The regulation of foreign direct investment (FDI) is gaining more significance in the field of investor regulations. While FDI restrictions are on the rise globally, the extent and characteristics of these regulations differ greatly across jurisdictions. In the following sections, we will outline the key elements of FDI regulation in the United States (US), the United Kingdom (UK), France, and Germany.
TYPES OF TRANSACTIONS SUBJECT TO REVIEW
- The Committee on Foreign Investment in the United States (CFIUS) has the authority to review:
- “Covered Transactions,” which encompass any transaction that could grant control of a US business to a foreign entity, or certain transactions that grant specific “triggering rights” to a foreign entity in a US business.
- “Covered Real Estate Transactions,” which involve the acquisition of certain property rights in real estate situated: (i) within or operating as part of specific airports or maritime ports, (ii) within identified government/military installations, (iii) within specified counties/geographic areas, or (iv) within identified military installations located within the territorial sea of the US.
- Parties involved in transactions falling under CFIUS’ jurisdiction, but not subject to mandatory reporting (see below), have the option to voluntarily submit the transaction for review.
- Parties engaged in certain transactions concerning “TID US businesses” (entities involved in critical technology, infrastructure, or sensitive personal data of US citizens) must notify CFIUS before completing the transaction. Unless specific exceptions apply, mandatory filing with CFIUS applies to (i) investments in a US business that engages in producing, designing, testing, manufacturing, or developing critical technologies requiring an export license for the foreign entity in question, or (ii) investments resulting in a foreign government obtaining a significant interest in a US business that: (a) produces, designs, tests, manufactures, or develops “critical technologies,” (b) performs specific functions related to “covered investment critical infrastructure,” or (c) maintains or collects certain categories of sensitive personal data of US citizens.
- Even if a transaction involves the acquisition of rights in a US business solely for the purpose of holding real estate, it may still fall under CFIUS’ general jurisdiction.
- The National Security and Investment Act 2021 (NSIA) regime possesses broad jurisdiction, including minority acquisitions of non-UK targets when the target conducts activities in the UK or supplies goods or services to individuals in the UK. The regime is neutral towards the acquirer’s nationality and applies equally to acquisitions by UK entities.
- The regime empowers the Secretary of State, currently the Chancellor of the Duchy of Lancaster (CDL), to either prohibit transactions outright or clear them subject to conditions.
- The regime mandates the notification of certain transactions involving entities operating in any of the 17 “sensitive areas” of the economy. Among these areas, the following are particularly relevant to real estate clients: (i) transportation, (ii) civil nuclear/energy, (iii) data infrastructure/communications, and (iv) critical suppliers to the Government (including sites with Government tenants where the landlord or manager holds UK security clearance). The mandatory regime does not cover asset acquisitions.
- The NSIA also grants the Secretary of State/CDL the authority to “call in” for review of any transactions that may raise concerns about national security, even those outside the mandatory notification regime. This includes acquisitions of shares, assets, land, and properties, although the government anticipates rare interventions in asset acquisitions (which has been true so far). The risk of a “call in” for land or property acquisitions is higher if the site is deemed sensitive or is in proximity to sensitive locations such as critical national infrastructure, military sites, or other government buildings. Transactions not subject to mandatory notification can be called in for review up to 5 years after completion.
- Although acquirers are not obliged to inform the UK government about transactions exempt from mandatory notification, they may choose to voluntarily notify a transaction for clearance if there is a potential risk of a “call in.”