Karl P. Sauvant, PhD
Resident Senior Fellow

Columbia Center on Sustainable Investment
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
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The Evolving International Investment Law and Policy Regime: Ways Forward (E15 Task Force policy options), "China's outward FDI and international investment law", "Policy options for promoting FDI in the LDCs", “The negotiations of the United Nations Code of Conduct on Transnational Corporations: Experience and lessons learned”, and Improving the International Investment Law and Policy Regime: Options for the Future are available at http://www.works.bepress.com/karl_sauvant/.



Columbia FDI Perspectives

Perspectives on topical foreign direct investment issues
No. 171  April 11, 2016

Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Maree Newson ([log in to unmask])


Untangling the effects of “special purpose entities” on global FDI
Delphine Nougayrède *

The measurement of foreign direct investment (FDI) flows and stocks between home countries and host countries is muddied by the widespread use of “special purpose entities” (SPEs), including for the round-tripping of domestic investment.[1] Many national statistical bodies still do not separately track investments through SPEs and thereby risk presenting a distorted picture of global FDI. International bodies, including the OECD[2] and UNCTAD,[3] have long identified the problem, but it persists.
This Perspective provides a Russian illustration: the US$55 billion acquisition of TNK-BP, a Russian oil producer, by Rosneft, another Russian oil company, in 2013. While the case may be singular, its magnitude made the distortive effect quite visible.
Rosneft is a Russian company that is majority owned by the Russian state. TNK-BP was a Russian oil-producing group with a top holding company in the British Virgin Islands (BVI). Before its acquisition by Rosneft, it was 50/50 owned on the one side by BP of the United Kingdom (UK) and, on the other side, by AAR, a consortium of companies registered in the BVI but ultimately owned by Russian individuals.[4]
BP’s total consideration for the sale of its TNK-BP share was US$27.4 billion, split into Rosneft shares and net cash proceeds of approximately US$12 billion.[5] The cash proceeds were taken out of Russia, i.e., for BP this was a share swap and partial divestment. As for the AAR segment, the consideration of US$27.7 billion was paid entirely in cash by state-owned Rosneft to the BVI companies of the Russian shareholders.[6] Seen synthetically, the combined transaction was therefore a share swap and partial divestment by a foreign investor (BP), combined with a renationalization of domestic oil production assets.[7]
Official FDI statistics, however, gave a picture that was arguably the very opposite—that of an all-around increase in global FDI. Russia’s Central Bank reported a significant outflow of Russian FDI, with stocks in the BVI jumping to US$82 billion as of December 31, 2013, making the BVI the second largest Russian outbound FDI destination behind Cyprus.[8] The reason was that, technically, although the TNK-BP assets were located in Russia, the shares acquired by Rosneft were those of a BVI company. Russia’s Central Bank also reported a significant inflow of FDI into Russia from the UK (and not a divestment),[9] and on that basis Russia appeared to become the world's third largest recipient of FDI inflow that year.[10] This was presumably because BP's previous position in TNK-BP had never been reflected as British Russian-bound FDI in the first place.
The TNK-BP example illustrates the difficulties of untangling the statistical effects of SPEs in cross-border investment. International bodies recommend that national data compilers create additional series looking through SPEs to identify the ultimate origin and destination of investments.[11] This task would be facilitated, however, if all countries hosting large numbers of SPEs produced such origin and destination data for their resident SPEs (as here the BVI). Mandatory corporate registers publicly disclosing ultimate beneficial ownership of these SPEs would also increase transparency and lead to a better understanding of global capital flows.[12]

* Delphine Nougayrède is an adjunct lecturer at Columbia Law School. The author is grateful to Maria Borga, Masataka Fujita, Michael Gestrin, and Thomas Jost for their helpful peer reviews. The views expressed by the author of this Perspective do not necessarily reflect the opinions of Columbia University or its partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.

[1] "Special purpose entity" is used here in the wide sense of legal entities with little or no substance that are used in cross-border investment, for tax or other purposes (whether or not they are separately reported as SPEs in national statistics).

[2] See OECD, Benchmark Definition of Foreign Direct Investment, 4th ed. 2008 and “How multinational enterprises channel investments through multiple countries”, February 2015, available at http://www.oecd.org/daf/inv/How-MNEs-channel-investments.pdf.

