Foreign Investment Compliance: How to Protect Every Stage of Entry

A foreign investor that seeks to benefit from the legal protections and incentives available to qualified foreign direct investments must satisfy the applicable statutory requirements for investment size, ownership percentage, and permissible business activities, and foreign direct investment counsel advising on FDI qualification must evaluate whether the investment structure produces a qualifying foreign ownership interest under the applicable legal definition.

A domestic financial institution that receives foreign investment capital must conduct customer due diligence on the investing entity and verify the ultimate beneficial ownership of the funds in compliance with Bank Secrecy Act requirements and applicable FATF standards, and AML compliance counsel advising on the documentation of foreign investment capital must evaluate whether the investor's source of funds documentation is sufficient to satisfy the receiving financial institution's due diligence standards and whether any jurisdiction-specific enhanced due diligence requirements apply because of the investor's country of origin.

A foreign investor that transfers capital across national borders must file the required foreign exchange transaction reports with the applicable regulatory authority at the time of the transfer and must continue to satisfy ongoing reporting obligations throughout the investment period, and international tax compliance counsel advising on foreign exchange compliance must evaluate whether the investor has correctly identified all reportable transactions.

A foreign investor that seeks to repatriate investment income or return invested capital must satisfy the applicable regulatory requirements for remittance approval, provide the required documentation of the investment's legal status, and comply with any applicable tax withholding obligations before the transfer can be completed, and transfer pricing and foreign investment counsel advising on a repatriation transaction must evaluate whether the applicable bilateral investment treaty or tax convention provides for full repatriation rights without government approval.

A foreign investment in a business that operates in a sector identified as sensitive from a national security perspective may be subject to mandatory review by the authority responsible for reviewing foreign investments for security implications, and CFIUS and US national security counsel advising on a sensitive sector investment must evaluate whether the target company's activities fall within the categories that trigger mandatory notification.

A foreign investment in a company that holds critical technology, critical infrastructure assets, or sensitive personal data may be approved subject to mitigation measures that limit the foreign investor's access to the sensitive assets and require the company to implement security controls, and technology transfer counsel advising on the negotiation of a mitigation agreement must evaluate whether the proposed mitigation measures allow the investor to achieve the commercial objectives that motivated the investment and whether the compliance monitoring obligations are operationally feasible.

A foreign investor whose investment is selected for post-entry compliance review must respond to the government's requests for information while assessing the scope of any potential compliance deficiencies and developing a legal strategy for defending against potential enforcement action, and foreign investment law counsel advising on a foreign investment compliance audit must evaluate whether the government's information requests are within the scope of the applicable regulatory authority.

A foreign investor that discovers a foreign investment compliance deficiency before the relevant regulatory authority has identified it must evaluate whether voluntary self-disclosure will produce a more favorable outcome than waiting for the government to identify the problem independently, and corporate compliance and risk management counsel advising on the voluntary disclosure decision must evaluate whether the applicable regulatory framework provides for reduced penalties in exchange for voluntary disclosure.