The GCR Foreign Direct Investment Regulation Roundtable

Global Competition Review hosted a debate in July 2023 to mull over recent developments in the arena of foreign direct investment regulation since the publication of the GGR Foreign Direct Investment Regulation Guide, in November 2022. The discussion covered core aspects of the current landscape in the United Kingdom, Germany, Italy, Canada and the United States in this rapidly evolving area, and analysed some of the current hot topics and key issues for businesses and practitioners arising from the ways that the FDI landscape continues to transform.

The discussion was chaired by Veronica Roberts of Herbert Smith Freehills. Also taking part were Peter Camesasca in Brussels, Andrea Carreri of LCA in Italy, Jason Gudofsky of McCarthy Tétrault in Canada and Jeremy Zucker of Dechert in the United States. We also thank Covington & Burling LLP for its support of this roundtable.

The following is an edited transcript.

Part one

Roberts: What I’d like to do now is move the discussion on to our next topic. As I said at the start, many regimes do claim to be country-agnostic in the sense that they apply equally, in principle, to all foreign investors – or indeed in the case of the UK, to all investors, including those from the UK. But how does this actually play out in practice when you drill down into the decision making? In particular, how does the nationality of the investor affect outcomes? The bottom line is, is Chinese investment being targeted more than investment from other jurisdictions when it comes to conditional clearances and prohibition decisions?

I’m also interested in how this ties in with so-called ‘passive investments’ so, for example, via fund structures and the extent to which the FDI authorities are asking questions to find out who’s ultimately behind a passive investment. Peter, can we start with you first please, to cover Germany and the EU?

Camesasca: I’ll start with our blackletter law, which will tell you that indeed it is totally agnostic and that other than differentiating between EU and EFTA investors on the one hand, which wouldn’t be subject to filing obligations except in the defence area, there’s no further blackletter differentiation of how to deal with investors from the various deemed foreign countries.

Having said that, the nationality of the investor does come in, however, when it comes to the substantive assessment and evaluation of whether or not there is a threat. There, it’s clear that investments from certain states, particularly from China, Russia and Belarus are scrutinised more intensely compared to investments from, say, the US or Canada. This is also what would explain why we’ve had that Costco saga play out over the better part of the last year, which, in the end, was just a minority stake in one of the four port operators in the port of Hamburg – so not the single operator or the majority stake in a single one of the four operators, just a minority stake. It led to one of the very rare public scrutinies and debates we’ve had on FDI in Germany.

I would like to stress, now that I’ve made this ‘welcome to the US or Canada’ statement I just made, that this does not mean that investors from the US or Canada could not face scrutiny in a particular case. I think one of the better quotes here is from our former minister of economics, Peter Altmaier, who said at the start of Covid in 2020: “especially innovative companies from the tech and biotech industry need protection, as internet giants from the US, like Amazon, have been strengthened during the corona crisis”. That’s a really rare and very, I’d say, un-German quote that does stress to me how agnostic FDI is and how, even if we’re looking at a friendly investor – we’ve all picked up that Danish example for a Japanese investor – that could equally happen in Germany as well.

Now, I just want to say a very quick word on the EU more broadly. As I mentioned, there’s no direct FDI powers, but of course the EU can steer and influence directionally where things are heading. A good example would be outbound investments, where the EU is quite actively promoting and putting that on track, and I think quite rightly as you were saying, Jeremy, in lockstep, ideally with what is happening in the US. Another example would be the guidelines that have been issued regarding risks associated with investments from Russia and Belarus in the wake of conflict in Ukraine.

With that, Andrea, over to Italy.

Carreri: Thank you, Peter. The question on the nationality of the investor is already important under Italian law and that is because we have one specific provision, a sort of potential alert in case the buyer is controlled by a non-EU government, which includes, by definition, not only the Chinese players but also sovereign funds in the Gulf area or Singapore. This is a further point of attention, because of the law and the Italian language.

The example we have on the veto against a very small deal, included in arguably the cybersecurity area, because the Russian lenders (not Russian shareholders) of the ultimate owner of the buyer is actually the result of the European Commission direction in the context of a Russian investment in Italy.

