 78-83).

Thus, Bassan identifies the challenge to integrated national-transnational regulation of that precise aspect of SWF activity that give rise to regulatory responses in host states. This challenge takes two principal forms. (Bassan, 83-84). First is the regulatory fragmentation that raises (unnecessarily) investment transaction costs of states whose investment instruments ought not to cause concern in host states. Second, is the development of structures that enhances regulatory competition, and therefore uncertainty. Here, however, Bassan may be swimming against the tide here. Bassan seeks regulatory harmonization within the legal sphere even as globalization moves toward governance fragmentation.[34] That is a tension that seeps into the precise legal project Bassan has set for himself in this work, one that will produce both a formal structure for harmonization at the end of chapter 4, and the dissipation of that construct within the wildness of bi-lateralism explored in Chapters 5 and 6. That formal structure is focused on creating a set of rules that both manage and restrict the power of a host state to restrict the inbound investment of SWFs. These are grounded in a set of principles extracted from the review of the fragments of regulation at the national and international level: (1) states power to impose investment restriction applies only when an SWF does not endorse or comply with the Santiago Principles, and the restrictions must be (2) predictable, transparent, confidential and proportionate. (Bassan, 84). The unification of substantive standards is to be enforced through regimes of standardized bi-lateral treaties between home and host states reflecting these substantive values. (Bassan, 85-86).

The definition and classification offered by Bassan, then, necessarily requires an examination of an aspect of international law that is rarely considered in the context of SWF regulation—bi-lateral investment treaties.[35] Bassan’s exploration of an illustrative consequence of a legal regulatory approach to the governance of SWFs—multiple collisions, between private market investments by states and state regulation of private markets in investment through bi-lateral investment treaties, between states and international legal regimes, between the sovereign and the global.[36] Indeed, aligning the definitional characteristics of SWFs, with its emphasis on the sovereign character of the SWF and focusing on the purposes of its projections of sovereign investment power across borders, necessarily touches on the most fundamental characteristic of the relationship between states—the scope of their mutual immunity when sovereigns act within the territory of another, that is when acts of economic sovereignty acquire an extraterritorial dimension. (Bassan, 89). This insight is both novel and necessary. But it also highlights the tension between the free movement principles of globalization with the movement restricting character of sovereignty.

Bassan adopts a methodical approach to the problem—standardized enforcement through bi-lateral investment treaties of the substantive rules that would protect SWFs against restrictions on investment, mediated through the development of a refined law structure of state immunity now applied to SWFs.[37] Bassan, then, first looks at the framework within which immunity can be invoked, and then the utility of bi-lateral treaties in standardizing and managing the relationship between state immunity (emphasizing the sovereign character of the SWF) and the power of states to manage their national economies even in the open borders context of globalization. This is no mean feat, one that Bassan nicely frames but ultimately cannot resolve.

SWFs can invoke two forms of immunity—immunity based on the sovereign character of the fund (jurisdictional) and immunity based on protection against the application of local law to fund activities (executor). These derive from the a specific application of conventional rules of sovereign immunity that have developed over the last half century. (Bassan, 91-99). Bassan makes the novel but important point that his definition nicely aligns with the conventional understanding of immunity—the sovereign character of SWFs with jurisdictional sovereignty and the purpose prong with executory immunity.[38] But Bussan suggests, as well, that the present reality does not live up to its theoretical potential. (Bassan, 99-115). First, there is no consistency in patterns of bi-lateral treaty application to immunity issues. Second, international treaties, national laws and state practice are inconsistent, perhaps incoherent, in part because they were not developed to deal with the peculiarities of the SWF. Third, there is little consistency between the tax treatment of sovereign entities and immunity, though they tend to start conceptually form the same place.[39]

In the face of this difficulty of generalizing the availability of immunity for SWFs in the abstract, Bassan proposes five step analysis based on distinctive factors that may be identified for each SWF. These factors, of course, are closely tied to Bassan’s definition of SWF (focused on sovereign character and purpose) and also the underlying premise that the more autonomous the SWF in formal or functional construction and operations, the less likely it will fall within the definition of SWF and trigger host state authority to consider restrictive measures. The factors include (1) legal structure (and the formal connection to the state),[40] (2) the sovereign purposes of SWF investment;[41] SWF financing practice;[42] SWF investment nature;[43] and SWF asset purpose.[44] Applying this analytical structure produces, for Bassan, a regime of immunity in which contextual immunity (executory immunity from the application of host state law) is given a smaller scope than jurisdictional immunity. But Bassan emphasizes the contextual nature of the analysis. To standardize context, then, Bassan would look to bi-lateral investment treaties, the subject of the last chapter of the work.

