FDI and National Security Review: The Evolving Global Landscape

Key Takeaways

  • With over 50 foreign direct investment screening regimes now in place across 100+ jurisdictions, the scope of "national security" now extends beyond military interests to include advanced technology, data, and critical supply chains around the world.
  • 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 target companies, and to deploy strategies to manage potential risks.
  • In this report, we examine the latest regulations in place globally as well as how dealmakers can be vigilant, conduct thorough due diligence and mitigate risk in their transactions.
  • 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.  
  • Read our report to understand the latest regulations 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. Moreover, 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.

The new U.S. administration has also renewed the commitment of the United States to an open investment policy that welcomes foreign investment from allied and partner countries with a potential new “fast-track” process while also making clear that the administration intends to expand its authority to restrict both inbound investment from and outbound investment to China and other “foreign adversaries” of the United States.

As previewed, outbound investment screening is here in the United States and expected to expand to the European Union (“EU”) over the years ahead. The United States’ outbound investment review regime became effective on January 2, 2025. In its current form, the U.S. outbound review mechanism reviews and prohibits 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. The U.S. outbound investment regime is expected to expand to impact investments in new national security sectors under the new administration. Although China, Taiwan and South Korea have forms of outbound investment review mechanisms, the U.S. outbound investment review mechanism is the first of its kind to be adopted by a major Western economy and is expected to 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 target companies, 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 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 lawyers are closely monitoring the status of outbound investment reviews and stand ready to assist clients with such reviews once they are implemented.

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