The nationality as I said before, stands not only in a strictly geopolitical sense – meaning China or Russia – but also on the sovereign front. It is because a number of these sovereign wealth funds operate through general partners with a number of limited partners, are allegedly constituting a passive investor. The topic of the passive investor is one of the topics on the table here in Italy, but not only in Italy – I also know that CFIUS intervened on the matter of the passive investment, following the rule “I want to know who is behind this”.

Passive or non-passive, we normally don’t have a distinction to the extent that a threshold is exceeded. If you have a limited partner investing more than 3% and a general partner making an acquisition of 30% or 50% in the super-strategic sector, we normally strongly recommend notification to the Italian government because the question is not whether the ultimate investor is passive or not, but at the end of the story, whether directly or indirectly, it becomes the owner of a certain percentage of shares. Of course, an alternative point is whether or not this passive investor acquires certain corporate rights in the chain.

That is the situation for Italy, and I’m passing to Jason now.

Gudofsky: Thank you very much, Andrea. So our law is agnostic in the sense that it applies to investments by all non-Canadians, but the reality is that the focus has been on investments from ‘non-allied’ countries. On the socioeconomic regime of our act, the focus or concern has been around managed economies and one can see China as being one of the more active investors into Canada. Historically, going back to prior to 2012, we were seeing a lot of investments by Chinese state-owned enterprises in our oil sands, for example. Then in 2012, our then-prime minister, Prime Minister Harper, in reviewing an acquisition of a very large Canadian company called Nexen by CNOOC, said that he would approve CNOOC’s acquisition but would only allow acquisitions of control of Canadian oil sands companies by Chinese SOEs in exceptional circumstances. This was the first time we’ve seen that there was a real target under the Investment Canada Act for a certain nationality.

The national security regime is also agnostic. In fact, if you can believe this, the first national security case was actually an investment by a US investor, Alliant Techsystems, in January 2008, when it announced that it was acquiring the information systems and geospatial information services division of MacDonald, Dettwiler and Associates. That transaction raised concerns because the information that the target business gains was also important for defence reasons, for protection of our Arctic, for the Canadian government, and, at the time the Investment Canada Act did not have a national security regime – so Canada introduced one after that transaction.

So the history actually doesn’t necessarily start with China, but certainly today, China is the focus; over 50% of national security reviews over the last few years have involved investments from China – and that comes from Canadian government statistics – six out of 12 reviews in years 2021 to 2022, and seven of 11 in the year prior. Just this past year in 2022, the government identified three non-reportable transactions after they had closed – minority investments, so therefore not subject to the socioeconomic filing regime – and forced three separate Chinese investors to divest their minority interests in lithium businesses.

So the focus certainly has been on China, but that’s partly because that’s the non-allied country that makes the most investments in Canada. We are seeing relatively little from North Korea, Iran and Russia in Canada.

To Veronica’s point on managed funds – the Canadian government considers ties between an investor and China in a number of different ways. Most straightforwardly, the government will consider any direct or indirect ownership interest in the investor by the Chinese state; the filing that has to be submitted in the socioeconomic regime requires the disclosure of any direct or indirect interest in the investor held by a foreign state, which is the most common way a Chinese link comes to light. This includes an assessment of the whole chain of ownership up to the ultimate controlling person or entity. The Canadian government will also consider China’s ability to exercise statutory authority over an investor. Past national security enforcement actions suggest that the Canadian government will take an extremely broad view of this. In particular, it appears that the Canadian government may perceive China’s laws of general application, such as its 2015 National Security Law and 2017 National Intelligence Law, providing the Chinese government with the ability to either coerce or otherwise exercise influence over effectively any Chinese-based company.

Strong links to China on either the target or buyer side may give rise to national security concerns. In fact, we have seen recently a concern based on the activities of the target in China, because those activities had impacts back in Canada and they used the Investment Canada Act as an opportunity to address concerns by the target, even though the transaction itself was not the cause of those national security concerns.

Finally, I’ll say that if you fail to properly identify information relating to links to non-allied countries like China in the filing, an investor risks not only significant fines that are going to be introduced by a bill that’s before Parliament, but also you’re filing could be deemed non-complete, and, if it’s not complete, you never started a waiting period and therefore that would give the government a forever right to come after your investments. So yes, we do need to think about investments from non-allied countries and certainly China is a focus these days.

So with that, over to Jeremy to tell us what’s happening in the US.

