Foreign investors and Ukrainian businesses in strategic sectors should review their ownership structure, sources of funding and any potential links to sanctioned individuals, the Russian Federation and other high-risk jurisdictions. This is stated in a study by the Economic Security Council of Ukraine (ESCU).
Analysts note that the introduction of foreign investment screening will have the greatest impact on deals in the defence sector, critical infrastructure, mineral extraction, and the media, electronic communications, radio spectrum and information security sectors.
The screening system should not act as a barrier to bona fide investors; its purpose is to distinguish between safe capital, which is necessary for Ukraine’s reconstruction, and investments that may pose risks to national security, access to technology, data or strategic assets.
“Businesses should be prepared for the forthcoming launch of the investment screening system and check the basics in advance: ownership structure, sources of funds, counterparties and potential high-risk links. This will not only be useful for future screening but is also, in general, an important prerequisite for running a sustainable and successful business in Ukraine,” said Volodymyr Landa, head of the investment screening division at the Economic Security Council of Ukraine.
The Verkhovna Rada Committee on Economic Development is continuing to finalise draft law No. 14062 on the screening of foreign direct investment.
“The state must have a civilised, transparent and effective ‘entry-point’ control mechanism. It is better to verify the legitimacy of an investor’s capital in advance than to deal with the consequences later by imposing sanctions, carrying out confiscations or forcibly nationalising enterprises,” said Oleksiy Movchan, Deputy Chair of the Committee on Economic Development.
What else can businesses do to mitigate the risks associated with investment screening? Read about this in the full text of the study in the attached file.
Authors:
Volodymyr Landa, Head of Investment Screening at the Economic Security Council of Ukraine (ESCU)
Andrii Skitenko, Analyst at the Economic Security Council of Ukraine (ESCU)