Sept / Oct 2003 View Online |
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/ investmentsHeiko A.
Giermann »»
The security of financial investments is
of utmost importance for investors. Recent financial turmoil and bank
crashes in South America have demonstrated the consequences investors face
in the event of bank insolvencies. The German system of deposit-guarantee
schemes is comprised of a statutory scheme and supplementary private
schemes established by banking associations. The German statutory scheme
under the Federal Act on Deposit Guarantee and Investor Compensation (Einlagensicherungs- und Anlegerentschädigungsgesetz - ESAEG), which
entered into force on 1 August 1998, is based on European Union (EU)
legislation. EU Directive 94/19/EC on deposit-guarantee
schemes of 30 May 1994 and EU Directive 97/9/EC on investor-compensation
schemes of 3 March 1997 resulted in some standardization in terms of the
minimum amount of protection (ECU 20,000) and a requirement for deposits
with branches (but not subsidiaries) of EU banks to be covered by the home
country scheme. Consequently, branches of EU banks will normally be
exempted from host-country arrangements, although supplementary cover may
be available if the guarantee in the home country provides less cover
("topping-up"). Conversely, for competitive reasons, protection
by the home country scheme is limited to the ceiling of the host country
scheme if the former provides more cover. In Germany the statutory scheme under the
ESAEG is supplemented by four independent private schemes established by
the Bundesverband deutscher Banken (BdB), representing private commercial
banks, the Verband Öffentlicher Banken in Deutschland (VÖB),
representing central giro institutions, the Bundesverband der Volksbanken
und Raiffeisenbanken (BVR), representing credit cooperatives, and the
Sparkassenorganisation, representing savings banks. Membership in the VÖB and BdB schemes is
voluntary. For commercial banks, it will usually be necessary on
competitive grounds to become a member of the BdB scheme. Participation in
the schemes of the savings and cooperative banking associations is, in
principle, voluntary. |
/ MERGERSLaura
Otis »»
Past
administrations have applied the Exon-Florio Amendment with restraint, but
heightened national security concerns could lead to a more aggressive
application of the statute, creating a significant obstacle for
international investors pursuing merger and acquisition opportunities in
the United States. The
Exon-Florio Amendment is administered by an inter-agency group called the
Committee on Foreign Investment in the United States (CFIUS), which is
chaired by a representative from the Treasury Department and includes
representatives from the Departments of Defense, Commerce, and State, the
United States Trade Representative, and other federal agencies. In
an uninterrupted process, CFIUS and the President have up to 90 calendar
days to review, investigate, and determine whether to temporarily suspend,
block, or demand restructuring of a transaction. The review process
involves several steps. When
CFIUS receives notice of a proposed acquisition, it conducts an initial
30-day review of the transaction to determine whether there are any
significant national security concerns warranting a full-scale
investigation. If deemed necessary, CFIUS conducts a 45-day full-scale
investigation, culminating in a recommendation to the President either to
block or authorize the transaction. The President has 15 days from the end
of the investigation to make the ultimate decision on what action to take.
Critics
have long argued that the review process is susceptible to abuse and
politicization. In practice, however, CFIUS has avoided full-scale
investigations and presidential determinations and has generally focused
on clear national security threats associated with the transfer of
sensitive, defense-related information, and technologies to military
adversaries. |
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INVESTMENTS (Continued) All independent compensation schemes are
based on funds which are established by regular subscriptions of the
member institutions. However, there are two different philosophies behind
the schemes. On the one hand, the funds of the BdB and VÖB compensate
investors after the insolvency of a member institution. On the other, the
schemes of the BVR and the savings banks protect their member institutions
against insolvency through financial support, thereby safeguarding the
deposits of investors. Whereas most EU member
state branches of
institutions incorporated in other EU countries are covered by their home
state schemes, the scheme for commercial banks (BdB) also provides for the
protection of foreign depositors of member banks operating abroad,
wherever located. Each of the schemes is limited to
protecting non-bank deposits, with somewhat different definitions of
precisely what that means. Deposits are protected irrespective of
currency. For compensation purposes, the entire
balance held in the depositor's name is aggregated in order to calculate
the funds owed to the individual depositor by the institution. Joint
account balances are apportioned equally between each account holder and
aggregated with other balances held by that particular account holder.