Zucker: Thanks, Jason. Needless to say, it’s important to recall that CFIUS, like FDI regulators in other countries, assesses the threat posed by a foreign investor together with the risk presented by the data, technologies, products and services that are provided and produced by a target company. So we do need to bear in mind that both categories of variables impact whether and to what extent, in this instance, CFIUS will feel the need to impose mitigation or, in the worst case, ask the president to block or unwind a deal.

Picking up on some earlier comments about passive investments, there is a specific carve-out to CFIUS’s jurisdiction provisions pertaining to investments by private equity funds. Analysis there turns on the nationalities of a fund’s general and limited partners and, in particular, on the rights that the LPs may enjoy with respect to the decision making of the GP and also with respect to access to target company data and technologies. So you shouldn’t assume that any investment made as a limited partner in a fund is going to be exempt, but there may well be coverage for you there.

With respect to the question about investments from China, it’s no secret that the US government is working with allied countries to address national security concerns raised by US adversaries, and the list of such adversaries certainly includes China. I remember back to a time seven or eight years ago now when China’s so-called ‘Made in China 2025’ programme was announced and I remember telling quite a few people at the time that the reaction from the US government – this is quite a few administrations ago – was as if this had been a declaration of war. We’ve seen, across both Democratic and Republican presidential administrations, a continued and continuing focus on what Chinese investment might mean as a larger part of China’s approach to its place in the world.

CFIUS officials have made clear that while there is no mention of China in their regulations, they always consider the regulatory regimes and the perceived national security goals of foreign countries when determining whether an investor from one of those countries might pose a threat.

Without a doubt, Chinese investment in the United States has diminished in recent years from very high highs. But in fiscal year 2021 – the most recent for which CFIUS has released public data –Chinese investors continued to submit a lot of CFIUS notices, more than any other country, save Canada and Japan.

It is also worth pausing to think about outbound investment review. We do not have such a mechanism in place yet – we are expecting to have one relatively soon. But we do have something that may well be considered a pilot programme, and the focus on the potential threat of China is clearly present there.

Within the last year, here in the United States, the so-called CHIPS and Science Act, known as the CHIPS Act, became law and it incentivises companies to produce semiconductors and develop related R&D activities on US soil by way of both tax breaks and subsidies. And with respect to these subsidies, an interesting angle is that if you’re a company that receives such subsidies and spends the money to develop production or R&D capabilities on US soil, any subsequent investment made in semiconductor-related activities in another country will become subject to US government review. While – in a sense – this is narrow because it only applies to the part of the economy that relates to semiconductors, I certainly see it as a pilot programme, where the US government is beginning to explore how it might meaningfully monitor and, if necessary, restrict flows of funds heading out to countries of concern – which are certainly defined to include China.

As discussed earlier, the view is that when money flows, technology and/or expertise go with it. So, from a US perspective, we certainly expect a continued focus on China but not to the exclusion of other countries.

Roberts: Thanks, Jeremy. The UK regime doesn’t differentiate on the basis of nationality and in fact, as I mentioned before, it applies equally to UK and non-UK investors. One of the remedies decisions that we have already seen in Epiris/Sepura was focused on a UK investor, and actually the recently published annual report revealed that 32% of deals that are called in for further assessment under the UK regime involved UK investors.

However, when it comes to the form, of course this asks for details of the ownership structure of the investor, including parent company and other individuals, entities or limited partners who may have material influence over the UK company or have voting rights of 5% or more, and asks there for nationality details.

And we do see a focus on China in the UK regime. The annual report said that 42% of deals called in for further assessment in the first full year of the regime did involve investors associated with China. Then when it comes to remedies imposed in practice, the UK is very much in line with what you have all highlighted. There does remain a particular focus on Chinese investment. Four out of the five prohibition divestment decisions to date have involved Chinese or Hong Kong investors, and the fifth was an investor ultimately backed by Russian oligarchs.

Having said that, there are also examples of Chinese investment that have been conditionally cleared; four of the 11 conditional clearance decisions to date have involved Chinese investment. So, it is under scrutiny, but clearance – even unconditional in some cases – is possible.

Finally, just picking up on the issue of passive investments, this is really a live issue under the NSI regime, and the ISU has been looking in detail at the governance rights of limited partners. Jeremy, you flagged that it’s very much a case-by-case analysis. It just depends in any particular case what influence a limited partner might have and what information they might be able to obtain about the UK target. So, this is definitely an area we see a lot of interest in, in the UK.

