July 8, 2009

U.S. Department of the Treasury to Conduct Mandatory Survey of Foreign Ownership of U.S. Securities

Holland & Knight Alert
Ronald A. Oleynik | Antonia I. Tzinova

On April 22, 2009, the U.S. Department of the Treasury issued a Federal Register notice informing the public that it will conduct a mandatory survey of foreign ownership of U.S. securities as of June 30, 2009.1 This is a large benchmark survey conducted every five years under the authority of the International Investment and Trade in Services Survey Act, 22 U.S.C. §§ 3101 et seq., and Executive Order 11961 of January 19, 1977. The survey covers foreign residents’ holdings of U.S. securities, including selected money markets instruments. In non-benchmark years, the Treasury conducts similar annual surveys of only the very largest U.S.-resident custodians and issuers.

The data collected in the survey will be used in the computation of the U.S. balance of payments accounts and the U.S. international investment position; the formulation of international economic and financial policies; as well as to provide aggregate information to the public on foreign portfolio investment in the United States.

The information collected by this survey is treated as confidential business information and is used only for analytical and statistical purposes, and enforcement under the Act. The results of the survey will be made available to the general public only at an aggregated level, so that individual respondents cannot be identified. Additionally, officials having access to individual company information submitted in response to the survey are subject to criminal liability for any unauthorized disclosure.2

The April 22 Federal Register notice constitutes legal notification to all U.S. persons who meet the reporting requirements that they must respond to the survey by August 31, 2009. Reporting persons must use form SHL (2009) available on the Treasury’s Office of International Affairs website. The Treasury has designated the Federal Reserve Bank of New York to act as its fiscal agent and collect the requested data.

Who Must Report?

Generally, response to the survey is required only if reportable securities exceed $100 million. Those required to report include U.S.-resident custodians and U.S.-resident issuers who meet the filing requirements as described below. Such U.S. persons must respond to the survey whether they are individually notified or not, as the Federal Register notice serves as legal notification. However, a number of persons may receive a request from the Federal Reserve Bank of New York and must respond to the survey even if they fall under the exemption level.

Entities that provide multiple services, i.e., provide custodial services and issue securities, must report securities that meet the reporting criteria for each role and ensure that they not provide duplicate information on the same securities to avoid double counting.

The following U.S. persons must respond to this survey:

1) U.S.-Resident Custodians

U.S.-resident custodians are U.S. persons who hold in custody, or manage the safekeeping of, U.S. securities for the account of foreign residents (including their own foreign branches, subsidiaries, or affiliates), as well as brokers and dealers.

The U.S.-resident custodians must report the securities even if the securities are in turn held at the Depository Trust Company, Euroclear, or another central securities depository, since it is the U.S.-resident custodian who has knowledge that these securities are held on behalf of a foreign resident. However, if the U.S.-resident custodian uses a U.S.-resident sub-custodian, the custodian should report only if it does not disclose its clients to the sub-custodian. Otherwise, the sub-custodian should only report to avoid double counting.

U.S.-resident central securities depositories who act as U.S.-resident custodians must report all U.S. securities they hold in custody directly on behalf of foreign residents with which they have established direct relationships, including foreign-resident brokers, dealers, exchanges, and central securities depositories.

U.S.-resident custodians must complete the survey if the total market value of the U.S. securities they manage on behalf of the foreign person – aggregated over all accounts and for all U.S. branches and affiliates of their firm – is $100 million or more as of June 30, 2009.

2) U.S.-Resident Issuers

U.S.-resident issuers are U.S. persons who issue securities that are:

  • registered securities owned by foreign residents for which neither a U.S.-resident custodian nor U.S.-resident central securities depository is used
  • book entry securities that are held at a foreign-resident central securities depository
  • bearer securities

U.S.-resident issuers should complete the survey only if the total market value of their securities owned directly by foreign persons – aggregated over all securities issued by all U.S. subsidiaries and affiliates of the firm, including investment companies, trusts, and other legal entities created by the firm (e.g., Special Purpose Entity) – is $100 million or more as of June 30, 2009.

3) U.S. Persons Who Receive a Request from the Federal Reserve Bank of New York

U.S. persons who receive a letter from the Federal Reserve Bank of New York must submit a Schedule 1 of Form SHL (2009), regardless of the size of their consolidated holdings. If the entity falls under the exemption level of $100 million, it need only report “exempt” on Schedule 1.

The survey defines “U.S. person” as any individual, branch, partnership, associated group, association, estate, trust, corporation, or other organization, whether or not organized under the laws of the United States, and any government, including a foreign government, or government agency or instrumentality, that resides in the United States or is subject to the jurisdiction of the United States.

What Securities Must Be Reported?

The survey collects information on securities issued by U.S. persons and owned by foreign residents. Such securities include U.S. equities, U.S. short-term debt securities (including selected money market instruments), U.S. long-term debt securities, and U.S. asset-backed debt securities. Reportable securities may be traded or issued in the United States or in foreign countries, and may be denominated in any currency. Securities issued by foreign branches or subsidiaries of U.S. entities are not U.S. securities unless, due to merger, reorganization, or default, a U.S. entity assumes direct responsibility for the payment of a previously foreign security. Securities held as part of a direct investment relationship should not be reported.

  • Foreign-resident ownership. Securities are considered to be foreign-owned if the holder of record is not a resident of the United States. In addition, all outstanding bearer bonds should be assumed to be owned by foreign residents and reported by the U.S.-resident issuer. (Bearer bonds should be reported by the U.S.-resident custodian where its records indicate a foreign-resident owner or custodian.) Foreign residents include residents of foreign countries, international organizations, foreign subsidiaries of U.S. entities, offshore funds, and persons that file an IRS Form W-8 indicating that they are foreign residents.
  • U.S. government-backed securities. Securities issued or guaranteed by U.S. government agencies or federally sponsored enterprises, and owned by foreign residents, are reportable.
  • Non-reportable securities. Derivative contracts, securities temporarily received as collateral, loans, letters of credit, non-negotiable certificates of deposit, bank deposits, annuities, and foreign securities should not be reported.
  • Direct investment. Holdings that are considered direct investment should not be reported. A direct investment relationship exists when a U.S. company owns 10 percent or more of the voting equity securities of a foreign business, or when a foreign company owns 10 percent or more of the voting equity securities of a U.S. business. The direct investment relationship covers all financial positions between two companies, unless one of the entities is a banking or securities brokerage firm and the holdings do not provide permanent capital. However, if the holdings are below 10 percent, they must be reported.
  • Limited partnerships. Limited partners in a limited partnership do not have voting rights and therefore cannot have direct investment. Therefore, all ownership interests, even those greater than 10 percent, are reportable. General partner ownership interests are always considered to be direct investment and as such should not be reported.

Penalties for Failure to Report

U.S. persons who meet the reporting requirements or who have received a request from the Federal Reserve Bank of New York must respond to the survey to avoid assessment of penalties. Failure to provide timely or accurate data can result in a civil penalty between $2,500 and $25,000, or injunctive relief ordering the person to comply.3

Willful failure to submit required information can result in a fine up to $10,000, or imprisonment for up to a year, or both.4

All data used to respond to the survey must be retained by the reporting person for a period of 36 months from the date of submitting the survey response.


1 Office of the Assistant Secretary for International Affairs; Survey of Foreign Ownership of U.S. Securities as of June 30, 2009, 74 Fed. Reg. 18438 (April 22, 2009).

 22 U.S.C. § 3104 and 18 U.S.C. § 1905.

 22 U.S.C. § 3105(a) and (b).

 22 U.S.C. § 3105 (c).

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