Bassan starts with a review of the scope and nature of conventional BITs. He then looks to BIT models to assess their adequacy and effectiveness in protecting SWF investment along the lines he sketched earlier. The ultimate purpose is to improve BITs and their use in SWF regulation.[45] This leaves Bassan in a bind of sorts. The literature evidences no consensus on the influence of BITs on FDI; “generalization is inappropriate and that each case should be reviewed according to the applicable BITs and the specific investment, to see whether the presence (or absence) of the BIT is relevant or not.”(Bassan, 125-126). This is particularly important for SWFs, because the portfolio investment practices of SWFs tend to be less relevant to the focus of conventional BITs. Having explored in some detail the main BIT models (Bassan, 132-42), and their efficacy with respect to SWF investments, (Bassan, 142-49). Bassan can offer little more than context and fragmentation. BITs have yet to achieve consensus on the issue of the state as an investor, and whether it can be a “national of another contracting state” for purposes of the protections of BITs. (Bassan, 142-44). BITs have yet to address the issue of expropriation, and the relationship of host state restrictive measures to indirect expropriation, especially in cases where host states exceed their authority to restrict SWF investment in accordance with the legal model earlier proposed. (Bassan, 144-47). Indeed, BITs have not addressed the issue of the extent to which host states may impose restrictive measures. (Bassan, 147-48). BITs have not standardized dispute resolution mechanisms. (Bassan, 148-49).

This is the shadow that BITs cast over enforcement, and thus, over the entire project of standardizing the substantive law of SWFs. Even when we start with a really minimal minimum common denominator,[46] the only possible conclusion to the project of specifying a law of SWFs is to accept that it can at best be structured to manage fracture. “The best solution for the protection of SWF investments will have to be sought in the actual circumstance, on a case by case basis.” (Bassan, 156). Yet, hardwiring that managerial infrastructure through conventional legal regimes may well provide an advance from the current state of affairs. It also serves as a useful antipode to the inter-governmentalism of other approaches to regulatory framework-making for SWFs.[47] Moreover, the governance enhancing and instrumentalist character of some SWFs have yet to be explored in any depth.[48]

Thus by the end of this important work, we know much more, but we can hope to govern less. The price of analysis, in this case, is a return to a contextualism in which functional fracture is patched together under the umbrella of formal unification through malleable standards. Perhaps that is all one can hope for. And indeed, the logic of globalization suggests that this sort of what might be understood as regulatory managerialism, is precisely all that is possible. If that is so, then Bassan has indeed taken a giant step toward a law of sovereign wealth funds. I am convinced he has, one in which the search for a plausible system of definition and classification becomes the most important point of legal convergence. This, then, is a work that is both important, and likely to become foundational in the field that has yet to fully define itself. Bassan has helped take an important step in that direction. Bravo.

[1] Joel Slawotsky, Sovereign Wealth Funds as Emerging Financial Superpowers: How U.S. Regulators Should Respond, 40 Geo. J. Int'l L. 1239, 1239, 1246-48 (2009)

[2] Fabio Bassan, The Law of Sovereign Wealth Funds 3 (Cheltenham, UK: Edward Elgar Publishing, Ltd., 2011)

[3] Ibid., 3. Cf., José E. Alvarez, The Return of the State, 20 Minn. J. Int’l Law 223, 255-56 (2011).

[4] Bassan, supra note --, 14-16, elaborated in parts I and II (“In our research we have tried to separate, divide, classify, in order to understand how the case can be studied, as a whole, from a legal point of view.” Ibid., 152).

[5] Ibid., elaborated in Part III.

[6] See, e.g., Joseph Stiglitz, Making Globalization Work (New York: W. W. Norton & Company; Reprint edition 2007)). Cf. Marwan M. Kraisdy, Hybridity or the Cultural Logic of Globalization (Philadelphia, Temple University Press, 2005).

[7] See, e.g., Andreas Fischer-Lescano & Gunther Teubner, Regime-Collision: The Vain Search for Legal Unity in the Fragmentation of Global Law, 25 Mich. J. Int’l L. 999 (2004).

[8] E.g., Dani Rodrik, The Globalization Paradox: Democracy and the Future of the World Economy (New York: W.W. Norton, 2011).

[9] Hans Lindahl, ‘A-Legality: Postnationalism and the Question of Legal Boundaries,’ in Ronald Tinnevelt and Helder de Schutter, (eds) Global Democracy And Exclusion (Wiley Blackwell 2010).

[10] Larry Catá Backer, The Structural Characteristics of Global Law for the 21st Century: Fracture, Fluidity, Permeability, and Polycentricity, 17(2) Tilburg Law Review --- (forthcoming 2012).

[11] E.g., Larry Catá Backer, Globalization and the Socialist Multinational: Cuba at the Intersection of Business and Human Rights, in Handbook on Contemporary Cuba: Economy, Civil Society, and Globalization (New York: CUNY/Paradigm Press, forthcoming 2012).

