Ireland's long-awaited investment screening legislation was published earlier today. The Screening of Third Countries Investment Bill (the Bill), once enacted, will introduce a screening mechanism for foreign direct investment (FDI) into Ireland.
According to the Explanatory Memorandum accompanying the Bill, it will "provide Government with powers to protect security or public order from hostile actors using ownership of, or influence over, businesses and assets to harm the State". The Bill provides that certain transactions, which may present risks to the security or public order of the State, may be reviewed by the Minister for Enterprise, Trade and Employment.
The Bill has a lot of detail and there are broad, intricate definitions, which require further scrutiny. We will follow up with a more detailed publication in due course, but have distilled the key aspects in today's update.
Who is subject to this legislation?
A third country undertaking (or person connected with them). For the purposes of the Bill, a third country undertaking is any undertaking:
- "constituted or otherwise governed by the laws of a third country"
- controlled by at least one director, partner, member or other person, who is a third country national or is constituted or governed by the laws of a third country
- a third country national
A 'third country' is any country which is not Ireland, a member of the EU, an EEA state or Switzerland.
'Undertaking' is a very widely defined term in the Bill. It includes "a person or entity (including an individual, a body corporate, a partnership or any other unincorporated body of persons) engaged for gain in the production, supply or distribution of goods, the provision of services, the making or holding of investments or the carrying out of any other economic activity". It does not, however, include a natural person whose role in these activities is limited to working under a contract of employment or a contract for services for an undertaking.
What will be screened?
Screening obligations will apply to what the Bill terms "notifiable transactions". In short, these in-scope transactions have all of the following characteristics:
- a transaction, acquisition, agreement or other economic activity by a third country person or entity (or person connected with them) into Ireland
- a transaction value of €2m or greater
- a transaction which relates to an asset or undertaking in the State
- a transaction which relates to or impacts upon one or more of the target areas for screening set down in Article 4(1) of the EU Regulation on foreign direct investment screening (these include critical infrastructure, natural resources, critical technologies, sensitive data, and media)
Acquisition of shares or voting rights
A transaction that results in the acquisition of shares or voting rights in an Irish undertaking shall not be notifiable unless it satisfies all of the above criteria and also the percentage of shares or voting rights held by the person in the undertaking as a result of the transaction changes (i) from 25% or less to more than 25%, or (ii) from 50% or less to more than 50%.
What must parties to notifiable transactions do?
The parties to a notifiable transaction must notify the Minister of the transaction not less than 10 days before the date on which the transaction is completed. The notification must be accompanied by an extensive amount of information and the Minister retains the discretion to request any other information that is necessary to review the transaction. The information required includes:
- identities of the parties (including, name, registered address, domicile, and registration number)
- ownership structure of the parties to the transaction, including information on persons participating in the capital of the undertaking and persons exercising control over the parties
- details of the transaction, including projected date, approximate value, funding and source of funds
- information on the products, services and business operations of the parties to the transaction
- nature of the economic activities carried out in Ireland by the parties to the transaction and the EU Member States where the parties carry out economic activities
- state or territory under whose laws the parties are constituted, registered, or otherwise organised
- annual turnover and total number of employees of each party
- details of any sanctions or restrictive financial measures imposed on the parties by the EU
Is there a transition period?
Notifiable transactions which were proposed before, but have not completed before the notification requirement (section 10) comes into operation, must be notified to the Minister along with the requisite information on the transaction within 30 days of either (i) the transaction being completed, or (ii) section 10 coming into operation (whichever is later).
Which party to the transaction is responsible for notifying the Minister?
All parties to the transaction are equally responsible for complying. However, it may make commercial sense for one party to assume responsibility for fulfilling the notification requirements. Where a party to a transaction (the "first party") assumes this responsibility, the other parties (each the "second party") will be deemed to be equally compliant where the following steps are followed:
- Before notifying the Minister, the first party must provide the second party with a notification in writing:
- informing the second party that it intends to so comply
- specifying the date on which it intends to so comply (the 'specified date')
- setting out all the information that it intends to provide to the Minister
- Where the second party agrees, by written notice to the first party before the specified date, that it is satisfied with the information provided
The Bill also offers protection to second parties in circumstances where the first party fails to comply. Where the first party provides the Minister with information that is "materially different" to the information it provided to the second party prior to notification, the second party will be deemed to be in compliance.
