The Bureau of Economic Analysis ("BEA") is a branch of the US Department of Commerce that collects statistical information about the American economy that is related to critical decisions about interest rates, trade policy, taxes, spending, hiring and investing, among others. One function of the BEA is to record statistics for all foreign direct investment in the US, as authorised by the International Investment and Trade in Services Survey Act.
The BEA conducts seven mandatory surveys to collect information on direct investment from enterprises doing business in the US. This information is derived from respondent entity disclosures on their enterprise demographics, existing financial information, and forward looking estimates of spending. These surveys include:
- Quarterly surveys for reporting positions and transactions of a US affiliate with its foreign parent(s) and foreign affiliates of its foreign parent(s);
- An annual survey for reporting financial and operating data of a US affiliate; and
- A benchmark survey that is conducted every five years for reporting financial and operating data of the US affiliate, as well as positions and transactions of the US affiliate with its foreign parent(s) and foreign affiliates of its foreign parent(s).
The quarterly surveys are designed to gather information on direct investment transactions and income for the international transactions accounts and on direct investment positions for the international investment position accounts. The annual and benchmark surveys are designed to gather information on the activities of multinational enterprises and provide the most comprehensive coverage of business entities, transactions, and qualitative and quantitative data items.
The BEA filing requirement is applicable to:
- All US persons that own, directly or indirectly, 10 percent or more of the voting securities of an incorporated foreign business enterprise or an equivalent interest in an unincorporated foreign business enterprise; and/or
- All US business enterprises in which a foreign person (in the broad legal sense, including a company) owns, directly or indirectly, 10 percent or more of the voting securities of an incorporated US business enterprise or an equivalent interest of an unincorporated US business enterprise.
These requirements may also apply to some of the more commonly used structures for onshore and offshore funds. The BEA considers a company to be US or foreign based on where it is incorporated or organised, regardless of the location of their operations or nationality of their shareholders. Considerations for investment managers include:
- US fund managers or their US affiliates may be required to report non-US master funds and possibly other non-US funds as foreign affiliates;
- US organised feeder funds may be required to report on ownership of non-US master funds;
- Whether or not a US management company, an affiliated US special purpose vehicle, or a US organised fund owns or controls a foreign entity’s voting securities is heavily dependent on the particular ownership structure of each entity in a fund complex; and
- US management companies, affiliated US special purpose vehicles or US organised funds may be required to report ownership of a foreign entity held in a master fund’s portfolio.
US businesses, including investment managers, which are currently unfamiliar with the BEA surveys should review the reporting requirements and take appropriate advice to determine if and how they apply to them or to the funds they manage. Failure to satisfy BEA reporting requirements may lead to significant civil and criminal penalties, including monetary fines and, in some circumstances, imprisonment.