knowledge | 17 May 2019 |
The EU FDI Screening Regulation
EU Member States are not obliged to screen FDI, but Member State and European Commission cooperation and information sharing on FDI will increase.
An EU Regulation on screening of foreign direct investment for possible security and public order risks (2019/452/EU) (the "FDI Regulation") came into force on 11 April 2019. Its provisions will apply from 11 October 2020.
What does this mean for Ireland, Irish businesses and investors in the Irish economy?
Irish businesses and foreign investors in Ireland may have to provide the Irish Government with information on proposed or completed transactions (even though Ireland may choose not to implement its own FDI screening mechanism). This is more likely to affect investments in areas of critical infrastructure (eg telecoms, energy, and water), technology (eg AI, robotics, semiconductors), defence and food security. The information includes the ownership structure and identity of the investor involved, the source, value and timing of investment, and sectors and products/services involved.
Ireland may come under pressure from EU counterparts to legislate for a national FDI screening mechanism, even though the Regulation does not oblige any member state to have one. Fourteen Member States already have national screening mechanisms. Politicians in larger Member States are increasingly calling for scrutiny of investment and a growing number of countries worldwide screen FDI. A Department of Business, Enterprise and Innovation spokesperson is reported as having said about the Regulation that the “government will consider the Irish position on any national FDI screening mechanism on foot of consideration of the issue by this department.”1 Watch this space.
Even without a national screening mechanism, national implementing legislation will likely be enacted, for example, to empower the Irish Government to issue mandatory information requests to private parties involved in FDI in certain circumstances.
Ireland may be required to provide information to other Member States (and the European Commission) relating to FDI into Ireland, even if no Irish FDI screening mechanism is implemented. How many deals will be affected is unclear at this time.
The Irish Government will have to nominate a communication point for on-going cooperation at the EU level (it appears likely to be the Department of Business, Enterprise and Innovation).
No requirement for Member States to screen FDI
The Regulation does not require Member States to have an FDI screening mechanism, requiring them only to cooperate in sharing information. The EU is the world’s largest recipient of FDI and the Regulation seeks to strike a balance between, on the one hand, a coordinated response to security and public order issues, and, on the other, continuing to encourage investment in the EU.
However, the Regulation does set minimum criteria where a Member State chooses to have an FDI screening mechanism assessing FDI’s effects on “security or public order” (any screening mechanism must be transparent and non-discriminatory, and include timeframes, protections for commercially sensitive information and “recourse” against decisions).
EU cooperation on FDI under the Regulation
Member States must also cooperate with one another and with the European Commission.
A Member State receiving FDI may be required to: (i) seek information from the foreign investor and investment beneficiary to share with its EU counterparts; (ii) provide that information and other information to Member States and the European Commission; and (iii) take account of the views of other Member States and the opinion of the European Commission on the potential impact of FDI on security and public order (including before and for up to 15 months after the FDI occurs).
FDI-recipient Member States are not required to follow, and need only give “due consideration” to, the recommendations or views of the European Commission and other Member States.
Member States likely to be affected by FDI in another Member State may request information from the FDI-recipient Member State and may give their views to that Member State.
In cases where the FDI is “likely to affect projects or programmes of Union interest on grounds of security or public order”, the FDI-recipient Member State remains free to not follow a recommendation from the European Commission, but it must explain why it did not follow that recommendation.
EU national governments, businesses and FDI investors should be prepared for future mandatory requirements to disclose information about FDI investments to other EU Member States and the European Commission in cases where investment might have a bearing on security or public order.
Also Contributed By: Seán O’Dea.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.