International Law

Week in Review: Verizon’s Vodafone Buyout

By Christopher Hammond, J.D. Candidate 2015 | Posted on

The week’s business news was widely dominated by Verizon’s buyout of Vodafone’s 45% stake in their joint venture, Verizon Wireless.  Why?  The short answer is:  “That’s what happens when news breaks of the largest such deal since the dot-com crash (circa 2000), the second-largest in the telecom industry, and the third-largest… ever.”

The slightly longer answer is that the deal is still, to some degree, clouded in a bit of mystery.  The New York Times today asked a few obvious questions:  Why $130 billion for 45% of an enterprise valued (in total) at $176 billion?  Why not earlier, like Verizon’s opportunities to make the move in 2001 and 2004?  And why did Verizon choose a joint venture in the first place?  The article describes a good deal of ‘inside baseball’–perhaps detailing the thought process of each company’s management team as they sought to lead the wireless charge in the United States.  This week’s post in The Economist, titled “A $130 billion divorce,” asked what Vodafone planned to do with the large payout?  And now, according to Bloomberg, Reuters, and other outlets, a Verizon shareholder class action suit is seeking to block one of history’s largest deals.  The plaintiffs are pointing to Verizon’s share performance since rumors of the deal surfaced:  down approximately 7.5%.

The Network will keep up-to-date as the deal moves forward.

Week in Review: Litigation

By Christopher Hammond, J.D. Candidate 2015 | Posted on

In an increasingly globalized economy, the New York Times’ Dealbook reports that law firms have gained traction (and legal fees) in complex international arbitration.  A number of firms have positioned themselves to “catch a rising wave of business” in this behind-the-scenes market.  For more, see NYTimes.

Bank of America will walk away empty-handed in its $1.7 billion suit against the Federal Deposit Insurance Commission, as a Washington federal judge dismissed the suit earlier this week.  For more, see Bloomberg.

Also from the federal bench, Facebook’s proposed $20 million settlement has been approved.  The suit claimed that social media site had failed to adequate protect children’s online privacy through its “Sponsored Story” advertisement features.  U.S. District Judge Richard Seeborg (N.D. Cal.) found “significant value” in the settlement, as Facebook will also give users more control over their uploaded content.  For more, see Reuters.

OECD’s Top Three BEPS Priorities

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

This month the OECD released an action plan to reduce abusive base erosion and profit sharing (BEPS), which diminishes taxes paid in the world’s leading economies.  Yesterday the head of the OECD’s division for tax treaties, transfer pricing and financial transactions said that the OECD’s top three BEPS priorities are hybrid mismatches, interest deductibility, and transfer pricing.  (more…)

CFTC and European Commission Reach Deal on Cross-Border Derivatives

By James Kollar | Posted on

The Commodity Futures Trading Commission (CFTC) and European Commission (EC) have reached a landmark deal on regulating cross-border derivatives trading. The deal distributes responsibilities between US and European regulators in order to prevent the disruption of global markets.

The deal would allow European regulators to monitor the actions of international branches and subsidiaries of American companies and their derivatives deals that occur in the 28 countries of the European Union. The CFTC would defer regulatory monitoring of international derivatives to European agencies in cases where the rules are similar to those in the United States. (more…)

Basel Committee Proposes New Capital Requirements for Banks’ Equity Investments in Funds

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

On July 5 the Basel Committee on Banking Supervision published a series of proposals to revise banks’ equity investments in funds.  The revised standards are meant to “more appropriately reflect the risk of a fund’s underlying investments and its leverage” and “help address risks associated with banks’ interactions with shadow banking entities.”  The proposals are “based on the general principle that banks should apply a look-through approach to identify the underlying assets whenever investing in schemes with underlying exposures such  as investment funds.”  (more…)

U.S. Sanctions Update: New U.S. Sanctions Expand Targeting of Non-U.S. Companies Doing Business with Iran

By Kirkland & Ellis LLP | Posted on

[Editor’s Note: The following update is authored by Kirkland & Ellis LLP]

U.S. sanctions targeting non-U.S. companies’ business with Iran have greatly expanded in recent years, but have focused in significant respects on Iran’s energy sector, including, in particular, Iran’s petroleum and petrochemical sectors. Non-U.S. companies engaged in activities involving other sectors of the Iranian economy have felt somewhat secure from the reach of U.S. sanctions. Effective July 1, 2013, a new Executive Order and law may put an end to the sense of security of many such non- U.S. companies. Moreover, U.S. companies may be affected by these expanded sanctions because of the risk that their non-U.S. business partners could be sanctioned and become parties with which U.S. companies are prohibited from dealing. Companies, including those in the automotive, maritime and insurance industries, engaged in business activities involving Iran, as well as foreign financial institutions that may support such transactions, should be aware of these expanded sanctions and evaluate whether their activities could now be sanctionable. (more…)

Online Currency Exchange Accused of Laundering $6 Billion

By James Kollar | Posted on

Saying it was the world’s largest international money laundering prosecution in history, federal authorities announced charges against the operators of Liberty Reserve, an online currency exchange that prosecutors say enabled more than a million people worldwide to launder about $6 billion.

