Commission urges Member States to protect critical assets and technology during the COVID-19 crisis.
The world is facing a public health crisis due to the global spread of COVID-19 with severe consequences also for the global economy. The European Commission has issued guidelines to ensure a strong EU-wide approach to foreign direct investment screening in order to protect security and public order and, thus, the European economy.
The EU-wide framework for the screening of foreign direct investments (“FDI”) (the “Regulation”) entered into force in April 2019, and as of October 2020 it will be applied in its full scope. The aim of the Regulation is to put in place an EU-wide mechanism to coordinate the screening of FDIs likely to affect the security and public order of the EU and its Member States. At the moment 14 Member States, including Finland, have national FDI screening mechanisms in place. The Finnish Ministry of Economic Affairs and Employment (the “MEE”) is currently in the progress of preparing certain amendments to the Act on the Monitoring of Foreign Corporate Acquisitions (the “Act”) in order to comply with the Regulation.
According to the Act in force, a confirmation of the MEE must be applied for as regards all foreign companies’ proposed acquisitions of Finnish companies that produce defense industry products or services or dual use items or services. Additionally, the monitoring extends to transactions carried out by non-EEA companies that may have an effect on vital national interests, such as critical infrastructure, security of supply and other functions fundamental to society.
Under the Regulation Member States may prevent a foreign investor from acquiring or taking control over a company or impose conditions to such acquisition if such acquisition or control would result in a threat to their security or public order. Risks related to public health is one factor that can and should be taken into account when screening a FDI.
“If we want Europe to emerge from this crisis as strong as we entered it, then we must take precautionary measures now. As in any crisis, when our industrial and corporate assets can be under stress, we need to protect our security and economic sovereignty. We have the tools to deal with this situation under European and national law and I want to urge Member States to make full use of them. The EU is and will remain an open market for foreign direct investment. But this openness is not unconditional. – President of the European Commission Ursula von der Leyen”
As a result of the COVID-19 outbreak, the Commission has recognised an increased potential risk that healthcare-related industries would be acquired or the control of such companies would be taken over by foreign investors. The aim is to ensure that critical European assets and technology essential to the security and public order are duly protected. The Commission emphasises that while EU will remain an open market for FDI’s, it is vital that the Member States go the extra mile under the exceptional circumstances to prevent FDIs / capital flows from non-EU countries that could undermine the security of public order of the EU. Furthermore, the Commission notes that strategic assets are crucial to Europe’s security, economy and capability of fast recovery.
With its guidelines the Commission urges the Member States to:
- Take full advantage of the national FDI screening mechanisms already in place and any other practicable measures in accordance with national and EU law in order to take into account possible risks to, among other, critical healthcare-related infrastructure, supply of critical inputs and other critical sectors;
- For those Member States that currently do not have a FDI screening mechanism in place or whose FDI screening mechanism does not cover risks related to critical healthcare-related infrastructure and/or supply of critical inputs, to set up an adequate FDI screening mechanism and meanwhile use other available measures to ensure that acquisitions or change of control in certain businesses does not create risk to security or public health in the EU.
The Commission further notes that should an FDI not go through a national screening process now, such FDI could be, in accordance with the Regulation, subject to ex post comments by Member States or opinions by the Commission until 15 months after completion of the investment.
Ongoing review of the Finnish FDI Screening Act not expected to be impacted by the new Commission guidelines
As we wrote in our Q1 Quarterly article, the Finnish national act on FDI screening (the Act on the Monitoring of Foreign Corporate Acquisitions in Finland (the “Act”)) is currently under review and the government proposal on the amendment of the Act is scheduled to be submitted to the Parliament in June 2020. The Finnish Ministry of Economic Affairs and Employment (the “MEE”) is currently reviewing the comments submitted in response to the draft government proposal and preparing the final government proposal. The MEE has not indicated that the Guidelines issued by the Commission would affect the ongoing legislative process or its planned timing.