Foreign Direct Investment

Over the summer, the UK Secretary of State for Business, Energy and Industrial Strategy (“BEIS”) delivered the first decisions, in the form of final orders, under the National Security and Investment Act 2021 (“NSIA”).  We consider these decisions and other cases in the context of the first nine months of the UK’s new (quasi) Foreign Direct Investment (“FDI”) regime.

Key takeaways:

  • The NSIA has broad reach, and BEIS has shown willingness to exercise the powers to review transactions that can stretch beyond mergers and acquisitions, for example, to licensing agreements.
  • NSIA review involves the weighing of a number of factors relating to the target, the acquirer and the level of control being obtained.  Early decisions suggest that target’s products/services and activities are just as important a factor as the acquirer’s identity, among the cases that have engaged the attention of the Investment Security Unit (“ISU”).
  • “Behavioural” undertakings, e.g. involving implementation of security controls or granting of audit rights to regulators appear to be a continuation of trends seen in the predecessor UK ‘public interest’ regime, and similar to other EU FDI procedures.


Continue Reading UK FDI: Decision-making practice emerging under the National Security and Investment Act

On 30 June 2022, the Council of the EU (the “Council”) and the European Parliament (the “Parliament”) reached a much awaited agreement on the proposal of the European Commission (the “Commission”) for the Regulation on foreign subsidies distorting the internal market (the “FSR”) (see our alert on the proposal). This political agreement swiftly concludes the trilogue discussions initiated in the beginning of May this year, after the Council (see our blog post) and the Parliament (see our blog post) each adopted their own positions. The agreement has been approved by the Permanent Representatives Committee (“COREPER”) of the Council on 13 July and the Committee on International Trade of the European Parliament on 14 July.

The FSR grants substantial new powers to the Commission and “will help close the regulatory gap whereby subsidies granted by non-EU governments currently go largely unchecked”, according to remarks from Executive Vice-President of the Commission, Margrethe Vestager. It will be deeply transformative for M&A and public procurement in the EU.

The agreement on the FSR did not lead to any major changes in the proposal made by the Commission. The most notable points of discussion between the Parliament and Council and the outcome of this agreement are:

  • The thresholds above which companies are obliged to inform the Commission about their foreign subsidies remain unchanged compared to the Commission’s proposal;
  • The time period in which the Commission has to investigate foreign subsidies in large public procurement has been reduced. In the same way, the retroactive application of the FSR has been limited to foreign subsidies granted in the five years prior to the application of the regulation;
  • The Commission will issue guidelines on the existence of a distortion, the balancing test and its power to request notification of non-notifiable transactions, at the latest three years after the entry into force of the FSR; and
  • A commitment to a multilateral approach to foreign subsidies above the FSR and the possibility for the Commission to engage in a dialogue with third countries has been included.


Continue Reading The Council of the EU and the European Parliament agree on the Foreign Subsidies Regulation

The European Commission (“Commission”) has repeatedly urged EU Member States to set up foreign direct investment (“FDI”) screening mechanisms. To date, 18 out of 27 Member States have adopted FDI screening powers, providing for the review of M&A transactions and other investments on national security and public policy grounds. Recently, Belgium and Ireland have each announced draft proposals which, once implemented, will enlarge the group of Member States reviewing transactions on FDI grounds.

Against this background of increasing FDI screening for local and global M&A transactions, some voices call for broader reforms. The European Parliament has launched an initiative aimed to address a future EU international investment policy and recently adopted a resolution with far-reaching proposals for FDI screening in Europe.

We provide an update on these developments in this blog post and consider the current outlook for FDI screening.

Continue Reading Belgium and Ireland to introduce new FDI screening powers – European Parliament calls for broader reforms

The UK government has reported a successful start to the implementation of the National Security and Investment Act 2021 (the “NSIA” or “Act”). During the first three months (Jan-March 2022) in which the new NSIA regime has been active, the Investment Screening Unit (“ISU”) received 222 filings and reviewed 17 transactions in depth. Of those 17 transactions, three have been cleared unconditionally, with the other 14 transactions still under review at the end of the reporting period.

Mandatory NSIA filings, which represented 196 of the total flings, were most commonly made in six sectors: defence, military and dual-use, critical suppliers to government, artificial intelligence, data infrastructure and advanced materials.  There were significantly fewer filings in other sectors, with fewer than five filings per sector in areas such as synthetic biology, civil nuclear, advanced robotics and transport.

Collectively, these figures and other data suggest that the NSIA regime is operating, so far, broadly in line with expectations. While there are fewer filings than expected overall, this may reflect a broader global slowdown in M&A and investment activity. The ISU further reports that it is meeting, and often working well within, the maximum statutory time periods for the assessment of filings. The ISU indicates its willingness to complete reviews expeditiously where possible, including for in-depth assessments.

