Hyeonmin Kim and June Kyu Shin (Kim & Chang) authored this publication

All foreign direct investments are subject to either the Foreign Investment Promotion Law (FIPL) or Foreign Exchange Transaction Law (FETL). If a foreign direct investment meets certain conditions and is made pursuant to the FIPL, then such investment is not subject to restrictions under the FETL. The Ministry of Trade, Industry and Energy (MOTIE) is the main government department responsible for the administration of foreign direct investments (FDI).

The Act on Prevention of Divulgence and Protection of Industrial Technology (ITPA) governs the transfer of National Core Technologies (NCT) to foreign companies as well as foreign acquisitions of domestic companies that hold National Core Technologies. MOTIE is the main government department responsible for administration of foreign acquisition of NCT.

Further, MOTIE enacted and put into effect the Regulations on Operation of Security Review Procedures for Foreign Investment, which additionally provide that when a foreign investor files a report for a foreign investment or application for approval, the investor must indicate whether it is acquiring de facto control of the company and whether the transaction results in one of the cases below.

• There are concerns that production of defense materials may be hindered
• It is highly likely that goods will be subject to export approvals or licenses, or technologies will be diverted for military purposes
• There are concerns regarding public disclosure of state secrets
• There are concerns that international efforts by the United Nations or other organizations to maintain international peace and security may be severely and substantially hindered or
• It is highly likely that National Core Technology will be divulged

If the foreign investment is subject to security review on the face of the report/application, then the certificate of report on foreign investment will be withheld and foreign investment security review must commence.

Recent updates 

MOTIE enacted and put into effect the Regulations on Operation of Security Review Procedures for Foreign Investment, which additionally provide that when a foreign investor files a report for foreign investment or application for approval, the investor must indicate whether it is acquiring de facto control of the company and whether the transaction results in one of the cases below.

• There are concerns that production of defense materials may be hindered
• It is highly likely that goods will be subject to export approvals or licenses, or technologies will be diverted for military purposes
• There are concerns regarding public disclosure of state secrets
• There are concerns that international efforts by the United Nations or other organizations to maintain international peace and security may be severely and substantially hindered or
• It is highly likely that national core technology will be divulged

If the foreign investment is subject to security review on the face of the report/application, then the certificate of report on foreign investment will be withheld and foreign investment security review must commence.

Types of deals reviewed 

All foreign direct investment that qualifies as a "foreign investment" as stipulated under the FIPL is subject to filing a report under the FIPL.

Generally, a foreign direct investment is subject to a Foreign Investment Report (FIPL Report) to a "designated Foreign Exchange Bank." If a foreigner intends to make a foreign investment in a defense industry company as designated by the Minister of MOTIE pursuant to the Defense Acquisition Program Act, then the foreigner needs to obtain Foreign Investment Approval (FIPL Approval) from MOTIE.

Foreign investments into an institution possessing industrial technology and NCT developed without government subsidies are subject to a report to MOTIE (ITPA Report) before such transaction can proceed. Foreign investments into an institution possessing industrial technology and NCT developed with government subsidies for research and development are subject to approval from MOTIE.

Scope of the review

FIPL report

For the FIPL Report, the designated foreign exchange bank will accept the filing when all information and underlying documents are provided.

FIPL approval

For FIPL Approval, the key question considered is whether the transaction poses a risk to national security. More specifically:

• Whether defense acquisition would be affected and
• Whether there is risk of technology being leaked which could present a risk to the economy or national defense

In case of an FIPL Approval, MOTIE shall consult with the Ministry of National Defense (in practice, the Defense Acquisition Program Administration, or DAPA) on whether to approve the application. The Ministry of National Defense shall consent to granting approval if it deems that the relevant defense materials produced by a defense industry company are replaceable by products of other domestic companies, or that granting permission will not significantly affect national security.

In the event the foreign transaction at issue is determined to pose a serious risk to national security, MOTIE may order various measures to address the risk, such as an order to suspend, prohibit or even unwind a transaction.

TPA report/ITPA approval

For the ITPA Report and ITPA Approval, the key question is similar—whether the transaction poses a risk to national security. In the event the foreign transaction at issue is determined to pose a serious risk to national security, MOTIE may order various measures to address the risk, such as an order to suspend, prohibit or even unwind a transaction.

Review process timeline

The FIPL Report is routinely granted within one or two business days unless the industry sector in which the Korean company receiving the investment operates is subject to other restrictions.

In case of application for FIPL Approval by MOTIE, MOTIE has 15 calendar days (with an option to extend the review by up to 15 calendar days) to notify the foreign investor whether MOTIE approves the transaction. MOTIE generally observes the review periods as stipulated under the FIPL.

In case of application for an ITPA Report, MOTIE has 15 calendar days to notify the institution and foreign investor whether MOTIE approves the transaction, and if MOTIE does not approve the transaction, it has 30 calendar days from the date of notice to order to suspend, prohibit or even unwind a transaction. Before the submission of a formal application, the foreign investor can informally consult with MOTIE in connection with such application.

In case of application for ITPA Approval, MOTIE has 45 calendar days to notify the institution and foreign investor whether MOTIE approves the transaction.

However, the above review periods does not include: (i) the period necessary for the authority to examine the relevant technology (which can take several weeks or months) and (ii) the period that the foreign investor takes to respond to potential requests for information issued by MOTIE (i.e., requests for information stop the review clock until a response is submitted that is deemed sufficient by MOTIE). For more accurate estimates of review periods, before the submission of formal application, the foreign investor can informally consult with MOTIE in connection with such an application. It is common for ITPA report/approval processes to take much longer than 15 to 30 calendar days due to the technology examination process. Generally, an ITPA Report takes one to three months, while ITPA Approval may take up to six months.

How foreign investors can protect themselves

There is no publicly available list of a "Defense Industry Company" currently designated by the Minister of MOTIE, or companies that hold NCT. Therefore, it is advisable to ask the target company whether it is designated as a Defense Industry Company or whether the target company holds NCT.

Furthermore, it is common for either the target company or foreign investor to contact MOTIE before filing an ITPA Report/Approval application or FIPL Approval application to confirm the details required for such application.

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

_{© 2023 White & Case LLP}