Author: Oleg Ryabtsev
Managing partner, C&C
General Concept and Objectives
National Security Review is a process of evaluating foreign investments by governmental authorities for potential threats to national security. In today’s world many developed countries have significantly tightened control over foreign capital investments, with particular attention to investments from Russia and China.
The primary objective of such reviews is to ensure the protection of strategic sectors of the economy and critical infrastructure from undesirable foreign influence. These mechanisms are intended to prevent the acquisition of important assets by foreign entities in cases where this may create risks for national security.
Key Aspects of the Review Process
- identification of ultimate beneficiaries and sources of financing, including the verification of ties to sanctioned persons
- assessment of potential access to critical technologies, intellectual property and data (including determination of the location of data processing and individuals with access to it — especially developers)
- analysis of the possibility of using the acquired assets for military or intelligence purposes
- review of the transaction's impact on market concentration and the country's economic security
- assessment of the involvement of foreign states in the management of the investing company
Historically these mechanisms were significantly strengthened after 2014 due to geopolitical changes and subsequently further developed after 2022. The result of the review may be full approval of the transaction, partial approval with certain conditions, blocking or forced divestment of already acquired assets.
USA: Committee on Foreign Investment (CFIUS)
In the USA the key authority for reviewing foreign investments is the Committee on Foreign Investment in the United States (CFIUS), which blocks transactions potentially threatening national security. CFIUS has broad powers to review and potentially block transactions especially in the technology sector.
Types of Transactions Subject to Review
- acquisition of control in a US business by a foreign person
- investments in critical infrastructure
- investments in companies handling sensitive personal data
- acquisition of real estate near military sites and sensitive infrastructure
- investments in critical technologies
Mandatory Notification is Required in the Following Cases
Acquisition of 25% or more of direct or indirect voting interest in a US business engaged in critical technologies if the investor has substantial ties with a “country of special concern.”
Acquisition by a foreign government of 25% or more of direct or indirect interest in a US business engaged in critical technologies, critical infrastructure or sensitive personal data.
Countries of special concern in the context of CFIUS include states whose investments are subject to heightened scrutiny. Officially these include Russia, China and other sanctioned jurisdictions. Investments from these countries are automatically subject to stricter control and require mandatory notification in more cases.
Voluntary notification is recommended for all other transactions that may potentially raise national security concerns.
Notification Procedure
- Parties may submit either a short-form notice (5-page declaration) or a full notice (detailed description of the transaction)
- Review period for the short-form notice is 30 days
- Review period for the full notice is 45 days, with a possible extension of 15 days
Consequences of Non-Notification: CFIUS retains the right to review non-notified transactions retroactively without a statute of limitations, which creates long-term risks for investors.
CFIUS may not only block transactions at the conclusion stage but also require divestment of already acquired assets if they are later deemed threatening to national security.
United Kingdom: National Security and Investment Act
In the United Kingdom the key legislation for reviewing foreign investments is the National Security and Investment Act, adopted in 2021, which significantly expanded the UK government’s powers to review and block foreign investments.
Types of Transactions Subject to Review
- acquisition of control in UK companies by foreign investors
- investments in 17 key sectors of the economy (including defense, energy, AI, quantum technologies)
- acquisition of significant influence or control over assets in sensitive areas
Mandatory Notification is Required in the Following Cases
- acquisition of more than 25% of voting rights or shares in a company operating in one of the 17 specified sectors (including telecommunications)
- obtaining the ability to block or make management decisions in such a company (e.g., by increasing the shareholding to 50% or 75%)
- acquisition of substantial control or influence over assets related to critical infrastructure or other sensitive spheres
Transactions subject to mandatory notification cannot be completed without prior approval: transactions concluded without approval are legally null and void and may result in serious penalties and criminal liability for the participants.
Voluntary notification is recommended for transactions that may raise national security concerns but do not meet the criteria for mandatory notification.
The government also has the right to retrospectively initiate a review within 6 months from the date it becomes aware of the transaction, but no later than 5 years from its completion.
Notification Procedure
- Submission of the notification through a special online portal
- Review period — 30 working days with a possible extension for 45 days
Consequences of Non-Notification: Failure to comply with mandatory notification requirements may result in penalties of up to 10% of the company’s global turnover or up to £10 million (whichever is greater).
Canada: Investment Review Division
In Canada, foreign investment review is governed by the Investment Canada Act. The key authority is the Investment Review Division (IRD).
Types of Transactions Subject to Review
- acquisition of control in a Canadian business
- investments in critical sectors (technology, natural resources)
- transactions involving foreign state investors
National security reviews may be initiated for any transaction within 45 days of notification.
Voluntary notification is recommended for transactions that do not meet mandatory notification criteria but may affect national security interests. This allows legal certainty and helps avoid retrospective review.
European Union: Regulation 2019/452
In the European Union a pan-European system for the control of foreign investments has been established by Regulation (EU) 2019/452 and subsequent amendments.
Types of Transactions Subject to Review
- acquisition of control in EU companies by foreign investors
- investments in critical sectors (semiconductors, AI, quantum technologies, etc.)
- direct and indirect acquisitions of control, including greenfield investments
Key Elements of the System
- Two-level structure: national control with respect to EU-wide standards
- Coordination mechanism: information exchange among Member States
- Veto power: final decision remains with national authorities
Review Procedure
- Submission of the notification through national or EU procedures
- Maximum review period — up to 75 days
- Possibility of appeal in national courts and through the European Commission
Switzerland: Investment Screening Act
Switzerland has traditionally maintained an open economic policy, but starting from 2025 it is introducing a new law (Investment Screening Act), which introduces mandatory control in sensitive sectors.
Types of Transactions Subject to Review
- acquisition of control in Swiss companies especially in critical sectors
- investments from foreign state investors
Critical Sectors
- defense industry, dual-use goods
- energy, water supply
- healthcare, transportation and telecommunications infrastructure
Review Procedure
- Two-phase scheme: preliminary application to SECO followed by an official submission
- The Federal Council makes decisions on politically sensitive transactions
- Administrative fines of up to 10% of the transaction value (maximum of CHF 10 million)
- Possibility of declaring the transaction legally void
- Requirement of divestment (forced sale of acquired assets)
- In cases of intentional violation — criminal liability for the company's management
Risk Mitigation Strategies
Various strategies are used to minimize the risk of investment blockage:
- Business structuring through trustees with “neutral” or “friendly” citizenship
- Splitting transactions so as not to exceed the review threshold
- Voluntary notification