[3] See UNCTAD, World Investment Report 2014 (Geneva: UNCTAD, 2014) p. 3.

[4] One of them is a Soviet-born UK citizen.

[5] BP, “Annual report and Form 20F 2013”, p. 148, available at

[6] Rosneft Oil Company, “Consolidated financial statements”, December 31, 2013, p. 35, available at

[7] The main production units forming TNK-BP had been privatized in the 1990s.

[8] Central Bank of the Russian Federation (CBR), “Russian direct investment abroad, stocks broken down by instrument and country (assets/liabilities principle)”, available at

[9] CBR, “Foreign direct investment in the Russian Federation, flows broken down by instrument and country”, available at http://www.cbr.ru/eng/statistics/?Prtid=svs&ch=PAR_31141#CheckedItem.

[10] See supra note 3, p. 71.

[11] See OECD, op. cit. and “Identifying the ultimate investing country”, March 2015, available at http://www.oecd.org/daf/inv/FDI-statistics-by-ultimate-investing-country.pdf.

[12] See FATF Guidance, Transparency and Beneficial Ownership, October 2014; and, in the EU, Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, Recital 14 and Article 30, available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32015L0849.


 The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Delphine Nougayrède, ‘Untangling the effects of “special purpose entities” on global FDI,’ Columbia FDI Perspectives, No. 171, April 11, 2016. Reprinted with permission from the Columbia Center on Sustainable Investment (www.ccsi.columbia.edu).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].  


For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Daniel Allman, [log in to unmask].

Most recent Columbia FDI Perspectives 

  • No. 170, Wenhua Shan, “An outline for systemic reform of the investment law regime,” March 28, 2016.
  • No. 169, Kaitlin Y. Cordes and Anna Bulman, “Land investments and human rights: how home countries can do more,” March 14, 2016.
  • No. 168, Karl Sauvant and Daniel Allman, “Can India emulate China in attracting and benefitting from FDI?” February 29, 2016.

All previous FDI Perspectives are available at http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/

Other relevant CCSI news and announcements

  • On April 21, 2016, CCSI is co-organizing “The Politics of Investment Treaties,” with Freshfields Bruckhaus Deringer LLP. The starting point will be a recent book by Dr. Lauge Poulsen, which focuses on the historic practices of developing countries concluding investment treaties, and finds that governments in many developing countries overestimated the economic benefits of those agreements and practically ignored their risks. Panelists include Brian King, (Freshfields Bruckhaus Deringer), Lauge Skovgaard Poulsen (University College London), and Jennifer Haworth McCandless (Sidley Austin LLP). The event will take place from 6:30–7:30 pm at Freshfields Bruckhaus Deringer, 601 Lexington Avenue, 31st Floor, New York, NY 10022, with a reception to follow. Registration is free but required. For more information please see our website here and registration is available here.
  • On August 1-5, 2016, CCSI will hold its Executive Training on Investment Arbitration for Government Officials at Columbia University. Through an intensive week-long course, government officials involved in managing investment treaty disputes or negotiating investment treaties will increase their knowledge of crucial procedural and substantive aspects of investment law. Sessions will be taught by leading academics and practitioners and will be tailored to uniquely address issues relevant to governments.For more information about the program, including application materials, please visit our website.
  • On November 2-3, 2016, CCSI will host the eleventh annual Columbia International Investment Conference, entitled “Climate Change and Sustainable Investment in Natural Resources: From Consensus to Action.” Both the Sustainable Development Goals and the Paris Agreement, reached last December at COP21, make clear that climate-change mitigation must be pursued within the broader agenda of ending poverty, promoting economic development, ensuring social inclusion, and protecting the physical environment. Our Conference, taking place one week before COP22, will offer a high-level opportunity to explore the complex challenges of the Paris Agreement in light of sustainable development, the SDGs, and the real challenges facing developing countries within the global economy. The Conference’s sessions will address issues including: the rapidly changing (and declining) role of hydrocarbons in the global energy system; how low-carbon strategies can and should be adapted to the development needs of low-income countries; how to manage land use to mitigate climate and environmental impacts and to maximize benefits for development; and the development of new international legal frameworks and global governance to support national-level actions. Registration is free, but required; for more information, including registration, please check our website


Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
(212) 854-0689
Fax: (212) 854-7946

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