Building Trust, Not Barriers: Ukraine’s Path to Effective FDI Screening
By Mykyta Nota (AVELLUM, Partner), Anton Arkhypov (AVELLUM, Counsel), Mariia Bykova (AVELLUM, Associate)
To most foreigners, Ukraine is the ‘breadbasket of Europe’ – a land of rich soil where nearly half of all exports come from agriculture. The full-scale Russian invasion in 2022 turned that image on its head, underscoring the country’s engineering strength, industrial resilience, and its capacity to rapidly adapt and innovate under extreme pressure. Today, Ukraine produces over four million drones a year and has even developed its own long-range missile. As these mil-tech, defence, and critical infrastructure industries grow in importance, so does the need to protect them from undue foreign influence. One key tool for that could be a foreign direct investment (‘FDI’) screening mechanism.
FDI Screening in the EU
FDI screening is far from a new phenomenon. Since as early as 1995, at least 37 countries worldwide had established mechanisms to review foreign investments on national security grounds. Many states in the European Union (‘EU’) joined this global trend in 2019 following the adoption of Regulation (EU) 2019/452, commonly known as the ‘FDI Regulation’. The latter does not constitute a binding mechanism – it rather creates a cooperation framework that guides how EU Member States should design and apply their respective screening regimes.
At the heart of the FDI Regulation lie three guiding principles: legal certainty, transparency, and flexibility. The first two require Member States to clearly define when and how FDI screenings may occur. This includes setting out the specific circumstances triggering the screening, grounds for it, and the detailed procedural rules that apply. Timeframes for the screening process must be transparent, and foreign investors must have access to avenues for recourse against screening decisions. Importantly, these rules must be applied in a non-discriminatory manner, ensuring that all third-country investors are treated equally.
Flexibility, meanwhile, gives Member States the discretion to assess FDI based on their own national security interests and public order concerns. It recognises that each country has its own strategic priorities and unique economic context. Ultimately, the decision to establish a screening mechanism or to review a specific investment rests solely with the Member State concerned.
Prospects of FDI screening in Ukraine
As Ukraine moves closer to EU membership, it continues to align its legal framework with EU standards. A significant step in this process came in October, when two bills, No. 14062 and No. 14062-1 (‘Bills’), were submitted to the Ukrainian Parliament proposing the establishment of an FDI screening mechanism. Although both Bills share the same overarching goal, they present alternative, and at times even conflicting, approaches to sectors subject to screening, procedural timelines, institutional responsibilities, as well as to the overall structure of the mechanism. A detailed comparison of the two proposals is available here.
While the technical details of the proposed laws are undoubtedly important, they are also likely to evolve throughout the legislative process. We will then have ample opportunity to refine them. What truly matters at this stage is ensuring that the core principles of the EU’s FDI Regulation are firmly embedded in Ukraine’s future framework. Regardless of which draft ultimately becomes law, it must uphold the EU’s key principles of legal certainty, transparency, and flexibility. Anchoring these values from the outset will not only strengthen institutional credibility but also build greater confidence among foreign investors, signalling that Ukraine is committed to a fair, predictable, and well-governed investment environment.
Scope of notifications
A regulatory framework can only succeed when its core terms are clearly defined. When fundamental concepts and procedures are vague or overly broad, they lead to overregulation and unnecessary administrative burdens, as well as flood the competent authority with excessive notifications.
As a way of example, such a problem happened recently with the enforcement of the Foreign Subsidies Regulation (‘FSR’). In its legislative proposal, the European Commission had estimated that it would receive around 40-70 notifications per year for both acquisitions and public procurement tools. However, as the FSR contained a lot of broad and not-so-clear terms, the annual estimation was already exceeded in the first 100 days of enforcement, with 53 mergers and over a hundred public procurement notifications.
Two key points need to be addressed to ensure legal certainty and transparency in Ukraine’s future FDI screening regime. First, the law should clearly define the sectors and transactions subject to screening. By way of one example, under its current draft, Bill No. 14062 extends FDI screening to entities active in, among others, production, repair, transportation, disposal, and trade in dual-use goods. However, it does not specify how regular this activity should be. What if it is a one-time operation or amounts to a fraction of a company’s total sales? Based on the current text, even isolated or incidental transactions involving dual-use goods could bring a company within the scope of screening.
To put this into a real-life scenario, imagine a logistics company that occasionally delivers a batch of fibre-optic cable. It is a classic dual-use product: a backbone of everyday telecom networks, yet also a component that can end up in military drones during wartime. In this case, does handling one or two such deliveries make the company ‘active in the transportation of dual-use goods’? According to the wording of Bill No. 14062, it seems the answer to this question is positive. The next question is whether the acquisition of such a logistics company by a foreign investor is truly harmful enough to Ukraine’s security to require a mandatory FDI filing. And here, the answer is far from straightforward.
It is worth highlighting that the concern is not whether activities involving dual-use goods should appear on the list of sensitive sectors – most countries with FDI screening already do so. The experience of EU Member States shows that it is quite common to maintain a broad scope of sectors subject to FDI screening. For instance, Belgium includes media companies, Germany covers the production of certain pharmaceuticals, and Italy extends screening to food manufacturing. Nearly all Member States also include dual-use goods. Moreover, the proposed revision of Regulation (EU) 2019/452 stands to include a mandatory list of screened sectors, to which dual-use products will certainly be a part. This diversity reflects the flexibility granted to them – each country can determine which sectors are strategically important in its own context.
