On December 30, 2005, the French government issued a decree listing eleven business sectors in which the French Ministry of Economy (“MINEFI”) has the right to monitor and restrict foreign investments in France (the “Decree”).1 The Decree was the first regulation to be issued in implementation of a Parliamentary Act dated December 9, 2004 which substantially reformed French foreign investment regulations (the “Reform Law”).2 The Decree specifies which business sectors are subject to foreign investment approval under the Reform Law, and clarifies the functioning of the process for approval of foreign investments by MINEFI. The Decree also introduced a distinction in the application of the Reform Law between EU investors and non-EU investors, with a less restrictive regime applicable to the former.

On May 7, 2012, the French government issued a second decree (the “2012 Decree”) which, among others, clarifies the definition of investments conducted through French vehicles controlled by foreign interests and removes casinos from the list of strategic protected sectors.


During the debates leading up to the Reform Law and the Decree, members of the French government and Parliament argued that French foreign investment controls were more lenient and less effective than those in place in other countries3, particularly in the United States.

Sponsors of the Decree referred to the resolution passed on June 30, 2005 by the U.S. House of Representatives requesting President Bush to conduct a review under the Exon-Florio provision of the Defense Production Act (the “Exon-Florio Amendment”)4 of the takeover bid launched by the China National Offshore Oil Company (“CNOOC”) for the California energy firm Unocal Corp. Although this resolution proved sufficient in itself to deter CNOOC from pursuing its bid, the Exon-Florio Amendment would have enabled the U.S. President to suspend or prohibit the merger on the grounds that it “impaired or threatened to impair” U.S. national security.

The Decree presents several similarities to the Exon-Florio Amendment. However, the French government was unable to impose restrictions on strategic investments as broad as in the Exon-Florio Amendment, due to constraints arising from EU law.

Controversial political issues in connection with Sanofi’s contested tender offer for Aventis in 2004 and concerns over Texas Pacific Group’s investment in Gemplus, the French “Smart card” producer, drove the French government to tighten the regulatory framework for foreign investment in areas of strategic concern.

Scope of the Decree

The Decree requires that prior to making an investment in specified sectors, foreign investors notify MINEFI of the proposed investment and receive authorization. The Decree imposes more stringent requirements on non EU-based than on EU-based investors so as to pass muster under the case law of the European Court of Justice (the “ECJ”), which requires that measures restricting the free movement of capital within the European Union be narrowly-tailored to the protection of the public order or public safety.5

A revised definition of foreign investors

Only “foreign investors” or French companies controlled by foreign investors are required to seek authorization from MINEFI under the Decree which distinguishes (i) EU investors, (ii) French investors controlled by foreign investors and (iii) non-EU investors.

The following are EU investors for purposes of the Decree:

  1. any individual who is a national of one of the Member States of the European Union,6 or one of the European Economic Area member states that have signed an administrative cooperation agreement with France (Norway, Iceland and Liechtenstein);7
  2. a legal entity that has its registered office in one of the states mentioned under (1) above; or
  3. an individual who is a French national and a resident of one of the states mentioned under (1) above.8

A non-EU investor is an investor who does not fall under any of the categories set forth above.9

A French company controlled by foreign investors (“Foreign Controlled French Investors”) is defined as an entity that has its registered office in France, which is controlled (within meaning of Article L 233-3 of the Commercial Code)10 by:

  1. a citizen of a country other than France;
  2. a company whose registered office is located outside of France; or
  3. a French citizen residing outside of France.

A new definition of strategic business sectors

The Decree identifies eleven business sectors in which MINEFI will have the right to monitor foreign investments.

For seven of those sectors, the definition of the sector, and the scope of MINEFI’s regulatory authority, varies in accordance with the EU or non-EU origin of the investor or if it involves a Foreign Controlled French Investor. The definitions are much more restricted when applied to EU investors or Foreign Controlled French Investors, the distinction being in most cases that investments in a defined sector by an EU investor is restricted only to the extent necessary to fight terrorism and criminal activities. The table below sets forth the differences between the definition of strategic sectors when applied to EU, non-EU investors and Foreign Controlled French Investors:

Click here to view table.

Four of the eleven sectors covered by the Decree are considered extra-sensitive (the “Extra Sensitive Sectors”). For the Extra Sensitive Sectors, the Decree applies a uniform definition of the sector regardless of whether the investor is of EU or non-EU origin or a Foreign Controlled French Investor:

  1. businesses involved in providing cryptology goods and services;22
  2. businesses involving companies privy to classified information;23
  3. businesses involved in the research, development and sale of weapons, munitions, powder, or explosive substances to be used for military ends or war, and other restricted materials;24
  4. businesses involving companies that have entered into a design or equipment supply contract with the French Defense Ministry, whether directly or through a subcontractor, concerning goods and services involving dual-use items and technology or items listed in (1) through (3) above.

