FOREIGN INVESTMENT REVIEWS - THE ORRICK GUIDE TO
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THE ORRICK
GUIDE TO
FOREIGN
INVESTMENT
REVIEWS
The Orrick Guide to Foreign Investment Reviews 1
Copyright: Orrick, Herrington & Sutcliffe LLP, 2020. All rights reserved. The Orrick logo and “Orrick, Herrington & Sutcliffe LLP” are trademarks of Orrick, Herrington & Sutcliffe LLP. Version: December 2020 Disclaimer: This publication is for general informational purposes only without consideration to specific facts and circumstances of individual cases and does not purport to be comprehensive. It is not intended as a substitute for the advice of competent legal, tax or other advisers in connection with any particular matter or issue and should not be used as such substitute. This publication does not constitute, either expressly or tacitly, an offer or the acceptance of an offer to conclude an information or consultancy contract. Opinions, interpretations and predictions expressed in this publication are the authors’ own and do not necessarily represent the views of Orrick, Herrington & Sutcliffe LLP. While the authors have made efforts to be accurate in their statements contained in this publication, neither they nor Orrick, Herrington & Sutcliffe LLP or anyone connected to them make any representation or warranty or can be held liable in this regard. Attorney Advertising. 2 The Orrick Guide to Foreign Investment Reviews
TABLE OF
CONTENTS
Introduction.................................................................................... 5
China..............................................................................................8
European Union............................................................................ 18
France.......................................................................................... 22
Germany...................................................................................... 32
Italy..............................................................................................40
Japan............................................................................................ 50
United Kingdom............................................................................60
United States................................................................................68
The Orrick Guide to Foreign Investment Reviews 3
4 The Orrick Guide to Foreign Investment Reviews
INTRODUCTION
Welcome to the Orrick Guide to
Foreign Investment Reviews.
This guide answers frequently
asked questions regarding
investment control regimes in
various jurisdictions. It has been
prepared by the experts in our
offices worldwide. Their contact
details are included at the end of
each country section.
The regulatory landscape for foreign investments
is continuously changing across all jurisdictions
covered by this guide. A major contributor to this
trend are concerns about investments by state-
owned or state-controlled foreign players and the
possibly adverse effects that such investments
may have for national security or national interests.
A number of countries have, therefore,
introduced new measures to review investments
by non-nationals or strengthened their existing
measures. The next pages include a summary of
recent developments.
This guide reflects the laws and practice as of
December 2020. This guide is for reference only,
and it should not be considered a substitute for
legal advice.
The Orrick Guide to Foreign Investment Reviews 5
FRANCE:
Various amendments to the French foreign investment UNITED KINGDOM:
control regime have recently been adopted (Decree
In November 2020, the UK Government introduced
n°2018-1057, Loi Pacte (Law n°2019-486), Decree n°2019-
the National Security and Investment Bill, which, once
1590 and the related Orders). The latest durable changes
implemented, will remove national security from the
apply since 1 April 2020, but additional temporary
scope of UK merger control and introduce mandatory
measures were introduced by a Decree dated 22 July
notifications for transactions involving entities in certain
2020 applying to a certain type of foreign investments
specified sectors and voluntary notifications for other
from 7 August 2020 to 31 December 2020. The list of
transactions involving entities or assets that may raise
strategic sectors, which had already been extended
national security concerns. The legislation is expected to
significantly in the last few years with a number of
come into force in Spring 2021, with retrospective effect
recent technology-related activities, now also include
from November 2020.
infrastructure, products and services that are vital to
guarantee the protection of public health, food safety and
the free press. Several activities have been qualified as
“critical technologies” and are, hence, subject to foreign
investment control regime. These critical technologies
are: cybersecurity, artificial intelligence, robotics, additive
manufacturing, semiconductors, quantum technologies,
energy storage and biotechnologies. The threshold for
screening of non-controlling minority shareholdings was
lowered to 25% of the target’s voting rights when at least
one of the members of the investor’s “chain of control”
is non-EU/EEA (see question 4 below), it being specified
that this threshold is temporarily lowered to 10% of the
target’s voting rights for listed companies only. Equity
links to and financial support by foreign states or public
bodies now have to be specifically declared by investors
and may be taken into account for the substantive
assessment. The procedure becomes faster, with
amendments aiming at ensuring compliance with the
EU foreign direct investments regulation (Regulation
(EU) 2019/452 of 19 March 2019) even though the list of
information and documents that are legally requested for
the filing have been significantly increased.
UNITED STATES:
In November 2018, the U.S. introduced, for the first
time, a filing obligation for certain types of foreign
investment transactions involving critical technology.
Moreover, certain types of transactions now fall within ITALY:
CFIUS’s jurisdiction even if they could not result in
In 2017 and 2019, Italy’s foreign investment regulation
control by a foreign person over a U.S. business.
was strengthened. The government’s powers to review
More generally, concerns about Chinese and Russian
foreign investments were extended to certain key
investment in the United States have become more
sectors, namely: critical infrastructures
pronounced, and there is a perception that CFIUS tends
(e.g., data collection, management systems, financial
to be more aggressive today in finding national security
infrastructures) and critical technology (e.g., 5G, artificial
concerns and impeding foreign investment.
intelligence, robotics, semiconductors, dual-use
technology, cybersecurity). Although the government
enjoys a high degree of (technical and political)
discretion when it makes use of its power to intervene
against a particular foreign investment, it shall still
apply objective, proportionate and non-discriminatory
criteria, and its decisions may be reviewed by the
administrative courts.
6 The Orrick Guide to Foreign Investment Reviews
EUROPEAN UNION:
In March 2019, Regulation (EU) 2019/452 was adopted,
which establishes a framework for the screening of
foreign direct investments into the EU. The Regulation
provides a mechanism for EU-wide cooperation and
information sharing to allow the EU member states to
make informed decisions taking into account all relevant
risks and protect pan-European interests.
