Korea: Foreign Investment Security Reviews – Global Trends and Key Corporate Considerations

Foreign investment screening has become an increasingly important consideration for multinational companies pursuing cross-border transactions. Governments worldwide are strengthening national security review mechanisms, and Korea is continuing to refine its regulatory framework in line with global developments.

Companies considering investments or acquisitions involving Korean entities should assess potential national security review implications at an early stage of transaction planning. This article outlines key global trends, highlights important aspects of Korea’s regime, and identifies practical considerations for businesses structuring international investments.

1. Global Trend: Increased Scrutiny of National Security Implications

Foreign investment screening regimes are expanding in scope across major jurisdictions.

In the United States, the Committee on Foreign Investment in the United States (CFIUS) reviews foreign investments affecting national security. The Foreign Investment Risk Review Modernization Act (FIRRMA) broadened the scope of review beyond controlling investments to include certain non-controlling investments, particularly where transactions involve:

• critical technologies

• critical infrastructure

• sensitive personal data

Similarly, the European Union applies Regulation (EU) 2019/452 to assess foreign investments in strategic sectors such as digital infrastructure, energy, and defense. Japan has also strengthened its regulatory framework under the Foreign Exchange and Foreign Trade Act by lowering notification thresholds and expanding the scope of transactions subject to review.

These developments reflect a broader policy trend toward increased oversight of foreign investment activity, particularly where national security interests may be affected.

2. Korea’s National Security Review Framework

Korea’s national security review process combines statutory thresholds with substantive risk assessment criteria under Article 5 of the Enforcement Decree of the Foreign Investment Promotion Act.

While shareholding percentage is relevant, regulators focus primarily on whether a foreign investor gains control or significant influence over a Korean entity.

Factors that may indicate control include:

• board representation or participation in governance

• rights to appoint senior management

• access to confidential technical information

• access to critical operational systems

• influence over key strategic decision-making

Authorities assess national security risk across several categories, including:

• defense-related materials

• export-controlled technologies

• state secrets

• international peace and security concerns

• national core technologies

• high-tech strategic industries

This approach reflects the increasing importance of protecting advanced technologies and strategic industries.

3. Expanding Scope: Indirect Investments and Emerging Risk Areas

Korea’s regulatory approach is evolving to address emerging risks associated with indirect investment structures and technologically sensitive sectors.

Recent developments indicate expanding scrutiny of investments involving:

• artificial intelligence and data technologies

• energy infrastructure

• telecommunications systems

• critical minerals supply chains

A proposed amendment to the Foreign Investment Promotion Act would extend national security review requirements to indirect investments made through foreign-invested enterprises. This reflects growing regulatory attention on investment structures designed to achieve influence or control through intermediary entities.

Companies should therefore consider regulatory exposure when structuring transactions, including scenarios where a foreign investor establishes a Korean entity to acquire interests in another Korean business.

Authorities may also intervene where a potential risk to national security is identified, even where no immediate threat is present.

Practical Considerations for Companies

Given the direction of global regulatory policy, companies should:

• assess national security implications early in transaction planning

• consider whether governance rights could be interpreted as conferring control

• evaluate whether target companies operate in strategic or technology-sensitive sectors

• review investment structures for potential indirect control implications

• monitor developments in Korea’s evolving regulatory framework

National security review has become a standard element of cross-border investment analysis. Proactive legal and regulatory assessment can help reduce transaction risk and avoid delays in deal execution.

By Yulchon, Korea, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact korea@transatlanticlaw.com

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