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In the face of significant geopolitical challenges, many jurisdictions are considering investment review regimes to ensure adequate protection of national security and public order. In this context, significant changes have been made or may soon be made to his FDI regimes around the world. In this article, his BCLP experts from Brussels, Hamburg, London, Paris, and Washington DC examine current or upcoming amendments to his FDI regimes in France, Germany, the United Kingdom, the United States, and the European Union.
Strengthening inbound investment screening
In response to growing national security concerns, many jurisdictions have strengthened their vetting regimes, primarily by attracting more types of investments.
France
The 10% notification criterion for investments in listed companies by non-EU and non-EEA investors, one of the key temporary amendments to the French FDI regime during the COVID-19 era, has been made permanent (although this criterion It is worth noting that the lower value can benefit from the fast track scheme (although this scheme is not available for acquisitions that trigger the 25% threshold). Additionally, the types of covered companies covered by the scheme have been expanded to include unincorporated branches of foreign companies registered in France.
Additionally, France expanded the sectors the regime targets, including prison security and the integrity, safety, or continuity of the extraction, processing, and recycling of critical raw materials. The revised system also includes research and development activities in photonics and low-carbon energy production technologies.
Germany
Germany is also considering lowering the FDI screening threshold within its jurisdiction, which currently stands at 10%, 20% or 25%, depending on the activities of the target country. There are also proposals to expand the scope of the system to include the acquisition of German companies’ intellectual property, including the transfer of patents and licenses. Greenfield investments and research projects related to high-tech and critical infrastructure sectors may also fall within the scope of the scheme.
There are also proposals to amend the definition of sectors already within the scope of Germany’s FDI regime. This could potentially subject more companies to notification requirements, particularly those involved in semiconductor manufacturing, cloud computing, autonomous driving and flight, cybersecurity, and raw materials.
America
The United States is tightening regulations on inbound investment due to new guidance released by CFIUS and the prospect of future regulations that could have a significant impact on FDI reviews.
In 2023, CFIUS issued guidance confirming that it will continue to require information about the identity of private equity funds’ limited partners and the rights held by them. It also issued guidelines on enforcement of procedural violations and undocumented transactions, and related penalties. In fact, in late 2023, Assistant Secretary for Investment Safety Paul Rosen announced that CFIUS was on track to issue the largest civil penalty ever. within a year.
Additionally, Assistant Secretary Rosen announced that CFIUS intends to issue new regulations to improve the review process, including enforcement, penalties, treatment of unnotified transactions, and CFIUS’ ability to respond to the current threat landscape. .
Furthermore, on February 28, 2024, President Biden issued an executive order aimed at protecting the personal information of American citizens. Among other actions, the Executive Order directs the Department of Justice (“DOJ”) to enact regulations restricting certain transactions involving large amounts of sensitive personal or U.S. government-related data that are at risk of access by countries of concern. (These are expected). China, Russia, Iran, North Korea, Cuba, Venezuela).
The trend toward increased scrutiny of FDI in the United States is also supported by application statistics. CFIUS’ latest annual report (for 2022) examines a record number of notifications and states that the number of filings that resulted in approval has decreased.
England
As many jurisdictions expand their FDI regimes, the UK Government is considering scaling back the National Security and Investment Act (“NSIA”) regime, with 1,066 notifications issued in the first two years of operation of the regime. I received it. In November 2023, the UK government will file a discovery request to investigate some of the types of transactions currently detected by the NSIA, including certain (i) internal reorganizations, and (ii) the appointment of liquidators and administrators. Suggested to limit or remove. (iii) financing facilities, and (iv) acquisitions by public authorities.
The UK government has also narrowed and clarified the definition of some sectors of the economy subject to mandatory review (such as AI and defence), while widening others and adding new independent sectors (particularly semiconductors and critical sectors). ) is also proposed. mineral).
european union
In January 2024, the European Commission adopted five initiatives to strengthen the EU’s economic security. These include legislative proposals to require all Member States to implement investment screening systems and to set a minimum sectoral scope of Member States’ screening systems. Under this proposal, all Member States would (i) participate in EU projects and programs related to security and public order and (ii) be active in key areas such as semiconductors, artificial intelligence and semiconductors. Foreign investments in EU companies need to be screened. Intelligence, critical pharmaceuticals, dual-use goods, military items.
