A:

The law is very fuzzy on the matter of who may own U.S. securities and for what purpose. The U.S. follows the common law system, which is based on precedent. It evolves to reflect changes in precedent-setting and newly passed laws. Recent acts of Congress have changed the laws regarding foreign ownership and holding of U.S.-based assets; as a result, precedents do not necessarily exist for every circumstance that may occur. This lack of precedent means there are too many unknowns to answer this question simply.

First, let's be clear that the Securities and Exchange Commission and the U.S. government encourage foreign investment in the equities and debt markets that fund U.S. capital markets and the U.S. economy - non-U.S./foreign investors simply bring in too much cash to halt this practice! However, there is a lot of room for interpretation regarding who may own what assets and how they may hold them.

Foreign owners and holders of U.S.-based assets are subject to an array of U.S. laws intended to protect U.S. interests. With the passing of the USA Patriot Act of 2001, following the terrorist attacks of Sept 11, 2001, the laws governing foreign ownership of U.S. securities have become even more unclear. The U.S. government has gone to great lengths to ensure that certain organizations that have been linked to terrorist activities, along with their members or suspected members, are not able to finance their operations through American capital markets in any way.

A detailed discussion of this legislation is beyond our scope. However, it's safe to say that if you are not involved in any illegal activities, or any activities that the U.S. government and its organizations may find offensive, you should be well within your rights to own stock in U.S.-based companies.

(To learn more about what it means to own shares in a company, check out our Stock Basics Tutorial.)

RELATED FAQS
  1. Does the law of demand in economics describe real human behavior?

    Learn how the law of demand can be used to describe human nature, even if it cannot always produce accurate predictions about ... Read Answer >>
  2. How do sunshine laws help investors?

    Sunshine laws are U.S. federal and state laws that require regulatory authorities' meetings, decisions and records to be ... Read Answer >>
  3. What are the components of a financial account?

    Understand what the financial account is and how it relates to a country's balance of payments. Learn about the components ... Read Answer >>
  4. Is there an easy way to calculate the law of supply and demand for small business?

    Understand how small businesses make basic calculations of law of supply and demand principles and how supply and demand ... Read Answer >>
  5. What is an antitrust law?

    Antitrust laws - also referred to as "competition laws" - are statutes developed by the U.S. Government to protect consumers ... Read Answer >>
Related Articles
  1. Personal Finance

    Career Advice: Investment Banking Vs. Law

    Learn some of the most important differences between a career in investment banking and law, and figure out which career suits you better.
  2. Managing Wealth

    Panama Papers Tip of the Iceberg as Congress Aids Tax Cheats & Terrorists

    Never mind the Panama Papers. America has its own ‘State Thieves, Embezzlers And Liars (STEAL) Protection Acts’ that can even shelter terrorists from exposure.
  3. Financial Advisor

    Succeeding At The Series 63 Exam

    Your career as a securities agent begins with this test. We'll show you how to score high.
  4. Taxes

    Understanding Taxation Of Foreign Investments

    Technically, any gains from foreign investments owned by an American citizen are subject to tax by the company's home country as well as the IRS. However, the Foreign Tax Credit enables you to ...
  5. Personal Finance

    Is Going to Law School Worth It? Depends on Where

    Explore whether going to law school is still worth it in 2017 by comparing the debt you acquire and the salary you make.
  6. Small Business

    Make Sure Your Business Complies with These 3 Environmental Laws

    Discover why 1970 is considered the year of the environment, and learn about several major environmental laws with which businesses must comply.
  7. Personal Finance

    Your Boss Can't Do That! Laws That Protect Workers

    By federal law, American employees enjoy many legal protections that– among other things– provide a minimal level of income and make the workplace safer.
  8. Managing Wealth

    What Taxes Do I Owe On Retirement Accounts Abroad?

    If you're a U.S. retiree, but previously worked abroad, here's what you need to know about taxes on foreign pensions and retirement accounts.
  9. Investing

    Investing Beyond Your Borders

    Investing abroad poses risks, but can also help you diversify. Discover ways to invest in foreign stocks.
  10. Personal Finance

    Financial Planning Issues for Foreign Nationals in U.S.

    There are a host of issues that foreign nationals face in the U.S. regarding taxation, credit and estate planning. Here are a few things to keep in mind.
RELATED TERMS
  1. Common Law

    In the United States, a body of unwritten laws based on precedents ...
  2. Financial Responsibility Law

    A law which requires an individual to prove that he or she is ...
  3. USA Patriot Act

    The USA Patriot Act a law passed shortly after the September ...
  4. Foreign

    1. A non-U.S. company with securities trading on the North American ...
  5. Natural Law

    A set of rules inherent in human behavior and human reasoning ...
  6. Law Of One Price

    The theory that the price of a given security, commodity or asset ...
Hot Definitions
  1. Covariance

    A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns ...
  2. Liquid Asset

    An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally ...
  3. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  4. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  5. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  6. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
Trading Center