Part three

Roberts: Let’s move the discussion on to focus on the types of remedies that we see being imposed under foreign direct investment regimes and the extent to which remedies can be negotiated with FDI agencies.

I think this is a particularly useful discussion with the participants here today because, as we’ve said before, FDI regimes rarely publish their decisions. It is very unusual to see the detail of remedies agreed upon in practice in any particular decision. But of course, we’ve all got direct experience dealing with the authorities and agreeing remedies with the authorities and know what actually happens behind the scenes. In terms of the types of remedies that are agreed upon in practice, we see some similarities across different jurisdictions, with a focus on information and access restrictions, as well as governance and onshoring remedies. But as ever, I’m sure we will pick up on some differences. So, I’m going to invite you all to comment on the sorts of remedies you see in practice as well as the negotiation process and, of course, include any practical tips for our listeners. Can we start with you, please, Jason, for Canada?

Gudofsky: Sure. Thank you, Veronica.

So, as I explained at the beginning of our discussion today, the ICA has a socioeconomic regime and a national security regime, and the remedies – which we often refer to here as ‘undertakings’ – are very different under each, so I will quickly go to each.

Under the socioeconomic regime, the ICA does not require an investor to provide remedies or undertakings in support of net benefit review. But the reality – or the practical reality – is that the minister effectively requires undertakings in each reviewable transaction. Those undertakings, as they relate to the factors for assessing net benefit under Section 20 of the ICA, relate to such things as ensuring that there will continue to be minimum levels of Canadians employed with the Canadian business; minimum levels of Canadian participation in senior management positions and on the board of the Canadian business; guaranteed minimum levels of capital expenditure in Canada; continuing to conduct R&D in Canada; maintaining a Canadian head office; support for ESG and local charities; and so forth.

Now the specific undertakings will relate directly to the activities of the Canadian business that’s being acquired; they are typically benchmarked against the Canadian business’s past three years of historical performance along with any of its future plans. These are all socioeconomic – because the test is based on net benefit to Canada – but hold onto that because we’re going to get back to it in a moment when we talk about national security.

So with national security, to begin just so that you understand the national security provisions of our act, when cabinet issues a national security order it will include a statement of concern. That will be where – in a page or less – the government will explain what the nature of its concerns are. Those statements of concern are really what would direct the national security remedies or undertakings that an investor may provide.

Now, a few things to note here. As I mentioned, except when you have a net benefit approval, you can file after closing and, therefore, have national security reviews after closing – unless the minister calls in the investment before closing on his or her own initiative. During that review, if the closing has happened, there are no interim measures; you have full enjoyment over the use of your investment. There is currently a bill before Parliament that would allow interim measures to be ordered, but for now, you have full use and enjoyment of the business. There are no hold-separates, no monitors or any kind of checks.

In terms of addressing the concerns themselves, up until recently it’s been pretty binary. Either the government has decided that the transaction is not injurious to national security and the investment has been allowed to proceed, or it has been injurious and either prohibited from closing or, if closed, a divestiture order has been required. Now, there is a bill before Parliament to allow the minister to take undertakings, to allow for a more flexible process. While the minister doesn’t formally have that authority in practice, over the past year, the minister has been taking undertakings in the context of determining whether to recommend that a full review be ordered or, if a review is ongoing, whether to refer it to cabinet for a final decision.

The undertakings themselves are private – they’re not made public. What we are seeing though is that the Canadian government is working very closely with CFIUS to look at national security agreements that are agreed to in the CFIUS process and we’re seeing the Canadian government saying: “Yes, we would like those too.” We’re seeing undertakings that I’m sure are very similar to those that Jeremy will review when we go through CFIUS. And we are seeing the Canadian government, in one recent case, bleed into the socioeconomic and asking, in the context of national security, for the types of remedies or undertakings that one sees more on socioeconomic side, relating to CapEx expenditures, ESG policies and so forth. So we are seeing a little bit of the raising of thresholds and saying: “Oops, now that we are actually looking at this, we would like to protect Canadian jobs, participation, management” and so forth.

It remains to be seen whether we start seeing the minister, who typically only looks at socioeconomic undertakings, starting to now bleed socioeconomic considerations into national security together with the types of things we see in NSAs in the US. I will now pass it over to Andrea.

