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The Republic of Korea welcomes foreign direct investment (“FDI”) under the Foreign Investment Promotion Act (FIPA) and historically views inbound investment as critical to economic growth and technological advancement. The Korean government, however, has maintained discretion to limit or condition foreign investments that raise concerns for national security, public order, or that may compete with strategic industries.
With the new administration and changes in political realities, the Korean government, via the Korean Ministry of Trade, Industry and Energy (MOTIE), is taking a more active stance in the review of foreign investment.
Expansion of Ex Officio Reviews
Traditionally, security and economic impact reviews by the Korean government were initiated when foreign investors submitted filings with MOTIE. Under the revised approach, MOTIE may now conduct ex officio reviews even for transactions already closed if it determines that a deal implicates Korea’s security interests.
This expanded power reflects growing belief of risks that may not be immediately apparent at the time of closing, such as:
- Investments that involve dual-use technologies;
- Acquisitions of companies with access to sensitive data and privacy infrastructure; and
- Post-closing changes in global or regional security dynamics.
Foreign investors should therefore expect that compliance does not end with approval; oversight may extend well beyond initial clearance. Thus, we advise always having a non-conflicted street-smart attorney advice prior to investing in Korea.
Clarified Review Procedures
MOTIE has also provided greater clarity on the procedural aspects of review, reducing uncertainty for investors and counterparties. Key changes include:
- Initial Screening: Clearer criteria for determining whether a filing triggers a full review.
- Scope of Review: Broader interpretation of “national security,” encompassing not only defense but also semiconductors, AI, and emerging technologies.
- Interagency Input: Expanded role of other ministries and agencies, particularly in defense, ICT, and intelligence, in determining whether conditions should be imposed.
- Conditional Approvals: Greater flexibility for MOTIE to attach conditions, such as restrictions on technology transfer, data access, management participation, or subsequent divestitures.
Practical Implications
For foreign investors, the message is clear: national security and economic competition review must be factored into early transaction planning. Practical steps include:
- Pre-Filing Assessments: Conducting due diligence to determine whether a deal may raise national security or economic concerns for Korea.
- Transaction Structuring: Preparing to accommodate conditional approvals or mitigation measures.
- Ongoing Compliance: Anticipating possible post-closing reviews and ensuring internal controls are in place to respond quickly to inquiries.
For companies also facing questions of shareholder rights and governance, coordination across multiple compliance regimes is increasingly necessary.
IPG Legal has advised numerous foreign clients in navigating FIPA procedures, preparing for MOTIE reviews, and structuring investments to comply with Korea’s evolving regulatory environment. For more information, please contact our attorneys to discuss how these changes may affect your business.
by Sean Hayes
Sean Hayes is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only a few non-Korean lawyers as a Top Attorney by AsiaLaw, IPG Legal is consistently ranked a Top Dispute Resolution Law Firm for our litigation, arbitration, and mediation services, and IPG Legal is consistently rated a top-tier law firm in corporate law, litigation, arbitration, franchise law, distribution law, estate law, family law, employment & labor law, and criminal defense.
Sean’s profile may be found at: Sean C. Hayes. To schedule a call with Sean Hayes, please click: Schedule a Call with Sean Hayes.
