The chances that a cross-border transaction will be subject to a national security review are trending upward. Investors now must scrutinize transactions for national security pitfalls.

Governments worldwide are focusing greater scrutiny on foreign investments into their countries. They are subjecting an increasing number of cross-border transactions to what are known as national security reviews to ensure that the purchase of a domestic asset by a foreign investor doesn't jeopardize their national security. Depending on the jurisdiction, a national security review and its outcome can have a huge impact on a transaction, including a change in the terms of the agreement or its outright termination.

The types of transactions subject to review and the scope of review vary widely from country to country. Some countries, for instance, publish a list of industries in which a national security review for a foreign investment transaction is likely to be triggered. China lists 57 industries, while Russia lists 45 activities of "strategic importance." Others have more general standards: The United States allows the Committee on Foreign Investment in the United States (commonly known as CFIUS) to review any transaction that could result in control of a US business by a foreign person—giving it substantial leeway to review transactions covering a wide variety of areas.

With any national security review there are, generally, three possible outcomes: The transaction may be approved; the transaction may be approved subject to the parties fulfilling certain conditions designed to mitigate national security concerns; or the transaction may not be approved, meaning that it may not go forward.

Given the enormous impact a national security review can have on a transaction, cross-border investors must consider national security review issues in planning and negotiating transactions, including the allocation of national security review-related risk in the transaction documents.