The European legislature recently adopted a framework for screening foreign direct investments so as to mitigate risks to national security and public order.In this blog we discuss the background and the steps now being taken by the Dutch legislature

On 17 December 2019, three Dutch ministries published an Internet consultation on the Parliamentary Bill for the “Foreign Direct Investments Screening Regulation (Implementation) Act” [Uitvoeringswet screeningsverordening buitenlandse directe investeringen] (the “Bill”). The intention of the Bill is to implement Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (“the Regulation”). The Regulation will affect investors outside the European Union who wish to invest in the Netherlands. Both investors and the enterprises invested in may be required to provide certain information to the authorities. In order to implement, inter alia, that obligation pursuant to the Regulation, the Bill now before Parliament regulates:

  • enforcement in the event of non-compliance with the aforementioned obligation;
  • the establishment of a contact point;
  • the authority to process, collect, and provide information.

The Bill does not (yet) implement any new (additional) screening mechanism or investment test. Views [zienswijzen] regarding the consultation proposal can be submitted up to and including 14 January 2020. Don’t hesitate to contact us if you would like to discuss this matter.

Further information and background: the Regulation establishing a framework for the screening of foreign direct investments into the Union

The European Parliament and the European Commission already noted some time ago that there was not yet any comprehensive framework for screening foreign direct investments for reasons of security or public order policy, “while the major trading partners of the Union have already developed such frameworks” (Recital 5 of the Regulation). That was one of the reasons why the new EU framework for screening foreign direct investments was published on 21 March 2019. The Regulation officially entered into force on 10 April 2019 and will apply from 11 October 2020.

Given the exclusive jurisdiction of the EU in the field of common trade policy, a regulation (i.e. rules with direct effect) is the appropriate instrument. However, this particular Regulation acts as a directive (i.e. rules that must first be implemented before they have direct effect, meaning that the intended result has been established but not the substance). This is reflected, for example, in Article 3(1) of the Regulation, which states that Member States “may” maintain, amend or adopt mechanisms to screen foreign direct investments within their territory on the grounds of security or public order. In other words, they are not obligated to do so. The reason for this appears from the Explanatory Memorandum accompanying the Bill: Member States – in any case the Netherlands – feared an infringement of national Member State jurisdiction with regard to safeguarding their own national security and public order, and limitation of their decision-making power with regard to whether or not to check (screen) direct investments. It follows from Article 1 of the Regulation that these concerns have been met.

It is the intention of the European legislature that the Regulation play a role in ensuring security and public order in Europe in relation to foreign direct investments within the European Union. It also includes a mechanism for cooperation between Member States and with the European Commission. As noted above, Member States still have the last word as regards whether or not a specific investment operation should be allowed within their territory. The Regulation nevertheless allows them to share information on transactions subject to screening within their territory. Other Member States may submit comments to the Member State undertaking the screening if they consider that a foreign direct investment (which may or may not be subject to screening) may affect its security or public order, or if that Member State has relevant information concerning the investment concerned. The European Commission may issue an opinion to the Member State concerned where the foreign direct investment is planned or has already been completed.

In order to facilitate this sharing of information, Article 9(4) of the Regulation provides for Member States to request the foreign investor, or the enterprise in which the foreign direct investment is planned or has been completed, to provide certain information. The foreign investor or the enterprise concerned must then provide the requested information without undue delay. A contact point must also be established to implement the Regulation.

Implementation: “Foreign Direct Investments Screening Regulation (Implementation) Act”

The Bill only regulates those elements that are necessary to guarantee effective operation of the Regulation and to ensure that the Netherlands complies with its obligations pursuant to that Regulation. It is therefore important to emphasise that the Bill does not introduce any new (additional) Dutch investment tests or screening mechanisms (nor does it change anything in existing screening mechanisms). After all – as we emphasised earlier – that is not an obligation pursuant to the Regulation but a matter of Member States’ own choice.

The Bill designates the Minister of Economic Affairs and Climate Policy as the contact point within the meaning of Articles 5 and 11(1) of the Regulation. As the contact point, the Minister is thus charged with implementing the Regulation. The Bill regulates the power to process, collect, and provide information to and by administrative bodies (see Section 3 of the Bill).

The Bill also regulates enforcement in the event of non-compliance with the obligation set out in Article 9(4) of the Regulation. Which government officials will be responsible for monitoring compliance with the obligation for enterprises to provide information speedily will be specified in greater detail in a ministerial regulation [ministeriële regeling]. In that context, however, the Bill already creates the power for the responsible minister to impose an order with a penalty for non-compliance [last onder dwangsom] (Section 6 of the Bill). Contravention of the aforementioned obligation will be considered an economic offence within the meaning of Section 1(1) of the Economic Offences Act [Wet op de economische delicten, “WED”].

Also supplementation of the bill for the “Telecommunications Sector (Undesirable Control) Act”

The Bill also contains an amendment to the already pending bill for the “Telecommunications Sector (Undesirable Control) Act” [Wet ongewenste zeggenschap telecommunicatie]. Pursuant to the latter bill, a party that intends to acquire a controlling interest in a telecommunications party must notify the competent minister if such control will lead to relevant influence within the telecommunications sector within the meaning of Section 14(a)(4)(3) of the latter bill. Section 7 of the Bill proposes to extend the time limit if such notification falls within the scope of the Regulation (as regards the necessary sharing of information and the possibility for other Member States to comment or for the European Commission to issue an opinion).