Foreign economic collection, CFIUS, Regulation (EU) 2019/452, and the circuitous journey towards EU-wide foreign direct investment screening

Bernard Horowitz is a Law Clerk for Senior Judge Mary Ellen Coster Williams of the United States Court of Federal Claims. This article does not reflect the views of the Court of Federal Claims or Judge Williams, and was written solely in the author’s personal capacity and not as part of his court-related duties.

Beginning c. 2010, democratic countries faced a rapid increase in foreign economic collection (cyber-based industrial espionage campaigns), seeking to exfiltrate intellectual property and trade secrets from the private sector. Foreign Direct Investment (“FDI”) has been one of the main channels for these campaigns – i.e., terms of investments have been used to enable computer access. The U.S. was relatively well-positioned to respond to these tactics because of its longstanding review mechanism, CFIUS, which Congress updated in 2018. In contrast, while EU Member States with relatively large economies have long recognized FDI-based foreign economic collection and established FDI screening at the national level, EU Member States have been generally split on establishing EU-wide FDI screening. In February 2019, after 14 months of negotiations, the EU established Regulation 2019/452, nominally resolving these differences and creating an EU-wide FDI security screening mechanism. While the Commission’s first two annual reports about 2019/452 expressed optimism, a powerful report recently issued by the OECD (and sponsored by the EU) strongly suggests that the political divides over EU-wide FDI impacted the statutory scheme of 2019/452, that the intra-EU political divides over FDI have not been resolved, and that a “potentially significant” proportion of foreign investments in the EU are falling outside the reach of the framework.