This new screening mechanism is fully operational since
11 October 2020.
CHINA:
China’s new Foreign Investment Law and its
Implementation Rules became effective on January
1, 2020, which replaced the previous laws regulating
foreign investments. The new law provides a unified
framework for foreign investment, reemphasizes the
national treatment plus negative list approach, and
focuses on the protection of intellectual properties.
The Foreign Investment Information Reporting System
replaced the previous MOFCOM approval and filing
procedures for foreign-invested enterprises. The latest
Negative List for Foreign Investment was updated and
will become effective on July 23, 2020, which further
opens the Chinese market for foreign investors.
JAPAN:
On June 7, 2020, the amended ordinances prepared by
the Japanese government to implement amendments
to the Foreign Exchange and Foreign Trade Act (the
“FEFTA”) were fully implemented, after coming into
GERMANY: effect on May 8, 2020. The amendments to FEFTA were
passed by the Japanese legislature in November 2019.
The German rules on foreign investment were Those amendments expanded the industries covered
strengthened several times in the last couple of by the prior notification requirement, and broaden the
years. Whereas the amendments of 2017 and 2018 covered foreign investment-related activities.
introduced additional filing obligations and lowered the
thresholds for reviews in certain strategic sectors, recent
amendments in 2019 and 2020 will lead to a significant
impact of German foreign direct investment filings on
transactions involving German businesses. This will, in
particular, lead to more transactions being suspended
until the Ministry’s review is completed. Recently, the
Ministry has not only been focusing on the health
sector due to Covid-19 pandemic but the Ministry’s
practical approach shows that it will make use of its wide
discretion when reviewing transactions.
The Orrick Guide to Foreign Investment Reviews 7
CHINA
RELEVANT LAWS AND AUTHORITIES
1
What are the main laws regulating
foreign investments?
The main laws regulating foreign investments
currently in effect include the Foreign Investment
Law adopted by the People’s Congress on
March 15, 2019 and its Implementation Rules
issued by the State Council on December 26,
2019. The Foreign Investment Law and its
Implementation Rules have become effective on
January 1, 2020.
The new law replaced the previous laws regulating
foreign investments, i.e. Wholly Foreign-Owned
Enterprise Law, the Sino-Foreign Equity Joint
Venture Enterprise Law, and the Sino-Foreign
Cooperative Joint Venture Enterprise Law (“Old
Foreign Investment Laws”) and the regulations
and rules promulgated thereunder while the new
law offers a five-year transition period within which
the existing foreign-invested enterprises (“FIEs”)
may maintain their organizational forms under the
Old Foreign Investment Laws.
2
Which authorities are charged with
applying those laws?
The Ministry of Commerce (“MOFCOM”) and the
National Development and Reform Commission
(“NDRC”) and their local branches are the main
authorities applying the laws relating to foreign
8 The Orrick Guide to Foreign Investment Reviews investment.
3 (i) FIE Information Reporting
What other legislation is relevant The new Foreign Investment Law reemphasizes
for foreign investments? the national treatment plus “negative list”
approach for access of foreign investment to China
Other important legislations relevant for foreign and the Information Reporting Measures provide a
investments include but are not limited to: streamlined filing system for FIEs based on China’s
existing company registration system, which
• Measures for Foreign Investment Information replaced the previous MOFCOM approval and filing
Reporting, effective on January 1, 2020 procedures. Under the new regime. Specifically:
(“Information Reporting Measures”);
• Foreign investors or FIEs shall file foreign
• Special Administrative Measures (Negative List) investment information through the
for the Access of Foreign Investment, effective online company registration system when
on July 23, 2020 (“Negative List”); completing company registration with the local
administration for market regulation (“AMR”).
• Notice of the State Council on Establishing The AMR will share the same information with
the Security Review System for Mergers and MOFCOM.
Acquisitions of Domestic Enterprises by
Foreign Investors, effective on February 3, 2011 • The AMR and MOFCOM will determine if the
(“Security Review Notice”); foreign investment complies with the Negative
List which sets forth areas where foreign
• Provisions of the Ministry of Commerce on the investments are either prohibited or restricted.
Implementation of the Security Review System The restrictions may include limitations on the
for Mergers and Acquisitions of Domestic percentage of the foreign shareholding or a
Enterprises by Foreign Investors, effective on prohibition of foreign-invested partnerships.
March 5, 2011 (“Security Review Provisions”); The company registration application will be
rejected if noncompliance is found.
• Administrative Measures for Approval and
Filing of Foreign-Funded Projects, effective on The foreign investment may be separately subject
December 27, 2014 (“Projects Measures”); to Security Review and/or Project Review as
described below if applicable.
• Catalogue of Investment Projects Subject
to Government Verification and Approval, (ii) Security Review
effective on December 12, 2016 (“Projects
Catalogue”); The following transactions are subject to foreign
investment security review by MOFCOM:
• Catalogue of Industries for Encouraging Foreign
Investment (2019 Revision), effective on July • Foreign investors’ acquisition of military
30, 2019 (“Encouraging Catalogue”). industrial enterprises or related supporting
enterprises, enterprises located near key and
sensitive military facilities, and other entities
TRANSACTIONS SUBJECT TO REVIEW relating to national defense; and
4 • Foreign investors’ acquisition of “key domestic
enterprises” in areas such as agriculture,
Which types of transactions are caught? energy and natural resources, infrastructure,
transport, technology, equipment
The Foreign Investment Law and the related laws manufacturing, etc., whereby the foreign
do not put in place a unified review requirement investors might acquire control thereof.
for all types of foreign investments; rather, the However, the thresholds for “key domestic
following approvals or filings may be required in enterprises” are not clearly defined in the law.
different scenarios:
The Orrick Guide to Foreign Investment Reviews 9
(iii) Project Review
7
Foreign investors’ investment in and construction Are there sector-specific rules?
of fixed-asset investment projects (i.e., greenfield
foreign investments involving fixed-asset projects) Yes.
that fall into the scope of the Projects Catalogue
shall be subject to approval from NDRC or its • Encouraging Catalogue. This catalogue
competent local branches. contains sectors where foreign investments are
encouraged.
