Friday, May 16, 2008

"Virtually unregulated foreign ownership of American assets."

Carlyle Group buyout would add billions in sensitive U.S. contracts to portfolio partially owned by Abu Dhabi government

$2.54 billion deal warrants close scrutiny, heightened standards for review, given "critical services" involved

May 16, 2008

Service Employees International Union
Copyright 2008

WASHINGTON--Today's announcement that global buyout firm Carlyle Group will pay $2.54 billion for Booz Allen's government consulting arm demands immediate congressional attention to examine any national security implications and to clarify present and future control issues before the deal receives regulatory approval.

Last September, Carlyle announced that the Mubadala Development fund of the government of Abu Dhabi paid $1.35 billion for a 7.5% ownership stake in Carlyle. Driven by rising oil prices and the falling dollar, foreign countries are increasingly investing in the U.S. economy through the purchase of stakes in leading American companies by sovereign wealth funds.

Carlyle's acquisition of Booz-Allen's government business, which held $1.2 billion in Department of Defense contracts last year, raises the question if foreign governments could potentially gain access to sensitive national security information through their stakes in private equity firms.

The stakes are becoming alarmingly high, as the Carlyle Group announced its intention to invest billions in developing U.S. infrastructure such as toll roads, water and sewer systems, bridges, tunnels, highways and airports.

In a report released last month, "Sovereign Wealth Funds and Private Equity: Increased Access, Decreased Transparency," the Service Employees International Union outlined issues that arise when opaque foreign funds team up with secretive buyout firms. SEIU is sharing its concerns about the proposed Booz Allen buyout with Senate and House committees on armed services.

"Current U.S. rules exempting private equity from many disclosure requirements coupled with gaps in laws concerning foreign ownership have inadvertently left a door open for virtually unregulated foreign ownership of American assets," according to the report, which included the following recommendations:

1) The beneficial ownership structure of the general partnership/management company and/or limited partnerships controlling funds must be disclosed -- particularly if their portfolio companies contract for the U.S. government;

2) Mandatory CFIUS investigation of proposed deals involving private equity firms and SWFs;

3) New SEC rules concerning Regulation D should be rescinded;

4) Representatives of a sovereign wealth fund, including private equity advisers, fund managers, or others acting on its behalf, must register under the Foreign Agents Registration Act.

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