Investments With Borders: CFIUS-Style Foreign Investment Review Goes Global
The Committee on Foreign Investment in the United States, CFIUS, is the U.S. government agency that conducts national security reviews of foreign direct investment in the United States. The CFIUS rules have been significantly tightened over time, which has created major obstacles, particularly to technology investments, and particularly for Chinese investors.
But as investors turn elsewhere looking for more a more streamlined investment process, they may be disappointed. Around the world, countries are creating new laws, or dusting off old ones, to allow their governments to examine and restrict foreign investment.
This article presents an overview of the emerging (or reemerging) foreign investment legal regimes in the EU – including domestic laws in France, Germany, Italy and the UK – Canada, Norway, South Korea, Japan, Australia, and New Zealand. For brevity in this article, we summarize our analysis in graphics and tables. However, we recommend that investors obtain a thorough legal analysis from local counsel before proceeding with an investment in any of the countries discussed here.
1. CFIEU? The Europe-Wide Investment Review Regulation.
“This is the first time that the EU is equipping itself with such a comprehensive framework, while its major trading partners already have comparable rules in place.”
– European Council Press Release
On March 5, 2019, the European Council adopted a Regulation establishing a framework for screening foreign direct investments in the EU, based on the proposal of the Commission (as we reported here). The EU framework will be a coordinating mechanism among EU Member States as each ones of those States will keep, amend, or create, their own Foreign Direct Investment (FDI) review systems.
Jurisdiction. The Regulation allows for Member States and the Commission to cooperate on incoming foreign direct investment affecting security and public order, involving factors including the following:
critical infrastructure ,
critical technologies and dual-use items ,
the supply of critical inputs, such as energy or raw materials,
access to sensitive information or the ability to control information, or
the freedom and pluralism of the media.
Additionally, Member States and the Commission may also consider:
whether the investor is controlled by the government of a third country,
whether the investor has previously been involved in activities affecting security or public order, or
whether there are serious risks that the investor engages in criminal or illegal activities.
Process. The Regulation provides for a proposed process as follows:
Figure 1: EU coordinating process as settled in the Regulation – Source: EU Commission Feb. 19’ Factsheet.
Projects and programs of Union Interest. The Regulation lists several EU funded projects and programs which may be relevant for security and public order, and which will deserve a particular attention from the Commission. That list includes, for instance, Galileo, Horizon 2020, TransEuropean Networks and the European Defence Industrial Development Programme. The list will be updated as necessary.
Entry into force. A transitional period of 18 months will ensure that Member States and the Commission put the necessary resources and tools in place to implement the Regulation. Some Member States may also use this time to adapt national frameworks, where needed.
2. FDI Review in EU Member States
At press time (April 2019), 14 EU Member States currently have in place national FDI review mechanisms. Several countries are reforming their current systems while others are adopting completely new ones. We focus our discussion here on existing and reinvigorated screening mechanisms in France, Germany, Italy, and the UK. Those regulations are the most comprehensive and stringent, so a higher percentage of transactions are likely to be subject to review in those countries, as illustrated here.
Figure 2: Investment Screening Legislations in the EU.
We use the table here to summarize the essential points of the French, German, Italian and British FDI review mechanisms.
3. A Special Mention for Norway
On January 1, 2019, Norway’s new investment screening regime entered into force. The new law empowers Norwegian authorities to screen and veto investments in Norwegian businesses on grounds of national security.
The law is not limited to companies in specific sectors. The authorities will have the power to issue such decisions in respect of any company that:
(i) is processing classified information;
(ii) has access to information or information systems deemed essential to national security interests;
(iii) owns physical assets or infrastructure deemed essential to national security interests; or
(iv) is involved in activities deemed essential to national security interests.
If the target company is involved in any of the above activities, foreign investors who wish to acquire a stake of one-third or more of the share capital, assets or voting rights would have to consider a filing submitted to the government ministry responsible for the sector in which the target company is active.
If an acquisition engenders a significant risk to national security interests (broad definition settled by the law, i.e. national financial stability or autonomy), the responsible ministry may block the transaction, or decide that the investment may only be implemented subject to conditions, just like the CFIUS would do.
4. Key Aspects of Foreign Direct Investment Review in other major Economies
In the table below, we summarize key elements of the FDI review systems for Australia, Canada, Japan, New-Zealand and South-Korea.
The patchwork of FDI regulations is varied and shifting. We will monitor and report the changes in this blog. However, we recommend that investors seek expert advice to make sure their investment in the above-listed countries and others can be made safely and successfully.
Co-Authored by Julien Blanquart, an intern at Sheppard Mullin.
 Eg. energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure and sensitive facilities as well as land and real estate crucial for the use of such infrastructure.
 Including: artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense energy storage, quantum and nuclear technologies, nanotechnologies and biotechnologies.