[12] Bassan, supra note --, 17. Indeed, the “lack of a single, clear and specific definition of sovereign wealth funds in the economic literatura and in the practice of international institutions, that can differentiate these funds from similar ones . . . prevents any specific regulation from being applied.” Ibid., 30.

[13] Ibid., 17-31. Bassan’s critiques are both functional and formal. The functional arguments are grounded in the premise that SWFs have been locked in the particular behavior patterns that are currently utilized. That, itself, might not hold over the long term. The formal arguments are grounded in the idea that the foundational character of SWF’s as sovereign makes application of enterprise law difficult, a distinct legal regime is required. This effort might well cabin SWFs within a definitional construct, but may not constrain states from developing new forms beyond these constructs to achieve functional objectives. The definitions of international bodies are, correctly, I believe, dismissed as altogether too descriptive to be helpful.

[14] Ibid. 32.

[15] Ownership, in turn, is classified in accordance with the legal personality, governance and accountability of the enterprise. Purposes include sovereign and non-sovereign purposes. Bassan identifies four species, each of which derives its specific character by its autonomy to the state. That autonomy, in turn, appears to suggest the extent to which sovereign purpose might follow. At one end are SWFs organized as a State Owned Enterprise, that operates protected by a legal structure that limits the ability of the state to direct investment. At the other are SWFs that are neither separately organized nor subject to a distinct legal regimes and governance, these are more difficult to separate from the state and thus more likely that their operations and the sovereign purposes of the state will be more difficult to untangle. This is elaborated in the regulatory proposal made later in the book. Ibid., 52-53.

[16] See, e.g., Mariana Pargendler, State Ownership and Corporate Governance, 80 Fordham L. Rev. 2917, 2962 (2012).

[17] Rebecca Blumenstein & Laura Meckler, Chinese Firms Set Sights on U.S. Investments: Computer Maker Lenovo Underlines Broader Interests; White House Encourages Sovereign-Wealth Fund to Take Stakes, Wall St. J. (Jan. 27, 2011),

[18] Bassan, supra, note --, chapter 3.

[19] Ibid., chapter 4.

[20] Bassan asserts: “regulating SWFs requires rules, not only in host states but also in home states: stand alone (home, or host) state measures run the risk fo being ineffective [and] absent an adequate multilateral system, home and host state measures should be consistent and coordinated.” Bassan, supra note --, at 39.

[21] Ibid. Critically for the analysis is Bassan’s assumption that market failure (as opposed to a failure of political management) has yet to be proven.

[22] These include what Bassan identifies as (1) Book of Rules models, (2) Double Constraint Theory models and (3) Corporate Governance Models. The first considers the domestication of a set of multilateral standards grounded in the regulation of investment goals and strategies, governance, transparency and fund administrator behavior. In effect, these would supply a “corporate or fund” code of SWF organization and operation. The second would impose two functionally based constraints on SWF operations abroad, a requirement that investment decisions be based on non-political objectives and that investment in any one entity be capped. The third suggests a set of measures very much like American “poison pills”—suspension of voting rights, disclosure, delegation of voting power and the like.

[23] Bassan identifies five principal weaknesses with the Santiago Principles: (1) their scope of application is under inclusive, (2) they are voluntary in character, (3) there is no single auditing or monitoring body responsible for compliance, (4) there is an over reliance on home state regulation, and (5) no waivers are possible. Ibid., 46-48; and 50-52).

[24] Oddly, given the effort to distinguish between state owned enterprises and SWFs in Chapter 2, here Bassan relies, in part, on the OECD’s guidelines on the corporate governance of state owned enterprises. This, more tan anything, suggests the difficulties of regulation in a complex area where definitional precision may belie functional complexity.

[25] Bassan is attracted to the basic principles of trade liberalization—proportionality, transparency of intervention, regulatory predictability, and accountability of regulatory authorities. Ibid., 63. Each of these, of course, are deeply engrained in the laws of the Member States of the EU. He is also positive about the work of the OECD Investment Committee on Sovereign Wealth Funds and Recipient Country policies, grounded in principles of equal treatment and specific circumstances to justify exemptions. Ibid. 63-64.

[26] Prepared Remarks by SRSG John G. Ruggie Public Hearings on Business and Human Rights Sub-Committee on Human Rights European Parliament, Brussels, 16 April 2009; cf. Daniel Augenstein, Study of the Legal Framework on Human Rights and the Environment Applicable to European Enterprises Operating Outside the European Union 9-13, 51 (2011).

[27] E.g., United Nations, Convention Against Corruption (effective 14 Dec. 2005); Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (entry into force 1999) (available

[28] For example the U.S. Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1, et seq.).

