The number of Foreign Direct Investment (FDI) screening regimes is increasing across the EU. These are in addition to the more established FDI screening regimes both in the EU (such as in Germany, France and Italy) and more widely (such as in the UK under the National Security and Investment Act 2021 (NSIA) and in the US under the Committee on Foreign Investment in the United States (CFIUS)).
The 2019 EU FDI Screening Regulation 2019/452 (EU Regulation) created a cooperation (though not a consent) mechanism enabling Member States and the European Commission (Commission) to exchange information with Member States on FDIs and that raise issues on security or public order grounds in the EU. Since the creation of this cooperation mechanism, the Commission has screened more than 1100 FDIs.
Ireland’s FDI screening system under the Screening of Third Country Transactions Act 2023 (FDI Screening Act) is likely to come into effect in Q2 2024. This Irish screening legislation is wide-ranging and captures many transactions (primarily acquisitions but also investments) involving a third country undertaking (or a third country national) from outside the EU, EEA and Switzerland (e.g. the UK, the US or China) which is acquiring (or possibly has already acquired) certain interests in undertakings and assets in Ireland.
The Act requires parties to transactions falling with the scope of the Act to notify the Minister for Enterprise, Trade and Employment (Minister) for prior approval. The Minister also has the power to “call in” transactions which have not been notified or were not notifiable provided that it falls within any of the look-back periods under the Act i.e.
(a) for non-notified transactions up to the later of:
(i) 5 years from the date on which the transaction is completed, or
(ii) 6 months from the date on which the Minister first became aware of the Transaction;
(b) for transactions completed prior to commencement of the Act, up to 15 months before the Act comes into operation; and
(c) for non-notifiable transactions, up to 15 months after the transaction is completed.
The overarching test that the Minister must apply in reviewing a transaction under the Act is “whether or not the transaction affects, or would be likely to affect, the security or public order [of Ireland]”.
While there is no definition of “the security or public order “of Ireland under the FDI Screening Act (or under the EU Regulation from which the term is derived), the sectors in Ireland relevant for review by the Minister come from the EU Regulation and specifically from Article 4(1) of the Regulation, i.e. the transaction should relate to, or impact on, one or more of the following:
(a) critical infrastructure (including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities),
(b) critical technologies and dual use items (including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies (as well as nanotechnologies and biotechnologies)),
(c) supply of critical inputs (including energy or raw materials, as well as food security),
(d) access to sensitive information (including personal data, or the ability to control such information), and
(e) the freedom and pluralism of the media.
Within this framework, and in considering whether or not the transaction affects, or would be likely to affect, the security or public order of Ireland, the Minister looks at (in addition to the transaction and corporate information provided by the parties in a notification to the Minister) the following factors:
(a) whether or not a party to the transaction is controlled (through ownership structures or by other funding) by a government (including state bodies or armed forces) of a third country and the extent to which such control is inconsistent with the policies and objectives of Ireland,
(b) the extent to which a party to the transaction is, at the time of review, already involved in activities relevant to the security or public order of Ireland,
(c) whether or not a party to the transaction has previously taken actions affecting the security or public order of Ireland,
(d) whether or not there is a serious risk of a party to the transaction engaging in illegal or criminal activities,
(e) whether or not the transaction presents, or is likely to present, a person with an opportunity to:
(i) undertake actions that are disruptive or destructive to persons in Ireland, or to enhance the impact of any such action,
(ii) improve the person’s access to sensitive undertakings, assets, people or data in Ireland, or
(iii) undertake espionage affecting or relevant to the interests of Ireland,
(f) whether or not the transaction is likely to have a negative impact in Ireland on the:
(iii) continuity or
(i) critical infrastructure,
(ii) critical technologies and dual use items,
(iii) supply of critical inputs,
(iv) access to sensitive information, and
(v) freedom and pluralism of the media,
(g) whether or not the transaction would result in persons acquiring access to information, data, systems, technologies or assets that are of general importance to the security or public order of Ireland,
(h) comments of Member States and the opinion of the Commission (as per the cooperation mechanism under the Regulation),
(i) the extent to which the transaction affects, or would be likely to affect, the security or public order of a Member State other than Ireland or of the EU, and
(j) the extent to which the transaction affects, or would be likely to affect, projects or programmes of EU interest (as per the Regulation).
As part of this review, the Minister will consult an advisory panel, consider the notified information from the parties to the transaction (as well as any of their written submissions) and consult with other Ministers of the Irish Government (as the Minister considers appropriate).
The Minister may consult with any other person and discuss with the parties to the transaction (or with any other person) measures to remedy any effects of the transaction on the security or public order of Ireland.
It is worth noting that a transaction that meets the compulsory notification thresholds under the FDI Screening Act may well have no adverse (or otherwise any) impact on the security or public order of Ireland (e.g. because it has no impact on any strategic sectors, technologies or assets in Ireland) but a notifiable transaction must still be notified for prior review by the Minister and completion must be suspended pending approval (otherwise an offence is committed by the parties to the transaction under the FDI Screening Act). The Minister has up to 90 calendar days to make a decision which is extendable up to 135 days or further if requests for information are issued.
In reviewing transactions under the FDI Screening Act, the Minister has to decide if the security or public order of Ireland is, or is likely to be, affected by a third country transaction. What is notable under the FDI Screening Act is the wide scope of the substantive factors that the Minister must take into account in making that decision. Parties (and their advisors) to third county transactions in Ireland will need to look behind third country undertakings (and connected persons) seeking to acquire those interests in undertakings and assets in Ireland (e.g. to assess the impact of the transaction on key issues such as access to sensitive undertakings or assets in Ireland as well as access to information, data, systems, technologies or assets that are of importance to the security or public order of Ireland).
This is similar to the overall objectives under the equivalent systems across the EU as well as the NSIA and CFIUS. What is not yet known in Ireland is whether the level of scrutiny that will apply to transactions by the Minister under the FDI Screening Act will lead to some of the more recent notable (mainly conditional approval or prohibition) decisions under those other non-Irish FDI screening systems. A better picture will probably emerge when sectors in Ireland of greater concern to the Minister become clearer (although as with other screening systems, the decisions of the Minister will not be published).
Either way, these considerations may well influence parties to allocate risk as part of their transaction negotiations and to draft acquisition agreements mindful of the need to build-in the possibility of a potentially pro-longed review by the Minister or the need to offer remedies to secure FDI screening approval in Ireland.
Date published: 10 January 2024