While we have always lived in uncertain times, it can’t be truer than now. Markets are volatile, governments are exiting Unions, trade deals and climate accords. Trust between allies has been eroded and although the cold war ended in 1991, spies and hackers can both find jobs. This, coupled with the nearly $2T in money laundering that circulates the globe and you have a very tenuous situation which is why, some regulators have started to tighten their foreign investment regulations.
Before we rang in the New Year, regulators in Germany, France, and even the United States announced changes to their regulatory regime as it relates to direct foreign investment. Germany announced a lowering of its threshold from 25% to10% in critical infrastructure and media businesses. On the same day, France extended its current foreign investment restrictions to include space, IT for police and custom services, data hosting and R&D in cybersecurity, robotics, AI, semiconductors, and dual use goods.
But the strongest indication of the real concern governments have over outsiders acquiring critical technologies and infrastructure comes right here in the United States. The U.S. launched a pilot program to review foreign investment.This was in response to the Foreign Investment Risk Review Modernization Act (FIRRMA) which became law in August 2018. While the implementing regulations are yet to be passed, the expected key changes are:
- Expanded scope of covered transactions: US businesses that produce, design,test, manufacture, fabricate or develop critical technologies. 27 industries identified by NAICS, all critical technologies defined by FIRRMA.
- Mandatory Declaration: Abbreviated notice must be filed 45days prior to transaction completion date.
- Filing procedure: A new short-form declaration process will be available.
The U.S. may be ahead of others, but the E.U. and U.K. are not that far behind. Each issued consultation papers of similar focus in 2018 with an expectation that both will pass foreign investment review regulations in 2019.
As long as there are governments that operate in the shadows, the threat to national security is real for all. And while no one wants to see more regulations, I think most can agree - this is regulation is worth having.