The European Union ('EU') has one of the world's most open investment regimes. Nevertheless, there have been growing concerns in recent years about the impact of certain foreign investments on security and public order. A key issue has been the increasing level of Chinese foreign investment that takes place in the technology sector, with prominent examples in Europe including the takeover of the German robotics manufacturer Kuka by Midea and the attempted takeover of the chip equipment manufacturer Aixtron by Fujian Grand Chip Investment Fund.
Partly as a result of such acquisitions, member states of the European Union (the 'Member States') and EU decision-makers have become increasingly concerned about European know-how and consumer data being transferred to China and related security issues. In early 2017, Germany, France and Italy proposed in a letter to the EU Trade Commissioner that the Member States should be able to block investments from non-EU countries. At the same time, several Member States, including Germany and Italy, tightened or considered tightening their national investment control regimes. As of April 2020, 14 Member States[1] have national screening mechanisms in place aimed at preserving security and public order at national level. In November 2018, a political agreement was reached by the European Parliament, the Council and the Commission on an EU framework for screening foreign direct investment into the European Union and in March 2019 a regulation of the European Parliament and of the Council establishing a framework for the screening of foreign direct investments into EU was adopted. In March 2020, as part of the overall response to the economic effects of the COVID-19 pandemic, the European Commission issued guidance to the Member States concerning foreign direct investment and the protection of EU's strategic assets, in particular in healthcare-related industries.
Against this background, Ashurst Guantao (FTZ) Joint Operation Office seeks to give general insights into the foreign investment control regimes in the European Union and in the major European jurisdictions, including Belgium, France, Germany, Italy, Luxembourg, Spain, and the United Kingdom.
Please feel free to contact any of your Ashurst contacts in case of any questions.
The Ashurst Team
France
As a principle, foreign investments in France are free and generally only trigger statistical declarations to be made to the Banque de France following completion of the transaction. However, a prior authorisation by the French Minister in charge of the economy (the 'Minister of Economy') must be sought for investments in certain sensitive or 'strategic' business sectors.
In this respect, during the past few years the legal framework applicable to foreign investments in France has been amended several times. In 2003, the French government issued a decree and an order that established the conditions for foreign investments in France. Further amendments in 2005, 2012, 2014, 2017 and 2019 redefined and extended the list of 'strategic' business sectors in which foreign investments would need prior approval by the Minister of Economy, and set out other amendments to the foreign investment control regime. Following the adoption of the EU Screening Regulation, the French legal framework applicable to foreign investments has been amended by the law No. 2019-486 of 22 May 2019 relating to the growth and transformation of businesses (the 'PACTE Law'), and recently by the decree No. 2019-1590 of 31 December 2019 relating to foreign investments in France (the '2019 Decree') and the Ministerial Order of 31 December 2019 relating to foreign investments in France (the '2019 Order'). The new legal framework arising from the 2019 Decree and the 2019 Order are applicable to requests and declarations which will be filed with the Minister of Economy as from 1 April 2020.
Save for the 2019 Order, all the provisions pertaining to foreign investments in France are codified in the French Monetary and Financial Code (the 'MFC').
What are the key laws and regulations governing restrictions and controls of foreign investments？
The control of foreign investments is governed by the provisions of the MFC and the 2019 Order.
How is a foreign investor defined？
A foreign investor is defined in the MFC as (i) any individual who is a foreign national, (ii) a French citizen who is not tax domiciled in France, (iii) a foreign-based entity (entité de droit étranger), or (iv) a French-based entity (entité de droit français) which is under the control of a person or entity referred to in (i), (ii) or (iii).
The control under (iv) is analysed in light of the provisions of Article L. 233-3 of the French Commercial Code or, absent any control based on those provisions, the provisions of Article L. 430-1.III of said Code.
In addition, all the persons and entities of the same control chain are deemed investors, a control chain being defined as the group formed by an investor mentioned in (iii) and (iv) and the persons and entities which control him.
Which transactions are scrutinised and which sectors are affected？
Transactions
The following transactions fall within the scope of the French foreign investments control regime:
(i) The acquisition of control (within the meaning of Article L. 233-3 of the French Commercial Code) over a French-based entity;
(ii) The acquisition of all or part of a line of business (branche d'activité) of a French-based entity; and
(iii) An operation which results in the acquisition, whether direct or indirect, alone or in cooperation, of more than 25 per cent of the voting rights of a French-based entity.
