Outbound Investment Screening: What Does it Mean for Sanctions Compliance?

As tensions between China, Taiwan and the West have risen, there has been a lot of fervor around stemming technological and investment flows to Beijing. While outbound investment sanctions are relatively novel, they are not entirely new and thus can be studied and managed.

This is the first post of three that will examine what we are likely to experience for outbound investment screening for firms in the Nordics and give advice on how your company can prepare for the coming challenges. 

What is Outbound Investment Screening?

Simply put, outbound investment screening is a regulatory regime to restrict the flow of capital and technology to other countries. The measures often come in two forms, either a requirement to notify the home government of investments and transactions after they occur or an outright restriction on investments and transactions related to specific activities or technologies.

Because the current discussions in Europe and the US are fraught with often diverging vested interests, we are likely to see a solution that is a combination of these two types of measures that differ based on the sector, technology, and value of the investment.

While outbound investment screening is often categorized separately from other sanctions, for us on the compliance side the current discussions are best viewed as a continuation of the most recent sanctions restrictions, particularly on Russia. 

The innovative idea in the international response to Russia’s purported annexation of Crimea in 2014 was to impose “sectoral sanctions,” to restrict investments in debt and equity of specific companies, and the provision of high-tech energy technologies. Sectoral sanctions were also used as a bedrock of the US sanctions on Venezuela and were expanded upon (and sometimes double imposed by the US under the latest Executive Order) as part of the international response to Russia’s 2022 invasion of Ukraine.  

It is also helpful to appreciate that the discussions in the EU and US are not the first outbound investment screening regimes in the world. Most notably, China has implemented a comprehensive and restrictive strategy to control outbound investments. Beijing’s approach has been both carrots and sticks, encouraging investments abroad in industries selected as being important such as advanced manufacturing and high-tech assets, and simultaneously imposing restrictions on seemingly benign sectors like real estate, cinemas, and sports teams. We also have examples from Japan, South Korea and Taiwan which, to varying degrees of intended impact and focus, all have restrictions or notification requirements in some form. 

How can Outbound Investments Sanctions Impact my Business?

So, given that outbound investment screening is not a completely new idea, it is important to appreciate that we can understand and prepare for these measures, even without knowing all of the final details.  

Europe is looking to propose an outbound investment and technology control framework “by the end” of 2023 that will apply to various investment activities.

The final proposal likely will include restrictions on purchasing publicly traded securities in sensitive technology firms, engaging in joint ventures, greenfield investments and making foreign direct investments in China. The measures will also likely involve restrictions and notification obligations in critical sectors like semiconductors, quantum tech, and AI systems.

But no matter the final rules, it is assured that there will only be a continuous and growing scrutiny of transactions towards China and the discussed sectors in the future. To prepare, your company should determine:

  • What is the level of your company’s current business activities that relate to China (both in China and with Chinese individuals and firms abroad)? 
  • What is the level of your company’s current business activity that falls within the scope of prohibited sectors and technologies even if seemingly not directly tied to China?
  • Using the first two answers, what is the specific level of business activity that is related to the specific sectors and is tied directly or indirectly to China?
  • Finally, how will your company examine and decide upon engaging in future activity based on restrictions that are likely to change in the future, and how will your company be able to identify and avoid engaging in activity that likely will be attempts to circumvent the restrictions that are imposed?


While there is a particular focus on the current discussions on restricting technologies and the financial resources destined for China that support the development of Beijing’s military power, that is only where the measures are starting. As with all sanctions, we should expect the scope to expand over time to target more of the Chinese economy and other economies and actors as well. 

The approach and level of security needed for your company’s business activity will depend on your specific sector, with particularly finance, technology, and manufacturing sectors needing to closely scrutinize investments, supply chains and technology transfers for potential exposure.  

To help best position your company and to not get caught off guard, in our upcoming articles, we will look at what the EU proposal will likely cover in scope and content and how the US restrictions likely complicate investment operations for Nordic companies. Finally, we discuss how to approach implementing controls and tools to best manage the risk from these new restrictions from the start.