Continue Reading UK National Security and Investment Regime Working Well

Russia’s continued invasion of Ukraine is broadly impacting foreign direct investment (“FDI”) screening. A range of governments have announced they will apply close scrutiny to investments from Russia and its allied countries in general, and not only to investors that are subject to sanctions or other restrictive measures. The European Commission (“Commission”) has published guidance on the screening of investments from Russia and Belarus.

The German government has already intervened, appointing a fiduciary for an operator of critical gas infrastructure. Canada issued a policy statement targeting Russian investors and Italy permanently broadened its FDI regime. Our blog provides a summary of these developments below.

Continue Reading FDI regulators show their teeth – Close scrutiny and firm intervention in response to Russia’s war against Ukraine

The UK’s new National Security and Investment Act (“NSIA”) entered into force on January 4, 2022. The NSIA marks a considerable change in the UK’s investment screening powers and adds to an increasingly complex European and global landscape of investment regulation (or FDI) filings necessary for the execution of M&A and other transactions.

Continue Reading UK National Security & Investment Act is now in force

In M&A and other transactions, conditions associated with foreign direct investment (“FDI”) filings are becoming more common place, and investors are adjusting to the diligence, disclosure and time associated with obtaining FDI clearances. In the EU, the introduction of wider-ranging FDI laws has been rapid, and freshly empowered national regulators in the Member States are already demonstrating their willingness to use the tools at their disposal where they believe that is necessary. For investors, the deal execution risks are sobering in circumstances where a failure to obtain mandatory clearance may  render a transaction void (in addition to other possible sanctions). Transaction costs are also rising as longstop dates lengthen to accommodate sometimes unpredictable FDI review periods, especially for deals in the most sensitive sectors.

Marking one year since the full implementation of the EU FDI screening regulation (the “EU FDI Regulation” or the “Regulation”), this blogpost considers the first annual report on FDI (the “Report”) published by the European Commission on 23 November 2021 and reflects on M&A in the current EU FDI landscape.

Continue Reading Foreign Direct Investment Regulation: EU M&A after one year of the FDI Regulation

On 13-14 July, Covington’s Peter Camesasca and Sophie Bertin participated in panels discussing developments in Foreign Direct Investment (“FDI”) and Competition enforcement and compliance at the annual Competition Law Asia-Pacific Conference.

Foreign Direct Investment Regimes

On the first day of the conference, Covington partner Peter Camesasca moderated a group of diverse panellists on recent

On 27 April 2021 the German government adopted the 17th amendment (“Amendment”) to the Foreign Trade and Payments Ordinance (“AWV”) aligning the German Foreign Direct Investments (“FDI”) regime with the EU Screening Regulation. The Amendment significantly extends the number of sectors and target activities that require mandatory notification in Germany and brings significant procedural changes and clarifications. The revised Ordinance entered into force on 1 May 2021 and will apply to all transactions signed thereafter.

The Amendment follows a series of prior legislative changes. In light of the COVID-19 pandemic, the German government previously adopted the 15th AWV-Amendment in June 2020, which introduced far reaching filing obligations in the healthcare sector. Subsequently, the first amendment of the Foreign Trade and Payments Act introduced standstill obligations backed by fines and criminal charges in July 2020. Together with the 16th AWV-Amendment in October 2020 the German FDI regime was also aligned with the requirements of the EU Screening Regulation.

Our blog provides an overview of the German FDI regime and highlights the key changes introduced by the Amendment.
Continue Reading Technology Sector under Closer Scrutiny – German Government Significantly Extends the Scope of Foreign Direct Investment Review in Germany

Companies that benefit from non-EU state support or subsidies will soon face heightened scrutiny in the European Union (EU) as the European Commission unveiled on May 5 its proposed Regulation on foreign subsidies distorting the internal market.  As its name suggests, the proposed Regulation will create a new tool to address what the European Commission sees as a “regulatory gap” in avoiding potential distortions caused by companies receiving non-EU subsidies and ensuring a “level playing field” in the EU.  Perhaps emblematic of its perceived importance at a time where calls from Member States to tackle potential distortive foreign investment have multiplied, it took the European Commission less than a year from the publication of the White Paper on levelling the playing field with respect to foreign subsidies to analyze the results of its public consultation and to put this proposal to the EU legislator.

The proposed Foreign Subsidies Regulation is wide-ranging and will apply in addition to the existing merger control and Foreign Direct Investment screening mechanisms.  Given the strong support it has received from most Member States and European industry bodies, it is widely anticipated that this new tool will be written into law without material change.

Here is what foreign companies that receive any form of non-EU public support and are active or considering deals involving the EU need to know, and prepare for.
Continue Reading More scrutiny to come in the EU for companies that receive non-EU subsidies