The investigation of the Costa Rican based company involved law enforcement officials from 17 countries, highlighting the complexity and globalization of illicit financing systems that have gone digital. With Liberty Reserve, any user could open an online account from anywhere in the world, without providing identification, and then trade virtual currency anonymously through an easily accessible online banking infrastructure.

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The Alternative Investment Fund Managers Directive – UK Treasury Releases Near-Final Draft of Implementing Regulations

By Goodwin Procter LLP - Glynn Barwick | Posted on

[Editor’s Note: The following Post is authored by Goodwin Procter LLP’s Glynn Barwick.]

The UK Treasury has recently published a new, and near final, version of the implementing Regulations for the Alternative Investment Fund Managers Directive (the “AIFMD”). (We have commented on the consequences of the AIFMD for EU managers and non-EU managers in our 4 January, 11 January, 27 February and 27 March client alerts.) This updated version of the implementing Regulations represents a considerable improvement for managers compared to the initial draft.

In summary, with effect from the implementation date (22 July 2013), European managers of Alternative Investment Funds (“AIFs”) – essentially:

(a) any European manager of a PE, VC, hedge or real estate fund will need to be authorised in its home member state and comply with various requirements regarding the funds that it manages concerning information disclosure and third-party service providers; and

(b) any non-European manager of a PE, VC, hedge or real estate fund will need to comply with various marketing and registration restrictions if it wishes to obtain access to European investors.

This Client Alert discusses the major changes to the AIFMD implementing Regulations.

Click here to read the complete story.

Experience from the Anti-Monopoly Law Decision in China – Part II

By TC Tsui | Posted on

[Editor’s note:  This post continues yesterday’s article, found here.]

3.2. Methodology and Assumptions

This “legal discount” test provides how much Coca Cola may lose in the acquisition of Huiyuan Juice if the application were rejected because of improper enforcement of law.

The potential loss Coca Cola suffered was the potential net income of the Huiyuan Juice for fiscal year 2009, the first year of operation if the transaction were approved.

It was difficult to predict whether the profit of the new company would increase because it was a component of the Coca Cola (by economies of scale, for example) or decrease (as actually occurred with Huiyuan in year 2010). We assumed that the annual profit of the new company was stable.

It was not sufficient that we merely estimated the profit if Coca Cola successfully purchased Huiyuan, because Coca Cola’s funding does not exist in a vacuum, i.e., Coca Cola would not be required to pay for the costs of funding, whether dividends to shareholders or interest expense to creditors, if it did not spend the USD24 billion for the deal.

Thus, potential income should be divided by the weighted average cost of capital (WACC) of Coca Cola.

Because legal risk is variable case by case, the analysis only examines the highest level of loss caused by uncertainty in the rule of law in the Chinese legal environment. This assumption also matches the conservatism in accounting principle, which suggests that expenses should be over-estimated at their highest possibility when the amount is not certain.

To reflect the possibility of judicial intervention, the discount should be multiplied by 1/67, which reflects the highest legal risk.

The potential return on the project resulting from the assumptions made above is that made for USD24 billion in investment funds.

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Experience from the Anti-Monopoly Law Decision in China – Part I

By TC Tsui | Posted on

1. Introduction – Reasons of Estimating Cost of Legal Risks

The general public typically has a positive view of liberty, democracy, and a reliable legal system. For their part, analysts are likely to take the legal system for granted because they have a positive view of the rule of law and are able to construct airtight arguments explaining why a reliable legal environment is important for investors.

However, simply stating that having the rule of law is always better than not having it may not be sufficient. Scholars rarely evaluate the magnitude of the positive effect of the rule of law. Certain studies may consider that legal risk increases costs at the operating level, such as the risk of suffering litigation expenses, but these studies have not analyzed how legal risk may cause investment loss.

Additionally, scholars may attempt to show that the rule of law is not a foundational concern for investors by developing models based on the interaction between governments and investors; however, these studies may miss the mark when investors hesitate to enter the market because of the perception of an unfair legal environment or when the same model is applied to a variety of industries.

In reality, it is not easy to calculate accurate figures of profit or loss resulting from the stability of the legal environment for an entire society, but a test estimating a rough ceiling of loss that might be caused by the improper application of the rule of law in a particular circumstance might be a valuable indicator for investors.

Robert Hahn et al. suggest a cost-and-benefit approach to examine the enactment of regulations; they apply it to the question of whether legislators should prohibit drivers from using cellphones while driving in 2001 and 2007.

Subject to assumptions and adjustments, such an approach might provide investors with a general idea about how much the application of the rule of law affects profitability by applying the analysis to judicial matters.

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