Carreri: Thank you so much, Jason. I think the concept of remedies should also be a matter of definition. In Italy, we have undertakings and recommendations, but please note that any decision by the government can be challenged at the administrative court – which, as far as I know, is unusual compared to other jurisdictions. We have also had some cases appealed to the administrative court. The good point of this is that these decisions are publicly available and so we gain a great deal of interesting information.

So far, the administrative courts have decided that the Italian government can do whatever it wants. This is because this is a geopolitical and highly strategic law, and the government is the constitutional body entrusted to take decisions in those areas.

Undertakings and recommendations are provided by the law and may include restricted access – as we know from the press on the Pirelli case, which showed us that certain information should stand with a specific committee made by an Italian or EU person only, not a Chinese representative, and that undertakings may also include restricted access to certain assets by a qualified person (just like in defence or national security). A recommendation is a very soft form of undertaking that normally results in an obligation to inform. For example, we have advised a multinational company operating in the submarine cable industry, and one of the recommendations was to update the Italian government on the scope of its security programme yearly.

I return to the Pirelli tyres case because it is very interesting for two reasons. One is because, apparently, directly or indirectly the Italian government intervened in a shareholders’ agreement between Italian and Chinese shareholders, which included some modification as to the right to appoint the CEO. Second, is the one I explained before, setting up an international security committee at Pirelli in Italy; which is where all the information coming from the tyre sensors is locked in, because the sensors are not only collecting personal data – who is driving and where they’re driving – but also data about the state of the infrastructure.

In short, this is the state of so-called remedies in Italy. We could spend two days debating what is a ‘recommendation’ and what is an ‘undertaking’, so I will now pass over to Peter.

Camesasca: Thank you, Andrea. I’ll try to be brief as well. In Germany, as in many other European countries, it is true that there is no systematic recording, there is no public or official gazette that publishes decisions or remedies. So it is not a transparent process at all.

I think the long and short of the German approach to remedies is in terms of their substance; it is very similar to what my colleagues have said before. The one comment I would like to make is more a process-driven comment. In the earlier days of German FDI, it was really an agreement between the parties and the government on what remedies should be imposed and how they should be enforced. That is still, formally, so. However, we discern a real shift when dealing with the regulator, where it’s much more now the ordering of remedies.

Of course they’re pre-discussed and you can argue if you’d like something different, you can try to input on the remedies but ultimately the language is the regulator’s. I think there really is a process ahead of potential remedies where it makes sense if you think you are under threat of a governmental intervention, to think long and hard about how you’re going to deal with that and make sure it ends up on your track and not a superimposed one.

Zucker: Thanks very much, Peter. In the United States, as in other jurisdictions, there is no public gazette or other such record of the measures that have been imposed. It’s certainly the case that CFIUS doesn’t hesitate to impose mitigation measures on a transaction in which national security risks have been identified during the review. It’s on the parties to decide whether to accept the mitigation being imposed as a condition of receiving clearance or to walk away from the deal.

Mitigation can be imposed by CFIUS in various forms. One common form is for the transaction parties to enter into an NSA with the government; and all parties, including the government, are party to what is essentially a contract. In the past few years, we have seen a massive uptick in the use of NSAs. Each is monitored and enforced by designated CFIUS monitoring agencies, the identities of which will depend on the profile of the US business in which the investment is being made. So you might see, for example, that Treasury and Defence are monitoring agencies for one agreement, while perhaps the Justice Department or Energy Department might be the monitoring agency in a different instance – depending, of course, on what the target business does. There are now so many NSAs that CFIUS has an office specifically dedicated to monitoring and enforcement as there are now dozens and dozens of them.

NSAs are used these days to capture commitments that historically – at least, when we were giving advice ­– parties may have already built into the transaction agreements, memorialising, between and among buyer and seller or investor and target, various mitigation measures we would have recommended as a way of pre-empting CIFUS feeling the need to impose an NSA. We find that our ability to pre-empt NSAs and avoid them has diminished in recent years as CFIUS has increasingly felt the need to impose them and be a party to an agreement and thus, in its view, have a much better ability to monitor compliance and bring enforcement measures should it think compliance is flagging.