Other foreign-invested fixed-asset projects shall be
pending on the completion of filing with NDRC’s • Negative List. Foreign investments in the
competent local branches. listed sectors are either prohibited or restricted
and subject to approval (the restrictions may
5 include limitations on the percentage of the
foreign shareholding or a prohibition of foreign-
How are foreign investors or foreign investments invested partnerships).
defined by the applicable legislation?
• Projects Catalogue. Foreign investments
As defined in the Foreign Investment Law, “foreign in projects that fall into the scope of the
investment” means investment carried out directly catalogue are subject to NDRC approval;
or indirectly by foreign natural persons, foreign other foreign-invested fixed-asset projects are
enterprises or other foreign organizations into subject to NDRC filing.
China, including the following circumstances:
• Foreign investors, independently or jointly with 8
other investors, set up FIEs in China; Is there any kind of de minimis threshold?
• Foreign investors obtain shares, equities, Under the Security Review Notice, one of the
property shares, or other similar rights and conditions for Security Review is that the foreign
interests of Chinese domestic enterprises; investor may obtain the controlling power of the
target after the acquisition.
• Foreign investors, independently or jointly with
other investors, invest in new construction
projects in China; and 9
Are there special rules for investments by foreign
• Investment through other means stipulated in state-owned enterprises or sovereign wealth
laws, administrative regulations, or provisions funds?
of the State Council.
No.
6
Are minority interests caught? 10
Can comfort letters be obtained from the
Yes. The Foreign Investment Law applies to all authorities confirming that a transaction is not
types of foreign investments regardless of the subject to review?
foreign investors’ shareholding.
No. However, under the Security Review
However, under the Security Review Notice, one Provisions, before filing a formal application
of the conditions for Security Review is that the for security review, an applicant may request a
foreign investor may obtain the controlling power consultation with MOFCOM on the procedural
of the target after the acquisition. issues concerning its acquisition of a domestic
enterprise. The consultation is not a prerequisite
for submitting the formal application, and the
consultation result is not binding.
10 The Orrick Guide to Foreign Investment ReviewsPROCEDURE
13
11 Which party is responsible for making the
notification?
Is a filing required (mandatory) or possible
(voluntary)? • FIE Information Reporting. The foreign
investors or the FIE should be responsible for
When applicable, filing is mandatory. making the filing.
12 • Security Review. Foreign investors should be
responsible for making the filing.
At what point in time should or must a filing be
made (before or after signing or closing of the • Project Review. All parties are equally
transaction)? Is there a mandatory deadline? responsible though, in practice, usually the
Chinese party mainly takes charge of the
(i) FIE Information Reporting filing because of its relationship with the local
government.
• The company registration with the local AMR
(and FIE Information Reporting at the same
time) should be conducted when a new FIE 14
is incorporated (for greenfield investment) Which information is required for the filing?
or within 20 business days after the relevant
resolution of the domestic company that is to (i) FIE Information Reporting
be invested by a foreign investor (for M&A).
The following documents are required for AMR
• Considering that the transaction documents registration and FIE Information Reporting:
need to be provided for AMR registration, the
applications should be made after signing. In • Application form;
general, the application could be submitted
• Articles of Association of the FIE;
after closing, but it would be more advisable
to consult the authorities in advance if the • Power of attorneys (where applicable);
invested sectors fall under the Negative List.
• Identification or registration certificates of all
(ii) Security Review investors;
Where security review is applicable, the filing • Identity documents of the FIE’s legal
should be made after signing and the parties representative, directors, supervisors and
should not proceed to closing until the review is manager and the relevant appointment letters
completed. (if involving change of such personnel);
(iii) Project Review • Lease and property ownership certificate for
the registered office;
Where project review is applicable, the parties
should obtain approval from or complete filing with • Shareholder and board resolutions;
(as the case may be) NDRC or its competent local
branch before starting construction of the project. • Ownership structure chart of FIE’s ultimate
actual controller (if involving change of
control);
• Where the business scope applied by the FIE
requires approval from competent authorities
regulating the relevant sectors before AMR
registration, such approval should be provided.
The Orrick Guide to Foreign Investment Reviews 11(ii) Security Review (iii) Project Review
Following documents should be submitted when Where approval is applicable:
filing a formal application with MOFCOM for
security review: • Project Application Report that covers status
of the project and its investors; analysis
• Written application for security review and a on resources utilization and ecological
statement describing the M&A transaction; environmental impact; analysis on economic
and social impact; and M&A arrangements
• The foreign investor’s identification or (where applicable) etc.;
registration certificate and credit certificate,
which have been legally notarized or • Registration certificates of all the investors,
certified; authorization letter issued by the their latest audited financial statements, and
foreign investor and the authorized person’s credit certificates;
identification document;
• Investment proposals and board resolutions on
• A statement on the information pertaining capital increase or M&A;
to the foreign investor and its associated
enterprises, and a statement on its relationship • Opinions issued by the competent planning
with the government of relevant country; and land authorities (where applicable);
• A statement on information about the • Approval of environmental impact assessment
target, its articles of association, business issued by the competent authorities of
license, audited financial statement for the environmental protection;
previous year, organizational structure charts
prior to and after the M&A, and a statement • Opinions issued by the competent energy
on enterprises invested by the target and conservation review authorities;
photocopies of their business licenses;
• Other documents required by applicable laws
• Articles of association, joint venture contract, and regulations.
or partnership agreement of the FIE to be
established after the M&A, and the name list of Where filing is applicable, basic information on
the board of directors and senior executives; the project and investors, registration certificates
of all the investors, investment proposals, and
• For equity deal, equity transfer, or subscription board resolutions on capital increase or M&A are
agreement, shareholders’ resolutions and asset required.
evaluation report;
• For asset deal, resolution of the domestic
15
seller, assets purchase agreement, statement Are there any filing fees?
on the information of each party, and asset
evaluation report; There are no filing fees.
