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Navigating National Security Rules In The Global Economy

As the world economy becomes more globalized, the balance between trade policy and national security becomes more complex. While embracing free and open trade tends to yield positive economic impact, countries have a responsibility to balance the national security implications of cross-border investments into their economy.

Building on the example of the Committee on Foreign Investment in the United States (CFIUS), other G7 countries have continued to establish and expand their own foreign investment regulations in the interest of national security. Transactions may increasingly be subject to national security reviews in multiple countries, with concerns ranging from proximity to military bases in real estate deals, to protecting data within high-value consumer segments, to managing the impact of emerging technologies. A roadmap for global transactional management is thus critical for foreign investors to ensure that national security risks are addressed adequately within the deal lifecycle.

The following developments across the G7 in recent years highlight the importance of such planning:

United States of America – Committee on Foreign Investment in the United States (CFIUS)

CFIUS exists at the intersection of US national security and trade policy, with jurisdictional authority to review certain foreign investment transactions known as “covered transactions.” Covered foreign investment transactions refers to any merger, acquisition or takeover which results in foreign control of any person engaged in interstate commerce in the United States.

Signed into law in August of 2018, the Foreign Investment Risk Review Modernization Act (FIRRMA) was a bipartisan effort to update and strengthen CFIUS and address the evolving threat environments under its jurisdiction—including those relevant to protected data, cybersecurity vulnerabilities, dual-use technologies with civil-military fusion, intelligent (information) warfare, real estate and global supply chains.

European Union (EU)

The European Parliament recently voted to establish an EU-level tool to screen foreign direct investment on security grounds to protect strategic sectors. The regulation framework, which just entered into force on April 10, places an emphasis on foreign state-backed acquisitions of key European infrastructure and technology sectors, specifically related to energy, transportation, communications, data, finance and critical technology arenas such as semiconductors, artificial intelligence, robotics and biotechnology. The practical impact of the reviews within the EU is considered largely procedural, as the enforcement rights in relation to the screening of any FDI remains the sole responsibility of the Member States conducting the review.

United Kingdom

Notably, the United Kingdom adopted changes to its foreign investment law in 2018 and has proposed broader modifications similar to the updated CFIUS legislation in the United States, designed to address the evolving risks to national security that previously were not addressed. Initial changes modified the Enterprise Act of 2002, specifically addressing dual-use goods, computing hardware and quantum technology. The further proposed changes will expand the authority of the Competition & Markets Authority (CMA) to address a broader range of transactions that may pose a risk to national security.


Covered investments under French foreign investment law require authorization by the French Minister of the Economy and Finance, and focus on information, resources and activities considered sensitive to French national defense or security. On April 11, 2019, the French government reformed its foreign investment rules as part of the Action Plan for Business Growth and Transformation (PACTE) Law.

The new law provides the French government with broader authority to review covered investments and bolsters its enforcement powers. Sector focuses include: the storage of sensitive or protected data, cybersecurity, artificial intelligence, semiconductors, dual-use technologies, additive manufacturing and computer systems engineering.


In December 2018, the German Foreign Trade and Payments Ordinance was updated to reduce the review threshold (the level of foreign investment that triggers a national security review) for foreign investments in the critical infrastructure industries of energy, telecommunications, finance, insurance, IT security and defense. The review threshold for these industries is now 10% of the company’s voting rights, while other industries remain at 25%.


The Investment Canada Act (ICA), provides for the formal review of significant investments in Canada by non-Canadians in a manner which addresses potential national security concerns. The ICA is administered through the Investment Review Division (IRD) of the Ministry of Innovation, Science and Economic Development (ISED). The national security review evaluates factors that focus on critical infrastructure, technology, defense and value chains.

Preparing for continuous change

The necessity for countries to protect their sovereign infrastructure and assets from the new and evolving threats posed by foreign investment, in conjunction with dynamic trade policies and geopolitics, will continue to increase investment scrutiny and worldwide security reform. Savvy global investors will be well-versed in these ongoing shifts and the respective risks and opportunities they create, keeping an eye on CFIUS and the other foreign investment regulations that continue to develop.
Source: Control Risks

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