The kinds of mitigation measures found in NSAs can vary widely depending on the kind of business we’re talking about. Just to talk about a few in general terms:

• prohibitions on the transfer or sharing of the target business’s IP or trade secrets with the foreign investor;
• prohibitions on the transfer of certain data or technology in the possession of the US business to the foreign investor;
• establishing guidelines for how any existing or future US government contracts might be handled and any information that the US government would be providing to the company in the context of those contracts;
• ensuring that certain jobs are held only by US citizens or that, for example, servers on which US data are stored are located only in the United States;
• in some instances, requiring that certain sensitive assets be divested or otherwise excluded from the proposed transaction; and
• increasingly – and this is an interesting and often very thorny issue – ensuring that when the US business engages a third-party vendor that that vendor itself has been vetted and approved in advance by the US government if it will have access to certain data of the US business.

Once an NSA is effective, it can only be terminated by the CFIUS monitoring agencies in their sole discretion; it doesn’t automatically happen when a foreign investor exits, although it’s pretty reasonable to expect that that will eventually occur.

Lastly, a final point on negotiations with the US government. Obviously, there’s an imbalance in bargaining power. We come to them with the deal we’d like to get approved; they have things they’d like to see addressed and, in the end, they decide whether and when they are satisfied. We’ve found in some instances tremendous willingness to negotiate with us to understand our position – and in other instances, distressingly little interest in any such negotiation – it’s been much more of a ‘take it or leave it’. We have found, at least in some instances, that explaining to the US government that we’re not just objecting as a matter of principle but that, as a matter of practice, what they’re asking for will meaningfully interfere with the operations of the US target company, can often provoke a willingness to have a discussion and to at least modify, if not remove, certain mitigation measures on which they’re otherwise going to insist.

With that, I’ll turn it over to Veronica.

Roberts: Thanks, Jeremy. So just some final words from me on the UK regime.

We’re seeing remedies of the type that all the participants have been describing. One thing we’ve seen quite frequently is agreeing with the government a blacklist-whitelist approach to information that the investor can and can’t see. We’re also seeing quite strict controls being imposed on access to infrastructure and staff security measures at infrastructure. So, I think it all sounds quite similar.

One thing that is different is that so far in the remedies that we’ve seen under the UK regime – which, of course, is much newer than other regimes we’ve been talking about – is that compliance seems to be limited to the company reporting that they have complied with the remedies on a once-a-year basis. This is of course very different from the monitoring agency you were talking about, Jeremy, so I do wonder whether we might see moves in that direction – perhaps to tighten up compliance and monitoring a little bit more but it is still relatively early days in the UK regime. Again, in common with other participants, our experience of negotiating remedies with the ISU in practice has really been quite mixed. In some cases, you do get told what the remedies are; in others, it has been possible to negotiate a little, although, the government’s concerns have always been quite clear in general terms.

I agree with the comment you made, Jeremy. If you do have issues with how a remedy might work in practice for a company based in the UK, you can make some suggestions for tweaking that remedy so it still deals with the government’s concern but makes it much more workable in practice to UK companies. That’s where we’ve seen a real shift in terms of negotiating remedies with the ISU.

Part four

Roberts: Let’s wrap things up for this FDI webinar. We’ve seen across a range of jurisdictions that FDI regulation is clearly a critical piece of the regulatory jigsaw that needs to be carefully considered from the outset in conjunction with merger control, any other regulatory clearances required and also thinking about FDI clearances across the world.

I’d like to ask each participant just to offer a few final words, building on the really interesting debate that we’ve been having so far and to offer your thoughts on likely future developments and areas of focus in each of your jurisdictions.

Peter, can I ask you to start first, please?

Camesasca: Thank you, Veronica. The German FDI regime has been around for a good while. It has increased, I think, significantly in maturity over the past four to five years. Still, my sense is dealing with the minister of economy takes a practical, pragmatic approach; it’s certainly a regulator that is open to further developments and streamlining of the regime.

Having said that, I think the upcoming evaluation in 2024 is an important one. I expect further amendments to German FDI and, certainly, a tightening of what is or isn’t a sensitive area.

Carreri: It is the same in Italy. The FDI regime has become more mature and sophisticated. We have a number of strategic assets that cross several industries. We may have a sector that is not included formally on the list, but it falls in because, for example, of personal data management, or constitutional or highly strategic sectors involved.

I expect strengthening of the regime in the area of the so called ‘made in Italy’ businesses, which is not just a fashion but includes the supply chain in a number of industries. We have a draft law which considers strategic sectors – the textile sector for example, and the food sector – so that’s an area where I’m expecting increased attention.