• A statement on the impact of the foreign
investor’s voting rights after the M&A on the
16
target and other situations that may result in Must the parties suspend the transaction until
the foreign investor acquiring control over the the review is completed?
target’s business decision-making, financial
(i) FIE Information Reporting
matters, human resources, technologies, etc.,
and the relevant documents relevant; and • The parties generally do not need to suspend
the transaction unless a national security issue
• Other documents required by MOFCOM.
arises, in which case the filing authority will
inform the investors to submit a security review
application to MOFCOM and suspend the filing
procedure.
12 The Orrick Guide to Foreign Investment Reviews• If the invested sectors fall under the Negative (ii) Security Review
List, it is advisable to consult the authorities
beforehand. Where the foreign investor fails to notify while the
relevant departments under the State Council,
(ii) Security Review national industrial associations, or enterprises
in the same or related industry believe security
The parties shall not proceed with the transaction review is necessary, they may make proposals to
until it is cleared by MOFCOM or deemed to be MOFCOM on conducting the review. MOFCOM
cleared because MOFCOM has not sent a notice to may initiate the review based on such proposals
the applicant within 15 business days (“BDs”) after or if it identifies national security concern from FIE
accepting the application. Information Reporting procedure. MOFCOM has
the power to suspend or unwind transactions that
(iii) Project Review have an impact on national security, though we
have not seen such reported cases.
The parties shall not proceed the project until
approval is obtained or filing is completed. (iii) Project Review
17 NDRC or its competent local branches shall order
the construction of the project to be suspended
Are there fines or other sanctions for failure if such project fails to receive approval or be filed
to notify or for closing the transaction without with the competent authority.
prior approval? If so, are there examples of such
18
sanctions imposed in the past?
(i) FIE Information Reporting Do the authorities have powers to review and
challenge transactions that are not subject to a
• Where an FIE or its investors fail to make the
mandatory review?
necessary filing on time or provide materially
incomplete filing materials, they shall be As mentioned in the response to question 17
ordered to make correction or provide the above, MOFCOM may initiate security review on its
missing information/documents; if they fail own initiative or other parties’ proposals.
to do so by the prescribed deadline or if there
19
are serious circumstances, a fine up to RMB
300,000 shall be imposed thereon.
What is the timeline of the review process? Are
• Where an FIE or its investors intentionally or fast-track options available?
repeatedly fail to make necessary filing or
provide incorrect or misleading information or There are no fast-track options.
fake documents, they shall be ordered to make
corrections and a fine up to RMB 500,000 shall (i) FIE Information Reporting
be imposed thereon.
• The local branch of MOFCOM may notify the
• For foreign investment in restricted sectors foreign investor or FIE to report supplementary
while the restrictions are not complied with information or make corrections where it finds
or foreign investment in prohibited sectors, in omissions or mistakes in the report within
addition to the above sanctions, MOFCOM or 20 BDs.
its local branches shall also have the power to
unwind the transaction though we have not
seen such reported cases.
The Orrick Guide to Foreign Investment Reviews 13(ii) Security Review SECURITY REVIEW FLOW CHART
See the Security Review Flow Chart.
(iii) Project Review
• Where approval is applicable, the authority
should complete the review within 20 BDs,
which could be extended for another
10 BDs. But the time required for necessary
consultation, assessment, and expert
deliberation should be excluded from the time
limit above.
• Where filing is applicable, the authority should
complete the review within seven BDs.
20
Do other authorities or government bodies
participate in the review process? How does
process relate to other types of review, e.g.,
merger control by the competition authorities?
Information exchange between and joint
enforcement by different government bodies
are increasingly common due to the support of
big data. For example, the antitrust bureau may
forward a case for security review if it finds a
national security issue and vice versa.
21
To what extent are the parties involved in the
review? Do the authorities expect pre-filing
communication?
The authorities for FIE Information Reporting
and project review do not expect pre-filing
communication; however, they are generally open
22
Are third parties (complainants) involved in the
to pre-filing discussions.
review? What rights and/or standing do they
The Security Review Provisions offer a pre-filing have?
consultation procedure, but it is not a prerequisite
Third parties (complainants) are not involved in
procedure before submitting the formal
the review. However, any persons or organizations
application, and the consultation result has no
could report to the competent authorities any
binding power and shall not serve as the basis for
unlawful behaviors of FIEs or their investors.
the formal application.
For a foreign investor’s acquisition of a domestic
enterprise, if relevant departments under the
State Council, national industrial associations, or
enterprises in the same or related industry believe
security review is necessary, they may make
proposals to MOFCOM on conducting the review.
14 The Orrick Guide to Foreign Investment Reviews23 (ii) Security Review
Are there safeguards in place to protect Whether a foreign investor’s M&A of a domestic
confidential information of the parties? enterprise should be subject to security review
shall be determined by the substance and actual
(i) FIE Information Reporting influence of the transaction. No foreign investor
can substantially circumvent the review through
• MOFCOM may share with the AMR and structuring mechanisms, including trust, multi-
departments in charge of foreign exchange, level reinvestment, leasing, loans, variable interest
customs, taxation, etc. on relevant information entities, or offshore structure, etc.
of foreign investors and FIEs. Such information
so shared shall not contain trade secrets of During the review, MOFCOM shall consider impact
FIEs or their investors, and the authorities shall of the transaction on national security, stable
not disclose any information involving state operation of national economy, the basic societal
secrets, trade secrets or personal privacy. order and people’s living conditions; and R&D
capacity for key technologies concerning national
(ii) Security Review security.
