The Evolving Global Foreign Direct Investment and National Security Review Landscape

Key Takeaways

• As FDI regimes proliferate and mature around the globe, governments are taking an ever-more expansive view of the concept of “national security” to include more than military and defense interests, which means that FDI reviews are now easier to trigger than before.
• Now more than ever, dealmakers should evaluate FDI screening risks early in the transaction process, giving careful consideration to the risks and threats posed by investors and targets, and deploy strategies to manage potential risks. 
• In this 2024 report, we contextualize current trends in a focused set of jurisdictions to help dealmakers understand the headwinds and assess how best to manage FDI-related considerations for cross-border transactions.
• Dechert lawyers regularly advise foreign and domestic entities through the FDI review process, and stand ready to assist clients navigate the global national security and FDI review landscape. 
• Read our report to understand these changes and how to address them. 

Executive Summary

The global national security and foreign direct investment (“FDI”) review landscape continues to evolve. There are more than 50 investment screening regimes, and over 100 jurisdictions now have some form of investment screening rules. New FDI regimes continue to be implemented (see the chapters on Belgium and Singapore), FDI regimes implemented in recent years are maturing, and the United States and its allies are coordinating with respect to FDI strategy while impacted jurisdictions are developing countermeasures.

As FDI regimes proliferate and mature around the globe, governments are taking an ever more expansive view of the concept of “national security,” to include more than military and defense interests. In many cases, “national security” now extends to advanced technology, data, critical infrastructure, communications assets and critical supply chains. As investment thresholds are reduced and definitions of key terms like "investment" and "control" are broadened, FDI reviews are now easier to trigger than before."

The United States and its allies are also increasingly cooperating to restrict certain types of investment, such as Chinese investment in critical technology and investments that would impact critical supply chains, including with respect to semiconductor chips and related technologies. Additionally, countries continue to engage in “friend-shoring,” making supply chains more resilient by moving production to friendly countries – with the added consequence that foreign investment of this sort will be less likely to raise concern among local regulators.  

In addition, outbound investment screening is almost here (see the chapters on the European Union (“EU”) and the United States). The United States in particular is moving ahead with establishing an outbound investment review mechanism, even if in its initial form it will apply only to certain sectors of the economy and only to certain destination countries.  As currently envisioned, the U.S. outbound review mechanism will review and potentially prohibit certain outbound investments by U.S. investors to protect U.S. national security and safeguard U.S. supply chains from certain countries such as Russia and China. Although China, Taiwan, and South Korea have forms of outbound investment review mechanisms, once established in the United States, the U.S. outbound investment review mechanism will be the first of its kind to be adopted by a major Western economy and could have potential ripple effects with other governments considering similar mechanisms (such as the EU).

FDI regulations often cast a wide net: there are multiple FDI regimes that feature a broad jurisdictional nexus, such that even relatively small transactions may be captured as well as investments involving limited governance and control rights. As regimes expand in scope, outcomes are becoming increasingly uncertain. Both buyers and sellers can undertake due diligence to evaluate potential national security regimes that are implicated by proposed transactions and take steps to mitigate potential risks voluntarily before presenting transactions to regulators. Such steps can help parties obtain regulatory approvals and clearances on their preferred timeline and reduce the risk that their transactions become cautionary tales.

Dealmakers should monitor these developments as they may meaningfully impact the ability to deploy capital and close transactions. Now more than ever before, dealmakers would be wise to evaluate FDI screening risks early in the transaction process, giving careful consideration to the risks and threats posed by investors and targets, and to deploy strategies to manage potential risks. In the following sections, we contextualize current trends in a focused set of jurisdictions to assist cross-border dealmakers with understanding the headwinds and assessing how best to manage FDI-related considerations from the start of the transaction process so as to avoid impediments to closing.

Dechert regularly advises foreign and domestic entities through the FDI review process, helping them determine if they should bring a transaction before regulators, consider the political and policy considerations that may arise, assemble the required information for a filing, and then (as necessary) negotiate with the review body in a manner that minimizes both delay and the imposition of conditions that might threaten the transaction.  Dechert attorneys are closely monitoring the status of outbound investment reviews and stand ready to assist clients with such reviews once they are implemented.