Nevertheless, while these practices offer valuable guidance, Ukraine should carefully assess its own priorities and administrative capacity to regulate effectively without drifting into overregulation. To achieve its declared goals, an FDI regime in Ukraine must include clear and precise guidance on when a deal falls under FDI screening and when it does not. A new screening regime should not become an obstacle for businesses and a burden for authorities. Instead, it should create a balance between investment attractiveness, available administrative resources, and national security interests.
Second, the list of sectors should be established directly by law at the time the FDI screening mechanism is introduced, not through secondary legislation. For example, Bill No. 14062-1 proposes granting this power to the Cabinet of Ministers of Ukraine, which would then have six months after the law’s adoption to compile the list of sectors subject to screening.
If the list was adopted by a government resolution, it could be amended by the government itself at short notice. Businesses would then have little time to adjust their transactions and avoid potential sanctions. By contrast, if the list is enshrined directly in the law, any changes would require a formal legislative amendment. This means parliamentary scrutiny, transparency, and a much higher level of predictability for investors.
At the same time, from a security perspective, it would be beneficial to define the list of screened sectors through secondary legislation. This approach would make it possible to quickly reflect ongoing developments, particularly in rapidly evolving areas such as military technologies and give the government the flexibility it needs to respond to emerging security challenges.
Integrity of the authority
To establish an effective FDI screening framework, there must be an independent authority responsible for handling notifications. The draft laws currently propose two different approaches. Bill No. 14062 envisions the creation of a special commission within the Ministry of Economy, while Bill No. 14062-1 designates the Antimonopoly Committee of Ukraine (‘AMCU’) as the competent authority.
EU Member States take different approaches to determining which authority is responsible for FDI screening. Most assign this function to a ministry that typically handles trade and economic matters. For example, in Austria, it is the Federal Ministry of Economy, Energy and Tourism, and in Ireland, it is the Ministry for Enterprise, Trade and Employment. Others delegate it to a specialised agency operating under such a ministry, such as the Netherlands’ Foreign Investment Agency within the Dutch Ministry of Economic Affairs, or Sweden’s Inspectorate of Strategic Products, which reports to the Ministry for Foreign Affairs. Only in rare cases is the task entrusted to the national competition authority. Romania is one example where the Romanian Competition Council also oversees FDI screening.
Both options proposed by the Bills have their drawbacks. In the case of the AMCU, the main concern is its already heavy workload. In addition to its traditional powers over cartels, abuse of dominance, and merger control, the AMCU also handles appeals in public procurement cases – all while operating with limited staff.
Another issue arises from the fact that many transactions subject to FDI screening are likely to overlap with Ukrainian merger control obligations. Under both Bills, obtaining an FDI screening decision is a prerequisite for merger control clearance. If the AMCU were responsible for both regimes, questions could arise regarding the impartiality of decisions under one or the other framework.
A commission within the Ministry of Economy, while consistent with common practice in EU Member States, could be vulnerable to political influence from other state bodies. Regardless of which authority ultimately manages FDI screening notifications, the key requirements are integrity and independence. In addition, the authority should receive adequate training and guidance from foreign specialists with established expertise in this field.
A notable strength of both Bills is that they provide for judicial review of screening decisions. However, they fall short in the same crucial area, as neither sets out the grounds on which such a review can take place. Bill No. 14062 merely states that the parties have a right to challenge decisions in court. Bill No. 14062-1 goes a step further by specifying that the review should follow administrative procedure rules. This implies that the general principles of administrative justice would apply. Still, investors expect a fair and independent review process, and for that, the Bills should spell out clear, concrete criteria for evaluating screening decisions.
Ex officio and call-in powers
Whenever a new legal instrument is rolled out, it usually arrives with a familiar companion: fear. Regulators worry that the law might not capture every scenario it was meant to address. Out of that fear comes a natural temptation to cast the regulatory net as wide as possible. But on the flip side of that well-intentioned caution lies the risk of overregulation. When the scope becomes too broad, investors face unnecessary burdens, and authorities find themselves drowning in an unmanageable workload. Fortunately, there are two widely used strategies to keep the balance in check – ex officio and call-in powers.
Russian capital had been taking roots into the Ukrainian economy for decades before the full-scale invasion, and removing its remaining footprint is essential. In this context, both Bills would benefit from introducing an ex officio review mechanism. Such a tool would allow the screening authority not only to assess future investments but also to revisit transactions that may pose national security risks, even if they were completed before the FDI screening regime took effect. A helpful example is the Dutch model, where the ex officio mechanism allowed authorities to review deals concluded up to nearly three years before the legislation entered into force.
Additionally, because it is practically impossible to capture every potentially sensitive sector or transaction type through a mandatory notification system, the Bills could also introduce supplementary call-in powers. This mechanism would allow the competent authority to review transactions that technically fall outside the definition of a covered investment or lie beyond the listed screened sectors, if there is reason to believe that such deals would be prohibited had they been covered. The Czech Republic offers a strong example of how an effective call-in regime can operate in practice.
These tools can give the government additional confidence that, even if something was initially missed or the security landscape changes, it can revisit the deal and reassess it in light of the current context.
Conclusion
As Ukraine prepares to introduce an FDI screening mechanism, the real challenge lies in finding the balance between keeping its economy open and protecting its strategic interests. The system will only work if it is built on clear rules and genuine independence of the authority in charge. Ukraine needs a model that fits its own realities, priorities, and resources. If done right, the new framework could become more than just another layer of control – it could be a smart safeguard for the Ukrainian economy.
