Foreign direct investment policies around the globe continue to adjust to the changing geo-political environment. In particular, the US and the European Union as well as certain Member States are in the process of revising their investment screening regimes, including the introduction of new tools such as outbound investment screening and the European Foreign Subsidies Regulation. Generally, the focus of these policy adjustments is on Chinese investments.

Continue Reading The evaluation of the German FDI Regime – Cornerstones of potential revisions revealed

Investments in Luxembourg entities closed after September 1, 2023—including those signed beforehand—will need to factor in potential FDI filings in the Grand Duchy.  The Luxembourg FDI law establishes a mandatory screening system for non-EEA investments made on a lasting basis in legal entities incorporated in Luxembourg and carrying out critical activities.  Luxembourg follows in the footsteps of its Benelux counterparts that introduced new FDI regimes in the past two months.[1]

Continue Reading Benelux FDI: Luxembourg FDI Screening Regime Enters Into Force

On August 9, 2023, the Biden Administration issued the long-awaited Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern (the “EO”) and accompanying Advance Notice of Proposed Rulemaking (the “ANPRM”) setting forth the proposed contours of an outbound investment regime targeting China.[1]  Under the proposed regime, U.S. persons would be prohibited from making, or required to notify the U.S. government regarding, certain investments in entities engaged in certain activities relating to semiconductors and microelectronics, quantum information technologies, and artificial intelligence (“AI”) in “countries of concern” (presently limited to China, Hong Kong, and Macau).  The United States currently has the authority to review inbound foreign investment through the Committee on Foreign Investment in the United States (“CFIUS”).

Continue Reading U.S. Government Unveils Proposal for Outbound Investment Regime Targeting China

Russian legislative and executive branches have passed new acts further restricting the rights of foreign shareholders of Russian businesses.

First, on July 24, 2023 it was announced that President Putin continued to work on the draft of the Decree that would provide the state with the preemptive right to acquire Russian assets of foreign companies exiting Russia.  The draft Decree has not been published yet, but it is understood that the preemptive rights will apply only to (i) the strategic companies specifically listed by the Russian Government, and (ii) the joint stock companies in which the state is also a shareholder.  This would be the next step that allows for the nationalization of the businesses of exiting foreign investors.

Continue Reading Suspension of Rights of Foreign Shareholders and Grant of Pre-emptive Rights to the State to Acquire Russian Assets of Foreign Companies Exiting Russia

The Committee on Foreign Investment in the United States (CFIUS) recently published its 2022 Annual Report, which provides information regarding transactions reviewed by CFIUS in 2022.[1]  Key takeaways from the 2022 Annual Report are below.

Continue Reading CFIUS Releases 2022 Annual Report – Key Takeaways

On July 26, 2023, the U.S. Department of Justice’s National Security Division, the U.S. Department of Commerce’s Bureau of Industry and Security, and the U.S. Department of the Treasury’s Office of Foreign Assets Control jointly issued a compliance note summarizing voluntary self-disclosure policies applicable to U.S. sanctions, export controls, and other national security laws.

The note underscores the U.S. government’s focus on investigating and prosecuting violations of sanctions and export controls laws. While based largely on existing guidance and authorities, the note highlights the role of private-industry “gatekeepers” in sanctions and export control compliance, and U.S. authorities’ increasing emphasis on disclosures in conjunction with potential enforcement.

Please click here to read the full alert memorandum.

More than halfway through 2023, there is no easing in sight on the FDI front.

  • The game-changing EU Foreign Subsidies Regulation took effect. The first legislation of its kind ever entered into by a trading bloc.
  • FDI regimes in two key EU jurisdiction, The Netherlands and Belgium, have come into force, introducing far reaching screening mechanisms.
  • At the same time, the ECJ renders a decision that has the potential to counteract overly extensive FDI review practices of EU Member States.
  • Current practice trends and policy developments in the EU and on national level foreshadow tighter scrutiny of foreign direct investments in Europe.
Continue Reading Cleary Gottlieb FDI Newsletter: May–July 2023

On May 9, 2023, we wrote about Decree of the President of Russia No. 302 that created a framework for nationalization of Russian assets belonging to persons from “unfriendly” states (the “Decree”). At that time the only assets to which nationalization applied were the shares in strategic energy companies Unipro, controlled by the Government of Germany, and Fortum, controlled by the Government of Finland.  Media reported this was retaliation by Russia against the steps by Finland and Germany relating to seizure of specific Russian assets abroad.

