Control of foreign investment – proposals for new legislation – government, public sector
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Sweden is one of the few countries in the EU that lacks a regulation with the possibility for the state to take measures against, influence or simply review foreign direct investments that have or may be important for Swedish security interests. On 1 November 2021, the Direct Investment Inquiry presented a proposal to introduce such a regulation in Swedish law.
The proposal, if adopted by the Riksdag, will have consequences for transactions involving Swedish companies whose activities or technology are essential for Swedish security or public order. An obligation to report, a standstill obligation and a fine in the event of failure to report are proposed.
What is the scope of the legislation?
The law would apply to all investments in companies engaged in protected activities (Sw. protected activities), regardless of their legal form. The legislation is proposed to apply to investments in e.g. limited liability company (Sw. limited company), partnership (Sw. trading company), non-registered companies (Sw. simple companies), sole trader (Sw. private business), economic associations (Sw. economic association), foundations and foundations (Sw. foundations) domiciled in Sweden.
What investments can be reviewed?
Investments in companies that conduct protected activities that give the investor some control must be reported to the supervisory authority. Companies in which the investor invests must inform the investor that the company conducts protected activities and that the legislation is applicable to its activities.
In the case of investments in limited companies and economic associations, investments that lead to the investor receiving 10 percent or more of the votes must be announced before the investment is made. The investment can be made directly by a private person but also indirectly through a legal person owned solely by the investor or together with others.
What does “protected activity” include?
According to the investigation, protected activities include the following activities:
- Important services;
- Security sensitive activities;
- Business-critical for raw materials in the EU or metals and minerals critical for Sweden;
- Activities whose main purpose is the processing of sensitive personal data or location data;
- Activities related to emerging technologies and other strategically protected technologies; and
- Activities related to R & D or delivery or dual-use items or military equipment.
Which investors need to announce?
Investments from (i) investors from third countries, (ii) investors from another EU Member State and (iii) investors from Sweden may be subject to review by the National Inspectorate for Strategic Products (Sw. The Inspectorate for Strategic Products) (“ISP”), the proposed regulatory authority. If the investor is a natural person with only Swedish citizenship, the application should be rejected without further action, ie approved. The same applies if the legal person who makes the investment is ultimately owned or controlled only by a natural person with only Swedish citizenship.
Duty of cessation and process
An investment must be notified to the ISP by the investor. The investment may not be completed without permission from the authority. The ISP has the option to ban an investment.
The authority has 25 working days from the time a notification is submitted, to decide whether it should not take any further measures (permits) or to initiate an examination of the investment. If an examination is initiated, the authority must make a decision within three months, which can be extended to six months if there are special reasons.
During the review, the authority may request that the parties provide more information and documents and visit the premises.
What factors are relevant to the assessment?
Only if it is necessary with regard to Swedish security interests may the ISP prohibit an investment. Within the framework of this assessment, the nature and scope of the business must be taken into account as well as certain circumstances in relation to the investor. The following parameters related to the investor will be considered:
- Whether the investor, directly or indirectly, is controlled by the government of another country;
- If the investor has previously been involved in activities that have or may have a negative impact on Sweden’s security or public order; and
- Other circumstances surrounding the investor that may constitute a risk to Sweden’s security or public order.
Sanctions for non-compliance?
If an investment is made without notification or in violation of a decision, the authority may impose a fine. An administrative fine may also be imposed if the parties provide misleading or false information about the investor or the object of the investment. The management fee must be a minimum of SEK 25,000 and a maximum of SEK 50 million.
The content of this article is intended to provide general guidance on the subject. Specialist advice should be sought about your specific circumstances.
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