FDI Screening in Ukraine: Balancing Security, Predictability, and Investment
Reflections from a CELIS and CIPE event in Washington, DC
Anton Arkhypov (Counsel, AVELLUM)
Introduction
Ukraine’s reconstruction will depend heavily on foreign investment. At the same time, the country faces an unprecedented challenge: how to attract capital, technology, and partnerships without compromising national security in an environment shaped by war, geopolitical fragmentation, and global supply-chain realignment.
These tensions were at the centre of a recent CELIS and CIPE roundtable, during which I provided a legal analysis of two alternative draft laws proposing foreign direct investment screening regimes in Ukraine (read more on these here and here). The debate extended beyond strict legal principles and offered several practical insights worth considering. Below, I will discuss some of them.
To illustrate the timeliness of the debates we had in Washington, DC, shortly after the discussion, the Ukrainian government established an Interagency Commission on Foreign Direct Investment. This development does not in itself introduce an FDI screening regime, nor does it resolve the legal or institutional questions discussed during the session. The Commission is a temporary advisory body tasked with coordinating cooperation among existing state authorities in matters relating to foreign direct investment. While it does not alter the current legal landscape, it forms part of the broader institutional context in which discussions on FDI screening continue and increase in relevance.
Security and investment are not opposing forces
One of the strongest conclusions to come out of the session was that FDI screening should not be framed as an obstacle to investment, but as a mechanism that promotes sustainable growth. When screening rules are clear and consistently enforced, constructive collaboration among investors, local businesses, and public authorities can build trust and reduce uncertainty, supporting long-term investment decisions.
This logic is particularly relevant to Ukraine’s defence and military technology sectors. With over 600 companies operating in this field, the sector requires sustained capital inflows to scale production, accelerate innovation, and integrate into global supply chains. At the same time, it involves technologies and know-how that are inherently sensitive and vulnerable to adversarial influence. As a result, the sector must remain open to trusted investment while being effectively shielded from hostile capital.
International investor interest is already materialising. The latest example includes the potential acquisition by the UAE defence group EDGE of a minority stake in Fire Point, a Ukrainian company specialising in long-range strike drones and cruise missiles. This case illustrates both the opportunity and the risk: foreign investment can support the growth and internationalisation of Ukrainian defence companies, but without a dedicated FDI screening framework, there is currently no structured channel to assess security risks or impose safeguards where necessary.
The main goal is to create an FDI screening framework that shields sensitive sectors from adversarial investments, without isolating them from the foreign capital and partnerships necessary for their further development.
Investment security in the context of reconstruction
It is estimated that Ukraine’s reconstruction will cost EUR 506 billion between 2025 and 2035. In Ukraine’s effort to build back better, attracting both greenfield and brownfield investment will be essential to achieving this objective. At the same time, reconstruction inevitably amplifies security risks. As one speaker noted, large-scale investment flows should not compromise national security, particularly where they involve sensitive technologies, critical infrastructure, or dual-use capabilities. These risks are not merely theoretical.
This dynamic is clear in the energy sector. Ukraine needs significant capital injections to rebuild and upgrade its energy system, which has been under constant attack since February 2022. Private investment will be crucial for expanding renewable energy generation. Besides the evident risks of physical disruption, access to data and operational control will also become a national security issue in the context of FDI. In this environment, FDI screening can help distinguish commercial projects from investments driven by foreign strategic interests, including by using targeted mitigation commitments to manage risks related to data access and operational influence, where appropriate.
Another concrete example discussed during the session was the continued reliance of some Ukrainian military-technology producers on components sourced from China. This reliance demonstrates how investment and supply-chain decisions made during reconstruction can become strategic vulnerabilities. Addressing such exposure is therefore not only a matter of economic resilience but also of strategic autonomy. In this context, FDI screening can serve as a forward-looking tool, encouraging the development of trusted supply chains and joint ventures with reliable partners.
No need to “reinvent the bicycle”
A recurring theme was that Ukraine does not need to invent an entirely new model. International practice, particularly in the EU, already offers tested approaches to FDI screening.
In this context, predictability emerged as a red line. Investors need to know in advance whether a transaction is likely to be screened, how long the process will take, and what outcomes are possible. An effective FDI regime should function as a predictable sandbox, not a discretionary black box.
Institutional choices and implementation speed
From the business community, there was a clear request to avoid creating a new institution where existing bodies can be adapted. The underlying concern is not resistance to regulation as such, but the risk of additional institutional complexity in an environment where companies already face multiple layers of oversight.
Speed also matters. One speaker warned that Ukraine risks losing momentum if implementation is too slow. At the same time, haste should not come at the expense of oversight over strategically important companies and technologies. Striking this balance is essential.
A related practical issue concerns information asymmetry. Investors need access to actionable guidance, not only the legal text of the regime. This includes clarity on how the screening process operates in practice, which types of transactions are more likely to raise concerns, and what procedural options are available where concerns are identified.
Mitigation commitments and monitoring
Finally, the discussion underscored the importance of regulating not only prohibitions, but also mitigation commitments. In many jurisdictions, FDI screening increasingly relies on conditional approvals rather than outright bans. The Ukrainian FDI regime should therefore include clear, detailed rules on mitigation measures and on monitoring compliance with those commitments.
This is an inherently complex task: mitigation obligations may apply for the lifetime of an investment, and their effectiveness depends on whether they can be clearly defined, practically implemented, and credibly monitored. At the same time, experience in certain jurisdictions also suggests that effective regimes allow for a degree of flexibility, recognising that economic conditions, technologies, and supply chains evolve over time. In some systems, mitigation commitments are time-limited or may be revisited upon a reasoned request by the investor, subject to regulatory approval. For investors, this balance between durability and adaptability will be important because it provides an upfront clarity on the long-term obligations they assume and on the potential avenues for renegotiation when actual circumstances change.
Looking ahead
The CELIS discussion reinforced that the goal should not be maximum control, but smart control. One that protects national interests while enabling partnerships, innovation, and growth.
Getting this balance right will be critical for Ukraine’s long-term integration into European and global investment frameworks.