On Sunday evening of July 16, 2023, President Putin signed Decree No. 520 extending the list of entities to which the Decree applies and effectively imposing temporary administration by the Russian Property Agency over:

  • 100% of shares in Danone Russia JSC, 99.99% of which are currently held by Produits Laitiers Frais Est Europe (France) and 0.01% – by Danone Trade LLC (a wholly owned Russian subsidiary of Danone Russia JSC);
  • 100% of participatory interests in Brewing Company Baltika LLC, 98.56% of which are currently held by Carlsberg Sverige Aktiebolag (Sweden), 1.35% by Hoppy Union LLC (wholly owned Russian subsidiary of Carlsberg Sverige Aktiebolag) and 0.09% by Carlsberg Deutschland GmbH (Germany).

Both groups have major operations in Russia.  Danone was the second largest dairy processor in Russia with sales of RUB 85.1 billion (~USD 940 million) and a 5.2% market share in processed milk and a 76% market share in drinkable yogurts in 2021, and Baltika was the second largest brewer in Russia with sales of RUB 82.6 (~USD 910 million) and a 27.3% market share in 2021.

Both groups announced their plans to exit Russia and suspended new investment in Russia in 2022. Moreover, Carlsberg Group reportedly signed an agreement to sell its stake in Brewing Company Baltika LLC subject to an approval from the Russian Governmental Commission for Control over Foreign Investments. It is not clear whether such exit plans may proceed now and on what terms after the government has taken over the management of the Russian entities.

Other assets of, and equity interests in, foreign businesses from unfriendly states may be added to the list, especially if such foreign businesses have announced plans to exit Russia and if the foreign shareholders’ instructions are disruptive to the Russian economy.  The industries that are most often mentioned by commentators as potential targets of nationalization include oil and gas, chemical industry, machine building, infrastructure, telecom, banking and food.  A number of foreign players in such industries were able to exit in 2022 and beginning of 2023.  

To read more about sanctions imposed by the U.S., UK and EU on Russian persons in connection with the Russia-Ukraine conflict and Russian countersanctions, please visit Sanctions Developments Resulting From the Conflict in Ukraine – Russia. If you have any questions concerning this memorandum, please feel free to contact the authors – Chase D. Kaniecki, Polina Lyadnova, Yulia A. Solomakhina, – or your regular contacts at the firm.

On July 7, 2023, the Governmental Commission for Control over Foreign Investments (the “Governmental Commission”) adopted a new set of conditions for exits by investors from “unfriendly” jurisdictions (those that have imposed sanctions against Russia) (the “Decision”).  The Decision provides substantial updates of the clearance process with respect to the sale of shares and participatory interests in Russian companies by parties from “unfriendly” jurisdictions, as well as the payment of dividends to such foreign parties.

Continue Reading Russian Countermeasures: The Governmental Commission Imposes Additional Conditions on Exits by Investors From Unfriendly Jurisdictions

On 11 July 2023, the UK Government published its second Annual Report on the National Security and Investment Act 2021 (the “Act”).

The Annual Report begins with an introduction by Oliver Dowden MP, the Deputy Prime Minister, who is the formal decision-maker under the Act in his role as the Secretary of State in the Cabinet Office.  This introduction seeks to reassure investors that the Act is a “light-touch, proportionate regime that offers companies and investors the certainty they need to do business, while crucially protecting the UK’s national security in an increasingly volatile world.”

Continue Reading UK National Security Regime: Annual Report 2023 and Observations on Recent Practice