Is there a look-back period?
The Minister retains the right to review transactions which are not notifiable, or which have not been notified, where the Minister believes that the transaction affects, or is likely to affect, the security or public order of the State and subject to certain conditions.
The Bill applies a look-back period of 15 months, which mirrors the requirements of the Regulation. Where the transaction, regardless of whether or not it is notified or notifiable, was completed more than 15 months before the relevant section of the legislation (section 12 of the Bill) comes into operation, the Minister cannot review it. The precise cut-off date for looking back will not be known until the Bill is enacted and the relevant section commenced.
What will the Minister consider when reviewing a transaction?
The Minister will consider whether or not the transaction affects, or would be likely to affect, the security or public order of the State. The Minister will also have regard to a list of considerations, including whether or not:
- a party to the transaction is controlled by a government of a third country and the extent to which such control is inconsistent with the policies and objectives of the State
- a party to the transaction has previously taken actions affecting the security or public order of the State
- there is a serious risk of a party to the transaction engaging in illegal or criminal activities
- the transaction presents, or is likely to present, a person with an opportunity to undertake actions that are disruptive or destructive to persons in the State
- 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 the State
Where applicable, the Minister will also have regard to comments of Member States and the opinion of the European Commission.
Once the Minister has been notified, they have between 90 days (extendable up to 135 days) in which to review the transaction.
Having reviewed a transaction under this Act, the Minister will make a decision (a “screening decision”) as to whether or not the transaction affects, or would be likely to affect, the security or public order of the State.
The Minister must inform the parties to a transaction, by notice in writing, of the screening decision "as soon as practicable" after it is made and provide reasons for the decision (unless to do so would create a risk to the security or public order of the State).
Where the Minister does not make a screening decision within the applicable period, the transaction shall be deemed, on and from the last day of that period, to be subject to a screening decision to the effect that it has not affected, or would not be likely to affect, the security or public order of the State.
What impact will this have on transactions?
Transaction timelines will need to take account of the requirements for compliance with the legislation and the Minister's period of review.
The transaction cannot be completed, and the parties to the transaction cannot take any action for the purpose of completing or furthering the transaction, from the date on which the Minister is notified until:
- the date on which a 'positive' screening decision is made (or deemed to be made) by the Minister (i.e. that the transaction does not affect security or public order of the State), or
- in the case of a 'negative' decision (i.e. that the transaction affects, or is likely to affect, security or public order of the State), the date, if any, directed by the Minister
Where the Minister makes a decision that a transaction affects, or is likely to affect, security or public order of the State, the parties may not complete the transaction, or take any action for the purpose of completing or furthering the transaction, other than in accordance with the direction issued by the Minister.
What are the consequences of non-compliance?
Impact on the transaction Where a party to a notifiable transaction fails to comply with the notification requirement before the transaction is completed, a negative screening decision will be imposed. This means that the transaction shall be deemed to be subject to a screening decision that the transaction affects, or would be likely to affect, the security or public order of the State, and(b) such screening decision shall be deemed to have been made on the day before the date on which the transaction is completed.
Impact on the party A person guilty of an offence under this Act (such as a failure to notify the Minister) will be liable:
- on summary conviction to a fine not exceeding €2,500 and/or to a term of imprisonment of no more than six months
- on conviction on indictment, to a fine not exceeding €4 million and/or to a term of imprisonment not exceeding five years
The Bill is expected to be considered in the autumn and is likely to become law before the end of the year. Parties with transactions that have completed in or around the last 15 months, or which are likely to complete in the coming months, should consider their requirements under the proposed legislation.