Oversight of foreign investment is becoming increasingly strict
While many FDI regimes have focused on inward investment, greater attention is beginning to be paid to outward direct investment (“ODI”), where companies invest in or expand their activities and technologies abroad. This is partly due to concerns by certain governments that companies within their jurisdiction may invest in certain military or security supply chains of adversary countries.
There have been recent developments in ODI screening in the EU, UK and US. In fact, the UK and US released a joint statement titled: atlantic declaration At its heart was a shared goal that British and American corporate capital and expertise would not be used to strengthen the military and intelligence capabilities of third countries of concern.
America
In August 2023, President Biden issued an executive order authorizing regulations on certain foreign investments from the United States. Such regulations prohibit certain transactions and require notification of others. The focus will be on transactions involving entities located in or under the jurisdiction of “countries of concern”, particularly China, that may pose a threat to national security, particularly in semiconductors, microelectronics and quantum information technology. The transaction will be related to the identified technology or product. , and artificial intelligence.
Concurrently, the U.S. Department of the Treasury has issued an Advance Notice of Proposed Rulemaking (“ANPRM”) seeking comments from industry on the proposed regulations. The ANPRM sets out Treasury’s intent to implement the regulation, including countries of “concern” and a subset of technologies and products within three categories identified in the executive order that will likely be addressed in the final decision. A framework has been established. Rules.
England
Although there is no specific guidance yet on screening for ODI in the UK, the UK Government has reiterated in its call for evidence that the NSIA regime is applicable to ODI and has asked for feedback on whether specific guidance on ODI would be welcomed. Ta. It therefore seems likely that there will be further developments and perhaps guidance regarding ODI screening in the UK.
european union
ODI is not monitored or controlled by the EU or its member states. As part of a wider review of the EU’s economic security toolkit, the European Commission is investigating the risks associated with ODI. In particular, the types of investments in certain critical technologies made by the EU, whether such investments could effectively endanger the security of the EU or Member States, and, if so, such We want to understand to what extent risks can be reduced. Whether such mitigation requires new policies or frameworks. The Commission expects to reach a view on whether new policy is needed during 2025.
Member states will monitor the European Commission’s efforts on ODI, and Germany has already announced that it will wait for the outcome of an EU-level review before considering whether corresponding national measures are needed.
Significant differences remain between FDI regimes
Unsurprisingly, there are significant differences in the transactions captured by jurisdictions’ FDI regimes. Although there are specificities in the application of many regimes, the European Commission’s legislative proposals on FDI screening could lead to greater harmonization among EU Member States. We highlight some of these characteristics below.
For example, the UK’s NSIA regime is ‘investor agnostic’, meaning that qualifying transactions undertaken by UK acquirers are also subject to notification requirements.In this regard, the NSIA actually foreign country Direct investment system. Indeed, in its 2022-23 annual report on the NSIA regime, the UK government revealed that investments by UK acquirers accounted for approximately 58% of all notices received and 33% of all call-ins. (if the acquisition could cause problems). risk to national security) – second only to Chinese investors.
In Germany (as in many jurisdictions) the burden of proof (Bewais Rustom Kale) The decision to intervene in investments rests with the German authority, the Federal Ministry of Economics and Climate Change (BMWK). However, there are proposals to lift this burden of proof for security-related investments, requiring the acquirer to convince BMWK that a particular investment is not related to or has no impact on national security. It means that there is. How does such a reversal of the burden of proof affect the information needed to make an FDI notification and, perhaps more importantly, the ability of an acquiring company to secure an FDI permit in Germany for a security-related investment? We don’t yet know how it will affect performance. .
The French government appears to be more likely than other governments to issue conditional FDI permits. In 2023, more than half of FDI approvals issued in France were conditional, compared to just 9% in the EU as a whole.
FDI, and increasingly ODI, screening regimes are important as they can represent significant regulatory hurdles that companies must overcome for M&A activities.
The authors would like to thank Nick Young. Tonio Sadoni, Julie Catara Marty, Andrew Hockley, Victoria Newbold, David Anderson.
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