Beyond CFIUS: Foreign Investment Reviews Outside the United States
The United States isn’t the only country bolstering its protections against foreign investment that may compromise national security.
US legislation recently strengthened the law that authorises the President, through the Committee on Foreign Investment in the United States (CFIUS), to review and possibly block foreign investments if CFIUS finds they adversely affect US national security.
Other governments are following suit, adopting or enhancing CFIUS-like regimes to review foreign direct investment (FDI) in businesses deemed to involve sensitive or critical industries, technology, or infrastructure.
In the European Union, a regulation laying out an FDI framework for EU Member States was adopted on 5 March 2019. The regulation sets out basic procedural requirements that Member States with an FDI system will need to follow with respect to transparency, timeframes, protection of confidential information, and judicial redress.
The European Commission will also be able to issue an opinion to Member States on FDI likely to affect projects of EU interest. This new framework will coexist with the national regimes.
In December 2018, Germany revised its FDI regime to lower the thresholds applicable to certain industries. It had already tightened its regime in 2017 by adding critical infrastructure, such as energy and telecommunications, to its scope of review.
At the end of 2018, France adopted a decree extending the breadth of its screening process to new sensitive areas, such as research and development in cybersecurity, artificial intelligence, and robotics.
Reacting to Chinese investment in the Hinkley Point nuclear project, in 2018 the UK Government published a white paper to review FDI in sectors that pose national security risks, such as advanced technologies, dual-use technologies, and national infrastructure.
FDI regulatory requirements vary widely in the AsiaPacific region and in the Middle East.
Australia has a protectionist approach, and focuses its review on acquisitions of Australian real estate, agricultural land and agribusiness, and investments in sensitive industries, such as media, telecommunications, transport, and defence.
In China, foreign investment laws designate industries as “encouraged,” “restricted,” or “prohibited.” FDI is prohibited, for example, in the media, natural resources, and military sectors.
In Japan, the government will review FDI in a variety of sensitive industries, including military, aerospace, and nuclear energy, as well as in critical infrastructure, such as electricity, gas, communications, and broadcasting.
Israel announced in early 2019 that it would adopt an FDI screening system, notably to counter Chinese investment in technology companies.
The global trend in many countries towards more restrictive control of FDI creates new regulatory obstacles for companies engaged in cross-border deals. Foreign investors should carefully consider reporting and review requirements and procedures in advance of any such transaction. If an FDI filing is required or advisable, foreign investors should engage authorities as early as possible, as FDI review procedures may impact timing and other strategic elements of crossborder transactions.