On the other side, on the basis of our experience and on the basis of what is published by the Italian government, I expect that allied nations like the United States or Japan will be more facilitated in the context of the acquisitions here in Italy. That is because other areas, other nationalities, will be obstacles, primarily China.

We have an interesting example of a couple of deals in respect of Indian investors. India is coming to Europe and, notably, Italy, and it seems that this is a friendly nation for our government. So, we haven’t encountered any geopolitical problems there.

Anyway, very last thing: Italian law has very strict timing procedure – that is the 45 business days, which is something that is really important for cross-border deals as normally Italy is the first to come up with an issue of clearance or conditional clearance by the Italian government.

Zucker: From the US perspective, again there’s always a bit of a lag in the publicly available data, but we know that for fiscal year 2021, CFIUS had a record year with more than 400 filings. We’re certainly expecting more of the same with respect to 2022. From the perspective of our practice, it has remained very robust. We know that CFIUS has, in the most recent year or two, meaningfully increased its staffing levels, which is yet another indication that the US government is expecting – and certainly hoping – to see many more transactions so that they can keep their finger on the pulse of foreign investments and engage with even more counterparties as they try to keep control of this particular slice of the US national security landscape.

As I mentioned earlier, we think that investing parties should keep their eyes open for increased enforcement in the coming years with respect to national security agreements that have already been agreed. We’re all eagerly anticipating the rollout of an outbound investment review mechanism.

So, for transaction parties who are contemplating participating in an investment involving a non-US investor and a US target business, of course we’re going to recommend that you consider CFIUS considerations early in the transaction process. Because we know that CFIUS officials are increasingly coordinating – whether formally or informally – with FDI regulators in other jurisdictions in Europe and elsewhere, a sophisticated strategy concerning CFIUS and FDI review matters across multiple jurisdictions can make a difference. We always recommend that our clients start a conversation with us early in the process of building towards a cross-border investment.

Gudofsky: Thank you very much, Jeremy. I’m going to conclude with six themes or points.

The first is, we’re going to see a lot more focus on filing strategies. In particular, as I noted early on, only under the socioeconomic regime – where there is a net benefit review – must you go to the government before you close. For all other investments, the choice is whether to file pre- or post-closing, or even if a filing isn’t required, whether to file voluntarily. We’re going to see investors who are very nervous about leaving this until after closing and even target vendors who are very concerned that if a filing is not made it can still be called in at the 11th hour before closing, resulting in a delayed deal. So the first thing will be over filing strategy, including timing of filing.

The second point concerns risk sharing in transaction agreements. We are seeing an incredible amount of attention paid to how to deal with risk sharing. On the merger control side of things, hell-or-high-water provisions can often make sense; they make much less sense on the national security side of things because they effectively provide a blank cheque to a foreign government (in this case, Canada) by a non-Canadian. That is typically not well appreciated or liked. And so we’re seeing more interest in reverse termination fees for allocating risk.

Third, we need to remember the inherently political nature of the foreign investment regime and the ICA. The decisionmakers are elected officials; therefore, you need not just a legal strategy but a government relations strategy. Both go hand-in-hand.

Fourth, we need to recognise that these reviews are becoming multi-jurisdictional. In fact, under a bill before parliament, the minister wants the specific, explicit right to be able to disclose information to foreign regimes.

Fifth, we need to recognise the interplay between the ICA and the Competition Act. The Investment Review Division will often speak to the Competition Bureau and, therefore, even non-notifiable mergers can become known to the bureau through the ICA process and can be reviewed by the Competition Bureau, even if below thresholds, at any time within one year of closing.

And the final point is about developments. There is a bill before Parliament expected and likely to come into effect towards the end of this year that, among other things, will turn some of these non-suspensory or non-pre-closing filings into mandatory filings – including for non-control acquisitions. The bill will allow interim measures to be imposed while review is going on; it will allow the minister to take undertakings, which will, we think, lead to more remedied investments and not less; and there’ll be increased penalties for failing to file and for contraventions of the act.

Roberts: Thank you, Jason. Back to the UK’s regime, which is the most recent FDI regime we’ve been talking about today. I have, perhaps, a few slightly different points.