Condition (iii) is not applicable to (a) an individual who is a national of a Member State or a member state of the EEA having entered into a convention for the administrative cooperation with France in relation to fraud and tax evasion, who is domiciled in one of those states, nor to (b) an entity whose all the members of the control chain are subject to the law of one of those states or have the nationality and are domiciled in one of such states.
Strategic sectors
The Minister of Economy may control foreign investments in any activity in France which, even occasionally, involves the exercise of public authority or pertains either to (i) activities likely to jeopardise public order, public safety or national defence, or (ii) activities in relation to research, production or marketing of weapons, ammunition and powders or other explosive substances. The MFC sets out a list of business sectors that are considered 'strategic'. This list includes:
I. Activities which might jeopardise national defence interests, which are part of the exercise of public authority or which might jeopardise public order and public safety:
1. Activities including those mentioned in Article L. 2332-1 of the French Defence Code relating to weapons, munitions, powders and explosive substances intended to military purposes or war equipment and similar equipment subject to title III or title V of Chapter III of part two of the French Defence Code;
2. Activities relating to dual-use items and technologies listed in Annex IV of the Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items;
3. Activities carried-out by entities entrusted with national defence secret;
4. Activities carried-out in the sector of information systems security, including as a subcontractor, for the benefit of an operator referred to in Articles L. 1332-1 or L. 1332-2 of the French Defence Code;
5. Activities carried out by companies having entered into an agreement, either directly or by subcontracting, to the benefit of the Ministry in charge of Defence for the production of goods or services falling within the scope of an activity mentioned in 1 to 3 above or in 6 below;
6. Activities relating to cryptology resources and services referred to in Articles 30.III, 30.IV and 31.I of the law No. 2004-575 of 21 June 2004 relating to the 'confidence' in digital economy;
7. Activities relating to equipment or technical devices allowing the interception of correspondence or designed for the remote detection of conversations or capture of computerised data under Article 226-3 of the French Criminal Code;
8. Activities performed by accredited assessment centres under the terms and conditions set out by the decree No. 2002-535 of 18 April 2002 on the auditing and certification of the security provided by IT products and systems;
9. Gambling activities (except for casinos);
10. Activities relating to the means intended to address the illicit use of pathogenic or toxic agents or to prevent health impacts of such use;
11. Data processing, transmission or storage activities whose compromise or disclosure might jeopardise the performance of activities referred to in 1 to 10 above of this section I or in the section II below.
II. Activities which might jeopardise national defence interests, which are part of the exercise of public authority or which might jeopardise public order and public safety in the case where they involve core infrastructure, goods or services to ensure the:
1. Integrity, security and continuity of energy supply;
2. Integrity, security and continuity of water supply;
3. Integrity, security and continuity of operation of transportation networks and services;
4. Integrity, security and continuity of space operations referred to in 3° of Article 1 of the law no. 2008-518 of 3 June 2008 relating to space operations;
5. Integrity, security and continuity of operation of electronic communication networks and services;
6. Performance of tasks of the national police, the gendarmerie nationale, the civil protection services and the public security missions of (a) customs and (b) licenced private security companies;
7. Integrity, security and continuity of operation of any facility, installation or structure of vital importance (ouvrage d'importance vitale) within the meaning of Articles L. 1332-1 and L. 1332-2 of the French Defence Code;
8. Protection of public health;
9. Production, transformation and distribution of agricultural products listed in Annex I to the Treaty on the Functioning of the European Union, in the case where they contribute to the objectives of national food security mentioned in 1°, 17° and 19° of Article L. 1.I of the French Rural Code;
10. Publishing, printing or distribution of press providing political and general information, within the meaning of Article 4 of the law No. 47-585 of 2 April 1947 on the status of companies grouping and distributing newspapers and periodicals, and online press services providing political and general information within the meaning of Article 1 of the law No. 86-897 of 1 August 1986 reforming the legal status of the press.
11. Activities which might jeopardise national defence interests, which are part of the exercise of public authority or which might jeopardise public order and public safety in the case where they are intended to be implemented in one of the activities referred to in sections I or II above:
12. R&D activities relating to critical technologies, the list of which is set out by the 2019 Order (i.e., cybersecurity, artificial intelligence, robotics, additive manufacturing, semiconductors, quantum technologies and energy storage);
13. R&D activities relating to dual-use items and technologies listed in Annex I to the EU Council Regulation No 428/2009 dated 5 May 2009.
Who is the decision-maker？
Foreign investments are subject to prior authorisation granted by the Minister of Economy.
Is filing or approval mandatory？
Yes. A foreign investor must mandatorily file an authorisation request if its contemplated investment falls within the scope of the provisions of the MFC, and await for such authorisation to be granted before implementing the contemplated transaction.
