A pilot program under FIRRMA instituted mandatory declarations for a broad range of transactions and put in place penalties—up to the full value of the transaction—for failure to comply.
As governments tighten their grip on national security reviews of foreign direct investment, the need for better assessment and calibration of the associated regulatory risk in cross-border transactions is greater than ever before.
Nowhere is this trend more evident than in the United States, with the August 2018 passage of the Foreign Investment Risk Review Modernization Act (FIRRMA), which expanded the range of transactions that are subject to review by the Committee on Foreign Investment in the United States (CFIUS), and the more recent release of a pilot program under FIRRMA that instituted mandatory declarations for a broad range of transactions and put in place penalties—up to the full value of the transaction—for failure to comply.
FIRRMA was designed to modernize the CFIUS process and close a number of key gaps under the prior law, particularly with respect to Chinese acquisitions. FIRRMA expands CFIUS’s jurisdiction in several ways, most significantly to include purchases or leases of real estate in close proximity to sensitive US government facilities and even non-passive, yet non-controlling, acquisitions in US businesses whose activities involve critical technologies, critical infrastructure or sensitive personal data of US citizens.
The United States is far from alone. The EU, UK, Germany, France, China and other nations are also incrementally ratcheting up their reviews.
Jurisdictions clamping down on FDI
The European Commission is still considering a 2017 proposal for establishing a framework for the screening of foreign direct investments, hoping to strike a balance between maintaining the EU’s general openness to FDI and ensuring that the EU’s interests are not undermined.
The UK government is proposing radical new legislation to empower it to intervene in cases that raise potential national security concerns. In France, the new Plan d’Action pour la Croissance et la Transformation des Entreprises (PACTE) law is likely to strengthen the sanctions mechanism.
The German Federal Ministry for Economic Affairs and Energy may prohibit or restrict a transaction if it poses a threat to the public order or security. In September 2018, the ministry announced its intention to further tighten the regime for foreign direct investments in Germany with new legislation.
China is in the process of implementing acomprehensive set of rules and regulations governing national security reviews for foreign investments.
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