From the aggregate balance of all its accounts and joint accounts, the
individual depositor's debts owed to the institution are deducted in order
to calculate the eventual compensation payment to that depositor. Under the statutory scheme, the
compensation payment process is initiated by the Bundesanstalt für
Finanzdienstleistungsaufsicht (BAFin) as the federal supervisory agency
determining that a credit institution is unable to repay deposits due to
its financial condition. Since the statutory scheme may only
provide for basic compensation, it is evident that the independent schemes
of the banking associations are of great importance. The largest scheme is
that of the association of commercial banks (BdB), representing
approximately 250 institutions. The scheme of the BdB comes close to
providing full protection to non-bank deposits, with the maximum
compensation for each depositor being defined as "30 per cent of the
liable funds (Kernkapital), plus 25 per cent of the general equity capital
(sonstiges haftendes Eigenkapital)" of the preceding fiscal year. Consequently, the current maximum compensation for the largest German commercial bank, Deutsche Bank AG, is EUR 6,736,830,000, for the largest private commercial bank, Bankhaus Sal. Oppenheim jr. & Cie., it is EUR 210,749,000. MERGERS (Continued) Only
one transaction has been formally blocked under the Exon-Florio Amendment,
and it involved the proposed acquisition of a United States aircraft
component manufacturer by a Chinese company which reportedly had performed
intelligence work for the Chinese government inside the United States. In
the aftermath of 11 September, with the United States engaged in a war
against terrorism, the Bush administration may use the Exon-Florio
Amendment to assess a broader range of transactions, well beyond those
concerning the traditional defense sector. The
statute could, for example, be routinely applied to foreign acquisitions
of United States industries and infrastructure considered vulnerable to
terrorist attacks, such as water systems and reservoirs, energy production
plants, information technology networks, transportation networks, and
financial markets and services. The statute also could be used to prevent
foreign entities or foreign individuals from gaining control over
industries or products which could be used as weapons in a terrorist
attack, or as weapons of mass destruction. For
this reason, foreign acquisitions of United States companies that are
involved in the production of certain chemicals and/or biological agents
or engaged in medical or pharmaceutical research and development could
become more difficult. The
President's authority to block transactions is subject to certain legal
limitations. For example, international treaties generally prohibit the
United States government from erecting and maintaining barriers to
international investments. Moreover, the Exon-Florio Amendment contains
requirements limiting the President's authority. Under
the statute, the President may not act to prevent a transaction unless
there is "credible evidence" that the foreign controlling entity
or individual might threaten national security. The statute also requires
a finding that no other United States law is available which adequately
protects the national security interest in question. Still, these limitations do not provide much comfort to international investors. CFIUS and the President retain a high degree of discretion to determine whether a transaction presents a threat to "national security", a term which was purposefully left undefined in the Exon-Florio Amendment and thus is open to broad interpretations. Even more troubling is that the decisions are not subject to judicial review or oversight. CONTACT INFORMATION AND PROFILES Dr.
Heiko A. Giermann, LL.M. - is
an associate with Huth Dietrich Hahn in Hamburg, Germany specializing in
corporate law, mergers and acquisitions, private international, and
international procedural law. He received his Masters of Law in 1998 from
McGill University, Montreal, his Dr. iur. in 2000 from University of
Hamburg, and was admitted to the German Bar in 2002. Dr. Giermann is a
member of the Canadian German Lawyers‘ Association and the Association
of German Navy Officers, and has published numerous manuscripts. Huth
Dietrich Hahn, Rechtsanwälte,
Warburgstrasse 50, 20354
Hamburg, Germany, Tel (+49) 40 41 52 50, Fax (49) 40 41 52 51 11, Email
/ Web. Huth
Dietrich Hahn, established in 1990, is a large law firm which handles
complex cases such as corporate and stock market transactions, and
provides individualized, competent legal advice. Its international
orientation, underscored by extensive experience in foreign countries, has
lead to associations with several leading, foreign law firms, and to the
opportunity of offering its services in many other parts of the world. Laura Otis - Laura Otis received her Juris Doctor degree from American University’s Washington College of Law in 1997, and her Bachelor of Science degree from Georgetown University’s School of Foreign Service in 1992. In 1993 - 1994, Ms Otis was a Fulbright Scholar to Finland. Ms Otis is admitted to the Bars of Washington DC and Maryland and is a member of the Federal Communications Bar Association. Her practice areas include broadcast and wireless telecommunications regulation and licensing, cross-border mergers and acquisitions, and international business matters. Prior to joining Attorneys at law Borenius & Kemppinen Ltd in 2001, Ms Otis practiced communications law in Washington DC for Rosenman & Colin LLP, representing a broad range of clients connected to the media and communications industries. Borenius & Kemppinen (B&K), Yrjönkatu 13 A, FI-00120 Helsinki, Finland, Tel. +358 9 615 333, Fax +358 9 615 33 499, Email/Web. B&K, established in 1911, is one of the leading commercial law firms in Finland providing its clients with comprehensive business law services in Finland and also in the Baltic region. B&K offers its domestic and international clients expert advice on matters relating to business and corporate law, complex legal issues regarding intellectual property law, antitrust law and merger control rules, and provide advice in highly specialized fields of IP/IT. The firm is closely involved in major projects undertaken by various government and municipal bodies. Its consultative role ranges from advising on transactions relating to energy production, to other privately funded public projects. B&K has a thorough understanding of the new industries and developments in the general business environment. The firm invests in continuous education and specialization of its lawyers and strives to understand the business and future goals of its clients. |
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