Multi-jurisdiction guide for screening foreign investments

Our Global Foreign Direct Investment (FDI) team is pleased to release the 2023 edition of the firm’s Multi-jurisdiction Guide for Screening Foreign Investments. Since our last edition in May 2021, policymakers worldwide have continued grappling with the trade-off between the economic benefits of welcoming foreign direct investment and the corresponding risks to national security, industrial policy, consumer protection and data privacy goals.

The new edition of our Multi-jurisdiction Guide for Screening Foreign Investments surveys key developments in FDI screening practices in 35 jurisdictions across the Americas, Europe, Africa, Asia, and Australia.

Most contemporary mechanisms for screening FDI stem either from general FDI regimes regulating routine foreign shareholdings in domestic firms, or from targeted FDI review procedures for sensitive or strategic sectors. For the last thirty years, restrictions on FDI receded in the face of multilateral trade agreements, Bilateral Investment Treaties (BITs) or unilateral loosening of FDI limits to spur domestic growth. In recent years, however, many countries have overhauled FDI screening mechanisms to scrutinize a broader range of transactions under expanding notions of national security. FDI reviews increasingly consider cybersecurity, consumer protection, data privacy, supply chain resilience and innovation in strategic sectors. Moreover, governments are increasingly willing to intervene in offshore transactions based on indirect or limited domestic effects. 

The global COVID-19 pandemic also highlighted links between foreign investment patterns and vulnerabilities in global supply chains for key products. Amidst the pandemic in 2020, the European Commission urged Member States to implement “full-fledged” FDI screening mechanisms pursuant to the EU Regulation on foreign investment screening. This establishes a framework for coordinating FDI screening among EU Member States and the European Commission and establishes common criteria and principles for FDI reviews. With the exception of Cyprus, all EU Member States have established an FDI screening mechanism, or are in the process of doing so.

Further, Russia’s invasion of Ukraine and tensions between the U.S. and China have underscored the geostrategic relevance of foreign direct investment in sensitive sectors.

In this climate, FDI screening activities have expanded in many jurisdictions.

For example, the interagency Committee on Foreign Investment in the United States (CFIUS) has intensified its scrutiny of proposed transactions. The CFIUS has also expanded its retrospective reviews of consummated transactions in potentially sensitive sectors where the parties had not submitted a notification or declaration. The U.K. National Security and Investment Act 2021 (NSIA) took effect in January 2022, establishing new requirements for mandatory notification to the Investment Security Unit within the Department for Business, Energy and Industrial Strategy (BEIS) for certain acquisitions resulting in equity interests over 25% or material influence over businesses active in 17 specified sensitive sectors. In 2022 Canada also introduced a new National Security Review of Investments Modernization Act, which can substantially strengthen the existing national security review. And in the EU, Romania introduced its FDI regime in 2022 and new or enhanced regimes are expected in Belgium, Slovakia, Netherlands, Ireland, Estonia, Slovenia, Spain and Sweden in 2023.