Ukraine Moves Toward FDI Screening: Competing Bills Emerge in Parliament

By Anastasiia Panchak, Senior Associate at Asters (Kyiv, Ukraine), CELIS Reporter for Ukraine

 

Ukraine plans to take an important step toward establishing a mandatory foreign direct investment (the FDI) screening mechanism. Over the past month, two bills were registered in the Verkhovna Rada of Ukraine (the Parliament): the main bill No. 14062, "On the Screening of Foreign Direct Investments" (the Bill No. 14062) and the alternative bill No. 14062-1  (the Bill No. 14062-1), bearing the same title. 

The bills were submitted by Members of Parliament from different political parties and both aim to create a legal framework for assessing whether foreign investments in strategic economic sectors pose risks to Ukraine's national security or interests. The proposed models, however, diverge significantly, establishing different competent authorities, screened sectors, procedures, timelines, and penalties, among other aspects. 

To recall, this is Ukraine's second attempt to introduce an FDI screening regime. In 2020, the country’s Ministry of Economy prepared bill No. 5011, "On the Procedure for Making Foreign Investments in Business Entities of Strategic Importance for the National Security of Ukraine," which was registered in Parliament in 2021. The bill, however, was returned for further revision and – largely due to Russia's full-scale invasion in 2022 – did not move forward. 

 Competent Authority 

 Under Bill No. 14062, FDI screening will be administered by the Commission on the Assessment of the Impact of FDI (the Commission), which will be established within the  Ministry of Economy. The Commission will include one representative from (i) the Security Service of Ukraine, (ii) the Foreign Intelligence Service, (iii) the Ministry of Foreign Affairs, and (iv) the competent authority for critical infrastructure protection. The State Service for Special Communications and Information Protection will support the Commission in detecting transactions subject to screening. 

Bill No. 14062-1, in contrast, introduces a two-tier system for FDI screening: Antimonopoly Committee of Ukraine (the AMC) will be the primary authority responsible for conducting FDI screening, while the Cabinet of Ministers of Ukraine (the Government) will retain the final decision-making power in complex or sensitive cases. The bill also assigns the Bureau of Economic Security a supporting role in the screening procedure, providing the AMC with the necessary information and proposals to draft decisions. 

Screened Sectors 

Under Bill No. 14062, foreign investments in Ukrainian entities active in the following sectors will be subject to screening: 

1. operation of critical infrastructure (entities listed in the Register of the Critical Infrastructure Assets); 

1. extraction of metallic ores and non-metallic minerals of strategic importance (the list is determined by the Government); and 

1. development, production, modernization, repair, transportation, disposal, and trade of military goods and dual-use items. 

Bill No. 14062-1, in contrast, does not specify a list of economic sectors subject to FDI screening; instead, it grants the Government authority to adopt such a list within six months after the law enters into force. The Government will also be required to review and, if necessary, update this list every two years. 

 Notifiable Transactions 

Under Bill No. 14062, the following types of transactions will trigger a mandatory notification obligation: 

1. direct or indirect acquisition of more than 25% of voting rights; 

1. acquisition of ownership or use of 10 % or more of the book value of fixed assets; 

1. direct or indirect acquisition of the right (i) to appoint the sole executive body and/or more than 50 % of the collegial executive body; and/or (ii) to elect more than 25 % of the supervisory board; and/or (iii) to block decisions of the management bodies; or 

1. other transactions aimed at making investments in a Ukrainian entity. 

 Bill No. 14062-1 provides that FDI screening will be required if a foreign investment results in the direct or indirect acquisition of: 

1. control over the target; 

1. ownership or use of 10 % or more of the book value of the target's fixed assets; 

1. ownership or use of land plots used or intended to be used for activities in the screened economic sectors; or 

1. other rights conferring a decisive influence over the target. 

Timing of Review 

Under Bill No. 14062, once an application for FDI approval (the FDI application) is submitted, the Commission will have up to 60 calendar days to assess its completeness. The Commission may request additional information to a foreign investor. If the FDI application is complete, the Commission will have, within 5 business days, to notify the investor of (i) the initiation of the screening procedure or (ii) the conclusion that the transaction is not subject to screening. The screening procedure itself must not exceed 90 calendar days from the date of the Commission’s decision to initiate it.  

Under Bill No. 14062-1, after the FDI application is submitted, the AMC will have up to 15 business days to decide whether to (i) leave the FDI application without consideration (if the application is incomplete), (ii) initiate the screening procedure, or (iii) conclude that the transaction is not subject to screening. The bill also provides for a 15-calendar-day period for the AMC to conduct consultations with a foreign investor to obtain additional information. Once the screening procedure is initiated, the AMC will be required to complete it within 60 calendar days.  

