The Bureau Multicom 4 of the Ministry of Economy's (MoE) Treasury Department is responsible for FDI review in France. Though FDI screening remains mainly confidential in France, the MoE is working on making the process more transparent in order to increase predictability for foreign investors and had published guidelines in 2022. No major reforms of existing FDI screening laws and regulations are expected in the coming years.

Summary of major changes in 2023

• No major changes in the legislation. The MoE announced in late August that the scope of the FDI review will be extended to the extraction and processing of critical raw materials. In addition, French branches (or "succursales") of foreign companies will be expressly included in the scope of the review, while the current regime only captures legal entities. Those changes will be implemented in a decree expected to be published in Q1 2024
• As of October 2, 2023, the "Plateforme IEF" website was launched, which allows investors to submit all FDI applications and related materials through an electronic platform and to follow the step-by-step processing of their submission
• For the first time, the French MoE formally vetoed a projected acquisition by a US company of two French entities of the Canadian group Velan which manufactures and supplies valves to French nuclear and defense customers. Finally, French FDI authorities are taking a very active part with other EU FDI national counterparts and the European Commission in the coordination process based on EU Regulations 2019/452.
• In 2023, there was continued attention on investments related to public health activities, notably when they involve storage, treatment and transmission of sensitive data. Inbound investments in defense-related activities and in certain key French industries, such as nuclear, are subject to close monitoring by French FDI screening authorities. We anticipate that those trends will continue

Who files?

The foreign investor files a mandatory request for prior authorization, which includes information listed in the 2019 Ministerial Order, regarding the investor (including its structure, the composition of its board of directors, a list of its French and foreign competitors), the target (including a list of its French competitors and competitors operating in the EU), a list of its French clients, a list of intellectual property (patents, trademarks, licenses) held or used, and the investment (including the amount, the structure, the strategies).

Types of deals reviewed

The transactions captured by the French FDI screening rules include acquisitions by a foreign investor—a non-French investor or French investor not domiciled in France —of a direct or indirect controlling interest in a French entity, and/or the whole or part of a branch of activity of a French entity.

Acquisitions by a non-EU/EEA investor (acting alone or in concert with others) of more than 25 percent of voting rights of a French entity, whether made directly or indirectly, are also captured. Decree No. 2020-892 of 22 July 2020 lowered this voting rights threshold to 10 percent for investments in French listed companies. This measure is temporary and has been extended to December 31, 2023; the MoE is planning to keep this threshold on a permanent basis.

FDI review is triggered only where the target conducts sensitive activities, as listed in the French Monetary and Financial Code. They include the following sectors: defense and security, public health, big utilities and critical infrastructure (such as energy, telecoms, transportation, water supply), research and development in critical technologies, and activities relevant in terms of food security.

Scope of the review

The MoE review is mandatory and suspensory. Therefore, the parties must wait for the MoE decision in order to complete and implement the transaction.

The MoE examines whether the investment may distort public order, public safety or national security. Other ministries interested in the investment are consulted. The MoE may clear the transaction with conditions, such as continuity of supply of the sensitive activities, maintaining sufficient capacities and IP rights in France to keep supplying those activities, and/or duty to report to French authorities. In exceptional cases, the MoE may also impose the divestment of the sensitive activities.

Follow-up Q&As are customary. The guidelines formalize the possibility to hold informal exchanges with the ministry, both for the target and the investor, to clarify the purpose of the investment prior to the notification.

Any transaction that closes without the MoE's authorization is null and void. To remedy such a situation, the MoE can enjoin the investor to file for prior authorization. In case of a breach of FDI screening rules, the MoE has the power to take interim measures to suspend the investor's voting rights in the target; prohibit or limit the distribution of dividends to the foreign investor; temporarily suspend, restrict or prohibit the free disposal of all or part of the assets related to the sensitive activities carried out by the target; and appoint a temporary representative within the company to ensure the preservation of national interests.

The MoE may also impose financial sanctions of up to twice the value of the investment; 10 percent of the annual turnover of the target; or €1 million for natural persons or €5 million for legal entities. More generally, according to articles 458 and 459 of the French Customs Code, any infringement of FDI screening requirements may be subject to criminal penalties: up to five years imprisonment; confiscation of the property and assets; and a criminal fine.

The guidelines specify that the amount of the penalty will depend on the context and the behavior of the investor. The guidelines also provide that if the authorization is granted following omission or fraud, the MoE can withdraw its authorization at any time.

Following a conditional clearance, if an investor fails to comply with the commitments, the MoE can withdraw the clearance or oblige the investor to comply with the initial/new commitments. The sanctions listed above also apply.

Review process timeline

The MoE has 30 business days to indicate whether a transaction falls outside the scope of the review, is cleared unconditionally or requires further analysis. When further analysis is required and mitigating conditions are necessary, the MoE has an additional period of 45 business days to provide the investor with its final decision—either clearance with conditions or refusal of the investment. In practice, the process can last approximately three months. In the absence of a response from the MoE within the stated time limit, the application is deemed to be rejected.

Decree No. 2020-892 of 22 July 2020 introduced a fast-track procedure for investments from non-EU/EEA investors in French listed companies beyond a 10 per- cent threshold in voting rights. Unless the MoE objects, the authorization is deemed granted within ten days from the notification.

How foreign investors can protect themselves

Foreign investors must anticipate foreign investment control issues before planning and negotiating transactions. The responsibility for filing lies primarily on the buyer and, if the transaction reaches the thresholds, prior clearance by the MoE should be a condition of the transaction including a break-up fee or opt-out clause in case it is impossible to fulfill the demands of the MoE.

The guidelines specify that it is possible to seek a letter of comfort when the transaction is only an investment project if the parties prove their intentions to invest. In this case, the MoE has two months to respond.

Preliminary informal contacts with French authorities may also be advisable to determine the impact on the timeline. The seller's cooperation in the preparation and review of the filing remains important.

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