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Lauren Smith

Head of global practices , Lex Mundi

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“General counsel and their in-house teams have a responsibility to understand and deal with the complexities of negotiating deals across an increasingly fragmented system”

Getting to grips with foreign investment restrictions

Getting to grips with foreign investment restrictions


Lauren Smith explains the increasing global divergences and changing regimes in foreign investment restrictions

In today’s ever-changing global market, it is common for cross-border investments and acquisitions to trigger divergent foreign investment restriction screening requirements. However, in the past 18 months alone – encouraged by the pandemic – we have seen a dramatic increase in the approval of either new screening regimes or updates to pre-existing parameters. While some of these changes may decline in the coming months, particularly as restrictions in other areas such as travel are eased, many will remain a permanent feature of the new operating landscape.

At the same time, global mergers and acquisitions (M&A) continue to bounce back from the pandemic. Cross-border acquisitions and investments have surged – global M&A volumes topped $5 trillion at the end of 2021 for the first time, comfortably eclipsing the previous record of $4.55 trillion set in 2007, and is set to maintain its scorching pace this year according to a report in Reuters on data from Dealogic. As for the UK, in quarter 3 2021, outward M&A was valued at £32.8bn – £24.6bn higher than the previous quarter (£8.2bn).

General counsel and their in-house teams have a responsibility to understand and deal with the complexities of negotiating deals across an increasingly fragmented system of different regimes. This is particularly a priority for businesses looking to grow their footprint internationally in order to, crucially, ensure competitiveness in what is still a volatile market.

Guiding foreign investment

At Lex Mundi, we understand it is critically important that in-house legal teams are able to easily comprehend and contrast foreign investment restrictions across multiple markets and jurisdictions at any given moment. To that end, we have worked with Lex Mundi member law firms from across 55 jurisdictions to create a Global Foreign Investment Restrictions Guide. 

This resource gathers information on the sectors that are subject to foreign investment restrictions and explains:

·        What the impact of covid-19 has been on relevant regimes.

·        Relevant thresholds and notifications.

·        The grounds unto which enforcers review and block a foreign investment (and how active have they been in the past six months).

·        What regulatory developments can be expected in the next six months.

The guide has been created in collaboration with over 55 law firms across the world, including Burness Paull LLP (Lex Mundi member firm for Scotland), Nishimura & Asahi (member firm for Japan), Steptoe & Johnson LLP (member firm for Washington, D.C.) and Blake, Cassels & Graydon LLP (member firm for Canada – Ontario, Albert & Quebec) to identify the key themes and emerging trends within this field.

Increasing divergence globally

In the UK, Burness Paull LLP has analysed the implications of the government’s focus on national security via the National Security and Investments Act 2021, which came into force on 4 January 2022.

Despite a tightening of restrictions, the government has made clear that it wants to encourage foreign direct investment into the UK. On 26 October 2021, prime minister Boris Johnson announced 19 new foreign investment deals worth £9.7bn in low-carbon sectors in the UK. General counsel involved in facilitating those deals will need to easily understand how the parameters of the new bill will interplay with existing restrictions in overseas markets. As a dynamic guide, it will be updated regularly through the legislative process.

On the other side of the world, South Africa welcomes foreign investment in all spheres of the economy, both the public and private sectors. Member firm for South Africa, Bowmans, identifies how the South African government has emphasised policies and programs to further encourage foreign investment.

To this end, the Department of Trade, Industry and Competition of South Africa offers a wide range of incentive schemes to encourage the growth of competitive new enterprises and the creation of sustainable industries. The government and National Treasury are also increasingly looking for even more ways to encourage investment into the region and to streamline possible areas which may have caused delays or created a barrier to investment in the past.

A jurisdiction undergoing significant and lasting change is Brazil. Member firm, Demarest Advogados, has provided insight for the guide in relation to rural land reforms – wherein the status of foreign versus domestic companies involved in rural property acquisition is under analysis by the Federal Supreme Court. Such a judicial claim is currently awaiting judgment. If a favourable judgment is granted, Brazilian companies with foreign capital will be able to acquire rural land without restrictions imposed by current laws that regulate the matter, thus simplifying and favoring foreign capital investment in Brazil.

Canada is an important case study too. In response to covid-19 pandemic, member firm Blake, Cassels & Graydon LLP explains how the Canadian government has taken measures to limit the risk of foreign investment into Canada’s economy and national security, including the population’s health and safety.

During the pandemic, the Canadian government issued a temporary policy statement which indicated certain foreign investments would be subject to enhanced scrutiny under the Investment Canada Act. While that guidance was intended as a response to the pandemic, the government subsequently released updated guidelines on the National Security Review of Investments, which incorporated many of the elements of that policy direction. The heightened scrutiny on certain investments in response to the pandemic, therefore, is now entrenched into Canada’s foreign investment regime on an ongoing basis. 


The guide also identifies the attitudes of each region’s agency in reviewing, delaying, modifying or blocking foreign investments. Taking countries in Europe as examples, Uría Menéndez, Lex Mundi member firm for Spain, has revealed that the region is very active in reviewing and authorising investments.

The legal term to issue the authorization is six months – but, in practice, the time required to obtain clearance is usually half this time. To the firm’s knowledge, no foreign direct investment has been blocked to date and very few have been conditioned. On the other hand, member firm for Italy, Chiomenti, notes that, at the end of March 2021, the Presidency of the Council of Ministers vetoed the acquisition by a Chinese purchaser of an Italian company active in the semiconductors business.

In Russia, the grounds on which enforcers review and block a foreign investment are wide-ranging. Member firm for this region, Egorov Puginsky Afanasiev & Partners, explains the list of obligation applicable to foreign investors in Russia is not exhaustive and the government commission is entitled to impose any obligation not listed in the law which is appropriate for ensuring national defense and state security. Alongside these obligations, there is a separate ground under the law that could block foreign investors – any transaction subject to the foreign investments or strategic investments filings closed without clearance is null and void.

Over the past few years, the Federal Antimonopoly Service (FAS) in Russia has initiated high-profile cases challenging M&A transactions on the grounds of violation of the Strategic Investments Law more often. For example, in the case, FAS v banking holding Otkritie, the acquisition of AGD Diamonds by the banking holding Otkritie back in 2017 was challenged under the argument that the latter provided misleading information about its beneficiaries having citizenship of foreign states. This resulted in foreign investors gaining control of AGD Diamonds, deemed a strategic company. 

Ultimately, as global M&A is likely to continue surging, for quite some time it is likely that foreign investment overseas will continue to remain high on the list of challenges for general counsel and their teams.

Lauren Smith is head of global practices at Lex Mundi, a global network of independent law firms