In the case where the contemplated investment involves one or several foreign investors of the same control chain, the request may be filed by any member of such control chain on behalf of all the investors who are members of that chain.
What are the assessment criteria？
The Minister of Economy assesses whether the investment affects French national interests. He must deny the authorisation based on a reasoned decision if he is of the view that the conditions that may be imposed will not be sufficient to preserve national interests. In this respect, the Minister of Economy may take into account the fact that the investor has connections with foreign government or public body.
The Minister of Economy may also deny the authorisation based on a reasoned decision if he is of the view that:
• There are strong reasons to suspect that the investor is likely to commit one of the following criminal offences (among others): drug trafficking, criminal exploitation of a person's weakness or ignorance, pimping (proxénétisme) and related crimes, acts of terrorism or financing of terrorism, corruption and influence peddling; or
• The investor has been finally sentenced for one of the abovementioned criminal offences or a similar criminal offence under the legislation of another state over the five years prior to the filing of the authorisation request; or
• The investor has been subject to a sanction based on non-compliance with foreign investment regulations (e.g., investment without prior authorisation, non-fulfilment of the conditions specified in the authorisation).
What does the review process look like？
Prior to making an investment, and in agreement with the entity performing the business activity subject to the contemplated investment, any foreign investor may seek the opinion of the Minister of Economy in order to assess whether all or part of its business activity falls within the scope of foreign investment regulations, in which case the opinion issued by the latter is sent to the entity performing the business activity subject to the contemplated investment. The Minister of Economy shall respond within two months from the request.
The foreign investor must seek approval from the Minister of Economy prior to completion of the transaction. An authorisation request has to be filed with the treasury department of the ministry in charge of economy. The Minister of Economy must be provided with information including (but not limited to) inter alia the identity of the investor (including name and address), its shareholders and corporate bodies, the entity or person ultimately controlling it and a description of the target and the contemplated transaction. The comprehensive list of the information to be provided in the application file is set out in the 2019 Order. Additional information may be requested by the Minister of Economy. The Minister of Economy makes a decision within the time period described in the section 'How long does the review process take' below.
Completion of the authorised transaction must be notified to the Minister of Economy by the foreign investor within two months following such completion. If the foreign investment is subject to a different approval process, for instance where an investment is sought in a regulated sector such as health, energy or aeronautics, the authorities in charge of this latter approval may in practice collaborate with the Minister of Economy to ensure the consistency of the two concomitant processes.
Finally, the Minister of Economy can resort to international cooperation in particular to verify the accuracy of the information provided by the foreign investor.
What are the powers of the competent authorities and can they prohibit or otherwise interfere with a transaction？
Pursuant to the provisions of the MFC, the Minister of Economy may either (i) authorise the investment, (ii) authorise the investment under certain conditions to be complied with, or (iii) refuse to grant its authorisation to the investment (such refusal must be reasoned).
Subject to compliance with the proportionality principle, the Minister of Economy has the authority to impose conditions in the authorisation to (i) ensure the continuity and the security on the national territory of the activities performed by the entity subject to the investment as well as the protection of the related information, (ii) maintain the knowledge and know-how of the entity subject to the investment and avoid any capture, (iii) adapt internal organisation and governance arrangements of the entity, as well as the performance of the rights acquired in such entity following the investment, and (iv) set the arrangements in relation to the information of the administrative authority in charge of control.
In this respect, the condition may consist in the transfer of a portion of the shares or all or part of a branch of activity performed by the entity subject to the investment to a third party approved by the Minister of Economy.
In the case where the authorisation contains conditions, it must identify, among the investors on behalf of which the authorisation has been requested, the investor or investors that are responsible for the compliance with such conditions.
In addition, the conditions provided in the authorisation may be reviewed on demand of the investor or by the Minister of Economy in certain specific cases referred to in article R. 151-9 of the MFC.
How long does the review process take？
The timeframe of the reviewing process is as follows:
· The Minister of Economy has a 30-business day period from the date of receipt of the authorisation request to inform the applicant either that (i) the investment does not fall within the scope of foreign investment regulations, (ii) the investment falls within the scope of foreign investment regulations but is authorised without any condition, or (iii) the investment falls within the scope of foreign investment regulations but an additional analysis must be performed to assess whether the protection of national interests may be ensured by the issuance of an authorisation with conditions. The authorisation is deemed rejected absent any response from the Minister of Economy at the expiry of such period.
