A new foreign direct investment (FDI) screening regime is imminent, with the Investment Screening Bill (the Bill) included in the Irish Government’s recently published Autumn legislative programme. The effect of the new regime will be increased process and scrutiny in respect of FDI in Ireland. The Bill will also give a newly formed Investment Screening Unit (Screening Unit) powers to assess, investigate, authorise, condition, prohibit or unwind FDI in certain key sectors.
FDI is a key pillar of the Irish economy and has been traditionally welcomed. While the Irish regime is not expected to interfere unreasonably or unnecessarily with FDI, the notification and approval process will mean split signing and completions for a greater number of FDI transactions in Ireland.
The Bill, once enacted, will give effect to Regulation (EU) 2019/452 (the Regulation) in Ireland. The Cabinet has agreed on an early draft of the Bill, but there has been a delay in the publishing of it due to a focus on COVID-19 related legislation. However, it is now anticipated that the Bill will be enacted quickly as there is no pre-legislative scrutiny expected.
The primary purposes of the Regulation are to provide collective security to Member States, and to facilitate the sharing of information between Member States on proposed FDI. Under the Regulation, all Member States are required already to comply with information requests from other Member States and share information regarding FDI in its home State. This is the case whether the FDI is being screened or not by the Member State as part of the co-operation mechanism. Details to be shared include the structure of the investor, the sector being invested in, and the proposed value of the FDI.
What will be in the Investment Screening Bill?
It is expected that the Bill will contain the following:
The right for the Screening Unit to assess, investigate, authorise, condition, prohibit or unwind certain FDI, which meet certain criteria
The triggers for the requirement of a screening of a proposed FDI including sectors, level of “control”, financial/value thresholds etc
The procedural rules surrounding screening
Confirmation of a mandatory and suspensory notification requirement, where the proposed FDI would need to be notified to the Screening Unit pre-completion
Timeframes for the screening and the possibility for foreign investors to seek recourse against screening decisions
Submissions varied during the consultation process in calling for voluntary or mandatory notification under the regime. A mandatory and suspensory notification requirement is expected which would allow investors to ascertain with certainty whether a notification is required, plan accordingly, and avoid ex-post reviews of investments. Ireland already operates a mandatory and suspensory merger control regime. It is expected that FDI screening, where relevant, will run concurrently with any merger control review, with clearance required in advance of completion subject to any conditions imposed by the Screening Unit.
It is not known if the legislation will include a phasing-in period or if it will become effective on enactment. It is unlikely that the legislation will be retrospective in effect. In anticipation of the new regime, transactions involving FDI in Ireland with a split signing and completion should include an additional condition to completion. This condition should ensure that any notification required under the new Irish FDI legislation has been complied with and that any necessary approval or consent has been granted.
What will the Bill cover? – “Security or Public Order”
The FDI Screening Regulation applies to FDI that is likely to affect “security or public order”, which is defined very broadly. It includes:
Critical infrastructure, such as communications, utilities, technology, financial services and real estate
Critical technologies, including AI, robotics, semiconductors, cyber-security, aerospace, nuclear energy and nano/biotechnology
Supply of critical inputs, such as energy, food or raw materials
Access to sensitive information
The freedom and pluralism of the media
It is unclear whether Ireland will regulate “security” and “public order” broadly or whether specific at-risk sectors will be identified in the legislation. There has been a specific focus by Member States on healthcare since COVID-19. While the new UK National Security and Investment Act falls outside of the EU regulatory landscape, it may offer some insight as to the sectors which could be regulated under the Bill. This legislation grants the UK government powers to restrict and/or block certain investments from foreign investors in 17 key sectors, including communications, military/defence, energy, transport, AI, crypto, and critical suppliers to the government or to emergency services.
Input of other Member States
Under the Regulation, Member States must notify the European Commission (the Commission) and the other Member States of any FDI undergoing screening. Notified Member States and/or the Commission will then have:
15 calendar days from receipt to notify the relevant Member State as to whether it intends to provide any comments and/or an opinion, and
35 calendar days from receipt to provide the relevant comments and/or the opinion
This timeframe should be factored into any transaction which falls within the FDI screening regime.
The comments and opinions provided by Member States and the Commission are not binding on the Irish Government and/or the Screening Unit. However, ‘reasonable consideration’ needs to be given to the comments and opinions. Member States and the Commission may still provide comments and opinions on any FDI which falls under the Regulation but does not undergo a national screening process within 15 months after the relevant FDI has completed although these again would be non-binding.
Expected approach – What next?
The Irish Government will be keen to continue to encourage FDI in Ireland, while protecting against any legitimate security or public order concerns. The vast majority of submissions during the consultation phase warned of the effect any disproportionate, complex and over-broad screening and approval processes would have on international deal-making. It is expected that the legislation will avoid any unreasonable interference to the extent possible, while ensuring proper scrutiny of FDI in key sectors and industries in Ireland.