Clifford Chance
SEC Initiates Sweep of Firms Doing Business with Sovereign Wealth Funds
22 January 2011
The U.S. Securities and Exchange Commission ("SEC") has issued information requests to at least ten banks and private equity firms to examine whether their dealings with sovereign wealth funds ("SWFs") implicate the U.S. Foreign Corrupt Practices Act ("FCPA"). This development has broad implications for (i) firms in which SWFs have invested capital, (ii) firms that conduct other business with or provide services to SWFs, and (iii) SWFs themselves. The requests also signal the U.S. Government's intent to scrutinize an entire new area under the FCPA.
The Department of Justice ("DOJ") foreshadowed the U.S. Government's focus on SWFs in October 2008, when the then-head of the Fraud Section stated that "the recent boom of sovereign wealth funds is an area of particular interest to the Justice Department." The SEC's current investigation (known as a "sweep" because it targets an industry and is not focused on a single firm) is in its early stages, and appears to be focused on financial firms that received significant capital injections from SWFs beginning in 2008. According to public reports, the sweep letters instruct firms to retain documents relating to and respond to general questions about the firms' dealings with SWFs. The firms can expect their responses to lead to further questions and requests for documents and, in certain cases, to full-blown investigations. Moreover, firms that were not included in the first round can expect to receive similar letters in the future.