 Notably, under Bill No. 14062-1, if the AMC decides that a transaction must be approved subject to conditions or prohibited, the Government will step in. The Government will then have up to 30 calendar days to issue one of the following decisions: (i) to prohibit the transaction; (ii) to approve the transaction subject to conditions; or (iii) to approve the investment unconditionally. Therefore, in complex or sensitive cases, the Government will retain the final say. 

Deemed Approval 

 Under Bill No. 14062-1, if the AMC fails to issue a decision within the statutory deadline set for the screening procedure, the investment shall be deemed tacitly approved. The same principle of deemed approval applies if the Government does not issue a decision after the AMC has referred the case to it. In contrast, Bill No. 14062 does not provide for such a provision.  

Prohibited Transactions 

Under both bills, a transaction cannot be approved if a foreign investor (or its founders, shareholders, or ultimate beneficial owners): 

1. had FDI linked to Russia or other sanctioned states; 

1. was subject to sanctions; 

1. held Russian citizenship; 

1. had property interests in Russia. 

 Penalties 

Under Bill No. 14062, if a foreign investor provides false or incomplete information in the FDI application and this is identified before the transaction is implemented, the Commission will prohibit the transaction. If the issue is identified after implementation, the Commission may impose such remedial measures as (i) suspension of voting rights, (ii) deprivation of dividend rights, or (iii) unwinding of the transaction. If a foreign investor fails to notify a notifiable transaction, the same measures apply. Where a transaction is implemented in contravention of the Commission’s prohibition decision, in addition to the above remedial measures, a fine of up to 50% of the investment value will be imposed. 

Under Bill No. 14062-1, if a foreign investor fails to notify a notifiable transaction, the AMC will seek judicial invalidation of the transaction in court. A foreign investor will also face (i) a fine of 5 % to 10% of the investment value or (ii) a prohibition on making new investments in Ukraine for a period determined by the AMC. If a foreign investor fails to comply with the AMC's prohibition decision, a fine of 10% to 20% of the investment value will be imposed. In cases of repeated non-compliance, the AMC will be entitled to seek judicial invalidation of the transaction in court. 

FDI and Merger Control 

Both bills propose amendments to the Law of Ukraine "On Protection of Economic Competition." Under Bill No. 14062, the Commission’s clearance (or its decision that the transaction is not subject to screening) will be a prerequisite for obtaining merger control clearance from the AMC. In contrast, Bill No. 14062-1 allows parallel review of merger and FDI filings; however, the final merger control decision may be adopted only after completion of the FDI screening.  

In practice, if the approach proposed by Bill No. 14062 is adopted by Parliament, it will mean that, where a transaction triggers both the Ukrainian FDI and merger control regimes, obtaining merger clearance will take significantly longer, as FDI approval will have to be secured before a foreign investor may file an application for merger clearance. This diverges from the approach in many EU countries, where FDI screening and merger control may proceed in parallel; therefore, the approach in Bill No. 14062-1 is more closely aligned with that of the EU. 

EU Cooperation Mechanism 

Notably, Bill No. 14062-1 provides that the AMC, in cooperation with the Ministry of Foreign Affairs, will be responsible for ensuring information exchange with the European Commission (the EC) and the responsible authorities of EU Member States regarding investments that may affect the national or economic security of either Ukraine or EU Member States. While Regulation (EU) 2019/452 (the Regulation) allows EU Member States and the EC to cooperate with the responsible authorities of third countries on FDI screening issues.  

Bill No. 14062-1 does not specify how such cooperation will be implemented in practice in Ukraine. In the explanatory note accompanying the bill, the authors noted that, when preparing the bill, they analysed the Regulation, as well as the  FDI screening regimes of Poland, the Netherlands, Denmark, Romania, Norway, Slovakia, and the Czech Republic. However, Bill No. 14062 does not oblige the Commission to exchange information with the EC or EU Member States. 

 What is Ahead 

The registration of the bills is a clear signal that Ukraine is moving forward to align with global – particularly European – practice in safeguarding national security through the screening of FDIs in strategic economic sectors. It is expected that, before final adoption, the text of the FDI screening law will undergo some changes during parliamentary review, potentially aligning it more closely with the FDI screening regimes implemented in EU Member States. 

Regardless of the final design of Ukraine's FDI screening regime, both bills stipulate that the new law will enter into force six months after its official publication (with no retroactive effect on transactions implemented before the law's entry into force). This means that if the law is adopted by the end of 2025, Ukraine’s FDI screening regime may become fully operational by mid-2026. Foreign investors should take this into account when planning the timing of M&A deal closings in Ukraine. 

We will continue to monitor the legislative process and keep you updated on the progress of the FDI screening bills in Ukraine.