The refusal or the granting of the authorisation (with conditions, as the case may be) must be issued within 45 business days from the date of receipt by the investor of the decision of the Minister of Economy referred to above. The authorisation is deemed rejected absent any response at the expiry of such period.
How much does the review process cost？
The process is not subject to any fee or charge due to the French authorities.
What is the degree of transparency？
The review process is not public and the authorities may be expressly asked to keep the information confidential.
However, the PACTE Law introduced several requirements in relation to the transparency of the authorisation process:
• Subject to the protection of national defence secret, the Minister of Economy must make available to the public on an annual basis the main statistical data relating to the Government's control of foreign investments in France in accordance with procedures ensuring the anonymity of the relevant individuals and legal persons;
• The Government must also provide the Parliament with an annual report on the Government's action to protect and promote the economic, industrial and scientific interests of the Nation, as well as on the control of foreign investments. The content of such report is described in Article L. 151-7 of the MFC. In any case, information allowing the identification of individuals and legal persons involved in the foreign investment control process may not be disclosed to the public.
What are the consequences of the lack of clearance？
If the foreign investor implements a transaction falling within the scope of the foreign investment regime without the required authorisation, the Minister of Economy may order the investor to (i) request an authorisation, (ii) restore the situation prevailing prior to the implementation of the transaction within a delay that cannot exceed twelve months, and/or (iii) modify the investment. Such order may be subject to a fine whose amount and date of entry into force are set out in the order, and cannot exceed EUR 50,000 per day.
(i) If the protection of public order, public safety or national defence is compromised or likely to be compromised, the Minister of Economy can take the following interim measures to remedy the situation promptly:
a) Suspend the foreign investor's voting rights in connection with the shares whose acquisition should have been authorised beforehand;
b) Prohibit or limit the distribution of dividends or any other revenues attaching to shares whose acquisition by the foreign investor should have been authorised beforehand;
c) Temporarily suspend, restrict or prohibit the free disposal of all or part of the assets related to the strategic activities carried out by the company subject to the foreign investment; and
d) Appoint a temporary representative (mandataire) within the company subject to the foreign investment to ensure the preservation of national interests.
(ii) Should the foreign investor not comply with the conditions set out in the authorisation, the Minister of Economy may:
a) Withdraw the authorisation (unless the investor restores the situation prevailing prior to the implementation of the transaction, he shall request a new authorisation), and/or
b) Order the foreign investor to comply with the condition(s) within a prescribed time period, and/or
c) Order the foreign investor to comply with an alternative condition within a prescribed time period (including unwinding the transaction or divesting all or part of the strategic activities carried out by the target company).
The order referred to in (ii) (b) and (c) may be subject to a fine whose amount and date of entry into force are set out in the order, and cannot exceed EUR 50,000 per day.
The decisions and orders referred to in (i) and (ii) above may be implemented once the investor has been put on notice to submit its comments within 15 days, unless in case of emergency, exceptional circumstances or imminent infringement of public order, public safety or national defence.
(iii) In the event where an investment has been made without the required prior authorisation or if such prior authorisation has been obtained by fraud, or in case of non-compliance with the conditions set out in the authorisation, or if the decisions or orders imposed to the foreign investor by the Minister of Economy are not complied with, the latter may impose a fine whose amount is the highest of the following:
a) Twice the amount of the (irregular) investment at stake;
b) 10 per cent of the annual turnover achieved by the target company;
c) EUR 5 million for legal persons or EUR 1 million for individuals.
The fine must be proportionate to the materiality of the breach.
Finally, any commitment, agreement, or contractual provision purporting to perform directly or indirectly a foreign investment falling within the scope of the foreign investment regime without due authorisation will be deemed null and void, and therefore unenforceable.
Is there a right to challenge？
The decision of the Minister of Economy denying authorisation of the investment or granting authorisation with conditions may be challenged before the French administrative court (tribunal administratif) within a two-month period following the notification of the decision, seeking its revocation.
Similarly, sanctions of the Minister of Economy can be challenged before the French administrative court (tribunal administratif).
Are any significant changes planned？
As the last modifications of the foreign investment control regime are quite recent, there are no significant changes planned in France.
[1] According to the List of screening mechanisms notified by Member States, dated 12 December 2019: Austria, Denmark, Finland, France, Germany, Hungary, Italy, Latvia, Lithuania, Netherlands, Poland, Portugal, Romania and Spain. The United Kingdom is technically no longer an EU Member State following its decision to exit the EU, although it remains subject to EU rules for a transitional period, which currently lasts until 31 December 2020. The UK does have a national screening mechanism, although there have been proposals to strengthen it.