In contrast to the specificity of the Decree, the Exon-Florio Amendment and its implementing regulations do not precisely define the business activities that fall within the scope of the President’s restrictive authority. This determination is left to the discretion of CFIUS member agencies, and the Exon-Florio Amendment merely lists factors to be considered in reaching a case-by-case decision.25 Historically, most CFIUS filings have involved the defense industry. However, in recent years, an increasing number of CFIUS reviews concern critical infrastructures such as information technology and the telecommunications industry.26

A revised definition of foreign investments

The Decree has also revised the definition of “foreign investment,” which now varies in accordance with the EU or non-EU origin of the investor or if it involves a Foreign Controlled French Investor.

Non-EU investors are required to seek prior authorization from MINEFI for any of the following:27

  1. the direct or indirect acquisition of a controlling stake in a company having its registered office in France (the “stock transfer test”);
  2. the acquisition of all or part of a line of business of a company having its registered office in France (the “asset transfer test”); or
  3. the acquisition of more than 33.33% of the stock or voting rights of a company having its registered office in France (the “threshold test”).

Once again, the Decree takes a much more circumscribed approach with respect to EU investors and Foreign Controlled French Investors.

The threshold test does not apply to EU investors or Foreign Controlled French Investors. 28 Nonetheless, as the stock transfer test applies to direct or indirect changes of control, the indirect acquisition of a controlling stake by a foreign investor could arguably trigger the stock transfer test even if the direct stock acquisition is made by a Foreign Controlled French Investor.

The stock transfer test applies to EU investors only with respect to the four Extra Sensitive Sectors identified above.29 For the remaining seven strategic sectors, EU investors are required to seek authorization from MINEFI only if they trigger the asset transfer test.30 Similarly, Foreign Controlled French Investors are required to seek authorization from MINEFI only if they trigger the asset transfer test.

For purposes of the asset transfer and threshold tests, the 2012 Decree removed “explicit” references to “direct or indirect” change of controls. Instead, the preamble to the 2012 Decree states that the 2012 Decree created a new category of Foreign Controlled French Investors subject to the Decree (as discussed above).

The grant of loans or guarantees, the purchase of licenses or patents, and the execution of commercial or technical assistance agreements in connection with the acquisition of a French company by a foreign investor are no longer considered to be foreign investments subject to MINEFI authorization. This is a significant departure from prior rules as such transactions used to be considered to be foreign investments subject to MINEFI authorization.31

Even if prior authorization is no longer required for a particular foreign investment, an administrative notification may still need to be filed with the MINEFI at the time the investment is made.32

Prior authorization requests must be sent in three original copies to MINEFI at the following address: Direction générale du Trésor, 139, rue de Bercy, 75572 Paris Cedex 12.

Review and Authorization

Once MINEFI has received notification of a proposed foreign investment, it will conduct a review of the reported transaction, which must be completed within 2 months.33 If MINEFI fails to respond within this time frame, the authorization will be deemed granted.34

In practice, the review process will provide MINEFI with the opportunity to impose conditions on or changes to the terms of the proposed investment to safeguard national interests. While MINEFI has negotiated with parties informally in the past,35 the Reform Law formally empowers MINEFI to impose conditions to ensure that foreign investments will not jeopardize national interests.36 The Reform Law thus gave MINEFI additional leverage to obtain concessions from investors.

The Decree specifies the conditions that MINEFI has the authority to impose: (i) a duty to continue the business’s operations in the future or (ii) an undertaking to protect its industrial, research and developmental capabilities, related know-how or the safety of its supply chain.37 Additional conditions may be imposed on companies which have their registered office in France to ensure that they continue to perform under procurement contracts, whether as contractor or subcontractor, or contracts concerning public safety, national defense or research, or the production or trading of weapons, ammunitions, or explosive powder or substances. In the event the strategic business for which authorization is required is only an ancillary business of the target, MINEFI may condition its consent to the transaction on the sale of the ancillary business to a company independent from the foreign investor. The Decree specifies that the conditions imposed by MINEFI must be proportional to the protection of the national interest being safeguarded. 38

It seems safe to assume that given the breadth of its ability to impose conditions, MINEFI should be able to obtain commitments similar to those CFIUS has obtained from investors in U.S. companies. Under the Exon-Florio Amendment, parties can enter into binding contractual agreements with relevant U.S. governmental agencies, such as the Department of Commerce, the FBI, the Department of Defense or the Department of Homeland Security. Commitments can include adding American citizens to the company’s Board of Directors, guaranteeing that the Board of Directors be exclusively comprised of Americans, granting full access to U.S. law enforcement agencies, or undertaking to continue research and development in the United States.39

