Following the EU FDI Regulation, Sweden may have to provide information on the relevant parties to a transaction to other Member States or the European Commission upon request
As of this writing, Sweden does not have a general FDI screening mechanism, and the Swedish Government largely takes a positive view of foreign companies investing in Swedish companies, as investment contributes to higher growth and employment. However, concerns have been raised that foreign ownership of sensitive infrastructure and technology in Sweden could pose harm to national security—increasingly so as a result of COVID-19.
In light of the current economic and financial situation in Sweden following the effects of the pandemic, more companies find themselves in need of capital. The desire for fresh capital has focused attention on the risks of an increase in foreign actors making investments in specific Swedish business sectors and strategic infrastructure, and gaining access to valuable technology and information in a way that may threaten Swedish security interests.
Over the course of 2020, new regulations and inquiries have been proposed by the Swedish Government as measures to meet the new EU Regulation and gradually tighten the screening of foreign investments. Although Sweden remains generally positive toward investments from non-Swedish companies, investors and companies operating certain activities may need to pay further attention to FDI regulatory issues when doing business in Sweden.
To implement the EU FDI Regulation, a new Act on Supplementary Provisions to the EU Regulation on Foreign Direct Investments (Swe. Kompletterande bestämmelser till EU:s förordning om utländska direktinvesteringar) has been proposed to take effect on November 1, 2020.
Advancements toward the introduction of rules that will allow for screening and blocking of foreign investments into security-sensitive infrastructure and technologies has been proposed to take effect in 2021.
As of today, the marginal supervision of FDI is limited to the provisions of the Protective Security Act (Sw. Säkerhetsskyddslagen) and the Protective Security Ordinance (Sw. Säkerhetsskyddsförordningen), together known as the Protective Security Regulation. The Protective Security Regulation protects "security-sensitive activities" —covering military, airport, energy, infrastructure and technology industries—of essential interest to national security. However, it is not an investment screening mechanism.
If an acquisition concerns a company operating a security-sensitive activity or handling security-sensitive information, the Protective Security Regulation requires the seller of a security-sensitive business to notify the Swedish Security Service (Sw. Säkerhetspolisen) or the Swedish Armed Forces (Sw. Försvarsmakten) of the transaction before the acquisition is completed. Importantly, the Act does not contain provisions allowing the foreign investment to be screened or prohibited.
TRENDS IN THE REVIEW PROCESS
The new Act on Supplementary Provisions to the EU FDI Screening Regulation implements the requirements of the EU FDI Screening Regulation into the Swedish system. The Act is not a screening mechanism; it does not provide an obligation to notify; and it does not empower the Swedish government to prohibit an investment. Nevertheless, following the EU FDI Regulation, Sweden may have to provide information on the relevant parties to a transaction to other Member States or the European Commission (EC) upon request. The Act will take effect on November 1, 2020.
The ISP (the Inspectorate of Strategic Products, Sw. Inspektionen för strategiska produkter) is designated as the contact point to accommodate requests for information from the EC and other EU Member States, and to submit an annual report on all FDI in Sweden to the EC.
According to the proposal (Prop. 2019/20:193), the ISP will have the power to request that the foreign investor, or the undertaking in which the foreign investment is planned or has been completed, provide a broad range of information, including the ownership structure, the value of the investment, business operations and funding. Information acquired by the ISP, although protected by the Secrecy Act (Sw. Sekretesslagen), may be forwarded to other Swedish authorities.
A request for information shall apply immediately and may be combined with a penalty of a fine for non-compliance (Sw. vite). A decision by the ISP to request information shall be subject to appeal to the administrative court (Sw. Allmän förvaltningsdomstol).
Two key initiatives were announced in late August 2020, giving a clear signal that the Swedish Government is now determined to introduce measures eventually leading to a general FDI screening mechanism.
- First, the Protective Security Act will be amended to allow for a screening of investments in security-sensitive activities that may harm Swedish security interests. According to the proposal, operators of security-sensitive activities subject to a transaction involving a foreign investment would be required, before the closing of the transaction, to conduct a security and suitability assessment and notify ("consult") the designated authority. The designated authority will have the power to impose remedies on the parties and, ultimately, to prohibit the transaction. This amendment is proposed to enter into force on January 1, 2021
- Second, the Swedish government has appointed a Committee of Inquiry to investigate and present a proposal for a general FDI screening mechanism. The deadline for this proposal is the end of 2021. Consequently, any general screening mechanism will likely be introduced in 2022
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