• The authorities, relevant entities, and (iii) Project Review
personnel participating in the security review
shall keep confidential the state secrets, trade A foreign-invested project that is subject to
secrets, and other confidential information approval shall be approved if it satisfies all of the
involved in the review. following conditions. The filing of such a project
will be accepted by the NDRC or its local branches
(iii) Project Review if it satisfies the first two criteria:
• The law does not specify safeguards to protect • In compliance with the Encouraging Catalogue,
confidential information. the Catalogue of Priority Industries for Foreign
Investment in Central and Western China, and
other relevant laws and regulations;
SUBSTANTIVE ASSESSMENT
• In compliance with development planning,
24 industry policies, and industry entry standards;
What are the criteria for an intervention? How • Rational development and effective utilization
much discretion do the relevant authorities have of resources;
in applying those criteria?
• No effect on national security and ecological
(i) FIE Information Reporting security;
The local MOFCOM branches generally only • No material negative impact on public interest;
conduct formality review provided the information and
is true, accurate, and complete and the transaction
does not involve restricted or prohibited sectors or • In compliance with relevant China’s foreign
national security issues. exchange control requirements.
For foreign investment in restricted sectors, the
authority will review if the proposed transaction 25
conforms to the restrictions and the relevant prior Does the nationality of the investor play a role?
approvals (if required) have been obtained.
The laws do not explicitly address this issue;
however, investors from countries that are in
tension with China might be prejudiced especially
in security review.
The Orrick Guide to Foreign Investment Reviews 1526 28
What powers do the authorities have to prohibit Can remedies be offered by the parties? Are
or otherwise interfere with a transaction? remedies suggested by the authorities?
(i) FIE Information Reporting (i) FIE Information Reporting
• For foreign investment in restricted sectors • If FIEs or their investors violate the obligations
while the restrictions are not complied with under the Information Reporting Measures,
or foreign investment in prohibited sectors, they are obliged to make correction; if not, they
MOFCOM or its local branches have the power would be imposed a penalty as mentioned in
to unwind the transaction. the response to question 17.
(ii) Security Review (ii) Security Review
• Where a transaction is likely to have an • During the security review, the applicant may
impact on national security and has not been apply for modification of the transaction plan or
implemented yet, the parties shall suspend cancellation of the transaction.
the transaction. The applicant shall not submit
another application or proceed with such • To mitigate the possible impact of a proposed
transaction before appropriately restructuring transaction on national security, parties should
the transaction and modifying the application adjust and refile the transaction for approval.
documents;
• To mitigate the actual or possible impact of a
• Where a closed deal has already caused, or closed deal on national security, parties should
is likely to cause, serious impact on national sell the relevant equities or assets or take other
security, MOFCOM shall order the transaction effective measures.
to be unwound or notify the parties to spin off
the relevant equity shareholding or assets or (iii) Project Review
to adopt other effective measures to eliminate
• The law does not provide for any remedies.
the influence of the transaction on national
security.
(iii) Project Review
29
Can a negative decision be appealed?
• NDRC or its competent local branches shall
order the construction of the project to be Yes, a negative decision may be appealed through
suspended if such project fails to receive administrative review or administrative litigation.
approval or be filed with the competent
authority.
27
Do the authorities cooperate or consult with
authorities in other countries?
No cooperation or consultation is provided for
by the law, but it is reported that China and the
U.S. committed to exchanging views on issues
regarding their respective national security review
in the future.1 Such exchange of information or
views may also exist between China and other
countries.
1
https://china.usembassy-china.org.cn/pr-09262015/.
16 The Orrick Guide to Foreign Investment ReviewsEXAMPLES AND TRENDS THE AUTHOR
30
Are there any recent cases that reflect how the
relevant laws and policies are applied?
In recent years China gradually reduced restrictions
on foreign investment, and policies are more
appealing to foreign investors.
Jinsong (Jeff) Zhang
The latest Negative List has been further Beijing & New York
shortened compared to the previous version. T +86 10 8595 5608
For example, the shareholding restriction on T +1 212 506 5363
foreign investment in securities company, futures
E jeffzhang@orrick.com
company, and life insurance company was lifted.
Jinsong (Jeff) Zhang, a partner in Orrick’s Beijing and New
Following the opening, UBS, JPMorgan, and
York offices, is a trusted advisor to international and Chinese
Nomura have started their operation in China, investors and corporates on their transactional, regulatory and
and around 20 foreign securities companies have compliance matters. His work spans a variety of industries,
submitted application to open their Chinese including financial services, technology (automotive
subsidiaries. technology and mobility, life sciences, and Fintech), as well as
energy and infrastructure.
According to KPMG2, foreign investment into China
Being recognized by Legal 500 Asia Pacific, clients have
amounts to US$ 140 billion in 2019, increased by praised Jeff as a practitioner “who is dedicated to serving his
0.7% on a year-on-year basis. clients and is able to leverage off the firm’s global network to
provide services in specialized areas”.
31 Jeff’s practice focuses on China-related inbound and outbound
mergers and acquisitions and private equity transactions. He
Are there any relevant recent developments or has extensive experience with share and asset acquisitions,
trends? growth capital and buyout transactions as well as tender
offers, privatizations, restructurings, spin-offs, strategic
The Foreign Investment Law and its alliances and joint ventures.
Implementation Rules, which became effective on
January 1, 2020, provides a unified law for foreign In addition, Jeff advises multinationals, financial institutions
and private equity funds on their general corporate, capital
investment, reemphasizes the national treatment markets and regulatory compliance matters.
plus negative list approach, and focuses on the
protection of intellectual properties.
The Foreign Investment Information Reporting
system replaced the previous MOFCOM approval
and filing procedures for foreign-invested
enterprises.
