The Inter-Pacific Bar Association discussion on “Evolvement of FDI national security review regimes in a segmented world” featured panel members from Germany, Russia, Vietnam, Italy and Indonesia.
The speakers discussed the regulatory landscape for foreign direct investment (FDI) and the discretionary power of governments in FDI decisions, influenced by national security and political considerations.
Providing a Russian perspective on when overseas companies run into restrictions, Timur Akhundov, a partner at Birch Legal, Saint Petersburg, said: “Russia is interested in technology, in bringing a workforce and capital inside the country, creating [employment] and increasing competition in the market. If the mission of your company is along those lines, I think that the investment should be safe from a political perspective and not run into any kind of special investigations or de-privatisation, which is now a keyword these days.”
Russia carried out expropriations following the start of the conflict in Ukraine, targeting companies from countries it viewed as unfriendly.
Akhundov advised companies to choose a neutral jurisdiction such as Turkey, India, China, Hong Kong or Vietnam through which to enter Russia. If they were from a country that introduced sanctions, then they would face restrictions.
“We see that being done by Italian and American companies, they are doing that and surviving,” said Akhundov.
Hong Bui, a partner at LNT & Partners in Ho Chi Minh City, expressed surprise that Russian authorities did not look past the formal beneficiary owner.
Ira Eddymurthy, a senior partner at SSEK Law Firm in Jakarta, provided an Indonesian perspective. She said the country’s largest investor was Singapore, but in fact most jurisdictions were routing their investments through the city-state, citing the example of TikTok entering Indonesia through its Singapore company rather than its China or US entities.
“Unlike Russia, our government really tries to identify the ultimate beneficial owner,” said Eddymurthy. “For the past 12 months, the law minister has been quite aggressive about wanting to know about the ultimate beneficial ownership and asking for them to be registered.”
Sharing a Vietnamese perspective, Bui said Vietnam was hesitant to fall into the middle-income trap that affected countries such as Thailand and the Philippines and was studying different models for national development.
“The country has decided to develop some chaebols, such as [those in] South Korea, and has so-called national champions, and for that, it has chosen to prioritise national resources for them. From the position of a foreign investor, you can see that this is somehow unfair treatment. For the same project in the same area, there is no restriction on foreign investment, but the approval process goes faster for the national champions.”
Bui said it was the interpretation and implementation of the law that made all the difference in allowing or halting foreign companies. “Because of the policy to prioritise some national champions, it eventually results in unfair treatment between a foreign investor and a big local company.”
