Saudi Arabia’s Mammoth US$ 600 Billion Foreign Investment in US: Key Legal Considerations and Recommendations

The recent announcement by Crown Prince Mohammed Bin Salman of Saudi Arabia committing a staggering $600 billion in investments in the United States has captured the attention of global financial and political circles. This ambitious move signifies not only the Kingdom’s growing economic might but also the Crown Prince’s visionary approach to international investment. However, as monumental as this initiative is, the Kingdom must strategically navigate the United States’ complex legal and regulatory landscape to ensure the success and sustainability of such investments.

Vision and Foresight in Investment Strategy

Crown Prince Mohammed Bin Salman’s decision to prioritize the United States for such a substantial investment aligns seamlessly with his broader vision for diversifying Saudi Arabia’s economy, as outlined in Vision 2030. The United States, with its political stability, deep capital markets, advanced infrastructure, and innovative ecosystem, represents a fertile ground for foreign investors. Moreover, the open and transparent investment environment of the U.S. offers Saudi investors equal treatment with domestic counterparts, leading to a level playing field for all.

The magnitude of this investment reflects the Kingdom’s strategic intent to solidify its presence on the global economic stage. By focusing on the United States, Saudi Arabia is not only tapping into the world’s largest economy but also positioning itself as a vital partner in driving technological innovation, renewable energy initiatives, and critical infrastructure development. However, the realization of these goals requires careful planning and through due diligence, particularly in sectors governed by stringent U.S. regulations.

The Legal Landscape: A Dual Dynamic of Opportunity and Restriction

While the United States is one of the most open economies in the world, its regulatory framework introduces complexities that foreign investors must address. Saudi Arabia must be aware of both the opportunities and constraints within this framework to ensure its investments align with U.S. legal and policy standards.

1. Opportunities for Foreign Investment

The United States offers significant opportunities for foreign investors due to its fairness, transparency, and investor protections. Federal and state-level incentives, such as tax credits, grants, and workforce training programs, create a welcoming environment for foreign entities. Moreover, initiatives like SelectUSA serve as valuable resources to guide foreign investors in navigating the U.S. market.

The U.S. legal framework also provides strong intellectual property protections, ensuring that Saudi innovations and technologies introduced to the U.S. market are safeguarded. This is particularly important for sectors such as technology and renewable energy where intellectual property is a critical asset.

2. Key Regulatory Challenges

Despite the opportunities, certain industries in the United States are subject to heightened scrutiny and restrictions. The Committee on Foreign Investment in the United States (CFIUS) plays a central role in reviewing foreign transactions that may impact national security. Saudi investors must be cautious when targeting sectors such as critical infrastructure, advanced technologies, and sensitive personal data, as these areas often trigger CFIUS reviews. It is important to bear in mind that mandatory filings under the Foreign Investment Risk Review Modernization Act (FIRRMA) are required for transactions involving critical technologies, further emphasizing the need for legal diligence.

Moreover, sector-specific restrictions impose additional requirements. Industries such as defence, telecommunications, nuclear energy, and utilities operate under stringent foreign ownership controls. Saudi investors must not only comply with these regulatory requirements but also proactively engage with U.S. regulatory bodies to mitigate potential risks.

Bilateral Cooperation

Between 2005 and 2015, the U.S. and Saudi Arabia entered into several key treaties, agreements, and memoranda of understanding (MOUs) that significantly shaped their bilateral relationship, particularly in defence, trade, energy, and security. Although not always formal treaties, these agreements played a pivotal role in diplomatic cooperation. Notably, the U.S.-Saudi Joint Economic Commission (JEC) held several meetings during this period to enhance economic cooperation, focusing on energy and infrastructure. Additionally, Saudi Arabia’s accession to the World Trade Organization (WTO) in 2005, with U.S. support, had lasting implications for the economic relations between the two nations.

The Role of TIFA and the Need for a Bilateral Investment Treaty

The Trade and Investment Framework Agreement (TIFA) signed in 2003 between the United States and Saudi Arabia has facilitated dialogue and cooperation on trade and investment. However, TIFA lacks the robust legal protections and dispute resolution mechanisms typically found in a Bilateral Investment Treaty (BIT). As Saudi Arabia embarks on this historic investment journey, the absence of a BIT creates vulnerabilities that must be addressed.

A BIT between Saudi Arabia and the United States would provide essential safeguards, including protections against expropriation, guarantees of fair and equitable treatment, and mechanisms for investor-state dispute resolution. Such an agreement would not only protect Saudi investments but also enhance investor confidence, paving the way for long-term economic collaboration.

