SOUTH KOREA LAW AND PRACTICE Contributed by: Tehyok Daniel Yi, Gun Kim, Kyu Hyun Kim, Sun Hee Kim, Yong Whan Choi, Yong Min Lee, Jung Woo Lee and Hyeon Jeong, Yulchon LLC
The FIPA restricts FDI that could affect national secu - rity or public order. Under the 2022 Security Review Procedures, investments flagged for national secu - rity are reviewed by the MOTIE, with oversight from a specialised committee and the Foreign Investment Committee. Decisions on these investments follow a multi-tiered review process. Furthermore, the Act on the Prevention of Divulgence and Protection of Industrial Technology mandates prior approval for M&A activities resulting in foreign acquisitions involving 50% or more of a company holding national core technology developed with gov - ernment R&D support. Foreign acquisitions of other companies holding any national core technology must be reported in advance to the Minister of Trade, Indus - try and Energy. 7.2 Criteria for National Security Review Under the FIPA, foreign investment qualifies as FDI in South Korea in the following cases, regardless of its form (ie, partnerships, JVs, government-affiliated acquisitions, or non-controlling minority investments). • Acquisition of 10% or more of voting shares in a Korean company. • A long-term loan with a maturity of five years or more provided by an overseas parent company. • Contribution exceeding 10% or KRW50 million to a non-profit organisation or corporation. • Investment of retained earnings in the establish - ment or expansion of facilities. However, under the Foreign Investment Security Review guidelines, the following cases require a secu - rity review assessing potential threats posed by for - eign investors or governments, vulnerabilities of the target company, and the impact on national security. • Acquisition of effective managerial control. • Actions that disrupt the production of defence materials, involve technology or goods potentially diverted for military use, risk disclosure of state secrets, pose a serious threat to international peace and security efforts, or risk the leakage of national core or advanced strategic technology.
The Act on the Prevention of Divulgence and Pro - tection of Industrial Technology mandates additional review for foreign investments in entities possessing national core technology, which is defined as tech - nology whose foreign disclosure could significantly impact national security and economic stability. Cri - teria for requiring prior approval or notification include: • acquiring 50% or more of shares, or less than 50% but becoming the largest shareholder with control over executive appointments or management deci - sions; • leasing or acquiring the whole or a significant por - tion of the business with operational control; or • providing funds or contributions with control over the appointment of a majority of the executive officers. 7.3 Remedies and Commitments Under the FIPA, FDI filings do not generally involve specific remedies or commitments. For investments subject to the Foreign Investment Security Review, the MOTIE may prohibit, conditionally allow, or approve the investment, with immediate notification to the investor. The Regulations on Security Review Procedures do not mandate predefined remedies or commitments for conditional or denied investments, although investors may propose these measures and the authorities may consider them at their discretion. Similarly, under the Act on the Prevention of Divul - gence and Protection of Industrial Technology, foreign investors in transactions involving national core tech - nologies may request a preliminary review from the MOTIE. However, remedies or commitments are not stipulated for cases where approval is denied. 7.4 National Security Review Enforcement In South Korea, FDI must generally be reported in advance, and failure to do so results in foreign exchange banks denying remittance approval, effec - tively blocking the investment. If a foreign investor proceeds without filing, they may face administrative fines or criminal penalties, and the MOTIE can issue corrective orders for non-compliance. Under the Act on the Prevention of Divulgence and Protection of Industrial Technology, the MOTIE also
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