The latest Negative List, effective on July 23, 2020,
further opens the Chinese market for foreign
investors. In addition, a new provision is added
in the latest Negative List that certain foreign
investment may be exempted from the Negative
List upon approval by the State Council. This
may indicate that “variable interest entities” (VIE)
structure or FIEs ultimately owned by Chinese
persons may be exempted from the Negative List
upon approval on a case-by-case basis.
2
https://home.kpmg/cn/zh/home/social/2020/04/covid-19-influ-
ence-on-foreign-investment.html
The Orrick Guide to Foreign Investment Reviews 17EUROPEAN
UNION
RELEVANT LAWS AND AUTHORITIES
Until recently, there were no measures at the
level of the European Union (“EU”) on the review
and control of foreign direct investments. At
the national level, such measures have existed
in several member states—and, amid growing
concerns about the impact that certain foreign
investments may have on national interests, some
member states have made their review procedures
significantly more stringent in recent years.
However, the decentralized and fragmented nature
of the national review procedures raised questions
about their effectiveness to address adequately
the potential (cross-border) impact of foreign
investments in sensitive sectors.
To respond to such concerns, Regulation (EU)
2019/452 “establishing a framework for the
screening of foreign direct investments into the
Union” (the “Regulation”) was adopted by the EU’s
Parliament and Council on 19 March 2019. The
objective of the Regulation is not to harmonize the
formal foreign investment mechanisms used in EU
member states, or to replace them with a single
EU mechanism. Rather, it provides a mechanism
for EU-wide cooperation and information sharing
to allow member states to make informed
decisions taking into account all relevant risks
and protect pan-European interests. The decision
on whether to set up a review mechanism or to
review a particular foreign investment remains the
sole responsibility of the member states. After
a transitional period of one and a half years that
ended on 11 October 2020, the Regulation now
fully applies.
18 The Orrick Guide to Foreign Investment ReviewsIn a guidance issued in March 2020, the by a “foreign investor”, which is defined as “a
Commission urged Member States to make full use natural person of a third country or an undertaking
of their national screening mechanisms or to set- of a third country”. Third countries are countries
up one, in order to ensure an EU-wide approach. outside the EU. Therefore, the Regulation does not
apply to the screening of cross-border investments
Under the Regulation, the competent authorities inside the EU.
of the EU member states remain in charge of
screening foreign direct investments under the
applicable national laws. The role of the European PROCEDURE
Commission is to facilitate coordination and to
advise member states where it considers that an The aim of the Regulation is to enhance
investment would likely affect security or public cooperation and increase transparency between
order in one or more member states. EU member states and the European Commission.
To this effect, it created a “cooperation
mechanism” that requires member states to inform
TRANSACTIONS SUBJECT TO REVIEW each other and the Commission of incoming
foreign direct investments affecting security and
The Regulation does not put in place a review public order ( EU Cooperation Mechanism for the
requirement for foreign investments; rather, it Screening of Foreign Direct Investments):
sets up a procedural framework for screening
mechanisms created by the EU member states. • Where a member state screens a foreign
The rules of the Regulation apply to any national direct investment, it is obliged to notify the
“procedure allowing to assess, investigate, other member states and the Commission
authorize, condition, prohibit or unwind foreign by providing, “as soon as possible”, certain
direct investments”. information on the investment ( Information
Requirements). The other member states
The definition of “foreign direct investments” is can then comment and the Commission can
broad and does not require an investment above issue a (non-binding) opinion within certain
a defined threshold of shareholder rights or the time limits, normally within 35 calendar
acquisition of control in the target company. Any days following the notification (this period
investment “aiming to establish or to maintain is extended if other member states or the
lasting and direct links” with a business in “in order Commission request additional information).
to carry on an economic activity” in an EU member
state is sufficient. The investment must be made
EU COOPERATION MECHANISM FOR THE SCREENING OF FOREIGN DIRECT INVESTMENTS
The Orrick Guide to Foreign Investment Reviews 19Information Requirements They currently include:
Ownership structure of the foreign investor and of the target • European GNSS programs (Galileo & EGNOS);
business (incl. information on ultimate investor and capital
participation);
• Copernicus;
Value of the foreign direct investment;
Products, services and business operations of the foreign • Horizon 2020;
investor and of the target business;
Member states in which the foreign investor and the target • Trans-European Networks for Transport
business conduct business operations;
(TEN-T);
Funding of the investment and its source;
Date when the foreign direct investment is planned to be • Trans-European Networks for Energy (TEN-E);
completed or has been completed.
• Trans-European Networks for
Telecommunications;
• Where a foreign direct investment in a member
state is not undergoing screening and other • European Defence Industrial Development
member states or the Commission consider Programme;
that the investment is likely to affect security
or public order, the latter may request from the • Permanent structured cooperation (PESCO);
former certain information on the investment
( Information Requirements). The other • EU GOVSATCOM;
member states and the Commission may then
provide comments or a (non-binding) opinion, • Defence Research;
respectively, to the member state receiving
• European Joint Undertaking for ITER.
the foreign direct investment. The time limit
for comments and opinions is 35 calendar days In addition to creating the cooperation
following the receipt of information on the mechanism, the Regulation also imposed certain
investment, although extensions are possible. minimum standards for the national screening
mechanisms of EU member states. This includes:
Although the final screening decision is the sole
responsibility of the member state receiving • National rules and procedures must be
the foreign investment, it is required to give transparent and not discriminate between third
“due consideration” to the comments of the countries.
other member states and the opinion of the
Commission. In its March 2020 guidance, the • Member states must set out the circumstances
Commission called upon Member States to triggering a screening, the grounds for
anticipate the full effect of the EU framework and screening and the applicable detailed
already ensure an EU-wide approach, in a context procedural rules.
of increased economic vulnerability linked to the
pandemic. • Member States must apply timeframes that
allow them to take into account the comments
Under the EU framework, in cases where the of other member states and the opinions
Commission believes that the foreign direct of the Commission under the coordination
investment may affect projects or programs of mechanism.
