On 24 April 2020, the Irish Department of Business, Enterprise and Innovation (DBEI) opened a public consultation on Ireland’s implementation of EU Regulation 2019/452 which establishes a framework for the screening of foreign direct investments into the European Union (EU Regulation on Foreign Investment Screening). The deadline for response to the consultation is 22 May 2020.
While DBEI makes clear that any approach must balance Ireland’s continued attractiveness as a location for inward investment with the need to consider the introduction of a mechanism that takes account of national security considerations, the extent of any foreign investment screening regime is now a live issue. A range of policy options are under consideration. Crucially, the DBEI’s consultation document does not exclude the possibility of a mandatory notification regime, including the notification of acquisitions of non-controlling minority interests.
The EU Regulation on Foreign Investment Screening – which comes into effect on 11 October 2020 – establishes a framework for the screening of foreign direct investment in the EU and introduces a cooperation mechanism whereby the European Commission and the Member States can exchange information and raise specific national security concerns about potential investments in strategic European companies by foreign (ie, non-EU) companies, including foreign state-owned firms. While the EU Regulation does not require Member States such as Ireland to adopt an investment screening regime where they do not currently have one in place (noting that 14 Member States currently have a fully-fledged regime in place), the EU Regulation introduces a number of cooperation and reporting requirements that are to be fulfilled by a designated “National Contact Point” in each Member State, which has been confirmed to be the DBEI in Ireland. In this regard, it should also be noted that the European Commission has recently called upon Member States to remain vigilant to foreign direct investment by non-EU firms in the healthcare, medical research, biotechnology and infrastructure industries in particular in the context of the current Covid-19 crisis and issued guidelines on 25 March 2020 to aid Member State in the screening of such investments.
In considering the policy options available for transposing the EU Regulation, the DBEI has requested views on a range of considerations, notably:
- The extent of any reporting obligations on investors that may be introduced – namely, whether an investment screening mechanism should be limited to merely fulfilling Ireland’s cooperation and reporting obligations under the EU Regulation, or whether such mechanism should introduce voluntary or mandatory reporting obligations to the DBEI for certain types of investments that present national security risks and an ability to impose conditions or force an unwind;
- The nature, scale and type of investments that might be subject to such screening mechanism, in particular:
- The level of “control” or “significant influence” that could be reviewed under a screening mechanism (noting, for example, that the acquisition of 10% or more of the voting rights of companies active in certain sensitive and strategic sectors have been subject to mandatory notification in Germany since 2018); and
- The nature of the risk posed by the investment in view of the identity of both the acquiring entity and the target entity, including whether particular sectors, investments above particular monetary thresholds or investors from particular non-EU countries should automatically be caught by such a mechanism; and
- The powers of the Irish Minister for Business in assessing investments and sanctioning potential non-compliance – noting the possible establishment of an Investment Screening Board to inform and advise the Minister under any investment screening mechanism.
Overall, a key question will be whether the design of any investment screening mechanism will be as far-reaching as Ireland’s other mandatory “legitimate interest” regime – its media merger regime – which creates mandatory approval requirements for a broad range of media transactions. An issue of particular concern in the design of any process would be the timing implications and rights of appeal. In the media sector concerns are regularly raised by two adverse timing requirements in particular. First, the requirement to have received approvals from the relevant competition body, the Irish Competition and Consumer Protection Commission or the European Commission, before notifying the Irish Minister for Communications. Second, in the event a Phase II media review is opened, the Minister’s reliance on input from an ad hoc expert panel which is not permanently constituted and therefore takes time to be established and convened.
In short, the design of any investment screening mechanism that may be proposed is as yet unclear, as is its likely impact on the foreign direct investment environment in Ireland. The deadline for submissions to DBEI’s consultation is 22 May 2020.
This article was co-authored by Kate McKenna and Calum Warren of the EU, Competition and Regulatory Group at Matheson.