Saudi Arabia should advocate for the inclusion of key terms in any potential BIT to safeguard its interests. The BIT terms could encompass at least the following:

National Treatment and Most-Favoured-Nation (MFN) clauses play a critical role in ensuring that Saudi investors are granted treatment equal to or more favourable than that provided to domestic or third-party investors in the host country. These provisions eliminate discrimination, furthering a fair competitive environment and bolstering investor confidence. By guaranteeing a level playing field, they will encourage Saudi investment abroad while protecting against unfair practices.

Investor-State Dispute Settlement (ISDS) mechanisms would provide a neutral and impartial platform for resolving disputes between Saudi investors and host states (in this case the US). These frameworks are essential for addressing conflicts efficiently, outside of local courts, ensuring that disputes are settled fairly and in accordance with international standards. ISDS enhances the credibility of investment agreements, reassuring investors of reliable recourse in cases of breaches.

Protection against unlawful expropriation is another cornerstone, safeguarding Saudi assets from arbitrary or discriminatory government actions. This protection ensures that assets cannot be seized without due process, adequate compensation, and adherence to legal standards, mitigating the risks of political interference.

Transparency and predictability are vital for encouraging an investment-friendly environment. Clear regulatory frameworks would allow Saudi investors to make informed decisions, reducing uncertainty and building trust. Together, these measures would create a robust foundation for secure and equitable international investments.

Sector-Specific Due Diligence: A Strategic Imperative

The U.S. regulatory landscape, while favourable to foreign investment, demands careful sector-specific due diligence from Saudi investors. Navigating compliance requirements in highly regulated industries is essential to ensure successful investments. Engaging legal and financial experts is critical to understanding and adhering to these complex regulations. In the technology and innovation sector, investments in areas such as artificial intelligence, semiconductors, and advanced manufacturing must comply with export controls and intellectual property laws, which are vital for protecting proprietary technologies. In the energy and utilities sector, Saudi investments in renewable energy projects must align with both federal and state regulations governing energy production and distribution, which often involve environmental considerations and infrastructure standards. Similarly, in healthcare and biotechnology, stringent requirements imposed by the U.S. Food and Drug Administration (FDA) demand robust compliance strategies for investments in pharmaceuticals and medical devices. Careful planning in these sectors is crucial for regulatory success for Saudi investors.

Recommendations for Strategic Investment

To fully capitalize on this landmark investment initiative, Saudi Arabia must adopt a proactive and strategic approach to strengthen its economic ties with the United States. Advocating for a Bilateral Investment Treaty (BIT) should be a top priority, as such agreements provide comprehensive legal protections for Saudi investments, ensuring a stable and predictable framework. Simultaneously, Saudi investors need to strengthen their legal and regulatory expertise by collaborating with legal experts who can effectively guide them through the complex regulatory environment.

The Trade and Investment Framework Agreement (TIFA) offers another avenue for developing enhanced cooperation. While pursuing a BIT, Saudi Arabia can leverage TIFA to address existing trade barriers, promote dialogue, and encourage private-sector collaboration. A targeted focus on high-growth sectors such as technology, renewable energy, healthcare, and infrastructure will not only align with U.S. economic priorities but also support Saudi Vision 2030’s diversification objectives.

Building strong public-private partnerships is equally critical. By working closely with U.S. corporations and state governments, Saudi investors can access incentives and develop mutually beneficial relationships that facilitate innovation and economic growth. This strategic combination of legal, regulatory, and collaborative efforts will position Saudi Arabia for long-term success in the U.S. market.

Conclusion

Crown Prince Mohammed Bin Salman’s $600 billion investment announcement underscores Saudi Arabia’s commitment to forging a robust economic partnership with the United States. This initiative is not only a testament to the Crown Prince’s vision and foresight but also an opportunity to strengthen bilateral ties and drive global economic progress.

However, the success of this ambitious endeavour hinges on Saudi Arabia’s ability to strategically navigate the complex U.S. legal landscape, address sector-specific challenges, and advocate for stronger bilateral agreements. By pursuing a comprehensive approach that emphasizes legal diligence, regulatory compliance, and strategic cooperation, Saudi Arabia can ensure that its investments in the United States yield substantial economic and diplomatic dividends for decades to come and enhance the bilateral strategic relationship between the two countries.

Hassan Aslam Shad is Senior Legal Counsel at The Law Firm of Salah Al-Hejailan in association with Freshfields Bruckhaus Deringer and a graduate of Harvard Law School, U.S.A. Email: hassanshad@hejailanlaw.com