Executive Summary The global national security and foreign direct investment (FDI) review landscape continues to evolve. Investment screening has become a common feature of cross-border regulation, particularly among advanced economies, and many jurisdictions have introduced, expanded or refined mechanisms to assess foreign investment on national security, public order or economic security grounds. At the same time, regimes implemented in recent years are maturing, the United States and its allies are coordinating more closely on investment security strategy, and certain affected jurisdictions are developing countermeasures. As FDI regimes proliferate and mature around the globe, governments are taking an ever-more expansive view of the concept of “national security,” to include more than military and defense interests. In many cases, “national security” now extends to advanced technology, sensitive data, critical infrastructure, communications assets, critical inputs and supply chains. In many jurisdictions, lower jurisdictional thresholds, broader definitions of “investment” and “control,” and expanded sectoral coverage mean that FDI reviews can be triggered by transactions that historically may not have raised filing or approval issues. The United States and its allies are also increasingly cooperating to scrutinize certain categories of investment, including investment linked to China or other strategic competitors in critical technologies, critical infrastructure and supply-chain-sensitive sectors, including semiconductors. At the same time, countries continue to encourage “friend-shoring” and other supply-chain resilience strategies, with investment from trusted jurisdictions often receiving a different regulatory reception than investment involving strategic competitors, state- linked actors or sensitive technology transfer risk. The current U.S. administration has paired a renewed commitment to open investment from allied and partner countries with a more restrictive posture toward China and other foreign adversaries. Treasury is developing the
Known Investor Program to create process efficiencies for certain qualifying foreign investors, while the administration has also made clear that it intends to use CFIUS and other legal authorities to restrict inbound investment from China and other foreign adversaries in strategic sectors and to deter certain outbound investment by U.S. persons into sensitive technologies linked to countries of concern. Outbound investment controls are now part of the U.S. national security regulatory architecture and are likely to influence policy development in other major economies. The United States’ outbound investment review regime became effective on January 2, 2025. In its current form, the U.S. outbound review mechanism reviews and prohibits certain outbound investments by U.S. investors to protect U.S. national security and safeguard U.S. supply chains from certain countries such as Russia and China. With the passage of recent legislation codifying the U.S. outbound investment regime, the rules will be expanding to cover investments in new national security sectors. Those changes will require implementing regulations, and investors should distinguish between the rules currently in force and the broader statutory framework that Treasury is expected to implement. Although China, Taiwan and South Korea have forms of outbound investment review mechanisms, the U.S. outbound investment review mechanism is the first of its kind to be adopted by a major Western economy. The European Union has also moved in this direction through a recommendation calling on Member States to review outbound investments in semiconductors, artificial intelligence and quantum technologies, which may inform future EU or Member State measures. FDI regulations often cast a wide net: there are multiple FDI regimes that feature a broad jurisdictional nexus, such that even relatively small transactions may be captured as well as investments involving limited governance and control rights. As regimes expand in scope, outcomes are becoming increasingly uncertain. Both buyers and sellers should undertake early diligence to identify the investment screening regimes implicated by proposed transactions and, in appropriate cases, develop mitigation
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