Ukraine Plans to Introduce Screening of Foreign Direct Investments

A draft Law of Ukraine “On Screening of Foreign Direct Investments” #14062 has been submitted to the Verkhovna Rada. The draft aims to introduce a modern mechanism for assessing and controlling investments by foreign companies and individuals in the strategic sectors of the Ukrainian economy.

Context and Purpose of the Draft Law

The need for this law arises from the growing risks associated with the inflow of foreign capital into critically important sectors. Ukraine, which is enduring a full-scale war and rebuilding its economy, requires additional safeguards to prevent politically motivated influence through investments and to protect operators of critical infrastructure, energy companies, the defense industry, and users of strategic mineral resources.

The draft law is based on European practices, in particular Regulation (EU) 2019/452, which established a framework for the coordination of investment screening in EU member states. Similar systems are already in place in most EU countries and the United States (through the CFIUS mechanism) and have proven effective in mitigating risks to national security.

Sectors and Objects Subject to Mandatory Screening

The draft law provides that screening will be mandatory for investments in three key categories:

1. Critical Infrastructure.
Investments in enterprises that are operators of critical infrastructure and manage facilities included in the Register of Critical Infrastructure Objects will be subject to mandatory review. These include, in particular, the energy sector, transport, telecommunications, defense, and other sensitive sectors.

2. Strategic Mineral Resources.
Investments in businesses that exploit metallic ores and non-metallic minerals of strategic importance for the economy and defense capability of the state will be screened. The list of such resources will be approved by the Cabinet of Ministers of Ukraine.

3. Production and Circulation of Military and Dual-Use Goods.
All investments in enterprises engaged in the development, production, modernization, repair, transportation, disposal, and trade of military and dual-use goods will be subject to review. This will help prevent unscrupulous capital from gaining control over enterprises that are crucial for Ukraine’s defense capability.

Criteria for Screening

The screening procedure will apply to transactions where a foreign investor:

• acquires more than 25% of voting shares (stakes) in the charter capital of an enterprise subject to screening;
• obtains the right to appoint a sole executive body and/or more than 50% of a collegial executive body, as well as the ability to elect more than 25% of a supervisory board or another governing body;
• gains the practical ability to block decisions of the company’s governing bodies;
• acquires ownership or use of the company’s assets classified as fixed assets, with a total value of 10% or more of the balance sheet value of the company’s assets.

Thus, screening covers not only the acquisition of controlling stakes but also transactions that effectively give the investor decisive influence over the activities of Ukrainian companies.

Procedure and Impact on Transactions

According to the draft law, the screening procedure may take up to 90 calendar days, with the possibility of extension if additional information is requested. This means that all investment transactions in the regulated sectors will only take effect after the full review cycle has been completed and a clearance decision has been issued.

Accordingly, merger clearances by the Antimonopoly Committee of Ukraine in such cases will only be granted after a positive conclusion on the foreign investment. This will significantly extend the timeframe for transactions that fall within the scope of the law.

Liability for Violations

The draft law also provides for a system of liability for investors. Failure to obtain the required clearance or breach of the conditions set out in the decision of the competent authority may lead to a prohibition of the investment, annulment of the clearance, and termination of the relevant transaction. In addition, liability is foreseen for providing false information, and state protection guarantees for the investment will not apply in cases of non-compliance with legal requirements.