First of all, I think we are going to see a real commitment from the agency to be more transparent with parties about what is and isn’t caught by the mandatory filing obligations. We’ve seen that starting in practice and I hope that we will see that continue.

Second, the concept of ‘national security’ is, of course, not defined in our regime – it’s not defined in any regime because it moves with the times – and I think that we’ll very much see that in the UK as well. We will see more mandatory sectors being introduced. Perhaps we’ll see a couple of the existing mandatory filing sectors being scoped back because the ISU will decide it’s receiving too many filings in a particular sector and they’re not giving rise to issues.

Third, given the questions that we’re now seeing from our agency about non-notified transactions, I think we will see parties submitting more voluntary filings. Jason raised a really interesting point about the risk that you structure for in the transaction documents. We’ve also seen sellers of assets in the UK wanting to try to structure in any risk that the investor might give rise to if they change their ownership during the course of an NSI review. So there are all sorts of risks that parties now are trying to cater for more in the documentation to try to smooth the NSI process.

Fourth, again picking up on a point you made, Jeremy, about CFIUS outreach that we’re seeing in a number of jurisdictions in Europe right now, which are much newer regimes than the CFIUS regime and the Canadian regime, I think that that means that in the UK we will see more of a commitment to checking on compliance with remedies going forward. We discussed that earlier and I think we’ll see a stricter UK monitoring regime in place over time.

Finally, I just wanted to pick up on a theme that most of us have mentioned: there aren’t any current proposals in the UK for an outbound FDI screening mechanism. But we’ve heard about that from a number of the jurisdictions here today, and I think that’s going to be a continuing theme going forward.

About the panel

Veronica Roberts

Veronica Roberts is a partner and UK regional head of Herbert Smith Freehills' competition, regulation and trade practice. A solicitor advocate, Ms Roberts specialises in UK and EU competition law, and has over 25 years' experience working in London (and previously Brussels) on high-profile matters. She leads HSF's global FDI group, which has a busy FDI filing practice. She has been involved in several of the conditional clearances issued to date under the UK's new FDI (NSI) regime and in March 2023 gave oral evidence before a Parliamentary Select Committee on the first year of operation of the NSI regime in practice.

Peter Camesasca

Peter D Camesasca has 27 years’ experience in all major aspects of EU competition law. He is a former co-chair of Covington’s FDI Regulation initiative and has a particular focus on in- and outbound aspects of the Asia/Europe interface. Mr Camesasca’s experience includes cases under Articles 101, 102 and 106 TFEU, national and multi-jurisdictional merger and joint venture notifications, investigations by multiple enforcement authorities and global antitrust litigation and monopolisation issues. He advises and litigates on horizontal and vertical cooperation issues, prepares and executes compliance and dawn raid programmes and participates in the installation of in-house training programmes.

Andrea Carreri

Andrea Carrerri contributed to the founding of LCA. He specialises in M&A, extraordinary transactions, and industrial and commercial joint ventures, and also deals with domestic and international company and commercial law, FDI/golden power and trade sanctions matters with particular reference to the M&A field and within different industries. Mr Carreri is the head of LCA International and coordinates different teams in cross-border transactions. He advises national and international clients active in several industries (including the iron and steel, life science and pharma, telecommunication, publishing, mechanical and chemical markets).

Jason Gudofsky

As head of McCarthy Tétrault’s antitrust/competition and foreign investment group, Jason Gudofsky provides legal advice, devises strategies, and offers creative solutions to achieve clients’ business goals involving complex business transactions. He assists both foreign investors and Canadian businesses navigating the Investment Canada Act regime, including net benefit and national security reviews. Mr Gudofsky provides clients with competition law advice in the context of their mergers, strategic alliances, joint ventures, and other commercial transactions. He is regularly called upon to provide risk assessments, to advise management and boards on their proposed arrangements and to navigate clients through government investigations. He has been awarded the highest rankings by all relevant lawyer ranking services.

Jeremy Zucker

Jeremy B Zucker, chair of Dechert’s national security practice, has extensive experience advising on national security reviews of foreign direct investment by the Committee on Foreign Investment in the United States (CFIUS). He has represented many dozens of foreign investors and acquirers (including sovereigns) as well as domestic sellers and targets in connection with investment transactions. Mr Zucker also advises clients on international trade regulatory compliance matters, including in relation to economic sanctions, export controls, anti-bribery and anti-money laundering.