The EU Investment Screening Regulation became fully operational across the EU on 11 October 2020. Within the newly established EU framework, the European Commission (Commission) and the Member States are now subject to mandatory cooperation and information sharing requirements with regard to the review of foreign direct investments that are likely to affect security or public order. In Ireland, the Department of Enterprise, Trade and Employment (Department) has assumed responsibility for any cooperation and information requests. In parallel, the Department is working on draft legislation that could result in the introduction of a fully-fledged regime and actual powers to review transactions (which it does not currently have) as early as 2021. Whilst the exact scope of any future Irish regime remains unclear at this stage, this could result in additional notification requirements for non-EU investors in Ireland that could impact deal planning.
EU Investment Screening Regulation Now Operational
EU Regulation 2019/452 establishes a framework for the screening of foreign direct investments into the EU (EU Investment Screening Regulation). As a result, effective 11 October 2020, the EU now has a regime for the screening of foreign direct investments whereby the Commission and individual Member States can exchange information and raise specific national security or public order concerns about potential investments in strategic EU companies by foreign (ie, non-EU) entities, including foreign state-owned firms, especially those involving critical infrastructure, critical technologies or the supply of critical inputs (see our previous article here).
In particular, the new EU framework introduces a number of mandatory cooperation and information sharing requirements between Member States and the Commission:
- For example, where a Member State has initiated its review of a proposed investment by a non-EU investor under its regime on or after 11 October 2020, it is required to provide the Commission and other Member States with a minimum level of information in relation to such investment, which may include a list of other Member States whose national security or public order may be affected, allowing the Commission or other Member States to provide comments in relation to such review;
- Similarly, where a Member State considers that an investment by a non-EU investor may affect national security or public order in another Member State or has relevant information in relation to that investment, it may provide comments to that other Member State and the Commission. This Member State or the Commission may also request information from the host Member State in relation to the investment; and
- The Commission may issue an opinion in relation to a proposed investment in certain circumstances, or may be requested to do so by one or more Member States.
As of 11 October 2020, according to the Commission, the operational requirements for the full application of the EU Investment Screening Regulation are in place, which include:
- Member States have now notified and provided details to the Commission regarding their existing national investment screening mechanisms (noting that 14 Member States have a FDI screening regime, which currently does not include Ireland, although legislation in relation to a possible future Irish regime is currently being considered – see below);
- Formal contact points have been established in each Member State to facilitate cooperation and information sharing between Member States and the Commission. The Department has been established as the national contact point in Ireland;
- Procedures for Member States and the Commission to ensure the prompt response to any concerns based on national security or public order or opinions issued by the Commission are being developed; and
- Lists of projects and programmes annexed to the EU Investment Screening Regulation which are of EU interest and may implicate national security or public order have been updated.
In Ireland, it remains the case that there is currently no FDI regime that enables scrutiny of investments by non-EU investors (see below). Notwithstanding the absence of any actual review powers, the Department would, in principle, be required to comply with the cooperation and information sharing requirements under the EU Investment Screening Regulation. Thus, the Department may provide comments in relation to live review processes in other Member States of which it is notified regarding investments by non-EU investors that may affect national security or public order. The Department would also need to give due consideration to any comments received by another Member State or to an opinion issued by the Commission in relation to any investment that is planned or completed in Ireland and may affect national security or public order. The Department may also be requested to provide information in relation to the non-EU investment by another Member State or the Commission. However, and critically, the Department will remain hamstrung to review and take any action in relation to non-EU investments on national security grounds and this will not change until it obtains specific statutory powers in this regard.
New Irish FDI legislation
While the necessary steps have been taken to enable Ireland to meet its obligations under the EU Investment Screening Regulation, Ireland does not currently have an FDI screening regime in place. Following our updates earlier this year (see here and here), draft legislation is currently being prepared to introduce powers to review investments by non-EU investors in sensitive industries that may give rise national security concerns. According to the Government press release, the proposed legislation will empower the Department to investigate, authorise, condition, prohibit or unwind foreign investments into Ireland by non-EU investors, based on a range of security and public order criteria. However, the draft legislation has not yet been published and so the exact scope of the future FDI regime is not yet clear – in particular, it is not clear what type of transactions are likely to be subject to review and the extent of that review, if the legislation is introduced.
We understand that the legislation could be adopted in the later part of H1 2021, but this could easily be delayed until H2 2021 or beyond. Whilst the exact scope of any future Irish regime remains to be seen, this could result in additional notification requirements for non-EU investors in Ireland that could impact deal planning. Depending on the proposed timeline for the transaction, it may be advisable to include a general protective condition precedent that envisages compliance with any future applicable requirements under future Irish legislation.
Finally, it should be noted the introduction of an Irish FDI regime would follow a similar trend across other major economies, noting the establishment and extension of similar regimes in the UK (see our recent article here), Europe (eg, Germany, France) and other Western countries (eg, the Committee on Foreign Investment or CFIUS regime in the US, the Investment Canada Act and the Foreign Investment Review Board regime in Australia).