Eivind J. Vesterkjær and Trine Siri Dahl (Advokatfirmaet Thommessen AS) authored this publication

FDI screening is governed by chapter 10 of the Norwegian Act on National Security ("the Security Act"). In brief, a notification obligation applies only to certain transactions concerning businesses that have been placed under the scope of the Security Act by way of an administrative decision pursuant to sections 1 to 3 of the Security Act. In parallel with the screening system, sections 2 to 5 of the Security Act vests Norwegian authorities with the power to intervene in—and ultimately block—transactions concerning businesses which have not been made subject to the Security Act, if this is necessary to prevent a not insignificant risk to national security interests pursuant.

Summary of major changes in 2023

• A review of the Security Act was initiated in 2021. This resulted in a number of legislative amendments, which were adopted in June 2023. Entry into force is expected during the first half of 2024
• The amendments include expansion of the scope of businesses that may be made subject to the Security Act (including the rules on ownership control)
• An automatic filing obligation for acquisitions of businesses holding supplier clearance pursuant to the Security Act, if the triggering thresholds are met, was introduced
• The threshold for a transaction to trigger a filing from acquisition was amended
• Filing obligations are imposed on the seller and the target in parallel with the acquirer's filing obligation for certain transactions
• A standstill obligation and a prohibition against sharing information that may be used for security-threatening activities were introduced
• Sanctions in the form of administrative fines and criminal liability for certain infringements relating to the filing regime are also introduced

Who files?

Under the current regime, the filing obligation lies with the acquirer.

The filing shall be submitted to the ministry responsible for the sector in question or, if no ministry is responsible, to the National Security Authority.

Types of deals reviewed

To trigger a mandatory filing obligation under chapter 10 of the Norwegian Security Act, there must be an acquisition of a "qualified ownership interest" in a business that has been brought under the scope of the Security Act by way of an administrative decision. The fact that the target is active within a certain sector is not in itself sufficient for the filing regime.

Under the current regime, a qualified ownership interest is defined as the acquisition of one-third of the shares, interests or voting rights in the business or the acquisition of significant influence by other means.

Decisions to be brought within the scope of the Security Act shall be adopted for businesses that handle classified information; control information, information systems, objects, or infrastructure of vital importance for fundamental national functions or national security interests; or are engaged in activities of vital importance for fundamental national functions or national security interests.

Such decisions may also be adopted for businesses of significant importance for fundamental national functions or national security interests.

There is not a publicly available list over undertakings placed under the scope of the Security Act. Typically, or potentially relevant sectors include: defense; telecommunications; transport; energy; food and water supply; health; research and development; and advanced technology such as AI, Big Data or 5G cloud services.

Scope of the review

In the substantive assessment of a notified transaction, the relevant authority shall determine whether the acquisition "may entail a risk that is not insignificant that interests of national security will be threatened."

The criteria provide significant discretion in the authorities' review, but some guidance may be drawn from previous interventions pursuant to the Security Act.

In March 2021, there was a prohibition against the planned sale of Bergen Engines, an engine manufacturer for civil and military applications owned by Rolls-Royce, to TMH International, pursuant to the general intervention clause, sections 2 to 5 of the Security Act.

The Norwegian government found that the transaction would have provided TMH International insight into, and allowed the transfer of, the target company's technology, expertise, materials, real estate, customer portfolio and contracts. As the ultimate owners of THM International included individuals with ties to the Russian government, the acquisition could potentially have strengthened Russia's military capabilities and allowed for transfer of technology to Russia in violation of applicable sanctions policies.

In addition, the location of Bergen Engines, in a major port of strategic importance to Norway, reinforced the potential national security risk given the acquirer in question.

The conditions that were imposed entailed measures to prevent sensitive information concerning national security from being obtained by unauthorized persons, ensuring prior control of future changes in the ownership of the business, and imposing certain restrictions on the resale of shares.

Review process timeline

Case handling consists of an initial phase of 60 business days from filing and an in-depth phase without any formal timeline.

Within the initial 60-day period, commonly referred to as phase 1, the authorities must either approve the transaction or inform the acquirer that the matter will will be made by the King in Council—the government. In the latter stage—phase 2—there is no definitive timeline for the further review process.

If the authority has requested information within 50 working days from receipt of the notification, the 60-workingday deadline is suspended until the requested information is received by the authority.

Under the current regime, there is no standstill obligation, but such an obligation will be introduced when the 2023 amendments enter into force, likely during the first half of 2024.

How foreign investors can protect themselves

Prospective buyers should verify as early as possible the existence of a filing obligation, in other words, whether the target has received an administrative decision pursuant to sections 1 to 3 of the Norwegian Security Act that places it within the scope of the act.

Even where there is no mandatory filing obligation, a prospective buyer should consider whether Norwegian authorities may nevertheless want to investigate the transaction on the basis of the general intervention clause in sections 2 to 5 of the act, and where appropriate, may engage in an informal pre-filing dialogue with the relevant authorities.

It is also advisable to verify whether the target holds a supplier security clearance of Konfidensiell (confidential) or higher, issued by Norwegian authorities, since this can be an indication of the risk of an ex officio investigation. The existence of a security clearance will also be sufficient in itself to trigger a filing obligation when the 2023 amendments to the Security Act enter into force.

Another factor to consider is whether the overall deal timeline accounts for a potential filing process or ex officio review on national security grounds. While the standstill obligation introduced by the amendments adopted in 2023 is not expected to enter into force until spring 2024, it may be advisable to include Norwegian FDI clearance as a condition precedent to closing.

Transparency regarding the ownership structure of the prospective buyer is advisable both in connection with informal contacts with the authorities, to ensure that any guidance obtained at that stage is ultimately reliable; and in the filing itself, to ensure an efficient case handling and reduce the risk of an information request that suspends phase 1 or that the case is referred to phase 2.

Since conditional approval is a possible outcome of both chapter 10 filing processes and ex officio investigations on the basis of sections 2 to 5, prospective buyers should consider whether a potential security issue relating to Norway may be remedied, for example by divestment of the relevant part of the target business, termination of sensitive agreements, or other commitments, and the implications for any such remedies on the value of the target and the transaction rationale.

Moreover, following entry into force of the new and amended provisions of the Security Act, it is expected that due diligence processes will raise significant practical questions in the balancing of security considerations against an investor's request for information. The preparatory works of the amendment law suggest that pragmatic solutions, such as clean team access to sensitive information for external advisors or similar, may be possible measures to align these interests.

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