[29] See Court E. Golumbic, Jonathan P. Adams, The “Dominant Influence” Test: The FCPA's “Instrumentality” And “Foreign Official” Requirements And The Investment Activity Of Sovereign Wealth Funds, 39 Am. J. Crim. L. 1, 29-39 (2011); Michael J. Gilbert & Joshua W.B. Richards, Foreign Corrupt Practices Act: The SEC's Investigation of FCPA Violations and Sovereign Wealth Funds -Implications for Hedge Funds, Hedge Fund L. Rep., Feb. 3, 2011, at 1, available at

[30] Cf., Irina Marinescu, Note: Where Does the Dirham Stop in a Sukuk Default?, , 35 Hastings Int'l & Comp. L. Rev. 451, 472-74 (2012).

[31] Bassan, supra note --, 64-66.Particularly useful in this regard might have been a consideration of the potential tension between the Golden Share cases and their idea of the immutable nature of sovereign character of action by governments in the context of investment internally and the commitment to free movement of capital across borders. Ina sovereignty based analysis, purpose may have less importance than the sovereign character of the actor. If that is the case, then Bassan’s definitional approach might be up-ended, with sovereignty rather than purpose the touchstone of national power to control domestic economies. It might also suggest a different resolution of the tension between sovereign subsidies and free movement of capital that could be worth pursuing.

[32] Ibid., 67-68.That communication reflects contemporary European approaches to law, grounded in principles and a tight network of vertical relationships between state, union and international governance systems. Specifically, the communication speaks to the promotion of an investment environment open to foreign investment, support for multilateral governance activities, compliance with those obligations and enforcement of core European governance principles, of proportionality and transparency. And, indeed, the Commission’s “Communication” speaks to the desiderata of the Golden Share cases –restrictions on movements of third party investments and the use of competition law to protect not merely competition but a wide variety of additional security interests. Bassan, supra note --, 67-68.

[33] Ibid., 68-71. Bassan insightfully notes the difficulty of U.S. policy—focused against national security but not necessarily economic risks, something that his approach would cure. Ibid., 73. Cf., Mark E. Plotkin, Foreign Direct Investment By Sovereign Wealth Funds: Using The Market And The Committee On Foreign Investment In The United States Together To Make The United States More Secure, 118 Yale L.J. Pocket Part 88 (2008).

[34] Larry Catá Backer, Governance Without Government: An Overview, in Beyond Territoriality: Transnational Legal Authority In An Age Of Globalization (Günther Handl, Joachim Zekoll, Peer Zumbansen, editors, Leiden, Netherlands & Boston, MA: Brill Academic Publishers, forthcoming 2012).

[35] Bassan, supra note --, chapters 5-6.

[36] Cf. Donald L. Doernberg, Sovereign Immunity or the Rule of Law: The New Federalism's Choice (Carolina Academic Press 2005, 260 pp.)

[37] Bassan, supra note --, 90. Bassan starts by examining the scope of restrictive state measures that might be challenged through the invocation of state immunity by SWFs; the nature and scope of immunity is then explored, distinguishing between jurisdictional and execution immunity; and last the extent to which SWFs may invoke either aspect of immunity through the bi-lateral treaty.

[38] But there are limits that are worth exploring, especially in the U.S., see, e .g., Larry Catá Backer, Permanent Mission of India to the U.N. v. City of New York: The State as Private Actor in a World of Private Actors, Law at the End of the Day, June 30, 2007. Available

[39] This may be attributed in part to differences in tax ideologies that distinguish commercial from investment activities. Bassan, supra note --, 107. Cf., Victor Fleischer, A Theory of Taxing Sovereign Wealth, 84 N.Y.U. L. Rev. 440 (2009). The same applies to the application of immunity to competition regimes. Bassan, supra note --, 109-11.

[40] Ibid., 111. The greater the autonomy and fuller the formation of a distinct legal personality, the lower the availability of immunity.

[41] Ibid., 112. Executory immunity ought to depend on the sovereign purpose of investment. Sovereign investment ought to secure immunity, but at the same time permit host states from invoking restrictive measures.

[42] Ibid., 112-113. Financing purposes may suggest the sovereign character of the SWF.

[43] Ibid., 113. The investment nature may help characterize investment as commercial or sovereign.

[44] Ibid., 114. This looks to the ultimate purpose of investment.

[45] Ibid., 116-117. Yet Bassan suggests that BITs may matter, noting a “trend whereby funds do pay attention to the existence of BITs and the countries of nationality of target companies, especially when the investment is in an Enterprise, while the presence of BITs is considered less decisive if the investment target is a bank.” Ibid., 132.

[46] Ibid., 155 (“The minimum common denominator of SWFs is really minimum”).

[47] Cf. Yvonne C.L. Lee, The Governance of Contemporary Sovereign Wealth Funds, 6 Hastings Bus. L.J. 197 (2010).

[48] Cf., Larry Catá Backer, Part V: Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model, Law at the End of the Day, Feb. 5, 2011. Available 

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