“Union interest”, the member state receiving the
investment is required to take “utmost account” • Confidential information must be protected.
of the Commission’s opinion and provide an
explanation if the opinion is not followed. Project • Foreign investors and the undertakings
and programs of “Union interest” are defined in the concerned must have the possibility to seek
Annex of the Regulation. recourse against screening decisions of the
national authorities.
• National screening mechanism must include
measures necessary to identify and prevent
circumvention.
20 The Orrick Guide to Foreign Investment ReviewsSUBSTANTIVE ASSESSMENT YOUR CONTACT
The Regulation does not attempt to harmonize
national rules on foreign investments in the EU
member states. However, it does provide a list of
factors that the member states and the European
Commission may take into consideration when
conducting their assessment. This includes
potential effects on the following:
Marie-Laure Combet
• critical infrastructure (incl. energy, transport,
water, health, communications, media, data Paris
processing, finance); T +33 1 5353 8180
E mlcombet@orrick.com
• critical technologies and dual use items
(incl. artificial intelligence, robotics, semi- Marie-Laure Combet is a competition lawyer in Orrick’s
conductors, cybersecurity, aerospace, defense, Paris office. Marie-Laure advises on all French and European
energy storage, quantum, nuclear, nano- or competition matters and related types of work (i.e.,
compliance, advisory/transactional, and contentious matters).
biotechnologies); Over the years, Marie-Laure has also developed a significant
experience in relation to State aid matters, i.e., handling
• supply of critical inputs (incl. energy, raw very high-profile cases notably in the banking sector, the air
materials, food); transportation and energy sectors, as well as general EU law
and foreign investment control matters.
• access to sensitive information (incl. personal
data); or
• freedom and pluralism of the media.
The Orrick Guide to Foreign Investment Reviews 21FRANCE
RELEVANT LAWS AND AUTHORITIES
1
What are the main laws regulating foreign
investments?
Rules regarding prior vetting of foreign direct
investments in strategic sectors are enshrined in
Articles L.151-1 and seq., Articles R.151-1 and seq.
of the Financial and Monetary Code.
The latest amendments to the regime were
introduced on 31 December 2019 with a decree
(Décret n° 2019-1590 du 31 décembre 2019 relatif
aux investissements étrangers en France) and two
orders: (Arrêté du 31 décembre 2019 relatif aux
investissements étrangers en France) that apply
since 1 April 2020 and Arrêté du 27 avril 2020 relatif
aux investissements étrangers en France which
modified the first order adding biotechnologies on
the list of critical technologies.
A specific regime, with respect to the crossing
of the threshold of 10% of the voting rights of
a French listed company, applying temporarily
(i.e. from 7 August 2020 until 31 December
2020) was also introduced on 22 July 2020 by
a Decree (Décret n° 2020-892 du 22 juillet 2020
relatif à l’abaissement temporaire du seuil de
contrôle des investissements étrangers dans les
sociétés françaises dont les actions sont admises
aux négociations sur un marché réglementé)
and an Order (Arrêté du 22 juillet 2020 relatif à
l’abaissement temporaire du seuil de contrôle
des investissements étrangers dans les sociétés
françaises dont les actions sont admises aux
négociations sur un marché réglementé).
22 The Orrick Guide to Foreign Investment Reviews2 Strategic Sectors
Which authorities are charged with applying 1. Products for military use, dual-use products and technology,
national defense, encryption, including contractors and
those laws? subcontractors of the French Ministry of Defence in these
areas
To the extent foreign direct investments in 2. Devices for interception or remote detection of conversation
strategic sectors are concerned, the rules are or data
enforced primarily by the Minister of Economy. A 3. Assessment and certification of IT security by approved
assessment centres
special unit is devoted to this activity within the
French Treasury, which is part of the Ministry. 4. Gambling (other than casinos)
5. Measures to address the use of biological or chemical
3
threats or to prevent the health consequences of such use;
6. Infrastructure, goods or services that are vital to guarantee
the integrity, security and continuity of
What other legislation is relevant for foreign
• energy supply
investments? • water supply
• transport networks and services
Sectoral rules specific to foreign investments • space operations
• electronic communications networks and services
do exist in France. Sectors concerned are inter • public safety missions carried out by police, gendarmerie, customs
alia: banking, air transportation, defense, and other approved providers of security services
• the operation of a building, installation or of a key
telecommunications, data collection, audio-visual infrastructure(ouvrage d’importance vitale) within meaning of
French Code of Defence
communication and publishing. Some sectoral • public health
rules derive from EU legislation; others are • food safety
France-specific. • print and digital press
7. IT security services in relation to the operation of a building,
installation or of a key infrastructure (ouvrage d’importance
vitale) within meaning of French Code of Defence
TRANSACTIONS SUBJECT TO REVIEW 8. R&D on applications for the above activities, regarding:
• dual-use goods and technologies
4 • cybersecurity
• artificial intelligence
Which types of transactions are caught? • robotics
• additive manufacturing
• semiconductors
Reportable transactions concern activities that
• quantum technology
are deemed strategic because they relate to the • energy storage
exercise of public authority and foreign investment 9. biotechnologies
is likely to jeopardize national defense interests or
the maintenance of public order and public safety.
