The European Commission (“Commission”) has repeatedly urged EU Member States to set up foreign direct investment (“FDI”) screening mechanisms. To date, 18 out of 27 Member States have adopted FDI screening powers, providing for the review of M&A transactions and other investments on national security and public policy grounds. Recently, Belgium and Ireland have each announced draft proposals which, once implemented, will enlarge the group of Member States reviewing transactions on FDI grounds.

Against this background of increasing FDI screening for local and global M&A transactions, some voices call for broader reforms. The European Parliament has launched an initiative aimed to address a future EU international investment policy and recently adopted a resolution with far-reaching proposals for FDI screening in Europe.

We provide an update on these developments in this blog post and consider the current outlook for FDI screening.

Belgium to introduce a new FDI regime

The Belgian region of Flanders previously introduced a limited scope, ex-post review mechanism for FDI in certain publicly-owned entities in 2019. However, the Belgium government has not previously adopted an FDI regime at the federal level. After a period of political debate, this is now expected to change after Belgium’s federal and federated governments entered into a cooperation agreement on 1 June 2022 (the “Agreement”, not published). This Agreement has yet to pass the legislative process and may still be subject to change, but new screening powers are targeted to enter into force on 1 January 2023.

The Agreement proposes mandatory and suspensory FDI filing requirements for investments into existing Belgian entities active in key sectors. The investment thresholds triggering mandatory filings vary between 10 to 25% in voting rights and depend on the sector concerned:

  • 25% or more of the voting rights in target companies established in Belgium with activities in critical infrastructures (energy, health, transport, water, telecommunications, media, data, aerospace, defence, electoral and financial infrastructures), in technologies or raw materials essential for security, defence, military equipment, double-usage products; in critical inputs including for food security; in access to sensitive information or personal data; in private security, in media pluralism, in strategic interests of the federated entities, and, provided that the target’s turnover in the preceding financial year exceeded EUR 10 million, in biotech;
  • 10% or more of the voting rights in target companies established in Belgium with activities in defence, energy, telecommunications and cybersecurity, where the target’s turnover in the preceding financial year exceeded EUR 100 million

A new regulatory body, the Interfederal Screening Commission (“Screening Commission”) is proposed for conducting FDI screening procedures. The Agreement suggests statutory review periods of 40 working days for an initial review (following a complete notification) and an additional 14 working days for an in-depth proceeding. In case of concerns, the Screening Commission can extend the review period and has powers to negotiate commitments. The final decision shall be taken by the competent minister(s), who may clear the transaction, request mitigation or ultimately prohibit it.

The Agreement includes severe penalties for cases of non-compliance. Investors can be fined 10% of the value of the investment if they (i) provided incomplete information, (ii) failed to provide information within the time limit, or (iii) failed to notify a notifiable investment but notified it spontaneously within 12 months from implementation, and 30% of the value of the investment if they (i) failed to notify a notifiable investment, (ii) provided inaccurate, misleading or deceptive information, (iii) implemented the investment before the final decision or (iv) failed to implement remedies within the applicable time limits.

Ireland also working on FDI screening powers

Ireland as yet another Member State is currently preparing a new FDI regime. The Irish Minister of Enterprise, Trade and Employment announced that it has received the government’s approval to publish a new law which, for the first time, would put in place a process for the review of FDI into Ireland.

According to the ministry’s press release, non-EU investments in “sensitive” technology or “critical” infrastructure (i.e. Ireland’s health services, electricity grid, military infrastructure, ports or airports) could be subject to scrutiny based on ownership and transaction value criteria. The new regime will include a de-minimis exemption for transactions valued at less than EUR 2 million, subject to amendment by the Minister from time to time. While detailed information about the FDI law is yet to be published, the current outline suggests that the regime will be based around broad intervention powers available to the Irish government, and voluntary filing by transaction parties.

The new regime will be an important consideration for those entering into transactions and other investments with a nexus to Ireland. The FDI law is expected to include meaningful sanctions for non-compliance or a refusal to cooperate with the review process, including fines of up to EUR 4 million and, ultimately, the possibility of imprisonment for key individuals involved in the FDI.

Outlook – A new era ahead?

These recent developments in Belgium and Ireland follow the broader trend of increasing FDI screening across the EU and wider European continent. In response to Russia’s aggression against Ukraine, the Commission has reemphasized its call on Member States to introduce FDI screening powers where not yet in place and to accelerate the adoption and implementation of new regimes (see our previous blog post).

Beyond that, there are calls for the EU to go even further and to adopt new instruments in FDI screening. The European Parliament has launched an initiative addressing the future EU international investment policy. On 23 June 2022 it adopted a resolution calling on the Commission, to —

  • provide more granular data on whether inward FDI flows support sustainable economic activities and greenfield investments,
  • …assess different options to monitor the activities supported by outward [investment] flows and
  • … assess the possibility of further specifying whether other sectors should be considered as strategic sectors”.

