Economic conditions remain uncertain with the pandemic not yet fully under control, and geopolitical tensions, particularly between the US and China, show no signs of easing. Against this backdrop, foreign investment regimes are being implemented and amended at speed. Governments and regulators continue to test new areas of national security concern – including evolving threats around cyber security, critical technology and critical supply chains – and face increased political pressure to take a more protectionist stance.
In the US, there will likely be a significant amount of continuity between the Trump and Biden administrations on the issue of foreign investment review. China will almost certainly remain the principal focus of CFIUS under the Biden administration. However, the desire to safeguard US technology, infrastructure and sensitive personal data will likely have implications for all international investors, not just those with direct ties to Beijing. Depth of insight and experience with how CFIUS analyzes national security risk are critical when assessing if a deal falls under CFIUS’s new mandatory filing regime and, if not, whether a voluntary filing is advisable. Given the increase in CFIUS resources dedicated to monitoring and enforcement, it has never been more important for companies to get their CFIUS analysis right.
In the EU, the new foreign investment screening mechanism became operational in October 2020. While it does not override domestic national security review competence, it creates an information sharing channel between the EU Commission and member states, allowing them to provide feedback on foreign investment that occurs within the EU. Overall, this has increased the level of scrutiny by national authorities reviewing a given transaction and the information burden on investors going through the review process. Some authorities are particularly active, with the French, German and Italian regulators blocking proposed acquisitions in the past few months.
Wherever you are in the world, the fast evolution of foreign investment regimes may introduce unexpected in-flight risk (after signing and before closing of the transaction) for deals. Parties should plan for this possibility by continually horizon-scanning potential legislative developments and potentially allowing for sufficient contractual flexibility combined with proactive stakeholder outreach during the sign-to-close period.
In the first episode of our new Essential Foreign Investment series, podcast host Alastair Mordaunt is joined by former CFIUS official, Colin Costello, and European FDI practitioners Ermelinda Spinelli and Rocío de Troya to discuss all of the above recent developments in foreign investment across the world. They explore the factors driving the trend towards an increased scrutiny from governments and regulators in relation to foreign investment, and provide an overview of the practical solutions merging parties can adopt to mitigate risks in planning for a transaction.
To read more about these issues and developments globally, please see our quarterly foreign investment monitor.