Safe Harbors

MINEFI authorization is not required (or “deemed granted”) when the investment involves companies belonging to the same corporate group, meaning that more than 50% of their stock or voting rights are held, directly or indirectly, by a common shareholder.40 However, this safe harbor does not apply when the reported transaction is intended to transfer abroad all or part of one of the strategic businesses involved.41

Similarly, an investor who has already been authorized to acquire a controlling stake in a strategic sector company is exempt from seeking a new authorization from MINEFI if it increases its ownership interest, directly or indirectly, beyond 33.33% of the stock or voting rights of such company.42

Grounds for Rejection

MINEFI is required to refuse to authorize the proposed transaction if it finds that there is a strong probability that the investor is likely to commit one of the following crimes: 43 (i) drug trafficking;44 (ii) criminal exploitation of a person’s weakness or ignorance;45 (iii) procuring and related crimes;46 (iv) money laundering;47 (v) acts of terrorism or financing terrorism;48 (vi) corruption and influence peddling;49 and (vii) acting in a conspiracy. 50

In addition, MINEFI must refuse to authorize the reported transaction if the implementation of any conditions MINEFI is authorized to impose would not suffice to safeguard national interests and (i) the continuity of the business, its industrial, research and development capacities or related know-how could not be protected in the future; (ii) the safety of its supply chain could be jeopardized; or (iii) the performance by companies that have their registered office in France under procurement contracts, whether as contractor or subcontractor, or contracts concerning public safety, national defense or research, or the production or trading of weapons, ammunitions, or explosive powder or substances, could be compromised.51

In any event, if MINEFI decides to reject a transaction, it must explain the grounds for its refusal.52

Right of Recourse

Pursuant to the Reform Law, MINEFI decisions are subject to “full review” (recours de plein contentieux) by administrative law courts.53 Under this procedure, French administrative law judges are given broads powers to substitute their determinations for those of MINEFI and to overrule MINEFI authorizations or rejections, order new conditions imposed, or hold the government liable for damages to the investor.54

Additionally, an investor can challenge a MINEFI decision under European Community law in French courts if it can demonstrate that the French regulatory framework restricts the free movement of capital and is not narrowly tailored to the protection of the public interest at issue.55 A legal challenge on this basis was made successfully by the Church of Scientology of Paris under the prior French regulatory regime. The ECJ has found that France violated European Community law by prohibiting a London-based investment fund from making an investment in the Church of Scientology of Paris, on the grounds that the previous French foreign investment regulations “defined the investments concerned only in general terms, as investments of a sort calling into question public order and public safety, so that interested parties could not recognize specific circumstances in which prior authorization is necessary.”56 The Reform Law was intended to respond to the ECJ’s concerns by eliminating public health from the list of protected sectors, and mandating the issuance of the Decree to limit the list of protected sectors. It is thus unclear whether such recourse would be successful in the future.

Finally, the European Commission, which oversees competition policy and guarantees the free movement of goods and capital in the European Union, may itself decide to bring an action against the French government before the ECJ. In fact, shortly after the French government unveiled its plans to issue the Decree, the European Commission expressed serious concerns as to whether the draft Decree was in line with applicable EU competition laws and indicated it would follow the matter closely.57 Following undisclosed negotiations between the European Commission and the French Government, the European Commission’s concerns may have been alleviated, and the European Commission has not reiterated its opposition since publication of the Decree. By removing casinos from the list of strategic business sectors, the 2012 Decree may have addressed one of the European Commission’s concerns.


Under the Reform Law, MINEFI may impose a wide range of sanctions for failure to respect the authorization regime.58 An investment made without MINEFI approval or in contravention of the conditions imposed by MINEFI may be enjoined; additional conditions, such as maintenance of local production, may be imposed on the investment; or the parties may be required to return to the status quo ante at their own expense.59 If ordered, rescission must be accomplished within no more than 12 months.60

Failure to comply with an injunction may be punished by a civil fine of up to twice the amount of the non-complying investment. In contrast to the prior foreign investment rules, the Reform Law specifies that fines must be proportional to the gravity of the offense.61

Additionally, any agreement, understanding or contractual provision purporting to effectuate a foreign investment in one of the sectors identified by the Decree, without due authorization from MINEFI is null and void (nul) and will therefore be unenforceable.62

Finally, criminal sanctions may be imposed on the investor, including imprisonment for up to 5 years, seizure of the investment, and a fine of up to twice the amount of the investment.63 This fine can be multiplied by five in the case of legal entities held liable for the offense.64


In drafting the Decree, the French government had to perform a careful balancing act to maintain control over a wide range of industries in strategic sectors while making restrictions on foreign investment sufficiently narrow to pass muster under ECJ case law. Whether the right balance has been struck will be determined by future legal challenges. Nevertheless, the net effect of the Decree for foreign investors is a broadening of the type of transactions requiring prior governmental authorization, but with a clearer framework for negotiations to obtain clearance.