Notably, the European Parliament also asks the Commission to explore the possibility of the Commission being granted the power to block investments that create risks to security and public order. This sets a different tone for FDI screening at the EU level and brings a new proposal to the table that is likely to draw interest (and perhaps some concern) from both Member States and investors. So far, the Commission has only a coordinating role in relation to FDI screening and some limited powers to provide a non-binding opinion in relation to FDI that are subject to screening in one or more Member States. While some form of harmonization could bring benefits in terms of consistency in FDI screening across Europe and in streamlining FDI procedures, the case for granting powers to the Commission over matters of Member States’ national security goes beyond the current framework. It is far from clear in what circumstances Member States would be willing to do so.

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Photo of Peter Camesasca Peter Camesasca

Peter D. Camesasca is a partner in Covington’s Brussels and London offices, with 25 years of experience in all major aspects of EU competition law. Peter also co-chairs the firm’s Foreign Direct Investment Regulation initiative, and, has a particular focus on in-…

Peter D. Camesasca is a partner in Covington’s Brussels and London offices, with 25 years of experience in all major aspects of EU competition law. Peter also co-chairs the firm’s Foreign Direct Investment Regulation initiative, and, has a particular focus on in- and outbound aspects of the Asia/Europe interface.

Peter’s experience includes cases under Articles 101, 102 and 106 TFEU, national and multijurisdictional merger and joint venture notifications (including FDI assessments), investigations by multiple enforcement authorities and global antitrust litigation and monopolization issues (including IP cross-over issues). In addition, he advises and litigates on horizontal and vertical cooperation issues, prepares and executes various compliance and dawn raid programs and participates in the installation of in-house training programs, and heads a vibrant private enforcement practice.

Peter has acted before the European Commission, the European courts, the German Bundeskartellamt, the UK Office of Fair Trading and the Competition and Markets Authority, the Belgian Competition Council, and various national courts.

Photo of Carole Maczkovics Carole Maczkovics

Carole Maczkovics has developed a cutting-edge expertise in State aid law, regulation of network industries and public contracts (including subsidies, public procurement, concessions, and management contracts) with the Belgian and European authorities.

Carole has a proven track record of advising public and private…

Carole Maczkovics has developed a cutting-edge expertise in State aid law, regulation of network industries and public contracts (including subsidies, public procurement, concessions, and management contracts) with the Belgian and European authorities.

Carole has a proven track record of advising public and private entities, which she successfully represents in administrative and judicial proceedings on complex state aid, public procurement and regulatory issues before the European Commission as well as before the Belgian and European courts.

She has published many articles on State aid law and on network industries, and contributes to conferences and seminars on a regular basis.

Photo of Horst Henschen Horst Henschen

Horst Henschen is an of counsel in Covington’s Frankfurt office and a member of the firm’s global antitrust and competition team.

Leveraging over 20 years of experience in antitrust matters, Horst provides advice in complex M&A and joint venture transactions requiring international antitrust…

Horst Henschen is an of counsel in Covington’s Frankfurt office and a member of the firm’s global antitrust and competition team.

Leveraging over 20 years of experience in antitrust matters, Horst provides advice in complex M&A and joint venture transactions requiring international antitrust merger control approvals both in Europe, including in Germany and worldwide. Horst also represents clients with fine proceedings before the Federal Cartel Office and the European Commission and coordinates immunity/leniency proceedings on a worldwide basis.

In addition, Horst represented a number of non-EU companies in their foreign investment application to the German Federal Ministry of Economic Affairs and Energy securing a Certificate of Non-objection (“Unbedenklichkeitsbescheinigung”) for their acquisition of shares in a German company.

Horst has represented companies of a range of sectors, including life sciences and financial services, advising on all aspects of EU, German and international antitrust law, in particular in connection with merger control, cartel investigations and antitrust compliance programs and internal investigations.

Photo of Katherine Kingsbury Katherine Kingsbury

Katherine has experience advising on a broad range of corporate matters, including joint ventures, private M&A, takeovers, other significant transactions for public companies, venture capital, restructurings, and general advisory work. She has over 13 years’ experience in corporate practice, including responsibility for knowledge…

Katherine has experience advising on a broad range of corporate matters, including joint ventures, private M&A, takeovers, other significant transactions for public companies, venture capital, restructurings, and general advisory work. She has over 13 years’ experience in corporate practice, including responsibility for knowledge management and training.

In addition, Katherine has particular interest in UK corporate governance and its application to listed companies, larger private companies, and private equity.

Photo of Martin Juhasz Martin Juhasz

Martin Juhasz is an associate in Covington’s Frankfurt office and a member of the antitrust and EU competition team. He advises clients on all aspects of European and German competition law from a broad range of sectors, including technology, internet, healthcare, and manufacturing.

Martin Juhasz is an associate in Covington’s Frankfurt office and a member of the antitrust and EU competition team. He advises clients on all aspects of European and German competition law from a broad range of sectors, including technology, internet, healthcare, and manufacturing. He also counsels foreign investors with regard to foreign direct investment regulations (FDI).