However, the list of strategic activities, which is • if the investor is a non-EU/EEA entity i.e. when
set in the Financial and Monetary Code, has grown at least one of the members of the investor’s
substantially in the last few years and is now quite “chain of control” is a non-EU/EEA national or
extensive ( Strategic Sectors). entity (see question 5 below), the crossing of,
directly or indirectly, alone or in concert with
Where the target is active in one of these
others, the threshold of 25% of the voting
strategic sectors, it will be reportable if a “foreign
rights of a French entity. From 7 August 2020 to
investor” (see question 5 below) contemplates
31 December 2020, a specific regime (hereafter
an acquisition falling under one of the following
the “Temporary Regime”) applies when the
categories:
threshold of 10% of the voting rights of a
• the acquisition of control, within the meaning French listed company is crossed by a foreign
of Article L. 233-3 of the French commercial investor. In such case, the investment shall be
code, over a French entity (by any foreign completed within a six-month period following
investor); the mandatory “notification” to be submitted
by the investor to the Minister of Economy (see
• the full or partial acquisition of a French entity’s reply to question 11 below).
strategic business or branch of activity (by any
foreign investor);
The Orrick Guide to Foreign Investment Reviews 23Acquisition of “control” may be established based
on that concept’s definition under corporate law. 9
Therefore, “de facto” control may suffice to trigger Are there special rules for investments by foreign
foreign investment control. state-owned enterprises or sovereign wealth
funds?
5 No Mandatory information to be provided by the
How are foreign investors or foreign investments investor in the filing now includes any significant
defined by the applicable legislation? equity link with, or financial support from, a State
or public body outside the EU over the last five
“Foreign investors” include: years. In addition, the Financial and Monetary
code specifically mentions such links between the
i. Any individual who is not a French national; investor and a foreign government or public body
as an element that may be taken into account by
ii. Any French national domiciled abroad; the Minister of Economy when issuing a prohibition
decision.
iii. Any entity established under foreign law;
iv. Any entity established under French law that
is controlled by an individual or entity falling
10
Can comfort letters be obtained from the
under one the three categories above.
authorities confirming that a transaction is not
One significant key concept that has been subject to review?
implemented by the recent legal modifications
The framework only allows for comfort letters with
relates to the “chain of control” of an investor.
a limited scope: a French entity may ask whether
Constitutes a “chain of control”, the group
any of its activities is deemed strategic, in which
composed of the investor and the foreign nationals
case the Minister of Economy must reply within
and/or foreign entities which control the said
two months. A potential investor can make the
investor. It is now clearly provided that all the
same inquiry provided the target agrees, in which
entities and nationals in a chain of control are
case the target will also receive a copy of the
qualified as investors. The control of an investor
response.
is established based on the concept’s definition
under corporate law or merger control law.
The definition of an investor is broad and PROCEDURE
encompasses investors from EU/EEA Member
States. 11
Is a filing required (mandatory) or possible
6 (voluntary)?
Are minority interests caught?
Filing is mandatory for foreign investment in any
Yes, subject to the limitations and thresholds of the strategic sectors, subject to the categories
detailed in response to question 4 above. of operation mentioned in the reply to question 4
above.
7 When the operation falls within the scope of the
Temporary Regime (as defined in the reply to
Are there sector-specific rules?
question 4 above), the “usual” filing obligation
Yes, but not within the framework of the foreign referred to above is replaced with a specific
investment control regime. “notification” to the Minister of Economy. The
latter has ten working days to refuse the notified
8 operation, it being specified that in such event the
investor remains able to submit a usual filing for
Is there any kind of de minimis threshold? the contemplated operation.
No.
24 The Orrick Guide to Foreign Investment ReviewsFailure of the Minister of Economy to provide an One further element that may be highlighted is
answer to the notification within ten working days that the French Highest Administrative Court (the
is deemed an approval of the notified operation. Conseil d’Etat) hence ruled that the identity of
the limited partners of an investment fund is not
12 required to be disclosed in the filing as opposed to
the identity of the manager as well as the persons
At what point in time should or must a filing be or entities controlling said manager (CE, 3 April
made (before or after signing or closing of the 2020, n° 422580). Even if this ruling has been
transaction)? Is there a mandatory deadline? issued on the basis of the previous applicable legal
framework, the conclusion that has been drawn
There is no mandatory deadline. Filing needs to seems to be applicable under the new regime.
be made prior to closing. It might however prove
useful to discuss an outline beforehand, whenever Under the Temporary Regime (as defined in the
the project is of major importance or politically reply to question 4 above), the notification must
sensitive. contain information in relation to the investor’s
shares and voting rights before and after the
In addition, as mentioned above, an operation investment, including future or potential rights,
falling within the scope of the Temporary Regime as well as the identity and status of the investor’s
(as defined in the reply to question 4 above) must representative.
be closed within a six-month period after the
15
operation is notified to the Minister of Economy.
13 Are there any filing fees?
Which party is responsible for making the No.
notification?
The duty to notify lies with the foreign investor. 16
It should be specified that the notification may Must the parties suspend the transaction until
also be submitted by any member of the chain of the review is completed?
control of the investor.
Yes, the transaction must be suspended until it is
14 authorized. There is no derogation to this standstill
obligation, save when the operation falls within
Which information is required for the filing? the scope of the Temporary Regime. Indeed,
when the operation falls within the scope of the
The filing must include detailed information in Temporary Regime, the transaction is suspended
order to identify the investor’s ultimate controlling until the expiration of the ten working days
individual or entity (as well as its managers and allowing the Minister of Economy to refuse the
shareholders), all elements of the chain of control notified operation. In the event that the Minister
between the investor and its ultimate controlling of Economy did not oppose the operation during
individual or entity, any significant equity link with this period, the operation may be completed even
or financial support from a State or public body if no formal answer of the Minister of Economy has
outside the EU as well as past criminal activities. been sent to the investor.
Other filing requirements pertain to the
envisaged investment (transaction value, financial
arrangements, projected timeline), as well as
the target’s activities and its involvement in any
projects or programs of “Union interest” that
would justify a bigger involvement of the European
Union (see EU chapter and relevant developments
about Regulation (EU) 2019/452).
The Orrick Guide to Foreign Investment Reviews 25You can also read
