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International Bar Association




Investments by sovereign wealth funds ('SWFs') - pools of capital accumulated by and under the control of sovereign states, mostly from the Persian Gulf and East Asia - in European and North American companies have changed dramatically both in scope and in nature in the last few years. In terms of scope, SWFs are estimated to currently control USD$2-3 trillion in assets - more than all hedge funds and private equity funds combined - and within the next five years, they are expected to direct USD$6-10 trillion in assets.' In terms of the nature of the investments made, these funds have recently moved from largely small-scale, low-key, passive investments to larger, higher-profile, more active investments. Given the nature of the investors in question ie, sovereigns, these recent changes have stirred up the long-standing debate between protectionism versus free-market approaches towards foreign direct investment ('FDI') especially as it relates to industries that are viewed as 'strategic'. These dramatic changes, the effects of which on the global economy and, indeed, international affairs, are only starting to become clear, have propelled states with screening mechanisms for the review of such investments to re-evaluate and bolster these mechanisms. In the last two years eg, at least 11 major countries, which together accounted for over 40 per cent of all world inflows of FDI in 2006, have approved or are seriously considering new laws that would either restrict certain types of FDI or expand government oversight of certain cross-border investments. Most of these regulatory changes have been justified on the basis of protecting national security or safeguarding so-called strategic industries.

This article examines the screening mechanisms in place, recently changed or currently under consideration by the United States, France and India. While by no means an exhaustive or even representative survey, this sample highlights how different jurisdictions apply varying degrees of scrutiny to FDI in an age of increased sovereign-directed investments. As such, it illustrates some of the key issues an investor and its advisers may wish to examine when contemplating a potentially sensitive investment such as the role of the executive in the review, the availability of judicial review in national or transnational courts, the definition of key concepts such as foreign investment/investor, and the sectors regarded as sensitive.

foreign investment/investor, and the sectors regarded as sensitive. For each jurisdiction, the article examines: (1) the governing law and recent changes thereto; (2) the screening mechanisms including (i) the composition of the review body, (ii) key concepts such as 'foreign investment', (iii) the industries subject to review, and (iv) review timelines and other key features of the review process; and (3) notable recent deals or public controversies.

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